H.M. King Hamad
Bin Isa Bin Salman Al Khalifa
H.H. Sheikh Sabah
Al Ahmed Al Jaber Al Sabah
The King of the Kingdom of Bahrain
The Amir of the State of Kuwait
General Information
Head Office
BKIC Tower 2775, Road 2835
Seef District 428
Kingdom of Bahrain
PO Box 10166
Kuwait Office
BBK Building, Floor 5 & 6
Ahmed Al-Jaber Street, Safat 13128, Al Sharq
State of Kuwait
PO Box 26728
Telephone: +973 1711 9999
Telefax: +973 1792 1111
Email: [email protected]
Website: www.bkic.com
Commercial Registration: 4745
Telephone: +965 1885511
Telefax: +965 22468545, 22462169
Email: [email protected]
Commercial Registration: 30713
License: 23
Diplomatic Area Branch
BKIC House 168, Road 1703
Diplomatic Area 317, Manama
Kingdom of Bahrain
PO Box 10166
Principal Bankers
Bank of Bahrain & Kuwait
Ahli United Bank
National Bank of Bahrain
Burgan Bank
Telephone: +973 1754 2222
Telefax: +973 1753 0799
Share Registrars
Salmabad Branch
Building 1390, Road 426, Salmabad 704
Kingdom of Bahrain
PO Box 10166
Telephone: +973 1787 5000
Telefax: +973 1787 5050
Arad Branch
Shop 83, Airport Highway
Entrance 145, Road 44, Arad 243
Kingdom of Bahrain
PO Box 10166
Telephone: +973 1746 7788
Telefax: +973 1746 7766
East Riffa Branch
Shop 13A, Abu Shaheen Avenue
Al Reem Centre, East Riffa 923
Kingdom of Bahrain
PO Box 10166
Telephone: +973 1776 9777
Telefax: +973 1776 4777
2
BAHRAIN KUWAIT INSURANCE
Bahrain
Fakhro Karvy Computershare WLL
Manama, Kingdom of Bahrain
PO Box 514
Telephone: +973 1721 5080
Telefax: +973 1721 2055
Kuwait
Kuwait Clearing Company
Safat 13081, State of Kuwait
PO Box 22077
Telephone: +965 22465696
Telefax: +965 22469457
Auditors
Ernst & Young
Manama, Kingdom of Bahrain
PO Box 140
Telephone: +973 1753 5455
Telefax: +973 1753 5405
Contents
Directors and Executive Management
06
Chairman’s Report
10
Chief Executive Officer’s Report
14
Corporate Governance Report
18
Financial Highlights
30
Financial Information
Independent Auditors’ Report
33
Statement of Financial Position
34
Statement of Income
35
Statement of Comprehensive Income
36
Statement of Cash Flows
37
Statement of Changes in Equity
38
Notes to the Financial Statements
39
2013 ANNUAL REPORT
3
‘inspiration’
44 BAHRAIN
BAHRAIN KUWAIT
KUWAIT INSURANCE
INSURANCE
The sheen of evolution
Since the beginning of time, the shell has been a symbol of holistic natural
beauty; providing security to all that is valuable, thereby bringing stability to life
itself. When the sun bears down upon the shell, it shines even brighter, lighting
up the surroundings with the warmth and vibrancy.
Inspired by these glorious virtues, our parent company, Gulf
Insurance Group adopted the shell’s seamless design as its
icon, uniting all the group companies under one big, sturdy
and magnificent shell.
2013 ANNUAL REPORT
5
DIRECTORS AND EXECUTIVE MANAGEMENT
Board of Directors
Abdulla Hassan Buhindi
Chairman
Khalid Saoud Al Hasan
Vice Chairman
Hassan Mohammed
Zainalabedin
Director
Murad Ali Murad
Director
Bijan Khosrowshahi
Director
Dr. Abdul Rahman Ali Saif
Director
Adnan Ahmed Al-Baghli
Director
Emad Jawad Bukhamseen
Director
Isam Mohammed
Abdel Khaliq
Director
Shawqi Ali Fakhroo
Director
Abdulla Ahmed Abdulrahim
Secretary to the Board
6
BAHRAIN KUWAIT INSURANCE
DIRECTORS AND EXECUTIVE MANAGEMENT
Executive Management
Bahrain
Ebrahim Alrayes
Chief Executive Officer
Waleed Mahmood
General Manager
K. Sai Gopal
Chief Underwriting
Officer
K. M. Kurien
Assistant
General Manager,
Technical
S. Ramakrishnan
Deputy
General Manager
K. Gandhi
Assistant
General Manager
R. Sundaram
Assistant
General Manager,
Finance & Accounts
Jalal Khalil
Assistant
General Manager,
Marketing & Business
Development
Kuwait
Abdulla Rabia
General Manager
Executive Committee
Audit Committee
Nomination & Remuneration Committee
Murad Ali Murad Chairman
Khalid Saoud Vice Chairman
Al Hasan
Dr. Abdul Rahman Member
Ali Saif
Emad Jawad Member
Bukhamseen
Bijan Khosrowshahi Member
Hassan Mohammed Chairman
Zainalabedin
Shawqi Ali Fakhroo Vice Chairman
Isam Mohammed Member
Abdel Khaliq
Adnan Ahmed Member
Al-Baghli
Dr. Abdul Rahman Chairman
Ali Saif
Hassan Mohammed Vice Chairman
Zainalabedin
Khalid Saoud
Member
Al Hasan
2013 ANNUAL REPORT
7
Life is a challenge; meet it!
Life unfortunately comes with its challenges. Reality is that
swings of fortune often come unannounced. However, we
can help remove those awkward crests and troughs - as
the curvaceous body of the shell suggests. Shell with its
harmonious design offers a reliable space for safe keeping.
Indeed, that is what our policies are designed to do! We take pride in our
products which are designed to protect the clients’ interests in a smooth and
seamless manner.
8
BAHRAIN KUWAIT INSURANCE
‘protection’
9
2013 ANNUAL REPORT 09
Chairman’s Report
Dear Shareholders,
On behalf of the members of the Board of Directors, I am pleased to present the
Annual Report of your company for the financial year ended 31st December 2013.
Before I set out to present this results achieved by your company, I deem it proper to give you the perspective in terms of the
economic and political developments in Bahrain which had a significant effect on the insurance sector for the third year in a row.
On the economic front, Bahrain achieved improvement in growth as compared to last year, even though the extent of growth varied
between the various sectors. Oil sector regained the lead following completion of maintenance works in one of the important upstream
locations. On the other hand, government services sector faced a setback due to the delayed passage of annual budget which in turn
resulted in much delayed implementation of vital projects. This unfortunately affected the growth in the Property, Construction
and Marine Cargo classes of insurance, which are traditionally considered as profitable in contrast to the Motor and Medical classes.
Absence of new business opportunities naturally added to the competitive pressures even in these unfavorable classes of business.
In the political sphere, the dialogue process announced by H.M. the King commenced in February. Unfortunately, the talks had to be
suspended but it is hoped that the dialogue will resume and the political parties will reach an agreement to bring about stability and set
the wheels of development in motion once again.
Your company has achieved a few milestones that I would like to mention. New corporate identity of the company, as a member of
G.I.C group, Kuwait was launched during the year. Your company has successfully implemented introduction of electronic
communication and data sharing in respect of the Board and Committee meetings, thereby saving effort and money. The three
year business plan for the period 2014 to 2016 has been approved. The plan lays emphasis on expansion of personal lines business
and the use of I.T to market the products and to improve services. Your company won the prestigious “MEIF Institutional Excellence
Award” at the Middle East Insurance Forum, which was held in Bahrain under the sponsorship of Central Bank of Bahrain. Finally, for
the third year in a row, A.M. Best awarded the company a financial strength rating of A- (Excellent) with ‘Stable’ outlook after a detailed
review of the operations.
I am pleased to inform you that the election of the new Board of Directors that will oversee the operations of your company for the
next three years will take place in the year 2014. I would like to take this opportunity to thank the members of the current Board of
Directors for their efforts over the last three years.
I would now like to give the highlights of the year’s financials:
Gross Premium Revenue has increased by 9% from BD 35 millions in 2012 to BD 38.2 millions in year 2013. Net profit however showed
a decline of 12% from BD 4.2 millions in year 2012 to BD 3.7 millions in year 2013 due to the state of the insurance market and the
subdued investment climate.
Shareholders’ equity increased to BD 33.3 millions in 2013 as compared to BD 31.1 millions in 2012. The total Return on Equity is
11.1% and the Earnings Per Share is 52 fils.
10 BAHRAIN KUWAIT INSURANCE
“Your company was awarded a financial strength rating of A- (Excellent) with
a ‘Stable’ outlook by A.M. Best for the third year in a row and we also won the
prestigious ‘MEIF Institutional Excellence Award’ at the Middle East Insurance
Forum.”
Total Profit available for distribution for the year 2013 is BD 8,681,595. The Board of Directors proposes the following allocation:
General Reserve BD 1,000,000
Cash Dividend (30%) of the paid-up capital BD 2,145,000
Retained Earnings BD 5,536,595
During the year a sum of BD 155,262 was paid to the Directors towards the following:
Directors remuneration BD 132,000
Sitting fees
BD 16,800
Travel expenses
BD 6,462
I wish to express my sincere thanks and appreciation to the shareholders for their unstinted cooperation and support. I wish to thank
our esteemed customers for their confidence and trust in the company and its services. I would like to express my sincere gratitude
and appreciation to the management and staff for their continued diligence, dedication and determination. I would also like to thank
the intermediaries and reinsurance companies for their cooperation and support.
I would like to acknowledge with gratitude the support given to our company by all the official bodies in the Kingdom of Bahrain and
State of Kuwait, especially, the Central Bank of Bahrain, Ministry of Industry and Commerce in Bahrain, Ministry of Commerce and
Industry in Kuwait, Bahrain Bourse and Kuwait Stock Exchange.
Finally, I am thankful to His Majesty King Hamad Bin Isa Bin Salman Al Khalifa, the King of the Kingdom of Bahrain and His Highness
Shaikh Sabah Al Ahmed Al Jaber Al Sabah, the Amir of the State of Kuwait and the respective governments, for their support and
assistance to the insurance sector in both countries. I wish the people of the Kingdom of Bahrain and the State of Kuwait peace and
prosperity.
Thank You.
Abdullah Hassan Buhindi
Chairman
9th February, 2014
2013 ANNUAL REPORT 11
‘integration’
12
12 BAHRAIN
BAHRAIN KUWAIT
KUWAIT INSURANCE
INSURANCE
Built to progress in harmony
The shell is born as a pure white core, focused on the well being
of its inhabitants. But as it grows it expands, building layers to
accommodate the holistic growth, precisely suited to protect
the precious content.
BKIC has a proud tradition of creating growth at its very core. We not only strive
to provide strength and stability to our customers but also try to create hope
and assurance for the larger society. Endlessly looking for ways and means to
help and contribute to the well being of others; evolving and growing with times,
just as nature intended.
2013 ANNUAL REPORT 13
Chief Executive Officer’s Report
The year 2013 proved to be yet another difficult period for the markets in which we
operate, due to reasons beyond our control.
We started the year with hope and expectation that Government spending in Bahrain and Kuwait will help launch many key
projects during the year but that unfortunately did not happen. In Bahrain, the delay in passing the budget directly resulted in nonimplementation of many major projects, including some that were to be taken up with the aid promised by the G.C.C. states. In Kuwait
continued disagreements between the executive and the legislature resulted in holding up of key major projects. We sincerely hope
that 2014 will usher in a period for economic growth through construction and development.
On the other hand, the year saw sudden spike in claims occurrence. While Bahrain market witnessed a spurt in Property losses, Kuwait
suffered a worsening of losses under Motor class. This has directly affected our technical result and the underwriting profit fell from
BD 3.96 millions in 2012 to BD 3.32 millions in 2013. The company’s overall profits consequently slid from BD 4.2 millions in 2012 to
BD 3.7 millions in 2013.
OVERVIEW OF OPERATIONS
Fire and General Accident
Gross premium revenue of the department registered a growth of 15% from BD 24.3 million in 2012 to BD 27.9 million in 2013. Thanks
in large measure to a major project in Kuwait which was insured by us towards the end of the year. In spite of this, there is no significant
increase in gross earnings which reached BD 5.48 million as against BD 5.45 million in 2012. This could be attributed to the increase
in Net Deferred Commissions by more than BD 300,000. Loss ratio for this class increased from 40% in 2012 to 48% in 2013 due to
increase of fire losses in Bahrain. Overall result of the department therefore fell to BD 2.0 million as against BD 2.3 million in 2012.
Marine
Gross premium revenue for this class declined by 14%, from BD 2.4 million in 2012 to BD 2.1 million in 2013, due to sluggish
performance of imports and exports. This has directly resulted in a 5% decline in Gross earnings, from BD 1.1 million in 2012 to BD
1.04 million in 2013. Claims ratio increased from 8% to 16%, and the Underwriting profit declined by 10% from BD 709,000 in 2012 to
BD 636,000 in 2013.
Motor
Gross Premium revenue for this class fell by 1% from BD 8.3 millions in 2012 to BD 8.2 millions in 2013 due to the conservative
underwriting approach adopted by us due to the intense competitive pressure on the premium rates in both Bahrain and Kuwait.
Losses across the market were further aggravated by the higher incidence of accidents and marked increase in the cost of labour
and spare parts for the vehicles. Claims ratio increased from 69% in 2012 to 73% in 2013. By staying away from the competition, we
managed to register a reasonable underwriting profit of BD 692, 000 in 2013 as against BD 919,000 in 2012.
Investments
Investment income recorded an increase of 15% from BD 910,467 in 2012 to BD 1,049,920 in 2013. This could have been better
but for the burden of impairments on old investments affected by the global financial crisis of year 2008. However, we believe that we
have now cleaned the portfolio and can expect better results going forward. The company has been following a conservative policy in
managing the investments to ensure best possible income at lowest possible risk.
14 BAHRAIN KUWAIT INSURANCE
“Gross premium revenue of the Company registered a growth of 9% from BD 34.99
millions in 2012 to BD 38.18 millions in 2013.”
Operating and General Expenses
Operating expenses decreased by 3.5% from BD 3.4 millions in 2012 to BD 3.3 millions in 2013. This was achieved by maintaining a
strict control on major heads of expenses. General and Administrative expenses increased by 1% from BD 659,000 in 2012 to BD
667,000 in 2013 due to additional provision made for bad & doubtful debts.
Training and Development
We place great value in our human resources and always give special attention to the training of our employees. During the year 34
employees attended 43 courses conducted by Bahrain Institute of Banking and Finance. One employee completed the ACII and
another one has got the certificate of intermediate insurance study. We have also conducted sessions of “In house” training in fire and
personal line insurances during the year 2013 and other insurance sessions for the employees of our Bancassurance partners. We have
also conducted client seminars which were well received by our major clients in Bahrain and Kuwait. The objective of these seminars
is to increase their insurance awareness.
Towards the end of the year we have launched the revamped SECURA bancassurance from all the branches of Bank of Bahrain & Kuwait.
SECURA now benefits from‘state of the art’ software which was specially developed by our IT providers to meet the latest needs of our
bank partners. The SECURA bouquet has been enriched with the addition of two new products, Travel Secura and Hope Secura which
were specially customized for the Bancassurance model. Home Secura and Motor Secura products have been further enriched and
made even more attractive to the consumers. Substantial work has been completed on our new website which will facilitate convenient
on-line sales and services for personal lines products. We believe that the investment in innovation aided by technology will give us a
new edge in differentiating our products and services.
Outlook for 2014
We expect international prices of oil to remain at the current high levels and the non-oil sectors to perform better in 2014. This should
reflect broadly in the growth of Bahrain’s economy during the year. Projects whose implementation has been delayed due to the late
budgetary approval last year are expected to incept and activate other sectors of economy, including Insurance.
