ANNUAL 2019٢٠١٩ REPORT · His Majesty Sultan Qaboos Bin Said (1940-2020) His Majesty Sultan Haitham Bin Tarik. 5 VISION INSURANCE SAOG ... • Shareholders’ Net worth strengthened

ANNUALREPORT 2019

www.insurevic.comPO Box: 1882, PC 114, Jibroo, Sultanate of OmanTel: +968 24853900, Fax: +968 24853999 | Email: [email protected]

٢٠١٩٢٠١٩www.insurevic.com ص.ب: ١٨٨٢, الرمز البريدي ١١٤, جبروه , سلطنة ُعمان

[email protected] : هاتف : ٢٤٨٥٣٩٠٠ ٩٦٨+ , فاكس : ٢٤٨٥٣٩٩٩ ٩٦٨+ | البريد االلكتروني

الـسـنـويالـسـنـويالـتـقـريـرالـتـقـريـر

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19٢٠١٩

His Majesty Sultan Qaboos Bin Said (1940-2020)

His Majesty Sultan Haitham Bin Tarik

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VISION INSURANCE SAOG

Table of Contents

Board of Directors .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Directors’ Report – 2019 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-9

Auditor’s Report on Corporate Governance .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Corporate Governance Report – 2019 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-20

Management Discussion And Analysis .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-23

Auditor’s Report on Financial Statement .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-30

Statement Of Comprehensive Income ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Statement Of Financial Position .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Statement Of Changes In Equity .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Statement Of Cash Flows .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Notes To The Financial Statements .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-66

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BOARD OF DIRECTORS

SENIOR MANAGEMENT

Ali Mohammed Juma Al Lawati

Chairman

Khalifa Saif Darwish Al Ketbi

Deputy Chairman

Bassam Adib Amin Chilmeran

Director

Ismail Ahmed Ibrahim Al Balushi

Director

Khalid Musabah Obaid Al Ghutraifi

Director

P R Ramakrishnan

Chief Executive Officer

Mujtaba Shaban

General Manager – Operations

Mustafa Ahmed Jaffer Al Lawati

Director

Subrata Kumar Mitra

Director

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ANNUAL REPORT 2019

DIRECTORS’ REPORT – 2019

Dear Shareholders:

I warmly welcome you to twelfth Annual General Meeting of the Shareholders and present to you the 12th Annual Report

together with the Audited Financial Statements of Vision Insurance SAOG for the year ended December 31, 2019. Strong

growth in realized Investment Income and valuation gains compensated for a subdued underwriting performance to yield

a Comprehensive Income for the year of RO 1.54 Million against RO 1,69 Million in 2018. Realised investment income

increased by 123% whilst Net Underwriting results before Expenses dropped by 18% to RO 3.77 Million. Profit Before Tax

for 2019 was RO 1.43 Million against RO 1.85 Million reported for 2018. Profit after Tax was RO 1.22 Million against RO 1.58

Million for 2018.

MACRO OVERVIEW

Reports suggest that growth in Oman’s real GDP in 2019 was constrained by the OPEC controls on oil production. The

diversification initiatives implemented by the Government however contributed positively resulting in a 1.5% growth in non-

hydrocarbon sector. The emphasis on promoting key sectors such as logistics, tourism, transport, mining, manufacturing,

and fisheries has helped counter the dependence on contribution from oil sector. Austerities in spending on major projects

and scale down in the number of foreign nationals have been the reasons for absence of growth in domestic demand.

Inflation is estimated to remain at around 0.8% in 2019.

Oman’s Budget for 2020 is expected to drive an accelerated growth rate of 3.7%. Increase in output of natural gas from new

field in Khazzan, Harweel and Yibal will contribute to the growth in GDP in 2020. The government’s continued emphasis

on diversification initiatives is expected to result in increasing the rate of growth in non-hydrocarbon to about 4% annually

in the medium-term. Growth in GDP and increase in consumer demand from increase in employment numbers of Omani

nationals will facilitate sustenance of overall business environment in the medium term.

All the six regional bourses except Oman posted positive performance during 2019 with returns in the range from 1% to 23%

. Oman however posted 7.92% negative performance during the year.

INSURANCE SECTOR REVIEW

Overall market premium increased by 5% over 2018, as per statistics published by Capital Market Authority for 2019 driven

by 9% growth in Medical insurance. In view of limited growth opportunities in Non-Motor segment, companies turned

the focus to Motor business to seek growth leading to further rate softening. Increased incidence of losses from natural

catastrophes both globally and in Oman and the region have caused extreme hardening of reinsurance markets. There has

been a flight of capital out of leading reinsurance markets and scale down of allocation of capital to the region impacting on

insurance capacity for Omani risks.

Barring unforeseen catastrophic losses, the growth outlook at the macro level should drive the sector growth in 2020.

FINANCIAL HIGHLIGHTS

The financial highlights presented below are based on application of IFRS 15 in the presentation of financial statements.

Main Financial highlights based on results reported for 2019 and 2018 are as presented below:

• Profit After Tax of RO 1.22 Million, against RO 1.58 Million in 2018 due to 18% drop in Underwriting results. Termination

of loss making accounts and controlled underwriting at branches in the face of softening of market rates led to drop in

earned premium in Motor that impacted on the underwriting results. These measures will boost the results for 2020.

Underwriting results were also impacted by lower income in Engineering portfolio due to non-recurrence of projects.

• Gross Written Premium dropped to RO 25.6 Million, by 7% over RO 27.5 Million in 2018.

• Net Earned Premium of RO 8.29 Million, against RO 9.11 Million in 2018 for reasons as explained above.

• General and Administration expenses was controlled at RO 3.39 Million against RO 3.29 Million in 2018

• Realised Investment Income was higher by RO 549K or 123% over 2018. These were in the main attributable to market

gains from Saudi Arabia(7.19%), Kuwait(23.68%) and Dubai(9.29%). Comprehensive Income achieved was RO 1.54

Million against RO 1.69 Million in 2018 due to higher valuation gains at the yearend over that at the end of 2018.

• Shareholders’ Net worth strengthened to RO 14.77 Million, growth of 6% over RO 13.98 Million at end of 2018

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In summary, despite the macro and sector challenges, the profitable performance has been sustained in 2019.

PROPOSED DIVIDEND

Based on the retained earnings at December 31, 2019, your Board of Directors has proposed Cash Dividend at the rate of

8% of the Paid-Up Share Capital for the year 2019.

Shareholders will receive Cash Dividend of OMR 0.008 Baizas per Ordinary Share of 100 Baizas each aggregating to OMR

800,000 (Rials Omani Eight Hundred Thousand Only) on the Company’s Paid-Up Share Capital of RO 10 Million.

OUTLOOK FOR 2020

Oman’s economic growth rate for 2020 is projected at 3.7%. The initiatives such as enhanced the role of private sector in

economic development, public-private partnerships (PPP), boost to Small and Medium Enterprises (SMEs), emphasis on

job creation for Omani nationals, enactment of new laws to attract foreign capital investments are expected to support the

growth targets set for 2020.

Progressive measures implemented such as rationalization of Motor portfolio, enhancement of IT capabilities through

online portals, improvements to software applications for faster turn around to clients, enhancement of security standards,

increase in branch network have been implemented to restore the Underwriting results of the company in line with past

trend. Total number of branches at 31 December 2019 increased to 16 from 15 in 2018.

CORPORATE GOVERNANCE

The Board is committed to complying with the requirements of Code of Corporate Governance for public listed Companies

formulated by Capital Market Authority in December 2015. A separate report on the status of implementation of various

requirements under The Code is enclosed together with the related report of the External Auditors.

ACKNOWLEDGEMENTS:

We express our sense of deep sorrow at the sad demise of beloved father of our nation, the late His Majesty Sultan Qaboos

bin Said. May Allah the most merciful grant eternal Peace to the departed Soul.

On behalf of all Board Members, the Management and employees of the Company, I express our profound sense of respect,

admiration and gratitude to His Majesty Sultan Haitham Bin Tarik for ensuring seamless transition and sustaining the

visionary leadership for continued stability, growth and prosperity for Oman and the people of Oman. We remain thankful

to Capital Market Authority and other regulatory authorities for their support. We greatly value the confidence and support

extended to the Company by all our clients and business partners that has been critical to our profitable results in 2019

and we sincerely thank them all. All the Members of the Board of Directors join me in conveying our appreciation to the

Management and staff of the Company for their dedication and commitment that has ensured the continued profitable

performance of the Company.

We take this opportunity to thank and reaffirm our commitment to our Shareholders. We look ahead with a great sense of

pride and self-esteem and reaffirm our commitment to His Majesty Sultan Haitham Bin Tarik to work with dedication for

the growth and prosperity of our beloved Oman

Ali Mohammed Juma Al Lawati

Chairman

February 23, 2020

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ANNUAL REPORT 2019

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CORPORATE GOVERNANCE REPORT – 2019

Corporate Governance is a means to ensure minimum standards in Operation and Management of business by requiring

business entities to have in place the key elements of good policies, efficient processes and professionally competent

people for the successful running of the business entity and to provide to the regulators, shareholders and other business

partners, the comfort of transparency, professionalism, fairness in dealings, reliability and trustworthiness in all their

respective dealings with the business entity.

Vision Insurance SAOG (VIC) (‘the Company”) has adopted the principles of Corporate Governance in accordance with

the code of Corporate Governance legislations regulating the Public Joint Stock Companies listed on Muscat Securities

Market (MSM). The Board of Directors (Board) and Management of the Company are also committed to implementing the

requirements and standards stipulated in the Code of Corporate Governance for Insurance Companies issued by Capital

Market Authority. The Company is fully compliant with these requirements and this Report presents the details of how the

Company achieves compliance with these principles and regulatory requirements.

Company’s Philosophy

The Board of Directors and Management of the Company fully understand and respect the true spirit in the promulgation of

Corporate Governance Rules as intended to promote ethical values and professional practices in the conduct of the business.

The Company’s philosophy is based on the core values of transparency, integrity, professionalism and accountability in its

interactions with the regulators, stakeholders and business partners.

In implementation of the intent to direct the Company based on best practices, the Board has ensured formulation of policies,

operating manuals, procedures and controls spanning all functional areas. The Board also discusses Business strategy,

reviews performance and provides broad direction to the Management. The Management presents to the Board comprehensive

financial analysis and information to facilitate detailed evaluation, discussion and decision on all corporate matters.

Commensurate with the profile and scale of the Company, the Board has also constituted the following sub-committees, viz.

⇒ Audit Committee to advise the Board in matters relating to internal controls, policies, procedures, financial

performance

⇒ Nomination & Remuneration Committee to oversee nomination of competent members to the Board, induction and

retention of high caliber Executive Management Team and

⇒ Investment Committee to provide support in prudent Investment Management.

To ensure governance by the Board independent of the Management, all Members on the Board of Directors are Non-

Executive and possess strong credentials relevant to the operations of the Company. The Board also enlists the support of

experts or consultants for any matter where independent review by specialist consultants is felt warranted. Discussions

amongst the Board members are conducted objectively in a spirit of openness and decisions are made collectively based

on consensus opinion.

In accordance with the directives issued by the Capital Market Authority (CMA), performance of the Board of Directors is

evaluated by an independent professional firm once every three years. Such an evaluation was last performed in 2018. The

Report confirmed the satisfactory performance of the Board of Directors and there are no adverse or exception comments

in the report. The next review is due in 2021.

The operations of the Company are independently managed by the team of Management within the framework of overall

guidelines, policies and procedures approved by the Board without any interference from the Board Members in the

decisions connected with the Company’s operations. The Board has implemented policies, procedures and work culture to

support recruitment and retention of high caliber professionals in key positions and a committed and contented employee

group across the Company.

Board of Directors

The composition and responsibilities of Board of directors are in compliance with all applicable laws and regulation in

Oman, including Commercial companies law as amended, Insurance Companies law (12/79) as amended, executive

regulation article No 5 of the code of Corporate Governance regulation for Insurance Companies issued by circular No

(7/T/2005) dated August 01, 2005 and second principle of code of Corporate Governance for public listed Companies issued

in December 2015.

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ANNUAL REPORT 2019

Composition and category of Board of Directors

The Board of Directors of the Company was elected at the Shareholders’ Meeting held on March 26, 2019. The Board is due

for re-election of members in March 2022. The Board is comprised of 7 Directors including 3 independent Directors. The

details of the directors are as follows:

Sr.

