United Insurance Company (Public Shareholding Company) FINANCIAL STATEMENTS 31 DECEMBER 2016—_ E grou ease INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF UNITED INSURANCE COMPANY (PSC) Report on the Audit of the Financial Statements Opinion We have audited the financial statements of United Insurance Company (PSC) (the “Company”), which comprise the statement of financial position as at 31 December 2016, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at 31 December 2016 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRS”). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (the “IESBA Code") together with the ethical requirements that are relevant to our audit of the financial statements in the United Arab Emirates, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material uncertainty related to going concern We draw attention to Note | to the financial statements. The Company incurred a total comprehensive loss of AED 2,655,737 (2015: losses of AED 75,675,146) for the year ended 31 December 2016 and, as of that date, its accumulated losses amounted to AED 138,026,198 (2015: AED 138,239,721) and its deficiency of assets amounted to AED 817,693 (2015: equity of AED 1,838,044). These conditions indicate the existence of a material uncertainty about the Company’s ability to continue as a going concem, However, these financial statements have been prepared on a going concem basis based on restructuring plans which are under implementation as referred to in Note 1. Our opinion is not qualified in respect of this matter. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period, In addition to the matters described in the Material uncertainty related to going concern section of out report, we have determined the matters described below to be the key audit matters to be communicated in our report. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the respon: statements section of our report, including in relation to thes performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.— EY Building a better working world INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF UNITED INSURANCE COMPANY (PSC) (continued) Key Audit Matters (continued) a) Valuation of insurance contract assets and liabilities The estimation of insurance contract assets and liabilities involves a significant degree of judgement. The liabilities are based on a best-estimate of the ultimate cost of all claims incurred but not settled at a given date, whether reported or not, together with the related claims handling costs. A range of methods may be used to determine these provisions. Underlying these methods are a number of explicit or implicit assumptions relating to the expected settlement amount and settlement patterns of claims. Insurance contract assets are recognised when the related gross insurance liability is recognised according to the terms of the relevant reinsurance contracts and their recoverability is subject to the probability of default and probable losses in the event of default by respective reinsurance counterparties. We assessed management's calculation of insurance contract assets and liabilities by performing the following procedures: «The evaluation and testing of key controls around the claims handling and reserve setting processes of the Company along with the recognition and release of respective insurance contract assets, We examined evidence of the operation of controls over the valuation of individual claims reserves, such as large loss review controls and internal peer reviews (whereby reviewers examine documentation supporting claims reserves and consider if the amount recorded in the financial statements is valued appropriately). ‘© We checked samples of claims reserves, the respective share of reinsurance assets and third party recoveries through comparing the estimated amount of the reserve to appropriate documentation, such as reports from loss adjusters ‘+ We reviewed management's reconciliation of the underlying company data recorded in the policy administration systems with the data used in the actuarial reserving calculations, + We tied the insurance contract assets and liabilities as recommended by the Company's actuary to the assets and liabilities in the financial statements. © We assessed the experience and competency of the Company's actuary to perform the year end valuation. + We involved our actuarial specialist team members, applied our industry knowledge and experience and we compared the methodology, models and assumptions used against recognised actuarial practices, ‘+ We obtained the reinsurance treaty summary for the year and verified the details in the summary to the respective agreements, + We reviewed the ratios of reinsurance assets to related insurance contact liabilities to identify any variance from reinsurance treaty arrangements. b) Revenue recognition Gross insurance written premiums comprise the total premiums receivable for the whole period of cover provided by contracts entered into during the accounting period, and are recognised on the date on which the policy commences. At the end of each year, a proportion of net retained premiums of the general insurance and medical business is provided for to cover portions of risk which have not expired at the reporting date. The reserves are required to be calculated in accordance with the requirements of the Insurance Law relating to insurance companies._— EY Bulging a better ‘working world INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF UNITED INSURANCE COMPANY (PSC) (continued) Key Audit Matters (continued) b) Revenue recognition Risk outlined above was addressed by us as follows: * We assessed whether the Company’s revenue recognition policies complied with IFRSs and tested the implementation of those policies. Specifically, we considered whether the premiums on insurance policies are accounted for on the date of inception of policies, with the exception of premium income con marine cargo policies which is accounted for on the expected date of voyage, by testing a sample of revenue items to insurance contracts, with a specific focus on transactions which occurred near 31 December 2016. + We evaluated the relevant IT systems and tested the operating effectiveness of the internal controls over the recording of revenue in the correct period. © We compared the unearned premiums reserve balance as per the financial statements to the reserve balance computed by the Company’s actuary. © We recalculated the unearned premium adjustments based on the earning period of insurance contracts existing as of 31 December 2016. © We also tested a risk based sample of journal entries posted to revenue accounts to identify any unusual or irregular items, and we tested the reconciliations between the policy master file and its financial ledgers. c) Impairment losses on insurance receivables ‘The Company has material amounts of trade receivables that are outstanding, The key associated risk is the recoverability of receivables. Management’s related provision is judgmental and is influenced by assumptions concerning the probability of default and probable losses in the event of default, Risk outlined above was addressed by us as follows: ‘+ We compared the historical provision for bad debts to the actual amounts written off, to determine whether the management's estimation techniques were reasonable. «We also considered the adequacy of provisions for bad debts for significant customers, taking into account specific credit risk assessments for each customer based on time past due, the existence of any disputes over the balance outstanding, the history of settlement of receivables and the existence of any liabilities with the same counterparties which reduce the net exposure, * We discussed with management and reviewed correspondence, where relevant, to identify any disputes and assessed whether appropriately considered in the bad debt provision. 