In Kuwait, a number of projects in oil and government sector are expected to be announced and these in turn should provide
necessary impetus to other sectors of economy. Political stability in Bahrain and Kuwait should greatly assist in setting the wheel of
development in motion once again.
I wish to conclude this report by thanking the Board of Directors for their continued support. I wish to thank the employees of the
company for their dedicated efforts. My thanks are due to our valued clients, the reinsurance companies, intermediaries and all our
business partners for their unstinted support which helped us achieve the targets set for the year.
Thank You.
Ebrahim Alrayes
Chief Executive Officer
9th February, 2014
2013 ANNUAL REPORT 15
Value-added relationship
The shell reminds one of a constant companion, through
thick and thin. Its sole interest is the safety and security of
the organism it is meant to protect. From a speck of nothing
it rewards us with one of the most beautiful things on earth, a
lustrous priceless pearl.
With our evolution we reaffirm our vows of creating products and services
that are tailor-made for your financial safety and stability. We aim to develop
long-lasting and mutually rewarding relationships with all our stakeholders; we
are your ‘friends in need’.
16 BAHRAIN KUWAIT INSURANCE
‘satisfaction’
17
2013 ANNUAL REPORT 17
Year ended 31 December 2013
Corporate Governance Report
1. CORPORATE GOVERNANCE PHILOSOPHY
The Company has a policy of benchmarking against established best
practice in the field of corporate governance. The Board has adopted core
values and standards which set out the behaviors expected of staff in their
dealings with shareholders, customers, colleagues, brokers and other
stakeholders of the Company. One of the core values communicated
within the Company is a belief that the highest standard of integrity is
essential in business. The governance of the Company remains under
constant review, in order to enhance compliance levels according to
international standards and best practice. The direct responsibility of the
Board of Directors is to endeavor to be in line with policies of regulatory
authorities and statutory requirements.
2. COMMUNICATION STRATEGY
Shareholders (%)
6.82
13.34
23.72
The Company has a clear policy in relation to its communication with
its stakeholders, shareholders, employees, customers, government
bodies, regulators and society. Shareholders are invited by the Chairman
of the Board to attend the Annual General Meeting in the presence of
the Chairman and other directors including the Executive Committee
Chairman, the Audit Committee Chairman, the Nomination and
Remuneration Committee Chairman and the External Auditors, who
are available to answer any questions raised by shareholders or media
representatives with regard to the operations and performance of
the Company. Additionally, the Company is cognizant and fully aware
of its regulatory and statutory obligations regarding dissemination of
information to its stakeholders. Without prejudice to the disclosure
standards, guidelines on key persons and other requirements of the
relevant statutory bodies, financial and non-financial information is
provided by the Company on all events that merit announcement, either
on its website: www.bkic.com or through local newspapers or other
means of communication. The financials and annual reports of the
Company are made available on the Company’s website.
3. SHAREHOLDERS INFORMATION
56.12
Citizens of the Kingdom
of Bahrain and others
Warba Insurance Co. KSC
Gulf Insurance Co. KSC
Bank of Bahrain and
Kuwait BSC
18 BAHRAIN KUWAIT INSURANCE
BKIC’s shares are listed on the Bahrain Bourse and Kuwait Stock Exchange.
The Company has issued 71,500,000 equity shares, each with a face value
of 100 fils. All shares are fully paid.
Shareholders
Name Nationality No. of shares % holding
Citizens of the
-
Kingdom of Bahrain
and Others
16,959,941
23.72
Gulf Insurance Co. KSC 40,126,909
56.12
9,533,332
4,879,818
13.34
6.82
Kuwaiti
Warba Insurance Co. KSC Kuwaiti
Bank of Bahrain and
Bahraini
Kuwait BSC
Distribution schedule of each class of equity
Categories
No. of shares No. of shareholders Less than 1%
% of
Equity
14,621,270
3,768
20.45
1% up to less than 5%
2,338,671
1
3.27
5% up to less than 10%
4,879,818
1
6.82
10% up to less than 50%
9,533,332
1
13.34
50% and above
40,126,909
1
56.12
Total
71,500,000
3,772
100
4. BOARD OF DIRECTORS INFORMATION
Board composition
The Board composition is based on the Company’s Memorandum of
Association and Articles of Association and comprises of ten Members.
The Board represents a mix of high-level professional skills and expertise.
Furthermore, in compliance with the corporate governance requirements,
the Board Committees consist of Members with adequate professional
background and experience. The Board periodically reviews its composition
and the contribution of its Directors and Committees.
The appointment of Directors is subject to prior approval of the Central Bank
of Bahrain (CBB). The classification of ‘executive’ Directors, ‘non-executive’
Directors and ‘independent non-executive’ Directors is as per definitions
stipulated by the CBB. The Board is supported by the Board Secretary who
provides professional and administrative support to the general assembly,
the Board, its committees and members. The appointment of the Board
Secretary is subject to the approval of the Board. The Secretary is also
assigned with the responsibility of liaising with the regulatory agencies in
both Bahrain and Kuwait.
Year ended 31 December 2013
Corporate Governance Report
Status of Executive, Non-executive
and Independent Directors as
at year end 2013
3
Directors’ roles and responsibilities
The Company is governed through its Board of Directors. The Board’s
main roles are to create value to shareholders, to provide entrepreneurial
leadership of the Company, to approve Company’s strategic objectives
and to ensure that the necessary financial and other resources are made
available to enable them to meet those objectives.
4
The Board, which meets at least four times a year, has a schedule of
matters reserved for its approval.
3
Executive Directors
Independent &
Non-Executive Directors
Non-Executive Directors
The specific responsibilities reserved to the Board include:
•Reviewing Company strategy and approving the annual budget for
revenues and capital expenditure;
•Reviewing operational and financial performance;
•Approving acquisitions and divestments;
•Reviewing the Company’s systems of financial control and risk
management;
•Ensuring that appropriate management development and succession
plans are in place;
•Approving appointments to the Board and the Company Secretary; and
•Ensuring that a satisfactory dialogue takes place with shareholders.
5. DISCLOSURES RELATING TO BOARD OF DIRECTORS
Director’s profile
Abdulla Hassan Buhindi (Independent & Non-Executive)
Chairman
Director since 5 May 1993
Bachelor degree in Commercial Banking – Kuwait University
Major directorships and offices held:
•Chairman of National Investment Co. WLL, Bahrain
• Chairman of Buhindi Group, Bahrain
•Chairman of Aer Rianta Int’l M.E. WLL, Bahrain
•Chairman of Banz Group, Bahrain
•Chairman of Bahrain Electromechanical Services Co. WLL, Bahrain
•Chairman of Bahrain Maritime and Mercantile International, Bahrain
•Chairman of United Paper Industries (Bahrain Pack), Bahrain
•Chairman of Copyright Co. WLL, Bahrain
•Chairman of LONA Real Estate Development, Bahrain
•Chairman of Banader Hotels Co., Bahrain
•Chairman of Bahrain and Emirates Electrical and
Mechanical Contracting, UAE
•Chairman of Vertical Space LLC, UAE
•Director of Bahrain Gulf Distribution Co., Bahrain
•Director of Gulf Marcom Group (Media Services), Bahrain
•Director of Rotana Hotels Management Corp., UAE
•Director of Oasis Capital Bank, Bahrain
•Director of Arab Insurance Group, Lebanon
•Director of Iqarat Lubnan, Lebanon
•Managing Director of Bahrain Duty Free Complex, Bahrain
•Appointed Honorary Consul - Irish Consulate in Bahrain
Khalid Saoud Al Hasan (Executive)
Vice-Chairman
Director since 28 March 2006
Bachelor degree in Political Science - Kuwait University
Major directorships and offices held:
•Chairman of Syrian Kuwaiti Insurance Co., Syria
•Chairman of Egyptian Takaful – Life, Egypt
•Vice Chairman of Fajr Al Gulf Insurance & Reinsurance Co. SAL, Lebanon
•Vice Chairman of Arab Orient Insurance Co., Jordan
•Vice Chairman of Arab Misr Insurance Group, Egypt
•Director of Kuwait Reinsurance Co., Kuwait
•Director of Arab Reinsurance Co., Lebanon
•Director of Egyptian Takaful – Non Life, Egypt
•Managing Director of Buruj Cooperative Insurance Co., K. Saudi Arabia
•Member of Technical Committee of Arab War Risk Ins. Syndicate
•CEO of Gulf Insurance Co. KSC, Kuwait
Hassan Mohammed Zainalabedin (Independent & Non-Executive)
Director
Director since 1979 (inception)
Bachelor degree in Economics – Cairo University
Major directorships and offices held:
•Chairman of SYSCON Trading and Mechanical Services Co. WLL, Bahrain
•Chairman of ZEN Trading and Contracting Co. WLL, Bahrain
•Chairman of FAZ Trading and Supplies Co. WLL, Bahrain
2013 ANNUAL REPORT 19
Year ended 31 December 2013
Corporate Governance Report
Murad Ali Murad (Independent & Non-Executive)
Director
Director since 28 March 2004
Fellow Member of Chartered Institute of Management Accountants, UK
Major directorships and offices held:
•Chairman of Bank of Bahrain and Kuwait, Bahrain
•Chairman of the Board of Trustees for Human Resources
Development Fund in Banking Sector, Bahrain
•First Deputy Chairman of Bahrain Telecommunications Co.
(BATELCO), Bahrain
•Deputy Chairman of Umniah Mobile Telephones Co., Jordan
•Director of Batelco International Finance Number One Limited,
Cayman Islands
•Director of Dhiraagu, Maldives
•Director of Sure Guernsey, Jersey and Isle of Man Limited, UK
•Member of Council of Vocational Training in Banking Sector, Bahrain
Dr. Abdul Rahman Ali Saif (Independent & Non-Executive)
Director
Director since 28 February 2011
Ph.D. Economics from University of Leicester, UK
Major directorships and offices held:
•Chairman, BBK Geojit Securities KSC, Kuwait
•Director of Capinnova Investment Bank, Bahrain
•General Manager of Treasury, Investment & Institutional Banking
– BBK, Bahrain
Emad Jawad Bukhamseen (Non-Executive)
Director
Director since 7 August 2005
Master Degree in Business Administration - University of Liverpool
Major directorships and offices held:
•Chairman of Bukhamseen International Group for Contracting,
Kuwait
•Chairman of Layan Real Estate Co., Dubai
•Chairman of Al-Arabiya Real Estate Co., Kuwait
•Chairman of National Arabic Co. for Restaurant Management (Ruby
Tuesday), Kuwait
•Chairman of Al-Madina Travels Co., Kuwait
•Vice Chairman of Wataniya Airways, Kuwait
20 BAHRAIN KUWAIT INSURANCE
•Vice Chairman & CEO Of Bukhamseen Group Holding, Kuwait
•Vice Chairman of Arabiya Real Estate Investment Co., Egypt
•Vice Chairman of Sharm Dreams, Egypt
•Director of Kuwait Clearing Co., Kuwait
•Director of Egyptian Gulf Bank, Egypt
•Director of First Gulf Bank, Abu Dhabi
•Director of Kuwait Real Estate Investment Consortium, Kuwait
•Owner of Crowne Plaza Hotel, Holiday INN Hotel, Intercontinental
Hotel, Stay Bridge Suites, Kuwait
•Owner of Arab Beverages Co. (ABC)
•Consultant of Warba Insurance Co., Kuwait
•Consultant of Kuwait International Bank, Kuwait
•Consultant of Arab Investment Co., Kuwait
•Editor in Chief of Annahar Newspaper, Kuwait
Adnan Ahmed Al-Baghli (Executive)
Director
Director since 27 March 2005
Master Degree in Business Administration (Marketing)
- Armstrong University, USA
Major directorships and other offices held:
•Vice Chairman of Gulf Life Insurance Co., Kuwait
•Deputy General Manager of Gulf Insurance Co., Kuwait
Bijan Khosrowshahi (Non-Executive)
Director
Director since 28 February 2011
Degree in Mechanical Engineering and MBA from Drexel University, USA
Major Directorships and other offices held:
•Chairman of the insurance committee of the American Chamber of
Commerce in Korea
•Vice Chairman and Managing Director of AIG Sigorta based in
Istanbul, Turkey
•Director of Alliance Insurance, Dubai
•Director of Jordan Kuwait Bank, Jordan
•Director of Gulf Insurance Company KSC, Kuwait
•Director of Arab Misr Insurance Company, Egypt
•Director of Arab Orient Insurance Company, Jordan
•Member of the Turkish Businessmen’s Association
•Council member of USO in Korea
•President and CEO of Fairfax International
Year ended 31 December 2013
Corporate Governance Report
•President and CEO of Fuji Fire and Marine Insurance Company
Director’s and related parties’ interests
Limited based in Japan
•President of AIG’s General Insurance operations based in Seoul, Korea
•Regional Vice President based in Philadelphia, of AIG’s domestic
property and casualty operations for Mid Atlantic region
•Served on the boards of the Foreign Affairs Council and the
Insurance Society of Philadelphia
The number of shares held by Directors and their related parties as of
31 December 2013 was as follows:
Isam Mohammed Abdel Khaliq (Executive)
Director
Director since 28 February 2011
Bachelor Degree in Marketing and Political Science
– University of Wisconsin, USA
Major Directorships and other offices held:
•Chairman of Fajr Al Gulf Insurance & Reinsurance Co. SAL, Lebanon
•Founding Chairman of Jordan Society of Insurance Professionals, Jordon
•Director of Egyptian Takaful – Life, Egypt
•Director of Taka’ud Savings and Pensions BSC, Bahrain
•Director of Jordan Canadian Business Association (JOCABA), Jordan
•Director of Swiss Jordanian Business Club, Jordon
•Director of INJAZ, Jordan
•Director of Jordan Insurance Federation
•CEO of Arab Orient Insurance Company, Jordan
Name Type of shares 31 Dec 2013 31 Dec 2012
Abdulla Hassan Buhindi
Ordinary
221,908
221,908
Hassan Mohammed
Zainalabedin
Ordinary
462,028
462,028
Shahnaz Ishaq Abdulrahman Ishaq*
Ordinary
617
617
Faisal Hassan Ordinary
Mohammed Zainalabedin*
29,782
29,782
Murad Ali Murad
Ordinary
143,000
143,000
Shawqi Ali Fakhroo
Ordinary
250,467
250,467
Ali Shawqi Ali Fakhroo*
Ordinary
6,544
6,544
* Related Party.
** The Board of Directors did not trade in the shares of the company during the
financial year ended 31 December 2013.
*** The Chief Executive officer, General Manager and other members holding
positions of approved status within the company do not hold any shares of the
Company in their names or in the names of their families.
Shawqi Ali Fakhroo (Non-Executive)
Director
Director since 25 February 2008
Major Directorships and other offices held:
•Chairman and Managing Director of Ali Bin Yusuf Fakhroo and Sons
WLL, Bahrain
•Vice Chairman & Managing Director of Mohammed Fakhroo and
Bros. WLL, Bahrain
•Director of Zallaq Resort Co. BSC, Bahrain
•Director of Bahrain Maritime and Mercantile Int’l, Bahrain
•Director of Bahrain Cinema Co. Bahrain
•Director of Fakhroo Trading Agencies WLL, Bahrain
•Director of Fakhroo Information Technology Service WLL, Bahrain
•Director of Fakhroo Investment WLL, Bahrain
•Director of Shutdown Maintenance Services WLL, Bahrain
•Director of Arab Life & Accidents Insurance Company, Jordan
•Managing Director of Areej Trading Agencies WLL, Bahrain
2013 ANNUAL REPORT 21
Year ended 31 December 2013
Corporate Governance Report
6. BOARD MEETINGS AND ATTENDANCES
As per the charter of the Board, the directors are required to meet at least 4 times in a given financial year to discharge its responsibilities effectively.
During the year, the Board of Directors met for five times on following dates and discussed the below mentioned significant items.
