Saudi Reinsurance Company (formerly known as Saudi Re for Cooperative Reinsurance Company) (the “Company”) is a Saudi joint stock company registered in the Kingdom of Saudi Arabia under commercial registration number 7001556021 dated 12 Jumad Al-Awal 1429H (corresponding to 17 May 2008) with a branch in the Federal Territory of Labuan, Malaysia with license number IS2014146. The address of the Company’s registered office is at 4130 Northern Ring Road Al Wadi, Unit number 1, Riyadh 13313-6684, Kingdom of Saudi Arabia.

The objective of the Company is to transact cooperative reinsurance and related activities inside and outside the Kingdom of Saudi Arabia.

(a) Basis of presentation

The financial statements for the year ended 31 December 2021 have been prepared in accordance with International Financial Reporting Standard “IFRS’’ as endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements issued by Saudi Organization for Chartered and Professional Accountants (“SOCPA”) (collectively referred to as “IFRS as endorsed in KSA”).

The Company’s statement of financial position is not presented using a current/non-current classification. However, the following balances would generally be classified as current: bank balances and cash, time deposits, accrued special commission income from time deposits, reinsurance premium receivables (net), investments held at fair value through income statement, accrued special commission income from bonds and sukuk, retrocession balance receivables, deferred excess of loss premiums, retroceded share of outstanding claims, retroceded share of claims incurred but not reported, prepaid expenses, deposits and other assets, accounts payable, margin loan payable, retrocession balances payable, outstanding claims, claims incurred but not reported, accrued expenses and other liabilities, provision for Zakat and tax and accumulated surplus. The following balances would generally be classified as non-current: held-to-maturity investments, accrued reinsurance premiums, retroceded share of unearned premiums, deferred policy acquisition costs, property and equipment, net, investment in an equity-accounted investee, statutory deposit, accrued income on statutory deposit, accrued retroceded premiums, unearned premiums, unearned retrocession commission, employees end of service benefits and accrued commission income payable to SAMA.

The Company presents its statement of financial position in order of liquidity. As required by the Saudi Arabian Insurance Regulations, the Company maintains separate books of accounts for Reinsurance Operations and Shareholders’ Operations and presents the financial statements accordingly (refer to Note 33). Assets, liabilities, revenues and expenses clearly attributable to either activity are recorded in the respective accounts. The basis of allocation of expenses from joint operations is determined and approved by the Management and the Board of Directors.

The statement of financial position, statements of income, comprehensive income and cash flows of the insurance operations and shareholders’ operations which are presented in Note 33 of the financial statements have been provided as supplementary financial information to comply with the requirements of the guidelines issued by the Saudi Central Bank (“SAMA”) implementing regulations and is not required under IFRSs. SAMA implementing regulations requires the clear segregation of the assets, liabilities, income and expenses of the reinsurance operations and the shareholders operations. Accordingly, the statements of financial position, statements of income, comprehensive income and cash flows prepared for the reinsurance operations and shareholders’ operations as referred to above, reflect only the assets, liabilities, income, expenses and comprehensive gains or losses of the respective operations.

For preparing the financial statements in compliance with IFRS, the balances and transactions of the reinsurance operations are amalgamated and combined with those of the shareholders’ operations. Interoperation balances, transactions and unrealised gains or losses, if any, are eliminated in full during amalgamation. The accounting policies adopted for the reinsurance operations and shareholders’ operations are uniform for like transactions and events in similar circumstances.

The inclusion of separate information of the reinsurance operations with the financial information of the Company in the statement of financial position, statement of income, statement of comprehensive income, cash flows as well as certain relevant notes to the financial information represents additional supplementary information required as required by the implementing regulations.

Surplus is distributed between reinsurance operations and shareholders operations in accordance with the implementing regulations issued by the SAMA, whereby the shareholders of the Company are to receive 90% of the annual surplus from reinsurance operations and the policyholders are to receive the remaining 10%. Any deficit arising on reinsurance operations is transferred to the shareholders' operation in full.

(b) Basis of measurement

The financial statements have been prepared on the historical cost basis, except for the measurement at fair value of investments held at fair value through income statement and investment in an equity-accounted investee which is accounted for under the equity method and End of Service Benefits (EOSB) at present value of future obligations using projected unit credit method.

(c) Functional and presentation currency

These financial statements have been presented in Saudi Arabian Riyals (SR), which is also the functional currency of the Company.

(d) Fiscal year

The Company’s fiscal year is aligned with the calendar year i.e. it begins at 1 January and ends at 31 December.

The significant accounting policies adopted in the preparation of these financial statements are set out below. The accounting policies used in the preparation of these financial statements are consistent with those used in the preparation of the annual financial statements for the year ended 31 December 2020. Based on the adoption of amendments to existing standard and in consideration of current economic environment, the following accounting policies are applicable effective 1 January 2021 replacing, amending or adding to the corresponding accounting policies set out in 2020 annual financial statements.

A. Amendments to existing standards

Below amendments to accounting standards and interpretations became applicable for annual reporting periods commencing on or after 1 January 2021. The Management has assessed that the amendments have no significant impact on the Company’s financial statements.

B. Standards issued but not yet effective

In addition to the above-mentioned standards, the following standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective. Further, the Company has chosen not to early adopt the amendments and revisions to the International Financial Reporting Standards which have been published and are mandatory for compliance for the Company with effect date in future dates.

IFRS 9 – Financial Instruments

This Standard was published on 24 July 2014 and has replaced IAS 39. The new standard addresses the following items related to Financial Instruments:

Classification and measurement

IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost, fair value through other comprehensive income or fair value through profit or loss. A financial asset is measured at amortized cost if both:

(i) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows and;

(ii) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (“SPPI”).

The financial asset is measured at fair value through other comprehensive income and realized gains or losses would be recycled through profit or loss upon sale, if both conditions are met:

(i) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows and for sale and;

(ii) the contractual terms of cash flows are SPPI

Assets not meeting either of these categories are measured at fair value through profit or loss. Additionally, at initial recognition, an entity can use the option to designate a financial asset at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch.

For equity instruments that are not held for trading, an entity can also make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of the instruments (including realized gains and losses), dividends being recognized in profit or loss.

Additionally, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognized in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss.

