JCR-VIS Reaffirms ‘A-‘ Financial Strength Rating … REPORT-12.pdfPak-Kuwait Takaful Insurance -...

Pak-Kuwait TakafulInsurance - the islamic way

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JCR-VISReaffirms

‘A-‘ FinancialStrength RatingWith “Stable”

Outlook


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PKTCL ANNUAL SALES CONFERENCE-2013

From left to Right, M. Iftekhar Ahmed, Chief Operating Officer,Mr. Imtiaz Bhatti, MD & CEO,

Syed Wajahatullah Quadri, Chief Financial Officerand Syed Waqar Azeem, Head of Marketing & Sales.


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Mr. IMTIAZ BHATTIManaging Director & Chief ExecutivePak-Kuwait Takaful Company Limited

is receiving the “BRANDS OF THE YEAR AWARD-2011”from

Mr. Abdul Hafeez Shaikh,Federal Minister Finance, Islamic Republic of Pakistan


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MISSION

To promote Takaful as a viable alternative to conventional insuranceTo be the trend-setter in excellent service standards and highest businessethicsTo provide a congenial work environment to our employees that keepsthem motivated and brings out their bestTo contribute positively and proactively for the welfare of our society atlarge as well as for the preservation of our environment

VISION

To be acknowledged as the synonym for Takaful in Pakistan

Takaful


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Annual Report2012

Contents

Corporate information

Board Committees

Management Team

Director’s Report

Shariah Report

Statement of Compliance with the Code of Corporate Governance

Review Report to the Members

Auditor’s Report to the Members

Balance Sheet

Profit & Loss Account

Statement of Comprehensive Income

Statement of Cash Flows

Statement of Changes in Equity

Statement of Contribution

Statement of Claims

Statement of Expenses

Statement of Investment Income

Notes to the Financial Statements

06

07

08

09

14

15

17

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CORPORATE INFORMATION

Chairman of the Board of Directors

Directors

Managing Director & Chief Executive

Company Secretary

Shariah Supervisory Board

Auditors

Legal Advisor

Head office

Datuk Syed Othman Bin Syed Husin Alhabshi

Shaharyar AhmadRana Ahmed HumayunOsman KassimIrfan SiddiquiAhmad Shahril Azuar JiminFozia FakharMohd Nasir Bin HarunTalal B A KH Al-Mesallam

Imtiaz Ahmed Bhatti

Aziz T. Kapadia

Muhammad Taqi Usmani ChairmanDr. Muhammad Imran Ashraf Usmani MemberMuhammad Hassan Kaleem Member

KPMG Taseer Hadi & Co.Chartered Accountants

Sattar & SattarAttorneys at Law

Finance & Trade Centre, 4th Floor, Block-AShhrah-e-Faisal, Karachi-74400. PakistanUAN : 111-121-131Tel : 35630707 (10 Lines)Fax : 35630699E-mail : [email protected] : www.pktcl.com


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BOARD COMMITTEES

Audit Committee

Human Resource Committee

Underwriting Committee

Claims Committee

Re-Takaful Committee

Osman Kassim ChairmanDatuk Syed Othman Bin Syed Husin Alhabshi MemberRana Ahmed Humayun MemberTalal B A KH Al-Mesallam MemberAziz T. Kapadia Secretary

Talal B A KH Al-Mesallam ChairmanMohd Nasir Bin Harun MemberImtiaz Ahmed Bhatti MemberAziz T. Kapadia Secretary

Ahmad Shahril Azuar Jimin ChairmanImtiaz Ahmed Bhatti MemberAziz T. Kapadia Secretary

Ahmad Shahril Azuar Jimin ChairmanImtiaz Ahmed Bhatti MemberAziz T. Kapadia Secretary

Datuk Syed Othman Bin Syed Husin Alhabshi ChairmanImtiaz Ahmed Bhatti MemberM. Iftekhar Ahmed MemberAziz T. Kapadia Secretary


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MANAGEMENT TEAM

Managing Director & Chief Executive

Chief Operating Officer

Chief Financial Officer

Head of Marketing & Sales

Assistant General Manager

Senior Manager

Managers

Branch Heads

Imtiaz Ahmed Bhatti

M. Iftekhar Ahmed

Syed Wajahatullah Quadri

Syed Waqar Azeem

Aziz T. Kapadia

M. Waqaruddin Rauf

M. Tariq DaraShahnawaz AkhtarM. Elahi IbrahimSaquib Obaid-ur-RehmanParvez RajaniAbdul Waheed Tariq

Mian Allah Nawaz (Lahore)Abdul Haleem Mughal (Islamabad)Malik Farooq Mustafa (Faisalabad)Rana Abdul Hameed (AGM Sales-Multan)


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DIRECTORS’ REPORT

The Directors are pleased to present Annual Report and Audited Accounts for the year ended December 31, 2012.

ECONOMIC OVERVIEW

The Pakistan economy has endured several challenges to achieve economic stability. The current year is displayingsigns of improvement despite being faced with various regional and domestic challenges. However, themacroeconomic conditions weakened during 2012 despite improvement in current account deficit and workers’remittances. CPI inflations softened to 6.9% by November-2012, the lowest in the last four years which gave StateBank of Pakistan space to cut policy rates by 250bps. Real GDP is expected to rise to 4% in FY13 from 3.7% inFY12 while the Current Account reflected a surplus after the release of US $ 1.8 billion towards Coalition SupportFund. There are improvements in business confidence and the KSE 100 Index has rallied 49% in 2012 makingit one of the world’s best performing equity markets for the period. Similarly, the manufacturing sector grew by3.6% (FY-201: 3.1%) and services sector grew by 4% (FY-2011: 4.4%) in FY-2012. The growth in the non-lifeinsurance sector over last year remained stagnant at around 10%.

PERFORMANCE

PARTICIPANTS’ TAKAFUL FUND

During the year 2012, by the grace of Allah (SWT), your Company has achieved a business growth of 12%. Thegross contribution during the year stands increased from Rs. 642 million to Rs. 720 million, recording a growthof 12% over the corresponding year. The business mix has also improved during the year. The share of non motorbusiness in total has increased from 50% in 2011 to 54% in 2012 diluting thereby the share of motor businessfrom 50% in 2011 to 46% in 2012. The Company is gradually moving towards further improving the share ofmarine, fire and other business in the Company’s portfolio.

Net contribution revenue earned during the year amounted to Rs. 306 million as compared to Rs. 266 millionearned during 2011. Net investment & other income of the Fund at the close of the year was Rs. 3 million. Netclaims, expenses, commission and contribution deficiency reserve during the year amounted to Rs. 350 millionas compared to Rs. 300 million during last year. As such the Fund ended up with a deficit of Rs. 40 million during2012 as against a deficit of Rs. 33 million in the previous year. Softening of contribution (premium) rates coupledwith deteriorating law and order situation have led to increased pressure on the PTF results. The increasedincidents of Theft/Snatching claims arising out of Motor business have worsened the PTF results in absolute termsfollowing an increase in the prices of motor vehicles due to inflation during 2012.


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SHAREHOLDERS’ FUND

Total income of the shareholders’ fund during 2012 amounted to Rs. 263 million as compared to Rs. 238 millionduring previous year. General, administration and other expense during the year were Rs. 202 million as comparedto Rs. 189 million during 2011. Profit before taxation is recorded at Rs. 61 million as compared to Rs. 49 millionin 2011. The retained earnings accumulated to Rs. 145 million against opening of Rs. 90 million.

EARNINGS PER SHARE

The Company has reported earnings per share of Rs. 1.38 in 2012 as compared to earnings per share ofRs. 1.07 in 2011.

CREDIT RATING

The Company has been successfully able to retain and maintain A- (A minus) rating from the Credit Rating AgencyJCR-VIS despite tougher business conditions. During the year 2012, the rating agency has reaffirmed A- (A minus)with stable outlook.

BOARD MEETINGS

In 2012 the Board of Directors held four (4) meetings, at least one meeting was held in each quarter. The attendancerecord of the Directors is as follows:

Name of Director AttendanceDr. Datuk Syed Othman Bin Syed Husin Alhabshi 4 Mr. Shaharyar Ahmad 0 (Appointed on December 06, 2012)Mr. Rana Ahmed Humayun 4Mr. Irfan Siddiqui 3Mr. Osman Kassim 3Mr. Ahmad Shahril Azuar Jimin 2Mr. Mohd Nasir Bin Harun 4Ms. Fauzia Fakhar 4Mr. Suleman Shah 1 (Resigned on May 14, 2012)Mr. Muhammad Tauseef Ansari 4 (Resigned on December 06, 2012)Mr. Talal B A KH Al-Mesallam 3 (Appointed on May 14, 2012)Mr. Imtiaz Bhatti 4

During the year, Mr. Suleman Shah and Mr. Tauseef Ansari (Directors) resigned from the Board and Mr. Talal BA KH Al-Mesallam and Mr. Shaharyar Ahmad were appointed as Directors of the Company. The Board wishesto place on record its appreciation of the services rendered by Mr. Suleman Shah and Mr. Tauseef Ansari. TheBoard also welcomes the new members and looks forward to their valuable contribution and guidance.


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Statement of Directors’ Responsibilities:

In compliance with the Corporate and Financial Reporting Framework under the Code ofCorporate Governance, the Directors confirm the following:- The Financial Statement, prepared by the Company, fairly present its state of affairs, theresult of its operations, cash flows and changes in equity.- Proper books of accounts of the Company have been maintained.- Appropriate accounting policies have been consistently applied in preparation of FinancialStatements except as fully disclosed in the audited accounts, if any, and accounting estimatesare based on reasonable and prudent judgment.- International Accounting Standards, as applicable in Pakistan have been followed in thepreparation of financial statements and departure, if any, there from has been adequatelydisclosed.- The system of internal control is sound in design and has been effectively implementedand monitored.- There are no significant doubts upon the Company’s ability to continue as a goingconcern.- There is no material departure from the best practices of corporate governance.

Key Financial Data:

Key financial data for the last six years is summarized below: PKR ‘000

Paid up capitalTotal AssetsGross contribution revenueNet contribution revenueWakala FeeMudarib ShareInvestment Income:Participants FundShare Holders FundProfit/(loss) after taxation:Participants FundShare Holders FundEarnings per share (Rs.)

400,000 664,268 720,406 306,416 226,928

837

2,511 33,970

(39,759 55,404 1.38

)

400,000 681,037 642,246 266,026 202,308 359

1,499 35,407

(32,694 42,895

1.07

)

400,000 606,714 535,258 239,644 187,340

635

1,904 39,370

(76,327 59,000 1.47

)

400,000528,760438,815159,952153,585 203

610 19,467

(67,760 10,151

0.41

)

250,000348,921342,240143,043119,784

695

558 11,225

(59,616 1,707

0.07

250,000409,089260,222106,340 91,078 1,096

3,288 17,418

(49,317 1,345

0.05

)) ))

2012 2011 2011 2009 2008 2007


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Pattern of Shareholding:

The information on pattern of shareholding as at December 31, 2012 is as follows:

13,000,000

12,000,000

6,000,000

4,000,000

2,500,000

2,500,000

No. of Shares

32.5

30.0

15.0

10.0

6.25

6.25

%Name of Shareholders

Etiqa Overseas Investment Pte. Ltd. Malaysia

Pakistan Kuwait Investment Co.(Private) Ltd.

Noor Financial Investment Co. Kuwait

Saudi Pak Industrial & Agricultural Investment Co.(Pvt) Ltd.

Takaful Holdings Ltd. Dubai

Meezan Bank Ltd.

Value of investments in Provident Fund and Gratuity Fund:

The value of investment in employees retirement funds based on audited accounts for the year endedDecember 31, 2011 is as follows.

Employees Provident Fund 23,646,679

Employees Gratuity Fund 7,814,329

PKR

Auditors:

M/S. KPMG, Taseer Hadi & Co. Chartered Accountants have audited the accounts for the year ended December31, 2012 and have offered themselves for reappointment for the year ending December 31, 2013. The Board AuditCommittee recommends their reappointment and the Board endorses the recommendation.

FUTURE OUTLOOK

While the country is heading for election this year, there has been an increased spending of development fundsby the government which will eventually raise demands for Takaful. The Energy Crisis will continue to be a majorchallenge; the government has taken appropriate long-terms step by signing and inaugurating the Pak-Iran GasLine Project and Sindh Thar Coal-II Project.

Despite the challenging internal environment, we believe opportunities exist and intend to follow a prudent growthstrategy at the back of our brand equity strength, effective risk management practices and unique TakafulLeader’s capabilities. In line with the strategic priorities, PKTCL will continue to focus on deepening marketpenetration in non-motor segments and further improve customer service and engagement. With the key enablers


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well in place, we are confident that execution of our focused Business Plan should lead us to sustained growthboth in terms of Company’s revenues and profitability.

