1. General

AXA Cooperative Insurance Company (a Joint Stock Company incorporated in Kingdom of Saudi Arabia), “the Company”, was formed pursuant to Royal Decree No. M/36 dated 27 Jumada II 1429H. (1 July 2008) (Date of inception). The Company was incorporated vide Ministerial Order number Q/192, dated 10 Jumada II 1430H, (3 June 2009) (date of incorporation). The Company is registered in the Kingdom of Saudi Arabia under commercial registration number 1010271203 issued in Riyadh on Rajab 20, 1430H (13 July 2009). The Company’s registered address is P.O. Box 753, Riyadh 11421, Kingdom of Saudi Arabia.

The purpose of the Company is to transact cooperative insurance operations and all related activities including reinsurance activities. Its principal lines of business include health, motor, marine, property, engineering, accident and liability and protection insurance.

The principal activities of the Company are to engage in cooperative insurance operations and related activities including reinsurance activities in accordance with the Law on Supervision of Cooperative Insurance (the “Law”), the Company’s by-laws and other regulations promulgated in the Kingdom of Saudi Arabia. The Company obtained licence from the Saudi Arabian Monetary Authority (“SAMA”) to practice general and health insurance and reinsurance business in the Kingdom of Saudi Arabia vide licence number TMN/25/20101, dated Safar 11, 1431H (corresponding to 26 January 2010). The Company has commenced insurance operations on 4 Rabi’ I 1431H (corresponding to 18 February 2010) after obtaining full product approval for certain products and temporary approval for the remaining products. During 2016, the Company obtained approval for the remaining products.

On 9 March 2020, the Company’s Board of Directors (“Board of Directors”) recommended to the Annual General Assembly (“AGM”) to distribute cash dividends of Saudi Riyals 0.70 per share (totalling Saudi Riyals 35.0 million). Such recommendation was withdrawn subsequent to 31 March 2020 by the Board of Directors

1. Basis of preparation

1. Basis of presentation

The interim condensed financial information of the Company has been prepared in accordance with ‘International Accounting Standard 34 - Interim Financial Reporting (“IAS 34”), as endorsed in the Kingdom of Saudi Arabia.

The Company’s interim condensed statement of financial position is not presented using a current/non-current classification. However, the following balances would generally be classified as non-current: long-term deposits, deferred policy acquisition costs, investments, right-of-use assets, property and equipment, intangible assets, goodwill, statutory deposit and employee benefit obligations. All other financial statements line items would generally be classified as current.

2Basis of preparation (continued)

(a)Basis of presentation (continued)

As required by the Saudi Arabian Insurance Regulations, the Company maintains separate books of accounts for insurance operations and shareholders’ operations and presents the financial information accordingly. Assets, liabilities, revenues and expenses clearly attributable to either activity are recorded in the respective accounts. The basis of allocation of expenses from joint operations is determined and approved by the management and the Board of Directors.

The interim condensed statements of financial position, income, comprehensive income and cash flows of the insurance operations and shareholders operations which are presented on pages 41 to 51 of the financial information have been provided as supplementary financial information and to comply with the requirements of the guidelines issued by SAMA implementing regulations. SAMA implementing regulations requires the clear segregation of the assets, liabilities, income and expenses of the insurance operations and the shareholders operations. Accordingly, the interim condensed statements of financial position, income, comprehensive income and cash flows prepared for the insurance operations and shareholders operations as referred to above, reflect only the assets, liabilities, income, expenses and comprehensive gains or losses of the respective operations.

In preparing the Company’s interim condensed financial information in compliance with IAS 34, as endorsed in Kingdom of Saudi Arabia, the balances and transactions of the insurance operations are amalgamated and combined with those of the shareholders’ operations. Interoperation balances, transactions and unrealized gains or losses, if any, are eliminated in full during amalgamation. The accounting policies adopted for the insurance operations and shareholders operations are uniform for like transactions and events in similar circumstances.

