About ARAbIA - arabiainsurance.com · Arabia House - Phoenicia street - Beirut - Lebanon Tel. 961 -...

ANNUAL REPORt 2016Table of conTenTs

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45691011

About ARAbIA

branch officesArabia’s Vision, Mission & GoalsSubsidiaries and Affiliated Companiesboard of DirectorsGeneral Management (Head office)Life / Non-Life Agencies & Sales teams

51CoNSoLIDAteD FINANCIAL StAteMeNt AND AuDItoR’S RepoRt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .

I. exeCutIVe SuMMARy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

II. ARAbIA opeRAtIoNS oVeRVIew. . . . . . . . . . . . . . . . . .

1. Insurance operations1.1 Non-Life Global overview1.2 Life Insurance operations

2. Investment operations2.1 Investment operations - General Departments2.2 Investment operations - Life Department

3. Financial Highlights3.1 Non-Life3.2 Life

4. other Issues4.1 other operational Highlights

III. CoRpoRAte GoVeRNANCe, RISK & CApItAL MANAGeMeNt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1. Corporate Governance2. Group Risk & Capital Management

2.1 Capital Management 2.2 Risk Management

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RepoRt oF tHe boARD oF DIReCtoRS oN tHe 72ND FINANCIAL yeAR oF tHe CoMpANy’S opeRAtIoNS

ANNUAL REPORt 2016

About ARAbIA

ANNUAL REPORt 2016

Annual Report 2016Report of the Board of Directors and Statements of Accounts for the Financial year ending on 31/12/2016 submitted to the 72nd Annual General Assembly of Shareholders.

Head office:Arabia House - Phoenicia street - Beirut - LebanonTel. 961 - 1 - 363610 /363611 & 961 - 3 - 314350 / 314351Telefax 961 - 1 - 365139 /363659

P.O.Box 11 - 2172 Beirut - LebanonE-mail [email protected] www.arabiainsurance.com

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ManamaKuwaitDoha

branch officescountry branch local sponsor Management

United arab emirates

bahrain

lebanon

KuwaitQatar

Ain el MreissehtripoliChtaura

Dubaisharjahabu Dhabial-ain

Mr. Mohammad Jalal

Ali bin Ali establishmentMr. Mohammad Abdul Rahman Al bahar

Mr. Ismail Ibrahim Abdallah Mohammad el HamadiSheikh Khaled Al KassimiMr. Ahmed bin GhanoumMr. Saeed Sultan Salmeen bin Harmal Al-Dhahiri

Serge Flouty - Country Manager - u.A.eJalal Hammoud - Finance & Administration Manager- u.A.etareq Fakhourytareq FakhouryMuhamad MustaphaMuhamad Mustapha

Alain Georr

Mohamad othman - Deputy branch ManagerNabil Kawar

Mohammad el Hassan - Regional Director - LebanonNazih Zeidan - business Development Managerbernard Jaalouki - Agencies and Agents’ Manager

Ismail el RifiRoger Dawalibi

ANNUAL REPORt 2016

VisionTo be the leading “customer centric” Arab Insurer.

MissionTo provide accessible, simple, effective, and client friendly products and services that respond to the evolving needs of our customers.

aRabIa’s VIsIon, MIssIon & Goals

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Sustain a culture of leadership, trust, open communication, transparency, efficiency, effectiveness and innovation, thus adding further value to our stakeholders.

Develop, invest in, empower our human capital to take on the challenges of a fast changing and growing industry, capitalizing on teamwork spirit and a “customer centric” culture.

Enhance our corporate brand by using an advanced and holistic marketing approach.

Play a positive role in the countries of our operations through local CSR activities.

Use state of the art technology.

Goals

Enhance Shareholder value.

Emphasize excellence in our relations with our stakeholders, while exercising good corporate governance, enhancing our internal controls,simplifying processes, and upholding professional ethics, integrity and social responsibility.

Respond to our customers’ needs by offering them transparent quality products, good investment opportunities, outstanding personalized services, dedicated personnel, and an elaborate, easily accessible, distribution & claims’ handling networks.

Achieve a fair return on equity, benchmarked with local markets’ yields.

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sUbsIDIaRIes & affIlIaTeD coMPanIes

ARABIA s.a.l. HOLDInG COmPAnyHead Office Arabia House Building, Phoenicia St. - Beirut, LebanonTel. 961 - 1 - 363610/1 & 961 - 3 - 314350/1Fax 961 - 1 - 362975P.O.Box 11 - 2172 Beirut - LebanonE-mail [email protected]

ARABIA InTERnATIOnAL COmPAny B.S.C. ClosedHead Office Bahrain Tower - Al Khalifa Avenue - BahrainTelefax 973 - 17 - 214110P.O.Box 11432 Diplomatic Area manama – Bahrain

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aRabIa InsURance cooPeRaTIVe coMPanYHead Office Bin Tami Center, King Abdel Aziz Road, KSATel. 966-11-2153360Fax 966-11-2153197P.O.Box 286555 - 11323 Riyadh - KSAEmail [email protected] www.aicc.com.sa

aRabIa InsURance coMPanY - sYRIa s.a.Head Office Abu Remaneh, Al Sebki Park, Hugo Chavez Street, SyriaTel. 963 - 11 - 6627745Fax 963 - 11 - 6627750P.O.Box 34801 Damascus - SyriaEmail [email protected] www.arabiasyria.com