ACKNOWLEDGEMENT:

We thank our valued clients and the shareholders for their continuous support. We are also thankful to ourexecutives, staff members and marketing/sales force for putting in committed efforts for business developmentand growth of the Company. May Allah Almighty bestow His blessings on them and their families!

We are also grateful to our Retakaful Operators for their valuable professional services. We would like to recordour appreciation for the cooperation to us by the Regulators, Securities and Exchange Commission of Pakistanand the State Bank of Pakistan.

For and on behalf of the Board of Directors.

Karachi: March 25, 2013. Chairman


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Muhammad Hassaan Kaleem(Member Shariah Board)

Karachi : 19thMarch, 2013

Shariah Report

Overview

By the Grace of Allah, December 31, 2012 was the seventh complete year of operations for Pak-Kuwait Takaful Company Limited. During the year the Company executed variety of establishedTakaful transactions after due approval from Shariah Supervisory Board. The Company is offering Shariah Compliantservices in the following areas:

V Fire and Property TakafulV MarineV MotorV Miscellaneous

The Company invests its funds with the approval of Shariah Supervisory Board in ShariahCompliant Instruments.

Conclusion & Recommendations

The services provided by the Company were reviewed on random basis and activities andtransactions undertaken by the Company during the year ended on December 31, 2012 werefound in conformity with the Principles and guidelines of Islamic Shariah, issued and providedby Shariah Supervisory Board of the Company. However, the following is recommended:

Nacessary steps should be taken to develop Shariah training program in order to educatethe staff about the very concept of Takaful and Shariah requirements of its practice.

Internal Shariah Department with knowledge and dedicated staff should be instigatedunder the supervision of SSB to help the management in assuring Shahriah compliance atall levels of the operation.

May Allah bless us with the best Tawfeeq to accomplish these cherished tasks and bestow uswith success in this world and in the world hereafter, and forgive us for our mistakes.

Wassalam Alaikum Wa Rehmat Allah Wa Barakatuh.


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PAK-KUWAIT TAKAFUL COMPANY LIMITEDSTATEMENT OF COMPLIANCE WITH THE BEST PRACTICES OFTHE CODE OF CORPORATE GOVERNANCE

FOR THE YEAR ENDED 31 DECEMBER 2012This statement is being presented to comply with the Code of Corporate Governance (the Code)for Insurance Companies / Takaful Operators for the purpose of establishing a framework of good governance,whereby Insurance Company / Takaful Operator is managed in compliance with the best practices ofcorporate governance.

The Company has applied the principles contained in the Code in the following manner:

1. The directors have confirmed that none of them is serving as a director in more than ten listed companies.

2. All the resident directors of the Company are registered as taxpayers and none of them has defaulted inpayment of any loan to a banking Company, a DFI or NBFC or, being a member of a stock exchange, hasbeen declared as a defaulter by that stock exchange.

3. During the year, two causal vacancies occurred in Board of Directors which has been filled within theprescribed time limit by the Board.

4. The Company has prepared a ‘Statement of Ethics and Business Practices’ which has been signed byall the directors and employees of the Company.

5. The Board has developed a vision/mission statement, overall corporate strategy and significant policiesof the Company. A complete record of particulars of significant policies along with the dates on which theywere approved or amended has been maintained.

6. All the powers of the Board have been duly exercised and decisions on material transactions, includingappointment and terms and conditions of employment of the CEO have been taken by the Board.

7. The meetings of the Board were presided by the Chairman and in his absence by a director elected bythe Board for this purpose and the Board met at least once in every quarter. Written notices of the Boardmeetings, along with agenda and working papers, were circulated at least seven days before the meetings.The minutes of the meetings were appropriately recorded and circulated.

8. The Board has established a system of sound internal control, which is effectively implemented at alllevels within the Company. The Company has adopted all necessary aspects of internal control given inthe Code.

9. Directors are well conversant with the legal requirements and operational imperatives of the company andas such fully aware of their duties and reponsibilities. Regular update on corporate requirements is takencare of.

10. During the year, the Board has approved appointment of CFO. No vacancy arises in the position ofCompany Secretary / Head of Internal Audit during the year. Remuneration and terms and conditions oftheir employment are determined by CEO.


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11. The Directors Report for this year has been prepared in compliance with the requirements of the Codeand fully describes the salient matters required to be disclosed.

12. The financial statements of the Company were duly endorsed by the CEO and CFO before approval ofthe Board.

13. The Directors, CEO and Executives do not hold any interest in the shares of the Company other than thatdisclosed in the pattern of shareholding.

14. The Company has complied with all the corporate and financial reporting requirements of the Code.

15. The Board has formed an under writing, claim settlement, retakaful & co-takaful committee.

16. The Board has formed an audit committee comprising four members all of whom are non-executivedirectors including the chairman of the committee.

17. The meetings of the Audit Committee were held at least once every quarter prior to approval of interimand final results of the Company and as required by the Code. The terms of reference of the Committeehave been formed and advised to the Committee for compliance.

18. The Board has setup an effective internal audit function which is fully conversant with the policies andprocedures of the Company

19. The statutory auditors of the Company have confirmed that they have been given a satisfactory ratingunder the quality control review program of the Institute of Chartered Accountants of Pakistan, that theyor any of the partners of the firm, their spouses and minor children do not hold shares of the Companyand that the firm and all its partners are in compliance with International Federation of Accountants (IFAC)guidelines on Code of ethics as adopted by Institute of Chartered Accountants of Pakistan.

20. The statutory auditors or the persons associated with them have not been appointed to provide otherservices except in accordance with the listing regulations and the auditors have confirmed that they haveobserved IFAC guidelines in this regard.

21. We confirm that all other material principles contained in the Code have been complied with exceptotherwise stated.

Managing Director & Chief Executive OfficerDate: 25 March 2013

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Review Report to the Members on Statement of Compliance

with Best Practices of Code of Corporate Governance

We have reviewed the Statement of Compliance with the Code of Corporate Governance (the Statement) prepared

by the Board of Directors of Pak-Kuwait Takaful Company Limited (”the Company”) to comply with the best

practices of Code of Corporate Governance.

The responsibility for compliance with the Code is that of the Board of Directors of the Company. Our responsibility

is to review, to the extent where such compliance can be objectively verified, whether the Statement reflects the

status of the Company’s compliance with the provisions of the Code and report if it does not. A review is limited

primarily to inquiries of the Company personnel and review of various documents prepared by the Company to

comply with the Code.

As part of our audit of financial statements we are required to obtain an understanding of the accounting and

internal control systems sufficient to plan the audit and develop an effective audit approach. We have not carried

out any special review of the internal control system to enable us to express an opinion as to whether the Board’s

statement on internal control covers all controls and the effectiveness of such internal controls.

Based on our review, nothing has come to our attention, which causes us to believe that the Statement does not

appropriately reflect the Company’s compliance, in all material respects, with the best practices contained in the

Code as applicable to the Company, for the year ended 31 December 2012.

Date: 25 March 2013Karachi

KPMG Taseer Hadi & Co.Chartered Accountants

KMPG Taseer Hadi & Co.Chartered AccountantsSheikh sultan Trust Building No. 2beaumont RoadKarachi, 75530 Pakistan

Telephone + 92 (21) 3568 5847Fax + 92 (21) 3568 5095Internet www.kpmg.com.pk

KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistanand a member firm of the KPMG network of independent memberfirms affilated with KPMG International Cooperative(“KPMG International”), a Swiss entity.

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Auditors’ Report to the Members of Pak-Kuwait Takaful Company Limited

We have audited the annexed financial statements comprising of:

(i) balance sheet ;(ii) profit and loss account ;(iii) statement of comprehensive income(iv) statement of changes in equity;(v) statement of cash flows;(vi) statement of contributions;(vii) statement of claims;(viii) statement of expenses; and

(ix) statement of investment income

of Pak-Kuwait Takaful Company Limited (”the Company”) as at 31 December 2012 togetherwith the notes forming part thereof , for the year then ended.

It is the responsibility of the Company’s board of Directors to establish and maintain a systemof internal control, and prepare and present the financial statements in conformity with the approvedaccounting standards as applicable in Pakistan and the requirements of the Insurance Ordinance,2000 (XXXIX of 2000) and the Companies Ordinance, 1984 (XL VII of 1984). Our responsibility isto express an opinion on these statements based on our audit.

We conducted our audit in accordance with the International Standards on Auditing as applicablein Pakistan. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting policies used and significant estimatesmade by management, as well as, evaluating the overall financial statements presentation. Webelieve that our audit provides a reasonable basis for our opinion.

In our opinion:

a) proper books of account have been kept by the Company as required by the InsuranceOrdinance, 2000;

b) the financial statements together with the notes thereon have been drawn up in conformitywith the Insurance Ordinance, 2000 and the Companies Ordinance, 1984, and accuratelyreflect the books and records of the Company and are further in accordance withaccounting policies consistently applied;

KMPG Taseer Hadi & Co.Chartered AccountantsSheikh sultan Trust Building No. 2beaumont RoadKarachi, 75530 Pakistan

Telephone + 92 (21) 3568 5847Fax + 92 (21) 3568 5095Internet www.kpmg.com.pk

KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistanand a member firm of the KPMG network of independent memberfirms affilated with KPMG International Cooperative(“KPMG International”), a Swiss entity.

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KPMG Taseer Hadi & Co.

c) the financial statments together with the notes thereon present fairly, in all material respects, the state ofthe Company’s affairs as at 31 December 2012 and of its financial performance, cash flows and changesin equity for the year then ended in accordance with approved accounting standards as applicable inPakistan, and give the information required to be disclosed by the Insurance Ordinance, 2000 and theCompanies Ordinance, 1984; and

d) no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980.

Date : 25 March 2013

Karachi

KPMG Taseer Hadi & Co.Chartered AccountantsMohammad Nadeem


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Pak-Kuwait Takaful Company LimitedBalance SheetAs at 31 December 2012

Chairman Director

SHAREHOLDERS' FUND (SHF)Share capital and reservesAuthorised share capital[50,000,000 (31 December 2011: 50,000,000)Ordinary shares of Rs. 10 each]

Paid-up share capitalRetained earnings

WAQF / PARTICIPANT'STAKAFUL EQUITY (PTF)Ceded moneyAccumulated deficitBalance of WAQF / PTF

LIABILITIESPTF Underwriting ProvisionsProvision for outstanding claimsReserve for incurred but not reported claimsReserve for unearned contributionReserve for unearned retakaful rebateContribution deficiency reserveTotal PTF underwriting provisions

Deferred liabilitiesStaff retirement benefits - SHF

Creditors and accrualsAmounts due to other takaful / retakaful operators - PTFTaxation - provision less paymentsAccrued expenses - SHFOther creditors and accruals

TOTAL LIABILITIES

TOTAL EQUITY AND LIABILITIES

CONTIGENCY

The annexed notes from 1 to 29 form an integral part of these financial statements.

6

789

10

11

500,000)(330,138,747)(329,638,747)

500,000)(290,379,246)(289,879,246)

97,311,6943,540,595

22,850,86048,888,267

172,591,416

67,863,8301,259,696

26,942,04856,759,504

152,825,078

481,306,680

681,036,614

448,892,977

664,268,008

500,000,000

400,000,000145,013,778545,013,778

500,000,000

400,000,00089,609,180

489,609,180

2012(Rupees)

2011

5

Note

54,048,0754,015,822

191,476,02320,655,560

3,284,239273,479,719

2,821,842

116,817,5436,460,614

182,298,43316,323,419

4,608,511326,508,520

1,973,082


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Pak-Kuwait Takaful Company LimitedBalance SheetAs at 31 December 2012

Contribution due but unpaid -PTFAmounts due from other takaful / retakaful operator -PTFSalvage recoveries accrued -PTFAccrued investment incomeRetakaful recoveries against outstanding claims -PTFDeferred commissionexpense -PTFPrepaymentsSundry receivables - SHF

ASSETSCash and bank depositsCash and other equivalentsCurrent and other accountsDeposits maturing within 12 months

Furniture and fixturesOffice equipmentMotor vehiclesComputersComputer software

Investments

Current assets - other

Fixed assets - SHFTangible and intangible

TOTAL ASSETS

402,8587,314,678

228,944,063236,661,599

126,51326,330,269

231,142,100257,598,882

56,870,735

195,249,896

2,382,7803,229,662

378,108

6,736,928

21,446,62686,520,97313,505,387

329,450,360

178,253,691

12,551,45612,475,526

669,339

35,947,162

22,625,01965,618,059

8,644,468336,784,720

13,773,4882,483,618

11,264,821765,552

-28,287,479

16,814,5542,862,8518,994,339

935,403175,130

29,782,277

664,268,008 681,036,614

13

12

14

1516

17

Managing Director(Chief Executive)

Director

Note 2012(Rupees)

2011

69,868,570


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Pak-Kuwait Takaful Company LimitedProfit and Loss AccountFor the year ended 31 December 2012

Chairman Director Director Managing Director(Chief Executive)