3.1New standards, amendments and interpretations not yet applied by the Company

IFRS 9, ‘Financial Instruments’

In July 2014, the IASB published IFRS 9 which will replace IAS 39, ‘Financial Instruments: Recognition and Measurement’. The standard incorporates new classification and measurements requirements for financial assets, the introduction of an expected credit loss impairment model which will replace the incurred loss model of IAS 39, and new hedge accounting requirements. Under IFRS 9, all financial assets will be measured at either amortised cost or fair value. The basis of classification will depend on the business model and the contractual cash flow characteristics of the financial assets. The standard retains most of IAS 39’s requirements for financial liabilities except for those designated at fair value through profit or loss whereby that part of the fair value changes attributable to own credit is to be recognised in the interim condensed statement of comprehensive income instead of the interim condensed statement of income. The hedge accounting requirements are more closely aligned with risk management practices and follow a more principle based approach.

In September 2016, the IASB published amendments to IFRS 4, ‘Insurance Contracts’ that address the accounting consequences of the application of IFRS 9 to insurers prior to the publication of the forthcoming accounting standard for insurance contracts. The amendments introduce two options for insurers: the deferral approach and the overlay approach. The deferral approach provides an entity, if eligible, with a temporary exemption from applying IFRS 9 until the earlier of the effective date of a new insurance contract standard or 2022.The overlay approach allows an entity to remove from profit or loss the effects of some of the accounting mismatches that may occur before the new insurance contracts standard is applied.

The Company is eligible and have chosen to apply the deferral approach under the amendments to IFRS 4. The impact of the adoption of IFRS 9 on the Company’s financial information will, to a large extent, have to take into account the interaction with the forthcoming insurance contracts standard. As such, it is not possible to fully assess the effect of the adoption of IFRS 9.

For detailed impact assessment of IFRS 9 adoption, reference to the annual financial statements for the year ended 31 December 2019 should be made.

IFRS 17, ‘Insurance Contracts’

Applicable for the period beginning on or after 1 January 2023, and will supersede IFRS 4. Earlier adoption is permitted if IFRS 9 has also been applied. The Company expects a material impact on measurement and disclosure of insurance and reinsurance that will affect the interim condensed statements of financial position, income and comprehensive income. The Company has decided not to early adopt this new standard.

For detailed impact assessment of IFRS 17 adoption, reference to the annual financial statements for the year ended 31 December 2019 should be made.

3.1New standards, amendments and interpretations not yet applied by the Company

IFRS 9, ‘Financial Instruments’

In July 2014, the IASB published IFRS 9 which will replace IAS 39, ‘Financial Instruments: Recognition and Measurement’. The standard incorporates new classification and measurements requirements for financial assets, the introduction of an expected credit loss impairment model which will replace the incurred loss model of IAS 39, and new hedge accounting requirements. Under IFRS 9, all financial assets will be measured at either amortised cost or fair value. The basis of classification will depend on the business model and the contractual cash flow characteristics of the financial assets. The standard retains most of IAS 39’s requirements for financial liabilities except for those designated at fair value through profit or loss whereby that part of the fair value changes attributable to own credit is to be recognised in the interim condensed statement of comprehensive income instead of the interim condensed statement of income. The hedge accounting requirements are more closely aligned with risk management practices and follow a more principle based approach.

In September 2016, the IASB published amendments to IFRS 4, ‘Insurance Contracts’ that address the accounting consequences of the application of IFRS 9 to insurers prior to the publication of the forthcoming accounting standard for insurance contracts. The amendments introduce two options for insurers: the deferral approach and the overlay approach. The deferral approach provides an entity, if eligible, with a temporary exemption from applying IFRS 9 until the earlier of the effective date of a new insurance contract standard or 2022.The overlay approach allows an entity to remove from profit or loss the effects of some of the accounting mismatches that may occur before the new insurance contracts standard is applied.

The Company is eligible and have chosen to apply the deferral approach under the amendments to IFRS 4. The impact of the adoption of IFRS 9 on the Company’s financial information will, to a large extent, have to take into account the interaction with the forthcoming insurance contracts standard. As such, it is not possible to fully assess the effect of the adoption of IFRS 9.