Branches in the Kingdom of Saudi Arabia:Riyadh - Head OfficeJeddah - Branch 1Jeddah - Branch 2mekkahTaefKhamis musheitDammamHoufouf

Branches in Syria:Damascus - Head OfficeDamascus - BranchAleppoHomsLattakiaTartousHamaSweida

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aRabIa InsURance coMPanY - JoRDan ltdHead Office Building 3 - Arabia Insurance Building - Al

Shmesani Abed El Hameed Sharaf Street- JordanTel. 962 - 6 - 5630530Fax 962 - 6 - 5622303P.O.Box 20031 Amman (11118) JordanE-mail [email protected] www.aicj.jo

Branches in Jordan:Amman - Head OfficeAmman BranchIrbid

aRabIa falcon InsURance saoc (effective april 1, 2017)Head Office Al Qurm /Boucher/muscat - Sultanate of OmanTel. 968 24 660 900Fax 968 24 566 476P.O.Box. 2279, Ruwi, P.C. 112 Sultanate of Oman E-mail [email protected] www.afic.com

Branches in Sultanate of Oman:muscat - Head OfficeSeebSalalahnizwaSoharRuwi

UPI (seRVIces) lIMITeDHead Office 3, Chrysanthou - mylona Street - CyprusTelefax 5340734P.O.Box 6253 - 3305 Lemesos-Cyprus

al MasHRIQ fInancIal InVesTMenT co. s.a.l.Head Office Arabia House Building - 131 Phoenicia St. - LebanonTel. 961 - 1 - 363610/1Fax 961 - 1 - 362975P.O.Box 4069 Beirut – Lebanon

ANNUAL REPORt 2016

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board of Directors (effective May 27, 2016)

mr. Wahbe Abdallah Tamari (Chairman)mr. Hani Atallah Freij (Vice - Chairman)Arab Bank PLC (Represented by mr. Riyad Kamal)mr. nadim BaroodyDr. Karma Fahoum EI-Hassanmr. nadim Ghantousmr. maroun Kyrillos

board Committees (As at May 27, 2017)

Investment Committeemr. Wahbe Abdallah Tamari / Committee Chairpersonmr. Hani Atallah Freijmr. Riad Kamalmr. nadim Ghantous

Shares transfer Committeemr. Wahbe Abdallah Tamari / Committee Chairpersonmr. Hani Atallah Freijmr. nadim Baroody

Nomination, Remuneration& Strategic Affairs Committeemr. Wahbe Abdallah Tamari / Committee Chairpersonmr. Hani Atallah Freijmr. nadim Baroody

Audit Committeemr. nadim Baroody / Committee ChairpersonDr. Karma Fahoum El-Hassanmr. maroun Kyrillos

Risk & Compliance Committeemr. maroun Kyrillos / Committee Chairpersonmr. nadim Ghantousmr. Tarek Al-Suleimanmr. Samer Abou Jaoude

Board of directors

ANNUAL REPORt 2016

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GeneRal ManaGeMenT (HeaD offIce)

General Managermr. Samer Abou Jaoude

Deputy General Managermr. Hisham Barraj . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Directorsmr. marwan mokdad. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

mr. Wael El Bsat. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

mr. Bassam Semaan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

mr. Antoine Abou Faysal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

mr. mohammad El Hassan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Finance Consultantmr. nadim Aouad

Legal AdvisorDr. Salah Eddine AL Dabbaghms. Grace Doro

AuditorsDeloitte & Touche

Human ResourcesOperationsLifenon-LifeRegional Director - Lebanon

Insurance

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lIfe / non-lIfe aGencIes & sales TeaMs

Life AgenciesCedars Agency/ Verdun - Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Elite Agency/Ashrafieh - Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interbrok Agency/Beirut-Lebanon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Unirisk Agency/Beirut - Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sales teamsLebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Dubai/Sharjah - UAE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Abu Dhabi/Al Ain - UAE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

managed by mr. Riad Shoukairmanaged by mr. Antoine Zakhiamanaged by mr. Elie Bekhazimanaged by mr. Ghaleb Damaj

managed by mr. Bassam Semaanmanaged by ms. Carole Abou Khalilmanaged by mr. Hassan Al Khatib

Non-Life AgenciesBaalbeck Agency/ Baalbeck-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Jib Jennine Agency/Jib Jennine-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Koura Agency/Koura-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

mar Elias Agency / Beirut - Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Riyak Agency/Ablah - Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Verdun Agency/ Verdun-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Zahle Agency/Zahle-Lebanon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gateway International Assurance L.L.C/ Dubai-UAE. . . . . . . . . . . . . . . . . . . . . . . . .

managed by mrs. Oumayma Haidar younessmanaged by mr. Joseph Abi Faresmanaged by mr. nizam najjarmanaged by mr. Omar Shehabmanaged by mr. Dani Georges Salibamanaged by mr. Bassem Abou Dahermanaged by mrs. Lina Haroukmanaged by mr. Georges Ashkar

ANNUAL REPORt 2016

RepoRt oF tHe boARD oF DIReCtoRS oN tHe 72ND FINANCIAL yeAR oF tHe

CoMpANy’S opeRAtIoNS

ANNUAL REPORt 2016

I. exeCutIVe SuMMARy

RepoRt oF tHe boARD oF DIReCtoRS

ANNUAL REPORt 2016I. execUTIVe sUMMaRYRepoRt oF tHe boARD oF DIReCtoRS

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Dear shareholders,

We welcome you at your company, and would like, on behalf of the Board of Directors of Arabia Insurance Group, to present to you the Annual Report and the consolidated financial statements for the year ending December 31st 2016, along with the necessary illustrations and explanatory analysis.