Impairment

The impairment model under IFRS 9 reflects expected credit losses, as opposed to incurred credit losses under IAS 39. Under the IFRS 9 approach, it is no longer necessary for a credit event to have occurred before credit losses are recognized. Instead, an entity always accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition.

Hedge accounting

IFRS 9 introduces new requirements for hedge accounting that align hedge accounting more closely with risk management. The requirements establish a more principles-based approach to the general hedge accounting model. The amendments apply to all hedge accounting with the exception of portfolio fair value hedges of special commission rate risk (commonly referred to as “fair value macro hedges”). For these, an entity may continue to apply the hedge accounting requirements currently in IAS 39. This exception was granted largely because the IASB is addressing macro hedge accounting as a separate project.

Effective date

The published effective date of IFRS 9 was 1 January 2018. However, amendments to IFRS 4 – Insurance Contracts: Applying IFRS 9 – Financial Instruments with IFRS 4 – Insurance Contracts, published on 12 September 2016, changes the existing IFRS 4 to allow entities issuing insurance contracts within the scope of IFRS 4 to mitigate certain effects of applying IFRS 9 before the IASB’s new insurance contract Standard (IFRS 17 – Insurance Contracts) becomes effective. The amendments introduce two alternative options:

(1) apply a temporary exemption from implementing IFRS 9 until the earlier of

(a) the effective date of a new insurance contract standard; or

(b) annual reporting periods beginning on or after 1 January 2023. On 17 March 2020, the International Accounting Standards Board (IASB) decided to extend the effective date of IFRS 17 and the IFRS 9 temporary exemption in IFRS 4 from 1 January 2021 to 1 January 2023. Additional disclosures related to financial assets are required during the deferral period. This option is only available to entities whose activities are predominantly connected with insurance and have not applied IFRS 9 previously; or,

(2) adopt IFRS 9 but, for designated financial assets, remove from profit or loss the effects of some of the accounting mismatches that may occur before the new insurance contract standard is implemented. During the interim period, additional disclosures are required.

The Company has performed a preliminary assessment which included below:

(1) The carrying amount of the Company’s liabilities arising from contracts within the scope of IFRS 4 (including deposit components or embedded derivatives unbundled from insurance contracts) were compared to the total carrying amount of all its liabilities; and

(2) The total carrying amount of the Company’s liabilities connected with insurance were compared to the total carrying amount of all its liabilities. Based on these assessments the Company determined that it is eligible for the temporary exemption. Consequently, the Company has decided to defer the implementation of IFRS 9 until the effective date of the new insurance contracts standard. Disclosures related to financial assets required during the deferral period are included in the Company’s financial statements.

Impact assessment

The Company is currently assessing the impact of the application and implementation of IFRS 9. As of the date of the publication of these financial statements, the financial impact of adopting the standard has yet to be fully assessed by the Company.

As at 31 December 2021, the Company has total financial assets amounting to SR 2,343,530,101 (2020: SR 2,060,313,935) and insurance related assets amounting to SR 435,966,183 (2020: SR 434,519,347) respectively. However, the Company is yet to perform a detailed assessment to determine whether the debt securities meet the SPPI test as required by IFRS 9. Credit risk exposure, concentration of credit risk and credit quality of these financial assets are mentioned in Note 31. The Company is currently assessing the impact on application and implementation of IFRS 9, however the Company expects the classification and measurement of financial assets to be impacted from implementation of IFRS 9 as company is yet to perform a detailed review.

IFRS 17 Insurance Contracts

Overview

This standard has been published on 18 May 2017, it establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts and supersedes IFRS 4 – Insurance contracts.

The new Standard applies to insurance contracts issued, to all reinsurance contracts and to investment contracts with discretionary participating features provided the entity also issues insurance Contracts. It requires to separate the following components from insurance contracts:

(i) embedded derivatives, if they meet certain specified criteria;

(ii) distinct investment components; and

(iii) any promise to transfer distinct goods or non-insurance services.

These components should be accounted for separately in accordance with the related standards (IFRS 9 and IFRS 15).

Measurement

In contrast to the requirements in IFRS 4,which permitted insurers to continue to use the accounting policies for measurement purposes that existed prior to January 2005, IFRS 17 provides the following different measurement models:

The General Measurement Model (GMM) is based on the following “building blocks”:

(a) the fulfillment cash flows (FCF), which comprise:

• probability-weighted estimates of future cash flows,
• an adjustment to reflect the time value of money (i.e. discounting) and the financial risks associated with those future cash flows,
• and a risk adjustment for non-financial risk;

  (b) the Contractual Service Margin (CSM). The CSM represents the unearned profit for a group of insurance contracts and will be recognized as the entity provides services in the future. The CSM cannot be negative at inception; any net negative amount of the fulfillment cash flows at inception will be recorded in profit or loss immediately.

  At the end of each subsequent reporting period the carrying amount of a group of insurance contracts is remeasured to be the sum of:

• the liability for remaining coverage, which comprises the FCF related to future services and the CSM of the group at that date; and
• the liability for incurred claims, which is measured as the FCF related to past services allocated to the group at that date.

The CSM is adjusted subsequently for changes in cash flows related to future services but the CSM cannot be negative, so changes in future cash flows that are greater than the remaining CSM are recognized in profit or loss. The effect of changes in discount rates will be reported in either profit or loss or other comprehensive income, determined by an accounting policy choice.

The Variable Fee Approach (VFA) is a mandatory model for measuring contracts with direct participation features (also referred to as “direct participating contracts”). This assessment of whether the contract meets these criteria is made at inception of the contract and not reassessed subsequently. For these contracts, in addition to adjustment under GMM, the CSM is also adjusted for:

(i) the entity’s share of the changes in the fair value of underlying items;

(ii) the effect of changes in the time value of money and in financial risks not relating to the underlying items.

In addition, a simplified Premium Allocation Approach (PAA) is permitted for the measurement of the liability for remaining coverage if it provides a measurement that is not materially different from the General Measurement Model for the group of contracts or if the coverage period for each contract in the group is one year or less. With the PAA, the liability for remaining coverage corresponds to premiums received at initial recognition less insurance acquisition cash flows. The General Measurement Model remains applicable for the measurement of the liability for incurred claims. However, the entity is not required to adjust future cash flows for the time value of money and the effect of financial risk if those cash flows are expected to be paid/received in one year or less from the date the claims are incurred.