4) Going concern ‘As mentioned in Note | to the financial statements, the Company has significant accumulated losses and deficiency of assets. As a consequence, the Company requires funding in order to be able to continue its operations. These financial statements have been prepared on a going concern basis based on restructuring plans which are under implementation as referred to in Note | to the financial statements. ‘The testing included performing the following procedures: We have reviewed the minutes of general assembly on 2 July 2015 in which resolution was passed to take steps to prepare an action plan to continue the business * We have reviewed the minutes of Board of Directors’ meeting on 11 November 2015 recommending to the shareholders to agree and approve on the continuity plan and on the issuance of an additional capital as required—_= EY Building a better working worid INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF UNITED INSURANCE COMPANY (PSC) (continued) Key Audit Matters (continued) 4) Going concern (continued) * We have reviewed the five year budget, restricting plans and progressive actions taken by the management on this regard during the current period. © We have reviewed the minutes of the General Assembly held on 30 April 2016, where the Board of Directors approved the continuity plan including share capital restructuring, * Weave reviewed the minutes as of the meeting held on January 5, 2017, where by virtue of a special resolution, the Board approved the restructuring plan with the following steps: = Capital reduction to the carrying value as per the financial position as at 31 December 201 = Admission of a strategic sharcholder with shareholding percentage of 25% of share capital; and = The immediate issuance of new share capital collected through subscription rights of the existing shareholders, with a view to return the capital to its original value Other information included in the Company's 2016 Annual Report Management is responsible for the other information, Other information consists of the information included in the Company's 2016 Annual Report, other than the financial statements and our auditor's report thereon, We obtained the report of Company's Board of Directors, prior to the date of our auditor's report, and we expect to obtain the remaining sections of the Company's 2016 Annual Report after the date of our auditor’s report. ‘Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon, In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is & material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the financial statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards and in compliance with the applicable provisions of the Company's Articles of Association and of the UAE Federal Law No. (2) of 2015 and the UAE Federal Law No. (6) of 2007 and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concer, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company's financial reporting process.a EY Building a better working world INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF UNITED INSURANCE COMPANY (PSC) (continued) Auditor's responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assuirance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion, Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit, We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion, The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control, Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern, If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures ate inadequate, to modify our opinion, Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in ‘a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies ternal control that we identify during our audit, We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards, From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters, We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the publie interest benefits of such communication.= EY Building a better working world INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF UNITED INSURANCE COMPANY (PSC) (continued) Report on other legal and regulatory requirements As discussed in Note | to the financial statements, as per Article 302 of the Federal Law No. (2) of 2015, if the losses of a Company reach half of its issued capital, the Board of Directors shall within 30 (thirty) days from the date of disclosure to the Ministry or the Authority, as applicable, of the periodical or annual financial statements invite the General Assembly to take a special Decision to resolve the company prior to the expiry of its term or to continue in the activity of the company. A General Assembly was convened on 2 July 2015 and a resolution was passed to take steps to prepare an action plan to continue the business. Management has prepared and initiated the plan and the board of directors has resolved on 11 November 2015 to recommend to the shareholders to agree and approve on the continuity plan and on the issuance of an additional capital as required. Further, as required by the UAE Federal Law No, (2) of 2015, we report that: i) the Company has maintained proper books of account; ji) we have obtained all the information we considered necessary for the purposes of our audit; iii) the financial statements have been prepared and comply, in all material respects, with the applicable provisions of the Company’s Articles of Association and the UAE Federal Law No. (2) iv) the financial information included in the Directors’/Manager’s report is consistent with the books of account of the Company; v) investments in shares and stocks during the year ended 31 December 2016, if any, are disclosed in note I! to the financial statements; vi) note 26 reflects material related party transactions and the terms under which they were conducted; vii) based on the information that has been made available to us, nothing has come to our attention which causes us to believe that the Company has contravened during the financial year ended 31 December 2016 any of the applicable provisions of the UAE Federal Law No, (2) of 2015 or of its Articles of Association which would have a material impact on its activities or its financial position; and viii) note 7 to the financial statements discloses the social contributions made during the year. For Ernst & Young “Syn —— “Ashraf Abu-Sharkh Partner Registration No. 690 23 March 2017 Dubai, United Arab EmiratesUnited Insurance Company (PSC) STATEMENT OF INCOME For