The global growth is estimated to have slowed in 2016, the weakest performance since the 2008 financial crisis. A moderate recovery is expected in 2017, mainly driven by improvements in the emerging markets and developing economies. Similarly, the middle Eastern and north African economies grew at a slower pace. The growth was higher in oil importing countries than in oil exporters; yet, the regional growth was below its 1991-2008 average. The failed ceasefire attempts in Syria, the ongoing war in yemen, the continued struggle in Iraq and the political crisis in Libya continued to have deep domestic, regional and international effects. All these led to a relatively modest growth in our insurance markets, particularly in the commercial lines, while the growth in the personal lines has been supported by regulations making motor and Health insurance mandatory in several markets. In general, insurance markets in 2016 were characterized by soft pricing, reflecting insurers capacity, competition, and relatively low catastrophe losses.

Arabia Insurance Company (AIC) went through major changes in its organization in 2016. A new General manager was appointed and a new leadership team was progressively on-boarded throughout the year. AIC witnessed a slight drop of 1% in its gross written premium in 2016 (from LBP 268 B equivalent to USD 178 m in 2015 to LBP 266 B equivalent to USD 176 m in 2016) amid a challenging economic and political situation in the region and important internal restructuring. Consolidated net profit decreased from LBP 1 B equivalent to USD 0.7 m in 2015 to a net loss of LBP 2 B equivalent to USD 1.3 m in 2016 .


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The company’s technical results of the General Insurance departments amounted to LBP 2.7 B equivalent to USD 1.8 m in 2016. Total non-Life production showed no growth in 2016 at LBP 226 B equivalent to USD 150 m.

The motor line closed the year with net technical loss (net of allocated General & Administrative Expenses) of LBP 2.4 B equivalent to USD 1.6 m while the medical line witnessed technical loss (net of allocated General & Administrative Expenses) of LBP 2.6 B equivalent to USD 1.7 m. Property & Casualty lines compensated these losses by generating net technical profit (net of allocated General & Administrative Expenses) of LBP 7.8 B equivalent to USD 5.2 m. The chronic negative underwriting results in motor is the main focus of the company and its new management. A new technical team was hired in 2016 and has devised a revamped pricing and underwriting strategy for motor, and restructured its claims management processes. We expect the positive effects of these actions to start materializing in 2017. With regards to the medical line, we expect an improvement in technical result to come from new underwriting guidelines and procedures which are being implemented and a decision in Q4 2016 to restructure our reinsurance treaties.

Our Life business yielded lower profits, from LBP 4.3 B equivalent to USD 2.9 m in 2015 to LBP 2 B equivalent to USD 1.4 m in 2016. This is mainly due to a 10.6% decrease in written premium from LBP 43.6 B equivalent to USD 29 m in 2015 to LBP 39 B equivalent to USD 26 m in view of the economic conditions prevailing in the GCC where our Life portfolio is concentrated, in addition to a drop in our Reinsurance Profit Commission as a result of higher claims in 2016.

On the investments side, the company achieved in 2016 a non-life investment income of LBP 7 B equivalent to USD 4.6 m, while the non-life invested assets reached LBP 256 B equivalent to USD 170 m. The Life investment income increased in 2016 to reach LBP 2.25 B equivalent to USD 1.5 m (LBP 1.73 B or USD 1.15 m in 2015), while the life invested assets (excluding unit linked) reached LBP 43.72 B equivalent to USD 29.15 m.


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As was the case in the previous years, we have smoothly renewed our reinsurance treaties, which are led by a first-class reinsurer and followed by prominent regional and European reinsurers. This was the outcome of a long term and strategic partnership with all our reinsurers. We have also continued to subscribe to a Group treaty covering our countries of operations including the 3 sister companies: AIC (Lebanon), AICJ (Jordan) and AICS (Syria).

In brief, the results of our subsidiaries and their respective insurance markets situation are as follows:

- arabia Insurance company - Jordan (aIcJ): Despite the regional disruptions that are affecting the Jordanian insurance industry, AICJ premium growth reached 10% versus a market growth of 4.4%. AICJ reported a net profit of JD 621 K equivalent to USD 876 K in 2016, noticeably increasing from JD 120 K equivalent to USD 169 K in 2015 mainly due to improvement in motor line of business growth and profitability. AICJ premiums increased from JD 18 m equivalent to USD 25 m in 2015 to JD 19 m equivalent to USD 27 m in 2016 due to growth in all lines of business except for life & medical that remained almost unchanged.

- arabia Insurance company - syria (aIcs): continued its operations despite the ongoing conflict in Syria, and the resultant deteriorating economic and political situation. AICS premiums noticeably increased from SyP 658.1 m to SyP 882.0 m but due to the deterioration of the Syrian Pound exchange rate the premiums decreased in US Dollars terms from USD 3.1 m in 2015 to USD 1.9 m in 2016. Profitability increased from SyP 70 m equivalent to USD 335 K in 2015 to SyP 151 m equivalent to USD 326 K in 2016.


