1. GENERAL

1. 1. Organization and principal activities

Gulf General Cooperative Insurance Company ("GGCI" or the "Company") is a Saudi Joint Stock Company incorporated in the Kingdom of Saudi Arabia as per the Ministry of Commerce and Industry's Resolution number 12/Q dated 17 Muharram 1431H (corresponding to 3 January 2010) and registered under Commercial Registration number 4030196620 dated 9 Safar 1431H (corresponding to 25 January 2010). The registered address of the Company’s head office is as follows:

Gulf General Cooperative Insurance Company

Al Gheithy Plaza, Second Floor,

Ameer Al Shoura'a Street

Jeddah, Kingdom of Saudi Arabia

The Company also has the following branches, which are operating under separate commercial registrations:

The Company is licensed to conduct insurance business in the Kingdom of Saudi Arabia under cooperative principles in accordance with Royal Decree No. M/85 dated 5 Thul Hujja 1429H (corresponding to 3 December 2008) pursuant to Council of Ministers' Resolution No. 365 dated 3 Thul Hujja 1429H (corresponding to 1 December 2008). The Company obtained a license to conduct insurance operations in the Kingdom of Saudi Arabia from the Saudi Arabian Monetary Authority ("SAMA") on 20 Rabi-al-Awwal 1431H (corresponding to 6 March 2010). The Company was listed on the Saudi Arabian Stock Exchange (“Tadawul”) on 24 Safar 1431H (corresponding to 8 February 2010).

The objectives of the Company are to engage in providing insurance and related services, which include reinsurance, in accordance with its by-laws, and applicable regulations in the Kingdom of Saudi Arabia. Its principal lines of business include medical, motor, accident & liability, marine, property and engineering. The share capital of the Company is SR 200 million divided into 20 million shares of SR 10 each. Further, in compliance with Article 58 of the Implementing Regulations of the Saudi Arabian Monetary Authority ("SAMA"), the Company has deposited 10% of its share capital, amounting to SR 20 million in a bank designated by SAMA. The statutory deposit is maintained with a reputed bank and can be withdrawn only with the consent of SAMA. The Company cannot withdraw this deposit without SAMA’s approval and commission accruing on this deposit is payable to SAMA.

In accordance with the by-laws of the Company, the surplus arising from the insurance operations is distributed as follows:

In case of deficit arising from the insurance operations, the entire deficit is allocated and transferred to the shareholders’ operations in full.

In accordance with Article 70 of SAMA implementing regulations, the Company proposes to distribute, subject to the approval of SAMA, its annual net policyholders’ surplus directly to policyholders at a time, and according to criteria, as set by its Board of Directors.

1.GENERAL (continued)

1. 2. Portfolio transfer

On 19 May 2012, the Company entered into an agreement with Saudi General Insurance Company E.C. (“SGI”) and Gulf Cooperation Insurance Company Ltd. E.C. (“GCI”) (the "Sellers") pursuant to which it acquired the sellers' insurance operations in the Kingdom of Saudi Arabia, effective 1 January 2009, at a goodwill amount of SR 36.26 million, as approved by SAMA, along with related insurance assets and liabilities of an equivalent amount. The goodwill payments are governed by rules and regulations issued by SAMA in this regard and also subject to SAMA approval.

In December 2013, consequent to SAMA approval, a sum of SR 18.13 million payable to the Sellers for goodwill was adjusted against amount receivable from them. Further, SAMA approved additional payment of SR 5.37 million to the Sellers relating to 2012 profits, which was transferred to amount due to related parties, as at 31 December 2013, and settled in 2014. Further, during the year ended 31 December 2014, consequent to SAMA's approval, dated 28 Shawwal 1435H (corresponding to 24 August 2014), a payment of SR 2.96 million was made to the Sellers in respect of goodwill, out of 2013 profits. During the year ended 31 December 2015, consequent to SAMA's approval, dated 3 Rajab 1436H (corresponding to 22 April 2015), a final payment of SR 9.80 million was made to the Sellers in respect of goodwill, out of 2014 profits.