No.Director Name Position Date of Election

Executive/

Non-Executive

Independent/

Non-Independent

1 Ali Mohammed Juma Al Lawati Chairman March 26,2019Non-Executive

DirectorNon -Independent

2 Khalifa Saif Darwish Ahmed Al KetbiDeputy

ChairmanMarch 26,2019

Non-Executive

DirectorNon-Independent

3 Mustafa Ahmed Jaffer Al Lawati Director March 26,2019 Non-Executive

DirectorNon-Independent

4 Ismail Ahmed Ibrahim Al Balushi Director March 26,2019 Non-Executive

DirectorIndependent

5 Bassam Adib Amin Chilmeran Director March 26,2019

Non-Executive

Director Non-Independent

6Khalid Musabah Obaid Al Ghutraifi

Director March 26,2019 Non-Executive

DirectorIndependent

7 Subrata Kumar Mitra Director March 26,2019 Non-Executive

DirectorIndependent

Number and dates of Board Meetings held, attendance of each Director in Board Meetings and last Annual General Meeting

During the year the Board met 7 times. The details of the dates and attendance of each Director in the Board meeting were

as presented below:

Name

February

20, 2019

February

23, 2019

March 26,

2019

April 21,

2019

July 27,

2019

October 28,

2019

December

19, 2019

Ali Mohammed Juma Al

Lawati Yes Yes Yes Yes Yes Yes Yes

Khalifa Saif Darwish Ahmed

Al KetbiNo No No Yes Yes No Yes

Mustafa Ahmed Jaffer Al

LawatiYes Proxy No Yes No Yes

Yes

Ismail Ahmed Ibrahim Al

BalushiYes Yes Yes Yes Yes Yes Yes

Bassam Adib Amin Chilmeran Yes No Yes No Yes Yes No

Khalid Musabah Obaid Al

Ghutraifi

(Appointed on March 26, 2019

in AGM)

- - Yes Yes Yes Yes Yes

Subrata Kumar Mitra

(Appointed on March 26, 2019

in AGM)

- - Yes Yes Yes Yes Yes

Deepak Atal (upto March 26,

2019)Yes No - - - - -

Vikas Dixit (upto March 26,

2019)No Yes - - - - -

Yes = Present; No = Absent;

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Attendance in the AGM held on March 26,2019

Ali

Mohammed

Juma Al

Lawati

Khalifa Saif

Darwish

Ahmed Al

Ketbi

Mustafa

Ahmed Jaffer

Al Lawati

Ismail

Ahmed

Ibrahim Al

Balushi

Bassam

Adib Amin

Chilmeran

Deepak

Atal

Vikas

Dixit

AGM dated March

26, 2019Yes No No Yes Yes No Yes

• Deepak Atal and Vikas Dixit were not re-elected in the AGM held on March 26, 2019.

Profile of the Board of Directors, other Company Chairmanship, Directorship and Committee Membership of Members

Sr.

No.

Name Profile in Brief Details of other Joint Stock

Companies with participation

as Board or Committee

Member

Position

1 Ali Mohammed Juma Al

Lawati, Chairman

BS in Mathematics

MBA from London Business School

Over 26 years expertise as business

promoter, strategic investor, asset

management with accreditations from

leading institution

Co-founder and CEO of Vision

Investment Services

Al Hassan Engineering Co

SAOG

Vision Investment Services

SAOC

Oman Development Bank SAOC

Muscat Securities Market

Chairman

Director

Director

Director

2 Khalifa Saif Darwish

Ahmed Al Ketbi, Deputy

Chairman

Bachelor’s degree in Business

Management from Marylhurst, United

States of America


SAOC

Chairman

3 Mustafa Ahmed Jaffer

Al Lawati, Director

Graduate in Finance

Over 26 years’ experience in Finance,

Insurance and Investments with leading

establishments such as Petroleum

Development of Oman

Co-founder of Vision Investment

Services SAOC, key strategist and fund

manager for Vision Funds


SAOC

Vision Asset Management Co

SAOC

Director

Chairman

4 Ismail Ahmed Ibrahim

Al Balushi, Director

PHD in Islamic Banking from Mohamad

Al Awal University, Morocco, 2018

Master’s degree in Common Law from

Juba University, Sudan 2006

Graduate in Law, Beirut University,

Lebanon 1997

Leadership programme from IMD,

Luzane 2011

Over 26 year’s experience in key

positions in regulatory bodies and

economy including Head of Legal at

Ministry of Commerce & Industry,

Vice President of CMA and now Chief

Executive in special economy Zone of

Duqm.

Oman Education and Training

Investment Company SAOG

Global Finance Holding SAOG

Director

Director

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ANNUAL REPORT 2019

Sr.

No.

Name Profile in Brief Details of other Joint Stock

Companies with participation

as Board or Committee

Member

Position

5 Bassam Adib Amin

Chilmeran, Director

MBA in Business Administration,

Bachelor’s degree in Economics, ACII

(London)

29 years in lead management

positions in insurance and reinsurance

companies

No other current directorships

6 Khalid Musabah Obaid

Al Ghutraifi,

Director

Master’s in Policy

Bachelor’s degree in Accounts

Higher diploma in English

Al Maha Ceramics SAOG

Al Kamil Power CO SAOG

Director

Director

7 Subrata Kumar Mitra,

Director

· Master of Science (Risk Management),

NYU Stern School of Business, USA

· MBA (Finance), IBA, Dhaka University

· Master of Commerce (Accounting),

Dhaka University

· Over 20 years’ experience in private

equity investment of over US$ 1 Billion

(MENA and Asia) and multi asset

investment strategies (global).

A’ Sharqiyah Investment

Holding Co. SAOG

Director

Committees of the Board

Audit Committee

The Audit Committee was reconstituted on March 26, 2019 with three Directors. Subsequently Mr. Khalid Musabah Al

Ghutraifi has resigned from the Committee on April 21, 2019 and he was replaced by Mr. Subrata Kumar Mitra in the

Committee. Members are qualified and knowledgeable in investment and insurance related matters. The composition

of the Audit Committee, names of Members and Chairperson, details of Meetings held and Members’ attendance in the

Meeting were as tabulated below:

Name Position Attendance in Committee Meetings

19/02/2019 23/02/2019 21/4/2019 28/7/2019 27/10/2019 18/12/2019

Ismail Ahmed

Ibrahim Al Balushi Chairman Yes Yes Yes Yes Yes Yes

Bassam Adib Amin

ChilmeranMember Yes No No Yes Yes No

Vikas Dixit (upto

26/3/19)Member No Yes - - - -

Khalid Musabah

Obaid Al Ghutraifi

(from 26/3/2019 to

21/4/2019)

Member - - Yes - - -

Subrata Kumar Mitra

(from 21/4/2019) Member - - - Yes Yes Yes

Yes = Present; No = Absent

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The functions of the Audit Committee are as set out in the Code of Corporate Governance for listed Companies and include

the following activities conducted by the Committee members during the year.

a. Reviewing Financial Reporting system, internal control system and control procedures.

b. Review Risk Management guidelines and policies

c. Ensure compliance with the regulatory guidelines.

d. Meeting with the Internal Auditors and reviewing the internal audit plans and procedures and techniques.

e. Recommend to the Board of Directors regarding the appointment of statutory auditors and terms of their appointment

f. Meeting the External Auditors and discussed the detailed external audit plan.

g. Reviewing the monthly, quarterly and Annual Financial results of the Company before submission to the Board for

review and approval.

h. Review findings and reports of both Statutory Auditor and Internal Auditor and ensure implementation of

recommendations where necessary

i. Monitoring the related parties’ transactions to ensure they are normal transaction entered in the ordinary course of

business and conducted at arm’s length.

Nomination and Remuneration Committee

Board constituted a Nomination and Remuneration Committee on March 26, 2019 consisting of the following members of

Board of Directors to comply with the requirements of Code of Corporate Governance for public Joint Stock Companies.

Mr. Mustafa Ahmed Jaffer Al Lawati, - Chairman

Mr. Bassam Adib Amin Chilmeran - Member

Mr. Khalid Musabah Al Ghutraifi - Member

The terms of reference of the Nomination and Remuneration Committee includes making recommendations to the Board

about appointment and remuneration of Board members and executive management personnel, providing succession

plans and policy for the Board and for Executive management, review the remuneration structure and incentive policies,

of Board and Executive management, The terms of reference of the Nomination and Remuneration committee have been

approved by the Board.

The Committee met twice during the year ended December 31, 2019.

Investment Committee

This Committee consists of three Directors. All Members of the Committee are knowledgeable in Investment matters. The

Committee was reconstituted in the Board Meeting of March 26, 2019 with the following Non-Executive Directors.

Mr. Ali Mohammed Juma Al Lawati - Chairman

Mr. Khalifa Saif Darwish Ahmed Al Ketbi - Member

Mr. Khalid Musabah Al Ghutraifi - Member

The terms of reference for this Committee includes formulating the Investment Policy for the Company, ongoing review

of investments and present their recommendations to the Board, evaluating the profiles and appointing fund managers

for management of the investment portfolio, evaluate the performance of portfolio managers, ensure active and prudent

management of the Company’s investment portfolio to minimize risks and optimize returns.

The Committee Members met three times during the year.

Process of Nomination of Directors

The Articles of Association of the Company provides for seven Directors. Election process of the Board of Directors

of the Company has been carried out in accordance with the rules set out in the Commercial Company’s Law, Capital

Market Authority guidelines and the Company’s Articles of Association. As a process, the Board will be guided by the

recommendations of the Nomination and Remuneration Committee in inducting competent incumbents to the Board. The

right to nominate for Board Membership at every Board election is available to all the shareholders. The election and

induction process is intended to ensure the Board is comprised of responsible, respectable and professional personalities

who can add value to the Company through their participation in the Board of Directors.

16

ANNUAL REPORT 2019

Remuneration to Board of Directors

The scale of Sitting Fees for attending the Board and other Committee meetings as approved by the Shareholders at the

AGM held on March 26, 2019 is as follows:

RO 500/- per Chairman and per Member for attendance at Board Meeting.

RO 500/- per Chairman and per Member for attendance at other Committee Meeting of the Board.

Remuneration to the Board of Directors paid and proposed for the year 2019 are as follows:

Board and Audit Committee attendance fees paid during the Year 2019 RO 31,000

Proposed Directors remuneration to be approved by the Shareholders in the AGM (scheduled on

March 26, 2020) as per law. RO 19,000

Total RO 50,000

Profile of Core Management team and Remuneration paid to top 5 Executives

Company has core team of highly qualified and experienced professionals who drive the critical operations of the Company.

The core Management team has been with the Company for over five years with most members remaining with the Company

since inception.

P R Ramakrishnan, ACA, CPA, Grad. CWA

Chief Executive Officer

Ram is a Chartered Accountant, Cost Accountant and Certified Public Accountant from Texas, USA with a career experience

spanning 37 years in Company Management, insurance and reinsurance operations, consulting, corporate finance,

investment management with particular track record of successful start-up and turn-around management in Oman

insurance sector. With over 34 years in key positions in leading insurance companies in Oman, Ram is highly respected

for his expert abilities in underwriting, reinsurance and claims management across all lines of business. Ram was also a

Board member on some leading Corporates in Oman.

Mujtaba Shaban, Diploma in Finance (IFA)

General Manager – Operations & Corporate Affairs

Mujtaba studied Diploma in Finance from United Kingdom and has over 32 years work experience. He has a combination of

insurance and industrial exposure having held middle and senior management positions in insurance and manufacturing

sector. As a key member of Vision Insurance executive management, Mujtaba oversees personal lines, branch network,

motor claims, human resources, legal & corporate affairs.

M R Natarajan, ACA, FIII

General Manager – Non Life

A qualified Chartered Accountant and Fellow of Insurance Institute of India, with over 38 years’ experience in Insurance

Industry. Held positions of Senior Divisional Manager at United India Insurance, AGM (Tech& RI) at Vision & GM, Assarain

Insurance Services. Possess vast & varied experience across all lines of General Insurance Business in all spheres

Underwriting, Claims, Reinsurance & Marketing. Serviced major risks in different sectors like Oil & Gas, Petrochemicals,

Steel, Edible Oil, Cement, Explosives, Glass, Sugar, Plantations, Textiles, Chemical, Logistics & Transportation (including

Aviation & Shipping), Warehousing and Agriculture based operations.

Nagarajan Ranganathan, MIAE, MBA, MLM, ACII, FIII

Senior Vice President – Life

Nagarajan is a Chartered Insurer, qualified Automobile Engineer with a Master’s in Business Administration and Labor

Management. He was one of the founder members of the largest private insurance company in India and worked with them

for 13 years in various capacities that included underwriting, claims and risk management. Nagarajan has over 24 years’

experience and he head the Life and health vertical at Vision Insurance and is responsible for business development.

17


Pabitra Sarkar, M. Com, FCA

Vice President- Finance

A qualified Chartered Accountant with over 26 years’ experience in managing the finance function in a leading public-sector

life insurer in India, Pabitra’ s proficiency with fund management, receivables management and financial reporting provides

Vision Insurance the assurance of a strong management of finance and accounting functions.

Suresh Lakshminarayan, BE in Machine Tools and Diploma in Mech Engineering

General Manager- IS & digital Transformation

Suresh brings to Vision over 29 years of experience in developing and implementing digital, ERP/CRM, e-commerce and IT

strategies, sales and supply chain logistics across global organizations. His experience in financial services sector included

leading the digital transformation for banks, steering the development of the multi-channel, multi-payment architecture.

Suresh will be responsible for developing a new IT & digital strategy as a key driver of Vision Insurance’s future growth

aspirations, while rationalizing technology solutions and enhancing efficiency of delivery across the organization.

Ms. Hadia Al Hadhrami, MBA, ACII

Senior Manager – Compliance

Hadia is an MBA from University of Bedfordshire & has completed the Advanced Diploma in Insurance of the Chartered

Insurance Institute, London. She has over 17 years’ experience which includes 9 years in underwriting specially in personal

lines & commercial products, 7 years in human resources & training and 2 years in Compliance.

Jamal Naser Al Habsi

Senior Manager – Retail & Branches

Jamal holds diploma in Insurance from Technical College, Oman and national diploma holder in Information technology

from Sultan Qaboos University. Jamal brings 23 years of overall experience in insurance sector in Oman with specialization

in motor underwriting and motor claims during working under various capacities with reputed Insurance Companies.

Samia Masoud AL Obeidani

Senior Manager – Human Resources & Administration

She is bachelor’s in business administration from University of Bedfordshire UK) and CIPD Diploma level 5 in HR

Management, UK. She has over 17 years of work experience in Human resource and administrations.

Ali Al Toobi

Manager -Motor Claims

Ali Al Toobi Holds Advanced Diploma in Insurance of the Chartered Insurance Institute (ACII) from London. He is having over

24 years of working experience in Motor underwriting and Motor claims dept.

Mahmood Ali Rustam

Internal Audit Manager

Mahmood is ACCA from UK and diploma in Advance Banking studies from Bahrain. He worked with E&Y Bahrain for over 5

years before joining Vision. He has over seven years of working experience in audit and finance.