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future outlook

In line with the market challenges, Arabia opted to reposition itself in the market to keep its market competitive position by implementing a new transformation plan, Gearing towards Excellence year 2020 (GTE2020). GTE2020 key objective is to bring back profitability by building an engaged structure to be lean and adaptive for profitable growth and for better customer experience.

The focus of the company this year will be to invest in our Life operations in Lebanon and the GCC by strengthening our agents’ distribution channel, enhancing our client servicing, and introducing new products that meet our clients’ needs. The company will continue to revamp its internal business processes, constantly update its pricing and claims management strategies, and enhance its business development initiatives to improve its operational efficiency and ultimately its profitability. Going forward, AIC will look to make cost-savings as it seeks to streamline its branch network and centralize core functions in Lebanon.

In Oman, the merger of our branch with Falcon Insurance Company will give us a leader position in the Omani insurance market. The priority will be to successfully integrate the two teams and operations while keeping the focus on the market and on serving our enlarged client portfolio. We will also continue developing our human resources at all levels, always stimulating the culture of “customer centricity” across Arabia.

We are grateful to our Customers for their continued support and loyalty, to Arabia Shareholders for their trust in Arabia, and to the Board of Directors, management and employees for their dedication, hard work and loyalty. Together we shall build a better future for Arabia.yours sincerely,

Wahbe abdallah TamariChairman of the Board of Directors

II. ARAbIA opeRAtIoNS

oVeRVIew


ANNUAL REPORt 2016II. aRabIa oPeRaTIons oVeRVIeWRepoRt oF tHe boARD oF DIReCtoRS

Consolidated Operations of Arabia Insurance Company s.a.l., Arabia Insurance Company – Syria, and Arabia Insurance Company - Jordan (hereinafter referred to as Arabia).

This year 2016, we are pleased to report that Arabia recorded an underwriting result in its non-Life operations of LBP 2.7 billion (net of allocated General and Administrative expenses).

This result was achieved despite the economic slowdown as well as the political and social instability in Arabia’s areas of operations and entourage, which is heavily affecting both the growth in premiums production and operating margins. All of the non-Life lines reported positive technical results except medical and motor. Remedial measures, put together by the underwriting and actuarial teams, are now in place to reverse back the negative underwriting results.

In 2016, we continue to be committed to achieve our main objectives to DRIVE sales and profitable growth to an upper dimension; ATTEnD to customer needs, which represent our key focus, and EnGAGE all stakeholders to gear performance excellence.

In line with the above objectives, we are relentlessly following a roadmap which aim is threefold: cleaning our portfolio from loss-producing risks, increasing our underwriting bottom-line, and raising our market share in insurance segments and markets where extra profitability is possible and achievable.

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1. Insurance operations

1.1 Non-Life Global overview


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We are also continuously striving to increase our Customers’ satisfaction, and optimize interactions from the customer’s perspective and foster loyalty through providing an improved customer service, and thus have a better customer retention, higher conversion rates and consequently an improved overall value.

Internally, and in an attempt to ensure that the best practices are being implemented as part of the GTE2020 (Gearing Towards Excellence), new policies and procedures were streamlined and put in place, and are being continuously reviewed and updated to meet all our business needs.

In addition, new service level agreements were also developed and put in practice to define responsibilities, and to ensure that needs of our customers (both internal and external) are being met in the most effective timely manner, and thus, fulfilling our commitment to have a better customer experience.

Last but not least, and since we believe that the contribution and support of all Arabia staff members are essential, the GTE2020 transformation plan included focus group sessions for all teams, aiming at effectively engaging everyone and ensuring that each member is being aware of and aligned with the new strategic directions and objectives.


1.1 Non-Life Global overview


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Jordan (AICJ)The Life Insurance Total Gross Premiums at AICJ reached JD 2,099,434 in 2016 versus JD 2,157,034 in 2015.

AICJ Life Operation will reinforce its distribution channels, which will positively affect both productivity and profitability.

Lebanon & Gulf (AIC)The Life Insurance Total Gross Written Premiums at AIC (Lebanon & Gulf ) sustained its growth and reached LBP 34.54 billion (USD 22.91 million), with a profit totaling to USD 1.36 million in 2016.

In 2016, the Total Group Life Gross Written Premiums reached LBP 2.37 billion (USD 1.57 million).

Our Unit-Linked products – the “Arabia Lifestyle” range – which offer an optimum combination of Protection and Investment, scored the highest share in our production figure, reaching USD 5.27 million (First year Written Premiums).