For detailed impact assessment of IFRS 9 adoption, reference to the annual financial statements for the year ended 31 December 2019 should be made.

IFRS 17, ‘Insurance Contracts’

Applicable for the period beginning on or after 1 January 2023, and will supersede IFRS 4. Earlier adoption is permitted if IFRS 9 has also been applied. The Company expects a material impact on measurement and disclosure of insurance and reinsurance that will affect the interim condensed statements of financial position, income and comprehensive income. The Company has decided not to early adopt this new standard.

For detailed impact assessment of IFRS 17 adoption, reference to the annual financial statements for the year ended 31 December 2019 should be made.

(b) Critical accounting judgments, estimates and assumptions

The preparation of interim condensed financial information requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing this interim condensed financial information, the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty including the risk management policies were the same as those that applied to the annual financial statements as at and for the year ended 31 December 2019. However, the Company has reviewed the key sources of estimation uncertainties disclosed in the last annual financial statements against the backdrop of the Coronavirus (“Covid-19”) outbreak. For further details, refer below. Management will continue to assess the situation and reflect any required changes in future reporting periods.

On 11 March 2020, the World Health Organization (“WHO”) declared the Covid-19 outbreak as a pandemic in recognition of its rapid spread globally. This outbreak has also affected the GCC region including the Kingdom of Saudi Arabia. Governments all over the world have taken steps to contain the spread of Covid-19. The Kingdom of Saudi Arabia has implemented closure of borders, released social distancing guidelines and enforced country-wide lockdowns and curfews.

In response to the spread of Covid-19 in the Kingdom of Saudi Arabia and its consequential disruption to social and economic activities, the Company’s management has assessed its impact on the Company’s operations and has taken a series of proactive and preventive measures to ensure:

• the health and safety of its employees; and

• the continuity of its business throughout the Kingdom of Saudi Arabia is protected and remains intact.

2 Basis of preparation (continued)

2. Critical accounting judgments, estimates and assumptions (continued)

The following accounting judgments and estimates are critical in preparation of this interim condensed financial information:

1. 1. 1. Impact of Covid-19

Motor technical reserves

In response to the Covid-19 pandemic, SAMA issued circular 189 (the “Circular”) dated 8 May 2020 to all insurance companies in the Kingdom of Saudi Arabia. Amongst other things, the Circular instructed insurance companies to extend the period of validity of all existing retail motor insurance policies by two months as well as providing two months of additional coverage for all new retail motor insurance policies written within one month of the date of the Circular without additional consideration from the policyholders.

The management, in conjunction with its appointed actuary, deliberated on a variety of internal factors and concluded that the two months extension as per the Circular in existing retail motor policies is a modification of those policies and, accordingly, the earning patterns for those retail motor policies impacted by the Circular have been amended to reflect the additional two months of coverage period. As a result, the Company has experienced a decline of Saudi Riyals 11.5 million in its net earned premiums for the three-month and six-month periods ended 30 June 2020. Furthermore, the management performed a liability adequacy test using current estimates of future cash flows under its motor insurance contracts at a segmented level and concluded that the existing level of reserves were sufficient.

For new policies issued within one month of the date of the Circular, the premium is earned over the period of coverage i.e. fourteen months.

Health technical reserves

Based on managements’ assessment, the management believes that the Kingdom of Saudi Arabia’s governments’ decision to assume the medical treatment costs for both Saudi Arabian citizens and expatriates has helped in reducing any unfavourable impact of the Covid-19 pandemic. During the three-month and six-month periods ended 30 June 2020, the Company experienced a decline in medical reported claims (majorly elective and non-chronic treatment claims) which resulted in a decline in claims experience. However, subsequent to the easing of curfew protocols in the Kingdom of Saudi Arabia on 21 June 2020, the Company has experienced an increase in claims which is in line with the expectations of the Company’s management. The Company’s management has duly considered the impact of the increase in claims in the current estimate of future contractual cashflows of the insurance contracts in force as at 30 June 2020 for its liability adequacy test. Based on the results of management’s assessment, the existing technical reserves of the Company were sufficient and, accordingly, no additional amount was recorded in the Health technical reserves of the Company for the three-month and six-month periods ended 30 June 2020.

