PROSPECTUS

Arabia Falcon Insurance Company SAOG

(Under Transformation)

(P.O. Box 2279, Ruwi 112, Sultanate of Oman.)

Tel: +968 24660900, Fax: +968 24566476
Web: www.afic.om

IPO of 25,825,415 Shares

Offer Price: Baizas 190 per Offer Share
(Comprising a nominal value of Baizas 100 per Share, premium of Bzs 88 per Share and Offer
expenses of Baizas 2 per Share)

SUBCRIPTION PERIOD
Subscription Opens: 4 March 2018; Subscription Closes: 2 April 2018

FINANCIAL ADVISOR AND ISSUE MANAGER

Ubhar Capital SAOC

P.O. Box 1137, P.C. 111, C.P.O., Sultanate of Oman
Tel: +968 2494 9001 Fax: +968 2494 9099
www.u-capital.net

COLLECTING BANKS LEGAL ADVISOR

Al Busaidy Mansoor Jamal & Co.

P.O. Box 686, PC 112,
Sultanate of Oman
Tel: +968 2482 9200; Fax: +968 2481 2256
www.amjoman.com

This Prospectus has been prepared in accordance with the requirements prescribed by the CMA. This is an unofficial
English translation of the Prospectus prepared in Arabic and approved by the CMA in accordance with Administrative
Decision no. KH/12/2018 dated 14th February, 2018. The CMA assumes no responsibility for the accuracy and adequacy of
the statements and information contained in this Prospectus nor will it have any liability for any damage or loss resulting
from the reliance upon or use of any part of the same by any person.

This Prospectus does not constitute an offer to sell or an invitation by or on behalf of the Company to subscribe to any of
the Shares in any jurisdiction outside of Oman where such distribution is, or may be, unlawful.
IMPORTANT NOTICE TO INVESTORS

All prospective Applicants are advised to read this notice

The objective of this Prospectus is to present material information that may assist
prospective applicants to make an appropriate and informed decision as to whether or
not to invest in the Offer Shares.

This Prospectus includes all material information and data and does not contain any
misleading information or omit any material information that would have a positive or
negative impact on the decision of whether or not to invest in the Offer Shares.

The Directors of the Company are jointly and severally responsible for the integrity and
adequacy of the information contained in, and confirm that to their knowledge
appropriate due diligence has been conducted in the preparation of, this Prospectus and
further confirm that no material information has been omitted, the omission of which
would render this Prospectus misleading.

All prospective applicants should examine and carefully review this Prospectus in order
to decide whether it would be appropriate to invest in the Offer Shares by taking into
consideration all the information contained in this Prospectus in its proper context.
Prospective Applicants should not consider this Prospectus as a recommendation by the
Company, the Directors, the Issue Manager or the Legal Advisor to buy the Shares. Every
prospective Applicant shall bear the responsibility of obtaining independent professional
advice on the investment in the Offer Shares and shall conduct independent evaluation
of the information and assumptions contained herein using appropriate analysis or
projections.

No person has been authorized to make any statements or provide information in

relation to the Company or the Offer Shares other than the persons whose names are
indicated in this Prospectus to do so. Where any person makes any statement or
provides information it should not be taken as authorized by the Company, the Issue
Manager or the Legal Advisor.

[1]
FORWARD LOOKING STATEMENT
This Prospectus contains statements that constitute statements relating to intentions, future acts
and events. Such statements are generally classified as forward-looking statements and involve
known and unknown risks, uncertainties and other important factors that could cause those future
acts, events and circumstances to materially differ from the way implicitly portrayed within this
Prospectus. The use of any of the words "aim”, “anticipate”, “continue”, “estimate”, "objective",
"plan", “schedule”, “intend”, “expect”, “may”, “will”, “project”, “propose”, “should”, “believe” “will
continue”, “will pursue” and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are not historical facts but reflect current
expectations regarding future results or events and are based on various estimates, factors and
assumptions. The Company believes the expectations reflected in those forward-looking
statements are reasonable, but no assurance can be given that these expectations will prove to be
correct. Moreover, forward-looking statements involve inherent risks and uncertainties and speak
only as at the date they are made and should not be relied upon as representing the Company’s
estimates as of any subsequent date.

The Company cautions prospective Applicants that a number of important factors could cause
actual results or outcomes to differ materially from those expressed in any forward-looking
statements. These factors include, but are not limited to, the following:

 Level of demand for the Company’s products and services;

 The competitive environment and the potential increase in number of competitors;
 Regulatory, legal and fiscal developments;
 Fluctuations in foreign exchange rates, equity prices or other rates or prices;
 The inability to estimate future performance;
 The performance of the Omani economy;
 Inability to successfully implement its strategy, growth and expansion plans; and
 Other factors described under the chapter "Risk Factors" in this Prospectus.

The Company cannot provide any assurance that forward-looking statements will materialize. The
Company, the Issue Manager and the Legal Advisor and any of their respective affiliates disclaim
any intention or obligation to update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise unless required by Applicable Law.

For a description of material factors that could cause the Company’s actual results to differ
materially from the forward-looking statements in this Prospectus, see the chapter titled “Risk
Factors” of this Prospectus. The risk factors described in this Prospectus are not necessarily all of
the important factors that could cause actual results to differ materially from those expressed in
the forward-looking statements.

After listing on the MSM, the Company will adhere to the disclosure rules and regulations of the
CMA, which includes making timely disclosure in relation to the Company's financial results. The
Company advises prospective Applicants and the Shareholders to track any information or
announcements made by it after listing through the MSM website at www.msm.gov.om.

[2]
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Financial Data: This Prospectus includes certain projections. The projections are based on the
expectations of external conditions and events relating to the Company, the competitive
environment in Oman and the industry in which the Company operates. These projections are
forward-looking statements that involve inherent risks and uncertainties. Prospective Applicants
are cautioned that a number of important factors could cause actual results or outcomes relating
to the Company to differ materially from those expected in these projections.

In addition, the Issue Manager has not independently verified any of the projections and financial/
other data prepared by the Directors. Please see the chapter “Risk Factors and Mitigants”.

The Company’s Financial Year commences on January 1 and ends on December 31 of each year.

In this Prospectus, any discrepancy between the total and the sum of the relevant amounts listed is
due to rounding.

Currency of Presentation: All references to “RO” are to Omani Rial, the official currency of Oman.
The Omani Rial is pegged to the U.S. Dollar and the pegged exchange rate is RO 1 = US Dollar
2.6008. RO 1 is composed of 1,000 Baizas.

Summary or Extracts of Documents: Any summaries of documents or extracts of documents

contained in the Prospectus should not be relied upon as being comprehensive statements in
respect of such documents.

Industry and Market Data: Industry and market data in this Prospectus has been obtained from
third parties or from public sources such as websites and publications. Neither the Directors of the
Company, the Issue Manager nor the Legal Advisor have independently verified any of the data
from third party sources referred to in this Prospectus or ascertained the underlying assumptions
relied upon by such sources. In addition, the Issue Manager or the Legal Advisor has not
independently verified any of the industry data or other sources referred to in this document.
Therefore, its accuracy and completeness is not guaranteed and its reliability cannot be assured.
The extent to which the Industry and Market data used in this Prospectus is meaningful depends
on the reader's familiarity with and understanding of the methodologies used in compiling such
data.

ADDITIONAL POINTS TO BE NOTED

Scope of Information: The information contained in this Prospectus is intended to provide a

prospective Applicant with adequate information relating to the investment opportunity and
background information on the IPO referred to in this Prospectus. However, this Prospectus does
not necessarily contain all the information that a prospective Applicant may consider material. The
content of this Prospectus is not to be construed as legal, business or tax advice. Each prospective
Applicant should consult his own lawyer, financial adviser or tax adviser for legal, financial or tax
advice in relation to any subscription, purchase or proposed subscription or purchase of the Shares.

Investor Due Diligence: Prior to making any decision as to whether to subscribe for the Shares,
prospective Applicants should read this Prospectus in its entirety. In making an investment
decision, prospective Applicants must rely upon their own examination of the terms of this
Prospectus and the risks involved in making an investment.

[3]
Equity Risk: All equity investments carry market risks to varying degrees. The value of any security
can fall as well as rise depending on the market conditions. Prospective applicants should read
the chapter related to “Risk Factors and Mitigants” of this Prospectus.

Restrictions on Distribution of this Prospectus: The distribution of this Prospectus and the Offer
Shares may, in certain jurisdictions, be restricted by law or may be subject to prior regulatory
approvals. This Prospectus does not constitute an offer to sell or an invitation by or on behalf of the
Company to subscribe to any of the Offer Shares in any jurisdiction outside of Oman where such
offer or invitation would be unlawful. This Prospectus may not be distributed in any jurisdiction
where such distribution is, or may be, unlawful. The Company, the Issue Manager, the Legal
Advisor and the Collecting Banks require persons into whose possession this Prospectus comes to
inform themselves of and observe, all such restrictions. None of the Company, the Issue Manager,
the Legal Advisor or the Collecting Banks accept any legal responsibility for any violation of any
such restrictions on the sale, offer to sell or solicitation to subscribe for Offer Shares by any person,
whether or not a prospective Applicant, in any jurisdiction outside Oman where such sale, offer to
sell or solicitation to subscribe would be unlawful.

Restrictions on use of Information Contained in this Prospectus: The information contained in this
Prospectus may not be published, duplicated, copied or disclosed in whole or in part or otherwise
used for any purpose other than in connection with the Offer, without the prior written approval of
the Company and the Issue Manager.

Disclaimer of Implied Warranties: Except as required under Applicable Law no representation or

warranty, express or implied, is given by the Company, the Issue Manager, the Legal Advisor or the
Collecting Banks, or any of their respective directors, managers, accountants, lawyers, employees
or any other person as to the completeness of the contents of this Prospectus; or of the projections
included within; or of any other document or information supplied at any time in connection with
the Offer; or that any such document has remained unchanged after the issue thereof.

[4]
TABLE OF CONTENTS

TABLE OF CONTENTS 5
1. ABBREVIATIONS AND DEFINITIONS 6
2. OFFER SUMMARY 10
3. ESTIMATED OFFER EXPENSES 14
4. PURPOSE OF THE OFFER AND USE OF OFFER PROCEEDS 15
5. OBJECTS AND APPROVALS 16
6. SHAREHOLDING DETAILS 21
7. OMAN ECONOMIC OUTLOOK 29
8. OMAN INSURANCE SECTOR OVERVIEW 34
9. DESCRIPTION OF THE COMPANY AND BUSINESS OVERVIEW 43
10. RISK FACTORS AND MITIGANTS 62
11. SOURCE OF FINANCING 75
12. HISTORICAL FINANCIAL STATEMENTS 76
13. ASSUMPTIONS TO PROJECTED FINANCIALS 81
14. PROJECTED FINANCIAL STATEMENTS 89
15. AUDITED FINANCIAL STATEMENT – FOR THE PERIOD ENDED 31ST AUGUST 2017 90
16. UNAUDITED FINANCIAL RESULTS – FOR THE PERIOD ENDED 30TH NOVEMBER 2017 91
17. DIVIDEND POLICY 92
18. VALUATION AND PRICE JUSTIFICATION 94
19. RELATED PARTY TRANSACTIONS AND MATERIAL CONTRACTS 100
20. CORPORATE GOVERNANCE 105
21. RIGHTS AND LIABILITIES OF SHAREHOLDERS 119
22. SUBSCRIPTION CONDITIONS AND PROCEDURES 123
23. UNDERTAKINGS 131

[5]
1. ABBREVIATIONS AND DEFINITIONS

AGM Annual general meeting of the Shareholders convened

and held pursuant to Article 120 of the CCL
Al Anwar Holding Al Anwar Holdings SAOG
Applicable Law Applicable laws and regulations in Oman as in force on
the date of this Prospectus
Applicant Eligible person who applies for the Offer Shares
pursuant to the terms of this Prospectus
Application The Application Form duly filled and submitted to the
Collecting Bank(s) together with the Application Money
as specified in the Chapter “Subscription Conditions and
Procedures” of this Prospectus
Application Form The printed application form to be used to apply for the
Offer Shares pursuant to the terms of this Prospectus.
These forms will be available at the branches of the
Collecting Banks

Application Money The Application Money is equal to the amount in Omani

Rials, equal to the number of Shares applied multiplied
by the Offer Price per Share.

This amount has to be paid by an Applicant at the time

of submission of his/her duly completed Application
Form as specified in the Chapter “Subscription
Conditions and Procedures” of this Prospectus.

Arabia Holding Arabia Holding S.A.L (Holding Company)

Arabia Insurance Arabia Insurance Company S.A.L.
Arabia Insurance Oman Branch Arabia Insurance Company S.A.L-Oman Branch
Articles The Company’s articles of association (as amended
from time to time) registered with the MOCI
Baiza(s) One thousandth of an Omani Rial (Baizas 1,000 = RO 1)
Board The board of directors of the Company elected and
holding office in accordance with the Articles, the CCL,
the Code and the Rules and Conditions for Election of
Directors of Public Joint Stock Companies and their
Responsibilities (Ministerial Decision 137/2002, as
amended)
CAGR Compounded annual growth rate
Capital Market Law The Capital Market Law of Oman promulgated by
Royal Decree Number 80/98 (as amended)
CBO Central Bank of Oman
CCL The Commercial Companies Law of Oman promulgated
by Royal Decree Number 4/74 (as amended)
CEO The chief executive officer of the Company

[6]
Chairman The chairman of the Board
CMA The Capital Market Authority of Oman
Code The CMA code of corporate governance for SAOGs
issued in July 2015 and updated in December 2016
Collecting Bank The banks appointed to receive the Applications during
the Subscription Period
Company or “AFIC” Arabia Falcon Insurance Company SAOG (Under
Transformation)
Consolidation Consolidation of the business and operations of FIC
and Arabia Insurance Oman branch, undertaken
through simultaneous completion of (i) purchase by
Arabia Holding and Lawrence Investments of
3,471,776 Shares of the Company from the certain
Shareholders, at a price of RO 1.876 per share and (ii)
acquisition by the Company of the insurance portfolio,
business, assets and liabilities of Arabia Insurance
Oman Branch

CPI Consumer price index

DCF Discounted cash flow methodology for valuation
Directors The members of the Board
EGM Extraordinary general meeting of the Shareholders
Executive Regulations Executive Regulations of the Capital Market Law issued
vide Administrative Decision No.1/2009 of the CMA (as
amended)
FIC or Falcon or Falcon Insurance Falcon Insurance Company SAOC, subsequently
renamed as Arabia Falcon Insurance Company SAOC
after the Consolidation

Financial Year The period of twelve months starting on January 1 and

ending on December 31 of that particular year
GCC The Gulf Cooperation Council which is composed of
Oman, United Arab Emirates, Saudi Arabia, Qatar,
Bahrain and Kuwait
GDP Gross domestic product
Government The government of Oman
IFRS International Financial Reporting Standards
IMF International Monetary Fund
Independent Director A Director who qualifies as an independent director in
accordance with the criteria laid down in the Code
Insurance Law The Insurance Law, promulgated by Royal Decree 12/79
as amended and decisions and regulations made
pursuant thereto
IPO Initial public offer of the Offer Shares
Issued and Paid Up Share Capital Issued and paid up share capital of the Company from
time to time
[7]
Issue Manager Ubhar Capital SAOC (or U Capital)
Lawrence Investments Lawrence Investments LLC
Legal Advisor Al Busaidy, Mansoor Jamal & Co
Management The senior management of the Company
MCD Muscat Clearing and Depository Company SAOC
MENA Middle East North Africa
MOCI The Ministry of Commerce and Industry of Oman
MSM Muscat Securities Market
NCSI National Centre for Statistics and Information, Oman
OGM An ordinary general meeting of the Shareholders
Offer The offer for sale of the Offer Shares to the public as
described in this Prospectus
Offer Closing Date The closing date of the Offer, which is described in the
Chapter “Subscription Conditions and Procedures” of
this Prospectus
Offer Opening Date The opening date of the Offer, which is described in the
Chapter “Subscription Conditions and Procedures” of
this Prospectus
Offer Price The price at which each of the Offer Shares is being
offered for subscription through this Prospectus
Offer Proceeds The proceeds of the Offer
Offer Shares The Shares being offered for subscription of the Offer
through this Prospectus
Oman The Sultanate of Oman
OMINVEST Oman International Development and Investment
Company SAOG
ONIC Holding the erstwhile Oman National Investment Corporation
Holding SAOG
PB Price to book value per share
PE Price earnings ratio
Prospectus This prospectus for the IPO of the Offer Shares
RO Omani Rial, the lawful currency of Oman
SAOC Omani Closed Joint Stock Company
SAOG Omani Public Joint Stock Company
Selling Shareholders The shareholders who are offering their shares as per
details provided in Chapter 6 - Shareholding Details of
this document
Shares/ Ordinary Shares The equity shares of the Company of nominal value Bzs
100 each
Shareholders The shareholders of the Company as registered with the
MCD.

[8]
Subscription Period The period between the Offer Opening Date and the
Offer Closing Date inclusive of both days during which
an Applicant can submit an Application Form
Takaful An agreement between a group of participants to
support one another jointly for losses arising from
specified risks in accordance with the rules and
principles of Islamic Shari'a

[9]
2. OFFER SUMMARY

Name of the company Arabia Falcon Insurance Company SAOG (under transformation)

Commercial 1791494
registration no.
Date of registration 29 June 2005

Address PO Box: 2279, Postal Code: 112, Ruwi, Sultanate of Oman, Tel; +968
24660900, Fax: +968 24566476
Duration Unlimited

Authorized share RO 15,000,000 divided into 150,000,000 Shares of nominal value of Baizas
capital of the 100 each.
Company
Issued and Paid-up RO. 10,330,166 divided into 103,301,660 Shares of nominal value of Baizas
Share Capital of the 100 each that have been subscribed and paid in full.
Company (before the
Offer) As part of the IPO process the Company split the Shares to a nominal value of
Bzs 100 per Share, resulting in a pre-IPO capital of 103,301,660 Shares.

Shares offered for 25,825,415 Shares of nominal value Baizas 100 each, representing 25% of the
subscription Issued and Paid-up capital of the Company.

Name of Pre-IPO # Name Number of Percentage

Shareholders and Shares held holding
number of Shares before the IPO
held (nominal value
Bzs 100 per
Share)

1 Arabia Holding S.A.L. 51,754,140 50.1%

2 Lawrence Investment LLC 20,254,680 19.6%
3 Al Anwar Holdings SAOG 19,626,710 19.0%

4 Mr. George Chidiac 6,400,000 6.2%

5 Mr. Ameen Al Shareef 3,200,100 3.1%

6 ONIC SAOC 2,066,030 2.0%

Total 103,301,660 100%

Offer Price Baizas 190 per Share; comprising a nominal value of Baizas 100 per Share,
share premium of Bzs 88 per Share and offer expenses of Baizas 2 per Share.

Purpose of Offer (Use The Company is undertaking the IPO Offer in order to comply with the
of Offer Proceeds) requirements of Royal Decree 39/2014 which amended the Insurance Law,
requiring existing licensed insurance companies to be listed as SAOGs by
[10]
 17th August 2017.

The proceeds of the Offer will accrue entirely to the Selling Shareholders.

Persons eligible to The Offer will be open to Omani and non-Omani individuals and juristic
subscribe for the persons, who have their accounts with the MCD, as on the date and / or
Offer during the Subscription Period.

Subscription Opening 4 March 2018

Date
Subscription Closing 2 April 2018
Date
Expected listing date 16 April 2018
on MSM
Prohibitions on The following prohibitions apply to the Offer:
subscription  Sole proprietorship establishments cannot apply for the Shares.
However, the owners of sole proprietorship establishments may
submit Applications in their personal names.
 Multiple Applications are not permitted. An Applicant may not submit
more than one Application.
 Joint Applications are not permitted (i.e. Applications made in the
name of more than one person, including Applications made on behalf
of legal heirs). These Applications should only be made in their
personal names.
 Trust Accounts. Customers registered under trust accounts may only
submit Applications in their personal names.

All Applications falling in any of above categories will be rejected without

notifying the Applicant.

Minimum limit for the Category 1 Investors: 1,000 Shares and in multiples of 100 Shares thereafter.
subscription under
one (1) Application Category 2 Investors: 100,100 Shares and in multiples of 100 Shares
thereafter.

Maximum limit for Category 1: 100,000 Shares.

the subscription
under one (1) Category 2: 2,582,500 Shares which is 10% of the total Offer Shares (rounded
Application to the nearest 100).

Proposed allotment In case of over-subscription of the Offer, the eligible Applications shall be
segregated into two categories and the Offer Shares will be allotted among
the eligible Applicants, as follows:

Category I:
16,786,520 Shares, being 65% of the Offer Shares, will be allocated on a pro-
rata basis to Applicants applying for 100,000 Shares or less.

Category II:
9,038,895 Shares being 35% of the Offer Shares, will be allocated on a pro-
rata basis to Applicants applying for 100,100 Shares or more.

The CMA, in co-ordination with the Issue Manager, will finalise the actual
basis of allocation.

[11]
 The CMA may decide to allocate a minimum number of Offer Shares equally
to all eligible Applicants, taking into consideration the small subscribers, and
the remaining Offer Shares shall be distributed on a pro-rata basis.

Any under-subscription in any category shall be carried over to the other

category as described in more detail in the Chapter “Subscription Conditions
and Procedures” of this Prospectus.

In case of a shortfall in subscription, the unsubscribed Offer Shares shall be

retained by the respective Selling Shareholders. The Company will, in
consultation with the CMA, agree on a suitable course of action regarding the
unsubscribed shares.

Total foreign ownership of the Company following the IPO cannot exceed
70% of the paid up share capital of the Company. It should be noted that
pursuant to Ministerial Decision 205/2007 issued by the former Ministry of
National Economy, all GCC individuals and juristic persons are treated as
Omani nationals and juristic persons in respect of ownership of shares of
companies in Oman.

Financial Advisor & Ubhar Capital SAOC

Issue Manager PO Box 1137, P.C. 111, C.P.O.,
Sultanate of Oman.
Tel: +968 2494 9006, Fax: +968 2494 9099
Email: ubhar-corporatefinance@u-capital.net
Website: www.u-capital.net

Legal Advisor Al Busaidy Mansoor Jamal & Co.

Barristers & Legal Consultants
P.O. Box 686, PC 112
Sultanate of Oman
Ph.: +968 2482 9200; Fax: +968 2481 2256
Web: amjoman.com

Collecting Banks 1. Bank Sohar SAOG

2. National Bank Of Oman SAOG
3. Oman Arab Bank SAOC

Statutory Auditors PricewaterhouseCoopers LLC

(upto the year ended PO Box 3075, PC 112
2016) Sultanate of Oman
Ph.: +968 2455 9110; Fax: +968 2456 4408
Web: www.pwc.com/me

Statutory Auditors Ernst & Young

(for the year 2017) PO Box 1750, P.C.112 Ruwi
Sultanate of Oman
Tel: +968 24559559; Fax: +968 24566043
Web: www.ey.com/mena

Reporting Horwath Mak Ghazali LLC

Accountants 8th Floor, Trade Centre Building
MBD East, Ruwi
Tel: +968 2481 3989
[12]
 Fax: +968 2481 3915
Web:www.crowehorwath.net/OM

Registration and Muscat Clearing and Depository Co. SAOC

Transfer Agent PO Box 952, PC 112, Ruwi, Sultanate of Oman
Tel: +968 2482 2222, Fax: +968 2481 7491
Website : www.csdoman.co.om

Marketing Advisor United Media Services

PO Box 3305, PC 112
Ruwi, Sultanate of Oman
Tel: +968 2470 0896
Website: www.umsoman.com

[13]
3. ESTIMATED OFFER EXPENSES

The following are the details of estimated Offer expenses:

Related Expenses Amount (RO)

Issue Manager fees 65,000
Legal Advisor fees 12,000
Reporting Accountant fees 5,500
Collecting Banks' fees 32,000
CMA fees 6,457
MCD fees 15,000

Printing, marketing, advertising & publicity expenses 35,000

Miscellaneous expenses including contingencies 14,000
Total 184,957

Offer expenses to be collected at Baizas 2 per Offer Share 51,652

Difference between amount to be collected towards 133,305
expenses and estimated Offer expenses

The above are indicative estimates only and may differ from actual Offer expenses. If all Offer
Shares are subscribed for, the estimated expenses are expected to be about 2.6% of the Offer
excluding the amount of 2 BZ the Offer expense).

The total Offer expenses will be partially met out of the amount collected towards offer expenses.
Any Offer expense in excess of the amount collected will be borne by the Selling Shareholders. If
the actual Offer expenses are less than the amount collected from the successful Applicants, the
surplus will be retained by the Company and credited to its reserves.

[14]
4. PURPOSE OF THE OFFER AND USE OF OFFER PROCEEDS

4.1. Purpose of the Offer

The purpose of offering the Offer Shares is to transform the Company from an SAOC to an
SAOG and list the Shares on MSM.

The conversion and the Offer have been approved by the Shareholders at an EGM held on 19th
June 2017. The Offer will enable the Company to comply with the requirements of Royal
Decree 39/2014 which amended the Insurance Law, requiring existing licenced insurance
companies to be converted as SAOGs within three years from the date of the publication of
the said Royal Decree in the official gazette.

Please refer to the related risk factor under Para 10.30 in the Chapter “Risk Factors”

4.2. Use of Offer Proceeds

The Offer Proceeds (including the premium and excluding amount collected towards offer
expenses) will be remitted in full to the Selling Shareholders on listing of the Offer Shares in
MSM. Therefore, the Company will not receive any amount other than the amount collected
towards Offer expense. If the actual Offer expenses are less than the amount collected from
the successful Applicants, the surplus will be retained by the Company and credited to its
reserves.

[15]
5. OBJECTS AND APPROVALS

5.1. The Company’s Objects

The object for which the Company is established is to carry on life insurance and general insurance
business, including but not limited to:

1. Industrial Insurance
2. Liability Insurance
3. Marine, Aviation and Transport Insurance
4. Motor vehicle Insurance
5. Financial Loss Insurance
6. Personal accidents Insurance
7. Property Insurance
8. All classes of Insurance, which have not been included under the above-mentioned items,
which the other similar insurance companies usually, carry on. The Company will also carry
on works linked to or related to, or annexed to, or supplementary to any kind of insurance
it underwrites as aforesaid.

In order to accomplish its objects, the Company shall have the right to undertake the following:
- To take on lease, the land necessary to erect the various facilities relating to its objects,
and to effect any legal transaction whatsoever in relation thereto pursuant to the laws in
effect in the Sultanate.
- To acquire any shares in any other company whose all or part of its objects are similar to
that of the Company or to undertake any act capable of benefiting it directly or indirectly
whether within Oman or abroad.
- To apply for, purchase, register or otherwise acquire and protect and renew, whether in
Oman or elsewhere in any part of the world any patents, patent rights, concessions, trade
marks, licenses, and the like and to alter, disclaim, modify, use in respect of the same, and
to expend money in experimenting upon, testing or improving any such patents or rights.
- To make any agreement or arrangements with any person to represent the Company or
any other establishment or person in the meetings of the local, national or international
establishments or bodies related to the business and activities of the Company and to
provide all kinds of services to sub establishments or bodies.
- To invest its funds which are in excess of its needs and to effect transactions in respect of
the same in such manner as the Board of Directors considers appropriate and beneficial to
the accomplishing of the Company's objects. It may acquire and undertake the whole or
any part of the business, goodwill, assets, property, and liabilities of any person or
company carrying on or proposing to carry on any business which the Company is
authorised to carry on or possessed of property suitable for the purposes of the Company
or which can be carried on in conjunction therewith or which is capable of being
conducted so as directly or indirectly to benefit the Company.
- To acquire an interest in, amalgamate with, or enter into partnership or into any
arrangement with sharing profits, co-operation, joint adventure, union of interest or
reciprocal concession with any person or company carrying on or engaged in, or about to
carry on or engage in, any business or transaction which is capable of being conducted so
as directly or indirectly to benefit the Company.

[16]
 - To acquire in any manner, the whole or any part of the assets and to undertake the whole
or any part of the liabilities of any person carrying on or intending to carry on any business
which the Company is allowed to carryon or which may be carried on in conjunction with
the business of the Company. To acquire an interest in, merger with or enter into
partnership with or to establish cooperation or mutual assistance with any person. To give
or accept, for the purpose of the above disposal and matters or for the purpose of the
properties that become in its possession, any consideration which is deemed fit by it,
including but not limited to any shares whether their value is fully or partially paid or any
debentures or securities or any other rights.
- To draw, make, accept, endorse, discount, execute, negotiate any promissory notes, bills
of exchange, bills of lading, warrants, debentures and other negotiable or transferable
instruments or securities.
- To establish any other company or companies for the purpose of acquiring all or any of the
property, rights and liabilities of the Company, or for any other purpose which may appear
likely to assist or benefit the Company, or for any value of any property or business of the
Company and to place or guarantee the placing of, underwrite, subscribe for or otherwise
acquire all or any part of the shares, debentures or other securities of any such company.
- Subject to provision of Commercial Companies Law, to raise or borrow money in such a
manner as the Company shall think fit, and to secure the repayment of any such money
raised, borrowed or owing by, mortgage, lien, charge or other security upon all or any of
the property or assets of the Company (whether present or future) and also by a similar
mortgage, lien, charge or security or secure and guarantee the performance by the
Company of any obligation or liability it may undertake or which may become binding on
it.
- To pay out of the funds of the Company all or any expenses which the Company may
lawfully pay with respect of the promotion of its business, formation and incorporation of
the Company or to contract with any person, firm or company to pay commissions to
brokers and others for underwriting, placing, selling or guaranteeing the subscription of
any shares, debentures or other securities of the Company.
- To subscribe to or support any charitable object or any institution and to give pensions,
bonuses, gratuities or assistance to any person who is serving or has served the Company,
whether as a director, employee or otherwise, and his family and dependents; to make
payments towards insurance, and to establish, form and contribute to provident,
superannuating and other similar funds and trusts, association, clubs, schools and other
institutions for the benefit of any such persons aforesaid.
- Enter into technical cooperation and commercial joint ventures with local and foreign
companies.
In general, the Company is entitled to carry out all the transactions and contract and to undertake
all acts, which it may find necessary to fulfil its objects and on the conditions that it deems fit.

5.2. Permits and Licenses

The Company was incorporated in Oman as an SAOC with the name "Falcon Insurance Company
SAOC" and registered in the commercial register of the MOCI on 29 June 2005. Subsequently, at an
EGM held on 4th January 2017 the shareholders of the Company unanimously approved the
combination of the insurance portfolio and operations of Arabia Insurance Oman branch and the
Company (“Transaction”). Pursuant to the preliminary approval granted by the CMA, the
Transaction was implemented with effect from 27th March 2017 through completion of the
following legal measures:

[17]
 1. Arabia Holding and Lawrence Investments acquired 54.29% shares in the issued and paid
up capital of the Company through a sale and purchase of shares completed on the MSM
on 22 March 2017.

2. The Primary Commercial Court at Muscat issued an order dated 22 March 2017 for the
transfer of all assets and liabilities, contracts, employees and business of AIC Oman
Branch’s life insurance portfolio to FIC pursuant to the provisions of Article 39 of the
Insurance Law.

3. The Company acquired the entire portfolio, business, contracts, rights, assets, liabilities and
employees of the life and non-life insurance business of AIC Oman Branch by execution of a
Business Transfer Agreement before the Attestation Department of the MOCI on 27 March
2017 (as amended on 14 November 2017).

4. The Company issued 3,935,709 ordinary shares of RO 1 to Arabia Holding by increasing its
issued and paid up share capital from RO. 6,394,457 to RO. 10,330,166 in consideration of
the transfer of the assets and business of AIC Oman Branch to the Company

At an EGM held on 19th June 2017, the Shareholders resolved to transform the Company into an
SAOG organized under the laws of Oman by offering 25% of the Issued Share Capital of the
Company to the public. The CMA granted AFIC a waiver from the requirements in Article 61 of the
CCL to offer 40% of the Issued Share Capital to the public.

The Company holds the following material registrations, permits and licenses:

Ministry of Commerce and Industry: Commercial Registration

Commercial Registration Number: 1791494
Registered Headquarters: Muscat Governorate /Bousher/Al Qurum
Postal Address: PO Box: 2279, PC 112
Date of Registration: 29th June 2005
Expiry Date: 28th June 2020
Duration: Unlimited

The Company has been registered with the MOCI with the following activities:

- Life insurance
- Other kinds of insurance

CMA: Insurance License

The CMA is the relevant authority which regulates and licenses insurance related activities in
Oman. The Company is required to obtain and maintain licenses from the CMA to carry on its
insurance business.

The Company holds the following licence from the CMA as follows:

License License Number Expiry Date

General Insurance 33/IN 11th September 2020

Life Assurance 33/ IN 11th September 2020

[18]
The Company intends to seek and obtain renewal of the above license as and when the fall due for
renewal.

Oman Chamber of Commerce & Industry: Membership

Registration Number: 1537
Expiry Date: 01/07/2018

5.3. Court Approval under Article 39 of the Insurance Law

On 22nd March 2017, the Primary Commercial Court (Muscat circuit) issued a judgment as follows
to approve the transfer of the life insurance portfolio of Arabia Insurance Oman Branch to AFIC:

1. Sanctioning the transfer of the entire life insurance activity, properties, liabilities, assets,
contracts, employees, insurance policies, shares, judicial procedures and all entitlements
and undertaking owned by Arabia Insurance Oman Branch in favour of FIC;

2. Sanctioning the transfer of the entire activity portfolio including the transfer of the private
life insurance of Arabia Insurance to FIC;

3. Cancelling the registration of Arabia Insurance Oman Branch and dissolving the same;

4. Transferring all undertakings, liabilities pertaining to transferor company “Arabia Insurance

Company Oman Branch” to the Company;

5. Continuation of the pending judicial procedures originally filed by or against the transferee
company “Arabia Insurance Oman Branch” in the name of the Company whether such
procedures are taken by or against it; and

6. Obliging the plaintiff to pay the expenses thereof.

5.4. Approval to float 25% shares in the IPO

Article 61 of the CCL provides that promoters of companies who offer their shares for public
subscription shall offer a minimum of 40% of the company’s issued share capital and that no single
promoter shall hold more than 20% of shares, of the Company’s issued share capital, in its own
name following the IPO. The CMA advised the Company in a letter dated 19th January 2017 that the
CMA has no-objection to the Company offering 25% of its share capital for public subscription
instead of 40% as would otherwise be required under Article 61 of the CCL. The CMA has also
permitted Arabia Holding to hold 50.1% shares in the Company as a strategic investor pursuant to
its letter dated 13th March 2017.

5.5. The Articles

A copy of the Articles is available for perusal at the office of the Company located at the 2nd floor of
Sultan Centre building - Qurum, Muscat, during business hours.

5.6. Resolutions Passed by the Company relating to the IPO

The Shareholders passed the following resolutions in their EGM held on 19th June 2017

[19]
1. Approved the change in nominal value of the Company’s shares to become 100 Baizas (One
Hundred Baizas) instead of one Omani Rial for each share, by splitting the shares 10:1.
2. Approved and adopted the amended Articles of Association in conformity with the
requirements prescribed by the CMA.
3. Approved the conversion of the Company from an SAOC to an SAOG through an IPO of Shares
and listing on the MSM.
4. Approved the offer to the public of 25,825,415 Shares of the Company being 25% of the post
IPO share capital of the Company, subject to the approval by the CMA at a price to be decided
by the Board. The number of Shares to be sold by each Shareholder on a pro-rata basis or as
mutually agreed by the Shareholders.
5. Approved the appointment of Al Busaidy Mansoor Jamal & Co as legal advisors to the Company
for the IPO.
6. Approved the appointment of communication consultant for the IPO.
7. Approved the appointment of collecting banks for the IPO.
8. Approved the appointment of Ubhar Capital SAOC as the Financial Advisor and Issue Manager
for the IPO.
9. Approved the appointment of Horwath Mak Ghazali LLC as the reporting accountants for the
IPO.
10. Authorized any two (2) of, the Board of Directors of the Company, acting jointly, to carry out
the following matters:
a. To approve and sign on behalf of the Board of Directors and the Company the prospectus
and other documents relating to the IPO;
b. To do all other acts, sign all documents and file and register any documents with any
relevant authority and obtain consents and approvals on behalf of the Company which may
be deemed appropriate or necessary in connection with the IPO including listing of the
Company’s shares on the MSM;
11. Approved ratifying all actions taken or delegated by the Board in relation to the IPO prior to the
date of the EGM.

5.7. Continuing Obligations

In accordance with the CCL, all existing obligations of the Company, prior to its transformation to
an SAOG shall continue in the transformed company.

[20]
6. SHAREHOLDING DETAILS

6.1. Shareholding as at Incorporation as Falcon Insurance Company SAOC

The issued share capital of the Company at incorporation RO. 5,400,000 which was subscribed for
in cash by the shareholders listed in the table below.

# Shareholder’s name Nationality Number of % of Aggregate

Shares held of total nominal
nominal value value (RO)
of RO. 1 each

1 Al Anwar Holdings Oman 1,500,000 27.78% 1,500,000

2 Al Ittihad Al Wattani/General Lebanon 1,000,000 18.52% 1,000,000

Insurance Co
3 National Insurance & Investment Omani 625,000 11.57% 625,000
Services Co.
4 Bank of Sharjah UAE 400,000 7.41% 400,000
5 Bank Muscat SAOG Oman 250,000 4.63% 250,000
6 MOD Pension Fund Oman 250,000 4.63% 250,000
7 Mr. George Antonios Chidiac Lebanon 250,000 4.63% 250,000
8 National Trading Co. Oman 250,000 4.63% 250,000
9 Damac Invest Muscat Co. Oman 250,000 4.63% 250,000
10 Mr. Ahmed Saif Musallam Al Rawahi Oman 150,000 2.78% 150,000

11 National Securities Company SAOG Oman 150,000 2.78% 150,000

12 Jaman Sons Company LLC Oman 125,000 2.31% 125,000

13 Al Qurum Trading Group Oman 100,000 1.85% 100,000
14 Al Khonji Investment LLC Oman 100,000 1.85% 100,000
Total 5,400,000 100% 5,400,000

6.2. Subsequent changes to shareholding

1. In 2005, National Insurance & Investment Services Co. transferred 75,000 Shares to Mr.
Abdul Razzak Ali Issa Al Sabagh and 25,000 Shares to Mrs. Batool Hamdan Sajwani.
2. In 2006, National Insurance & Investment Services Co. transferred 49,020 Shares to Mr.
Masoud Humaid Malik Al Harthy and 49,020 to Mr. Shabir Musa Al Yousef.
3. In 2007 the following share transfers took place:
A. Al Khonji Investment LLC transferred 100,000 Shares to Mr. Ibrahim Ahmed Ibrahim al
Maimani.
B. Mr. Ibrahim Ahmed Ibrahim al Maimani transferred 100,000 Shares to Al Anwar
Holdings SAOG.
C. National Securities Company SAOG transferred 150,000 Shares to Al Anwar Holdings.
D. Al Ittihad Al Wattani/General Insurance Co. transferred 1,000,000 Shares to Mr.
George Antonios Chidiac.

[21]
 E. Mr. George Antonios Chidiac transferred 440,000 Shares to Al Anwar Holdings.
F. Sheikh Ahmed Bin Saif Al Rawahi transferred 145,020 Shares to National Insurance &
Investment Services Co.
G. MOD Pension Fund transferred 250,000 Shares to HSBC A/C MOD Pension Fund.
H. Mr. George Antonios Chidiac transferred 270,000 Shares to Al Ittihad Al
Wattani/General Insurance Co.
4. In 2008, three share transfers occurred as under:
A. Al Qurum Trading Group transferred 100,000 Shares to Mr. Masoud Humaid Malik Al
Harthy.
B. Mr. Shabir Musa Al Yousef transferred 24,020 Shares to Mr. Masoud Humaid Malik Al
Harthy and 25,000 Shares to Mr. Michael Jan Wright.

5. In 2009, Jaman Sons Trading Company LLC transferred 125,000 Shares to National Insurance
& Investment Services Co.
6. In 2010, National Insurance & Investment Services Co. transferred 564,000 Shares to Al
Anwar Holdings.
7. In 2011 National Insurance & Investment Services Co. transferred 12,500 Shares to Mr. Qais
Mohammed Moosa Al Yousef and 12,500 Shares to Mr. Faisal Mohammed Moosa Al Yousef.
8. In 2012, Damac Invest Muscat Company/ Tharwa transferred 250,000 Shares to Fincorp
Investments LLC.
9. In 2012, the Company increased its issued and paid-up capital through rights issue from
RO. 5,400,000 to RO. 6,400,000. Two shareholders did not avail the rights and the paid up
capital was increased to RO. 6,394,457. The details of the rights issue are given in the table
below.
10. In 2013, Al Ittihad Al Wattani/General Insurance Co. transferred 320,010 Shares to Mr.
Ameen Mohammed Mohammed Al Sharif.

The table below sets out a summary of the various increases in issued share capital of the Company
from the date of incorporation and prior to the Consolidation:

Capital No. Shares Nominal Amount (RO.)

value (RO.)
Authorized capital at incorporation 10,000,000 1.000 10,000,000
Paid up share capital at 5,400,000 1.000 5,400,000
incorporation
Rights issue in November 2012 994,457 1.000 994,457
Paid up share capital in 2012 end 6,394,457 1.000 6,394,457
Paid up share capital in June 2015 6,394,457 1.000 6,394,457

The shareholders of the Company as on 31st December 2016 were as under:

Sl Name of the shareholder Nationality Number of % of

No. Shares held of total
nominal value
of RO.1 each
1 Al Anwar Holdings Oman 3,264,000 51.04%
2 Mr. George Antonios Chidiac Lebanon 640,000 10.01%
3 Bank of Sharjah UAE 474,074 7.41%
4 Mr. Ameen Mohammed Mohammed Al Sharif UAE 320,010 5.00%
5 National Trading Co. Oman 296,296 4.63%
[22]
 Sl Name of the shareholder Nationality Number of % of
No. Shares held of total
nominal value
of RO.1 each
6 HSBC A/C MOD Pension Fund Oman 296,296 4.63%
7 Fincorp Investments LLC Oman 296,296 4.63%
8 Bank Muscat Oman 296,296 4.63%
9 Mr. Masoud Humaid Malik Al Harthy Oman 205,084 3.21%
10 National Insurance & Investment Services Co. Oman 127,976 2.00%
11 Mr. Abdul Razzak Ali Issa Al Sabagh Oman 88,889 1.39%
12 Mrs. Batool Hamdan Sajwani Oman 29,630 0.46%
13 Michael Jan Wright UK 25,000 0.39%
14 Mr. Faisal Mohammed Moosa Al Yousef Oman 14,815 0.23%
15 Mr. Qais Mohammed Moosa Al Yousef Oman 14,815 0.23%
16 Sh. Ahmed Bin Saif Al Rawahi Oman 4,980 0.08%
Total 6,394,457 100%

6.3. Consolidation of the Company with Arabia Insurance Oman Branch

In December 2016, Arabia Holding S.A.L., a Lebanese company and Lawrence Investment LLC, an
Omani company together entered into a share sale purchase agreement, with 14 of the 16
shareholders of the Company listed in the table below (“Selling Shareholders”) from the said
Shareholders, in terms of which Arabia Holding and Lawrence Investment agreed to purchase a
total of 3,471,776 shares of the Company (“Share Purchase”)from the Selling Shareholders, at a
price of RO 1.876 per share (which was 1.2 times the agreed adjusted net asset value per share of
the Company as at 30th September 2016). The names and shareholding details of the shareholders
who hold their shares to Arabia Holding and Lawrence Investments are:

Sl Name of the Selling Shareholder Number of Number of

No. Shares held Shares sold

1 Al Anwar Holdings 3,264,000 1,301,329

2 Bank of Sharjah 474,074 474,074
3 National Trading Co. 296,296 296,296
4 HSBC A/C MOD Pension Fund 296,296 296,296
5 Fincorp Investments LLC 296,296 296,296
6 Bank Muscat 296,296 296,296
7 Mr. Masoud Humaid Malik Al Harthy 205,084 205,084
8 National Insurance & Investment Services Co. 127,976 127,976
9 Mr. Abdul Razzak Ali Issa Al Sabagh 88,889 88,889
10 Mrs. Batool Hamdan Sajwani 29,630 29,630
11 Michael Jan Wright 25,000 25,000
12 Mr. Faisal Mohammed Moosa Al Yousef 14,815 14,815
13 Mr. Qais Mohammed Moosa Al Yousef 14,815 14,815
14 Sh. Ahmed Bin Saif Al Rawahi 4,980 4,980
Total 3,471,776

[23]
In parallel to and as a condition to completion of the Share Purchase, the Shareholders of the
Company at an EGM held on 4th January 2017 (and a subsequent EGM dated 10 October 2017)
approved the acquisition by the Company of the insurance portfolio, business, assets and liabilities
of Arabia Insurance Oman Branch valued at RO 7,383,391 (being 1.2 times the agreed adjusted net
asset value of Arabia Insurance Oman Branch as at 30th September 2016) (“Business Transfer”) by
issuing 3,935,709 Shares of RO. 1 each of the Company at a price of 1.445 per share, to Arabia
Holding (the wholly owned subsidiary of Arabia Insurance, the owner of Arabia Insurance Oman
Branch) as consideration in kind for sale of the insurance portfolio of Arabia Oman Insurance
Branch to the Company and the remaining amount of RO 1,698,237 was allocated to contingency
reserve of the Company to account for the contingency reserve accrued by Arabia Insurance Oman
Branch. Following this the Company, as purchaser of Arabia Oman Insurance Branch executed a
Business Transfer Agreement (“BTA”) dated 22nd December 2016 with the sellers, Arabia Holding
and Arabia Insurance. Following the Share Purchase and completion of the Business Transfer
(collectively, the Share Purchase and Business Transfer are referred to as the “Consolidation”)
Arabia Insurance, the owner of Arabia Insurance Oman Branch, acquired majority ownership of the
equity shares of the Company and have a majority on the Board of Directors. The Company’s name
was also changed to Arabia Falcon Insurance Company SAOC. The valuations for the Consolidation
were based on a multiple of 1.2 times the book value per share of both Arabia Oman Branch and
the Company, as at 30th September 2016 subject to certain mutually agreed adjustments by the
parties based on the reports dated December 29, 2016 issued by the accounting firm mutually
appointed to carry out the due diligence. The adjustments for Falcon Insurance included
deductions from the net asset value of RO 26,000 relating to tax provision, RO 100,00 relating to
claim reserves and RO 26,500 relating to recoveries booked and under litigation. These resulted in
Falcon Insurance’s net asset value as on 30th September 2016 being adjusted to RO 9,996,955 as
against the reported net asset value of RO 10,149,455. The adjustments for Arabia Insurance Oman
Branch included deductions from the net asset value of RO 33,000 relating to receivables, RO
134,500 relating to claim reserves and addition of RO 237,000 relating to treatment of deferred
acquisition cost. These resulted in Arabia Insurance Oman Branch’s net asset value as on 30th
September 2016 being adjusted to RO 6,152,826 as against the reported net asset value of RO
6,083,326.

The Consolidation effectively resulted in the consolidation of Arabia Oman with the Company and
increase in the Company’s paid-up capital to RO 10,330,166. After completion of the Transaction,
Arabia Holding held 44.1% of the Company while Al Anwar Holdings’ equity holding reduced from
51.04% to 19%. The other two continuing shareholders (those who did not sell their shareholding)
i.e. Mr. George Chidiac and Mr. Ameen Al Shareef held 6.2% and 3.1% respectively.

6.4. Share Transfers Post Consolidation following completion of the Consolidation

Following completion of the Consolidation, ONIC SAOC acquired 206,603 Shares from Lawrence
Investments LLC and Arabia Holding acquired 619,704 Shares of the Company from Lawrence
Investments LLC thereby increasing Arabia Holding’s ownership to 50.1% and reducing Lawrence
Investments’ ownership to 19.6%. The said increase in Arabia Holding’s shareholding is in line with
the approval granted by the CMA to Arabia Holding to hold 50.1% of shares in AFIC.

6.5. Current Shareholders of the Company (before transformation to SAOG)

As part of the IPO process the Company pursuant to an EGM approval dated 19 June 2017 split the
Shares to a nominal value of Bzs 100 per Share, resulting in a pre-IPO capital of 103,301,660 Shares.

[24]
# Name Number of Shares Percentage
held before the holding
transformation
(nominal value Bzs
100 per Share)
1 Arabia Holding 51,754,140 50.1%

2 Lawrence Investment 20,254,680 19.6%

3 Al Anwar Holdings 19,626,710 19.0%

4 Mr. George Chidiac 6,400,000 6.2%

5 Mr. Ameen Al Shareef 3,200,100 3.1%

6 ONIC SAOC 2,066,030 2.0%

Total 103,301,660 100%

6.6. Shares being sold through the Offer by the Selling Shareholders

Pursuant to the EGM approval granted on 19th June 2017, the Shareholders have agreed to sell
their shares to the public in the following proportion:

# Name Number of Shares Number of

held pre- IPO Shares being
(nominal value Bzs sold though the
100 per Share) Offer (nominal
value Bzs 100
per Share)

1 Arabia Holding 51,754,140 0

2 Lawrence Investments 20,254,680 18,002,205

3 Al Anwar Holdings 19,626,710 4,906,677

4 Mr. George Chidiac 6,400,000 1,600,000

5 Mr. Ameen Al Shareef 3,200,100 800,025

6 ONIC SAOC 2,066,030 516,508

Total 103,301,660 25,825,415

6.7. Post Offer Equity Structure

After the IPO, assuming the entire Offer is fully subscribed, the shareholding structure of the
Company will be as under:

[25]
 Sl Name of the shareholder Nationality Number of Aggregate % of post-
No. Shares held of nominal value IPO capital
nominal value (RO)
of Baizas 100
each
1 Arabia Holding Lebanon 51,754,140 5,175,414.00 50.10%
2 Lawrence Investment Oman 2,252,475 225,247.50 2.18%
3 Al Anwar Holdings Oman 14,720,033 1,472,003.30 14.25%
4 Mr. George Chidiac Lebanon 4,800,000 480,000.00 4.65%
5 Mr. Ameen Al Shareef UAE 2,400,075 240,007.50 2.32%
6 ONIC SAOC Oman 1,549,522 154,952.20 1.50%
Sub-total 77,476,245 7,747,624.5 75%
4 Public 25,825,415 2,582,541.5 25%
Total 103,301,660 10,330,166.0 100%

Lock-up Period - Exemption from the applicability of Article 77 of the CCL

Article 77 of the CCL restricts the founders of a public joint stock company from disposing of their
shares in such company, before it has published two balance sheets for two consecutive financial
years, starting from the date of commencement of actual production or actual business by the
company. Article 77 of the CCL does not apply in the context of a company under transformation
from an SAOC into an SAOG where such company has been in existence for 3 years. Therefore,
there is no restriction on the pre IPO Shareholders of the Company from disposing of their shares
in the Company after the listing.

6.8. Shareholders’ Voting Rights

Pursuant to the IPO and transformation into an SAOG, the issued and paid up share capital of the
Company will continue to be RO 10,330,166 divided into 103,301,660 Shares with a nominal value
of Baizas 100 each. Each Share will carry the right to one vote at a general meeting of the
Company.

Following the IPO, the pre-IPO Shareholders will hold 77,476,245 Shares (assuming full subscription
to the Offer by the Applicants) which will have one vote per Share, the same as other Shares
offered to the public. The pre-IPO Shareholders will effectively have 75% of the voting rights
following the IPO.

It may be noted that following the IPO (and assuming full subscription by the public), the
shareholding of Arabia Holding will remain unchanged at 50.1%. The CMA has granted its approval
to Arabia Holding to hold 50.1% shares as a strategic investor in AFIC. Accordingly, the Company
will be a subsidiary of Arabia Holding.

6.9. Brief profile of the Main Shareholders

6.9.1. Arabia Holding S.A.L.

Arabia Holding S.A.L. is a member of Arabia Insurance group. Arabia Insurance was established in
1944 to be incorporated later on in Beirut with a fully paid up capital of Lebanese pounds 51 billion.
The main objective of the group is to carry out insurance and reinsurance operations in addition to
short and long term placements and investments. The group headquarters are located in Beirut,
Lebanon.

[26]
Arabia Insurance’s vision is to be the leading “customer centric” Arab insurer and it aims to provide
accessible, simple, effective, and client friendly products and services that respond to the evolving
needs of customers. The group draws its strength from 73 years of experience in the Arab and
Middle Eastern insurance community. The core of its success lies in understanding individual needs
and maintaining a close relationship with customers. The operations network of the group is
spread over Lebanon, United Arab Emirates, Sultanate of Oman, Bahrain, Kuwait, Qatar, Jordan and
Syria. Arabia owns as well 19.2% in Arabia Insurance Cooperative Company in the Kingdom of Saudi
Arabia.

In March 2016, A.M. Best has re-affirmed the financial strength rating of B++ (Good) for Arabia
Insurance Company S.A.L. (Lebanon), with a stable outlook.

Additional information on the company can be accessed through the website,

http://www.arabiainsurance.com.

6.9.2. Al Anwar Holdings SAOG

Founded in 1994, Al Anwar Holdings is one of Oman’s leading investment holding companies that is
publicly listed on the Muscat Securities Market. It was formed with a mandate to identify, promote
and participate in equity of business ventures. Originally promoted for investments in industrial
ventures the company invested in power sector, oil & gas, glass and paints, computer Stationery,
castings, construction & infrastructure; and packaging catering to the fast moving consumer goods
industry. Al Anwar Holdings has a team of experienced industry veterans with over two decades of
experience in investments.

As a private equity company, Al Anwar Holdings focused mainly in Oman and the GCC region at
large. Al Anwar Holdings targets growth capital and buyouts in growing sectors. It invests in
dynamic small-to medium-sized businesses, working in partnership to create market-leading
companies that deliver excellent returns to all shareholders. Al Anwar Holdings has key alliances
locally and internationally that will have a considerable impact in enhancing its deal flow as well as
extending regional reach. The current core focus areas are financial services, insurance, industrial
and energy sector.

Details of its current investments, financial performance and vision can be accessed through its
website, www.alanwarholdings.com. As Al Anwar Holdings is listed, its financial performance can
also be accessed through the MSM website.

6.9.3. Mr. George Chidiac

Mr. George Chidiac who holds Bachelor degree in Business Administration, started his insurance
career in 1980 and remains active within the industry till date. His insurance, re-insurance and
managerial assignments stretched from Lebanon to Jordan, Cyprus, Oman, UAE and Kuwait. He was
a former board member and shareholder of AI-Ittihad Al-Watani insurance Company. He was
elected several times and is presently a member of the UAE insurance association board and has
been a speaker and panelist in insurance related conferences on many occasions.

He is a founding member and 3 consecutive terms Deputy Chairman of Falcon Insurance and
presently Board member of Arabia Falcon Insurance and Deputy Chairman to the Nomination &
Remuneration and Executive Committee.

Mr. Chidiac has in addition other insurance advisory functions within the Gulf region.

[27]
6.9.4. Lawrence Investments LLC

Lawrence Investments LLC is a private company incorporated in Oman with the purpose of holding
investments in local Omani companies. No other activity is practiced by the company. The parent
company of Lawrence Investments LLC is Lawrence Holding, a Lebanese Company wholly owned by
Arabia Insurance which holds 60% Shares in Lawrence Investments LLC. ONIC SAOC holds 40%
Shares in Lawrence Investments LLC.

6.9.5. ONIC SAOC

ONIC is part of the OMINVEST Group which is among the longest established investment
companies in the Gulf region and one of the first to be listed both in Oman and the region. It has
built its success on the solid foundations of consistent performance from its portfolio of
investments within and outside the Sultanate over the 30 years of its existence.

Following OMINVEST’s successful merger with the former Oman National Investment Corporation
Holding SAOG in August 2015, it has seamlessly combined all financial, business and operating
activities. OMINVEST’s merger has made it much stronger, well diversified, and one of the largest
investment companies in Oman.

OMINVEST’s subsidiaries and associates include:

 Al Ahlia Insurance Co. SAOC
 Oman Arab Bank SAOC.
 National Life and General Insurance Company SAOC.
 Budva Beach Project
 Oman National Investment Corporation SAOC
 Oman Real Estate Investment and Services
 Salalah Resorts SAOC
 National Finance Company SAOG
 Oman Orix Leasing Company SAOG
 National Finance House, Bahrain
 International General Insurance Holdings Limited
 National Biscuit Industries Ltd. SAOG
 National Detergent Company SAOG
 Oman Chlorine SAOG

OMINVEST is quoted on the MSM ( www.msm.gov.om) and has around 1,300 shareholders
comprising both institutional and individual investors mainly from Oman and the GCC region.

6.9.6. Mr. Ameen Al Shareef

Mr. Shareef, a UAE national, former Director of Dubai Courts. He is a businessman specializing in
real estate developments. He has contributed to several listed companies in the Gulf stock
markets., in addition to his mandate for a number of companies operating in the UAE.