The members of the Board during the year 2013, together with a record of their attendance at meetings which they were eligible to attend, are set below:
Name of Director
Title
7 Feb 5 Mar 9 May 1 Aug 7 Nov Meetings % of meetings
attended
attended
Abdulla Hassan Buhindi
Chairman
ü
ü
ü
ü
ü
5
100
Khalid Saoud Al Hasan
Vice Chairman
ü
ü
ü
ü
ü
5
100
Hassan Mohammed Zainalabedin
Director
ü
ü
ü
ü
ü
5
100
Murad Ali Murad
Director
ü
ü
ü
ü
ü
5
100
Emad Jawad Bukhamseen
Director
ü
ü
ü
x
ü
4
80
Dr. Abdul Rahman Ali Saif
Director
ü
ü
ü
ü
x
4
80
Adnan Ahmed Al-Baghli
Director
ü
ü
ü
ü
ü
5
100
Bijan Khosrowshahi
Director
ü
ü
ü
ü
ü
5
100
Isam Mohammed Abdel Khaliq
Director
ü
ü
ü
x
ü
4
80
Shawqi Ali Fakhroo
Director
ü
ü
ü
ü
ü
5
100
The summary of final decisions taken on significant items discussed during the meetings is also stated below:
Meeting Date
Key Matters Discussed
Final Decision
7/2/2013
Review of Financials as at 31/12/2012
Approved
7/2/2013
Recommendation to AGM to distribute 30% dividend to Shareholders
Approved
7/2/2013
Review Revised Budget for 2013
Approved
7/2/2013
Review MOU with Hamblin Watsa
Approved
7/2/2013
Review amendment to Investment Policy at recommendation of Ex Com
Approved
7/2/2013
Recommendation to AGM to re-appoint Ernst & Young as External Auditors for 2013
Approved
7/2/2013
Approved payment of bonus to CEO and GM’s for 2012
Approved
5/3/2013
Review External Audit fees for 2013
Approved
9/5/2013
Review financials at 31/3/2013
Approved
9/5/2013
Amend Asset Allocation policy
Approved
9/5/2013
Amend Reserve Ratio
Approved
22 BAHRAIN KUWAIT INSURANCE
Year ended 31 December 2013
Corporate Governance Report
Meeting Date
Key Matters Discussed
Final Decision
9/5/2013
Review organization chart Approved
9/5/2013
Review Gap Analysis & end of service benefits Approved
1/8/2013
Review financials at 30/6/2013
Approved
1/8/2013
Review donation policy
Approved
1/8/2013
Review Legal Department Policy & Procedure Manual
Approved
7/11/2013
Review financials at 30/9/2013
Approved
7/11/2013
Review investment limits
Approved
7. BOARD COMMITTEES
Board sub-committees are formed and their members are appointed
by the Board of Directors at the beginning of each Board term. They
are considered the high level link between the Board and the Executive
Management. The objective of these committees is to assist the Board
in monitoring the actual operations of the Company, by reviewing
issues that are submitted by management to the Board and making
recommendations to the Board for their final review.
The Board reserves the right to form temporary committees and
discontinue them from time to time and as it deems necessary. Further,
the members of the Board are provided with copies of meeting minutes
of the said committees, as required by the regulators.
Executive Committee
The Board has delegated the following responsibilities to the Executive
Committee:
•The development and recommendation of strategic plans for
consideration by the Board that reflect the long-term objectives and
priorities established by the Board;
•Implementation of the strategies and policies of the Company as
determined by the Board;
•Monitoring of the operational and financial results against plans and
budgets;
•Monitoring the quality and effectiveness of the investment process
against objectives and guidelines;
•Prioritizing allocation of capital, technical and human resources;
The members of the Executive Committee and their attendance at the four meetings held during the year were as follows:
Name of Director
Title
6 Feb
8 May
31 Jul
6 Nov
Meetings attended
% of meetings attended Murad Ali Murad
Chairman ü
ü
ü
ü
4
100
Khalid Saoud Al Hasan
Vice Chairman ü
ü
ü
x
3
75
Emad Jawad Bukhamseen
Member
ü
ü
x
ü
3
75
Dr. Abdul Rahman Ali Saif
Member
ü
ü
ü
ü
4
100
Bijan Khosrowshahi
Member
ü
ü
ü
ü
4
100
2013 ANNUAL REPORT 23
Year ended 31 December 2013
Corporate Governance Report
Audit Committee
The Board has delegated the following responsibilities to the Audit
Committee:
•reviewing the Company’s draft financial statements and interim results
statement prior to Board approval and reviewing the external auditor’s
detailed reports thereon;
•reviewing the appropriateness of the Company’s accounting policies and
other operational procedures;
•reviewing regularly the potential impact in the Company’s financial
statements of certain matters such as impairment of fixed asset values
and proposed changes in International Financial Reporting Standards and
International Accounting Standards applicable to the Company;
•reviewing compliance of requirements specified in the Rulebook issued by
the Central Bank of Bahrain;
•reviewing and approving the terms of engagement for the audit;
•reviewing an annual report on the Company’s systems of internal control
and its effectiveness, reporting to the Board on the results of the review
and receiving regular updates on key risk areas of financial control; and
•reviewing the internal audit functions terms of reference, its work
programme and quarterly reports on its work during the year.
Under its terms of reference, the Audit Committee monitors the integrity
of the Company’s financial statements and any formal announcements
relating to the Company’s performance. The Committee is responsible for
monitoring the effectiveness of the external audit and internal process.
It is responsible for ensuring that an appropriate relationship between the
Company and the external auditors is maintained. It also reviews annually
the Company’s systems of internal control and the processes for monitoring
and evaluating the risks facing the Company. The Committee reviews the
effectiveness of the internal audit and is responsible for approving, upon the
recommendation of the Chief Executive, the appointment and termination
of the internal auditors. The Committee reviews its terms of reference and its
effectiveness annually and recommends to the Board, any changes required
as a result of the review.
The Committee meets with the Directors and management, and as and when
considered required with both the external and internal auditors.
The internal audit function is outsourced to KPMG, Bahrain who conduct
their procedures as per the agreed terms of reference, and provide their
periodic reports directly to the Audit Committee.
The members of the Audit Committee and their attendance at the four meetings held during the year were as follows:
Meetings attended
% of meetings attended ü
4
100
ü
ü
4
100
ü
ü
ü
4
100
ü
x
ü
3
75
Name of Director
Title
Hassan Mohammed Zainalabedin
Chairman
ü
ü
ü
Shawqi Ali Fakhroo
Vice Chairman
ü
ü
Adnan Ahmed Al-Baghli
Member
ü
Isam Mohammed Abdel Khaliq
Member
ü
7 Feb 8 May 1 Aug 6 Nov
Nomination and Remuneration Committee
The Board has delegated the following responsibilities to the Nomination
and Remuneration Committee:
•Assist the Board of Directors in identifying and nominating individuals
qualified to serve as Board and Sub-committee members of the Board.
•Recommend the remuneration and rewards policy for the Company
and in particular, for the directors and senior management team, and
lead the performance review of Board and Sub-committes.
The members of the Nomination and Remuneration Committee and their attendance at the four meetings held during the year were as follows:
24 BAHRAIN KUWAIT INSURANCE
Name of Director
Title
Dr. Abdul Rahman Ali Saif
Chairman
ü
ü
ü
ü
4
100
Hassan Mohammed Zainalabedin
Vice Chairman
ü
ü
ü
ü
4
100
Khalid Saoud Al Hasan
Member
ü
ü
ü
ü
4
100
6 Feb 4 Apr 1 Aug 29 Oct Meetings attended % of meetings attended Year ended 31 December 2013
Corporate Governance Report
Code of Conduct
The Board has approved a Code of Conduct for the Company’s Directors.
The Board has also approved a Code of Ethics for the Executive
Management and employees. These codes outline areas of conflict of
interest, confidentiality and the responsibilities of signatories to adhere
to best practices.
Key Persons Trading Policy
The Company has established a “Key Persons Trading Policy” to ensure
that insiders are aware of the legal and administrative requirements
regarding holding and trading of BKIC shares, with the primary objective
of preventing abuse of inside information. “Key Persons” are defined to
include the Directors, Executive Management, designated employees
and any person or firm connected to the identified key persons.
Responsibility for ensuring compliance with the Key Persons Trading
Policy is entrusted to the Secretary to the Board.
The policy covers the regulation of Bahrain Bourse relating to key persons.
Corporate social responsibility
BKIC’s contribution towards the well being of the community is an
integral part of its corporate role. This corporate social responsibility is
translated by the Company through an annual appropriation of a budget
allocated for donations to finance community related projects and
initiatives. The projects varying in nature fall into any one of the following
fields; education & scientific centres, medical centres & facilities, social
activity, public awareness programmes and environment protection
programmes.
8. RISK MANAGEMENT, COMPLIANCE AND ANTI-MONEY LAUNDERING
rigorous review to ensure compliance with the regulatory requirements
in regard of these functions, the Senior Manager, Risk Management &
Compliance and Anti-Money Laundering Officer now reports directly to
the Chief Executive Officer and has full access to the Board of Directors
through the Board Audit Committee.
The Company retains an approved Anti-Money Laundering Policy, which
contains Customer Due Diligence measures, procedures for identifying
and reporting suspicious transactions, an annual awareness programme
for staff training, record keeping requirements and documentation. The
Internal and External Auditors regularly carry out an independent review
of Anti Money Laundering controls for the attention of the Central Bank.
9. SOLVENCY
Solvency margin requirements are determined in accordance with the
regulatory requirements established by the Central Bank of Bahrain and
are calculated with reference to a prescribed premium and claims basis.
Where these calculations resulting solvency margin requirements falling
below the minimum fund size prescribed by regulations, such minimum
fund size is considered as the required margin of solvency. Summarised
solvency position of the Company is given below:
31 Dec. 2012
31 Dec. 2012
BD
BD
25,392,036 21,315,622
3,446,875
3,136,925
21,945,161
18,178,697
Capital available
Solvency margin required
Total excess capital available over
the required margin of solvency Bahrain Kuwait Insurance Company BSC is fully aware of its
responsibilities in observing all regulatory provisions and the best
international practices in relation to its functioning. It is committed to
complying with the international best practices on risk management,
compliance and anti-money laundering as reflected by the requirements
of the Central Bank of Bahrain.
The Company has a Senior Manager, Risk Management & Compliance
and Anti-Money Laundering Officer. These functions are independent of
business lines and the day-to-day running of the various business areas
and are separate from the Internal Audit function. In addition, following a
2013 ANNUAL REPORT 25
Year ended 31 December 2013
Corporate Governance Report
10. REMUNERATION POLICY
a) For Directors
The Board of directors is paid an annual remuneration as approved
by the shareholders at the annual general meeting. While the amount
of remuneration is not directly linked to the performance of the
Company, factors such as the Company’s performance, industry
comparison and the time and effort committed by the directors to
the Company, are considered for determining the total remuneration.
Directors remuneration is accounted as an expense as per International
accounting standards and CBB regulations, the payment of which is
subject to approval by the shareholders at the annual general meeting.
In addition, the members are paid sitting fees for the various subcommittees of the Board of directors.
b) For Employees
As the quality of human capital is fundamental to success, the Company’s
remuneration policy is to attract, retain and motivate the best talent. In
line with this strategy, employee remuneration and benefits are reviewed
and revised annually in the context of business performance, industry and
local practices. The executive management under the guidance of the CEO
is responsible for administering the employee performance process. While
a major component of employee remuneration consists of fixed monthly
salaries and allowances, employees are provided with several other benefits
like performance bonus, medical, life insurance cover and retirement
benefits.
The Audit Committee reviews the appointment of the external auditors, as
well as their relationship with the Company. This includes monitoring the
use of auditors for audit and non-audit services and keep a check on the
budget of audit and non-audit fees paid to auditors.
Details with regards to the audit and non-audit fees for the Company are
stated here below:
BD 55,665
Non-audit fees for 2013 BD 24,340
26 BAHRAIN KUWAIT INSURANCE
The division of responsibilities between the Chairman of the Board and
the Chief Executive Officer is clearly defined and has been approved
by the Board. The Chairman leads the Board in the determination of
its strategy and in the achievement of its objectives. The Chairman
is responsible for organizing the business of the Board, ensuring its
effectiveness and setting its agenda. The Chairman has no involvement
in the day to day business of the Company. The Chairman facilitates the
effective contribution of Directors and constructive relations between
them, ensures that the directors receive accurate, timely and clear
information and effective communication with shareholders.
The Chief Executive Officer has direct charge of the Company on a
day-to-day basis and is accountable to the Board for the financial and
operational performance of the Company.