Effective date

The Company intends to apply the Standard on its effective date i.e. 1 January 2023. The IASB issued an Exposure Draft Amendments to IFRS 17 proposing certain amendments to IFRS 17 during June 2019 and received comments from various stakeholders. On 17 March 2020, the IASB completed its discussions on the amendments to IFRS 17 – Insurance Contracts that were proposed for public consultation in June 2019. It decided that the effective date of the Standard will be deferred to annual reporting periods beginning on or after 1 January 2023. Earlier application is permitted if both IFRS 15 – Revenue from Contracts with Customers and IFRS 9 – Financial Instruments have also been applied.

Transition

Retrospective application is required. However, if full retrospective application for a group of insurance contracts is impracticable, then the entity is required to choose either a modified retrospective approach or a fair value approach.

Presentation and disclosures

The Company expects that the new standard will result in a change to the accounting policies for reinsurance contracts, retrocession and investment contracts with discretionary participating features, if applicable together with amendments to presentation and disclosures.

Impact assessment:

The Company is currently assessing the impact of the application and implementation of IFRS 17. As of the date of the publication of these financial statements, the financial impact of adopting the standard has yet to be fully assessed by the Company. The status of the implementation is as follows:

The Company is currently assessing the impact of the application and implementation of IFRS 17 and has completed the Design phase on 31 March 2021. This will be followed by the implementation phase, which will involve refinement of Phase 3 design decisions, implementing changes to the accounting, actuarial modelling, processes and controls, data and systems, and performing user acceptance testing, dry runs, parallel runs and transition calculation to get the Company compliant with IFRS 17 by 1 January 2023. As of the date of the publication of these financial statements, the Company has submitted Phase 3 Implementation Plan to SAMA.

C. Significant accounting policies adopted in the preparation of these financial statements

The accounting policies used in the preparation of these financial statements are consistent with those used in the preparation of the annual financial statements for the year ended 31 December 2020.

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, cash at banks and time deposits with an original maturity of less than three months from the date of acquisition.

Gross written premiums

Gross written premiums comprise total premiums in relation to contracts incepting during the financial year irrespective of whether they relate in whole or in part to a later accounting period. It includes an estimate of pipeline premiums, being those premiums written but not reported to the Company at the statement of financial position date. Pipeline premiums are reported as accrued reinsurance premiums in the statement of financial position.

Where contract terms require the reinstatement of coverage after a ceding Company’s loss, the mandatory reinstatement premiums are calculated in accordance with the contract terms.

Reinsurance premium receivable

Reinsurance premium receivable are recognized when notified by cedants and are measured on initial recognition at the fair value of the considerations received or receivable. Subsequently, it is measured at amortized cost. The carrying value of reinsurance premium receivable is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in the statement of income. Reinsurance premium receivable are derecognized when the derecognition criteria for financial assets have been met.

Retrocession

The Company uses retrocession agreements to reduce its exposure to risks assumed to increase its aggregate underwriting capacity. The ceding of risk to retrocessionaires does not relieve the Company from its direct obligations to its ceding companies. Amounts receivable from retrocession is estimated in a manner consistent with the claim liability associated with the reinsured parties. An impairment review of amounts recoverable under retrocession agreements is performed at each reporting date or more frequently when an indication of impairment arises during the reporting year. Impairment occurs when objective evidence exists that the Company may not recover outstanding amounts under the terms of the contract and when the impact on the amounts that the Company will receive from the retrocessionaire can be measured reliably. The impairment loss is recorded in the statement of income.

Premiums and claims are presented on a gross basis for both assumed reinsurance and retroceded business.

Retrocession liabilities represent balances due to retrocessionaires. Amounts payable are estimated in a manner consistent with the associated retrocession contract. Retroceded assets and liabilities are derecognized when the contractual rights are extinguished or expired or when the contract is transferred to another party.

Deferred policy acquisition costs (DAC)

Direct costs incurred during the financial period arising from the writing or renewing of reinsurance contracts are deferred to the extent that these costs are recoverable out of unearned premium. Subsequent to initial recognition, deferred costs are amortized using the same basis as for unearned premiums. Amortization is recorded in the statement of income. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period and are treated as a change in accounting estimate.

An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. When the recoverable amounts are less than the carrying value, an impairment loss is recognized in the statement of income. DAC is also considered in the liability adequacy test for each reporting period.

Deferred policy acquisition costs are derecognised when the related contracts are either settled or disposed of.

Investment in an equity-accounted investee

Associates are those entities in which the Company has significant influence, but not control or joint control, over the financial and operating policies. Interests in associates are accounted for using the equity method. They are initially recognised at cost. Subsequent to initial recognition, the financial statements include the share of the profit or loss and other comprehensive income of associates, until the date on which significant influence ceases.

Investments held at fair value through income statement

Investments held at fair value through income statement are investments designated at fair value through income statement at inception. For investments designated as fair value through income statement, the following criteria must be met:

• This designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets and liabilities or recognising gains or losses on a different basis; or

• The assets and liabilities are part of a group of financial assets, financial liabilities or both, such assets and liabilities are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.

These investments are initially recorded at fair value. Subsequent to initial recognition, these investments are measured at fair value.

Fair value adjustments and realized gains and losses are recognized in the statement of income.

Held-to-maturity investments

Investments having fixed or determinable payments and fixed maturity that the Company has the positive intention and ability to hold to maturity are classified as held to maturity. Held-to-maturity investments are initially recognised at fair value including direct and incremental transaction costs and subsequently measured at amortised cost, less provision for impairment in value. Amortised cost is calculated by taking into account any discount or premium on acquisition using an effective yield basis. Any gain or loss on such investments is recognised in the statement of income when the investment is derecognized or impaired.

Offsetting financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liability simultaneously. Income and expense is not offset in the statement of income unless required or permitted by any accounting standard or interpretation.

Trade date accounting

All regular way purchases and sales of financial assets are recognized/ derecognized on the trade date (i.e. the date that the Company commits to purchase or sell the assets). Regular way purchases or sales are purchases or sales of financial assets that require settlement of assets within the time frame generally established by regulation or convention in the market place.