Other financial assets

To cater for any potential impact that the Covid-19 pandemic may have had on the financial assets of the Company, the Company has performed an assessment in accordance with its accounting policy, for held-to-maturity investments and financial assets designated as loans and receivables, to determine whether there is objective evidence that a financial asset or group of financial assets is impaired. These include factors such as significant financial difficulties of issuers or debtors, default or delinquency in payments, probability that the issuer or debtor will enter bankruptcy or other financial reorganization etc.

2 Basis of preparation (continued)

2. Critical accounting judgments, estimates and assumptions (continued)

1. 1. 2. Impact of Covid-19 (continued)

For available-for-sale investments, the Company has performed an assessment to determine whether there is a significant decline in the fair value of available-for-sale investments to below cost along with other qualitative factors such as the prolonged decline in the fair value of available-for-sale equity investments and / or occurrence of credit default events in case of available-for-sale debt investments.

Based on these assessments, the Company believes that the Covid-19 pandemic has had no material effect on the Company’s reported results for the three-month and six-month periods ended 30 June 2020. The Company continues to monitor the situation closely.

1. 1. 2. Liability arising from claims under insurance contracts

The estimation of the ultimate liability arising from claims made under insurance contracts is the Company’s most critical accounting estimate. There are several sources of uncertainty that need to be considered in the estimate of the liability that the Company will ultimately pay for such claims. Estimates are made at the end of the reporting period both for the expected ultimate cost of claim reported and for the expected ultimate costs of claims incurred but not reported (“IBNR”). Liabilities for unpaid reported claims are estimated using the input of assessments for individual cases reported to the Company. At the end of each reporting period, prior period claims estimates are reassessed for adequacy and changes are made to the provision.

The provision for claims incurred but not reported is an estimation of claims which are expected to be reported subsequent to the date of interim condensed statement of financial position, for which the insured event has occurred prior to the date of interim condensed statement of financial position. The primary technique adopted by management in estimating the cost of notified and IBNR claims, is that of using the past claims settlement trends to predict future claims settlement trends. A range of methods such as Chain Ladder Method, Bornhuetter-Ferguson Method and Expected Loss Ratio Method are used by the actuaries to determine these provisions. The actuary also uses a segmentation approach including analyzing cost per member per year for the medical line of business. Underlying these methods are a number of explicit or implicit assumptions relating to the expected settlement amount and settlement patterns of claims.

1. 1. 3. Impairment of premiums and reinsurance balances receivable and goodwill

An estimate of the uncollectible amount of premium receivable, if any, is made when collection of the full amount of the receivables as per the original terms of the insurance policy is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and an allowance applied according to the length of time past due and Company’s past experience.

The recoverable amount of goodwill is estimated based on the present value of the future cash flows expected to be derived from the asset. In case the, recoverable amount is less than carrying value, the difference is charged to interim condensed statement of income as impairment loss.

1. 1. 4. Impairment of available-for-sale investments

The Company treats available-for-sale investments as impaired when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires considerable judgment. In addition, the Company evaluates other factors, including normal volatility in share price for quoted investments and the future cash flows and the discount factors for unquoted investments.

3. Significant accounting policies

The accounting policies, estimates and assumptions used in the preparation of these interim condensed financial information are consistent with those used in the preparation of the annual financial statements for the year ended 31 December 2019 except as explained below:

11 Segmental information

Operating segments for the purpose of segmental information are identified on the basis of internal reports about components of the Company that are regularly reviewed by the Company’s Board of Directors in their function as chief operating decision maker in order to allocate resources to the segments and to assess its performance.

Transactions between the operating segments are on normal commercial terms and conditions. The revenue from external parties reported to the Board of Directors is measured in a manner consistent with that in the interim condensed statement of income. Segment assets and liabilities comprise operating assets and liabilities.