Note

PTF Revenue account

Net contributionNet claimsDirect expensesNet commission

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Reversal / (charge) of contributiondeficiency reserveDeficit before investment income

Net investment incomeOther IncomeDeficit for the year

Accumulated deficit:Balance at commencement of the yearDeficit for the yearBalance of accumulated deficit at end of the year

SHF Revenue account

Wakala feeManagement expenses 19

Mudarib's share of PTF investment incomeNet investment incomeOther income

Profit and loss appropriation account:Balance at commencement of the yearProfit for the yearBalance unappropriated profit at end of the year

20General and administrative expensesProfit before taxationTaxation - currentProfit for the year

21


Fireand

property

Marine,aviation and

transport

Motor Miscellaneous AggregateAggregate20112012

(Rupees)

39,180,230(29,026,866)

(2,692,202) 9,199,32616,660,488

36,578,366 (13,018,901)

(834,889)(2,171,949)

20,552,627

212,425,628(216,493,112)(56,053,366)(14,568,584)(74,689,434)

18,231,742(23,241,838)

(432,557)(1,392,667)(6,835,320)

306,415,966(281,780,717)

(60,013,014)(8,933,874)

(44,311,639)

266,025,805(225,945,650)

(65,138,252)(14,855,684)(39,913,781)

1,468,402(73,221,032)

(144,130)(6,979,450)

1,324,272(42,987,367)

5,720,703(34,193,078)

-16,660,488

-20,552,627

2,511,422 716,444 (39,759,501)

1,498,629-

(32,694,449)

(257,684,797)(32,694,449)

(290,379,246)

(290,379,246)(39,759,501)

(330,138,747)

202,307,548(129,910,861) 72,396,687

226,928,077(140,681,581)

86,246,496

837,141 33,970,108 919,463121,973,208 (61,021,023) 60,952,185 (5,547,587)

55,404,598

89,609,18055,404,598

145,013,778

359,334 35,407,433 200,714108,364,168(59,046,246)

49,317,922 (6,422,462) 42,895,460

46,713,72042,895,460

89,609,180


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Pak-Kuwait Takaful Company LimitedStatement of Comprehensive IncomeFor the year ended 31 December 2012

Profit for the year

Other comprehensive income

Total comprehensive income


55,404,598

2012(Rupees)

- -

2011

42,895,460

55,404,598 42,895,460


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Pak-Kuwait Takaful Company LimitedStatement of Cash FlowsFor the year ended 31 December 2012

Operating cash flows

(a) Takaful activities Contribution received Retakaful ceded Claims paid Re-takaful and other recoveries received Commission paid Re-takaful rebate received Other takaful related payments Net cash inflows from takaful activities

(b) Other operating activities Income tax paid General, administration and management expenses paid Other operating receipts - net Net cash (outflows) from other operating activities

Total cash outflows from operating activities

Investment activitiesProfit / return receivedPayments for investmentsProceeds from disposal of investmentsFixed capital expenditureProceeds from disposal of fixed assetsTotal cash inflows from investing activities

Net cash outflows from all activities

Cash at beginning of the year

Cash at end of the year

31 December 31 December 2012 2011

(Rupees)

Note

703,410,386(161,493,418)(396,323,477) 97,953,271

(59,869,946) 56,446,606

(78,867,259)161,256,163

584,720,340(134,934,573)(318,320,327) 66,521,277(52,274,893)46,611,822)

(74,572,145)117,751,501

(3,266,688)(206,330,366)

7,658,800)

(4,204,260)(174,881,966)

9,798,926)(169,287,300)

(51,535,799)

(201,938,254)

(40,682,091)

34,256,118(56,694,024) 47,118,125

(6,518,117) 1,582,706 19,744,808

36,716,663)(59,534,000)58,510,188)(4,727,519)

762,500)31,727,832)

(20,937,283)

257,598,882)

236,661,599)

(19,807,967)

277,406,849

257,598,88212


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(40,682,091) (7,310,012) 36,481,530 879,803 (7,043,129) 43,453,213 (9,177,590) 1,324,272 3,266,688 21,192,684

(39,759,501) 60,952,185

31 December2012

31 December2011

Reconciliation to profit and loss account

Operating cash flowsDepreciation/amortisationInvestment incomeGain on sale of fixed assets(Decrease) / Increase in assetsDecrease / (Increase) in liabilities(Increase) in unearned contributionDecrease in contribution deficiency reserveIncome tax paidNet profit for the year

(Rupees)

Definition of cash

Participants' Takaful FundShareholders' Fund

Cash comprises of cash in hand, policy stamps, bond papers, bank balances and other deposits whichare readily convertible to cash in hand and which are used in the cash management function on aday-to-day basis.


(51,535,799) (8,116,639) 37,265,394 200,714 97,467,378(39,567,808)(29,014,730) 5,720,703 4,204,260 16,623,473

(32,694,449) 49,317,922

21,192,684 16,623,473


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Balance as at 1 January 2011

Total comprehensive income for the year - profit for the year

Balance as at 31 December 2011

Total comprehensive income for the year - profit for the year


Pak-Kuwait Takaful Company LimitedStatement of Changes in EquityFor the year ended 31 December 2012

Balance as at 1 January 2011

Deficit for the year


Deficit for the year


Shareholders' Fund

400,000,000

-

400,000,000

-

400,000,000

Shareholders' Fund

Issued,subscribed andpaid-up capital

Retainedearnings

Total

-------------------------- (Rupees) --------------------------

446,713,720

42,895,460

489,609,180

55,404,598

545,013,778

46,713,720

42,895,460

89,609,180

55,404,598

145,013,778

Participants' Takaful Fund

500,000

-

500,000

-

500,000

Cedemoney

Total

(257,184,797)

(32,694,449)

(289,879,246)

(39,759,501)

(329,638,747)

Accumulateddeficit

-------------------------- (Rupees) --------------------------

(257,684,797)

(32,694,449)

(290,379,246)

(39,759,501)

(330,138,747)



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Pak-Kuwait Takaful Company LimitedStatement of ContributionsFor the year ended 31 December 2012

GrossContribution

Written *

Wakalafee

Netcontribution

written

Unearnedcontribution

reserveContribution

earnedRe-takaful

ceded

PrepaidRe-takaful

contributionRe-takafulexpense

Netcontribution

revenue

Netcontribution

revenue

20112012

Opening Closing Opening Closing(Rupees)------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------

ClassDirect and facultative1. Fire and property damage

2. Marine, aviation and transport

3. Motor

4. Miscellaneous

193,173,193

106,704,425

328,841,716

91,687,257

720,406,591

60,849,556

33,611,894

103,585,141

28,881,486

226,928,077

132,323,637

73,092,531

225,256,575

62,805,771

493,478,514

51,110,369

10,323,862

107,139,301

13,724,901

182,298,433

58,396,223

9,175,292

100,338,206

23,566,302

191,476,023

125,037,783

74,241,101

232,057,670

52,964,370

484,300,924

93,464,069

35,119,983

19,273,296

43,083,934

190,941,282

34,564,472

7,115,374

2,568,345

8,162,766

52,410,957

42,170,988

4,572,622

2,209,599

16,514,072

65,467,281

85,857,553

37,662,735

19,632,042

34,732,628

177,884,958

39,180,230

36,578,366

212,425,628

18,231,742

306,415,966

41,419,599

14,029,683

189,789,467

20,787,056

266,025,805


* This includes administrative surcharge in aggregate of all classes amounting to Rs. 22.626 million.

Total

Business underwritten inside Pakistan



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Pak-Kuwait Takaful Company LimitedStatement of ClaimsFor the year ended 31 December 2012

Claimspaid

Outstanding claimsClaims

expense

Re-takaful andother

recoveriesreceived

Re-takaful and otherrecoveries in respect of

outstanding claims

Re-takafuland otherrecoveries

revenue

Net claimsexpense

Net claimsexpense

20112012

Opening Closing(Rupees)------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------

57,727,522

32,301,928

275,641,969

39,897,919

405,569,338

19,518,622

12,564,211

76,601,038

14,594,286

123,278,157

10,216,509

6,485,272

33,495,642

7,866,474

58,063,897

48,425,409

26,222,989

232,536,573

33,170,107

340,355,078

26,863,208

16,920,759

29,067,181

14,933,447

87,784,595

9,552,107

5,910,905

14,312,430

6,171,720

35,947,162

2,087,442

2,194,234

1,288,710

1,166,542

6,736,928

19,398,543

13,204,088

16,043,461

9,928,269

58,574,361

29,026,866

13,018,901

216,493,112

23,241,838

281,780,717

20,491,551

16,532,556

173,461,702

15,459,841

225,945,650

ClassDirect and facultative1. Fire and property damage


3. Motor

4. Miscellaneous

Total




Opening Closing


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Pak-Kuwait Takaful Company LimitedStatement of ExpensesFor the year ended 31 December 2012


Commissionpaid orpayable

a

Deferred commission

Openingb

Closingc

Netcommission

expense

d=a+b-c

Othermanagement

expense

e

Underwritingexpenses

f=d+e

Rebate from re.takaful

operators*

g

Nettakaful

expense

h=f-c

Nettakaful

expense

20112012Class

1. Fire and property damage


3. Motor

4. Miscellaneous

Total

Direct and facultative17,882,487

14,911,905

13,247,285

13,828,269

59,869,946

9,439,974

2,210,524

7,463,317

3,511,204

22,625,019

8,068,578

1,941,530

6,136,142

5,300,376

21,446,626

19,253,883

15,180,899

14,574,460

12,039,097

61,048,339

2,692,202

834,889

56,053,366

432,557

60,013,014

21,946,085

16,015,788

70,627,826

12,471,654

121,061,353

28,453,209

13,008,950

5,876

10,646,430

52,114,465

(6,507,124)

3,006,838

70,621,950

1,825,224

68,946,888

(1,071,173)

(220,225)

75,253,622

6,031,712

79,993,936

* Rebate from retakaful operators is arrived at after taking the impact of opening and closing unearned retakaful commission.


(Rupees)----------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------


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Pak-Kuwait Takaful Company LimitedStatement of Investment IncomeFor the year ended 31 December 2012

(Rupees)2012 2011

5,049,896 (380,824)4,669,072

4,900,013 (395,571)4,504,442

1,669,462-

1,669,462

155,928665,461821,389

2,133,299-

2,133,299

354,260420,628774,888

2,133,299-

2,133,299

1,215,2643,348,563 (837,141)2,511,422

1,083,0751,857,963 (359,334)1,498,629

27,631,57433,970,108

30,081,60235,407,433

Participants' Takaful Fund - PTFIncome from non-trading investments Available for sale Gain on sale of investments Reversal for diminution in value of investments

Less : Modarib's feeNet investment income

Profit on Bank Account and Placements

Profit on bank deposits and placementNet investments income

Available for saleGain on sale of non-trading investmentsReversal for dimunition in value of investments

Shareholders' Fund - SHFIncome from non-trading investments Held to maturity Return on Government Securities Amortization of premium on Government Securities



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Pak-Kuwait Takaful Company LimitedNotes to the Financial StatementsFor the year ended 31 December 2012

1. STATUS AND NATURE OF BUSINESS

Pak-Kuwait Takaful Company Limited (the Company) was incorporated in Pakistan as an unlistedpublic limited company on 06 June 2003. The registered office of the Company is situated at 4th Floor,Block-A, Finance and Trade Centre, Karachi. The business activity of the Company is to undertaketakaful business. The Company operates with 04 (2011: 04) branches in Pakistan.

For the purpose of carrying on the takaful business, the Company has formed a Waqf for Participants'equity. The Waqf, namely Pak-Kuwait Takaful Waqf (hereinafter referred to as the Participants'Takaful Fund or PTF) was formed on 02 December 2005 under the Waqf deed executed by theCompany with a cede money of Rs. 500,000. The cede money is required to be invested in Shariahcompliant investments and any profit thereon can be utilized only to pay benefits to participants ordefray PTF expenses. The accounts of the Waqf are maintained by the Company in a manner that theassets and liabilities of the Waqf remain separately identifiable. The financial statements are preparedsuch that the financial position and results of operations of the Waqf and the Company are shownseparately. Waqf Deed governs the relationship of shareholders and participants for management oftakaful operations, investments of participants' funds and investment of shareholders' funds approved bythe Shariah Board established by the Company.

2. BASIS OF PREPARATION

These financial statements have been prepared in line with the format issued by the Securities andExchange Commission of Pakistan (SECP) through SEC (Insurance) Rules, 2002, vide SRO 938 dated12 December 2002 with appropriate modifications based on the approval of the Shariah Board of theCompany.

These financial statements reflect the financial position and results of operations of both the Companyand PTF in a manner that the assets, liabilities, income and expenses of the Company and PTF remainseparately identifiable. For this purpose, the receivables and payables between the Company and PTFhave been eliminated.