[28]
7. OMAN ECONOMIC OUTLOOK

7.1 Background
Strategically positioned at the crossroads of Asia and Europe, Oman has historically been a center of
trade and commerce. With a population of 4.63 million as on December 2017, spread over a land
area of 309,500 square km, Oman is a country with stable political, economic and social systems.
The country has created a strong infrastructure, healthcare, communication, international trade
network and advanced transportation systems on the backbone of a flourishing oil-based economy.
The continued focus of the Government to diversify the economy and gradually reduce its
dependence on oil, has witnessed a steady growth of the non-oil sectors. Currently, according to the
data published by the National Centre for Statistics & Information, petroleum activities contributed
about 33% of the Gross Domestic Product (“GDP”) at current market prices as at June 2017. The
Omani Rial is pegged to the U.S. Dollar at a fixed exchange rate of 1 RO = 2.6008 US$.

7.2 Economy

IMF believes that upswing in economic activity is strengthening, with global growth projected to rise
to 3.6% in 2017 and 3.7% in 2018. Broad-based upward revisions in the euro area, Japan, emerging
Asia, emerging Europe, and Russia more than offset downward revisions for the United States and
the United Kingdom. But the recovery is not complete: while the baseline outlook is strengthening,
growth remains weak in many countries, and inflation is below target in most advanced economies.

Oil prices remain the key driver of the outlook for MENA oil exporters given their high dependence
on hydrocarbon budget revenues and exports. Having hit a 10-year low of less than $30 a barrel in
January 2016, oil prices have staged a credible recovery to about $60 - $65 a barrel. As per
Bloomberg, oil prices averaged $54.7 a barrel in 2017 and consensus estimates are in the range of
$58 – 62 a barrel for 2018. However, considerable uncertainty surrounds the oil price outlook on
both the downside and upside, resulting from the global growth risks, sharp swings in the amount of
oil supply outages, and ongoing consolidation and efficiency gains in the U.S. shale oil industry. Apart
from oil prices, the region’s economic growth has been adversely impacted by regional conflicts
such as the ongoing wars in countries such as Syria, Iraq and Libya.

The sharp and sustained decline in oil prices since mid-2014 has put significant pressures on the
economy of Oman. However, the economy has withstood the pressures without much damage. This
has been possible because of the high fiscal buffers, high capital requirements with the commercial
banks and low level of government debt. Nevertheless, the prevailing global economic conditions
and diminished fiscal space in oil exporting countries including Oman are a cause of some concern.
As a results of the twin deficits (budget and current account) since 2015 and the subsequent rating
downgrades, Oman has introduced fiscal reforms in order to consolidate its fiscal position in the
medium term.

Oman’s net Government debt is relatively small and remains manageable although the IMF predicts
that this will deteriorate further in the coming years. This may require significant reduction in
current spending, an increase in oil prices in the short to medium term, strengthening of the
institutions and restructuring of the economy in the long run. The Government has taken some
important steps to mitigate the adverse impact of the decline in oil revenue in previous years. These
include cuts in subsidies, wages and benefits, defence and capital investments. Also, the
government plans to introduce Value Added Tax in 2019. These measures along with the drawing
down of reserves and additional borrowings both domestically and in the international market are
expected to improve the financial stability of the country.
[29]
 Oman Oil production and Oil prices

International Crude Oil Prices

WTI (NYMEX) Price $60.42 Brent Crude Oil (ICE)- $66.87

120 140

120
100

100
80
80

60 60

40 40

20
20
0
Jul-13

Jan-14

Jul-14

Jan-15

Jul-15

Jan-16

Jul-16

Jan-17

Jul-17
Jan-13

Oct-13

Oct-14

Oct-15

Oct-16

Oct-17
Apr-13

Apr-14

Apr-15

Apr-17
Apr-16

0
Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17

December 31, 2017

Source: Bloomberg

Oman economic performance

Low level of oil prices during the past couple of years raised several challenges to the Omani
economy which impacted overall economic activity. Economic growth moderated in 2016 to about
3%, from 4.2% in 2015, with non-hydrocarbon growth slowing from 4.2% to 3.4% given the
continued impact of low oil prices. IMF expect overall growth will remain flat in 2017, as the oil
production cuts agreed with OPEC will fully offset the 2.5% growth in the non-hydrocarbon sector.
Governments efforts to turn the goals of the 9th Development Plan into concrete actions through
the Tanfeedh implementation process will aid in the development of non-hydrocarbon sector
[30]
growth. Successful implementation of these initiatives will boost medium-term growth prospects.
Non-hydrocarbon growth is expected to average about 3.5% over the medium term. Improving the
business environment, including by streamlining regulatory processes and increasing the level of
vocational skills, will support efforts to increase private sector employment. While inflation is
expected to increase in 2017 reflecting an expected increase in imported food prices and the
continued impact of subsidy reforms, it should moderate subsequently.
(Source: IMF Regional and Article IV Oman Report 2017)

Oman Public Finance for 10M’17 showed a deficit (before means of financing) of RO 3.2bn
representing a decline of 33.4% (i.e. RO 1.6bn) on yearly basis as per the National Center for
Statistics and Information. Post means of financing the remaining surplus stood at RO 1.75bn
compared with only RO 550.6mn in 10M’16. Net loans (not including net local loans) formed 82.9%
of total loans compared with 62.8% in 10M’16 when financing from reserves had played a big role as
it formed 28% of the total financing. Net oil revenues and gas revenues stood at RO 4.87bn, up by
26% on yearly basis and forming 74.2% of the total revenues which came at RO 6.57bn. Total
expenditures were up by 5.6% to RO 9.4bn on higher current and investment expenditures. The
latter formed 24.9% of total expenditure in 10M’17 compared to 22.6% for 10M’16. Current
expenditures went up by 3.2% largely due to notable rise of Interest on Loans. Total oil and gas
production expenditures (current and investment) saw a rise of 14% on yearly basis at RO 1.56bn
during 10M’17.

The Omani crude oil price averaged US$ 53.67 per barrel during 2017 as compared to US$ 48.09
during 2016 and US$ 56.5 per barrel during 2015. The daily average production of crude oil
increased to 1,004.3 thousand barrels during 2016 from 979 thousand barrels in 2015 and 945
thousand barrels during 2014. Daily average crude production as of 10M2017 stand at 970 thousand
barrels. Total petroleum activities as a percentage of GDP stood at about 33% as of June 2017 and
accounted for about 71% of total Government revenues.
(Source: National Centre for Statistics & Information)

Structure of Gross Domestic Product

Oman has been taking major measures to strengthen its non-oil sectors, especially the industrial and
mining sectors, as part of its diversification programmes. The country’s national initiative for
diversification – Tanfeedh – is also taking several major initiatives to attract both foreign and local
private investment to sustain economic growth.

[31]
Oman Budget

After 2017, a year in which austerity was exercised, Oman this year came out with an expansionary
budget giving the economy much needed stimulus and a push towards sustainable growth. The
expansionary budget announcement met our expectation as we believed the sustainable recovery in
oil price would energize the Sultanate in coming out with a budget which meets the anticipation of
all the segments of the society. Sectors which witnessed increased allocation for the year included;
subsidy (43%), health (6.7%) and public services (2.7%). It is expected that maintaining the same
amount of deficit despite increase in expenditure, would serve both the purpose of increasing the
economic activity and also appeasing the credit rating agencies.

Oman government expects to earn revenue of OMR9.5bn in 2018 which is 9.2% higher than the
budgeted revenue last year, on account of 11% increase in the oil and gas revenue and 5.0%
increase in the non-oil revenue. In terms of breakup, oil & gas constitutes majority of the earnings
at 71.4% followed by revenue from non-oil sources at 28.6%.

Oman government has budgeted spending of OMR12.5bn in 2018 which is 6.8% higher than the
budgeted spending of last year and 2% lower than the actual expenditure of OMR12.7bn in 2017.
According to the (preliminary) actual estimates, overall public spending totaled OMR12.7bn in 2017
compared to OMR11.7bn estimated in the budget, up by 9%. This was attributed to the rise in
investment spending over development projects, oil and gas sector projects and electricity sector
subsidy; as well as funding a number of budget items to meet necessary and urgent needs. In
addition to high cost of public debt service as a result of increased borrowing. Despite the fact that
the actual spending is higher than the estimated spending, the actual spending is, however, lower
than actual spending recorded in 2016, by OMR208mn.

According to the preliminary final accounts, the actual fiscal deficit for FY17 is projected to be
around OMR3.5bn. While the budget deficit for 2018 is estimated at OMR3bn i.e. 10% of GDP.
Almost same set of arrangements have been planned as in 2017 to fund the deficit. Foreign
borrowing of OMR 2.1bn would be arranged along with OMR 0.4bn borrowing from domestic
sources and OMR 0.5bn would be taken from reserves. As of October 2017 i.e. in 10M2017,
government stands at surplus after means of financing at OMR 1.75bn.
(Source: U Capital Research)

Oman credit rating

Oman has a long term credit rating of "BB" by Standard & Poor's with a stable outlook, "Baa2” with a
negative outlook by Moody's Investor Services and “BBB” with a negative outlook by Fitch.

Moody’s have downgraded Oman by a total of three notches during 2016 and once in 2017,
reflecting the highly negative impact of the structural shift to lower oil prices on the country's
government finances, balance-of-payments position, and economic performance. Despite oil prices
stabilizing at higher levels, Moody’s had expected that economic, fiscal and external challenges will
persist over the coming 12 to 18 months.

S&P have downgraded Oman’s rating in Nov 2017, mainly due to the deficit in the general budget,
which is largely financed through international debt and pressures on the country’s external balance
sheet. Further according to S&P, Oman’s ratings are constrained by its dependence on the
hydrocarbon sector, despite efforts to diversify.

[32]
7.3 Key Economic Indicators

Source: NCSI -Monthly Statistical Bulletins

[33]
8. OMAN INSURANCE SECTOR OVERVIEW

Oman’s insurance industry comprises of 21 insurance companies, after the merger between
(Arabia Insurance and Falcon Insurance) and (Muscat Insurance and Muscat Life Insurance).Two of
these entities are Takaful companies, which started operations in 2014. Insurance sector of Oman
is dominated by the five insurance companies (4 national and one foreign) as they control roughly
60% of the gross written premiums of the sector. Their contribution in the Life and General
insurance segments also stands at 60% each as well. The insurance market in the Sultanate has
recorded reasonable growth rates despite the financial measures taken to mitigate the impact of
the falling oil prices.

There are 10 national Insurance companies, 10 foreign insurance companies in addition to one
reinsurance company which is Oman Reinsurance Co. Further there are 38 insurance brokers and
112 insurance agents as of September 2017.

# Name of company (in alphabetical order) Name of company (in alphabetical order)
National Companies Foreign Companies
1 Al Ahlia Insurance 11 AIG MEA Limited
2 Al Madina Takaful 12 Arab Orient Insurance
3 Arabia Falcon Insurance 13 Axa Insurance
4 Dhofar Insurance 14 Iran Insurance
5 Muscat Insurance 15 Life Insurance Corporation International
6 National Life and General Insurance 16 Metlife Alico Insurance
7 Oman & Qatar Insurance 17 Oman Insurance
8 Oman United Insurance 18 Saudi Arabian Insurance

[34]
9 Takaful Oman 19 The New India Assurance
10 Vision Insurance 20 Zurich Middle East Insurance

Sector performance
The industry has grown at a CAGR of 9.6% during 2011-16 with its total gross written premiums
(GWP) reaching the mark of RO 450.3 million (USD 1.17 billion) in 2016. Insurance segments such
as engineering, construction, medical, and real estate have experienced good growth. Third-party
motor liability as well as the launch of two Takaful companies have increased market awareness
and the diversification of insurance products.

In 2016, insurance penetration (Premium underwritten/ GDP) in Oman was about 1.61% (life
insurance penetration was 0.24% and non-life insurance penetration was 1.37%). Similarly,
insurance density (premium underwritten/population) was RO 98.9 (USD 258) in Oman.

Life insurance penetration levels remain very low in Oman. However, the rise of the affluent and
middle class with more purchasing power, a growing awareness of insurance products and the
advent of sharia-compliant life insurance products are expected to bolster the life insurance
penetration rates in Oman in the long run. The non-life insurance segment has been growing at a
considerable pace when compared with the life insurance segment. The non-life insurance
segment has benefited from the strong momentum in construction, infrastructure and growth in
motor segment.

[35]
The market for medical insurance is growing in Oman, especially after the expatriate population
moved out of Government hospitals to private health centers. This is one of the growth areas for
insurance companies. Further, as per health insurance cover becomes compulsory for all private-
sector workers, insurance companies in Oman will reap benefit from the opportunity that opens
up. Additionally, this move will also promote healthy competition amongst the medical insurance
providers. This initiative is also expected to reduce the healthcare burden of the Government.

Gross Direct Written Premiums of Insurance Companies

The gross direct written premiums of insurance business increased by 1.85% to reach RO 450.2
million in 2016 compared to RO 442.1 million in 2015. The gross direct premiums of general
insurance declined by 1.7% in 2016 to reach RO 382.6 million compared to RO 389 million in 2015.
While the gross direct premiums of life insurance increased by 27.7% to reach RO 67.6 million in
2016 compared to RO 53 million in 2015.

500.0
400.0
300.0
200.0
100.0
-
2015 2016 2015 2016 2015 2016
General insurance Life insurance Total
Gross direct premiums (OMR mn)

Source: CMA

The 1.8% growth seen in 2016 in the gross direct premiums was spurred mainly by the 27.7%
increase in Life Insurance and 13.2% increase in Health Insurance as these two sectors constitute
42.5% of the total gross direct premiums.

[36]
Claims
Paid claims by the insurance companies have continued to grow. Overall paid claims grew at a
CAGR of 9% during 2011-16. The life insurance segment and non-life insurance segment claims
grew by a CAGR of 1% and 10.4% respectively during 2011-16.

Total paid claims in 2016 have decreases by 8% compared to 2015 to RO 268.32 million in 2016
compared to RO 290.72 million in 2015. Financial data indicates the decrease was due to the fall in
total paid claims of general insurance business by 10% to RO 237.67 million compared to RO 263.19
million in 2015. Paid claims for life insurance business have increased by 11% in 2016 from RO
27.53 million to RO 30.65 million.

Total Paid Claims (OMR mn)

250.0 300
Foreign National Life General
250
200.0
CAGR - 5.4% CAGR - 10.4%
200
150.0
150
100.0
100
CAGR - 10.2%
50.0 50 CAGR - 1.0%

0
-
2012 2013 2014 2015 2016
2012 2013 2014 2015 2016

Source: CMA

It is noteworthy that motor insurance represents the highest percentage in claims paid by national
and foreign insurers in 2016 at 41% and 53% respectively followed by health insurance which
witnessed an increase by 30% in 2016.

Retention & Loss Ratio of Insurance Companies

Retention ratio is one of the important aspects in an insurance company and is calculated as the
amount of premium an insurance company retains as a proportion of the total gross premium.
Retention ratio of insurance companies in 2016 was about 57% compared to 56% in 2015. The
retention ratio for national insurance companies in 2016 was about 52% compared to 51% in 2015.
Retention ratio for foreign insurance companies is much higher at 70% in 2016, as against 72% in

[37]
2015 to. As for retention ratio by type, retention was highest in the motor business at 83%
followed by health and life insurance.

Retention Ratio (%)

National companies Foreign companies Total
2015 2016 2015 2016 2015 2016
Life 34.0% 33.6% 68.4% 65.8% 47.4% 53.6%
Motor 84.6% 82.2% 91.7% 84.6% 86.7% 82.8%
Property 4.9% 5.4% 27.0% 41.7% 10.1% 11.3%
Marine 9.5% 10.4% 31.0% 36.0% 17.0% 18.7%
Engineering 9.9% 27.2% 42.7% 41.2% 20.8% 31.4%
Liability 33.0% 29.9% 55.3% 61.8% 39.8% 36.1%
Health 54.3% 54.8% 84.2% 83.5% 57.6% 58.4%
Source: CMA

Loss ratio is also equally important for an insurance company. The loss ratio is the ratio of total
losses paid out in claims divided by the total earned premiums. There was a rise in the net losses of
national insurance companies in 2016 to about 71% as against 58% in 2015. Loss ratio of foreign
insurance companies also increased in 2016 to 64%. Loss ratio is highest for motor insurance and
health insurance.

Loss Ratio
National Foreign Total
2015 2016 2015 2016 2015 2016
Motor - Comprehensive 69% 67% 63% 76% 67% 69%
Motor - Third Party 79% 102% 123% 74% 86% 97%
Property 11% 35% 15% 55% 12% 39%
Marine 18% 29% 23% 32% 20% 30%
Engineering 27% 40% 29% 44% 28% 41%
Liability 12% 18% 18% 14% 14% 17%
Health 82% 93% 83% 88% 82% 92%
Source: CMA

Investment mix of Insurance Companies

Total investments of insurance companies increased by 12% to RO 564.01 million at the end of
2016 compared to RO 503.30 million at the end of 2015. The total investments of national and
foreign companies increased by 9% and 17 % respectively.

Investment Mix of General Insurance Co's - 2016 Investment Mix of Life Insurance Co's - 2016
Governme Others
Corpora te Secured by Governme Secured by
nt Bonds 0%
Bonds Ins urance nt Bonds Ins urance
2%
4% Pol i cies 15% Others Pol i cies
0% 1% 0%
Corpora te
Rea l Bonds
Es ta te 11%
7%
Rea l
Es ta te
Li s ted 0%
Sha res Ca s h &
17% Ca s h &
Li s ted Deposits
Deposits
Sha res 73%
70%
0%
Source: CMA

Income from investments of insurance companies was RO 12.55 million in 2016 compared to RO
10.55 million in 2015 at 19%.

[38]
Net Income of the Insurance Sector
The net profit of insurance companies was RO 8.74 million in 2016 compared to RO 15.57 million in
2015.

25.0
21.6
20.0 17.9 18.0

15.0 13.1
(OMR mn)

10.0 7.8
5.2 5.3 5.2 5.3
5.0 3.4
2.3
1.1 0.3 (0.9) (1.8)
-
2012 2013 2014 2015 2016
(5.0)

Conventional National Insurance Co's Takaful Insurance Co's Foreign Insurance Co's

Source: CMA

Overall national companies (conventional and takaful) witnessed a profit drop of 72% in 2016 to RO
3.4 million compared to RO 12.2 million in 2015. Within the national insurance companies,
conventional insurance companies profit dropped by 60.4% while the losses of Takaful insurance
companies almost doubled to RO 1.8 million in 2016 compared to RO 0.9 million in 2015. However,
foreign companies reported a net income increase of 58% in 2016 to RO 5.3 million compared to
RO 3.4 million in 2015.

Omanization in Insurance Sector

The insurance sector’s Omanization stands at 67% as of September 2017 while it is 71% for the
insurance companies. The number of employees of the insurance sector stood at 2,987 of which
1,988 were Omanis. The CMA made it clear to all insurance companies that the Omaniszation
percentage has been increased to 75%.

Takaful Insurance in Oman

Oman takaful Insurance segment was formally launched in 2014, and currently, there are two firms
operating in this segment. Gross direct premiums of takaful insurance companies stood at RO
42.06 million, an increase of 8.7% compared to RO 38.7 million in 2015. Takaful insurance
represented 9% of the gross direct premiums of the total insurance industry in 2016.

Insurance Regulations
The CMA is the regulator for the insurance sector in Oman since 2004 when the responsibilities of
the insurance sector was transferred from the MOCI to the CMA. Since then the CMA has
continued to pursue the development of the insurance sector and enhancing its role in serving the
national economy of the country. The CMA has issued several laws and regulations, circulars and
charters in order to ensure that the framework and legislation governing the Oman insurance
industry is in line with global best practices and taking into account the requirements and
specificities of the local market. Some of the main areas of development relate to the introduction
of takaful insurance, establishment of the first Omani company for re- insurance, amendments to

[39]
the unified vehicle insurance policy, increased efforts to protect policyholders, development of
national cadres working in the sector and upgrading of the systems and procedures of the sector.

The CMA has also initiated steps to strengthen the financial strength of the insurance companies.
Royal Decree No. 39/2014 was issued in 2014 promulgating provisions on the minimum limit for
paid up capital of national insurance companies and branches of foreign companies operating in
Oman to be RO 10 million which would boost the solvency of these companies. The said
amendment also provides that all insurance companies must be SAOGs and were granted a three
years' grace period to adjust to the paid up capital and conversion provisions.

Growth Drivers of Insurance Industry in Oman

Favorable demographics
Demographics play a vital role in insurance demand generation. Oman population comprises two
key segments- a steadily growing population, especially young citizens and a large expatriate base.
Both of these are expected to contribute considerably to the demand for life and non-life insurance
segments. Further, demand for insurance products is likely to grow with a changing landscape in
the form of increasing urbanization, presenting the need to develop products that suit the
changing lifestyle and demands.

The country’s population growth is also supported by its huge pool of expatriates, who are drawn
to country for employment. New regulations in Oman require mandatory medical insurance for
expatriates. Over the last couple of years, the medical insurance segment has become a major
component of the overall insurance industry.

Growth driven by economic diversification and infrastructure development

Oman’s economy continues to grow, supported by the focus on economic diversification and
infrastructure development. Despite a sharp decline in oil prices, GDP at current prices in Oman is
projected to grow, with subdued inflation. The insurance industry is highly correlated with the
economic outlook, creating demand for insurance-related products. Oman is making progress in
implementing its strategy to diversify away from the hydrocarbon sector, resulting in increased
activity in other sectors such as manufacturing and services. Growth across such sectors is
expected to present further opportunities for insurers.

Regulatory developments
Over the last few years, Oman’s insurance market has witnessed regulatory changes, with new
regulations in areas such as minimum capital requirement, reserve calculations and reporting
requirements. These regulatory initiatives are likely to drive growth of the insurance industry.

Takaful Insurance increases its foothold

The recent establishment of insurance firms complying with the Shariah (Islamic law), namely
Takaful, offering non-life insurances, has created a new momentum in the market by generating
new products. Since 2000, the Islamic insurance sector has been growing at more than 15% per
annum. The demand for Islamic insurance products has grown over the past few years, particularly
within the GCC, supported by demand for innovative and Shariah-compliant financial solutions.
This demand has also resulted in the launching of new Islamic insurance products.

Growing focus on SME development

With Oman reiterating its interest in small and medium enterprises, recognizing their contribution
to economic growth and employment generation, the country has developed programs to set up
new units and support them. The CBO has mandated all banks operating in Oman to allocate at
least five per cent of their total credit to SMEs. The rapidly growing SME sector in Oman presents a
key opportunity for the insurers.
[40]
Sector performance in first three quarter of 2017

Gross direct written premium

Sector performance in third quarter of 2017

The insurance sector recorded a growth of 0.3% in gross direct written premium in 9M’17, reaching
RO 358.2 million as against RO 357.2 million for the same period of last year. This is considered as a
reasonable growth rate in the light of the economic situation in 2017 and considering the financial
measures undertaken to mitigate the impact of the falling oil prices which had an impact on the
projects executed by the Government and activities of the private sector.

Despite the decline of the gross direct written premium in the majority of the insurance types, the
notable increase in health insurance by 16.6% on annual basis to RO 110.27 million in addition to
better performance by life (group) by 25.3% has offset the drop in other types of insurance. The
strong performance of the health insurance is an indication of increased awareness of the benefits
of health insurance and the endeavours of individuals and institutions to obtain better standards of
health care which is likely to continue in 2018.

The below table provide details of the increase / decrease in the gross direct premium across
various insurance lines:

Health insurance forms 31% of total gross direct written premiums during 9M’17 compared with
26% for the same period in the earlier year. The above table sets out the movement of various
insurance lines from 9M’16 to 9M’17. The highest increase was posted by health insurance.

[41]
Gross net direct written premiums

As per the CMA data, total net direct written premiums in Oman insurance sector went up by 1%
during 9M’17 to RO 205.26 million mainly from property, motor (third party) and health insurance.
Both motor (third party) and health insurance formed 30% each of the total net direct written
premiums during the period of 9M’17.

Retention Ratio
The retention ratio of the sector in 9M’17 did not see much change compared with 2016 as it stood
at 57.3%. The CMA data showed that motor (third party) posted the highest retention ratio at
87.8% followed by motor (comprehensive) at 85% followed by life (individual) at 68%. Property
insurance posted the lowest retention ratio at 13.7% followed by engineering at 21.1%.

[42]
9. DESCRIPTION OF THE COMPANY AND BUSINESS OVERVIEW

9.1.1. About the Company

The Company was incorporated in 2005 as an SAOC and currently holds an insurance license
issued by the CMA. The Company provides general and life insurance under this license and is
supported by reinsurance arrangements with well-known reinsurers.

In 2005 the Company acquired the business of Al Ittihad Al Wattani which was operating as a
branch of its Lebanese parent company, and started full operations from 2006. The Company
also commenced the underwriting of group and individual life insurance business with effect
from September 2008. Thereafter, in 2010 the Company became a subsidiary of Al Anwar
Holdings till the first quarter of 2017. In March 2017, Arabia Insurance purchased a
substantial equity stake in the Company from 14 out of 16 of the then Shareholders and
simultaneously the Company acquired the entire insurance portfolio of Arabia Insurance
Oman Branch in consideration of issuance of 3,935,709 shares to Arabia Holding. As at the
date of this Prospectus, Arabia Holding holds 50.1% of the Company’s equity making the
Company a subsidiary of Arabia Holding. The Company’s Board includes well-recognized local
and foreign representatives. The Management is made up of qualified professionals with an
aggregate of over 200 years' experience both in local and international insurance markets.

9.1.2. Operations

The Company has been engaged in general insurance and life insurance business and
operates form its branches at CBD, Sohar, Seeb, Salalah and Nizwa other than the head office
in Muscat.

9.1.3. Organization Chart – Post Consolidation

[43]
9.1.4. Products and Services

The Company principally issues general insurance and life insurance products which
constitute mainly marine, aviation, fire and general risks and life assurance contracts. A brief
description of each of the Company’s products is given below:

(i) Property and engineering insurance

Property insurance is designed to compensate contract holders for damage suffered to
properties or for the value of property lost. Engineering insurance is designed to compensate
contract holders for property under construction. Contract holders could also receive
compensation for the loss of earnings caused by the inability to use the insured properties.

(ii) Motor insurance

Motor insurance is designed to compensate contract holders for damage suffered to their
vehicles or liability to third parties arising through accidents. Contract holders could also
receive compensation for the fire or theft of their vehicles.

(iii) Marine insurance

Marine insurance is designed to compensate contract holders for damage and liability arising
through loss or damage to marine craft and accidents at sea resulting in total or partial loss
of cargo.

(iv) Individual life

These are long term life insurance contracts underwritten on individual basis, covering the
life of insured. These contracts protect the Company’s policy holders from the consequences
of events (such as death or disability) that would affect the ability of the policy holder or
his/her dependents to maintain their current level of income. Guaranteed benefits paid on
occurrence of the specified insurance event are either fixed or linked to the extent of the
economic loss suffered by the policyholders. There are benefits to be paid on maturity or
surrender benefits. These are taken into consideration by the actuary while determining life
reserves for unexpired risks.

(v) Group life

These are short term life insurance contracts underwritten on a group basis, the lives
covered usually being employees of a corporate policy holder. These contracts protect the
Company’s policy holders (the employer) from the consequences of events (such as death or
disability) that would affect the ability of the policy holder or his/her dependents to maintain
their current level of income. There are no guaranteed benefits for the policyholders. There
are no maturity or surrender benefits.

(vi) Group medical

These are short term medical insurance contracts underwritten on a group basis, the lives
covered usually being employees of a corporate policy holder. These contracts protect the
Company’s policy holders (the employer) from losses resulting from medical treatment of
employees as a result of ill-health or accident, covering both hospitalisation and out-patient
expenses. The bulk of hospital claims are disbursed directly by the Company to healthcare
providers. There are no maturity or surrender benefits.

(vii) Group credit life

These are long term credit life insurance contracts underwritten on a group basis, covering
the period of related credits from the banks and other financial institutions for its borrowers.
These contracts protect the Company’s policy holders (the lender) from the consequences of
events (such as death or disability) that would affect the ability of the policy holder or his/her
[44]
 dependents to maintain their current level of income. There are no guaranteed benefits paid.
Also there are no maturity or surrender benefits. The premium is received on monthly basis
from the policy holders.

(viii) Individual medical

These are short term medical contracts underwritten on individual as well as group basis
covering the period of one year from the date of contract to protect the policy holders
(employer / individual) from the loss arising from the short term medical issues that would
affecting the policy holder. There are no guaranteed benefits paid. Also there are no maturity
or surrender benefits. The premium is received on monthly basis from the policy holders.

9.1.5. Company’s Underwriting business

The Company’s performance (which is the pre-consolidation operations as Falcon Insurance)

in the insurance business over the past years is depicted in the tables below.

Number of Gross Premium Market

Polices (RO) share

2015 2016 2015 2016 2015 2016

Marine 457 484 424,982 787,557 2.98% 5.80%

Property 687 697 1,902,467 1,181,230 4.09% 2.60%
Motor- Third
6,350 7,115 463,215 623,172 0.84% 0.98%
Party
Motor-
6,189 6,320 4,677,958 3,072,496 4.34% 3.27%
Comprehensive
Motor Total 12,539 13,435 5,141,173 3,695,668 3.16% 2.34%
Health 16 31 304,658 409,260 0.30% 0.35%
Life- Individual 713 1,239 1,158,798 1,758,849 10.87% 5.30%
Life- Group 233 296 5,577,369 899,094 13.18% 2.61%
Life- Total 946 1,535 6,736,167 2,657,943 12.72% 3.93%
Engineering 329 309 1,109,829 1,162,224 4.64% 6.47%
Liabilities 314 305 1,370,317 1,182,121 11.13% 8.75%
Others 298 283 270,977 222,471 1.01% 1.23%
Total General
14,640 15,544 10,524,403 8,640,531 2.70% 2.26%
Insurance
Total Life
946 1,535 6,736,167 2,657,943 12.72% 3.93%
Insurance
Grand Total 15,586 17,079 17,260,570 11,298,474 3.90% 2.51%

[45]
 Arabia Insurance-Oman Branch performance over the same period is shown below:

Number of Polices Gross Premium (RO) Market share

2015 2016 2015 2016 2015 2016

Marine 284 209 385,847 254,407 2.70% 1.87%

Property 739 677 347,486 285,974 0.75% 0.63%

Motor- Third
25,132 29,408 2,080,391 2,295,998 3.78% 3.60%
Party
Motor-
17,801 15,744 5,474,923 4,559,203 5.08% 4.85%
Comprehensive
Motor Total 42,933 45,152 7,555,314 6,855,201 4.64% 4.34%

Health 30 13 103,306 62,559 0.10% 0.05%

Life-
209 49 393,846 121,488 3.70% 0.37%
Individual
Life- Group 10 18 3,938 8,703 0.01% 0.03%

Life- Total 219 67 397,784 130,191 0.58% 0.19%

Engineering 970 933 1,513,378 520,209 6.33% 2.90%

Liabilities 559 590 71,723 63,533 0.58% 0.47%

Others 831 796 120,929 102,863 0.45% 0.57%

Total General
46,346 48,370 10,097,983 8,144,746 2.60% 2.13%
Insurance
Total Life
219 67 397,784 130,191 0.75% 0.19%
Insurance
Grand Total 46,565 48,437 10,495,767 8,274,937 2.37% 1.84%

Source: AFIC

Based on a notional combination of both entities, the position over the past two years is depicted
below:

Number of Polices Gross Premium (RO) Market share

2015 2016 2015 2016 2015 2016

Marine 741 693 810,829 1,041,964 5.68% 7.67%

Property 1,426 1,374 2,249,953 1,467,204 4.83% 3.22%

Motor- Third
31,482 36,523 2,543,606 2,919,170 4.62% 4.57%
Party
Motor-
23,990 22,064 10,152,881 7,631,699 9.43% 8.11%
Comprehensive
Motor Total 55,472 58,587 12,696,487 10,550,869 7.80% 6.68%

Health 46 44 407,964 471,819 0.41% 0.41%

Life-
922 1,288 1,552,644 1,880,337 14.57% 5.67%
Individual
Life- Group 243 314 5,581,307 907,797 13.19% 2.63%

Life- Total 1,165 1,602 7,133,951 2,788,134 13.47% 4.12%

[46]
 Number of Polices Gross Premium (RO) Market share

Engineering 1,299 1,242 2,623,207 1,682,433 10.96% 9.37%

Liabilities 873 895 1,442,040 1,245,654 11.70% 9.22%

Others 1,129 1,079 391,906 325,334 1.46% 1.79%

Total General
60,986 63,914 20,622,386 16,785,277 5.30% 4.39%
Insurance
Total Life
1,165 1,602 7,133,951 2,788,134 13.47% 4.12%
Insurance
Grand Total 62,151 65,516 27,756,337 19,573,411 6.28% 4.35%

The following analysis of the Company over the past years is carried out using the numbers based
on a notional combination of the business in order to present a reasonable basis for comparison
with the sector /other companies as well with the projected performance.

In 2016, while the number of policies issued has shown a growth of 5.4%, the gross premium
fell by 29.5% as compared to 2015. This is primarily attributed to the process of the change in
ownership and the business combination process that was underway in 2016 as well as
competitive pricing pressure in the market, and loss of major corporate client account. In
terms of market share, the engineering, liabilities and motor (comprehensive) are the lines of
business where the Company enjoys a relatively higher share in 2016. Life Group Insurance
showed a steep decline due a loss of a major policy due to change in the methodology of
insurance followed by the concerned client bank.

The Company’s major clients include several prominent banks, government companies and
private business groups. Over the last three years, the Company has added several new
clients, and thereby diversified the client portfolio.

The Company’s overall claims ratio has improved from approximately 77% in 2015 to
approximately 67% in 2016. Several initiatives taken by the Company means the
Management believe the claims ratio is expected to improve further in the coming years.

As at 31st August 2017, based on the audited financial statements of the Company, net claims
reported but unsettled was RO 6.05 million (net of reinsurance) while claims incurred but not
reported (IBNR) was RO 0.86 million.

The Company recorded underwriting profit of RO 3.048 million, RO 2.890 million and RO
3.816 million in the years 2014, 2015 and 2016 respectively. The dip in the year 2015 was
due to additional provision taken for Motor class.

As per the Company’s audited financial statements of 2016 and solvency calculations, the
Company had assets which exceeded its liabilities, as per the requirements of the Insurance
Law. The Company expects that its present and projected reserves will enable it to meet the
additional solvency requirements arising from the anticipated growth in the business of the
Company. In the event the Company fails to maintain the prescribed solvency margin or
contingency reserves then the Company will not be able declare dividend to the shareholders
till such time the deficiency is corrected.

The Company expects to realise economies of scale resulting from the business combination
of Arabia Insurance Oman Branch, primarily through streamlining of operations,
rationalization of cost structure, more focused marketing structure as well as from a larger
revenue base and the support from the parent company.
[47]
In terms of business lines, the Company intend to focus on its individual life business where it
sees significant opportunities to grow based on the market requirements as well as its plans
to introduce new products subject to regulatory approvals.

Insurance Provisions and Reserves:

As per the Insurance Law and Insurance Regulations, the Company is required to create and
maintain provisions for unexpired risks and for outstanding claims. Further, at the annual
reporting date, the Company is required to transfer from its net profits to the emergency
(contingency) reserve a minimum amount, calculated at 10% of the net outstanding claims
for general insurance business and at 1% of the life insurance premiums for the year, until
such reserve reaches an amount equal to the paid-up capital of the Company.

The Company is not permitted to declare any dividend in the event there is a deficit in the
emergency (contingency) reserve. Further, the reserve shall not be used unless by prior
approval of the CMA.

As per the audited interim financial statements for the period ended 31st August 2017,
contingency reserve amounting to RO 677,404 on outstanding claims (including the claims
acquired through business combination) as at 31st August 2017 have not been transferred to
the reserve, as the Company has reported insufficient profits during the period. These
amounts will be transferred to contingency reserve account in the future where profits are
made. In the event the Company is not able to cover the deficit in the contingency reserve,
then it will not be in a position to distribute any dividend till such time the deficit is covered.

The Company is required to submit to the CMA a report by its actuary, in the prescribed
format, before 28th February of each year.

Treatment of Contingency Reserve arising from the Consolidation:

Pursuant to a Business Transfer Agreement (BTA) dated 22 December 2016 signed by the
Company with Arabia Insurance Company SAL and Arabia SAL (collectively “the Parties”),
effective 27th March 2017, the Company acquired business, assets and liabilities of Oman
branches of Arabia Insurance Company S.A.L in exchange for a consideration.

Pursuant to original Business Transfer Agreement dated 22nd December 2016, the purchase
consideration was required to be settled through the issue of the Company’s new equity
shares valued at an agreed price of RO 1.876 per share, resulting in an increase in the share
capital and share premium account balances by RO 3,935,709 and RO 3,447,679,
respectively.

As at date of acquisition, the branches had a contingency reserve amounting to RO

1,698,237. In accordance with the related regulatory requirements, the Company was
subsequently directed to reinstate the above contingency reserve of branches in the interim
condensed financial statements.

Accordingly, on 14th November 2017, the parties entered into an amendment to BTA to
revise the subscription price of shares from RO 1.876 per share to RO 1.445 per share and to
allocate the difference of RO 0.431 to contingency reserve of the Company on account of
contingency reserve accumulated by branches prior to business transfer. The revised
allocation of consideration is as below:

[48]
 RO
Share capital 3,935,709
Contingency reserve 1,698,237
Share premium 1,749,442
7,383,388

In an extraordinary general meeting of the Company held on 4th October 2017, the
shareholder of the Company considered the above revision and authorised the management
to sign an amendment to original BTA dated 22nd December 2016 (“Amendment to BTA”).
Accordingly, the Company’s interim condensed financial statements as at 31st August 2017
have been prepared after considering the Amendment to BTA. The Amendment to BTA was
signed before the notary on the 14th of November 2017.

9.1.6. Reinsurance Arrangements

The Company adopts a reinsurance strategy that aims to protect its financial position under
all circumstances that may reasonably be envisaged. This strategy enables the Company to
control exposure to potential losses arising from large risks and have additional capacity for
business growth. The strategy is reviewed annually by the Board and was last reviewed on
19th June 2017. The details of the Company's reinsurance policies are filed with the CMA.

The Company’s retention ratio has been in the range of about 51% to 59% in the past few
years, as compared to the overall industry which is about 56%. The Company proposes to
step up its retention ratio over the next few years.

Retention Ratio 2015 2016

Sector Company Sector Company

Marine 17.30% 13.70% 18.70% 9.47%

Property 10.10% 4.29% 11.80% 6.49%
Motors -Third Party 83.90% 72.60% 81.30% 76.21%
Motors- Comprehensive 88.00% 90.50% 83.70% 89.20%
Medical 57.00% 23.27% 58.60% 20.84%
Life - Individual 66.40% 9.32% 63.90% 10.82%
Life - Group 37.20% 59.22% 37.00% 42.94%
Engineering 20.30% 16.86% 18.40% 20.38%
Liability 34.10% 88.81% 31.50% 86.44%
Others 32.60% 34.225% 39.80% 70.13%
Total 55.90% 50.65% 56.80% 59.20%

The above represents the notionally combined position of the Company and Arabia Insurance
Oman Branch and is provided for information and comparison purpose.

The Company’s major reinsurers are Swiss Re, Partner Re, Munich Re, GIC Re, R + V, Trust Re
and QBE.

9.1.7. Marketing Arrangements

The Company operates through all the traditional channels (i.e. branches, brokers and
agents, sales force) apart from its direct corporate clients, who are serviced by the head

[49]
 office. The Company currently has five branch offices which are located at CBD, Seeb, Sohar,
Salalah and Nizwa and plans to open new branches at Duqm, Sur and Buraimi. It has ten
agency arrangements and has a panel of approximately 20 brokers.

The retail business is currently carried out at the branches of the Company and by sales
force. Other insurance arrangements are marketed and operated by the Company's agents
and brokers. Also the Company maintains relationships with organisations who refer
customers to the Company. The Company also proposes to increase the number of sales
force to enhance the reach and sales of retail products.

In the commercial business sector, the Company usually tenders for contracts with its
customers. The Company is strengthening its relations with reinsurers and insurance
consultants to be in a position to receive notifications of any upcoming tender process.

Drawing from the Consolidation and the streamlining of operations, a separate marketing
and business development unit has been created headed by a senior manager. This unit has
persons allotted duties to oversee the relationships and development of business from
branches, brokers and agencies. A separate unit has also been made for managing the
relations and business development from corporate clients.

9.1.8. Investment Portfolio

The Company’s investments portfolio comprises various asset classes (as required by the
Insurance Law) as per the approved investment policy. Investments are made following the
approval of the Investment Committee, which currently is part of the Nomination,
Remuneration and Executive committee of the Board, based on the recommendations of the
Management. As required by the Insurance Law, at least 75% of the total investments of the
Company are held within Oman. The following investment limits are also complied with:

Asset class Limits

Real estate Not more than 20%
Bank deposits, cash Not less than 30%
Local corporate bonds Not more than 30%
Equities, mutual funds and shares of unlisted companies Not more than 40%

As per the Company’s balance sheet, the investment portfolio of the Company was made up
as follows:

As at 31st December 2016 As at 31st August 2017

Amount Amount % of total
% of total
Investment category (RO in (RO in investments
investments
million) million)
Property 0 0% 0 0%
Term deposits with 24.3 77%
25.40 76%
banks and cash
Bonds (Local and 6.3 20%
4.59 14%
Foreign)
Equity investments 1.0 3%
3.40 10%
(Local and Foreign)
TOTAL 33.39 100.00% 31.6 100%

[50]
 Currently, the Company does not have any real estate investments. Investments in equity
accounted for only 3% of the total investments (including cash). Of this, approximately 75%
are within Oman and less than 35% of the equity investment is in unquoted shares.

In accordance with the Insurance Law, the Company has identified to the CMA certain bank
deposits and investments at a total value of RO 24.64 million as at 31st August 2017. The
Company can transfer these assets only with the prior approval of the CMA.

9.1.9. Technical Services Agreement with Arabia Insurance

The Company has entered into a Technical Services Agreement (“TSA”) with Arabia
Insurance Company SAL (AIC), a related party, which came into effect on the date of the
Consolidation (i.e. 29th March 2017) and was approved by the Shareholders at the EGM
held on 4th January 2017. Under the TSA, Arabia Insurance has agreed to provide the
following services to the Company:

 Review, advise and make recommendations for renewal of the reinsurance treaties
of the Company, including selection of the reinsurers.
 Support the internal audit unit of the Company and reviewing of the internal audit
reports.
 Advise the Company on their investments and assist the Investment Committee in
their decisions including investment selection and portfolio management in respect
of unit linked and life funds.
 Provide consultancy on improving the general operational structure of the Company.
 Advise the Company on the human resource needs including recruitment of
adequate staff, defining the job specifications, authority limits and salary & benefits
policies.
 Advise on and assist in setting up a Risk Department, including recruiting, and
training staff.

In addition to the above services which will be provided on ongoing basis, during the initial
one year period of the TSA, the following additional services will be provided in order to
ensure timely and appropriate setup and launch of products, procedures and other initiatives
for the Company:

 Management, administrative and technical assistance covering advise relating to

setting -up the operational underwriting & issuing procedures with the authority
limits, claims procedures and collection & cancellation procedures.
 Assistance on accounting & Financial control to improve the regular reporting
systems and provide the necessary information to the management, executive
committee & Board.
 Assist the Company during the first year in all activities related to running off Arabia
Insurance Oman Branch’s portfolio Oman including IT, reinsurance and claims
activities.
 IT integration or IT support, other than the run off of Arabia Insurance’s portfolio for
the first year, is not within the scope of this agreement.

The fee payable by the Company to Arabia Insurance for the above services is US$ 120,000
(equivalent to RO 46,200) apart from reimbursement of all out-of-pocket expenses (travel,
accommodation, etc.) with the expenses for the first year being capped at USD 20,000 (RO
7,700). The TSA has an initial term of 5 years from the date of Consolidation.

[51]
9.1.10. Rating

The Company is not rated by any rating agency.

9.1.11. Manuals and Procedures

Given the nature of its business, the Company is required to have in place certain manuals which
govern its working practices in accordance with the requirements of the Code and the Code of
Corporate Governance for Insurance Companies. The Company has in place the necessary manuals
and these are listed as follows:
 Corporate Code of conduct and ethics
 Credit control policy
 Customer service policy
 Finance and accounting manual
 Investment management policy manual
 Reinsurance management strategy
 Related party transaction policy
 Underwriting & Pricing Policy (life insurance)
 Whistle blower policy
 Roles and responsibilities of the Board of Directors

The Management commissioned M/s. Crowe Horwath LLP, an international consulting firm, to
review/update/prepare suitable manuals and guidelines for the Company which were approved by
the Board. Crowe Horwath LLP have prepared the following manuals.
 Manual of authority (Motor, non-motor insurance, life insurance, financial & operations)
 Motor - Underwriting & claims manual
 Non-Motor - Underwriting & claims manual
 IT Policy Manual
 Risk management policy manual
 Disclosure policy manual
 HR Manual

IT Security Policy has been prepared and is awaiting approval by the Board.

Certain other manuals have also been prepared by M/s. Moore Stephens and approved by the
Board, as listed below:
 Branch Operations Manual
 Anti-money laundering policy and procedures
 Health safety environment policy and procedures

The manuals are being reviewed and updated to reflect the requirements arising from the
consolidation of Arabia Oman. Further, the policies, procedures and manuals will also be reviewed
and updated to comply with the requirements of the Code and the Management aims to complete
these in a reasonable period of time after conversion of the Company to a SAOG entity.

9.1.12. Reports and Submissions

The Company regularly submits/ will submit (as applicable), the following reports to the regulatory
authorities as required by the regulations:
1. Monthly motor statistics to the CMA.
2. Quarterly business report to the CMA.
[52]
3. Quarterly investment report to the CMA.
4. Quarterly statistics to National Centre for Statistics and Information (NCSI).
5. Quarterly and annual report on income/ assets and liabilities in foreign countries to Central
Bank of Oman.
6. Annual returns to the CMA (before 28th of February each year)- this includes audited financial
statements, solvency ratios and the assets assigned to CMA.
7. Filing with MOCI / CMA (as applicable) of the audited financials, report of Corporate
Governance, Director's report and the AGM Agenda (March of every year).
8. Filing with the NCSI details relating to the business, employees, investments, Company’s assets
& liabilities, etc.
9. Filing of annual income tax return with the Department of Taxation, Ministry of Finance.

The Company has provided a bank guarantee deposit to the CMA of RO 300,000 to comply with the
requirements of the Insurance Law. Additionally, as at 31st August 2017 the Company has provided
bank guarantees of RO 50,000 to the Omani United Bureau for the Orange Card SAOC and RO
263,221 for tender purpose, issued by commercial banks on behalf of the Company from which it is
anticipated that no material liabilities will arise.

The Company has complied with the Insurance Law and Insurance Regulations and there were no
penalties or strictures imposed on the Company on any matter related to insurance laws and
regulations during the year 2016.

9.1.13. Information Technology (IT) and Financial Systems

9.1.13.1. IT Systems

The Company utilizes the IT infrastructure listed below.

Type Of Server/ Application Purpose Application vendor

Premia, Orion General insurance business and 3i-infotech

financial accounting
Airas General & life insurance business and Airas
financial accounting
Technova Online motor retail insurance portal Fortune Technology
for agents & brokers Solutions
Technova HRMS Fortune Technology
Solutions
Call Log Accounting Call accounting for telephones OHI
Software
ROP Server ROP application for motor insurance Ingenuity

Firewall Firewall Bahwan IT

Assuretech Finance application - forms & reports Assuretech
Servers and hardware Infrastructure Various

The Company has started upgrading general insurance software IT systems in 2017 pursuant to an
IT enhancement plan which involves the upgradation of the IT infrastructure and software to match
the requirements arising from the consolidation of the Company with Arabia Insurance Oman
Branch and the projected increase in business.

[53]
A new software for life insurance business was approved by the Board and implementation will
start in 2018. Both upgradation of software for the general insurance business and new
implementation of the software for the life insurance business are expected to go live in the first
quarter of 2018.

9.1.13.2. Disaster Recovery and Business Continuity Plan

The Company is in the process of developing detailed business continuity plans (BCP) and disaster
recovery (DR) plans. Such plans shall consider the business risks, related IT assets and consequent
impact on operations in case of non-availability of the IT asset.

Based on the business risk assessment and recovery priorities, IT department shall establish
recovery measures. These include offsite back up, replication of critical server etc.

Backup policy and maintenance of backup data

It is the policy of the Company to take backups at regular intervals according to the below
procedure:

 All applications and file server data are backup done in daily incremental & full options at
both “On-site & Off-site” locations.
 The backup media is checked in test environment for restorability of stored data once in
every 15 days.
 Restoration check is carried out by the various user departments on a rotational basis.

9.1.14. Company Property Details

The Company does not own any freehold real estate property. However, it has entered into
tenancy agreements in relation to its various branches.

9.1.15. Employees

As at 31st August 2017, the Company had 140 employees. There is no labour union at the Company.

The required Omanization percentage is 65% against which the Company has reached 65.4% (after
allowances) as of 31st July 2017.

The CMA’s letter dated 16th November 2017 refers to the decision of the Council of Ministers no
28/2017 dated 3rd October 2017 relating to hiring additional 25,000 Omani employees and has
directed the Company that it’s Omanization percentage shall be 75%, and has requested the
company to take necessary measures to start implementing this ratio from now until the end of
2018.

The Company has "condition of work and a grievance policy" as required by the Labour Law,
however they have not yet been approved by the Ministry of Manpower as required. The effect of
this is that these provisions are not enforceable by the Company.

9.1.16. Insurance

The Company has its assets with New India Assurance Company. It has also availed a Directors and
Officers Liability Insurance for a total limit of RO. 1 million with American International Group, Inc.

[54]
9.1.17. Tax Status

The Company's tax returns have been filed with Secretarial General of Taxation up to the year
2016. Tax assessment has been completed up to year 2010 and there are no outstanding issues
relating to the completed tax assessments. The Management of the Company believes that
additional taxes, if any, related to the open tax years would not be significant to the Company's
financial position. Tax assessment in relation to Arabia Insurance Oman Branch has been
completed upto 2011 and there are no outstanding issues relating to the completed tax
assessments.

9.1.18. Claims, Litigations and Disputes

The Company has in existence three motor recovery claims against third parties for RO 50,602. The
Company has a claim against ex-employee for RO 50,163 towards cash misappropriation.

There are no non-motor pending cases against the Company.

There are currently 39 pending motor cases for ex Falcon and 54 for ex Arabia which the Board
regard as falling within the Company's ordinary course of insurance business and are therefore not
a significant concern. The Company confirmed that reserves are made as per the instructing law
firm's recommendation and are revised from time to time based on the development of the cases.
The total liability for the pending cases is not expected to be more than 14% of the total of motor
claims and 5% of the total Company claims.

Other than the above there are 2 premium recovery cases filed by the Company against erstwhile
agents amounting to RO 280,000. In addition, whilst there was another case for recovery of
amounts from client amounting to RO 97,000, this amount was recovered fully in September 2017.
In all cases the concerned court has awarded in the Company’s favour. The amount of outstanding
litigation has been fully provided for in the Company’s books.

9.1.19. Internal Audit

The Company has an internal audit framework, which includes the following:

A risk-based annual internal audit plan which is discussed and approved by the Audit
Committee and the Board of the Company.
A detailed scope and procedure for the annual internal audit

The Company has a full time employee as per CMA’s regulations and who is an internal auditor
who is assisted by a professional external firm (M/s. BDO Jawad Habib LLC). The internal auditor is
a qualified auditor accredited with CA, CISA, CFA and CIA and holds a certificate in risk
management.

The frequency and coverage of the audit varies every year, based on the risk assessment carried
out. The coverage of the internal audit includes key areas such as underwriting, claims,
reinsurance, finance and investments, corporate governance, statutory compliances, human
resources and administration, IT, etc.

[55]
The reporting and follow up is conducted based on the following:
Reporting: functional reporting to the audit committee and administrative reporting to the
CEO.
Follow-up: report on follow-up is prepared and discussed with the audit committee of the
Company on a regular basis.

9.1.20. Compliance Officer and Board Secretary

The Company has appointed Mr. Mohamed Al Awaisi as the compliance officer of the Company.
Mr Awaisi holds a Bachelor degree. He will coordinate with the Management to ensure compliance
with all relevant Applicable Laws. The Board secretary of the Company is Mr P M Ramalingam

9.1.21. Code of Corporate Governance for insurance companies

The CMA has issued a “Code of Corporate Governance for insurance companies” in Oman. Public
joint stock (SAOG) insurance companies listed on MSM are required to also comply with the
provisions of the “Code for Corporate Governance for MSM listed companies”, where the same do
not contradict the provisions of Code for insurance companies.

Broadly, the Code for insurance companies covers aspects such as:
1) Composition of the Board and its sub committees;
2) Functions of the Board including:
a) Approval of the annual corporate business plan, the annual risk assessment and
management strategy, underwriting and pricing policy, reinsurance management strategy
and investment management policy;
b) Establishing the management structure and responsibilities;
c) Establishing standards of customer services and fair dealings;
d) Approving Information Technology systems;
e) Overseeing policy and strategy implementation and operational performance;
f) Establishing systems for internal controls, internal audit and code of corporate ethics;
3) Roles and responsibilities of the senior management;
4) Related party transactions; and
5) Report on Corporate Governance.

The Board of Directors and the executive management are keen on adherence to the provisions of
the Code, thus ensuring compliance, transparency, and disclosure.

The Board and the executive Management firmly believe in reviewing and assessing the Company’s
objectives and plans from time to time to ensure these are in line with the strategic corporate
business plan.

The Company’s report on Corporate Governance or the year ended 2016 states that the Board and
executive management of the Company have reviewed the Company’s overall risk profile from
time to time to ensure that this is effective and appropriate risk control systems are in place.
Further, they have reassessed the Company’s underwriting policy, reinsurance management
strategy and strategic investment policy and verified adherence to these. The Board and its
executive management place utmost importance in ensuring the effectiveness of internal controls.
The Board has accordingly reviewed and has ensured the efficacy of the above controls, in order to
ensure the integrity and reliability of financial records. In particular, the Board has verified that the
internal limits of operational, financial and administrative authorities have been adhered to by the
management. The Board has received and reviewed the reports of Audit Committee and External
[56]
Auditors and senior management’s comments on these reports and where necessary action has
been taken. The Board has verified that the management and staff have complied with the
insurer’s corporate code of conduct and ethics

9.1.22. Corporate Social Responsibility (CSR)

The Company has developed its CSR which includes making contributions to deserving social
causes. The Company established the Al Noor call centre in June 2010. The call centre, which
employed four blind staff, was set up to provide assistance and advice to the general public. Even
though the call center is now closed, these employees are employed by the Company. The
Company contributed RO 1,000 in 2016 and for 2017 an amount of RO 10,000. The Company seeks
to exercise its role as good citizen including mitigation of any adverse impact of its activities on the
national economy, community or environment at large.

The Company’s annual report shall contain a special report on CSR activities detailing such
activities, expended amounts, and its impact and sustainability assessment.

9.2. Performance and Key Achievements

The performance over the last three years based on a notional combination of the results of the
Company and Arabia Oman Branch, are highlighted below.

2014 2015 2016

RO RO RO

Gross written premium 28,381,858 27,977,358 19,675,918

Net insurance income 3,332,342 2,937,674 3,815,961
Investment income 59,887 266,830 794,828
Other income 732,337 1,642,234 407,032
Gross Profit 4,124,566 4,846,738 5,017,821
Profit / (loss) for the year 948,651 1,496,420 1,764,318
Total assets 51,321,887 49,005,160 48,587,692
Total equity 14,972,948 15,536,908 16,575,611

The notional combined financial statements have been prepared based on a direct summation of
the numbers reported in the audited financial statements of each entity which were prepared
based on the accounting policies adopted at that time by each entity. Following the Consolidation
of the entities, the Company has harmonized the differences in accounting policies between the
entities as set out below. The Company’s financial statements for 2017 are prepared on the basis of
the harmonized accounting policy.

[57]
 Harmonizing of accounting policies
Followed by Followed by Falcon AFIC’s harmonized Date of
Arabia policy Implementation
Unearned 45% as per The higher of 45% Adopted the higher of 31-Aug-17
Premium Reserve regulation and 1/24 method 45% and 1/24 method
(UPR)
Deferred Recognize the Recognize the Adopted the method of 31-Dec-16
acquisition cost commission commission expense recognizing commission
expense and and income on the expense and income on
income as per issuance of the policy issuance
the aging of insurance policy
the insurance
policy

Calculation of Different aging Different aging Adopted the stricter 31-Dec-17

provision of brackets and brackets and calculation method on
doubtful percentages percentages closing financial
accounts statements of August
31, 2017 and prepared
full new credit policy for
the Company for
approval by the Board

Interest income Accrued Accrued interest Record perpetual bond 31-Aug-17

accrual interest income on perpetual interest once the
income on bond interest is actually
perpetual received by the bank
bond with no accrued interest
calculated
Accounting for Off books and Recognize the net Record recoveries in 31-Dec-16
recoveries record in expected recoveries books and calculate the
books once (net of uncollectable provision for
collected amounts provision) uncollectable recoveries

The Company’s gross written premium which was nearly the same in 2015 and 2016, witnessed a
fall in 2016 by 29.7% over 2015. This is primarily attributed to the process of the change in
ownership and the business combination process that was underway in 2016 as well as substantial
competitive pricing pressure in the market which the Company, prudently, decided not to chase,
resulting in loss of a major corporate client account. Net insurance income improved by about 30%
in 2016 over 2015, as a result of management focus on priorities and bottom line. Gross profit was
higher in 2015 over 2014 due to increase in investment income and other income (refer para 10.20
under the Chapter “Risk Factors and Mitigants”). Further, while gross profit was slightly higher in
2016 over 2015, net profit was higher due to lower provision for tax.