the year ended 31 December 2016 Notes UNDERWRITING INCOME Gross premium 3 Movement in provision for unearned premium 3 Movement in premium deficiency reserve Insurance premium revenue 3 Reinsurance share of premium 3 Movement in provision for reinsurance share of uuneamed premium 3 Reinsurance share of premium revenue 3 ‘Net insurance premium revenue Reinsurance commission ineome 24 Other income ‘Total underwi UNDERWRITING EXPENSES Claims incurred 4 Reinsurers’ share of claims incurred 4 Net claims incurred ‘Commission expenses B Allowances made for doubtful debts, ‘Allowance written back during the year General and administration expenses relating to underwriting activities Total underwriting expenses NET UNDERWRITING LOSS Investment income 6 Provision for impairment of available-for-sale investments 1@ General and administration expenses not allocated to underwriting activities Finance costs PROFIT/ (LOSS) FOR THE YEAR 7 Basie and diluted earnings/(loss) per share (AED) 8 ‘The attached explanatory notes 1 to 28 form part of these financial statements 7 2016 AED 72,260,417 20,368,330 4,050,000 96,678,747 (48,962,953) (8,772,969) (87,735,922) 38,942,825 8,280,109 199,138 47,422,072 (62,406,541) 30,613,020 (21,793,521) (9,017,156) (1,561,266) (19,782,688) (62,154,631) (4,732,559) 6,873,691 (1,041,194) (862,691) 237,247 0,002 2015 AED 115,228,881 18,778,518 (5,906,001) 128,101,398 (59,869,144) (1,103,868) (60,973,012) 67,128,386 12,947,112 319,132 80,194,630 (150,312,022) 34,320,324 (115,991,698) (11,373,567) 3,910,363) 530,035, (24,727,198) (155,472,791) (75,278,161) 14,208,133 (2,288,620) 4,301,431) (167,204) (64,827,283) (0.65)United Insurance Company (PSC) STATEMENT OF COMPREHENSIVE INCOME, For the year ended 31 December 2016 Profit/ (Loss) for the year OTHER COMPREHENSIVE INCOME Other comprehensive income that may be reclassified to profit or loss in subsequent periods [Net decrease in fair value of available-for-sale investments Net realised loss on disposal of available-for-sale investments transferred to income statement Other comprehensive loss for the year TOTAL COMPREHENSIVE LOSS FOR THE YEAR, “The attached explanatory notes Ito 28 form part ofthese financial statements. 8 Note 1@ 2016 2015 AED AED 237,247 (64,827,283) (803,777) (3,070,358) (2,089,207) (7,777,505) (2,892,984) (10,847,863) (2,655,737) _ (75,675,146)United Insurance Company (PSC) STATEMENT OF FINANCIAL POSITION As at 31 December 2016 2016 2015 Notes AED AED ASSETS Property and equipment 9 1,831,865, 1,120,785 Investment property 10 8,500,000 58,500,000 Financial instruments un 14,286,733 25,808,506 Insurance contract assets B 90,659,654 137,823,164 Deferred acquisition costs B 2,235,672 : Insurance receivables 4 33,849,390 43,162,152 Prepayments and other receivables 15 2,714,960 1,364,730 Statutory deposits 16 6,000,000 6,000,000 Bank balances and cash 7 2111311 21,409,379 TOTAL ASSETS, 231,189,585 295,388,736 EQUITY AND LIABILITIES Equity Share capital 18 100,000,000 100,000,000 Statutory reserve 19 28,836,750 28,813,026 General reserve 19 2,969,044 2,969,084 Investment revaluation reserve 19 5,402,711 8,295,695, ‘Accumulated losses (138,026,198) (138,239,721) Total (deficiency of assets) / equity (817,693) 1,838,044 Liabilities Bank overdraft 20 16,044,022, 18,077,531 Term loan from bank 21 18,950,000 : Employees’ end of service benefits 2 1,307,096 1,443,969 Insurance contract liabilities B 131,747,668 205,595,089, Deferred commission income ey 1,231,274 Insurance and other payables 25 2,727,221 68,434,103, ‘Total liabilities 232,007,278 293,550,692 TOTAL EQUITY AND LIABILITIES 231,189,585 295,388,736 The financial statements were authorised for issue in accordance with a resolution of the directors on 23 Mareh 20117. ‘Almed Fssa AT Naeem Chairman (Chief Executive Officer ‘The attached explanatory notes 1 to 28 form part ofthese financial statements. 9a “SBUIRHES SURLY as—IB JO HEM Udy GZ OF | Saou Krowene|dx poqsene aa, wro'ses'l ——S69's6r's —(IZL'6ETTREI) —prO'G96'Z ——9zO'ETB'BZ ——_000°000'001 Stoz sequaseq 1¢ 18 2ouneg (orr'sis'se) (cos'uva'o1) —(ERciLza'v9) 896 94920} $50] axsuogaucaoo [IO] (eos'urs'0D) — (eoecre'oD) ‘twoouy anisuayidio> 29410 (eaceza'vo) (eaztzs'v9) 06 ou 40588071 Ost'eIS'Le —Bss'ert'st —(Bev'TI¥'EL) —pro'sas'z —9zm'eI'8Z ~—_000°000'00T Sloz Axenues | ve sour (eo9'L18) TL TOP'S——(Gor'9z0'8ET) —prO'eDGZ —osL'9ER'T —_a00'000°00T 9107 s2qm220q TE 98 290 FEE (wz'tz) vEL'ET (61 a10u) aasasaa AzoInyeIS O} Jays] (usv'ss'2)— (oe'zos'2) Lae LEZ 2896 a 40} 880] antsuoyauduo> (IO. (ra6'768') —(46°268"2) 2uo2ut anisuayaudwo> 1190 Lve'Lez Lve'Let Teak up 40} WO wo'ses'l ——69'S67'8(TCL'6ET'BET) —rr0'e96'% ©~—9O'ETS'8Z_—_000°000'00T 9107 Arerucy |e aouoeE, aw aw aw aw aw aay pre ausoso 9580) passes aauasos pendoo uoyonjoros —paojnunsoy —yosows) omg anys owasoauy 9107 soqusD09q I¢ popue Tek tp 304 ALINOT NI SHDNVHO AO LNAWALV.LS (g$q) Auedutog souemsuy pap,United Insurance Company (PSC) NOTES TO THE FINANCIAL STATEMENTS ‘As at 31 December 2016 OPERATING ACTIVITIES Profit /(Loss) for the year Adjustments for: Change in fair value of investments-held for trading Investment income Allowance made for doubtful debts, net Provision for impairment of available-for-sale investments Depreciation on property and equipment Provision for employees’ end of service benefits Finance cost Changes in operating assets and liabilities: Insurance contract assets Deferred acquisition costs Insurance receivables Prepayments and other assets Insurance contract liabilities Deferred commission income Insurance and other payables Cash used in operating activities Employees’ end of service benefits paid Finance cost paid Net cash used in operating activities INVESTING ACTIVITIES ‘Net movement in fixed deposits Purchase of property and equipment Proceeds from disposal of investment held for trading Proceeds from disposal of available-for-sale investments Purchase of available-for-sale investments Interest received Income from Investment properties received Dividend received Net cash generated from investing activities FINANCING ACTIVITY Term loan Net cash from financing activity INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at 1 January CASH AND CASH EQUIVALENTS AT 31 DECEMBER Notes 14 11@) 9 2 2016 AED 237,247 44,741 (6,918,432) 1,561,266 645,683 325,939 862,691 (3,240,865) 47,163,510 (2,235,672) 7,751,496 (1,150,209) (73,847,424) 1,231,274 (6,706,882) (30,034,772) (462,812) (862,691) 31,360,275) (466,367) (1,356,763) 23,679 10,660,084 604,260 3,262,520 981,966 13,679,349 18,950,000 18,950,000 1,269,074 (16,982,615) (15,683,541) 2015 AED (64,827,283) (115,079) (24,093,054) 3,380,328, 2,288,620 354,778 529,903 167,204 (72,114,583) 18,058,350 11,933,865 4,285,293, (9,008,104) (3,668,995) (50,514,174) (767,380) (167,204) (51,448,758) 19,477,603 (266,848) 287,345, 14,972,850 (2,822,725) 482,101 3,292,295 2,443,489 37,866,110 (13,582,648) (3,369,967) (16,952,615)United Insurance Company (PSC) NOTES TO THE FINANCIAL STATEMENTS As at 31 December 2016 1 CORPORATE INFORMATION United Insurance Company (PSC) (the “Company”) is a public sharcholding company, registered in the Emirate of Ras Al Khaimah by Emiri decree No. 13/76 issued by the ruler of Ras Al Khaimah on 15 