SENIOR MANAGEMENT’S PROFILE
Ebrahim Alrayes
Chief Executive Officer
Date of Joining
Joined BKIC in 8th January 1984
Academic & Professional Qualification
•B.Com, Arab University of Beirut
•Certificate of Insurance Proficiency (COP) from
11. AUDITORS
Audit fees for 2013
12. THE ROLES OF THE CHAIRMAN AND EXECUTIVE
MANAGEMENT
Chartered Insurance Institute, UK
Assignments Held
•Vice Chairman of United Insurance Co, Bahrain
•Director of Arab Orient Insurance Co., Jordan
•Chairman of Investment Committee of United Insurance Co., Bahrain
•Member of Technical Committee of AWRIS, Bahrain
•Ex-Vice Chairman of Bahrain Insurance Association
•30 years of expertise in Insurance Industry
Year ended 31 December 2013
Corporate Governance Report
BAHRAIN OFFICE
Waleed Mahmood
General Manager
Date of Joining
Joined BKIC on the 1st February 2005
Academic & Professional Qualification
•Chartered Insurer and an Associate of Chartered Insurance Institute,
UK
•Master of Business Administration, Westminster University, UK
•Bachelor in Industrial Management, King Fahad University of Petroleum
& Minerals, KSA
Assignments Held
•Vice Chairman and Head of HR & PR Committee of Bahrain Insurance
Association, Bahrain
•Director of Gulf Assist, Bahrain
•Director and Member of Executive Committee of Gulf Insurance
Federation, UAE
•Ex-General Manager of United Insurance Co., Bahrain
•Total 23 years of experience, of which 17 years have been in Insurance
Industry
K. Sai Gopal
Chief Underwriting Officer
Date of Joining
Joined BKIC on 4th March 1998
Academic & Professional Qualification
•B.Sc. with Mathematics, Physics and Chemistry
•Associate of Indian Institute of Bankers, India
•Fellow of Insurance Institute of India, India
•Associate of Chartered Insurance Institute, UK
•Chartered Insurer
Assignments Held
•Currently overseeing all aspects of Underwriting, Claims, and
Reinsurance across all classes of BKIC business and assisting GM in all
other functions of General Management
•38 years of experience in Insurance Sector, of which, 32 years have
been in the various Middle Eastern markets (Jordan, Saudi Arabia,
United Arab Emirates, Kuwait and presently Bahrain)
R. Sundaram
Assistant General Manager - Finance & Accounts
Date of Joining
Joined BKIC on 28th September 2013
Academic & Professional Qualification
•B.Sc. with Mathematics
•Associate of The Institute of Chartered Accountants of India
•Associate of Chartered Insurance Institute, UK
•Associate of Insurance Institute of India
•Intermediate of Institute of Company Secretaries of India
Assignments Held
•Heads the Finance, Accounts and IT Departments of BKIC
•29 years of experience in Insurance/Reinsurance Sectors, of which,
5 years have been in East Africa (Nairobi) and above 4 years in Thailand
(Bangkok). It also includes 7 years of reinsurance industry exposure
(4 years in Thailand and 3 years in India)
K. M. Kurien
Assistant General Manager, Technical
Date of Joining
Joined BKIC on 22nd October 1977
Academic & Professional Qualification
•Associate of Insurance Institute of India
•Bachelor of Arts
Assignments Held
•Ex-Chairman of Marine Committee of Bahrain Insurance Association
and widely regarded as an expert in this field
•Holds overall functional responsibility of underwriting, claims and
reinsurance works related to business transacted in Non-Life, Life &
Medical Divisions of BKIC
•Actively involved in serving major Corporate Clients
•40 years of substantial experience in Insurance Industry
2013 ANNUAL REPORT 27
Year ended 31 December 2013
Corporate Governance Report
Jalal Khalil
Assistant General Manager, Marketing & Business Development
Date of Joining
•Joined BKIC on 3rd October 2010
Academic & Professional Qualification
•Master of Science in Insurance & Risk Management, UK
(with distinction)
•Associate of Chartered Insurance Institute
Assignments Held
•Currently leads the Marketing, Business Development, Personal Lines
and Bancassurance Operations of BKIC
•Ex-Director, Risk Management Solutions of GAB Robins Middle East S.A.R.L
•Ex-Acting General Manager of Ensurion W.L.L
KUWAIT OFFICE
Abdulla Rabia
General Manager
Date of Joining
Joined BKIC on 20th January 1990
Academic & Professional Qualification
•Diploma in Motor Vehicle Engineering
K. Gandhi
Assistant General Manager
Assignments Held
•Holds the overall responsibility of all functions of general management
of BKIC Kuwait office
•32 years of substantial experience in Insurance Sector all over GCC, of
which 22 years have been in Insurance Industry in Kuwait Market
•Ex-Loss Adjuster with Bayne Adjusters and Surveyors Bahrain, Dubai
and Saudi Arabia
•Experience in handling Engineering claims with Arab Insurance Group
(ARIG) Bahrain
Date of Joining
Joined BKIC on 2nd July 2006
S. Ramakrishnan
Deputy General Manager
Date of Joining
•Joined BKIC on 16th October 2001
Academic & Professional Qualification
•Fellow of Insurance Institute of India, India
•Associate of Chartered Insurance Institute
•Chartered Insurer
•Master of Business Administration
•Bachelor of Law
28 BAHRAIN KUWAIT INSURANCE
Assignments Held
•Holds the responsibility of Technical Department and Key Accounts
•Member of Referral Committee of GIC Group
•38 years of experience in Insurance Industry, out of which 18 years in
Kuwait
Academic & Professional Qualification
•Post Graduate in Engineering
•Associate of Indian Institute of Bankers, India
•Master of Business Administration
Assignments Held
•Holds the overall functional responsibility of Underwriting, Claims and
Reinsurance of Non-Life Division
•Actively involved in serving major Corporate Clients and assists DGM
in the day-to-day General Administration and Management of the
Technical functions of the Company
•More than 29 years of experience in Insurance Industry, out of which
12 years in Gulf
Year ended 31 December 2013
Corporate Governance Report
13. ORGANIZATIONAL STRUCTURE
Board of Directors
Nomination and Remuneration
Committee
Audit Committee
Investment
Portfolios Manager
Chief Executive Officer
Risk Management &
Compliance Officer
General Manager - Bahrain
Chief Underwriting Officer
General Manager - Kuwait
AGM - Finance & Accounts
AGM - Technical
Deputy General Manager
Executive Committee
Secretary to the Board
AGM - Marketing &
Business Development
Assistant General Manager
2013 ANNUAL REPORT 29
Year ended 31 December 2013
Financial Highlights
Sailing
Towards Success
2013
2012
2011
2010
2009
Gross Premium (BD millions)
38.18
34.99
36.25
33.40
31.84 Underwriting Profits (BD thousands)
3,319
3,964
4,215
3,902
3,846
Net Profit (BD thousands)
3,702
4,216 4,149
4,138
4,029 Technical Reserves (BD millions)
13.55
13.85 13.49
12.58
12.64
Shareholders’ Equity (BD millions)
33.30
31.05 28.58
27.37
24.39 “A calm sea does not make a
skilled sailor”.
Commendable is the one who
sets sail with courage and
determination to reach the
destination, come what may.
Gross Premiums (BD millions)
We operate in the given
environment and do our very
best. Results always follow.
36.25
31.84
33.40
38.18
34.99
2009 2010 2011 2012 2013
30 BAHRAIN KUWAIT INSURANCE
Underwriting Profits
3,846 3,902
4,215
(BD thousands)
Net Profits (BD thousands)
3,964
3,319
2009 2010 2011 2012 2013
4,029 4,138
4,149
4,216
3,702
2009 2010 2011 2012 2013
Year ended 31 December 2013
Financial Highlights
Future
Follows the Present
‘Past’ gave us experience
and ‘present’ gives us the opportunity.
‘Future’ is determined by
what we do with that opportunity.
Technical Reserves (BD millions)
13.85
12.64
13.49
Shareholders’ Equity (BD millions)
13.55
12.58
2009 2010 2011 2012 2013
27.37
28.58
31.05
33.30
24.39
2009 2010 2011 2012 2013
2013 ANNUAL REPORT 31
Financial Information
Contents
32 BAHRAIN KUWAIT INSURANCE
Independent Auditors’ Report
33
Statement of Financial Position
34
Statement of Income
35
Statement of Comprehensive Income
36
Statement of Cash Flows
37
Statement of Changes in Equity
38
Notes to the Financial Statements
39
Independent Auditor’s Report to the Shareholders
of Bahrain Kuwait Insurance Co. BSC
Report on the financial statements
We have audited the accompanying financial statements of Bahrain
Kuwait Insurance Company B.S.C. (“the Company”), which comprise
the statement of financial position as at 31 December 2013, and the
statements of income, comprehensive income, cash flows and changes in
equity for the year then ended, and a summary of significant accounting
policies and other explanatory information. Responsibility of the board of directors for the financial
statements
The Board of Directors is responsible for the preparation and fair
presentation of these financial statements in accordance with
International Financial Reporting Standards, and for such internal
control as the Board of Directors determines is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit in accordance with
International Standards on Auditing. Those standards require that we
comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free from material misstatement.
An audit involves performing procedures to obtain audit evidence about
the amounts and disclosures in the financial statements. The procedures
selected depend on the auditors’ judgement, including the assessment of
the risks of material misstatement of the financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity’s preparation and fair presentation
of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit
also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by the Board of
Directors, as well as evaluating the overall presentation of the financial
statements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as at 31 December 2013,
and its financial performance and its cash flows for the year then ended in
accordance with International Financial Reporting Standards.
Report on other regulatory requirements
“As required by the Bahrain Commercial Companies Law and the Central
Bank of Bahrain (CBB) Rule Book (Volume 3), we report that:
a) the Company has maintained proper accounting records and the financial statements are in agreement therewith; and
b)the financial information contained in the Report of the Board of Directors is consistent with the financial statements.
We are not aware of any violations of the Bahrain Commercial Companies
Law, the Central Bank of Bahrain and Financial Institutions Law, the CBB
Rule Book (Volume 3 and applicable provisions of Volume 6) and CBB
directives, regulations and associated resolutions, rules and procedures
of the Bahrain Bourse or the terms of the Company’s memorandum and
articles of association during the year ended 31 December 2013 that
might have had a material adverse effect on the business of the Company
or on its financial position. Satisfactory explanations and information have
been provided to us by management in response to all our requests.
9th February, 2014
Manama, Kingdom of Bahrain
2013 ANNUAL REPORT
33
At 31 December 2013
Statement of Financial Position
Abdulla Hassan Buhindi
Chairman
Hassan Mohammed Zainalabedin
Director
Ebrahim Alrayes
Chief Executive Officer
2013
2012
Note
BD ‘000
BD ‘000
ASSETS
Cash and balances with banks
6
27,760 28,847
Statutory deposits
7
3,723 2,581
Insurance receivables
8
15,347
14,944
Deferred acquisition costs
9
885 930
Reinsurers’ share of insurance liabilities
10
31,651 24,492
Investments
11
13,649 11,381
Investment property
12
178
178
Property and equipment
13
3,855 4,020
TOTAL ASSETS
97,048 87,373
LIABILITIES AND EQUITY
Liabilities
Insurance liabilities
10
45,197 38,342
Unearned commissions
14
1,933 1,707
Payables and accrued liabilities
Insurance and reinsurance companies
9,892 8,370
Policyholders
1,959 3,191
Others
15
4,766 4,708
Total liabilities
63,747 56,318
Equity
Share capital
16
7,150 7,150
Treasury shares
16
(3)
(3)
Share premium
16
4,362 4,362
Statutory reserve
16
3,781 3,781
General reserve
16
6,504 5,004
Investments fair value reserve
2,652 1,880
Currency translation reserve
173
256
Retained earnings
8,682 8,625
Total equity
33,301 31,055
TOTAL LIABILITIES AND EQUITY
97,048 87,373
The attached notes 1 to 29 form part of these financial statements.
34 BAHRAIN KUWAIT INSURANCE
Year ended 31 December 2013
Statement of Income
Note
2013 BD ‘000
2012
BD ‘000
Gross premiums
17
38,179
34,996
Reinsurers’ share of gross premiums
(26,068)
(22,781)
Retained premiums
12,111 12,215
Abdulla Hassan Buhindi
Chairman
Hassan Mohammed Zainalabedin
Director
Ebrahim Alrayes
Chief Executive Officer
Unearned premiums adjustment - gross
(2,144)
(227)
Unearned premiums adjustment - reinsurance
2,029
(275)
Net premiums
11,996 11,713
Gross claims paid
10
(28,793)
(18,137)
Reinsurers’ share of claims paid
10
20,892 11,255
Outstanding claims adjustment - gross
(4,853) 1,142
Outstanding claims adjustment - reinsurance
5,227
(1,043)
Net claims
(7,527)
(6,783)
General and administration expenses
18
(3,315)
(3,436)
Amortisation of acquisition costs
9
(1,706)
(1,606)
Fee and commission income
19
3,871 4,076
(1,150)
(966)
Underwriting profit
3,319 3,964
Investment income - net
20
1,050 910
Corporate expenses
(601)
(635)
Other income
21
77 107
Other expenses
21
(143)
(130)
383
252
PROFIT FOR THE YEAR
3,702 4,216
Basic and diluted earnings per share
22
52 Fils
59 Fils
The attached notes 1 to 29 form part of these financial statements.
2013 ANNUAL REPORT
35
Year ended 31 December 2013
Statement of Comprehensive Income
2013
BD ‘000
2012
BD ‘000
Profit for the year
3,702
4,216
Other comprehensive income (loss) to be reclassified to
statement of income in subsequent years:
Available-for-sale investments:
Fair value changes arising during the year
841
(136)
Recycled to the statement of income on disposal/impairment
(69) 91
772
(45)
Currency translation differences
(83)
69
Net other comprehensive income (loss) for the year to be reclassified to the statement of income in subsequent years
689
(114)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
The attached notes 1 to 29 form part of these financial statements.
36 BAHRAIN KUWAIT INSURANCE
4,391
4,102
Year ended 31 December 2013
Statement of Cash Flows
Note
OPERATING ACTIVITIES
Premiums received net of commission
Paid to insurance and reinsurance companies
Claims paid
Claims recovered
General and administrative expenses paid
Interest and other payments
Statutory deposits
2013 BD ‘000
2012
BD ‘000
36,236 (22,240)
(28,976)
20,949 (3,217)
(308)
(1,143)
34,674
(20,994)
(18,106)
11,313
(3,101)
(431)
(511)
Net cash from operating activities
1,301 INVESTING ACTIVITIES
Dividends and interest received
1,214 Proceeds from sale of available-for-sale investments
1,639 Payments for investments purchased
(3,065)
Rent received
50 Proceeds from sale of property and equipment
27 Purchase of property and equipment 13
(136)
Bank deposits with maturities of more than three months
6
(3,816)
2,844
1,121
3,795
(3,204)
80
2
(414)
(1,725)
Net cash from (used in) investing activities
(4,087) 3,105
FINANCING ACTIVITY
Dividend paid
16
(2,117)
(1,616)
Cash used in financing activity
(2,117)
(1,616)
(DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS
(4,903) 4,333
Cash and cash equivalents at beginning of the year
20339 16,006
CASH AND CASH EQUIVALENTS AT END OF THE YEAR
6
15,436 20,339
The attached notes 1 to 29 form part of these financial statements.
2013 ANNUAL REPORT
37
Year ended 31 December 2013
Statement Of Changes In Equity
Investments Currency
Share Treasury
Share Statutory
General fair value translation Retained
capital
shares premium
reserve
reserve
reserve
reserve
earnings
Total
BD ‘000
BD ‘000
BD ‘000
BD ‘000
BD ‘000
BD ‘000
BD ‘000
BD ‘000
BD ‘000
Balance at 1 January 2013
7,150 (3)
4,362 3,781 5,004 1,880 256 8,625 31,055
Transfer to general reserve for 2012
(note 16)
- - - - 1,500
- - (1,500)
Dividend for the year 2012 (note 16)
- - - - - -
Profit for the year - - - - - -
Other comprehensive income (loss)
-
-
-
-
-
772
-
(2,145) (2,145)
-
3,702
3,702
(83)
-
689
Total comprehensive income (loss)
-
-
-
-
-
772
(83)
3,702
4,391 Balance at 31 December 2013
7,150
(3)
4,362
3,781
6,504
2,652
173
8,682
33,301
Balance at 1 January 2012
6,500
(3)
4,362 3,781 3,604 1,925 325 8,084 28,578
Transfer to general reserve for 2011
(note 16)
- - - - 1,400 - - (1,400) Dividend for the year 2011 (note 16)
- Bonus shares issued for the year 2011
(note 16)
650
Profit for the year
-
Other comprehensive loss
-
Total comprehensive (loss) income
Balance at 31 December 2012
- 7,150 - - - - -
-
(1,625)
(1,625)
-
-
-
-
-
-
(650)
-
-
-
-
-
-
-
4,216
4,216
-
-
-
-
(45)
(69) -
(114)
- - - - (45)
(69) 4,216 4,102
5,004 1,880 256 8,625 31,055
(3)
The attached notes 1 to 29 form part of these financial statements.
38 BAHRAIN KUWAIT INSURANCE
4,362 3,781
At 31 December 2013
Notes to the Financial Statements
1 INCORPORATION AND ACTIVITIES
Bahrain Kuwait Insurance Company B.S.C. [the Company] was formed pursuant to Amiri Decree 3 of 1975 under commercial registration number 4745
and is listed on the stock exchanges of the Kingdom of Bahrain and the State of Kuwait. The registered office of the Company is at BKIC Tower 2775, Road
2835, Seef District 428, Manama, Kingdom of Bahrain.
The Company primarily conducts general insurance business through its head office and branches in the Kingdom of Bahrain [the Head Office] and a
branch office in the State of Kuwait [the Kuwait Branch].
The majority shareholder of the Company is Gulf Insurance Company K.S.C., a listed entity registered and incorporated in the State of Kuwait. The
ultimate holding company is Kuwait Projects Company Holding K.S.C. (c), a listed entity registered and incorporated in the State of Kuwait.
The financial statements of the Company were authorised for issue in accordance with a resolution of the Board of Directors dated 9th February 2014.
2 BASIS OF PREPARATION
Statement of compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the relevant provisions of the
Bahrain Commercial Companies Law, the Insurance Regulations contained in Volume 3 and applicable provisions of Volume 6 of the Central Bank of
Bahrain’s (CBB) rulebook, CBB directives, regulations and associated resolutions, rules and procedures of the Bahrain Bourse and the Central Bank of
Bahrain and Financial Institutions Law 2006.
Accounting convention
The financial statements have been prepared under the historical cost convention modified to include the measurement at fair value of available-for-sale
investments.
Functional currency
The financial statements have been presented in Bahraini Dinars (BD) which is the functional currency of the Company and are rounded to the nearest
BD thousands (BD ‘000) except when otherwise indicated.
3 SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted are consistent with those of the previous financial year, except for the following new standards which
became effective from 1 January 2013:
IFRS 13 Fair Value Measurement
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair
value, but rather provides guidance on how to measure fair value under IFRS. IFRS 13 defines fair value as an exit price. As a result of the guidance in IFRS
13, the Company re-assessed its policies for measuring fair values. IFRS 13 also requires additional disclosures.