2.1 Statement of compliance

These financial statements have been prepared in accordance with approved accounting standards asapplicable in Pakistan. Approved accounting standards comprise of such International FinancialReporting Standards (IFRS) issued by the International Accounting Standards Board and IslamicFinancial Accounting Standards (IFAS) issued by the Institute of Chartered Accountants of Pakistan(ICAP) as are notified under the Companies Ordinance, 1984, provisions of and directives issued underthe Companies Ordinance, 1984, Insurance Ordinance, 2000, SEC (Insurance) Rules, 2002 and TakafulRules, 2005. In case requirements differ, the provisions or directives of the Companies Ordinance, 1984,Insurance Ordinance, 2000, SEC (Insurance) Rules, 2002 and Takaful Rules, 2005 shall prevail.

2.2 Basis of measurement

These financial statements have been prepared under the historical cost convention.

2.3 Functional and presentation currency

These financial statements are presented in Pak Rupees which is also the Company’s functionalcurrency.


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2.4 Use of estimates and judgements

The preparation of financial statements in conformity with approved accounting standards as applicablein Pakistan requires management to make judgments, estimates and assumptions that affect theapplication of policies and reported amounts of assets and liabilities, income and expenses. Theestimates and associated assumptions are based on historical experience and various other factors thatare believed to be reasonable under the circumstances, the result of which form the basis of making thejudgments about carrying values of assets and liabilities that are not readily apparent from othersources, actual results may differ from these estimates. The estimates and underlying assumptions arereviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in whichthe estimate is revised if the revision affects only that period, or in the period of the revision and futureperiods if the revision affects both current and future periods.

Judgments made by the management in the application of approved accounting standards as applicablein Pakistan that have significant effect on the financial statements with a significant risk of materialadjustments in the next year are as follows:

- Provision for outstanding claims including IBNR (Refer Note 4.4)- Investment classification and valuation (Refer Note 4.13)- Staff retirement benefits (Refer Note 4.10)- Useful lives of assets and methods of depreciation and amortisation (Refer Note 4.15)- Re-takaful recoveries against outstanding claims (Refer Note 4.3)- Provision for unearned contribution (Refer Note 4.2)- Taxation (Refer Note 4.14)- Contribution due but unpaid (Refer Note 4.2)- Re-takaful contribution (Refer Note 4.3)

3. Initial Application of Rules, Standard, Amendement or an interpertation to an existing standard

3.1 Implementation of Takaful Rules 2012Securities and Exchange Commission of Pakistan through Notification S.R.O 877(I)/2012 dated 16 July2012 has issued Takaful Rules, 2012 and requires that existing Takaful Operators shall comply with therequirements of these Rules within period of six months from the notification in Official Gazette. TheSRO has not yet been notified through Official Gazette till date. However, Takaful Pakistan Limitedand others filed constitution Petition no. D-2791/2012 before Honorable High Court of Sindh againstnotification issued by SECP in respect of (i) Rules have been framed without hearing the petitionerswhereby it was proposed that conventional insurers could operate takaful windows alongside theirexisting conventional insurance business and conduct takaful business and (ii) contention of petitionersthat if new Takaful Rules, 2012 are to be implemented these would be seriously prejudiced. TheHonorable High Court of Sindh directed the parties to maintain status-quo. Currently, the proceedings onthe hearing have further been adjourned with status-quo. Keeping in view of above current status andbased on the legal counsel’s opinion the Company is of the view that these rules are not applicable andaccordingly have not been implemented.

3.2 New accounting standards and IFRIC interpretations that are not yet effective

The following standards, amendments and interpretations of approved accounting standardswill be effective for accounting periods beginning on or after 01 January 2013:

IAS 19 Employee Benefits (amended 2011) - (effective for annual periods beginning on or afterJanuary 2013). The amended IAS 19 includes the amendments that require actuarial gains and lossesto be recognised immediately in other comprehensive income; this change will remove the corridor methodand eliminate the ability for entities to recognise all changes in the defined benefit obligation and in planassets in profit or loss, which currently is allowed under IAS 19; and that the expected


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return on plan assets required to recognize unrecognized actuarial gains and losses in othercomprehensive income. Presently, acutarial gains / losses are recoginsed in profit and loss accounton corridor basis.The unrecognized actuarial gain in aggregate amount to Rs 0.468 million as at 31December 2012 as disclosed in note 6.1 which would be required to recognize in other comprehensiveincome.

IAS 27 Separate Financial Statements (2011) - (effective for annual periods beginning on or afterJanuary 2013). IAS 27 (2011) supersedes IAS 27 (2008). Three new standards IFRS 10 - ConsolidatedFinancial Statements, IFRS 11- Joint Arrangements and IFRS 12- Disclosure of Interest in OtherEntities dealing with IAS 27 would be applicable effective 1 January 2013. IAS 27 (2011) carriesforward the existing accounting and disclosure requirements for separate financial statements, withsome minor clarifications The amendments have no impact on financial statements of the Company.

IAS 28 Investments in Associates and Joint Ventures (2011) - (effective for annual periods beginningon or after 1 January 2013). IAS 28 (2011) supersedes IAS 28 (2008). IAS 28 (2011) makes theamendments to apply IFRS 5 to an investment, or a portion of an investment, in an associate or ajoint venture that meets the criteria to be classified as held for sale; and on cessation of significantinfluence or joint control, even if an investment in an associate becomes an investment in a jointventure. The amendments have no impact on financial statements of the Company.

Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) - (effective for annualperiods beginning on or after 1 January 2014). The amendments address inconsistencies in currentpractice when applying the offsett ing criteria in IAS 32 Financial Instruments:Presentation. The amendments clarify the meaning of 'currently has a legally enforceable right ofset-off'; and that some gross settlement systems may be considered equivalent to net settlement.The amendments have no significant effect on financial statements of the Company.

Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) - (effective for annualperiods beginning on or after 1 January 2013). The amendments to IFRS 7 contain new disclosurerequirements for financial assets and liabilities that are offset in the statement of financial positionor subject to master netting agreement or similar arrangement. The amendments have no significanteffect on financial statements of the Company.

Annual Improvements 2009-2011 (effective for annual periods beginning on or after 1 January 2013).The new cycle of improvements contains amendments to the following five standards, with consequentialamendments to other standards and interpretations.

IAS 1 Presentation of Financial Statements is amended to clarify that only one comparative periodwhich is the preceding period - is required for a complete set of financial statements. If an entitypresents additional comparative information, then that additional information need not be in theform of a complete set of financial statements. However, such information should be accompaniedby related notes and should be in accordance with IFRS. Furthermore, it clarifies that the 'thirdstatement of financial position', when required, is only required if the effect of restatement is materialto statement of financial position. The amendments have no significant effect on financial statementsof the Company.

IAS 16 Property, Plant and Equipment is amended to clarify the accounting of spare parts, stand-by equipment and servicing equipment. The definition of 'property, plant and equipment' in IAS 16is now considered in determining whether these items should be accounted for under that standard.If these items do not meet the definition, then they are accounted for using IAS 2 Inventories. Theamendments have no impact on financial statements of the Company.

IAS 32 Financial Instruments: Presentation - is amended to clarify that IAS 12 Income Taxes appliesto the accounting for income taxes relating to distributions to holders of an equity instrument andtransaction costs of an equity transaction. The amendment removes a perceived inconsistency


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between IAS 32 and IAS 12. The amendments have no significant effect on financial statements of theCompany.

IAS 34 Interim Financial Reporting is amended to align the disclosure requirements for segment assetand segment liabilities in interim financial reports with those in IFRS 8 Operating Segments.IAS 34 now requires the disclosure of a measure of total assets and liabilities for a particular reportablesegment. In addition, such disclosure is only required when the amount is regularly provided to the chiefoperating decision maker and there has been a material change from the amount disclosed in the lastannual financial statements for that reportable segment.The amendments would have no impact on financialstatements of the Company.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies as set below have been applied consistently to all periods presentedin these financial statements.

4.1 Takaful contracts

The takaful contracts are based on the principles of Wakala. The takaful contracts so agreed usually inspireconcept of tabarru (to donate for benefit of others) and mutual sharing of losses with the overall objectiveof eliminating the element of uncertainty.

A separate Participants Takaful Fund (PTF) is created in which all contribution received under generaltakaful contribution net off any government levies are credited to one or more PTF(s). The role of Takafuloperator is of the management of the PTF. At the initial stage of the setup of the PTF, the takaful operatormakes an initial donation to the PTF. The terms of the takaful contracts are in accordance with the generallyaccepted principles and norms of insurance business suitably modified with guidance by the Shariah Boardof the Takaful operator.

4.2 Contribution

Contribution income net off wakala fee and administrative surcharge under a policy is recognised overthe period of takaful from the date of inception of the policy to which it relates to its expiry as follows:

i) For direct business, evenly over the period of the policy.ii) For proportional re-takaful business, evenly over the period of the underlying takaful policies.

Revenue from contribution - net off wakala fee and administrative surcharge, is recognised aftertaking into account the unearned portion of contribution which is calculated using the ratio of theunexpired period of the policy and the total period, both measured to the nearest day. The unearnedportion of contribution is recognised as liability.

Administrative surcharge is recognised as contribution at the date of inception of policy to which it relates.

Contribution due but unpaid represents the amount due from participants on account of takaful contracts.These are recognised at cost, which is the fair value of the consideration to be received less provisionfor impairment, if any.

4.3 Re-takaful

Retakaful expense is recognised evenly in the period of indemnity. The portion of retakaful contributionnot recognised as an expense is shown as a prepayment which is calculated in the same manner as ofunearned contribution.

Rebate from retakaful operators is recognised at the time of issuance of the underlying takaful policy bythe company. This income is deferred and brought to account as revenue in accordance with the


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pattern of recognition of the retakaful contribution to which it relates.

Receivable against claims from the retakaful operators are recognised as an asset at the same time asthe claims which gives rise to the right of recovery are recognised as a liability and are measured at theamount expected to be recovered after considering an impairment in relation thereto.

Amount due from other takaful / re-takaful are carried at cost less provision for impairment, if any. Costrepresents the fair value of consideration to be received in the future.

Amount due to takaful / re-takaful companies represent the balance due to re-takaful companies.

Re-takaful assets or liabilities are derecognised when the contractual rights are extinguished or expired.

4.4 Claims

Claims expense include all claims occurring during the year, whether reported or not. Internal and externalclaim handling costs that are directly related to the processing and settlement of claims, a reduction forthe value of salvage and other recoveries, and any adjustments to claims outstanding from previous years.

Outstanding claims comprise the estimated cost of claims incurred but not settled at the balance sheetdate, whether reported or not. Provisions for reported claims not paid as at the reporting date are madeon the basis of individual case estimates. In addition, a provision based on management’s judgment andthe Company’s prior experience is maintained for the cost of settling claims incurred but not reported(IBNR) at the reporting date and the claims intimated subsequent to the reporting date, except for accidentpolicies where the management estimate provision for IBNR based on actuarial valuation as required bySRO 16 (I) / 2012 issued by Securities and Exchange Commission of Pakistan on 9 January 2012 atreporting date. This change has been accounted for as change in accounting estimate in accordance withthe requirements of approved International Accounting Standard (IAS-8) "Accounting Policies, Changesin Estimates and Errors" whereby the effects of these changes are recognised prospectively by includingthe same in determination of profit and loss in the period of the change, that is, during the current andfuture periods. However, the effect of the change is not material to the financial statements.

Any difference between the provisions at the reporting date and settlements in the following period isincluded in the financial statement of that period.

4.5 Commission

Commission expense incurred in obtaining and recording policies is deferred and recognised as anexpense in accordance with pattern of recognition of contribution revenue.

4.6 Contribution deficiency reserve

The Company is required to maintain a provision in respect of contribution deficiency for the class ofbusiness where the unearned contribution reserve is not adequate to meet the expected future liability,after re-takaful from claims, and other supplementary expenses expected to be incurred after the reportingdate in respect of the unexpired policies in respective class of business at the reporting date.The movement in the contribution deficiency reserve is recorded as a charge / (reversal) in the profitand loss account.

The management considered the requirements of contribution deficiency reserve for each class of businessat reporting date, including accident policies where actuary advised that no provision is required, andestimated that adequate provision has been maintained in respective class of business wherever required.The actuarial valuation has been carried out to determine the amount of contribution deficiency reservein respect of accident insurance as required by SRO 16 (I) / 2012 issued by Securities and ExchangeCommission of Pakistan on 9 January 2012.


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4.7 Takaful surplus

Takaful surplus attributable to the participants is calculated after charging all direct cost and setting asidevarious reserves. Allocation to participants, if applicable, is made after adjustment of claims paid to themduring the year.

4.8 Wakala and Mudarib fees

The Takaful operator manages the general takaful operations for the participants' and charge 31.5% ofgross contribution as wakala fee to meet the general and administrative expenses of the Company. Wakalafee under a policy is recognised upfront at the date of inception of policy to which it relates in shareholders'fund.