June 1976, which was amended by the Emiri decree No, 10/77 issued on 15 December 1977. The company is subject to the regulations of the UAE Federal Law No. (2) of 2015 and the UAE Federal Law No. (6) of 2007 relating to commercial companies in the UAB, and is registered in the Insurance Companies Register of Insurance Authority of U.A.E. under registration number 8, The UAE Federal Law No, 2 of 2015 has come into effect from 28 June 2015, replacing the existing Federal Law No.8 of 1984. The Company is currently assessing the impact of the new law and expects to be fully compliant on or before the end of the grace period on 30 June 2017. ‘The Company is domiciled in the United Arab Emirates and the address of the Company’s registered office is P.O. Box 1010, Ras Al Khaimah, United Arab Emirates. The Company's ordinary shares are listed on Abu Dhabi Securities Exchange, United Arab Emirates, ‘The principal activity of the Company is the writing of all classes of general insurance other than life assurance, The Company operates through its Head Office in Ras Al Khaimah and branch offices in Abu Dhabi, Dubai, Sharjah and Fujairah, ‘As per Article 302 of the Federal Law No. (2) of 2015, ifthe losses of a Company reach half of ts issued capital, the Board of Directors shall within 30 (thirty) days from the date of disclosure to the Ministry or the Authority, as applicable, of the periodical or annual financial statements invite the General Assembly to take a special Decision to resolve the company prior tothe expiry of ts term or to continue inthe activity ofthe company. A General Assembly ‘was convened on 2 July 2015 and a resolution was passed to take steps to prepare an action plan to continue the ‘business. Accordingly the management has executed the following: ‘© prepared a progressive business plan with forecasts on the business operations derived based on more efficient utilisation of available resources and strategies to filter and intake only qualitative market ‘opportunities ted discussion with prospective investor and started the respective due diligence procedures + Ensured sanctioning of financial support from a reputed bank for funding for the working capital requirements “The Company incurred a total comprehensive loss of AED 2,655,737 (2015: losses of AED 75,675,146) for the year ended 31 December 2016 and, as ofthat date, its accumulated losses amounted to AED 138,026,198 (2015: AED 138,239,721) and its deficiency of assets amounted to AED 817,693 (2015: equity of AED 1,838,044). These conditions indicate the existence of a material uncertainty which may cast significant doubt the Company's ability to continue asa going concer, However, these financial statements have been prepared on a going concem basis based ‘on restructuring plans which are under implementation During the General Assembly held on 30 April 2016, the Board of Directors approved the continuity plan including share capital restructuring, On January 5, 2017, by virtue of a special resolution, the Board approved the restructuring plan with the following steps: capital reduction up to the carrying value as per the financial position as at 31 December 2016 + admission of a strategic shareholder with shereholding percentage of 25% of share capital + the immediate issuance of new share capital collected through subscription rights of the existing shareholders, witha view to return the capital to its original value 12United Insurance Company (PSC) NOTES TO THE FINANCIAL STATEMENTS ‘As at 31 December 2016 2 siGi ICANT ACCOUNTING POLICIES 24 BASIS OF PREPARATION ‘The financial statements are prepared under the historical cost convention except for the measurement at fair value of financial assets and investment properties which are carried at fair value, The financial statements have been presented in UAE Dirhams (AED) except when otherwise indicated ‘The Company presents its statement of financial position broadly in order of liquidity, with a distinction based on expectations regarding recovery or settlement within twelve months after the reporting date (current) and more than twelve months after the reporting date (non-current), presented in the notes. Statement of compliance ‘The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), ‘and applicable requirements of United Arab Emirates Laws. Changes in accounting estimates AAs per Federal Law No.6 of 2007, relating to the Establishment of Insurance Authority and regulation of Insurance operations, a new financial regulation for insurance companies was issued on 28 January 2015. The financial regulation provided an alignment period to the insurance companies between one to three years from the publication of financial regulation in Public Gazette from 29 January 2015 to align the operations to the covenants of the regulations therein, With effect from 1 January 2016, to comply with the new regulations introduced by the Insurance authority of United ‘Arab Emirates, unearned premium reserve for all the classes of insurances is calculated on a time proportion basis, except Marine class of business which is calculated at 25%, Unearned premium reserve ‘The uneamed premium considered in the insurance contract liabilities comprise the estimated proportion of the gross ‘premiums writen which relates tothe periods of insurance subsequent to the reporting date. Until 31 December 2015, the reserves were is estimated using the 1/8th method for all lies of business, The unearned premium calculated by the above method(after reducing the reinsurance shares) complied with the minimum unearned premium amounts which was fo be maintained using 25% and 40% method of marine and non-marine respectively. As a result of the change, profit for the year ended 31 December 2016 is higher by AED 236 thousand and unearned. premium reserve at 31 December 2016 is lower by AED 236 thousand. New standards and interpretations effective after 1 January 2016 ‘The following new and revised relevant IFRSs have been applied in the current year in the financial statements. Their adoption had no significant impact on the amounts reported in these financial statements but may affect the accounting for future transactions or arrangements, IFRS 14 Regulatory Deferral Accounts IFRS 14 is an optional standard that allows an entity, whose activities are subject to rate-regulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first-time adoption of IFRS. Entities that adopt IFRS 14 must present the regulatory deferral accounts as separate line items on the statement of financial position and present movements in these account balances as separate line items inthe statement of profit or loss and OCI. The standard requires disclosure of the nature of, and risks associated with, the entity's rate- regulation and the effects of that rate-regulation on its financial statements. Since the Company is an existing IFRS preparer and is not involved in any rate-regulated activities, this standard does not apply. ‘Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amorti ‘The amendments clarify the principle in IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is a part) rather than the economic benefits that are consumed through use ofthe asset. As aresult, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to mortise intangible assets. The amendments are applied prospectively and do not have any impaet on the Company, sven that it has not used a revenue-based method to depreciate its non-current assets. 