The recoverable amount of goodwill is determined based on the value in use using discounted cash flow analysis. These calculations use cash flow projections based on financial budgets approved by management covering a five year period. The discount rates used are pre-zakat reflect specific risks relating to the insurance industry. The results of the impairment test at 31 December 2018 and 31 December 2017 indicated no impairment charge.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies applied in the preparation of these financial statements are summarised below. These policies have been consistently applied to each of the years presented except for the adoption of the amendments to existing standards mentioned below which has had no material impact on these financial statements on the current year or prior years and is expected to have an insignificant effect in future years:

1. 1. New IFRSs, IFRICs and Amendments thereof, adopted by the Company

The Company has adopted the following amendments and revisions to existing standards, where applicable, which were issued by the International Accounting Standards Board (IASB):

IFRS 15 – Revenue from Contracts with Customers

IFRS 15 outlines a single comprehensive model of accounting for revenue arising from contracts with customers and supersedes current revenue guidance, which is found currently across several Standards and Interpretations within IFRSs. However, IFRS 15 does not apply to “revenue from insurance contracts”. Insurance entities will need to apply IFRS 15 to non-insurance contracts (or components of insurance contracts). Therefore, insurance entities will need to carefully evaluate the scope of this standard.

IFRS 15 established a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring of goods or services to a customer.

Though there are changes in the accounting policy, management assessed and concluded that there is no material impact on the amounts reported in the financial statements on transition to IFRS 15 on 1 January 2018.

The adoption of the relevant above new and amended standards and interpretations applicable to the Company did not have any significant impact on these financial statements.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

1. 1. New IFRSs, IFRICs and Amendments thereof, issued but not yet effective

Standards issued but not yet effective up to the date of issuance of the Company’s financial statements are listed below. The listing is of standards issued, which the Company reasonably expects to be applicable at a future date. The Company intends to adopt these standards, where applicable when they become effective.

IFRS 9 – Financial Instruments & IFRS 17 – Insurance Contracts

In July 2014, the IASB published IFRS 9 “Financial Instruments”, 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 (“ECL”) 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 other comprehensive income instead of the statement of income.

    • IFRS 9 requires entities to record an allowance for ECLs for all loans and other debt financial assets not held at fair value through statement of income as well as finance lease receivables, together with loan commitments and financial guarantee contracts. The allowance is based on the ECLs associated with the probability of default in the next twelve months unless there has been a significant increase in credit risk since origination. Under IFRS 9, credit losses are recognised earlier than under IAS 39.

    • 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.

Under the temporary exemption as introduced by amendments to IFRS 4, the reporting entities whose activities predominantly relate to “insurance” can defer the implementation of IFRS 9. The Company intends to apply the temporary exemption from IFRS 9 and, therefore, continue to apply IAS 39 to its financial assets and liabilities in its reporting period starting on 1 January 2018 and through the year ended 31 December 2018. The Company has assessed the implications and has concluded to defer the implementation of IFRS 9 until a later date which will not be later than 1 January 2022.

The impact of the adoption of IFRS 9 on the Company’s financial statements 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.

IFRS 17 “Insurance Contracts”, applicable for the year beginning on or after 1 January 2022, will supersede IFRS 4 “Insurance Contracts”. Earlier adoption is permitted if both IFRS 15 and IFRS 9 have also been applied. The Company expects a material impact on measurement and disclosure of insurance and reinsurance that will affect both the statement of income and statement of financial position. The Company has decided not to early adopt this new standard.

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

1. 2. New IFRSs, IFRICs and Amendments thereof, issued but not yet effective (continued)

IFRS 16 – Leases

IFRS 16 “Leases”, is applicable for the year beginning on or after 1 January 2019. The new standard eliminates the current dual accounting model for lessees under IAS 17, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, IFRS 16 proposes on-balance sheet accounting model. The Company has decided not to early adopt this new standard.

The Company is currently in the phase of assessing the impact of the above standards.

1. 1. Critical accounting judgements, estimates and assumptions

The preparation of the Company’s financial statements requires the use of estimates and judgements that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Although these estimates and judgements are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates.

Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Set out below are the accounting judgements and estimates that are critical in the preparation of these financial statements.

2.BASIS OF PREPARATION (continued)

2.4.Critical accounting judgements, estimates and assumptions (continued)

1. 1. 1. The ultimate liability arising from claims made 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 year claims estimates are reassessed for adequacy and changes are made to the provision. Such estimates are necessarily based on significant assumptions about several factors involving varying, and possible significant, degrees of judgment and uncertainty and actual results may differ from management’s estimates resulting in future changes in estimated liabilities. Claims requiring court or arbitration decisions are estimated individually. Independent loss adjusters normally estimate property claims. Management reviews its provisions for claims incurred on a monthly basis, and claims incurred but not reported on a quarterly basis. The provision for outstanding claims, as at 31 December, is also verified by an independent actuary.

The provision for claims incurred but not reported (IBNR) is an estimation of claims which are expected to be reported subsequent to the date of the statement of financial position, for which the insured event has occurred prior to the date of the 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. The liability is calculated at the reporting date using a range of standard actuarial claim projection techniques, based on empirical data and current assumptions that may include a margin for adverse deviation. At each reporting date, prior year claims estimates are reassessed for adequacy and changes are made to the provision. These provisions are not discounted for the time value of money. 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 had also used a segmentation approach including analyzing cost per member per year for 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. 2. Impairment of financial assets

The Company determines that financial assets are impaired when there has been a significant or prolonged decline in the fair value of the financial assets below its cost. The determination of what is significant or prolonged requires judgment. A period of 12 months or longer is considered to be prolonged and a decline of 30% from the original cost is considered significant as per the Company’s policy. In making this judgment, the Company evaluates among other factors, the normal volatility in share price, the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows.

1. 1. 3. Impairment of premiums and reinsurance receivables

A provision for impairment of premiums and reinsurance receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivable. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the receivable is impaired.

The Company is exposed to disputes with, and the possibility of defaults by, its reinsurers. The Company monitors on a quarterly basis the evolution of disputes with and the strength of its reinsurers.

1. 1. 4. Deferred acquisition costs

Certain acquisition costs related to the sale of new policies are recorded as deferred acquisition costs and are amortized in the statement of income over the related period of policy coverage. If the assumptions relating to the future profitability of these policies are not realised, the amortization of these costs could be accelerated and this may also require additional impairment write-offs in the statement of income.

2.BASIS OF PREPARATION (continued)

2.4.Critical accounting judgements, estimates and assumptions (continued)

1. 1. 5. Useful lives of property and equipment and intangible assets

The Company's management determines the estimated useful lives of its property and equipment and intangible assets for calculating depreciation / amortisation. These estimates are determined after considering the expected usage of the assets or physical wear and tear. Management reviews the residual value and useful lives annually and future depreciation / amortisation charge would be adjusted where the management believes the useful lives differ from previous estimates.

1. 1. 6. Goodwill

Goodwill represents the amount paid by the Company in excess of the net fair value of the identifiable assets, liabilities acquired from SGI and GCI as explained in note 1.2. Goodwill is subsequently recognized at cost net of any accumulated impairment losses. The carrying value of goodwill is reviewed annually to determine whether any objective indicator of impairment exists unless an event or change in circumstances occurs during the year indicating an impairment of the carrying value which requires a valuation of goodwill during the year.

The impairment is determined by reviewing the recoverable amount of cash generating unit, the acquisition of which has given rise to goodwill. The recoverable amount of the operations has been determined based on its value in use. The key assumptions used are the discount rate and estimated future cash flows from the business. Where the recoverable amount is less than its carrying value, an impairment loss is recognized in the statement of income. These calculations require the use of estimates as explained in note 1.2.

1. 1. 7. Premium deficiency reserve

Estimation of premium deficiency reserve is highly sensitive to a number of assumptions as to future events and conditions. It is based on an expected loss ratio for the unexpired portion of the risks for written policies. To arrive at the estimate of the expected loss ratio, the Company’s actuarial team and the independent actuary, consider the claims and premiums relationship which is expected to apply on a month to month basis, and ascertain, at the end of the financial year, whether a premium deficiency reserve is required.