1.2 Life Insurance operations


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Unit-linked Premiums in Millions of Us$$16.00

$14.00

$12.00

$10.00

$8.00

$6.00

$4.00

$2.00

$0.00

$7.79

$5.27

$12.52

$15.15

$10.23

2015 2016

first Year Unit-linked Renewal Unit-linked

$4.38

$6.10

$8.84

2011 2012 2013 2014

$4.44 $3.77

$8.66

$9.33


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Geographical Distribution of life Written Premiums in 2016

20161st Year Premiums

2016Renewal Premiums

2016Total Premiums

2015Total Premiums

lbP’000 lbP’000 lbP’000 lbP’000% % % %LebanonuAeomanbahrainKuwaitotherTotal

1,467,7008,344,471288,944488,623208,908570,485

11,369,131

1,618,80117,822,171

374,790615,123358,554

2,383,38323,618,039

3,086,50126,166,641

663,7341,103,746567,461

2,953,86834,541,952

4,067,692 29,751,299 1,600,382 914,453 707,711

2,275,274 39,316,811

13%73%3%4%2%5%

100%

7%75%2%3%2%

10%100%

9%76%2%3%2%9%

100%

10%76%4%2%2%6%

100%

Geographical Distribution of Total Written Premiums in 2016

oman

bahrain

Kuwaitother

Uae76%

lebanon9%

3%2%

2%8%


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life Production Historical chart (Total Written Premiums)

ToTal PRoDUcTIon In lbP bIllIon

2015

2013

2011

2009

2007

2005

2003

2001

0 5 10 15 20 25 30 35 40 45

39.32

3.86

4.19

5.09

6.16

7.92

9.59

12.06

17.39

18.06

23.68

26.07

26.74

27.94

33.59

34.542016


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Group & open Policies

21%

Regular Premiums

74%

additional Premiums

5%

first Year Written Premiums Distribution in 2016


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2. Investment operations

2.1 Investment operations - General Departments

The value of arabia invested assets in general insurance departments (excluding Property & Equipment) decreased by LBP 2 billion (-0.8%), from LBP 244.6 billion in 2015 to LBP 242.6 billion in 2016. This decrease was due to the drop in market price of our participation in Saudi Enaya (yoy drop LBP 4.1 billion).

meanwhile, the net investment income of the general departments was at LBP 6.76 billion in 2016 versus LBP 7.19 billion in 2015, this decline was mainly due to an impairment charge of LBP 362 million on a held at cost investment.

2016all amounts in LBP’000 2015

Cash and banksDue to banksFinancial assets at fair value through profit or lossFinancial assets at fair value through other comprehensive incomeFinancial assets at amortized costTotal Invested assetsInterests on bank depositsInterest expense on bank borrowings and overdraftsInterests and dividend income from investment securitiesNet gain on securities tradingDecline in value of investment securities at amortized costNet foreign exchange lossesTotal Investment Income

183,515,478 (13,192,306)

9,159,615 51,607,729 11,507,057

242,597,573 3,869,486 (229,061)2,703,480 1,863,602(362,357)

(1,085,054)6,760,096

160,061,067 (9,241,747)14,858,269 67,924,728 11,007,800

244,610,117 3,836,957 (116,265) 2,745,3061,223,509

0 (499,014)7,190,493


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2. Investment operations

2.2 Investment operations - Life Department

arabia invested assets of the Life division (excluding unit linked investments, Property, & Equipment) increased by LBP 3.9 billion (+9.0%), from LBP 43 billion in 2015 to LBP 46.9 billion in 2016. This increase was mainly due to the positive investment and operational cashflow.

meanwhile, the net investment income of the Life division (excluding unit linked investments) was at LBP 2.26 billion in 2016 versus LBP 1.67 billion in 2015; this increase was mainly due to higher yield received on the fixed income investments and lower exchange losses.

2016all amounts in LBP’000 2015

Cash and banksDue to banksFinancial assets at fair value through profit or lossFinancial assets at fair value through other comprehensive incomeFinancial assets at amortized costTotal Invested assetsInterests on bank deposits, netInterests and dividend income from investment securitiesNet gain on securities trading Decline in value of investment securities at amortized costNet foreign exchange lossesTotal Investment Income

33,195,774 (1,825,870)3,206,7591,308,587

11,041,185 46,926,435

670,689 1,769,769

(6,374)(143,374)(25,479)

2,265,231

29,163,598 (1,708,514)1,828,278 2,357,633

11,391,917 43,032,912

535,928 1,353,129 (63,504)

0(158,931)1,666,622


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3. Financial Highlights

Total equity

(uSD thousand)

2015 89,5032016 90,122

Percentage 1% ↑

net Profit

(uSD thousand)

69720152016 -1,302

Percentage -288% ↓

Total assets

(uSD thousand)20162015

386,527368,217

Percentage 5% ↑

- Cash & investments went up by USD 9.5 million mainly due to sale of treasury shares of around USD 6.2 million and increase of USD 2.7 million in bank overdrafts.

- Reinsurance assets increased by USD 7.5 million, mainly resulting from higher medical reinsurance share of unearned premiums after the introduction of the new reinsurance treaty (USD 6.1 million) and life reinsurance share of outstanding claims (USD 1.8 million).

- Total Equity slightly increased by USD 0.6 million, mainly due to sale of treasury shares for USD 6.2 million including the share premium resulting from the selling. On the other hand, cumulative change in fair value of investment securities at FVTOCI decreased by USD 4.5 million resulting from the Group’s investment in AICC and Enaya, and Foreign currency translation reserve dropped by USD 0.9 million.

- 2016 profits from general insurance departments went down by around USD 0.5 million compared to 2015, mainly due to weak motor results and higher income tax. moreover, life profits went down by around USD 1.5 million following the 11% drop in premiums.

- Life production went down by USD 3.0 million from 2015 to 2016, mainly due to drop in UAE individual premiums. On the other hand, non-life premiums went up by USD 1.5 million, mainly growth in medical line of business.