Management Remuneration

As at December 31, 2019 the Company employed 166 full time employees. Basic salaries and allowances incurred for 2019

relating to the top 5 officers of the Company was RO 449,301/-(OMR 430,489/- in 2018). Expatriate employees are employed

on two-year employment contracts renewable on mutually acceptable terms on expiry. Notice period for all senior officials

of the Company is 3 months or salary in lieu thereof.

Details of Non-Compliance, if any by the Company

The Company has complied in all material respects with the provisions of Corporate Governance regulations during the

Year 2019.

18

ANNUAL REPORT 2019

Channels of communication with shareholders and investors

The Company has extended due transparency in its communications with shareholders and investors. Requests for

clarifications have been promptly responded to. Since becoming a public joint stock company, communication of key

financial results and disclosure of other material matters to shareholders and investors as required by CMA directives have

been achieved in the following ways:

a. Uploading key quarterly and annual financial results on the Muscat Securities Market (MSM) website.

b. Prompt reporting of material decisions taken at Board Meetings to the MSM

c. Publication of quarterly, half yearly and annual audited financials in local Arabic and English newspapers.

d. Mailing full set of annual audited financial statements together with related reports such as Directors’ Report and

Management Discussion and Analysis to shareholders through regular mail of Oman Postal Service

e. Sending notice of OGM and AGM to Shareholders through Oman post and publication in local Arabic and English

newspapers.

f. Presentations to Investors and analysts and responding to questions at such investor and analyst meets

g. Uploading key quarterly and annual financial results and other major news items on the website of the Company

www.insurevic.com for viewing by shareholders and investors.

Share Market price data 2019

Highest and Lowest Share Price during each month of 2019:

Company’s equity shares commenced trading in the MSM from August 23, 2017. Highest/Lowest Share price during each

month in 2019 and its performance as compared to the MSM index are shown in the table below;

Month – 2019 VIC’s market price (RO) MSM 30 Index MSM Financial Index

High Low High Low High Low

January 0.135 0.135 4,336 4,156 6,938 6,696

February 0.136 0.136 4,182 4,049 6,715 6,543

March 0.125 0.125 4,174 3,984 6,874 6,538

April 0.125 0.113 4,016 3,928 6,548 6,286

May 0.108 0.108 3,973 3,826 6,387 6,239

June 0.116 0.100 3,993 3,874 6,397 6,253

July 0.110 0.104 3,889 3,745 6,295 6,082

August 0.118 0.110 4,005 3,760 6,605 6,108

September 0.118 0.110 4,035 3,948 6,607 6,450

October 0.114 0.100 4,046 3,982 6,606 6,443

November 0.113 0.108 4,098 4,000 6,563 6,422

December 0.110 0.100 4,078 3,866 6,455 6,100

Source: MSM Monthly Bulletin (msm.gov.om)

19


Distribution of shareholding as on December 31, 2019

CategoryDistribution of Shares Number of

shares

No of

shareholders

Percentage of

shares%Minimum Maximum

1 1 100,000 4,178,564 289 4%

2 100,001 200,000 853,366 6 1%

3 200,001 500,000 4,168,342 12 4%

4 500,001 1,000,000 1,663,279 2 2%

5 1,000,001 2,000,001 8,160,756 5 8%

6 2,000,001 5,000,000 7,058,355 2 7%

7 Over 5,000,001 73,917,338 6 74%

Total 100,000,000 322 100%

Distribution of shareholding as on December 31, 2018

CategoryDistribution of Shares Number of

shares

No of

shareholders

Percentage of

shares% Minimum Maximum

1 1 100,000 4,912,434 323 5%

2 100,001 200,000 767,224 5 1%

3 200,001 500,000 3,810,465 10 4%

4 500,001 1,000,000 1,513,279 2 2%

5 1,000,001 2,000,001 10,921,440 7 11%

6 2,000,001 5,000,000 - 0 0%

7 Over 5,000,001 78,075,158 7 78%

Total 100,000,000 354 100%

Profile of Statutory Auditors

EY is a global leader in assurance, tax, transaction and advisory services. EY is committed to doing its part in building a

better working world. The insights and quality services which EY delivers help build trust and confidence in the capital

markets and in economies the world over.

The MENA practice of EY has been operating in the region since 1923 and employs over 7,000 professionals. EY has been

operating in Oman since 1974 and is a leading professional services firm in the country. EY MENA forms part of EY’s

EMEIA practice, with over 4,889 partners and approximately 124,318 professionals. Globally, EY operates in more than 150

countries and employs 328,597 professionals in 700 offices. Please visit ey.com for more information about EY.

During 2019, E&Y billed RO 11,000 (2018- RO 8,500) towards professional services rendered to the Company including audit

fees.

20

ANNUAL REPORT 2019

Confirmation by Board of Directors

The Board of Directors reaffirms their commitment to conducting business in a thoroughly professional manner and

to ensure full compliance with all relevant regulatory requirements. Necessary Policies and Controls have been put in

place towards meeting with these expectations. The Board of Directors also confirms that the statements and disclosures

recorded in this Report are correct in all material respects.

On behalf of the Board of Directors

Ali Mohammed Juma Al Lawati P R Ramakrishnan

Chairman Director Chief Executive Officer

February 23, 2020

21


MANAGEMENT DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2019

Global Economic Environment

According to the World Economic Outlook report published by International Monetary Fund, global growth is projected to rise

from estimated 2.9% in 2019 to 3.3% in 2020 and 3.4% in 2021. Signs of bottoming out of manufacturing activity and global

trade, incremental favourable news about narrowing gaps in trade negotiation between US and China are indicators of a

welcome boost to the market sentiments. However, the threat of deadly coronavirus spreading beyond china and turning

pandemic may stall the global growth rate in coming months. In GCC region, buoyant oil price in the last quarter of 2019 of

around US$ 68 helped the regional financial markets. Oil’s performance in 2019 was its best since 2016, with Brent and WTI

posting annual gains of 23% and 35%, respectively. However, oil markets are now bracing for a demand shock due to the

impact of Coronavirus epidemic.

On a sectorial note, back to back unprecedented Catastrophic events in years 2017 and 2018 has affected the global reinsurance

markets. The overall economic impact from cyclone in US and Japan, bushfire in US and earthquakes has resulted in significant

hardening of reinsurance price for major non-motor lines of business in 2019. Globally as also within the region, there has

been a scale back in reinsurance capacity following decisions by some reinsurers to cease writing business. These trends are

expected to carry through into 2020 and the foreseeable future.

Oman economy:

Reports suggest that growth in Oman’s real GDP in 2019 was constrained by the OPEC controls on oil production. The budget

deficit in 2019 was estimated at RO 2.5 Billion (8.3% of GDP), down from RO 2.6 Billion (8.7% of GDP) in 2018. The diversification

initiatives implemented by the Government however contributed positively resulting in a 1.5% growth in non-hydrocarbon

sector. The emphasis on promoting key sectors such as logistics, tourism, transport, mining, manufacturing, and fisheries

has helped counter the dependence on contribution from oil sector. Austerities in spending on major projects and scale down

in the number of foreign nationals have been the reasons for absence of growth in domestic demand. Inflation is estimated to

remain at around 0.8% in 2019.

Oman’s Budget for 2020 is expected to drive an accelerated growth rate of 3.7%. Increase in output of natural gas from new

field in Khazzan, Harweel and Yibal will contribute to the growth in GDP in 2020. Budget is based on oil price of US$ 58/barrel.

The government’s continued emphasis on diversification initiatives is expected to result in increasing the rate of growth in

non-hydrocarbon to about 4% annually in the medium-term. Growth in GDP and increase in consumer demand from increase

in employment numbers of Omani nationals will facilitate sustenance of overall business environment in the medium term.

Insurance Sector overview:

The tightening of public spending and the impact of the low oil prices since mid-2014 manifested into the insurance sector

through absence of volume growth and pressure on risk pricing. The statistics published by Capital Market Authority for 2019

presents the following market overview

• Growth in overall Market Premium by 5 % growth over 2018 mainly from 9% growth in volume of group medical business.

The combined Market premium upto 2019 was RO 489 Million. Excluding Medical premium, there was a 2.57% growth in

market premium, mainly driven by firming up of reinsurance rates after the cyclone Makenu in 2018.

• Motor accounted for 26% and Medical was 35% of the Market Premium. All other lines of business together accounted for

remaining 39% of the Market Premium.

• Medical Insurance registered 9% growth from RO 155 Million to RO 170 Million and was the major growth driver.

• Property and engineering showed growth in premium by 13% and 28% over 2018, major reason being increase in

reinsurance rates after the fallout of Cyclone Makenu in 2018 , which caused major losses in the region.

• Combined Motor Insurance Premium dropped from RO 144 Million to RO 129 Million – 10.41%% negative growth. Premium

from Motor Comprehensive Policies dropped by 7% to RO 71 Million from RO 77 Million in 2018, whilst the Third-Party

Motor Insurance segment decreased to RO 58 from RO 67 Million in 2018.

The projected growth outlook for Oman’s GDP in 2020 together with potential retail growth due to additional employment

opportunities for Omani nationals bodes well for sustenance of the insurance sector. The alignment to the global reinsurance

trends in terms of risk pricing and solutions structuring will be a key focus area for direct insurers in 2020...

22

ANNUAL REPORT 2019

Performance Review

The strategy of operating along the stated objectives of holding and consolidating on the market share built up on non-Motor

lines whilst seeking cautious growth through branch expansion in Motor was the objective of this year. However, falling share

of motor insurance premium to total premium due to lack of growth in industrial activity in the region and steep competition

in the motor insurance rates has affected negatively the Underwriting results before Management expenses. Motor premium

dropped by 10% over 2018 due to non-renewal of some unprofitable motor schemes due to adverse loss experience. Non

motor portfolios, in particular, property, marine and medical line of business achieved growth. Claim reserving process was

further reviewed and reserves strengthened based on the outcome of the reviews. The results for the year are summarized

below:

• Gross written premium decreased by 7% to RO 25.64 Million compared to 27.48 Million in 2018.

• Underwriting Surplus before Expenses decreased by 18% to RO 3.77 Million from RO 4.60 Million in 2018.

• Profit After Tax of RO 1.22 Million, lower by 23% over RO 1.58 Million in 2018, the lower results from insurance operations

was compensated with a 123% increase in realized Investment income, thanks to positive equity market performance in

GCC region except for Oman during 2018.

Highlights of performance in 2019 are as summarized in the table below: (all amounts in RO’000)

Particulars 2019 2018

Change %

Favourable/

(Adverse)

Gross Written Premium 25,643 27,481 (7%)

Net Earned Premium 8,293 9,111 (9%)

Underwriting Profit before Management Expense 3,772 4,598 (18%)

Profit After Tax 1,220 1,579 (23%)

Net Incurred Claim Ratio to Net Earned Premium 76% 69% (10%)

Combined Ratio (%) 96% 88% (9%)

Shareholders’ Equity (Net worth) 14,769 13,983 6%

Invested Funds 23,586 25,978 (9%)

Total Assets 62,240 61,581 1%

Policyholders fund 6,528 7,234 10%

Earnings Per share 0.012 0.016 (25%)

Book value per share 0.148 0.140 6%

Retail Network expansion:

One more new branch was opened in 2019 taking the total number of branches up to 16. Branch expansion goals are

implemented in tandem with the overriding priority of ensuring all branches operate with healthy underwriting surplus.

Investments

Investment guidelines of the Company mirror the directives as set out in the regulation on investing assets of insurance

companies issued by Capital Market Authority. The investment portfolio is diversified across asset classes comprising Bank

Deposits, Government Bonds, Equities and Managed Funds within limits as stipulated for each asset class.

Long term deposit rates through 2019 remained in the range of 4% to 4.75%. As for equities, among the regional markets,

all GCC markets except Oman registered positive movement in 2019. Kuwait was the best performing market among the

region with 23.68% return followed by Bahrain with 20.41% in 2019. Oman registered negative performance of -7.92% in 2019.

Country wise equity market performance are summarised below:

23


Regional Market performance in 2019

Country Oman Saudi Arabia Dubai Abu Dhabi Kuwait Qatar Bahrain

Index 1st Jan

20194,323.74 7,826.73 2,529.75 4,915.07 5,079.56 10,299.01 1337.26

Index 31st Dec

20193,981.2 8,389.2 2,764.9 5,075.8 6,282.5 10,425.5 1,610.2

% Change -7.92% 7.19% 9.29% 3.27% 23.68% 1.23% 20.41%

Robust performance of equity market in the region helped to boost up the Investment Income by 123% over 2018 to RO 0.991

Million compared to 0.443 Million in 2018. 83% of total investments are invested in Bank Deposits and Bonds. Comprehensive

investment Income was higher at RO 1.31 Million compared to RO 0.552 Million, 137% higher than 2018, also due to higher

valuation gains at in 2019 over previous year.

Information Technology & Digital Transformation

Digital transformation that delivers process optimizations were executed in areas of innovative online payment platforms,

analytics for better business intelligence, enhanced systems monitoring & cyber security as well as documentation of disaster

recovery procedures and ISO 27001 based IT Policies & procedures, several subsystems to augment the future automated

portals as well as a strong performance & visibility in social media. Initiatives planned for 2020 include enhancing B2B & B2C

with enhanced underwriting controls in Motor & Travel and yet seamless for retail and corporate customers.

Human resource

Employees are the core to Vision’s success. Open and objective recruitment process, fair HR policies and conducive work

environment have helped the Company build a committed and professionally competent employee group who work with

a high sense of passion and self-esteem. During the year, 46 new Omani personnel were inducted in different positions.