Performance for the period ended 30th November 2017

Projected 2017
30.11.2017
full year
(RO)
(RO)
Income 16,411,624 19,320,669
Net Underwriting Results 1,959,057 2,646,333
Investment income-net 699,985 971,838
Other Income 304,170 354,804
2,963,212 3,972,974

[58]
 Projected 2017
30.11.2017
full year
(RO)
(RO)
Expenses (2,431,130) (3,111,243)
Operating Profit before taxation 532,082 861,732
Taxation (79,812) (160,668)
Profit After Tax 452,269 701,063
Other Comprehensive Income
Net Change in fair value of available for
35,481 -
sale of financial assets
Total comprehensive income for the
487,750 701,063
period

After the Consolidation, the Company has stepped up its marketing efforts in the second half of
2017 and expects to achieve the overall projected income level. It may be noted that since
Consolidation was with effect from 27th March 2017, the above results for the 11 month period
ended 30th November 2017 do not include the operations of Arabia Oman branch for the period 1st
January 2017 to 26th March 2017. Arabia Oman branch recorded a gross underwriting premium of
RO 2,065,620 with a net underwriting result of RO 232,891 and profit after tax of RO 38,693. If this
is taken into consideration the consolidated gross income of the Company increases to RO
18,477,244 and the net underwriting result increases to RO 2,191,948 while the net profit is RO
490,963. Under investment income, the Company has sold a portion of its equity portfolio and has
recognized loss to the extent of RO 0.12 million in the first half of the year. This is expected to be a
one-off event which is not expected to recur. Under general and administrative expenses, the
Company recorded an additional RO 0.140 million in provision of doubtful accounts as a result of
harmonizing the provision calculation method and applying the stricter policy. The provisioned
amount is expected to decrease by year end as result of the better collection in Q4 2017. Based on
the above and the performance in December 2017, the Company is of the view that it is in a
position to achieve the projected level of performance for 2017.

The Company’s financial results in 2017 has been impacted by a number of non-recurring items, as
a result of the merger and operation integration, as explained in the following table:

Projected combined Net Profit before Tax for 2017 RO 861,732

One-time non-recurring items
Marketing & other expenses (relating to the business consolidation) RO 50,000
Legal & Professional fees &IT expenses (business consolidation and integration) RO 150,000
Investment loss arising from liquidation equity portfolio RO 125,000
Additional provision for harmonizing doubtful accounts provisioning policy RO 140,000
Net charge in Motor UPR (unearned Premium Reserve) for change in reinsurance retention
RO 300,000
for Ex-Arabia portfolio and applying higher UPR % based on 1/24 rule instead of 45%
Total non-recurring expenses/losses RO 765,000
Normalized Profit before Tax for 2017 (based on the projected profit) 1,626,732
Tax -200,000
Projected Normalized Profit after Tax (based on the projected profit) 1,426,732

The projected net profit for 2017 is RO 701,063. After considering the impact of the above non-
recurring items the adjusted net profit works out to RO 1,426,732.

[59]
Key achievements over the past few years include return of both consolidated entities, ex-Arabia
Insurance Oman Branch and ex-Falcon Insurance to regular profitability after constant
improvements by management. They also included expansion of the life business, diversification of
business channels and lines, restructuring of the companies and finally the business consolidation
that was successfully completed.

Publishing the audited results for the year ended 31st December 2017
The Company is currently in the process of finalizing its financial statements for the year ended 31st
December 2017 and having them audited. The Company will publish the summarized audited
results for the year ended 31st December 2017 (Income statement, Balance sheet and cash flow
statement) in two local newspapers at least one week prior to the close of the Subscription. The
Company will also make this available on its website (www.afic.om). In addition, the Company will
submit it to the MSM for disclosure on its website, as may be decided by MSM.

9.3. Company Highlights

Falcon Insurance Company was established in 2005 and since March 2017, it is a subsidiary of
Arabia Insurance, the oldest Insurance group in the region. AFIC is expected to benefit from Arabia
Insurance regional and local experience and to provide top notch services to the Omani market.

The Consolidation was completed in March 2017 and the Company began operating the business of
FIC and Arabia Insurance Oman Branch as a single business from April 2017. After Arabia Insurance,
the second biggest shareholder in AFIC is Al Anwar Holdings, previously majority shareholder in FIC
and with a long track record of successful investments.

The Company’s Board includes well-recognized expertise. Management is made up of highly

qualified professionals with an aggregate of over 200 years' experience in local, regional and
international insurance markets.

The Company provides protection services in general insurance and life insurance, and operates
form several branches all over Oman, including Ruwi CBD, Seeb, Barka, Sohar, Buraimi, Nizwa and
Salalah other than the head office in Qurum in Muscat.

AFIC enjoys the strong support of a number of well-respected international re-insurers such as
Swiss Re, Partner Re and Munich Re.

The Company has been providing quality insurance services to several prominent business groups
in Oman which include: Bank Muscat, Oman Mining, Oman LNG, Ministry of Defence, Royal Guard
of Oman, OTE group, Al Sarooj Group Oasis (Caterpillar), SARCO, Alisco, Oman Arab Bank, NCC
amongst others

AFIC offers attractive Credit Life Insurance Plans for Bank loans. These policies have been
specifically designed for the benefit of borrowers of Personal loans, Housing loans and Business
loans, and are offered at competitive premium rates and are designed to pay off balances of bank
loans in the event of death or disability.

9.4. Rationale for the Consolidation with Arabia Insurance Oman Branch

The main reasons which led to the integration were:

1) Arabia was looking at establishing itself as a ‘local’ entity

2) The new local regulations stipulated RO 10 Million minimum capital and even ‘foreign’
branches to have a local capital of like amount
[60]
 3) Local insurance companies to be publicly listed
4) Complementary nature of businesses written by the two entities.
5) Achieve economies of scale.

Whilst evaluating options, it was clearly felt that Arabia Insurance Oman Branch’s gaps were clearly
the Company’s strength (i.e local decision making, strong technical team, excellent relations with
major corporates and brokers etc). At the same time Arabia’s strength were in areas which were
considered as areas which will strengthen Falcon. These included its strong retail motor business
and its carefully written corporate accounts, emanating from its business connections. In contrast,
motor accounted for only about 35% of the GWP of Falcon and that too mainly from corporate
fleets. All of Arabia Oman business was from “treaty type’ of business, while avoiding fronting or
writing non-standard classes of business. All major policies were supported by the head office with
reinsurance support provided therefrom.

9.5. Future plans

The Company is now focusing on achieving the benefits of the business consolidation by trying to
maximize on the economies of scale, including from utilising the combined manpower where
certain measures have been taken and a few others are being contemplated;

1) It has established a Business Development Department. This will enable it to scout for quality
business that it needs, rather than wait for good business to come. The business development
team will have dedicated resources to follow-up and fruitfully channelise the business
opportunities from brokers, agencies, branches and direct corporate accounts. This department
has specific persons allocated to independently oversee and develop Business from Brokers,
Branches and Agencies. In addition, a separate Unit has been created to cater to Corporate Clients.

2) A new Position of Head of Motor has been created, considering the importance of the portfolio
(which is mainly retained) and is now expected to account for more than 50% of the Written
Premium. This position will oversee the underwriting and claims functions and will holistically
evaluate the motor business of AFIC and to steer it in a profitable direction.

3) It is proposed to have representation in the East (Sur/Jalan/Ibra) and also in the west
(Buraimi/Ibri). The Company also proposes to have satellite offices in smaller towns, attached to
the larger town branches. This will enable the Company to reach out to customers across the
Nation and also improve service capability.

4) The reinsurance capacities have been enhanced from RO 6.80 million to RO 8.50 million and is
geared to go up to RO 12.50 million in specific cases. This means the capacity to insure a single risk
has been increased from RO 6.80 Million to RO 12.50 Million. This will enable AFIC to write larger
risks and also improve retention capacity. At the same time, the protection and limits of the Excess
of Loss Treaties for the retentions have also been enhanced at minimal extra cost. This is expected
to ensure adequate protection considering increased size and volumes of retention.

5) The Individual Life product, which had been found attractive by many of the bank borrowers, is
being enhanced and made more attractive. The unified sales force has been briefed and trained on
the product. As such AFIC are confident of seeing substantial growth in the business from this
product. Within the business development team, a sales manager is there who will be able to guide
and improve the sales capability of the sales force.

[61]
10. RISK FACTORS AND MITIGANTS

Prospective Applicants should carefully consider the risks described below in addition to all other
information presented in this Prospectus, including the financial statements set out in this
Prospectus, before deciding to purchase any of the Offer Shares.
Forecasts are projections made by the Company based on best estimates and actual results might
vary. Prospective Applicants should note the risks and mitigating factors mentioned below reflect
the Company’s opinion based on its current knowledge and the information currently available to
it. Additional risks and uncertainties not presently known to the Company or the Company
currently believes to be immaterial may also have a material adverse effect on the Company's
financial condition or business success. The actual risks and the impact of such risks could be
materially different from that mentioned herein and could have a material adverse effect on the
Company's business, results of operations, financial condition and prospects and cause the market
price of the Shares to fall significantly and the prospective Applicants to lose all or part of their
investment. Unless otherwise stated in the risk factors set out below, the Company is unable to
specify or quantify the financial or other risks mentioned therein.

10.1. Economic Growth and Oil Price

The Company’s performance and prospects are directly linked to economic growth and outlook.
Oman’s economic growth is significantly influenced by the price of oil and the buoyant oil price
over the past years led to sustained growth of the economy. This has helped most sectors and
businesses in Oman, including the insurance sector. However, the sharp decline in the oil price
during the last two years poses a significant risk for the economy and in particular to the insurance
sector and the Company. Further, geo political and security risks in the region also affect economic
growth and could have a material adverse effect on the market of the Shares.

Mitigant: Oman’s Ninth Plan (2016-2020) as well as the Tanfeedh programme aim to enhance
economic diversification by adopting a set of sectoral objectives, policies and mechanisms, and
eventually help the economy to revive from the economic downturn. Fiscal policy (by pursuing
consolidation) and the monetary policy (by adopting an accommodative stance) are also providing
requisite push to the economic forces to deal with the current macroeconomic challenges. The
Sultanate’s annual General Budget for 2017 includes measures to rationalize expenditure, and
broaden non-oil revenue. These measures are expected to help the country manage the downturn
and eventually get the economy back to the growth path.

10.2. Demand

The performance of the Company is directly linked to the level of economic activity in Oman and
the resulting demand for insurance services. A fall in demand for insurance services due to
economic downtrend or any other factor adversely affecting the economy could affect the
performance of the Company.

Mitigant: There is increasing awareness in the Omani community about the various insurance
services and products as a means of protection from various risks. Insurance penetration in Oman
was only about 1.61% in 2016 (life insurance penetration was 0.24% and non-life insurance
penetration was 1.37%), which indicates the potential for growth in the coming years. Therefore, it is
expected that the demand for insurance services will continue to grow. Further, the recent
developments relating to the proposed mandatory health insurance for private sector employees is
also expected to boost the growth of this business segment for the insurance companies.

[62]
10.3. Insurance Risk

The principal risk the Company faces under insurance contracts is that the actual claims and benefit
payments or the timing thereof, differ from expectations. This is influenced by the frequency of
claims, severity of claims, actual benefits paid and subsequent development of long-term claims.

Mitigant: The Company manages the insurance risk through the careful selection and
implementation of its underwriting strategy guidelines together with the adequate reinsurance
arrangements and proactive claims handling. The objective of the Company is to ensure that
sufficient reserves are available to cover these liabilities.

The Company in 2016 has concentration of risk mainly in motor and individual life business
whereby maximum risk exposure (i.e. total sums insured less reinsurance) amounted to 43% and
33% respectively. For 2015, the Company has concentration of risk mainly in group credit life,
motor and liability class whereby maximum risk exposure amounted to 35%, 40% and 22% of the
net sum insured respectively.

Mitigant: The concentration of insurance risk exposure is mitigated by the implementation of the
underwriting strategy of the Company, which attempts to ensure that the risks underwritten are
well diversified across a large portfolio in terms of type, level of insured benefits, and amount of
risk, industry and geography. Underwriting limits are in place to enforce risk selection criteria.

The Company has in its financial projections for the period 2017 to 2021 projected a reduction in
the claims level in its lines of business. In the event the actual claim levels are higher than those
projected, this will adversely impact the Company’s underwriting result and its overall profit. This,
in turn, will have an adverse impact on the Company’s EPS, its ability to distribute dividend as
projected and on the market price of the Company’s shares.

Mitigant: The Company believes that with its experienced management team together with the
support from Arabia Insurance group, it is well placed to achieve the projected reduction in claim
levels.

10.4. Business Risk

The insurance business is subject to various risks that have a significant impact on the performance
of the Company. Some of these risks include underwriting risk, operations risk, risk of frauds or
errors, liquidity risk, interest rate risk, foreign exchange risk, failure of internal systems or
equipment and data loss or manipulation.

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

Any unexpected or sustained adverse developments in these areas could adversely impact the
performance and stability of the Company. Although the Company implements risk controls and
loss mitigation strategies, it is not possible to eliminate entirely any of these or other operational
risks.

Mitigant: The Company has detailed systems and procedures manuals with effective segregation of
duties, access controls, authorization and reconciliation procedures, staff training and assessment
processes etc. with a compliance and internal audit framework. Business risks such as changes in
environment, technology and the industry are monitored through the Company’s strategic planning
and budgeting process.
[63]
10.5. Product Related Risk

The Company offers a range of insurance products and the premiums payable for each product are
decided by reference to estimates and forecasts. Any negative deviation of actual results from the
estimates (such as higher than envisaged claims) could have a material adverse effect on the
Company's business and operating results.

Mitigant: The Company believes that with its experienced management team together with the
support from Arabia Insurance group, it has the requisite experience and knowledge to manage the
risk.

10.6. Integration issues arising from the Consolidation

The Consolidation of the businesses of the Company and Arabia Insurance Oman Branch from April
2017 called for integration of the operating polices, IT systems as well as redeployment of the
personnel. Any difficulty or delay in such integration could adversely impact the functioning of the
Company and its ability to achieve its business projections.

Mitigant: The Company has already put in place a plan to complete the integration in a phased
manner which is being monitored by the Board and senior management with a view to achieving
the objectives within the envisaged timeline.

10.7. Substantial improvement in the projected performance of the Company

The Company projects a substantial improvement in its performance in 2018 as compared to 2017.
Thereafter, based on the assumptions underlying the financial projections in the Prospectus, the
Company expects to steadily grow over the next few years as well as improve its performance and
operational ratios. In the event the assumptions do not materialize as envisaged or if there are
adverse developments, the Company may not be in a position to achieve the projected
performance. This may then have a material negative impact on the Company’s share price and its
ability to declare dividends as projected.

Mitigant: The Company views the performance in the year 2017 has having been substantially
impacted by the ongoing merger of the business of Arabia Insurance Oman Branch with Falcon
Insurance Company and other issues which are considered one off (non recurring). The integration
issues are in the process of being addressed and the management has commenced implementing
its business plan for the combined entity. The management is confident that the Company is well
placed to achieve the projected performance.

10.8. Adequacy of Provisions and Reserves

The Company maintains provisions for claims, both reported as well as yet to be reported. The
Company also uses a portion of its annual profit to build up its insurance reserves to cover
potential future claims and liabilities.

In particular, estimates have to be made both for the expected ultimate cost of claims reported at
the reporting date and for the expected ultimate cost of claims incurred but not yet reported
(IBNR) at the reporting date. The management uses the initial value of the claim provided by the
surveyor for the expected ultimate cost of claims reported at the reporting date. The primary
technique adopted by management in estimating the cost of notified and IBNR claims, is that of
using past claim settlement trends to predict future claims settlement trends. At each reporting
date, prior year claims estimates are reassessed for adequacy and changes are made to the
[64]
provision. In the event the Company has to provide for additional amount towards claims, then this
will have an adverse impact on the Company’s profit for the year and its financial position as well
as have an impact on its ability to declare dividend as projected.

The determination of the liabilities under long-term insurance contracts (mathematical reserve) is
dependent on estimates made by the management through appointing an independent actuary.
Estimates are made as to the expected number of deaths for each of the years in which the
Company is exposed to risk. The Company bases these estimates on standard industry and national
mortality tables that reflect recent historical mortality experience, adjusted where appropriate to
reflect the Company’s own experience.

Under certain contracts, the Company has offered guaranteed benefits options upon surrender or
maturity of the long term contract. In determining the value of these options, estimates have been
made as to the percentage of contract holders that will exercise them. Changes in investment
conditions could result in significantly more contract holders exercising their options than has been
assumed.

The Insurance Law stipulates the minimum amount of reserves that the Company is required to
maintain which are based on the level of insurance business undertaken by the Company and
estimates of the likely amount of claims. The actual claims or liabilities may turn out to be much
higher than the provisions and, in such case, the Company’s financial position and ability to pay
dividends will be adversely affected. Further, the Insurance Law requires the Company to maintain
a prescribed level of solvency margin. Non-adherence by the Company with the reserve
requirements or the solvency margin will restrict the Company’s ability to take up additional
business and its ability to declare dividend. It may also lead to regulatory actions and penalties.

In particular, as a part of transfer of Arabia Insurance Oman Branch’s insurance portfolio, the
contingency reserve balance in Arabia portfolio was added to the Company’s contingency reserve.
The Shareholders of the Company at the EGM held on 13th August 2017, approved the transfer of
RO. 1.7 million from the Share Premium to the Company’s existing Contingency reserve being an
amount equal to the AIC Oman Branch contingency reserve, thereby increase the total amount of
the Company’s existing contingency reserve to RO. 3,355,329 and to record the contingency
reserve transfer in the audited financial statements of the Company for the period ended 31 st
March 2017. In the event if subsequently it is held that regulations require the Company to follow a
different accounting treatment, this may have a material impact on the Company’s financials
including its ability to declare dividends in the future at the levels as set out in this Prospectus.

Further, as per the audited financial statements for the first quarter ended 31st August 2017,
contingency reserve on outstanding claims (including the claims acquired through business
combination) amounting to RO 677,404 as at 31st August 2017 have not been transferred to the
reserve, as the Company has incurred insufficient profits during the period. These amounts will be
transferred to contingency reserve account in the future where profits are made. The Company
expects to do so in the financial statements for the full year ending 31st December 2017. In the
event the Company is not able to fulfil this requirement, the Company will not be in a position to
declare dividend until the deficit in the reserve is covered from the retained profit.

Mitigant: The Company has in the past complied with applicable regulatory requirements relating
to provisions towards claims as well as contingency reserves. Further, the Company has engaged
the services of an independent actuary to review the Incurred But Not Reported Reserves (IBNR)
claims reserve for Motor Business as at 31st August 2017. The actuarial review determined an IBNR
claims reserve for the motor line of RO 723,274 on gross basis and RO 666,087 on net basis, as at
31st August 2017 and the same amounts have been booked by the Company in its financial
statements (unaudited) as at this date. As per insurance regulations, actuarial assessment is not
[65]
required for all general insurance lines of business. However, the Company decided to carry out the
actuarial review for its Motor portfolio as it constitutes the largest portion of Company's portfolio.
Moreover, deviation between Company's assessment and actuarial assessment is usually seen in
the motor portfolio and not in other general insurance lines.

10.9. Goodwill
The Consolidation of Arabia Insurance Oman Branch has resulted in a provisional goodwill of RO
950,883. Currently, the Management has performed initial accounting for the acquisition of the
branch’s business by applying purchase method of accounting because the fair values to be
assigned to the branches’ identifiable assets and liabilities can only be determined provisionally.
The Company is in the process of obtaining fair valuation reports relating to insurance contracts
and fair valuation of intangible asset relating to the customer relationship. In accordance with the
provisions of IFRS 3, the Company will recognise any adjustments to these provisional values as a
result of completing the initial accounting within twelve months of the acquisition date. The
Company has recognised provisional goodwill of RO 950,883 on the date of acquisition.

Mitigant: The Company believes that these adjustments, if any, will not have material adverse
impact on its performance or financial position.

10.10. Reinsurance Arrangements

The Company has reinsurance arrangements with a number of reinsurers. This enables the
Company to secure some protection against losses, to expand its underwriting capacity and to give
some stability to its underwriting results. A significant portion of the reinsurance is effected under
treaty, facultative and excess-of-loss reinsurance contracts. As at 31st August 2017, the reinsurers’
share of insurance liabilities of the Company was RO 19.73 million out of the total gross insurance
liabilities of RO 35.96 million.

However, the effectiveness of these arrangements depends on the acceptance and settlement of
claims made on the reinsurers by the Company. While reinsurance is used to manage insurance
risk, this does not discharge the Company’s liability as primary insurer. Hence, the Company could
be exposed to disputes on and defects in its contracts with its reinsurers, challenges to claims
asserted against reinsurer and a possibility of default by its reinsurers which could have a material
adverse effect on the Company’s performance and profitability. Further, the Company is also
exposed to credit risk relating to its reinsurers.

Mitigant: To minimize its exposure to significant losses from reinsurer insolvencies, the Company
evaluates the financial condition of its reinsurers and monitors concentration of credit risk arising
from similar geographic regions, activities or economic characteristics of the reinsurers. The
Company has a policy of dealing with reinsurers rated by S&P and A M Best.

A number of the Company's reinsurance contracts include "change of ownership" provisions which
could enable the reinsurer to terminate the reinsurance arrangement and reject claims following
the IPO. Moreover, a number of these contracts include provisions which are unclear or conflict
with other provisions and which could therefore provide a basis upon which the reinsurer may
reject claims.

Mitigant: The Company has informed its reinsurers regarding its proposed conversion to an SAOG
entity. Further, as such conversion is on account of regulatory requirement and is applicable to all
national insurance companies in Oman, the Company is of the view that such problems are not
expected from the reinsurers.

[66]
The reinsurance strategy followed by the Company also impacts its ability to write additional
insurance policies as well as its net premium income. Further, the availability of reinsurance and its
size and cost are subject to prevailing market terms, which are beyond the control of the Company.
Any change in the terms, including from those envisaged for the financial projections, will have an
impact on the Company’s performance and results.

The Company has projected higher retention ratios over the period 2017 to 2021, which enables it
to have a higher net premium income. However, this also exposes the Company to higher risk as in
the event the actual claims are higher than anticipated, this will adversely impact the Company’s
underwriting result and its overall profit. This, in turn, will have an adverse impact on the
Company’s EPS, its ability to distribute dividend as projected and on the market price of the
Company’s shares.

Mitigant: The Company has an experienced management team to manage these risks and the
technical support available from Arabia Insurance also mitigates such risks.

10.11. Investment Risk

As with many insurance companies, a significant portion of the income and profits of the Company
is derived from its investment portfolio, and therefore the Company's financial performance could
be substantially affected by any decline in the performance of its investment portfolio. Such
performance could be affected by a number of factors including economic conditions, market
prices, interest rates, liquidity conditions, market sentiments as well as the effectiveness of the
investment management. Further, the investment portfolio has to comply with the Insurance Law
that place restrictions on the nature and pattern of investments and which can impact the return
on investments. Usually a decline in stock market prices and/or an increase in interest rates
adversely affects the investment return and profitability of insurance companies.

The Company utilizes the services of external investment managers to manage part of its
investment portfolio and accordingly, the return on these investments is determined by the
effectiveness of these managers.

Mitigant: The Company’s price risk policy requires it to manage such risks by setting and monitoring
objectives and constraints on investments, diversification plans and limits on investments in each
country, sector and market.

10.12. Claims and Disputes

The Company may face disputes with its customers regarding insurance claims which could include
legal actions both by and against the Company. Some of these claims may result in the Company
having to pay higher than envisaged compensation. This could impact the Company’s operating
results and profits.

Mitigant: The Company has in place strict claim review policies to assess all new and ongoing
claims, regular detailed review of claims handling procedures and frequent investigation of possible
fraudulent claims to reduce the risk exposure of the Company. The Company further enforces a
policy of actively managing and prompt pursuing of claims in order to reduce its exposure to
unpredictable future development that can negatively impact the Company.

10.13. Catastrophic Risk

Insurance activity is subject to the risk of substantial claims following catastrophic events.
Therefore, any such event could lead to significant losses for insurance companies which will
impact their performance and the market price of its Shares.
[67]
Mitigant: The Company manages this risk through a suitable reinsurance strategy that seeks to limit
the extent of loss in the event of a catastrophe.

10.14. Reliance on Arabia Group

Following the consolidation of the Company with Arabia Oman, the Company will be relying on
Arabia group (a related party), for a number of services relating underwriting, reinsurance, internal
audit, risk management and IT. In the event Arabia group support is no longer available or is
reduced in the future for any reason, this may have a material adverse impact of the Company’s
performance and prospects

The Company has entered into a technical services agreement with Arabia Insurance (details of
which are given in Section 9.1.9) over a period of 5 years starting from 1st April 2017, against
payment of agreed fee. This agreement was approved at an EGM held on 4th January 2017, prior
to Arabia’s purchase of a majority stake in the Company. Any substantial increase in the fee level
or a change in terms may have an adverse impact on the Company’s financial performance.
Further, any inability or failure by Arabia Insurance to provide these services could have a material
adverse effect on the business and results of operations of the Company.

Further, any dilution of the equity stake of Arabia group in the Company may result in a lowering of
Arabia group’s interest in and commitment to the Company, which may have an adverse impact on
the Company’s performance and prospects. While the Company is currently a subsidiary of Arabia
Holding, a reduction of their shareholding may lead to the Company no longer being its subsidiary.
It may be noted that post IPO, there is no restriction on Arabia group with regard to disposal of its
holding in the Company and there is no assurance that Arabia group will maintain its ownership
level in the Company.

Mitigant: The Company does not have any reason to believe that Arabia Insurance will not be in a
position to provide the services as per the technical services agreement and to the best of its
knowledge there are no plans for a dilution in the holding of Arabia group in the Company.

10.15. Market Size and Competition

The insurance market in Oman is highly competitive with about 20 insurance companies operating
in a fairly small market which exposes the Company to the risk that its revenues may not grow or
be sustained at the projected levels. Further, this could also lead to greater price competition
between the insurance companies which could adversely impact the profitability of the Company.
If the Company is unable to compete effectively, its business growth and financial performance
may be affected, together with the market price of the Shares.

Mitigant: As stated earlier the insurance market is expected to grow which in turn is expected to
permit the various players to share the growth. Further, with the support of Arabia Insurance and
its experienced management team, the Company believes that it is well placed to successfully
compete in the market.

10.16. Mid-market Position

The Company is among the second tier of companies in the Oman insurance sector and as such
may face challenges in competing with the larger, established players as well as from other smaller
companies that are pursuing growth opportunities.

[68]
Mitigant: The Company believes that being a part of Arabia Insurance group will help it compete
with the large and other established players in the industry.

10.17. Loss of Business

The insurance policies issued by the Company are generally for a one-year period and are
renewable annually. If the Company’s customers do not renew their insurance policies, and shift
their business to another company, this will adversely affect the Company’s revenues and market
share.

Mitigant: The Company is placing emphasis on offering appropriate products that effectively meet
the customer requirements at competitive rates. It is also focusing on further improving its
customer service to respond quickly to customer requirements. The Company expects such efforts to
help it retain and grow its customer base.

10.18. Customer Concentration

At 31 December 2016, 44% of the Company’s premiums receivable and dues from related parties
are from 5 customers (2015 - 64% from 5 customers). Therefore, if one or more of these customers
shifts its business to another insurance company or finds itself in financial difficulties, this could
have a significant adverse impact on the financial performance of the Company.

At 31 December 2016, 71% of the Company’s due from insurance and reinsurance receivable are
from 5 insurance and reinsurance companies (2015 - 95% from 5 insurance and reinsurance
companies). If any of these entities does not pay, the profitability of the Company will be at risk
given the exposure of the concentration.

Mitigant: The Company monitors these on a regular basis and expects that its experienced
management team has will enable it to manage such risks.

10.19. Receivables

The Company has a balance of RO 7.26 million as of 31st August 2017 due from customers, brokers,
agents, insurance and reinsurance companies as well as related parties. Of this, RO 6.44 million is
premium receivables while RO 0.49 million is related to receivables from insurance and reinsurance
companies while RO 0.07 million are receivables due from related parties. The Company is exposed
to the risk of delays or defaults in collection of these receivables which could adversely affect the
Company’s operations and results. Overall, the Company holds a total provision of RO 0.78 million
as allowance for doubtful receivables in its books as of 31st August 2017.

The Company’s premiums receivables (including dues from related parties) as at 31st August 2017
amounted to RO 6.51 million, includes an amount of RO 1.1 million which is outstanding for more
than 365 days. Further, an amount of RO 0.89 million is outstanding between 180 to 365 days while
RO 4.52 million is outstanding for less than 180 days. As against this, the Company has made a
provision of RO 0.78 million and the Company has not made any provision towards the balance
amounts as the management is of the view that the amounts are considered recoverable.

Mitigant: The Company monitors these on a regular basis and expects that its experienced
management team has will enable it to manage such risks.

[69]
10.20. Amounts under Other Income

The Company has recorded a cumulative amount of RO 2.78 million as Other Income for the years
from 2014 to 2016. Of this amount, RO 2.45 million is on account of long outstanding credit
balances which have been written back by the Company as no related liabilities are considered as
payable and these were actually unallocated receipts. In the unlikely event any of the concerned
parties claim their amounts back and these are held as legally payable to them, then the payments
to such parties will be treated as an expenditure and will adversely impact the Company’s profit in
the relevant year.

Mitigant: The Company believes that it is unlikely to have any claims in this regard.

10.21. Manpower

The Company is dependent on its experienced Board, Management and personnel for its
performance. If the Company is not able to recruit additional qualified personnel as per its
requirements or replace those who leave the Company, it could have a material adverse effect on
the Company's operations, performance and financial condition, including the market price of the
Shares. Further, the Company needs to engage Omani employees to maintain its Omanization
targets. If the Company is not able to identify and recruit suitable Omani personnel, it could face
action from the Ministry of Manpower. The Company’s Omanisation requirement has been
increased from 65% to 75% from the year 2018. Further, the Company is required to submit its plan
for recruitment of additional Omani citizens who registered with the Ministry of Manpower. While
the Company is preparing itself to meet the new requirements, in the event it does not meet the
requirements, the Company face adverse regulatory consequences which may have a material
adverse impact on its operations, business and financial performance.

Mitigant: The Company currently has met the Omanisation requirements for the year 2017 and
expects to do so over the future.

10.22. Downgrade of Rating or adverse development relating to the Company’s parent group

The Company derives significant strength from the reputation and financial standing of the Arabia
group. Any downgrade in the rating of the Arabia group and/ or any adverse development relating
to the Arabia group may have a negative impact on the Company’s business and performance.
Further, any downgrade in the rating of the Company is likely to have an adverse impact on the
Company’s performance.

Mitigant: The Company believes that the benefits expected from being part of the Arabia Insurance
group outweighs the above risks.

10.23. Exchange Rate Movement

Any adverse movement in exchange rates could affect the financial performance of the Company
and the market price of the Shares. The Company is exposed to foreign currency exchange rate risk
as a significant amount of its reinsurance premium and reinsurance receivables as well as some of
its investments are denominated in US Dollar. In case the RO is unpegged from the US Dollar, this
could expose the Company to additional risks.

Mitigant: The Company expects to be in a position to manage the risk through suitable hedging
solutions that may be provided by the banking system.

[70]
10.24. Increase in taxes or introduction of new taxes

Any increase in the corporate tax rate or imposition of new taxes or levies (such as Value Added
Tax, which is reported to be introduced in the near future) or widening of the scope of existing
taxes (such as withholding tax being made applicable to reinsurance premium payments) could
have an adverse impact on the Company’s business and performance.

Mitigant: As this is expected to impact the industry as a whole, the Company does not expect this to
impact its competitive position.

10.25. Use of Estimates, Accounting Policy and International IFRS

The preparation of the Company’s financial statements requires the Management to make
judgements, estimates and assumptions that affect the reported amounts of assets, liabilities,
income and expenses, provisions and change in fair values for the relevant period. Estimates and
underlying assumptions are reviewed periodically. Such estimates are necessarily based on
assumptions about several factors involving varying, and possibly significant, degrees of judgement
and uncertainty and actual results may differ from the Management’s estimates resulting in future
changes in estimated liabilities. Some such assumptions and estimates include impairment of
financial assets and receivables, claim numbers, expected ultimate cost of claims reported, claims
incurred but not reported, claim handling costs, claim inflation factors actuarial estimates of future
benefit payments and premiums based on mortality, longevity and interest rates. Additional
qualitative judgments are used to assess the extent to which past trends may not apply in the
future.

Further, changes to the Company’s accounting policy including on account of changes in the IFRS or
regulations, could impact the Company’s financial statements and have a bearing on its ability to
declare dividends. The management anticipates that IFRS 15 and IFRS 9 will be adopted in the
Company’s financial statements for the annual year beginning 1st January 2018. While the
Company does not expect any significant impact from the application of IFRS 15 on its financial
statements, the Company’s management has not yet completed the assessment to evaluate the
impact of application of changes in IFRS 9 on the financial statements of the Company.

Mitigant: As this is expected to impact the industry as a whole, the Company does not expect this to
impact its competitive position.

10.26. Risks Relating to Fraud

The Company is at risk from customers who misrepresent or fail to provide full disclosure in
relation to the risk against which they are seeking cover before such cover is purchased, and from
customers who fabricate claims and/or inflate the value of their claims. The Company, in common
with other general insurance companies, is also at risk from its employees failing to follow
procedures designed to prevent fraudulent activity, as well as from its agents’ fraudulent activity,
such as falsifying policies or failing to remit premiums collected from customers on the Company's
behalf. In 2015-16, the Company has taken legal action against two employees for
misappropriation of cash and in one case the court has awarded in favor of the Company. A failure
to combat the risks of fraud effectively could adversely affect the profits of the Company as claims
incidence and average claim payouts could increase. Further, such costs may have to be passed on
to customers in the form of higher premium levels, which could result in a decrease in policy sales.

The occurrence of any of these events could have a material adverse effect on the Company’s
business, reputation, financial condition, results of operations and cash flows.

[71]
Mitigant: The Company has a risk management framework which seeks to reduce the business and
financial impact of this risk.

10.27. IT and Data Disaster

The Company relies on IT systems for critical elements of its business process, including, for
example, entry and retrieval of individual risk details, premium claims and reinsurance processing,
monitoring aggregate exposures and financial and regulatory reporting.

The failure of IT systems could interrupt the Company's operations or materially impact its ability
to conduct business. Material flaws or damage to the system, particularly if sustained or repeated,
could result in the loss of existing or potential business relationships, compromise the Company’s
ability to pay claims in a timely manner and/or give rise to regulatory implications, which could
result in a material adverse effect on the Company’s reputation, financial condition and results of
operations.

Certain of the Company’s IT and operational support functions are outsourced to third parties but
remain critical to the Company’s business, such as mitigation of electronic attacks. The Company is
reliant in part on the continued performance, accuracy, compliance and security of all these service
providers. If the contractual arrangements with any third party providers are terminated, the
Company may not find an alternative outsource provider or supplier for the services, on a timely
basis, on equivalent terms or without significant expense or at all. Any of the foregoing could have
a material adverse effect on the Company’s business, financial condition and results of operations.

Mitigant: In addition, the Company has a disaster recovery and business continuity plan to manage
failures of its IT systems.

10.28. Force Majeure

Any force majeure event such as acts of war, armed conflicts, blockades, acts of rebellion, riots,
civil commotions, strikes, sabotage, terrorist acts, lightning, fires, floods, earthquakes, tsunamis,
floods, storms, cyclones, typhoons, tornados or other natural calamities or acts of God could affect
the Company’s operations and financial position.

10.29. Regulatory Requirements

The insurance sector is subject to a number of regulatory requirements and scrutiny. Changes in
regulations such as the requirement for increased capital could impact shareholders' returns.
Further, non-compliance with regulations could lead to penal action from the regulator which
could adversely affect the Company’s business and profits. Such action could also impact the
Company’s market standing and reputation.

Any regulatory actions such as restrictions on insurance premium level or the terms of risk
coverage may have an adverse impact on the Company’s performance and prospects.

Any adverse policy action or changes in regulations by the Government or its agencies, could affect
the Company’s business, profitability and financial position. Regulations that specifically apply to
the Company's business include corporate existence and power and authority to conduct its
business. The Company is subject to a varied and complex body of Applicable Laws that both
public officials and private parties may seek to enforce.

The Company conducts its business operations pursuant to several licenses and permits, including
insurance license for carrying on its business. Such licenses and permits may be suspended,
[72]
terminated or revoked if the Company does not comply with their respective requirements. The
Company's business could also be adversely affected by changes in Applicable Law or in its
interpretation. The imposition of fines or penalties, or the revocation or suspension of license, or
permits, could have an adverse effect on the business and financial condition of the Company,
including the market price of the Shares.

Mitigant: The Company is of the view that regulatory policies are likely to be framed for the overall
growth of the insurance market and for facilitating the development of the various players in the
business.

10.30. Delay in conversion to SAOG entity and listing of the Shares in the MSM

As per the Insurance Law as amended, the Company is required to achieve a minimum paid-up
capital of RO 10 million and complete its transformation to an SAOG entity and have its shares
listed on the MSM by 17th August 2017. While the Company has increased its paid-up capital to RO
10.33 million, the Company has not been able to complete its transformation to an SAOG and have
its Shares listed on the MSM by the deadline. In the event the CMA or other relevant agencies
impose any penalty or regulatory action against the Company for the delay, this is may have an
adverse impact on the Company. However, the Company has apprised the CMA of this delay and is
making serious efforts to comply with all applicable requirements.

Mitigant: The process of integration of the business of Arabia Insurance Oman Branch with Falcon
Insurance Company and the subsequent integration process is considered as the primary reason for
this delay. The Company will request CMA to take into consideration the challenges faced by it
during the Consolidation process.

10.31. Corporate Governance

As an SAOG, the Company is subject to significant corporate governance requirements. Any default
in compliance could lead to regulatory action and / or penalties. Further, these requirements may
require substantial time from the Management which may divert their attention from the day-to-
day business operations.

Mitigant: The Management has been preparing for the conversion to an SAOG entity and will
further strengthen its team as may be required in the future.

10.32. Risk Factors Relating to the Offer Shares

No trading history: The Offer Shares will be listed on the MSM as per the timetable given in this
Prospectus. There is no prior history of trading in the Shares.

Share price fluctuation: After listing of the Offer Shares on the MSM, the price of the Offer Shares
may fluctuate for various reasons and may go below the Offer Price.

Liquidity: There are no guarantees that an active market will exist in the Offer Shares subsequent
to the listing on the MSM. To that extent Applicants face the risk of holding Offer Shares that may
not be actively traded.

Future increase of equity capital: The Company may in the future increase its equity capital
through further issues of shares (either on a rights basis or otherwise). Such capital increases could
impact the price of the Offer Shares on the MSM.

[73]
Market fluctuations: Market fluctuations and other factors may adversely affect the trading price
of the Offer Shares regardless of the actual operating performance of the Company. All equity
investments carry market risks to varying degrees. The value of any security can fall as well as rise
depending on market conditions.

Dividend policy: Dividend payments are not guaranteed and the Board may decide, in its absolute
discretion, at any time and for any reason, not to pay dividends. Any payment of future dividends
will be made taking into account the sufficiency of distributable reserves and liquidity in order to
ensure the Company's operational needs and/or business growth are not limited by the
unavailability of funds, as well as the Company's known contingencies and compliance with any
funding facility covenants as well as regulatory requirements and approvals.

Further, any dividend policy, to the extent implemented, will significantly restrict the Company's
cash reserves and may adversely affect its ability to fund business requirements. As a result, the
Company may be required to borrow additional money or raise capital by issuing equity securities,
which may not be possible on attractive terms or at all.

[74]
11. SOURCE OF FINANCING

11.1. Term Loans

The Company has no term loans.

11.2. Other Facilities

The Company has an overdraft facility from a local bank for an amount of RO 150,000 which is
secured by a lien on fixed deposit of the same amount maintained by the Company with the bank.
The Company has no other credit facilities outstanding as of 31st August 2017.

11.3. Status of Facilities

As of 31st August 2017, the details of the Company's loan facilities outstanding are as follows:

Facility Outstanding amount (RO million)

Bank borrowings NIL
Term Loan NIL
Performance Bonds NIL
Guarantees NIL

11.4. Sources of Financing

RO ‘000
Category as on 31 August 2017

Liabilities
Insurance funds 35,960,026
Reinsurance contract payables 5,314,202
Claims and other payables 2,384,144
Other liabilities 522,564
Total Liabilities 44,180,936

Equity capital 10,330,166

Share Premium 1,749,442
Legal reserve 607,206
Contingency reserve 3,355,329
Fair Value reserve 215,637
Retained earnings 1,620,998
Total equity 17,878,778

Total equity and liabilities 62,059,714

Total Liabilities/ Shareholders’ equity 2.5

As the Company will not receive the IPO proceeds, the Company’s financial position is not expected
to be impacted by the IPO. Further, the Company already has achieved the minimum capital
requirement of RO 10 million.

[75]
12. HISTORICAL FINANCIAL STATEMENTS

(A) Certified summarized financial statements (2013-2016) of

1. Falcon Insurance Company SAOC

2. Arabia Insurance Company Oman Branch- General Insurance
3. Arabia Insurance Company Oman Branch- Life Insurance

[76]
Summarized financial statements (2013-2016) of

Falcon Insurance Company SAOC

[77]
FALCON INSURANCE COMPANY SAOC
HISTORICAL FINANCIAL STATEMENTS
31 DECEMBER 2013 TO 31 DECEMBER 2016

Registered office Principal place of business

P. O. Box 2279, Postal code 112 Sultan Centre, 2nd floor

Ruwi, Muscat Qurum, Muscat
Sultanate of Oman Sultanate of Oman
FALCON INSURANCE COMPANY SAOC

HISTORICAL FINANCIAL STATEMENTS

31 DECEMBER 2013 TO 31 DECEMBER 2016

Contents Page

Accountant’s report on the compilation of historical financial statements 1

Historical statement of financial position 2

Historical statement of comprehensive income 3

Historical statement of changes in equity 4-5

Historical statement of cash flows 6

Historical notes to the financial statements 7 - 57

1
 2

FALCON INSURANCE COMPANY SAOC

HISTORICAL STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER

2016 2015 2014 2013

Note RO RO RO RO
ASSETS
Non-current assets
Property and equipment 4 76,955 70,045 52,492 48,274
Intangible assets 5 128,623 3,964 76,544 177,699
Investment property 6 - 1,900,000 1,900,000 1,900,000
Available for sale financial assets 7 3,740,736 1,667,528 1,077,430 850,613
Term deposits 9 8,163,169 4,641,026 4,010,176 2,377,926
Reinsurer’s share in insurance funds 11 1,395,752 146,786 78,095 -
Deferred tax asset 18(b) 57,624 - - 27,438
13,562,859 8,429,349 7,194,737 5,381,950

Current assets
Financial assets at fair value through profit 8 3,141,704 2,627,610 4,481,870 4,140,902
or loss
Term deposits 9 2,888,702 7,536,790 6,942,394 6,472,884
Insurance and other receivables 10 3,530,148 3,210,058 3,630,922 2,965,194
Reinsurer’s share in insurance funds 11 6,640,331 7,876,721 9,702,329 22,259,508
Cash and bank balances 451,364 490,932 15,586 807,883
16,652,249 21,742,111 24,773,101 36,646,371
Total assets 30,215,108 30,171,460 31,967,838 42,028,321

EQUITY AND LIABILITIES

EQUITY
Capital and reserves
Share capital 12 6,394,457 6,394,457 6,394,457 6,394,457
Legal reserve 13 596,516 499,261 319,051 247,809
Contingency reserve 14 1,657,092 1,510,221 1,283,307 1,026,999
Fair value reserve 15 193,875 174,930 158,895 147,042
Retained earnings 1,524,787 1,435,807 360,558 (24,316)
Total equity 10,366,727 10,014,676 8,516,268 7,791,991

LIABILITIES
Non-current liabilities
End of service benefits 16 136,441 111,731 79,771 58,826
Deferred tax liability 18(b) - 24,608 31,910 -
Insurance funds 11 4,360,446 1,784,858 935,113 -
4,496,887 1,921,197 1,046,794 58,826
Current liabilities
Insurance funds 11 9,197,597 11,619,544 14,075,602 26,226,268
Reinsurance contract payables 4,308,205 4,489,679 6,936,950 6,867,802
Claims and other payables 17 1,656,658 1,857,695 1,303,145 1,083,434
Taxation 18(c) 189,034 268,669 89,079 -
15,351,494 18,235,587 22,404,776 34,177,504
Total liabilities 19,848,381 20,156,784 23,451,570 34,236,330
Total equity and liabilities 30,215,108 30,171,460 31,967,838 42,028,321

Net assets per share 24 1.621 1.566 1.332 1.218

These historical financial statements were approved and authorised for issue by the board of directors on ______ and were
signed on their behalf by:

____________________ ___________________
Chairman Director

The Accountant’s report is set forth on page 1.

 3

FALCON INSURANCE COMPANY SAOC

HISTORICAL STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER

2016 2015 2014 2013

Note RO RO RO RO
Income
Gross premiums written 19 11,404,055 17,385,437 16,911,647 13,060,350

Net underwriting results 19 2,064,840 2,021,764 1,818,992 1,645,710

Investment income - net 20 530,224 67,247 (142,694) 1,197,628
Fair value adjustment on revaluation of - - - (382,100)
investment property
Other income 21 383,388 1,607,774 699,760 54,715
2,978,452 3,696,785 2,376,058 2,515,953
Expenses
General and administrative expenses 22 (1,899,099)) (1,633,322) (1,515,207) (1,463,034)

Operating profit before taxation 1,079,353 2,063,463 860,851 1,052,919

Taxation 18(a) (106,802) (261,367) (148,427) 2,222
Profit for the year 972,551 1,802,096 712,424 1,055,141

Other comprehensive income that may

be subsequently reclassified to profit
or loss
Net change in fair value of available for
sale financial assets 15 18,945 16,035 11,853 14,352
Total comprehensive income for the
year 991,496 1,818,131 724,277 1,069,493

Basic and diluted earnings per share 23 0.152 0.282 0.111 0.165

The notes and other explanatory information form an integral part of these historical financial statements.

The Accountant’s report is set forth on page 1.

 4

FALCON INSURANCE COMPANY SAOC

HISTORICAL STATEMENT OF CHANGES IN EQUITY

(Accumulated
Loss)/
Share Legal Contingency Fair value retained Total
capital reserve reserve reserve earnings equity
RO RO RO RO RO RO

At 1 January 2013 6,394,457 142,295 847,297 132,690 (794,241) 6,722,498

Comprehensive income:
Profit for the year - - - - 1,055,141 1,055,141
Other comprehensive income:
Net change in fair value of
available for sale financial assets
(note 15) - - - 14,352 - 14,352
- - - 14,352 1,055,141 1,069,493
Transactions with owners:
Transfer to legal reserve (note 13) - 105,514 - - (105,514) -
Transfer to contingency reserve
(note 14) - - 179,702 - (179,702) -
- 105,514 179,702 - (285,216) -
At 31 December 2013 6,394,457 247,809 1,026,999 147,042 (24,316) 7,791,991

At 1 January 2014 6,394,457 247,809 1,026,999 147,042 (24,316) 7,791,991

Comprehensive income:
Profit for the year - - - - 712,424 712,424
Other comprehensive income:
Net change in fair value of
available for sale financial assets
(note 15) - - - 11,853 - 11,853
- - - 11,853 688,108 724,277
Transactions with owners:
Transfer to legal reserve (note 13) - 71,242 - - (71,242) -
Transfer to contingency reserve
(note 14) - - 256,308 - (256,308) -
- 71,242 256,308 - (327,550) -
At 31 December 2014 6,394,457 319,051 1,283,307 158,895 360,558 8,516,268

The notes and other explanatory information form an integral part of these historical financial statements.
 5

The Accountant’s report is set forth on page 1.

FALCON INSURANCE COMPANY SAOC

HISTORICAL STATEMENT OF CHANGES IN EQUITY(continued)

Share Legal Contingency Fair value Retained Total

capital reserve reserve reserve earnings equity
RO RO RO RO RO RO
At 1 January 2015 6,394,457 319,051 1,283,307 158,895 360,558 8,516,268
Comprehensive income:
Profit for the year - - - - 1,802,096 1,802,096
Other comprehensive income:
Net change in fair value of available
for sale financial assets (note 15) - - - 16,035 - 16,035
- - - 16,035 1,802,096 1,818,131
Transactions with owners:
Transfer to legal reserve (note 13) - 180,210 - - (180,210) -
Transfer to contingency reserve
(note 14) - - 226,914 - (226,914) -
Dividend paid for the year 2014 - - - - (319,723) (319,723)
- 180,210 226,914 - (726,847) (319,723)
At 31 December 2015 6,394,457 499,261 1,510,221 174,930 1,435,807 10,014,676

At 1 January 2016 6,394,457 499,261 1,510,221 174,930 1,435,807 10,014,676

Comprehensive income:
Profit for the year - - - - 972,551 972,551
Other comprehensive income:
Net change in fair value of available
for sale financial assets (note 15) - - - 18,945 - 18,945
- - - 18,945 972,551 991,496
Transactions with owners:
Transfer to legal reserve (note 13) - 97,255 - - (97,255) -
Transfer to contingency reserve
(note 14) - - 146,871 - (146,871) -
Dividend paid for the year 2015
[note 12(c)] - - - - (639,445) (639,445)
- 97,255 146,871 - 883,572)) (639,445)
At 31 December 2016 6,394,457 596,516 1,657,092 193,875 1,524,787 10,366,727

The notes and other explanatory information on pages to form an integral part of these historical financial statements.

The Accountant’s report is set forth on page 1.

 6

FALCON INSURANCE COMPANY SAOC

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER
2016 2015 2014 2013
Note RO RO RO RO
Operating activities
Profit before taxation 1,079,353 2,063,463 860,851 1,052,919
Adjustments for:
Depreciation 4 36,854 32,480 28,842 33,205
Amortisation of intangible assets 5 2,281 76,580 101,155 104,695
Fair value adjustment on revaluation of investment - 382,100
property
Unrealised (gain) / loss on financial assets at fair value
through profit or loss – net 8, 20 (151,035) 278,464 507,564 (890,679)
Realised loss on disposal of investments - net 20 105,060 86,843 (19,353) (16,335)
Provision for impairment of receivables - - 71,370 148,159
Investments related expenses 20 20,833 35,287 46,473 -
Dividend income 20 (140,432) (202,402) (201,124) (88,747)
Interest income 20 (364,650) (265,439) (190,866) (213,428)
Finance cost - - 36 1,580
Liabilities no longer payable written back 21 (268,993) (1,544,319) (636,387) -
Provision for end of service benefits 22(a) 27,682 31,960 24,554 22,411
Profit on disposal of property and equipment 21 (3,103) - (3,699) (419)
Operating cash flows before payment of end of service 343,850 592,917 589,416 535,461
benefits, income tax and changes in working capital
Changes in working capital
Insurance and other receivables (188,258) 341,405 (638,211) 314,941
Reinsurance contract payables 87,519 (902,952) 69,148 584,984
Claims and other payables (201,027) 554,550 856,098 (167,044)
Insurance funds (net of reinsurers’ share in insurance 141,065 150,604 1,263,531 (3,547)
funds)
Cash generated from operations 183,139 736,524 2,139,982 1,264,795
End of service benefits paid 16 (2,972) - (3,609) (5,041)
Income tax paid 18(c) (268,669) (89,079) - (898)
Finance cost paid - - (36) (1,580)
Net cash (used in ) / generated from operating (88,502) 647,445 2,136,337 1,257,276
activities

Investing activities
Purchase of property and equipment 4 (43,766) (50,033) (33,061) (15,733)
Purchase of intangible assets 5 (126,940) (4,000) - (2,863)
Purchase of investments 7, 8 (3,113,415) (597,031) (1,152,120) (37,149)
Dividend reinvested by portfolio managers 8 (80,720) (104,901) - -
Proceeds from sale of property and equipment 3,105 - 3,700 700
Proceeds from sale of investments 7, 8 250,920 831,535 61,504 64,815
Withdrawal of funds from investments portfolio 8 400,000 750,000 - -
managers
Proceeds from sale of investment property 6 1,900,000 - - -
Placement of deposits - net 1,125,945 (1,225,246) (2,101,760) (2,519,845)
Interest received 232,818 344,898 91,979 115,688
Dividend received 140,432 202,402 201,124 88,747
Net cash generated from investing activities 688,379 147,624 (2,827,465) (2,305,640)

Financing activity
Dividend paid 12(c) (639,445) (319,723) - -

Net change in cash and cash equivalents (39,568) 475,346 (792,297) (1,048,364)
Cash and cash equivalents at the beginning of the year 490,932 15,586 807,883 1,856,247
Cash and cash equivalents at the end of the year 451,364 490,932 15,586 807,883
The notes and other explanatory information on pages to form an integral part of these historical financial statements.
The Accountant’s report is set forth on page 1.
FALCON INSURANCE COMPANY SAOC 7

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

1 Legal status and principal activities

Falcon Insurance Company SAOC (the Company) was incorporated on 29 June 2005 as a closely held Omani Joint
Stock Company in the Sultanate of Oman and is primarily engaged in the underwriting of general insurance business
within the Sultanate of Oman. The Company has also commenced the underwriting of group and individual life
insurance business with effect from 22 September 2008.

In 2010, the Company became a subsidiary of Al Anwar Holdings SAOG (AAH), which holds 51% of the Company’s
shareholding.

During the year 2016, Al Anwar Holdings SAOG and thirteen other minority shareholders of the Company have
entered into an Agreement for Sale and Purchase of Shares (SPA) with Arabia Insurance Company S.A.L (“AIC”)
(acting through its subsidiaries, Arabia S.A.L. (Holding Company) and Lawrence Investment LLC (Under
Formation)). The share purchase transaction is however, subject to the following conditions:

 the Company will simultaneously acquire business, assets and liabilities of Arabia Insurance Company S.A.L
(Oman Branch), in accordance with the terms of a Business Transfer Agreement signed by the Company with
Arabia Insurance Company S.A.L. and Arabia Holding.

 the Company’s shareholders in their Extra Ordinary General Meeting held on 4 January 2017 have approved
the transaction. The Company and AIC will obtain approval for the transaction from the Capital Market
Authority (CMA), the Court, under article 39 of the Insurance Law and other regulatory authorities, as
applicable.

It is expected that the transaction would be concluded by 2017 as the Company is in the processs of filing application
with CMA for approval.

As per the requirements of CMA Oman, the Company will be required to raise its paid up share capital to RO 10
million by August 2017 with 40% public participation in a public offering. The Company will be able to meet the
capital requirements after the above change in shareholding and acquisition of assets and liabilities and will also apply
for the listing of its securities in Muscat Securities Market (MSM).

2 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These
policies have been consistently applied to each of the years presented in these financial statements, unless otherwise
stated.

Basis of preparation

These historical financial statements have been prepared for the purpose of the inclusion in the initial public offering
document and have been derived from the audited financial statements of the Company for the years ended 31
December 2013 and 31 December 2016 .

2.1 Statement of compliance

These historical financial statements have been prepared in accordance with International Financial Reporting
Standards adopted by the International Accounting Standards Board, the disclosure requirements of Capital Market
Authority and the Commercial Companies Law of 1974, as amended.

These financial statements have been prepared under the historical cost convention, as modified by investments
classified as available for sale and investments at fair value through profit or loss which are measured at fair value.

2.2 Use of estimates and judgments

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting
policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates
are significant to the financial statements are disclosed in note 3 to these financial statements.
FALCON INSURANCE COMPANY SAOC 8

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

2 Summary of significant accounting policies (continued)

2.3 Foreign currencies

(a) Functional and presentation currency

Items included in the financial statements of the Company are measured and presented in Rial Omani being the
currency of the primary economic environment in which the Company operates, which is the Company’s functional
and presentation currency.

(b) Transactions and balances

Transactions in foreign currencies are translated into Rial Omani and recorded at the foreign exchange rates ruling at
the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Rial
Omani at the foreign exchange rates ruling at the reporting date. Foreign exchange differences arising on translation
are recognised in the statement of comprehensive income. Non-monetary assets and liabilities denominated in foreign
currencies are translated into Rial Omani at the foreign exchange rates ruling at the date of the transaction. Translation
differences on non-monetary financial assets and liabilities are recognised in the statement of comprehensive income
as part of the fair value gain or loss. Translation differences on non-monetary financial assets measure at fair value,
such as equities classified as available for sale, are included in other comprehensive income.

2.4 Property and equipment

Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any.
The cost of property and equipment is their purchase price together with expenditures those are directly attributable to
acquisition. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company
and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of
comprehensive income during the financial year in which these are incurred.

Depreciation is charged to the statement of comprehensive income on a straight-line basis over the estimated useful
lives of each class of property and equipment. The estimated useful lives are as follows:

Years
Furniture and fixtures 4
Office equipment 4
Motor vehicles 4

The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at the end of each reporting year.

