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 1431 H (corresponding to 3 January 2010) and registered under Commercial Registration number 4030196620 dated 9 Safar 1431 H (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

Following are the details of the Company's Branches and Commercial Registration numbers:

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 1429 H (corresponding to 3 December 2008) pursuant to Council of Ministers' Resolution No. 365 dated 3 Thul Hujja 1429 H (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 1431 H (corresponding to 6 March 2010). The Company was listed on the Saudi Arabian Stock Exchange (Tadawul) on 24 Safar 1431 H (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. The share capital of the Company is Saudi Riyals 200 million divided into 20 million shares of Saudi Riyals 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 Saudi Riyals 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 The statutory deposit is maintained with a reputed bank and can be withdrawn only with the consent of SAMA.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 shareholders’ operations.

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.

1. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies, estimates and assumptions used in the preparation of these interim condensed financial statements are consistent with those used in the preparation of the annual financial statements for the year ended 31 December 2017, except as explained below:

1. 1. NEW IFRS, IFRIC 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 accounting policy, however, management assessed and concluded that there is no material impact on the amounts reported at transition to IFRS 15 on 1 January 2018.

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

.NEW IFRS, IFRIC 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.

1. SIGNIFICANT ACCOUNTING POLICIES (continued)

1. 1. NEW IFRS, IFRIC AND AMENDMENTS THEREOF, ISSUED BUT NOT YET EFFECTIVE (continued)

IFRS 9 – Financial Instruments

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 2021. 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 having 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 2021.

The impact of the adoption of IFRS 9 on the Company’s interim condensed 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.

1. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of interim financial statements 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 expenses. Actual results may differ from these estimates.

In preparing these condensed financial statements, 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 2017.

1. BASIS OF PREPARATION

1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The interim condensed financial statements for the three months and nine months periods ended 30 September 2018 have been prepared in accordance with International Accounting Standard 34 - Interim Financial Reporting (“IAS 34”) 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 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 shareholders equity under retained earnings with a corresponding liability recognized in the interim condensed statement of financial position.

The interim condensed financial information is prepared under the going concern basis and the historical cost convention, except for the measurement at fair value of available-for-sale investments which is accounted for under the equity method. 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 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. The following balances would generally be classified as non-current: outstanding claims, claims IBNR, end-of-service indemnities, related parties balances, accrued interest on statutory deposit, investments held at fair value through income statement, available-for-sale investment, goodwill, statutory deposit and property and equipment.

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. The physical custody of all assets related to the insurance operations and shareholders’ operations are held by the Company. Revenues and expenses clearly attributable to either activity are recorded in the respective books of account. The basis of allocation of expenses from joint operations is determined by the management and the Board of Directors.

The interim condensed statement of financial position, statements of income and statements of comprehensive income and cash flows of the insurance operations and shareholders operations which are presented on pages 34 to 43 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. 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, 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.

2.BASIS OF PREPARATION (continued)

1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS (continued)

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. 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.

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

The interim condensed financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the annual financial statements as of and for the year ended 31 December 2017.

In first quarter of 2018, SAMA issued an illustrative financial statements for the insurance sector in the Kingdom of Saudi Arabia. Following the illustrative financial statements, this is the third period where the Company issued its interim condensed financial statements after combining shareholders and insurance operations to prepare the Company level interim condensed financial statements. In the most recent and earlier annual financial statements, the Company presented shareholders and insurance operations separately. In preparing these interim condensed financial statements certain amounts which in the most recent annual financial statements were presented separately for shareholders and insurance operations, were amalgamated and combined together to conform with SAMA requirements.

These interim condensed financial statements are expressed in Saudi Arabian Riyals (SR) and are rounded off to the nearest thousands.

1. CASH AND CASH EQUIVALENTS

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

1. PREMIUMS RECEIVABLE, NET

Premium receivables comprise amounts due from the following:

Movement in the allowance for impairment of premiums receivables during the period / year was as follows:

1. ZAKAT

13.1.Zakat Payable

The Zakat payable by the Company has been calculated based on the best estimates of the management.