Segment assets do not include cash and cash equivalents, short-term deposits, premiums and reinsurers’ balances receivable - net, investments, prepaid expenses and other assets, long-term deposits, property and equipment, intangible assets, due from shareholders’ / insurance operations, goodwill, statutory deposit and accrued income on statutory deposit. Accordingly, they are included in unallocated assets. Segment liabilities do not include claims payable, accrued expenses and other liabilities, surplus distribution payable, reinsurers' balances payable, advance premiums, due to related party, employee benefit obligations, zakat and income tax, due to shareholders’ / insurance operations, and accrued income payable to SAMA. Accordingly, they are included in unallocated liabilities.

11. Segmental information (continued)

These unallocated assets and liabilities are not reported to chief operating decision maker under related segments and are monitored on a centralized basis.

For management purposes, the Company is organized into business units based on their products and services and has the following reportable segments:

• Motor;

• Property and casualty;

• Health; and

• Protection.

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

Where intersegment transaction were to occur, transfer prices between operating segments are set on an arm’s length basis in a manner similar to transactions with third parties. Segment income, expense and results will then include those transfers between operating segments which will then be eliminated at the level of interim condensed financial information of the Company.

(c) Seasonality of operations

There are no seasonal changes that may affect the insurance operations of the Company.

19 Goodwill on acquisition of insurance portfolio

This represents goodwill recognized on acquisition of insurance portfolio and net assets of AXA Insurance Saudi Arabia B.S.C (c). The Company received approval from SAMA on 15 Dhul-Qadah 1433H (corresponding to 1 October 2012) to transfer the insurance portfolio from AXA Saudi Arabia Holding W.L.L. (formerly AXA Insurance Saudi Arabia B.S.C.c) at a total consideration of Saudi Riyals 106.6 million. During 2015, the Company met payment conditions imposed by SAMA and received approval for payment of Saudi Riyals 50.0 million in respect of initial consideration to AXA Saudi Arabia Holding W.L.L. which was recognized as goodwill being the excess of consideration paid and the net assets acquired. The remaining amount of Saudi Riyals 56.6 million which was recorded as contingent liability

The principal activities of the Company are to engage in cooperative insurance operations and related activities including reinsurance activities in accordance with the Law on Supervision of Cooperative Insurance (the “Law”), the Company’s by-laws and other regulations promulgated in the Kingdom of Saudi Arabia. The Company obtained licence from the Saudi Arabian Monetary Authority (“SAMA”) to practice general and health insurance and reinsurance business in the Kingdom of Saudi Arabia vide licence number TMN/25/20101, dated Safar 11, 1431H (corresponding to 26 January 2010). The Company has commenced insurance operations on 4 Rabi’ I 1431H (corresponding to 18 February 2010) after obtaining full product approval for certain products and temporary approval for the remaining products. During 2016, the Company obtained approval for the remaining products.

8 Right-of-use assets and lease liabilities

Short-term leases that were expensed during the three-month and six-month periods ended 30 June 2020 amounted to Saudi Riyals 1.3 million and Saudi Riyals 2.6 million, respectively (three-month and six-month periods ended 30 June 2019: Saudi Riyals 1.4 million and Saudi Riyals 2.7 million, respectively).

6 Investments

Investments are comprised of the following:

Available-for-sale investments at 30 June 2020 include 1,923,078 shares (31 December 2019: 1,923,078 shares) in Najm for Insurance Services (“Najm”) and are held by the Company at Nil value.

Movement in available-for-sale investments is as follows:

6. Investments (continued)

Movement in held-to-maturity investments is as follows:

Movement in held-to-maturity investments is as follows:

Available-for-sale investments at 30 June 2020 include 1,923,078 shares (31 December 2019: 1,923,078 shares) in Najm for Insurance Services (“Najm”) and are held by the Company at Nil value.