Where the carrying amount of an asset is greater than its estimated recoverable amount it is written down immediately
to its recoverable amount.

Gains and losses on disposals of property and equipment are determined by reference to their carrying amounts, are
recognised within ‘other income’ and are included in the statement of comprehensive income.

2.5 Intangible assets

Intangible assets comprise of computer software acquired which is stated at cost less accumulated amortization and
accumulated impairment, if any. Costs include expenditures that are directly attributable to the acquisition of the asset
and any other costs that are directly attributable to bringing the assets to its working condition for its intended use.

In accordance with IAS 38 ‘Intangible assets’, the Company’s board of directors review the amortisation periods for
intangible assets, and estimated useful life of 3 years is assessed for computer software.

Intangible assets that have an indefinite useful life are tested annually for impairment, if any. Assets that are subject
to amortisation are reviewed for impairment wherever events or change in circumstances indicates that the carrying
value may not be recoverable.
FALCON INSURANCE COMPANY SAOC 9

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

2 Summary of significant accounting policies (continued)

2.6 Investment property

Investment property is property held either to earn rental or for capital appreciation or for project development and is
not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative
purposes. Investment property is being constructed or developed for future use as investment property.

Investment property is measured initially at its cost, including related transaction costs. Subsequent expenditure is
capitalised to the asset’s carrying amount only when it is probable that the future economic benefits associated with
the expenditure will flow to the Company and the cost of the item can be measured reliably.

All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced,
the carrying amount of the replaced part is derecognised.

After initial recognition, investment property is carried at fair value. Fair value is based on active market prices and
adjusted, if necessary, for differences in the nature, location or condition of the property. If this information is not
available, the Company uses alternative valuation methods, such as recent prices on less active markets or discounted
cash flow projections. Valuations are performed as of the reporting date by independent professional valuers who hold
recognised and relevant professional qualifications and have recent experience in the location and category of the
investment property being valued. These valuations form the basis for the carrying amounts in the financial statements.

The fair value of investment property reflects, among other things, rental income from current leases and other
assumptions market participants would make when pricing the property under current market conditions. Changes in
fair values are recognised in the statement of comprehensive income.

Investment properties are derecognised when they have been disposed off.

2.7 Financial assets

2.7.1 Classification

The Company classifies its financial assets in the following categories: available for sale financial assets, financial
assets at fair value through profit or loss and loans and receivables. The classification depends on the purpose for
which the financial assets were acquired. Management determines the classification of its investments at the time of
initial recognition.

(a) Available for sale financial assets

Available for sale financial assets are non-derivatives that are either designated in this category or not classified in any
of the other categories. Available for sale financial assets are initially recognised at fair value including transaction
costs. These are subsequently measured at fair value and changes in the fair value of available for sale financial assets
are recognised in the statement of other comprehensive income.

When securities classified as available for sale are sold, the accumulated fair value changes recognised in equity are
included in the statement of comprehensive income.

The fair value of available for sale financial assets is based on their quoted market prices as at the reporting date. The
fair value of financial instruments that are not traded in an active market (for example, unquoted investments) is
determined by using certain valuation techniques.
FALCON INSURANCE COMPANY SAOC 10

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

2 Summary of significant accounting policies (continued)

2.7 Financial assets (continued)

2.7.1 Classification (continued)

(b) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are investments held for trading. Investments held for trading are
acquired or incurred principally for the purpose of selling or repurchasing in the short-term. These investments are
initially recognised at fair value. Transaction costs for all investments carried at fair value through profit or loss are
expensed as incurred.

Financial assets at fair value through profit or loss are subsequently carried at fair value. The fair value of financial
assets through profit or loss is based on their quoted market prices as at the reporting date. Gains and losses arising
from changes in the fair value of financial assets at fair value through profit or loss category are included in the
statement of comprehensive income in the year in which these arise.

(c) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in
an active market and arise during the ordinary course of the business. Loans and receivables are recognised initially at
fair value plus transaction costs that are directly attributable to their acquisition or origination. These are subsequently
measured at amortised cost using the effective interest rate method, less provision for impairment, if any. The
Company’s loans and receivables comprise ‘insurance and other receivables’, ‘reinsurer’s share in insurance fund’,
‘term deposits’ and ‘cash and bank balances’ in the statement of financial position.

2.7.2 Recognition and measurement

Regular purchases and sales of financial assets are recognised on the trade-date – the date on which the Company
commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all
financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or
loss are initially recognised at fair value, and transaction costs are expensed in the statement of comprehensive income.
Available for sale financial assets and financial assets at fair value through profit or loss are subsequently carried at
fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest rate method less
provision for impairment, if any.

Gains or losses arising from changes in the fair value of financial assets at fair value through profit or loss category
are presented in the statement of comprehensive income within ‘unrealised (loss) / gain on financial assets at fair value
through profit or loss - net’ in the year in which these arise.

Gain or losses arising from change in fair value of available for sale investments are taken to other comprehensive
income in the year in which these arise except for the impairment losses which are recognised directly in the statement
of comprehensive income. When available for sale investments are derecognised or impaired, the accumulated fair
value adjustment is recognised in the statement of comprehensive income.

2.7.3 Derecognition

(a) Financial assets

Financial assets are derecognised when the right to receive cash flows from the assets has expired or when the
Company has transferred its contractual right to receive cash flows from the financial assets and either:
• substantially all the risks and rewards of the ownership have been transferred, or
• substantially all the risks and rewards have not been transferred but controls has been transferred.

(b) Financial liabilities

Financial liabilities are derecognised when these are extinguished, that is when the obligation is discharged, cancelled
or expired.
FALCON INSURANCE COMPANY SAOC 11

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

2 Summary of significant accounting policies (continued)

2.7 Financial assets (continued)

2.7.4 Impairment of financial assets

(a) Assets carried at amortised cost

The company assesses at the end of each reporting period whether there is objective evidence that a financial asset or
group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses
are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the
initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash
flows of the financial asset or group of financial assets that can be reliably estimated.

The criteria that the company uses to determine that there is objective evidence of an impairment loss include:

 significant financial difficulty of the issuer or obligor;

 a breach of contract, such as a default or delinquency in interest or principal payments;
 granting to the borrower a concession that the lender would not otherwise consider;
 it becomes probable that the borrower will enter bankruptcy or other financial reorganisation;
 the disappearance of an active market for that financial asset because of financial difficulties; or
 observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio
of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified
with the individual financial assets in the portfolio, including:

(i) adverse changes in the payment status of borrowers in the portfolio; and
(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.

The Company first assesses whether objective evidence of impairment exists.

For loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying
amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred)
discounted at the effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is
recognised in the statement of comprehensive income.

If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal
of the previously recognised impairment loss is recognised in the statement of comprehensive income.

(b) Financial assets classified as available for sale

The company assesses at the end of each reporting period whether there is objective evidence that a financial asset or
a group of financial assets is impaired. In the case of equity investments classified as available for sale, a significant
or prolonged decline in the fair value of these securities below its cost is also evidence that the assets are impaired.

If any such evidence exists for available for sale financial assets, the cumulative loss - measured as the difference
between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously
recognised in the statement of comprehensive income is removed from other comprehensive income and recognised
in the statement of comprehensive income. Impairment losses recognised in the statement of comprehensive income
on equity instruments are not reversed through the statement of comprehensive income.
FALCON INSURANCE COMPANY SAOC 12

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

2 Summary of significant accounting policies (continued)

2.8 Impairment of non-financial assets

The carrying amounts of the company’s non-financial assets are reviewed at each reporting date to determine whether
there is any indication of impairment. If any such indications exist then the asset’s recoverable amount is estimated.

An impairment loss is recognised if the carrying amount of an asset or cash generating unit is the greater of its value
in use and its fair value less costs to sell. In assessing the value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the asset.

Impairment losses recognised in prior years are assessed at each reporting date for any indications that the loss has
decreased or no longer exists. An impairment loss is reversed if there has been a change in estimates used to determine
the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not
exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment
loss had been recognised. Any impairment loss on goodwill is recognised immediately as an expense and is not
subsequently reversed.

2.9 Offsetting

Financial assets and financial liabilities are only offset and the net amount reported in the statement of financial
position when there is a legally enforceable right to set off the recognised amounts and the Company intends to either
settle on a net basis, or to realise the asset and settle the liability simultaneously.

2.10 Premiums receivables

Premiums receivables are initially recognised at fair value and subsequently stated at amortised cost using the effective
interest rate method less accumulated impairment losses, if any. A provision for impairment of premiums receivables
is established when there is objective evidence that the company will not be able to collect all amounts due according
to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter
bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the
receivables are impaired. The amount of the provision is the difference between the asset’s carrying amount and the
present value of estimated future cash flows, discounted at the effective interest rate.

2.11 Cash and cash equivalents

For the purpose of the cash flow statement, bank balances, including term deposits with a maturity of three months or
less from the date of placement, are considered to be cash equivalents.

2.12 Reinsurance contracts held

In order to minimise financial exposure from large claims, the Company enters into agreements with other parties for
reinsurance purposes. Claims receivable from reinsurers are estimated in a manner consistent with the claim liability
and in accordance with the reinsurance contract. These amounts are shown as “reinsurer’s share in insurance funds”
contracts held in the statement of financial position until the claim is paid by the Company. Once the claim is paid, the
amount due from the reinsurer in connection with the paid claim is transferred from “reinsurer’s share in insurance
funds” to “due to / due from reinsurance companies”.

At each reporting date, the Company assesses whether there is any indication that a reinsurance asset may be impaired.
Where an indicator of impairment exists, the Company makes a formal estimate of recoverable amount. Where the
carrying amount of a reinsurance asset exceeds its recoverable amount, the asset is considered impaired and is written
down to its recoverable amount.
FALCON INSURANCE COMPANY SAOC 13

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

2 Summary of significant accounting policies (continued)

2.13 Liability adequacy test

At each reporting date, the Company assesses whether its recognised insurance liabilities are adequate using current
estimates of future cash flows under its insurance contracts. If that assessment shows that the carrying amount of its
insurance liabilities is inadequate in the light of estimated future cash flows, the entire deficiency is immediately
recognised in the statement of comprehensive income and an unexpired risk provision is created.

2.14 Insurance funds

Insurance funds comprises unearned premium reserve, unexpired risk reserve, claims reported but not settled and
claims incurred but not reported (IBNR) in respect of general insurance and short-term life insurance contracts and
mathematical reserves and unearned premium reserve in respect of long term life insurance contracts.

General insurance contracts, short-term life insurance contracts and long-term group credit life insurance contracts

For general insurance a proportion of net retained premium is provided as ‘unearned premium reserve’ (UPR) to cover
portions of risks which have not expired at the reporting date. An additional provision for unexpired risks is created
to cover shortfall, if any, for each class of business between the total amount in the unearned premium reserve and the
amount required by the Oman Insurance Company Law of 1979 calculated at 45% of the net retained premiums (being
the provision for unexpired risks as per statutory requirements) for the year for all classes of business.

Unearned premium reserve for short-term life and long-term group credit life insurance contracts is determined with
reference to remaining risk period as on valuation date and is calculated using straight line method.

Claims, comprising amounts payable to contract holders and third parties and related loss adjustment expenses, net of
salvage and other recoveries, are charged to the statement of comprehensive income as incurred. Claims comprise the
estimated amounts payable, in respect of claims reported to the Company and those not reported at the reporting date.
Initially the liability for outstanding claims is estimated and recognised in insurance funds. Upon confirmation of
claims amounts, these are subsequently transferred to claims payables.

Provisions for reported claims not paid at the reporting date are made on the basis of individual case estimates. In
addition, a provision based on management’s judgement and the Company’s prior experience is maintained for the
cost of settling claims incurred but not reported (IBNR) at the reporting date. Subsequently, the claims estimates are
reviewed and adjusted for any change in initially estimated amounts and revised amounts if any prospectively. Any
difference between the provisions at the reporting date and settlements and provisions for the following year is included
in the underwriting account in the year of settlement or in the year of change of the provision as a change in estimate.

General insurance contracts, short-term life insurance contracts and long-term group credit life insurance contracts
(continued)

The reported claims for short-term life and general insurance contracts are recognised based on management best
estimate for settling the future liability. Claims reported for motor business represent the management initial estimate
for the cash outflows based on amounts claimed by the insured at the time of intimation. Claims reported for general
business (other than motor business) are determined with reference to initial assessment by the valuer and the
management. For medical claims reported, these are recorded by the management upon intimation from the third party
administrators (TPA) after due verification of the claims reported from the hospitalisation of insured. For other life
claims reported, these are determined based on notification of contingency event (such as death or permanent disability
etc.) and are recorded as per management assessment of final settlement as per the contractual terms.

For IBNR of general business, the Company uses triangulation technique to arrive at the provision for IBNR for
general insurance business, thereby taking into account the historical claim analysis and claims reporting gap. IBNR
for long term and short term life business is determined by an independent actuary appointed by the management.
FALCON INSURANCE COMPANY SAOC 14

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

2 Summary of significant accounting policies (continued)

2.14 Insurance funds (continued)

Long-term individual life insurance contracts

For long-term individual life insurance contracts, the Company appoints an independent actuary who determines the
workings for life mathematical reserves.

Mathematical reserve for long-term individual life are calculated using net premium valuation with reserves being
present value of associated future benefits and present value of future premiums as on valuation date. Valuation net
premium is restricted to 90% of gross premium for expense margin. Discount rate of 3.5% p.a. is used with Mortality
Table A67-70 and a Zillmer adjustment of 40 per thousand of sum assured. The calculations for long-term individual
life insurance mathematical reserves also takes into account the present value of the linked benefits. The reinsurers’
share of the mathematical reserve is calculated without the Zillmer adjustment and is presented in reinsurer’s share in
insurance funds in the interim statement of financial position.

One year before the end of the coverage term the amount outstanding as mathematical reserve is reclassified to the
unearned premium reserve. The unearned premium reserve for long-term life insurance contract with remaining
coverage period less than a year is calculated in the same way as mathematical reserve and is based on assumptions
as to mortality, persistency, maintenance expenses and investment income that are established as on valuation date. A
margin for adverse deviations is included in the assumptions.

2.15 Salvage and subrogation reimbursements

Some insurance contracts permit the Company to sell a (usually damaged) vehicle or a property acquired in settling
a claim (i.e. salvage). The Company may also have the right to pursue third parties for payment of some or all costs
(i.e. subrogation).

Estimates of salvage recoveries are included as an allowance in the measurement of the insurance liability for claims,
and salvaged vehicles or property acquired are recognised in other receivables when the liability is settled. The
allowance is the amount that can reasonably be recovered from the disposal of the vehicle or property.

Subrogation reimbursements are also considered as an allowance in the measurement of the insurance liability for
claims and are recognised in other assets when the liability is settled. The allowance is the assessment of the amount
that can reasonably be recovered from the action against the liable third party.

2.16 Policy acquisition costs and commission income

All commissions and other acquisition costs related to securing new contracts and renewing existing contracts are
recognised as expense when incurred. Similarly commissions income is recognised at the time reinsurance policies
are written.

2.17 End of service benefits and leave entitlements

End of service benefits are accrued in accordance with the terms of employment of the Company's employees at the
reporting date, having regard to the requirements of the Oman Labour Law 2003 as amended, and in accordance with
IAS-19, “Employee benefits”. Employee entitlements to annual leave and leave passage are recognised when they
accrue to employees and an accrual is made for the estimated liability arising as a result of services rendered by
employees up to the reporting date. These accruals are included in current liabilities, while that relating to end of
service benefits is disclosed as a non-current liability.

Contributions to a defined contribution retirement plan and occupational hazard insurance for Omani employees in
accordance with the Omani Social Insurances Law of 1991 are recognised as an expense in the statement of
comprehensive income as incurred.
FALCON INSURANCE COMPANY SAOC 15

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

2 Summary of significant accounting policies (continued)

2.18 Claims and other payables

Claims and accruals are initially measured at fair value and subsequently carried at amortised cost using the effective
interest rate method. Initially the liability for outstanding claims is estimated and recognised in insurance funds. Upon
confirmation of claims amounts, these are subsequently transferred to “claims and other payable”.

Liabilities for other payables are obligations to pay for goods or services that have been acquired in the ordinary course
of business from suppliers. These are classified as current liabilities if payment is due within one year or less (or in
the normal operating cycle of the business if longer). If not, these are presented as non-current liabilities. These are
recognised for amount to be paid for goods or services received, whether or not billed to the Company. Trade and
other payables are measured at amortised cost using the effective interest rate method.

2.19 Provisions

Provisions are recognised when the Company has a present (legal or constructive) obligation as a result of past events;
it is probable that an outflow of economic resources will be required to settle the obligation; and the amount has been
reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle
the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks
specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

2.20 Share capital

Shares are classified as equity when there is no obligation to transfer cash or other assets. Increment costs directly
attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

2.21 Revenue

General insurance contracts, short-term life insurance contracts and long-term group life insurance contracts

Gross premiums for general business and short-term life insurance contracts are initially recognised as revenue when
they become payable by the contract holder. Gross premiums for long-term group life insurance contracts are initially
recognised as revenue on cash basis. Premiums are shown before deduction of commission. Please see section
‘insurance funds’ for the description of calculation of unearned premium reserve and provision for unexpired risk for
general insurance contracts, short-term life insurance contracts and long-term group life insurance contracts.

Long-term individual life insurance contracts

These contracts insure events associated with human life (for example, death or survival) over a long duration. Gross
written premiums for long-term individual life insurance contracts are recognised as revenue on cash basis. Premiums
are shown before deduction of commission. Please see section ‘insurance funds’ for the description of calculation of
mathematical reserve and unearned premium reserve for long-term individual life insurance contracts.

Other revenue

 Commissions earned and paid are recognised at the time policies are written.

 Interest income is recognised on a time proportion basis using the effective interest rate method.

 Dividend income from financial assets at fair value through profit or loss and available for sale financial assets
is recognised in the statement of comprehensive income when the company’s right to receive payment is
established.

 Unrealised gain / (loss) in the value of financial assets at fair value through profit or loss represents the
difference between the present market value and the carrying amount of the assets determined on individual
scrip basis using weighted average cost of securities and is taken to the statement of comprehensive income.
FALCON INSURANCE COMPANY SAOC 16

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

2 Summary of significant accounting policies (continued)

2.21 Revenue (continued)

Other revenue (continued)

 Realised gains / (losses) on financial assets at fair value through profit or loss and available for sale financial
assets are recognised and taken to the statement of comprehensive income in the year of disposal of related
securities.
 Fair value adjustments on investment property are taken to the statement of comprehensive income in the year
to which these relate.

 All other incomes are taken to the statement of comprehensive income in the year in which these relate on
accrual basis.

2.22 Income tax

Income tax on the results for the year comprises of current and deferred tax. Tax expense is recognised in the statement
of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is
recognized directly in equity.

Current tax charge recognised in the statement of comprehensive income is the expected tax payable on the taxable
income for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax
payable in respect of previous years.

Deferred tax is provided, using the liability method, for all temporary differences arising between the tax bases of
assets and liabilities and their carrying values for financial reporting purposes. Deferred tax is measured at the tax rates
that are enacted currently and are expected to be applied to the temporary differences when they reverse, based on the
laws that have been enacted or substantially enacted by the reporting date.

A deferred tax asset in respect of tax losses carried forward is recognised where it is probable that future taxable profits
will be available against which these tax losses can be reversed. The carrying amount of deferred tax assets is reviewed
at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be
available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances
on a net basis.

2.23 Director’s remuneration

The director’s remuneration is governed as set out by the Commercial Companies Law and the rules prescribed by the
Capital Market Authority.

The annual general meeting shall approve the remuneration and the sitting fees for the board of directors provided that
such fees shall not exceed 5% of the annual net profit after deduction of the legal reserve and the optional reserve and
the distribution of dividends to the shareholders. Such fees shall not exceed RO 200,000 in one year. The sitting fees
for each director shall not exceed RO 10,000 in one year.

2.24 Earnings per share

The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated
by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of
ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss attributable to
ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive
potential ordinary shares.
FALCON INSURANCE COMPANY SAOC 17

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

2 Summary of significant accounting policies (continued)

2.25 Dividend distribution

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

2.26 Operating segment

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

2.27 Fair value estimation

A number of accounting policies and disclosures require the determination of fair value, for both financial and non-
financial assets and liabilities. The Company measures fair values using the following fair value hierarchy that reflects
the significance of the inputs used in making the measurements:
• Level 1: Quoted market price (unadjusted) in an active market.

• Level 2: Valuation techniques based on observable inputs. This category includes instruments valued using
quoted market prices in the active market for similar instruments, quoted market prices for identical or similar
instruments in markets that are considered less than active or other valuation techniques where all significant inputs
are directly or indirectly observable from market data.

• Level 3: Valuation techniques using significant unobservable inputs. This category includes instruments that
are valued based on quoted prices of similar instruments where significant unobservable adjustments or assumptions
are required to reflect differences between the instruments.

The face values less any estimated credit adjustments for financial assets and financial liabilities with a maturity of
less than one year are assumed to approximate their fair values. Fair value of investment property is determined by an
external independent valuer using market prices of the investment property.
For investments traded in organised financial markets, fair value is determined by reference to stock exchange quoted
market bid prices at the close of business on the reporting date, adjusted for transaction costs necessary to realise the
asset.

The fair value of investments that are not traded in an active market is determined by using estimated discounted cash
flows or other valuation techniques.

The fair values of other financial and non-financial assets and liabilities at year end approximate their carrying amounts
as stated in the statement of financial position.

3 Critical accounting estimates and judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates
and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income
and expenses and the resultant provisions and change in fair value for the year.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are
recognised in the year in which the estimates are revised and in any future period affected. Such estimates are
necessarily based on assumptions about several factors involving varying, and possibly significant, degrees of
judgement and uncertainty and actual results may differ from management’s estimates resulting in future changes in
estimated liabilities.
FALCON INSURANCE COMPANY SAOC 18

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

3 Critical accounting estimates and judgements (continued)

(i) Insurance fund

(a) Outstanding claims including claims incurred but not reported arising from long-term insurance contracts

In particular, estimates have to be made both for the expected ultimate cost of claims reported at the reporting date
and for the expected ultimate cost of claims incurred but not yet reported (IBNR) at the reporting date. The
management uses the initial value of the claim provided by the surveyor for the expected ultimate cost of claims
reported at the reporting date. The primary technique adopted by management in estimating the cost of notified and
IBNR claims, is that of using past claim settlement trends to predict future claims settlement trends. At each reporting
date, prior year claims estimates are reassessed for adequacy and changes are made to the provision. General insurance
claims provisions are not discounted for the time value of money.

(b) Estimate of future benefit payments and premiums arising from long-term insurance contracts

The determination of the liabilities under long-term insurance contracts (mathematical reserve) is dependent on
estimates made by the management through appointing an independent actuary. Estimates are made as to the expected
number of deaths for each of the years in which the Company is exposed to risk. The Company bases these estimates
on standard industry and national mortality tables that reflect recent historical mortality experience, adjusted where
appropriate to reflect the Company’s own experience. For contracts that insure the risk of longevity, appropriate but
not excessively prudent allowance is made for expected mortality improvements. The estimated number of deaths
determines the value of the benefit payments and the value of the valuation premiums. The main source of uncertainty
is that epidemics such as AIDS, SARS and wide-ranging lifestyle changes, such as in eating, smoking and exercise
habits, could result in future mortality being significantly worse than in the past for the age groups in which the
Company has significant exposure to mortality risk. However, continuing improvements in medical care and social
conditions could result in improvements in longevity in excess of those allowed for in the estimates used to determine
the liability for contracts where the Company is exposed to longevity risk.

Under certain contracts, the Company has offered guaranteed benefits options upon surrender or maturity of the long
term contract. In determining the value of these options, estimates have been made as to the percentage of contract
holders that will exercise them. Changes in investment conditions could result in significantly more contract holders
exercising their options than has been assumed.

(ii) Impairment of available for sale financial assets

The Company follows the guidance of IAS 39 to determine when an available for sale equity investment is impaired.
This determination requires significant judgement. In making this judgement, the Company evaluates, among other
factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of
and short-term business outlook for the investee, including factors such as industry and sector performance, changes
in technology and operational and financing cash flow. As there is no decline in fair values which could lead to
impairment loss, hence, no sensitivity analysis of the estimate carried.

(iii) Fair value of financial instruments

The fair value of financial instruments that are not traded in an active market is determined by using valuation
techniques. The management uses uses its judgement to select a variety of methods and make assumptions that are
mainly based on market conditions existing at the end of each reporting period. The Company has used unadjusted net
asset value of the investees as significant portfolio of the underlying assets and liabilities of the investees are either
faiir valued or are in cash and cash equivalents where the fair value approximate the carrying value. A 10% change in
unadjusted net asset value would result in an increase / (decrease) in fair value of unquoted investments and on equity
by RO 64,728 (2015 - 22,478). The pre-tax impact on profit for the year would be RO 40,000 (2015 - Nil).
FALCON INSURANCE COMPANY SAOC 19

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

3 Critical accounting estimates and judgements (continued)

(iv) Impairment of receivables

An estimate of the collectible amount of insurance and other receivables is made when collection of the full amount
is no longer probable. This determination of whether these insurance and other receivables are impaired entails the
Company evaluating, the credit and liquidity position of the policy holders and the insurance companies, historical
recovery rates including detailed investigations carried out during the year and feedback received from their legal
department. The difference between the estimated collectible amount and the carrying value is recognised as an
expense in the statement of comprehensive income. Any difference between the amounts actually collected in the
future periods and the amounts expected will be recognised in the statement of comprehensive income at the time of
collection. Premium receivables with less than 90 days overdue are considered as not past due.

Had there been any change in overdue premium receivables by 5%, an additional charge / (reversal) in provision for
impairment against premium receivables during the year amounting to RO 94,149 (2015 - RO 77,713) would have
arisen and the profit before taxation for the year would have increased / (decreased) by RO 94,149 (2015 - RO 77,713).

4 Property and equipment

Furniture Office Motor

and fixtures equipment vehicles Total
RO RO RO RO
Cost
At 1 January 2016 98,112 145,176 64,714 308,002
Additions 21,068 17,180 5,518 43,766
Disposals - - (10,714) (10,714)
At 31 December 2016 119,180 162,356 59,518 341,054

Accumulated depreciation
At 1 January 2016 69,726 116,774 51,457 237,957
Charge for the year 12,903 16,131 7,820 36,854
Disposals - - (10,712) (10,712)
At 31 December 2016 82,629 132,905 48,565 264,099

Net book value

At 31 December 2016 36,551 29,451 10,953 76,955

Furniture Office Motor

and fixtures equipment vehicles Total
RO RO RO RO
Cost
At 1 January 2015 70,337 122,918 64,714 257,969
Additions 27,775 22,258 - 50,033
At 31 December 2015 98,112 145,176 64,714 308,002

Accumulated depreciation
At 1 January 2015 61,183 104,488 39,806 205,477
Charge for the year 8,543 12,286 11,651 32,480
At 31 December 2015 69,726 116,774 51,457 237,957

Net book value

31 December 2015 28,386 28,402 13,257 70,045
FALCON INSURANCE COMPANY SAOC 20

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

4 Property and equipment (continued)

Furniture Office Motor

and fixtures equipment vehicles Total
2014 RO RO RO RO
Cost
At 1 January 2014 68,322 110,372 53,094 231,788
Additions 2,015 12,546 18,500 33,061
Disposals - - (6,880) (6,880)
At 31 December 2014 70,337 122,918 64,714 257,969

Accumulated depreciation
At 1 January 2014 53,582 93,355 36,577 183,514
Charge for the year 7,601 11,133 10,108 28,842
Disposals - - (6,879) (6,879)
At 31 December 2014 61,183 104,488 39,806 205,477

Net book value

31 December 2014 9,154 18,430 24,908 52,492

Furniture Office Motor

and fixtures equipment vehicles Total
2013 RO RO RO RO
Cost
At 1 January 2013 68,087 98,994 69,494 236,575
Additions 235 12,398 3,100 15,733
Disposals - (1,020) (19,500) (20,520)
At 31 December 2013 68,322 110,372 53,094 231,788

Accumulated depreciation
At 1 January 2013 40,681 81,141 48,726 170,548
Charge for the year 12,901 13,233 7,071 33,205
Disposals - (1,019) (19,220) (20,239)
At 31 December 2013 53,582 93,355 36,577 183,514

Net book value

31 December 2013 14,740 17,017 16,517 48,274
As at 31 December 2016, property and equipment includes fully depreciated assets with cost of RO 223,240
(2015 - RO 159,338, 2014- RO 134,226, 2013 – RO 36,772).

5 Intangible assets
Customer Computer
portfolio License software Goodwill Total
RO RO RO RO RO
Cost
At 1 January 2016 560,000 290,000 112,324 120,000 1,082,324
Additions - - 126,940 - 126,940
Write offs (560,000) (290,000) (97,197) (120,000) (1,067,197)
At 31 December 2016 - - 142,067 - 142,067
Accumulated amortisation and impairment
1 January 2016 560,000 290,000 108,360 120,000 1,078,360
Charge for the year - - 2,281 - 2,281
Write offs (560,000) (290,000) (97,197) (120,000) (1,067,197)
At 31 December 2016 - - 13,444 - 13,444

Net book value

31 December 2016 - - 128,623 - 128,623
FALCON INSURANCE COMPANY SAOC 21

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

5 Intangible assets (continued)

Customer Computer
portfolio License software Goodwill Total
RO RO RO RO RO
Cost
At 1 January 2015 560,000 290,000 108,324 120,000 1,078,324
Additions - - 4,000 - 4,000
At 31 December 2015 560,000 290,000 112,324 120,000 1,082,324

Accumulated amortisation and impairment

1 January 2015 527,890 250,235 103,655 120,000 1,001,780
Charge for the year 32,110 39,765 4,705 - 76,580
At 31 December 2015 560,000 290,000 108,360 120,000 1,078,360

Net book value

31 December 2015 - - 3,964 - 3,964

Customer Computer
portfolio License software Goodwill Total
RO RO RO RO RO
Cost
At 1 January 2014 560,000 290,000 108,324 120,000 1,078,324
Additions - - - - -
At 31 December 2014 560,000 290,000 108,324 120,000 1,078,324

Amortisation
1 January 2014 471,890 210,470 98,265 120,000 900,625
Charge for the year 56,000 39,765 5,390 - 101,155
At 31 December 2014 527,890 250,235 103,655 120,000 1,001,780

Net book value

31 December 2014 32,110 39,765 4,669 - 76,544

Customer Computer
portfolio License software Goodwill Total
RO RO RO RO RO
Cost
At 1 January 2013 560,000 290,000 105,461 120,000 1,075,461
Additions - - 2,863 - 2,863
At 31 December 2013 560,000 290,000 108,324 120,000 1,078,324

Amortisation
At 1 January 2013 415,890 170,705 89,335 120,000 795,930
Charge for the year 56,000 39,765 8,930 - 104,695
At 31 December 2013 471,890 210,470 98,265 120,000 900,625

Net book value

31 December 2013 88,110 79,530 10,059 - 177,699

The customer portfolio was acquired in the year 2005 and at that time was valued by the management by reference to
the assessed net present value of future positive cash flows arising therefrom. The license was valued by the
management on the basis of the estimated cost it would have incurred in obtaining a new license

Intangible assets include cost of computer software, license fee and implemention cost of new software purchased
during the year 2016 for life and general business. The Company has started using the software effective from 1
January 2017.

During the year 2016, management has written off fully amortised assets aggregating to RO 1,067,197 (2015,2014
and 2013 - Nil).
FALCON INSURANCE COMPANY SAOC 22

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

6 Investment property
2016 2015 2014 2013
RO RO RO RO

At the beginning of the year 1,900,000 1,900,000 1,900,000 2,282,100

Disposals (1,900,000) - - (382,100)
At the end of the year - 1,900,000 1,900,000 1,900,000

Investment property comprises land acquired during 2007, which is registered in the name of certain directors, who
are holding the property beneficially for and on behalf of the Company. During 2009, the Company acquired an
additional area of 623 square meters at the same location that form part of the existing location. The original cost of
investment property is RO 1,425,000 (2013 – RO 1,425,000) and accumulated fair value changes are RO 475,000
(2013 – RO 475,000).

The fair value is based on valuation carried out on 20 January 2015 by recognised independent valuer (level – 2 fair
values). The impact of change in fair value of investment property by 5% is RO 95,000 ( 2015, 2014, 2013 – RO
95,000) on profit before tax of the Company.

The investment property was sold to Al Anwar Holdings SAOG, majority shareholder of the Company, for
RO 1,900,000 during May 2016.

7 Available for sale financial assets

2016 2016 2015 2015

Cost Fair value Cost Fair value
RO RO RO RO

Quoted investments 3,473,951 3,493,452 1,419,688 1,442,744

Unquoted investments 72,910 247,284 72,910 224,784
3,546,861 3,740,736 1,492,598 1,667,528

2014 2014 2013 2013

Cost Fair value Cost Fair value
RO RO RO RO

Quoted investments 845,625 875,645 630,661 671,043

Unquoted investments 72,910 201,785 72,910 179,570
918,535 1,077,430 703,571 850,613

(a) Movement in available for sale financial assets are as under:

2016 2015 2014 2013
RO RO RO RO

At the beginning of the year 1,667,528 1,077,430 850,613 896,521

Purchases during the year 2,311,250 585,000 266,964 -
Disposals during the year (242,920) (10,937) (52,000) (60,260)
Realised loss on disposals of investments – net (14,067) -
Unrealised gain - net (note 15) 18,945 16,035 11,853 14,352
At the end of the year 3,740,736 1,667,528 1,077,430 850,613

(b) During the year 2016, 2,197 bonds were converted to shares having value of RO 2,621. In addition, bonds
amounting to RO 240,755 were matured during the year. Cost of these bonds was RO 256,987 which resulted in loss
on disposals of RO 14,067.

(c) During the year 2016, the Company invested in certain quoted foreign currency bonds in banking sector
aggregating to RO 2,311,250.

(d) Quoted available for sale financial assets relate to investments in the banking and service sectors and are listed
at the MSM (Muscat Securities Market) whereas unquoted investments are in service sector.
FALCON INSURANCE COMPANY SAOC 23

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

7 Available for sale financial assets (continued)

(e) During the year 2007, the Company acquired 14.28% stake in Omani Unified Bureau for Orange Card SAOC,
a closely held joint stock company. The Company has recognised a gain of RO 22,500 (2015 - RO 22,999, 2014 - RO
22,214, 2013 – RO 19,714) based on the financial statements of the investee company for the nine months period
ended 30 September 2016 in other comprehensive income.

(f) The management believes that the carrying values of unquoted investments as at 31 December 2016, 31
December 2015, 31 December 2014 and 31 December 2013 approximate to their fair values.

(g) At reporting date, the available for sale financial assets in which the market value exceeds 10% of the market
value of the overall investment portfolio of the Company are as follows:

Percentage of Number of Fair

the portfolio securities value Cost
RO RO
31 December 2016
Overseas market securities
Bank Dhofar Subordinated Bonds 10.65% 18,950 733,194 733,358

Percentage of Number of Fair

MSM quoted marketable securities the portfolio securities value Cost
RO RO
31 December 2015
Government Development Bonds 14.02% 5,500 602,232 577,700

Percentage of Number of Fair

MSM quoted marketable securities the portfolio securities value Cost
RO RO
2014
Government Development Bonds 10.98% 5,500 610,268 577,700

Percentage of Number of Fair

MSM quoted marketable securities the portfolio securities value Cost
RO RO
2013
Government Development Bonds 12.39% 5,500 618,305 577,700
FALCON INSURANCE COMPANY SAOC 24

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

8 Financial assets at fair value through profit or loss

2016 2015 2014 2013

RO RO RO RO

At the beginning of the year 2,627,610 4,481,870 4,140,902 3,201,294

Purchases 802,165 12,031 885,156 37,149
Disposals (8,000) (820,598) (9,504) (4,815)
Dividends reinvested 80,720 104,901 - -
Cash withdrawn from portfolio managers (400,000) (750,000) - -
Realised loss on disposal - net (90,993) (86,843) 19,353 16,595
Investments related expenses (note 20) (20,833) (35,287) (46,473) -
Unrealised gain / (loss) - net (note 20) 151,035 (278,464) (507,564) 890,679
At the end of the year 3,141,704 2,627,610 4,481,870 4,140,902

(a) Investments are analysed as follows:

Local
quoted / Foreign
2016 unquoted quoted Total
RO RO RO

Banking and investment sector 1,515,599 269,942 1,785,541

Industrial sector 342,696 48,403 391,099
Services sector 566,321 325,664 891,985
Cash with portfolio managers 52,490 20,589 73,079
2,477,106 664,598 3,141,704

Local Foreign
2015 quoted quoted Total
RO RO RO

Banking and investment sector 1,034,189 125,559 1,159,748

Industrial sector 318,877 91,091 409,968
Services sector 757,639 107,471 865,110
Cash with portfolio managers 87,604 105,180 192,784
2,198,309 429,301 2,627,610

2014 Local Foreign Total

quoted quoted
RO RO RO
Banking and investment sector 1,578,774 355,315 1,934,089
Industrial sector 1,079,099 - 1,079,099
Services sector 600,408 257,866 858,274
Cash with portfolio managers 519,629 90,779 610,408
3,777,910 703,960 4,481,870
2013 Local Foreign
quoted quoted Total
RO RO RO

Banking and investment sector 1,433,651 15,019 1,448,670

Industrial sector 1,601,093 8,190 1,609,283
Services sector 737,502 48,281 785,783
Cash with portfolio managers 292,592 4,574 297,166
4,064,838 76,064 4,140,902
 FALCON INSURANCE COMPANY SAOC 25

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

8 Financial assets at fair value through profit or loss (continued)

(b) At 31 December 2016, financial assets carried at fair value through profit or loss amounting to RO 2,741,704
(2015 - RO 2,627,610, 2014- RO 4,481,870, 2013 – RO 4,140,902) are measured using level 1 fair value
hierarchy. Financial assets carried at fair value through profit or loss amounting to RO 400,000 are measured
using level 2 hierarchy.
(c) A significant portion of the above investments are registered in the names of the portfolio managers and are
listed on the MSM and GCC (Gulf Countries) markets. The carrying values of these investments at 31 December
2016 amounted to RO 2,005,413 (2015 - RO 1,559,188, 2014 - 2,552,577, 2013 – RO 2,261,444).
(d) Investments include unquoted investments of RO 400,000 made during the year in units of Vision Focused
Fund which is newly established fund expected to be listed in MSM.
(e) At the reporting date, none (2015, 2014, 2013 - none) of the Company’s investment in fair value through profit
or loss represents 10% or more of the investee Company’s share capital.

9 Term deposits

The term deposits are placed with commercial banks and approved non-banking financial institutions in the Sultanate
of Oman and carry effective interest rates ranging between 1.30% to 5.20% per annum (2015 - 1.20% to 4.25% per
annum, 2014 - 1.25% to 4% per annum, 2013 – 1.5% to 4% per annum).

These deposits have original maturity periods ranging from within 1 year to 5 years from the date of placement
(2015 - within 1 year to 5 years, 2014 - 1 month to 31 years, 2013 – 3 months to 3 years).

(a) Restriction on transfer of assets

In accordance with the law governing the operations of insurance companies within the Sultanate of Oman, the
Company has identified to the Capital Market Authority certain deposits, investments and investment property included
at 31 December 2016 at a total carrying value of RO 11,558,304(2015 - RO 11,864,807, 2014 - RO 10,756,310, 2013
- RO 9,645,202). These assets can only be transferred with the prior approval of the Capital Market Authority.
 FALCON INSURANCE COMPANY SAOC 26

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

10 Insurance and other receivables

2016 2015 2014 2013

RO RO RO RO

Premiums receivable 3,204,142 2,384,218 3,073,806 2,536,447

Less: provision for impairment of (370,886) (370,886) (370,886) (300,886)
receivables (note ‘a’)
2,833,256 2,013,332 2,702,920 2,235,561
Due from insurance and reinsurance 144,538 769,644 381,724 336,234
companies
Accrued interest 310,153 178,321 257,780 158,893
Due from related parties [note 25(b)] 60,257 67,796 134,966 93,975
Prepayments 35,266 13,086 17,602 24,169
Other receivables 146,678 167,879 135,930 116,362
3,530,148 3,210,058 3,630,922 2,965,194

(a) The movements in provision for impairment of receivables are as follows:

2016 2015 2014 2013
RO RO RO RO

At the beginning of the year 370,886 370,886 300,886 160,099

Charge for the year - - 71,370 148,159
Written off during the year - - (1,370) (7,372)
At 31 December 370,886 370,886 370,886 300,886

(b) At 31 December 2016, 44% of the Company’s premiums receivable and dues from related parties are from
5 customers (2015 - 64% from 5 customers, 2014 - 50% from 5 customers, 2013 – 44% from 5 customers).

(c) At 31 December 2016, 71% of the Company’s due from insurance and reinsurance receivable are from 5
insurance and reinsurance companies (2015 - 95% from 5 insurance and reinsurance companies, 2014 - 85% from
5 insurance and reinsurance companies, 2013 – 96% from 5 customers).

(d) An analysis of premium receivables and due from related parties as at year end is as under:

2016 2015 2014

RO RO RO

Neither past due nor impaired (upto 90 days) 1,422,108 1,020,451 1,240,457
Past due but not impaired (91 to 180 days) 596,412 580,713 1,065,600
Past due and impaired (181 to 365 days) 817,486 450,982 507,499
Past due and impaired (over 365 days) 428,393 399,868 395,216
3,264,399 2,452,014 3,208,772
Less: provision for impairment of receivables (370,886) (370,886) (370,886)
2,893,513 2,081,128 2,837,886

(e) An analysis of amounts due from insurance and reinsurance companies is as under:
2016 2015 2014
RO RO RO

Neither past due nor impaired (upto 90 days) 103,853 646,938 106,397
Past due but not impaired (91 to 180 days) 24,729 109,805 142,755
Past due and impaired (over 180 days) 15,956 12,901 132,572
144,538 769,644 381,724
The Company considers amounts due from insurance and reinsurance companies which are past due as fully
recoverable. Accordingly, no provision is held against these balances.
FALCON INSURANCE COMPANY SAOC 27

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

11 Insurance funds and reinsurer’s share in insurance funds

2016 2015 2014 2013
Gross insurance liabilities RO RO RO RO
Non-current
Actuarial reserve (for long term insurance contracts) 4,360,446 1,784,858 935,113 -
Current
Short term insurance contracts
- Claims reported but unsettled 4,783,298 5,152,521 7,990,887 20,069,436
- Claims incurred but not reported (IBNR) 373,871 1,538,516 520,000 459,463
- Unearned premiums 4,040,428 4,928,507 5,564,715 5,697,369
9,197,597 11,619,544 14,075,602 26,226,268
Total insurance liabilities – gross 13,558,043 13,404,402 15,010,715 26,226,268

Reinsurers’ share of insurance liabilities

Non-current
Actuarial reserve (for long term insurance contracts) 1,395,752 146,786 78,095 -
Current
Short term insurance contracts
- Claims reported but unsettled 3,586,708 3,455,078 5,818,474 18,537,698
- Claims incurred but not reported (IBNR) 244,775 1,149,945 274,545 260,098
- Unearned premiums 2,808,848 3,271,698 3,609,310 3,461,712
6,640,331 7,876,721 9,702,329 22,259,508
Total reinsurers share of insurance liabilities 8,036,083 8,023,507 9,780,424 22,259,508
Net insurance liabilities
Non-current
Actuarial reserve (for long term insurance contracts) 2,964,694 1,638,072 857,018 -
Current
Short term insurance contracts
- Claims reported but unsettled 1,196,590 1,697,443 2,172,413 1,531,738
- Claims incurred but not reported (IBNR) 129,096 388,571 245,455 199,365
- Unearned premiums 1,231,580 1,656,809 1,955,405 2,235,657
2,557,266 3,742,823 4,373,273 3,966,760
Total insurance liabilities – net 5,521,960 5,380,895 5,230,291 3,966,760

The Company has been following local regulations for provision for unearned premium reserve / unexpired risk reserve
(UPR) in respect of general insurance business at 45% of the net written premium. The amount calculated using this
method at 31 December 2016 for general business was RO 1,086,369 (2015 - RO 1,509,665, 2014 - RO 1,813,804,
2013 – RO 1,605,504).

The global industry considers 1/24th method as a statistically acceptable method for calculation of UPR. The provision
for UPR in respect of general business using 1/24th method of calculation at 31 December 2016 amounts to
RO 1,074,779 (2015 - RO 1,106,564, 2014 - RO 1,408,582, 2013 – RO 1,400,424) for general insurance business. The
Company uses triangulation techniques to arrive at the provision for IBNR for general insurance business.

The mathematical reserves for long term life contracts and UPR for short term life and medical business as calculated
by actuary are RO 3,109,905 (2015 - RO 1,785,216, 2014 - RO 1,041,776, 2013 – RO 630,153).
FALCON INSURANCE COMPANY SAOC 28

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

11 Insurance funds and reinsurer’s share in insurance funds (continued)

Movements in insurance liabilities and reinsurance assets is as under:

(a) Claims and loss adjustment expenses

Gross Reinsurance Net
2016 RO RO RO
Notified claims 5,152,521 (3,455,078) 1,697,443
Incurred but not reported 1,538,516 (1,149,945) 388,571
Total at the beginning of the year 6,691,037 (4,605,023) 2,086,014

Cash paid for claims settled during the year (note 19) (6,176,287) 3,377,809 (2,798,478)
Increase in liabilities arising from current and
prior years claims 4,642,419 (2,604,269) 2,038,150
Total at the end of the year 5,157,169 (3,831,483) 1,325,686

Notified claims 4,783,298 (3,586,708) 1,196,590

Incurred but not reported 373,871 (244,775) 129,096
Total at the end of the year 5,157,169 (3,831,483) 1,325,686

Gross Reinsurance Net

2015 RO RO RO

Notified claims 7,990,887 (5,818,474) 2,172,413

Incurred but not reported 520,000 (274,545) 245,455
Total at the beginning of the year 8,510,887 (6,093,019) 2,417,868

Cash paid for claims settled during the year (note 19) (12,864,969) 8,368,054 (4,496,915)
Increase in liabilities arising from current
and prior years claims 11,045,119 (6,880,058) 4,165,061
Total at the end of the year 6,691,037 (4,605,023) 2,086,014

Notified claims 5,152,521 (3,455,078) 1,697,443

Incurred but not reported 1,538,516 (1,149,945) 388,571
Total at the end of the year 6,691,037 (4,605,023) 2,086,014

(b) Provisions for unearned premiums and unexpired short term insurance risks

Gross Reinsurance Net

2016 RO RO RO
Unearned premiums reserves 4,928,507 (3,271,698) 1,656,809
Mathematical reserves 1,784,858 (146,786) 1,638,072
Total at the beginning of the year 6,713,365 (3,418,484) 3,294,881

Premiums written during the year (note 19) 11,404,055 (6,670,045) 4,734,010
Net increase / (release) during the year (9,716,546) 5,883,929 (3,832,617)
Total at the end of the year 8,400,874 (4,204,600) 4,196,274

Unearned premiums reserves 4,040,428 (2,808,848) 1,231,580

Mathematical reserves 4,360,446 (1,395,752) 2,964,694
Total at the end of the year 8,400,874 (4,204,600) 4,196,274
FALCON INSURANCE COMPANY SAOC 29

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

11 Insurance funds and reinsurer’s share in insurance funds (continued)

(b) Provisions for unearned premiums and unexpired short term insurance risks (continued)

Gross Reinsurance Net

31 December 2015 RO RO RO

Unearned premiums reserves 5,564,715 (3,609,310) 1,955,405

Mathematical reserves 935,113 (78,095) 857,018
Total at the beginning of the year 6,499,828 (3,687,405) 2,812,423

Premiums written during the year (note 19) (17,385,437) 10,938,558 (6,446,879)
Increase / (release) during the year 17,598,974 (10,669,637) 6,929,337
Total at the end of the year 6,713,365 (3,418,484) 3,294,881

Unearned premiums reserves 4,928,507 (3,271,698) 1,656,809

Mathematical reserves 1,784,858 (146,786) 1,638,072
Total at the end of the year 6,713,365 (3,418,484) 3,294,881

12 Share capital

(a) The Company’s authorised share capital at the reporting date is RO 10 million comprising 10 million shares of
RO 1 each (2015 - RO 10 million comprising 10 million shares of RO 1 each, 2014 - RO 10 million comprising 10
million shares of RO 1 each, 2013 - RO 10 million comprising 10 million shares of RO 1 each). The issued and fully
paid up share capital is RO 6,394,457 comprising 6,394,457 shares of RO 1 each (2015 - RO 6,394,457 comprising
6,394,457 shares of RO 1 each, 2014 - RO 6,394,457 comprising 6,394,457 shares of RO 1 each, 2013 - RO 6,394,457
comprising 6,394,457 shares of RO 1 each).

(b) At 31 December 2016 and 2015, shareholders of the Company who own 3% or more of the Company’s shares,
whether in their name or through a nominee account and the percentage of shares held by them are as follows:
2016 2015
Number of Number of
% shares held % shares held

Al Anwar Holding Company SAOG (refer note ‘d’) 51.04 3,264,000 51.04 3,264,000
Mr. George Antonis Chidiac 10.01 640,000 10.01 640,000
Bank of Sharjah (refer note ‘d’) 7.41 474,074 7.41 474,074
Ameen Mohammed Mohammed Al Sharif 5.00 320,010 5.00 320,010
National Trading Company (refer note ‘d’) 4.63 296,296 4.63 296,296
Ministry of Defence Pension Fund (refer note ‘d’) 4.63 296,296 4.63 296,296
Fincorp Investments LLC (refer note ‘d’) 4.63 296,296 4.63 296,296
Bank Muscat SAOG (refer note ‘d’) 4.63 296,296 4.63 296,296
Masoud Humaid Malik Al Harthy (refer note ‘d’) 3.21 205,084 3.21 205,084
FALCON INSURANCE COMPANY SAOC 30

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

12 Share capital (continued)

At 31 December 2014 and 2013, shareholders of the Company who own 10% or more of the Company’s shares,
whether in their name or through a nominee account and the percentage of shares they hold are as follows:
2014 2013
Number of Number of
% shares held % shares held

Al Anwar Holding Company SAOG 51.04 3,264,000 51.04 3,264,000

Mr. George Antonis Chidiac 10.01 640,000 10.01 640,000

(c) During the year 2016, Al Anwar Holding Company SAOG and other shareholders have entered into an
agreement to sell their shares (please refer note 1 for further details).

(d) Dividend is not accounted for until it has been approved at the Annual General Meeting. At the Board of
Directors meeting on __________, ____ cash dividend amounting to RO _______ (2015 - 10% cash dividend
amounting to RO 639,445) has been recommended for shareholders’ approval at the AGM. The financial statements
for the year ended 31 December 2016 do not reflect this resolution, which will be accounted for in shareholders’ equity
as an appropriation of retained profits for the year ending 31 December 2017.

13 Legal reserve

The statutory reserve which is not available for distribution is calculated in accordance with article 106 of the
Commercial Companies Law. The annual appropriation shall be 10% of the profit for the year after tax, until such
time the legal reserve amounts to at least one third of the issued and paid up share capital of the Company. During the
year 2016 an amount of RO 103,719 (2015 - RO 180,210, 2014 -71,242, 2013 - RO 105,514) has been transferred to
legal reserve
FALCON INSURANCE COMPANY SAOC 31

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

14 Contingency reserve

In accordance with article 10(bis) (2)(c) and 10(bis) (3)(b) of Regulations for Implementing Insurance Companies
Law (Ministerial Order 5/80), as amended, 10% of the net outstanding claims in case of the general insurance business
amounting to RO 116,199 (2015 - RO 156,506, 2014 - RO 203,394, 2013 – RO 157,127) and 1% of the life assurance
premiums for the year in case of life insurance business amounting to RO 30,672 (2015 - RO 70,408, 2014 - RO
52,914, 2013 – RO 22,575) at the reporting date is transferred from retained earnings to a contingency reserve. The
Company may discontinue this transfer when the reserve equals to the issued share capital. No dividend shall be
declared in any year until the deficit in the reserve is covered from the retained profits. The reserves shall not be used
except with the prior approval of the Capital Market Authority.

15 Fair value reserve

The fair value reserve represents the unrealised gain on revaluation of available for sale financial assets. Movement in
fair value reserve is as under:

2016 2015 2014 2013

RO RO RO RO

At the beginning of the year 174,930 158,895 147,042 132,690

Movement during the year [note 7(a)] 18,945 16,035 11,853 14,352
At the end of the year 193,875 174,930 158,895 147,042

16 End of service benefits

2016 2015 2014 2013

RO RO RO RO

At the beginning of the year 111,731 79,771 58,826 41,456

Charge for the year [note 22(a)] 27,682 31,960 24,554 22,411
Paid during the year (2,972) - (3,609) (5,041)
At the end of the year 136,441 111,731 79,771 58,826

17 Claims and other payables

2016 2015 2014 2013

RO RO RO RO

Claims related payable 640,970 902,630 485,402 615,715

Government tax and emergency fund payable 152,551 205,359 218,092 169,630
Payable to garages 440,710 439,175 336,280 -
Accrued expenses 158,469 121,805 74,682 106,784
Directors’ remuneration payable 32,500 35,750 - -
Other payables 231,458 152,976 188,689 191,305
1,656,658 1,857,695 1,303,145 1,083,434

18 Taxation
(a) Recognised in the statement of comprehensive income
2016 2015 2014 2013
RO RO RO RO
Current tax
Current year 189,034 268,669 89,079 -
Prior years - - - (10,667)
189,034 268,669 89,079 (10,667)
Deferred tax
Current year (note ‘b’) (82,232) (7,302) 48,570 8,445
Prior years - - 10,778 -
(82,232) (7,302) 59,348 8445
106,802 261,367 148,427 (2,222)
FALCON INSURANCE COMPANY SAOC 32

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

18 Taxation (continued)

(a) Recognised in the statement of comprehensive income (continued)

The Company is subject to income tax at the rate of 12% (2015 - 12%, 2014 - 12%, 2013 - 12%) of taxable profits in
excess of RO 30,000. Reconciliation of tax is as under:

2016 2015 2014 2014

RO RO RO RO

Profit before taxation 1,079,353 2,063,463 860,851 1,052,919

Tax at the applicable rate of 12% after exemption

125,922 244,016 99,702 122,750
limit of RO 30,000
Effect of tax exempt revenues (13,758) (20,239) (22,321) (117,483)
Effect of prior year deferred tax - - 10,778 (672)
Effect of prior year current tax - - - (10,667)
Impact of expenses having permanent difference (5,362) 37,590 60,268 3,850
106,802 261,367 148,427 (2,222)

(b) Deferred tax asset / (liability)

Deferred tax arises on account of temporary differences between the tax base of assets and liabilities and their carrying
values in the statement of financial position. Deferred tax asset and liabilities are attributable to the following items:
Movement
1 January during the 31 December
2016 Year 2016
RO RO RO

Property and equipment and intangibles 5,095 1,903 6,998

Fair value adjustment on investment property (83,506) 83,506 -
Provision for impairment against receivables 44,506 - 44,506
Unrealised gain on foreign investment 9,297 (3,177) 6,120
(24,608) 82,232 57,624

1 January Movement 31 December

2015 during the year 2015
RO RO RO
Property and equipment and intangibles 4,159 936 5,095
Fair value adjustment on investment property (83,506) - (83,506)
Provision for impairment against receivables 44,506 - 44,506
Unrealised gain on foreign investment 2,931 6,366 9,297
(31,910) 7,302 (24,608)
FALCON INSURANCE COMPANY SAOC 33

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

18 Taxation (continued)

(b) Deferred tax asset / (liability) (continued)

1 January Movement 31 December

2014 during the 2014
year
RO RO RO
Property and equipment 3,818 341 4,159
Fair value adjustment on investment property (83,506) - (83,506)
Provision for impairment against receivables 36,106 8,400 44,506
Unrealised gain on foreign investment (2,069) 5,000 2,931
Carry forward losses 73,089 (73,089) -
27,438 (59,348) (31,910)
Movement
1 January during the 31 December
2013 year 2013
RO RO RO

Property, plant and equipment 1,530 2,288 3,818

Fair value adjustment on investment property (129,358) 45,852 (83,506)
Provision for impairment against receivables 19,211 16,895 36,106
Unrealised gain on foreign investment - (2,069) (2,069)
Carry forward losses 144,500 (71,411) 73,089
35,883 (8,445) 27,438

(c) Movement in current tax liability is as under:

2016 2015 2014 2013
RO RO RO RO

At the beginning of the year 268,669 89,079 - 11,565

Charge for the year (note ‘a’) 189,034 268,669 89,079 (10,667)
Paid during the year (268,669) (89,079) - (898)
At the end of the year 189,034 268,669 89,079 -

(d) The tax returns of the Company for the years 2011 to 2015 have not yet been agreed with the Secretariat
General for Taxation at the Ministry of Finance. The management of the Company believes that additional taxes, if
any, related to the open tax years would not be significant to the financial position of the Company as at 31 December
2016.