The Takaful operator also manages the participants' investment as Mudarib and charges 25% of thegeneral takaful investment income as Mudarib's share earned by the participants' fund.

4.9 Qard-e-Hasna

Qard-e-hasna is provided by shareholders' fund to participants takaful fund in case of deficit in PTF.However, such amount is eliminated while consolidating the financial statements.

4.10 Employees' benefits

4.10.1 Defined benefit plan

The Company operates an approved defined gratuity scheme for all its permanent employees who attainthe minimum qualification period for entitlement to gratuity. Contributions to the fund are made based onactuarial recommendations and in line with the provisions of the Income Tax Ordinance, 2001. The mostrecent actuarial valuation was carried out for the year ended 31 December 2012 using the Projected UnitCredit Method. Actuarial gains / losses in excess of corridor limit (10% of the higher of fair value of assetsand present value of obligation) are recognised over the average remaining service life of the employees.

4.10.2 Defined contribution plan

The Company contributes to a provident fund scheme which covers all employees. Equal contributionsare made both by the Company and the employees to the fund at the rate of ten percent of basic salary.

4.10.3 Employees' compensated absences

The Company accounts for the liability in respect of employees’ compensated absences in the period inwhich they are earned.

4.11 Creditors, accruals and provisions

Liabilities for creditors and other amounts payable are carried at cost which is the fair value of theconsideration to be paid in the future for the services received, whether or not billed to the Company.

Provisions are recognized when the Company has a present legal or constructive obligation as a resultof past events, it is probable that an outflow of resources embodying economic benefits will be requiredto settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed ateach reporting date and adjusted to reflect the current best estimate.


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4.12 Cash and cash equivalents

Cash and cash equivalents consist of cash in hand, policy stamps, balances with banks, short-termdeposits maturing within 12 months of the year end, and are subject to insignificant risk of changein value.

4.13 Investments

4.13.1 Recognition

All investments are initially measured at fair value and include transaction costs that are directly attributableto acquisition except in the case of investment not at fair value through profit and loss account. Theseare recognized and classified as follows:

- Investment at fair value through profit and loss- Held to maturity- Available for sale

4.13.2 Measurement

4.13.2. Investments at fair value through profit and loss account

These include held-for-trading investments and those designated under this category upon initialrecognition. Subsequent to initial recognition, these are carried at fair value.

4.13.2.2 Held to maturity

Investments with fixed maturity, where management has both the intent and the ability to hold to maturity,are classified as held to maturity.

Subsequently, these are measured at amortised cost less provision for impairment, if any. Any premiumpaid or discount availed on acquisition of held to maturity investment is deferred and amortised over theterm of investment using the effective yield.

4.13.2.3 Available for sale

These are investments that do not fall under investment at fair value through profit or loss or heldto maturity categories.

Subsequent to initial recognition at cost, quoted investments are stated at the lower of cost or marketvalue (market value on an individual investment basis being taken as lower if the fall is other thantemporary) in accordance with the requirements of the SEC (Insurance) Rules, 2002 vide S.R.O. 938dated December 2002. Stock exchange quotations are used to determine market value.

Had the Company adopted International Accounting Standard (IAS) 39 "Financial Instruments:Recognition and Measurement" the investments and net equity of the Company would have beenhigher by Rs. 2.1 million (2011: 1.3 million).

4.13.2.4 Date of recognition

Regular way purchases and sales of investments that require delivery within the time frame establishedby regulations or market convention are recognised at the trade date. Trade date is the date on whichthe Company commits to purchase or sell the investment.


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4.14 Taxation4.14.1 Current

Provision for current taxation is based on taxable income at the rates enacted or substantively enactedat the balance sheet date after taking into account available tax credits and rebates, if any or minimumtax under section of the Income Tax Ordinance, 2001, whichever is higher.

4.14.2 Deferred

Deferred tax is accounted for using the balance sheet liability method in respect of all temporarydifferences at the balance sheet date between the tax bases and carrying amounts of assets andliabilities for financial reporting purposes. Deferred tax liabilities are generally recognized for all taxabletemporary differences and deferred tax assets are recognized to the extent that it is probable thattaxable profits will be available against which the deductible temporary differences, unused tax lossesand tax credits can be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to theperiod when the asset is realized or the liability is settled, based on the tax rates (and tax laws)that have been enacted or substantively enacted at the balance sheet date. Deferred tax is chargedor credited in the profit and loss account, except in the case of items credited or charged to equity inwhich case it is included in equity.

4.15 Fixed Assets

4.15.1 Tangibles

These are stated at cost less accumulated depreciation and impairment loss, if any. Depreciation ischarged over the estimated useful life of the asset on a systematic basis to income applying the straightline method at the rates specified in note 17.1 to the financial statements, after taking into accountresidual value.

Depreciation on additions is charged from the month in which the asset is put to use where as nodepreciation is charged from the month the asset is disposed off.

Subsequent cost are included in the assets' carrying amount or recognized as a separate asset, asappropriate, only when it is possible that the future economic benefits associated with the items willflow to the company and the cost of the item can be measured reliably. Maintenance and normal repairsare charged to profit and loss account currently.

An item of tangible asset is derecognized upon disposal or when no future economic benefits areexpected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculatedas the difference between the net disposal proceeds and the carrying amount of the asset) is includedin the profit and loss in the year the asset is derecognized.

Depreciation methods, useful lives and residual values that is significant in relation to the total costof the asset are reviewed, and adjusted if appropriate, at each balance sheet date.

4.15.2 Capital work in progress

Capital work in progress including advances made for capital expenditure is stated at cost lessimpairment, if any.


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4.15.3 Intangibles

These are stated at cost less accumulated amortisation and impairment loss, if any. Amortisation is chargedover the estimated useful life of the asset on a systematic basis to income applying the straight line methodat the rates specified in note 17.2 to the financial statements.

Amortisation on additions is charged from the month in which the asset is acquired or capitalised whereasno amortisation is charged from the month the asset is disposed off. Software development costs are onlycapitalised to the extent that future economic benefits are expected to be derived by the Company.

The carrying amounts are reviewed at each balance sheet date to assess whether these are recorded inexcess of their recoverable amounts, and where carrying values exceed estimated recoverable amount,assets' are written down to their estimated recoverable amounts.

4.16 Ijarah

The Company accounts for assets under Ijarah arrangements in accordance with IFAS - 2 "Ijarah" wherebyperiodic Ijarah payments for such assets are recognised as an expense in profit and loss account on straightline basis over the ijarah term.

4.17 Impairment

The carrying amount of assets (other than deferred tax asset) are reviewed at each balance sheet date todetermine whether there is any indication of impairment of any asset or group of assets. If such indicationexists, the recoverable amount of the asset is estimated. An impairment loss is recognised whenever thecarrying amount of an assets exceeds its recoverable amount.Impairment losses are recognised in profit and loss account. An impairment loss is reversed if the reversalcan be objectively related to an event occurring after the impairment loss was recognised.

4.18 Financial instruments

Financial assets and financial liabilities other than those arising out of takaful contracts are recognized atthe time when the Company becomes a party to the contractual provisions of the instrument. Financialassets are de-recognised when the contractual right to future cash flows from the asset expire or is transferredalong with the risk and reward of the asset. Financial liabilities are de-recognised when obligation specifiedin the contact is discharged, cancelled or expired. Any gain or loss on de-recognition of the financial assetand liabilities is recognised in the profit and loss account of the current period.

4.19 Foreign currency translation

Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction.Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchangeruling at the balance sheet date. Exchange differences, if any, are taken to profit and loss account.

4.20 Offsetting of financial assets and liabilities

Financial assets and financial liabilities are only offset and the net amount reported in the balance sheetwhen there is a legally enforceable right to set off the recognised amount and the Company intends to eithersettle on a net basis, or to realise the asset and settle the liability simultaneously.


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4.21 Investment income

Income from held to maturity investments is recognised on a time proportion basis taking into account the effectiveyield on the investments. The difference between the redemption value and the purchase price of the held to maturityinvestments is amortised and taken to the profit and loss account over the term of the investment.

Dividend income from investments is recognised when the Company's right to receive the payment is established.

Gain or loss on sale of investment is included in income currently.

Profit on bank deposits and Islamic investment products is recognised on a time proportionate basis taking into accountthe effective yield.

Management expenses

All direct management expenses and expenses not allocable to the underwriting business are charged as administrativeand investment related expenses.

PAID-UP SHARE CAPITAL

4.22

5

6.2 Movement in liability during the year

Opening balanceCharge for the yearContribution to fund made during the yearClosing balance

2,540,000)2,773,082)

(3,340,000) 1,973,082

1,973,082)2,821,842)

(1,973,082) 2,821,842

6.1 Liability in balance sheet

Present value of defined benefit obligationsFair value of plan assetsUnrecognised actuarial gains / (losses)

2012 2011(Rupees)

11,638,200)(9,283,889)

467,531 2,821,842

10,348,900 (8,194,610) (181,208) 1,973,082

Ordinary shares of Rs. 10 each issued as fully paid in cash

40,000,000 40,000,000

12,000,00013,000,000

6,000,0002,500,0002,500,0004,000,000

40,000,000

12,000,00013,000,000

6,000,0002,500,0002,500,0004,000,000

40,000,000

(Number of Shares)

400,000,000 400,000,000

Ordinary shares of the Company held by the related parties are as follows:5.1

Pak- Kuwait Investment Company (Private) LimitedEtiqa Overseas Investment Pte. Limited, MalaysiaNoor Financial Investment Company, KuwaitTakaful Holdings Limited, U.A.EMeezan Bank LimitedSaudi Pak Industrial and Agricultural Investment Company (Private) Limited

2012 2011(Number of shares)

2012 2011(Rupees)

- Discount rate 11.5% (2011: 12.5%) per annum.- Expected rate of increase in the salaries of the employees 11.5% (2011: 12.5%) per annum.- Expected interest rate on plan assets of the fund 9% (2011: 12.5%) per annum.

6 STAFF RETIREMENT BENEFITS

Defined benefit plan - Gratuity fund

The actuarial valuations are carried out annually and contributions are made accordingly. Following were the significantassumptions used for valuation of the scheme:

-

-

-

-


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6.3 Reconciliation of the present value of defined benefit obligations

Present value of obligations as at 01 JanuaryCurrent service costInterest costBenefits paidActuarial gainPresent value of obligations as at 31 December

Current service costInterest costExpected return on plan assets

Present value of defined benefit obligationsFair value of plan assetsDeficit

Experience adjustments- Actuarial (gain) / loss on obligation

- Actuarial (loss) /gain on assets

7

(Rupees)2012 2011

10,348,900)2,675,874)1,191,004)

(1,641,734)(935,844)

11,638,200

7,883,000)2,569,103)1,061,491)(601,841)(562,853)

10,348,900

2,675,874)1,191,004)

(1,045,036) 2,821,842

2,569,102)1,061,491)

(857,511) 2,773,082

(Rupees)

10,348,900)(8,194,610)2,154,290

7,883,000(4,756,000)3,127,000

5,840,000(2,767,000)3,073,000

3,774,000(1,375,000)2,399,000

(562,853) (360,000) 567,000 (420,000)

(157,060) 524,000 (588,000) 21,000

AMOUNT DUE TO OTHER TAKAFUL / RETAKAFUL OPERATORS

Foreign retakaful operatorsCo-takaful operators

(Rupees)2012 2011

95,063,6802,248,014

97,311,694

65,301,7972,562,033

67,863,830

6.9 The expected gratuity expense for the year ended 31 December 2013 is Rs. 2.999 million.

Term Deposit CertificatesSukuk BondsMutual fundsBank depositsFair value of plan net assets

Historical data of the fund6.8

7,893,937509,959786,441

93,5529,283,889

85.03%5.49%8.47%1.01%100%

7,283,268-

681,518229,824

8,194,610

89%0%8%3%

100%

2011 2010 2009 2008

2012 2011Fair value Percentage Fair value Percentage

(Rupees)

Composition of fair value of plan assets6.7

1,045,036)(287,105)

757,931

857,511)(157,060)

700,451

Actual return on plan assets6.6

Expected return on assetsActuarial loss on assets

6.5 Charge for the defined benefit plan

Fair value of plan assets as at 1 JanuaryExpected return on plan assetsContribution to the fundBenefits paidActuarial gainFair value of plan assets as at 31 December

6.4 Reconciliation of the fair value of plan assets8,194,610)1,045,036)1,973,082)

(1,641,734)(287,105)

9,283,889

4,756,000)857,511)

3,340,000)(601,841)(157,060)

8,194,610


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Provision for compensated absencesAuditors' remunerationUtilities and other expenses

ACCRUED EXPENSES9

8,887,670340,000

13,623,19022,850,860

10,088,925420,000

16,433,12326,942,048

9.1 & 9.2

This includes commission payable to Sales development executives amounting to Rs. 9.48 million (31 December 2011:11.92 million).This includes provision for worker’s welfare fund amounting to Rs. 0.756 millions.