13United Insurance Company (PSC) NOTES TO THE FINANCIAL STATEMENTS ‘As at 31 December 2016 2 SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES ‘Amendments to IAS 27: Equity Method in Separate Financial Statements ‘The amendments allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements, Entities already applying IFRS and electing to change to the equity ‘method in their separate financial statements must apply that change retrospectively. These amendments do not have any impact on the Company’s financial statements, Amendments to TAS 1 Disclosure Initi ‘The amendments to IAS 1 clarify, rather than significantly change, existing IAS 1 requirements. The amendments, clerf The materiality requirements in IAS 1 ‘That specific line items in the statement(s) of profit or loss and OCI and the statement of financial position may be disaggregated ‘That entities have flexibility as to the order in which they present the notes to financial statements That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and OCI. These amendments do not have any impact on the Company. Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception ‘The amendments address issues that have arisen in applying the investment entities exception under IFRS 10 Consolidated Financial Statements. The amendments to IFRS 10 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value. Furthermore, the amendments to IFRS 10 clarify that only a subsidiary of an investment entity that is not an investment entity itself and that provides support services to the investment entity is consolidated, All other subsidiaries of an investment entity are measured at fair value. The ‘amendments to IAS 28 Investments in Associates and Joint Ventures allow the investor, when applying the equity ‘method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests subsidiaries, These amendments are applied retrospectively and do not have any impact on the Company. Annual Improvements 2012-2014 Cycle TThese improvements include: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations ‘Assets (or disposal groups) are generally disposed of either through sale or distribution to the owners. The amendment clarifies that changing from one of these disposal methods to the other would not be considered a new plan of disposal, rather itis a continuation ofthe original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. This amendment must be applied prospectively. IFRS 7 Financial Insruments: Disclosures () Servicing contracts ‘The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in @ financial asset, An entity must assess the nature ofthe fee and the arrangement against the guidance for continuing involvement in IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be done retrospectively. However, the required disclosures need not be provided for any period beginning before the annual period in which the entity first applies the amendments Gi) Applicability of the amendments to IFRS 7 to condensed interim financial statements ‘The amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim financial statements, unless such disclosures provide a significant update to the information reported in the most recent annual report, This amendment must be applied retrospectively. IAS 19 Employee Benefits ‘The amendment clarifies that market depth of high quality corporate bonds is assessed based on the curreney in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. This amendment must be applied prospectively. 4United Insurance Company (PSC) NOTES TO THE FINANCIAL STATEMENTS As at 31 December 2016 a SIGNIFICANT ACCOUNTING POLICIES (continued) 22 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued) ‘New standards and interpretations effective after 1 January 2016 (continued) IAS 34 Interim Financial Reporting ‘The amendment clarifies thatthe required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial report (e.g, inthe management commentary or risk report). The other information within the interim financial report must be available to users onthe same terms as the interim financial statements and at the same time. This amendment must be applied retrospectively. ‘These amendments do not have any impact on the Company's financial statements. Standards issued but not yet effective ‘The relevant standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company's financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective, IFRS 9 Financial Instruments 1n July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted, Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. During 2016, the Company performed a high-level impact assessment of al three aspects of IFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analyses or additional reasonable and supportable information being made available to the Company in the future, Overall, the Company expects no significant impact on its balance sheet and equity, except for the effect of applying the impairment requirements of IFRS 9. The Company expects a higher loss allowance resulting in a negative impact on equity and will perform a detailed assessment in the future to determine the extent. The Company plans to defer the application of IFRS 9 until the eatlier ofthe effective date of the new insurance contracts standard RS 17) of 1 January 2021, applying the temporary exemption from applying IFRS 9 as introduced by the amendments (see below). Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts In September 2016, the IASB issued amendments to IFRS 4 to address issues arising from the different effective dates Of IERS 9 and the upcoming new insurance contracts standard (IFRS 17). The amendments introduce two alternative options for entities issuing contracts within the scope of IFRS 4, notably a temporary exemption and an overlay approach, The temporary exemption enables eligible entities to defer the implementation date of IFRS 9 for annual periods beginning before | January 2021 at the latest. An entity may apply the temporary exemption from IFRS 9 if: ( ithas not previously applied any version of IFRS 9 before and (i) its activities are predominantly connected with insurance on its annual reporting date that immediately precedes 1 April 2016. The overlay approach allows an entity applying IFRS 9 to reclassify between profit or loss and other comprehensive income an amount that results in the profit or loss at the end of the reporting period for the designated financial assets being the same as if an entity had applied IAS 39 to these designated financial assets. An entity can apply the temporary exemption from IFRS 9 for annual periods beginning on or after | January 2018. An entity may start applying the overlay approach when it applies IFRS 9 for the first time, During 2016, the Company performed an assessment of the amendments and reached the conclusion that its activities are predominantly connected with insurance as at 31 December 2016, The Company intends to apply the temporary exemption in its reporting period starting on 1 January 2018. TRS 15 Revenue from Contracts with Customers TERS 15 was issued in May 2014 and establishes a five-step model to account for 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 goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS, Either a full retrospective application or a ‘modified retrospective application is required for annual periods beginning on or after | January 2018, Early adoption is permitted, The Company expects to apply IFRS 15 fully retrospective. Given insurance contracts are scoped out of IFRS 15, the Company expects the main impact of the new standard to be on the accounting for income from investments, The Company does not expect the impact to be significant. 