(e) Subsequent to the year ended 2016 there was an amendment in the Income Tax Law of Oman, which has
revised the applicable tax rate from 12% to 15% for the financial years beginning on or after 1 January 2017. The
revision in the tax rate has an impact on the deferred tax assets and liabilities recorded on the statement of financial
position as at 31 December 2016. As the law was not enacted as at 31 December 2016, the impact of the rate revision
has not been considered on the financial position of the Company as at 31 December 2016. If the revised tax rate was
to be considered on the financial position as at 31 December 2016, the recorded value of the deferred tax rate would
have been higher by RO 14,406 and the retained earnings of the Company and retained profits for the year would have
been higher by RO 14,406.
FALCON INSURANCE COMPANY SAOC 34

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

19 Net underwriting results

General Life Total

2016 RO RO RO
Premium revenue
- Gross premiums written 8,336,852 3,067,203 11,404,055
- Reinsurers’ share (5,922,697) (747,348) (6,670,045)
2,414,155 2,319,855 4,734,010
Movement in unexpired premiums reserves
- Gross 903,493 (2,591,002) (1,687,509)
- Reinsurer share (480,197) 1,266,313 786,116
423,296 (1,324,689) (901,393)
Net premium earned 2,837,451 995,166 3,832,617

Claims paid
- Gross claims paid (4,236,396) (1,998,221) (6,234,617)
- Reinsurance and other recoveries 2,119,470 1,316,669 3,436,139
(2,116,926) (681,552) (2,798,478)

Movement in outstanding claims

- Gross claims outstanding (207,828) 1,741,696 1,533,868
- Reinsurance and other recoveries 610,896 (1,384,436) (773,540)
403,068 357,260 760,328
Net claims incurred (1,713,858) (324,292) (2,038,150)

Net commission
Commission expense (509,166) (214,212) (723,378)
Commission income 891,097 - 891,097
381,931 (214,212) 167,719
Other underwriting income (note 20) - 102,654 102,654
381,931 (111,558) 270,373
Net underwriting results 1,505,524 559,316 2,064,840
FALCON INSURANCE COMPANY SAOC 35

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

19 Net underwriting results (continued)

General Life Total

2015 RO RO RO
Premium revenue
- Gross premiums written 10,344,612 7,040,825 17,385,437
- Reinsurers’ share (6,989,800) (3,948,758) (10,938,558)
3,354,812 3,092,067 6,446,879
Movement in unexpired premiums reserves
- Gross 574,016 (787,553) (213,537)
- Reinsurer share (269,878) 957 (268,921)
304,138 (786,596) (482,458)
Net premium earned 3,658,950 2,305,471 5,964,421

Claims paid
- Gross claims paid (7,275,465) (5,704,008) (12,979,473)
- Reinsurance and other recoveries 4,161,753 4,320,805 8,482,558
(3,113,712) (1,383,203) (4,496,915)

Movement in outstanding claims

- Gross claims outstanding 2,406,253 (586,403) 1,819,850
- Reinsurance and other recoveries (1,937,379) 449,383 (1,487,996)
468,874 (137,020) 331,854
Net claims incurred (2,644,838) (1,520,223) (4,165,061)

Net commission
Commission expense (821,974) (185,607) (1,007,581)
Commission income 1,169,766 - 1,169,766
347,792 (185,607) 162,185
Other underwriting income (note 20) - 60,219 60,219
347,792 (125,388) 222,404
Net underwriting results 1,361,904 659,860 2,021,764

General Life Total

2014 RO RO RO
Premium revenue
- Gross premiums written 11,620,203 5,291,444 16,911,647
- Reinsurers’ share (7,589,529) (3,351,878) (10,941,407)
4,030,674 1,939,566 5,970,240
Movement in unexpired premiums reserves
- Gross - - -
- Reinsurer share - - -
(208,300) (368,466) (576,766)
Net premium earned 3,822,374 1,571,100 5,393,474

Claims paid
- Gross claims paid (19,741,504) (3,389,554) (23,131,058)
- Reinsurance and other recoveries 17,530,393 2,498,485 20,028,878
(2,211,111)

Movement in outstanding claims

- Gross claims outstanding -
- Reinsurance and other recoveries -
(462,660) (224,105) (686,765)
Net claims incurred (2,673,771) (1,115,174) (3,788,945)
 FALCON INSURANCE COMPANY SAOC 36

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

19 Net underwriting results (continued)

General Life Total
2014 RO RO RO

Net commission
Commission expense - -
Commission income - - -
281,403 (128,125) 153,278
Other underwriting income (note 20) - 61,185 61,185
281,403 (66,940) 214,463
Net underwriting results 1,430,006 388,986 1,818,992

General Life Total

2013 RO RO RO
Premium revenue
- Gross premiums written 10,802,871 2,257,479 13,060,350
- Reinsurers’ share (7,231,772) (1,174,439) (8,406,211)
3,571,099 1,083,040 4,654,139
Movement in unexpired premiums reserves
- Gross - - -
- Reinsurer share - - -
(16,921) (200,922) (217,843)
Net premium earned 3,554,178 882,118 4,436,296

Claims paid
- Gross claims paid (5,291,869) (951,269) (6,243,138)
- Reinsurance and other recoveries 2,522,693 547,678 3,070,371

Movement in outstanding claims

- Gross claims outstanding -
- Reinsurance and other recoveries -
266,031 (44,643) 221,388
Net claims incurred (2,503,145) (448,234) (2,951,379)

Net commission
Commission expense - -
Commission income - - -
219,423 (92,862) 126,561
Other underwriting income (note 20) - 34,232 34,232
219,423 (58,630) 160,793
Net underwriting results 1,270,456 375,254 1,645,710

20 Investment income - net

2016 2015 2014 2013
RO RO RO RO

Interest income 364,650 265,439 190,866 213,428

Dividend income 140,432 202,402 201,124 88,747
Realised loss on sale of investments - net (note 7 and 8) (105,060) (86,843) 19,353 18,851
Unrealised gain / (loss) on financial assets at fair value
through profit or loss - net (note 8) 151,035 (278,464) (507,564) 890,679
Investment related expenses (note 8) (20,833) (35,287) (46,473) (35,287)
Other investment income 102,654 60,219 61,185 (14,077)
632,878 127,466 (81,509) 1,197,628
Less: transfer of life business related investment income
(note 19) (102,654) (60,219) (61,185) -
530,224 67,247 (142,694) 1,197,628
 FALCON INSURANCE COMPANY SAOC 37

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

21 Other income
This includes long outstanding payable balances and unpresented cheques which have been written back by the
Company as the related liabilities are no longer considered as payable.
2016 2015 2014 2013
RO RO RO RO

Liabilities no longer payable written back 268,993 1,544,319 636,387 -

Profit on disposal of property and equipment 3,103 - 3,699 419
Other income 111,292 63,455 59,674 54,296
383,388 1,607,774 699,760 54,715
22 General and administrative expenses

2016 2015 2014 2013

RO RO RO RO

Staff costs (note ’a’) 1,318,200 1,078,723 920,415 818,377

Rent 113,520 109,810 96,690 95,640
IPO related expenses 61,905 29,500 - -
Impairment of receivables - - 71,370 148,159
Project implementation 47,862 - - -
Due diligence related expenses 45,731 - - -
Legal and professional charges 39,788 55,608 34,558 45,095
Depreciation (note 4) 36,854 32,480 28,842 33,205
Directors' remuneration [note 25(c)] 32,500 35,750 37,000 30,000
Computer expenses 30,762 24,956 23,179 23,583
Business promotion 30,110 37,455 34,204 24,905
Communication costs 23,929 20,476 - -
Repairs and maintenance 23,599 21,695 18,214 40,015
Directors’ sitting fees [note 25(c)] 17,000 14,250 12,700 14,275
Printing and stationery 14,492 17,420 19,187 21,702
Bank charges 10,180 9,181 36 1,580
Amortisation of intangible assets (note 5) 2,281 76,580 101,155 104,695
Other expenses 50,386 69,438 117,657 61,803
1,899,099 1,633,322 1,515,207 1,463,034

(a) Staff costs

2016 2015 2014 2013

RO RO RO RO

Wages and salaries 981,248 880,576 730,707 687,313

Other benefits 256,999 121,059 140,343 92,438
Social security costs 52,271 45,128 24,811 16,215
Charge for end of service benefits (note 16) 27,682 31,960 24,554 22,411
1,318,200 1,078,723 920,415 818,377

The Company had employed 88 employees at 31 December 2016 (2015 - 87, 2014 - 70, 2013 - 73).
FALCON INSURANCE COMPANY SAOC 38

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

23 Basic and diluted earnings per share

Earnings per share is calculated by dividing the net profit for the year by the weighted average number of shares
outstanding during the year as follows:

2016 2015 2014 2013

Profit for the year - RO 972,551 1,802,096 712,424 1,055,141

Weighted average number of outstanding shares - numbers 6,394,457 6,394,457 6,394,457 6,394,457

Earnings per share - basic and diluted - RO 0.152 0.282 0.111 0.165

The diluted earnings per share is the same as basic earnings per share as the Company does not have any instruments
having potential dilutive effect.

24 Net assets per share

Net assets per share is calculated by dividing the net assets at the end of the year by the number of shares outstanding
at year end as follows:
2016 2015 2014 2013

Net assets value - RO 10,366,727 10,014,676 8,516,268 7,791,991

Number of ordinary shares outstanding at year end - number 6,394,457 6,394,457 6,394,457 6,394,457

Net assets per share - RO 1.621 1.566 1.322 1.218

FALCON INSURANCE COMPANY SAOC 39

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

25 Related party transactions

Related parties represent associated companies, major shareholders, directors and key management personnel of the
Company, and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and
terms of these transactions are approved by the Company’s management.

The Company enters into transactions in the normal course of business with shareholders, directors, key management
personnel and entities in which certain shareholders and directors have the ability to control or exercise significant
influence in financial and operating decisions. These transactions are entered on arm’s length basis.

(a) Transactions with related parties

Transactions with related parties or holders of 10% or more of the Company’s shares or their family members, included
in the statement of comprehensive income are as follows. These are relating to directors and other companies where
the directors of the companies have shareholding:
2016 2015 2014 2013
RO RO RO RO
From directors:
Gross premiums written 9,889 10,886 12,637 -

Gross claims paid 1,620 25,148 2,564 -

From other related parties:

Gross premiums written 250,531 170,316 315,778 428,277
Gross claims paid 72,253 29,565 39,794 132,371
Dividend received 27,063 20,047 18,561 24,631

Proceeds from sale of investment property 1,900,000 - - -

(b) Balances with related parties included under the following heads are as follows:

2016 2015 2014 2013

RO RO RO RO
From directors:
Insurance and other receivables (note 10) 5,282 11,562 14,164

Claims payables 9,920 1,750 15,950 -

From other related parties:

Insurance and other receivables (note 10) 54,975 56,234 120,802 93,975

Investments in related parties 358,585 365,351 375,878 -

Claims payables 50,195 48,885 175,599 -

FALCON INSURANCE COMPANY SAOC 40

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

25 Related party transactions (continued)

(c) Compensation of the key management personnel

The key management personnel compensation for the year comprises:

2016 2015 2014 2013
RO RO RO RO
Short term employment benefits 331,428 255,947 277,880 222,420
End of service benefits 15,098 14,933 11,978 5,041
Directors’ sitting fees (note 22) 17,000 14,250 12,700 14,275
Social security benefits 5,057 252 2,366 3,600
Directors' remuneration (note 22) 32,500 35,750 37,000 30,000
401,083 321,132 341,924 275,336

26 Financial and insurance risk management

(a) Governance framework

The primary objective of the Company’s risk and financial management framework is to protect the Company’s
shareholders from events that hinder the sustainable achievement of the set financial performance objectives. Key
management recognises the critical importance of having efficient and effective risk management systems in place.

(b) Regulatory framework

Regulators are primarily interested in protecting the rights of the policy holders and monitor them closely to ensure
that the Company is satisfactorily managing affairs for their benefit. At the same time, the regulators are also interested
in ensuring that the Company maintains an appropriate solvency position to meet unforeseen liabilities arising from
economic shocks or natural disasters.

The operations of the Company are also subject to regulatory requirements within the jurisdictions where it operates.
Such regulations not only prescribe approval and monitoring of activities, but also impose certain restrictive provisions
(e.g. capital adequacy) to minimise the risk of default and insolvency on the part of the insurance companies to meet
unforeseen liabilities as these arise.

(c) Insurance risk

The principal risk the Company faces under insurance contracts is that the actual claims and benefit payments or the
timing thereof, differ from expectations. This is influenced by the frequency of claims, severity of claims, actual
benefits paid and subsequent development of long-term claims. Therefore, the objective of the Company is to ensure
that sufficient reserves are available to cover these liabilities.

The Company manages the insurance risk through the careful selection and implementation of its underwriting strategy
guidelines together with the adequate reinsurance arrangements and proactive claims handling.

The Company principally issues general insurance and life insurance products which constitute mainly marine,
aviation, fire and general risks and life assurance contracts. Below are brief description of each of the Company’s
products:

(i) Property and engineering insurance

Property insurance is designed to compensate contract holders for damage suffered to properties or for the value of
property lost. Engineering insurance is designed to compensate contract holders for property under construction.
Contract holders could also receive compensation for the loss of earnings caused by the inability to use the insured
properties.

(ii) Motor insurance

Motor insurance is designed to compensate contract holders for damage suffered to their vehicles or liability to third
parties arising through accidents. Contract holders could also receive compensation for the fire or theft of their
vehicles.
FALCON INSURANCE COMPANY SAOC 41

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

26 Financial and insurance risk management (continued)

(c) Insurance risk (continued)

(iii) Marine insurance

Marine insurance is designed to compensate contract holders for damage and liability arising through loss or damage
to marine craft and accidents at sea resulting in total or partial loss of cargo.

(iv) Individual life

These are long term life insurance contracts underwritten on individual basis, covering the life of insured. These
contracts protect the Company’s policy holders from the consequences of events (such as death or disability) that
would affect on the ability of the policy holder or his/her dependents to maintain their current level of income.
Guaranteed benefits paid on occurrence of the specified insurance event are either fixed or linked to the extent of the
economic loss suffered by the policyholders. There are benefits to be paid on maturity or surrender benefits. These are
taken into consideration by the actuary while determining life reserves for unexpired risks.

(v) Group life

These are short term life insurance contracts underwritten on a group basis, the lives covered usually being employees
of a corporate policy holder. These contracts protect the Company’s policy holders (the employer) from the
consequences of events (such as death or disability) that would affect on the ability of the policy holder or his/her
dependents to maintain their current level of income. There are no guaranteed benefits for the policyholders. There are
no maturity or surrender benefits.

(vi) Group medical

These are short term medical insurance contracts underwritten on a group basis, the lives covered usually being
employees of a corporate policy holder. These contracts protect the Company’s policy holders (the employer) from
losses resulting from medical treatment of employees as a result of ill-health or accident, covering both hospitalisation
and out-patient expenses. The bulk of hospital claims are disbursed directly by the Company to healthcare providers.
There are no maturity or surrender benefits.

(vii) Group credit life

These are long term credit life insurance contracts underwritten on a group basis, covering the period of related credits
from the banks and other financial institutions for its borrowers. These contracts protect the Company’s policy holders
(the lender) from the consequences of events (such as death or disability) that would affect on the ability of the policy
holder or his/her dependents to maintain their current level of income. There are no guaranteed benefits paid. Also
there are no maturity or surrender benefits. The premium is received on monthly basis from the policy holders.

(viii) Individual medical

These are short term medical contracts underwritten on individual as well as group basis covering the period of one
year from the date of contract to protect the policy holders (employer / individual) from the loss arising from the short
term medical issues that would affecting the policy holder. There are no guaranteed benefits paid. Also there are no
maturity or surrender benefits. The premium is received on monthly basis from the policy holders.
FALCON INSURANCE COMPANY SAOC 42

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

26 Financial and insurance risk management (continued)

(c) Insurance risk (continued)

The Company, in the normal course of business, in order to minimise financial exposure arising from large claims,
enters into contracts with other parties for reinsurance purposes. Such reinsurance arrangements provide for greater
diversification of business, allow management to control exposure to potential losses arising from large risks, and
provide additional capacity for growth. A significant portion of the reinsurance is affected under treaty, facultative and
excess-of-loss reinsurance contracts.

Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision and
are in accordance with the reinsurance contracts.

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

The concentration of insurance risk exposure is minimised by the implementation of the underwriting strategy of the
Company, which attempts to ensure that the risks underwritten are well diversified across a large portfolio in terms of
type, level of insured benefits, amount of risk, industry and geography. Underwriting limits are in place to enforce risk
selection criteria. As the Company’s entire business is within Sultanate of Oman, hence, the concentration of insurance
risk is only within Sultanate of Oman. However, in certain cases, the Company writes business abroad for insurance
of marine, cargo and aviation along with motor short term coverage with in GCC.

The Company has concentration of risk mainly in motor and individual life business whereby maximum risk exposure
(i.e. total sums insured less reinsurance) amounted to 43% and 33% respectively. For 2015, the Company has
concentration of risk mainly in group credit life, motor and liability class whereby maximum risk exposure amounted
to 35%, 40% and 22% of the net sum insured respectively.

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

The Company only deals with international reinsurers and those registered in GCC, which are rated by international
agencies.

Total insurance coverage on insurance policies quantify some of the risk exposures. Typically, claims arising in any
one year are a very small proportion in relation to the total insurance coverage provided.

The outstanding claims before reinsurance mainly include engineering, motor and fire class whereby claims
outstanding before reinsurance approximate 38%, 31% and 11% respectively where as for 2015, motor, life and
medical and engineering class whereby claims outstanding before reinsurance approximate 27%, 18%, and 22%
respectively. The outstanding claims after reinsurance for the above class of business constitute 4%, 71% and 2%
(2015 - 37%, 12% and 5%) of the total net outstanding claims respectively.

Maximum single claims loss paid before reinsurance during the year for major class of business includes fire, property
and marine class where single where the maximum single claims loss paid constitute 6%, 2% and 2% of the total gross
claims paid whereas for the year ended 31 December 2015, it includes fire, marine and avaiation where maximum
single claims loss paid constitute 84% and 12% of the gross claims respectively.
FALCON INSURANCE COMPANY SAOC 43

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

26 Financial and insurance risk management (continued)

(c) Insurance risk (continued)

Keeping in view of the frequency of motor and life and medical claims and the fact that these are individually
insignificant contracts, hence, the Company is not exposed to any major insurance risk on these class of business.
Further, the Company has in place for all the business risks, reinsurance arrangements to minimise the risks.

Key assumptions
The principal assumption underlying the estimates is the Company’s past claims development experience. This
includes assumptions in respect of average claim costs, claim handling costs, claim inflation factors and claim numbers
for each accident year. Additional qualitative judgments are used to assess the extent to which past trends may not
apply in the future, for example one-off occurrence, changes in market factors such as public attitude to claiming,
economic conditions, as well as internal factors such as portfolio mix, policy conditions and claims handling
procedures. Judgment is further used to assess the extent to which external factors such as judicial decisions and
government legislation affect the estimates.

Other key assumptions include variation in mortality, longevity, interest rates and delays in settlement. Discount rate
used is determined with reference to risk free rate adjusted for country risk premium.

Sensitivities
The general insurance claims provision is sensitive to the above key assumptions. The analysis below is performed for
reasonably possible movements in key assumptions with all other assumptions held constant showing the impact on
liabilities and net profit before taxation.

Change in Impact on Impact on

assumptions liabilities profit before
taxation
% RO RO
2016
+10 203,815 (203,815)
Incurred claims - net -10 (203,815) 203,815

Change in Impact on Impact on

assumptions liabilities profit before
taxation
% RO RO
2015
+10 416,506 (416,506)
Incurred claims - net -10 (416,506) 416,506

Change in Impact on Impact on

assumptions liabilities net profit
% RO RO
2014
+10 378,895 (378,895)
Incurred claims – net -10 (378,895) 378,895

Change in Impact on Impact on

assumptions liabilities net profit
% RO RO
2013
+10 295,138 (295,138)
Incurred claims – net -10 (295,138) 295,138

26 Financial and insurance risk management (continued)

FALCON INSURANCE COMPANY SAOC 44

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

(c) Insurance risk (continued)

Claims development
The Company maintains strong reserves in respect of its insurance business in order to protect against adverse future
claims experience and developments. The uncertainties about the amount and timing of claim payments for short term
contracts are normally resolved within one year. The following claims development table present reported and incurred
but not reported claims for general insurance before any adjustment for ceded reinsurance. Claims reserves for life
insurance were not included into the table.

Reporting period 2009 2010 2011 2012 2013 2014 2015 2016 Total

RO RO RO RO RO RO RO RO RO
Estimate of ultimate
claims cost:
At end of reporting
year 4,100,896 4,372,310 5,942,964 4,132,005 19,514,275 6,285,483 5,114,781 5,689,739 55,152,453
One year later 4,642,780 4,495,567 6,106,730 4,339,853 19,675,359 6,570,429 5,198,566 - 51,029,284
Two yearss later 4,651,952 4,504,891 6,153,919 4,348,959 19,709,040 6,584,752 - - 45,953,513
Three years later
4,652,349 4,505,641 6,152,135 4,355,383 19,709,040 - - - 19,665,508
Four years later 4,658,132 4,505,814 6,152,135 4,355,383 - - - - 4,658,132
Five years later 4,662,837 4,505,814 6,152,135 - - - - - 4,662,837
Six years later 4,662,837 4,505,814 - - - - - -

Seven years later 4,662,837 - - - - - - -

Current estimate of
cumulative claims 4,662,837 4,505,814 6,152,135 4,355,383 19,709,040 6,584,752 5,198,566 5,689,739 56,858,266
Cumulative payments
to date (4,631,601) (4,531,325) (6,152,197) (4,343,027) (19,580,332) (6,387,151) (4,281,660) (2,589,472) (52,496,765)
Liability recognised in
the statement of financial
position - gross 31,236 (25,511) (62) 12,356 128,708 197,601 916,906 3,100,267 4,361,501

The development of insurance liabilities provides a measure of the Company’s ability to estimate the ultimate value of
claims. The top half of the table below illustrates how the Company’s estimate of total claims outstanding for each
accident year has changed at successive year-ends. The bottom half of the table reconciles the cumulative claims to the
amount appearing in the statement of financial position.

An accident-year basis is considered to be most appropriate for the business written by the Company.

The Company has in place a series of quota-share reinsurance covers on a number of short-term insurance products that
have remained unchanged in recent years. Reserve movements arising on net short-term contracts have therefore
followed the pattern of movements on the gross reserves for the same products.

(d) Financial risks

The Company’s principal financial instruments are receivables arising from insurance and reinsurance contracts, listed
and unlisted investments, cash and cash equivalents and interest bearing deposits. The main risks arising from the
Company’s financial instruments are:

(i) Credit risk;

(ii) Liquidity risk; and
(iii) Market risk
- Exchange rate risk;
- Interest rate risk; and
- Price risk.

The Company reviews and agrees policies for managing each of these risks and they are summarised below.
FALCON INSURANCE COMPANY SAOC 45

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

26 Financial and insurance risk management (continued)

(d) Financial risks (continued)

(i) Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss to the other party by failing to
discharge an obligation.

Concentration of credit risk arises when a number of counter-parties are engaged in similar business activities, or
activities in the same geographic region, or have similar economic features that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic political or other conditions.

For all classes of financial assets held by the Company, other than those relating to reinsurance contracts, the maximum
credit risk exposure to the Company is the carrying value as disclosed in these financial statements at the reporting
date. The Company monitors receivables on regular basis and ensures bank balances and deposits are placed with
reputable financial institutions with credit ratings of P-3 as per Moody’s Investors Service or other unrated financial
institutions with sound financial conditions. These unrated financial institutions are highly regulated in Sultanate of
Oman and have sound financial credentials with no past history of defaults.

The table below shows the short-term rating of the bank with which the Company places funds as published by Moody’s
Investors Services:
2016 2015 2014 2013
Rating RO RO RO RO
Bank balances and term deposits P-1 289,649 418,460 - -
Bank balances and term deposits P-2 3,024,051 2,137,017 1,059,446 849,678
Bank balances and term deposits P-3 2,599,462 - - -
Bank balances and term deposits Unrated 5,562,274 10,090,819 9,893,124 8,001,132
11,475,436 12,646,296 10,952,570 8,850,810

Reinsurance is placed with reinsures approved by the management, which are either international companies that are
rated by international rating agencies or other GCC companies which are registered and operating within the Gulf
region and are rated by internal rating agencies.

To mitigate its exposure to significant losses from reinsurer insolvencies, the Company evaluates the financial
condition of its reinsures and monitors concentrations of credit risk arising from similar geographic regions, activities
or economic characteristics of the reinsures. At each reporting date, management performs an assessment of
creditworthiness of reinsurers and updates the reinsurance purchase strategy, ascertaining suitable allowance for
impairment.

For direct premium receivables, the management assesses the credit quality of the balances with reference to the
Company’s prior years’ experience with the counter parties and an overall credit worthiness of the counter parties.
Management measures the quality of its premium receivables with reference to the categories listed below on gross
basis:
2016 2015
RO RO

Brokers and agents 1,898,927 1,570,864

Direct corporate customers 1,299,297 775,975
Direct individuals 5,918 37,379
3,204,142 2,384,218

As the Company has significant balances due from brokers and agents which are registered the Capital Market
Authority (CMA) and are operating over a long period of time in Oman with no history of defaults. There is no
significant change in composition of concentration of the premium receivables in current year.
FALCON INSURANCE COMPANY SAOC 46

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

26 Financial and insurance risk management (continued)

(d) Financial risks (continued)

(i) Credit risk (continued)

The Company deals with three registered local brokers with sound financial position for the management of their
portfolio management services for shares and cash balances held with them.
At 31 December 2016, RO 72,046 of reinsurers’ receivable were due from top two reinsurers (2015 - RO 663,665
from top two customers).
Reinsurance is used to manage insurance risk. This does not, however, discharge the Company’s liability as primary
insurer. If a reinsurers fails to pay a claim for any reason, the Company remains liable for the payment to the policy
holder. The creditworthiness of reinsurers is considered on an annual basis by reviewing their financial strength prior
to finalisation of any contract. The exposure to individual counterparties is also managed by other mechanisms, such
as the right of offset where counterparties are both debtors and creditors of the Company. The financial analysis of
reinsurers that is conducted at Company level produces an assessment categorised by a Standard & Poor (S&P) rating
(or equivalent when not available from S&P).
The table below shows the gross receivables, from reinsurers at the reporting date as rated by various rating agencies:

2016 2015
RO RO
Rating
A 113,194 750,400
B 24,053 8,047
Unrated local and foreign companies 7,291 11,197
Other rated companies - -
144,538 769,644

The maximum exposure to credit risk at the reporting date by type is shown as below:
2016 2015 2014 2013
RO RO RO RO
Investments in unquoted shares - - 201,785 179,570
Reinsurer’s share in insurance funds 8,036,083 8,023,507 9,780,424 22,259,508
Insurance and other receivables (excluding prepayments) 3,494,882 3,196,972 3,613,320 2,941,025
Cash with portfolio managers 73,079 192,784 610,408 297,166
Term deposits 11,051,871 12,177,816 10,952,570 8,850,810
Bank balances 423,565 468,479 8,044 806,433
23,079,480 24,059,558 25,158,507 35,334,512

Age analysis of financial assets

91 to 121
Upto 30 31 to 60 61 to 90 120 days or
days days days days above Total
2016 RO RO RO RO RO RO

Insurance and other receivables 612,876 487,338 398,852 133,946 1,897,136 3,530,148

121
Upto 30 31 to 60 61 to 90 91 to 120 days or
days Days days days above Total
2015 RO RO RO RO RO RO

Insurance and other receivables 1,527,510 243,538 249,069 254,183 935,758 3,210,058
FALCON INSURANCE COMPANY SAOC 47

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

26 Financial risk management (continued)

(d) Financial risks (continued)

(i) Credit risk (continued)

61 to
<30 31 to 60 90 91 to 120 Above 121
days days days days days Total
2014 RO RO RO RO RO RO

Insurance and other receivables 848,165 227,876 327,579 341,420 1,885,882 3,630,922

61 to
<30 31 to 60 90 91 to 120 Above 121
days days days days days Total
2013 RO RO RO RO RO RO

Insurance and other receivables 958,303 315,588 245,582 384,945 1,060,776 2,965,194

(ii) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in raising funds to meet commitments associated
with financial liabilities when they fall due. Liquidity requirements are monitored on a weekly basis and management
ensures that sufficient funds are available to meet any commitments as they arise.

Maturity profiles

The table below summarises the maturity profile of the insurance and financial liabilities of the Company based on
remaining undiscounted contractual obligations. Repayments for which are subject to notice, are treated as if notice
were to be given immediately.
Over 1 year Up to 1 year Total
2016 RO RO RO

Insurance funds 4,360,446 9,197,597 13,558,043

Reinsurance contract payables - 4,308,205 4,308,205
Claims and other payables (excluding government tax
and emergency fund payable) - 1,504,107 1,504,107
4,360,446 15,009,909 19,370,355

Over 1 year Up to 1 year Total

2015 RO RO RO

Insurance funds 1,784,858 11,619,544 13,404,402

Reinsurance contract payables - 4,489,679 4,489,679
Claims and other payables (excluding government tax
and emergency fund payable) - 1,652,336 1,652,336
1,784,858 17,761,559 19,546,417

Up to 1 year Total
2014 RO RO
Insurance funds 15,010,715 15,010,715
Reinsurance contract payables 6,936,950 6,936,950
Claims and other payables 1,303,145 1,303,145
23,250,810 23,250,810
FALCON INSURANCE COMPANY SAOC 48

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

26 Financial risk management (continued)

(d) Financial risks (continued)

(ii) Liquidity risk (continued)

Up to 1 year Total
2013 RO RO

Insurance funds 26,226,268 26,226,268

Reinsurance contract payables 6,867,802 6,867,802
Claims and other payables 913,804 913,804
34,007,874 34,007,874

The maturity profiles of Company’s financial assets are given below:

Within 1 Non fixed

2016 year 1-5 years maturity Total
RO RO RO RO

Available for sale financial assets - - 3,740,736 3,740,736

Term deposits 2,888,702 8,163,169 - 11,051,871
Financial assets at fair value through profit or loss 3,141,704 - - 3,141,704
Insurance and other receivables (excluding prepayments) 3,494,882 - - 3,494,882
Reinsurer’s share in insurance funds 6,640,331 1,395,752 - 8,036,083
Cash and bank balances 451,364 - - 451,364
16,616,983 9,558,921 3,740,736 29,916,640

Within 1 Non fixed

2015 year 1-5 years maturity Total
RO RO RO RO

Available for sale financial assets - - 1,667,528 1,667,528

Term deposits 7,536,790 4,641,026 - 12,177,816
Financial assets at fair value through profit or loss 2,627,610 - - 2,627,610
Insurance and other receivables (excluding prepayments) 3,196,972 - - 3,196,972
Reinsurer’s share in insurance funds 7,876,721 146,786 - 8,023,507
Cash and bank balances 490,932 - - 490,932
21,729,025 4,787,812 1,667,528 28,184,365

Within 1 Non fixed

31 December 2014 year 1-5 years maturity Total
RO RO RO RO
Available for sale financial assets - - 1,077,430 1,077,430
Term deposits 6,942,394 4,010,176 - 10,952,570
Financial assets at fair value through profit or loss 4,481,870 - - 4,481,870
Insurance and other receivables 3,613,320 - - 3,613,320
Reinsurers’ share of insurance fund 9,780,424 - - 9,780,424
Cash and bank balances 15,586 - - 15,586
24,833,594 4,010,176 1,077,430 29,921,200
FALCON INSURANCE COMPANY SAOC 49

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

26 Financial risk management (continued)

(d) Financial risks (continued)

(ii) Liquidity risk (continued)

The maturity profiles of Company’s financial assets are given below (continued) :

Within 1 Non fixed

31 December 2013 year 1-5 years maturity Total
RO RO RO RO

Available for sale financial assets - - 850,613 850,613

Term deposits 6,472,884 2,377,926 - 8,850,810
Financial assets at fair value through profit or loss 4,140,902 - - 4,140,902
Insurance and other receivables 2,941,025 - - 2,941,025
Reinsurers’ share of insurance fund 22,259,508 - - 22,259,508
Cash and bank balances 807,883 - - 807,883
36,622,202 2,377,926 850,613 39,850,741

(iii) Market risk

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

Exchange rate risk

Exchange rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of
changes in foreign exchange rates.

The Company is exposed to foreign exchange risk on term deposits with banks, premium receivables and claims
payable arising from currency exposures primarily from USD and GCC currencies which are pegged to the Omani
Rial. The Company manages exchange rate risk by monitoring the fluctuations in the currency exchange rates. As at
reporting date, the Company is not exposed to any significant exchange rate risk, as the exchange rate for USD is
pegged to Riyal Omani.

Interest rate risk

Interest rate risk is the risk that the value or future cash flows of a financial instrument will fluctuate because of changes
in market interest rates. The Company invests in securities and has deposits that are subject to interest rate risk. Interest
rate risk to the Company is the risk of changes in market interest rates reducing the overall return on its interest bearing
securities.

The Company’s interest risk policy requires managing interest risk by maintaining an appropriate mix of fixed and
variable rate instruments. The policy also requires it to manage the maturities of interest bearing financial assets and
interest bearing financial liabilities. The Company limits interest rate risk by monitoring changes in interest rates in
the currencies in which its cash and investments are denominated and has no significant concentration of interest rate
risk.

As of reporting date, the Company has only fixed rate financial assets where the interest rates are contractually agreed
and will remain constant throughout the maturity period.
FALCON INSURANCE COMPANY SAOC 50

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

26 Financial risk management (continued)

(d) Financial risks (continued)

(iii) Market risk (continued)

Interest rate risk (continued)

The Company’s interest rate risk based on contractual arrangements were as follows:
Up to 6 6 months 1 to 5 Effective
months to 1 year years Total interest rate p.a
RO RO RO RO (%)
2016
Term deposits 1,346,580 1,542,122 8,163,169 11,051,871 1.30 - 5.20
Investments in bonds - - 3,493,452 3,493,452 4.50 - 7.90

Up to 6 6 months 1 to 3 Effective
months to 1 year years Total interest rate p.a
RO RO RO RO (%)
2015
Term deposits 1,200,000 6,336,790 4,641,026 12,177,816 1.20 - 4.25
Investments in bonds - - 1,442,744 1,442,744 4.5 - 8.00

Up to 6 6 months 1 to 3 Effective
months to 1 year years Total interest rate p.a
31 December 2014 RO RO RO RO (%)

Term deposits 1,250,000 5,692,394 4,010,176 10,952,570 1.25 – 4.00

Up to 6 6 months 1 to 3 Effective
months to 1 year years Total interest rate p.a
RO RO RO RO (%)
31 December 2013
Term deposits 251,596 6,221,288 2,377,926 8,850,810 1.5 – 4.00

Sensitivity analysis

The Company limits its interest rate risk by monitoring changes in interest rates.

Change in Effect on profit before taxation

assumptions 2016 2015 2014 2013
RO RO RO RO

Income from term deposits +0.5% 55,259 60,889 54,763 44,254

Interest on bonds +0.5% 17,467 7,214

FALCON INSURANCE COMPANY SAOC 51

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

26 Financial risk management (continued)

(d) Financial risks (continued)

(iii) Market risk (continued)

Price risk

Price risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes
in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused
by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial
instruments traded in the market.

The Company’s equity price risk exposure relates to financial assets and financial liabilities whose values will fluctuate
as a result of changes in market prices. The Company’s price risk policy requires it to manage such risks by setting
and monitoring objectives and constraints on investments, diversification plans, limits on investments in each country,
sector and market and careful and planned use of derivative financial instruments.

As at reporting date, the Company has no significant concentration of price risk.

79% (2015 - 90%, 2014 - 84%, 2013 - 98%) of the Company’s equity investments at the reporting date are within the
Sultanate of Oman.

A 10% change in fair value of the Company’s quoted available for sale financial assets would have impact on equity
of approximately RO 349,345 (2015 - RO 144,274, 2014 - RO 87,565, 2013 – RO 67,104).

A 10% change in fair value of the Company’s quoted financial assets at fair value through profit or loss would have
impact on profit before taxation of approximately RO 274,170 (2015 - RO 262,761, 2014 - RO 448,187 ,2013 - RO
414,090).
FALCON INSURANCE COMPANY SAOC 52

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

26 Financial risk management (continued)

Fair value estimation

The table below analyses financial instruments that are measured subsequent to initial recognition at fair value, by
valuation techniques. The different levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets;
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable market data.

Level 1 Level 2 Level 3 Total

RO RO RO RO
2016
Available for sale financial assets 3,493,452 - 247,284 3,740,736
Financial assets at fair value through profit or loss 2,741,704 400,000 - 3,141,704
6,235,156 400,000 247,284 6,882,440

Level 1 Level 2 Level 3 Total

RO RO RO RO
2015
Investment property - 1,900,000 - 1,900,000
Available for sale financial assets 1,442,744 - 224,784 1,667,528
Financial assets at fair value through profit or loss 2,627,610 - - 2,627,610
4,070,354 1,900,000 224,784 6,195,138

Level 1 Level 3 Total

2014 RO RO RO

Available for sale financial assets 875,645 201,785 1,077,430

Financial assets at fair value through profit or loss account 4,481,870 - 4,481,870
5,357,515 201,785 5,559,300
Level 1 Level 3 Total
2013 RO RO RO

Available for sale financial assets 671,042 179,571 850,613

Financial assets at fair value through profit or loss account 4,140,902 - 4,140,902
4,811,944 179,571 4,991,515

Level 3 investments are investments in shares of an unquoted company. The management values the investment using
net asset value of the investee based on the investee’s draft financial statements. Management considers the carrying
value of the investment to approximate its fair value as significant portfolio of the underlying assets and liabilities of
the investee company’s are either fair valued or are in cash and cash equivalents where fair value approximate the
carrying value. Therefore, unadjusted net assets value is representative of fair value of the investments. Level 2
investments are investments in a fund where net asset value of fund is considered as reflective of fair value since this
is a newly established fund and market value approximate the net asset value of the fund.
FALCON INSURANCE COMPANY SAOC 53

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

27 Operational risks
Operational risk is the risk of loss arising from system failure, human error, fraud or external events. When controls
fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications or can lead to
financial loss.
The Company cannot expect to eliminate all operational risks, but by initiating a rigorous control framework and by
monitoring and responding to potential risks, the Company is able to manage the risks.
The Company has detailed systems and procedures manuals with effective segregation of duties, access controls,
authorisation and reconciliation procedures, staff training and assessment processes etc. with a compliance and internal
audit framework. Business risks such as changes in environment, technology and the industry are monitored through
the Company’s strategic planning and budgeting process.

28 Capital management

Externally imposed capital requirements are set and regulated by the Capital Market Authority and the other relevant
regulators 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 is required to have a paid up share capital of RO 10 million by the year 2017 as against the
current share capital of RO 6.39 million as of 31 December 2016. As there are no debts, the Company consider the
entire equity as its capital excluding the statutory reserves.

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

The Company manages its capital requirements by assessing shortfalls between reported and required capital levels
on a regular basis. The Company fully complied with the externally imposed capital requirements during the reported
financial periods and no changes were made to its capital base, objectives, policies and processes from the previous
period.

29 Financial assets by category

The accounting policies for financial assets have been applied to the line items below:
Financial Available
assets at fair for sale
Loans and value through financial
receivables profit or loss assets Total
2016 RO RO RO RO
Investments - 3,141,704 3,740,736 6,882,440
Term deposits 11,051,871 - -6 11,051,871
Insurance and other receivables (excluding
prepayments) 3,494,882 - - 3,494,882
Cash and bank balances 451,364 - - 451,364
14,998,117 3,141,704 3,740,736 21,880,557

Financial
assets at fair Available
value for sale
Loans and through financial
receivables profit or loss assets Total
2015 RO RO RO RO
Investments - 2,627,610 1,667,528 4,295,138
Term deposits 12,177,816 - - 12,177,816
Insurance and other receivables (excluding
prepayments) 3,196,972 - - 3,196,972
Cash and bank balances 490,932 - - 490,932
15,865,720 2,627,610 1,667,528 20,160,858
29 Financial assets by category
29 Financial assets by category (continued)
FALCON INSURANCE COMPANY SAOC 54

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

Financial assets
at fair value Available for
Loans and through profit sale financial
receivables or loss assets Total
2014 RO RO RO RO
Investments - 4,481,870 1,077,430 5,559,300
Term deposits 10,952,570 - - 10,952,570
Insurance and other receivables 3,613,320 - - 3,613,320
Reinsurer’s share in insurance funds 9,780,424 - - 9,780,424
Bank balances and cash 15,586 - - 15,586
24,361,900 4,481,870 1,077,430 29,921,200
Loans and Financial Available Total
receivables assets at fair for sale
value financial
through assets
profit or loss

2013 RO RO RO RO

Investments - 4,140,902 850,613 4,991,515

Term deposits 8,850,810 - - 8,850,810
Insurance and other receivables 2,941,025 - - 2,941,025
Reinsurer’s share in insurance funds 22,259,508 - - 22,259,508
Bank balances and cash 807,883 - - 807,883
34,859,226 4,140,902 850,613 39,850,741

30 Operating segments

The Company has two reportable segments, as described below. The strategic business units offer different products
and services, and are managed separately because they require different marketing strategies. For each of the strategic
business units, the general manager reviews internal management reports on at least monthly basis.

The Company has the following operating segments:

General insurance: General business includes insurance and re-insurance of motor, fire, general accident, marine cargo,
hull, workmen compensation, engineering and aviation.

Life insurance: Life business relates to the insuring of the life of an individual, group life and group medical.
FALCON INSURANCE COMPANY SAOC 55

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

30 Operating segments (continue)

Information regarding the results of each reportable segment is included below. Performance is measured based on
segment net insurance income (refer note 19), as included in the internal management reports that are reviewed by the
general manager. Inter-segment pricing is determined on an arm’s length basis.

General Life
insurance insurance Total
2016 RO RO RO

Insurance revenue (net of reinsurance) 2,837,451 995,166 3,832,617

Insurance cost (net of reinsurance) (1,713,858) (324,292) (2,038,150)
Segment underwriting results 1,123,593 670,874 1,794,467

Allocated investment and other income 381,931 (111,558) 270,373

Segment expenses (1,587,912) (272,052) (1,859,964)
Segment profit (82,388) 287,264 204,876

Unallocated expenses (39,135)

Unallocated investment and other income 913,612
Profit before taxation 1,079,353
Less: taxation (106,802)
Net profit for the year 972,551

Segment assets 25,051,554 4,900,352 29,951,906

Unallocated assets 263,202

Total assets 30,215,108

Segment liabilities 17,183,408 2,475,939 19,659,347

Unallocated liabilities 189,034

Total liabilities 19,848,381

FALCON INSURANCE COMPANY SAOC 56

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

30 Operating segments (continued)

General Life
insurance insurance Total
2015 RO RO RO
Insurance revenue (net of reinsurance) 3,658,950 2,305,471 5,964,421
Insurance cost (net of reinsurance) (2,644,838) (1,520,223) (4,165,061)
Segment underwriting results 1,014,112 785,248 1,799,360

Allocated investment and other income 347,792 (125,388) 222,404

Segment expenses (1,302,454) (221,492) (1,523,946)
Segment profit 59,450 438,368 497,818

Unallocated expenses (109,376)

Unallocated investment and other income 1,675,021
Profit before taxation 2,063,463
Less: taxation (261,367)

Net profit for the year 1,802,096

Segment assets 25,751,477 4,345,974 30,097,451

Unallocated assets 74,009

Total assets 30,171,460

Segment liabilities 16,275,938 3,587,569 19,863,507

Unallocated liabilities 293,277

Total liabilities 20,156,784

General Life
Insurance insurance Total
2014 RO RO RO
Insurance revenue (net of reinsurance) 3,822,374 1,571,100 5,393,474
Insurance cost (net of reinsurance) (2,673,771) (1,115,174) (3,788,945)
Segment underwriting results 1,148,603 455,926 1,604,529

Allocated investment and other income 281,403 (66,940) 214,463

Segment expenses (1,193,387) (191,787) (1,385,174)
Segment profit 236,619 197,199 433,818

Unallocated expenses (130,033)

Unallocated investment and other income 557,066
Profit before taxation 860,851
Less: taxation (148,427)
Net profit for the year 712,424

Segment assets 28,851,204 2,987,598 31,838,802

Unallocated assets 129,036

Total assets 31,967,838

Segment liabilities 20,742,675 2,587,906 23,330,581

Unallocated liabilities 120,989

Total liabilities 23,451,570

FALCON INSURANCE COMPANY SAOC 57

NOTES TO THE HISTORICAL FINANCIAL STATEMENTS

30 Operating segments (continued)

(a) Geographical segment

The Company operates solely in the Sultanate of Oman.

31 Contingent liabilities and commitments

(a) The Company has a guarantee issued by a commercial bank in favor of the Omani Unified Bureau for Orange
Card SAOC on behalf of the Company for an amount of RO 50,000 (2015 - RO 50,000, 2014 - RO 50,000, 2013 - RO
50,000) and RO 290,250 (2015 - RO 300,792, 2014 - RO 91,508, 2013 – RO 125,453) issued by a commercial bank
on behalf of the Company for tender purpose from which it is anticipated that no material liabilities will arise.

(b) 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 profit or financial position.

(c) The Company has an agreement with a vendor for upgradation of its existing IT systems and maintenance
services with a contracted value of USD 324,300 (equivalent to RO 124,887) as at 31 December 2016 [2015 - USD
620,000 (equivalent to RO 238,700)]. The management considers the fair value of commitments approximates to their
contracted amounts.

Accoutnant’s report is set forth on pages 1 - 2.

 Summarized financial statements (2013-2016) of

Arabia Insurance Company Oman Branch- General Insurance

[78]
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER

Note 2016 2015 2014 2013

RO RO RO RO
(Restated)
Assets
Cash & cash equivalents 3 529,511 927,472 1,275,601 689,080
Bank deposits 3 11,660,711 12,040,666 11,493,202 10,051,728
Available-for-sales investments 5 2,694 3,044 3,368 1,002,963
Investments held till maturity 4 1,100,000 - - -
Reinsurance contract assets 7 792,737 1,608,237 1,610,640 2,344,554
Insurance and other receivables 8 1,934,087 2,303,615 2,971,487 2,456,770
Property and equipment 6 28,892 31,599 27,171 44,560
Deferred Tax 15.b 1,420 8,698 8,978 9,995
-------------- -------------- -------------- --------------
TOTAL ASSETS 16,050,052 16,923,331 17,390,447 16,599,650
========= ========= ========= =========

EQUITY & LIABILITY

Head office account and
reserves
Head office account 10 4,824,704 5,402,637 5,707,564 5,190,456
Contingency reserves 12 1,638,316 889,764 889,764 510,290
Investment revaluation reserves (1,186) (836) (513) (20,917)
Accumulated Losses’ (940,942) (940,942) (518,784) (498,784)
-------------- -------------- -------------- --------------
Total Equity 5,520,892 5,350,623 6,078,031 5,181,045
-------------- -------------- -------------- --------------
Current Liabilities
Insurance contract liabilities 7 9,015,310 10,166,772 9,955,958 10,043,095
Insurance, accrued and other
9 1,436,450 1,405,936 1,291,394 1,358,266
payables
Provision for income tax 77,400 - 65,064 17,244
-------------- -------------- -------------- --------------
Total liabilities 10,529,160 11,572,708 11,312,416 11,418,605
-------------- -------------- -------------- --------------

TOTAL EQUITY &

16,050,052 16,923,331 17,390,447 16,599,650
LIABILITY
========= ========= ========= =========

1
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER

Note 2016 2015 2014 2013

RO RO RO RO
(Restated)
Revenue
Net Insurance Income 1,701,038 721,510 1,563,299 1,167,890
Investment Income 11 225,078 181,882 175,190 223,588
Other Income 23,644 34,460 32,577 29,879
----------- ------------- ------------- -------------
Gross Profit 1,949,760 937,852 1,771,066 1,421,357

General & Administrative

13 (1,116,530) (1,275,553) (1,294,113) (1,261,941)
Overheads
----------- ------------- ------------- -------------
Operating Profit/(Loss) before
833,230 (337,701) 476,953 159,416
tax for the year

Tax Expenses 15 (84,678) (84,457) (97,479) (13,170)

----------- ----------- ----------- -----------
Profit/(Loss) for the year 748,552 (422,158) 379,474 146,246

Other Comprehensive Income

Net fair Value gain/loss on
(350) (324) 405 (378)
available-for-sales investment
----------- ----------- ----------- -----------
Net Comprehensive
748,202 (422,482) 379,879 145,868
Income/(Loss) for the year
======= ======= ======= =======

2
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

STATEMENT OF INSURANCE INCOME FOR THE YEAR ENDED 31 DECEMBER

2016 2015 2014 2013

RO RO RO RO
Income:
Insurance Premiums 8,144,746 10,097,983 10,894,922 10,294,973
Foreign reinsurance premiums (1,402,664) (2,839,313) (2,431,890) (2,124,393)
Net Premium 6,742,081 7,258,670 8,463,032 8,170,580
Insurance Policy's Fees 312,804 330,988 283,980 198,502
Total Fees 312,804 330,988 283,980 198,502
Provision for Unexpired risk - beginning of
the year 3,971,191 4,425,073 4,107,658 4,617,290
Provision for Unexpired risk - end of the
year (3,033,937) (3,971,191) (4,425,077) (4,107,652)
Net movement of provision for Unexpired
risk 937,254 453,883 (317,419) 509,638
Commission received 301,664 659,351 464,142 365,134
Total Commission received 301,664 659,351 464,142 365,134
Total Income 8,293,803 8,702,892 8,893,735 9,243,854
Expenses :-
Outstanding claims at the beginning of the
year 5,847,772 5,262,896 5,935,443 5,620,749
IBNR at the Beginning of the year 347,811 267,991 - -
Foreign - Reinsurance on the outstanding. (1,592,683) (1,594,192) (2,344,554) (2,058,893)
IBNR Reinsurance at beginning of the year (15,555) (16,448) - -
Outstanding claims at the end of the year (5,163,159) (5,847,772) (5,262,796) (5,935,443)
IBNR at the end of the year (818,216) (347,811) (267,991) 0
Foreign Reinsurance on the outstanding. 739,045 1,592,683 1,594,192 2,344,554
Reinsurance share of IBNR at the end of
the year 53,693 15,555 16,448 -
Net movement of provision for
Outstanding claims (601,292) (667,097) (329,258) (29,033)
Paid Claims (6,215,970) (6,639,144) (6,735,656) (7,896,883)
Foreign Reinsurance on settled claims 1,069,515 800,759 930,699 992,927
Net incurred claims (5,747,747) (6,505,483) (6,134,215) (6,932,989)
Commission paid (845,019) (1,475,899) (1,196,221) (1,142,975)
Commission paid - Local inward - -
reinsurance - -
Total Commission paid (845,019) (1,475,899) (1,196,221) (1,142,975)
Total Expenses Commission and claims (6,592,766) (7,981,382) (7,330,436) (8,075,964)
Net insurance income 1,701,038 721,510 1,563,299 1,167,890

3
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

STATEMENT OF CHANGES IN EQUITY AS AT 31 DECEMBER

Investment
Head office Contingency revaluation Accumulated
account reserve reserves Losses’ Total
RO RO RO RO RO

Balance at 1 January 2013 5,598,573 364,044 (20,539) (498,784) 5,443,294

Net movement in Head office account (408,117) - - - (408,117)
Profit for the year - - - 146,246 146,246
Other Comprehensive loss for the year - - (378) - (378)

Total comprehensive income for the year - - (378) - (378)

Transfer to contingency reserves - 146,246 - (146,246) -

Balance at 31 December 2013 5,190,456 510,290 (20,917) (498,784) 5,181,045

balance at 1 January 2014 5,190,456 510,290 (20,917) (498,784) 5,181,045

Net movement in Head office account 517,107 - - - 517,107
Profit for the year - - - 379,474 379,474
Movement in the investment revaluation reserves - - 20,000 (20,000) -
Other Comprehensive Income for the year - - 405 - 405
- -
Total comprehensive income for the year - - 405 379,474 379,879

Transfer to contingency reserves - 379,474 - (379,474) -

Balance at 31 December 2014 5,707,563 889,764 (512) (518,784) 6,078,031

4
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

STATEMENT OF CHANGES IN EQUITY AS AT 31 DECEMBER (continued)

Investment
Head office Contingency revaluation Accumulated
account reserve reserves Losses’ Total
RO RO RO RO RO

Balance at 1 January 2015 5,707,563 889,764 (512) (518,784) 6,078,031

Net movement in Head office account (304,926) (304,926)
Loss for the year - - - (422,158) (422,158)
Other Comprehensive income for the year - - (324) - (324)

Total comprehensive income for the year - - (324) (422,158) (422,482)

Transfer to contingency reserves - - - - -

Balance at 31 December 2015 5,402,637 889,764 (836) (940,942) 5,350,623

Balance at 1 January 2016 5,402,637 889,764 (836) (940,942) 5,350,623

Net movement in Head office account (577,933) (577,933)
Profit for the year 748,552 748,552
Movement in the investment revaluation reserves (350) (350)

Total comprehensive Income for the year - - (350) 748,552 748,202

Transfer to contingency reserves - 748,552 (748,552) -

Balance at 31 December 2016 4,824,704 1,638,316 (1,186) (940,942) 5,520,892

5
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

STATEMENT OF CASH FLOWS AS AT 31 DECEMBER

2016 2015 2014 2013
RO RO RO RO

Cash Flow from Operations

Profit/(Loss) before tax 833,230 (337,701) 476,953 159,416

Adjustments:
Depreciation 17,043 13,762 23,004 20,565
Investment income (225,078) (181,882) (175,190) (223,588)
Provision for Bad debts 45,665 9,729 33,441 10,240
Provision for end of service benefits 18,294 40,616 21,463 33,561

(Increase) / Decrease in Working Capital :

Insurance & other receivables 323,863 746,439 (547,726) 158,189
Insurance contact liabilities (net of
reinsurance contracts). (335,962) 207,936 646,777 (480,605)
Insurance, accrued & other payables 12,220 33,292 (60,732) 6,379
End of service benefits paid - (13,256) (27,603) (7,486)
Receivables written of during the year - (139,776)
Income tax paid - (178,330) (48,671) (5,921)
------------- ------------- ------------- -------------
Net Cash Flow from (used in) Operations
Activities 689,275 340,605 341,716 (469,026)
------------- ------------- ------------- -------------
Investing Activities
Sales of property plant & equipment - - - 1025
Purchase of property, plant and equipment (14,336) (18,214) (5,614) (24,377)
Interest received from bank 225,078 181,882 143,940 158,020
Interest received on bonds - - 31,250 62,500
Available for sale investment (1,100,000) - 999,595 -
Bank deposit 379,955 (547,464) (1,441,474) (809,629)
------------ ------------ ------------ ------------
Net Cash used in Investing Activities (509,303) (383,796) (272,303) (612,461)
------------ ------------ ------------ ------------
Financing Activities
Net movement in head office account (577,933) (304,938) 517,108 (408,116)
------------ ------------ ------------ ------------
Net Cash (used in)/from Financing
Activities (577,933) (304,938) 517,108 (408,116)
------------ ------------ ------------ ------------

Net (Decrease)/increase in Cash & Cash

Equivalents (397,961) (348,129) 586,521 (1,489,603)
Cash & cash equivalents at the beginning of
the year 927,472 1,275,601 689,080 2,178,683
------------ ------------ ------------ ------------
Cash & cash equivalents at the end of the
year 529,511 927,472 1,275,601 689,080
======= ======= ======= =======

Cash & Cash equivalents represented by:

Cash on Hand 8,079 4,983 1,259 4,871
Cash at Bank 521,432 922,489 1,274,342 684,209
------------ ------------ ------------ ------------
529,511 927,472 1,275,601 689,080
======= ======= ======= =======

6
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

1. LEGAL STATUS AND PRINCIPAL ACTIVITIES

Arabia Insurance Company S.A.L- Oman branch is a branch of Arabia insurance Company S.A.L Beirut, and is
engaged in the business of all types of general insurance in Sultanate of Oman.

These financial statements are presented in Rials Omani (RO) since that is the currency in which majority of the
Branch’s transactions are denominated. These financial statements represent only the general insurance operations of
the Oman Branch.

2 SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards issued
by the International Accounting Standards Board, interpretations issued by the International Financial Reporting
Interpretations Committee, and applicable requirements of the Commercial Companies Law of the Sultanate of Oman,
Insurance Companies Law 1979 and Capital Market Authority.

The financial statements have been prepared under the historical cost basis except for the measurement investments
at fair value through profit or loss.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Branch’s accounting
policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates
are significant to the financial statements are disclosed in note 2 (u).

CHANGE IN ACCOUNTING POLICY

During the year 2015 the Branch has changed the policy of accounting deferred acquisition cost from accrual to cash
basis. Consequent to the change in accounting policy, the profit for the year 2015 has been reduced by R.O 257,315
and the net equity has reduced from R.O 5,607,938 to R.O 5,350,623.

7
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(b) Foreign currency

i) Functional and presentation currency
The financial statements are presented in Rials Omani, which is the Branch’s functional and presentation currency.

ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognized in the statement of comprehensive income.Translation differences
on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognized
in statement of comprehensive income as part of the fair value gain or loss.