9.1

10 OTHER CREDITORS AND ACCRUALS

(Rupees)TotalPTF SHF

2012

8,036,615511,890

14,907,947399,048

9,076,249 3,619,2651,819,359

10,351,39448,721,767

8,036,615511,890

14,907,947425,235

9,076,249 3,619,2651,944,397

10,366,66948,888,267

---

26,187--

125,03815,275

166,500

10.1

Federal excise duty payableFederal insurance fee payableCommission payableWithholding tax payableTracker monitoring fee payableService ChargesStale chequesOthers

Insurance claim of Rs. 2.8 million (Company's net exposure after re-takaful is Rs. 0.8 million) has not been acknowledgedby the Company and the matter is pending before SECP. The Company's based on legal advisor opinion is confidentthat the matter will be decided in Company's favour. Accordingly, no provision has been made in these financialstatements.

10.1 This represents service charges @ 2.5% in respect of co-takaful recoveries.

11 CONTINGENCY

(Rupees)2012 20118 TAXATION - provision less payments

Participants' Takaful FundShareholders' Fund

(1,550,150)5,090,7453,540,595

(1,152,416)2,412,1121,259,696

367,498367,498

35,360-

35,360

35,360367,498402,858

557,546(10,645,252)(10,087,706)

-17,402,38417,402,384

557,5466,757,1327,314,678

12.1& 12.2

Cash and other equivalentsCashPolicy stamps and bond papers in handCurrent and other accounts

Current accountsSavings accounts

Deposits maturing within 12 monthsTerm deposits receipts 228,944,063

246,381,807-

(9,720,208)228,944,063236,661,599

12.3


2012CASH AND BANK DEPOSITS12

11,582,229730,941

18,044,364535,627

16,300,3232,380,6032,281,6173,969,554

55,825,258

11,582,229730,941

18,044,3641,321,439

16,300,3232,380,6032,412,5203,987,085

56,759,504

---

785,812--

130,90317,531

934,246

10.1

Federal excise duty payableFederal insurance fee payableCommission payableWithholding tax payableTracker monitoring fee payableService ChargesStale chequesOthers


2011

9.2


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231,142,100251,808,610

231,142,100257,598,882

3,236,9791,000,0005,000,0002,000,0005,071,340

16,308,31956,870,735

2,079,0691,000,0002,000,0001,000,0001,267,8357,346,9047,346,904

1,157,910-

3,000,0001,000,0003,803,5058,961,415

49,523,83113.2

Available for sale

Meezan Islamic Income Fund - a related partyMeezan Islamic Fund - a related partyUnited Islamic Income FundUnited Composite Islamic FundAlfalah GHP Islamic Fund

TotalPTF SHF2011

(Rupees)

10,072,91630,489,50040,562,416

10,072,91630,489,50040,562,416

---13.1

Held-to-maturity

WAPDA Sukuk CertificatesGovernment of Pakistan Ijara Sukuks - V

2,079,0691,000,0002,000,0005,079,0695,079,069

1,157,910-

3,000,0004,157,910

64,789,501

3,236,9791,000,0005,000,0009,236,979

69,868,57013.2

Available for sale

Meezan Islamic Income Fund - a related partyMeezan Islamic Fund - a related partyUnited Islamic Income Fund

TotalPTF SHF2012

(Rupees)

30,222,49910,000,00020,409,09260,631,591

30,222,49910,000,00020,409,09260,631,59113.1

----

13 INVESTMENTS

Held-to-maturity

Government of Pakistan Ijara Sukuks - VWAPDA Sukuk CertificateGovernment of Pakistan Ijara Sukuks - IX

12.1 This represents book overdraft due to cheques amounting to Rs. 50.27 million issued at year end.

12.2 Savings accounts carry expected profit rates ranging from 5% to 6% (31 December 2011: 5% to 6%) per annumand include balance of Rs. 6.03 million (2011: Rs. 26.22 million) with a related party.

12.3 This represents short-term deposits of fixed maturities maintained with an Islamic bank under profit and losssharing basis. The expected profit rate on such deposits ranges from 7.5% to 11.25% (31 December 2011: 11.5%to 13%) per annum.

47,245-

47,245

-79,26879,268

47,24579,268

126,513

2,8805,708,124 5,711,004

-20,619,26520,619,265

2,88026,327,38926,330,269

12.2

-5,790,272

12.3

TotalPTF SHF2011

(Rupees)Cash and other equivalentsCashPolicy stamps and bond papers in hand

Current and other accountsCurrent accountsSavings accounts

Deposits maturing within 12 monthsTerm deposits receipts


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195,249,89617,000,505

212,250,401

178,253,69114,071,694

192,325,385

(17,000,505)195,249,896

(14,071,694) 178,253,691

14.1

14,071,6942,928,811

17,000,505

6,531,7527,539,942

14,071,694

(Rupees)2012 2011

65,467,28118,854,244

--

84,321,525

--

173,2442,026,204 2,199,448

65,467,28118,854,244

173,2442,026,204

86,520,973

TotalPTF SHF2012

(Rupees)

This includes security placed with State Bank of Pakistan (SBP) as statutory deposit in accordance with therequirement of clause (a) of sub section 2 of section 29 of the Insurance Ordinance, 2000 except GOP Ijarah IXhaving face value of Rs. 10 million held in Company's IPS account. WAPDA sukuk certificate amounted to Rs. 10million is placed with SBP was matured on 10 October 2012. The management is persuing for release of thiscertificate and making continuous follow up in this respect. SBP is seeking SECP approval for release which is yetto be received by SECP Insurance Division.

Market value of investments classified as held to maturity, except WAPDA sukuk, as at 31 December 2012 wasRs. 50.41 million (2011: Rs. 40.07 million).

13.2 Market value of quoted open ended units is Rs. 11.33 million (2011: Rs. 17.6 million). The market value isdetermined based on net asset value of the respective funds as on 31 December 2012.

14 CONTRIBUTION DUE BUT UNPAID - unsecured

Considered goodConsidered doubtful

Provision against contribution due but unpaid

14.1 Provision against contribution due but unpaid

Opening balanceProvision made during the year

15 PREPAYMENTS

Re-takaful contribution cededTracker monitoring feeRentOthers

52,410,95711,558,531

108,1851,540,386

65,618,059

52,410,95711,558,531

--

63,969,488

--

108,1851,540,3861,648,571

Re-takaful contribution cededTracker monitoring feeRentOthers

TotalPTF SHF2011

(Rupees)

paymentProfit Face value Maturity date

(Rupees)13.1 Particulars

6 months treasury 30,000,000Semibills yield annually

15-11-2013

6 months treasury Semiannuallybills yield

20,000,000 28-06-2015

Government of Pakistan Ijara Sukuks - V

Government of Pakistan Ijara Sukuks - IX


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SUNDRY RECEIVABLES - considered good16

Profit on bank balances and deposits

Deposits against:

- Rent

- Club membership

- Others

(Rupees)2012 2011

Advance to employees

5,729,533

809,300

1,150,500

788,622

2,748,422

166,513

8,644,468

17 FIXED ASSETS

Tangible assets

Intangible assets

17.1

17.2

28,287,479

-

28,287,479

29,607,147

175,130

29,782,277

17.1 Tangible assets

17.2 Intangible assets

Computer software

9,889,679

536,800

1,150,500

1,479,685

3,166,985

448,723

13,505,387

Furniture and fixture

Office equipment

Motor vehicles

Computers

2011

10

20

20

33

37,451,697

4,823,138

20,148,204

11,124,750

73,547,789

101,601

1,354,408

3,336,008

157,505

4,949,522

-

(126,705)

(710,000)

-

(836,705)

37,553,298

6,050,841

22,774,212

11,282,255

77,660,606

16,991,902

2,378,584

12,441,494

8,801,328

40,613,308

3,746,842

871,951

1,550,755

1,545,524

7,715,072

-

(62,545)

(212,376)

-

(274,921)

20,738,744

3,187,990

13,779,873

10,346,852

48,053,459

16,814,554

2,862,851

8,994,339

935,403

29,607,147

2012

Furniture and fixture

Office equipment

Motor vehicles

Computers

37,553,298

6,050,841

22,774,212

11,282,255

77,660,606

1,364,944

575,020

3,971,353

606,800

6,518,117

(187,150)

(32,000)

(2,830,130)

(88,580)

(3,137,860)

38,731,092

6,593,861

23,915,435

11,800,475

81,040,863

20,738,744

3,187,990

13,779,873

10,346,852

48,053,459

4,367,020

926,520

1,064,691

776,651

7,134,882

(148,160)

(4,267)

(2,193,950)

(88.580)

(2,434,957)

24,957,604

4,110,243

12,650,614

11,034,923

52,753,384

13,773,488

2,483,618

11,264,821

765,552

28,287,479

10

20

20

33

Depreciationrate%

31 December 2011DepreciationCost

Additions (Disposals) For the year (Disposals)

Written downvalue as at

31 December2012

As at1 January

2012

As at31 December

2012

As at1 January

2012

As at31 December

2012(Rupees)

2012 6,489,689 175,130 - 6,664,819

2011

- -6,664,819 6,664,819

6,664,819 6,664,819- - 6,088,123 401,566 - 6,489,689 175,130

- 33

33

17.3 The depreciation / amortisation charge for the year has been allocated as follows:

AmortisationDepreciation Total2012

(Rupees)

Management expensesGeneral and administrative expensesTotal

2011Aggregate

4,994,4172,140,4657,134,882

122,59152,539

175,130

5,117,0082,193,0047,310,012

5,528,7252,587,9148,116,639

1920

31 December 2012Depreciation

rate%

Cost Depreciation

Additions (Disposals) For the year (Disposals)

Written downvalue as at

31 December2012

As at1 January

2012

As at31 December

2012

As at1 January

2012

As at31 December

2012(Rupees)


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(Rupees)2012 201118 DIRECT EXPENSES

Tracker monitoring feeProvision against contribution due but unpaidService chargesOthers

19 MANAGEMENT EXPENSES

52,670,2812,006,2354,327,8971,008,601

60,013,014

56,885,9345,164,8602,616,387

471,07165,138,252

10.1

84,572,3295,255,195

273,5302,375,0832,746,907

15,145,2603,784,6101,885,3812,905,6441,393,7113,038,5613,849,482

203,8832,481,285

129,910,861

Salaries, allowances and other benefitsDepreciationAmortisationProvision against contribution due but unpaidLegal and professional chargesRent, rates and taxesTravelling and conveyancePrinting, stationery and postageCommunicationUtilitiesRepairs and maintenanceAdvertisementSecurity servicesOthers

95,472,3534,994,417

122,591922,576

3,958,13716,309,467

4,295,0951,902,9193,211,2051,517,4803,998,3852,018,442

263,8911,694,623

140,681,581

19.117.317.3

19.1 Include staff retirements benefits amounting to Rs. 6.839 million (2011: Rs. 6.872 million).

2012 2011(Rupees)

40,916,7232,140,465

52,5391,696,3456,989,7721,840,755

815,5371,376,231

650,3491,713,593

499,500113,096

1,489,851726,267

61,021,023

39,587,0472,459,878

128,0361,285,7867,089,2701,771,519

882,5191,360,088

652,3761,422,305

451,45095,434

699,0861,161,452

59,046,246

17.317.3

20.1

20 GENERAL AND ADMINISTRATIVE EXPENSES

Salaries, allowances and other benefitsDepreciationAmortisationLegal and professional chargesRent, rates and taxesTravelling and conveyancePrinting, stationery and subscriptionCommunicationUtilitiesRepairs and maintenanceAuditors' remunerationSecurity servicesDirectors' feeOthers

210,000210,000

31,450451,450

225,000225,000

49,500499,500

Auditors' remuneration

Audit feeReview and certificationsOut of pocket expenses

19.2 This includes provision for worker’s welfare fund amounting to Rs. 0.529 million

19.2

20.1

20.2 This includes provision for worker’s welfare fund amounting to Rs. 0.227 million

20.2


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21.1

The risk under any one takaful contract is the possibility that the covered event occurs and the uncertainty of the amountof the resulting claim. By the very nature of a takaful contract, this risk is random and therefore unpredictable. Theprincipal risk that the Company faces under its takaful contracts is that the actual claims exceed the carrying amountof the takaful liabilities. This could occur because the frequency or severity of claims is greater than estimated takafulevents are random and the actual number and amount of claims will vary from year to year from the level established.

Experience shows that the larger the portfolio of similar takaful contracts, the smaller the relative variability about theexpected outcome will be. In addition, a more diversified portfolio is less likely to be affected by a change in any subsetof the portfolio. The Company has developed its takaful underwriting strategy to diversify the type of takaful risksaccepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variabilityof the expected outcome.

Factors that aggravate takaful risk include lack of risk diversification in terms of type and amount of risk, geographicallocation and type of industry covered.