1. 1. 8. Fair value of financial instruments

The fair value for financial instruments traded in active markets at the reporting date is based on their quoted market price. The fair value of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. In these cases, the fair values are estimated from observable data in respect of similar financial instruments or using models. Where market observable inputs are not available, they are estimated based on appropriate assumptions. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of those that sourced them. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data; however, areas such as credit risk (both own credit risk and counterparty risk), volatilities and correlations require management to make estimates.

1. 1. 9. Going concern

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

2.BASIS OF PREPARATION (continued)

2.4.Critical accounting judgements, estimates and assumptions (continued)

1. 1. 10. Employees defined benefit obligations

The employees’ defined benefits obligation is determined by an independent actuary using the projected unit credit method as recommended in IAS 19 “Employee benefits”. The present value of the defined benefit obligation is determined by discounting the estimated cash outflows using interest rates of sovereign debt instruments that are denominated in Saudi Riyals and have maturity periods approximating that of the gratuity liability.

The present value of the defined benefit obligation depends on several factors that are determined by the actuary using assumptions such as discount rate, expected future salary increases, mortality rates and staff turnover etc. These estimates are subject to significant uncertainty due to their long term nature and are reviewed at each reporting date.

1. BASIS OF PREPARATION

1. 1. Basis of presentation and measurement

The financial statements of the Company has been prepared in accordance with International Financial Reporting Standards (IFRS) as modified by SAMA for the accounting of zakat and income tax’, which requires, adoption of all IFRSs as issued by the International Accounting Standards Board (“IASB”) except for the application of International Accounting Standard (IAS) 12 - “Income Taxes” and IFRIC 21 - “Levies” so far as these standards relate to zakat and income tax. As per the SAMA Circular no. 381000074519 dated April 11, 2017 and subsequent amendments through certain clarifications relating to the accounting for zakat and income tax (“SAMA Circular”), the zakat and income tax are to be accrued on a quarterly basis through equity under retained earnings.

These financial statements have been prepared under going concern basis and historical cost convention except for the measurement at fair value of investments held at fair value through income statement at their fair values and employees’ defined benefit obligation which is recognised at the present value of future obligations using the projected unit credit method. The Company’s statement of financial position is not presented using a current/non-current classification. However, the following balances would generally be classified as current: cash and cash equivalents, investment in Murabaha deposits, premiums receivable - net, due from reinsurers - net, reinsurers’ share of unearned premiums, deferred policy acquisition costs, deferred excess of loss premiums, prepayments and other assets, due to policyholders, reinsurers and brokers, accrued expenses, unearned premiums and reinsurance commission, outstanding claims and claims IBNR, provision for premium deficiency reserve, other technical reserves and accrued zakat. All other financial statement line items would generally be classified as non-current.

The Company presents its statement of financial position broadly in order of liquidity. As required by Saudi Arabian Insurance Regulations, the Company maintains separate books of account for Insurance operations and Shareholders’ operations and presents the financial statements accordingly (note 29). The physical custody of all assets related to the insurance operations and shareholders’ operations are held by the Company. 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.

2.BASIS OF PREPARATION (continued)

2.1.Basis of presentation and measurement (continued)

The statement of financial position, statements of income, comprehensive income and cash flows of the insurance operations and shareholders operations which are presented in note 29 of the financial statements have been provided as supplementary financial information and to comply with the requirements of the guidelines issued by SAMA implementing regulations and is not required under IFRSs. SAMA implementing regulations requires the clear segregation of the assets, liabilities, income and expenses of the insurance operations and the shareholders’ operations. Accordingly, the statement of financial position, statements of 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.

During the current year, SAMA issued illustrative financial statements for the insurance sector in the Kingdom of Saudi Arabia. In preparing the Company-level financial statements in compliance with IFRS, the balances and transactions of the insurance operations are amalgamated and combined with those of the shareholders’ operations. Inter-operation 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.