Movements in the Zakat accrued during the nine-month period ended 30 September 2018 and the year ended 31 December 2017 are as follows:

13.2 Status of assessments

1. 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.

2. 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 December 31, 2011 to 2013 claimed additional Zakat liability and withholding tax difference of 6.2 Mn and SR 11 Mn, respectively and delay fine charges. The Company settled Zakat differences of SR 0.2 Mn and withholding tax of SR 0.017 Mn 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 Mn and SR 11 Mn in addition to delay fine charges of SR. 9.5 Mn. 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 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 Mn and settled the withholding tax difference of SR 11 Mn.

The management is confident of a favourable outcome of the appeals under review by the GAZT. However, the Company has recorded SR. 11 Mn in statement in changes of shareholders’ equity for withholding tax differences as at 31 December 2017.

3. The Company has filed its Zakat return for the years 2014 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 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 the interim condensed financial statements.

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

Determination of fair value and fair value hierarchy

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.

1. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)

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 30 September 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 30 September 2018, the Company has an investment amounting to SR 1.9 million in an unquoted equity security. This investment has not been measured at fair value because of unavailability of quoted prices of comparable companies and other financial information. However, the management believes that there is no major difference between the carrying values and fair values of this investment.

- All investments are fair valued except for available-for-sale investment which is stated at cost (see note 7 (b) above).

- 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 three-month and nine-month periods ended 30 September 2018 and year ended 31 December 2017. Also, there were no changes in the valuation techniques during the period from the previous periods.

1. INVESTMENT IN MURABAHA DEPOSITS

1. INVESTMENTS

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 available-for-sale investment and is stated at cost.

1. Investments held at fair value through income statement (FVIS)

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

1. INVESTMENTS (continued)

1. Investments held at fair value through income statement (FVIS) (continued)

The investments held at fair value through income statement of Shareholders’ Operations comprise of portfolio amounting to SR 39.81 million (31 December 2017: SR 33.59 million) which is invested in mutual funds and equity shares in the Kingdom of Saudi Arabia. These investments are denominated in Saudi Arabian Riyal 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.

14.SHARE CAPITAL

The share capital of the Company is SR 200 million divided into 20 million shares of SR 10 each (31 December 2017: 20 million shares of SR 10 each).

The shareholding structure of the Company is as below. The shareholders of the Company are subject to zakat tax:

1. TECHNICAL RESERVES

1. 1. NET OUTSTANDING CLAIMS AND RESERVES

Net outstanding claims and reserves comprise of the following:

1. 2. MOVEMENT IN UNEARNED PREMIUMS

Movement in unearned premiums comprise of the following:

1. (LOSS) / EARNINGS PER SHARE

The basic (loss) / earnings per share have been calculated by dividing the net (loss) / profit for the period by the weighted average number of ordinary shares issued and outstanding at the period end.

Diluted (loss) / earnings per share is not applicable to the Company.

1. COMMITMENTS AND CONTINGENCIES

1. The Company’s commitments and contingencies are as follows:

2. Zakat and withholding tax contingencies have been disclosed in note 13.2.

3. The Company is not subject any significant legal proceedings in the ordinary course of business.

1. APPROVAL OF THE FINANCIAL STATEMENTS

The interim condensed financial statements were approved and authorized for issue by the Board of Directors on 24 October 2018 (corresponding to 15 Safar 1440H)

1. SUPPLEMENTARY INFORMATION

Interim Condensed Statement of Financial Position

17. SUPPLEMENTARY INFORMATION (continued)

Interim Condensed Statement of Financial Position (continued)

17. SUPPLEMENTARY INFORMATION (continued)

Interim Condensed Statement of Income

17.SUPPLEMENTARY INFORMATION (continued)

Interim Condensed Statement of Income (continued)