Impairment of financial assets

An assessment is made at each statement of financial position date to determine whether there is objective evidence that a specific financial asset or a group of financial assets may be impaired. Impairment occurs when objective evidence exists that the Company may not recover outstanding amounts under the terms of the contract and when the impact on the amounts that the Company will receive can be measured reliably. If such evidence exists, any impairment loss is recognized in the statement of income. Impairment is determined as follows:

• For assets carried at fair value, impairment is the difference between cost and fair value, less any impairment loss previously recognized in the statement of income;
• For assets carried at cost, impairment is the difference between carrying value and the present value of future cash flows discounted at the current market rate of return for a similar financial asset; and
• For assets carried at amortized cost, impairment is the difference between carrying amount and the present value of future cash flows discounted at the original effective special commission rate.

Prepayments

Prepayments represent expenses not yet incurred but already paid in cash. Prepayments are initially recorded as assets and measured at the amount of cash paid. Subsequently, these are charged to statement of income as they are consumed or expire with the passage of time.

Property and equipment

Property and equipment is stated at cost net of accumulated depreciation and any impairment in value. When significant parts of property and equipment are required to be replaced at intervals, the Company recognizes such parts as individual assets with specific useful lives and depreciates them accordingly. All other repair and maintenance costs are recognized in statement of income as incurred. Land and capital work-in-progress are not depreciated.

The cost of all other property and equipment is depreciated on the straight-line method over the estimated useful lives of the assets as follows:

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. The carrying values of these assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount.

An item of property and equipment is derecognized upon disposal or when no further future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of income or taken into income in the year the asset is derecognized.

Lease

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental borrowing rate.

• Lease payments included in the measurement of the lease liability comprise:
• fixed lease payments (including in substance fixed payments), less any lease incentives;
• variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
• the amount expected to be payable by the lessee under residual value guarantees;
• the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
• payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

• the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
• the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating special commission rate, in which case a revise discount rate is used).

A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. The Company did not make any such adjustments during the periods presented.

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement date, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

The right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use of asset reflects that the Company expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

Short-term leases and leases of low-value assets

The Company has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets, including IT equipment. The Company recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to depreciation and are tested annually for impairment. Assets that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows (cash-generating units).

Accounts payable and accruals

Liabilities are recognized for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.

Claims

Claims, comprise amounts of claims estimates notified by ceding companies under reinsurance contracts and related loss adjustment expenses, net of recoveries and are charged to statement of income.

These include the cost of claims and claims handling expenses paid during the period, together with the movements in provisions for outstanding claims, claims incurred but not reported (IBNR) and claims handling provisions. The ultimate liability may be in excess of or less than the amount provided.

Any difference between the provisions at the reporting date and settlements and provisions in the following year is included in the statement of income for that year. The Company does not discount its liabilities for unpaid claims as substantially most claims are expected to be paid within one year of the financial reporting date.

The Company estimates its claims provisions based on previous experience. Independent loss adjusters normally estimate property claims. In addition, a provision based on Management’s judgment and the Company’s prior experience, is maintained for Incurred But Not Reported (“IBNR”) claims as well as for the cost of settling pending claims at the statement of financial position date. The IBNR amount is based on estimates calculated using widely accepted actuarial techniques such as Chain Ladder, Bornhuetter Ferguson Method and loss ratios which are reviewed at regular intervals by the Company’s appointed actuary. The techniques generally use projections, based on past experience of the development of claims over time, to form a view on the likely ultimate claims to be experienced. Regard is given to the variations in the business portfolio accepted and the underlying terms and conditions. Thus, the critical assumptions used when estimating provisions are that past experience is a reasonable predictor of likely future claims development and that the rating and business portfolio assumptions are a fair reflection of the likely level of ultimate claims to be incurred for the more recent years.

The outstanding claims are shown on gross basis and the related share of retroceded is shown separately.

Liability adequacy test

At each statement of financial position date, a liability adequacy test is performed to ensure the adequacy of the reinsurance contracts liabilities net of related deferred acquisition costs. In performing these tests, Management uses current best estimates of future contractual cash flows, claims handling and administration expenses. Any deficiency in the carrying amounts is immediately charged to the statement of income initially by writing off related deferred acquisition costs and subsequently, by establishing a provision for losses arising from liability adequacy tests.

End of service benefits

The Company operates an end of service benefit plan for its employees based on the prevailing Saudi Labor Laws. Accruals are made at the present value of expected future payments in respect of services provided by the employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period of high-quality corporate bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. The benefit payments obligation is discharged as and when it falls due. Remeasurements (actuarial gains/ losses) as a result of experience adjustments and changes in actuarial assumptions are recognised in statement of comprehensive income.

Short-term employee benefits

Short-term employee benefits obligation are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or any other benefits if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Zakat

The Company is subject to Zakat in accordance with the regulations of the General Authority of Zakat and Income Tax (“GAZT”). Zakat expense is charged to the statement of income. Zakat is not accounted for as income tax and as such no deferred tax is calculated relating to Zakat.

Income tax

The income tax expense or credit for the year is the tax payable on the current year’s taxable income, based on the applicable income tax rate for each jurisdiction.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company, its subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities.

Adjustments arising from the final income tax assessments are recorded in the period in which such assessments are made.

Withholding tax

The Company withholds taxes on certain transactions with non-resident parties in the Kingdom of Saudi Arabia as required under Saudi Arabian Income Tax Law. Withholding taxes paid on behalf of non-resident parties, which are not recoverable from such parties, are expensed.

Value added tax (VAT)

Output VAT related to revenue is payable to tax authorities on the earlier of:

(a) collection of receivables from customers or

(b) delivery of services to customers.

Input VAT is generally recoverable against output VAT upon receipt of the VAT invoice. The tax authorities permit the settlement of VAT on a net basis. VAT related to sales/services and purchases is recognised in the consolidated statement of financial position on a gross basis and disclosed separately as an asset and a liability.

VAT that is not recoverable is charged to statement of income as expense

Provisions

Provisions are recognized when the Company has an obligation (legal or constructive) as a result of past events, and it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated.

Premiums earned and commission income

Premiums and commission income are earned over the periods to which they relate to cover the reinsurance risk. Unearned premiums and commission income represent the portion of premiums written and commission income relating to the unexpired period of coverage and are deferred based on the following methods:

• Actual number of days for facultative reinsurance, non-proportional reinsurance treaties and portfolio transferred from insurance companies.
• For proportional reinsurance treaties under consideration of the underlying exposure in relation to the line of business as follows:

The change in the provision for unearned premiums and commission income is taken to the statement of income in order to recognize revenue over the period to cover the reinsurance risks.