1. 1. Functional and presentation currency

These financial statements have been presented in Saudi Arabian Riyals (“SR”), which is also the functional currency of the Company. All financial information presented in Saudi Arabian Riyals have been rounded off to the nearest thousands, except where otherwise indicated.

1. CASH AND CASH EQUIVALENTS

Cash and cash equivalents included in the statement of cash flows comprise the following:

1. This includes bank balances amounting to SR 0.5 million (2017: SR 0.5 million), held in the name of related parties of the Company, on behalf of the Company.

2. The investments in Murabaha deposits are held with commercial banks in the Kingdom of Saudi Arabia. These investments in Murabaha deposits are denominated in Saudi Riyals and have an original maturity not exceeding three months. These investments earn commission at an average rate of 2.36% per annum as at 31 December 2018 (2017: 2.07% per annum)

1. PREMIUMS RECEIVABLE - NET

Premiums receivable comprise amounts due from the following:

1. 1. Movement in allowance for impairment of premiums receivable:

6.2.Aging analysis of unimpaired premiums receivable:

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

In respect of premiums receivable, the five largest customer balances accounted for approximately 16% of this balance as at 31 December 2018 (2017: 19%). Premium receivable comprise a large number of customers and are mainly within the Kingdom of Saudi Arabia.

1. EMPLOYEES’ END OF SERVICE BENEFITS

The Company operates an end of service benefit plan for its employees based on the prevailing Saudi Labor Laws. Accruals are made in accordance with the actuarial valuation under the projected unit credit method while the benefit payments obligation is discharged as and when it falls due. The amounts recognized in the statement of financial position and movement in the obligation during the year based on its present value are as follows:

1. 1. Movement of defined benefit obligations

1. 2. Reconciliation of present value of defined benefit obligation

1. 3. Principal actuarial assumptions

The following range of significant actuarial assumptions was used by the Company for the valuation of post-employment benefit liability:

16.EMPLOYEES’ END OF SERVICE BENEFITS (continued)

1. 4. Sensitivity analysis

The impact of changes in sensitivities on the present value of the defined benefit obligation is as follows:

The average duration of the defined benefit plan obligation at the end of the reporting period is 3.51 years.

1. ZAKAT

1. 1. Zakat provision

The Zakat provision at 31 December is based on the following:

The differences between the financial and the results subject to Zakat are mainly due to certain adjustments in accordance with the relevant Zakat regulations. The movement in the Zakat provision for the year is as follows:

1. 2. Status of assessments

• The Company has filed its Zakat returns for its first period from 3 January 2010 to 31 December 2011 and a revised return for the period from 3 January 2010 to 31 December 2011 with the General Authority of Zakat and Tax ("GAZT") and obtained unrestricted Zakat certificates.

• The Company has filed its Zakat returns for the years 2012 and 2013 and obtained unrestricted Zakat certificates. The GAZT issued final Zakat assessment for the period/years from 31 December, 2011 to 2013 claimed additional Zakat liability and withholding tax difference of SR 6.2 million and SR 11 million, respectively and delay fine charges. The Company settled Zakat differences of SR 0.2 million and withholding tax of SR 0.017 million in addition to delay fine charges and objected against the remaining GAZT items.

The GAZT issued a revised assessment claiming additional Zakat and withholding tax differences of SR 5.9 million and SR 11 million in addition to delay fine charges of SR. 9.5 million. The Company objected against the revised assessment in Preliminary Objection Committee (POC). The Company received the revised assessment from POC, in which, the Zakat liability was reduced to SR 2.9 million while other assessments remained the same. Subsequent to year-end, the Company has filed an appeal against the POC's decision in Higher Appeals Committee, providing a bank guarantee of SR 12.5 million and settled the withholding tax difference of SR 11 million. The management is confident of a favourable outcome of the appeals under review by the GAZT.

• The GAZT issued assessments for the years 2014 and 2015, claiming additional zakat and withholding tax differences amounting to SR 6.9 million and 3.96 million, respectively during 2018. The Company is in the process of appealing certain items in the Zakat assessment amounting to SR 1.6 million and settled zakat and withholding tax differences amounting to SR 5.5 million and SR 3.96 million, respectively.