(c) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any identified impairment loss.
The cost of furniture and equipment is their purchase price together with any incidental expenses. Subsequent costs
are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to the company and the cost of the item can be
measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during
the financial period in which they are incurred.

Depreciation is charged to the statement of comprehensive income on a straight-line basis over the estimated useful
lives of items of property and equipment. The estimated useful economic lives are as follows:

Computer equipment 6.67 years

Office furniture 3 - 6.67 years
Motor vehicles 3 years

The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at the end of each reporting
period. Where the carrying amount of an asset is greater than its estimated recoverable amount it is written down
immediately to its recoverable amount. Gains and losses on disposals of property and equipment are determined by
reference to their carrying amounts, are recognized within ‘other income’ and are taken into account in determining
operating profit

(d) Impairment of non-financial assets

The carrying amounts of the Branch’s non-financial assets are reviewed at each reporting date to determine whether
there is any indication of impairment. If any such indications exist then the asset’s recoverable amount is estimated.

An impairment loss is recognised if the carrying amount of an asset or cash generating unit is the greater of its value
in use and its fair value less costs to sell. In assessing the value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specified to the asset.

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has
decreased or no longer exists. An impairment loss is reversed if there has been a change in estimates used to determine
the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not
exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment
loss had been recognised.
(e) Financial assets
The Branch classifies its financial assets in the following categories: financial assets at fair value through profit or
loss and receivables. Management determines the classification of its investments at initial recognition.

8
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are investments held for trading. Investments held for trading are
acquired or incurred principally for the purpose of selling or repurchasing in the short-term. These investments are
initially recognised at fair value. Transaction costs for all investments carried at fair value through profit or loss are
expensed as incurred.

Financial assets at fair value through profit or loss are subsequently carried at fair value. The fair value of financial
assets through profit and loss is based on their quoted market prices as at the date of statement of financial position.
Gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss category
are included in the statement of comprehensive income in the period in which they arise.

Realised gains on sale of investments are determined by the difference between the sale proceeds and the carrying
value and are included in the statement of comprehensive income in the period in which they arise.

Dividend income from financial assets at fair value through profit or loss is recognised in the statement of
comprehensive income when the Company’s right to receive payments is established.

Available-for-sale investments

Available-for-sale investments are non-derivatives that are either designated in this category or not classified in any
of other categories. Available-for-sale investments are initially recognised at fair value including transaction costs.
Available-for-sale investments are subsequently carried at fair value. Changes in the fair value of available-for-sale
investments are recognised in the statement of other comprehensive income. When securities classified as available-
for-sale are sold, the accumulated fair value changes recognised in equity are included in the statement of
comprehensive income.

The fair value of available-for-sale investments is based on their quoted market prices as at the date of statement of
financial position. The fair value of financial instruments that are not traded in an active market (for example, unquoted
investments) is determined by using certain valuation techniques.

De-recognition

Investments are derecognised when the rights to receive cash flows from the investments have expired or have been
transferred and the Branch has transferred substantially all risks and rewards of ownership.

(f) Impairment and un-collectability of financial assets

Available-for-sale investments

The Branch assesses at the end of each reporting period whether there is objective evidence that a financial asset or a
group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or
prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any
such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between
the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised
in the statement of comprehensive income. Impairment losses recognised in the statement of comprehensive income
on equity instruments are not reversed through the statement of comprehensive income.

9
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(f) Impairment and un-collectability of financial assets (continued)

Assets carried at amortised cost

An assessment is made at each reporting date to determine whether there is objective evidence that a specific financial
asset or group of assets may be impaired. If such evidence exists, the estimated recoverable amount of that asset is
determined and any impairment loss, based on the net present value of future anticipated cash flows, is recognised in
the statement of comprehensive income.

A financial asset or a group of financial assets is impaired and an impairment loss is incurred if, and only if, there is
evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss
event) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group
of financial assets that can be reliably estimated.

Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the
attention of the Branch about the following loss events:

 significant financial difficulty of the issuer or obligor;

 a breach of contract, such as a default or delinquency in interest or principal payments;
 the branch granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty,
a concession that the lender would not otherwise consider;
 it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
 the disappearance of an active market for that financial asset because of financial difficulties; and,
 observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of
financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with
the individual financial assets, including adverse changes in the payment status of borrowers, or national or local
economic conditions that correlate with defaults on the assets.

The Branch 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 the
Company determines that no objective evidence of impairment exists for an individually assessed financial asset,
whether significant or not, it includes the asset in financial assets with similar credit risk characteristics and
collectively assesses them 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.

(g) Investments Held to Maturity

Non – derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to
maturity when the association has the positive intention and ability to hold it to maturity. After initial measurement
held – to maturity investments are measured at amortised cost using the effective interest rate method (EIR), less
impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or
costs that are an integral part of the EIR. The losses arising from impairment are recognised in the income statement
in finance costs.

(h) Offsetting

Financial assets and financial liabilities are only offset and the net amount reported in the statement of financial
position when there is a legally enforceable right to set off the recognised amounts and the Branch intends to either
settle on a net basis, or to realise the asset and settle the liability simultaneously.

(i) Cash and equivalents

Cash and cash equivalents consist of cash and bank balances and bank deposits with a maturity of three months or less
from the date of placement.

10
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(j) Trade receivables

Trade receivables are initially recognised at fair value and subsequently are stated at amortised cost using the effective
interest method less impairment losses. A provision for impairment of trade receivables is established when there is
objective evidence that the company will not be able to collect all amounts due according to the original terms of
receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or
financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivables
are impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value
of estimated future cash flows, discounted at the effective interest rate.

(k) Insurance contracts

The Branch mainly issues short term insurance contracts in connection with property and motor (collectively known
as fire and accident) and marine risks. The Branch also issues life insurance contracts.

Property insurance
Property insurance is designed to compensate contract holders for damage suffered to properties or for the value of
property lost. Contract holders could also receive compensation for the loss of earnings caused by the inability to use
the insured properties.

Motor insurance
Motor insurance is designed to compensate contract holders for damage suffered to their vehicles or liability to third
parties arising through accidents. Contract holders could also receive compensation for the fire or theft of their
vehicles.

Marine insurance
Marine insurance is designed to compensate contract holders for damage and liability arising through loss or damage
to marine craft and accidents at sea resulting in the total or partial loss of cargo hull.
Life insurance
Life insurance is designed to compensate contract holders for loss of life or limbs of the insured.

(l) Reinsurance contracts held

In order to minimise financial exposure from large claims, the Branch enters into agreements with other parties for
reinsurance purposes. Claims receivable from reinsurers are estimated in a manner consistent with the claim liability
and in accordance with the reinsurance contract. These amounts are shown as reinsurer’s share of insurance funds
contracts held in the statement of financial position until the claim is paid by the Branch. Once the claim is paid, the
amount due from the reinsurer in connection with the paid claim is transferred to head office.At each reporting date,
the Branch assesses whether there is any indication that a reinsurance asset may be impaired. Where an indicator of
impairment exists, the Branch makes a formal estimate of recoverable amount. Where the carrying amount of a
reinsurance asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable
amount

(m) Liability adequacy test

At each statement of financial position date the Branch assesses whether its recognised insurance liabilities are
adequate using current estimates of future cash flows under its insurance contracts. If that assessment shows that the
carrying amount of its insurance liabilities is inadequate in the light of estimated future cash flows, the entire
deficiency is immediately recognised in the statement of comprehensive income and an unexpired risk provision is
created.

(n) Claims
Claims, comprising amounts payable to contract holders and third parties and related loss adjustment expenses, net of
salvage and other recoveries, are charged to statement of comprehensive income as incurred. Claims comprise the
estimated amounts payable, in respect of claims reported to the Branch and those not reported at the statement of
financial position date. Provisions for reported claims not paid at the statement of financial position date are made on
the basis of individual case estimates. In addition a provision based on actuarial valuation is maintained for the cost
of settling claims incurred but not reported (IBNR) at the date of the statement of financial position. Any difference
between the provisions at the statement of financial position date and settlements and provisions for the following
year is included in the underwriting account for that year.

The Branch does not discount its liability for unpaid claims.
11
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(o) Accruals and other payables

Accruals and other payables are initially measured at fair value and subsequently carried at amortised cost using the
effective interest method.

Liabilities are recognised for amount to be paid for goods or services received, whether or not billed to the Company.

(p) Employees’ End of service benefits

End of service benefits are accrued in accordance with the terms of employment of the Branch's Non Omani employees
at the reporting date, having regard to the requirements of the Oman Labour Law 2003 and its amendments. Employee
entitlements to annual leave and leave passage are recognised when they accrue to employees and an accrual is made
for the estimated liability arising as a result of services rendered by employees up to the reporting date. These accruals
are included in current liabilities, while that relating to end of service benefits is disclosed as a non-current liability.

Contributions to a defined contribution retirement plan and occupational hazard insurance for Omani employees in
accordance with the Omani Social Insurances Law of 1991 are recognised as an expense in the statement of
comprehensive income as incurred.

(q) Revenue recognition

Premiums earned
Net premiums, after deducting policy acquisition costs, are recognised as revenue (earned premium) proportionally
over the period of coverage. A proportion of net retained premiums is provided as ‘unearned premium reserve’ (UPR)
to cover portions of risks which have not expired at the statement of financial position date. An additional provision
created to cover shortfall, if any, for each class of business between the total amount in the unearned premium reserve
and the amount required by the Oman Insurance Company Law of 1979 calculated at 45% of the net retained premiums
for the year for all classes of business. The provision for unexpired risks for life business is created on the basis of
actuarial valuation performed on an annual basis.

Commissions earned and paid

Commissions earned and paid for the year is recognized as when incurred respectively.

Interest income
Interest income is accrued on a daily basis.

Dividends
Dividend income is recognised when the right to receive dividend is established.

(r) Income tax

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or
loss except to the extent that it relates to items recognised directly to equity or in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially
enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax
rates enacted or substantially enacted at the statement of financial position date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that
the related tax benefit will be realised.

12
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(s) Head office expenses

A portion of Head Office expenses, calculated at 0 to 3.5% of the total premiums, excluding the extended warrantee
premiums, is discounted to be charged to Branch

(t) Fair values and fair value hierarchy

For investments traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted
market bid prices at the close of business on the statement of financial position date, adjusted for transaction costs
necessary to realise the asset.

For unquoted investments, a reasonable estimate of the fair value is determined by reference to the market value of a
similar investment or is based on the expected discounted cash flows.

The fair value of interest-bearing items is estimated based on discounted cash flows using interest rates for items with
similar terms and risk characteristics.

Fair value hierarchy

The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs
used in making the measurements:

Level 1: Quoted market price (unadjusted) in an active market for an identical instrument. Fair values of financial
assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price
quotations.

Level 2: Valuation techniques based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived
from prices). This category includes instruments valued using: quoted market prices in active markets for similar
instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other
valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3: Valuation techniques using significant unobservable inputs. This category included all instruments where
the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant
effect on the instrument’s valuation. This category includes instrument that are valued base on quoted prices for
similar instruments where significant unobservable adjustments or assumptions are required to reflect differences
between the instruments.

13
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(u) Critical accounting estimates and judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates
and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities,
income and expenses and the resultant provisions and change in fair value for the year.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are
recognised in the period in which the estimates are revised and in any future period affected. Such estimates are
necessarily based on assumptions about several factors involving varying, and possibly significant, degrees of
judgement and uncertainty and actual results may differ from management’s estimates resulting in future changes in
estimated liabilities.

Outstanding claims

In particular, estimates have to be made both for the expected ultimate cost of claims reported at the statement of
financial position date and for the expected ultimate cost of claims incurred but not yet reported (IBNR) at the
statement of financial position date. The management uses the initial value of the claim provided by the surveyor for
the expected ultimate cost of claims reported at the financial position date. The primary technique adopted by
management in estimating the cost of notified and IBNR claims, is that of using independent actuarial valuation for
the current reporting year. At each reporting date, prior year claims estimates are reassessed for adequacy and changes
are made to the provision. General insurance claims provisions are not discounted for the time value of money.

Impairment of available for sale investments

The Branch follows the guidance of IAS 39 to determine when an available-for-sale equity investment is impaired.
This determination requires significant judgement. In making this judgement, the Branch evaluates, among other
factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health
of and short-term business outlook for the investee, including factors such as industry and sector performance, changes
in technology and operational and financing cash flow.

Impairment of receivables

An estimate of the collectible amount of Premium and insurance receivables and reinsurance contract receivable is
made when collection of the full amount is no longer probable. For individually significant amounts, this estimation
is performed on an individual basis. Amounts which are not individually significant, but which are past due, are
assessed collectively and a provision applied on the basis of length of time past due and/or qualitative factors, based
on historical recovery rates.

14
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

3.Cash and bank balances

2016 2015 2014 2013
RO RO RO RO
Cash and cash equivalents
Cash on hand 8,079 4,983 1,259 4,871

Cash at bank:
Cash at bank 521,432 922,489 1,274,342 684,209
------------ ------------ ------------ ------------
529,511 927,472 1,275,601 689,080
======= ======= ======= =======
Bank deposits 11,660,711 12,040,666 11,493,202 10,051,728
======= ======= ======= =======
Bank deposits with a maturity of greater than three months but less than one year from the date of placement
Cash and cash equivalents and bank deposits which are denominated i n US Dollars are mentioned below:
2016 2015 2014 2013
RO RO RO RO

Cash and cash equivalents 39,512 39,113 40,696 39,844

Bank deposits carry an effective annual interest rate of 1% to 2.5%.

Deposits which are under lien in favour of the Capital Market Authority under the insurance laws are
mentioned below:
2016 2015 2014 2013
RO RO RO RO

Deposits 10,953,133 10,837,237 10,694,530 10,051,728

4.Investments held to maturity

2016 2015 2014 2013
RO RO RO RO

Purchased during 1,100,000 - - -

the year
------------ ------------ ------------ ------------
1,100,000 - - -
======= ======= ======= =======

Investments held to maturity comprises of bonds of a commercial bank in Sultanate of Oman and Omani
Government bonds, carrying a fixed interest rate of 7.75% and 5.5% per annum respectively. (2013-2015 – nil).

5.Available-for-sale investment
2016 2016 2015 2015
RO RO RO RO
Fair value Cost Fair value Cost

Local quoted investments:

Investment sector 2,694 3,044 3,044 3,880
------------ ------------ ------------ ------------
Quoted bonds
Banking sector - - - -
------------ ------------ ------------ ------------
2,694 3,044 3,044 3,880
======= ======= ======= =======

15
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

5.Available-for-sale investment (continued)

2014 2014 2013 2013
RO RO RO RO
Fair value Cost Fair value Cost
Local quoted investments:
Investment sector 3,368 3,880 2,963 3,880
------------ ------------ ------------ ------------
Quoted bonds
Banking sector - - 1,000,000 1,020,000
------------ ------------ ------------ ------------
3,368 3,880 1,002,963 1,023,880
======= ======= ======= =======

6. PROPERTY, PLANT AND EQUIPMENT (Note –2 c)

The movement of property, plant and equipment is summarized as follows
Computer Office Motor
Particulars Equipment Furniture Vehicles Total
Cost
As at 01-01-2013 66,018 47,536 5,750 119,304
Additions for the year 25,24 21,853 - 24,377
Disposal (9,932) (10,289) - (20,221)
As at 31-12-2013 58,608 58,955 5,750 123,313
As at 01-01-2014 58,608 58,955 5,750 123,313
Additions for the year 4,246 1,368 - 5,614
As at 31-12-2014 62,854 60,323 5,750 128,927
As at 01-01-2015 62,854 60,323 5,750 128,927
Additions for the year 4,284 13,930 - 18,214
Disposal (3,246) (19,758) - (23,004)
As at 31-12-2015 63,892 54,645 5,750 124,287
As at 01-01-2016 63,892 54,645 5,750 124,287
Additions for the year 7,256 7,080 - 14,336
As at 31-12-2016 71,148 61,725 5,750 138,623
Depreciation
As at 01-01-2013 36,389 38,467 2,235 77,531
Charge for the year 7,719 4,005 1,916 13,640
Disposal (9,932) (9,264) - (19,196)
As at 31-12-2013 35,403 39,198 4,151 78,752
As at 01-01-2014 35,403 39,198 4,151 78,752
Charge for the year 13,914 7,491 1,599 23,004
As at 31-12-2014 49,317 46,689 5,750 101,756
As at 01-01-2015 49,317 46,689 5,750 101,756
Charge for the year 6,396 7,368 - 13,764
Disposal (3,246) (19,733) - (22,979)
As at 31-12-2015 52,382 34,555 5,750 92,687
As at 01-01-2016 52,382 34,555 5,750 92,687
Charge for the year 5,032 12,011 - 17,043
As at 31-12-2016 57,414 46,566 5,750 109,731

Net Book Value

As at 31-12-2013 23,205 19,756 1,599 44,560
As at 31-12-2014 13,537 13,634 - 27,171
As at 31-12-2015 11,510 20,090 - 31,599
As at 31-12-2016 13,734 15,158S - 28,892

16
17
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

7.Insurance contract liabilities and reinsurance contract assets

2016 2015 2014 2013
RO RO RO RO
Gross
Claims Outstanding Gross 5,163,158 5,847,771 5,262,890 5,935,443
Claims incurred but not reported 818,216 347,811 267,991 -
Unearned Premiums 3,033,936 3,971,190 4,425,077 4,107,652
------------ ------------- ------------- --------------
Total Insurance contract liabilities 9,015,310 10,166,772 9,955,958 10,043,095
======= ======== ======== ========
Recoverable from reinsurers ------------
Claims outstanding (792,737) (1,608,237) (1,610,640) (2,344,554)
------------ --------------- -------------- --------------
Reinsurance contract asset (792,737) (1,608,237) (1,610,640) (2,344,554)
======= ========= ======== =========
Net
Claims outstanding 4,370,421 4,239,534 3,668,703 3,590,889
Claims incurred but not reported 818,216 347,811 251,542 -
Unearned premiums 3,033,936 3,971,190 4,425,073 4,107,652
------------ ------------ ------------ ------------
8,222,573 8,558,535 8,345,318 7,698,541
======= ======= ======= =======

8.Insurance and other receivables 2016 2015 2014 2013

RO RO RO RO
(Restated)

Premium Receivables 1,887,528 2,340,876 2,648,131 2,012,108

Less: provisions for impaired bad debts (163,923) (118,258) (115,536) (82,525)
------------ ------------ ------------ ------------
1,723,605 2,222,609 2,532,595 1,929,583
Deferred acquisition cost - - 369,498 391,917
Other Receivables 40,927 4,616 17,211 72,382
Prepayments 13,800 12,714 12,773 16,160
Accrued interest 155,755 63,676 39,410 46,728
------------ ------------ ------------ ------------
1,934,087 2,303,615 2,971,487 2,456,770
======= ======= ======= =======

Note:Deferred acquisition cost net effect of commission income /expense will be assets /profit and loss will be
understated in 2015 by R.O 257,315 due to change in accounting method from Pro – rata basis to cash basis.

9.Insurance, accrued and other payables

2016 2015 2014 2013
RO RO RO RO

Insurance Payables 1,068,451 1,022,213 921,707 991,907

Accrued Expenses 5,289 8,603 7,664 12,222
Local Insurance Ley 130,316 161,568 174,319 164,634
Employees End of service Benefits 227,892 209,598 182,238 188,378
Other payables 4,502 3,954 5,466 1,125
------------ ------------ ------------ -------------
1,436,450 1,405,936 1,291,394 1,358,266
======= ======= ======= =======

18
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

9.Insurance, accrued and other payables (continued)

Movement in the liability for Employees End of service

Benefits
2016 2015 2014 2013
RO RO RO RO

Balance at 1 January 209,598 182,238 188,378 161,627

Charge for the year 18,294 40,616 21,463 33,561
Receivables from third party - - - 676
Payment during the year - (13,256) (27,603) (7,486)
---------- ---------- ---------- ----------
Balance as at 31 December 227,892 209,598 182,238 188,378
====== ====== ====== ======

10. Head office account

2016 2015 2014 2013
RO RO RO RO

At 1 January 5,402,631 5,707,566 5,190,456 5,598,573

Reinsurance portion on the paid (1,069,515) (836,505) (884,192)
claims (668,660)
Reinsurance portion from (497,498) (463,508) (482,443) (386,840)
commissions
Reinsurance portion from premiums 1,402,664 2,206,540 1,957,783 2,072,315
Branch's share of head office expenses - 331,284 364,729 336,479
Net operation with the head office (413,578) (1,710,591) (486,456) (1,545,879)
------------ ------------ ------------ ------------
At 31 December 4,824,704 5,402,631 5,707,564 5,190,456
======= ======= ======= =======

11.Investment Income
2016 2015 2014 2013
RO RO RO RO

Investment income 225,078 181,882 143,940 161,088

Income on bond - - 31,250 62,500
--------- --------- --------- ----------
225,078 181,882 175,190 223,588
====== ====== ====== ======

12. CONTINGENCY RESERVE

In accordance with Article 10(bis) (2)(c) and 10(bis) (3)(b) of Regulations for Implementing Insurance Companies
Law (Ministerial Order 5/80), as amended, 10% of the net outstanding claims in case of the general insurance
business at the reporting date is transferred from retained earnings to contingency reserve. The Branch may
discontinue this transfer when the Oman Branch capital equals to RO 5,000,000. No transfer of profit shall be made
in any year until the deficit in the reserve is covered from the profits. The reserves shall not be used except by prior
approval of the Capital Market Authority

ARABIA INSURANCE COMPANY S.A.L

OMAN BRANCH – GENERAL INSURANCE
19
NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

13. General and administrative expenses

2016 2015 2014 2013
RO RO RO RO

Computer related expenses 19,324 11,986 9,090 5,821

Promotion and advertisement 4,432 5,486 5,580 9,901
Bank Charges 3,764 4,591 413 578
Bonus 9,778 2,797 12,126 -
Branch's share of head office - 331,284 364,729 336,479
expenses
Communication 18,904 21,690 23,322 21,972
Consultancy Charges 18,389 13,965 3,676 47,172
Fees and subscription 13,051 18,621 19,151 6,903
Entertainment 13,480 15,434 11,308 27,801
Insurance 2,574 6,624 157 132
Medical expenses 17,375 5,483 4,840 7,762
Miscellaneous 21,442 20,652 26,595 22,878
Rent 39,030 39,030 39,030 35,030
Salaries and wages 693,072 642,564 630,063 618,612
Social Security contribution 30,351 13,368 18,796 2,446
Employees' end of service benefits 17,715 40,616 21,463 33,561
Travel expenses 14,126 15,798 17,147 26,939
Utilities 4,467 10,233 5,041 3,880
Training expenses 360 - 1,390 4,592
Vehicle expenses 488 2,635 3,365 1,141
Provision for impaired Debts 45,665 9,729 33,441 10,240
Repair and Maintenance 4,411 12,710 5,352 2,153
Stationary and printing 10,925 16,495 15,034 15,383
Establishment expenses 96,364 -
Depreciation 17,043 13,762 23,004 20,565
------------ ------------ ------------ ------------
1,116,530 1,275,553 1,294,113 1,261,941
======= ======= ======= =======

14. Staff cost

2016 2015 2014 2013
RO RO RO RO

Salary and wages 693,072 642,564 630,063 618,612

Employees’ end of service benefits 17,715 40,616 21,463 33,561
------------ ------------ ---------- ----------
710,787 683,180 651,526 652,173
====== ====== ====== ======

20
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

15.Income tax

Recognized in the statement of profit or loss and other comprehensive income statement
Tax rate applicable to the Branch’s general insurance business is 12% (2015 12%).For the purpose of determining
the taxable profit, the accounting profit has been adjusted for tax purpose.

2016 2015 2014 2013

RO RO RO RO

Current year tax 77,400 - 65,064 17,244

Prior year tax - 84,177 31,398 5,921
Deferred tax asset 7,278 280 1,017 (9,995)
--------- --------- --------- ---------
84,678 84,457 97,479 13,170
====== ====== ====== =====
The tax assessment has been completed up to year 2011.The management of the Branch believe that additional
taxes, if any, related to the open tax year would not be significant to the Branch’s financial position as at 31
December 2016.
Reconciliation
The reconciliation between tax based on accounting profit and tax Charges in the statement of comprehensive
income is as follows
2016 2015 2014 2013
RO RO RO RO

Profit/(Loss) before tax 833,230 (337,701) 476,953 159,416

-------------- -------------- -------------- --------------
tax @ 12% (96,387) - 57,234 19,130
Prior year tax - (84,177) 31,398 5,921
Less: tax on items allowed - (40,634) (25,539)
Add: tax on items disallowed 18,987 - 17,066 13,658
--------- --------- --------- ---------
(77,400) (84,177) 65,064 13,170
====== ====== ====== ======
15.b.Deferred Tax Asset
2016 2015 2014 2013
RO RO RO RO

Opening balance 8,698 8,978 (9,995) (9,903)

Tax effect of accumulated (7,278) 280 1,017 (92)
deprecation
-------------- -------------- -------------- --------------
1,420 8,698 (8,978) (9,995)
======== ======== ======== ========
16. Related parties

Related parties comprise the shareholders, directors, key management personnel and business entities in
which they have the ability to control or exercise significant influence in financial and operating decisions.
The Branch maintains significant balances with these related parties which arise in the normal course
of business from the commercial transactions, and are entered into at terms and conditions which the
management consider to be comparable with those adopted for arm’s length transactions with third
parties. Related party transactions also represent transactions with head office and key management
personnel of the Branch and companies of which they are principal owners Transactions with the Head
Office have been disclosed in note 12.

21
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

Compensation of key management personnel of the Branch

Compensation of key management personnel of the Branch, consisting of salaries and benefits made
up as follows:
2016 2015 2014 2013
RO RO RO RO

Short term benefits 180,984 173,808 165,055 203,807

End of service benefits 8,844 8,581 8,173 6,811
-------------- -------------- -------------- --------------
189,828 181,889 173,228 210,618
======== ======== ======== ========

17. CONTINGENT LIABILITIES

The Branch has contingent liabilities in the amount of R.O 75,000 with respect to bank letter of guarantee issued in
favour of the Ministry of Commerce and industry in guarantee of life insurance business in accordance with local
laws and regulations.

18 . RISK MANAGEMENT

Insurance risk
The principal risk the Branch faces under insurance contracts is that the actual claims and benefit payments or the
timing thereof, differ from expectations. This is influenced by the frequency of claims, severity of claims, actual
benefits paid and subsequent development of long-term claims. Therefore the objective of the Branch is to ensure that
sufficient reserves are available to cover these liabilities.

The Branch manages the insurance risk through the careful selection and implementation of its underwriting strategy
guidelines together with the adequate reinsurance arrangements and proactive claims handling.

The concentration of insurance risk exposure is mitigated by the implementation of the underwriting strategy of the
Branch, which attempts to ensure that the risks underwritten are well diversified across a large portfolio in terms of
type, level of insured benefits, amount of risk, industry and geography. Underwriting limits are in place to enforce
risk selection criteria.

The Branch principally issues general insurance contracts which constitutes mainly motor, marine and aviation and
fire and general risks.

The Branch, in the normal course of business, in order to minimise financial exposure arising from large claims, enters
into contracts with other parties for reinsurance purposes. Such reinsurance arrangements provide for greater
diversification of business, allow management to control exposure to potential losses arising from large risks, and
provide additional capacity for growth. A significant portion of the reinsurance is effected under treaty, facultative
and excess-of-loss reinsurance contracts.

Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision and
are in accordance with the reinsurance contracts.

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

The Branch only deals with reinsures approved by the management, which are generally international re-insurance
companies that are rated by international rating agencies.

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

22
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

18 . RISK MANAGEMENT (continued)

Reinsurance risk
In common with other insurance companies, in order to minimise financial exposure arising from large claims, the
Branch, in the normal course of business, enters into contracts with other parties for reinsurance purposes. Such
reinsurance arrangements provide for greater diversification of business, allow management to control exposure to
potential losses arising from large risks, and provide additional capacity for growth. A significant portion of the
reinsurance is effected under treaty, facultative and excess-of-loss reinsurance contracts.

To minimise its exposure to significant losses from reinsurer insolvencies, the Branch evaluates the financial condition
of its reinsurers. The Branch only deals with reinsurers approved by the Board of Directors.

Reinsurance ceded contracts do not relieve the Branch from its obligations to policyholders and as a result the
Branch remains liable for the portion of outstanding claims reinsured to the extent that the reinsurer fails to meet the
obligations under the reinsurance agreements.

Financial risk
The Branch’s principal financial instruments are receivables arising from insurance and reinsurance contracts, listed
and unlisted investments, cash and cash equivalents and interest bearing deposits.

The Branch does not enter into derivative transactions.

The main risks arising from the Branch’s financial instruments are interest rate risk, foreign currency risk, credit risk,
market price risk and liquidity risk.

Foreign currency risk

Foreign currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign
exchange rates.

Significantly all of the transactions of the Branch are denominated in Rials Omani.

Interest rate risk

The Branch invests in securities and has deposits that are subject to interest rate risk. Interest rate risk to the Branch
is the risk of changes in market interest rates reducing the overall return on its interest bearing securities. The Branch
limits interest rate risk by monitoring changes in interest rates.

Market risk
Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices,
whether these changes are caused by factors specific to the individual security, or its issuer, or factors affecting all
securities in the market.

The Branch is exposed to market risk with respect to its investments. The Branch limits market risk by maintaining a
diversified portfolio and by continuous monitoring of the market. In addition the Branch monitors actively the key
factors that effect stock market movements.

Liquidity risk
Liquidity risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitments associated
with financial liabilities that are settled by delivering cash or another financial asset. Liquidity requirements are
monitored regularly and management ensures that sufficient funds are available to meet any commitments as they arise.

23
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

18. Risk management ( continued)

Liquidity risk ( continued)
2013 2013 2013
RO RO RO
Carrying 6 month s More then
amount or less 6 months
R.O. R.O. R.O.
Insurance payables 991,907 919,810 72,097
Other payables 13,984 13,984 -
------------ ------------ ------------
1,005,891 933,794 72,097
======= ======= =======

2014 2014 2014

RO RO RO
Carrying 6 month s More then
amount or less 6 months
R.O. R.O. R.O.
Insurance payables 921,707 854,713 66,994
Other payables 13,130 13,130 -
------------ ------------ ------------
934,837 867,843 66,994
======= ======= =======

2015 2015 2015

RO RO RO
Carrying 6 month s More then
amount or less 6 months
R.O. R.O. R.O.
Insurance payables 1,022,244 947,942 74,302
Other payables 12,557 12,557 -
------------ ------------ ------------
1,034,801 960,499 74,302
======= ======= =======

2016 2016 2016

------------- ------------- -------------
Carrying 6 month s More then
amount or less 6 months
R.O. R.O. R.O.
Insurance payables 1,068,451 990,820 77,631
Other payables 9,806 9,806 -
------------ ------------ ------------
1,078,257 1,000,626 77,631
======= ======= =======

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the Branch
to incur a financial loss. Relevant financial instruments to the Branch include bank balances, bank deposits and
receivables. The Branch monitors receivables on a regular basis and ensures bank balances and deposits are placed
with reputable financial institutions.

Premium receivable comprise a large number of customers mainly within Oman.

24
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

18. RISK MANAGEMENT (continued)

Risk management
Exposure to credit risk 2016 2015 2014 2013
RO RO RO RO

Premium receivables 1,723,605 2,222,609 2,532,595 1,929,583

Other receivables 40,927 4,616 17,211 72,382
Available-for-sales investments 3,880 3,044 3,368 1,000,000
Bank deposits 11,660,711 12,040,666 11,493,202 10,051,728
Bank balances 521,432 922,489 1,274,342 684,209
-------------
-------------- - -------------- --------------

13,950,555 15,193,424 15,320,718 13,737,902

======== ======== ======== ========

Ageing analysis 2016 2015

Gross Impairment Gross Impairment

R.O. R.O. R.O. R.O.
Due 0-120 days 1,143,504 - 1,589,177 -
Past due 120-365 days 293,533 - 589,934 -
More than 1 year 105,702 163,923 161,756 118,258
------------ ------------ ------------ ------------
1,887,528 163,923 2,340,867 118,258
======= ======= ======= =======

Ageing analysis 2014 2013

Gross Impairment Gross Impairment

R.O. R.O. R.O. R.O.
Due 0-120 days 1,837,096 - 1,270,300 -
Past due 120-365 days 632,012 - 562,807 20,361
More than 1 year 179,023 115,536 179,001 62,164
------------ ------------ ------------ ------------
2,648,131 115,536 2,012,108 82,525
======= ======= ======= =======

(a) The movement in provision for impaired debts of insurance receivables is as follows:
Movement in provision of bad debts 2016 2015 2014 2013
RO RO RO RO

Opening balance 118,258 115,536 82,525 212,061

During the year 45,665 9,729 33,441 10,240
(7,007) (430) (139,776)
Written off during the year -
------------
-------------- -- -------------- --------------
163,923 118,258 115,536 82,525
======== ======== ======== ========

25
ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

Underwriting risk
In the life insurance business a distinction is drawn between three types of underwriting risk: longevity, death and
disability. The Branch conducts an annual review and analysis of its customer portfolios with regard to mortality,
cancellation and reactivation. To manage disability risk and improve risk performance, individual evaluations are used
along with portfolio analysis for disability risk to allow a better assessment of the exposure structure. The information
gained is used in setting appropriate prices and rates as well as ensuring that reserves are sufficient for future insurance
obligations to be met at all times. It also forms the basis for determining the risk capital that will be required to offset
unexpected deviations in the actuarial reserves.

19. FAIR VALUES

Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing
parties in an arm’s length transaction.

The fair values of the Company’s financial assets and liabilities, with the exception of certain unquoted investments,
are not materially different from their carrying values as at the statement of financial position date.

Basis for determining fair values

The following summarises the significant methods and assumptions used in estimating the fair values of financial
instruments:

Investment in equity securities

The fair value of financial assets at fair value through profit or loss is determined by reference to their quoted bid price
at the reporting date.

Financial liabilities

Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market
rate of interest at the reporting date.

Receivables

The fair value of receivables is estimated as the present value of future cash flows, discounted at the market rate of
interest at the reporting date.

20. COMPARATIVE FIGURES

Certain comparative information has been reclassified to conform to the presentation adopted in these financial
statements

26
 ARABIA INSURANCE
COMPANY S.A.L. – OMAN BRANCH
(GENERAL INSURANCE)
FINANCIAL STATEMENTS FOR THE
YEARS 2013 TO 2016

27
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – GENERAL INSURANCE

INDEX

PAGE

Independent Auditor’s Report 1-2

Statement of Financial Position 3

Statement of Profit & Loss and Other Comprehensive Income 4

Statement of insurance income 5

Statement of Changes in Equity 6

Statement of Cash Flow 7

Notes to financial statements 8– 24

28
 Summarized financial statements (2013-2016) of

Arabia Insurance Company Oman Branch- Life Insurance

[79]
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER

2016 2015 2014 2013

Note RO RO RO RO
ASSETS

Cash at Banks 3 1,710,866 1,398,138 1,394,327 1,180,773

Financial assets at fair value through
profit or loss 6 346,347 342,878 368,285 365,501
Insurance and other receivables 5 225,214 125,195 164,430 186,534
Reinsurance assets 7 40,105 44,158 36,560 39,541
Furniture and Equipment 4 - - - 43
---------------- --------------- ------------ --------------
TOTAL ASSETS 2,322,532 1,910,369 1,963,602 1,722,392
---------------- ---------------- ------------ --------------

LIABILITIES

Insurance and other payables 8 56,954 86,766 53,519 30,412

Accrued expenses and other liabilities 149,001 150,953 198,966 200,383
Income tax payable 1,823 11,793 - 9,843
Insurance contract liabilities 7 1,423,784 1,486,147 1,329,790 1,047,663
Provision for employees’ end-of-
service indemnity 2,978 3,101 2,678 2,334
---------------- --------------- ------------- ------------
Total Liabilities 1,634,540 1,738,760 1,584,953 1,290,635
---------------- --------------- ------------- ------------

EQUITY

Head office current account 158,203 (314,965) 8,557 (31,582)

Contingency reserve 9 59,766 58,458 54,480 47,739
Retained earnings 10 470,023 428,116 315,612 465,600
---------------- --------------- ------------ -------------
Total Equity 687,992 171,609 378,649 481,757

---------------- --------------- ----------- -------------

TOTAL LIABILITIES & EQUITY 2,322,532 1,910,369 1,963,602 1,772,392
--------------- ------------- ======= =======

1
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER

2016 2015 2014 2013

Note RO RO RO RO
Income:
Insurance premium revenue 127,117 493,938 575,289 374,599
Deposit components of premiums 7 (15,320) (92,670) (72,235) (71,802)
------------- ------------- ------------ -----------
Insurance Premiums 111,797 401,268 503,054 302,797
Reinsurance Share of Insurance
Premiums (44,908) (41,780) (75,143) (35,877)
------------- ------------- ------------ ------------
Net insurance premiums 66,889 359,488 427,911 266,920
Fee and Commission insurance
(expense) / income (984) (1,247) 7,734 4,048
------------- ------------- ------------- -----------
Net insurance income 65,905 358,241 435,645 270,968
Interest received from loans on
policies
Dividend income 1,061 1,050 1,040 88
Interest income from deposits with
banks 28,644 16,800 17,228 17,977
Interest received from FVTPL 6,353 6,353 6,353 770
Net change in Fair value of financial 6
assets at FVTPL 3,469 (6,515) 2,784 26,268
Net foreign exchange (losses) /
gains (1) 13 (14) (6)
------------------ ------------------ ------------ -----------
Total income 105,431 375,942 463,036 316,065
------------------ ------------------ ------------ -----------

Expenses:
Claims paid (201,045) (8,423) (10,537) (35,433)
RI Claims paid 167,708 - 2,500 6,970
Change in insurance contract 7
liabilities 34,290 (116,536) (387,285) (43,489)
Change in reinsurer's share of
insurance liabilities (4,053) 7,598 (2,981) (8,031)
Fees, commissions and other
acquisition expenses (12,722) (46,480) (87,291) (58,644)
Other operating and administrative
expenses 11 (44,418) (44,048) (53,284) (54,788)
Contribution to head quarter's
overheads - (39,778) (67,405) (40,615)
-------------- -------------- -------------- -------------
Total expenses (60,240) (247,667) (606,283) (234,030)
-------------- -------------- ------------- -------------
Profit before tax 45,191 128,275 (143,247) 82,035
Income tax expense (1,976) (11,793) - (9,843)
--------------- --------------- --------------- --------------
Profit/(loss) for the year 43,215 116,482 (143,247) 72,192
--------------- --------------- -------------- --------------

2
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER

2016 2015 2014 2013

Note RO RO RO RO

Cash flow from operating activities

Profit / (Loss) for the year 43,215 116,482 (143,247) 72,192
Adjustments for:
Settlement end of service indemnities (494) - - -
Interest income (34,997) (23,153) (23,581) (18,835)
Income tax expense 1,976 11,793 - 9,843
Depreciation - - 43 170
Provision for employees end of service
indemnity 371 423 344 (550)
Change in fair value of financial assets
held at FV through profit or loss (3,469) 6,515 (2,784) (26,268)
Change in reinsurance assets 4,053 (7,598) 2,981 8,031
Change in insurance contract liabilities (34,290) 116,536 387,285 43,489
-------- --------- ------------ -----------
(23,635) 220,998 221,041 88,072

Change in financial assets designated at - 18,892 - (154,460)

fair value through profit or loss
(Increase)/decrease in insurance and (100,019) 39,235 22,104 (58,683)
other receivables
(Decrease)/increase in insurance and (29,812) 33,247 23,107 6,826
other payables
(Decrease)/increase in accrued expenses (1,952) (48,013) (1,410) 67,819
and other liabilities
Decrease / (increase) in insurance (28,073) 39,821 (105,158) 4,785
contract liabilities
Interest received 21,931 22,059 21,983 18,741
Income tax paid (11,946) - (9,843) (1,739)
------------- ------------- ------------ -----------
Net cash (used in) / generated by (173,506) 326,239 171,824 (28,639)
operating activities
------------- ------------- ------------ -----------
Cash flow from investing activities:
Increase in deposits pledged in (263,456) (293,091) (38,944) (13,464)
guarantee of insurance business ------------- ------------- ------------- ------------
Net cash generated by/(used in) (263,456) (293,091) (38,944) (13,464)
investing activities

Cash flow from financing activities:

Net change in head office account 473,168 (323,522) 40,132 155,414
------------- ------------- ----------- ------------
Net cash generated by / (used in) 473,168 (323,522) 40,132 155,414
financing activities ------------- ------------ ----------- ------------
Net increase / (decrease) in cash and 36,206 (290,374) 173,012 113,311
cash equivalents
Cash and cash equivalents at beginning 29,725 320,099 147,087 33,776
of year -------- --------- ----------- ------------
Cash and cash equivalents at end of 65,931 29,725 320,099 147,087
year -------- ------- ---------- ------------

3
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

1. LEGAL STATUS AND PRINCIPAL ACTIVITIES

Arabia Insurance Company S.A.L- Oman branch is a branch of Arabia insurance Company S.A.L Beirut, and is
engaged in the business of all types of general insurance and life insurance in each of Muscat and Salalah.

These financial statements cover only the life insurance business undertaken by the branch. The Branch maintains
special accounting books and registers for the life insurance business separate from those related to the general
insurance. These books and records are maintained at the Head office premises in Beirut, Lebanon.

2 SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards issued by
the International Accounting Standards Board, interpretations issued by the International Financial Reporting
Interpretations Committee, and applicable requirements of the Commercial Companies Law of the Sultanate of Oman,
Insurance Companies Law 1979 and Capital Market Authority.

The financial statements have been prepared under the historical cost basis except for the measurement of investments
at fair value through profit or loss (held for trading).

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting
policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates
are significant to the financial statements are disclosed in note 2 (u).

(b) Foreign currency

i) Functional and presentation currency

The financial statements are presented in Rials Omani, which is the Company’s functional and presentation currency.

ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognized in the statement of comprehensive income.

Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit
or loss are recognized in statement of comprehensive income as part of the fair value gain or loss.

(c) Furniture and equipment

Furniture and equipment are stated at cost less accumulated depreciation and any identified impairment loss. The cost
of furniture and equipment is their purchase price together with any incidental expenses. Subsequent costs are included
in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably.
All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in
which they are incurred.

Depreciation is charged to the statement of comprehensive income on a straight-line basis over the estimated useful
lives of items of property and equipment. The estimated useful economic lives are as follows:

4
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(c) Furniture and equipment (continued)

Furniture 3 years
Computer and decoration 6.67 years

The movement of property, plant & equipment during the year is set out on pages 11 -13.

(d) Impairment of non-financial assets

The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine whether
there is any indication of impairment. If any such indications exist then the asset’s recoverable amount is estimated.

An impairment loss is recognised if the carrying amount of an asset or cash generating unit is the greater of its value in
use and its fair value less costs to sell. In assessing the value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specified to the asset.

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has
decreased or no longer exists. An impairment loss is reversed if there has been a change in estimates used to determine
the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not
exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment
loss had been recognised.

(e) Financial assets

The Company classifies its financial assets in the following categories: financial assets at fair value through profit or
loss – held for trading and receivables. Management determines the classification of its investments at initial
recognition.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are investments held for trading. Investments held for trading are
acquired or incurred principally for the purpose of selling or repurchasing in the short-term. These investments are
initially recognised at fair value. Transaction costs for all investments carried at fair value through profit or loss are
expensed as incurred.

Financial assets at fair value through profit or loss are subsequently carried at fair value. The fair value of financial
assets through profit and loss is based on their quoted market prices as at the date of statement of financial position.
Gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss category
are included in the statement of comprehensive income in the period in which they arise.

Realized gains on sale of investments are determined by the difference between the sale proceeds and the carrying
value and are included in the statement of comprehensive income in the period in which they arise.

Dividend income from financial assets at fair value through profit or loss is recognised in the statement of
comprehensive income when the Company’s right to receive payments is established.

5
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

Derecognition

Investments are derecognized when the rights to receive cash flows from the investments have expired or have been
transferred and the Company has transferred substantially all risks and rewards of ownership.

(f) Impairment and uncollectability of financial assets

Assets carried at amortised cost

An assessment is made at each reporting date to determine whether there is objective evidence that a specific financial
asset or group of assets may be impaired. If such evidence exists, the estimated recoverable amount of that asset is
determined and any impairment loss, based on the net present value of future anticipated cash flows, is recognised in
the statement of comprehensive income.

A financial asset or a group of financial assets is impaired and an impairment loss is incurred if, and only if, there is
evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss
event) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group
of financial assets that can be reliably estimated.

(f) Impairment and uncollectability of financial assets (continued)

Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the
attention of the Company about the following loss events:

 significant financial difficulty of the issuer or obligor;

 a breach of contract, such as a default or delinquency in interest or principal payments;
 the Company granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty,
a concession that the lender would not otherwise consider;
 it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
 the disappearance of an active market for that financial asset because of financial difficulties; and,
 observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of
financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the
individual financial assets, including adverse changes in the payment status of borrowers, or national or local
economic conditions that correlate with defaults on the assets.

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 the
Company determines that no objective evidence of impairment exists for an individually assessed financial asset,
whether significant or not, it includes the asset in financial assets with similar credit risk characteristics and collectively
assesses them 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.

(g) Offsetting

Financial assets and financial liabilities are only offset and the net amount reported in the statement of financial position
when there is a legally enforceable right to set off the recognised amounts and the Company intends to either settle on
a net basis, or to realise the asset and settle the liability simultaneously.

6
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(h) Cash and equivalents

Cash and cash equivalents consist of cash and bank balances and bank deposits with a maturity of three months or less
from the date of placement.

(i) Insurance contracts

An insurance contract is a contract under which one party (the insurer) accepts significant insurance risks from another
party (the policy holder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured
event) adversely affects the policyholder. Such contracts may also transfer financial risk.

The insurance contracts are classified in the following categories depending on the nature of the risk insured.

-Traditional products:
This category consists of term life (individual or group) and classic combined life insurance products (various
traditional endowment plans).

-Universal Life Insurance Contracts with discretionary participation features:

These insurance contracts contain discretionary participation features (DPF) which entitle the contract holder to receive,
as a supplement to the standard guaranteed benefits, additional bonuses:

a) Whose amount or timing is contractually at the discretion of the insurer ; and

b) That are based on realized and /or unrealized investment returns on a specified pool of assets held by the
issuer.

- Contracts on behalf of life insured where the insured bear the investment risk with significant insurance risk(Unit
linked)

These contracts transfer the financial risk to the policyholder and at the same time contain certain significant insurance
risk.

(j) Unbundling of deposit components

Some insurance contracts contain both an insurance component and a deposit component. The branch has measured
the deposit component separately and presented the life insurance contracts by applying the principle of unbundling
the insurance components from the deposit components which are recognized in the financial statements as follows:

Insurance Components:
Insurance components are reflected separately under income together with the elements of the insurance income related
to loading charges and premiums in the technical pipeline, which are recognized as income on accrual basis over the
benefiting period.

Deposit Components:

Saving and /or deposit components of premiums are recognized as liabilities related to insurance contracts. These
liabilities are increased by the credit interest or positive change in the unit prices and are decreased by policy
administration and fund management fees, mortality and surrender charges, withdrawals or negative change in the unit
prices.

(k) Mathematical provision:

Provisions for traditional products are calculated as the difference between the actuarial present value of the branch’s
future liabilities and the actuarial present value of the policy holders’ future premiums based on the tables of mortality
and the actuarial interest rates as per the original tariffs. In case losses arise from liability adequacy tests, an additional
provision is raised.

7
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

The provisions for universal/unit linked life insurance policies are calculated using the retrospective method(ie. based
on the savings account value).

At each reporting date, an actuarial valuation of the life portfolio is carried out by a professional independent actuary
and a technical assessment is performed in respect of unearned revenues. Moreover, outstanding liabilities of the
accumulation of deposit components and profits related are also based on an actuarial technical assessment.

(l) Outstanding claims

Relates to claims for casualties incurred and reported, but unpaid as at reporting date. They are assessed by reviewing
individual claims (“file to file method) following the calculation of the cost of each claim based on existing evidence
(loss adjuster reports, medical reports, court decisions etc) at reporting date.

(m) Reinsurance contracts held

Reinsurer’s share of premiums and claims is computed on the basis of effective outwards. The reinsurers’ portion
towards the above outstanding claims and unearned premiums is classified as reinsurance assets in the statement of
financial position

(n) Accruals and other payables

Accruals and other payables are initially measured at fair value and subsequently carried at amortised cost using the
effective interest method.

Liabilities are recognised for amount to be paid for goods or services received, whether or not billed to the Company.

(o) Employees’ End of service benefits

End of service benefits are accrued in accordance with the terms of employment of the Company's employees at the
reporting date, having regard to the requirements of the Oman Labour Law 2003 and its amendments. Employee
entitlements to annual leave and leave passage are recognised when they accrue to employees and an accrual is made
for the estimated liability arising as a result of services rendered by employees up to the reporting date. These accruals
are included in current liabilities, while that relating to end of service benefits is disclosed as a non-current liability.

Contributions to a defined contribution retirement plan and occupational hazard insurance for Omani employees in
accordance with the Omani Social Insurances Law of 1991 are recognised as an expense in the statement of
comprehensive income as incurred.

(p) Revenue recognition

Written premiums for life insurance contracts are recognized as income when due from policyholders. Premiums are
stated gross of commission and exclusive of taxes and duties levied on premiums.

Fee and commission income consists primarily of reinsurance and profit commissions in addition to the commission
received from head office – Personal accident department which is calculated as 15% of the renewed old life policies.
Fee and commission income is recognized as the services are provided.

Interest income is accrued on a time basis by reference to the principal outstanding and the interest rate applicable.

(q) Income tax

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or
loss except to the extent that it relates to items recognised directly to equity or in other comprehensive income.

8
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially
enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years.

(r) Head office expenses

A portion of Head Office expenses, calculated at 0% in 2016 (2015: 10%), 10% in 2014 (10% in 2013) of the total
premiums, is charged to branch as per instructions of head office.

(s) Fair values and fair value hierarchy

For investments traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted
market bid prices at the close of business on the statement of financial position date, adjusted for transaction costs
necessary to realize the asset.

For unquoted investments, a reasonable estimate of the fair value is determined by reference to the market value of a
similar investment or is based on the expected discounted cash flows.

The fair value of interest-bearing items is estimated based on discounted cash flows using interest rates for items with
similar terms and risk characteristics.

Fair value hierarchy

The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs
used in making the measurements:

Level 1: Quoted market price (unadjusted) in an active market for an identical instrument. Fair values of financial
assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price
quotations.

Level 2: Valuation techniques based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived
from prices). This category includes instruments valued using: quoted market prices in active markets for similar
instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other
valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3: Valuation techniques using significant unobservable inputs. This category included all instruments where the
valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect
on the instrument’s valuation. This category includes instrument that are valued based on quoted prices for similar
instruments where significant unobservable adjustments or assumptions are required to reflect differences between the
instruments.

(t) Critical accounting estimates and judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates
and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income
and expenses and the resultant provisions and change in fair value for the year.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are
recognised in the period in which the estimates are revised and in any future period affected. Such estimates are
necessarily based on assumptions about several factors involving varying, and possibly significant, degrees of
judgement and uncertainty and actual results may differ from management’s estimates resulting in future changes in
estimated liabilities.

9
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

(u) Critical accounting estimates and judgements

Impairment of receivables

An estimate of the collectible amount of Premium and insurance receivables and reinsurance contract receivable is
made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is
performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed
collectively and a provision applied on the basis of length of time past due and/or qualitative factors, based on historical
recovery rates.

3 CASH AT BANKS

2016 2015 2014 2013

RO RO RO RO
Demand deposits 65,931 29,725 320,099 147,087
-------------- -------------- -------------- -------------
Deposits pledged in guarantee of 1,623,393 1,359,937 1,066,846 1,027,902
insurance business
Accrued interest receivable 21,542 8,476 7,382 5,784
-------------- -------------- ------------- ------------
1,644,935 1,368,413 1,074,228 1,033,686
-------------- -------------- ------------- -------------
Total cash at banks 1,710,866 1,398,138 1,394,327 1,180,773
======== ======== ======== ========

Deposits pledged in guarantee of insurance business are under lien in favour of the Capital Market Authority under the
insurance laws. These pledged deposits are mostly denominated in Rials Omani, carried an average interest at the rate
of 2.2 % per annum during 2016 (1.22% per annum during 2015), 1.47% per annum during 2014 (1.7% per annum
during 2013).

4 FURNITURE AND EQUIPMENT (Note – 2c)

The movement of furniture and equipment is summarized as follows:

Office
furniture
and Computer
equipment Equipment Total
RO RO RO
Cost
At 1 January 2013 2,174 1,395 3,569
Additions - - -
-------------- ------------ ------------
At 31 December 2013 2,174 1,395 3,569

Depreciation
At 1 January 2013 (2,174) (1,182) (3,356)
Depreciation charge - (170) (170)
------------ ----------- -------------
At 31 December 2013 (2,174) (1,352) (3,526)

Net carrying amount

At 31 December 2013 - 43 43

10
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

4 FURNITURE AND EQUIPMENT (Note – 2c continued)

The movement of furniture and equipment is summarized as follows

Office
furniture
and Computer
equipment Equipment Total
RO RO RO
Cost
At 1 January 2014 2,174 1,395 3,569
Additions - - -
-------- --------- --------
At 31 December 2014 2,174 1,395 3,569
-------- --------- --------
Depreciation
At 1 January 2014 (2,174) (1,352) (3,526)
Depreciation charge - (43) (43)
--------- ---------- ----------
At 31 December 2014 (2,174) (1,395) (3,569)
--------- ----------- ----------
Net carrying amount
At 31 December 2014 - - -

Office furniture Computer

and equipment Equipment Total
RO RO RO
Cost
At 1 January 2015 2,174 1,395 3,569
Additions - - -
At 31 December 2015 ----------- ------------ -----------
2,174 1,395 3,569

Depreciation
At 1 January 2015 (2,174) (1,352) (3,526)
Depreciation charge - (43) (43)
----------- ------------ ------------
At 31 December 2015 (2,174) (1,395) (3,569)

Net carrying amount

At 31 December 2015 - - -

11
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

4 FURNITURE AND EQUIPMENT (Note – 2c continued)

Office furniture Computer

and equipment Equipment Total
RO RO RO
Cost
At 1 January 2016 2,174 1,395 3,569
Additions - - -
At 31 December 2016 ------------ ------------- -------------
2,174 1,395 3,569

Depreciation
At 1 January 2016 2,174 1,395 3,569
Depreciation charge - - -
At 31 December 2016 ---------------- ------------ ------------
2,174 1,395 3,569

Net carrying amount

At 31 December 2016 - - -

5 INSURANCE AND OTHER RECEIVABLES

2016 2015 2014 2013

RO RO RO RO

Accrued premium receivable 196,382 218,231 354,093 278,016

Provision for uncollected
premiums (98,470) (94,927) (190,954) (92,093)
Due from brokers and agents - - 611

Prepaid expenses and other ---------- -------------- --------------- ---------------

receivables 127,302 1,891 1,291 -
---------- ------------ -------------- ----------------
225,214 125,195 164,430 186,534

Other receivables comprises as of 31 December 2016 an amount of OMR 125 thousands being a reinsurer share of
risk on a death claim paid during the current year for OMR 194 thousands.

Movement of provision for uncollected premiums are as follow:

2016 2015 2014 2013

RO RO RO RO

Balance as at 1January 94,927 190,954 92,093 60,451

Write back of provision (20,285) (97,559)

Provision during the year 23,828 1,532 31,642

98,861
Balance as at 31 December ------------- ---------------- ------------- -------------
98,470 94,927 190,954 92,093

12
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

6 FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

The financial assets at fair value through profit or loss consist of investments in listed mutual funds and debt securities
denominated in U.S. Dollar and directly linked to life insurance contracts. These unit-linked investments are stated at
fair value. Related change in fair value loss amounting to R.O 3,469 during 2016 (fair value loss of R.O 6,515 during
2015), fair value gain amounting to R.O 2,784 during 2014 (fair value gain of R.O 26,268 during 2013) was recognized
in the statement of comprehensive income.