The Company’s Omanization percentage has moved up to 78% (77% in 2018) against the 75% requirement for the sector.

Orientations and Training programs were provided during 2019 to 35 Omani employees across various departments and

spanning Underwriting, Marketing and IT functions to support skills enhancement in these respective functions. The Company

is fully committed to achieve the Omanisation plan as presented to the regulator in year 2020.

Solvency

insurance Company is considered to be solvent if its assets are adequate and liquid to pay off the claims or liabilities, as and

when they arise. Solvency Ratio of Insurance Company indicates its claim paying capability, higher the solvency ratio, better is

the claim paying ability. As at December 31, 2019 the Company maintained a strong solvency margin in excess of the minimum

required under the insurance laws as presented in the table below:

(IN OMR’000)

Year Minimum Require by Law Solvency Surplus over required margin at 31 December

2019 2,487 2,806

2018 2,257 3,650

Future Outlook

In the backdrop of Oman’s economic growth rate for 2020 is projected at 3.7%, Vision sees a steady outlook for insurance

sector. The outlook for premium growth remains mixed. The initiatives such as enhanced role of private sector in economic

development, public-private partnerships (PPP), boost to Small and Medium Enterprises (SMEs), emphasis on job creation

for Omani nationals, enactment of new laws to attract foreign capital investments are expected to support the growth targets

set for 2020. Progressive measures implemented such as rationalization of Motor portfolio, enhancement of IT capabilities

through online portals, improvements to software applications for faster turnaround to clients, enhancement of security

standards, increase in branch network have been implemented to restore the Underwriting results of the company in line with

past trend.

24

ANNUAL REPORT 2019

25


26

ANNUAL REPORT 2019

27


28

ANNUAL REPORT 2019

29


30

ANNUAL REPORT 2019

31


Statement of comprehensive incomefor the year ended 31 December

2019 2018 Notes RO RO Income: Gross insurance premiums written 4 25,643,875 27,481,589 Reinsurer’s share of gross insurance premiums written 4 (18,026,347) (18,550,689) Net insurance premium written 7,617,528 8,930,900 Change in unearned premium reserve (“UPR”): Gross change in UPR 4 (686,083) 2,269,968 Reinsurer’s share of UPR 4 1,361,463 (2,090,196) Net change in UPR 675,380 179,772 Net insurance premium revenue earned 4 8,292,908 9,110,672 Investment income, net 7 991,080 442,985 Other operating income 6 225,531 183,692 Other income 7a 62,950 97,077

9,572,469 9,834,426 Expenses:

Gross claims and loss adjustment expenses paid 5 20,385,062 17,848,511 Reinsurer’s share of the gross claims and loss adjustment expenses paid 5 (14,040,424) (12,694,011) Gross change in insurance liabilities 5 2,724,007 16,262,914 Reinsurer’s share of the gross change in insurance liabilities 5 (2,754,703) (15,153,307) Expenses on acquisition of insurance contracts (net) 6 (1,567,938) (1,568,368) General and administration expenses 8 3,392,059 3,291,821 8,138,063 7,987,560 Profit for the year before tax 1,434,406 1,846,866 Income tax expense 13 (214,626) (267,670) Profit for the year 1,219,780 1,579,196 Other comprehensive income (expense) Items that will be reclassified to profit or loss

Net change in fair value of available-for-sale investments 316,572 238,000 Impairment on available-for-sale investments recycled to profit or loss - (128,995) Other comprehensive income (expense) for the year, net of tax 316,572 109,005

Total comprehensive income for the year 1,536,352 1,688,201 Earnings per share 27 0.012 0.016

Total comprehensive income per share 27 0.015 0.017

The accompany notes 1 to 29 form part of these financial statements.

32

ANNUAL REPORT 2019

Statement of financial positionas at 31 December

2019 2018 Notes RO RO ASSETS Cash and bank balances 23 2,453,638 4,971,016 Deposits 12 14,248,642 14,519,142 Insurance and other receivables 14 6,822,621 8,014,411 Reinsurance assets 19 31,339,380 27,223,214 Available-for-sale investments 11 6,885,004 6,488,486 Property, furniture and equipment 10 490,395 364,760 TOTAL ASSETS 62,239,680 61,581,029

EQUITY AND LIABILITIES Equity Share capital 15 10,000,000 10,000,000 Capital reserve 87,182 87,182 Fair value reserve 208,071 (108,501) Legal reserve 16 1,072,832 950,854 Contingency reserve 17 2,550,258 2,205,765 Retained earnings 851,134 847,825 TOTAL EQUITY 14,769,477 13,983,125

Liabilities Insurance contract liabilities 19 37,867,274 34,457,184 Employees’ end of service benefits 20 305,929 285,838 Trade and other liabilities 21 9,297,000 12,854,882 TOTAL LIABILITIES 47,470,203 47,597,904

TOTAL EQUITY AND LIABILITIES 62,239,680 61,581,029 Net assets per share (RO) 26 0.148 0.140

The financial statements were approved and authorised for issue by the Board of Directors on 23 February 2020 and were signed on their behalf by:

33


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34

ANNUAL REPORT 2019

Statement of cash flowsfor the year ended 31 December

2019 2018 Notes RO RO OPERATING ACTIVITIES Net cash flow (used in)/ generated from operating activities 22 (2,625,056) 3,340,938 INVESTING ACTIVITIES Purchase of property, furniture and equipment 10 (323,956) (219,356) Purchase of available-for-sale investments 11(a) (2,017,720) (2,727,874) Proceeds from disposal of available-for-sale investments 1,970,415 1,296,090 Placement of deposits 270,500 (1,024,040) Interest received 7 818,842 761,211 Dividends received 7 139,597 149,864 Net cash generated from/ (used in) investing activities

857,678 (1,764,105)

FINANCING ACTIVITIES Dividend paid (750,000) (1,400,000) Net cash used in financing activities (750,000) (1,400,000)

Net change in cash and cash equivalents (2,517,378) 176,833 Cash and cash equivalents at 1 January 4,971,016 4,794,183 Cash and cash equivalents at 31 December 23 2,453,638 4,971,016

35

Notes to the financial statements(forming part of these financial statements)


1 Legal status and principal activities

Vision Insurance SAOG (“Company”) was registered as a closely held joint stock company under the Commercial Companies Law of Sultanate of Oman and engaged in the business of insurance within the Sultanate of Oman. The Company has obtained its Commercial Registration on 1 September 2007 bearing registration number 1025783 and its registered address is PO Box-1882, PC -114, Jibroo, Sultanate of Oman. In accordance with the requirements of Royal Decree 39/2014 dated 17 August 2014 (“the RD”), only public joint stock companies with a minimal capital of RO 10 million can be engaged in insurance business in Sultanate of Oman. In order to comply with the RD, on 5 June 2017, the shareholders of the Company approved the transformation of the Company from a closed joint stock company (SAOC) to a General Omani Joint Stock Company (SAOG). It was further resolved that the transformation would be achieved through an Initial Public Offering “IPO” at the Muscat Securities Market (the “MSM”). Accordingly, the Company completed its IPO and its shares were listed for trading on the MSM on 23 August 2017.

2 Significant accounting policies

The principal accounting policies are summarised below. These policies have been consistently applied to each of the years presented, unless otherwise stated.

2.1 Basis of preparation (a) Statement of compliance

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), applicable requirements of the Commercial Companies Law of the Sultanate of Oman, as amended, Insurance Companies Law, as amended and the provisions for disclosure related to insurance companies issued by Capital Market Authority, of the Sultanate of Oman. The new Commercial Companies Law promulgated by the Royal Decree No. 18/2019 (the Commercial Companies Law of the Sultanate of Oman) was issued on 13 February 2019 which has replaced the Commercial Companies Law of 1974. As per the articles of the Royal Decree No. 18/2019, the new Commercial Companies Law became effective on 17 April 2019 and the companies should comply with the new law within 1 year from 17 April 2019.

(b) Basis of measurement The financial statements are prepared on a historical cost basis except for available-for-sale financial assets, which are measured at fair value.

(c) Functional and presentation currency The financial statements are presented in Rial Omani (RO), which is the functional and presentation currency of the Company.

(d) Use of estimates and judgments

The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form basis of making judgment about carrying value of assets and liabilities, which are not readily apparent from other sources. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in note 14 – allowance for doubtful debts and note 19 – claims reported but unsettled, claims incurred but not reported and unearned premiums.


36

ANNUAL REPORT 2019

2 Significant accounting policies (continued) 2.2 New and amended standards and interpretations

The following new standards and amendments became effective as at 1 January 2019: IFRS 16 Leases IFRIC Interpretation 23 Uncertainty over Income Tax Treatments Amendments to IFRS 9 Prepayment Features with Negative Compensation Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures Amendments to IAS 19 Plan Amendment, Curtailment or Settlement Annual IFRS Improvement Process

IFRS 3 Business Combinations - Previously held Interests in a joint operation IFRS 11 Joint Arrangements - Previously held Interests in a joint operation IAS 12 Income Taxes - Income tax consequences of payments on financial instruments

classified as equity IAS 23 Borrowing Costs - Borrowing costs eligible for capitalisation

The above standards, other than IFRS 16, do not have an impact on the financial statements of the Company. The Company has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.

IFRS 16 Leases IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise most leases on the statement of financial position.

Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors will continue to classify leases as either operating or finance leases using similar principles as in IAS 17. Therefore, IFRS 16 does not have an impact for leases where the Company is the lessor.

The Company adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of 1 January 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application. Accordingly, the comparatives are not restated. Nature of effect of adoption of IFRS 16: Before the adoption of IFRS 16, the Company classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease. Upon adoption of IFRS 16, the Company applied a single recognition and measurement approach for all leases except for short-term leases and leases of low-value assets. The Company recognised lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. For the leases previously classified as operating leases, the lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application. Practical expedients: The Company elected to use the transition practical expedient to not reassess whether a contract is, or contains a lease at 1 January 2019. Instead, the Company applied the standard only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Company also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (‘short-term leases’), and lease contracts for which the underlying asset is of low value (‘low-value assets’). Impact on transition As at 1 January 2019, the Company performed a detailed assessment to determine the extent of impact on its financial statements and concluded that there is no significant impact due to the application of IFRS 16 as most of its leases are short term in nature and are not of material amount and no adjustment recorded in the financial statements.

37



2 Significant accounting policies (continued) 2.2 New and amended standards and interpretations (continued)

IFRS 16 Leases (continued) Short-term leases and leases of low-value assets The Company applies the short-term lease recognition exemption to its short-term leases of property and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered of low value (i.e., below RO 1,900). Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

2.3 Standards issued but not yet effective

The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s financial statements are disclosed below. The Company intends to adopt these new and amended standards and interpretations, if applicable, when they become effective.

IFRS 17 Insurance Contracts

In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts (IFRS 4) that was issued in 2005. IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by: • A specific adaptation for contracts with direct participation features (the variable fee approach) • A simplified approach (the premium allocation approach) mainly for short-duration contracts IFRS 17 is effective for reporting periods beginning on or after 1 January 2022, with comparative figures required. Early application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17. This standard is not applicable to the Company.

Amendments to IAS 1 and IAS 8: Definition of Material

In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of ‘material’ across the standards and to clarify certain aspects of the definition. The new definition states that, ’Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.’ The amendments to the definition of material is not expected to have a significant impact on the Company’s financial statements.

IFRS 9 Financial Instruments

IFRS 9 is effective for annual periods beginning on or after 1 January 2018. The Company meets the eligibility criteria for the temporary exemption from IFRS 9 and intends to defer the application of IFRS 9 until the effective date of the new insurance contracts standard (IFRS 17) of annual reporting periods beginning on or after 1 January 2022, applying the temporary exemption from applying IFRS 9 as introduced by the amendment, Amendments to IFRS 4 applying ‘IFRS 9 - Financial Instruments’ with ‘IFRS 4 – Insurance Contracts’.


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ANNUAL REPORT 2019

2 Significant accounting policies (continued) 2.3 Standards issued but not yet effective (continued) IFRS 9 Financial Instruments (continued)

The Company has not previously adopted IFRS 9, therefore, the Company has applied the temporary exemption from IFRS 9 and continues to apply IAS 39 to its financial assets and liabilities in its reporting period starting on 1 January 2018. During 2017, the Company had performed an assessment of the amendments and reached the conclusion that its activities are predominantly connected with insurance.

2.4 Foreign currency transactions

Items included in the financial statements of the Company are measured and presented in Rial Omani being the currency of the primary economic environment in which the Company operates. Foreign currency transactions are translated into Rial Omani at the exchange rate prevailing on the transaction date. Foreign currency assets and liabilities are translated into Rials Omani at the exchange rate prevailing at the reporting date. Differences on exchange are dealt within the profit or loss as they arise. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments, which are recognised in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

2.5 Insurance contracts – classification (a) Recognition and measurement

The Company issues short term insurance contracts that transfer insurance risk.

The short term insurance contracts include fire, marine, engineering, workmen compensation, aviation cover, group life and group medical insurance.

Motor insurance in the Sultanate is governed by law and it is compulsory for all vehicles to have a minimum third party cover. The Company also issues comprehensive motor policies. Such motor policies issued by the Company cover damages to vehicle due to storm, tempest, flood, fire, theft and personal accident. Specific motor policies are also issued to include coverage outside the Sultanate of Oman.