15United Insurance Company (PSC) NOTES TO THE FINANCIAL STATEMENTS As at 31 December 2016 2 SIGNIFICANT ACCOUNTING POLICIES (coi ied) 2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued) Standards issued but not yet effective (continued) IFRS 16 Leases TERS 16 was issued in January 2016 replacing IAS 17 and applies to annual reporting periods beginning on or after 1 January 2019. IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for al leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16°s approach to lessor accounting substantially unchanged from its predecessor, IAS 17, The Company is currently assessing the impact of IFRS 16 and plans to adopt the new standard on the required effective date. ‘There are other amendments to IASB Standards and Interpretations which have been issued as of the date of the reporting but are effective from future dates have not yet been adopted by the Company. Future adoption of these ‘Standards and Interpretations is not expected to have an impact on the financial statements of the Company. 2.3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. ‘The significant accounting policies adopted in the preparation of the financial statements are set out below: Revenue recognition Gross premiums Gross insurance written premiums comprise the total premiums receivable for the whole period of cover provided by ‘contracts entered into during the accounting period and are recognised on the date on whiich the policy commences. Gross premiums include any adjustments arising in the accounting period for premiums receivable in respect of business written in prior accounting periods. Premiums collected by intermediaries, but not yet received, are assessed based on estimates from underwriting or past experience and are included in premiums written Reinsurance premiums Gross general reinsurance premiums written comprise the total premiums payable for the whole cover provided by contracts entered into during the period and are recognised on the date on which the policy incepts. Premiums include any adjustments arising in the accounting period in respect of reinsurance contracts incepting in prior accounting periods, Unearned reinsurance premiums are those proportions of premiums written in a year that relate to periods of risk after the reporting date. Unearned reinsurance premiums are deferred over the term of the underlying direct insurance policies for risks-attaching contracts and over the term of the reinsurance contract for losses occurring contracts. Other investment income (i) Interest income is recognised on a time proportion basis. Gi) Dividend income is accounted for when the right to receive payment is established Gif) Rental income is recognised as income over the period to which it relates.United Insurance Company (PSC) NOTES TO THE FINANCIAL STATEMENTS ‘As at 31 December 2016 2 SIGNIFICANT ACCOUNTING POLICIES (continued) 2.3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Claims and expenses recognition Claims, comprising amounts payable to contract holders and third parties and related loss adjustment expenses, net of salvage and other recoveries, are charged to expense as incurred. Provision for incurred but not reported claims is included within additional reserve. ‘The Company generally estimates its claims based on previous experience. Independent loss adjusters normally estimate property claims. Any difference between the provisions at the reporting date and settlements and provisions for the following year is included in the underwriting account for that year. Reinsurance claims Reinsurance claims are recognised when the related gross insurance claim is recognised according to the terms of the relevant contract. Finance cost Interest paid is recognised in the statement of income as it accrues and is calculated by using the effective interest rate method, Acerued interest is included within the carrying value of the interest bearing financial liability Deferred acquisition costs ‘Those direct and indirect costs incurred during the financial period arising from the acquiring or renewing of insurance contracts and/or investment contracts with deferred participation features, are deferred to the extent that these costs are recoverable out of future premiums from insurance contract and over duration of investment contracts with deferred participation features. {All other acquisition costs are recognised as an expense when incurred, Deferred acquisition costs for health products are amortised over the period in which the related revenues are earned. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method and are treated as a change in an accounting estimate. ‘An impairment review is performed at each reporting date or more frequently when an indication of impairment arises, When the recoverable amount is less than the carrying value, an impairment loss is recognised in the statement of profit or loss, Deferred acquisition costs are also considered in the liability adequacy test for each reporting period. Deferred acquisition costs are derecognised when the related contracts are either settled or disposed of. General and administration expenses Direct expenses of general insurance business are charged to the statement of income.United Insurance Company (PSC) NOTES TO THE FINANCIAL STATEMENTS As at 31 December 2016 2 SIGNIFICANT ACCOUNTING POLICIES (continued) 23. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Liability adequacy test At each statement of financial position date the Company assesses whether its recognised insurance liabilities are adequate using current estimates of future cash flows under its insurance contracts, If that assessment shows that the carrying amount of its insurance liabilities is inadequate in light of estimated future cash flows, the entire deficiency is immediately recognised in income and an unexpired tisk provision is created, ‘The Company does not discount its liability for unpaid claims as substantially most ofthe claims are expected to be paid within one year ofthe statement of financial postion date. Foreign currency translation ‘The presentation currency is UAE Dirhams (AED). This is also the functional curreney of the Company. Transactions in foreign currencies are initially recorded atthe functional currency rate ruling atthe date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional curreney rate of exchange ruling at the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction and are not subsequently restated. Non- monetary items measured at fair value in @ foreign currency are translated using the exchange rates at the date when the fair value was determined. All foreign exchange differences are taken fo the statement of income, except when it relates to items when gains or losses are recognised directly in equity, the gain or loss is then recognised net of the exchange component in the statement of comprehensive income. ‘Segment reporting For management purposes, the Company is organised into two business segments based on their products and services and has two business segments as follows: a) The general insurance segment comprises of property, fire, marine, motor, medical, general accident and miscellaneous risks. b) Investment comprises investment held for trading, available-for-sale investments, investment properties and fixed deposits No operating segments have been aggregated to form the above reportable operating segments. Segment performance is evaluated based on profit or loss which, in certain respects, is measured differently from profit or loss in the financial statements. No inte-segment transactions occurred in 2016 and 2015. If any transaction were to occur, transfer prices ‘between operating segments would be set on an arm’s length basis in a manner similar to transactions with third partes. Product classification Insurance contracts are those contracts when the Company (the insurer) has accepted significant insurance isk from another party (the policyholders) by agreeing to compensate the policyholders if a specified uncertain future event (the insured event) adversely affects the policyholders. As a general guideline, the Company determines whether it has significant insurance risk, by comparing benefits paid with benefits payable ifthe insured event did not occur. Insurance contracts can also transfer financial risk, Investment contracts are those contracts that transfer significant financial risk. Financial risk isthe risk of a possible future change in one or more of a specified interest rate, security price, commodity price, foreign exchange rate, index of price or rates, a credit rating or credit index or other variable. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire.United Insurance Company (PSC) NOTES TO THE FINANCIAL STATEMENTS ‘As at 31 December 2016 2) SIGNIFICANT ACCOUNTING POLICIES (continued) 2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Property and equipment Property and equipment are recorded at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight line basis over the estimated useful lives of property and equipment. The useful life considered in calculation of depreciation for all the asses i 5 years. ‘The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate thatthe carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount, being the higher of their value less costs to sell and their value in use ‘An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected fom its use or disposal. Any gain or loss arising on derecognition of the asset (calculated asthe difference between the net disposal proceeds and the carrying amount ofthe asset) is included inthe statement of comprehensive income in the year the asst is derecognised Expenditure ineurred to replace a component of an item of property and equipment that is accounted for separately is ‘capitalised and the carrying amount of the component that is replaced is written off. Other subsequent expenditure is capitalised only when it increases future economic benefits ofthe related item of property and equipment. All other expenditure is recognised in the statement of comprehensive income as the expense is incurred, Inyestment properties Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are included in the statement of profit or loss in the year in which they arise, including the corresponding tax effect. Fair values are evaluated annually by an accredited ‘external, independent valuer, applying a valuation mode! recommended by the International Valuation Standards Committee, Investment properties are derecognised either when they have been disposed of, or when the investment property is, permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses ‘on the retirement or disposal of an investment property are recognised in the statement of profit or loss in the year of retirement or disposal. ‘Transfers are made to (or from) investment property only when there is a change in use. For a transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value atthe date of change in use. If owner-occupied property becomes an investment property, the Company accounts for such property in accordance with the policy stated under property and equipment up to the date of change in use. ‘Trade and settlement date accounting ‘All “regular way” purchases and sales of financial assets are recognised on the “trade date”, i.e. the date that the ‘Company commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place. Deferred acquisition costs ‘Those direct and indirect costs incurred during the financial period arising from acquiring or renewing of insurance contracts, are deferred to the extent that these costs are recoverable out of future premiums from insurance contract, Al other acquisition costs are recognised as an expense when incurred. Subsequent to initial recognition, deferred acquisition costs are amortised over the period in which the related revenues are earned, The deferred acquisition costs for reinsurers are amortised in the same manner as the underlying asset amortisation and is recorded in the statement of profit or loss. 9United Insurance Company (PSC) NOTES TO THE FINANCIAL STATEMENTS ‘As at 31 December 2016 ai SIGNIFICANT ACCOUNTING POLICIES (continued) 2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Deferred acquisition costs (continued) Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method and are treated as a change in an accounting estimate, An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. When the recoverable amount is less than the carrying value, an impairment loss is recognised in the statement of profit or loss. Deferred acquisition costs are also considered in the liability adequacy test for each reporting period. Deferred acquisition costs are derecognised when the related contracts are either settled or disposed of, Deferred commission Initial and other front-end commissions relating to insurance contracts and reinsurance arrangements, are deferred. and recognised as revenue when the related services are rendered, Fair yalue measurement ‘The Company measures financial instruments, such as, equity instruments, and non-financial assets such as investment properties (for disclosure purposes), at fair value at each balance sheet date. air 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: = Inthe principal market for the asset or liability, or = Inthe absence of a principal market, in the most advantageous market for the asset or liability ‘The principal or the most advantageous market must be accessible to by the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account @ market participant's ability to generate ‘economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. ‘The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. ‘All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised ‘within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: = Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities = Level 2 - Valuation techniques for which the lowest level input that is significant tothe fair value measurement is directly or indirectly observable = Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation(based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. 