Application of IFRS 13 has not materially impacted the fair value measurements of the Company. Additional disclosures where required, are provided in
the individual notes relating to the assets and liabilities whose fair values were determined. Fair value hierarchy is provided in note 24.
2013 ANNUAL REPORT
39
At 31 December 2013
Notes to the Financial Statements
3 SIGNIFICANT ACCOUNTING POLICIES (continued)
IAS 1 Presentation of Items of Other Comprehensive Income – Amendments to IAS 1
The amendments to IAS 1 introduce a grouping of items presented in other comprehensive income. Items that will be reclassified (‘recycled’) to profit
or loss at a future point in time (e.g., net loss or gain on AFS financial assets) have to be presented separately from items that will not be reclassified
(e.g., revaluation of land and buildings). The amendments affect presentation only and have no impact on the Company’s financial position or
performance.
In addition to the above, the Company has adopted the following IFRSs amendments and improvements thereto, which did not have any impact on the
Company:
- IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements
- IFRS 11 Joint Arrangements and IAS 28 Investments in Associates and Joint Ventures
- IFRS 12 Disclosure of Interests in Other Entities
- IFRS 1 First-time Adoption of International Financial Reporting Standards - Government Loans - (Amendment)
- IFRS 7 Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities (Amendment)
- IAS 1 Clarification of the requirement for comparative information (Amendment)
- IAS 19 Employee Benefits (Revised 2011)
- Improvements to IFRSs - 2009-2011 Cycle:
- IAS 32 – Tax effects of distributions to holders of equity instruments
- IAS 34 – Interim financial reporting and segment information for total assets and liabilities
Summary of significant accounting policies
Product classification
Insurance contracts are those contracts in which the Company [the insurer] has accepted significant insurance risk from another party [the policyholder]
by agreeing to compensate the policyholder if a specified uncertain future event [the insured event] adversely affects the policyholder. As a general
guideline, the Company determines whether it has significant insurance risk, by comparing benefits paid with benefits payable if the insured event did not
occur. Insurance contracts can also transfer financial risk. Once a contract has been classified as an insurance contract, it remains an insurance contract
for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or
expired.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and at bank and short-term deposits with original maturities of three months or less.
Insurance receivables Insurance receivables are recognised when due and are measured on initial recognition at the fair value of the consideration received or receivable. The
carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be
recoverable, with the impairment loss recorded in the statement of income.
Deferred acquisition costs
Those direct and indirect costs incurred during the financial period arising from the writing or renewing of insurance contracts are deferred to the extent
that these costs are recoverable out of future premiums. All other acquisition costs are recognised as an expense when incurred.
40 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
3 SIGNIFICANT ACCOUNTING POLICIES (continued)
Summary of significant accounting policies (continued)
Deferred acquisition costs (continued)
Subsequent to initial recognition, these costs are amortised over the period in which the related revenues are earned. The reinsurers’ share of deferred
acquisition costs is amortised on the same basis used in the calculation of gross unearned premiums. Amortisation is recorded in the statement of income.
Trade and settlement date accounting
All regular way purchases and sales of financial assets are recognised on the trade date which is the date that the Company commits to purchase or sell
the asset. Regular way purchases or sales of financial assets require delivery of assets within the period generally established by regulation or convention
in the market place.
Investments
The Company classifies its investments into held-to-maturity and available-for-sale categories. The Company determines the classification of its financial
assets on initial recognition.
Financial assets are recognised initially at fair value, including directly attributable transaction costs.
Held-to-maturity
Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Company has the
positive intention and ability to hold until maturity. These investments are initially recognised at fair value, being the consideration paid for the acquisition
of the investment including transaction costs directly attributable to the acquisition. After initial measurement these are measured at amortised cost,
using the effective interest rate method. Gains and losses are recognised in the statement of income when the investments are derecognised or impaired,
as well as through the amortisation process. Interest income from held-to-maturity investments are recognised on an accruals basis, using the effective
yield method and included under investment income in the statement of income.
Available-for-sale
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale. These investments are initially recorded
at fair value. After initial measurement these are remeasured at fair value. Fair value gains and losses are reported as a separate component in other
comprehensive income until the investment is derecognised or the investment is determined to be impaired. On derecognition or impairment, the
cumulative fair value gains and losses previously reported in other comprehensive income are transferred to the statement of income. Dividend income
on available for sale investments are included under investment income in the statement of income.
Investment property
Investment property is measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing
investment property at the time that cost is incurred if the recognition criteria are met and excludes the costs of day-to-day servicing of an investment
property. Subsequent to initial recognition, investment property is carried at cost less any accumulated depreciation and any accumulated impairment
losses.
Investment property is derecognised either when it has been disposed of, or when the investment property is permanently withdrawn from use and
no future economic benefit is expected from its disposal. Any gain or loss on the retirement or disposal of the investment property is recognised in the
statement of income in the period of retirement or disposal.
2013 ANNUAL REPORT
41
At 31 December 2013
Notes to the Financial Statements
3 SIGNIFICANT ACCOUNTING POLICIES (continued)
Summary of significant accounting policies (continued)
Investment property (continued)
Transfers are made to or from investment property only when there is a change in use evidenced by the end of owner-occupation, commencement
of an operating lease to another party or completion of construction or development. Transfers between investment property and owner-occupied
property do not change the carrying amount of the property transferred and they do not change the cost of that property for measurement or disclosure
purposes.
Property and equipment
Property and equipment, including owner-occupied property, is stated at cost, excluding the costs of day to day servicing, less accumulated depreciation
and accumulated impairment losses. Replacement or major inspection costs are capitalised when incurred and if it is probable that future economic
benefits associated with the item will flow to the entity and the cost of the item can be measured reliably.
The assets’ residual values and useful lives and method are reviewed and adjusted if appropriate at each financial year end.
Impairment reviews are performed when there are indicators that the carrying value may not be recoverable. Impairment losses are recognised in the
statement of income as an expense.
An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain
or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is
included in the statement of income in the year the asset is derecognised.
Foreign currency translation
The financial statements are presented in Bahraini Dinars which is the functional currency of the Company. The Company’s Kuwait office, however uses
the Kuwaiti Dinar as its functional currency. Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the statement of financial position
date. All differences are taken to the statement of income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial
transaction and are not subsequently restated. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates
at the date when the fair value was determined. All foreign exchange differences are taken to the statement of income, except for differences relating to
items where gains or losses are recognised directly in equity, in which case the gain or loss is recognised in equity.
The assets and liabilities of the Kuwait branch are translated into Bahraini Dinars at the rate of exchange prevailing at the statement of financial position
date and the statement of income is translated at average exchange rates for the year. The exchange differences arising on the translation are taken
directly to ‘currency translation reserve’ a separate component of equity.
Treasury shares
Own equity instruments which are acquired are deducted from equity and accounted for at weighted average cost. No gain or loss is recognised in the
statement of income on the purchase, sale, issue or cancellation of the Company’s own equity instruments. Such gains or losses are recorded in equity.
42 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
3 SIGNIFICANT ACCOUNTING POLICIES (continued)
Summary of significant accounting policies(continued)
Dividends on share capital
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 paid.
Dividends for the year that are approved after the statement of financial position date are dealt with as an event after the reporting period.
Revenue recognition
Gross premiums Gross premiums comprise the total premiums receivable for the whole period of cover provided by contracts entered into during the accounting period
and are recognised on the date on which the policy incepts. Premiums include any adjustments arising in the accounting period for premiums receivable
in respect of business written in prior accounting periods. Premiums collected by intermediaries, but not yet received, are assessed based on estimates
from underwriting or past experience and are included in premiums written.
Unearned premiums are those proportions of premiums written in a year that relate to periods of risk after the statement of financial position date. The
proportion attributable to subsequent periods is deferred as a provision for unearned premiums and is calculated as follows:
- by the 1/365th method for all annual policies, except for marine cargo business; and
- at 25% of gross premiums and reinsurance cessions for marine cargo business. This approximation method is used because marine cargo policies
cover variable periods shorter than one year, in order to spread the premiums earned over the tenure of the insurance policies.
Reinsurance premiums Gross reinsurance premiums written comprise the total premiums payable for the whole cover provided by contracts entered into during the period
and are recognised on the date on which the policy incepts. Premiums include any adjustments arising in the accounting period in respect of reinsurance
contracts incepting in prior accounting periods.
Unearned reinsurance premiums are those proportions of premiums written in a year that relate to periods of risk after the statement of financial
position date. The proportions attributable to subsequent periods are deferred and are determined on the same basis used in the calculation of gross
unearned premiums.
Fee and commission income
Policyholders are charged for policy administration services, surrenders and other contract fees. These fees are recognised as revenue over the period
in which the related services are performed. If the fees are for services provided in future periods then they are deferred and amortised on the same basis
used in the calculation of gross unearned premiums. Interest income
Interest income is recognised in the statement of income as it accrues and is calculated by using the effective interest rate method.
Rental income
Rental income is recognised on an accrual basis.
2013 ANNUAL REPORT
43
At 31 December 2013
Notes to the Financial Statements
3 SIGNIFICANT ACCOUNTING POLICIES (continued)
Summary of significant accounting policies (continued)
Revenue recognition (continued)
Dividends
Dividends are recognised as income when the Company’s right to receive the payment is established.
Claims
Claims include all claims occurring during the year, whether reported or not, related claims handling costs that are directly related to the processing and
settlement of claims, a reduction for the value of salvage and other recoveries, and any adjustments to claims outstanding from previous years.
Reinsurance claims are recognised when the related gross insurance claim is recognised according to the terms of the relevant contracts.
Reinsurance commissions
Commissions receivable on outward reinsurance contracts are deferred and amortised over the term of the expected premiums payable.
Reinsurance
The Company cedes insurance risk in the normal course of business for all of its businesses. Reinsurance assets represent balances due from reinsurance
companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated
with the reinsurer’s policies and are in accordance with the related reinsurance contract.
Ceded reinsurance arrangements do not relieve the Company from its obligations to policyholders.
Premiums and claims are presented on a gross basis.
Reinsurance assets or liabilities are derecognised when the contractual rights are extinguished or expire or when the contract is transferred to another party.
Reinsurance assets are reviewed for impairment at each reporting date or more frequently when an indication of impairment arises during the reporting
year. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance assets that the
Company may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measureable impact on the amounts
that the Company will receive from the reinsurer. The impairment loss is recorded in the statement of income.
Offsetting
Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position only when there is a legally enforceable
right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously.
Income and expense is not offset in the statement of income unless required or permitted by any accounting standard or interpretation.
Fair value of financial instruments
The Company measures financial instruments such as available for sale investments at fair value at each balance sheet date.
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:
44 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
3 SIGNIFICANT ACCOUNTING POLICIES (continued)
Summary of significant accounting policies (continued)
Fair value of financial instruments (continued)
- 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 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 for 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 is 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 for identical assets or liabilities;
- Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and
- 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.
Management assesses the need to involve external valuers for valuation of investment properties at each reporting date. Impairment of financial assets
The Company assesses at each statement of financial position date whether a financial asset or group of financial assets is impaired.
Assets carried at amortised cost
If there is objective evidence that an impairment loss on assets carried at amortised cost has been incurred, the amount of the impairment loss is
measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit
losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the
loss is recorded in the statement of income.
The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and
individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists
for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk
characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for
which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. The impairment assessment is
performed at each statement of financial position date.
2013 ANNUAL REPORT
45
At 31 December 2013
Notes to the Financial Statements
3 SIGNIFICANT ACCOUNTING POLICIES (continued)
Summary of significant accounting policies(continued)
Impairment of financial assets (continued)
Assets carried at amortised cost (continued)
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the
impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the
statement of income, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.
Available-for-sale financial assets
If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal repayment and amortisation)
and its current fair value, less any impairment loss previously recognised in other comprehensive income, is transferred from other comprehensive income
to the statement of income. Reversals in respect of equity instruments classified as available-for-sale are not recognised in the statement of income.
Reversals of impairment losses on debt instruments classified as available-for-sale are reversed through the statement of income if the increase in the fair
value of the instruments can be objectively related to an event occurring after the impairment losses were recognised in the statement of income.
Derecognition of financial assets and financial liabilities
Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where:
- the rights to receive cash flows from the asset have expired; or
- the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full
without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks
and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset. When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither
transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of
the Company’s continuing involvement in the asset.
Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is
replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying
amounts is recognised in the statement of income.
Insurance liabilities
Insurance liabilities comprise outstanding claims and unearned premiums.
46 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
3 SIGNIFICANT ACCOUNTING POLICIES (continued)
Summary of significant accounting policies(continued)
Insurance liabilities (continued)
Outstanding claims
Outstanding claims are based on the estimated ultimate cost of all claims incurred but not settled at the statement of financial position date, whether
reported or not, together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Delays can be
experienced in the notification and settlement of certain types of claims, therefore the ultimate cost of these cannot be known with certainty at the
statement of financial position date. The liability is not discounted for the time value of money. No provision for equalisation or catastrophe reserves is
recognised. The liabilities are derecognised when the contract expires, is discharged or is cancelled.
Unearned premiums
The provision for unearned premiums represents premiums received for risks that have not yet expired. The reserve is matched with the premiums
earned and released.
Liability adequacy test
At each reporting date the Company reviews its unexpired risk and a liability adequacy test is performed to determine whether there is any overall excess
of expected claims and deferred acquisition costs over unearned premiums. This calculation uses current estimates of future contractual cash flows
after taking account of the investment return expected to arise on assets relating to the relevant technical provisions. If these estimates show that the
carrying amount of the unearned premiums (less related deferred acquisition costs) is inadequate the deficiency is recognised in the statement of
income by setting up a provision for liability adequacy.
Employees’ end of service benefits
The Company provides end of service benefits to its expatriate employees in accordance with the relevant regulations. The entitlement to these benefits
is based upon the employees’ final salaries and length of service, subject to the completion of a minimum service period. The expected costs of these
benefits are accrued over the period of employment based on the notional amount payable if all employees had left at the statement of financial position
date.
With respect to its national employees, the Company makes contributions to the Social Insurance Organisation calculated as a percentage of the employees’
salaries in accordance with the relevant regulations. The Company’s obligations are limited to these contributions, which are expensed when due.
Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow
of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
4 STANDARDS ISSUED BUT NOT YET EFFECTIVE
Standards issued but not yet effective up to the date of issuance of the Company’s financial statements are listed below. This listing is of standards and
interpretations issued, which the Company reasonably expects to be applicable at a future date. The Company intends to adopt those standards (where
applicable) when they become effective:
2013 ANNUAL REPORT
47
At 31 December 2013
Notes to the Financial Statements
4 STANDARDS ISSUED BUT NOT YET EFFECTIVE (continued)
IFRS 9 Financial Instruments
IFRS 9, as issued, reflects the first phase of the IASB’s work though the adoption date is subject to the recently issued Exposure Draft on the replacement
of IAS 39 and applies to classification and measurement of financial assets and liabilities as defined in IAS 39. The standard was initially effective for annual
periods beginning on or after 1 January 2015, but amendments to IFRS 9 issued in November 2013, removed the mandatory effective date of 1 January
2015 for IFRS 9. A new mandatory date for IFRS 9 will be determined by the IASB when IFRS 9 is closer to completion. The adoption of the first phase
of IFRS 9 will have an effect on the classification and measurement of the Company’s financial assets, but will not have an impact on classification and
measurements of the Company’s financial liabilities. The Company will quantify the effect in conjunction with the other phases, when the final standard
including all phases is issued.
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
These amendments are effective for annual periods beginning on or after 1 January 2014 and provide an exception to the consolidation requirement
for entities that meet the definition of an investment entity under IFRS 10. The exception to consolidation requires investment entities to account for
subsidiaries at fair value through profit or loss. It is not expected that this amendment will be relevant to the Company, since Company does not qualify
for an investment entity under IFRS 10.
IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32
These amendments clarify the meaning of “currently has a legally enforceable right to set-off” and the criteria for non-simultaneous settlement
mechanisms of clearing houses to qualify for offsetting. These are effective for annual periods beginning on or after 1 January 2014.