(a) Frequency and severity of claims

Political, environmental, economical and climatic changes give rise to more frequent and severe extreme events(for example, fire, theft, steal, riot and strike, explosion, earthquake, atmospheric damage, hurricanes, typhoons,river flooding, electric fluctuation, terrorism, war risk, damages occurring in inland transit, burglary, loss of cashin safe and cash in transit, travel and personal accident, money losses, engineering losses and other events) andtheir consequences (for example, subsidence claims). For certain contracts, the Company has also limited thenumber of claims that can be paid in any policy year or introduced a maximum amount payable for claims in anypolicy year.

Takaful contracts which is divided into direct and facultative arrangements are further subdivided into four segments:fire, marine, motor and miscellaneous The takaful risk arising from these contracts is concentrated in the territoriesin which the Company operates, and there is a balance between commercial and personal properties / assets inthe overall portfolio of covered properties / assets. The Company underwrites takaful contracts in Pakistan only.

The Company manages these risks through its underwriting strategy, adequate re-takaful arrangements andproactive claims handling.

The underwriting strategy attempts to ensure that the underwritten risks are well diversified in terms of type andamount of risk, industry and geography. The Company has the right to re-price the risk on renewal. It also has theability to impose deductibles and reject fraudulent claims. Takaful contracts also entitle the Company to pursuethird parties for payment of some or all costs (for example, subrogation). The claims payments are limited to theextent of sum covered on occurrence of the covered event.

The Company has entered into re-takaful cover / arrangements, with local and foreign re-takaful operators havinggood credit rating by reputable rating agencies, to reduce its exposure to risks and resulting claims. Keeping inview the maximum exposure in respect of key zone aggregates, a number of proportional and non-proportional

21 TAXATION

The provision for taxation in respect of contribution of PTF has been included in tax charge of SHF as tax charge isnot stated in Rule 9 of Takaful Rules, 2005 relating to income and expense of Participants' Takaful Fund.

Tax reconciliation has not been presented as the Company's tax liability is based on minimum tax under section 113of the Income Tax Ordinance, 2001 and non-recognition of deferred tax assets due to history of tax losses of theCompany and uncertainty of its recovery in future.

As at 31 December 2012, deferred tax asset of Rs. 56.89 million (2011: Rs. 64.31 million) arising mainly due to taxlosses of Rs. 162.55 million (2011: Rs. 183.75 million) has not been recognised in these financial statements in viewof uncertainty of future years taxable income.

The tax assessment of the Company have been finalised upto and including the tax year 2012 as the Company hasfiled tax returns which are deemed assessed in terms of Section 120(1) of the Income Tax Ordinance, 2001.

21.2

21.3

21.4

TAKAFUL RISK MANAGEMENT22

Takaful Risk


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facultative re-takaful arrangements are in place to protect the net account in case of a major catastrophe. Theeffect of such re-takaful arrangements is that the Company recovers the share of claims from re-takaful companiesthereby reducing its exposure to risk. Apart from the adequate event limit which is a multiple of the treaty capacityor the primary recovery from the proportional re-takaful arrangements, any loss over and above the said limit wouldbe recovered under non-proportional treaty which is very much in line with the risk management philosophy of theCompany.

In compliance of the regulatory requirement, the re-takaful agreements are duly submitted with Securities andExchange Commission of Pakistan (SECP) on an annual basis.

The Company has claims department dealing with the mitigation of risks surrounding claims incurred whetherreported or not. This department investigates and settles all claims based on surveyor's report / assessment. Theunsettled claims are reviewed individually at least semi-annually and adjusted to reflect the latest information onthe underlying facts, contractual terms and conditions, and other factors. The Company actively manages andpursues early settlements of claims to reduce its exposure to unpredictable developments.

(b) Sources of uncertainty in the estimation of future claim payments

Claims reported and otherwise are analysed separately. The development of large losses / catastrophes is analysedseparately. The shorter settlement period for claims allows the Company to achieve a higher degree of certaintyabout the estimated cost of claims including IBNR. However, the longer time needed to assess the emergence ofa subsidence claim makes the estimation process more uncertain for these claims.

The estimated cost of claims includes direct expenses to be incurred in settling claims, net of the expectedsubrogation value, re-takaful and other recoveries. The Company takes all reasonable steps to ensure that it hasappropriate information regarding its claims exposures. However, given the uncertainty in establishing claimsprovisions, it is likely that the final outcome may be different from the original liability established. The liabilitycomprises amount in relations to unpaid reported claims, claims incurred but not reported (IBNR), expected claimssettlement costs and a provision for unexpired risks at the end of the reporting period.

Liability in respect of outstanding claims is based on the best estimate of the claims intimated or assessed. Incalculating the estimated cost of unpaid claims (both reported and not), the Company estimation techniques area combination of loss-ratio based estimates (where the loss ratio is defined as the ratio between the ultimate costof takaful claims and takaful contribution earned in prior financial years in relation to such claims) and an estimatebased upon actual claims experience using predetermined basis where greater weight is given to actual claimsexperience as time passes.

In estimating the liability for the cost of reported claims not yet paid, the Company considers any informationavailable from surveyor's assessment and information on the cost of settling claims with similar characteristics inprevious periods. Claims are assessed on a case-by-case basis separately.

(c) Process used to decided on assumptions

The risks associated with takaful contracts are complex and subject to a number of variables that complicatequantitative sensitivity analysis. This exposure is geographically concentrated in the Pakistan only.

The Company uses assumptions based on a mixture of internal and market data to measure its related claimsliabilities. Internal data is derived mostly from the Company’s monthly claims reports, surveyor's report for particularclaim and screening of the actual takaful contracts carried out to derive data for the contracts held. The Companyhas reviewed the individual contracts and in particular the industries in which the participant companies operateand the actual exposure years of claims. This information is used to develop related provision for outstandingclaims (both reported and non-reported).

The choice of selected results for each accident year of each class of business depends on an assessment of thetechnique that has been most appropriate to observed historical developments. Through this analysis, the Companydetermines the need for an IBNR or an unexpired risk liability to be held at each reporting date.

(d) Changes in assumptions

The Company has not changed its assumptions for the takaful contracts as disclosed in above (b) and (c).


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(e) Sensitivity analysis

The analysis of exposure described in paragraph (c) above is also used to test the sensitivity of the selectedassumptions to changes in the key underlying factors. Assumptions of different levels have been used to assessthe relative severity of subsidence claims given past experience. The key material factor in the Company’s exposureto subsidence claims is the risk of more permanent changes in geographical location in which Company is exposed.

The risks associated with the takaful contracts are complex and subject to a number of variables which complicatequantitative sensitivity analysis. The Company makes various assumptions and techniques based on past claimsdevelopment experience. This includes indications such as average claims cost, ultimate claims numbers andexpected loss ratios. The Company considers that the liability for takaful claims recognised in the balance sheetis adequate. However, actual experience will differ from the expected outcome.

As the Company enters into short term takaful contracts, it does not assume any significant impact of changesin marke tconditions on unexpired risks. However, results of sensitivity testing assuming 10% change in the claimincidence net of recoveries showing effect on underwriting results and balance of waqf is set out below.

Fire and property damage

Marine, aviation and transport

Motor

Miscellaneous

30,000,000

6,010,503

15,000,000

2,250,000

53,260,503

988,741,851

200,930,780

12,500,000

24,500,000

1,226,672,631

628,050,024

355,369,647

15,000,000

19,275,000

1,017,694,671

958,741,851

195,305,780

-

21,500,000

1,175,547,631

30,000,000

5,625,000

12,500,000

3,000,000

51,125,000

598,050,024

349,359,144

-

17,025,000

964,434,168

(Rupees)

RetakafulGross sum insured Net2012 2011 2012 2011 2012 2011

Concentration of takaful risk

A concentration of risk may also arise from a single takaful contract issued to a particular type of participant, withina geographical location or to types of commercial business. In order to minimise the financial exposure arising fromlarge claims, the Company, in the normal course of business, enters into agreement with other re-takaful operators,who are dispersed over several geographical regions.

The Company has certain single takaful contracts which it considers as risk of high severity but very low frequency.The Company cedes substantial part of these risks to the re-takaful companies on its panel and its net exposure onany single event is limited to the maximum of Rs. 988.74 million (2011: 628.05 million)

This is illustrated in the table below.

10% increase in loss

Fire and property damageMarine, aviation and transportMotorMiscellaneous

(Rupees)

Underwriting results Balance of Waqf2012 2011 2012 2011

(2,028,664)(1,636,723)

(17,172,708)(1,530,524)

(22,368,619)

(2,902,687)(1,301,890)

(21,649,311)(2,324,184)

(28,178,072)

(2,049,155)(1,653,256)

(17,346,170)(1,545,984)

(22,594,565)

(2,873,660)(1,288,871)

(21,432,818)(2,300,942)

(27,896,291)

10% decrease in loss

2,902,6871,301,890

21,649,3112,324,184

28,178,072

2,049,1551,653,256

17,346,1701,545,984

22,594,565

2,873,6601,288,871

21,432,8182,300,942

27,896,291

2,028,6641,636,723

17,172,7081,530,524

22,368,619

Fire and property damageMarine, aviation and transportMotorMiscellaneous


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The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk managementframework. The Board is also responsible for developing and monitoring the Company's risk management policies.

23 FINANCIAL RISK MANAGEMENT

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

- Credit risk- Liquidity risk- Market risk

Claims development table

Information regarding claim development table is not presented as the management considers that uncertainty aboutthe amount and timing of claims payments is significantly resolved within a year. However, claims outstanding for oneyear are unsettled due to pending litigation.

2012 2011(Rupees)

The carrying amount of financial assets represent the maximum credit exposure, as specified below:

Risk management framework

Every takaful company is exposed to a wide range of risks, some discrete and some interdependent; integrated riskmanagement entail strong governance processes; ensuring greater accountability, transparency and risk awarenessin underwriting, investment and strategic decisions. The Board of Directors take ultimate responsibility for supervisingthe Company's risk management framework. Risk management framework covers the need to review the strategyof a Company and to assess the risk associated with it.

The Audit Committee oversees how management monitors compliance with the Company’s risk managementpolicies and procedures, and reviews the adequacy of the risk management framework in relation to the risks facedby the Company. The Company Audit Committee is assisted in its oversight role by Internal Audit. Internal Auditundertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which arereported to the Audit Committee.

23.1 Credit risk

Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for the Company byfailing to discharge an obligation. The Company attempts to control credit risk by mitigating credit exposures byundertaking transactions with a large number of counter parties in various industries and by continually assessingthe credit worthiness of counter parties.

23.1.1 Exposure to credit risk

Credit risk of the Company arises principally from the deposit and account placement with banks, investment,contribution due but unpaid, amount due from other takaful companies and re-takaful recoveries against outstandingclaims. To reduce the credit risk the Company's management monitors exposure to credit risk through its regularreview.

Bank accounts and depositsInvestmentsContribution due but unpaidAmount due from other takaful companiesAccrued investment incomeRe-takaful recoveries against outstanding claimsSundry receivables

236,258,74169,868,570

195,249,8962,382,780

378,1086,736,928

13,505,387524,380,410

257,472,36956,870,735

178,253,69112,551,456

669,33935,947,162

8,644,468550,409,220

121314

16


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AA-A-1A-1

A-1+A-2A-1A1

A-1+AAA

A-1+AA

AAAAAA

AA+A1+

JCR-VISJCR-VISJCR-VISJCR-VISJCR-VISJCR-VISPACRAJCR-VISPACRA

AgencyRating

Short term Long term

The credit quality of the Company's bank balances and deposits can be assessed with reference to external creditratings as follows

Meezan Bank LtdBurj Bank LtdAl Baraka Islamic BankHabib Bank LtdThe Bank of KhyberDubai Islamic BankBank IslamiUnited Bank Limited AmeenStandard Chartered Bank (Pakistan) Ltd

Contribution due but unpaid is mostly recoverable from corporate customers and is considered good.

The Company has made investment in Government of Pakistan Ijarah Sukuk Certificates and units of Islamic funds.Government of Pakistan Ijarah Sukuk Certificates are government guaranteed.