Short duration life insurance contracts protect the Company’s customers from the consequences of events such as death or disability that would affect the ability of the customer or his/her dependents to maintain their current level of income. Guaranteed benefits paid on occurrence of the specified insurance event are either fixed or linked to the extent of the economic loss suffered by the policyholder. There are no maturity or surrender benefits. For all these contracts, premiums are recognised as revenue (earned premiums) proportionally over the period of coverage. The portion of premium received on in-force contracts that relates to unexpired risks at the reporting date is reported as the unearned premium liability. Premiums are shown before deduction of commission. Claim and loss adjustment expenses are charged to income as incurred based on the estimated liability for compensation owed to contract holders or third parties damaged by the contract holders. These include direct and indirect claims settlement costs and arise from events that have occurred up to the reporting date even if they have not yet been reported to the Company. The Company does not discount its liabilities for unpaid claims. Liabilities for unpaid claims are estimated using the input of assessments for individual cases reported to the Company and statistical analysis for the claims incurred but not reported (“IBNR”) and to estimate the expected ultimate cost of more complex claims that may be affected by external factors such as court decisions. In the case of other short term insurance policies, a provision is also calculated for the UPR using 1/365th method. A contingency reserve is also established in accordance with the Insurance Companies Law of Oman.

39



2 Significant accounting policies (continued)

2.5 Insurance contracts – classification (continued) (b) Policy acquisition costs and commission income

Policy acquisition costs, which correspond to the proportion of gross premium written that is unearned at the reporting date is deferred as deferred policy acquisition cost. Similarly commission income is recognised at the time reinsurance policies are written.

(c) Liability adequacy test At each reporting date, the Company assesses whether the recognised insurance liabilities are adequate using current estimates of future cash flows under its insurance contracts. If that assessment shows that the carrying amount of its insurance liabilities is inadequate in the light of estimated future cash flows, the entire deficiency is immediately recognised in profit or loss and an unexpired risk provision created. All outstanding claims including claims IBNR are treated as current and expected to be settled within twelve months from the reporting date. The amount outstanding for each claim is reviewed on a regular basis and at least quarterly and amount adjusted in profit or loss whenever considered necessary.

(d) Reinsurers contracts held Contracts entered into by the Company with reinsurers under which the Company is compensated for losses on one or more contracts issued by the Company and that meet the classification requirements for insurance contracts are classified as reinsurers contracts held. Insurance contracts entered into by the Company under which the contract holder is another insurer (inwards reinsurers) are included within insurance contracts. The benefits to which the Company is entitled under its reinsurers contracts held are recognised as reinsurance assets. These assets consist of short term balances due from reinsurers as well as the reinsurers portion of gross claims outstanding including IBNR and unexpired risk reserve that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurers contract. Reinsurers liabilities are primarily premiums payable for reinsurers contracts and are recognised as an expense when due, net of commission income which represents income earned from reinsurance companies. The Company assesses its reinsurance assets for impairment on a quarterly basis. If there is objective evidence that the reinsurance asset is impaired, the Company reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in profit or loss. The Company gathers the objective evidence that a reinsurance asset is impaired using the same process adopted for insurance and other receivables. The impairment loss is also calculated following the same method used for these financial assets. These processes are described in Note 2.11.

(e) Claims and salvage and subrogation reimbursements Claims consist of amounts payable to contract holders and third parties and related loss adjustment expenses, net of salvage and other recoveries, and are charged to profit or loss as incurred. Gross outstanding claims comprise the gross estimated cost of claims incurred but not settled at the reporting date, whether reported or not. Provision for reported claims not paid as at the reporting date is made on the basis of individual case estimates. In addition, a provision based on the Company’s prior experience is maintained for the cost of settling claims incurred but not reported at the reporting date. Any difference between the provisions at the reporting date and settlements and provisions in the following year is included in the underwriting account for that year. Some insurance contracts permit the Company to sell a (usually damaged) vehicle or a property acquired in settling a claim (i.e. salvage). The Company may also have the right to pursue third parties for payment of some or all costs (i.e. subrogation). Subrogation reimbursements are also considered as an allowance in the measurement of the insurance liability for claims and are recognised in other assets when the liability is settled. The allowance is the assessment of the amount that can reasonably be recovered from the action against the liable third party.


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ANNUAL REPORT 2019

2 Significant accounting policies (continued)

2.6 Dividend income

Dividend income from investments is recognised when the right to receive payment is established. 2.7 Interest income and expense

Interest income and expense are recognised on a time proportion basis using the effective interest rate method.

2.8 Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial statements only in the period in which the dividends are approved by the Company’s shareholders.

2.9 Property, furniture and equipment

Property, furniture and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Expenditure incurred to replace a component of an item of property, furniture and equipment that is accounted for separately, including major inspection and overhaul expenditure, is capitalized. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of property, furniture and equipment and can be measured reliably. All other expenditure is recognised in profit or loss as an expense as incurred.

The cost of the property, furniture and equipment is written down to residual value in equal installments over the estimated useful lives of the assets. The estimated useful lives are:

Computer software over 3 years Computer hardware over 4 years Furniture and fixture over 5 years Vehicles over 4 years Office equipment over 4 years

The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each reporting date.

Where the carrying amount of an asset is greater than its estimated recoverable amount it is written down immediately to its recoverable amount. Gains and losses on disposals of fixed assets are determined by reference to their carrying amounts and are taken into account in determining results from operations.

2.10 Financial instruments (i) Classification

Financial instruments comprise insurance and reinsurance assets and liabilities, cash and cash equivalents, available-for-sale financial assets, other receivables, accounts payable and accruals. The category of available-for-sale financial assets comprises investments designated as available-for-sale upon initial recognition. These include financial assets that are not held for trading purposes and which may be sold at any time. These are investments in equity instruments of various entities listed in Oman and other middle east countries.

(ii) Recognition

The Company recognises financial assets and liabilities on the date it becomes a party to the contractual provisions of the financial instrument. A regular way purchase of financial assets is recognised using trade date accounting. From this date, gains or losses arising from changes in fair value of financial assets or financial liabilities are recorded.

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2 Significant accounting policies (continued) 2.10 Financial instruments (continued) (iii) Measurement

Available-for-sale financial assets Available-for-sale financial assets are measured initially at transaction price plus transaction costs that are incurred and directly attributable to acquisition or issue of the financial assets. Subsequent to initial recognition, these financial assets are measured at fair value with changes in their fair value, other than impairment losses, recognised as other comprehensive income presented within equity in fair valuation reserve. When an investment is derecognized, the cumulative gain or loss in other comprehensive income is transferred to profit or loss.

Other financial assets Other financial assets are measured initially at fair value plus transaction costs that are directly attributable to the acquisition of these other financial assets. Subsequent to initial recognition, financial assets are carried at amortised cost using the effective interest rate method, less impairment losses, if any. Other financial liabilities

Other financial liabilities are measured at amortized cost using effective interest rate.

(iv) Fair value measurement principles

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: • In the principal market for the asset or liability, or • In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible to by the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 — Quoted (unadjusted) market prices in active markets. Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value

measurement is directly or indirectly observable. Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value

measurement is unobservable. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.


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ANNUAL REPORT 2019

2 Significant accounting policies (continued) 2.10 Financial instruments (continued) (iv) Fair value measurement principles (continued)

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques include discounted cash flow analysis or other valuation models.

(v) Derecognition

The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition in accordance with International Accounting Standard 39: ‘Financial Instruments: Recognition and Measurement’. When an available-for-sale investments is derecognised, the cumulative gain or loss in other comprehensive income is transferred to profit or loss. A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expires.

(vi) Financial instruments by category The accounting policies for financial instruments have been applied to the line items below:

31 December 2019

Amortised

cost

Fair value

Total

RO

RO

RO

Assets

Available-for-sale investments 6,885,004 6,885,004 Deposits 14,248,642 - 14,248,642 Reinsurance assets 31,339,380 - 31,339,380 Insurance and other receivables 6,822,621 - 6,822,621 Bank balances and cash 2,453,638 - 2,453,638

Total 54,864,281 6,885,004 61,749,285

31 December 2018

Amortised

cost

Fair value

Total

RO

RO

RO

Assets Available-for-sale investments - 6,488,486 6,488,486 Reinsurance assets 14,519,142 - 14,519,142 Deposits 27,223,214 - 27,223,214 Insurance and other receivables 8,014,411 - 8,014,411 Bank balances and cash 4,971,016 - 4,971,016 Total 54,727,783 6,488,486 61,216,269

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2 Significant accounting policies (continued) 2.11 Impairment (i) Financial assets (including receivables)

Financial assets that are stated at cost or amortised cost are reviewed at each reporting date to determine whether there is any objective evidence of impairment. A financial asset is impaired if objective evidence indicates that a loss event has occurred after initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. If any such indication exists, an impairment loss is recognised in profit or loss as the difference between the asset’s carrying amount and the present value of estimated future cash flow discounted at the financial asset’s original effective interest rate. If in the subsequent period, the amount of an impairment loss recognised on financial assets carried at amortised cost decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss.

Impairment losses on available for sale investment securities are recognised by transferring the cumulative loss that has been recognised in other comprehensive income, and presented in the fair value reserve in equity, to profit or loss. The cumulative loss that is removed from other comprehensive income and recognised in profit or loss is the difference between the acquisition costs, net of any principal repayment and amortization, and the current fair value, less any impairment loss previously recognised in profit or loss. Impairment losses on equity instruments recognised in the profit or loss are not reversed through separate profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the profit or loss.

(ii) Non-financial assets

The carrying amounts of the Company’s non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated and impairment loss is recorded. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

2.12 Insurance and other receivables

Insurance and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial restructuring and default or delinquency in payments are considered indicators that the receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in profit or loss within “General and administration expenses” in note 8. When a receivable is known to be uncollectible, all the necessary legal procedures have been completed, and the final loss has been determined, the receivable is written off against the related provision for impairment.

Subsequent recoveries of amounts previously written off are credited to profit or loss in the year of the recovery.

2.13 Cash and cash equivalents

For the purpose of the statement of cash flows, deposits with a maturity of less than three months from the date of placement and all cash and bank balances are considered to be cash equivalents.


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ANNUAL REPORT 2019

2 Significant accounting policies (continued) 2.14 Employee benefits

Contributions to a defined contribution retirement plan, for Omani employees in accordance with the Oman Social Insurance Scheme, are recognized as expense in profit or loss as incurred.

The Company's obligation in respect of non-Omani terminal benefits, which is an unfunded defined benefit retirement plan, is the amount of future benefit that such employees have earned in return for their services in the current period.

2.15 Trade and other payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Liabilities are recognised for amounts to be paid for goods and services received, whether or not billed to the Company.

2.16 Income tax

Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is recognized in profit or loss and is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustments to tax payable in respect of previous years. Income tax is recognised in the profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Deferred tax is calculated in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Temporary differences relating to the initial recognition of assets or liabilities that affect neither accounting nor taxable profit are not provided for. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised and it is subsequently reduced to the extent that it is no longer probable that the related tax benefit will be realised.

2.17 Computation of Directors’ remuneration

The board of directors’ remuneration is accrued within the limits specified by the Capital Market Authority and the requirements of the Commercial Companies Law of the Sultanate of Oman.

2.18 Earnings per share

The Company presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.

2.19 Operating segment

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. All operating segments results are reviewed regularly by the CEO to make decisions about resources to be allocated to the segment and assess its performance.

2.20 Investments fair value reserve

This represents the unrealised gain or loss on year-end fair valuation of available-for-sale investments. In the event of sale or impairment, the cumulative gains or losses recognised under investment fair value reserve are included in profit or loss for the year.

2.21 Provisions

Provisions are recognised in the statement of financial position when the Company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.

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2 Significant accounting policies (continued) 2.22 Dividend on ordinary shares

Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Company’s shareholders. Interim dividends are deducted from equity when they are approved.

Dividends for the year that are approved after the reporting date are dealt with as an event after the reporting date.

3. Critical accounting estimates and judgments in applying accounting policies The Company makes estimates and assumptions concerning the future. The resulting accounting estimates may, by definition, vary from the related actual results. Estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed in the following paragraphs.

3.1 The liability arising from claims made under insurance contracts

The intent of insurance contracts entered into by the Company is to pay claims arising out of fortuitous events i.e. events that are unexpected. The Company has a concentration in Motor policies issued and claims under such policies may include amounts for third party bodily injury. The Company believes that the liability arising out of such third party bodily injury claims as handed down by the various courts in Oman cannot be precisely estimated. Nevertheless, the Company monitors the development of compensation claims carefully year on year and makes adequate provision for these insurance liabilities. In the case of non-motor general insurance policies issued, although considering that the Sultanate of Oman is relatively free of major natural catastrophe events such as earthquakes, the risk through major storm, tempest and flood scenarios does exist. The Company’s portfolio is diversified in terms of the regional distribution of risks within Oman. The loss estimation where such events do occur is usually based on external independent surveyors’ reports obtained progressively. The non-motor general insurance is predominantly ceded out and the risk retention is very low. In addition to the existing reinsurers arrangements, the Company has taken additional catastrophic cover. With regard to group life and group medical, the Company is managing its risk by adequately ceding it. In particular, estimates have to be made both for the expected ultimate cost of claims reported at the reporting date and for the expected ultimate cost of claims incurred but not yet reported (IBNR) at the reporting date. The management uses the initial value of the claim provided for the expected ultimate cost of claims reported at the reporting date. However, for the IBNR the Company is relying on an independent actuary to perform reserve review for the IBNR based on historical data of claims and premium development. The primary technique adopted by management in estimating the cost of notified and IBNR claims, is that of using past claim settlement trends to predict future claims settlement trends. At each reporting date, prior year claims estimates are reassessed for adequacy and changes are made to the provision. General insurance claims provisions are not discounted for the time value of money.

3.2 Impairment of available-for-sale equity investments

The Company determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost or objective evidence of impairment exists. This determination of what is considered to be significant or prolonged requires judgement. In applying judgement, the Company evaluates among other factors, the volatility in share price. Objective evidence of impairment may be due to deterioration in the financial health of the investee, industry and sector performance.