5 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the Company’s financial statements requires management to make judgements, estimates and assumptions that affect the reported
amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these
assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in
the future. The most significant uses of judgements and estimates are as follows:
Judgements
Classification of investments
In the process of applying the Company’s accounting policies, management decides on acquisition of an investment whether it should be classified as a held to
maturity investment or an available-for-sale investment. Investments are classified as held to maturity if the investment has fixed or determinable payments
and a fixed maturity and for which the Company has the intent and ability to hold to maturity. All other investments are classified as available-for-sale.
Estimates and assumptions
The ultimate liability arising from claims made under insurance contracts
The estimation of the ultimate liability arising from claims made under insurance contracts is the Company’s most critical accounting estimate. There are
several sources of uncertainty that need to be considered in estimating the liability that the Company will ultimately pay for such claims. The provision for
claims incurred but not reported is an estimation of claims which are expected to be reported subsequent to the statement of financial position date, for
which the insured event has occurred prior to the statement of financial position date.
All insurance contracts are subject to a liability adequacy test, as is explained in the accounting policy for insurance liabilities above.
48 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
5 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (continued)
Estimates and assumptions (continued)
Impairment losses on available-for-sale securities
The Company determines that available-for-sale unquoted equity securities and managed funds are impaired when there has been a significant or
prolonged decline in the fair value below its cost. ‘Significant’ is to be evaluated against the original cost of the investment and ‘prolonged’ against
the period in which the fair value has been below its original cost. The Company treats ‘significant’ as 35% and ‘prolonged’ as twelve months. Where
fair values are not available, the recoverable amount of such investment is estimated to test for impairment. In making this judgement, the Company
evaluates, amongst other factors, the normal volatility in share price, evidence of deterioration in the financial health of the investee, industry and sector
performance and operating and financing cash flows.
Impairment losses on held-to-maturity
The Company reviews its individually significant held-to-maturity investments at each statement of financial position date to assess whether an
impairment loss should be recorded in the statement of income. In particular, management judgement is required in the estimation of the amount and
timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual
results may differ, resulting in future changes to the allowance.
Impairment losses on receivables
The Company assesses receivables that are individually significant and receivables included in a group of financial assets with similar credit risk
characteristics for impairment. Receivables that are individually assessed for impairment and for which an impairment loss is or continues to be
recognised are not included in a collective assessment of impairment. This assessment of impairment requires judgement. In making this judegment,
the Company evaluates credit risk characteristics that consider past-due status being indicative of the inability to pay all amounts due as per contractual
terms.
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, 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.
6 CASH AND BALANCES WITH BANKS
2013
2012
BD ‘000
BD ‘000
Cash and bank current accounts
5,512 6,718
Bank deposits with maturity of three months or less
9,924 13,621
Cash and cash equivalents
15,436 20,339
Bank deposits with maturity of more than three months
12,324 8,508
Cash and balances with banks
27,760 28,847
2013 ANNUAL REPORT
49
At 31 December 2013
Notes to the Financial Statements
7 STATUTORY DEPOSITS
Kingdom of Bahrain
State of Kuwait
2013
2012
BD ‘000
BD ‘000
125 3,598 3,723
125
2,456
2,581
Kingdom of Bahrain
Under the Central Bank of Bahrain and Financial Institutions Law of 2006, all insurance companies operating in the Kingdom of Bahrain must maintain
deposits with designated commercial banks. Such deposits, which depend on the nature of insurance activities, cannot be withdrawn except with the
prior approval of the Central Bank of Bahrain.
State of Kuwait
Deposits are required to be placed with Kuwaiti banks in compliance with the regulations of the Kuwaiti Ministry of Commerce and Industry.
The deposits, which are based on prior year gross premiums of the Kuwait Branch, are of a revolving nature.
Statutory deposit of BD 3,598 thousand (2012: BD 2,456 thousand) is pledged as security for a regulatory guarantee issued by a bank in favour of the
Ministry of Commerce and Industry of the State of Kuwait.
8 INSURANCE RECEIVABLES
2013
2012
BD ‘000
BD ‘000
Policyholders
12,530 11,767
Insurance and reinsurance companies
3,088
3,546
Allowance for impairment
(881)
(845)
14,737 14,468
Other
610 476
15,347 14,944
50 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
8 INSURANCE RECEIVABLES (continued)
As at 31 December 2013, a gross amount of insurance receivables of BD 1,213 thousand (2012: BD 2,019 thousand) were impaired. Movements in the
allowance for impairment of insurance receivables were as follows:
2013
BD ‘000
2012
BD ‘000
At 1 January Charge/(reversal) for the year (note 21)
Written-off during the year
Foreign exchange adjustment
845
39
- (3)
967
(100)
(18)
(4)
At 31 December
881
845
Past due but not impaired
Neither past
due nor
Less than
121 to 180
181 to 365
Total
impaired
120 days
days
days
BD ‘000
BD ‘000
BD ‘000
BD ‘000
BD ‘000
2013
14,405 4,270 4,652 1,289 2,539 More than
365 days
BD ‘000
At 31 December, the ageing of unimpaired insurance receivables was as follows:
2012
13,294 6,324 1,727 1,255 2,596 1,655
1,392
Allowance for impairment represents the allowance for impaired receivables as per the Company’s policy. It is not the practice of the Company to obtain
collateral over receivables and the vast majority are, therefore, unsecured.
9 DEFERRED ACQUISITION COSTS
2013
2012
BD ‘000
BD ‘000
At 1 January
930 699
Acquisition costs
1,666 1,841
Amortisation for the year
(1,706)
(1,606)
Foreign exchange adjustment
(5)
(4)
At 31 December
885
930 2013 ANNUAL REPORT
51
At 31 December 2013
Notes to the Financial Statements
10 INSURANCE LIABILITIES
2013
2012
Gross Reinsurers’
Net
Gross
Reinsurers’
Net
share
share BD ‘000
BD ‘000
BD ‘000
BD ‘000
BD ‘000
BD ‘000
Outstanding claims
24,739 (17,393)
7,346 19,972 (12,230)
7,742
Unearned premiums
20,458 (14,258) 6,200 18,370 (12,262)
6,108
45,197 (31,651) 13,546 38,342 (24,492)
13,850
(a) Outstanding claims
Movement in outstanding claims
Gross
BD ‘000
2013
Reinsurers’
share BD ‘000
Net
BD ‘000
Gross
BD ‘000
2012
Reinsurers’
share BD ‘000
Net
BD ‘000
At 1 January
Reported claims
18,021 (12,230)
5,791 19,245 (13,338)
5,907
IBNR claims
1,951 - 1,951 1,959 - 1,959
19,972 (12,230)
7,742 21,204 (13,338)
7,866
Incurred during the year
33,645 (26,118)
7,527 16,995 (10,213)
6,782
(Paid) recovered during the year
(28,793)
20,892 (7,901)
(18,137)
11,255 (6,882)
Foreign exchange adjustment
(85)
63 (22)
(90) (66)
(24)
At 31 December
24,739 (17,393)
7,346 19,972 (12,230)
7,742
At 31 December
Reported claims
22,796 (17,393)
5,403 18,021 (12,230)
5,791
IBNR claims
1,943 - 1,943 1,951 - 1,951
24,739 (17,393)
7,346 19,972 (12,230)
7,742
52 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
10 INSURANCE LIABILITIES (continued)
Claims development
The following tables show the estimate of cumulative incurred claims, including both claims notified and IBNR for each successive accident year at
each statement of financial position date, together with cumulative payments to date. The cumulative claims estimates and cumulative payments are
translated to the presentation currency at average exchange rates of the current financial year.
Accident year
Gross outstanding
claims
2005
BD ‘000 2006
BD ‘000 2007
BD ‘000 2008
BD ‘000 2009
BD ‘000 2010
BD ‘000 2011
BD ‘000
2012
BD ‘000 2013
BD ‘000 At end of
accident year
15,738 14,414 17,194 17,154 15,382 16,813 16,743 21,041
36,242
One year later
13,659 11,941 22,008 17,180 15,752 17,337 14,774 19,436
-
Two years later
12,853 12,402 17,716 17,714 15,095 16,297 14,665 Three years later
13,275 11,884 17,783 17,372 14,643 16,447 Four years later
12,937 10,995 17,544 16,929 14,333 Five years later
12,110 11,051 17,209 16,681 Six years later
12,144 10,788 16,669
Seven years later
11,702
10,717 Eight years later
11,700
- Total
BD ‘000
- -
-
- - -
- - - -
- - - - - - - - - - -
- - - - - - -
- - - - - - Current estimate
of cumulative
claims incurred
11,700 10,717 16,669 16,681 14,333 16,447 14,665 19,436
Cumulative
payments to date
(11,594) (10,623) (15,152)
(16,254) (12,921) (15,374) (13,625) (14,422)
Liability recognised
in the statement of financial position
106 94 1,517 427 1,412 1,073 1,040 5,014
36,242
156,890
(22,519) (132,484)
13,723
24,406
Liability in respect of years
prior to 2005
333
Total liability included in the statement of financial position
24,739
2013 ANNUAL REPORT
53
At 31 December 2013
Notes to the Financial Statements
10 INSURANCE LIABILITIES (continued)
Claims development (continued)
Accident year
2005
BD ‘000 2006
BD ‘000 2007
BD ‘000 2008
BD ‘000
2009
BD ‘000 2010
BD ‘000 2011
BD ‘000
2012
BD ‘000 At end of
accident year
4,071 4,572 5,210 5,692 6,802 7,964 8,213 9,461
9,416
One year later
3,835 4,159 4,751 5,379 6,013 7,051 6,688 8,339
-
Two years later
3,861 4,208 4,703 5,256 5,875 6,879 6,430 Three years later
4,038 4,127 4,542 5,169 5,652 6,864 Four years later
3,849 3,822 4,395 4,966 5,535 Five years later
3,487 3,769 4,334 4,729 Six years later
3,510 3,600 4,199
Seven years later
3,256
3,551 Eight years later
3,261
- 2013
Total
BD ‘000 BD ‘000
Net outstanding
claims
- -
-
- - -
- - - -
- - - - - - - - - - -
- - - - - - -
- - - - - - Current estimate
of cumulative
claims incurred
3,261 3,551 4,199 4,729 5,535 6,864 6,430 8,339 9,416
52,324
(5,447)
(45,146)
3,969
7,178
168
Cumulative
payments to date
(3,212)
(3,500)
(4,045)
(4,547)
(5,259)
(6,374)
(5,850)
(6,912)
Liability recognised
in the statement of financial position
49
51 154 182 276 490 580 1,427
Liability in respect of years
prior to 2005
Total liability included in the statement of financial position
54 BAHRAIN KUWAIT INSURANCE
7,346
At 31 December 2013
Notes to the Financial Statements
10 INSURANCE LIABILITIES (continued)
(b) Unearned premiums
Gross BD ‘000 2013
Reinsurers’
Net
share BD ‘000
BD ‘000 Gross
BD ‘000 2012
Reinsurers’
share
BD ‘000 Net
BD ‘000
At 1 January 18,370 (12,262)
6,108 18,190
(12,564)
5,626
Premiums written (ceded)
38,179 (26,068)
12,111
34,996 (22,781)
12,215
Premiums earned
(36,035)
24,039
(11,996)
(34,769)
23,055 (11,714)
Foreign exchange adjustment
(56)
33
(23)
(47)
28 (19)
At 31 December
20,458 (14,258)
6,200
18,370 (12,262)
6,108
11 INVESTMENTS
2013
2012
BD ‘000
BD ‘000
Available-for-sale
Quoted equity investments
7,204 5,330
Unquoted equity investments
965 1,012
Capital guaranteed managed funds -
140
Other managed funds 303 478
8,472 6,960
Held-to-maturity
Floating rate bonds
545 639
Fixed rate bonds
4,866 3,919
5,411 4,558
Allowance for impairment (note 11.3)
(234)
(137)
5,177 4,421
13,649 11,381 2013 ANNUAL REPORT
55
At 31 December 2013
Notes to the Financial Statements
11 INVESTMENTS (continued)
11.1 During the year an impairment loss of BD 281 thousand (2012: BD 361 thousand) relating to equity investments and other managed funds has
been recognised in the statement of income.
11.2 As at 31 December 2013, the gross amount of impaired debt investments was BD 450 thousand (2012: BD 450 thousand).
11.3 The movement in allowance for impairment relating to held-to-maturity investments was as follows:
2013
2012
BD ‘000
BD ‘000
At 1 January 137
65
Charge during the year
97
72
At 31 December
234 137
12 INVESTMENT PROPERTY
2013
2012
BD ‘000
BD ‘000
Cost:
Transfer from property and equipment (note 13)
3,048 3,048
Accumulated depreciation:
Transfer from property and equipment (note 13)
2,870 2,870
Carrying amount:
At 31 December
178 178
On 6 February 2012, the Company moved its registered office from BKIC House - Diplomatic Area (“BKIC House”) to BKIC Tower - Seef District (“BKIC
Tower”). Following this move, BKIC House, comprising land and a building, has been transferred from property and equipment to investment property.
As the building was fully depreciated at the time of transfer, the carrying value represents only the cost of land.
The investment property is valued by an independent firm of professional valuers. The external valuation performed as of 31 December 2012 assessed
the value of the property to be approximately BD 1,720 thousand.
56 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
13 PROPERTY AND EQUIPMENT
Land and Furniture and
buildings
equipment
Vehicles
Total
BD ‘000
BD ‘000
BD ‘000
BD ‘000
Cost:
At 1 January 2013
3,735 2,483
168
6,386
Additions during the year
- 59
77 136
Disposals during the year
- (1)
(70)
(71)
Foreign exchange adjustment
- (3)
1
(2)
At 31 December 2013
3,735 2,538 176 6,449
Accumulated depreciation:
At 1 January 2013
213 2,035 118 2,366
Depreciation for the year
107 155
38 300
Relating to disposals
- 1
(70)
(69)
Foreign exchange adjustment
- (3)
-
(3)
At 31 December 2013
320 2,188
86
2,594
Carrying amount:
At 31 December 2013
Estimated useful lives
3,415 350
90
25 years
4-10 years
4 years
3,855
2013 ANNUAL REPORT
57
At 31 December 2013
Notes to the Financial Statements
13 PROPERTY AND EQUIPMENT (continued)
Cost:
At 1 January 2012
Additions during the year Disposals during the year
Transfer to investment property (note 12)
Foreign exchange adjustment
At 31 December 2012
Land and Furniture and
buildings
equipment
Vehicles
Total
BD‘000
BD‘000
BD‘000
BD‘000
6,700 2,163 177 9,040
83 331
-
414
- (8)
(8)
(16)
(3,048)
- - (3,048)
-
(3) (1) (4)
3,735
2,483 168 6,386
Accumulated depreciation:
At 1 January 2012
2,984 1,839 92 4,915
Depreciation for the year 99
207
34
340
Relating to disposals
- (8)
(8)
(16)
Transfer to investment property (note 12)
(2,870)
- - (2,870)
Foreign exchange adjustment
-
(3) - (3)
At 31 December 2012
213
2,035 118
2,366
Carrying amount:
At 31 December 2012
3,522 448 50 4,020
Estimated useful lives
25 years
4-10 years
4 years
Properties owned by the Company
Name of the
Address
Description Existing use Nature Terms of
Age of the
property
tenant’s lease
property
BKIC
Building 168, Road 1703
Building
Investment
Freehold
Annual
29 years
House
Diplomatic Area 317
measuring
purpose
renewable
Manama
4,690 square
lease agreement
Kingdom of Bahrain
meters
with the
tenants
BKIC
Building 2775, Road 2835
Building
Operational
Freehold
Not applicable
1 year and
Tower
Seef 428
measuring
purpose
11 months
Kingdom of Bahrain
6,591 square
meters
Salmabad
Building 1390, Road 426
Building
Operational Freehold
Not applicable
12 years
branch
Salmabad 704
measuring purpose
building
Kingdom of Bahrain
612 square
meters
58 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
14 UNEARNED COMISSIONS
2013
BD ‘000
2012
BD ‘000
At 1 January
Commission received
Commission earned (note 19)
Foreign exchange adjustment
1,707 3,600
(3,367)
(7)
1,625
3,674
(3,587)
(5)
1,933 1,707
2013
BD ‘000
2012
BD ‘000
Provision for employees’ leaving indemnities
Due to garages, spare part suppliers and others
Accrued expenses
Premium reserve deposits
Premiums booked in advance
Unclaimed dividends Provision for leave pay
Advance claim recoveries
Other liabilities
1,253 1,172
775 567 273 264 149 112 201
1,206
1,257
782
521
211
236
132
118
245
4,766 4,708
At 31 December
15 PAYABLES AND ACCRUED LIABILITIES - OTHER
Retirement benefit costs
The Company employed 80 Bahrainis and 30 expatriates in Bahrain branches and 7 Kuwaitis and 43 expatriates in its Kuwait Branch at 31 December 2013.