Contribution due but unpaid

Concentration of credit risk occurs when a number of counterparties have a similar type of business activities. As aresult, any change in economic, political or other conditions would effect their ability to meet contractual obligations insimilar manner. Sector-wise analysis of gross "contribution due but unpaid" at the reporting date was:

23.1.2 Concentration of credit risk

2012(Rupees) %

2011(Rupees) %

Industry

TextileBanksModarabaChemicalFoodAutomobileEdible oilConstructorsLeatherCementFertilizerPharmaceuticalPaperOthers

80,527,61430,524,314

3,051,942795,765

14,425,6258,654,8737,589,4576,650,0853,046,5503,496,9995,393,2353,340,706

615,55444,137,682

212,250,401

37.94%14.38%

1.44%0.37%6.80%4.08%3.58%3.13%1.44%1.65%2.54%1.57%0.29%

20.80%100.00%

44,000,49334,089,500

8,009,9292,002,8202,798,1654,829,4907,235,7151,108,293

560,0873,584,794

821,591760,455208,793

82,315,260192,325,385

22.88%17.72%

4.16%1.04%1.45%2.51%3.76%0.58%0.29%1.86%0.43%0.40%0.11%

42.80%100.00%


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Age analysis of "contribution due but unpaid" as the reporting date was:

The Company enters into re-takaful arrangements with re-takaful companies having sound credit ratings accordedby reputed credit rating agencies. The Company is required to comply with the requirements of circular no. 32 /2009 dated 27 October 2009 issued by SECP which requires a takaful operator to place at least 80% of their outwardtreaty cessions with re-takaful companies rated 'A' or above by Standard & Poors or equivalent rating by any otherreputed international rating agency, with the balance (20%) being placed with entities rated at least 'BBB' by Standard& Poors or equivalent rating by any other reputed international rating agency. An analysis of all re-takaful assetsrelating to outward treaty cessions recognised by the rating of the entity from which it is due is as follows:

Amount due from other takaful companies, re-takaful recoveries against outstanding claims and prepaidretakaful ceded

Re-takaful ceded does not relieve the Company from its obligation to participants and as a result the Companyremains liable for the portion of outstanding claims covered by re-takaful to the extent that re-takaful fails to meetthe obligation under the re-takaful agreements.

In common with other takaful companies, in order to minimise the financial exposure arising from large claims, theCompany, in the normal course of business, enters into agreement with other re-takaful companies.

Upto 1 year1-2 yearsTotal

200,558,76811,691,633

212,250,401

6,808,87310,191,63217,000,505

186,679,0075,646,378

192,325,385

8,425,3165,646,378

14,071,694

20112012

(Rupees)Gross Impairment Gross Impairment

(Rupees)

Amount duefrom

re-takafuloperators

Amount duefrom

re-takafuloperators

Re-takafulrecoveries

againstoutstanding

claims

Prepaid re-takaful

contributionceded

Total2012

5,389,5431,347,3856,736,928

52,373,82513,093,45665,467,281

57,763,36814,440,84172,204,209

---

A or aboveBBB

(Rupees)

2011

28,757,7307,189,432

35,947,162

41,928,76610,482,19152,410,957

70,686,49617,671,62388,358,119

---

A or aboveBBB

A or aboveBBB

Age analysis of "Amount due from other takaful companies" as the reporting date was:

2,382,780-

2,382,780

5,249,1677,302,289

12,551,456

---

---


2012 2011

Upto 1 year1 - 2 year

Amount duefrom

re-takafuloperators

Re-takafulrecoveries

againstoutstanding

claims

Prepaid re-takaful

contributionceded

Total


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54,048,0754,015,822

97,311,69422,850,86048,888,267

227,114,718

(54,048,075)(4,015,822)

(97,311,694)(22,850,860)(48,888,267)

(227,114,718)

(19,048,075)(4,015,822)

(87,311,694)(22,850,860)(33,888,267)

(167,114,718)

(35,000,000)-

(10,000,000)-

(15,000,000)(60,000,000)

2012

Provision for outstanding claimsReserve for IBNRAmount due to takaful/retakaful operatorsAccrued expensesOther creditors and accruals

Financial liabilities (Rupees)

Carryingamount

Contractualcash flows

Up to 6months

Over 6 monthsto 1 year

Liquidity risk is the risk that the Company will encounter difficulty in meeting its financial obligations as they fall due.Liquidity risk arises because of the possibility that the Company could be required to pay its liabilities earlier thanexpected or difficulty in raising funds to meet commitments associated with financial liabilities as they fall due. TheCompany’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidityto meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable lossesor risking damage to the Company's reputation. The diversified funding sources and assets of the Company aremanaged with liquidity in mind, maintaining a healthy balance of cash and cash equivalents and readily marketablesecurities.

The following are the contractual maturities of financial liabilities:

In respect of the aforementioned takaful and re-takaful assets, the Company takes into account its track record ofrecoveries and financial position of the counterparties while creating provision for impairment. Further, re-takafulrecoveries are made when corresponding liabilities are settled.

23.2 Liquidity risk

-

-

-

-

-

-


2012 2011

6,736,928

-

6,736,928

27,707,011

8,240,151

35,947,162

Upto 1 year

1 - 2 year

Age analysis of "re-takaful recoveries against outstanding claims" at the reporting date was:

116,817,5436,460,614

67,863,83026,942,04856,759,504

274,843,539

(116,817,543)(6,460,614)

(67,863,830)(26,942,048)(56,759,504)

(274,843,539)

(81,817,543)(6,460,614)

(57,863,830)(26,942,048)(41,759,504)

(214,843,539)

(35,000,000)-

(10,000,000)-

(15,000,000)(60,000,000)

Provision for outstanding claimsReserve for IBNRAmount due to takaful/retakaful operatorsAccrued expensesOther creditors and accruals

2011

Financial liabilities (Rupees)

Carryingamount

Contractualcash flows

Up to 6months

Over 6 monthsto 1 year

23.3 Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, profit rates and equity priceswill affect the Company’s income or the value of its holding of financial instruments. The objective of market riskmanagement is to manage and control market risk exposures within acceptable parameters, while optimising thereturn.


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Profit rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because ofchanges in market profit rates. Majority of the profit rate exposure arises from balances held in profit and losssharing accounts and term deposits with reputable banks.

Currency risk arises mainly where receivables and payables exist due to transactions in foreign currencies. As atbalance sheet date there are no financial instruments denominated in foreign currency. Therefore, the Companyis not exposed to risk from foreign currency exchange rate fluctuation. However, the Company is exposed to profitrate risk and other price risk.

Profit rate risk23.3.1

At the balance sheet date, the profit rate profile of the Company’s significant profit-bearing financial instrument is:

Equity price risk is the risk of changes in the fair value of equity securities as the result of changes in the net assetvalues of the units of funds. The Company is exposed to equity price risk since it has investment in Islamic fundsamounting to Rs. 9.24 million (2011: Rs. 16.31 million) at the reporting date. The Company policy is to manage pricerisk through diversification and selection of securities within specified limits set by internal risk management guidelinesand ensuring compliance with the requirements of Takaful Rules, 2005.

The Management monitors the fluctuations of prices of equity securities on regular basis. The Company also hasnecessary skills for monitoring and managing the equity portfolio in line with fluctuations of the market.

The carrying value of investments subject to equity price risk is based on net asset values as of the balance sheetdate and available for sale equity instruments which are stated at lower of cost or market value ( market value beingtaken as lower if fall is other than temporary) in accordance with the requirement of the S.R.O. 938 issued by theSecurities and Exchange Commission of Pakistan (SECP), in December 2002.

Sensitivity analysis

As the entire investment portfolio of equity securities has been classified in the AFS category, a 10% decrease inredemption values of investment in SHF at the reporting date would have decreased investment value by Rs. 0.42million (2011: Rs. 0.89 million) and equity would have been lower by the same amount; similarly a 10% decrease inredemption values of investment in PTF at the reporting date would have decreased investment value by Rs. 0.51million (2011: Rs. 0.73 million ) and balance of Waqf would have been lower by the same amount.

However, a 10% increase in redemption values of investment in SHF and PTF at the reporting date would not havean impact on investment values as any increases are restricted to the amount of lower of cost or market value (if thefall is other than temporary) as per the Company's policy

23.3.2 Equity price risk

Cash flow sensitivity analysis for variable rate instruments

The Company is exposed to cash flow profit rate risk in respect of its deposits with banks and investment in Sukukcertificates. In case of 100 basis points (bp) increase / decrease in profit rates at year end, assuming that all othervariables remain constant, the net income and equity would have been higher / lower approximately by Rs. 0.101million (2011: Rs. 0.362 million) in shareholders' fund. Similarly, in case of Participants' Takaful Fund the net incomeand balance of Waqf would have been higher / lower approximately by Rs. 0.002 million (2011: Rs. 0.09 million).

The sensitivity analysis prepared is not necessarily indicative of the effects on deficit / profit for the year and assets/ liabilities of the Company.

Variable rate instruments

(7.5% to 11.25%)(5% to 6%)

11.50%11.94%

(11.5% to 13%)(5% to 6%)

13.16%12.35%

228,944,0636,757,132

10,000,00050,631,591

231,142,10026,327,38910,072,91630,489,500

- Term deposits- PLS savings accounts- WAPDA sukuk certificates- Government of Pakistan Ijara Sukuks

Effective profit rate duringthe year

(in Percent)

2012 2011 2012 2011Carrying amount

(Rupees)


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The paid-up capital of the Company as at 31 December 2012 was in excess of above prescribed limit.

Related parties of the Company comprise of associated companies, companies under common control, companieswith common directors, major shareholders, employees' retirement benefit plans, directors and key managementpersonnel. All transactions involving related parties arising in the normal course of business are conducted atcommercial terms and conditions. Transactions with the key management personnel are made under their termsof employment / entitlements. Contributions to the employee retirement benefits are made in accordance with theterms of employee retirement benefit schemes and actuarial advice. Details of transactions with related partiesduring the year, other than those which have been disclosed elsewhere in these financial statements, are as follows:

TRANSACTIONS WITH RELATED PARTIES26

(Rupees)20122010 2011

250,000,000 300,000,000 300,000,000Minimum paid up capital

In accordance with SECP Circular no. 03 of 2007 of Securities and Exchange Commission of Pakistan (SECP),minimum paid-up capital requirement to be complied with by Insurance / Takaful companies at the end of each yearare as follows:

The sensitivity analysis prepared is not necessarily indicative of the effects on loss / equity and assets of theCompany.

Fair value is an amount for which an asset could be exchanged, or a liability settled, between knowledgeable willingparties in an arm's length transaction. Consequently, difference may arise between the carrying values and the fairvalues estimates.

The fair value of all the financial instruments are estimated to be not significantly different from their carrying valuesexcept for investments. The fair value of investments is disclosed in note 13.

CAPITAL MANAGEMENT25

The Company's objective when managing capital is to safeguard the Company's ability to continue as a goingconcern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and tomaintain a strong capital base to support the sustained development of its business.

The Company manages its capital structure by monitoring return on net assets and makes adjustments to it in thelight of changes in economic conditions.

24 FAIR VALUE OF FINANCIAL INSTRUMENTS

400,000,0004,236,9793,297,0752,821,842

117,886,686107,361,772

1,052,09117,835,134

3,752,1703,340,000

400,000,0003,236,979

26,215,4311,973,082

Share capitalInvestmentsBank depositsGratuity fund

Transactions with related parties

Contribution writtenClaims paidProfit on bank balancesRent paidContribution to provident fundContribution to gratuity fundBalances with related parties

85,118,71582,917,726

1,378,58118,584,509

4,216,5181,973,082

(Rupees)2012 2011


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5,700,096-

1,203,3562,565,420

425,429188,088688,793

1,128,23011,899,412

-1,489,851

------

1,489,851

12,877,830-

2,674,7265,795,0221,287,7791,166,2981,843,2601,830,374

27,475,289

18,577,9261,489,8513,878,0828,360,4421,713,2081,354,3862,532,0532,958,604

40,864,552

1 9 14 24

ChiefExecutive

Directors Executives Total2012

(Rupees)

ChiefExecutive

Directors Executives Total2011

(Rupees)

5,445,317

1,019,5452,450,754

276,392134,062626,175322,815

10,275,060

-699,086

------

699,086

13,524,442-

2,479,4816,085,9961,352,4341,474,1291,586,8541,364,028

27,867,364

18,969,759699,086

3,499,0268,536,7501,628,8261,608,1912,213,0291,686,843

38,841,510

18,969,759699,086

3,499,0268,536,7501,628,8261,608,1912,213,0291,686,843

38,841,510

1 9 14 24

1 9 11 21

Aggregate amounts charged in the financial statements for remuneration, including all benefits to the ChiefExecutive, directors, and executives of the Company are as follows:

27 REMUNERATION OF THE CHIEF EXECUTIVE, DIRECTORS AND EXECUTIVES

Managerial remunerationDirectors' Fee for attending meetingsRetirement benefitsHouse rentUtilitiesMedical expensesLeave passage / assistanceOthers

Number of persons

Managerial remunerationDirectors' FeeRetirement benefitsHouse rentUtilitiesMedical expensesLeave passage / assistanceOthers

Number of persons

These financial statements have been authorised for issue in accordance with a resolution of the Board ofDirectors on 25th March 2013.

27.1 The Chief Executive and some of the Executives are also provided with Company maintained cars.

27.2 Certain Directors have been reimbursed boarding and lodging costs in relation to attending Board meetings ofthe Company as per the Company’s policy.

28 DATE OF AUTHORIZATION FOR ISSUE

29 GENERAL

All figures have been rounded off to the nearest of rupees, except otherwise stated.


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