Deferred excess of loss premiums

The Company uses non-proportional excess of loss retrocession agreements on loss occurring basis to reduce its exposure arising from per risk, catastrophic losses on risks assumed and to manage underwriting capacity. The costs related to these agreements are amortized over the period of underwriting contracts and charged to statement of income.

Special commission income

Special commission income is recognized on an effective yield basis taking account of the principal outstanding and the applicable special commission rate.

Dividend income

Dividend income is recognised when the right to receive payment is established, which is generally when shareholders approve the dividend.

General and administrative expenses

All expenses incurred during the fiscal year not directly relating to underwriting are classified as general and administrative expenses.

Foreign currencies

Transactions in foreign currencies are recorded in Saudi Riyals at the exchange rate in effect at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the statement of financial position date. All differences are taken to the respective statements of income.

Segmental reporting

An operating segment is a component of the Company that is engaged in business activities from which it may earn revenues, incur expenses and which is subject to risk and rewards that are different from those of other segments. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer that makes strategic decisions. The Company is organised into business units based on their products, services and has seven reportable operating segments as follows:

• Engineering is a comprehensive insurance cover that is available to the insured in respect of contingencies which may happen on a construction or erection site. It provides an all risks cover for the works as well as a liability cover towards third parties for material damage or injury sustained as a result of the work being undertaken. The cover is also available for machinery.
• Fire insurance pays for specific losses when a property is damaged due to fire, flood, earthquake and other external perils. It may also provide indemnity for loss of profit in case of an industrial or commercial activity.
• Marine insurance covers the loss or damage to cargo, terminals and or damage of ships or other means of transport of cargo by which property is transferred between the points of origin and final destination.
• Motor insurance pays for loss or damage to own motor vehicles involved in accidents. It also pays for losses caused by its use to third party properties and bodily injuries
• Protection includes term and credit life insurance. Term life insurance is used to provide financial aid for dependents in case of death and in certain cases of illness or disability. It can be an individual or a group policy with set duration limit on the coverage with the option to renew the policy or not. Credit life insurance is used to pay off a borrower’s debt if that borrower dies, with set duration limit on coverage with the option to renew the policy or not.
• General accident covers a variety of events/properties such as money, liabilities and personal accident whether for individual or group.
• Speciality includes Company’s participation in Lloyd’s market which specializes in writing worldwide property, marine, energy, speciality and non-U.S. liability insurance.
• Others include following business segments:
• Whole accounts covers ceding company’s retention (mainly in property, engineering, marine hull, marine cargo and sometimes include general accident and/or motor) on excess of loss basis
• Aviation (covers Aviation Hull, Aviation Liabilities and Spare Parts)
• Energy (covers Property Damage, Liabilities and Business Interruption)
• Agriculture (covers standing crops)
• Political Risk (covers Political violence, Sabotage and Terrorism)

Segment performance is evaluated based on profit or loss which, in certain respects, is measured differently from profit or loss in the financial statements.

No inter-segment transactions occurred during the year. If any transaction were to occur, transfer prices between business segments are set on an arm’s length basis in a manner similar to transactions with third parties. Segment income, expense and results will then include those transfers between business segments which will then be eliminated at the level of financial statements of the Company.

Contingencies and commitments

Contingent liability is:

(a) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or

(b) a present obligation that arises from past events but is not recognised because:

(i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or

(ii) the amount of the obligation cannot be measured with sufficient reliability.

Contingent assets are not recognised in the consolidated financial statements and are disclosed, unless the probability of an outflow of resources embodying economic benefits is remote.

Commitments represent binding agreements of the Company to carry out specified courses of action involving in a transfer of cash or other asset to the respective counterparties.

The preparation of the Company’s financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, the disclosure of contingent assets and liabilities, at the reporting date. However, uncertainty about these estimates and assumptions could result in an outcome that could require a material adjustment to the carrying amount of the asset or liability affected in the future.

Further, the Company has considered the following:

• On 11 March 2020, the World Health Organization (“WHO”) declared the Coronavirus (“COVID-19”) outbreak as a pandemic in recognition of its rapid spread across the globe. This outbreak has also affected the GCC region including the Kingdom of Saudi Arabia. Governments all over the world took steps to contain the spread of the virus. Saudi Arabia in particular has implemented closure of borders, released social distancing guidelines and enforced countrywide lockdowns and curfews.
• In response to the spread of the COVID-19 virus in the GCC, non-GCC and other territories where the Company operates and its consequential disruption to the social and economic activities in those markets, the Company’s Management has proactively assessed its impacts on its operations and has taken a series of proactive and preventative measures and processes to ensure:

  – the health and safety of its employees and the wider community where it is operating

  – the continuity of its business throughout the world is protected and kept intact.

The key assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of the assets and liabilities within the next financial year are discussed below.

Accrued reinsurance premium

Estimates have to be made for expected future premium for policies already written but not reported at the reporting date. Due to the nature of reinsurance business, it takes a significant period of time before all premiums are reported for a given underwriting period. Therefore, considerable judgment, experience and knowledge of the business is required by Management in the estimation of accrued premiums due from contract holders. Actual results may differ resulting in positive or negative change in estimated accrued premium income.

Effective 1 January 2020, the Company has revised method of estimating accrued reinsurance premium to enhance objectivity and consistency in the process. Accordingly, the accrued reinsurance premium at the reporting date is now determined by using actuarial techniques unlike previous basis of estimated premium income (EPI) recommended by the underwriters. The change in the estimation of accrued reinsurance premium has not only impacted the gross written premium for the period but also various elements including retroceded premium, change in unearned premium, net, retrocession commissions, changes in incurred but not reported claims, net, policy acquisition cost and profit commissions, other underwriting expenses and their related balances in the statement of financial position.

The accrued premium estimates are reviewed regularly by the Management by using various methods, but primarily by using historical reporting trends as a base for assessing future premium amounts. Historical premiums developments are mainly analysed by underwriting year, by type and line of business.

Determination of whether control exist over associate

The Company has investment in an associate which is not “controlled” by the Company and therefore, the associate is not consolidated in these financial statements. Determining whether the Company controls the associate usually focuses on the assessment whether the Company is exposed to, or has the right to, variable returns from its involvement with the associate and has the ability to affect those returns through its power over the investee. The Company reassesses whether it has control if there are changes to one or more of the elements of control.