Pension rights (and other social benefits) for Bahraini employees are covered by the Social Insurance Organisation scheme to which employees and
the Company contributes a fixed percentage of salaries. The Company’s contributions in respect of Bahraini employees amounted to BD 111 thousand
(2012: BD 113 thousand).
Pension rights (and other social benefits) for Kuwaiti employees are covered by the Public Institute for Social Security scheme to which employees and
the Company contributes a fixed percentage of salaries. The Company’s contributions in respect of Kuwaiti employees amounted to BD 7 thousand
(2012: BD 6 thousand).
Provision for employees’ leaving indemnities
2013
BD ‘000
2012
BD ‘000
At 1 January
Charge for the year
Paid during the year
At 31 December
1,206 131 (84)
1,023
205
(22)
1,253 1,206 2013 ANNUAL REPORT
59
At 31 December 2013
Notes to the Financial Statements
16 EQUITY AND RESERVES
Equity
2013
BD ‘000
2012
BD ‘000
Authorised share capital
100 million ordinary shares of 100 fils each
(2012: 100 million ordinary shares of 100 fils each)
10,000 10,000
Issued and fully paid share capital 71.5 million ordinary shares of 100 fils each (2012: 71.5 million ordinary shares of 100 fils each).
2013
2012
2013
2012
%
%
BD ‘000
BD ‘000
Bahraini shareholders
30.55
30.55
2,184 2,184
Kuwaiti shareholders
Gulf Insurance Company K.S.C.
56.12
56.12
4,013
4,013
Warba Insurance Company S.A.K.
13.33
13.33
953 953
100.00 100.00 7,150 7,150
(i)Treasury shares represent 38,433 (2012: 38,433) shares relating to odd lots allotted to the Company, without any cash consideration, at the time of a
rights issue and include subsequent bonus share issues on these shares.
(i i) Names and nationalities of the major shareholders and the number of shares held in which they have an interest of 5% or more of outstanding shares
at 31 December 2013 are as follows:
Name of the shareholder
Nationality
Number of shares
Percentage of total
outstanding shares
Gulf Insurance Company K.S.C.
Warba Insurance Company S.A.K.
BBK B.S.C.
60 BAHRAIN KUWAIT INSURANCE
Kuwait
Kuwait
Bahrain
40,126,909
9,533,332 4,879,818 56.12
13.33
6.82
At 31 December 2013
Notes to the Financial Statements
16 EQUITY AND RESERVES (continued)
(i i i ) Distribution schedule of equity shares:
Categories
Number of shares Number of shareholders
Percentage of total
outstanding shares
Less than 1%
14,621,270 3,768 20.45%
1% up to less than 5%
2,338,671 1
3.28%
5% up to less than 10%
4,879,818 1
6.82%
10% up to less than 20%
9,533,332 1
13.33%
20% and above
40,126,909 1
56.12%
Total
71,500,000 3,772 100.00%
Share premium
The share premium is not available for distribution except in the circumstances stipulated in the Bahrain Commercial Companies Law and following
approval of the Central Bank of Bahrain.
Statutory reserve
As required by the Bahrain Commercial Companies Law and the Insurance Regulations contained in Volume 3 of the Central Bank of Bahrain Rulebook,
10% of the profit for the year is to be transferred to a statutory reserve until such time as the reserve equals 50% of the paid up share capital.
The reserve is not available for distribution except in such circumstances as stipulated in the Bahrain Commercial Companies Law and following
approval of the Central Bank of Bahrain.
As the statutory reserve exceeds the minimum required limit of 50% of the paid up share capital due to additional voluntary transfers in previous years,
no transfer is made in 2013 (2012: nil).
General reserve
Appropriations to the general reserve are made as proposed by the Board of Directors and approved by the shareholders. The reserve represents
retained earnings and is available for distribution subject to approval of the Central Bank of Bahrain.
Dividends
Dividends for 2012 amounted to BD 2,145 thousand (30 fils per share) [for 2011: BD 1,625 thousand (25 fils per share)].
Proposed appropriations
The Board of Directors, at a meeting held on 9 February 2014, recommended the following appropriations, which are subject to approval of the
shareholders at the Annual General Meeting to be held on 5 March 2014.
2013
BD ‘000
2012
BD ‘000
- Cash dividend of 30 fils per share (2012: 30 fils per share)
- Transfer to general reserve
2,145 1,000
2,145
1,500
2013 ANNUAL REPORT
61
At 31 December 2013
Notes to the Financial Statements
17 GROSS PREMIUMS
2013
BD ‘000
2012
BD ‘000
Led by the Company - net of refunds
Led by other insurance companies - Company’s share
35,606 2,573 32,340
2,656
38,179 34,996
2013
BD ‘000
2012
BD ‘000
Employee related costs
Depreciation (note 13) Other operating expenses
2,329 300 686 2,363
340
733
3,315
3,436
18 GENERAL AND ADMINISTRATION EXPENSES
19 FEE AND COMMISSION INCOME
62 BAHRAIN KUWAIT INSURANCE
2013
BD ‘000
2012
BD ‘000
Commission income (note 14)
Policy and other fees
3,367 504 3,587
489
3,871 4,076
At 31 December 2013
Notes to the Financial Statements
20 INVESTMENT INCOME - NET
2013
2012
BD ‘000
BD ‘000
Interest income on:
held-to-maturity investments
243 213
balances with banks
421
502
Available-for-sale financial assets
Gain on sale of investments
446
342
Dividend income
504 462
Rental income
56 59
1,670
1,578
Impairment loss on investments (note 11)
Investment management expenses
Advisory fees
(378)
(226)
(16)
(433)
(217)
(18)
1,050 910 2013
BD ‘000
2012
BD ‘000
45 28
4
-
3
4
100
77
107
Other expenses
Bad debts provided (note 8)
Bank charges
Interest expense on premium reserve deposit
Foreign exchange loss
Miscellaneous expenses
2013
BD ‘000
2012
BD ‘000
39 33
15 -
56
41
13
17
59
143
130
21 OTHER INCOME AND EXPENSES
Other income
Foreign exchange gain
Profit on sale of assets
Miscellaneous income
Bad debts recovery / reversal of allowance for impaired receivables (note 8)
2013 ANNUAL REPORT
63
At 31 December 2013
Notes to the Financial Statements
22 EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing the profit for the year attributable to ordinary shareholders of the Company by the
weighted average number of ordinary shares outstanding at the statement of financial position date.
The income and share data used in the computation of earnings per share are as follows:
Profit for the year (BD - thousand)
Weighted average number of ordinary shares outstanding, net of treasury shares.
Earnings per share
2013
2012
3,702
4,216
71,461,567
52 Fils
71,461,567
59 Fils
The basic and diluted earnings per share are the same as there are no dilutive effects on earnings.
Other information
Proposed cash dividend per share (note 16)
30 Fils
30 Fils
Net asset value per share
466 Fils
434 Fils
Share price per Bahrain Bourse at 31 December
540 Fils
590 Fils
Price to earnings ratio at 31 December
10 times
10 times
Total market capitalisation at 31 December (BD - thousand)
38,610
42,185
64 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
23 CLASSIFICATION OF FINANCIAL INSTRUMENTS
At 31 December 2013, financial instruments have been classified for the purpose of measurement under IAS 39 ‘Financial Instruments: Recognition and
Measurement’ as follows:
Available-
Financial assets
Loans and
at amortised cost
receivables
Total
for-sale
BD ‘000
BD ‘000
BD ‘000
BD ‘000
Cash and balances with banks
- - 27,760 27,760
Statutory deposits
- - 3,723 3,723
Insurance receivables
- - 15,347 15,347
Reinsurers’ share of insurance liabilities
- Outstanding claims - Reported claims
- - 17,393 17,393
Investments
8,472 5,177
- 13,649
8,472
5,177 64,223 77,872
Loans and
receivables
BD ‘000
Insurance liabilities
- Outstanding claims - Reported claims
22,796
Payables and accrued liabilities
16,617
39,413
At 31 December 2012, financial instruments have been classified for the purpose of measurement under IAS 39 ‘Financial Instruments: Recognition and
Measurement’ as follows:
Available-
Financial assets
Loans and
for-sale
at amortised cost
receivables
Total
BD ‘000
BD ‘000
BD ‘000
BD ‘000
Cash and balances with banks
- -
28,847 28,847
Statutory deposits
-
-
2,581
2,581
Insurance receivables
-
-
14,944 14,944
Reinsurers’ share of insurance liabilities
- Outstanding claims - Reported claims
- -
12,230 12,230
Investments
6,960 4,421
- 11,381
6,960 4,421
58,602
69,983
Loans and
receivables
BD ‘000
Insurance liabilities
- Outstanding claims - Reported claims
18,021
Payables and accrued iabilities
15,116
33,137
2013 ANNUAL REPORT
65
At 31 December 2013
Notes to the Financial Statements
24 FARE VALUE MEASUREMENT
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.
Fair values of quoted securities are derived from quoted market prices in active markets, if available. For unquoted securities, fair value is estimated using
appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of
another instrument that is substantially the same; or other valuation models.
The fair values of the funds that are listed on active markets are determined by reference to their quoted bid prices. The fair values of unlisted funds
are based on net asset values which are determined by the fund manager using the quoted market prices of the underlying assets, if available, or other
acceptable methods such as a recent price paid by another investor or the market value of a comparable company. The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
31 December 2013
Level 1
Level 2
Level 3
Total
BD ‘000
BD ‘000
BD ‘000
BD ‘000
Available-for-sale investments
Quoted equities
Insurance
- -
- Banking
3,304 -
- 3,304
Trade and commerce
843 -
- 843
Industrial
1,415 -
- 1,415
Communications
827
-
-
827
Consumer Service
481
-
-
481
Other sectors
334
-
-
334
Unquoted equity investments
Insurance
-
-
956 956
Consumer Service
- -
9
9
Capital guaranteed managed funds
Other sectors
-
-
-
Other managed funds
Industrial
- 157
-
157
Communications
-
5
-
5
Consumer Service
- 94
-
94
Other sectors
-
47
-
47
7,204
303
965
8,472
66 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
24 FARE VALUE MEASUREMENT (continued)
31 December 2012
Level 1
Level 2
Level 3
Total
BD ‘000
BD ‘000
BD ‘000
BD ‘000
Available-for-sale investments
Quoted equities
Insurance
57 -
- 57
Banking
3,219
-
- 3,219
Trade and commerce
687 -
- 687
Industrial
100 -
- 100
Communications
674
-
-
674
Consumer Service
240
-
-
240
Other sectors
353
-
-
353
Unquoted equity investments
Insurance
-
-
1,002
1,002
Consumer Service
- -
10
10
Capital guaranteed managed funds
Other sectors
-
140
-
140
Other managed funds
Industrial
- 208
-
208
Communications
-
34 -
34
Consumer Service
- 189
-
189
Other sectors
-
47
-
47
5,330
618
1,012
6,960
Valuations are dated 31 December each year
Reconciliation of movement in level 3 financial instruments measured at fair value
Losses
recognised
At 1
in other
At 31
January comprehensive
December
2013
income
2013
BD ‘000
BD ‘000
BD ‘000
Available-for-sale investments
Unquoted equity investments
1,012 (47)
965
During the year ended 31 December 2013, there were no transfers between Level 1 and Level 2 fair value hierarchies.
2013 ANNUAL REPORT
67
At 31 December 2013
Notes to the Financial Statements
24 FARE VALUE MEASUREMENT (continued)
Impact on fair value of level 3 financial assets measured at fair value of changes to key assumptions
A reasonably possible increase (decrease) in the key assumptions by 10% would result in a fair value (decrease) increase of (BD 96 thousand) BD 96
thousand [2012: (BD 100 thousand) BD 100 thousand]. The fair values of the financial assets and financial liabilities are not materially different from
their carrying values at the reporting date.
Carrying amount and fair values of financial instruments not carried at fair value
The management assessed that the fair values of cash and bank balances, insurance receivables, reinsurers’ share of insurance liabilities - reported
claims, insurance liabilities - reported claims, payables to insurance and reinsurance companies, policyholders and other payables, approximate their
carrying amounts largely due to short-term maturities of these instruments. These financial instruments are classified under level 2 of the fair value
hierarchy.
A majority of the Company’s held-to-maturity investments are in quasi-sovereign bonds. Following the impairment allowance recognised on certain of
these bonds, management has assessed that the fair values of held-to-maturity investments approximate their carrying amounts as at the reporting date.
Fair values of held-to-maturity investments are classified under level 2 of the fair value hierarchy.
25 SEGMENTAL INFORMATION
For management purposes, the Company is organised into departments based on the classes of insured risks. The reportable operating segments of the
Company are as follows:
- Fire and general offers insurance policies to cover various risks of fire, general accident and engineering, medical, group life and special
contingency;
- Motor offers insurance policies to cover risks of motor third party, motor comprehensive and extended warranty; and
- Marine and aviation offers insurance policies to cover risks of marine cargo, marine hull and marine aviation.
Management monitors the underwriting results of the operating segments separately for the purpose of making decisions about resource allocation
and performance assessment. Segment performance is evaluated based on underwriting profit. The following table presents of segment revenues,
measurement of segment profit for the year and their reconciliation to the Company’s income and profit for the year.
68 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
25 SEGMENTAL INFORMATION (continued)
2013
Fire and
Marine
general
Motor and aviation
Total
BD ‘000
BD ‘000
BD ‘000
BD ‘000
Gross premiums from external customers
27,883
8,221
2,075
38,179
Retained premiums
4,219
7,514
378
12,111
Net premiums
4,031 7,579
386 11,996
Fee and commission income
2,697
389
785
3,871
Segment revenue
6,728 7,968
1,171
15,867
Net claims
1,918
5,547 62
7,527
General and administrative expenses
1,570 1,400 345
3,315
Acquisition costs
1,248 328 130
1,706
Underwriting profit
1,992 693 634
3,319
Unallocable income*
1,127
Unallocable expenses**
(744)
Profit for the year
3,702
2012
Fire and
Marine
general
Motor
and aviation
Total
BD ‘000
BD ‘000
BD ‘000
BD ‘000
Gross premiums from external customers
24,263
8,324
2,409
34,996
Retained premiums
3,867
7,912
436
12,215
Net premiums
3,663 7,601
449 11,713
Fee and commission income
2,879
412
785
4,076
Segment revenue
6,542 8,013
1,234
15,789
Net claims
1,477
5,269 37
6,783
General and administrative expenses
1,633 1,447 356
3,436
Acquisition costs
1,095 378 133
1,606
Underwriting profit
2,337 919 708
3,964
Unallocable income*
1,017
Unallocable expenses**
(765)
Profit for the year
4,216
*Includes investment income - net and other income. **Includes corporate expenses and other expenses.