Gross Written Premiums

2015 182,8242016 181,244

Percentage -1% ↓

(uSD thousand)


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net Written Premiums

2015 130,4602016 128,281

Percentage -2% ↓

- Solvency ratio (Total Equity/net written premiums) slightly increased from 69% in 2015 to 70% in 2016, as a result of drop in net written premiums.

- Retention ratio (net written premiums/Gross written premiums) remained stable at 71%.

Underwriting exposure

2015 2016

69% 71%

solv

ency

Rete

ntio

n

70% 71%

solv

ency

Rete

ntio

n

- Earnings per share (EPS) went down from USD 0.04 in 2015 to USD -0.07 in 2016.

- Return on average equity (ROE) went down from 0.7% in 2015 to -1.4% in 2016.

Profitability Metrics

20152016

ePs

$0.04-$0.07

Roe

0.7%-1.4%

- 2016 net written premiums decreased by USD 2.0 million compared to 2015, mainly due to the introduction of the new medical reinsurance treaty.

(uSD thousand)


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3.1 Non-Life

net loss ratioGross loss ratio

loss Ratio - non-life

80.0%

70.0%

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

69.4%71.1% 71.9%72.5%

2015 2016

Gross loss Ratio = Change in Outstanding Claims, IBnRs, IBnER and LAE (gross of reinsurance) + Paid Claims (gross of reinsurance – Recoveries (gross of reinsurance) / Gross Earned Premiums (gross of reinsurance).

net loss Ratio = Change in Outstanding Claims, IBnRs, IBnER and LAE (net of reinsurance) + Paid Claims (net of reinsurance) – Recoveries (net of reinsurance) / net Earned Premiums (net of reinsurance).


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40.0%

35.0%

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

9.8% 8.7%

25.9%27.3%

35.7% 36.0%

20162015

acquisition ratio oPex ratio

expense Ratio - non-life


3.1 Non-Life

acquisition Ratio = Incurred Commission Expense – Earned Reinsurance Commissions – Other Income / net Earned Premiums (net of reinsurance)

oPex Ratio = General & Administrative Expenses + Other Expenses / net Written Premiums (net of reinsurance)

expense Ratio = Acquisition Ratio + OPEX Ratio


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combined Ratio - non-life

2016

120.0%

100.0%

80.0%

60.0%

40.0%

20.0%

0.0%

105.1%

36.0%

71.9%

107.9%

net loss ratio expense ratio

2015

35.7%

69.4%


3.1 Non-Life

combined Ratio = net Loss Ratio + Expense Ratio


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Performance KPI’s - non-life120.0%

100.0%

80.0%

60.0%

40.0%

20.0%

0.0%

69.4%

105.1%100.3%

35.7%

71.9%

107.9%102.9%

36.0%

expense ratio combined ratio operating rationet loss ratio

2015 2016


3.1 Non-Life

operating Ratio = Combined Ratio – (Investment Income / net Written Premiums)


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3.2 Life

acquisition Ratio = Commission Expense – Reinsurance Commissions / net Written PremiumsoPex Ratio = General & Administrative Expenses / net Written Premiumsexpense Ratio = Acquisition Ratio + G&A Ratio

20162015

70.0%

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

52.5% 51.9%

35.2%

37.1%

17.3% 14.8%

acquisition ratio oPex ratio

expense Ratio - life


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3.2 Life

benefits Paid to net Insurance Premiums Ratio = Claims Paid (net of reinsurance) + Change in Insurance Contract Liabilities (net of reinsurance) + Distribution of Profits to Policyholders / net Written Premiums – Premiums Allocated to Insurance Contract Liabilities.

Return on net insurance premiums Ratio = net Income / net Written Premiums – Premiums Allocated to Insurance Contract Liabilities.

benefits Paid & Return on Premiums - life

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

9.5%

17.0%

36.7%

8.2%

benefits paid to net insurance premiums

Return on net insurance premiums

2015 2016


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In an attempt to take our operations to the next level, a new Project management Office was established to oversee and standardize the management of all projects involving Arabia Insurance Company. The goal is to standardize and simplify project documentation while increasing project status awareness through more frequent tracking and reporting.

In line with Arabia Insurance Company’s customer centric strategy, we empowered our Customer Experience Department to get closer to our clients through meetings, conducting surveys and interacting with them which had an essential role in helping us formulate better decision making, be more engaged in the customer journey with us, and have the ability to anticipate their needs. In addition, a new automated Complaints procedure is under development including customer service portals.

From a Communication perspective, marketing sustained Arabia tactical awareness on the market while focusing on unifying the company’s image across all areas of operations.

To be in line with the developments and trends across all our areas of operation, where technology is influencing our future markets, and as we believe that digitalization offers both opportunities and challenges, we have developed several e-platforms to serve our customers and provide them with e-solutions that meet and cater to their insurance needs.

Our solid team ethic has delivered a strong business performance and we are confident that this will continue to give us robust foundations for the future.

4. other Issues

4.1 other operational Highlights

III. CoRpoRAte GoVeRNANCe, RISK & CApItAL MANAGeMeNt


ANNUAL REPORt 2016III. coRPoRaTe GoVeRnance, RIsK & caPITal ManaGeMenTRepoRt oF tHe boARD oF DIReCtoRS

38

Through its well established and advanced corporate governance structure and effective role of its governing committees and entities, arabia is committed to keep protecting and increasing the value of the shareholders’ investments, and consolidating its reputation as an insurance company that can be always trusted by clients, employees, governments and other stakeholders.

board of Directors

The composition, elections, meetings, duties and responsibilities of the Board of Directors are described in the Company’s Corporate Governance Charter and in accordance with the Lebanese law.