The ultimate liability arising from claims made under reinsurance contracts

The estimation of the ultimate liability arising from claims made under reinsurance contracts is the Company's most critical accounting estimate. There are several sources of uncertainty that are needed to be considered in estimating the liability that the Company will ultimately pay for such claims. The provision for claims incurred but not reported (IBNR) is an estimation of claims which are expected to be reported subsequent to the statement of financial position date, for which the insured event has occurred prior to the end of financial reporting date.

The primary technique adopted by Management in estimating the cost of notified and IBNR claims, is that of using the past claims settlement trends to predict future claims settlement trends. Claims requiring court or arbitration decisions are estimated individually. Independent loss adjusters normally estimate property claims. Management reviews its provisions for claims incurred, and claims incurred but not reported, on a quarterly basis. The Risk and Underwriting Committee, in conjunction with the Company’s external actuaries, compares the changes in the technical reserves, to determine whether the change is reasonable.

Deferred policy acquisition costs

Commission and other costs directly and indirectly related to the acquisition and renewal of reinsurance contracts are recorded as deferred acquisition costs (“DAC”) and are amortized in the statement of income over the related period of policy coverage. If the assumptions relating to future profitability of these policies are not realised, the amortization of these costs could be accelerated and this may also require additional impairment.

Fair values of financial instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

• in the principal market for the asset or liability, or
• in the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible to by the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

The Investment Committee, in conjunction with the Company’s external fund managers, evaluates the performance of each investment to determine whether the same is reasonable in comparison to the market.

The Company’s Management evaluates the changes in the fair value of each of the other assets and liabilities, to determine whether the applied methodology is reasonable.

Going concern

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

For the financial year ending at 31 December 2021

	Shareholders’ operations
For the year ended 31 December	2021 SR	2020 SR
Bank balances (B)	5,939,195	5,122,375
Total bank balances and cash (A+B)	27,807,294	13,156,722

Cash at banks are placed with counterparties which have investment grade credit ratings of BBB+ and above.

The movement in provision for doubtful debt is as follows:

As at 31 December, the ageing of gross reinsurance premium receivables is as follows:

The Company only enters into insurance and reinsurance contracts with recognized, creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivables are monitored on an ongoing basis in order to reduce the Company’s exposure to bad debts.

The five largest customers account for 37% (2020: 38%) of the reinsurance premium receivable as at 31 December 2021.

Reinsurance premium receivables include premium deposits of SR 48,662,934 (2020: SR 49,796,634) and claims deposits of SR 16,635,171 (2020: SR 13,734,834). These deposits are retained by the cedants as per the terms of reinsurance treaties and are of rolling nature. These deposits are released within 12 months after the inception of the reinsurance treaty.

(i) Investments held at fair value through income statement consist of the following:

(ii) The analysis of the composition of investments for shareholders’ operations is as follows:

As at 31 December 2021 and 2020, all investments under reinsurance operations which are measured at fair value are quoted in secondary market. The investment in money market funds amounting to SR 343,047,268 (2020: SR 201,003,059) is classified as level 2 investments.

The following table shows an analysis of financial instruments under shareholders’ operations measured at fair value by level of the fair value hierarchy:

Fair values of investment funds are based on the net assets value (“NAV”) as disclosed in the fund’s latest available financial statements. The discounted cash flow (“DCF”) model has been used to value the debt securities, this model considers the present value of net cash flows to be generated from the debt security, discounted at the market yield of similar quoted instruments. The estimate is adjusted for the effect of non-marketability of the debt securities. The following table shows a reconciliation from the beginning balances to the ending balances for the fair value measurement in level 3 of the fair value hierarchy.

Sensitivity analysis

For the fair value of level 3 investments, reasonable possible changes at the reporting date to one of the unobservable inputs, holding other inputs constant, would have the following effects.

There were no transfers between level 1 and level 2 fair value measurements, and no transfers into or out of level 3 fair value measurements during the year ended 31 December 2021 and year ended 31 December 2020.

(iii) The movement of investments held at fair value through income statement is as follows:

(iv) The geographical split of investments held at fair value through income statement is as follows:

(v) The analysis of investments by counterparty is as follows:

In 2020, the Company obtained a margin loan amounting to SR 23,116,816 million. During 2021, additional drawdown was made amounting to SR 33,680,203. Both of margin loans were fully collateralized against underlying sukuks. As at 31 December 2021, the outstanding balance of margin loan payable is SR 56,797,019 (2020: SR 23,116,816). The loan has no fixed maturity and carries a floating special commission payable on quarterly basis.

The table below shows the breakdown of reinsurance premium written and earned during the year per domicile:

* Pipeline premiums are those premiums written but not reported (expected to be reported in future) to the Company at the statement of financial position date. Pipeline premiums are reported as accrued reinsurance premiums in the statement of financial position.

* Work-in-progress represents certain advances for the IT infrastructure.

Time deposits are placed with banks which have credit ratings in line with Company’s investment policy. Such deposits earn special commission at an average effective commission rate of 2.51% per annum (31 December 2020: 3.25% per annum).

The gross written premiums (GWP) of proportional treaty and facultative reinsurance contracts include estimates of premiums due to the Company but not yet reported by the cedant. This portion of GWP is considered as pipeline premium and accounted in the Statement of Financial Position as ‘Accrued reinsurance premiums’ net of related acquisition costs. These pipeline/accrued premiums are estimated at the inception of the reinsurance contract based on cedents/brokers forecasts and management’s evaluation of these forecasts. Management reviews and evaluates all premium estimates, comparing actual premiums to expected ultimate premiums on a quarterly basis and any adjustments to these estimates are recorded in the financial statements as and when updated information comes to light.

The Company, on 6 October 2017, acquired 49.9% of the ordinary shares of Probitas Holdings (Bermuda) Limited (PHBL). The Company has accounted for this investment as an associate (equity accounted investee). PHBL operates in insurance and reinsurance businesses including Lloyd’s market in London, United Kingdom.

During September 2020, the Company subscribed to the rights issue of shares of PHBL for the purpose of providing funding of its own Lloyds Managing Agency to manage the Syndicate 1492. The Company retained its ordinary shareholding percentage of 49.9% by fully subscribing to the 141,644 ordinary shares allocated through the rights issue on payment of SR 3,696,900.