2013 ANNUAL REPORT
69
At 31 December 2013
Notes to the Financial Statements
25 SEGMENTAL INFORMATION (continued)
The following table presents disclosure of segment assets:
Fire and Marine and Unallocable general Motor aviation assets * Total
BD ‘000
BD ‘000
BD ‘000 BD ‘000
BD ‘000
Segment assets
2013
28,375
3,371 789
64,513
97,048
2012
22,056
2,463 903 61,951 87,373
* Segments assets do not include cash and cash equivalents, statutory deposits, insurance receivables, investments, investment property and property
and equipment as these assets are managed on an integrated basis. Cash flows relating to segments are not disclosed separately as these are managed on an integrated basis.
2013
Bahrain
Kuwait
Total
BD ‘000
BD ‘000
BD ‘000
Gross premiums from external customers*
23,430
14,749
38,179
Non-current assets**
3,879
154 4,033
2012
Bahrain Kuwait
Total
BD ‘000 BD ‘000
BD ‘000
Gross premiums from external customers*
22,330
12,666 34,996
Non-current assets**
4,007 191 4,198
* The gross premium information is based on the location of the customer.
** Non-current assets for this purpose consist of property and equipment and investment property and is based on the location of the property and
equipment.
26 RISK MANAGEMENT
Financial instruments consist of financial assets and financial liabilities. The Company has no derivative financial instruments.
Financial assets include cash and cash equivalents, deposits, receivables and investments. Financial liabilities include payables (to insurance and
reinsurance companies, policyholders and other parties). Accounting policies for financial assets and financial liabilities are set out in note 3.
The risks involved with financial instruments and the Company’s approach to managing such risks are discussed below:
70 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
26 RISK MANAGEMENT (continued)
a) Insurance risk
The risk under an insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very
nature of an insurance contract, this risk is random and therefore unpredictable. The principal risks that the Company faces under such contracts is the
occurrence of the insured event and the severity of the reported claim. The Company’s risk profile is improved by diversification of these risks of losses
to a large portfolio of contracts as a diversified portfolio is less likely to be affected by an unexpected event in a single subset.
The Company principally issues the following types of general insurance contracts: Marine, Motor and Fire and General Accident. Risks under these
policies usually cover twelve months. For General Accident insurance contracts the most significant risks arise from accidents, climate changes, natural
disasters and terrorist activities. These risks do not vary significantly in relation to the location of the risk insured type of risk insured or by industry.
Underwriting and retention policies and procedures and limits precisely regulate who is authorised and accountable for concluding insurance and
reinsurance contracts and on what conditions. Compliance with these guidelines is regularly checked and developments in the global, regional and local
markets are closely observed, reacting where necessary with appropriate measures that are translated without delay into underwriting guidelines if
required.
The primary risk control measure in respect of insurance risk is the transfer of the risks to third parties via reinsurance, The reinsurance business ceded
is placed on a proportional and non-proportional basis with retention limits varying by lines of business. The placements of reinsurance contracts are
diversified so that the Company is not dependent on a single reinsurer or a single reinsurance contract.
Reinsurance is used to manage insurance risk. Although the Company has reinsurance arrangements, they do not, however, discharge the Company’s
liability as the primary insurer and thus a credit risk exposure remains with respect to reinsurance ceded to the extent that any reinsurer may be unable
to meet its obligations under such reinsurance arrangements. The Company minimises such credit risk by entering into reinsurance arrangements with
reinsurers having good credit ratings, which are reviewed on a regular basis. The creditworthiness of reinsurers is considered on an annual basis by
reviewing their financial strength prior to finalisation of any contract. Reserve risks are controlled by constantly monitoring the provisions for insurance
claims that have been submitted but not yet settled and by amending the provisions, if deemed necessary.
Concentration of insurance risk
The Company does not have any single insurance contract or a small number of related contracts that cover low frequency, high-severity risks such as
earthquakes, or insurance contracts covering risks for single incidents that expose the Company to multiple insurance risks. The Company has adequately
reinsured for insurance risks that may involve significant litigation. A 5% change in the average claims ratio will have no material impact on the statement
of income (2012: same). The geographical and segmental concentration of insurance risk is set out in note 25.
b) 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’s principal transactions are carried out in Bahraini Dinars and Kuwaiti Dinars and its exposure to foreign exchange risk arises primarily
because the Kuwaiti Dinar is not pegged to the United States Dollar or Bahraini Dinar. The table below summarises the Company’s exposure to foreign
currency exchange rate risk at the statement of financial position date by categorising monetary assets and liabilities by major currencies. 2013 ANNUAL REPORT
71
At 31 December 2013
Notes to the Financial Statements
26 RISK MANAGEMENT (continued)
b) Currency risk (continued)
31 December 2013
Bahraini
Kuwaiti United States
Dinars
Dinars
Dollars
Other
Total
BD ‘000
BD ‘000
BD ‘000
BD ‘000
BD ‘000
ASSETS
Cash and balances with banks
5,997
17,310
3,721
732 27,760
Statutory deposits
125
3,598
-
-
3,723
Insurance receivables
7,572 7,727 48 -
15,347
Reinsurers’ share of insurance
reserves - outstanding claims
- Reported claims
9,362 8,031 - - 17,393
Investments
5,533
1,539
3,342
3,235
13,649
28,589 38,205
7,111
3,967 77,872
LIABILITIES
Insurance liabilities - outstanding claims - Reported claims
13,530
9,266 -
-
22,796
Unearned commissions
809 1,124
-
-
1,933
Payables and accrued liabilities
4,902 7,812
3,903 -
16,617
19,241
18,202 3,903 -
41,346
Net exposure
9,348 20,003 3,208 3,967 36,526
72 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
26 RISK MANAGEMENT (continued)
b) Currency risk (continued)
3 1 December 2012
Bahraini
Kuwaiti United States
Dinars
Dinars
Dollars
Other
Total
BD ‘000
BD ‘000
BD ‘000
BD ‘000
BD ‘000
ASSETS
Cash and balances with banks
8,324
16,407
3,952 164
28,847
Statutory deposits
125
2,456
-
-
2,581
Insurance receivables
9,443 5,501
-
-
14,944
Reinsurers’ share of insurance
reserves - outstanding claims
- Reported claims
3,684 8,546
-
-
12,230
Investments
5,221 1,414 2,882 1,864 11,381
26,797 34,324 6,834
2,028 69,983
LIABILITIES
Insurance liabilities - outstanding claims - Reported claims
7,615 10,406 - - 18,021
Unearned commissions
777 930 - - 1,707
Payables and accrued liabilities
5,536 5,142 5,591 - 16,269
13,928 16,478 5,591 - 35,997
Net exposure
12,869 17,846 1,243 2,028 33,986
A 5% movement in the Kuwaiti Dinar exchange rate against the Bahraini Dinar would impact other comprehensive income by BD 714 thousand
(2012: BD 636 thousand).
c) Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future profitability or the fair values of financial instruments.
The Company’s short-term deposits are at fixed interest rates and mature within six months. Investments in bonds consist of both fixed rate and
floating rate instruments and have maturities ranging from 1 year to 7 years.
The Company does not use any derivative financial instruments to hedge its interest rate risk.
A 50 basis point change in the interest rates would impact the statement of income by BD 142 thousand (2012: BD 147 thousand).
2013 ANNUAL REPORT
73
At 31 December 2013
Notes to the Financial Statements
26 RISK MANAGEMENT (continued)
d) 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 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 is exposed to price risk with
respect to its investments (listed and unlisted shares, bonds and managed funds). The geographical concentration of the Company’s investments is set
out below:
Geographical concentration of investments
2013
2012
BD ‘000
BD ‘000
Bahrain
6,976 5,776
Kuwait
2,402 2,375
Other GCC countries
4,110 2,782
Europe
47 239
Rest of the world
114
209
13,649 11,381
The Company limits market risk by maintaining a diversified portfolio, proactively monitoring the key factors that affect stock and bond market
movements and periodically analysing the operating and financial performance of investees.
The Company’s equity investments comprise securities quoted on the stock exchanges in Bahrain and Kuwait. A 5% change in the prices of the equities,
with all other variables held constant, would impact equity by BD 360 thousand (2012: BD 266 thousand). There would be no impact on the statement of
income as all equity investments are classified as available-for-sale.
e) Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk may result from an
inability to sell a financial asset quickly at close to its fair value. Management monitors liquidity requirements on a regular basis and ensures that sufficient
funds are available to meet any commitments as they arise. The Company has sufficient liquidity and, therefore, does not resort to borrowings in the
normal course of business. The table below summarises the maturity profile of the assets and liabilities of the Company based on remaining undiscounted contractual obligations.
As the Company does not have any interest bearing liabilities, the totals in the table match the statement of financial position.
74 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
26 RISK MANAGEMENT (continued)
e) Liquidity risk (continued)
31 December 2013
One year
More than
or less
One year
No term
Total
BD ‘000
BD ‘000
BD ‘000
BD ‘000
ASSETS
Cash and balances with banks
27,760 - - 27,760 Statutory deposits
- -
3,723 3,723
Insurance receivables
15,347 -
- 15,347
Deferred acquisition costs
885
-
-
885
Reinsurers’ share of insurance liabilities
31,651
-
-
31,651
Investments
2,671
3,774 7,204
13,649
Investment property
-
-
178
178
Property and equipment
-
-
3,855 3,855
78,314 3,774 14,960
97,048
LIABILITIES
Insurance liabilities
45,197
-
-
45,197
Unearned commissions
1,933
-
-
1,933
Payables and accrued liabilities
16,617 - - 16,617
63,747 - - 63,747
2013 ANNUAL REPORT
75
At 31 December 2013
Notes to the Financial Statements
26 RISK MANAGEMENT (continued)
e) Liquidity risk (continued)
3 1 December 2012
One year
More than
or less
One year
No term
Total
BD ‘000
BD ‘000
BD ‘000
BD ‘000
ASSETS
Cash and balances with banks
28,847 -
-
28,847
Statutory deposit
- -
2,581
2,581
Insurance receivables
14,944 -
-
14,944
Deferred acquisition costs
930 - - 930
Reinsurers’ share of insurance liabilities
24,492 - - 24,492
Investments
1,003 4,036 6,342 11,381
Investment property
- -
178
178
Property and equipment
- -
4,020 4,020
70,216 4,036 13,121 87,373
LIABILITIES
Insurance liabilities
38,342
-
-
38,342
Unearned commissions
1,707
-
-
1,707
Payables and accrued liabilities
16,269 -
-
16,269
56,318 -
-
56,318
f) Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Credit risk
on receivables is limited to receivables from policyholders which are carried net of impairment losses, and to insurance and reinsurance companies. The
Company manages credit risk with respect to receivables from policyholders by monitoring risks in accordance with defined policies and procedures.
Management seeks to minimise credit risk with respect to insurance and reinsurance companies by only ceding business to companies with good credit
ratings in London, as well as European and Middle East reinsurance markets. The Company manages credit risk on its cash deposits and investments by ensuring that the counterparties have an appropriate credit rating. The
Company does not have an internal credit rating of counterparties and uses external credit rating agencies’ websites to rate the companies. The following
balances are with counterparties having a credit rating of C (2012: C) or above:
76 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
26 RISK MANAGEMENT (continued)
f) Credit risk (continued)
2013
2012
BD ‘000
BD ‘000
Cash and balances with banks
27,760 28,843
Statutory deposits
3,723 2,581
Reinsurers’ share of insurance reserves
- Outstanding claims - Reported claims
17,393 12,230
Investments - held-to-maturity
5,177 4,421
The Company’s maximum exposure to credit risk on its financial assets was BD 69,327 thousand (2012: BD 63,917 thousand).
g) Fair values of financial instruments
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. Underlying the definition of fair value is a presumption that an enterprise is a going concern without any intention or need to liquidate,
curtail materially the scale of its operations or undertake a transaction on adverse terms. The fair value of the Company’s cash and cash equivalents,
investments, receivables and payables are not materially different from their carrying values as shown in the statement of financial position.
h) Capital management
Capital requirements are set and regulated by the Central Bank of Bahrain. These requirements are put in place to ensure sufficient solvency margins.
Further objectives are set by the Company to maintain a strong credit rating and healthy capital ratios in order to support its business objectives and
maximise shareholders’ value.
The Company manages its capital requirements by assessing shortfalls between reported and required capital levels on a regular basis. Adjustments to
current capital levels are made in light of changes in market conditions and risk characteristics of the Company’s activities. In order to maintain or adjust
the capital structure, the Company may adjust the amount of dividends paid to shareholders or issue capital securities.
The Company fully complied with the externally imposed capital requirements during the reported financial periods and no changes were made to the
Company’s objectives, policies and processes for capital management from the previous year.
2013 ANNUAL REPORT
77
At 31 December 2013
Notes to the Financial Statements
27 RELATED PARTIES
Related parties represent major shareholders, directors and key management personnel of the Company and its Parent, and entities controlled, jointly
controlled or significantly influenced by such parties. All transactions with such related parties are conducted on normal terms and conditions.
Transactions with related parties included in the statement of income are as follows:
31 December 2013
Key
management
personnel
Shareholders
BD ‘000
BD ‘000
Gross premiums 5
1,730
Reinsurers’ share of gross premiums
-
2,251 Gross claims paid -
1,709
Reinsurers’ share of claims paid
-
866
Fee and commission income
-
1,176
Acquisition costs -
8
Entities
related to
Shareholders
BD ‘000
345
101
-
31 December 2012
Key
Entities
management
related to
personnel
Shareholders
Shareholders
BD ‘000
BD ‘000
BD ‘000
Gross premiums 4
1,795
372
Reinsurers’ share of gross premiums
-
2,917
Gross claims paid -
1,880 182
Reinsurers’ share of claims paid -
639
Fee and commission income -
1,398
Acquisition costs -
21 - 78 BAHRAIN KUWAIT INSURANCE
At 31 December 2013
Notes to the Financial Statements
27 RELATED PARTIES (continued)
Balances with related parties included in the statement of financial position are as follows:
31 December 2013
Key
Entities
management
related to
personnel
Shareholders
Shareholders
BD ‘000
BD ‘000
BD ‘000
Insurance receivables 1
319
58
Reinsurers’ share of insurance liabilities
-
2,666
Insurance liabilities
-
1,143 Payables and accrued liabilities -
669
-
31 December 2012
Key
Entities
management
related to
personnel
Shareholders
Shareholders
BD ‘000
BD ‘000
BD ‘000
Insurance receivables 1
877
63
Reinsurers’ share of insurance liabilities -
1,864
Insurance liabilities -
2,218
Payables and accrued liabilities
-
23
6
Compensation of key management personnel
The remuneration of directors and other members of key management during the year was as follows:
2013
2012
BD ‘000
BD ‘000 Salaries and benefits 559
553 Remuneration to Directors 120 132
Employees’ end of service benefits 23 52
702 737
2013 ANNUAL REPORT
79
At 31 December 2013
Notes to the Financial Statements
28 CONTINGENT LIABILITIES
A contingent liability exists at the statement of financial position date in respect of letters of guarantee amounting to BD 3,593 thousand (2012:
BD 2,633 thousand) issued by banks in Kuwait in favour of the Ministries of Commerce and Industry and Health, State of Kuwait to comply with
statutory requirements. The Company maintains a deposit of BD 3,623 thousand (2012: BD 2,481 thousand) in the same banks to cover the amounts
guaranteed.
Legal claims
The Company, in common with the significant majority of insurers, 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 INFORMATION
Prior to 1 January 2013, the amounts receivable from and payable to the same counterparties were reported on a gross basis under “insurance
receivables” and “payables to insurance and reinsurance companies” respectively. During the period, wherever the balances are settled on a net basis
these are grouped together and reported on a net basis. Management believes this provides a more meaningful presentation. Accordingly comparatives
have also been restated as set out below:
31 December 2012
(Restated)
BD ‘000
(Previously
reported)
BD ‘000
Insurance receivables
14,944 15,911
Payables and accrued liabilities:
Insurance and reinsurance companies
8,370
9,337
These reclassifications did not result in any changes to previously reported profit for 2012 or retained earnings as at 31 December 2012 respectively.
80 BAHRAIN KUWAIT INSURANCE

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