7 INSURANCE CONTRACT LIABILITIES

2016 2015
Reinsurers’ Reinsurers’
Gross share Net Gross share Net
RO RO RO RO RO RO
Liabilities relating to the
deposit components of life 611,671 - 611,671 568,769 - 568,769
insurance contracts
Claims outstanding 52,514 (9,910) 42,604 53,071 (9,910) 43,161
Provision for unexpired
757,096 (30,195) 854,592 (34,248)
risks 726,901 820,344
Claims under settlement 2,503 - 2,503 9,715 - 9,715
------------- --------------- ------------ -------------- --------------- --------------
1,423,784 (40,105) 1,383,679 1,486,147 (44,158) 1,441,989

2014 2013
Reinsurers’ Reinsurers’
Gross share Net Gross share Net
RO RO RO RO RO RO
Liabilities relating to the
deposit components of life 592,645 - 592,645 637,501 - 637,501
insurance contracts
Claims outstanding 55,872 - 55,872 20,051 (2,500) 17,551

Provision for unexpired

risks 678,116 (36,560) 641,556 376,660 (37,041) 339,619
Claims under settlement 3,157 3,157 13,451 - 13,451
------------- --------------- -------------- ----------------
-------------- --------------
1,329,790 (36,560) 1,293,230 -
1,047,663 1,008,122
(39,541)

13
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

7 INSURANCE CONTRACT LIABILITIES (Note – 2c continued)

Movement of insurance contract Liabilities

Traditional Unit
Products Linked Total
Balance at 31 December 2014 796,581 533,209 1,329,790
Deposits components of premiums received 1,282 91,388 92,670
Change in insurance liabilities 3,231 (60,370) (57,139)
Change in provision for unexpired risks 176,476 - 176,476
Change in provision for outstanding claims (2,801) - (2,801)
Liabilities paid on surrenders - (52,191) (52,191)
Liabilities paid on maturities (658) - (658)
Distribution of profits on matured and surrendered policies to policyholders - - -
Balance at 31 December 2015 974,111 512,036 1,486,147
Deposits components of premiums received 1,282 14,038 15,320
Change in insurance liabilities 1,928 61,835 63,763
Change in provision for unexpired risks (97,497) - (97,497)
Change in provision for outstanding claims (557) - (557)
Liabilities paid on surrenders (36,180) (36,180)
Liabilities paid on maturities (7,212) - (7,212)
Distribution of profits on matured and surrendered policies to policyholders - - -
Balance at 31 December 2016 872,055 551,729 1,423,784
Movement of insurance contract Liabilities
Traditional Unit
Products Linked Total
Balance at 31 December 2012 486,622 512,767 999,389
Deposits components of premiums received 2,656 69,146 71,802
Change in insurance liabilities 43,792 (303) 43,489
Change in Claims under settlement 4,299 - 4,299
Liabilities paid on surrenders (36,240) (16,702) (52,942)
Liabilities paid on maturities (7,833) - (7,833)
Distribution of profits on matured policies to policyholders (10,541) - (10,541)
Balance at 31 December 2013 482,755 564,908 1,047,663
Deposits components of premiums received 1,742 70,493 72,235
Change in insurance liabilities 342,854 44,431 387,285
Change in Claims under settlement (10,294) - (10,294)
Liabilities paid on surrenders (5,332) (146,623) (151,955)
Liabilities paid on maturities (11,629) - (11,629)
Distribution of profits on matured policies to policyholders (3,515) - (3,515)
Balance at 31 December 2014 796,581 533,209 1,329,790

The change in insurance liabilities during 2014 includes R.O 2,784 (R.O 26,268 in 2013) that relates to unit- linked
products.

14
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

8 INSURANCE AND OTHER PAYABLES

2016 2015 2014 2013

RO RO RO RO
Payable to insurance and reinsurance companies 21,229 52,244 33,673 14,094
Payable to agents and brokers 35,725 34,522 19,845 16,318
----------- ---------- ---------- ----------
56,954 86,766 53,519 30,412

9 CONTINGENCY RESERVE

In accordance with Article 10(bis) (c) amended by Capital Market Authority decision No 19/2007 of the Oman
Insurance Companies executive regulation, 1% of the annual life premiums, is transferred to a contingency reserve,
until such reserve becomes equal to RO 5,000,000. This contingency reserve shall be allocated to meet any underwriting
loss that might occur in the life assurance division in any one year

10 RETAINED EARNINGS

The movement of retained earnings is as follows:

2016 2015 2014 2013

RO RO RO RO
Balance at January 1 428,116 315,612 465,600 397,469
Profit / (Loss) for the year 43,215 116,482 (143,24) 72,192
Allocated to contingency reserve – Note 9 (1,308) (3,978) (6,741) (4,061)

---------- ---------- ----------- -----------

Balance at December 31 470,023 428,116 315,612 465,600

11 OTHER OPERATING AND ADMINISTRATIVE EXPENSES

2016 2015 2014 2013

RO RO RO RO
Salaries and related charges 33,780 37,476 42,463 38,431
Rent 3,858 3,870 2,580 4,320
Depreciation - - 43 170
Others 6,780 2,702 8,198 11,867
----------- --------- ----------- ----------
44,418 44,048 53,284 54,788

12 CONTINGENT LIABILITIES

The Branch has contingent liabilities in the amount of R.O 75,000 with respect to bank letter of guarantee issued in
favour of the Ministry of Commerce and industry in guarantee of life insurance business in accordance with local
laws and regulations.

15
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

13 RISK MANAGEMENT

Insurance risk

The principal risk the Company faces under insurance contracts is that the actual claims and benefit payments or the
timing thereof, differ from expectations. This is influenced by the frequency of claims, severity of claims, actual
benefits paid and subsequent development of long-term claims. Therefore the objective of the Company is to ensure
that sufficient reserves are available to cover these liabilities.

The Company manages the insurance risk through the careful selection and implementation of its underwriting strategy
guidelines together with the adequate reinsurance arrangements and proactive claims handling.

The concentration of insurance risk exposure is mitigated by the implementation of the underwriting strategy of the
Company, which attempts to ensure that the risks underwritten are well diversified across a large portfolio in terms of
type, level of insured benefits, amount of risk, industry and geography. Underwriting limits are in place to enforce risk
selection criteria.

The Company principally issues general insurance contracts which constitutes mainly motor, marine and aviation and
fire and general risks.

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

Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision and
are in accordance with the reinsurance contracts.

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

The Company only deals with reinsurers approved by the management, which are generally international re-insurance
companies that are rated by international rating agencies.

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

Reinsurance risk

In common with other insurance companies, in order to minimize financial exposure arising from large claims, the
Company, in the normal course of business, enters into contracts with other parties for reinsurance purposes. Such
reinsurance arrangements provide for greater diversification of business, allow management to control exposure to
potential losses arising from large risks, and provide additional capacity for growth. A significant portion of the
reinsurance is effected under treaty, facultative and excess-of-loss reinsurance contracts.

To minimise its exposure to significant losses from reinsurer insolvencies, the Company evaluates the financial
condition of its reinsurers. The Company only deals with reinsurers approved by the Board of Directors.

Reinsurance ceded contracts do not relieve the Company from its obligations to policyholders and as a result the
Company remains liable for the portion of outstanding claims reinsured to the extent that the reinsurer fails to meet
the obligations under the reinsurance agreements

16
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

13 RISK MANAGEMENT (continued)

Financial risk

The Company’s principal financial instruments are receivables arising from insurance and reinsurance contracts, listed
and unlisted investments, cash and cash equivalents and interest bearing deposits.

The Company does not enter into derivative transactions.

The main risks arising from the Company’s financial instruments are interest rate risk, foreign currency risk, credit risk,
market price risk and liquidity risk.

Foreign currency risk

Foreign currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange
rates.

Significantly all of the transactions of the Company are denominated in Rials Omani.

Interest rate risk

The Company invests in securities and has deposits that are subject to interest rate risk. Interest rate risk to the Company
is the risk of changes in market interest rates reducing the overall return on its interest bearing securities. The Company
limits interest rate risk by monitoring changes in interest rates.

Market risk

Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices,
whether these changes are caused by factors specific to the individual security, or its issuer, or factors affecting all
securities in the market.

The Company is exposed to market risk with respect to its investments. The Company limits market risk by maintaining
a diversified portfolio and by continuous monitoring of the market. In addition the Company monitors actively the key
factors that effect stock market movements.

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the Company
to incur a financial loss. Relevant financial instruments to the Company include bank balances, bank deposits and
receivables. The Company monitors receivables on a regular basis and ensures bank balances and deposits are placed
with reputable financial institutions.

Premium receivable comprise a large number of customers mainly within Oman.

Liquidity risk

Liquidity risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitments associated
with financial liabilities that are settled by delivering cash or another financial asset. Liquidity requirements are
monitored regularly and management ensures that sufficient funds are available to meet any commitments as they arise.

17
 ARABIA INSURANCE COMPANY S.A.L
OMAN BRANCH – LIFE DIVISION

NOTES TO FINANCIAL STATEMENTS - 31 DECEMBER

13 RISK MANAGEMENT (continued)

Underwriting risk

In the life insurance business a distinction is drawn between three types of underwriting risk: longevity, death and
disability. The Branch conducts an annual review and analysis of its customer portfolios with regard to mortality,
cancellation and reactivation. To manage disability risk and improve risk performance, individual evaluations are used
along with portfolio analysis for disability risk to allow a better assessment of the exposure structure. The information
gained is used in setting appropriate prices and rates as well as ensuring that reserves are sufficient for future insurance
obligations to be met at all times. It also forms the basis for determining the risk capital that will be required to offset
unexpected deviations in the actuarial reserves.

14 FAIR VALUES

Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing
parties in an arm’s length transaction.

The fair values of the Company’s financial assets and liabilities, with the exception of certain unquoted investments, are
not materially different from their carrying values as at the statement of financial position date.

Basis for determining fair values

The following summarises the significant methods and assumptions used in estimating the fair values of financial
instruments:

Investment in equity securities

The fair value of financial assets at fair value through profit or loss is determined by reference to their quoted bid price
at the reporting date.

Financial liabilities

Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market
rate of interest at the reporting date.

Receivables

The fair value of receivables is estimated as the present value of future cash flows, discounted at the market rate of
interest at the reporting date.

15 COMPARATIVE FIGURES

Certain comparative information has been reclassified to conform to the presentation adopted in these financial
statements

18
(B) Certified historical (2013-16) combined figures of Arabia Insurance Company
S.A.L Oman Branch (Life division and General Insurance division) and Falcon
Insurance Company SAOC

[80]
Arabia Falcon Insurance SOAC Amounts in RO
Income Statement - Combined Combined Combined Combined
For the year ended 31-Dec-14 31-Dec-15 31-Dec-16
Gross Written Premium 28,381,858 27,977,358 19,675,918
Revenue
Net Insurance Income 3,332,342 2,937,674 3,815,961
Investment Income 59,887 266,830 794,828
Other Income 732,337 1,642,234 407,032
Gross Profit 4,124,566 4,846,738 5,017,821
General & Administrative Overheads (2,930,009) (2,992,701) (3,060,047)
Operating Profit/(Loss) tax for the year 1,194,557 1,854,037 1,957,774
Tax Expenses (245,906) (357,617) (193,456)
Profit /(loss)for the year 948,651 1,496,420 1,764,318
Other Comprehensive Income
Net fair Value gain/( Loss) on available-for-sales 12,258 15,711 18,595
investment
Net Comprehensive Income/(loss) for the year 960,909 1,512,131 1,782,913

Arabia Falcon Insurance SOAC Amounts in RO

Statement of financial position - Combined Combined Combined Combined
For the year ended 31-Dec-14 31-Dec-15 31-Dec-16
Assets
Cash & cash equivalents 1,291,187 1,418,404 980,875
Bank deposits 23,840,099 25,616,620 24,423,448
Financial assets at fair value through P&L 6,753,523 2,973,532 4,590,745
Available-for-sales investments 1,077,430 1,667,528 3,740,736
Reinsurance contract assets 11,427,624 9,675,902 8,868,925
Insurance and other receivables 6,766,839 5,638,868 5,689,449
Property, plant and equipment 79,663 2,001,644 105,847
Intangible assets 76,544 3,964 128,623
Deferred Tax 8,978 8,698 59,044
Total assets 51,321,887 49,005,160 48,587,692

Equity and liabilities

Capital 6,394,457 6,394,457 6,394,457
AIC Branch Head office account 5,716,120 5,087,672 4,982,907
Legal reserve 319,051 499,261 596,516
Contingency reserves (AFIC) 1,283,307 1,510,221 1,657,092
Contingency reserves (AIC Branch) 944,244 948,222 1,698,082
Investment revaluation reserves 158,383 174,094 192,689
Retained Earning 157,386 922,981 1,053,868
Total Equity 14,972,948 15,536,908 16,575,611

Current Liabilities
Insurance contract liabilities 26,296,463 29,633,766 28,365,274
Insurance, accrued and other payables 9,866,423 3,529,416 3,378,550
Provision for income tax 186,053 305,070 268,257
Total liabilities 36,348,939 33,468,252 32,012,081
Total equity and liabilities 51,321,887 49,005,160 48,587,692
======== ======== ========
13. ASSUMPTIONS TO PROJECTED FINANCIALS

13.1. Premium Growth

13.1.1. 2017 Assumptions and Development

Tight economic situation resulting from low oil prices expected to continue through
2017 added to the fact that 2017 is the merger year were most of management
focus has been on the finalization of merger legal requirements and plans to
integrate the operations for the merged entities. However, the year is being used to
consolidate and establish proper set-up for profitable growth orientation. A few of
the initiative done are:

 A dedicated Business Development Team has been set-up, to have a clear focus
on development of quality profitable business.

 A separate unit to address the requirements of Corporate Clients has been set-
up, which is headed by highly experienced individual having long and strong
relationships with local companies.

 A new Head of Motor has been appointed, considering the increased Motor
Business emanating from the combined operations, for better control and
development.

 A Bancassurance (life) Agreement with a leading Bank has been signed with a
leading Bank, recently

 W.e.f November a three-year deal has been signed with a leading Finance
Company for the Credit Life Insurance

 A new Credit Life agreement has been signed with a Bank assuring monthly
Premiums of good volume,

As such the Non-Life Premium for 2017 is expected to be around the same level as
2016. As a part for of control measures initiated a few loss-making schemes and
renewals have been declined, resulting in loss of Motor business. However, this is
expected to improve the performance with better loss ratios in the coming periods.

Individual life insurance is expected to be the generator of the growth in 2017. Life
business is expected to grow by 25% in 2017 below table showing the actual growth
achieved up to Q3 2017 in each of the life sub-segments:

SUMMARY YTD SEPT 2016 (RO)

Group Life
(Workers Workers
Total
Individual Compensation Compensation Group Group Bank
Life excluded) Medical Credit Muscat
GROSS
WRITTEN
PREMIUM 1,167,560 349,770 120,963 289,859 411,974 (60,139) 2,279,987

[81]
SUMMARY YTD SEPT 2017 (RO)

Group Life
(Workers Workers
Total
Individual Compensation Compensation Group Group Bank
Life excluded) Medical Credit Muscat
GROSS
WRITTEN
PREMIUM 1,641,770 475,339 105,941 557,202 90,876 --- 2,871,128
Growth up to
Q3, 2017 41% 36% -12% 92% -78% 0% 26%

The major drop in Life in 2016, as compared to 2015 resulted from the loss of Bank
Muscat group credit life premium (2015 RO 4,749,049). This was lost in 2016 and no
premium was booked in Life. However, part of the premium started to flow as
individual life in 2017 and this is expected to continue in an increasing fashion in
2018 and later years.

For the sake of good order, it may be noted that the Projection for 2017 includes
the combined production for the merged entities for full year. The Q1 figures of ex
Arabia branch is included in the projection (RO 2.1 million Q1 Arabia production in
addition to the reported figures for AFIC as per financial statements)

Further please see below comparison table of the Underwriting Results/Gross

Written Premium GWP ratio):

Year 2016 2017 2018 2019

(notional combined – actual) (projected)
Underwriting 19% 14% 20% 19%
Results/GWP
ratio

The year 2017 was abnormal because the Company had to book certain non-
recurring items such as additional Unexpired Premium Reserve (UPR) and there
was change in the reinsurance treaty for Motor which reduced the net premium.
The higher unearned premium reserve and lower net motor premium resulted in
lower net earned premium. The lower net earned premium is basically arising from
the change in reserve and retention not from commercial factors. This may also be
noted by comparing the growth in GWP and the growth in net premium from 2016
to 2017: The GWP growth is -2% vs -13% growth in net earned premium. The
negative effect of change in UPR and reinsurance will reverse in 2018 and there will
be addition to income instead of deduction as happened in 2017. The addition to
reserve in 2017 is not considered as a real negative. It is booked as expense in
current year (2017) but it will be available in future years.

Going forward, the Company, has assumed a growth of 8.4% growth in GWP for
2018 and around 9% thereafter. The basis for the assumed growth has also been
set out under Para 13.1.2. Further, based on its merged operations and higher
capitalization following the merger, the Company has projected a higher level of
retention for 2018 and onwards, details of which are set out under Para 13.2-
Reinsurance Assumptions. In addition, the Company has assumed improvement in
the loss ratio due to the better controls implemented in late 2017 and being

[82]
 selective with better pricing of risk as well as slashing of loss generating business.
The details of these assumptions are set out under Para 13.3- Loss Ratio.

Accordingly, the higher retention combined with improvement in the loss ratio,
results in an overall improvement in the Underwriting Results ratio.

13.1.2. 2018 to 2021 premium growth assumptions

MOTOR: Motor Business is expected to grow at around 5% to 6% annually. Based on

the general trend of business and the spending on projects etc., the Company see a
modest growth possibility. Along with this the Company is also working with some
major fleets for the renewals and return to AFIC. The Company is in discussion with
a few of them and are confident of securing some of them.

NON-MOTOR: The Company have already finalized one major project Insurance in
2017 and the Company is close to finalizing another one in early 2018. Several small
Engineering Projects have been concluded recently giving indication that the
developmental projects earmarked by the Government are starting to grow. As
mentioned above, with the new Business Development team in place, AFIC thrust
towards SME Segment is expected to yield better growth results. Non motor
production is expected to grow at higher level compared with Motor production
considering the existing lower base of non-motor portfolio and expected public
spending on new projects and AFIC’s focus on SME business will also the drive the
growth forward.

New Branches are being proposed in locations like Ibri, Buraimi, Sur, Duqm in 2018-
2021 which will further increase the reach to retail customers in new geographic
areas were AFIC is not represented currently. This will increase the client base and
enhance the retail direct detail business. AFIC is one of the four companies that are
contracted to market and sell the new Agricultural Insurance Policy. This is expected
to start slowly but grow in the years to come.

[83]
 Direct business is expected to increase as new department is established look after
relations with major corporate business. The focus for the corporate business
department is retaining current corporate clients and adding new clients to the AFIC
client base to generate growth in Non-Motor business segment. In addition, a new
business development unit looking after Broker and agent is established recently to
enhance the relation with these producers and increase the business flow from
these distribution channels.

LIFE AND MEDICAL: Specialized sales team is directed to focus on individual life to
achieve the growth target in this segment. The Company already started to see the
results in second half of 2017 with 26% increase in Life portfolio up to Q3 2017
compared with same period 2016. Life business in years 2018 to 2021 is expected to
keep growing however at a smaller rate as the portfolio base becomes bigger. The
individual life will be the main sub-segment growth generator. As mentioned above,
the new Bancassurance tie-up and also the long-term Credit Life agreements will
spur the growth of Group and Credit Life segments.

Portfolio mix is expected to shift towards more life business compared to non-life
business. Life is expected to constitute 27% of AFIC business in 2021 up from 16%
achieved in 2016.

Overall production growth is expected to average 10% in the period 2017 to 2021
with higher growth is expected in 2018 and 2019 - as the portfolio base is smaller.

The introduction of compulsory medical coverage expected from January 2018 is

also expected to further support the projected growth in coming years. Plans are in
progress to establish separate medical department and recruit professional
employees for the department. As the Company does not have concrete numbers
about the expected revenue/cost from this segment, substantial growth in medical
Is not factored in AFIC projection.

The below table shows the projected premium growth in the next 4 years. The
projected premium is expected to reach the level of 2015 production in year 2021 as
the Company strategy is to focus of bottom line rather than top line especially in
motor business:

GWP Growth - projected

Total Total
Motor Non Motor General Life Company
2017 P -7% 0% -4.48% 12% -1.8%
2018 P 2% 12% 5.77% 20% 8.4%
2019 P 4% 15% 8.39% 15% 9.7%
2020 P 5% 13% 8.39% 15% 9.8%
2021 P 5% 12% 8.09% 10% 8.5%

13.2. Reinsurance Assumptions

AFIC follows a conservative approach to reinsurance that maximizes the earnings potential
but at the same time protecting and saving the AFIC’s balance sheet from any major loss or
catastrophe. The intention is to gradually increase retentions but to keep protections in place
for sudden and unforeseen large losses and catastrophic events.

[84]
 13.2.1. Motor

Ex Arabia portfolio was retaining all business and had protection for large losses only
up to end of Q1 2017. Ex Falcon had 40% quota share reinsurance for all motor. The
mix reduced the retention in 2017 compared with prior years when Arabia portfolio
was fully retained. Starting Q2 2017, the full portfolio is working on quota share and
excess of loss for both Ex Arabia and Ex Falcon. Starting Q3, the Company reduced
the quota share from 40% to 32.5%. Going forward, AFIC plan is to reduce the quota
share to 25% when renewing the treaties, in line with the AFIC’s higher capital and
reserves.

13.2.2. Non-Motor

Major policies in this class in Fire, Engineering and Liability classes are placed on
facultative basis in addition to the treaty limits. Therefore, non-motor business is
heavily reinsured which reduce the risk to the AFIC but reduces net earned premium
as well. As such the major source of revenue is the commission earned on
reinsurance ceded.

After merger and as a result of the higher capitalization, the Company plans to
accept more risk and reduce the dependency on reinsurance which will result in
enhancing profitability. The retention is planned to increase gradually to 25% from
the current level of 15%.

13.2.3. LIFE

The following are the current reinsurance in various sub classes:

 Retention in Medical 40%, Group Credit Life 20%, Individual life maximum RO
5,000 per life and group RO 10,000 per life are retained.
 The focus will be on growing individual life insurance segment
 The average target retention on life business is 30% taking into account the life
portfolio mix. No change in retention is planned for life insurance.

13.3. Loss Ratio

13.3.1. Motor

With the current merger and increased access to experienced in-house surveyors
and claims handlers, the Company expects more efficiency in claim handling which
will reduce the loss ratio. As explained earlier the Company have now appointed an
exclusive Head of Motor Business.

The Company expects to have better negotiating power with garages and agencies
by reducing the number of service providers and increasing the volume per service
provider. This will help getting more favorable pricing and discounts for the higher
volume. The Company is expecting to generate more from the salvage value
considering the better resources the Company currently have as AFIC recently
appointed a professional Head of motor to lead the improvement in claim handling.

As a result of the various initiatives, the gross loss ratio is expected to average
between 70% to 75% in the coming 5 years which is line with industry average. Net

[85]
 loss ratio will be in line with gross loss ratio as it is factor of gross loss ratio after
including reinsurance effect.

The projected drop in Motor net loss ratio in 2018 is due to the change in
reinsurance structure in 2017 where major net Unearned Premium Reserve (UPR)
release of around RO 664K is expected which will increase the net earned premium.
This one-time effect is not expected to repeat in 2019 and later years.

Net loss ratio is expected to be in the range of 77% to 79% in following years.

13.3.2. Non-Motor

AFIC projection is based on the last 3 years' experience. 2017 witnessed unusual
increase in non-motor loss ratio as a result of a few claims with high retention. This
is not expected to repeat frequently and in AFIC projection the Company normalized
the projected loss ratio to eliminate the high and low years as one major claim will
largely affect the loss ratio in any given year taking into account the small base of
non-motor business. Similarly, years with no major claims witnesses very low loss
ratio.

The normal loss ratio for property and engineering is projected at 45% which is in
line with historical data. The ratio as a percentage may be affected by one or two
losses with higher retained losses. However, the monetary impact will be low, as the
retention levels in absolute numbers are low.

Net Loss ratio is projected around 50% which is projected to reduce to 47% by 2020.
This is expected to be achieved by proper placement of reinsurance by having higher
reinsurance treaty capacity and reducing the dependency on facultative placements
to reduce the reinsurance cost.

13.3.3. Life

Major loss in Life business is from Group Credit Life schemes. Since the Company
has an agreement to revise premium rates based on the previous year loss the ratio
can be controlled in the subsequent year.

The claims experience in Medical was above 60% in the past and hence the
Company is working currently with selective high quality clients only to improve the
loss ratio rather than increasing the volume of business.

The portfolio mix of life business is shifting toward individual life being the main
segment and having a low loss ratio, current and future loss ratio is lower than past
where group was the main sub-segment while the focus in future will be on
individual life which will reduce loss ratio to around 35% in 2018 onward.

In the past the Company has been operating with an overall gross loss ratio at around 60%. Since
both Motor and Non Motor loss ratios were higher in 2016 the overall ratio went up to 68%. The
ratio started to improve in the second half of 2017 and AFIC expects to reach 66% for the full year
2017. The improvement is expected to continue in following years for motor loss ratio due to the
better controls we implemented late 2017 and being selective and slashing loss generating business.
Non-Motor loss ratio is expected to be stable during the projection period.

[86]
 General Insurance Gross Loss Ratio
Motor Non Motor Total General
2015 -83% -21% -60%
2016 A -81% -44% -68%
2017 P -79% -45% -66%
2018 P -76% -45% -64%
2019 P -74% -45% -62%
2020 P -74% -45% -62%
2021 P -74% -45% -61%

As the life portfolio mix is shifting toward individual life that has lower loss ratio than group life, the
improvement in life loss ratio is expected continue to in 2018 and stabilize in following years.

Life - Gross Loss Ratio

2016 A -52%
2017 P -42%
2018 P -35%
2019 P -35%
2020 P -35%
2021 P -35%

13.4. Investment Income

The investment portfolio consists Bank deposits, Government and corporate Bonds, and
equity investments.

Interest earned on deposits range from 3.5% to 4.5% with the current weighted average at
3.8%. The Company plans to reduce the portion invested in bank deposits to 67% of total
portfolio and increase the holding of fixed income securities which earns higher interest. The
Company is also negotiating with banks to increase the rate on current deposits.

Bonds investment are in both government and corporate bonds currently yielding 5.25% to
7.8%. The fixed income securities are classified as available for sale in the balance sheet and
currently represent 21% of portfolio. The current investment portfolio is around RO 32 million
and it is projected to reach RO 40 million in 2021

Equity investments classified as Fair Value Through Profit & Loss up to 2017 used to be
managed by external portfolio managers with some direct investment in local shares. The
Company recently liquidated the majority of investments in equities and incurred loss of
around RO 142,000 which is not expected to repeat in later years as the Company currently
has less 2% invested in selected low volatility high dividend yield equities.

The Company is planning to increase the percentage invested in equity gradually and
cautiously with high quality investments in future years once market starts to recover. The
target portfolio mix in the long term is 10% equity, 25% Fixed income, 65% deposits.

The below summarizes projected investment yield in each class with projected investment
mix:

2017 2018 2019 2020 2021

Investments available for 6.0% 7.0% 7.0% 7.0% 7.0%
sale

[87]
 2017 2018 2019 2020 2021
Term Deposits- non Current 3.8% 4.0% 4.0% 4.0% 4.0%
Investments at Fair Value -12.0% 9.0% 9.0% 9.0% 9.0%
through P&L
Term Deposits- Current 3.0% 4.0% 4.0% 4.0% 4.0%
Average yield 3.9% 4.9% 4.9% 5.0% 5.2%

Portfolio Mix 2017 2018 2019 2020 2021

Deposits 77% 73% 72% 70% 67%
Bonds 21% 23% 24% 25% 24%
Equity 2% 4% 4% 6% 9%

13.5. Management Expense

Staff Cost represents the major management expense cost (around 72%)

Staff cost is expected to be stable in 2017 and 2018 and increase is expected from 2019 as
new recruitment has been frozen and hiring is limited to replacing key staff. Although the
Company started establishing new departments, this is not expected to increase the
headcount as AFIC is currently overstaffed as a result of the merger and plans to restructure
the available human resources for allocation to the new departments.

Provision for doubtful debts is made as per AFIC credit control policy based on the aging
analysis. Annually 0.25% of the gross premium is projected as bad debt.

[88]
14. PROJECTED FINANCIAL STATEMENTS

Certified Financial projections (2017 to 2021)

[89]
15. AUDITED FINANCIAL STATEMENT – FOR THE PERIOD ENDED 31ST AUGUST 2017

Audited financial statements

1st January 2017 to 31st August 2017

[90]
16. UNAUDITED FINANCIAL RESULTS – FOR THE PERIOD ENDED 30TH NOVEMBER 2017

Unaudited financial results

1st January 2017 to 30th November 2017

[91]
 ARABIA FALCON INSURANCE CO SAOC
Statement of Financial Position as at 30.11.2017

30-Nov-17 30-Nov-16 31-Dec-16

ASSETS
Investments
Investments 6,833,239 5,982,652 6,882,440
Investment held on Maurity 1,100,000
Total Investments 7,933,239 5,982,652 6,882,440

Current Assets
Bank Balances and Cash 1,320,746 284,770 451,364
Short Term Deposits 24,479,099 10,952,114 11,051,871

Trade and Other Receivable

Premium Debtors 6,332,672 3,558,789 2,893,512
Reinsurance Debtors 506,333 403,654 144,538
Other Receivable 1,365,051 649,631 492,098

Reinsurer's share of O/s Claims 13,196,566 3,904,235 3,586,708

Total Current Assets 47,200,468 19,753,193 18,620,091

Non-Current Assets
Property, Plant & Equipment 121,899 79,897 76,955
Intangible Assets 1,039,495 1,794 128,623
Deferred Tax Asset 57,624 57,722 57,624
Total Non-Current Assets 1,219,018 139,413 263,202
Total Assets 56,352,725 25,875,258 25,765,733
LIABILITIES & EQUITY
Current Liabilities
Trade and Other Payables
8,307,731 5,822,711 5,964,863

Insurance Funds
UnEarned Premium 9,110,139 4,100,441 4,229,370
Outstanding Claims 20,149,836 5,470,710 4,879,298

Tax Provision 192,221 169,635 189,034

Total Current Liabilities 37,759,927 15,563,497 15,262,565

Non-current Liabilities
Provision for Employees' end of
354,932 135,307 136,441
service indemnity

Total Liabilities 38,114,859 15,698,804 15,399,006

Equity
Share Capital 10,330,166 6,394,457 6,394,457
Share Premium 1,749,442 - -
Legal Reserve 641,743 575,222 596,516
Contingency Reserve 3,355,329 1,682,729 1,657,092
Fair Value Adjustments to
229,357 216,547 193,875
Investments
Retained Earnings 1,931,830 1,307,499 1,524,787

Total Shareholders' Equity 18,237,866 10,176,454 10,366,727

Total Liabilities & Equity 56,352,725 25,875,258 25,765,733

Net Assets Value per Share 0.177 1.591 1.621

ARABIA FALCON INSURANCE CO SAOC
Statement of Comprehsnive Income for the period ended 30.11.2017

30.11.2017 30.11.2016
RO RO
FIC

Income 16,411,624 10,511,312

Underwriting Results 1,959,057 1,763,456

Investment income/(loss)-net 699,985 380,260

Other Income 304,170 314,152

2,963,212 2,457,868
Expenses
General and Administrative Expenses (2,431,130) (1,610,956)
(2,431,130) (1,610,956)

Operating Profit before taxation 532,082 846,912

Taxation (79,812) (87,305)

452,269 759,607
Other Comprehensive Income
Net Change in fair value of available for sale of financial assets 35,481 22,672

Total comprehensive income for the period 487,750 782,279

Basic and diluted earning per share 0.005 0.119

STATEMENT OF CHANGES IN
EQUITY
FOR THE PERIOD ENDED 30
Nov 2017

Fair
Share Legal Contingency Retained Total
Share value
capital Premium reserve reserve reserve earnings equity
RO RO RO RO RO RO RO

At 1 January 2017
6,394,457 - 596,516 1,657,092 193,875 1,524,787 10,366,727

Comprehensive income:

Profit for the period

452,269 452,269
Other comprehensive
income: -
Net change in fair value of
available for sale financial
35,482 35,482
assets (note 15)

6,394,457 596,516 1,657,092 229,357 1,977,056 10,854,478

Transactions with owners:
Transfer to legal reserve
(note 13) 45,227 (45,227) -
Transfer to contingency
reserve (note 14) - -
On Business Acquisition
3,935,709 1,749,442 1,698,237 7,383,388
#
3,935,709 1,749,442 45,227 1,698,237 - (45,227) 7,383,388
At 31 December 2016
10,330,166 1,749,442 641,743 3,355,329 229,357 1,931,830 18,237,866
17. DIVIDEND POLICY

17.1. Dividends
The Offer Shares will rank equally with all other Shares in respect of any dividends that may be
declared and paid relating to the Financial Year ending in December 2017 and any subsequent
Financial Years. Following the Offer, the shareholder register of the Company maintained by the
MCD will be updated to enable new Shareholders to receive future dividends declared.

Legal Reserve: In accordance with the CCL, 10% of the profits of every corporation incorporated in
Oman must be transferred to a legal reserve until the reserve is made up of at least one third of the
corporation’s share capital. The legal reserve cannot be distributed to a company's shareholders by
way of dividend.

Contingency Reserve: Further, in accordance with Article 10(bis)(2)(c) and 10(bis)(3)(b) of the
Insurance Regulations for Implementing Insurance Companies Law (Ministerial Order 5/80), as
amended, 10% of the net outstanding claims for general insurance business and 1% of the life
assurance premiums for the period in case of life insurance business at the reporting date is
transferred from the net profits to a contingency reserve. The Company may discontinue this
transfer when the reserve equals to the issued share capital. No dividend shall be declared in any
year until the deficit in the reserve is covered from the retained profits. The contingency reserve
shall not be used except by prior approval of the CMA.

It may be noted that the Company, Arabia Insurance and Arabia Holding executed an Agreement
for the Sale and Purchase of Commercial Business on 27th March 2017 (“Original BTA”) before the
Attestation and Legalization Department in Muscat of the MOCI having registration number
487/27/3/2017. It was agreed in the Original Agreement that, in consideration for the sale by
Arabia Insurance of the business of its Oman branches (“Business Transfer”) (as defined in the
Original BTA), the Company shall pay a consideration of RO 7,383,391 (“Consideration”), an
amount arrived at on the basis of 1.2 times the Agreed Adjusted Net Asset Value, as agreed in a
Business Transfer Agreement dated 22nd December 2016 entered into by the Company, and which
amount included the contingency reserve accumulated by Arabia Insurance, which as of 31st
March 2017, was RO 1,698,237 (“Arabia Contingency Reserve”). In settlement of the
Consideration, Arabia Insurance had agreed to accept 3,935,709 shares of RO 1 each (“Capital
Increase”) to be allotted to Arabia Holding at an earlier subscription price of RO 1.876
(“Subscription Price”) and the difference between the nominal value of the Capital Increase and
the Consideration (i.e. RO 3,447,682) was to accrue to the Company as a premium of (“Premium”).
Notwithstanding that the Premium included the amount of the Arabia Contingency Reserve, the
CMA directed the Company, to ensure that the financial statements of the Company prepared
following completion of the Business Transfer (“Post Business Transfer Accounts”), specifically
record the Arabia Contingency Reserve as part of the Company’s total contingency reserve and
consequently the parties agreed to restate the Subscription Price from RO 1.876 per share to RO
1.445 per share and to allocate the remaining amount of RO 0.431 per share (amounting to a total
of RO 1,698,237) to the contingency reserve of the Company in the Post Business Transfer
Accounts as required by the CMA (the “Amendment”) pursuant to an approval granted an EGM on
4th October 2017. The Original BTA was amended by Arabia Insurance, Arabia Holding and the
Company entering into an amendment agreement to the Original BTA dated 14th November 2017.

[92]
17.2. Dividend Policy
The Company proposes to follow a reasonable dividend payout policy, subject to debt repayments,
working capital, investment portfolio and operational expenditures requirements. The amount of
annual dividends and the determination of whether to pay dividends in any year may be affected
by a number of other factors including the Company’s business prospects, financial performance,
free cash availability, facilities agreements’ covenants, regulations and the outlook for the sector.

Any decision to pay dividends to the Shareholders and the amount of such dividends will be at the
discretion and upon the recommendation of the Board; subject to the Articles; the proposed
dividend payment being approved by the passing of the shareholders’ resolution at an AGM;
Applicable Laws and regulatory approvals; and the provisions of any facilities agreement, if any,
entered into in respect of loans to the Company (including any prepayment clauses).

As the Company has undergone a major corporate change in the form of the business consolidation
with Arabia Oman, its past dividend history may not be a relevant or appropriate reference for
dividends that may be expected for the future period. Hence, past dividend details have not been
included. However, these details are available in the Company’s summarized financial statements
that are included in Chapter 12.

The Company’s estimates of dividends (as set out in Chapter "Projected Financial Statements -
2017 - 2021") for the next five years are as follows (subject to Shareholder and CMA insurance
regulatory approvals):

Dividend paid in the year Dividend Rate Expected dividend Total dividend
(% of share amount per Share amount (RO)
(relating to previous year capital) (Baizas)
ending 31st December)

2018* 12.5% 12.5 1,291,271

2019 15.0% 15.0 1,549,525
2020 15.0% 15.0 1,549,525
2021 17.5% 17.5 1, 1,807,779
2022 20.0% 20.0 2,066,033
*Payment of Dividend for the financial year ended 31st December 2017, shall be decided in the
general meeting expected to be held in last week of March 2018 based on the recommendation of
the board of directors. Subject to board and shareholder approval, the approved dividend will be
paid to all Shareholders as of the record date, which will be 10 working days after the indicative
listing date of 16th April, 2018, i.e. 30th April, 2018.

The Company’s forecast dividends are only estimates and the actual dividend distribution for any
given year may vary. The amount of annual dividends and the determination of whether to declare
dividends in a given year may be affected by a number of factors including the Company’s
regulatory approvals and requirements, business prospects, financial performance, credit rating,
capital expenditure requirements, financial covenants, market trends and the outlook for the local
and regional insurance sector. The forecast estimated dividends as per above are based on various
assumptions and forecasts as set out in “Chapter– Projected Financial Statements” of this
Prospectus. The above table should also be read in conjunction with the risk factors relating to the
dividend payment under “Chapter– Risk Factors” of this Prospectus- 10.7 and 10.31.

[93]
18. VALUATION AND PRICE JUSTIFICATION

The equity valuation of the Company takes into account various factors that affect its business and
performance. It includes the valuation based on future projected cash flows of the Company as well
as a comparison with other listed companies having a similar business to the Company. The Offer is
being made at the Offer Price calculated applying a discount on the valuation of the Company.

The following qualitative and quantitative factors lay the foundation for the Offer pricing
methodology:

18.1. Qualitative Factors

Merged Efficiencies

- Arabia Insurance Oman Branch and Falcon Insurance commenced consolidated operations
from April 2017. Falcon Insurance was established in 2005 and post-consolidation has
become the subsidiary of Arabia Insurance, the oldest Insurance group in the region. AFIC
will benefit from Arabia Insurance regional and local experience and operational spread of
Falcon Insurance, to provide top-notch services to the Omani market.

- Prior to Consolidation, both companies were providing quality services to their respective
clients all across the Sultanate. The Consolidation has enabled the companies to combine
their strengths and achieve economies of scale to make operations more profitable and
maximize stakeholder’s returns.

- AFIC through the Consolidation, has now access to a larger well-respected pool of services
providers including re-insurers, brokers and agents, with more competitive terms enabling
AFIC to provide a wide range of insurance products with optimum efficiency.

- The Consolidation has also provided the Company with well-recognized group of human
resources at both Board and Management levels. Management is made up of highly
qualified professionals with an aggregate of over 200 years' experience in local, regional and
international insurance markets.

- The synergy for AFIC emanates from Falcon Insurance local decision-making, strong
technical team, excellent relations with major corporates and brokers etc. Arabia Insurance
strengths are its strong retail motor business and its carefully written corporate accounts,
originating from its business connections.

Operational Assets

- Wide Network: The Company provides protection services in general insurance and life
insurance, and operates form several branches all over Oman, including Ruwi CBD, Seeb,
Barka, Sohar, Buraimi, Nizwa and Salalah other than the head office in Qurum in Muscat.

- Re-insurance: AFIC enjoys the strong support of a number of well-respected international

re-insurers such as Swiss Re, Partner Re and Munich Re.

[94]
 - Prominent Clientele: The Company has been providing quality insurance services to several
prominent business groups in Oman.

- Products: AFIC offers attractive Credit Life Insurance Plans for Bank loans. These policies
have been specifically designed for the benefit of borrowers of Personal loans, Housing
loans and Business loans, and are offered at competitive premium rates and are designed to
pay off balances of bank loans in the event of death or disability.

Planned Outlook

- The Company has established a Business Development Department. This will enable it to
scout for quality business that it needs, rather than wait for good business to come. The
business development team will have dedicated resources to follow-up and fruitfully
channelise the business opportunities from brokers, agencies, branches and direct
corporate accounts.

- The Company has created a new Position of Head of Motor has been created, considering
the importance of the portfolio (which is mainly retained) and is now expected to account
for more than 50% of the Written Premium. This position will oversee the underwriting and
claims functions and will holistically evaluate the motor business of AFIC and to steer it in a
profitable direction.

- The Company is now focusing on more in-depth geographical penetration and it is proposed
to have representation in the East (Sur/Jalan/Ibra) and also in the west (Buraimi/Ibri). The
Company also proposes to have satellite offices in smaller towns, attached to the larger
town branches.

- The Company has enhanced its re-insurance capacities and is expected to increase further.
This enable AFIC to write larger risks and retention capacity. At the same time, the
protection and limits for the retentions have also been enhanced at minimal extra cost. This
is expected to ensure adequate protection considering increased size and volumes of
retention.

- The Individual Life product, which had been found attractive by many of the bank
borrowers, is being enhanced and made more attractive. The unified sales force has been
briefed and trained on the product. As such AFIC are confident of seeing substantial growth
in the business from this product.

18.2. Quantitative Factors

The Company past and projected (select) financials and ratios are provided below (the figures
for 2014, 2015 and 2016 are based on a notional combination of Falcon Insurance and Arabia
Insurance Oman Branch, for comparison purposes, as described in Para 9.2):

Key Financials 2014 2015 2016 2017 2018 2019 2020 2021
(RO Million unless stated
otherwise)
Notional Combined Projected
Gross Written Premium 28.4 28.0 19.7 19.3 20.9 23.0 25.2 27.4
GWP Growth (%) 20.0% -1.4% -29.6% -2.0% 8.3% 10.0% 9.6% 8.7%
Net Underwriting Results 3.3 2.9 3.8 2.7 4.3 4.4 4.9 5.3
NUR Growth (%) 11.0% -12.1% 31.0% -28.9% 59.3% 2.3% 11.4% 8.2%

[95]
Key Financials 2014 2015 2016 2017 2018 2019 2020 2021
(RO Million unless stated
otherwise)
Investment Income 0.1 0.3 0.8 1.0 1.1 1.2 1.3 1.5
Profit before Tax 1.2 1.9 2.0 0.9 2.6 2.7 3.0 3.4
Profit after tax 0.9 1.5 1.8 0.7 2.2 2.3 2.6 2.9
PAT Growth (%) -26.0% 66.7% 20.0% -55.6% 175.0% 4.5% 13.0% 11.5%
Return on equity (%) 6.3% 9.8% 11.0% 4.1% 11.7% 11.6% 12.4% 13.4%
Return on assets (%) 1.8% 3.1% 3.6% 1.5% 5.2% 5.2% 5.5% 5.8%
EPS* (RO) 0.008 0.013 0.016 0.007 0.022 0.022 0.025 0.028
Book Value* (RO) 0.124 0.135 0.146 0.179 0.188 0.195 0.205 0.216
Combined Operating Ratio
(overall)
94.0% 101.0% 96.0% 106.0% 92.0% 93.0% 93.0% 92.0%
Claims/loss Ratio (overall) 70.0% 77.0% 67.0% 75.0% 62.0% 62.0% 62.0% 62.0%
*EPS and Book Value has been computed assuming nominal value of Baizas 100 per share.

Note: Applicants are advised to carefully read and evaluate the assumptions underlying the
financial projections as set out in “Key assumptions” in the Chapter “Projected Financial
Statements”. Applicants are also advised to take note of the statements set out in the
accountant’s report accompanying the financial statements and financial projections.

- Although the Company’s GWP has decreased in 2016, but net underwriting results have
improved to reach RO 3.8 million in 2016 as compared to RO 2.9 million in 2015. It is
expected that the GWP will improve with an average growth of around 9% during the
projected period (2017-2021) to reach RO 27.4 million.

- Due to the Consolidation in 2017 the shareholder equity is projected to rise from RO 10
million in 2016 to RO 18.5 million in 2017. It is expected that the Company will reach the a
return on equity level of 11.7% on the increased equity in 2018 and improve further to
13.4% in 2021.

- The net profit of the Company was RO 1.8 million in 2016, a compounded increase of 36%
over 2014 figure of RO 1 million (with a 18% growth over 2015 net profit of RO 1.5 million).
This is primarily due to improvement in net claims to net premium, which has dropped from
77% in 2015 to 67%. It is expected that the net claims ratio will further improve to 62% by
2021.

- The existing investment yield of the Company is around 4% and is expected to be

maintained around 5% during the projection period.

- The book value of the Company is RO 0.174 as of 31st August 2017 and is expected to
improve to RO 0.179 by year-end 2017. The book value is expected to reach RO 0.216 by
year 2021, a compounded increase of 5% during 2017-21.

18.3. Comparables:

AFIC’s quantitative analysis for the purpose of Valuation has been done in comparison to the
peer set. The peer set has been arrived at based on the nature of business, geographies in
which the companies operate, size and other market characteristics. The peer group
reference ratios are provided below:

[96]
 P/B
Company Market P/E P/B Div. Yield Beta
(Tangible)
MSM 30 Oman 11.8 1.0 1.0 5.2 1.0
Oman United Insurance Oman 11.1 1.3 1.3 8.1 0.4
Muscat Insurance Company Oman 7.2 0.5 0.5 5.8 0.3
Dhofar Insurance Oman NA 2.4 2.4 NA 0.3
Al Ahlia Insurance Oman 14.4 0.9 1.6 8.8 0.3
Vision Insurance Oman 9.0 1.1 1.1 7.8 0.8
Oman Qatar Insurance Oman 6.3 1.0 1.0 4.8 0.3
National Life & General Oman 10.6 1.7 1.7 4.7 0.7
Sector Average (excluding 10.1 1.1 1.2 6.5 0.5
Oman
Dhofar Insurance)

Source: Bloomberg, Company publications and stock exchange data

Note:
1. The above PE multiples are based on the trailing 12 months EPS of the respective
companies.
2. Data as on 5th Feb 2018.

18.4. Valuation

The equity valuation for the Company is based on relative valuation and dividend discounting
methodologies described below and takes into consideration the projected performance of the
Company as well as the current market conditions.

Relative Valuation

Under the relative valuation approach, the valuation is benchmarked against other listed
comparables which represent similar risk return profile i.e. operations, cash flows, capital structure,
growth plans, etc. The relative valuation is generally based on current financial results or projections
for the next one to two years. The benchmarks which are frequently used for relative valuation
include price to earnings multiple, price to book multiple and dividend yield. It captures the
prevailing market sentiment and should reflect investor perception of publicly available information.
Its effectiveness depends on the ability to identify an appropriate peer set and an active stock
market that has sufficient liquidity and trading conditions for the peer set.

The Valuation of AFIC for the purpose of the IPO is arrived at by considering the PE multiple, PB
multiple and the Dividend Discounting Model and applying an IPO discount for arriving at the Offer
Price.

PE multiple
The Company’s EPS is projected to grow at a CAGR of 43% during 2017-2021 (4 years) and 13%
during 2016-2021 (5 years).

At the Offer Price of Baizas 190 per Share and based on the trailing 12 months EPS (December 1,
2016 to November 30, 2017) of RO 0.0086 per share on the capital of 103 million Shares of nominal
value Bzs 100 each amounting to RO 10.3 million), the PE multiple for the Company is calculated to
be 22.1.

[97]
Company’s net profit for the 11 month period ended 30th November, 2017 (unaudited) was RO
0.452 million (unaudited) resulting in an annualized EPS of RO 0.0046 on capital of RO 10.3 million.
At the Offer Price of Baizas 190 per Share and based on the annualized EPS for the 11-month period
ended 30th November 2017 (unaudited), the PE multiple for the Company is calculated to be 41x.

The Company believes that it will post the expected profit of RO 0.7 million for the full year 2017. At
the Offer Price of Baizas 190 per Share and based on the projected 2017 EPS of Bzs 6.7, the PE
multiple for the Company is calculated to be 28.4x.

At the Offer Price of Baizas 190 per Share and based on the projected 2018 EPS of RO 0.0215, the PE
multiple for the Company is calculated to be 8.8.

PB multiple

At the Offer Price of Baizas 190 per share, the PB multiple of the Company, based on audited August
31, 2017 net worth of RO 0.173 per share, is calculated to be 1.1x.

The Company’s net worth as at 30th November, 2017 was RO 18.2 million (unaudited). The Book
Value per Share as of 30th November, 2017 was RO 0.177. At the Offer Price of Baizas 190 per Share,
the PB multiple for the Company is calculated to be 1.07.

At the Offer Price of Baizas 190 per Share and based on the projected book value as at 31st
December 2017 (post IPO), the forward PB multiple for the Company is calculated to be 1.06x .

Dividend Yield

The projected dividend yield of the Company, at the Offer Price of Baizas 190 per share, during the
period 2018-2022 is provided below:

2018 2019 2020 2021 2022

Projected dividend per Share (Bzs) - 12.5 15 15 17.5 20.0
paid in the year
Dividend yield (%) * (Note) 26.3% 7.9% 7.9% 9.2% 10.5%
Note: Dividend yield is annualized for 2018, considering 3 months holding period for IPO investors
respectively. The un-annualized yield will be 6.6% for 2018.

Dividend Discounting
The DDM method of valuation captures the value of a company based on projected future dividend
payments, discounted to the present value. The key components for DDM include:

- Dividends: The projected dividends expected to be received by the investors

- Terminal value: Value at the end of the projections period. The terminal value is estimated by
capitalizing the dividends of the last year of projections by using the discount rate and terminal
growth rates

- Discount rate: The rate used to discount projected Free Cash Flow (FCF) and terminal value to
their present values

For companies expected to operate as a going concern like AFIC, the terminal value is estimated and
discounted to present value. This present value is then used to evaluate the attractiveness of an
investment opportunity at a given price.

[98]
 Value per Share (Bzs)Discount Expected Terminal Growth Rate
Rate 3.0% 3.5% 4.0%
10.5% 230 244 259
11.0% 215 227 240
11.5% 202 212 224
12.5% 178 186 195
Note: The projected dividends (refer cash flow in Chapter 14) are discounted for the forecasted
period of 2018-2021, in addition to the discounted terminal value post projected period.

Based on the financial projections, the Offer Price results in a favorable comparison using relative
and DDM valuation.

[99]
19. RELATED PARTY TRANSACTIONS AND MATERIAL CONTRACTS

19.1. Related Party Transactions

These represent transactions with related parties, i.e. parties are considered to be related if one
party has the ability to control the other party or exercise significant influence over the other party
in making financial and operating decisions and directors of the Company and companies of which
they are key management personnel. Related parties comprise the shareholders, directors, key
management personnel and business entities in which they have the ability to control or exercise
significant influence in financial and operating decisions. Pricing policies and terms of these
transactions are approved by the Company’s management and are on mutually agreed terms.

Significant transactions were:

(a) Transactions with related parties

Transactions with related parties or holders of 10% or more of the Company’s shares or their
family members, included in the statement of comprehensive income are as follows. These are
relating to directors and other companies where the directors of the companies have
shareholding:

Period ended Period ended

31 August 2017 31 August 2016
Unaudited
RO RO
Transactions with directors:
Gross premiums written 5,432 7,728
Gross claims paid 9,570 1,100

Transactions with other related parties:

Gross premiums written 129,582 259,698
Gross claims paid 11,663 53,741

2016 2015
RO RO
From directors:
Gross premiums written 9,889 10,886
Gross claims paid 1,620 25,148

From other related parties:

Gross premiums written 250,531 170,316
Gross claims paid 72,253 29,565
Dividend received 27,063 20,047
Proceeds from sale of investment property 1,900,000 -

[100]
 (b) Balances with related parties included under the following heads are as follows:

31 August 2017 31 August 2016

RO RO
From directors:
Insurance and other receivables - 5,282
Claims payables - -

From other related parties:

Insurance and other receivables 66,629 54,975
Investments in related parties - 358,585
Claims payables - 27,540

2016 2015
RO RO
From directors:
Insurance and other receivables 5,282 11,562
Claims payables 9,920 1,750

From other related parties:

Insurance and other receivables 54,975 56,234
Investments in related parties 358,585 365,351
Claims payables 50,195 48,885

(c) Compensation of the key management personnel

The key management personnel compensation for the year comprises:

Period ended Period ended
31 August 31 August 2016
2017 (Unaudited) RO
RO

Short term employment benefits 301,843 241,279

End of service benefits 10,519 8,943
Directors’ sitting fees (note 15) 15,825 13,750
Social security benefits 3,433 3,372
331,620 267,344

2016 2015
RO RO

Short term employment benefits 331,428 255,947

End of service benefits 15,098 14,933
Directors’ sitting fees 17,000 14,250
Social security benefits 5,057 252
Directors' remuneration 32,500 35,750
401,083 321,132

[101]
19.2. Material Agreements

Major contracts/agreements entered into by the Company include the following:

Sr.No. Particulars Counterparty Date of Date of Expiry

Execution
1 Combined Engineering Swiss Reinsurance 1 July 2017 30 June 2018
Quota Share and Surplus Company Ltd
Reinsurance Agreement
2 Combined Engineering Swiss Reinsurance 1 July 2017 30 June 2018
Quota Share and Surplus Company Ltd
Reinsurance Agreement
3 Quota Share Reinsurance Swiss Reinsurance 1 July 2017 30 June 2018
Agreement for Casualty Company Ltd
Business
4 Quota Share Reinsurance Swiss Reinsurance 1 July 2017 30 June 2018
Agreement for Casualty Company Ltd
Business
5 Combined Quota Share Swiss Reinsurance 1 July 2017 30 June 2018
and Surplus Reinsurance Company Ltd
Agreement for Property
and Miscellaneous
Accident Business
6 Combined Quota Share Swiss Reinsurance 1 July 2017 30 June 2018
and Surplus Reinsurance Company Ltd
Agreement for Property
and Miscellaneous
Accident Business
7 Engineering Quota Share Aon Benfield 1 July 2017 30 June 2018
and Surplus Treaty Middle East
Limited
8 Marine Hull Quota Share Aon Benfield 1 July 2017 1 July 2018
and 1st Surplus Treaty Middle East
and Limited
Marine Cargo Quota
Share and 1st Surplus
Treaty
9 Fire Quota Share and Aon Benfield 1 July 2017 30 June 2018
Surplus Treaty and Middle East
Miscellaneous Accident Limited
Quota Share Treaty
10 Marine Cargo Second Aon Benfield 1 July 2017 1 July 2018
Quota Share Middle East
Limited
11 Non Marine Excess of Aon Benfield 1 July 2017 30 June 2018
Loss Reinsurance Middle East
Limited
12 Motor and Third Party Aon Benfield 1 July 2017 30 June 2018
Liability Excess of Loss Middle East
Treaty Limited

[102]
Sr.No. Particulars Counterparty Date of Date of Expiry
Execution
13 Marine Excess of Loss Aon Benfield 1 July 2017 30 June 2018
Reinsurance Middle East
Limited
14 Individual Life Insurance Swiss Reinsurance 1 April 2009 Continuous
Treaty Company Ltd Contract subject to
Continuous 90 days prior
from first written notice of
execution. cancellation.
15 Individual Life Insurance Münchener 1 January 2016 Continuous
Treaty Rückversicherungs- Contract subject to
Gesellschaf Continuous 90 days prior
from first written notice of
execution. cancellation.
16 Group Life Insurance Partner 1 January 2012 Continuous
Treaty Reinsurance Continuous Contract subject to
Europe SE from first 30 days prior
execution. written notice of
cancellation.
17 Workmen Compensation Partner 1 May 2014 Continuous
Treaty (Group Life Top Reinsurance Continuous Contract subject to
Up) Europe SE from first 30 days prior
execution. written notice of
cancellation.
Endorsed along
with Group Life
Treaty.
18 Group Medical Insurance ICICI Lombard 1 January 2018 31 December 2018
Treaty Contract subject to
90 days prior
written notice of
cancellation.
19 Group Medical Allianz Worldwide 1 January 2018 31 December 2018
Insurance Treaty Partners Contract subject to
30 days prior
written notice of
cancellation.
20 Group Credit Life Treaty Partner 1 October 2013 26 December 2015
(Bank Muscat) Reinsurance
Europe SE
21 Catastrophe Excess of Partner 1 November 31 October 2018
Loss Cover Reinsurance 2017
Europe SE
22 Group Credit Life Treaty Münchener 1 May 2017 30 April 2018,
(Muscat Finance) ( FAC) Rückversicherungs- Contract subject to
Gesellschaf 90 days prior
written notice of
cancellation.
23 Group Credit Life Treaty Münchener 1 March 2017 28 February 2018,
(Taageer Finance- 2013) Rückversicherungs- Contract subject to
(FAC) Gesellschaf 90 days prior
[103]
Sr.No. Particulars Counterparty Date of Date of Expiry
Execution
written notice of
cancellation.
24 Group Credit Life Swiss Reinsurance 1 November 31 October 2018
(Taageer Finance -2017) Company Ltd 2017
(FAC)

Technical services agreement with Arabia Insurance S.A.L.

Rent agreements for the Company’s offices and branches.
Agreements with the Company’s insurance agents and insurance brokers.
Agreements with Loss Adjustors and vehicle repair garages.
Investment management agreement with portfolio managers.
Agreement with medical TPA (Third Party Administrator) services.
Agreement with IT software supplier for IT solutions support.
IT services agreements with core insurance software company.