3.3 Useful lives of property, plant and equipment Depreciation is charged so as to write off the cost of assets over their estimated useful lives. The calculation of useful lives is based on management’s assessment of various factors such as the operating cycles, the maintenance programs, and normal wear and tear using its best estimates.


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ANNUAL REPORT 2019

3. Critical accounting estimates and judgments in applying accounting policies (continued)

3.4 Taxes

Uncertainties exist with respect to the interpretation of tax regulations and the amount and timing of future taxable income. Given the wide range of business relationships and nature of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of finalisation of tax assessments of the Company. The amount of such provisions is based on various factors, such as experience of previous tax assessments and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

3.5 Unearned premium reserve

The unearned premiums reserve represents that portion of premiums received or receivable, after deduction of the reinsurance share, which relates to risks that have not yet expired at the reporting date. The reserve is recognised when contracts are entered into and premiums are charged, and is brought to account as premium income over the term of the contract in accordance with the nature and type of reinsurance contract written by the company.

Reinsurance contract liabilities are derecognised with the contract expires, discharged or cancelled by any party to the insurance contract.

3.6 Impairment of insurance and other receivables

An estimate of the collectible amount of insurance and other receivables is made when collection of the full amount is no longer probable. This determination of whether these insurance and other receivables are impaired entails the company evaluating, the credit and liquidity position of the policy holders and the insurance companies, historical recovery rates including detailed investigations carried out as at reporting date and feedback received from their legal department. The difference between the estimated collectible amount and the book amount is recognised as an expense in the statement of comprehensive income. Any differences between the amounts actually collected in the future periods and the amounts expected will be recognised in the statement of comprehensive income at the time of collection.

3.7 Going concern

The Company’s management has made an assessment of the Company’s ability to continue as a going concern and is satisfied that the Company has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis.

4 Insurance premium revenue

2019 2018

RO RO Gross premium revenue earned from insurance contracts issued: Gross insurance premium written 25,643,875 27,481,589 Change in UPR (686,083) 2,269,968 Total gross premium earned 24,957,792 29,751,557 Reinsurer’s share of insurance premium (18,026,347) (18,550,689) Reinsurer’s share of change in UPR 1,361,463 (2,090,196) Total premium ceded (16,664,884) (20,640,885) Total net premium earned 8,292,908 9,110,672

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5 Insurance claims and loss adjustment expenses

31 December 2019

Gross Reinsurers’

share Net share RO RO RO

Claims and loss adjustment expenses paid 20,385,062 (14,040,424) 6,344,638 Increase in outstanding claims 2,724,007 (2,754,703) (30,696) Total insurance claims and loss adjustment expenses 23,109,069 (16,795,127) 6,313,942

31 December 2018 Claims and loss adjustment expenses paid 17,848,511 (12,694,011) 5,154,500 Increase in outstanding claims 16,262,914 (15,153,307) 1,109,607 Total insurance claims and loss adjustment expenses 34,111,425 (27,847,318) 6,264,107

6 Underwriting results

2019 2018 RO RO

Insurance premium revenue earned 24,957,792 29,751,557Insurance premium ceded to reinsurers (16,664,884) (20,640,885)Net insurance premium revenue earned 8,292,908 9,110,672 Gross claims incurred (23,109,069) (34,111,425)Reinsurer’s share of the claims incurred 16,795,127 27,847,318Net income from the acquisition of insurance contracts 1,567,938 1,568,368 Other Operating Income 225,531 183,692

3,772,435 4,598,625

The underwriting results before reinsurance recoveries can be analyzed as follows:

Underwriting result before reinsurance recoveries

Net retained premium 2019 2018 2019 2018 RO RO RO RO General insurance Motor 834,679 1,568,059 6,858,318 7,931,682 Fire (2,799,285) 274,609 7,166 13,641

Marine (1,181,980) (11,289,199) 16,674 6,998 Household and other (7,052,773) (10,017,281) 190,803 409,306 Total (10,199,359) (19,463,812) 7,072,961 8,361,627 Group life insurance (3,048,864) (3,968,571) 544,567 569,274

7 Investment income, net

2019 2018

RO RO

(Loss)/profit on sale of available for sale investments 32,641 (339,095) Dividend income 139,597 149,864 Interest income 818,842 761,211 Impairment of available for sale investments - (128,995)

991,080 442,985


48

ANNUAL REPORT 2019

7a Other operating income

2019 2018

RO RO Stale cheque written back 33,393 55,256Other receipts 29,557 41,821

62,950 97,077 8 General and administration expenses

2019 2018

RO RO

Salaries and employee related costs 2,379,160 2,287,840 Office related expenses 490,981 513,159 Depreciation (note 10) 199,206 179,061 Rent 167,208 151,097 Provision for doubtful insurance receivables (note 14) 57,737 64,054 Directors’ remuneration and sitting fees 50,000 50,000 Business promotion 27,889 25,523 Repairs and maintenance 19,878 21,087

3,392,059 3,291,821

Salaries and employee related costs included in general and administration expenses are as follows:

2019 2018 RO RO

Salaries and allowances 2,191,953 2,118,343 Social security costs 124,974 112,232 End of service benefits (note 20) 62,233 57,265

2,379,160 2,287,840 9 Segment information

The Company has the following operating segments:

General Insurance: General Insurance business includes insurance of motor, property, marine cargo and hull, general accidents.

Life Insurance: Life Insurance business includes short term yearly renewable group life business and Group Medical Business.

49



9 Segment information (continued)

for the year ended 31 December 2019

General

insuranceLife

insurance Total RO RO ROInsurance premium revenue 19,697,940 5,945,935 25,643,875

Insurance premium ceded to reinsurers – net of UPR (11,907,507) (5,443,459) (17,350,966)

Net insurance premium revenue 7,790,433 502,476 8,292,909

Insurance claims and loss adjustment expenses (19,242,168) (3,866,901) (23,109,069)Insurance claims and loss adjustment expenses recovered from reinsurers 13,394,474 3,400,653 16,795,127

Net income from the acquisition of insurance contracts 1,252,377 315,561 1,567,938

Underwriting profit 3,195,116 351,789 3,546,905Other Operating Income 225,531Operating Profit bef. Expenses 3,772,435

Investment and other income 1,054,030

General and administration expenses – unallocated (3,392,059)

Profit before tax 1,434,406Segment assets 58,516,416 3,723,264 62,239,680

Segment liabilities 44,517,515 2,952,688 47,470,203

Capital expenditure 324,841 - 324,841

Depreciation 199,206 - 199,206

for the year ended 31 December 2018

General

insurance Life

insurance Total RO RO RO Insurance premium revenue 17,857,203 9,624,386 27,481,589

Insurance premium ceded to reinsurers – net of UPR (9,291,103) (9,079,814) (18,370,917)

Net insurance premium revenue 8,566,100 544,572 9,110,672

Insurance claims and loss adjustment expenses (29,369,367) (4,742,058) (34,111,425)Insurance claims and loss adjustment expenses recovered from reinsurers 23,490,027 4,357,291 27,847,318

Net income from the acquisition of insurance contracts 1,339,454 228,914 1,568,368

Underwriting profit 4,026,214 388,719 4,414,933

Other Operating Income 183,692

Operating Profit bef. Expenses 4,598,626

Investment and other income 540,062

General and administration expenses – unallocated - - (3,291,821)

Profit before tax - - 1,846,866

Segment assets 56,425,341 5,155,688 61,581,029

Segment liabilities 43,122,947 4,474,958 47,597,905

Capital expenditure 219,356 - 219,356

Depreciation 179,061 - 179,061


50

ANNUAL REPORT 2019

10 Property, furniture and equipment

Computer software

Computer hardware

Furniture and office

equipment Vehicles Total

RO RO RO RO RO Cost At 1 January 2019 347,960 201,270 555,002 125,982 1,230,214Addition 144,675 46,256 133,910 - 324,841Disposal - - (30,000) (6,200) (36,200)At 31 December 2019 492,635 247,526 658,912 119,782 1,518,855 Depreciation At 1 January 2019 215,563 126,263 423,722 99,906 865,454Charge for the year 88,517 31,907 64,803 13,979 199,206Disposal - - (30,000) (6,200) (36,200)At 31 December 2019 304,080 158,170 458,525 107,685 1,028,460Net book values: At 31 December 2019 188,555 89,356 200,387 12,097 490,395

Computer software

Computer hardware

Furniture

and office equipment

Vehicles Total

RO RO RO RO RO Cost At 1 January 2018 232,405 139,952 512,519 125,982 1,010,858Additions 115,555 61,318 42,483 - 219,356At 31 December 2018 347,960 201,270 555,002 125,982 1,230,214 Depreciation At 1 January 2018 140,778 93,908 378,963 72,744 686,393Charge for the year 74,785 32,355 44,759 27,162 179,061At 31 December 2018 215,563 126,263 423,722 99,906 865,454Net book values: At 31 December 2018 132,397 75,007 131,280 26,076 364,760

11 Available-for-sale investments

a) The movement in the year is analysed as below: 2019 2018 RO RO At 1 January 6,488,486 5,415,785 Purchases 2,017,720 2,727,874 Fair value change (taken to equity) 316,572 109,005 Impairment of available-for-sale investments - (128,995) Disposals (1,937,774) (1,635,183) At 31 December 6,885,004 6,488,486

b) Available-for-sale investments can be analyzed as follows:

Fair value Cost Fair value Cost 2019 2019 2018 2018 RO RO RO RO Overseas – Quoted 2,747,706 2,473,156 2,038,064 1,992,606 Local – Quoted 4,137,298 4,203,777 4,450,422 4,282,219

6,885,004 6,676,933 6,488,486 6,274,825

51



11 Available-for-sale investments (continued) c) Details of the Company’s available-for-sale investments for which the Company’s holding exceeds 10% of

the fair value of its investment portfolio are: 31 December 2019

Holding % Number of

securities Fair value

RO Cost RO

Local quoted securities: Oman Govt Development Bond 53rd issue 15% 10,000 1,000,000 1,000,000

31 December 2018

Holding % Number of

securities

Fair value RO

Cost RO

Local quoted securities: Oman Govt Development Bond 53rd issue 18% 10,000 1,000,000 1,000,000

12 Deposits (a) Deposits are placed with commercial banks in the Sultanate of Oman and overseas. Deposits carry interest

rates of between 3% to 5.20% per annum (2018: between 2.00% to 5.10% per annum) and are denominated in Rial Omani.

(b) In accordance with the law governing the operations of insurance companies within the Sultanate of Oman,

the Company has identified to the Capital Market Authority (Insurance division) certain specific bank deposits included in the statement of financial position at carrying amount of RO 8.69 Million (2018:RO 6.50 Million). Under the terms of the legislation, the Company can only utilise these assets with the prior approval of the Capital Market Authority (Insurance division).

(c) The Company has kept a security deposit of RO 50,000, which is under lien with Omani Unified Bureau for Orange Card Company SAOG in the Sultanate of Oman, as a cover for settlement of motor claims arising outside Oman under the Orange Card arrangement for cross border claims.

(d) The maturity profile of the deposits is as follows: 2019 2018 RO RO Between 3 months to five years 14,248,642 14,519,142 14,248,642 14,519,142

13 Taxation a) Component of income tax expense

2019 2018 RO RO Current tax 204,318 267,670 Previous year tax 10,308 - Total Income tax 214,626 267,670


52

ANNUAL REPORT 2019

13 Taxation (continued) b) Reconciliation of tax expense

The Company provides for taxation in accordance with the income tax laws of the Sultanate of Oman at the rate of 15% (2018: 15%) of taxable profits as per tax law. For the purpose of determining the tax expense for the year, the accounting profit has been adjusted for tax purposes. Adjustments for tax purposes include items relating to both income and expense. The following is a reconciliation of income taxes calculated on accounting profit at the applicable tax rates with the income tax expense for the year: 2019 2018 RO RO

Accounting profit before income tax 1,434,406 1,846,867 Income tax expense computed at applicable tax rates 215,161 277,030 Prior period tax related to IFRS -15 disclosure - (34,898) Non-deductible expenses 1,461 21,044 Tax exempt revenues (17,793) (7,283) Timing difference arising on depreciation and provisions 5,489 11,777 204,318 267,670

c) Deferred tax

Details of deferred tax assets (liability) not recognised is as follows: 2019 2018

RO RO

Property, furniture and equipment (6,842) (3,889) Provision for impairment 45,839 37,530 Deferred tax on unrealised losses on foreign available for sale investments recorded in equity (41,183) (6,819)

Deferred tax asset (liability) (2,186) 26,822

Deferred tax asset has not been recognised as of 31 December 2019 as a matter of prudence as management is of the view that insurance operations by their inherent nature are exposed to unknown variables that have a bearing on the management’s ability to determine with certainty, whether it is probable that sufficient future taxable income will arise to derive the benefits therefrom prior to their expiry.

d) Status of previous years returns

The tax returns of the Company for the years 2017 to 2018 have not yet been agreed with the Secretariat General for Taxation at the Ministry of Finance. The Board of Directors are of the opinion that additional taxes, if any, related to the open tax years would not be significant to the Company's financial position as at 31 December 2019.

14 Insurance and other receivables 2019 2018

RO RO Insurance and other receivables comprise the following: Insurance and other receivables 5,879,392 5,265,469 Due from reinsurers 504,169 2,351,517 Less: provision for impairment (305,592) (250,202) Insurance and other receivables (net) 6,077,969 7,366,784 Accrued interest 413,286 358,834 Prepayments and other receivables 234,910 185,409 Deferred acquisition costs 96,455 103,384 6,822,621 8,014,411

53



14 Insurance and other receivables (continued)

The movement in provision for impairment during the year was as follows: 2019 2018

RO RO 1 January 250,202 195,874 Provided during the year 57,737 64,056 Write off (2,347) (9,728) 31 December 305,592 250,202

As at year-end, the details of non-impaired insurance receivables and receivables from reinsurers are set out below: 2019 2018 RO RO Neither past due nor impaired 5,478,670 7,063,383 Past due and not impaired 580,321 375,181 Past due and impaired 305,592 250,202 6,364,583 7,688,766

15 Share capital

2019 2018 RO RO Authorised (ordinary shares of RO 100 baiza each) 15,000,000 15,000,000 Issued and fully paid (ordinary shares of RO 100 baiza each) 10,000,000 10,000,000 The issued and fully paid-up share capital is RO 10,000,000 comprising 100,000,000 shares of RO 100 baiza each (2018: 100,000,000 shares 100 Baiza each).

Shareholders of the Company who own 10% or more of the shares, whether in their name, or through family members and companies, are as follows: 31 December 2019 31 December 2018

Percentage of holding

Number of shares

Percentage of holding

Number of shares

Vision Investment Services Co SAOC 22.78% 22,783,670 22.78% 22,783,670 Al Wathba National Insurance Co, UAE 17.53% 17,525,900 17.53% 17,525,900

16 Legal reserve

In accordance with the Commercial Companies Law of the Sultanate of Oman, as amended, annual appropriations of 10% of the profit for the year are made to the legal reserve until the accumulated balance of the reserve is equal to one third of the value of the Company’s paid up share capital. This reserve is not available for distribution.

17 Contingency reserves

In accordance with the Insurance Companies Law of Oman, contingency reserves are established in respect of general and life insurance business. These reserves are not distributable.

An amount equivalent to 10% of the net outstanding claims in respect of general insurance business at the reporting date and 1% of the life insurance premiums for the year in case of life insurance business is appropriated to this reserve until the reserve equals the paid up capital of the Company. As per the insurance regulations, the Company has made a transfer to a contingency reserve of RO 344,493 for the year 2019 (2018: RO 389,577).


54

ANNUAL REPORT 2019

18 Proposed dividend

For 2019, the Board of Directors proposed a cash dividend of 8% on the paid up capital of the Company as at 31 December 2019, (2018- cash dividend of 7.5% on paid up capital), aggregating to RO 800,000 (2018 - RO 750,000). This payment will be subject to approval by shareholders in the Annual General Meeting.

19 Insurance liabilities and reinsurance assets

2019 2018

RO RO

Gross

Current

Short term insurance contracts:

- Outstanding claims reported and loss adjustment expenses including IBNR 25,154,919 22,430,912 - Provision for UPR*

12,712,355 12,026,272

Total insurance liabilities – Gross

37,867,274 34,457,184

Recoverable from reinsurers

Current


- Outstanding claims reported and loss adjustment expenses including IBNR 22,150,720 19,396,017 - Provision for UPR

9,188,660 7,827,197

Total insurance assets – Gross

31,339,380 27,223,214 Net


- Outstanding claims reported and loss adjustment expenses including IBNR 3,004,199 3,034,895 - Provision for UPR

3,523,695 4,199,075

Total insurance assets – Net

6,527,894 7,233,970

* In 2018, Gross change in UPR includes RO 232,654 pertaining to policy fees released during the year on account of IFRS 15 adjustment.

(a) The movements in insurance liabilities and assets are set out below:

2019

2018

Gross Reinsurers Net

Gross Reinsurers Net RO RO RO

RO

RO

RO

Opening insurance liabilities 22,430,912 19,396,017 3,034,895

6,167,998 4,242,710 1,925,288 Opening UPR 12,026,272 7,827,197 4,199,075

14,063,586 9,917,393 4,146,193

IFRS 15 transition adjustment - - -

232,654 - 232,654

Increase in outstanding claims 2,724,007 2,754,703 (30,696) 16,262,914 15,153,307 1,109,607 Increase in UPR 686,083 1,361,463 (675,380)

(2,269,968) (2,090,196) (179,772)

Closing insurance liabilities 37,867,274 31,339,380 6,527,894

34,457,184 27,223,214 7,233,970

(b) The gross claims reported, the loss adjustment expenses liabilities and the liability for claims incurred but not reported are net of expected recoveries from salvage and subrogation. The amounts for salvage and subrogation at the end of 2019 and 2018 are not material.

55



20 Employees’ end of service benefits

2019 2018 RO RO At 1 January 285,838 241,971 Charge for the year 62,233 57,265 Payments (42,142) (13,398) At 31 December 305,929 285,838

21 Trade and other liabilities

2019 2018 RO RO Accounts payable 2,447,887 5,075,645 Due to reinsurers 4,744,605 5,966,353 Deposits retained on ceded reinsurers business 669,531 601,846 Proposed directors’ remuneration 19,000 20,150 Other payable 1,161,300 892,126 Income tax payable 254,677 298,762

9,297,000 12,854,882 22 Cash generated from operations

The reconciliation of the profit for the period to cash generated from operations is shown below:

2019 2018 Note RO RO

Profit before tax 1,434,406 1,846,866 Adjustments for: UPR release / charge (net) (675,380) (179,772) Depreciation 10 199,206 179,061 (Profit)/loss on sale of investments 7 (32,641) 339,095 Impairment of available-for-sale investments 7 - 128,995 Profit on sale of assets (885) - Provision for impairment of receivables 14 57,737 64,056 Dividend income 7 (139,597) (149,864) Interest income 7 (818,842) (761,211) End of service benefit expense 20 62,233 57,265 Stale cheques written back 7a (33,393) (55,256)

Operating profit before working capital changes 52,844 1,469,234 Premiums and other receivables (722,533) (593,702) Accounts and other payables (1,882,530) 1,369,198 Insurance funds (30,695) 1,109,606 Cash flow (used in) / generated from operations (2,582,914) 3,354,336 Payment of end of service benefits 20 (42,142) (13,398) Net cash flow (used in)/ generated from operating activities (2,625,056) 3,340,938

23 Cash and cash equivalents

2019 2018 RO RO

Cash and bank balances 2,453,638 4,971,016 2,453,638 4,971,016


56

ANNUAL REPORT 2019

24 Related party disclosures (a) Transactions

The Company has entered into transactions with entities and shareholders who have significant influence over the Company and have holdings of 10% or more interest in the Company’s capital (“significant shareholders”) and with entities related to these significant shareholders or directors (“entity related to a significant shareholder”). The Company also enters into transactions in the normal course of business with customers, agents and suppliers in which other directors and significant shareholders of the Company are interested (“other related parties”). In the ordinary course of business, such related parties provide goods and render services to the Company. The Company also underwrites insurance risks for such related parties. A related parity manages the Company’s investment portfolio. The terms and conditions of related party transactions are mutually agreed. During the year, the following transactions were carried out with related parties: Revenue from insurance policies underwritten and garage services

2019 2018 RO RO Premiums written: - entity related to a significant shareholder 24,486 26,196 - other related parties

18,935 9,517

Claims paid in respect of insurance policies underwritten

- entity related to a significant shareholder 9,705 13,758 - other related parties

718 79,192

Purchase of goods and services (major shareholders)

Purchase of shares and mutual funds through significant shareholder 2,017,781 1,652,836

Sale of shares and mutual funds through significant shareholder

1,937,774 1,309,517 Rental payment

53,160 48,520

Brokerage for transactions in share 15,655 10,391 Portfolio charges

30,454 14,244

Remuneration to directors Directors’ remuneration

19,000 20,150

Sitting Fees 31,000 29,850 Total 50,000 50,000

(b) Key management compensation

Salaries and short term employment benefits 411,091 410,492 Social security costs

4,140 7,590

End of service benefits

34,070 12,767

449,301 430,849

(c) Receivable from related parties

2019 2018

RO RO

- entity related to a significant shareholder 16,657 30,721

16,657 30,721

Balances due from related parties are interest-free and repayable on demand.

57



24 Related party disclosures (continued) (d) Payable to related parties

2019 2018 RO RO - proposed directors’ remuneration 19,000 20,150

19,000 20,150

25 Risk management

a) Governance framework

The primary objective of the Company’s risk and financial management framework is to protect the Company’s shareholders from events that hinder the sustainable achievement of the set financial performance objectives. Key management recognises the critical importance of having efficient and effective risk management systems in place. The Company has established a risk management policy and a compliance function. This is supplemented with a clear organizational structure with documented delegated authorities and responsibilities from the board of directors to executive management committees and senior managers. A risk management policy framework which sets out the risk profiles for the Company, risk management, control and business conduct standards for the Company’s operations has been put in place.

b) Capital management framework The Company has an internal risk management framework for identifying risks to which each of its business units and the Company as a whole are exposed, quantifying their impact on economic capital. The internal framework estimates indicate how much capital is needed to mitigate the risk of insolvency to a selected remote level of risk applied to a number of tests (both financial and non-financial) on the capital position of the business.

c) Regulatory framework Regulators are primarily interested in protecting the rights of the policyholders and monitor them closely to ensure that the Company is satisfactorily managing affairs for their benefit. At the same time, the regulators are also interested in ensuring that the Company maintains an appropriate solvency position to meet unforeseen liabilities arising from economic shocks or natural disasters. The operations of the Company are also subject to regulatory requirement as imposed by CMA. Such regulations not only prescribe approval and monitoring of activities, but also impose certain restrictive provisions (e.g. solvency margin) to minimise the risk of default and insolvency on the part of the insurance companies to meet unforeseen liabilities as these arise. The Company maintains a solvency surplus position as of 31 December 2019.

d) Asset liability management (“ALM”) framework

Financial risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The main risk that the Company faces due to the nature of its investments and liabilities is interest rate risk. The Company manages these positions within an ALM framework that has been developed to achieve long term investment returns in excess of its obligations under insurance and investment contracts. The Company’s ALM is also integrated with the management of the financial risks associated with the Company’s other financial assets and liabilities not directly associated with insurance and investment liabilities. The Company’s ALM also forms an integral part of the insurance risk management policy, to ensure in each period sufficient cash flow is available to meet liabilities arising from insurance and investment contracts.


58

ANNUAL REPORT 2019

25 Risk management (continued)

25.1 Insurance risk

The risk under any insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the nature of an insurance contract, this risk is random and therefore unpredictable. For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the company faces under its insurance contracts is that the actual claims and benefit payments may exceed the carrying amount of the insurance liabilities. This could occur because of the frequency or severity of claims and benefits are greater than estimated. Insurance events are random and the actual number and amount of claims and benefits will vary from year to year from the estimate established using statistical techniques. The Company’s objectives in managing risks are: to take a conservative approach to underwriting, which means review of all aspects about a risk prior to acceptance; retaining experienced and knowledgeable underwriters; and having underwriting authorities in place. The Company ensures that risks are mitigated with first class reinsurers security, pre-underwriting surveys and claims history reviews. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed in note 3.

The Company is liable for all insured events that occur during the term of the contract, in accordance with the terms of contract. As a result, liability claims are settled over a long period of time and an element of claims provision relates to IBNR. There are several variables that affect the amount and timing of cash flows especially from motor insurance contracts. These mainly relate to the inherent risks of the business activities carried out by individual contract holders and the risk management procedures they have adopted.

The Company’s net account in terms of aggregate risk retention is protected with risk plus catastrophe excess of loss reinsurance per class of business written.

The Company, in the normal course of business, in order to minimize financial exposure arising from large claims, enters into contracts with other parties for reinsurance purposes. Such reinsurance arrangements provide for greater diversification of business, allow management to control exposure to potential losses arising from large risks, and provide additional capacity for growth. A significant portion of the reinsurance is effected under treaty, facultative and excess-of-loss reinsurance contracts. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contracts.

To minimize its exposure to significant losses from reinsurer insolvencies, the Company evaluates the financial condition of its reinsures and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers.

The Company only deals with reinsures approved by the management, which are generally international securities that are rated by international rating agencies. The panel of proportional and non-proportional treaty reinsurers are reviewed and approved by the Board of Directors.

Although the Company has reinsurance arrangements, it is not relieved of its direct obligations to its policyholders and thus a credit exposure exists with respect to ceded insurance, to the extent that any reinsurer is unable to meet its obligations assumed under such reinsurance agreements. The Company’s placement of reinsurance is diversified such that it is neither dependent on a single reinsurer nor are the operations of the Company substantially dependent upon any single reinsurance contract.

IBNR provisions are created based on actual claims reported after the reporting date prior to finalization. Outstanding claims for all classes of insurance are made initially on the basis of the internal or external surveyor’s report. Accordingly the maximum expected liability is always recognized in the financial statements. Outstanding claims are monitored and revised for value of claims regularly. Based on the past experience management accordingly believes that there are no material additional claim liabilities that would arise in respect of unsettled claims at the year end.

25.2 Claims development

The Company maintains strong reserves in respect of its motor insurance business in order to protect against adverse future claims experience and developments. The uncertainties about the amount and timing of claim payments are normally resolved within one year.

59


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511,

700

Cu

mul

ativ

e Pa

ymen

ts to

Dat

e

5,04

8,91

6 3

,208

,386

3

,597

,982

3

,495

,877

2

,938

,345

2

,868

,737

3,

326,

118

3

,926

,890

5

,149

,544

3,

727,

855

3

7,28

8,65

0

Net

Out

stand

ing

Clai

ms

1,22

3,05

0

Incu

rred

but n

ot re

porte

d (I

BNR)

1,

350,

458

Liab

ility

reco

gnise

d in

the

state

men

t of f

inan

cial

pos

ition

(net

out

stand

ing

clai

ms)

2,

573,

508

60

ANNUAL REPORT 2019

No

tes

to

th

e fi

na

nc

ial

sta

tem

en

ts(f

orm

ing

pa

rt o

f th

es

e fi

na

nc

ial

sta

tem

en

ts)

25.