The Company has recognized its share of capital contribution of investment in equity accounted investee amounting to SR 4.6 million during the year, relating to the share options that were granted to certain employees of PHBL, that are funded into an Employee Benefit Trust.

The following table summarizes the financial information of PHBL as included in its own financial statements. The table also reconciles the summarized financial information to the carrying amount of the Company’s interest in PHBL

Following is the breakdown of held to maturity investments per domicile:

The special commission rate on these sukuks and bonds ranges from 2.15% to 6.63% and will mature on 2030, latest. The total accrued interest on these sukuks and bonds amounted to SR 3.4 million (2020: SR 4.25 million).

Movements in held to maturity investments are as follows:

The movement in provision for employee end-of-service benefits for the years ended 31 December are as follows:

Net defined benefit as at year-end is as follows:

Principal actuarial assumptions

The principal actuarial assumptions used are as follows:

Assumption on withdrawal rates are as follows:

Sensitivity analysis

Reasonably possible changes as to one of the relevant actuarial assumptions, holding other assumptions constant, the amount of defined benefit obligations would have been:

Risks associated with defined benefit plans

Salary increase risk:

The retirement benefit of the company is one where the benefit is linked with final salary. The risk arises when the actual salary increases are higher than expectation and impacts the liability accordingly.

Longevity risks:

The risk arises when the actual lifetime of retirees is longer than expectation. This risk is measured at the plan level over the entire retiree population.

The following table shows the estimates of cumulative incurred claims, including both claims notified and incurred but not reported for each successive underwriting year at each reporting date, together with cumulative payments to date. The development of reinsurance liabilities provides a measure of the Company’s ability to estimate the ultimate value of the claims. The Company aims to maintain adequate reserves in respect of its reinsurance business in order to protect against adverse future claims experience and developments. As claims develop and the ultimate cost of claims becomes more certain, adverse claims experiences will be eliminated which results in the release of reserves from earlier underwriting years. In order to maintain adequate reserves, the Company will transfer much of this release to the future underwriting years’ reserves when the development of claims is less mature and there is much greater uncertainty attached to the ultimate cost of claims.

Gross reinsurance contract outstanding claims and IBNR provision for 2021:

Net reinsurance contract outstanding claims and IBNR provision for 2021:

(a) Zakat

Zakat charge for the year of SR 14,965,272 (2020: SR 14,697,932) is based on the following:

(b) Income tax

Income tax for the year of SR 40,271 (2020: SR 75,898) is based on the following:

(c) The movement of the provision for Zakat and income tax is as follows:

The Company has recorded Zakat and tax provision based on the circular No. 12746/16/1438H (18 January 2017) issued by the Zakat, Tax and Customs Authority (ZATCA), in which Saudi public listed companies are to provide for tax and Zakat based on the shareholding percentages of GCC and non-GCC founding shareholders. The shareholding percentages of GCC and non-GCC founding shareholders were 99.6% and 0.4% respectively as at 31 December 2021 (2020: 99.1% and 0.9%).

(d) Status of assessment

The Company has filed its tax/Zakat returns for the year ended 31 December 2020 and obtained the final Zakat certificate up to 2020. However, it is Zakat, Tax, and Customs Authority (ZATCA)’s discretion to issue further assessments for 2019 and 2020.

In October 2021, the ZATCA has issued assessments for the years 2019 and 2020 with additional Zakat and income tax liability amounting to SR 3.1 million and SR 4.2 million, respectively. The Company filed an appeal with General Secretariat of Tax Committees (“GSTC”) against this additional amount. The Company’s management believes that there is a strong case against this additional assessment since the Company’s position on this item is strongly supported by the Zakat regulations.

(e) Status of VAT assessment

Other assets include payment made by the Company in relation to VAT assessment raised by Zakat, Tax and Customs Authority (ZATCA) for 2018 and 2019 financial years amounting to SR 35 million (2020: SR 38.5 million). The ZATCA accepted the Company’s objection regarding local and standard rated purchases and refunded the full amount of SR 3.5 million in early 2021 and rejected the objection for remaining amount. The Company has filed an appeal with General Secretariat of Tax Committees (“GSTC”) against the ZATCA’s rejection decision. ZATCA filed a counter-reply to the Company’s appeal with GSTC in April 2021. The Company has filed a counter reply to ZATCA’s counter claim. Simultaneously, an appeal to the Alternative Dispute Resolution Committee “(ADRC”) has also been filed to present the Company's perspective to ADRC. Following ADRC’s rejection, the Company is continuing with the appeal with GSTC. The Company’s management and its tax advisors believe that there is a strong case that the ZATCA’s assessment will be reversed, and the full amount will be refunded in due course.

The authorized, issued and paid up share capital of the Company is SR 891 million (2020: SR 810 million) divided into 89.1 million (2020: 81 million) shares of SR 10 each.

The Company’s Board of Directors recommended, at their meeting on 30 March 2021, that the Company’s ordinary share capital be increased from SR 810 million to SR 891 million, a 10% increase, by issuing bonus shares at the rate of one share to every ten shares held. During the year ended 31 December 2021, on 14 July 2021, the Company got approval from the extraordinary general meeting to increase its share capital. The Company has utilized SR 81 million of its retained earnings for this purpose.

Shareholding structure of the Company is as below. The shareholders of the Company are subject to Zakat and income tax.

Objectives are set by the Company to maintain healthy capital ratios in order to support its business objectives and maximize shareholders’ value.

The Company manages its capital requirements by assessing shortfalls between reported and required capital levels on a regular basis. Adjustments to current capital levels are made in light of changes in market conditions and risk characteristics of the Company’s activities. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders or issue shares.

In the opinion of the Board of Directors, the Company has fully complied with the externally imposed capital requirements during the reported financial year.

In accordance with the Company’s by-laws and Article 70 (2g) of the Insurance Implementing Regulations issued by SAMA, a minimum of 20% of the annual net income is required to be transferred to a statutory reserve until this reserve equals the paid-up capital of the Company. This reserve is not available for distribution.

* Depreciation charge for the year for shareholders’ operations assets is charged to reinsurance operations as a rent for using the assets.