[104]
20. CORPORATE GOVERNANCE

Certain sections of this chapter summarize the issues relating to corporate governance based on
the Articles, the CCL and the rules and regulations issued by the CMA, in particular, the Code. The
description provided in this chapter is only a summary and does not purport to give a complete
overview of the Articles or of the relevant provisions of the CCL, the Code or the CMA rules and
regulations.

20.1. Management Overview

The respective roles and responsibilities of the management bodies of the Company are in large
part governed by the provisions of CCL, the Articles and, after listing on the MSM, by the Code and
circulars issued by the CMA in respect thereof.

The management of strategic issues of the Company is entrusted to its Board. The Board may
perform all acts necessary or useful for achieving the corporate purposes of the Company, with the
exception of those acts that are by Applicable Law or the Articles explicitly reserved for the
Shareholders' general meeting. The day-to-day management of the Company is carried out by the
Management.

20.2. Board

The size of the Board as per the Company’s Articles of Association is seven (7) out of which six (6)
members were elected on 28th March, 2017 and there is 1 Board seat that is vacant. The Company
will hold an OGM to elect the full Board within 2 months from the date of listing of the Company’s
shares on the MSM.

The Directors' term of office shall expire in three years from the date of election pursuant to Article
95 of the CCL. The current Board is set out in the table below.

Name Representing Executive/Non- Independent/ Non-

Executive Independent1
Mr. Maroun Kyrillos Arabia Non-Executive Non-Independent
Holding
Mr. Shabir Moosa Personal Non-Executive Non-Independent
Abdullah Capacity
Mr. Muneer Butros Personal Non-Executive Non-Independent
Mouasher Capacity
Mr. Manish Palande Al Anwar Non-Executive Non-Independent
Janardan Holding
Mr. Samer Joseph Lawrence Non-Executive Non-Independent
Abou Jaoude Investments
Mr. George Personal Non-Executive Independent
Antuneus El Chidiac Capacity

[105]
NAME Title/ Age Qualifications Experience Directorship in Nationality
Designation (yrs) (yrs) SAOG
Companies

MBA
Maroun Kyrillos Chairman 51 28+ Nil French
(Finance)

Al Anwar
Deputy MBA Holding, Al
Shabbir Moosa Abdullah 47 20+ Omani
Chairman (Finance) Maha
Ceramics

Muneer Butros
Director 48 B A, Dip. CII 25+ Nil Jordanian
Mouasher

George Chidiac Director 61 BBA 37+ Nil Lebanese

MBA, Master
Samer Abou Jaoude Director 41 18+ Nil Lebanese
in Intl Affairs

Manish Palande Director 36 ACA 12+ Nil Indian

Brief profile of the Directors is given below:

Mr. Maroun Kyrillos – Chairman -

Maroun Kyrillos holds a Master in Financial Management and BA in Economics from Paris II – Assas.

He started his insurance career in 1989 with Generali France in the marine insurance. In 1995 he
joined AXA group in the Gulf for almost 10 years where he occupied different positions as Country
Manager of KSA, General Manager of AXA in the UAE, Deputy General Manager at AXA in charge of
Qatar, Kuwait, Oman and Bahrain, Branch manager, Account Executive etc.

In 2005 he joined Arab Bank for 3 years where he set up the bancassurance/insurance department
of the Bank and after negotiating the purchase of a majority in al Nisr al Arabi Insurance Company
on behalf of the Bank became its Chairman.

[106]
Currently he is a Board member at Arabia Insurance SAL, member of its Audit Committee and
Chairman of its risk committee. He is as well Chairman/CEO/founder of Himaya SAL in Beirut and
Management partner/founder at Himaya Iraq Ltd (Insurance brokerage).

Mr. Shabir M. Al Yousef – Deputy Chairman

He Holds an M.B.A in Finance from University of Lincolnshire & Humberside (U.K), Master of
Science from Colorado School of Mines (U.S.A) and Bachelor’s Degree in Electronics and
communications from Sultan Qaboos University. He held senior positions in management and
Board of many SAOG and SAOC companies i.e. National Aluminum Products Company SAOG, Bank
Sohar SAOG, Al Anwar Ceramics SAOG, Financial Corporation Co. SAOG, Oman Investment and
Finance Co. SAOG, Damac Holdings, SAOG, UAE.

Currently, he is on the Board Al Maha Ceramics SAOG, Anwar Holdings SAOG and Cactus Premier
Drilling Services SAOC, in addition to Arabia Falcon Insurance Company SAOC.

Mr.George Chidiac – Director

Mr. George Chidiac holds Bachelor degree in Business Administration, started his insurance career
in 1980 and remained active within the industry till date. His insurance, re-insurance and
managerial assignments stretched from Lebanon to Jordan, Cyprus, Oman, UAE and Kuwait.
Former board member and shareholder of AI-Ittihad Al-Watani insurance co. Elected several times
and presently member of the UAE insurance association board and several times speaker and
panelist in insurance related conferences.

Founding member and 3 consecutive terms Deputy Chairman of Falcon Insurance and presently
Board member of Arabia Falcon Insurance and deputy chairman to NR & EC.

Mr. Chidiac has in addition other insurance advisory functions within Gulf region.

Mr. Muneer Butros Mouasher – Director

Mr. Mouasher holds BA in Accounting, and Diploma in Insurance from the CII Chartered Insurance
Institute U.K. Qualified Meditator and Arbitrator by The Insurance Commission – Jordan and The
American Bar Association, has an experience in Insurance for over 25 years, and attended many
advance courses in management.

Mr. Mouasher is the Global Head of Insurance Division - Arab Bank since November 2006, CEO of
Arabia Insurance Co. October 2013- January 2015, General Manager of CareCard Health Insurance
Management Co. Prior to CareCard, joined Jordan International Insurance Co. as Assistant General
Manager for Health and Life insurance, and the Technical -Assistant General Manager, and worked
for Middle East Insurance Co. as underwriter for General Accident Insurance dept.

• Member of Board of Directors of Arabia Insurance Cooperative Company- KSA, and Chairman
of the Executive Committee, and NomRem Committee since January 2014.
• Member of Board of Directors Arabia Insurance Company -Jordan, and Chairman of the Audit
Committee since January 2014.
• Member of Board of Directors Arabia Insurance Company -Syria, and Chairman of the Audit
Committee since Sept.2015.
• Member of Board of Directors of Arabia Insurance company- Lebanon, and Chairman of the
Audit Committee February 2009 – June 2016
• Chairman of Board of Directors of Al Nisr Al Arabi Insurance company- Jordan for more than
5 years until 10/2013.
[107]
Mr. Samer Abou-Jaoude– Director

Mr. Samer Abou-Jaoude is the General Manager of Arabia Insurance Company since the 1st of
January 2016.

Mr. Samer started his insurance career as an Account Executive for Axa Insurance in the United
Arab Emirates. He then moved to Gen Re in Paris, France where he became the manager of Gen
Re’s casualty facultative reinsurance operations covering the French, Belgian and MENA markets.

Samer later joined PricewaterhouseCoopers where he assisted in setting PwC's Middle Eastern
insurance advisory practice as a Senior Manager. He also served as Head of Group Coordination
and Development for Chedid Capital Holding, a regional Middle Eastern insurance investment firm,
with responsibilities for improving the Group's operational performance and workflows, marketing
and communications, and the development of strategic opportunities.

In May 2011, and prior to joining Arabia Insurance, Samer joined Zurich Insurance Company in
Dubai as the Chief Administrative Officer/Chief of Staff for Zurich's General Insurance operations in
the Middle East. He was later appointed as the Head of Customer, Distribution and Marketing
(CD&M) for Zurich’s Global Corporate operations in the Middle East.

Mr. Samer has a Master of Business Administration degree from the Ecole Nationale d’Assurances
in Paris, France and a Master degree in International Affairs from the Lebanese American
University in Byblos, Lebanon.

Mr. Manish Palande – Director

Mr. Manish Palande is a Chartered Accountant with accreditations from the Institute of Chartered
Accountants of India. He has over 12 years of experience in the buy-side/independent research and
funds management in Indian, US and GCC Public & Private Equity markets.

Mr. Manish joined Al Anwar Holdings SAOG in 2012 as Investment Manager and leads the end-to-
end private & public equities transactions involving deal sourcing and transaction structuring for
acquisition & divestiture, financial modeling, due diligence, fund raising, portfolio company
management and timely exit.

Before joining Al Anwar, Mr. Manish has worked with leading independent research houses and
family offices in India, managing the equity portfolios.

20.3. Post-IPO Board Composition

As per the proposed Articles approved the Company shall be managed by a Board comprising 7
members, appointed from amongst the Shareholders and non-Shareholders, provided that the
Shareholder candidate owns at least 0.5% of the share capital of the Company has been, elected at
the General Meeting of the Company in accordance with the provisions of the CCL and the Articles.

The Company will hold an OGM to elect the full Board within 2 months from the date of listing of
the Company’s shares on the MSM.

The Company intends to have a Board that complies with applicable CMA, Insurance Law and CCL
requirements, including the number of Independent Directors and non-executive Directors, and
that represents the interests of all shareholders including those who subscribe to the offered
shares.
[108]
20.4. Appointment of Board
The term of office of a member of the Board shall be for a period of three years, subject to his re-
election more than once. The period stipulated for election to the Board shall be calculated from
the date of the AGM at which the Director is elected to the date of the third following it. Where
the date of such meeting exceeds the term of three years, the membership shall be extended by
Applicable Law to the date on which the meeting was convened, however it shall not exceed the
period stipulated in the CCL for convening an AGM.

Subject to Article 95 of the CCL, nominees to the membership of the Board must:
a. Possess good conduct and reputation;
b. Be at least 25 years old;
c. Not have been declared insolvent or bankrupt unless his insolvency or bankruptcy has come to
an end in accordance with the law;
d. Not have been convicted of an offence of dishonour unless he has been rehabilitated;
e. Not be unable to discharge his debts to the Company;
f. Not be a member or a representative of a juristic person in more than four SAOGs whose head
offices are in Oman once appointed to the board in question.
g. In case he is representing a juristic person, be authorised by such juristic person to stand for
election.
h. Not be a member of the board of directors of an SAOC or SAOG the objects of which are similar
to those of the Company, with its principal office based in Oman.
i. Present a declaration which contains a statement of the number of Shares he has if he is a
Shareholder and that he will not dispose of them to the extent that he shall be deprived of his
status as a Shareholder throughout the term of his office.

If a member of the Board ceases to satisfy any of the conditions necessary for the membership, he
shall be required to notify the Board of it. Accordingly, his position shall be treated as vacant
effective from the date of such notice. Otherwise, his membership shall become cease from the
date the Company comes to know of it, without prejudice to his liability as per the provisions the
CCL. Consequently, his office shall be filled in accordance with the Articles and the CCL.

The Directors shall be elected by direct secret ballot by the Shareholders of the Company. Each
Shareholder shall have a number of votes equal to that of the Shares held by him. A Shareholder
shall have the right to use the entirety of his votes in support of one nominee or divide his Shares
among other nominees of his choice through the voting card. It follows from that the total number
of votes given to the nominees by one Shareholder must not exceed the total number of Shares
owned by him.

The requirements stipulated by the CCL, the Code, and the CMA’s regulations shall be observed
upon the election of the Board.

20.5. Formation of the Board

The Company must be headed by an effective Board of Directors to lead the Company, monitor its
business and control its operations. The Board shall be collectively responsible for the success of
the Company in achieving its long term objectives. The Board shall work with the executive
management, without interfering in their day-to-day duties, to achieve the Company’s objectives.
In all cases, the executive management shall be responsible before and accountable to the Board.

[109]
1. The Directors are severally and jointly liable before shareholders in achieving the Company’s
goals and objectives. They shall be primarily concerned with the Company’s interests and give
them precedence over other interests including the interests of the shareholders they
represent.
2. The general meeting may remove any Director or all Directors if they fail in performing their
duties and responsibilities.
3. The Directors and Chairperson of the Board are prohibited from interfering in the daily routine
and direct operational matters of the Company.
4. Subject to the provisions of the CCL and its amendments, and the Rules and Conditions for
Electing Directors of Public Joint Stock Companies and their Responsibilities, the Company shall
comply with the following when forming its Board:

a. All Directors shall be non-executive directors.

b. Percentage of independent Directors to the total number of Board members shall not be
less than one third, with a minimum of two independent Directors.
c. A juristic person shall not be represented on the Board by more than one Director. Where
a juristic person’s representative has been elected as a member of the Board, such juristic
person may from time to time replace the elected member with another person by written
notice to be submitted to the Company.
d. Directors, who have been elected for the first time or re-elected, must undergo some
qualification in corporate governance and sustainability through training programmes at
the Company’s expense.
5. The opinion of the Nomination and Remuneration Committee shall be taken into consideration
when electing directors to ensure that elected directors possess the required skills and abilities.

20.6. Responsibilities of the Board

The Board of directors shall be responsible for the following:

The Board shall be, inter alia, responsible for the following:
a. Approve the commercial and financial policies and estimated budget of the Company, so as
to achieve its objects and preserve and enhance the rights of the Shareholders;
b. Prepare, review and update from time to time the plans necessary to accomplish the
Company's aims and perform its activities, in light of its objects;
c. Adopt the Company's disclosure policies and monitor their application in accordance with
the rules and conditions for disclosure issued by the CMA;
d. Supervise the performance of the Management and ensure that work is properly attended
to, so as to achieve the Company's aims and perform its activities, in light of its objects;
e. Provide information to the Shareholders accurately and at the times required by the rules
of the CMA;
f. Appoint the CEO or the general manager provided that neither of them shall be the
Chairman and appoint the employees who report to each of them pursuant to the
organizational structure of the Company and determine their authorities and rights;
g. Assess the performance of the employees mentioned in the previous paragraph and assess
the work carried out by committees formed by the Board pursuant to article 102 of the
CCL;
h. Approve the financial statements related to the activities of the Company and the results
of its activities that are submitted by the Management every three months, so as to
disclose its true financial position;
i. Include, in the annual report submitted to the general meeting of the Shareholders, a
reasoned affirmation of the Company's ability to continue to carry on its activities and
achieve its aims;
[110]
 j. Appoint a secretary for the Board in the first meeting held by it and hold at least four
meetings per year provided that the period between any two consecutive meetings shall
be a maximum of four months;
k. Appoint the managing director(s) if there is such a post provided that the persons who are
appointed shall be appointed on a full time basis; and
l. Include in the financial statements full details of the amounts received by any Director
during the year including the amounts paid to the Directors in their capacity as employees
of the Company.

20.7. Powers of Board

The Board shall have extensive authority to perform all acts for the management of the Company
to achieve its objects and to execute the resolutions adopted at a general meeting of the Company.
This authority shall not be limited or restricted except to the extent provided for in the Applicable
Law, the Articles and the relevant Shareholder resolutions.

In accordance with the Articles, a Board meeting shall be deemed valid if a simple majority of its
members are present or represented by proxy. Within the scope of authority detailed above, and
in accordance with the Articles, the Board shall decide on all matters and the Board shall adopt its
resolutions by a simple majority of the members present or represented by proxy at the meeting.

The Board shall not perform the following acts unless authorized to do so by a resolution of a
general meeting of the Company:
a. To make donations unless they are small and customary amounts;
b. To sell all or a substantial part of the assets of the Company;
c. To mortgage or pledge the assets of the Company except to secure its debts incurred in the
normal course of its business; or
d. To guarantee debts of third parties with the exception of the guarantees made in the normal
course of business for the purpose of achieving the objects of the Company.

Subject to the provisions of the CCL, the members of the Board shall be liable to the Company, the
Shareholders and third parties for damages arising from their acts in violation of the Applicable Law
or their acts beyond the scope of their authority or for any fraud or negligence in the performance
of their duties or for their failure to act as prudent men in the specific circumstances. In such cases,
the Company has the right to litigate against any member of its Board for the damages sustained
by the Company. The decision to appoint a person to pursue the case on behalf of the Company
shall be made by resolution of the Board or a general meeting of the Company and shall authorise
him to meet the cost of the proceedings out of the funds of the Company.

Any Shareholder may propose a resolution to commence proceedings against the Directors and if
his proposal is not adopted by a general meeting of the Company, may himself pursue the case on
behalf of the Company. If the case is successful, such Shareholder shall receive reimbursement of
the costs and expenditure incurred by him in the proceeding and out of the proceeds of the
judgment and any outstanding balance of such proceeds shall be paid to the Company.

The Company shall be bound by all acts performed by its Board, its Chairman and the deputy
Chairman when acting within the scope of their authority. Any third party acting in good faith shall
be entitled to assume that any act performed by the Board, Chairman and the deputy Chairman of
the Company in pursuance of its business was within the scope of such person’s authority and the
Company shall be bound thereby unless the limitation of such person’s authority was registered in
the registry at the MOCI.

[111]
A member of the Board or any other party related to the Company shall not have any direct or
indirect interest in the transactions or contracts made for the account of the Company, except
those concluded in accordance with the regulations issued by the CMA.

A member of the Board may not participate in the management of a business competitive with that
of the Company, except with the prior consent of a general meeting of the Company and such
consent shall be renewed annually. Also, a member of the Board or any of the key employees of
the Company may not make use of any information available to them by virtue of their position for
their own interest or for the interest of their dependents or immediate relatives up to the fourth
degree as a result of dealing in the Company’s securities. Further, they may not have any interest
directly or indirectly in any entity involved in activities which may affect the price of securities
issued by the Company. Should they be in breach of the above then Articles 109 and 110 of the
CCL shall be applied.

20.8. Remuneration of the Board

The annual remuneration and sitting fees for members of the Board and any sub-committees of the
Board shall be determined in accordance with the Applicable Laws.

Details of sitting fees and remuneration for the years 2014, 2015 and 2016 of the Board is given
below:
Name of the Director Sitting fee (RO) Remuneration (RO) Total (RO)

2014 2015 2016 2014 2015 2016 2014 2015 2016

Brig (Retd) Masoud Bin
Humaid Bin Malik Al 1800 1800 2,700 6405 6192 5850 8205 7992 8550
Harthy, Chairman

Mr. George Chidiac 2150 2600 2,000 5695 5505 5200 7845 8105 7200

Mr. Suleiman bin

Mohamed bin Hamed Al 1125 700 2,200 4980 4814 4555 6105 5514 6755
Yahyai

Mr. Qais Al Yousef 2075 2100 4980 4413 7055 6513 0

Mr. Faisal Al Yousef 1800 450 4980 1204 6780 1654

Mr. Antonios H. Georgiou 1200 1225 2,200 4980 4814 4555 6180 6039 6755

Mr. Shabir M Al Yousef 2075 3,100 3209 4555 0 5284 7655

Mr. Reji Joseph 2550 3300 3,150 4980 4814 4555 7530 8114 7705

Mr. Sanjay Kumar Tiwari 1,650 3230 0 0 4880

TOTAL 12,700 14,250 17,000 37,000 34,965 32,500 49,700 49,215 49,500

Board Committees
The Company has an audit committee and a nomination, remuneration and executive committee.

The terms of reference of the Audit Committee are as per the CMA guidelines. In particular, the
Audit Committee reviews the internal control systems in place, reviews the audit plan and reviews
the appointment of external auditors. The Audit Committee also reviews the Annual audited

[112]
financial statements, submissions of returns and solvency margin computations submitted to the
CMA.

1. Audit Committee

AFIC has an Audit & Risk Committee whose members are:

Name of Director Position Independent/ Non-

Independent
Mr. Muneer Butros Mouasher, Chairman Non-Independent
Mr. Shabir M. Al Yousef Member Non-Independent
Mr. Manish Janardan Palande, Member Non-Independent

The Company will ensure the compliance with the requirements of the Code relating to the Audit
Committee within 2 months from the date of listing.

The Board shall, when constituting the audit committee, abide by the following:
a. The committee shall comprise of, at minimum, three Directors, the majority of whom shall be
from the Board’s independent directors.
b. One member, at least, shall have finance and accounting expertise.
c. In all cases, the chairperson of the committee must be selected from the independent
Directors at the committee.

The committee has to assist the Board in the following tasks:

a. Validating and verifying the overall efficiency of the executive management in implementing
the operational directives and guidelines set up by the Board.
b. Evaluating and monitoring the adequacy of internal control systems and their efficiency.
c. Creating policies for safeguarding the Company’s human, material and intellectual resources
and assets.

The audit committee shall submit to the Board an annual plan through which it shall discharge its
tasks and competences.

2. Nomination and Remuneration Committee

The Board has established a nomination and remuneration committee with the aim of assisting the
general meeting in the nomination of proficient directors and the election the most fit for purpose.
Moreover, the committee aims to assist the Board in selecting the appropriate and necessary
executives for the executive management.
The nomination, remuneration and executive committee decides matters which are beyond the
powers of the management, but which require an in-depth study and prolonged deliberations. The
current members are:

1. Mr. Maroun Kyrillos, Chairman

2. Mr. George Chidiac, Deputy Chairman
3. Mr. Shabir M. Al Yousef, Member
4. Mr. Samer Abou-Jaoude, Member
5. Mr. Manish Janardan Palande, Member

Subject to the provisions of the applicable rules of remuneration and sitting fees for Directors of
SAOGs, the committee shall exert its efforts to assist the Company in formulating clear, credible
[113]
and accessible policies to inform shareholders about Directors’ and executives’ remuneration.
However, additional performance based criteria have to be used to determine the bonus and
remunerations of the chief executive officer and senior executive management. The committee
shall submit to the Board an annual plan of action.

20.10. Internal Regulations

In accordance with the provisions set out in Article 68 of the CCL, the Company is required to lay
down internal regulations for regulating the management of the Company, its business and
personnel affairs through its Board. The Company has already put in place some of the policies and
regulations prescribed by the CMA and shall appropriately review the same in the light of its
transformation into an SAOG and also formulate such additional policies and procedures that may
be required in this context. These regulations shall cover at least the following:

a. Organizational structure of the Company stating therein the responsibilities related to the
various posts of the Company and the reporting structure/ procedures.
b. Specifying the extent of the authority vested with each post with regard to approval of the
financial expenditure.
c. Fixing the allowance for the meetings, remuneration and other privileges as prescribed in
respect of the members of the Board and committees constituted under its auspices and the
basis for their calculation.
d. The policies related to the purchases and service contracts.
e. The minimum level of information required to be submitted to the Board.
f. The authorities, duties and responsibilities relevant to the Management and subcommittees.
g. The policies related to human resources including the salaries, appointment, development,
training, promotions and termination of the services etc., covering other relevant aspects.
h. Investment policies of the Company.
i. Policies for related party transactions.
j. Policies and measures for submission of material information in a transparent manner, to the
CMA and the MSM within the specified time including a definition of “material information”.
k. Any other regulations that the Board of the Company may deem necessary to add for achieving
adequate level of corporate governance.

20.11.Other Details

Names of the Directors who are shareholders in companies carrying None

out the same business as the Company
Disclosure of the direct or indirect interests of the Directors and top Only Mr. George Chidiac
management in the Company is shareholder in the
Company who is also the
Deputy Chairman
Disclosure of the names of Directors and officers who are/ were None
members of in the boards or top management of other SAOGs
indicating the companies that had been liquidated or distressed
within the last five years and the reasons for that.

20.12. Senior Management of the Company

Details of the current senior management of the Company are set out in the table below:

[114]
# Name Designation Nationality Academic Years of service Total
qualification in the Company Experience
(in years)

Chartered
A.R. Srinivasan Chief Executive
1
Officer
Indian Accountant, FIII, 6+ 31
ACII-London.

Ahmad Al Tayeb Chief Financial Canadia

2 MBA 4+ 20
Officer n

Assistant General
Ajith Kumar
Manager – M.Sc., Insurance
3 Indian Diploma (CII).
9+ 34
Life Division

Assistant General Chartered

P.M. Ramalingam Manager – Finance Accountant,
4 and Secretary of Indian Fellow of 5+ 30
the Board of Insurance Institute
Directors of India

Maurice Shaheen Senior Manager

Jordan BA 37+ 37+
Corporate Accounts

Senior Manager
6 Johnson Samuel Indian BA New 30
Motor

Senior Manager
Antoine Choueifati
7 Business French MBA 4+ 10
Development

Chartered
Ashwini Sawrikar Accountant,
8 Audit Manager Indian Certified Internal 5+ 20
Auditor, Chartered
Financial Analyst,
Certified
P Raveendran Senior Manager Non Information
9
Motor
Indian M. Com,Auditor,
System AFII 10+ 32
Certification in
Pradeep Gulhane Operation Risk
Manager Non- M Sc, ACII UK; FIII-
Mgmt.,
10
Motor Claims
Indian India
9+ 28
Non Motor Claims
Haridasan Manager
11 Indian BBA 9+ 21
Motor Underwriting

[115]
# Name Designation Nationality Academic Years of service Total
qualification in the Company Experience
(in years)

K. Pavan Kumar Manager

12 Indian MSc 4+ 11
IT

Mohamed Al Awaisi
Manager
13 Omani Bsc 2+ 11
Operations

BBA
Muna Al Harthi Manager Certificate in HR
14
HR
Omani Professionals In 2+ 12
Banking& Finance
– CIPD.

20.13.Senior Management of the Company

A brief on the Management of the Company is given below:

A.R. Srinivasan After graduating in Commerce (with Honours) from the University of
Chief Executive Delhi he qualified as a Chartered Accountant (ACA) from India. He is a
Officer Chartered Insurer (ACII) from the Chartered Insurance Institute,
London. He is also a Fellow (FIII) of the Insurance Institute of India,
Mumbai. He has three decades of varied experience in all aspects of
the Insurance Industry of which the last 24 years have been in senior
managerial positions in the Middle East, specializing in the areas of
Reinsurance, Underwriting and Claims Management,.

Having worked in India, Oman, UAE and Bahrain he has elaborate

knowledge of the Middle East market requirements in Insurance and
Reinsurance Operations. He has developed and maintained a
trustworthy relationship with major Reinsurers, Brokers and Clients.
Has a proven track record of transforming Companies and improving
profitability.

Ahmad Al Tayeb Master in Business Administration- MBA Finance from York University,
Chief Financial Officer Schulich School of Business (Canada) and Bachelor in Economics from
Damascus University (Syria). Certified Public Accountant- CPA (USA)
and member of American Academy of Financial Management- AAFM.
Has 20+ years' experience in finance, accounting, tax and audit
working for Insurance, financial services and government sectors in
Syria, Canada, UAE and Oman. Before joining AFIC, Ahmad was the
Deputy Country Manager for Arabia Insurance Co.- Oman and Deputy
general manager & Chief Financial Officer for Arabia Insurance Co-
Syria.
Ajith Kumar M.Sc., Insurance Diploma (CII). 34+ years’ experience in Life Insurance.
Assistant General 14+ years in Sultanate of Oman. Heading Life business of the company
Manager

[116]
Life Division
P.M. Ramalingam Graduated in Science from the University of Madras. He is Fellow of
Assistant General Institute of Chartered Accountants of India (FCA). He is also a Fellow
Manager - Finance (FIII) of the Insurance Institute of India, Mumbai. He has long
experience in Finance, Reinsurance, Investments and as Board
Secretary. For the past 17 years he has been working as head of
Finance in East Africa and Sultanate of Oman.

Maurice Shaheen Bachelor of Arts (Middle East Studies) Birzeit University in Palestine in
Senior Manager 1979, has been with Arabia Insurance since 15/08/1979 Worked on All
Direct Corporate LOB of insurance (Underwriting, Claims and pre risk surveys ) In 2001
Accounts appointed as Deputy Branch manager for Muscat Branch and in 2012
promoted to Branch Manager. During the work term with Arabia, Mr.
Maurice established and maintained an excellent and trustful
relationship with clients, Agents and brokers in the sultanate of Oman.
Currently, Mr. Maurice is in charge of managing direct corporate
business accounts.
Johnson Samuel Graduate from Calcutta University and Diploma in Insurance. He has
Senior Manager almost three decades of varied experience in the insurance industry.
Motor He has held senior managerial positions with multinational insurance
companies in the Middle East, including RSA Group and Zurich
Insurance Group, specializing in the areas of underwriting, risk
management, claims management and reinsurance in multi lines of
business with regional responsibilities for the entire Middle East.

Having worked in India, Saudi Arabia, UAE and Oman and having held
regional responsibilities he has vast knowledge of the Middle East
market insurance and reinsurance operations. He has developed and
maintained a trustworthy relationship with major reinsurers, brokers
and clients.

MBA in Economics from the French University of Bordeaux (France),

He has a long experience in the insurance field especially in Sales,
Marketing, Bancassurance and Business Development of sales
Antoine Choueifati
channels. Before joining Arabia insurance as Business Development
Senior Manager
Manager he was in charge of building dedicated sales team as Units
Business
manager at ALLIANZ for over 7 years and after in charge of the sales
Development
network as head of sales department including Sales teams, Business
development, Bancassurance with some external missions in various
Arabic countries for over 8 years at ADIR insurance (Join venture
between BYBLOS Bank Lebanon and NATIXIS Group France)
Is a qualified Chartered Accountant (CA) from ICAI, India; a Certified
Information Systems Auditor (CISA) from ISACA, USA; a CFA charter-
holder from CFA Institute, USA; a Certified Internal Auditor (CIA) from
IIA, USA and holds a certification in Operations Risk Management
(ORM) from SII, UK.
Ashwini Sawrikar
Audit Manager
An Audit Professional having a 20+ years of work experience in the
field of Audit and Consulting. As a consultant, she has helped her
clients in developing Policies & Procedures, Disaster Recovery Plans
and Business Continuity Plans. She has been involved in various
Internal Audits, Internal Control assessments, IT Security reviews,

[117]
 Information System Audits and Risk Assessments in the financial and
non-financial sector, in India and Oman.

P Raveendran M. Com, AFII. Has more than 32 years of experience in international

Senior Manager Non insurance, broking and managing technical underwriting insurance.
Motor
Post Graduate in Science, Chartered Insurer ACII UK; FIII- Fellow of
Pradeep Gulhane
Insurance Institute of India, Professional with 28+ years of experience
Manager
in the Insurance Industry in India, Dubai & Oman.
Non Motor Claims
Haridasan Bachelor of Business Administration. Over 20 years experience with 14
Manager years in Oman. Has worked in various positions in underwriting
Motor Underwriting departments.
Holds masters degree in Computer Applications from Bharathiar
University, India. Has 11+ years of experience in various Information
K. Pavan Kumar Technology Platforms with Major experience in Insurance Software
Manager-IT Sector Products. Has been involved and done many successful
implementations of insurance software solutions for many
organizations in various countries.
Holds Bachelor Degree of Science Bangalore University, India. Has 11 +
years’ experience, Programming in various languages, hardware,
Mohamed Al Awaisi Oracle (SQL, PL, Application form 1 & 2) and software design. Worked
Manager with Oman National Engineering & Investment Co. as Assistant
Operations Account, V2 Trenching & CO (Gas & Oil pipeline work) as
Administration Manager (Oman), and Oman Investment Corporation
as Project & Operation Manger (Qatar & Saudi Arabia).

Holds a degree in BBA, Bachelor in Business Administration. 12 Years’

experience. Certificate in HR Professionals in Banking& Finance –
Muna Al Harthi CIPD. Self-motivated human resource professional, successful in
Manager-HR leading cross-functional project teams by cultivating and promoting
effective working relationships.

[118]
21. RIGHTS AND LIABILITIES OF SHAREHOLDERS

21.1. Shareholder’s Responsibilities

The responsibility of a Shareholder shall be limited to payment of the value of the Offer Shares
subscribed. He/she shall not be liable for the debts of the Company except to the limit of the
nominal value of the Offer Shares subscribed.

Any person whose shareholding along with his dependent's shareholding, reaches 10% or more of
the Company’s share capital, shall inform the CMA about the same through a written
communication. Further, he/she shall inform the CMA regarding any transaction or dealing which
leads to the increase of this percentage immediately after it happens.

No single person or related persons up to second degree shall hold 25% or more of the shares of an
SAOG, in accordance with the regulations established by the Board of Directors of the Capital
Market Authority .

Arabia Holding obtained an exception from the CMA to hold 50.1% of Shares in the Company post-
IPO.

21.2. Shareholder’s Rights

All Shares shall enjoy equal rights in regards to declared profits at a general meeting of the
Company in accordance with the CCL. These rights include the following:

a. To receive the dividends declared by a general meeting of the Company;

b. The preferential right to subscribe for the Shares;
c. The right to participate in the distribution of the surplus assets of the Company in the event of
liquidation;
d. The right to dispose of the Shares in accordance with Applicable Law;
e. The right to peruse the balance sheet and profit and loss account of the Company and the
Shareholders' register;
f. The right to be notified through invitation for a general meeting of the Company and to
participate and vote in such meetings either in person or through proxy;
g. The right to apply for annulment of any resolution adopted by a general meeting of the
Company or Board if it is in breach and violation of the Applicable Law, or the Articles and
h. The right to sue the members of the Board and auditors of the Company on behalf of the
Shareholders or the Company in accordance with the provisions set out in Article 110 of the
CCL.

The CMA may, upon material reasons raised by Shareholders who own at least 5% of the Shares,
suspend the resolutions of a general meeting of the Company which are made in favour of a certain
category of Shareholders or in the interest of the members of the Board or others.

21.3. Reports and Statements

The Board shall prepare un-audited quarterly financial statements for the first, second and third
quarter of each Financial Year. It shall also prepare an annual report within two months from the
end of the Financial Year comprising of the audited balance sheet, profit and loss statement, cash
flow statement, changes in Shareholder’s equity, report of the Board, report on the discussions
held by the Board and their analysis and report on the organization and management of the

[119]
Company. These statements should be disclosed at least two weeks prior to the AGM through the
electronic transmission system through the MSM website.

The un-audited quarterly financial statements shall be forwarded to the Information Centre of the
MSM within thirty days from the end of each quarter or any other legal period prescribed by the
disclosure rules and conditions issued by CMA through the private Electronic Transmission System
of the Centre. The said Centre shall also be provided with two copies duly endorsed by the Board.
The Company shall also have it published within the aforementioned period.

On 29 May 2014, the CMA issued a circular to all SAOGs strongly urging them to disclose their
initial quarterly results within 15 days from the end of each quarter, approved by the executive
management and prior to the approval by the board. The Company shall comply with this directive.

21.4. AGM

The Board shall extend an invitation to the Shareholders to attend the AGM within three months
from date of end of the Financial Year. The AGM shall be responsible for the consideration and
approval of the following:

a. To study and approve the report of the Board.

b. To review the auditor's report and approve the balance sheet and profit and loss
statement.
c. To study and approve the corporate governance report.
d. To consider and approve the report on declaration of dividend. However, such dividend
shall be distributed only from the net profit generated or from the special reserves
accounts subject always to the provisions set out in Article 106 of the CCL.
e. To consider and approve the report on the sitting allowance for the meetings of the
members of Board and committees constituted under it for the forthcoming Financial Year
and approve the same.
f. To consider and approve the annual remuneration (if any) of the members of the Board for
the Financial Year.
g. To consider and approve the transparency of any transactions held with the related parties
during the previous Financial Year (if any).
h. To consider and approve any expected transactions with the related parties during the next
Financial Year (if any).
i. To appoint auditors for the next Financial Year and fix their fees, taking into consideration
the provisions laid down in Applicable Law.
j. To elect members to the Board in case of expiry of the term of office of one or more of
them or in the case of a vacancy that has arisen on the Board.

21.5. Ordinary General Meeting

The Board may convene a general meeting of the Company at any time and such meeting shall be
convened whenever required by Applicable Law or the Articles, or upon request of one or more
Shareholders who represent at least 25% of the capital of the Company.
The Board shall establish the agenda of a general meeting of the Company. If the meeting is
convened by the auditors, the agenda shall then be established by them. The Board, or the auditors
if necessary, shall include in the agenda any proposal put forward by the Shareholders who
represent more than 10% of the capital of the Company provided that such proposal is submitted
for inclusion in the agenda at least one month before the date of the meeting.

The resolutions of an ordinary general meeting of the Company shall be void unless the meeting is
attended by Shareholders or their proxies who represent at least half the capital of the Company. If
[120]
such a quorum is not formed within one hour of the time stipulated for the start of the meeting, a
second meeting shall be called to discuss the same agenda. The second ordinary meeting of the
Company shall be notified to the Shareholders in the same manner as the first meeting, at least
one week prior to the date set for the second meeting. The resolution of the second meeting shall
be valid regardless of the number of Shares represented, provided that such meeting is held within
one month from the date of the first meeting. The resolutions of a general meeting of the
Company shall be adopted by relative majority of the vote cast in respect of a given resolution.

21.6. Extraordinary General Meetings

An EGM shall be convened to decide on the following issues:
a. Reduction or increase in the authorised share capital of the Company;
b. Dissolution, liquidation or merger of the Company;
c. Sale of the Company's business or its disposal in any form or manner;
d. Amendment of the Articles;
e. Repurchase some of the Shares which do not exceed 10% of the paid up capital provided a
prior approval is obtained from CMA;
f. Transform or change the legal form of the Company to another legal form; and
g. Any other matter reserved to the EGM by Applicable Law

The resolutions of the EGM shall not be valid unless the meeting is attended by Shareholders or
proxies representing at least three-quarters of the Company’s capital. If a quorum is not present, a
second meeting shall be convened to discuss the same agenda. The Shareholders shall be notified
of the second EGM in the same manner as the first EGM, at least two weeks prior to the date set
for the second meeting.

The resolutions of the second meeting shall be valid if the meeting is attended by Shareholders or
proxies representing more than half of the Company’s capital, provided such meeting is held within
six weeks of the date of the first meeting.

The resolution of the EGM shall be adopted by a majority of three-quarter of the votes cast in
respect of any given resolution, provided such resolution shall always receive votes representing
more than fifty percent of the Company’s capital.

Any Shareholder or any interested party may refer to the Commercial Court (the competent
department) within five years from the date on which the meeting was held, to decide on
nullification of any decision taken during the meeting in violation of the CCL, or to the provisions of
the Articles or by-laws or through fraud or misuse of authority.

21.7. Transfer of Ownership of the Shares

The transfer of ownership of the Shares shall take place through disposition in accordance with the
instructions laid down by the MSM. Shareholders may sell and transfer their Shares without
restrictions in accordance with the CCL, with the condition that the foreign shareholding shall not
exceed 70% of the share capital of the Company under any circumstances.

Similarly, the shareholding of each individual shall not exceed the maximum limit prescribed and
provided for in the CCL and Capital Market Law and the Executive Regulations respectively, unless
necessary approvals are secured.

Lock-up Period - Exemption from the applicability of Article 77 of the CCL

Article 77 of the CCL restricts the founders of a public joint stock company from disposing of their
shares in such company, before it has published two balance sheets for two consecutive financial
[121]
years, starting from the date of commencement of actual production or actual business by the
company. Article 77 of the CCL does not apply in the context of a company under transformation
from an SAOC into an SAOG where such company has been in existence for 3 years. Therefore,
there is no restriction on the Founder Members from disposing of their shares in the Company
after the IPO subject to obtaining applicable regulatory consents and approvals in accordance with
Applicable Law.

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22. SUBSCRIPTION CONDITIONS AND PROCEDURES

22.1. Eligibility for the Subscription to the Offer Shares

The subscription to the Offer Shares will be open to Omani and non-Omani individuals and juristic
persons, who have their accounts with the MCD, as on the Offer Closing Date. All GCC individuals
and juristic persons are treated as Omani individuals and juristic persons for the purpose of owning
shares in Omani companies.

Post listing on the MSM, non-GCC Shareholders are permitted to own Shares equal to no more
than 70% of the paid up capital of the Company.

No person shall independently or acting in concert with other person acquire 25% or more of the
shares of an SAOG, except in accordance with the regulations laid down by the CMA.

The Company, the Issue Manager and the Legal Advisors are not liable for any changes in the
Applicable Law or regulations that occur after the date of this Prospectus.

Applicants are advised to make their own independent investigations to ensure that their
Applications comply with the Applicable Law.

22.2. Prohibitions with Regard to the Applications for Subscription:

The following are prohibited from subscribing to the Offer:

A. Sole proprietorship establishments. However, the owners of sole proprietorship

establishments may submit Applications in their personal names.

B. Multiple Applications. An Applicant may not submit more than one Application.

C. Joint Applications (i.e. Applications made in the name of more than one individual, including
Applications made on behalf of legal heirs. These Applications should only be made in their
personal names).

D. Trust Accounts. Customers registered under trust accounts may only submit Applications in
their personal names.

All Applications falling in one of the above categories will be rejected without contacting the
Applicant.

22.3. Applications on behalf of Minor Children:

1. For the purpose of this Offer, any person born after 4 March 2000 shall be treated as a minor.
2. Only the father may subscribe on behalf of his minor children.
3. If the Application is made on behalf of a minor by any person other than the minor’s father, the
person submitting the Application will be required to attach a valid, duly notarised Shari’a
(Legal) power of attorney authorising him or her to deal in the funds of the minor through sale,
purchase and investment.

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22.4. Shareholder’s (Applicant’s) Number with the MCD:

1. Any Applicant who subscribes for the Offer Shares must have an account and shareholder
number with the MCD. Any Applicant may apply to obtain an investor number and open an
account by completing the MCD application form. This may be obtained from the MCD’s Head
Office or its website at http://www.csdoman.co.om, or from brokerage companies licensed by
the MSM. The completed form may be submitted by an Applicant through any of the following
channels:

- At the head office of the MCD based in the Commercial Business District, Muscat, Oman.
- At the branch of the MSM based in Salalah, Oman, Tel: +968 23299822, Fax: +968 23299833
- At the office of any brokerage company licensed by the MSM.
- By sending a facsimile to the MCD at +968 24817491.
- By opening an account through the MCD website at http://www.csdoman.co.om.

2. In order to open an account and receive an investor number with MCD, a juristic person will be
required to furnish a copy of its constitutional documents, in the form prescribed by the MCD,
along with a completed MCD application form.

3. Applicants who already hold accounts with the MCD are advised, before the Offer, to re-
confirm their MCD account particulars such as full name, postal address, civil ID number or
passport number and particulars of bank account. Applicants may update their particulars
through any of the channels mentioned above.

All correspondence including allocation notices and dividend cheques will be sent to
Applicant’s address as recorded at the MCD. Applicants should ensure that their address as
provided to the MCD is correct.

4. Applicants after opening their accounts and updating their particulars must obtain from MCD
the correct investor number to be recorded in the Application Form. Verification of the number
is the responsibility of the Applicant. Applications not bearing the correct investor number will
be rejected without contacting the Applicants.

For more information on these procedures, Applicants should contact the MCD:
Muscat Clearing & Depository Co., SAOC
Tel. 24822222- Fax. 24817491
http://www.csdoman.co.om/

Applicants may please note that MCD has updated the account number (investor number) to a
new format. All Applicants are required to reference the new number in the Application Form
and forms bearing the old number may be rejected.

22.5. Subscription Period:

The Subscription shall commence on the Subscription Opening Date and end on the Subscription
Closing Date, with the end of the official working hours of the Collecting Banks.

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22.6. Minimum Limit of Public Subscription

The minimum number of Offer Shares is as set out below:

For Category I investors: 1,000 Shares and in multiples of 100 thereafter.

For Category II investors): 100,100 Shares and in multiples of 100 thereafter.

22.7. Maximum Limit of Public Subscription

The maximum number of Offer Shares that can be applied for by any prospective Applicant is 10%
of the total Offer size which equates to 2,582,500 Offer Shares (rounded to the nearest 100). It is
not permissible for any Applicant to subscribe for more than this amount.

For the purpose of calculation of this percentage the Application of a father (or guardian) shall be
merged with the Applications of his minor children. If the volume of the Shares subscribed exceeds
the said percentage, the Shares applied under each Application shall be reduced proportionately
before making the allotment.

22.8. Terms of Payment

Applicants are required to make payment of the full Application Money in Omani Rials (equal to the
number of shares applied multiplied by the Offer Price per Share), at the time of submission of the
duly completed Application Form to the Collecting Bank. Each Applicant can pay by cash, draw a
cheque or demand draft for the amount payable at the time of submission of the Application.

Each Collecting Bank will open an escrow account entitled the “AFIC Public Offer” account for the
collection of the Application Money. This account will be managed by each Collecting Bank who,
after allotment and refunds, will transfer the balances in such account to the account(s) specified
by the Issue Manager.

22.9. Particulars of the Bank Account

1. Each Applicant is required to furnish the particulars of its bank account (registered in the name
of the Applicant). The Applicant must not use the bank account number of any other person
except in the case of minor children only.

2. If the bank account of the Applicant is registered with a bank other than where the Application
is submitted, the Applicant will be required to submit a document to confirm the correctness of
the bank account particulars. This can be done by submitting any document from the bank of
the Applicant that states the account number and name of the account holder. Documents that
may be accepted include account statements or a letter or any document issued by the bank
confirming this information. The Applicant is responsible for ensuring that the evidence
submitted is legible and contains the required information. The Applicant is not obliged to
submit any evidence with regard to the accuracy of its bank account if it is subscribing through
the Collecting Bank where it maintains its account. In this case, the bank will be required to
verify and confirm the correctness of the Applicant’s account through its own system and
procedures or through the evidence submitted to it by the Applicant.

3. In accordance with the instructions of the CMA, the details of the bank account will be listed in
the records of the MCD for transferring any refund as well as for crediting any dividends paid
by the Company in future. For Applicants who already have bank accounts registered with the
MCD the account mentioned in the Application will be used for the transfer of refunds only.

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4. The Application containing the bank account number of a person other than the Applicant will
be rejected, with the exception of the Applications made on behalf of minors that contain bank
accounts particulars of their father.

22.10. Documentation Required

1. A document confirming the accuracy of the bank account number as provided for in the
Application (only where the Application is made through a Collecting Bank other than where
the Applicant has the account).
2. A copy of a valid power of attorney duly endorsed by the competent legal authorities in the
event the Application is on behalf of another person (with the exception of the Application
made by a father on behalf of his minor children).
3. In case of Applications by juristic persons (non-individuals) which are signed by a person in his
or her capacity as an authorised signatory, a copy of adequate and valid document (such as
company registration certificate and authorized signatory form) should be attached.

22.11. Mode of Application

1. The Applicant will be responsible for satisfying all the particulars and the validity of the
information set out in the Application. Collecting Banks have been instructed to accept only the
Applications satisfying all the requirements of the Application Form and the Prospectus.
2. The Applicant, before completing the Application, shall read the Prospectus including the Offer
terms and conditions.
3. The Applicant shall fill in the Application with all the relevant details as required by the
Application and the Prospectus including the Applicant’s number with MCD, civil number and
date of birth for minor children.
4. The Applicant shall submit the Application to one of the Collecting Banks as referred to in the
Prospectus, together with the Application money and any relevant documents in support of the
Application.
5. Cheques or demand drafts shall be made in favour of “AFIC Public Offer”.

22.12. Bank Receiving the Subscription (Collecting Banks)

The Applications shall be accepted by one of the following commercial banks during the official
working hours only:

- Bank Sohar SAOG

- National Bank Of Oman SAOG
- Oman Arab Bank SAOC

The Collecting Bank receiving the Application is required to accept the Application after
confirmation of compliance of the procedures set out in the Prospectus. The Collecting Bank must
instruct the Applicants to comply and fulfil any requirements set out in the Application.

The Applicant must submit an Application to one of the Collecting Banks on or before the
Subscription Closing Date. The Collecting Bank shall refuse any Application received after the
official working hours on the Subscription Closing Date.

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22.13. Rejection of Applications

The Collecting Banks shall reject Applications in the following circumstances:

1. If the Application is not signed by the Applicant.

2. If the Application Money is not paid by the Applicant in accordance with the conditions set
out in the Prospectus.
3. If the Application Money is paid by cheque and the cheque is dishonoured for whatever
reason.
4. If the Application is submitted in joint names.
5. If the Applicant is a sole proprietorship or trust account.
6. If the Application does not include the Applicant’s investor number registered with the MCD.
7. If the investor number furnished in the Application is incorrect i.e. it does not match with the
Applicant’s name.
8. If the Applicant submits more than one Application in the same name, all of them will be
rejected.
9. If the supporting documents are not enclosed with the Application.
10. If the Application does not contain all the particulars of the bank account of the Applicant.
11. If the particulars of the bank account provided for in the Application are found to be
incorrect.
12. If the bank account in the Application does not belong to the Applicant, with the exception of
Applications submitted in the names of minor children, who are allowed to make use of the
particulars of the bank accounts held by their father.
13. If the power of attorney is not attached to the Application in respect of an Applicant who
subscribes on behalf of another person (with the exception of the fathers who subscribe on
behalf of their minor children).
14. If the Application does not comply with the legal requirements or other requirements as
provided for in the Prospectus.

If the Collecting Bank observes, after receipt of an Application and before the expiry of the time
schedule prescribed for handing over of the Applications to the Issue Manager, that the Application
has not been complied with the procedures set out in the Prospectus, due effort will be taken to
contact the Applicant so that the mistake may be corrected. If the Applicant does not rectify the
Application within the period referred to, the Collecting Bank will return the Application together
with the Application money to the Applicant and it will not be considered for allotment.

The Issue Manager may reject any Application under any of the conditions referred to above,
subject to securing the approval of the CMA and submission of a comprehensive report furnishing
the details of the Applications that are rejected and the reasons behind the rejections.

If it appears from the final subscriber register made by all the Collecting Banks that there are
Applications with the same investor number or civil number or the same bank account (except for
minor children) all the Applications shall be rejected for belonging to the same subscriber.

22.14. Enquiry & Complaints:

Applicants who intend to seek clarification or file complaints with regard to the issues related to
the allotment or rejected Applications or refund of the Application money in excess of the
subscription, may contact the branch of the bank where the Application was made. In case of the
absence of any response from the branch, the Applicant may contact the Collecting Banks as under:

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Bank Sohar SAOG
Person(s) in charge: Mr. Hrishikesh Joshi
Address: PO 44, PC 114, Hai Al Mina, Sultanate of Oman
Phone: +968 24761934
Fax: +968 24761741
E-mail: hrishikesh.joshi@banksohar.net

National Bank of Oman SAOG

Person(s) in charge : Mr. Hussain Ali Abdullah Al Lawati
Address: PO 751, PC 112, Ruwi, Sultanate of Oman
Phone: +968 24778757
Fax: +968 25778993
E-Mail: hallawati@nbo.co.om

Oman Arab Bank SAOC

Person(s) in charge: Mr. Marwan Al Khouli
Address: PO 2010, PC 112, Ruwi, Sultanate of Oman
Phone: +968 24754500
Fax: +968 24125128
E-Mail: marwan.alkhouli@oman-arabbank.com

If the Collecting Bank fails to resolve the complaint with the Applicant, it will refer the subject
matter to the Issue Manager and keep the Applicant informed of the progress and development in
respect of the subject matter of the dispute. The Applicant may contact the Issue Manager on the
following address:
Ubhar Capital SAOC
Person(s) in charge:
Ms. Sahar K. Al Zagha Mr. Muhammad Kashif Sabih
Phone: +968 2494 9007 Phone: +968 2494 9008
Email: S.Zagha@u-capital.net Email: Muhammad.Kashif@u-capital.net

PO Box: 1137, Postal Code 111, Sultanate of Oman

22.15. Overall Offer Split and Allotment Procedures:

In the case of over-subscription of the Offer, the eligible Applications shall be segregated into two
Categories and the Offer Shares will be allotted among the eligible Applicants as follows:

Category I:
16,786,520 Shares, being 65% of the Offer Shares will be allocated on a pro-rata basis to Applicants
applying for 100,000 Offer Shares or less.

Category II:
9,038,895 being 35% of the Offer Shares will be allocated on a pro-rata basis to Applicants applying
for 100,100 Offer Shares or more.

The CMA in co-ordination with the Issue Manager will finalise the actual basis of allocation. The
CMA may decide to allocate a minimum number of Offer Shares equally to all eligible Applicants,
taking into consideration the small subscribers, and the remaining Offer Shares shall be distributed
on a pro-rata basis.

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Any under subscription in any category shall be carried over to the other category as described in
more detail in the Chapter “Subscription Conditions and Procedures” of this Prospectus.

Allotment for foreign nationals will be limited to a maximum of 70% of the paid up capital of the
Company, after taking into account the existing shareholders.

22.16. Basis for Undersubscribed Offer Shares:

In case of a shortfall in subscription, the unsubscribed Offer Shares shall be retained by the
respective Selling Shareholders. The Company will, in consultation with the CMA, agree on a
suitable course of action regarding the unsubscribed shares.

22.17. Allotment Letters and Refund of Money:

The Issue Manager will arrange to allot the Offer Shares to the Applicants within 15 days after the
end of the Subscription Period after receiving the approval of the CMA on the basis of allotment.
The Issue Manager will arrange to send allotment letters to the Applicants who have been allotted
Shares as per the addresses registered with the MCD immediately after obtaining CMA approval for
the allotment.

Where an Applicant has been allocated fewer Shares than indicated in the Application, the excess
amount, if any, paid on Application, will be refunded to the Applicant from the escrow account of
the respective Collecting Bank(s). The Issue Manager will also instruct the Collecting Banks to
refund the excess money to the eligible Applicants within 15 days after the end of the Subscription
Period and after receiving the approval of the CMA. The Applicant shall immediately after the
announcement of the allotment verify with MCD the Shares allotted to him because allotment
notices may take time to reach the Applicant and the listing of the Shares will be as per the
proposed timetable.

22.18. Proposed Timetable:

The following table shows the expected time schedule for completion of the subscription
procedures:

Procedure Date*

Commencement of subscription 4 March 2018

Closing of subscription 2 April 2018
Due date for the Issue Manager to receive the subscription data
9 April 2018
and final registers from the Collecting Banks
Notifying the CMA of the outcome of the subscription and the
11 April 2018
proposed allotment
Approval of the CMA with regard to the proposed allotment 12 April 2018
Completion of the allotment procedures and commencement of
15 April 2018
refund
Listing of the Offer Shares on the MSM 16 April 2018
*The above are only expected dates and are subject to change.

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22.19. Listing and Trading of Offer Shares:
The Offer Shares shall be listed on the MSM in accordance with the Applicable Law and procedures
that are in force on the date an application is made for the listing and registration. The above
listing date is an estimated date and the exact date will be published on the MSM website.

22.20. Responsibilities and Obligations:

The Issue Manager, Collecting Banks and the MCD shall abide by the responsibilities and
obligations set out by the directives and regulations issued by the CMA. The Issue Manager and the
Collecting Banks must also abide by any other responsibilities that are provided for in the
agreements entered into among them and the Company and/or any Shareholders.

The parties concerned will be required to take remedial measures with regard to the damages
arising from any negligence committed in the performance of the functions and responsibilities
assigned to them. The Issue Manager will be the body responsible before the regulatory authorities
in taking suitable steps and measures for repairing such damages.

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23. UNDERTAKINGS

23.1. The Company

The Directors of Arabia Falcon Insurance Company SAOG (under transformation) jointly and
severally hereby confirm that, to the best of their knowledge:

1) The information provided in this Prospectus is true and complete.

2) Due diligence has been taken to ensure that no material information has been omitted, the
omission of which would render this Prospectus misleading.
3) All the provisions set out in the Capital Market Law, the CCL, and the rules and regulations
issued pursuant to them have been complied with.

Directors who are authorized to sign the Prospectus pursuant to the EGM held on 19th June 2017:

Name Signature

Mr. Maroun Kyrillos -sd-

Mr. Manish Palande Janardan -sd-

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23.2. Issue Manager and Financial Advisor

Pursuant to our responsibilities under Article 3 of the Capital Market Law, Article 13 of the
Executive Regulations and the directives issued by the CMA, we have reviewed all the relevant
documents and other material required for the preparation of the Prospectus.

The Board of Arabia Falcon Insurance Company SAOG (under transformation) will bear the
responsibility with regard to the correctness of the information provided in the Prospectus, and
they have confirmed that to the best of their knowledge no material information has been omitted,
the omission of which would have made the Prospectus misleading.

We confirm that we have conducted due diligence required by our profession with regard to the
Prospectus which was prepared under our supervision and, based on the reviews and discussions
with the Company, the Directors, the Shareholders and other related parties, we confirm the
following:

1) We have conducted reasonable due diligence to ensure the information given to us by

the Shareholders/Board and included in the Prospectus is conformant with the facts in the
documents and other material of the Offer.

2) To the best of our knowledge and from the information available from the Company,
the Company has not omitted any material information, the omission of which would render
the Prospectus misleading.

3) The Prospectus and the Offer to which it relates, is conformant with all the rules and
terms of disclosure stipulated for in the Capital Market Law, the Executive Regulations, the
prospectus models applied by the CMA, the CCL and the directives and decisions issued in this
regard.

4) The information contained in this Prospectus in Arabic (and the unofficial translation
into English thereof) is true, sound and adequate to assist the Applicants to make the decision
as to whether or not to invest in the Shares offered.

-sd-

Ubhar Capital SAOC

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23.3. Legal Advisor

The Legal Advisor, hereby confirms that all the procedures taken for the offering of the Offer
Shares the subject matter of the Prospectus are in line with the Applicable Laws including the CCL,
the Capital Market Law and the regulation and directives issued pursuant to them, the requirement
and rules for the offer of the Offer Shares issued by the CMA and the Articles. The Company has
obtained all the consents and approvals of the official authorities required to carry out the Offer.

-sd-

Al Busaidy, Mansoor Jamal & Co

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