Movement in available-for-sale investments is as follows:

5. Premiums and reinsurers’ balances receivable - net

Movement in provision for doubtful debts is as follows:

4. Cash and cash equivalents

Cash and cash equivalents included in the interim condensed statement of financial position comprise the following:

Cash at banks are placed with counterparties that have investment grade credit ratings. As at 30 June 2020, deposits were placed with local banks with original maturities of less than three months from the date of placement and earned financial income at 0.70% to 1.50% (31 December 2019: 1.90% to 2.40%) per annum.

14 Statutory deposit

In accordance with Article 58 of the Insurance Implementing Regulations of SAMA, the Company is required to maintain a statutory deposit of not less than 10% of its paid-up capital. The statutory deposit is maintained with a Saudi Arabian bank and can be withdrawn only with the consent of SAMA.

13 Zakat and income tax

During 2014, the GAZT issued final income tax, zakat and withholding tax assessments for the years 2009 through 2012 with additional liabilities amounting to Saudi Riyals 11.6 million. The Company filed appeals against such additional assessments with the Preliminary Appeals Court (“PAC”) and, subsequently, the Higher Appeals Court (“HAC”). The PAC issued its judgement with reduced additional liabilities of Saudi Riyals 4.9 million and, in 2018, the HAC upheld the PAC’s judgement. The Company accordingly settled the additional liabilities for the years 2009 through 2012.

During 2018, the GAZT issued final income tax, zakat and withholding tax assessments for the years 2013 through 2015 with additional liabilities amounting to Saudi Riyals 17.2 million including delay fines. The Company filed an appeal with the GAZT in relation to these assessments. The management of the Company reassessed the income tax, zakat and withholding tax liabilities for the years 2013 through 2015 in light of the rulings by the PAC and HAC in relation to the final assessments from the GAZT for the years 2009 through 2012 and proposed to the Alternative Dispute Resolution Committee (“ADRC”) to settle the liabilities for the years 2013 through 2015 amounting to Saudi Riyals 15.9 million as final settlement for those years. The ADRC accepted the Company’s proposed settlement and, accordingly, the Company received final tax certificates from the GAZT for those years during the three-month period ended 30 June 2020.

Also, the GAZT has issued invoices amounting to Saudi Riyals 4.9 million as delay fines for the years 2009 through 2015 which have been settled by the Company. However, the Company has subsequently requested the GAZT to cancel these additional invoices on the grounds that the Company has settled all the income tax, zakat and withholding tax liabilities related to the aforementioned years.

Income tax, zakat and withholding tax assessments for the years 2016 through 2019 are currently under review by the GAZT.

13 Zakat and income tax

During 2014, the GAZT issued final income tax, zakat and withholding tax assessments for the years 2009 through 2012 with additional liabilities amounting to Saudi Riyals 11.6 million. The Company filed appeals against such additional assessments with the Preliminary Appeals Court (“PAC”) and, subsequently, the Higher Appeals Court (“HAC”). The PAC issued its judgement with reduced additional liabilities of Saudi Riyals 4.9 million and, in 2018, the HAC upheld the PAC’s judgement. The Company accordingly settled the additional liabilities for the years 2009 through 2012.

During 2018, the GAZT issued final income tax, zakat and withholding tax assessments for the years 2013 through 2015 with additional liabilities amounting to Saudi Riyals 17.2 million including delay fines. The Company filed an appeal with the GAZT in relation to these assessments. The management of the Company reassessed the income tax, zakat and withholding tax liabilities for the years 2013 through 2015 in light of the rulings by the PAC and HAC in relation to the final assessments from the GAZT for the years 2009 through 2012 and proposed to the Alternative Dispute Resolution Committee (“ADRC”) to settle the liabilities for the years 2013 through 2015 amounting to Saudi Riyals 15.9 million as final settlement for those years. The ADRC accepted the Company’s proposed settlement and, accordingly, the Company received final tax certificates from the GAZT for those years during the three-month period ended 30 June 2020.

Also, the GAZT has issued invoices amounting to Saudi Riyals 4.9 million as delay fines for the years 2009 through 2015 which have been settled by the Company. However, the Company has subsequently requested the GAZT to cancel these additional invoices on the grounds that the Company has settled all the income tax, zakat and withholding tax liabilities related to the aforementioned years.