The Board of Directors delegated part of its duties to specialized committees. These committees are conducting these duties based on authorities and specific responsibilities defined in each related charter.

The main functions of these specialized committees are:

Shares transfer CommitteeConsiders and approves the shares transfers, and/or the subscription of the company’s shares.

Investment CommitteeSets the Company’s investment guidelines, approves the investment policy and supervises its investment in accordance with its risk tolerance and against agreed benchmarks.

Audit CommitteeEncourages and safeguards the highest standards of professional integrity, financial reporting, corporate governance and internal control.

1. Corporate Governance


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Nomination, Remuneration & Strategic Affairs CommitteeAssesses competencies of Board members, reviews Board succession plans, evaluates the Board’s performance and make recommendations to the Board on remunerations of Executive management.

Risk & Compliance CommitteeAssists the Board in fulfilling its oversight responsibilities of the Enterprise Risk management activities. Assesses the adequacy of the management of key internal and external risks, and monitors the Company’s risk profile, and ensures compliance with all applicable laws/regulations and conformity to business ethics.

Asset-Liability CommitteeSets the Company’s asset-liability management policy and supervises the resulting activity involving liquidity management, cash budget and forecasting.

It Steering Committeemonitors and reviews IT projects, as well as provides oversight of the deliverable rollout.

business Continuity Management CommitteeReviews the existing BCP and recommends improvements to address elements of continuity planning and restoration of the Company’s essential functions.

Anti-Fraud CommitteeAssists the Executive management in continuously developing and monitoring the Company’s Anti-Fraud Program across all functions.

1. Corporate Governance


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The ratings are supported by the company’s adequate level of risk-adjusted capitalization and its well-diversified business profile”. (Excerpt from AM Best Report-April 2017).

2.1 Capital Management

The Group continues to manage its capital on a consolidated basis. Each company within the group has its own rating and capital requirements.

The overall strategy is to meet these requirements and ensure the Group’s ability to continue as a going concern, while maximizing the return through the optimal use of our capital.

processes for Managing Capital

The Group’s capital monitoring activity is driven by the strategic objectives and the Board risk appetite statements. Revisions are made in light of changes in the economic and market conditions, and the risk characteristics of operations and underlying assets. The Group’s overall strategy remains unchanged from prior year.

The Group’s capital position to certain risks is being regularly monitored through ALm, stress testing and actuarial assessments. In addition, financial risks are being overseen by the Investment Committee and mitigated by abiding to risk limits defined and stated in the Group Investment policy.

2. Group Risk & Capital Management


41

Capital Adequacy Assessment

The Group keeps improving the existing risk models, preparing for the upcoming solvency II capital adequacy and economic capital requirements.

At present, the Group assesses its capital position using a newly developed risk-based capital model. The assessment is made at both the group/entity level, as well as by line of business and by geographical location.




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AM best Rating

Rating Results

In April 2017, Am. Best Europe published the rating results of arabia (AIC) with a financial strength rating of B++ (Good) and an issuer credit rating of bbb (Secure). Both ratings have a “stable” outlook.



AM best opinion (Excerpts from AM. Best Report - April 2017)

Rating Rationale

“The ratings are supported by the company’s adequate level of risk-adjusted capitalization and well-diversified business profile across the middle East.”

“AIC is headquartered in Lebanon, exposing its operations to heightened levels of economic, political, and financial system risk. These risks are partially mitigated by the company’s diverse revenue stream and investment base.“


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business profile

“AIC’s good level of geographical diversification partially offsets the risk of business interruption caused by prevailing political unrest in the region. Along with the diversification of revenue, the company’s numerous branches and subsidiaries, together with adequate contingency plans, would help the company to function in spite of adversity.”

Risk Management

“AIC has been developing its risk management framework over recent years, in line with international best practices. The group’s corporate governance framework is well established, although this is considered a necessity given the company’s diverse operations and subsequent regulatory burden.”

“At present, AIC assesses its capital position using a risk-based capital model. The assessment is made at the group level, as well as by business line and by geographic location.”

Capitalization

“AIC’s risk-adjusted capitalization is considered adequate for the ratings, with the company’s capital requirements evenly driven by underwriting and investment risks.”




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2.2 Risk Management

Risk Management Strategy

The Group recognizes and understands that risk is inherent in seeking business opportunities, in developing and implementing new and original business strategies, and in dealing with local and global enterprises and communities.

While pursuing growth and achieving stakeholder’s needs and expectations, the Group is exposed to a variety of risks including credit, market, liquidity, underwriting, operational, compliance and other risks that require maintaining appropriate risk and control structure and ongoing oversight.

Through a robust enterprise risk management framework and effective Risk Committee role, these risks areidentified, assessed, and managed in accordance with the risk appetite of the Group. Our Risk Strategy is embedded in our risk appetite framework defined and approved by the Board of Directors. Risk limits are being closely monitored by the Risk management Department and overseen by the Risk Committee and General manager.