• The Company has filed its Zakat return for the years 2016 to 2017 and obtained the necessary Zakat certificates. The Company’s returns are still under study by the GAZT.

1. FAIR VALUES OF FINANCIAL INSTRUMENTS

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

• In the accessible principal market for the asset or liability, or

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

The fair values of on-balance sheet financial instruments are not significantly different from their carrying amounts included in these financial statements.

Determination of fair value and fair value hierarchy

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments:

Level 1: quoted prices in active markets for the same or identical instrument that an entity can access at the measurement date;

Level 2: quoted prices in active markets for similar assets and liabilities or other valuation techniques for which all significant inputs are based on observable market data; and

Level 3: valuation techniques for which any significant input is not based on observable market data.

Carrying amounts and fair value

The following table shows the carrying amount and the fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy for financial instruments measured at fair value. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation to fair value. At 31 December, 2018 there were no financial instruments held by the Company that were measured at fair value, apart from the investments which are carried at fair value.

• As at 31 December 2018, the Company has an investment amounting to SR 1.9 million in an unquoted available for sale investment. This investment has not been measured at fair value because of unavailability of quoted prices of comparable companies and other financial information.

• All investments are fair valued except for available-for-sale investment which is stated at cost (see above and note 8.2).

• Cash and bank balances and other short-term financial assets are assumed to have fair values that reasonably approximate their corresponding carrying values due to the short-term nature.

• There were no transfers between levels during the years ended 31 December 2018 and 31 December 2017. Further, there were no changes in the valuation techniques during the year from previous years.

1. INVESTMENT IN MURABAHA DEPOSITS

Investment in Murabaha deposits comprises the following:

1. Murabaha deposits represent deposits with local banks that have an original maturity of more than three months from the date of acquisition.

2. These investments earn commission at an average rate of 2.36% per annum as at 31 December 2018 (2017: 2.07% per annum)

1. PROPERTY AND EQUIPMENT

1. INVESTMENTS

Investments of the shareholders’ operations comprise the following:

1. 1. Available-for-sale investment

The Company holds 3.85% of the equity in Najm for Insurance Services Company ("Najm"), a non-listed Saudi Limited Liability Company. The investment is classified as an available-for-sale investment and is stated at cost.

8.1.Investments held at fair value through income statement

Movement in investments classified as fair value through income statement is as follows:

1. The investments held at fair value through income statement of shareholders’ operations comprise of portfolio amounting to SR 37.51 million (2017: SR 33.59 million) which is invested in mutual funds and equity shares in the Kingdom of Saudi Arabia.

2. The investments are denominated in Saudi Arabian Riyals and US Dollars. All investments held at fair value through income statement are quoted. The portfolio is invested in securities and mutual funds issued by corporates and financial institutions in the Kingdom of Saudi Arabia.

1. PREPAYMENTS AND OTHER ASSETS

1. STATUTORY DEPOSIT

1. In compliance with Article 58 of the Implementing Regulations of the Saudi Arabian Monetary Authority (“SAMA”), the Company has deposited 10% of its share capital, amounting to SR 20 million in a bank designated by SAMA. The statutory deposit is maintained with a reputed bank and the Company cannot withdraw this deposit without SAMA’s approval. Commission accruing on this deposit is payable to SAMA.

2. In accordance with the instruction received from the SAMA vide their circular dated 1 March, 2016, the Company has disclosed the commission due on the statutory deposit as at 31 December, 2018 and 2017 as an asset and a liability in these financial statements.

1. SHARE CAPITAL

The share capital of the Company is SR 200 million divided into 20 million shares of SR 10 each (2017: 20 million shares of SR 10 each) and subscribed by the following:

1. STATUTORY RESERVE

As required by Article 70 of the Saudi Arabian Insurance Regulations, 20% of the net shareholders’ income (after deducting losses brought forward) shall be set aside as a statutory reserve until this reserve amounts to 100% of paid up share capital.

1. GENERAL AND ADMINISTRATION EXPENSES

1. TECHNICAL RESERVES

1. 1. NET PREMIUMS