Related parties represent major shareholders and key management personnel of the Company. Key management personnel are persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly and comprise top management executives including the Chief Executive Officer and the Chief Financial Officer of the Company. The Company transacts with its related parties in the ordinary course of business. The transactions with related parties are undertaken at mutually agreed terms, which are approved by the management.

Details of transactions and balances with related parties during the year other than those which have been disclosed elsewhere in these financial statements are disclosed below:

* No claims have yet been paid to or reported by the associate.

Balances with related parties are included in reinsurance premium receivables, accrued reinsurance premiums, claims incurred but not reported, accrued expenses and other liabilities shown in the statement of financial position.

Basic and diluted earnings per share for the years ended 31 December 2021 and 31 December 2020 have been calculated by dividing net income for the year by the weighted average number of ordinary shares issued and outstanding at the end of the year.

The weighted average number of shares have been retrospectively adjusted for all prior periods to reflect the element of increase in share capital as follows:

The Company has deposited an amount of SR 89.1 million (31 December 2020: SR 81 million) with a local bank, which has been rated “A” by Standard & Poor’s Rating agency representing the statutory deposit of 10% of its paid-up capital as required by the Implementing Regulations of the “Law On Supervision of Cooperative Insurance Companies” issued by SAMA. This statutory deposit cannot be withdrawn without the consent of SAMA. The statutory deposit generates special commission income which is accrued on regular basis and is shown as a separate line item as part of the shareholders’ liabilities in the Statement of Financial Position as “Accrued commission income payable to SAMA”. The accrued commission on the deposit as at December 2021 is SR 20,962,172 (31 December 2020: 20,185,653) and has also been disclosed in assets as “Accrued income on statutory deposit”.

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Company that are regularly reviewed by the chief decision maker in order to allocate resources to the segments and to assess its performance. Consistent with the Company’s internal reporting process, business and geographical segments have been approved by the Management Committee in respect of the Company’s activities, assets and liabilities as stated below.

Segment results do not include special commission income from time deposits, bonds and sukuks, realized and unrealized gains on investments held at fair value through income statement, other income, investment management expenses and all general and administrative.

Segment assets do not include bank balance and cash of reinsurance operations, time deposits, accrued special commission income from time deposits, investments held at fair value through income statement, accrued special commission income from bonds and sukuk, retrocession balances receivable, held-to-maturity investments, prepaid expenses, deposits and other assets, and property and equipment (net).

Segment liabilities do not include retrocession balances payable, accrued expenses and other liabilities and employees’ end of service benefits.

30.1 Business segments

The Company revises periodically its estimated gross written premiums and related retroceded premium upon receipt of actual information from cedants. In some business segments, this results in negative gross written premiums, positive retroceded premiums and negative net written premiums for the year when the revision took place.

For the year ended 31 December 2021		Engineering SR	Fire SR	Marine SR	Motor SR	General Accident SR	Protection SR	Health SR	Speciality SR	Others SR	Total SR
Revenues
Gross written premiums		88,511,796	247,947,505	111,734,074	96,757,921	40,239,336	49,586,490	132,659,622	181,107,318	167,335,638	1,115,879,700
Retroceded premiums		(15,678,010)	(19,504,518)	(48,385,166)	–	(13,932,545)	–	–	–	(26,397,667)	(123,897,906)
Excess of loss expenses		(5,754,774)	(13,985,437)	(1,527,674)	161,097	(347,837)	(1,040,944)	–	–	(10,518,557)	(33,014,126)
Net written premiums		67,079,012	214,457,550	61,821,234	96,919,018	25,958,954	48,545,546	132,659,622	181,107,318	130,419,414	958,967,668
Changes in unearned premiums, net		1,444,503	(16,446,286)	252,378	(19,486,509)	918,476	18,560,095	(55,069,457)	(35,490,562)	1,079,790	(104,237,572)
Net earned premiums		68,523,515	198,011,264	62,073,612	77,432,509	26,877,430	67,105,641	77,590,165	145,616,756	131,499,204	854,730,096
Retrocession commissions		3,261,537	7,156,757	1,908,607	–	1,604,457	(30,494)	–	–	5,774,645	19,675,509
Total revenues		71,785,052	205,168,021	63,982,219	77,432,509	28,481,887	67,075,147	77,590,165	145,616,756	137,273,849	874,405,605
Underwriting costs and expenses
Gross claims paid		(32,660,267)	(81,884,871)	(54,121,621)	(44,073,758)	(30,696,729)	(78,639,261)	(55,823,896)	(49,351,316)	(43,963,817)	(471,215,536)
Retroceded share of claims paid		523,188	10,173,814	23,227,866	743,187	16,542,623	75,000	–	–	10,421,301	61,706,979
Net claims paid		(32,137,079)	(71,711,057)	(30,893,755)	(43,330,571)	(14,154,106)	(78,564,261)	(55,823,896)	(49,351,316)	(33,542,516)	(409,508,557)
Changes in outstanding claims, net		2,293,979	(26,674,202)	(9,501,806)	(7,638,731)	(11,957,321)	6,598,085	(594,943)	–	(23,910,356)	(71,385,295)
Changes in Incurred but not reported claims, net		(1,409,304)	(24,288,937)	(2,455,259)	(9,185,946)	(2,104,970)	(10,765,826)	(20,172,624)	(4,513,553)	(9,521,742)	(84,418,161)
Net claims incurred		(31,252,404)	(122,674,196)	(42,850,820)	(60,155,248)	(28,216,397)	(82,732,002)	(76,591,463)	(53,864,869)	(66,974,614)	(565,312,013)
Policy acquisition costs and profit commissions		(27,582,578)	(61,693,374)	(19,137,184)	(9,728,738)	(7,910,679)	(2,494,276)	(1,438,173)	(72,237,336)	(30,181,780)	(232,404,118)
Other underwriting expenses		(398,899)	(1,163,376)	(558,857)	(386,356)	(213,327)	(341,070)	(387,956)	(761,045)	(852,160)	(5,063,046)
Total underwriting costs and expenses		(59,233,881)	(185,530,946)	(62,546,861)	(70,270,342)	(36,340,403)	(85,567,348)	(78,417,592)	(126,863,250)	(98,008,554)	(802,779,177)
Net underwriting income/(loss)		12,551,171	19,637,075	1,435,358	7,162,167	(7,858,516)	(18,492,201)	(827,427)	18,753,506	39,265,295	71,626,428

30.2 Geographical segments