Risk Management Responsibilities

The Board of Directors, as a governing body, oversees the activities of the Group and sets the tone and culture towards effective enterprise risk management.

The Risk Committee (RC), appointed by the Board of Directors, assists in fulfilling the Board’s risk oversight responsibilities and advises the Board on matters related to risk governance, risk policies and risk appetite setting.



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The RC monitors the risk profile of the Group as well as oversees the structure and operation of the risk management and control systems.

It also ensures proper adherence to the company’s risk management policies, approves risk limits and assesses the adequacy of internal controls designed to respond and mitigate the risks to an acceptable level.

The management Committee, headed by the General manager (Gm), is responsible for implementing sound and transparent risk management activities throughout the Group. The management Committee maintains a risk culture where people are accountable by effectively managing risk, sponsors the ERm framework and provides necessary commitment and support to the Risk management Department.

The management Committee also ensures that the business owners implement risk management policies in the areas where they operate.

The Risk management Department integrates the corporate risk culture, as well as promotes the risk and internal control awareness among all entities and functions within the Group. It maintains and updates the ERm framework, develops risk methodologies as well as advises the Risk Committee on the risk tolerance and risk profile.

Through the application of the Group ERm Framework and Risk metrices, the Risk management Department identifies, measures and reports all types of risks within the Group. The Risk Committee is continuously informed on material risks along with assessment of internal controls and risk management action plans.


2.2 Risk Management


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UnDeRWRITInG RIsK

Non-Life / Non-Medical Medical

premium Risk

Reserve Risk

Catastrophic Risk

Life

oPeRaTIonal RIsK

people Risk business process Risk

Information technology Risk

It System Failures Risk

It System Data Security breaches

external events

Natural Disaster

Man-Made Disaster

sTRaTeGIc RIsK

business Risk

Governance Risk

Reputational Risk

external environmental Risk

economic Risk

Societal Risk

Geopolitical Risk

fInancIal RIsK

Credit Risk

Counterparty Default Risk

Concentration Risk

Market Risk

equity Risk

Interest Rate Risk

Spread Risk

others

Asset-Liability Management Risk

Liquidity Risk

Insolvency Risk

coMPlIance RIsK

Legal Risk

Insurance Laws & Regulations

Risk Categories

The Group categorizes its risks to distinguish between the different types of risk exposures. The main five risk categories and related sub-categories are:


2.2 Risk Management


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Mitigation of Key Risks

underwriting Risk

The underwriting strategy attempts to ensure that the underwritten risks are well diversified in terms of type and amount of risk, industry and geography.

The Group mitigates this risk through underwriting guidelines and authority limits for issuing insurance contracts, as well as through diversification across lines of business and proper reinsurance arrangements.

Pricing benchmarks and formulas by line of business/type/category are set in the respective underwriting manuals, to serve as a guideline for risk commensurate premium quoting. A software is used to continuously revise and enhance the pricing strategy.

Claims Settlement Risk

Clear documented claims settlement guidelines and limits by class of business are communicated to the claims functions.

Periodical reviews are carried out by the Head Office to ensure proper adherence to these guidelines and adequate internal control system.


2.2 Risk Management


48

Reserving Risk

The reserves are calculated based on substantiated assumptions, methods and assessments. Periodical reviews by internal and external parties are being made to ensure that the reported reserves are reasonable and sufficient.

Reinsurance Credit Risk

The Group minimizes its financial exposure arising from large claims by entering into reinsurance agreements that are suitable and adequate for the corresponding business. Reinsurance placements are done with international reinsurers and in alignment with the risk appetite of the Board.

Concentration Risk

This is the risk that the total coverage sum insured is aggregated at the level of a single policy, contract, or client and a large loss would be generated in the case that this single contract is hit by a covered event. The Group mitigates this risk and protects its equity through the transfer of catastrophe risks and proper reinsurance arrangements.


2.2 Risk Management


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Collection Credit Risk

The financial loss that the Group could incur as a result of a change in the financial position of a counterparty is being managed through the Group’s credit policy and monitored through periodical analytical reports that highlight any breaches for the credit limits specified in the policy.

Market Risk

The Group closely monitors external market and regulatory developments through the supervision of the Board Investment Committee and Asset-Liability Committee.

The Board Investment Committee sets the guidelines and supervises the investment activities in accordance with the risk tolerance and limits described in the investment policy. The Committee receives periodically risk analysis reports (VaR simulation and risk scoring) and performance updates from our Treasury & Investment Department and seeks to reduce market risks by ensuring a high level of diversification both in its investment portfolio and direct investments.

The Asset-Liability Committee monitors the funding and cash budget and manages the liquidity risk in accordance with the Board risk appetite.


2.2 Risk Management


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operational Risk

business Continuity Risk

The Group enhanced its understanding of natural hazards, man-made hazards, political risk exposures and other emergency events (system breakdown) that could severely affect the continuity of the operations if they occur.

Through the proper implementation of arabia’s Business Continuity Plan, and the effective role of the BCm Committee, the Group is ensuring that the business in the countries of operations can continue in the event of any unexpected incident.


2.2 Risk Management

ANNUAL REPORt 2016

CoNSoLIDAteD FINANCIAL StAteMeNt AND AuDItoR’S RepoRt

About ARAbIA - arabiainsurance.com · Arabia House - Phoenicia street - Beirut - Lebanon Tel. 961 -...

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