20United Insurance Company (PSC) NOTES TO THE FINANCIAL STATEMENTS Asat 31 December 2016 2 SIGNIFICANT ACCOUNTING POLICIES (continued) 2.3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted ‘an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) method, less impairment, Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the statement of profit or loss. The losses arising from impairment are recognised in the statement of profit or loss in finance costs for loans and in other operating expenses for receivables, This category generally applies to insurance and other receivables. Investments Investments of the Company are recognised and derecognised on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Financial Assets at FVTPL — Investment held for trading Financial assets are classified as at Fair Value Through Profit or Loss (“FVTPL") where the financial asset is either hold for trading or designated as at FVTPL. ‘A financial asset is classified as held for trading i ‘ Ithas been acquired principally for the purpose of selling in the near future; or «It is a part of an identified portfolio of financial instruments that the Company manages together and has a recent actual pattern of short term profit taking. Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in the statement of income. Available-For-Sale (“AFS") Investments. ‘APS investments comprise listed shares held by the Company traded in an active market and are stated at fair value. Gains and losses arising from the changes in the fair value are recognised in other comprehensive income and cumulated in the investment revaluation reserve with the exception of impairment losses. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the investment revaluation reserve is reclassified to the statement of income. The fair value of available for sale monetary assets denominated in a foreign currency is determined in that foreign ‘currency and translated at the spot rate atthe end of the reporting period. The foreign exchange gains and losses that are recognised in the statement of income are determined based on the amortised cost of the monetary asset, Dividend on available for sale investments are recognised in the statement of income when the Company's right to receive dividend is established Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to ‘maturity when the Company has the positive intention and ability to hold them to maturity. After initial measurement, held to maturity investments are measured at amortised cost using the EIR, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR, The EIR amortisation is included as finance income in the statement of profit or loss. The losses arising from ‘impairment are recognised in the statement of profit or loss as finance costs. The Company do not have any held-to- maturity investments during the years ended 31 December 2016 and 2015. 2United Insurance Company (PSC) NOTES TO THE FINANCIAL STATEMENTS ‘As at 31 December 2016 2 SIGNIFICANT ACCOUNTING POLICIES (continued) 2.3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Derecognition of financial instruments {A financial asset (or, when applicable, a part of a financial asst or part of a group of similar financial assets) is derecognised when: # The rights to receive cash flows from the asset have expired + ‘The Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to third party under a ‘pass-through’ arrangement + The Company has transferred its rights to receive cash flows from the asset and either = has ransferred substantially all the risks and rewards of the asset, or = has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control ofthe asset, When the Company has transferred its right to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred contro! of the asset, the asset is recognised to the extent of the Company's continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the ‘maximum amount of consideration that the Company could be required to repay. Impairment and uncollectibility of financial assets ‘Anassessment is made at each reporting date to determine whether there is objective evidence that a specific financial ‘asset may be impaired, If such evidence exists, any impairment loss is recognised in the statement of income. Impairment is determined as follows: (a) For assets carried at cost, impairment is the difference between carrying value and the present value of future cash flows discounted at the current market rate of return for a similar financial asset; (b) For assets carried at amortised cost, impairment is the difference between carrying amount and the present value of future cash flows discounted at the original effective interest rate. Impairment of non-financial assets The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset's recoverable amount, An asset's recoverable amount is the higher of an asset's or cash-generating unit's (CGU) fair value less costs to sell and its value in use, Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using discount rates that reflect current market assessments of the time value of money and the risks specific to the asset. Tn determining, fair value less costs to sell, an appropriate valuation model is used, These calculations are corroborated by valuation multiples or other available fair value indicators Reinsurance contracts held ‘The Company cedes insurance risk in the normal course of business for all of its businesses. Reinsurance assets represent balances due from reinsurance companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer's policies and are in accordance with the related reinsurance contract. Reinsurance assets are reviewed for impairment at each reporting date, or more frequently, when an indication of impairment arises during the reporting year. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the Company may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measurable impact on the amounts that the Company will receive from the reinsurer, The impairment loss is recorded in the statement of income. Gains or losses ‘on buying reinsurance are recognised in the income statement immediately at the date of purchase and are not amortised. Ceded reinsurance arrangements do not relieve the Company from its obligations to policyholders. ‘The Company also assumes reinsurance risk in the normal course of business for general insurance contracts where applicable, Premiums and claims on assumed reinsurance are recognised as revenue or expenses in the same manner ‘as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business, Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are ‘estimated in a manner consistent with the related reinsurance contract, 22