Risk

man

agem

ent (

cont

inue

d)

25.2

C

laim

s dev

elop

men

t (co

ntin

ued)

In

curre

d cl

aim

s (31

Dec

embe

r 201

8)

Acc

iden

t yea

r 20

10

2011

20

12

2013

20

14

2015

20

16

2017

20

18

Tota

l

RO

RO

RO

RO

RO

RO

RO

RO

RO

RO

A

t the

end

of e

ach

repo

rting

yea

r 4

,799

,097

2

,828

,733

3

,391

,817

3

,062

,902

2

,610

,608

2

,578

,442

2

,798

,464

3

,427

,580

5

,722

,993

-

One

yea

r lat

er

5,0

50,4

87

3,1

31,8

18

3,5

22,1

61

3,4

67,3

26

3,0

16,8

84

2,9

16,2

24

3,2

67,2

33

4,0

69,1

28

-

- Tw

o ye

ars l

ater

5

,014

,051

3

,105

,003

3

,568

,073

3

,534

,864

3

,046

,005

2

,931

,145

3

,335

,175

4

,069

,128

-

-

Thre

e ye

ars l

ater

5

,126

,559

3

,156

,301

3

,561

,409

3

,447

,944

3

,029

,629

2

,868

,681

3

,335

,175

-

-

-

Four

yea

rs la

ter

5,0

55,7

92

3,1

75,7

12

3,5

98,1

10

3,4

89,5

03

2,9

39,3

45

2,8

68,6

81

-

-

-

- Fi

ve y

ears

late

r 5

,026

,905

3

,208

,356

3

,596

,150

3

,479

,665

2

,939

,345

-

-

-

-

-

Six

year

s lat

er

5,0

21,0

12

3,1

96,5

01

3,5

90,9

27

3,4

79,6

65

-

-

-

-

-

- Se

ven

year

s lat

er

5,0

15,7

71

3,2

08,3

86

3,5

90,9

27

-

-

-

-

-

-

- Ei

ght y

ear l

ater

5

,035

,614

3

,208

,386

-

-

-

-

-

-

-

-

Nin

e ye

ars l

ater

5

,035

,614

3

,208

,386

-

-

-

-

-

-

-

- Te

n ye

ars l

ater

5

,035

,614

-

- -

- -

- -

- -

Es

timat

e of

cum

ulat

ive

clai

ms

5,0

35,6

14

3,2

08,3

86

3,5

90,9

27

3,4

79,6

65

2,9

39,3

45

2,8

68,6

81

3,3

35,1

75

4,0

69,1

28

5,7

22,9

93

34,

249,

915

Cu

mul

ativ

e pa

ymen

ts to

dat

e 5

,048

,916

3

,208

,386

3

,599

,332

3

,495

,410

2

,938

,345

2

,867

,231

3

,269

,263

3

,685

,498

3

,360

,357

3

1,47

2,73

8

Liab

ility

reco

gnise

d in

the

state

men

t of f

inan

cial

pos

ition

(net

out

stand

ing

clai

ms)

2,77

7,17

7

61




25.3 Financial risk factors

Introduction

The Company has exposure to the following risks from its use of financial instruments:

• Market risk • Credit risk • Liquidity risk

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and procedures for measuring and managing risk, and the Company’s management of capital. Further quantitative disclosures are included throughout these financial statements. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Company. Risk management is carried out by the management under policies approved by the Board of Directors.

(a) Market risk

Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual security, or its issuer, or factors affecting all securities traded in the market. The Company limits market risk by maintaining a diversified portfolio and by continuous monitoring of developments in international and local equity and bond markets. In addition, the Company actively monitors the key factors that affect stock and bond market movements, including analysis of the operational and financial performance of investees.

(i) Foreign currency risk

Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is exposed to foreign exchange risk arising from various currency exposures primarily with respect to investments in foreign equities which are denominated in other GCC currencies. The foreign currency investments are periodically reviewed by the Investment Committee and Board of Directors of the Company to determine appropriate action to minimize the foreign exchange risk exposure. As the total value of foreign currency investments in relation to the total financial assets held by the Company is not significant, the Company believes should these currencies weaken or strengthen against the Rial Omani there would be no material impact in the post-tax profits.

(ii) Price risk

Price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether these changes are caused by factors specific to the individual security, or its issuer, or factors affecting all securities in the market. The Company is exposed to market risk with respect to its investments classified as available-for-sale. To manage its price risk arising on investments in equity securities, the company limits market risk by maintaining a diversified portfolio and by regular monitoring of the market. In addition the Company actively monitors the key factors that effect stock market movements. The sensitivity analysis for equity risk illustrates how changes in the fair value of equity securities will fluctuate because of changes in market prices affected by factors mentioned above. The majority of the equity investments are in companies listed in the Muscat Securities Market (MSM). As mentioned in note 11, the Company’s investments are distributed in Banking, Investment, Industrial and Services sector shares. The Company has outsourced its portfolio to an investment manager (see note 24). However, the Company’s investments are regulated by certain investment regulations applicable to insurance companies and are required to maintain prescribed limits as per the regulation and hence the Company may not be able to take advantage of all favorable market movements.


62

ANNUAL REPORT 2019

25 Risk management (continued) 25.3 Financial risk factors (continued)

(a) Market risk (continued) The Company has no significant concentration of price risk. The analysis below is performed for reasonably possible movements in key variables with all other variables held constant, showing the impact on net profit and equity.

Change in variable

Impact on

equity RO'000

31 December 2019 +2% 51 -2% (51)

31 December 2018

+2% 130 -2% (130)

(iii) Interest rate risk

Interest rate risk is the risk that the value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Company invests in securities and has deposits that are subject to interest rate risk. Interest rate risk to the Company is the risk of changes in market interest rates reducing the overall return on its interest-bearing securities. The Company’s fixed interest generating deposits are considered by Management to be a balanced portfolio (i.e. mixed with long term deposits and short-term deposits). The Company does not anticipate any increase or decrease in the interest rates which would have any significant impact on profit or loss. The Company earn interest on securities and deposits between 3% to 5.20% per annum (2018: 2.00% to 5.10% per annum). The Company accounts for fixed rate financial assets and interest rates are contractually agreed and remain constant throughout the maturity period.

(b) Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss to the other party by failing to discharge an obligation. Key areas where the company is exposed to credit risk are: • Reinsurers’ share of insurance liabilities; • Amounts due from reinsurers in respect of claims already paid; • Amounts due from insurance contract holders; • Amounts due from insurance intermediaries; and • Cash equivalents and deposits with banks. The Company has a credit policy in place and exposure to credit risk is monitored on an ongoing basis in respect of their exposure with reinsurers and other insurance contract holders as set out below.

63



25 Risk management (continued) 25.3 Financial risk factors (continued) (b) Credit risk (continued)

Reinsurers risk

Reinsurers risk refers to the risk an enterprise will encounter in the event that any reinsurers fails to meet its obligations assumed under the reinsurance agreement. The Company is supported by reinsurers who are selected based on the recommendations of professional reinsurers brokers and the evaluation of available information on the financial strengths of the reinsurers. The assessment and selection of reinsurers is carried out annually and reinsurers solvency and credit worthiness are monitored on an ongoing basis. Reinsurers’ portion of outstanding claims are recorded only where evidence of recoverability is available to the Company. The Company manages insurance risk through reinsurance arrangements with reinsurers. This does not, however, discharge the Company’s liability as primary insurer. If a reinsurer fails to pay a claim for any reason, the Company remains liable for the payment to the policy holder. The creditworthiness of reinsurers is considered on an annual basis by reviewing their financial strength prior to finalization of any contract. The exposure to individual counterparties is also managed by other mechanisms, such as the right of offset where counterparties are both debtors and creditors of the Company.

The financial analysis of policyholders and reinsurers that is conducted at Company level produces an assessment categorized by a Standard and Poor (S&P) rating (or equivalent when not available from S&P). All the Company’s reinsurers are rated not lower than S&P BBB (or equivalent). Insurance receivable

Where there exists significant exposure to individual policyholders, or homogenous groups of policyholders, an assessment of the customer creditworthiness is carried out by the management. The customers categorized as Ministries, Banks, Corporates, Brokers, Agents and Individuals are duly assessed for their credit worthiness based on the volume of business transacted, their past payment records and credit history. Ageing of receivables is monitored on an ongoing basis against the allowed credit period set on a case to case basis. The Company does not require collateral in respect of financial assets but has the right to offset the dues against any past or future claim payments. Analysis of overdue insurance and other receivables is discussed in note 14. Credit risk on receivables is limited to their carrying values as management regularly reviews these balances to assess recoverability and makes provision for balances whose recoverability is in doubt. The table below shows the balances outstanding from the various categories of customers at the reporting date in the order of credit quality. 2019 2018 RO RO Counterparties Banks/Ministries 589,239 928,774 Corporate 2,004,043 1,960,565 Brokers 3,085,011 2,164,074 Individuals 180,226 135,105 Gross total insurance receivables 5,858,519 5,188,518 Less: provision for impairment (284,718) (233,190) Net total insurance receivables 5,573,801 4,955,328


64

ANNUAL REPORT 2019


25.3 Financial risk factors (continued) (b) Credit risk (continued)

Credit risk on other financial instruments Although the Company has significant deposits and bank balances, management believes that the risk arising out of cash and cash equivalents and deposits is minimal as these are with reputable local banks which are listed companies with good financial standing and that are regulated by the Central Bank of Oman. The Company’s exposure to credit risk is limited to the carrying amount of financial assets recognized at the reporting date, as summarized below:

2019 2018 RO RO

Reinsurance assets 31,339,380

27,223,214 Insurance and other receivables 6,822,621

8,014,411

Available for sale investments 6,885,004

6,488,486 Deposits 14,248,642

14,519,142

Cash and cash equivalents 2,453,638 4,971,016 61,749,285 61,216,269

(c) Liquidity risk

Liquidity risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitments associated with financial liabilities. Liquidity requirements are monitored regularly, and the management ensures that sufficient funds are available to meet any commitments as they arise. The Company considers its liquidity position to be satisfactory and also has committed undrawn overdraft facilities of RO 200,000 (2018: RO 200,000). The Company is also in a position to generate cash by way of selling quoted investments. Further to this, the Company is also in a position to generate cash from its term deposits of RO 14.25 Million (2018: RO 14.51 Million) (refer note 12 (b)). At 31 December 2019, the Company’s solvency margin (as determined in accordance with the Oman Insurance regulations) is more than RO 2.8 million (2018: RO 4.1 million) higher than the regulatory requirement at that date. The Company maintains sufficient cash and cash equivalents to cater its day to day working capital needs. The following are the contractual maturities of financial liabilities:

Contractual cash flows

RO 31 December 2019

Insurance contract liabilities 37,867,274 Trade and other liabilities 9,297,000

31 December 2018

Insurance contract liabilities 34,457,184 Trade and other liabilities 12,854,882

65



25 Risk management (continued) 25.4 Capital risk management

Externally imposed capital requirements are set and regulated by the Capital Market Authority and the other relevant regulators, to ensure sufficient solvency margins. Further objectives are set by the Company to maintain a strong financial position, credit rating and healthy capital ratios to support its business objectives and maximize shareholders value. The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. Further, the Insurance Companies Law of Oman, as amended, requires a minimum capital of RO 10 million for insurance companies. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to reduce debt. The Company fully complied with the externally imposed capital requirements during the reported financial periods and no changes were made to its capital base, objectives, policies and processes from the previous year.

25.5 Fair value estimation

The fair values of quoted investments are based on market bid prices at the reporting date. The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate to their fair values.

Fair value hierarchy

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: • Level 1: quoted prices (unadjusted) in active markets.

• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

• Level 3: inputs for the asset or liability that are not based on observable market date (unobservable inputs)

All the Company’s investments in available-for-sale investments are level 1.

25.6 Operational risks

Operational risk is the risk of loss arising from system failure, human error, fraud or external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications or can lead to financial loss.

The Company cannot expect to eliminate all operational risks, but by initiating a rigorous control framework and by monitoring and responding to potential risks, the Company is able to manage the risks.

The Company has detailed systems and procedures manuals with effective segregation of duties, access controls, authorization and reconciliation procedures, staff training and assessment processes etc. with a compliance and internal audit framework. Business risks such as changes in environment, technology and the industry are monitored through the Company’s strategic planning and budgeting process.

26 Net assets per share

Net assets per share is calculated by dividing the net assets at the yearend by the number of shares outstanding at 31 December as follows:

2019 2018

Net assets (RO)

14,769,477 13,893,124 Number of shares outstanding at 31 December 100,000,000 100,000,000 Net assets per share (RO) 0.148 0.140


66

ANNUAL REPORT 2019

27 Earnings per share

2019 2018

Net profit (RO) after tax 1,219,780 1,579,196 Total comprehensive income (RO) for the year 1,536,352 1,688,201 Weighted average number of shares outstanding at 31 December 100,000,000 100,000,000 Earnings per share (RO) 0.012 0.016 Total comprehensive income per share (RO) 0.015 0.017

No figure for diluted earnings per share has been presented as the Company has not issued any instruments which would have an impact on earnings per share when exercised.

28 Contingent liabilities

At 31 December 2019, there were contingent liabilities in respect of guarantees amounting to RO 149,587 (2018: RO 89,343) given in the normal course of business from which it is anticipated that no material liabilities will arise. The Company is subject to litigation in the normal course of its business. The Company based on independent legal advice, does not believe that the outcome of these court cases will have a material impact on the Company’s income or financial position.

29 Comparative amounts Certain comparative amounts have been reclassified to conform to the current year presentation. The reclassifications do not affect the reported profit during the year ended 31 December 2019.

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