Income tax, zakat and withholding tax assessments for the years 2016 through 2019 are currently under review by the GAZT.

17 Share capital

The authorized, issued and paid up capital of the Company is Saudi Riyals 500 million at 30 June 2020 (31 December 2019: Saudi Riyals 500 million) consisting of 50 million shares (31 December 2019: 50 million shares) of Saudi Riyals 10 each.

Shareholding structure of the Company as at 30 June 2020 and 31 December 2019 is as below. The shareholders of the Company are subject to zakat and income tax.

15 Statutory reserve

In accordance with By-laws of the Company and Article 70(2)(g) of the Insurance Implementing Regulations issued by SAMA, the Company is required to transfer not less than 20% of its annual profits, after adjusting accumulated losses, to a statutory reserve until such reserve amounts to 100% of the paid-up share capital of the Company. This reserve is not available for distribution to the shareholders until the liquidation of the Company.

7 Technical reserves

7 .1 Net outstanding claims and reserves

Net outstanding claims and reserves comprise of the following:

7.2 Movement in net unearned premiums

Movement in net unearned premiums comprise of the following:

12 Related party transactions and balances

Related parties represent major shareholders, directors and key management personnel of the Company, and companies of which they are principal owners and any other entities controlled, jointly controlled or significantly influenced by them. Pricing policies and terms of these transactions are approved by the Company’s management and Board of Directors. The following are the details of the major related party transactions during the three-month and six-month periods ended 30 June 2020 and 2019, and the related balances:

The compensation of key management personnel during the six-month period is as follows:

Board of Directors fees for the three-month and six-month periods ended 30 June 2020 was Saudi Riyals 0.3 million and Saudi Riyals 0.7 million, respectively (three month and six-month periods ended 30 June 2019: Saudi Riyals Saudi Riyals 0.4 million and 0.7 million, respectively).

The transactions with related parties are carried out at commercial terms and conditions. Compensation to key management personnel is on employment terms and as per the By-laws of the Company.

11 Segmental information

Operating segments for the purpose of segmental information are identified on the basis of internal reports about components of the Company that are regularly reviewed by the Company’s Board of Directors in their function as chief operating decision maker in order to allocate resources to the segments and to assess its performance.

Transactions between the operating segments are on normal commercial terms and conditions. The revenue from external parties reported to the Board of Directors is measured in a manner consistent with that in the interim condensed statement of income. Segment assets and liabilities comprise operating assets and liabilities.

Segment assets do not include cash and cash equivalents, short-term deposits, premiums and reinsurers’ balances receivable - net, investments, prepaid expenses and other assets, long-term deposits, property and equipment, intangible assets, due from shareholders’ / insurance operations, goodwill, statutory deposit and accrued income on statutory deposit. Accordingly, they are included in unallocated assets. Segment liabilities do not include claims payable, accrued expenses and other liabilities, surplus distribution payable, reinsurers' balances payable, advance premiums, due to related party, employee benefit obligations, zakat and income tax, due to shareholders’ / insurance operations, and accrued income payable to SAMA. Accordingly, they are included in unallocated liabilities.

11. Segmental information (continued)

These unallocated assets and liabilities are not reported to chief operating decision maker under related segments and are monitored on a centralized basis.

For management purposes, the Company is organized into business units based on their products and services and has the following reportable segments:

• Motor;

• Property and casualty;

• Health; and

• Protection.

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

Where intersegment transaction were to occur, transfer prices between operating segments are set on an arm’s length basis in a manner similar to transactions with third parties. Segment income, expense and results will then include those transfers between operating segments which will then be eliminated at the level of interim condensed financial information of the Company.

Segmental information (continued)

The segment information provided to the Company’s Board of Directors for the reportable segments for the Company’s total assets and liabilities at 30 June 2020 and 31 December 2019, its total revenues, expenses, and net income for the three-month and six-month periods then ended are as follows: