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By IM Insights
2 years ago
Adamjee Insurance: Annual Report 2021
Arif, Ijara, Islamic banking, Mudarib, Mufti, Shariah, Shariah advisor, Shariah compliant, Sukuk, Takaful, Wakalah, Waqf, Zakat, Credit Risk, General Takaful, Mark-Up, Net Assets, Provision, Receivables, Reserves, Sales, Term Insurance, Individual Family Takaful, Group family Takaful
Sukuk
FinTech
Waqf
Social Finance
Islamic Wealth Management Zero
Takaful
Sustainability
Banking
Standards
International Trade
Shariah Governance
Organisation Tags (11)
Adamjee Insurance
Al Hassan Group of Companies
Dubai Islamic Bank Pakistan
Dubai Islamic Bank
Meezan Bank
United Bank Limited
Askari Bank
Abu Dhabi Commercial Bank (ADCB)
MCB Islamic Bank
Allied Bank
Soneri Bank
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- ORGANIZATIONAL OVERVIEW AND EXTERNAL ENVIRONMENT 52 STRATEGY AND RESOURCE ALLOCATION RISKS AND OPPORTUNITIES 68 158 CONSOLIDATED FINANCIAL STATEMENTS WINDOW TAKAFUL OPERATIONS 383 145 SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY UNCONSOLIDATED FINANCIAL STATEMENTS 229 114 OUTLOOK STAKEHOLDERS ’ RELATIONSHIP AND ENGAGEMENT 151 60 GOVERNANCE PERFORMANCE AND POSITION 140 10 OTHER INFORMATION 335
- Financial Highlights
- Table of Contents ORGANIZATIONAL OVERVIEW AND EXTERNAL ENVIRONMENT 12 Vision & Mission 14 Core Values 16 Strategic Objectives 18 Company Information 20 Code of Conduct, Ethics and Values 22 Chairman's Review (English) 23 Chairman's Review (Urdu) 24 Chief Executive Officer's Message 26 Board of Directors 29 Roles & Responsibilities of Chairman 31 Management Team 33 Roles & Responsibilities of Chief Executive Officer 34 Board Committees 34 Management Committees 35 Events Highlights 2021 36 Company Profile 37 Products and Services 38 Awards 39 Insurer Financial Strength Ratings 40 Our Geographical Presence 42 Organisational Structure 43 ISO 9001:2015 Certified Company 44 Competitive Landscape and Market Positioning 45 PESTEL Analysis 46 SWOT Anlysis 47 Internal Value Chain Analysis 49 Our Leading Business Model 51 Effect of Seasonality on Business 51 Significant Changes from Prior Year STRATEGY AND RESOURCE ALLOCATION 53 Strategic Objectives 53 Strategies in place to achieve our strategic objectives 55 Organizational Resources and Their Allocation 57 Factors Affecting Strategy and Resource Allocation 57 Our Commitment to Addressing Integrity and Ethical Issues 58 Initiatives for Promoting and Enabling Innovation 58 Strategy to Manage Liquidity and Repayment of Debts 58 Significant Plans and Decisions 59 Significant Decisions Regarding Restructuring of the Group 59 Significant Changes from Prior Years RISKS AND OPPORTUNITIES 61 Enterprise Risk Management (ERM) Framework 62 Commitment of the Board in the ERM Process 63 Analysis of Key Risks 66 Analysis of Key Opportunities 67 Adequacy of Capital Structure GOVERNANCE 69 Director Report (English) 86 Director Report (Urdu) 87 92 93 94 94 94 95 95 95 95 95 96 96 96 96 97 97 97 98 98 98 99 99 99 99 100 100 100 101 101 101 102 104 106 107 108 108 109 109 110 110 111 111 Statement of Compliance with the Code of Corporate Governance Independent Auditors’ Review Report to the Members on Statement of Compliance with Best Practices of Code of Corporate Governance Ownership / Shareholding Structure Operating Structure Relationship with Group Companies & its Nature Name of independent Directors and justification for their independence Statement on how board operates Decisions taken by the Board Decisions taken by Management Performance evaluation of the Chairman, Board members, Board Committees and CEO Board’s performance evaluation by external consultant Formal Orientation Courses for the Directors Directors Training Program Training of Key Personnel External Oversight of Functions Directors’ Remuneration Policy regarding fee earned by Executive Director against his services as nonexecutive director in other companies Policy for Security Clearance of Foreign Directors Governance Practice exceeding legal requirements Board’s policy on diversity Policy for Related Party transactions Board meetings outside Pakistan Policy for actual and perceived conflict of interest Grievance policy Policy for safety records of the company IT Governance Policy Acquisition process for technological tools Whistle Blowing policy Human Resource Management Policies including succession plan Social and environmental responsibility policy Business continuity plan (BCP) Salient features of TOR and attendance in meetings of the Audit Committee Report of the Audit Committee TOR and attendance in Ethics, Human Resources and Remuneration Committee TOR and attendance in Investment Committee Presence of the Chairman of Audit Committee in AGM Use of external search consultancy in appointment of chairman or nonexecutive director Chairman’s significant commitments Pandemic recovery plan by the management and policy statement Cybersecurity policy Anti-Money Laundering and Countering Financing Terrorism Policy Access to Reports and Enquiries Stock Exchange Listing
- 111 112 113 Video Link of Chief Executive Officer ’s Review Statement of Unreserved Compliance of International Financial Reporting Standards (IFRS) Issued by International Accounting Standards Board (IASB) Statement Under Section 46(6) of the Insurance Ordinance, 2000 PERFORMANCE AND POSITION 115 Performance Evaluation Against Targets / Budgets 116 Six Years Financial Performance (2016 - 2021) 117 Six Years – Horizontal Analysis (2016 - 2021) 118 Six Years – Vertical Analysis (2016 - 2021) 119 120 125 126 127 128 129 130 132 133 134 135 135 135 136 136 136 136 137 137 137 138 139 139 Six Years – Financial Ratios (2016 - 2021) Six Years - Graphical Summary (2016 - 2021) Comments on Horizontal and Vertical Analysis Comments on Ratios DuPont Analysis Free Cashflows to the Company Six Years’ Summary of Cashflow Statements Graphical Presentation of Financial Statements Quarterly Performance Analysis 2021 Methods and Assumptions in Compiling Indicators Market Statistics of AICL Share Share price sensitivity analysis Sensitivity analysis of change in market capitalization Sensitivity to Foreign Currency Fluctuations Major Capital Expenditures Fair Value and Forced Sale Value of Property and Equipment Significant immovable properties Summary of significant transactions and events during the year Loans, advances or investments made in foreign companies or undertakings Human resource accounting policy Management assessment of tax Solvency Margin Review of assets quality Financial Events during the year OUTLOOK 141 Forward Looking Statement STAKEHOLDERS RELATIONSHIP AND ENGAGEMENT 146 146 148 148 149 149 149 149 150 Identification of stakeholders Stakeholders’ engagement process & frequency Steps to encourage minority shareholders to attend the general meetings Investors' Relations section on the Company’s website Issues raised in last AGM, decisions taken and their implementation status Stakeholder engagement policy Corporate and Analyst briefing sessions Highlights about redressal of Investors’ Complaints Statement of Value Addition and its Distribution SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY 152 Introduction 152 Sustainability at Adamjee Insurance 152 Our Responsibility towards Sustainability 153 Activities During the Year 156 Celebration with Employees 157 Green Initiatives UNCONSOLIDATED FINANCIAL STATEMENTS 160 165 166 167 168 169 170 Independent Auditor’s Report Unconsolidated Statement of Financial Position Unconsolidated Profit and Loss Account Unconsolidated Statement of Comprehensive Income Unconsolidated Cash Flow Statement Unconsolidated Statement of Changes in Equity Notes to the Unconsolidated Financial Statements CONSOLIDATED FINANCIAL STATEMENTS 230 Independent Auditor’s Report 235 Directors' Report to the Members 236 Consolidated Statement of Financial Position 237 Consolidated Profit and Loss Account 238 Consolidated Statement of Comprehensive Income 239 Consolidated Cash Flow Statement 241 Consolidated Statement of Changes in Equity 242 Notes to the Consolidated Financial Statements WINDOW TAKAFUL OPERATIONS 336 Shariah Advisor Profile 337 Statement of Compliance with the Shariah Principles 338 Independent Reasonable Assurance Report to the Board of Directors on the Statement of Compliance with the Shariah Principles 340 Shariah Advisor's Report to the Board of Directors 341 Independent Auditors’ Report 343 Statement of Financial Position 344 Profit and Loss Account 345 Statement of Comprehensive Income 346 Statement of Changes in OPF and PTF 347 Cash Flow Statement 348 Notes To and Forming Part of Financial Statements OTHER INFORMATION 384 BCR Criteria 395 Disclosures beyond BCR Criteria 396 Notice of 61st Annual General Meeting 400 Pattern of Shareholding 402 E-Dividend Mandate Form 403 Form of Proxy
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- Chairman ’s Review I am pleased to present my review to the shareholders of Adamjee Insurance Company Limited on the overall performance of the Board of Directors and effectiveness of the role played by the Board in achieving the Company’s strategic objectives. The year 2021 will forever be remembered as one when Covid-19 continued to alter everything we define as everyday life. This is a tragedy that has regrettably continued to impact many and I want to take this opportunity to share my condolences with everyone that has suffered and lost loved ones to the pandemic. Covid-19 has also had a huge impact on all businesses. Everyone is simply trying to find their own way through this, but I particularly feel for all those, whose livelihoods have been impacted over the last year. The Board has always focused on safeguarding the best interests of the Company’s shareholders and has strived to maintain a balance between regulatory obligations and operational requirements. As part of this effort, the Board’s properly structured committees are in place, with each one having well-defined objectives and appropriate Terms of Reference, performing their respective roles effectively and efficiently. Having an effective Board and professional Management team is of vital importance, especially given the prevailing macroeconomic environment which is still in a state of recovery due to the enduring pandemic. While the 2nd and 3rd waves of Covid-19 brought unique challenges, devastating for countries around the globe, Pakistan fared relatively better due to the Government’s prudent and proactive policy measures, followed by a well-managed vaccination drive. At Adamjee Insurance, we fully supported the Government’s vaccination efforts and are proud to confirm that all of our employees are now vaccinated. Adamjee Insurance performed remarkably well during these times. Our focus remained to stand out as a leader in the insurance industry. I would like to mention here, in particular, the Board of Directors’ performance which to say the least was commendable, where all the members fulfilled their duties diligently and with due care and expertise, which helped the Management surpass their budgeted growth targets and other strategic goals, despite demanding conditions. Our most valuable asset, our employees, are central to our continued success and we are sincerely grateful for their commitment and dedication to the Company, especially during the spells of Covid-19 related government-imposed restrictions. Finally, I would like to thank our customers for their continuous confidence and trust in us. I would also like to extend my gratitude to our business partners, reinsurers, the State Bank of Pakistan, the Securities and Exchange Commission of Pakistan and the Pakistan Stock Exchange for their support and guidance which has helped Adamjee Insurance to be where it stands today. We look forward to the year 2022 and beyond, with a renewed commitment to serve our customers who have always been at the forefront of our success. Umer Mansha Chairman
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- CEO Message I am pleased to share the Company ’s annual results for the financial year 2021. During the year 2021, the Company has met many of the strategic targets it had set for itself, many of which have to do with business growth, process improvements and ensuring seemless customer experience. The Company has successfully regained its leadership position in the industry and has been able to improve its market share owing to the effective execution of business growth strategies and by maintaining strong customer relations. Due to the onset of the Covid Pandemic and with the enforced lockdowns worldwide, the year 2020 was full of challenges and unprecedented pressures, locally as well as in the global economy. Thankfully, the year 2021 has been the road to recovery from these setbacks of the previous year. While the pandemic period has brought great loss, it has also shone a bright light on our resilience as a community. As we close out this financial year, we are proud of our Company for responding to all challenges head on and with a ‘can-do’ spirit, strongly focusing on the well-being of our stakeholders. With the grace of Allah Almighty, the Company has achieved a net revenue of PKR 24.7 billion (2020: PKR 19.6 billion) and net profitability of PKR 3.1 billion during the year 2021. We continue to be upbeat about similarly positive results in the year 2022. Our growth strategy is predominantly based on our commitment to our stakeholders and in maximizing value for the shareholders. The Company has always strived for and has maintained high corporate standards and has maintained strict compliance with laws and regulations. We boast an ethical and diverse culture because we have leaders who set a clear and compelling direction and engage employees who go the extra mile for the organization. We strive to build an inclusive organization, addressing gender disparities and ensuring equal opportunities to all employees alike to fulfill their career aspirations and professional goals. All of this is achieved with the help of a systematic hierarchy that enables two-way communications, programs that recognize high performance, and extensive trainings to develop and turn workers into champions and in turn, these champions into leaders. This continuous development coupled with compensation and benefits, comprising almost half of all operating expenses, show that we highly value our employees. The Company has comprehensively promoted its talent development strategy, enhanced the skills of employees through continuous training and development, stimulated the potential and creativity of all employees, and thereby realized the mutual growth and progress of its staff. The Company has come a long way in a short time span. However, there is still much that is to be achieved. The way forward is two-fold - striving for continuous growth in the business and to enrich the customer experience with a ‘one stop solution’ for all of the customers’ insurance needs. Keeping in mind the entity’s mission to exceed customer satisfaction and stay steadfast as the market leader, the Company is focusing on innovation, excellence and investment into state-of-the-art technology, expected to generate promising returns in the coming years. Finally, I would like to acknowledge the leadership of our Chairman and Board of Directors for making 2021 yet another successful year under their guidance, trust and support throughout the year. I am also grateful to the shareholders, bankers, employees and all other stakeholders for their contributions and efforts because they have always acted as a driving force behind the Company’s achievements. Muhammad Ali Zeb CEO
- Board of Directors Umer Mansha Ibrahim Shamsi Mohammad Arif Hameed Mr . Umer Mansha holds a bachelor’s degree in Business Administration from USA. He has served on the Board of Directors of various listed companies for more than 23 years. He also holds the position of Chief Executive Officer of Nishat Mills Limited and Adamjee Life Assurance Company Limited. In addition, he has been serving on the boards of various other businesses. Ibrahim Shamsi is the Chief Executive Officer of Joyland (Pvt.) Limited and AA Joyland (Pvt.) Limited and is the Chairman of Cotton Web (Pvt.) Limited. Ibrahim earned his MBA from the Lahore University of Management Sciences (LUMS). He has done Advance Management Program from Harvard University, USA. Other Directorships: • Joyland (Pvt) Limited • Agrohub International (Pvt) Limited • Cotton Web (Pvt) Limited • Dupak Developers Pakistan (Pvt) Limited • Dupak Properties (Pvt) Limited • Dupak Tameer Limited • Fortress Square Services (Pvt) Limited • Fortress Supplies (Pvt) Limited • Fortress Financials Services (Pvt) Limited • Joyland (Pvt) Limited • MCB Islamic Bank Limited • Siddiqsons Energy Limited • Siddiqsons Limited • Siddiqsons Tin Plate Limited Mohammad Arif Hameed is a former Managing Director of Sui Northern Gas Pipelines Ltd., a company he served for 37 years. He has vast managerial experience in Gas Distribution, Sales, Billing, Logistics Support, Procurement, and Legal. He has served as Director on the Boards of Sui Southern Gas Company Ltd., Inter State Gas System (Pvt.) Ltd., Petroleum Institute of Pakistan and LUMS. He is a Mechanical Engineer by profession and is registered with the Pakistan Engineering Council (PEC). He also holds a Masters in Administrative Sciences and is a Law Graduate from University of the Punjab, Lahore. Chairman • Nishat Mills Limited • MCB Bank Limited • Adamjee Life Assurance Company Limited • Nishat Dairy (Private) Limited • Nishat Hotels and Properties Limited • Nishat (Raiwind) Hotels and Properties Limited • Nishat Developers (Private) Limited • Nishat Agriculture Farming (Private) Limited • Hyundai Nishat Motor (Private) Limited, • Nishat Agrotech Farm (Private) Limited • Nishat Sutas Dairy Limited • National Textile Foundation Director Other Directorships: Director
- Imran Maqbool Muhammad Anees Sadia Younas Mansha Imran Maqbool served as President & Chief Executive Officer of MCB Bank Limited (MCB) for nine years. Before taking on CEO position, he severed MCB for ten years in senior management positions covering Retail, Islamic, Corporate, Special Assets and Sri Lanka Operations of the Bank. Prior to joining MCB in 2002, Mr. Maqbool worked in local banking operations of Bank of America and Citi Bank for more than 17 years. He is a seasoned professional with over 36 years of diverse banking experience. Mr. Maqbool has served as Board member of multinational and local companies, including Vice Chairman of Pakistan Banks' Association. He holds MBA degree from Institute of Business Administration (IBA) Karachi and MS in Management from MIT Sloan School of Management, Massachusetts USA. Muhammad Anees joined Mahmood Group in 2003 as a member of the Board of Directors. Under his dynamic leadership and guidance, Mahmood Group flourished as he started managing strategic decisions related to Marketing, BMR, along with Production, Administration, Audit, IT, and ERP. Mahmood Group became the top 10 exporters of Pakistan assisted by his outreach to global markets. The will of being a responsible corporate citizen motivated him to be one of the largest private solar energy producers in Pakistan. His academic background and prowess have been from the finest business schools around the globe. He polished his skills by studying Financial Management and Risk Analysis from Wharton Business School (USA) after his MBA. He channelized and sharpened his inner strategist and attended Harvard Business School (USA) for a global understanding of Strategic Management in organizations. He strongly believes that his exposure to personal development and inspiring entrepreneurial growth has enhanced during his time at the London School of Economics and London Business School, UK. Being a compassionate patriot, he is also involved in CSR activities representing Mahmood Group at various platforms in the field of education, health, clean water, and the environment. Other Directorships: Sadia Younas Mansha has more than 19 years of diversified professional experience in Textile, Knitwear, Dairy and Agriculture Farming. Director Other Directorships: • Adamjee Life Assurance Company Limited Director • Export Development Funds (EDF) • D.G. Khan Solid Waste Management Company Limited Mahmood • Textile Mills Limited • Masood Spinning Mills Limited • Multan Solid Waste Management Co. Limited • Pakistan Single Window • Punjab Industrial Estate Development Authority • Punjab Social Security Health Management Company • Roomi Foods (Pvt) Limited • Roomi Poultry (Pvt) Limited Director She is currently serving in the capacity of Managing Director of Nishat Dairy (Pvt) Limited and Nishat Agriculture Farming (Pvt) Limited. She is also the Chief Executive Officer of Golf View Land (Pvt) Limited. Other Directorships: • Golf View Land (Pvt) Limited • Nishat Agriculture Farming (Private) Limited • Nishat Sutas Dairy Limited • Nishat Dairy (Private) Limited • Pakgen Power Limited
- Shaikh Muhammad Jawed Director Shaikh Muhammad Jawed was previously a Director of Din Leather (Pvt) Limited and has vast experience of running a modern tannery. Due to his technical expertise, Din Leather has received several export performances awards, merits as well as best export performance trophies for the export of Finished Leather from Pakistan and the company’s contribution is earning valuable foreign exchange for the country. Due to excellence in quality and supply, the company has also received a Gold Medallion Award from the International Export Association, UK. He has received technical education in Leather Technology from Leather Sellers College, UK. Other Directorships: • Adamjee Life Assurance Company Ltd Muhammad Ali Zeb Managing Director & Chief Executive Officer Muhammad Ali Zeb is a fellow member of the Institute of Chartered Accountants of Pakistan and completed post graduate diploma in Organizational Leadership from Saïd Business School, University of Oxford. He has over 24 years of diverse experience in the Manufacturing, Financial and Insurance sectors. He started his professional career from Nishat Mills in 1995 and joined Adamjee Insurance as the Chief Financial Officer in 2005 where he was promoted as Executive Director Finance. He was appointed as the Chief Executive Officer in 2008 and remained in this position until March 2011. Before rejoining Adamjee Insurance as the Chief Executive Officer in June 2013. Ali also served as the Chief Financial Officer at City School (Pvt) Limited. He has served as the Chairman, Insurance Association of Pakistan in 2014. Other Directorships: • MCB Bank Ltd • Adamjee Life Assurance Company Ltd • Nishat Sutas Dairy Limited
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- Management Team Muhammad Ali Zeb Managing Director & Chief Executive Officer Muhammad Ali Zeb is a fellow member of the Institute of Chartered Accountants of Pakistan and completed post graduate diploma in Organizational Leadership from Saïd Business School, University of Oxford. He has over 27 years of diverse experience in the Manufacturing, Financial and Insurance sectors. He started his professional career from Nishat Mills in 1995 and joined Adamjee Insurance as the Chief Financial Officer in 2005 where he was promoted as Executive Director Finance. He was appointed as the Chief Executive Officer in 2008 and remained in this position until March, 2011. Before rejoining Adamjee Insurance as the Chief Executive Officer in June 2013. Ali also served as the Chief Financial Officer at City School (Pvt) Limited. He has served as the Chairman, Insurance Association of Pakistan in 2014. Muhammad Asim Nagi Executive Director Finance & Chief Financial Officer Muhammad Asim Nagi has over 24 years of experience in Accounts and Finance. He is an Economics graduate from University College London and is a Fellow of the Institute of Chartered Accountants in England & Wales. Asim is also a member of the Institute of Chartered Accountants of Pakistan and a Fellow of the Association of Chartered Certified Accountants in United Kingdom. He has worked with a number of organizations at the management level in the UK, including Ernst & Young LLP and UHY Hacker Young LLP in London. His experience in UK comprised assurance and transaction advisory, in particular, IPOs, stock exchange flotations and reverse takeovers. He has also worked with A.F. Ferguson & Co., Chartered Accountants (a member firm of Pricewaterhouse Coopers) and has headed the Internal Audit function at DH Corporation Limited. Asim has been with Adamjee Insurance Company Limited since November 2011 and has served as the Executive Director Finance & Chief Financial Officer since 2014. Adnan Ahmad Chaudhry Executive Director Commercial Adnan Ahmad Chaudhry has over 29 years of combined experience in engineering, manufacturing, and insurance sectors. He has done his Master’s in Counselling and Coaching for Change from INSEAD. He is a qualified engineer B.E. (Electrical) from UET Lahore. He started his career in 1993 from Arden Engineering & Automation after which he moved to ALSTOM in 1995. He served as Senior Sales Engineer (Abu Dhabi Branch) at Al Hassan Group of Companies in 2000 and as General Manager Sales & Operations at Classic Needs Pakistan (Pvt.) Ltd. from 2003 to 2007. Adnan has been with Adamjee Insurance since 2008, joined as the Head of Motor Department and became General Manager Operations in 2010 and has served as the Executive Director Commercial since 2013.
- Asif Jabbar Executive Director Technical Asif Jabbar has 29 years of insurance experience in the areas of underwriting , risk management, operations, and sales. He started his career in 1993 with Adamjee Insurance Company Limited where he held different leadership roles. In 2012, he moved to Marsh Operations in Pakistan with Unique Insurance Brokers as Chief Operating Officer. As an insurance broker, the areas of his specialty were energy, property, and business interruption. In 2013, he rejoined Adamjee Insurance Company Limited as an Executive Director Technical. He specialises in Project Finance Insurance. He holds a Bachelor’s degree in Commerce & Economics. He is a Fellow of the Chartered Insurance Institute, London and a Chartered Insurer from CII, London. He is also a CMILT from London. Muhammad Salim Iqbal Executive Director Reinsurance Muhammad Salim Iqbal has over 33 years of experience in the insurance and reinsurance sector. Salim started his career in 1987 from Wahidis Associates (Pvt.) Ltd. He then joined Adamjee Insurance in 1989 as Probationary Officer and was progressively promoted to the position of Deputy Chief Manager Engineering Department in 1994, after which he joined Al-Dhafra Insurance Company, Abu Dhabi in 1995 as Manager Marine Aviation and Reinsurance. Salim returned to Pakistan in 2005 and joined New Jubilee Insurance Company as Head of Reinsurance. He later joined Adamjee Insurance Company Ltd. in 2006 as Deputy General Manager, Reinsurance. He moved on to IGI Insurance Limited in 2009 as Head of Underwriting and rejoined Adamjee Insurance in 2010 as General Manager Technical. Salim is currently serving as Executive Director Reinsurance. He is a Chartered Insurer and Life Member of Pakistan Engineering Council. Muhammad Salim Iqbal is a qualified engineer B.E. (Civil Engg.) and Fellow of Chartered Insurance Institute (FCII). He has served as member of IAP’s Fire Section Committee & Engineering Insurance Sub-committee in 2009-10 and was also a member of Marine Technical Committee of Emirates Insurance Association from 1997 till 2005.
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- Board Committees Audit Committee : Muhammad Anees Chairman - Independent Director Ibrahim Shamsi Member - Non-Executive Director Shaikh Muhammad Jawed Member - Non-Executive Director Umer Mansha Member - Non-Executive Director Investment Committee: Umer Mansha Chairman - Non-Executive Director Imran Maqbool Member - Non-Executive Director Muhammad Ali Zeb Member - Executive Director Muhammad Asim Nagi Member - Chief Financial Officer Ethics, Human Resources and Remuneration Committee: Muhammad Anees Chairman - Independent Director Ibrahim Shamsi Member - Non-Executive Director Muhammad Ali Zeb Member - Executive Director Umer Mansha Member - Non-Executive Director Management Committees Claim Settlement Committee: Underwriting Committee: Umer Mansha Muhammad Ali Zeb Asif Jabbar Chairman Muhammad Ali Zeb Chairman MD & CEO Muhammad Asim Nagi Chief Financial Officer Head of Underwriting Syed Ameer Hassan Naqvi Head of Claims Risk Management & Compliance Committee: Muhammad Ali Zeb Chairman Muhammad Asim Nagi Chief Financial Officer Asif Jabbar Head of Risk Management Syed Ameer Hassan Naqvi Head of Compliance /Claims Tameez ul Haque Company Secretary Imran Ali Head of Internal Audit Reinsurance & Coinsurance Committee: Muhammad Ali Zeb Chairman Muhammad Salim Iqbal Head of Reinsurance Asif Jabbar Head of Underwriting Adnan Ahmad Chaudhry Head of Commercial
- Events Highlights 2021 OCTOBER SEPTEMBER PINK RIBBON DAY AUGUST BLOOD DONATION DRIVE MAY INTERNATIONAL WOMEN ’S DAY WORLD NO TOBACCO DAY APRIL EARTH DAY INSURANCE DAY CELEBRATION COVID-19 VACCINATION MARCH JUNE WORLD ENVIRONMENT DAY AUGUST MARCH INDEPENDENCE DAY CELEBRATION PAKISTAN DAY CELEBRATION NOVEMBER ARC SPORTS FESTIVAL NOVEMBER TAKAFUL TRAINING APRIL SEPTEMBER SEMINAR ON “TEXTILE RISK” AUGUST EMPLOYEES WELLBEING SEMINAR
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- Products And Services (CONVENTIONAL/ TAKAFUL) FIRE & PROPERTY Property All Risk Comprehensive Machinery Consequential Loss Of Profit Energy Ginning Stock Policy Home Fire Policy Shopowner's Comprehensive Policy ENGINEERING Machinery Electronic Equipment Boiler & Pressure Vessel Contractor’s All Risks Erection All Risks Contractor’s Plant & Machinery Comprehensive Projects HEALTH Micro Health Group Health Retail Health MARINE Marine Hull and Machinery Marine Cargo Marine Umbrella Liability Aviation MOTOR Comprehensive Car Commercial Vehicle Motorcycle Comprehensive Motor Third Party Liability MISCELLANEOUS All Risk Valuable Bankers Policy Burglary Cash in Safe Cash in Transit Cellular Mobile Phone Contractual Liability Credit Card Travel Incovenience Policy Crop Director & Officers Liability Doctor Professional Indemnity Policy Electronic & Computer Crime Employer's Liability policy Fidelity Guranatee Policy Foreign Exchange Dealers Policy General Professional Indemnity Policy Gosecure Travel Kidnap & Ransom Livestock Loss of Licence Neon Sign Policy Personal Accident Plastic Card Plate Glass Product Liability Policy Public Liability Workmen's Compensation
- Awards & Accolades 2021 BEST CORPORATE REPORT AWARD BY INSTITUTE OF CHARTERED ACCOUNTANT OF PAKISTAN 2021 2021 2021 2021 CERTIFICATE OF MERIT - SAFA ANNIVERSARY AWARD BY SOUTH ASIAN FEDERATION OF ACCOUNTANTS CERTIFICATE OF MERIT - BEST GOVERNANCE AWARD IN INSURANCE BY SOUTH ASIAN FEDERATION OF ACCOUNTANTS WINNER OF ASIA’S OUTSTANDING INSURANCE COMPANY IN PAKISTAN BY ASIA MONEY 2020 BEST GENERAL INSURANCE COMPANY IN PAKISTAN BY WORLD FINANCE 2020 2020 2020 2020 1ST POSITION IN INSURANCE SECTOR FOR BEST CORPORATE REPORT AWARD BY ICAP & ICMA BEST GENERAL INSURANCE COMPANY IN PAKISTAN BY WORLD FINANCE 2020 CERTIFICATION OF ISO 9001:2015 BY LLOYD’S REGISTER QUALITY ASSURANCE 2019 2019 2019 2019 2019 BEST DOMESTIC GENERAL INSURER IN PAKISTAN BY INSURANCE ASIA, SINGAPORE BEST GENERAL INSURANCE COMPANY IN PAKISTAN BY WORLD FINANCE FIRST INSURANCE COMPANY IN PAKISTAN HAVING TIER-3 COMPLIANT DATA CENTRE BEST GENERAL INSURANCE COMPANY IN PAKISTAN IN 2019 BY WORLD FINANCE BREAKTHROUGH INSURER OF THE YEAR BY YALLACOMPARE BANKING AND INSURANCE AWARDS UAE 2018 2018 2018 CERTIFICATION OF GREEN OFFICE BY WWF IN 2018 - ‘ TO REDUCE ECOLOGICAL FOOTPRINT’ AWARDED AS THE “DISTINGUISHED INSURANCE COMPANY UNDER ONE BELT ONE ROAD INITIATIVE” BY INSURANCE RESEARCH INSTITUTE OF FUDAN UNIVERSITY, CHINA BEST GENERAL INSURANCE COMPANY IN PAKISTAN BY WORLD FINANCE 2017 BEST GENERAL INSURANCE COMPANY IN PAKISTAN BY WORLD FINANCE 2016 2016 BEST COMPANY “ASIA'S 200 BEST UNDER A BILLION $” BY FORBES ENVIRONMENT, HEALTH, SAFETY & SECURITY AWARDS 2015 CSR AWARDS – BEST PRACTICES IN CORPORATE SOCIAL RESPONSIBILITY 2015 ENVIRONMENTAL & QUALITY STANDARD AWARDS
- Insurer Financial Strength Ratings IFS CREDIT RATINGS LONG TERM RATING AA + WITH STABLE OUTLOOK BY PACRA B LONG TERM ISSUER CREDIT RATING “BB+” WITH STABLE OUTLOOK BY AM BEST - UK
- Our Geographical Presence Peshawar Islamabad Mianwali Rawalpindi Jhelum Sialkot Narowal Gujrat Sargodha Gujranwala Lahore Jhang Faisalabad Gojra Kasur Sahiwal Khanewal Okara Multan Khushab Muzaffargarh Quetta Dera Ghazi Khan Shujaabad Vihari Bahawalnagar Bhawalpur Rahimyar Khan Sadiqabad Ghotki Sukkur Larkana Nawabshah Hyderabad Karachi Pakistan Badin Total No . of Employees (31 December 2021) 843 Head Office and Registered Office Divisional Office, Branch Office & Specialised Product Branches Window Takaful Operations Zones/Branches
- Sharjah Al Rashidiya Dubai Abu Dhabi United Arab Emirates Total No . of Employees (31 December 2021) Main Office and Branch Branch Offices Claim Centre 78
- Organizational structure FUNCTIONAL REPORING ADMINISTRATIVE REPORING
- ISO 9001 :2015 Certified
- Competitive Landscape and Market Positioning The state of competition in an industry depends on five basic forces , commonly described as ‘Porter’s Five Forces Framework’. According to this framework, competitiveness does not only come from competitors. Rather, the state of competition in an industry depends on five basic forces depicted in below diagram: Bargaining Power of Buyers Threat of New Entrants 1 Barriers to entry in the insurance industry is considered to be at a medium level with recent interest by foreign insurance companies in entering Pakistan’s insurance industry especially in microinsurance sector of the industry. However, with the Securities and Exchange Commission of Pakistan’s (SECP) strict monitoring and regulation of the insurance industry, the threat of entrants is limited to certain extent. In addition, a reasonable high capital requirement to start an insurance business and a broad distribution network requirement, further reduces the threat. Bargaining Power of Suppliers COMPETITIVE LANDSCAPE AND MARKET POSITIONING 2 Most large insurance companies offer similar products and services. May it be property, marine, motor, health or life insurance; chances are there for similar services. Customer’s inclination to substitute/another product to solve the same need constitutes a threat. AICL has introduced workable innovations in insurance products, including ondemand and usage-based insurance products, which have great appeal for consumers looking for an alternative to the traditional products. 3 Customer’s influence is a force to be reckoned as multiple alternatives for procuring products and service are available in the market. Customers have the right to demand lower prices and higher product quality. Large corporate clients paying millions of rupees in premiums have bargaining power too. With the online emergence of social media, and instantaneous access to awareness of coverages, pricing, and services, today’s customer demand more personalized attention and care for the premiums paid. To meet these expectations, AICL has strengthened its userfriendly workflows for customer-facing processes, including underwriting, policy issuance, endorsements, and claims. Threat of Substitute Products Existing Competetors 4 Suppliers generally pressurize companies by raising prices, lowering quality, or tightly controlling product/service availability. Agents and brokers have historically leveraged the ability to influence policyholder choices into placing business with specific insurers. Employing the front-end tools to reach potential customers directly, AICL nullifies the bargaining power of suppliers. In addition, the prices in the insurance market is generally dictated by local or global performance of those reinsurers in the region. 5 Distribution channels of AICL are very well equipped and customized to serve and satisfy digitally native customer of the day. Through our strength of assets, diverse and wide spread product mix provides an edge to AICL over its competitors in the industry. Companies are running lucrative media campaigns to retain the current customers and engage new customers by offering services at cost effective or affordable rates. Our long experience, tailormade insurance plans and exceedingly prompt services have not only gained customer loyalties, but also provided us a competitive edge. Provision of maximum insurance protection at the most competitive rates keeps us competitive in the market. The collective strength of these forces determines the ultimate profit potential of an industry and thus its attractiveness. Annual Report 2021 44
- PESTEL Analysis PESTEL (Political, Economic, Social, Technological, Environmental and Legal) analysis is a framework or tool used to identify key macro (external) factors that affect the business environment in which the organization operates and ultimately affect the objectives of the organization. Understanding each factor is important for the growth of the organization and plays a pivotal role in planning the right strategies which helps the management in assessing the risks specific to the insurance industry to take informed decisions. Furthermore, the Company can understand the opportunities and threats in the external environment and this framework provides the basis for business planning process. SOCIAL ECONOMIC In 2021 Pakistan's economy is moving progressively on higher inclusive and sustainable growth path despite numerous challenges during the year. Pandemics like COVID-19 are once-ina-century event that devastate global economies. Pakistan did much better in coping up with the pandemic compared to many countries. Economy has witnessed a “V” shaped recovery. The current economic recovery has been achieved without compromising internal and external stability. Current account posted a surplus of $ 0.8 billion for the first time in 17 years. Inflows of foreign exchange through the Roshan Digital Account (RDA) crossed the $1 billion mark. The workers' remittances posted historically high growth of 29 percent and reached to $ 24.2 billion. Global digitalization has changed not only the economic, but also the social vision of the world. The digitalization has determined the continuous flow of data containing information, knowledge, ideas and innovations. Covid-19 has pushed the insurance industry to expedite its transformation towards digital products to its customers and it has also changed the habits of the Pakistan's consumer market. As Islamic state, an increase in demand for takaful products has also been witnessed. The growing awareness around health and protection. The Covid-19 pandemic has urged humanity to more closely look at health and wellbeing, while also raising unprecedented awareness around the importance of health insurance. LEGAL The Government of Pakistan and Securities and Exchange Commission of Pakistan (SECP) are strictly oversight the insurance industry to address the regulatory gaps in the existing law and creating a conductive regulatory environment to encourage the industry development. SECP has enforced the Corporate Insurance Agent Regulations 2020 and the Minimum Capital Requirement for Non-Life Insurers stands at Rs.500 million alongside which insurance companies are required to maintain a deposit with the State Bank of Pakistan (SBP) with a minimum amount being 10% of the insurer's paid-up capital or any amount that may be specified by the Regulator. Government of Pakistan has introduced the new Auto Policy 2021-26 is expected to bring in reforms on the automobile sector which may lower the prices of vehicles for consumers and boost demand. Thus, demand in motor insurance is expected to add up with increased Autofinancing. POLITICAL The political stability of a country has always been a major factor in deciding the growth of an industry. Government has taken serval decisions to overcome uncertainties of exports and gradually imposed duties on imports which is a positive step to reduce current account deficit. The efforts made by the Government towards maintaining law & order situation is also creating friendly environment for 'Ease of Doing Business'. Strict monitoring by Securities and Exchange Commission of Pakistan (SECP) ensures transparency for insurance sector. Government prioritized economic growth and better international relationships which helped in creating a better image of the country. TECHNOLOGICAL Innovative digital solutions are taking over the insurance market and have a very positive impact on the returns. Customers today look for convenience, so technological advancements have become a key factor in retaining and increasing the customer base. In addition, to that technology allows the Company to work with real-time information which gives it Company a competitive edge and informed decision-making tools. Annual Report 2021 45
- SWOT Analysis Ÿ Strong position in market with a paid-upcapital of Rs. 3.5 Billion Ÿ IFS Rating of “AA+” by PACRA and “B” (Good with stable outlook) by AM Best, UK Ÿ Holds the position of one of the largest insurance company of Pakistan for decades Ÿ The only general insurer that has overseas operations and Strong geographical presence within Pakistan Ÿ Strong and Reliable reinsurance partners Ÿ Diversified business and product portfolio Ÿ Dedicated management outstanding customer service to ensure STRENGTHS WEAKNESSES Ÿ Low insurance penetration in the country Ÿ Natural disasters due to environmental changes may impact adversely Ÿ Lack of awareness in Pakistan market about insurance products Ÿ Due to religious beliefs customers avoid insurance products; hence, Takaful products Ÿ New opportunities and economic reforms with CEPC and other Infrastructural Projects Ÿ Employing the digital technology infrastructure Ÿ Exploring new overseas emerging markets Ÿ Growth potential of the UAE market OPPORTUNITIES THREATS Ÿ Political and economic uncertainty Ÿ Prevailing tense geopolitical situation of the region Ÿ Frequent changes environment in regulatory Ÿ Impact of the pandemic on the growth prospects of the insurance industry Ÿ Cut-throat competition in the industry Annual Report 2021 46
- • Re-insurer / Re-takaful • Re-insurance brokers / Re-takaful brokers • Insurance brokers EXTERNAL • Sales • Aggregators • Retailers Distribution Network • Consumer / Policyholder / Corporate Client DOWNSTREAM UPSTREAM Value Chain Framework SUSTAINABLE LONG TERM VALUE Governance & Risk Management: Ÿ Implementation of Enterprise Risk Management framework Ÿ Maintaining SECP regulatory compliance Ÿ Compliance with Codes of Corporate Governance Ÿ Adequate Re-insurance/ Re-takaful arrangements Ÿ Actuarial services to support operations Ÿ Strong internal control Claims Management: • Use of SECP Proficient surveyor’s network • Appointment of Surveyor’s as per risk merit • Dedicated centralized Claim management department • Hands on information of Claims Process • Smooth process for Claim Payments Assets & Investment Management: • Invest in Long-term quality fixed assets • Evaluate investment opportunities for placement of funds in diversified instruments for sustainable growth • Portfolios are built to mitigate market and interest rate risks Customer Experience & Service Quality: • Dedicated 24/7 Call Center for Claims & Complaints • 9001:2015 ISO Certified Company • Focus on use of digital technology to ensure excellence in customer experience • Department for Compliant Management • Customer Satisfaction Surveys Technological Advancement: • Focus on digitalization • Implementation of Enterprise Resource Management Specialized for Insurance • Implementation of Takaful Specialized ERP • Implementation of Business Intelligence System • State of the art Information System Processes to meet highest security standards • Online Portals for Motor, Travel and Health Insurance/ Takaful INTERNAL Underwriting: • Focus on Enterprise Risk Management steps to underwrite risks • Diversified Product Portfolio for Insurance & Takaful • Adequate risk evaluation techniques before underwriting • Conduct timely training to risk professionals to practice new risk management techniques SUPPORT ACTIVITIES PRIMARY ACTIVITIES Marketing, Sales, and distribution: • Extensive branch network in Pakistan & UAE • Pioneer in establishing retail sales network • Experienced and competent sales force • Marketing, Public Relations & Corporate Communication and Advertising • Performance Marketing for Online Sales Generation using Social Media • Alliances with Online Sales Aggregators • Robust relationship with Insurance Brokers Finance and Reporting: Ÿ Financial reporting in compliance with applicable IFRS and provisions of and directives issued under the Companies Act,2017, the Insurance Ordinance, 2000 and the rules & regulations formulated thereunder Ÿ Integrated ERP System for MIS reporting and decision making Ÿ Finance as a business partner Ÿ Investors’ Relations Management Human capital management: • Transparent and fair recruitment process • Focus on Training & Development Programs • Fair system for appraisal management and rewards • Activities for employee engagement and motivation • Collaborative and self-motivated environment Annual Report 2021 47
- Annual Report 2021 48
- Business Model & Value Creation Mission, Vision, Code of Conduct & Ethics INPUTS Risks & Opportunities Strategy & Resource Allocation Financial Capital: • Paid-Up Capital: Rs. 3.5 Billion • Total Assets: Rs. 61.6 Billion • Equity: Rs. 25.4 Billion • Combined Investment and Cash & Bank Portfolio: Rs. 33.6 Billion Human Capital: • Total Employees: 921 • Highly Skilled, Experienced and Competent Employees • Training & Development Programs • Performance Management System Manufactured Capital • Property & Equipment Value is 5.9 Billion • 2 Call Centers (Pakistan & UAE) • 3 Dedicated Doctors Helplines (Karachi, Lahore & Islamabad) Intellectual Capital: • Technological Infrastructure is based on Centralized ERP and integrated with functional and technical departments. • Dedicated Online Portals for Health, Travel, Motor and Window Takaful Operations . Conventional Insurance & Takaful* Activities Our Business Activities Investment Activities Rs. Risk Management Social & Relationship Capital: • All Leading/ Regional Hospitals are on-board with Health Insurance. • All Leading Auto- Assemblers, Workshops on-board for Motor Claims • Partnerships with Local NGO’s for Micro Insurance • Dedicated Teams for CPEC & Special Projects • Globally renowned and Reliable Re-Insurers/ Retakaful Partners • Alliances with Digital Aggregators • Largest distribution network with Partner Banks, and Auto Assemblers, Dealerships Natural Capital: • Green Office Initiative • Largest Insurer of Renewable Energy Projects • Invested in Green Initiative Projects in Karachi and Lahore Head Office. i.e; Complete LED’s based Electrical Infrastructure Stakeholders Engagements Performance & Position Outlook Annual Report 2021 49
- OUTPUTS Financial Capital : • Earnings Per Share (EPS): Rs. 8.96 • ROAE: 0.173 • Current Ratio: 1.6 times • Liquid Assets/ Total Assets: 0.662 Human Capital: • Female staff Ratio 16% • Male staff Ratio 84% • No. of Training Conducted: 12 • Employee Engagement Programs: 5 Manufactured Capital: • Addition of 1 New Branch for Window Takaful Operations • 4 Minutes Average Call Resolution Duration • 25000+ Customers received Value Added Services • 900+ Retail Distribution Network Intellectual Capital • 98% Policies issued through Electronically. • 3 New Product Developments • 25000+ Customers received Value Added Services Social & Relationship Capital: • Edge for Presence in all remote locations of Pakistan • Wellness Programs & Medical Camps • Increase in Crop & Livestock Portfolio • Better relationship with Brokerage Houses, International Re-Insurer/ Re-Takaul Partners Natural Capital: • Plantation increased in Karachi and Lahore Offices • Efficient use of Electricity & Water • Reduction in Energy Cost • Paperless environment initiatives OUTCOMES • Gross Written Premium & Contribution: Rs.24.8 Billion • Underwriting Profit: Rs. 672.3 Million • Claims Paid: Rs. 12.2 Billion • Total Investments: Rs. 31 Billion • Profit after tax: Rs. 3.1 Billion • More focus on customer centricity, Service excellence and customer engagement • Increase innovation & Competitiveness • Increase Employees Satisfaction • Digital sales increase in retail segment and multi channel distribution • Strengthening actuarial capabilities & Market Expansion through analytics for existing and new product developments • Strong in house team based service architecture • Credit Ratings: Pakistan Credit Rating Agency (PACRA) has given Highest Rating ‘AA+' and UK Based Rating Agency AM Best given 'B’ • Improving Governance Culture • Increase Focus on Digitalization • Contribution to National Exchequer: Rs. 674 Million • Increased Wellness Programs • WWF Certification • Green Initiatives • Improved Energy Mix Annual Report 2021 50
- Effect of Seasonality on Business in Terms of Sales Seasonality includes those changes that happen every year around the same time and impact the sales in a similar way every year . However, in the year 2020, Covid-19 pandemic created unexpected circumstances with lockdowns. The sales remained under huge pressure especially during the second quarter. Export restrictions disrupted the seasonality of the year 2020, hence, the demand varied this year. Despite, the drop in premiums in marine line of business, the renewals happened as usual. Most companies begin their fiscal year in July and some in January so overall renewals are high and sales are at their peak during this time. Motor insurance sales are affected in the month of Ramadan as lot of people plan to buy a new car before the occasion of EID. For agriculture insurance when farmers start farming, at the start and end of Rabi and Kharif seasons, they need funds to start the processes and similarly at the end of the season they need funds for storage and transportation, hence, premiums of agriculture insurance increase during these times. Travel insurance sales increase during holiday seasons. Significant changes from prior years There were no significant changes in this section from the prior years. Annual Report 2021 51
- Annual Report 2021 52
- Strategy and Resource Allocation Strategic Objectives Short , medium and long-term objectives to meet the Company’s vision and mission statement are as follow: Short term Medium term • Utilize technology to enhance productivity, reduce operational cost and ensure risk mitigation while being fully compliant with laws and regulations • Focus on improving technical profits • To increase our market reach through product innovation to meet the changing needs of the customers • Continuous technological advancement to maintain our strong market position and increase shareholders’ wealth • Focus on developing retail-based products and increasing market share of Window Takaful Operations • Adding value to our stakeholders’ relationship • To lead the insurance industry by providing outstanding customer service and maximizing the long-term value for the shareholders • Increase our geographical presence and market share in UAE Long term Strategies in place to achieve our strategic objectives: Being one of the leading insurance companies, we have a massive responsibility towards our customers, and we strive to meet the changing needs of our customers by utilizing our digital infrastructure and capabilities to provide them seamless experience. We make sure that we evaluate the risk factors efficiently and come up with innovative solutions to mitigate risk. We have highly trained and dedicated employees who continuously work towards delivering the best value to our customers. We believe there is always a room for improvement and we keep looking for areas to improve. We practice the highest standards of corporate governance and abide by all the laws and regulations of the country that we operate in. We will continue to build healthy relationships with all our stakeholders. We believe in setting a high benchmark in the insurance industry and maintain our position as a market leader. We remain focused on achieving long term sustainable growth and maximize value for our shareholders. We will continue to make positive contributions to our community and strengthen our presence. Annual Report 2021 53
- Strategic Objectives Utilize technology to enhance productivity , reduce operational cost and ensure risk mitigation while being fully compliant with laws and regulations Strategies to achieve objectives Ÿ Introduction of digitalization in insurance industry Ÿ Automation of policies and procedures Ÿ Automation of all operational and support Future relevance of KPI KPI Reduction in Operational cost This is an ongoing process and will remain relevant in future Increase in Profitability from core business This is an ongoing process and will remain relevant in future Increase in Revenue and outreach This is an ongoing process and will remain relevant in future Sustainable growth This is an ongoing process and will remain relevant in future Enhance outreach and Improve Quality of services This is an ongoing process and will remain relevant in future Corporate social responsibility This is an ongoing process and will remain relevant in future Sustainable Growth This is an ongoing process and will remain relevant in future Market Penetration in UAE This is an ongoing process and will remain relevant in future processes Ÿ Explore untapped market segments to increase business pool Focus on improving technical profits Ÿ Ÿ Ÿ Ÿ Further strengthen underwriting process Improve reinsurance & retakaful treaties Streamlining of operational cost Consolidation of processes to bring in operational efficiencies To increase our market reach through product innovation to meet the changing needs of the customers Ÿ Ÿ Ÿ Ÿ Ÿ Continuous technological advancement to maintain our strong market position Focus on developing retail-based products and increasing market share of Window Takaful Operations Ÿ Upgradation of technological tools to achieve Add value to our stakeholders' relationship To lead the insurance industry by providing outstanding customer service and maximizing the longterm value for the shareholders competitive advantage Ÿ Use of artificial intelligence and robotic process automation Ÿ Strengthen relationships with our business Ÿ Ÿ Ÿ Ÿ Ÿ Ÿ Ÿ Ÿ Ÿ Increase our geographical presence and market share in UAE Innovation and alternate products Products for students Development of rural market products for farmers Cross product selling of Health & Motor Micro Insurance in collaboration with leading NGO’s Ÿ Ÿ Ÿ partners Open new branches for Window Takaful Operations Fulfil takaful needs of customers and provide Shariah Compliant Products to Islamic Banks Provide support for rural development through partnering with NGOs for micro-insurance To ensure customer satisfaction in all customer dealings Continue financial support to the community in various areas Strengthen leadership position by bringing all round positivity Anticipate the market dynamics and meet changing customers’ needs Expand techno-commercial teams working with local and international brokers Introduction of motor insurance portal in UAE with new marketing strategy Utilize AICL’s close working relations with brokers, online aggregators and sales distributors to expand Expand digital presence in all seven emirates followed by physical presence Diversification in non-motor lines of business Annual Report 2021 54
- Organizational Resources and Their Allocation Organizational resources are the assets available with an organization for utilization in production of goods and services . Effective and efficient utilization of these resources is pivotal towards achievement of strategic objectives as resource allocation and strategy execution are interdependent. Strategy is dependent on resources, whereas resources leave influence on the strategy. Apart from other factors, the success of AICL at where it stands today is the result of in-depth and well thought out resource allocation planning, careful implementation and monitoring. Financial Resources Financial resources also termed as ‘Financial Capital’ include pool of funds that is available to an organization for use in the provision of services. Financial Capital is obtained through financing either equity or grants, or generated through operations or investments. Financial Capital of the Company is utilized effectively and efficiently under the guidelines developed by the Board of Directors. Below is a brief synopsis of the major financial resources and their management: a. Cash and Liquidity Management Maintaining adequate liquidity to meet the claims liability and investing surplus funds to generate income is the primary objective of the cash and liquidity management function which is handled by the ‘Treasury Department’ of the Company. Treasury Department is equipped with competent professionals with relevant experience of multiple years and operates under the supervision of the Chief Financial Officer. During the year, the Company has paid Rs. 12,249 million (2020: Rs. 13,010 million) on account of claims to the insured & takaful participants and Rs. 962.5 million (2020: Rs. 962.5 million) as dividends to the shareholders. Further, the Company also acquired Rs. 1,390 million (2020: Rs. 178.6 million, under Refinance Scheme for Payment of Wages and Salaries) from MCB Bank Limited, a related party, to finance the right share subscription of its wholly owned subsidiary, Adamjee Life Assurance Company Limited. Please refer to note 21.2 in unconsolidated its financial statements for further details. b. Investments Management Investment function is responsible for handling all investments of the Company. The function as per requirements of the Code of Corporate Governance is segregated into Front, Middle and Back Office to ensure adequate internal controls. Further, the investment function is equipped with professionals with experience of multiple years and is headed by Investment Committee of the Board. Decisions regarding investments are taken by the Investment Committee. Investment position and its performance is also reviewed by the Board on quarterly basis. Human Capital Human capital also termed as ‘Human Resource’ is extremely important in myriad areas ranging from strategic planning to company image, customer satisfaction to legal compliance and so on. Hence, the importance of Human Capital for achieving organization’s strategic objectives cannot be over emphasized. The Company has a team of around 921 competent employees with adequate experience, skills and qualifications to manage the day-to-day operations. Various trainings are conducted from time to time to enhance skills of the staff. Further, management takes keen interest in planning the succession for all key positions. Ethics, Human Resource and Remuneration Committee of the Board oversees this function. Annual Report 2021 55
- Manufactured Capital Manufactured capital refers to manufactured physical objects that are available to an organization for use in the provision of services . The physical assets of the Company are broadly classified into: Ÿ Land Ÿ Buildings Ÿ Furniture & fixtures Ÿ Motor Vehicles Ÿ Machinery & equipment Ÿ Computer equipment All of the physical assets of the Company are efficiently utilized for the purpose of business and adequately covered against potential threats through insurance coverage, managing access to the Company premises via biometric / proximity card identification, monitoring entry and exit points through surveillance cameras and security guards. Physical assets are managed through Fixed Assets Register with each asset assigned an identification tag. Further, these assets are subject to both planned and surprise physical verification as well which is conducted from time-totime basis. Intellectual Capital Intellectual Capital refers to organizational knowledge-based intangibles, including ‘Intellectual Property’ such as patents, copyrights, software, rights and licenses and ‘Organizational Capital’ such as knowledge, systems, procedures and protocols. The Company through its experience of operations spread over 60 years has refined, standardized and documented its operating procedures. The procedures are flexible and adaptive to absorb innovations necessary to respond to changes initiated by external factors. The library of the said procedures is effectively and efficiently utilized to introduce new and alternate products, expand customer base, and resultantly increase profits. Social and Relationship Capital Social and Relationship Capital includes shared norms, common values and behavior, key stakeholder relationships, intangible association with organization’s brand and reputation and organization’s social license to operate. Social and relationship capital is one of the key assets that an organization has. It is the image and reputation of the organization that all stakeholders carry with them and plays an important role in achievement of strategic objectives and future growth. The Company realizes the due importance of social and relationship capital and assigns customer satisfaction as top priority in all customer dealings. The Company has maintained healthy relationship with customers, agents, surveyors, reinsurers, reinsurer brokers, vendors, banks and all other stakeholders. Natural Capital Natural Capital refers to all renewable and non-renewable environmental resources and processes that provide services that support the past, current or future prosperity of an organization and includes air, water, land, minerals, forests etc. Natural capital creates the ecosystems for human beings to survive. It is of utmost importance that an organization efficiently manages natural capital to avoid any harm to the ecosystems in the long term. The Company continues to contribute to the sustainable environment by gradually moving towards paperless operations, installing energy conservative technologies, encourage plantation across all its premises, and encourage efficient use of water to reduce water wastage. The Company will continue to work towards promoting green office environment. Annual Report 2021 56
- Factors Affecting Strategy and Resource Allocation Factors Technological Changes Effect on Company ’s Strategy & Resource Allocation Technology is rapidly changing. To push digital transformation initiatives forward and satisfy the demands of modern consumers, insurers today have become early adopters of the latest technologies. Globally, digital-first insurers and tech giants are entering the insurance space and are one of the forces pushing the industry as a whole towards an innovative mindset. Company’s Response Adamjee Insurance has always been and shall remain to be at the forefront when it comes to enhancing and upgrading its processes to encourage innovation. Continuity in the adoption of the latest and advanced digital technologies has redefined the widened parameters of Adamjee Insurance's customer journey, customer experience, simplifying operations and facilitating sustainable long-term growth. Furthermore, digital transformation is no longer seen as aspirational, but something that is essential to drive the industry forward. Societal Changes Environmental Changes We have analyzed the few of the impacts of societal changes as follows. Ÿ Change in Consumer Behavior Ÿ Growing social inequalities demand greater business involvement on inclusive growth Ÿ The digital revolution is a game changer for wealth distribution across geographies and among economic actors Ÿ The environmental (and above all climatic) situation is exerting exponential pressure on business During the past few decades, the awareness regarding environmental problems has increased which results in increased environmental costs to meet the requirements of environmental, health & safety laws and regulations resulting in squeezing profits but at the same time contributing in improving global climate, improved brand image and compliance with sustainability goals. As a responsible corporate, we have a significant role to play in delivering a positive societal impact for our employees and people across our value chain. Enhancing livelihoods, respecting human rights, and looking after our people adds value to the society and is a pragmatic and commercial approach that secures the long-term sustainability of our business. Our initiatives to overcome challenges of societal issues has addressed in Corporate Social Responsibility section. Being part of the services industry, the insurance sector typically has a very low environmental impact or footprint. Operations are limited to using conventional sources of energy for office / workplace lighting purposes and the sector is even looking at means to optimize consumption of electricity. However, the one area where the industry has a substantive impact is in building climate resilience in the agricultural sector. Through providing crop insurance services, not only does the sector support the farm and agriculture communities to make the transition to a low-carbon one, but also protects crops against damage in the event of any adverse weather-related events. Our Commitment to Addressing Integrity and Ethical Issues We are committed to achieving our business objectives in a transparent, open, and accountable manner, and sustaining a culture of integrity in everything we do: Ÿ Compliance to the policies, procedures and standards are mandatory for all our employees, and regular training and awareness sessions are conducted to ensure that the policies are clearly understood and actioned upon. Ÿ Placement of mechanism for integrity risk assessments on an ongoing basis. Ÿ Reviewing and ensuring the performance management systems are in alignment with the organization's ethical goals. Annual Report 2021 57
- Initiatives for Promoting and Enabling Innovation Adamjee Insurance has embedded innovation in its strategic objectives and encourages the innovation throughout the organization . The Company has developed a centralized structure for innovation and has formed a ‘Insurtech and Innovation Group’. The Insurtech and Innovation Group is working under the supervision of the Management Committee and comprises of members from various functions. The objective of the Group is not only to develop Insurtech products but also develop brand new products, processes, and new ideas, or to approach existing products, processes, and ideas in new ways. Further, new ways of thinking in order to design better solutions, services and solve the current problems is also encouraged and deliberated at the forum of our Insurtech and Innovation Group. Strategy to Manage Liquidity and Repayment of Debts Liquidity refers to the ability of an organization to fulfil its short-term liabilities when they become due. Managing liquidity is important as even the profitable organizations may find it difficult to run their operations smoothly in absence of adequate funds or liquid assets. The key element of the Company’s liquidity management strategy is to maintain sufficient liquid assets to meet its claims and other liabilities. Liquidity requirements are kept into consideration while making investment decisions. Bank balance maintained with high rated scheduled banks amounts to Rs. 2,428 million (2020: Rs.1,516 million). Further, liquid assets ratio is 1.2 times (2020: 1.3 times) as at 31 December 2021. During the year 2021, the Company acquired Rs. 1,390 million (2020: Rs. 178.6 million, under Refinance Scheme for Payment of Wages and Salaries) from MCB Bank Limited, a related party, to finance the right share subscription of its wholly owned subsidiary, Adamjee Life Assurance Company Limited. Out of Rs. 1,390 million, the Company has made repayment of Rs. 550 million till 31 December 2021. The Company is required to make repayment of loans amounting to Rs. 926.76 million in the year 2022. The management foresees that operations and investments of the Company would generate sufficient income / funds to easily meet the repayment of the liability. Liquidity position is closely monitored on routine basis under the supervision of the Chief Financial Officer. Significant Plans and Decisions Significant plans that are in-line with our mission & vision include the following: Ÿ Expansion & Growth in our existing portfolio Ÿ Focus on retail-based product market including Health, Motor, Travel & Agricultural products Ÿ Expansion of Window Takaful Operations in Pakistan Ÿ Develop non-motor lines of business in UAE Ÿ Product development with the help of digital technologies Annual Report 2021 58
- Significant Decisions Regarding Restructuring of the Group Adamjee Life Assurance Company Limited (ALACL) is a wholly owned subsidiary of Adamjee Insurance Company Limited (AICL). ALACL is a public unlisted company. The Board of AICL has decided to list the shares of ALACL on the Pakistan Stock Exchange. Initially, 25 million shares of ALACL would be offered for sale to the public. The listing of ALACL is in process and is expected to complete in March 2022. Significant Changes from Prior Years There were no significant changes in objectives and strategies during the year except for the one disclosed in ‘Cash & liquidity management’ and ‘Strategy to manage liquidity and repayment of debts’ sections relating to loan obtained from MCB Bank Limited, a related party, to finance the right share subscription of wholly owned subsidiary, Adamjee Life Assurance Company Limited. Annual Report 2021 59
- Annual Report 2021 60
- Enterprise Risk Management (ERM) Framework At Adamjee Insurance Company Limited (AICL), the Enterprise Risk Management (ERM) Process is broken down into the following steps: Risk Identification Risk Estimation Risk Evaluation Risk Treatment Risk Monitoring Each step is explained in some detail below: Risk Identification: Ÿ By collaborating with a variety of departments in AICL, all the possible risks affecting the Company are identified, and to build an understanding of such risks, an in-depth knowledge about them is gathered. Ÿ One of the primary sources of risk identification continues to be through interviews and discussions. Brainstorming sessions are conducted internally among the relevant stakeholders to identify the risks and opportunities affecting AICL. Questionnaires are also shared with the departments to get additional insights. Ÿ Some risks and opportunities are identified once audits or inspections are carried out, both internal and external. Ÿ Incident investigations and scenario analysis are also carried out which help in recording specific risks and opportunities that are relevant to AICL. Ÿ At this stage, immediate stakeholders are also identified. For example, in Capital Adequacy Risk, the immediate stakeholder would be Finance Department. Ÿ Risks are described in detail at this stage, and the source of the risk is clearly identified. Risk Estimation: Ÿ Impact of the risk is estimated qualitatively, and its direct impact on the Company. Ÿ Impact and probability of the risks are rated at this step, which assists in making a judgment about the risk rating, which can either be Critical, High, Moderate or Low. Ÿ A credible worst-case scenario is built and its impact on financial statements is checked based on its likelihood of occurrence. This helps in quantifying the risk to some extent. Risk Evaluation: At this stage, Risk is evaluated in terms of: Ÿ Risk appetite of AICL, as per Board’s guidance Ÿ Tolerance level of the risk, as per Board’s guidance Ÿ Risk treatment stance, which is either to avoid the risk completely, or merely reduce it. Annual Report 2021 61
- Risk Treatment : Ÿ Clear risk strategies are documented regarding each risk. Existing controls are also reviewed and a potential action for improvement is noted. Ÿ Residual risks are also established at this stage. Risk Monitoring: Ÿ A Key Risk Indicator (KRI) is built for each risk, which rates the risk as Low, Medium, High, and Critical. Ÿ Based on these ratings, it is assessed what kind of actions need to be taken regarding risk mitigation. Commitment of the Board in the ERM Process The Board of Directors of AICL oversees the risk management framework to make sure that the risks affecting AICL are identified properly and are being appropriately dealt with. In the above ERM framework, the Board’s input is mostly evident in the third, fourth and fifth steps. Following are the responsibilities of the Board of Directors: Ÿ Ensure that AICL has a comprehensive ERM framework. Ÿ Advise on the risk appetite and tolerance regarding each risk, as highlighted in Step 3. Ÿ Approve and advise on any steps that are necessary to control risks once the residual risk assessment is complete, as highlighted in Step 4. Ÿ Ensure that risks are monitored appropriately, as highlighted in Step 5. Ÿ Meet with the Risk Management Committee on a quarterly basis and take feedback on progress and compliance. Annual Report 2021 62
- Key Risks Following are the key risks that affect AICL , their consequences, their risk rating, and how the company has control over them. The probability and risk rating of each risk offers insight over the likelihood and magnitude, whereas control offers insight over the steps that AICL has taken to avoid or reduce the specific risk. Risk No. 1 Business Activity Financial Risk Name Regulatory Risk i.e., unable to implement IFRS17 Internal or External Internal 2 Financial Credit Risk External 3 Financial Reserve Risk 4 Strategic Capital Adequacy/ Solvency Margin Risk Both External Risk Description Consequences Impact Probability The deadline to implement IFRS17 is 1st January 2023. In case AICL is not able to implement IFRS17 by then, it might cause problems for AICL in both UAE and in Pakistan. The company may face: 1. Fines from the regulator in both UAE and in Pakistan. 2. Any other consequences that the regulator might find appropriate. Significant Unlikely Risk Rating High Control The company is exposed to credit risk against the following counterparts: 1. Reinsurance / coinsurance counterparties. 2. Assets held with banks. 3. Derivatives. 4. Insurance debtors (Policyholders, brokers, and development officers). 5. Receivables from employees. 6. Receivables from other insurance companies. There is volatility associated with actual runoff of claims. There is volatility in frequency as well as severity. Note that this includes all reserves established by claims department as well. This risk may arise due to: 1. Credit Risk in case key debtors' default. 2. Market risk in case there is a significant decline in investment value. 3. Inadequate claim reserves. 4. Poor underwriting. 5. Inappropriate reinsurance arrangements. 6. Changes in solvency regulations If any counterparty fails to meet its obligations in accordance with agreed terms, it will cause a financial loss to the company, which will affect: 1. Capital requirements. 2. Credit rating. 3. Liquidity position. Significant Moderate High AICL will face unanticipated losses in certain quarters due to inadequate reserves, in case the actual IBNR is higher than expected IBNR. This would result in: 1. An inability to meet minimum capital requirements, which will affect company's trade license renewal. 2. Relationships’ credit rating. Major Moderate High Reserves are calculated with built in margins, especially for long tail claims, to ensure inadequacy is never experienced. Significant Moderate High AICL aims to maintain strong capital adequacy ratio or solvency margin at least 25% above regulatory requirement. Moreover, regular assessments of capital needs are made. AICL has: 1. Established a dedicated working group for IFRS17. 2. Dedicated enough resources at this stage to meet regulatory deadlines and monthly internal targets. 3. Increased engagement with Appointed Actuary. 4. Carried out financial impact assessments of IFRS17 internally to increase awareness about the regulation. 5. Taken multiple demos of outsourced solutions to explore efficient solutions. AICL aims to transact with financially sound and reputable parties having high credit worthiness to avoid potential loss. Annual Report 2021 63
- Risk No . 5 Business Activity Strategic Risk Name Sovereign Risk Internal or External External Risk Description Consequences Impact Probability 6 Strategic Political Risk External Company may fail to achieve its business objectives due to the following events: 1. Political instability. 2. Riots, terrorism, or wars. 3. Inadequate supplies of basic facilities in the country. 4. Deteriorating law and order situation. 5. Frequent power and gas outages. 7 Financial Liquidity Risk External AICL is exposed to liquidity risk if any of the following events occur: 1. Financial obligation falls due earlier than anticipated. 2. Credit default by significant counterparty. Control Moderate Risk Rating High AICL will be exposed to sovereign risk in case the following events happen: 1. Worsening of foreign exchange balance of payments position. 2. Default by government of Pakistan in servicing of debts. 3. Unstable country credit rating by international rating agencies. The company will face the following issues: 1. Inability to maintain credit rating required by UAE insurance law, which should impact the overseas operations. 2. Relationships with international reinsurance companies will deteriorate, resulting in high reinsurance cost or no reinsurance arrangements. Due to political instability in the country: 1. The company may fail to meet the business targets. 2. Service to customers will be affected. 3. Cost of doing business will increase. Major Major Moderate High Significant Unlikely High AICL aims to achieve optimal level of service performance to its customers. Hence, the company will: 1. Regularly carry out political risk assessments and the impact on operations. 2. Monitor economic indicators such as foreign reserves, discount rate and exchange rate. 3. Keep the revenue mix diversified. 4. Issue instructions to underwriters to exercise prudent judgment before accepting risks, in case of deteriorating law and order situation. 5. Maintain adequate catastrophic cover from reinsurer. AICL aims to maintain adequate liquidity to be able to meet liabilities when they fall due. Hence, it is preferred to avoid this risk. There are automated management information systems in place that help in managing this risk adequately. Company's inability to pay off its contractual obligations in a timely manner may result in: 1. Disputes with clients and litigations. 2. Delays in salaries to employees. 3. Delays in payment to government authorities. 4. Adverse impact on solvency and rating. AICL aims to improve its foothold in the Middle East markets along with Pakistan. Hence, the company will: 1. Regularly carry out sovereign risk assessments and the impact on operations. 2. Monitor economic indicators such as foreign reserves, discount rate and exchange rate. 3. Invest in assets that are not severely affected by country's default. 4. Keep the revenue mix diversified. . Annual Report 2021 64
- Risk No . 8 Business Activity Operational Risk Name Processing of fake or fraudulent claims 9 Operational Credit Rating Risk External 10 Strategic and Financial External Currency Risk i.e., decreasing PKR value Internal or External Internal Risk Description Consequences Impact Probability Control Moderate Risk Rating High Company may be exposed to risk of financial loss on processing of fake or false claims due to: 1. Ineffective claim authentication process. 2. Collusion of surveyors and employees. 3. Undocumented claims payment process. AICL faces a risk of not maintaining the credit rating. This will happen if AICL does not manage capital adequacy ratio, credit risk, market risk and liquidity risk appropriately. This may result in financial loss to the company. There is a possibility of fines and penalties by the regulator as well. Moderate Due to a deterioration in credit rating, AICL will face: 1. Reputation risk. 2. Loss of customer confidence. 3. Loss of market share. 4. Risk of low reinsurance arrangements. Significant Moderate High Moderate Moderate High AICL aims to maintain a strong IFS rating and financial strength. Company will manage operational and financial aspects to keep its rating strong and steady. Company strength is benchmarked against rating agency criteria from time to time, and any concerns that are highlighted are raised immediately. Moreover, the management reviews the financial strength quarterly, and how it impacts IFS rating. 1. AICL aims to minimize this risk through active modelling and scenario analyses which should help in strengthening the underwriting side. 2. Underwriting function is being equipped to reflect expected currency devaluation in inflation assumptions at pricing points. 3. Foreign exchange rates are observed and monitored on a regular basis. 4. A higher control is established on the claim processing side because decline in PKR value affects car and parts values and health claim costs. Continuous decrease in PKR value might result in increase in claim costs for AICL. Due to decrease in PKR value: 1. Claim costs will increase, especially for Motor and Health lines of businesses. 2. Unearned premium reserve (UPR) runoff will become expensive. 3. Earnings and profit margin might be affected adversely. AICL has a strong control over claim payments as per approved claims authorization matrix. The protocols have been defined in the internal claim manual. Moreover, claims are not processed without necessary documentation. Annual Report 2021 65
- Key Opportunities Following are the key opportunities available to AICL . The probability and impact rating of each opportunity offers insight over the likelihood and magnitude, whereas strategy offers insight over the steps that AICL has taken to create value from the specific opportunity. Opportunity Data Reinsurance Needs Skilled Human Resources Automating Manual Processes Changing Customer Needs Positive impact on UAE Motor line of business due to COVID19 Description Data has become the most important thing in the modern world. It is not only important to gather all the data from target market, but it is also important to store it properly so that it can be used for the company's benefits. With the years of data that is available with AICL, the company can predict how much reinsurance coverage is required. The success of service industry mostly depends on customer satisfaction to some extent. With skilled human resources, AICL can ensure that customer facilitation is kept a priority. Most of the companies are highlighting manual processes that consume time and energy and finding ways to automate them. Considering how the market dynamics are changing, there is an opportunity to observe how the customer needs are changing and cater to them. For example, COVID-19 motivated people to buy health insurance, whereas some people discontinued their insurances due to slow economy. COVID19 resulted in fewer cars on the road due to lockdowns, which reduced the claim costs. It was assumed that this favorable impact would eventually diminish, but with prevalence of Delta and Omicron variants, this benefit increased as it was observed in favorable loss ratios. Consequence AICL can make sure that all relevant data is gathered from the target market, such as policyholders. Once all data is gathered, it can be ensured that all data is stored properly, and can be extracted through relevant usable reports, where it shows key insights. Strategy AICL can use new technology related to predictive analytics and data science to ensure that the stored data gives useful predictions and shows trends that might help AICL in decision making. Probability High Impact High By following adequate methodologies of assessing reinsurance requirements, the company can ensure that appropriate reinsurance is purchased, so that there is minimum risk of over reinsurance or under reinsurance. With skilled human resources, AICL will be able to make sure that customers get complete guidance, from insurance policy selection to claim handling. With the help of automated software such as MetaRisk, AICL can predict with a certain level of confidence how much reinsurance is required, and what kind of reinsurance arrangements would be optimal. High High AICL can either hire new skilled resources who are experts in this service industry or carry out internal professional trainings to train the existing staff. High High By eliminating slow and tedious processes, AICL will be able to find overall efficiency and will be able to meet its obligations adequately. This will also save time of employees, who will then have more quality time to invest in the organization. Automation should also improve overall customer experience. AICL can observe how the customer demands are changing and try to fill in the gaps by launching new products. Moreover, the company can also investigate and offer discounts on existing products in case there are margins, and in case that is what the mass population requires as per changing economic environment. From time to time, AICL can do audits of different processes such as internal administration process of employee expense reimbursement, or process of policy cancellations. Time should be devoted to how the processes can be made quicker. If required, technology can be acquired. Several stakeholders in the company, such as Actuarial, Marketing and Underwriting departments can collaborate and see if discounts are viable and invest time in Research and Development of new insurance products. High Moderate High High Motor line of business makes majority of the business mix of AICL in UAE. Favorable loss ratios in Motor line of business would increase the overall profitability of AICL in UAE. AICL needs to: 1. Observe COVID19 impact on claim costs closely. 2. If the benefit remains, business volumes can be increased to increase the profitability. High Moderate Annual Report 2021 66
- Adequacy of Capital Structure Share Capital and Reserves 2021 2020 2019 Rupees in thousand Authorized Share Capital 3 ,750,000 3,750,000 3,750,000 Issued, Subscribed and Paid-Up Capital 3,500,000 3,500,000 3,500,000 Reserves 5,486,879 4,486,946 4,555,491 Unappropriated Profit 16,402,885 14,247,913 13,325,001 Total Equity 25,389,764 22,234,859 21,380,492 2,174,053 1,312,004 1,176,685 Cash and Bank The above table highlights the adequacy of capital structure of AICL. Moreover, the company has maintained healthy cashflows in the last 3 years, and there have been no instances of default in payments, of any sort. There is absolutely no inadequacy in the capital structure. Annual Report 2021 67
- Annual Report 2021 68
- Directors ’ Report to the Members on Unconsolidated Financial Statements ECONOMIC OVERVIEW The year 2021 has seen signs of recovery in global as well as in Pakistan’s economy especially after witnessing unprecedented pressures in year 2020 caused by the effects of COVID-19 pandemic and the related global and potential domestic lockdowns. During the fiscal year 2021, Pakistan’s real GDP grew by 5.57% as against decline of 1% in 2020. However, rising economic activity also resulted in increased imports causing significant pressure on current account. In first half of the fiscal year 2022, current account deficit reached to USD 9.09 billion. The state bank of Pakistan (SBP) kept the policy rate at 7% in FY 2021. However, SBP has reversed the course during current fiscal year and jacked up the policy rate by cumulative 275 basis points to 9.75% to curb the current account deficit and higher than expected inflation. generated through Window Takaful Operations) as compared to Rs. 18,279 million in 2020 (excluding Rs. 1,525.6 million of contributions generated through Window Takaful Operations). The net premium retention was 54% (Rs. 12,552 million) of total gross premium underwritten as compared to the net premium retention of 73% (Rs. 13,295 million) in 2020. Gross Premium 10,000 9,000 8,000 Rupees in Million On behalf of the Board of Directors, we are pleased to present the 61st Annual Report of your Company together with the audited unconsolidated financial statements for the year ended 31 December 2021. 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Concerning Pakistan Stock Exchange (PSX), the KSE100 Index remained range-bound during the year with the Index reaching high and low levels of 48,726 and 42,780. The KSE-100 index posted meagre return of 1.92% in 2021 as against return of 7.4% in 2020, closing at 44,596 in the year 2021, as compared to 43,755 in 2020. 2021 Marine Fire Motor 2020 Accident & Health Miscellaneous Net Premium Standard & Poor's affirmed Pakistan’s long-term credit rating to ‘B-Negative’ with stable outlook. 10,000 9,000 COMPANY PERFORMANCE REVIEW 8,000 In 2021, the gross premium increased to Rs. 23,320 million (excluding Rs. 1,464.9 million of contributions Rupees in Million 7,000 Despite the challenging environment and the uncertainty caused by the Omicron variant of COVID-19 pandemic, the Company’s performance for 2021 remained impressive as we closed the year delivering sound financial results with a premium growth of 28% in conventional business over the preceding year. We continued to follow the strategy of sustainable growth by focusing on further strengthening the risk and compliance management. 6,000 5,000 4,000 3,000 2,000 1,000 2021 Fire Marine Motor 2020 Accident & Health Miscellaneous Annual Report 2021 69
- The net claims ratio decreased to 57 % as compared to last year’s ratio of 60% per annum due to decrease in loss ratio of Pakistan as well as UAE Operations. The underwriting profit increased to Rs. 672.3 million from Rs. 375.7 million in 2020. The return on investment portfolio also increased to 8% as compared to 4% in 2020. Marine, Aviation & Transport constituted 6% of the total portfolio. The Company has underwritten a gross premium of Rs. 1,310.8 million in current year as compared to Rs. 981.7 million in 2020. The net claims ratio remained 44% as against 44% last year. This portfolio showed underwriting profit of Rs. 34.3 million in current year as compared to loss of Rs. 90 million in 2020. PORTFOLIO ANALYSIS Fire & Property Damage Fire and property class of business constituted 40% of the total portfolio. During the year, the Company has underwritten a gross premium of Rs. 9,242.3 million (2020: Rs. 6,773.3 million). Net claims ratio to net premium decreased to 34% this year as compared to 86% last year. As a result, fire and property class posted underwriting profit of Rs. 171.9 million as compared to loss of Rs. 255.7 million in 2020. Fire & Property Damage 1,000 900 Marine, Aviation & Transport 1200 1000 800 Rupees in Million Profit before tax amounted to Rs. 4,405.4 million recording an increase of 131% over last year at Rs. 1,910.2 million. While the Profit after tax improved by 67% to Rs. 3,136.5 million as against profits of Rs. 1,875.5 million of 2020. Marine, Aviation & Transport 600 400 200 - 2021 2020 Net Premium Revenue Net Commission Net Claims Expenses Motor This class of business constituted 37% of the total portfolio. During the year, the Company has underwritten a gross premium of Rs. 8,620.0 million as compared to Rs. 7,402.3 million in 2020. The ratio of net claims to net premium for the current year was 54% as compared to 55% in 2020. The portfolio showed an underwriting profit of Rs. 338.6 million as compared to Rs. 535.6 million in 2020. Motor 700 10,000 600 9,000 500 8,000 Rupees in Million Rupees in Million 800 400 300 200 5,000 4,000 3,000 100 - 7,000 6,000 2,000 1,000 2021 Net Premium Revenue Net Commission 2020 Net Claims Expenses 2021 Net Premium Revenue Net Commission 2020 Net Claims Expenses Annual Report 2021 70
- Accident & Health INVESTMENT INCOME The Accident & Health class of business constituted 13% of the total portfolio. During the year, the Company has underwritten a gross premium of Rs. 3,031.1 million as compared to Rs. 1,923.8 million in 2020. The ratio of net claims to net premium remained 85% as against 85% in 2020. This portfolio showed an underwriting profit of Rs. 51.0 million in the current year against Rs. 53.7 million in 2020. Investment income of the Company witnessed increase of 126% mainly due to increase in dividend income. Accident & Health Dividend income increased by 126% in 2021 owing to release of dividends by banking sector that were put on hold in 2020 due to the temporary restriction on distribution of dividends imposed by State Bank of Pakistan. As a result, the overall income from investments amounted to Rs. 2,469 million in 2021 as against Rs. 1,093 million in 2020. 2,200 The break-up of investment income is as under: 2,000 2021 2020 (Rupees in million) 1,600 1,400 1,200 Dividend income 1,000 800 Return on fixed income securities 600 Income from term deposits 400 Gain/(Loss) on sale of ‘available-for-sale’ investments (net of impairment) 200 2021 Net Premium Revenue Net Commission 2020 Net Claims Expenses Net investment Income The miscellaneous class of business constituted 5% of the total portfolio. The Company has underwritten a gross premium of Rs. 1,115.5 million as compared to Rs. 1,198 million in 2020. The ratio of net claims to net premium was 54% as compared to 50% in 2020. The portfolio showed an underwriting profit of Rs. 76.5 million in the current year as compared to Rs. 132.1 million in 2020. 1,000 38 39 116 171 55 (117) 2,469 1,093 Total assets of the Company as on 31 December 2021 amounted to Rs. 61,641 million as against Rs. 49,520 million last year. Total investments increased by 17% at Rs. 31,069 million as compared to Rs. 26,596 million in 2020. The management’s strategy is to optimize utilization of funds over a long-term investment horizon to maximize investment returns. Miscellaneous Assets 70,000 1,000 60,000 900 Rupees in Million 800 700 600 500 400 50,000 40,000 30,000 20,000 300 200 Net Premium Revenue Net Claims Expenses 2008 2009 2010 2011 2012 2013 2014 2015 2016 2020 2017 2021 2018 - - 2019 10,000 100 2020 Rupees in Million 2,260 COMPANY’S ASSETS Miscellaneous 2021 Rupees in Million 1,800 Assets Net Commission Annual Report 2021 71
- PROSPECTS FOR 2022 Assets Break -up Pakistan ’s economy performed well in FY 2021 registering GDP growth rate of 5.57%. However, first half of FY 2022 witnessed the inflationary pressures and widening of the trade deficit resulting in current account deficit of USD 9.09 billion. These indicators have necessitated contractionary measures by the State Bank of Pakistan (SBP) which are expected to moderate the growth in domestic demand and reduce the inflation and current account deficit. SBP has forecasted the GDP Growth in range of 4% to 5% for the FY 2022. 30,000 Rupees in Million 25,000 20,000 15,000 10,000 5,000 2021 Investments Cash and Bank 2020 Investment Property Fixed Assets Other Assets WINDOW TAKAFUL OPERATIONS The Company’s Window Takaful Operations – Operator Fund closed the year with a decline of 4% in gross written contribution at Rs. 1,464.9 million as compared to Rs. 1,525.6 million in the year 2020 and has made a profit after tax of Rs. 98.9 million as compared to profit of Rs. 116.4 million last year. OUTSIDE PAKISTAN OPERATIONS – UNITED ARAB EMIRATES & EXPORT PROCESSING ZONE The Company has three fully functional branches located in Dubai, Sharjah and Abu Dhabi and one branch in Export Processing Zone (EPZ). The UAE branches are regulated under the relevant UAE laws applicable to the local insurance companies. After a significant decline of 37% in written gross premium in 2020 due to the uncertainties and lockdowns caused by the Covid-19 pandemic, Outside Pakistan operations witnessed recovery in 2021 and written gross premium increased by 31% in 2021 over the last year. Outside Pakistan operations’ profit before tax amounted to Rs. 209.9 million as compared to Rs. 246.2 million in 2020. Insurance Industry in Pakistan observed several peaks and dips in recent years. However, it successfully managed to keep pace with the development of the economy and other sectors of the industry. Amid current macro-economic and political environment, especially on the assumption of increased political activities towards end of year 2022 due to approaching elections in year 2023, we foresee distressed growth trajectory of Insurance Sector during the year 2022. DIRECTORS Total number of directors was 8 during the year 2021 and comprises as under: 1. Total Number of Directors: i. ii. 2. Male Female 7 1 Composition of Board: i. Independent directors - Muhammad Anees - Mohammad Arif Hameed ii. Non-Executive directors - Male - Ibrahim Shamsi - Imran Maqbool - Shaikh Muhammad Jawed - Umer Mansha iii. Non-Executive director - Female - Sadia Younas Mansha Annual Report 2021 2 4 1 72
- iv . Executive director - Muhammad Ali Zeb 1 DIRECTORS’ REMUNERATION The Board of Directors has approved the remuneration of the members of the Board (Non-Executive Directors including independent directors) for attending meetings of the Board. The meeting fee of Rs. 10,000/- per meeting is paid to directors. Travel expenses by air from city of residence to the city of the meeting are paid with hotel accommodation, if availed. The aggregate amount of remuneration is mentioned at Note 38 of the Unconsolidated Financial Statements. BOARD MEETINGS & ATTENDANCE During year 2021, five meetings of the Board of Directors were held and attended by the Directors as under: Umer Mansha 5 Ibrahim Shamsi 4 Imran Maqbool 5 Muhammad Anees 5 Mohammad Arif Hameed 4 Sadia Younas Mansha 4 Shaikh Muhammad Jawed 5 Muhammad Ali Zeb – CEO 5 BOARD COMMITTEES & ITS MEMBERS The Board has formed following committees: AUDIT COMMITTEE Muhammad Anees Independent Director Chairman Ibrahim Shamsi Non-Executive Director Member Shaikh Muhammad Jawed Non-Executive Director Member Umer Mansha Non-Executive Director Member ETHICS, HUMAN RESOURCES & REMUNERATION COMMITTEE Muhammad Anees Independent Director Chairman Ibrahim Shamsi Non-Executive Director Member Umer Mansha Non-Executive Director Member Muhammad Ali Zeb MD & CEO Member INVESTMENT COMMITTEE Umer Mansha Non-Executive Director Chairman Imran Maqbool Non-Executive Director Member Muhammad Ali Zeb MD & CEO Member Muhammad Asim Nagi Chief Financial Officer Member STATEMENT OF COMPLIANCE WITH CODE(S) OF CORPORATE GOVERNANCE Statement of compliance with code(s) of corporate governance is separately provided in Annual Report at page 87. RISK MITIGATION Risk Mitigation is a proactive review and plan for the organization’s current and potential risks. One of the vital functions in risk mitigation at Adamjee Insurance is the Physical Risk Management of fixed assets being offered for insurance, whether Industrial, Infra-structure, Commercial or Private Dwellings. Risk Management involves assessment of the various sections, processes and departments and it analysis the perils to which these fixed assets are exposed to. Adamjee Insurance carries out risk surveys which give our underwriters an insight about pre-defined categories of risks and those risk which cross certain financial thresholds, sometimes even before issuing an insurance quotation and/or an insurance policy. This is the reason why we have a dedicated team of well qualified and experienced risk surveyors who carry out the largest number of risksurveys every year in the industry. The underwriters equipped with maximum information about the risk are then in a better position to accept or reject the risk with Annual Report 2021 73
- more conviction and confidence . Once the risk is accepted for underwriting, a right price and appropriate terms are provided for the benefit of our valued customers. The recommendations made by the risk surveyors help the customers in improving their processes and operations, thus mitigating the risk exposures significantly. The Company pays particular attention to the underwriting controls. Each class of insurance is headed by qualified and experienced underwriters, who manage and control the underwriting in their respective class of business. The utmost aim in any underwriting process is to protect the bottom-line of the Company. This is achieved by accurately estimating the exposures and the probability of future losses and thereby developing appropriate terms and conditions for each proposed risk for insurance and also deciding carefully on the retention of each risk. Underwriting involves a number of technical controlling protocols. These protocols include Risk Categorization Grid, defined underwriting authorities, Check Lists for underwriters, guidelines by class of business, rate monitoring mechanism, underwriting peer reviews and practice for seeking guidance on large and intricate risks from Risk Exposure Group (REG). This Group is represented by Executive Director Technical, Executive Director Commercial, Head of Claims and Compliance and Executive Director Re-Insurance. The Risk Categorization Grid defines Very High Risks, High Risks, Medium Risks and Low Risks Categories. The Company has a very effective Reinsurance Treaty Programme in place which along with Facultative Risk Wise arrangements provides a bespoke protection to the Company against different types of risks. Both Reinsurance and Coinsurance arrangements are effectively used as risk mitigating tools against all types of risk exposures and to augment Company’s risk appetite. GOVERNMENT OF PAKISTAN POLICIES AND THEIR IMPACT The Government of Pakistan and the regulatory authority, namely, Securities and Exchange Commission of Pakistan (SECP) have made various enactments, rules and regulations to regulate the Insurance Sector in the country. These enactments and the rules and regulations made thereunder aim to provide guidelines for the sector relating to various aspects of the insurance business including, but not limited to, minimum capital requirement for insurers, day to day insurance operations, know your customers (KYC), data maintenance and protection, anti-money laundering and counter financing of terrorism, accounting of transactions, presentation of financial statements, handling of complaints and grievances and so on. The policies of the Government of Pakistan tend to achieve transparency and promote adoption of best practices in all aspects of the insurance business. PATTERN OF SHAREHOLDING The pattern of shareholding is annexed in the Annual Report at page 400. The format of reporting, Form 34, has been slightly amended to comply with the reporting requirements under the Code of Corporate Governance for Insurers, 2016. For the category of ‘Executive’, the Board of Directors has set the threshold for the year 2021. In addition to CEO, CFO, Head of Internal Audit and Company Secretary, officers in the cadre of Executive Director and above are included in the category of ‘Executives’. The threshold is reviewed by the Board annually. EARNINGS PER SHARE During the year under review, earnings per share were Rs. 8.96/- (2020: Rs. 5.36/-). Detailed working has been reported in Note 37 to the unconsolidated financial statements in this regard. INTERNAL FINANCIAL CONTROLS AND ITS ADEQUACY The Board has adopted policies and procedures for ensuring orderly and efficient conduct of its business including adherence to the Company’s policies, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and timely preparation of reliable financial disclosures. The system provides, though not absolute, but reasonable assurance that adequate control mechanisms have been established within the operational businesses. Annual Report 2021 74
- The Company ’s internal control system is commensurate with its size, scale, and complexities of its operations. The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of the internal control system and suggests improvements to strengthen the same. It also reviews the quarterly Internal Audit Reports. Internal financial controls deployed within the Company have been found satisfactory throughout the year. CSR activities The CSR initiatives taken during the year 2021 have been separately mentioned in the annual report at page 152. Impact of Company’s Business on Environment continue to fulfill their insurance, regulatory and quality requirements, adding even more value to its customer services. This upgraded standard is conferred by Lloyd’s Register Quality Assurance. The certification has a continuation of our adherence to internationally established standards for quality system. At AICL, we are fully aware of how beneficial this standard (ISO 9001:2015) is for us which includes but not limited to enhanced organized operating environment, better working conditions, increased job satisfaction and enhanced customer satisfaction. IFS Ratings During the year, The Pakistan Credit Rating Agency Limited (PACRA) has maintained the Insurer Financial Strength (IFS) rating of the Company as “AA+” (Double A plus). This rating denotes a very strong capacity to meet policyholders’ contract obligations. Risk factors are considered modest and the impact of any adverse business and economic factors is expected to be very limited. The impact of Company’s business on environment is actually next to nothing, since Adamjee does not have any manufacturing and/or energy-resource based business set-up. With around 921 employees, we feel that we have a responsibility for environmental protection and have involved ourselves in areas that we can influence in a positive manner. We are focusing on reducing the use of paper and gradually moving towards a paperless environment. We are sensitizing our staff to behave in an environmentally friendly manner to save on electricity/power consumption and water usage. AM Best has affirmed the financial strength rating of the Company to “B (fair)” with stable outlook which denotes a strong risk-adjusted capitalization maintained by the Company. HUMAN RESOURCE SUBSIDIARY COMPANY At Adamjee Insurance, we believe that Human Capital is our core asset. We nurture the seeds of growth and flourish because of our people, who keep adding value through utmost efforts. Our aim is to provide growth opportunities and bring a performance based culture where rewards are linked for the encouragement of our employees. That is why, our people are more engaged, feel secure and resultantly employees’ satisfaction indicators, i.e. productivity, engagement index and turnover for year 2021 is inspiring in the company. The Company has annexed its consolidated financial statements along with its separate financial statements. Adamjee Life Assurance Company Limited (ALACL) is a wholly owned subsidiary company of Adamjee Insurance Company Limited (AICL). A brief description of ALACL is given below. ISO 9001:2015 CERTIFICATION Adamjee Insurance has always strived to enhance customer satisfaction through continually improving in its quality management system practices, processes and standards. By the new version of ISO 9001:2015, Adamjee has once again assured customers that it will ALACL was incorporated in Pakistan under the Repealed Companies Ordinance, 1984 on 4 August 2008 as a public unlisted company and commenced operations from 24 April 2009. ALACL till February 2020 was a subsidiary of AICL and an associate of IVM Intersurer B.V. (IVM) having 74.28% and 25.72% holding respectively in the capital of ALACL. In February 2020, the Company has acquired the remaining stake of 25.72% in ALACL from IVM, which made it a wholly owned subsidiary of the Company. Annual Report 2021 75
- During the year 2021 , 156,450,600 right shares at value of Rs. 10/- per share were offered by ALACL. These shares were subscribed by the Company. The paid-up capital of ALACL after issue of right shares was raised to Rs. 2,500 million. Arrangements are under way to offer for sale 10% stake in ALACL equivalent to 25 million shares through book building. 75% shares i.e. 18,750,000 shares would be offered to successful bidders and 25% shares i.e. 6,250,000 shares to retail investors. During the first quarter 2022 ALACL shall be listed on PSX. Financial performance and position of ALACL is given in the consolidated financial statements annexed to the Annual Report. EVENTS AFTER BALANCE SHEET DATE There are no significant events that took place between the date of financial statements and date of this report. RECOMMENDATION FOR DIVIDEND An interim dividend @ 15% (Rupee 1.5 per share) (2020: @ 12.5% [Rupee 1.25 per share]) was paid during the year. The Board recommended final cash dividend @ 15% (Rupees 1.5 per share) (2020: @12.5% [Rupees 1.25 per share]). STATEMENT OF CORPORATE AND FINANCIAL REPORTING FRAMEWORK The Corporate laws, rules and regulations framed there under spell out the overall functions of the Board of Directors of the Company. The Board is fully aware of its corporate responsibilities as envisaged under the Companies Act, 2017, the Code of Corporate Governance for Insurers, 2016 and the Listed Companies (Code of Corporate Governance) Regulations, 2019 (the Codes) and is pleased to give the following statements: Ÿ The financial statements, prepared by the Company, present fairly its state of affairs, the results of its operation, cash flows and changes in equity. Ÿ The Company has maintained proper books of accounts as required under the Companies Act, 2017. Ÿ The Company has followed consistently appropriate accounting policies in preparation of the financial statements. Changes wherever made, have been disclosed, and accounting estimates made on the basis of prudent and reasonable judgment. Ÿ Financial Statements have been prepared by the Company in accordance with the International Financial Reporting Standards as applicable in Pakistan. The departure therefrom (if any), is disclosed adequately and explained. Ÿ The system of internal control is sound and is being implemented and monitored. However, such a system is designed to manage rather than eliminate the risk of failure to achieve objectives and provide reasonable, but not absolute assurance against material misstatements or loss. Ÿ The fundamentals of the Company are strong and there are no doubts about its ability to continue as a going concern. Ÿ Key operating and financial data for the last six years is included in this annual report in summarized form. Ÿ There are no statutory payments on account of taxes, duties, levies and charges which are outstanding as at 31 December 2021, except those disclosed in the financial statements. Ÿ The value of investments including accrued income of provident and gratuity funds on the basis of unaudited accounts as on 31 December 2021, is as follows: (Rupees in ‘000) Provident Fund Gratuity Fund 1,102,345 211,676 AUDITORS The present auditors, namely, Messrs. Yousuf Adil, Chartered Accountants being eligible gave consent to act as auditors for the next term. Annual Report 2021 76
- The Board of Directors on suggestion of the Audit Committee recommended the appointment of Yousuf Adil , Chartered Accountants as statutory auditors for the next term. STATUS OF PENDING INVESTMENT DECISION: The decision to make investment in Nishat Hotels and Properties Ltd, Nishat Mills Ltd and MCB Bank Ltd under the authority of resolution passed on April 28, 2014, May 28, 2016, and March 16, 2021 respectively was not implemented fully. The status of decision is explained to members as under as required vide Regulation 4(2) of the Companies (Investment in Associated Companies or Associated Undertakings) Regulation 2017. STATUS OF INVESTMENT UNDER REGULATION 4 (2) OF THE COMPANIES (INVESTMENT IN ASSOCIATED COMPANIES OR ASSOCIATED UNDERTAKINGS) REGULATIONS, 2017: Description Date of approval Total Investment Amount of Investment made up to 31 December, 2021 Reasons for deviation from the approved timeline of investment, when investment decision was to be implemented in stipulated time Material changes in financial statement since date of resolution passed a. Breakup value per share b. Earnings / (loss) per share c. Balance Sheet footing Nishat Hotels & Properties Ltd. Nishat Mills Ltd . MCB Bank Ltd. April 28, 2014 Rs 500 million May 28, 2016 Rs 625 million March 16, 2021 Rs. 3 billion - Rs 161.053 million The special resolution is valid for 8 years, hence no deviation. The special resolution is valid for 6 years, hence no deviation. The special resolution is valid for 3 years, hence no deviation. Jun 2013 Rs 12.26 Jun 2021 Rs 18.82 Jun 2013 Rs (0.37) Jun 2021 Rs 1.14 Jun 2015 Rs 216.56 Jun 2021 Rs 243.88 Jun 2015 Rs 11.13 Jun 2021 Rs 16.84 Jun 2013 Rs 2.86 billion Jun 2021 Rs 40.27 billion Jun 2015 Rs101.14 billion Jun 2021 Rs 113.112 billion Dec 2020 Rs. 160.42 Dec 2021 Rs. 135.13 Dec 2020 Rs. 24.50 Dec 2021 Rs. 26.00 Dec 2020 Rs. 1,757.46 billion Dec 2021 Rs. 1,970.47 billion - ACKNOWLEDGEMENT The Company would like to thank its shareholders for the confidence they have shown in us. We express our sincere thanks to our customers, employees, strategic partners, vendors and suppliers. We also appreciate the continuing support and guidance provided by the Securities and Exchange Commission of Pakistan and the State Bank of Pakistan during the year. For and on behalf of the Board Lahore : February 08, 2022 Imran Maqbool Director Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 77
- ار ن (2)4 ر ۔ ء ذ در ر ؛ دى ۔2017 ( رى Description Date of approval Total Investment Amount of Investment made up to 31 December, 2021 Reasons for deviation from the approved timeline of investment, when investment decision was to be implemented in stipulated time Material changes in financial statement since date of resolution passed a. Breakup value per share b. Earnings / (loss) per share c. Balance Sheet footing ا ا ر ء2021 رچ16 ء اور2016 28 ، 2014 ا ا )ا ا ا و ر ہ اردا د رى ا ا ر رى ( ر ا ) رى (2) 4 ر : ء2017 ر Nishat Hotels & Properties Ltd. Nishat Mills Ltd . MCB Bank Ltd. April 28, 2014 Rs 500 million May 28, 2016 Rs 625 million March 16, 2021 Rs. 3 billion - Rs 161.053 million The special resolution is valid for 8 years, hence no deviation. The special resolution is valid for 6 years, hence no deviation. The special resolution is valid for 3 years, hence no deviation. Jun 2013 Rs 12.26 Jun 2021 Rs 18.82 Jun 2013 Rs (0.37) Jun 2021 Rs 1.14 Jun 2015 Rs 216.56 Jun 2021 Rs 243.88 Jun 2015 Rs 11.13 Jun 2021 Rs 16.84 Jun 2013 Rs 2.86 billion Jun 2021 Rs 40.27 billion Jun 2015 Rs101.14 billion Jun 2021 Rs 113.112 billion Dec 2020 Rs. 160.42 Dec 2021 Rs. 135.13 Dec 2020 Rs. 24.50 Dec 2021 Rs. 26.00 Dec 2020 Rs. 1,757.46 billion Dec 2021 Rs. 1,970.47 billion - :ا اف ۔ ادا ز ِ دل ا ۔ و رز اور، داروں ون اور ر ا ا، ز،ز ن ف ا دہ ا آف ادا ن اور ا رز ا ِر ا د ان آف آ ا اور ڈا ا ل دورا ن ر ا ا ز ز ز ا ز رڈ آف ڈا ان ل ڈا ء٢٠٢٢ ورى٨ :ر Annual Report 2021 78
- ڈ ا م ڈ ا ، اور ل ا دى ں ن ف د ۔ رش : )@ :2020 ا رى ِ 1.5)15%رو ( ح نادا ۔ رڈ 1.25 [(2.5%رو ]( ل دورا 1.5) %15رو ( ح )1.25 [(%12.5 @ :2020رو ]( رش ۔ ر ر اور ر ر ا ا ر 2016ء اور ا ، ن ا ر ر ورك ا و ا و ں ۔ رڈ ا ر ر 2017 ،ئ ،ڈ آف ر ) ڈ آف ر ر ر اور درج ذ اروں ارہ: ،رڈ آف ڈا ز ذ دار ں رى ح وا ر ر ا ن ، 2019ء ) ڈز ( ( ر ا ا ر ِ ت : Ÿ Ÿ 2017ء Ÿ ت رى ا ؤ ۔ ں ،ان ا ف ،اور ب ب ں دا ا اور ل د ۔ ا ارے ،اس ،اس آ ں ۔ Ÿ۔ 31د 2021ء آڈٹ ہ ں د وو رى درج ذ : ہ آ ا ؤ ں اور ز )رو ' ( ٠٠٠ 1,102,345 211,676 ا رر آڈ ز: ( ، Ÿا رو ول م در اور اس درآ اور ا ر ۔ ل ے ،اس ح م 79 ڈ ن وا ا ا ر ر را ت ف)ا ف ت ر ۔ ان ا ا ۔ ر اور و Annual Report 2021 اور ،ڈ ،اور ر ادا ں 31د 2021ء ،ا ان اروں ا ف ۔ وو ۔ Ÿ Ÿاس رے ر رٹ ں ى آ ۔ Ÿ ف ر دہ ،ؤ اور ا Ÿ د ت ۔ ط اور اس رى ر دہ آڈ ز ، آڈ ر م ز ا دل ،ر ڈ ا ؤ ى دى ۔ ر رڈ آف ڈا ز آڈٹ آڈ ز ر ت ز ا ا ء ط ا ا رى ،ط دل ،ر ڈ ا ؤ رش ۔ اور ا ا ت ا ت : 28
- اور /ا ز ، د ا ں ا ل ر ۔ / دو ا ا ز ؤ ا و س اور ر ا ل اور س ر رو ر اپ رى ذ ا ا ز ا ا ل ف ا ل ا ۔ ۔ دارى ا ز 921 اور ۔ ے د ل و رز ے ذ دار ں را اور ۔ ے ا دى ا ا ات ود ۔ ےا آؤٹ ا م در ى ""B ا ) (‘‘ ا رد ف ا رر ا ۔ ط ِ ر ا ذ آد ا ر ،ا را ں ورش و اور ذر ر ا ر ۔ را ا ا ں رے ز ف ،ظ س ،رے گ ز دہ و ز ا ن ا رے ،اوارى 2021ء ن اوور ۔ دى ا ۔ ،رى ا ا ا ت اور اس ،و ا ا ں ں اور ر د ں۔ ا ر اور ل ISO 9001:2015 آد ا ر ا ا ى ذر ر ا ن 9001:2015ورژ ن ذر ،آد و ہان ا ر ،ر ى اور ر و ر ا ۔ اپ Quality Assuranceذر د ۔ ر م ۔ ، AICL رے ز ا ا ا ا ا ں ہ ں ،اور را ت ۔ ISO ر ر د را ر ،اور اس ر Lloyd's Register دہ را ت رى ى ر )(ISO9001:2015 ں: ل دوران ،ن ٹ ر ا )) PACRAہ ے ( ر ا رر ا م )) IFSدر ى ''( ''+AAڈ ا Annual Report 2021 ا ا ا اروں اروں ڑ د ا ر )(ALACLآد ا ر ۔آد ذ )) ALCLوا ذ ۔ ALACLا دى : ALACLن خ ہ آرڈ ء ا اَن ر م وع ۔ ALACLورى 2020ء ) Intersurer B.V.(IVMا ا ا %اور 25.72% 4ا 2008 1984ء اور اس 24ا 2009ء AICLذ ادارہ اور IVM ALACL ۔ ورى 2020ء 25.72% ALACL IVM ، ،ا ذ ادارہ د ۔ ل 2021ء دوران ALACL ،ف 10/-ب ف ۔ 156,450,600را ز ا ۔ را ز ا ا ALACLادا ہ 2,500رو د ۔ و ذر 25 ALACLز وى 10% 18,750,000ز ب ا ت رى ۔ 75% ردہ روں د ن اور 25%ز 6,250,000 ن PSX ALACLدرج ۔ ۔ 2022ء دورا اس ت رى ح وا ل ،م ت ، ہ آ ن ا اور ر ا ن ا ود ۔ IFSدر 80 ۔ در ى ط رو ر اور ا ALACLر د اور ز اروں دى ۔ ر رٹ ر وا ت: اروں ر اور اس ر رٹ ر در ن ۔ ذ وا ت رو
- ا ا ۔ ِ ر و ز ے ا اور ن اور آ د ف دى ر ت ر ا ں ر ۔ ،اس ح ے ا ر را ر ا ر را ز ول در ا ازہ ا ر و ص د ،ا ۔ ا ر را ۔ ا ژر ز اور اور اس ح ا ر اور ے ا رر ۔ ۔ رو ر وا زہ رے س ا ا ا ر را ا ا ت ا ے ا ط اور م اور ن ا و ا ر را د و و ل ۔ ان و ِ ر ا ر را ا ر ،ا ر را ز ،رو ر ڈ ، ا ٔ ر ،ا ر را ر اور ِ ر ظ ر ط ،ح ا ا ژر وپ )) REGے اور ہ ات ر ، ڈا ،ا ڈا ا ۔ اس وپ ڈا رى ا ر ۔ ے در اور ا آف ا ات اور ات ى ڈ ز دہ ات ،ز دہ ات ،در ۔ ز ے و س ا ا ت ا ز اور ف ِ ر ا ل ِ ر وا ا ۔ ِ ر ا ژر ز ے ك ٔ رى ا ر و ا م ات دو ں ا ت ٔ ر اور وا ۔ ن اور ان ا ات: ن اور ر ى ا ر ،ر ا ا )) SECPا ر ر ،ا و ا ۔ ن زى اور اس ا رو ر ؤں ورت ،روزا ،ل ن ا ز ا ر ))KYCڈ د ل اور ،ا اد دى و ا اد ،د ب ب ، ن اور ت ا زا و ہ۔ ں ا وغ د رو ر م ؤں 81 Annual Report 2021 آف ن ن زى ا و ر ط ا رروا ں ، ر اور د ،ت ت اور ا ر ۔ ن ۔ ر ر ن 400ر رٹ ر ،رم ،34ڈ آف ر ر ر ا ن2016 ،ء ر ر ور ت رے ۔ ‘ ى رڈ آف ڈا ز ل 2021ر ۔ ’ا ڈا اور ى و ہا اى او ،ا او ،آف ا آڈٹ اور ' ۔ رڈ اس او ر ا ان اس ز ے ۔ 'ا ل ہ ۔ آ 8.96رو ) 5.36 :2020رو (ر ۔ ز ِ ل دورا ن م ا ع دى ۔ ٹ 37اس ت ا رو ول اور اس زو رڈ ا رو ر روك م اور ان ا ت و رى ا آ ا ول رو ول ۔ رڈ آف ڈا ل ر ہ ا رو آڈٹ ر ل CSR ٔ ر ا اور ٔ ِز اور ،د د اور ں ى ،اس ا ں ،ا ؤ ر رڈ در اور اور ا د ۔ م ،ا ،ل د ول م ۔ رو روں ا ر ں اس ، ،اور اس آ ز آڈٹ ا رو ول م زو اور اور ا ط ى ۔ ر ہ ۔ ا ر ت ا رو ۔ ں نا ل 2021ء دورا ا ذ ۔ CSRا ا ت رو ر ت رو ر ا در 152 ر رٹ ت ا ، آد س
- ڈا ا ز و : رڈ ا را ) ن ا رڈ آف ڈا ز رڈ ا ں رو ےدى ۔ ڈا ز ل آزا د ڈا ز( و رى د ڈا ز ادا ۔ ر 10,000/ا ا ا ت ر ادا ،ا ہ ا ۔ ا و ر ذ اور رڈ ت ،ا و -آزا د ڈا - -ن ا ا ا -ن ا اور و ڈا ڈا ر - ر - ز -ا ڈى اور اى ا و - اروں ٹ 38۔ ر رى ى: ن ا ڈا ان ل ن ا ڈا 5 ز ا ڈى اور اى او 4 ان ل 5 5 رف 4 ل 2021ء دوران ،رڈ آف ڈا : ڈا ز درج ذ ا ا ا ز ا س ن اور ا و ز – اى او 5 رڈ ر ر ر ر ر ر ا ۔ آڈٹ ں ارہ ر 87 ر ارہ ر رٹ ا -آزا د ڈا - -ن ا ڈا - و -ن ا ڈا - ر -ن ا ڈا - ،ادارے دہ اور ات ا ل ہ اور ات ۔ آد ا ر ے ا ا م ، ، ،ا اا ِ ر وا ا ں ں ،اور ں ہ ڈو ۔ ِ ر ا آ ۔ آد اور ان ات رہ ا ا ر ِ ر وے رے ا ر را ز ات ہ ز وں اور ان ات رے ت ا وں ر اور /ا ر رى ،او ت ا ر ۔ و رے س اور ر ِ ر و ز ا ر ل ز دہ ِ ر وے ۔ ے رے ز دہ ز دہ ت ا ر را ز اس ز دہ اور ا د ے ل د ز ۔ ر ا ر Annual Report 2021 : دى : ر 82 آ ڈز ات اور اس ز: رڈ درج ذ ا ا ر 4 5 ا ا ر را ہ ل ،رے ر ر
- Assets Break -up د ؤ اور ر رے نا 9.09ڈا ۔ ا وا ا ا ت ورت اور ا اط زر اور ل 2022ء ڈى ۔ 30,000 25,000 Rupees in Million 20,000 15,000 ا ر ں ا ؤ ِح د آ ا آف رے 5% 4% ا ؤ ن ))SBP ۔ ا رہ ؤ ل 10,000 ن ا ر ا ، ر ب ر ۔ ل 2023ء ا ں ن 5,000 - 2020 Fixed Assets 2021 Investment Property Other Assets و و رو رو آ و و اور Investments Cash and Bank : ڈا 4% ى ا آ -آ اس ل 1,464.9 ل 2020ء 1,525.6رو اس ل 98.9 ل 116.4ا ز ۔ -ہ ب ا را ت اور ا ن آ زون و ل 2021ء دورا ن ڈا ١ڈا رٹ .i د 7 .ii ن 1 رڈ وا اور ا د ،ر اور ا ر ل زون )) EPZ۔ ہ ب ا را ت ا ا رٹ و ۔ ا ر ہ ب ا را ت ا ر 246.2 ن آ 2020ء اس ل 209.9رو ۔ 2022ء ا رو ا ز 83 ii ت: ل 2021ء ا ر د ن ِح 5.57درج ۔ ،ل 2022ء Annual Report 2021 ا - iv رف ا ز -د ڈا - ا ا - ان ل - و - ا ہ 2 ا ٓزا د ڈا iii ڈى ا ا ِط زر : - ا اض و ر ل اور ك ڈاؤن 37ں 2021 ،ء ن ل آ اور ى ا۔ ن ز اد 8اور ا : ز اد: i. ى اور دہ و ا آ ت و ، ۔ ز ٢ 2020ء Covid-19و و ى آ د 2021ء 31ا ں ں اور ں د ں ر ر اور ل در ن ،ص و ل 2022آ نا ر ل 2022ء دورا ڈا -ن 4 1 ا ڈا - ز 1 ہ ۔ ا ر ر
- د اور رى آ : ا س ر 13%۔ ل دوران ، ا 3,031.1رو 2020ء 1,923.8رو 85% 2020 د وں درج ۔ 85%ر ۔ اس ر 53.7 2020رو دہ ل ا ر 51.0رو ا ر را ۔ Accident & Health 2,200 2,000 : 126%ا رى آ آ ا ۔ 2021ء ڈ رى ڈ ز رى ء 2,469 د آ 126ا ا ڈ ا آف ر ى و 2020ء آ 2020ء 1,093 رو ۔ رى آ 1,200 1,000 Rupees in Million 1,400 800 600 400 آ ا ر وا 2021 Net Premium Revenue Net Commission ۔ 2020ء ر 5% ۔ 1,115.5رو 2020ء 50%اب 54%ر ۔ 2020ء 132.1رو ۔ ٢٠٢٠ رى آ ( 2,260 1,000 38 39 171 116 ا ق: رو ر ق 1,198رو د وں دہ ل 76.5رو ڈ 'د ب ا و ' و ہ /ن ) - س ر ا ر را و ن دہ رو ۔ اس ، 2021 رو درج ذ : )رو م ڈ ز آ 200 2020 Net Claims Expenses ٢٠٢١ 1,800 1,600 دى و ڈ رى ن( 55 )(117 2,469 1,093 : 31د 2021ء ا ل 49,520رو 61,641رو ۔ رى 2020ء 26,596رو ِ ١٧ھ 31,069رو ۔ ا رى ز دہ ز دہ رى ا ز ا ل ۔ Assets Miscellaneous 70,000 1,000 600 500 Rupees in Million 800 700 60,000 50,000 40,000 30,000 400 20,000 300 200 10,000 100 - 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 84 Annual Report 2021 2019 Net Commission Assets 2020 Net Claims 2021 2020 Expenses 2021 Net Premium Revenue - Rupees in Million 900
- : اور ا رٹ ۔ دہ ل رو1,310.8 ۔ اس44% ل ء2020 ن 6 ر ر44% رو ۔ ر57 60 د ٰى ل ۔ ن ہ ب ا را ت آ ن ا ى ا، ا ى ا اور ا رٹ، رو981.7 ء2020ن دورا د وں ۔ 34.3 دہ ل ر رو ا ر را90 Marine, Aviation & Transport 1200 Rupees in Million 1000 672.3 ھ 8 ھ4 ل ۔ 375.7 رو اس ل ا ررا و ل ۔ رٹ ا 1,910.2 رو ر ل4,405.4 ا ز رو1,875.5 ز دہ ۔ ا ز ل131 رو ۔3,136.5 ا67 800 600 اد 400 ر گاور آ 200 0 ، ۔ ل دوران40% گاور اد رو رى ر س آ 6,773.3 رو:2020) درج ۔ رو9,242.3 34% اس ل د وں (۔ رو171.9 ء2020 ۔ ا ا س86% ل رو ا ر را ا۔255.7 ن 2021 2020 Net Premium Revenue Net Commission Net Claims Expenses : ء2020 ، ۔ ل دوران37% رو ر س ر رو8,620.0 رو7,402.3 دہ ل 55% 2020 ۔ رو535.6 ء2020 ۔ ر54% د وں رو ا ر را ۔338.6 Fire & Property Damage 1,000 900 800 Rupees in Million Motor 10,000 9,000 Rupees in Million 8,000 700 600 500 7,000 400 6,000 5,000 300 4,000 200 3,000 100 2,000 1,000 - 2021 Net Premium Revenue Net Commission 2020 Net Claims Expenses 2021 Net Premium Revenue 2020 Net Claims Expenses Net Commission Annual Report 2021 85
- ر رٹ ڈا ت ان ڈا ا ل ہ ز ر رٹ رڈ آف ڈا ز ف 31 ،د 2021 ،ہ ل آڈٹ ہ اروں اہ آپ 61و ر رٹ س ر ۔ 23,320رو 1,525.6رو ا ط )12,552 2020ء )13,295 ہ: ) و و آ اور 1,464.9رو ا ط رو ( 54 ا ط 73 رو ( ذر ا دہ ا ط دہ (۔ ل ا ۔ Gross Premium ص ر ِوڈ 19-و ء اور اس اور ں ا ات و ل 2020ء ا ل د ؤ ے اب ل 2021ء آ ر د ن ۔ ل 2021ء دوران ،ن ح ِ 2020ء ١ ں ا 5.57ھ ۔ ، ا ؤ ا د ؤ و درآ ات ا ا ؤ را 9.09ارب ڈا ۔ ل 2022ء ، ۔ دو ن )ا ( ل ِ 2021ح 7 د اور ا رر ۔ ا رى ل اس ا ؤ رے اور ز دہ ا ا ِط زر ض ِح 9.75دى۔ ا ر 275 ا ر ا رڈ ا ورز ' ا رد ۔ ر د ہ: ن 9,000 8,000 7,000 6,000 5,000 Rupees in Million اس ا اى 100 -ا ن ا ك ا ) ا ا ( ن 48,726اور 42,780اور ں اس ل دورا 2020ء 7.4 ر ؤ ر ۔ ا اى 100 -ا 2020 ،ء 2021ء 1.92 ل 2021ء 44,596ا۔ 43,755 10,000 4,000 3,000 2,000 1,000 2020 Miscellaneous 2021 Accident & Health Motor Marine Fire Net Premium 10,000 9,000 ا ّت در ى ' - 8,000 7,000 ل 2021ء ، 86 5,000 ل 2020 Annual Report 2021 ل اور و ر د ر ا ا وى رى ر ۔ 18,279 ھ 4,000 3,000 2,000 1,000 2020 Miscellaneous 2021 Accident & Health Motor Marine Fire Rupees in Million ِوڈ 19-و ء ر ل و د ، ل روا ا ۔ ا ر او ون و ل 2021ء رو ر 28 ات اور 6,000
- Statement of Compliance with Listed Companies (Code of Corporate Governance) Regulations, 2019, and Code of Corporate Governance for Insurers, 2016 This statement is being presented in compliance with the Code of Corporate Governance for Insurers, 2016 (the Code) and the Listed Companies (Code of Corporate Governance) Regulation, 2019 (the Regulation) for the purpose of establishing a framework of good governance, whereby the Adamjee Insurance Company Limited (the insurer) is managed in compliance with the best practices of corporate governance. The Insurer has applied the principles contained in the Codes in the following manner: 1. The Insurer encourages representation of independent non-executive directors and directors representing minority interests on its Board of directors (the Board). At present, the Board includes 8 directors: I. II. 7 Male 1 Female Category Names Independent Directors Muhammad Anees Mohammad Arif Hameed Executive Director Muhammad Ali Zeb Non-Executive Directors (Male) Ibrahim Shamsi Imran Maqbool Shaikh Muhammad Jawed Umer Mansha Non-Executive Director (Female) Sadia Younas Mansha All independent directors meet the criteria of independence as laid down under the Codes. The independent directors are appointed in terms of Section 166 (3) of the Companies Act, 2017 (the “Act”) through the process of election prescribed under Section 159 of the Act. The Board has fixed the number of directors to be elected as seven (7) which included two (2) as independent directors which were duly elected by the shareholders in their extraordinary general meeting held on 28 May 2019. Following the election of directors, the Board of Directors appointed a chief executive who is a deemed director in terms of Section 188 of the Act. The fraction has not been rounded up to one as the Board believes and understands that two (2) independent directors are sufficient and have requisite competencies, skills, knowledge, and experience to fulfill their obligations as per requirements of the applicable law and regulations. 2. The directors have confirmed that none of them is serving as a director in more than seven listed companies, including this Company. 3. All the resident directors of the Company are registered as taxpayers and none of them has defaulted in payment of any loan to a banking company, a DFI or NBFI or, being a member of stock exchange, has been declared as a defaulter by a stock exchange. Annual Report 2021 87
- 4 . No casual vacancy occurred on the Board during the year 2021. 5. The Company has prepared a statement of ethics and business practices and has ensured that appropriate steps have been taken to disseminate it throughout the Company along with its supporting policies and procedures. 6. The Board has developed a vision / mission statement, overall corporate strategy and significant policies of the Company. A complete record of particulars of significant policies along with the dates on which they were approved or amended has been maintained. 7. All the powers of the Board have been duly exercised and decisions on material transactions, including appointment and determination of remuneration and terms and conditions of employment of the Chief Executive Officer, and the key officers, have been taken by the Board. 8. The meetings of the Board were presided over by the Chairman and, in his absence, by a director elected by the Board for this purpose and the Board met at least once in every quarter. Written notices of the Board meetings, along with agenda and working papers, were circulated at least seven days before the meeting. The minutes of the meetings were appropriately recorded and circulated. 9. The Board has a formal policy and transparent procedures for remuneration of directors in accordance with the Act and the Regulations. 10. The Board has established a system of sound internal control, which is effectively implemented at all levels within the Company. The Company has adopted and complied with all the necessary aspects of internal controls given in the Code. 11. The Board arranged one Orientation course(s)/training programs after election of directors in May 2019 for its directors to apprise them of their duties and responsibilities. During the year 2021, two directors attended Directors Training Program. 12. There was no change of Chief Financial Officer and Company Secretary during the year. The appointment of Head of Internal Audit has been approved by the Board. The Board had approved the remuneration of Chief Financial Officer, Company Secretary and Head of Internal Audit Department. 13. The directors’ report for this year has been prepared in compliance with the requirements of the Code of Corporate Governance for Insurers, 2016 and fully describes the salient matters required to be disclosed. 14. The financial statements of the Company were duly endorsed by Chief Executive Officer and Chief Financial Officer before approval of the Board. 15. The directors, Chief Executive Officer and executives do not hold any interest in the shares of the Company other than disclosed in the pattern of shareholding. 16. The Company has complied with all the corporate and financial reporting requirements of the Code of Corporate Governance for Insurers, 2016. Annual Report 2021 88
- 17 . The Board has formed the following Management Committees: Underwriting Committee: Claim Settlement Committee: Name of the Member Category Name of the Member Category Umer Mansha Chairman Muhammad Ali Zeb Chairman Muhammad Ali Zeb MD & CEO Muhammad Asim Nagi Chief Financial Officer Asif Jabbar Head of Underwriting Syed Ameer Hassan Naqvi Head of Claims Risk Management & Compliance Committee: Reinsurance & Coinsurance Committee: Name of the Member Category Name of the Member Category Muhammad Ali Zeb Chairman Muhammad Ali Zeb Chairman Muhammad Asim Nagi Chief Financial Officer Muhammad Salim Iqbal Head of Reinsurance Asif Jabbar Head of Risk Management Asif Jabbar Head of Underwriting Syed Ameer Hassan Naqvi Head of Compliance /Claims Adnan Ahmad Chaudhry Head of Commercial Tameez ul Haque Company Secretary Imran Ali Head of Internal Audit 18. The Board has formed the following Board Committees: Ethics, Human Resources and Remuneration Committee: Name of the Member Category Muhammad Anees Chairman - Independent Director Ibrahim Shamsi Member - Non-Executive Director Muhammad Ali Zeb Member - Executive Director Umer Mansha Member - Non-Executive Director Investment Committee: Name of the Member Category Umer Mansha Chairman - Non-Executive Director Imran Maqbool Member - Non-Executive Director Muhammad Ali Zeb Member - Executive Director Muhammad Asim Nagi Member - Chief Financial Officer 19. The Board has formed an Audit Committee. It comprises of four members, of whom one is an independent director and 3 are non-executive directors. The chairman of the Committee is an independent / non-executive director. The composition of the Audit Committee is as follows: Audit Committee: Name of the Member Category Muhammad Anees Chairman - Independent Director Ibrahim Shamsi Member - Non-Executive Director Shaikh Muhammad Jawed Member - Non-Executive Director Umer Mansha Member - Non-Executive Director 20. The terms of references of the Committees have been formed, documented and advised to the Committees for compliance. Annual Report 2021 89
- 21 . The frequency of meetings of the committees were as per following; a) Audit Committee: quarterly meetings; b) Ethics, Human Resource and Remuneration Committee: Once a year; c) Investment Committee: quarterly meetings d) Management Committees: quarterly meetings 22. The Board has outsourced the internal audit function to A.F. Ferguson & Co., Chartered Accountants who are considered suitably qualified and experienced for the purpose and are conversant with the policies and procedures of the Company and they (or their representatives) are involved in the internal audit function on a full-time basis. 23. The Chief Executive Officer, Chief Financial Officer, Compliance Officer and the Head of Internal Audit possess such qualification and experience as required under the Code of Corporate Governance for Insurers, 2016. The Appointed Actuary of the Company also meets the conditions as laid down in the said Code. Moreover, the persons heading the underwriting, claims, reinsurance, risk management and grievance functions / departments possess qualification and experience of direct relevance to their respective functions, as required under Section 12 of the Insurance Ordinance, 2000 (Ordinance No XXXIX of 2000); Name Designation Muhammad Ali Zeb Chief Executive Officer Muhammad Asim Nagi Chief Financial Officer Hafiz Usman Zahid Compliance Officer Shahraiz Hussain Actuary Tameez ul Haque Company Secretary Imran Ali Head of Internal Audit Asif Jabbar Head of Underwriting Syed Ameer Hassan Naqvi Head of Claims Muhammad Saleem Iqbal Head of Reinsurance Asif Jabbar Head of Risk Management Syed Ameer Hassan Naqvi Head of Grievance Dept. Asif Bashir Head of Takaful 24. The statutory auditors of the Company have been appointed from the panel of auditors approved by the Commission in terms of Section 48 of the Insurance Ordinance, 2000 (Ordinance No. XXXIX of 2000). The statutory auditors have confirmed that they have been given a satisfactory rating under the Quality Control Review programme of the Institute of Chartered Accountants of Pakistan, that they or any of the partners of the firm, their spouses and minor children do not hold shares of the Company and that the firm and all its partners are in compliance with the International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by the Institute of Chartered Accountants of Pakistan. 25. The statutory auditors or the persons associated with them have not been appointed to provide other services and the auditors have confirmed that they have observed IFAC guidelines in this regard. 26. The Board ensures that the appointed actuary complies with the requirements set out for him in the Code of Corporate Governance for Insurers, 2016. 27. The Board ensures that the investment policy of the Company has been drawn up in accordance with the provisions of the Code of Corporate Governance for Insurers, 2016. 28. The Board ensured that the risk management system of the Company is in place as per the requirement of the Code of Corporate Governance for Insurers, 2016. Annual Report 2021 90
- 29 . The Company has set up a risk management function / department, which carries out its task as covered under the Code of Corporate Governance for Insurers, 2016. 30. The Board ensures that as part of the risk management system, the Company gets itself rated from the credit rating agency which is being used by its risk management function / department and the respective Committee as a risk monitoring tool. The rating assigned by PACRA and AM Best was ‘AA +’ and ‘B’ in March 2021 and March 2021, respectively. 31. The Board has set up a grievance function, which fully complies with the requirements of the Code of Corporate Governance for Insurers, 2016. 32. We confirm that all other material principles contained in the Code of Corporate Governance for Insurers, 2016 and all the requirements of regulations 3, 6, 7, 8, 27, 32, 33 and 36 of the Listed Companies (Code of Corporate Governance) Regulations, 2019 have been complied with. By Order of the Board Date: 8 February 2022 Umer Mansha Chairman Annual Report 2021 91
- Independent Auditors ’ Review Report TO THE MEMBERS OF ADAMJEE INSURANCE COMPANY LIMITED REVIEW REPORT ON THE STATEMENT OF COMPLIANCE CONTAINED IN CODE OF CORPORATE GOVERNANCE FOR INSURERS, 2016 AND LISTED COMPANIES (CODE OF CORPORATE GOVERNANCE) REGULATIONS, 2019 We have reviewed the enclosed Statement of Compliance with the Code of Corporate Governance for Insurers, 2016 (the Regulations) and the Listed Companies (Code of Corporate Governance) Regulations, 2019 (the Regulations) prepared by the Board of Directors (the Board) of Adamjee Insurance Company Limited for the year ended December 31, 2021 in accordance with the requirements of the Regulations. The responsibility for compliance with the Regulations is that of the Board of Directors of the Company. Our responsibility is to review whether the Statement of Compliance reflects the status of the Company’s compliance with the provisions of the Regulations and report if it does not and to highlight any non-compliance with the requirements of the Regulations. A review is limited primarily to inquiries of the Company’s personnel and review of various documents prepared by the Company to comply with the Regulations. As a part of our audit of the financial statements we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Board of Directors’ statement on internal control covers all risks and controls or to form an opinion on the effectiveness of such internal controls, the Company’s corporate governance procedures and risks. The Regulations require the Company to place before the Audit Committee, and upon recommendation of the Audit Committee, place before the Board of Directors for their review and approval, its related party transactions. We are only required and have ensured compliance of this requirement to the extent of the approval of the related party transactions by the Board of Directors upon recommendation of the Audit Committee. Based on our review, nothing has come to our attention which causes us to believe that the Statement of Compliance does not appropriately reflect the Company's compliance, in all material respects, with the requirements contained in the Regulations as applicable to the Company for the year ended December 31, 2021. Chartered Accountants Place: Lahore Date: February 14, 2022 UDIN: CR202110088lKsSM93kZ Annual Report 2021 92
- Ownership / Shareholding Structure Ownership Structure The Company has a diversified ownership structure as detailed below: Directors Chief Execu ve Officer 21% Execu ves / Execu ves' Spouses 37% Associated Companies, Undertakings & Related Par es Banks, DFIs and NBFIs 8% Insurance Companies Modaraba and Mutual Funds 3% General Public 29% Others Categories Of Shareholders Directors Chief Executive Officer Executives / Executives' Spouses Associated Companies, Undertakings & Related Parties Banks, DFIs and NBFIs Insurance Companies Modaraba and Mutual Funds General Public Others Number of Shares Stake % 131,705 7,073 104 72,167,050 6,615,442 29,888,462 9,824,844 102,841,477 128,523,843 350,000,000 0.038 0.002 20.619 1.890 8.540 2.807 29.383 36.721 100.000 Annual Report 2021 93
- Operating Structure The Board of Directors has delegated authority to the Chief Executive Officer (CEO) to manage the day to day operations of the Company. Board Meetings are held in every quarter to review the performance of the Company. The CEO presents details of the important events held during the period. The Board of Directors has constituted Board Committees which lays down guidelines for the functioning and operations of various departments. Departments are headed by learned and experienced professionals who run the operations through committed and skilled managers and staff. Standing Operating Procedures have been formulated, documented and explained to all concerned and are available as ready reckoners. Responsibilities of each individual, may he/she be an executive, mid line manager or a lower staff have been defined and displayed at the sight of his/her duty. Important, crucial and sensitive issues are resolved during the meetings of Head of Departments/ Team Leaders with the CEO and or during the Management Committee. Issues staying unresolved especially those relating to Underwriting, Re-insurance, Claim Settlement and Risk Management are put before the relevant Committee for review and decisions. To effectively manage the employees and improve their emotions, teamwork, build trusting relationships and increase employee retention, AICL’s core values “Humility - Empathy, Self-esteem & Respect in all relationships” and “Fun at workplace - Work-life balance” are enforced. Relationship with Group Companies & its Nature Adamjee Life Assurance Company Limited is a wholly owned subsidiary of Adamjee Insurance Company Limited. Common directorship of Directors among other companies is the main basis of relationship. Such companies are categorised as associated companies, of the Company. Name of independent Directors and justification for their independence The Listed Companies (Code of Corporate Governance) Regulations, 2019 in Regulation 6 makes it mandatory that each Listed Company shall have at least two or one third members of the Board, whichever is higher, as independent directors. The Companies Act, 2017 in Section 166 directs that an independent director to be appointed shall be selected from a data bank maintained by Pakistan Institute of Corporate Governance - an institute notified by the Commission. In compliance of the above Regulations (CCG) and the Act, the below two directors were selected: i. Mr. Muhammad Anees ii. Mr. Mohammad Arif Hameed Annual Report 2021 94
- Statement on how board operates Under the Companies Act , 2017 and Memorandum & Articles of Association of the Company, the control of the Company’s affairs vests with the Board. In order to facilitate them to operate, Chief Executive Officer (CEO) is appointed by the Board executing a Power of Attorney in CEO’s favor to delegate authority and empower him to run the Company’s operations. CEO operates within the parameters of the delegated authority. Delegated authority is subject to review by the Board. The Board meets at regular intervals to keep an eye on operations and performance of the Company. Decisions taken by the Board The following are the important decisions which are taken by board of directors. Ÿ To issue shares Ÿ To borrow moneys Ÿ To invest the funds Ÿ To appoint or change Chief Executive of the company & determine his remuneration. Ÿ To fill the casual vacancy on the Board. Ÿ To approve Financial Statements, quarterly, half yearly and yearly. Ÿ To recommend final dividend and to declare interim dividend. Ÿ To ensure that Rules and Regulations governing the Company are complied with properly. Ÿ To approve business plan including budget. Decisions taken by Management All day-to-day operations are handled by the management team under the supervision of the CEO with a focus on the business plan and guidelines given by the Board. Management team performs duties within the powers delegated to them. The management team sometimes comes across situation where they need guidance of superior authority the CEO refers these matters to the Chairman of the Board who either suggests the way to resolve or refers the matter to Board of Directors Performance evaluation of the Chairman, Board members, Board Committees and CEO The Board of Directors constituted a committee comprising of two non-executive directors, Ibrahim Shamsi and Shaikh Muhammad Jawed, to evaluate performance of the chairman, board members, board committees and CEO. The Committee conducted a meeting which was coordinated by the Company Secretary. The performance of the chairman, board members, board committee and CEO was evaluated and during meeting various points were explained by the Secretary. The Committee submitted report on evaluation to all the directors. Board’s performance evaluation by external consultant Performance of the Board during the year was evaluated by the committee of directors formed for this purpose. However, the Company did not avail the services of external consultant during the last three years to evaluate performance of the Board. Annual Report 2021 95
- Formal Orientation Courses for the Directors The Board was constituted in May 2019 after election of directors . For the elected directors, an orientation session was held in October 2019. A consultant on corporate laws, after board meeting, briefed the directors about their duties, responsibilities and about other matters. Directors Training Program Two non-executive directors, Sadia Younas Mansha and Shaikh Muhammad Jawed attended Director Training Program (DTP) during the year 2021 while no director availed the exemption. Training of Key Personnel During the year 2021, the following key officers of the Company have obtained certification of courses, namely, Pakistan Markets and Regulations (PMR) and Fundaments of Capital Market (FCM) from the Institute of Financial Markets of Pakistan (IFMP): Name Designation Certifications Muhammad Ali Zeb Managing Director & Chief Executive Officer 1. Fundamentals of Capital Market 2. Pakistan’s Market Regulations Muhammad Asim Nagi Chief Financial Officer & Executive Director Finance 1. Fundamentals of Capital Market 2. Pakistan’s Market Regulations Tameez ul Haq Company Secretary 1. Fundamentals of Capital Market 2. Pakistan’s Market Regulations Anis Ahmed Ashrafi Senior Manager - Investment Function 1. Fundamentals of Capital Market 2. Pakistan’s Market Regulations External Oversight of Functions In order to enhance the credibility of systems, following functions and/or information is validated/reviewed by the external specialists: External Audit Yousuf Adil Chartered Accountants, being statutory auditors of the Company, perform audit of unconsolidated financial statements, consolidated financial statements and financial statements of window takaful operations along with related information system. They express their opinion on these financial statements and also provide Management Letter wherein control deficiencies, if any, are highlighted during their course of audit. Internal Audit The Company has outsourced its Internal Audit Function to A. F. Ferguson & Co., Chartered Accountants (A member firm of the PwC network). They perform internal audit of various functions and departments of the Company on regular basis and submit their findings to Head of Internal Audit. Head of Internal Audit communicates these findings to the Audit Committee along with the management responses thereto. Annual Report 2021 96
- Compliance with the Codes of Corporate Governance Yousuf Adil Chartered Accountants , the statutory auditors of the Company, perform review, on annual basis, of the Company’s Statements of Compliance with the Listed Companies (Code of Corporate Governance) Regulations, 2019 and Code of Corporate Governance for Insurers, 2016. Compliance with Shariah Principles With respect to the Window Takaful Operations of the Company, the external auditors Yousuf Adil Chartered Accountants examine the ‘Statement of Compliance with Shariah Principles’ and express their opinion as to whether the statement presents fairly the status of compliance of Takaful Operations with the Takaful Rules, 2012. ISO 9001:2015 Certification Adamjee Insurance being ISO 9001:2015 certified has established procedure for quality assurance. An independent firm ‘Lloyd’s Register Quality Assurance’ conducts audit of these procedures twice a year to ensure compliance with applicable standards. Directors’ Remuneration The Board of Directors has approved the remuneration of the members of the Board (Non-Executive Directors including independent directors) for attending meeting of the Board. The meeting fee of Rs. 10,000/- per meeting is paid to directors. Travel expense by air from city of residence to the city of the meeting are paid with hotel accommodation, if availed. Policy regarding fee earned by Executive Director against his services as nonexecutive director in other companies Muhammad Ali Zeb – Managing Director & Chief Executive Officer of the Company serves at the board of following companies: Ÿ Adamjee Life Assurance Company Limited (Subsidiary of Adamjee Insurance Company Limited) Ÿ MCB Bank Limited Ÿ Nishat Sutas Dairy Limited Meeting fee earned by Muhammad Ali Zeb for serving on the Board of the above mentioned companies is retained by him because he does not serve on the board as nominee of AICL. Policy for Security Clearance of Foreign Directors The Company’s Board of Directors consists of eight members and none of them is a foreign director. Hence, security clearance is not required. In case any foreign director is elected or appointed on the Board, the Company will obtain security clearance, at the time of appointment of such director, from Ministry of Interior Affairs – Government of Pakistan. Annual Report 2021 97
- Governance Practice exceeding legal requirements Adamjee Insurance assigns paramount importance to compliance of all applicable laws , rules and regulations and strives hard to exceed minimum legal requirements in its governance and operating structure as well as provide information to stakeholders above and beyond regulatory requirements to ensure transparency. Some of the Company’s governance practices which exceed the minimum legal requirements include: Ÿ The Company has only one executive director (Managing Director & Chief Executive Officer) on the Board whereas Listed Companies (Code of Corporate Governance) Regulations, 2019 allows two executive directors (one third of total members of the board as executive directors). Ÿ Provision of additional information in the annual report of the Company, not required by any laws. Ÿ As per the Insurance Ordinance, 2000 and the Insurance Rules, 2017 non-life insurance companies are required to base the determination of the liabilities for unexpired risk and incurred but not reported claims on the advice of actuary for Accident and Health business only. The Company in exceeding the minimum requirement bases the determination of these liabilities for all lines of business in Pakistan on the advice of external actuary. Ÿ The Company has established an in-house Actuarial Services Department as against the requirement of the Insurance Ordinance, 2000 for life insurers only to appoint an actuary. Ÿ The Company has voluntarily adopted the best corporate reporting practices / guidelines prescribed by the joint committee of the Institute of Chartered Accountants of Pakistan (ICAP) and the Institute of Cost & Management Accountants of Pakistan (ICMAP). Board’s policy on diversity Adamjee Insurance has a firm belief that diversity is an important factor in contributing to the company’s success as people with unique characteristics in terms of gender, knowledge, expertise and skills set add value and help the organization achieve its goal. At Adamjee, inclusiveness is always promoted in the organization’s culture. Diversity and inclusion are the foundation for the Company’s code of conduct and culture where every member of board and employee comes from diverse backgrounds, at an individual level which includes capability, experiences, knowledge and at a social level which includes race, ethnicity, culture, religion and others. The Company believes that a diverse workforce plays a very significant role in enhancing efficiency at all levels of the organization. Policy for Related Party transactions The Company has formulated policy for related party transactions in accordance with the requirements of the Companies Act, 2017, Companies (Related Party Transactions and Maintenance of Related Records) Regulations, 2018 and Listed Companies (Code of Corporate Governance) Regulations, 2019. The policy has been duly approved by the Board of Directors. The Company has related party relationships with its associates, subsidiary company, directors, employee retirement benefit plans, provident fund, key management personnel and other parties. Transactions are entered into with such related parties in ordinary course of business on arm’s length basis for the issuance of policies to and disbursements of claims incurred by them, payments of rentals for the use of premises rented to / from them, payment & receipt of dividends and others. These transactions have been reported and approved by the Board of Directors of the Company as recommended by the Audit Committee of the Board. Annual Report 2021 98
- List of related parties along with summary of all transactions with them have been disclosed in annexed financial statements . Please refer to note no. 8, 9, 11, 12, 13, 15 and 39 in unconsolidated financial statements. Board meetings outside Pakistan During the year 2021, all the board meetings were convened in Pakistan using video-link facility. Policy for actual and perceived conflict of interest The Company is committed to the highest standards of corporate governance. In order to avoid, manage and monitor actual as well as perceived conflict of interest, the Chairman intimates in writing to all directors at the beginning of their term about their duties and making it obligatory for them to avoid or disclose any conflict of interest, whenever arises, in performing their professional duties for the Company. Any director of the Company who is in any way interested in any contract or arrangement to be entered into by the Company is required to disclose the nature of his interest. Such director neither takes part in board meeting in which such contract or transaction is approved by the Board nor votes on such item. The Company Secretary maintains a Register containing details of contracts in which directors have interest. Grievance policy The Company assigns the grievances from investors as well as from policyholders their due importance and strives hard to resolve them as soon as possible. Handling the grievances to the satisfaction of the parties involved and in such a way that it turns out to be a win-win situation for stakeholders is important for the public image and as a learning for better service delivery in future. The Company has provided on its website all necessary details regarding logging of complaints. Below is the detail, also available on the Company’s website, of designated person for handling investors’ as well as policyholders’ complaints and grievances: Hafiz Muhammad Usman Zahid Head of Regulatory Compliance ADAMJEE HOUSE 80/A, Block E-1, Main Boulevard, Gulberg-III, Lahore - 54000 Phone: 111-242-111 (Ext. 8056) Email: info@adamjeeinsurance.com Policy for safety records of the company The Company maintains records as per the requirements of the applicable laws and assigns due importance to the safety and availability of records stored in physical as well as digital form. Physical files and documents of the Company are placed in designated cabinets and racks in record rooms ensuring that these are protected from physical and environmental damages. Backups of records in digital forms are taken on regular basis and are stored on both onsite and offsite locations. Offsite backup tapes are maintained in secure and fire-resistant storage locations. Samples from these backup tapes are restored on periodic basis to ensure the health of backup tapes. Annual Report 2021 99
- IT Governance Policy Information governance is an accountability and decision-making framework put in place to ensure that the creation , storage, use, disclosure, archiving and destruction of information is handled in accordance with legal requirements and to maximize operational efficiency. It includes the processes, roles, policies and standards that ensure the compliant and effective use of information in enabling an organization to achieve its goals. AICL IT governance policy is intended to set out the high-level principles of information governance across the organization and to highlight key information and related policies to employees. The primary goal of AICL IT Governance is to focus on: Ÿ Stakeholder value of business investments in IT Ÿ Financial transparency Ÿ Customer-oriented service culture Ÿ Agile responses to a changing business environment Ÿ Optimization of service delivery costs Ÿ Operational and staff productivity Ÿ Compliance with internal policies Ÿ Product and business innovation culture Acquisition process for technological tools Technology plays a vital role in business. Over the years, businesses have become dependent on technology so much so that if we were to take away that technology, virtually all business operations around the globe would come to a grinding halt. It is nearly impossible to conduct business without the aid of technology in one form or another. Almost every aspect of business is heavily influenced by technology. The Company understands the role of technology and invested accordingly by following six-step process to justify technology acquisitions: Ÿ Conduct self-assessment and needs analysis Ÿ Rank requirements based on organizational impact Ÿ Potential solutions identification and shortlisting Ÿ Demonstrations from promising vendors Ÿ Solution scoring based on requirements Ÿ Selection of right solution Whistle Blowing policy The Company is committed to the highest possible standards of ethical, moral and legal business conduct. In keeping with this commitment, the Company has developed a ‘Whistle Blowing Policy’ detailing therein procedures to be followed for filing complaints under the policy and manners as to how these complaints are to be handled. The objective of the whistle blowing policy is to provide an open communication channel to our employees and external parties such as shareholders, vendors, customer etc. to raise concerns, expose irregularities, help uncover financial malpractices, prevent fraud & forgeries, eliminate personal harassments, improper conduct or wrongdoing and to address the concerns or attend to grievances of those associated, without any fear of retaliation or adverse consequences. During the year 2021, no such instance was reported to the Audit Committee. Annual Report 2021 100
- Human Resource Management Policies including succession plan Human Resource (HR) plays a pivotal role in smooth running of the routine operations of an organization and in achieving its goals. Therefore, the Company recognizes the importance of efficient and effective management of HR. The Company’s talent-acquisition policies stems from unbiased criteria to hire individuals from any backgrounds provided they match the qualification and experience requirements. The Company also arranges various trainings, both, in-house and external, for the development of required skills among the employees. Other skill development technique i.e. job rotation, cross-functional transfers, assigning additional responsibilities etc. are also used to enhance knowledge and skill set of employees. Succession planning is a process for identifying and developing new leaders, who can replace old leaders when they move on. Succession planning increases the availability of experienced and capable employees who are prepared to assume these roles as they become available. The Company has an effective and efficient ‘Succession Plan’ for its employees. Being an equal opportunity employer, the Company is committed to create a work environment that promotes employee safety, growth and goal attainment. Social and environmental responsibility policy Adamjee Insurance’s social responsibility program addresses the key concerns in society related to health and education. The Company also reassures its responsibility towards its chief stakeholders in terms of overall sustainability through compliance, ethics and corporate citizenship. AICL has undertaken an array of initiatives, including improved communication and extensive training, to cultivate these aspects of its operations. AICL has always strived to develop capabilities that are at par with the international players in the global insurance industry and this gives AICL an edge in the market. AICL ensures that initiatives are taken to include internal awareness campaigns, specific trainings in detailed regulatory areas and focused efforts on sensitive areas such as conflict of interest. With environmental regulations becoming increasingly strict and of utmost importance, environmental consciousness has become one of the key concepts in AICL’s policy and consistently awareness sessions on environmental issues are conducted. AICL’s advanced digital infrastructure allows it to work towards promoting paperless operations. Online services and electronic documentation help in reducing paper consumption which creates a very positive impact on the environment. In addition, AICL has also been awarded Certification of Green Office by WWF – ‘To Reduce Carbon Footprint’ which is a program that helps an organization cut down costs, reduce waste and create more environmental awareness. AICL has taken steps to reduce carbon footprint by reducing business travel and shifting to digital methods such as video conferencing. Moreover, for energy conservation, AICL has installed LED technology in all of its offices and replaced conventional air conditioners with DC inverters. AICL also works towards reducing dry waste with proper system in place where the waste can be reused as raw material for other industries. AICL aims to continue with its initiatives for environmental conservation in years to come and make sure that it adopts the global best practices. Business continuity plan (BCP) Businesses today face an unprecedented number of exposures with the potential to interrupt business activities. The frequency and severity of these exposures also seem to be increasing. Business continuity is a “holistic management process” that identifies potential threats to an organization and the impacts to business operations, those threats, if realized, might cause. It is the provision of a framework for building organizational resilience with the capability of an effective response that safeguards the interests of its key stakeholders, reputation, brand and value-creating activities. Annual Report 2021 101
- The Company has developed a comprehensive ‘Business Continuity & Disaster Recovery Plan’. Salient characteristics of the plan includes: Ÿ Identification of key business services essential for the Company’s operations Ÿ Identification and prioritization of the key activities and resources and policies and measures adopted for safeguarding of these activities and resources including but not limited to backing up of data Ÿ Identification and evaluation of all sorts of possible threats that can interrupt business activities and can last over different time spans ranging from hour(s) to day(s) or even month(s) Ÿ Impact analysis that these threats could have on the business of the Company Ÿ Recovery strategies to be followed, if any of such threats is materialized, to recover from disastrous situation with clear identification of roles of each member of disaster recovery team The primary objective the Company’s BCP is to continue and manage business operations under certain circumstances by the introduction of appropriate resilience strategies, recovery objectives, business continuity, operational risk management considerations and crisis management to resume operations before unacceptable levels of impact arise. The most recent example BCP in action was during Covid-19 lockdowns in 2020, when the Company’s BCP was triggered and executed successfully. Salient features of TOR and attendance in meetings of the Board Committees The board of directors of the Company has formed three board committees: Audit Committee Below are the salient features of the terms of reference of the Audit Committee: Ÿ Determination of appropriate measures to safeguard the Company’s assets Ÿ Review of annual and interim financial statements of the Company, prior to their approval by the Board, focusing on: ª major judgmental areas ª significant adjustments resulting from the audit, if any ª going concern assumption ª any changes in accounting policies and practices ª compliance with applicable accounting standards ª compliance with these Regulations and other statutory and regulatory requirements and ª all related party transactions Ÿ Review of preliminary announcements of results prior to external communication and publication Ÿ Facilitating the external audit and discussion with external auditors of major observations arising from interim and final audits and any matter that the auditors may wish to highlight (in the absence of management, where necessary) Annual Report 2021 102
- Ÿ Review of management letter issued by external auditors and management’s response thereto Ÿ Ensuring coordination between the internal and external auditors of the Company Ÿ Review of the scope and extent of internal audit, audit plan, reporting framework and procedures and ensuring that the internal audit function has adequate resources and is appropriately placed within the company Ÿ Consideration of major findings of internal investigations of activities characterized by fraud, corruption and abuse of power and management's response thereto Ÿ Ascertaining that the internal control systems including financial and operational controls, accounting systems for timely and appropriate recording of revenues and claims, receipts and payments, assets and liabilities and the reporting structure are adequate and effective Ÿ Review of the Company’s statement on internal control systems prior to endorsement by the Board and internal audit reports Ÿ Instituting special projects, value for money studies or other investigations on any matter specified by the Board, in consultation with the Chief Executive Officer and to consider remittance of any matter to the external auditors or to any other external body Ÿ Determination of compliance with relevant statutory requirements Ÿ Monitoring compliance with these Regulations and identification of significant violations thereof Ÿ Review of arrangement for staff and management to report to Audit Committee in confidence, concerns, if any, about actual or potential improprieties in financial and other matters and recommend instituting remedial and mitigating measures Ÿ Recommend to the Board the appointment of external auditors, their removal, audit fees, the provision of any service permissible to be rendered to the Company by the external auditors in addition to audit of its financial statements, measures for redressal and rectification of non-compliances with the Regulations. The Board shall give due consideration to the recommendations of the Audit Committee and where it acts otherwise it shall record the reasons thereof Ÿ Consideration of any other issue or matter as may be assigned by the Board Five meetings of the audit committee were convened during the year and below is the attendance of the members of the committee: Name of members Status Meetings attended Muhammad Anees Chairman (Independent director) 5 Ibrahim Shamsi Member (Non-executive director) 4 Shaikh Muhammad Jawed Member (Non-executive director) 5 Umer Mansha Member (Non-executive director) 5 Annual Report 2021 103
- REPORT OF THE AUDIT COMMITTEE The Board Audit Committee (“the Committee”) comprises of four members, three of which are non-executive directors and one independent director who is the chairman of the Committee. Following are the members of the Committee: Name of members Status Role Muhammad Anees Independent Director Chairman Ibrahim Shamsi Non-Executive Director Member Shaikh Muhammad Jawed Non-Executive Director Member Umer Mansha Non-Executive Director Member All of the members of the Committee have relevant knowledge and experience of finance and accounting matters and most of them also fulfil the definition of being ‘financially literate’. Further, the Board is satisfied that the members of the Committee are competent and possess necessary skills and experience required to fulfil their responsibilities. The Committee convened five meetings during the year. Role of the Committee towards financial statements The Committee is fully aware of its role in discharging its responsibilities for the significant issues in relation to the financial statements. Following are some of the key aspects the Committee considers in this regard: Ÿ The Committee reviews the annual and interim financial statements of the Company before these financial statements are recommended by the Committee to the Board for approval. This review by the Committee ensures the overall integrity of financial statements and focuses on: ª Areas involving significant management judgements and assessing whether the judgements used by the management are appropriate. ª Significant adjustments resulting from the audit, if any. ª Validity of the Company’s ability to operate as going concern. ª Compliance with applicable accounting standards along with any significant changes in accounting policies and practices. ª All related party transactions. ª Adequacy of disclosures ª Proper and accurate accounting records have been maintained by the Company. During this review, the Committee also obtains assurance from Head of Internal Audit that financial statements are prepared in accordance with all applicable regulatory requirements, present true and fair view of the state of the Company’s affair and are free from material misstatements. Ÿ The Committee reviews preliminary announcements of results before those are made public. Ÿ The Committee reviews the management letter issued by external auditors and the management’s response to the observations highlighted by external auditors. Committee’s approach towards risk management and internal controls The Committee oversees the Company’s Enterprise Risk Management (ERM) function and Internal Control Framework. Risk management committee reports to the Audit Committee on quarterly basis regarding potential Annual Report 2021 104
- existing and emerging risks being faced by the Company along with monitoring mechanism in place to address the identified risks . These risks are analyzed with reference to their: ª Proper identification and categorization ª Consequences ª Impact on the Company’s operations ª Probability of occurrence, and ª Controls in place to manage or mitigate the risks The Committees also updates the Board of Directors of these risks, monitoring mechanism and controls in place. Role of Internal Audit to risk management and internal control The internal audit is entrusted with the responsibility to assess the risk management process for its appropriateness and internal controls for their adequacy and effectiveness. The Company has an in-house Head of Internal Audit with unrestricted access to the Committee, while the internal audit activities are outsourced to one of the big four firms namely, A. F. Ferguson & Co. (A member firm of PwC network). The Internal Audit Team conducts audit of different functions and departments of the Company and submit its finding on quarterly basis. Both Head of Internal Audit and Internal Audit Team have unrestricted access to management, staff, information systems and data files to ensure transparency and effectiveness of their audit processes. Head of Internal Audit communicates the risks and deficiencies identified by the internal audit team to the Committee along with management’s response thereto. The Committee based on the findings of the internal audit function assesses the adequacy and effectiveness of the internal controls. External Audit Process The Committee has assessed the effectiveness of external audit process by evaluation the technical expertise, relevant experience, independence, adherence to timelines and satisfactory rating assigned by the Institute of Chartered Accountants of Pakistan to the audit firm. Current statutory auditors, Yousuf Adil Chartered Accountants, being eligible for reappointment expressed their consent and the Committee having assessed the effectiveness of their audit process recommends to the Board that ‘Yousuf Adil Chartered Accountants’ be appointed as statutory auditors of the Company for the year ending 31 December 2022. The Company does not obtain non-audit services i.e. tax consultancy from the statutory auditors. The Committee has evaluated the Annual Report of the Company and is satisfied that the annual report of the Company is fair, balanced and understandable and also that it provides necessary information for shareholders to assess the Company’s position and performance, business model and strategy. COVID-19 Pandemic related matters Due to the outbreak of COVID-19 pandemic, the businesses in general witnessed unprecedented pressures which affected their ability to operating as going concern. In order to ensure that the Company continues to maintain sufficient liquidity to meet its policyholder and other liabilities and is able to recover its receivables, the Committee continued exercising strict monitoring of the receivable and cash & bank position of the Company in current year as well. The Committee using the video-link facility convened meetings with Chief Financial Officer (CFO) on quarterly basis where CFO appraised the Committee regarding status of receivable balances, satisfactory pace of recovery of these receivable balances and cash & bank position of the Company. Annual Report 2021 105
- The Committee is satisfied with the liquidity position of the Company . IFRS 17 related matters The Insurance businesses are subject to face major changes in reporting environment as IFRS 17 ‘Insurance Contracts’, a new accounting and reporting standard, is applicable from January 01, 2023. The said new standard is set to bring major structural changes to the financial statements of the Company. The Committee, during meetings convened with CFO using video-link facility, evaluated the Company’s level of preparedness to adopt and implement IFRS-17 ‘Insurance Contracts’. CFO appraised the Committee regarding measures being taken by the Company, in both Pakistan and UAE, for smooth implementation of IFRS-17. The Committee also reviewed the following: Ÿ ‘Gap Analysis Report’ for Pakistan business, prepared by internal working group before submission to the Board and the Securities and Exchange Commission of Pakistan. Ÿ ‘Gap Analysis Report and Financial Impact Assessment Reports’ for UAE business submitted to local regulator. The Committee concluded that the measures being taken by the management for smooth implementation of IFRS-17 are satisfactory. Whistle Blowing mechanism As part of its review of the whistle blowing mechanism and instances reported, the Committee noted that no whistle blowing instance was reported to the Committee during the year 2021. Performance of the Audit Committee The Board of Directors of the Company reviews the performance of the audit Committee on periodic basis. During the year, the Board constituted a committee comprising of two non-executive directors to evaluate performance of audit as well as other board committees. This evaluation of performance, in context of audit committee, considers various factors including quality of the audit committee’s report as well as various recommendations forwarded by the audit committee to the Board. Muhammad Anees Chairman Audit Committee Adamjee Insurance Company Limited Lahore Ethics, Human Resources and Remuneration Committee Below are the salient features of the terms of reference of the Committee: Ÿ Recommendation to the Board for consideration and approval a policy framework for determining remuneration of directors (both executive and non-executive directors and members of senior management). The definition of senior management will be determined by the Board which shall normally include the first layer of management below the Chief Executive Officer level. Annual Report 2021 106
- Ÿ Undertaking, annually, a formal process of evaluation of performance of the Board as a whole and its Committees either directly or by engaging external independent consultant and if so appointed, a statement to that effect shall be made in the Directors’ Report disclosing therein name and qualifications of such consultant and major terms of his / its appointment. Ÿ Recommending human resource management policies to the Board. Ÿ Recommending to the Board the selection, evaluation, development, compensation (including retirement benefits) of chief operating officer, chief financial officer, company secretary and head of internal audit. Ÿ Consideration and approval on recommendations of the Chief Executive Officer on such matters for key management positions who report directly to the Chief Executive Officer. One meeting of the Committee was convened during the year with below attendance: Name of members Status Meetings attended Muhammad Anees Chairman (Independent director) 1 Ibrahim Shamsi Member (Non-executive director) 1 Umer Mansha Member (Non-executive director) 1 MD & CEO 1 Muhammad Ali Zeb Investment Committee Below are the salient characteristics of the role and responsibilities of the Investment Committee: Ÿ Formulate investment policy of the Company for Board’s approval and ensure implementation of the policy Ÿ Define and monitor allowable exposure to various asset classes i.e. listed equities, unlisted equities, government securities, term finance certificates, mutual funds, real estate etc. Ÿ Define and monitor allowable exposure in single entity and in related parties Ÿ Define, in investment policy, minimum rating requirement for rated instruments and other criterion for non-rated instruments Ÿ Define ineligible asset classes and securities Ÿ Ensure compliance with respect to issues relating to liquidity, exposure limits, stop loss limits including securities trading, management of all investment risks, management of assets and liabilities, scope of internal and external audit of investments and investment statistics and all other internal controls of investment operations Ÿ Monitor solvency position of the Company to ensure that requirement relating to minimum solvency as laid down in Insurance Ordinance, 2000 and rules and regulations made thereunder is met at all times. Ÿ To assist the Board in reviewing the investment policy and its implementation at least once a year Annual Report 2021 107
- Ÿ Ensure adequate controls are implemented in investment functions and responsibilities are duly segregated into front, mid and back office Ÿ Review and approve investment and divestment proposals Ÿ Analyze performance of different sectors, impact of government policies on these sectors and decide line of action Ÿ Ensure that all proposed investment transactions comply with the investment policy and regulatory guidelines Ÿ Review the overall investment portfolio of the Company with the objective of assessing adequacy of return being generated by the portfolio Four meetings of the Investment Committee were convened during the year and below is the attendance of the members of the committee: Name of members Status Meetings attended Umer Mansha Chairman (Non-Executive director) 4 Imran Maqbool Member (Non-executive director) 4 MD & CEO 4 Chief Financial Officer 4 Muhammad Ali Zeb Muhammad Asim Nagi Presence of the Chairman of Audit Committee in AGM The Chairman of the Audit Committee remains present at the AGM to answer questions on the Audit Committee’s activities and matters within the scope of the Audit Committee’s responsibilities. Use of external search consultancy in appointment of chairman or nonexecutive director The Board of the Company was constituted in May 2019 after election of directors. At that time the Company used the database of ‘Pakistan Institute of Corporate Governance’ (PICG), an institute notified by the Commission, to appoint independent directors. However, during the year 2021, services of external search consultancy were not required. Annual Report 2021 108
- Chairman ’s significant commitments Chairman’s significant commitments refer to his engagement in other entities. Umer Mansha, Chairman of the Board of Directors of the Company, has the following significant commitments: Company Designation Nishat Mills Limited Chief Executive Officer Adamjee Life Assurance Company Limited Chief Executive Officer MCB Bank Limited Director Nishat Hotels & Properties Limited Director Nishat Developers (Pvt.) Limited Director Nishat Dairy (Pvt.) Limited Director Nishat (Raiwind) Hotels and Properties (Pvt.) Limited Director Nishat Agriculture Farming (Pvt.) Limited Director Hyundai Nishat Motor (Pvt.) Limited Director Nishat Agrotech Farms (Pvt.) Limited Director Nishat Sutas Dairy Limited Director National Textile Foundation Director Umer Mansha is also serving at MCB Bank Limited as the Chairman of the Board’s Business Strategy & Development Committee, Information Technology Committee, Committee on Physical Planning & Contingency Arrangements and Write-off & Waiver Committee and is also a member of Audit Committee and Risk Management & Portfolio Review Committee. Pandemic recovery plan by the management and policy statement Covid-19 pandemic brought many unexpected changes and accelerated the needs for digitalization in nearly all service sectors. AICL was well equipped with the digital infrastructure needed to cope with this change during and after the pandemic and because of it the pandemic has not affected AICL as adversely as it has affected some other organizations. However, this does not mean that the changing environment has been in favor of the business. The pandemic has been catastrophic for a lot of industries and has brought very unpredictable changes to the lifestyles and habits of the end consumers. AICL aims to tackle this situation with its high standards. It is continuously working on improving the customer experience through digital technology. AICL has set strict guidelines for compliance that are in line with international standards that match our customer expectations. AICL has always worked for the betterment of its employees and customers during the difficult times of the pandemic, it continued working seamlessly with the support of its digital infrastructure and innovative techniques to bring best experience to its customers. Digital channels and online services are the new normal in the industry and future depends on digitalization of the business. With the new challenges posed by the ongoing pandemic, business processes have been made more efficient and user friendly for both employees and customers. Annual Report 2021 109
- AICL continues to provide the best customer experience during the pandemic while is strictly adhering to the Government guidelines issued from time-to-time . Cybersecurity policy Insurance sector and cyber security in Pakistan has become highly competitive. To lead in this evolving market, insurance companies need to secure their information technology environment with strong security governance, latest technologies, security processes and mindset. This need has enabled AICL to be a market leader in security and protection of its policy holder’s data with its secure architecture, skilled resources and stringent processes. The SECP Guidelines on Cybersecurity Framework for Insurance Sector, 2020 became effective from 1st July 2020. AICL, always a step ahead, started adopting this framework prior to its official promulgation. The main objective was to protect the policy holder data and Company infrastructure from any unwarranted threats. Following steps have been taken to comply with the Cybersecurity guidelines issued by the SECP: Ÿ A Cybersecurity Strategy has been developed in light of SECP’s guidelines. It is based on our core guiding principles aligned with the Company’s vision. Ÿ A Cybersecurity Framework offers a blueprint for meeting all the regulatory requirements as well as putting in place the best possible defense against cyber-attacks. AICL has opted NIST (National Institute of Standards and Technology) as the Cybersecurity Framework (CSF) which is the best in its class. Ÿ AICL has appointed a Virtual Chief Information Security Officer (vCISO) to develop and manage the implementation of its Cybersecurity program. Ÿ ISO/IEC 27001 is being utilized for drafting Information Security Policies and Procedures. Ÿ IT Risk Assessment is being carried out to ensure all vulnerabilities and shortfalls are addressed and managed properly. Assimilation of the assessment with Enterprise Risk Management of the organization is in progress. Ÿ Vulnerability assessment and penetration testing (VAPT) is performed by a third party in order to identify and fill the gaps and to strengthen the security posture of the Company. Ÿ AICL is in the process of implementing Security Information and Event Management (SIEM) solution to strengthen the security monitoring. Ÿ AICL has developed and rolled out a comprehensive Cybersecurity Awareness Program for all the employees. This awareness has enabled the employees to think from security perspective before taking any action in their day-to-day work. The Cybersecurity Awareness trainings contain specialized content to highlight and address the importance of Information/Data Security, Privacy and Social Engineering. This training programs are also helping in enabling our employees to act as a human firewall in combating with any malicious attempt. The idea is to incorporate Cybersecurity protocols in Adamjee Insurance’s core so that it is easier to combat with any security threats or incidents in a more structured and efficient way. Anti-Money Laundering and Countering Financing Terrorism Policy Anti-Money Laundering and Counter Financing Terrorism (AML/ CFT) form the base lines steps for the economies of this modern world, especially among the players of financial sector. Money Laundering (ML) and Terrorism Financing (FT) have harmful and injurious implications for a country’s economic stability and good governance. Pakistan was grey-listed in June 2018 by Financial Action Task Force (FATF) because of its alleged ties with Islamist militant groups and its weak policies on anti-money laundering and combating the financing of terrorism (AML-CFT) regulations. Despite its best and concerted ongoing efforts necessary to ensure transparent and legal economic activity, it still continues with the same status of a non-cooperative nation running grey economy. Grey-listed nations suffer severe economic consequences such as: reduced foreign direct investments; imports and exports restrictions; sanctions on remittances, and limited access to international financial institutions. Annual Report 2021 110
- Throughout the past decade , the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) have been issuing various guidelines, circulars, and recently revised the most wanted and FATF centric regulations on AML / CFT 2020 for proper and vigorous enforcement, providing sufficient clarifications in improving domestic and international compliance. Despite the fact that the risk level for ML / FT is not even rated as medium in the general insurance industry, Adamjee Insurance Company Limited (AICL) remained committed to fulfilling its obligations under above said directives and formulated a comprehensive policy and procedure approved by the Board of Directors of the Company. AICL’s AML / CFT policy aims at safeguarding the interests of all stakeholders by combining modern techniques on the subject. This necessitated not only the Company's interest in its ongoing efforts for aligning its AML/ CFT steps with technological development in its operations/ procedures and equipping related tools with the most recent possible learning. At AICL, we are fully aware of the fact that the AML / CFT steps, once introduced will do well for some time, but will prove not sufficient to deal with the rapidly evolving aspects of new ML / TF risks. To face such arising eventualities and contingencies, the Board is committed to setting examples by leading from the front. Access to Reports and Enquiries Financial Reports Annual Report 2021 and Quarterly reports may be downloaded from the Company’s website: www.adamjeeinsurance.com or printed copies can be obtained by writing a request to the Company Secretary. Shareholders’ Enquiries Shareholder’s enquiries about their shares, dividends and share certificate can be directed to Company Secretary or Share Registrar at the following address. Company Secretary 9th Floor, Adamjee House, I.I. Chundrigar Road, Karachi. CDC Share Registrar Services Limited CDC House, 99-B, Block B, S.M.C.H.S, Sharah-e-Faisal, Karachi. Stock Exchange Listing Adamjee Insurance Company Limited shares are listed on Pakistan Stock Exchange. The symbol code of the Company is AICL. Chief Executive Officer’s Review CEO presentation video explaining the business overview, performance, strategy and outlook is available at the Company’s website : https://www.adamjeeinsurance.com/pak/investors.php#ceo-message Annual Report 2021 111
- Statement of Unreserved Compliance of International Financial Reporting Standards (IFRS) Issued by International Accounting Standards Board (IASB) Management recognizes the responsibility of preparation and presentation of the financial statements in accordance with the accounting and reporting standards as applicable in Pakistan and the requirements of the Companies Act, 2017, the Insurance Ordinance, 2000, the Insurance Rules, 2017, the Insurance Accounting Regulations, 2017, the Takaful Rules, 2012 and the General Takaful Accounting Regulations, 2019. Accordingly, the Company’s financial statements have been prepared in accordance with accounting and reporting standards as applicable in Pakistan. The accounting and reporting standards comprise of: Ÿ International Financial Reporting Standards 'IFRS' issued by the International Accounting Standards Board 'IASB' as are notified under the Companies Act, 2017; and Ÿ Provision of and directives issued under the Companies Act, 2017, the Insurance Ordinance, 2000, the Insurance Rules, 2017, the Insurance Accounting Regulations, 2017, the Takaful Rules, 2012 and the General Takaful Accounting Regulations, 2019. In case the requirements differ, the provisions of or the directives issued under the Companies Act, 2017, the Insurance Ordinance, 2000, the Insurance Rules, 2017, the Insurance Accounting Regulations, 2017, the Takaful Rules, 2012 and the General Takaful Accounting Regulations, 2019, shall prevail. The annexed 2021 financial statements are duly audited by the statutory auditors of AICL in accordance with the International Standards of Auditing as applicable in Pakistan. Statutory auditors has issued an unqualified opinion and confirmed that the financial statements are prepared in conformity with the accounting and reporting standards as applicable in Pakistan. The Board of Directors has reviewed and approved the annexed unconsolidated, consolidated and WTO financial statements. On behalf of the Board of Directors, the financial statements are signed by the Chairman, and two nominated Directors along with the Chief Executive Officer and the Chief Financial Officer. Annual Report 2021 112
- Statement Under Section 46 (6) of the Insurance Ordinance, 2000 The incharge of the Management of the business was Muhammad Ali Zeb, Managing Director & Chief Executive Officer and the report on the affairs of business during the year 2021 signed by Muhammad Ali Zeb, Imran Maqbool and approved by the Board of Directors is part of the Annual Report 2021 under the title of “Directors’ Report to Members” and a. In our opinion the annual statutory accounts of Adamjee Insurance Company Limited set out in the forms attached to the statement have been drawn up in accordance with the Insurance Ordinance, 2000 (Ordinance) and any rules made thereunder, b. Adamjee Insurance Company Limited has at all times in the year complied with the provisions of the Ordinance and the rules made thereunder relating to paid-up capital, solvency and re-insurance arrangements; and c. as at the date of the statement, the Adamjee Insurance Company Limited continues to be in compliance with the provisions of the Ordinance and the rules made thereunder relating to paid-up capital, solvency and re-insurance arrangements. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 113
- Annual Report 2021 114
- Performance Evaluation Against Targets / Budgets The Company prepares Annual Business Plan mainly comprising of Annual Budget for the coming year. The Annual Budget is reviewed and approved by the Board and performance of the Company against budgeted targets is monitored by the Board on quarterly basis. The objective of Annual Budget is to use it as a control tool to periodically gauge the operational performance of the Company against the annual targets. The Budget objectives are communicated to the relevant managers at the start of the year which also acts as a yard stick for evaluating the performance of different functions and departments on periodic basis and make corrective decisions and actions, if required. Annual Budget is also broken down into monthly budget to compare the actual results with budgeted figures to identify monthly variances together with their reasons which are subject to rigorous review and follow up in subsequent monthly performance reviews. The process enables the management to ensure all the functions and departments are coordinated towards the achievement of overall Company objectives. BUSINESS GROWTH The Company has shown strong growth in gross premium written both from last year and from the Budget as well. This shows great recovery from decline in premium written during last year owing to economic slowdown brought about by the COVID-19 pandemic. This is due to double digit growth shown by Fire, Marine, Motor and Health classes of business during the year. The Company has managed to achieve this double digit growth despite tough competitive business environment faced. INVESTMENT INCOME Current year witnessed increase in investment income both from last year and budgeted investment income. This is mainly due to the increase in dividend income of the Company during the year. During the period ending December 2020, the State Bank of Pakistan through its External Relations Department had advised banking companies to suspend the quarterly dividend distribution by Banks, DFIs for the FY2020 to curb the growing concerns of COVID19. As a result, the banking companies restricted their normal dividend payouts, causing dividend income from banking sector to decrease sharply. During the year ending December 2021, the banking companies have released substantial amount of dividends which was hampered due to SBP's restrictions in the previous year. OPERATIONAL PROFITABILITY The Company succeeded in meeting its operational profitability objectives based on profitability targets and last year performance. The Company managed to have lower net loss ratios compared with last year due to adequate reinsurance arrangements in place with the reinsurance partners. The net commission ratios have also dropped from past trends. In addition to improvement in underwriting results, the operating profit has also improved due to increase in fair value measurement gain recorded during the year for Investment property and increased Investment income during the year. Annual Report 2021 115
- Six Years Financial Performance (2016 - 2021) 2021 2020 2019 2018 2017 2016 Rs. Mln "" "" "" "" "" "" "" "" "" "" 3,500 5,487 25,390 25,966 31,069 1,632 4,339 2,174 22,426 61,641 36,251 3,500 4,487 22,235 22,589 26,596 787 4,171 1,312 16,654 49,520 27,285 3,500 4,555 21,380 21,781 25,888 402 4,301 1,177 17,770 49,538 28,158 3,500 3,784 19,663 21,006 24,114 3,593 2,211 17,926 47,845 28,182 3,500 5,001 20,364 18,649 23,749 2,632 2,279 18,727 47,388 27,023 3,500 6,278 21,872 17,359 24,337 1,250 3,811 16,242 45,640 23,768 "" "" "" "" "" "" "" "" "" "" 23,320 12,552 7,204 1,523 672 50 3,212 2,469 4,405 3,136 18,279 13,295 7,987 1,833 376 15 3,161 1,093 1,910 1,876 22,507 15,434 9,877 1,507 654 8 3,100 1,372 2,533 1,813 20,387 13,806 8,386 1,280 816 3,438 1,285 2,174 1,239 18,522 11,535 7,434 1,090 557 2,683 1,494 2,121 1,221 16,270 9,615 6,210 763 1,078 2,329 3,502 4,054 3,492 "" "" "" "" "" "" "" "" 1,465 654 610 39 78 431 139 99 1,526 745 692 46 92 409 164 116 1,213 617 531 72 110 324 108 77 1,102 669 402 (8) 7 253 79 53 743 262 300 (38) (31) 176 67 47 187 19 29 (5) (5) 23 4 3 "" "" "" 1,402 (259) (282) 648 280 (793) (93) 3 (944) 1,892 (1,274) (685) 1,060 (1,210) (1,383) 222 2,225 (1,036) Balance Sheet Paid Up Capital Reserves Equity Investments (Book Value) Investments (Market Value) Investment Property Fixed Assets Cash & Bank Deposits Other Assets Total Assets Total Liabilities Operating Data - Conventional Gross Premium Net Premium Net Claims Net Commission Underwriting Result Financial Charges Total Expenses Investment Income Profit Before Tax Profit After Tax - Window Takaful Operations Gross contribution written Net contribution revenue Net takaful claims - reported / settled Underwriting Result - PTF Surplus / (Deficit) - PTF Wakala fee Profit before taxation Profit after taxation Cash Flow Summary Operating activities Investing activities Financing activities Share Information No. of Shares (Million) Net Assets per share (Break-Up Value Per Share) (Rs.) Share Price at Year End (Rs.) Highest Share Price During Year (Rs.) Lowest Share Price During Year (Rs.) KSE 100 Index Market Price To Break-Up Value (P/B Ratio) (Times) Face Value (per share) (Rs.) Market Capitalization - Amount Rs. Mln 350 350 350 350 350 350 72.54 63.53 61.09 56.18 58.18 62.49 40.00 39.32 42.09 42.02 52.00 74.14 47.22 47.45 47.70 60.25 82.50 79.79 32.66 24.10 26.00 38.10 43.02 46.70 44,596 43,755.38 40,735.08 37,066.67 40,471.48 47,806.97 0.55 0.62 0.69 0.75 0.89 1.19 10.00 10.00 10.00 10.00 10.00 10.00 14,000 13,762.00 14,731.50 14,707.00 18,200.00 25,949.00 Distribution Dividend Per Share Total Dividend - Amount Cash Dividend Bonus Shares Total Dividend (Rs.) Rs. Mln % % % 2.75 962.50 27.50 27.50 2.75 962.50 27.50 27.50 2.50 875.00 25.00 25.00 2.00 700.00 20.00 20.00 4.00 1,400.00 40.00 40.00 3.00 1,050.00 30.00 30.00 Annual Report 2021 116
- Six Years Financial Performance (2016 - 2021) Horizontal Analysis - Balance Sheet and Income Statement 2021 2020 2019 2018 2017 2016 2021 2020 2019 2018 2017 2016 % increase /(decrease) over preceding year Rs. Mln Balance sheet Assets Cash and Bank Deposits Loans to Employees Investments Deferred Taxation Current Assets-others Fixed Assets Investment Property Total assets of WTO-OP Total Assets Total Equity Underwriting Provisions Deferred Taxation Deferred Liabilities Borrowings Creditors and Accruals Other Liabilities Total liabilities of WTO-OP Total Equity and Liabilities 2,174 52 31,069 21,651 4,339 1,632 724 61,641 1,312 45 26,596 16,020 4,171 787 589 49,520 1,177 49 25,888 17,295 4,301 402 426 49,538 2,211 45 24,114 17,499 3,594 382 47,845 2,279 43 23,749 18,444 2,632 241 47,388 3,811 18 24,337 16,125 1,250 99 45,640 65.70 15.56 16.82 35.15 4.03 107.37 22.92 24.48 11.5 (9.1) 2.7 (7.4) (3.0) 95.8 38.2 (0.0) (46.8) 10.0 7.4 (1.2) 19.7 100.0 11.6 3.5 (3.0) 4.7 1.5 (5.1) 36.6 58.5 1.0 (40.2) 138.9 (2.4) 14.4 110.6 143.4 3.8 31.5 5.9 58.1 (100.0) 27.1 (3.9) 100.0 41.0 25,390 23,937 2,031 270 927 2,446 6,361 279 61,641 22,235 19,380 1,375 212 166 1,806 4,103 243 49,520 21,380 20,848 1,330 225 1,719 3,840 196 49,538 19,663 20,784 944 199 2,206 3,819 230 47,845 20,365 20,639 1,567 154 1,884 2,638 141 47,388 21,872 17,184 2,223 81 1,661 2,573 46 45,640 14.19 23.52 47.67 27.36 457.20 35.42 55.04 14.91 24.48 4.0 (7.0) 3.4 (5.8) 100.0 5.1 6.8 24.0 (0.0) 8.7 0.3 40.9 13.1 (22.1) 0.5 (14.8) 3.5 (3.4) 0.7 (39.8) 29.2 17.1 44.8 63.1 1.0 (6.9) 20.1 (29.5) 90.1 13.4 2.5 206.5 3.8 50.2 30.9 100.0 (30.4) (63.1) 3,340.2 100.0 41.0 12,552 7,204 3,153 1,523 672 2,469 131 138 961 59 3 50 139 4,405 1,269 3,136 13,295 7,987 3,099 1,833 376 1,093 113 231 62 12 15 164 1,910 35 1,875 15,434 9,877 3,397 1,507 654 1,372 30 64 12 59 5 8 (356) 108 2,533 720 1,813 13,806 8,386 3,324 1,280 816 1,285 7 95 73 6 41 79 2,174 935 1,239 11,535 7,434 2,576 1,090 (122) 557 1,494 9 96 44 5 63 67 2,121 900 1,221 9,615 6,210 1,615 763 (50) 1,078 3,502 6 178 630 (2) 83 4 4,054 561 3,493 (5.58) (9.80) 1.76 (16.92) 78.97 126.03 16.59 (40.13) 100.00 (5.60) (77.63) 233.07 (14.96) 130.63 3,559.17 67.23 (13.9) (19.1) (8.8) 21.6 (42.5) (20.4) 275.2 260.6 (100.0) 5.7 167.3 80.1 100.0 52.1 (24.6) (95.2) 3.4 11.8 17.8 2.2 17.8 (19.9) 6.8 329.1 (32.7) 100.0 (19.2) (23.1) 100.0 (967.7) 36.3 16.5 (23.0) 46.3 19.7 12.8 29.0 17.4 (100.0) 46.5 (14.0) (22.2) (1.0) 65.9 20.0 (34.9) 17.9 2.5 3.9 1.5 20.0 19.7 59.5 42.9 142.5 (48.3) (57.3) 39.6 (46.0) (93.0) (412.5) (23.8) 1,559.2 (47.7) 60.4 (65.0) 24.1 18.9 3.8 36.7 (129.8) 346.0 45.7 1.7 (3.7) 10.4 (127.1) 43.4 100.0 83.1 106.3 79.8 Profit and Loss Account Revenue account Net Premium Revenue Net claims Underwriting Expenses Net Commission Unexpired risk reserve Underwriting Result Investment Income Rental Income Other income Change in fair value of investment property Other / General And Administration Expenses Exchange Gain / (Loss) Finance Charges Workers' welfare fund charge / (reversal) Profit before tax from WTO-OP Profit Before Tax Provision for taxation Profit after Tax Annual Report 2021 117
- Six Years Financial Performance (2016 - 2021) Vertical Analysis - Balance Sheet and Income Statement 2021 Rs. Mln 2020 % Rs. Mln 2019 % Rs. Mln 2018 % Rs. Mln 2017 % Rs. Mln 2016 % Rs. Mln % Balance sheet Assets Cash and Bank Deposits Loans to Employees Investments Deferred Taxation Current Assets-others Fixed Assets Investment Property Total assets of WTO-OP Total Assets 2,174 52 31,069 21,651 4,339 1,632 724 61,641 3.5 0.1 50.4 35.1 7.0 2.6 1.2 100 1,312 2.6 45 0.1 26,596 53.7 16,020 32.4 4,171 8.4 787 1.6 589 1.2 49,520 100.0 1,177 2.4 49 0.1 25,888 52.3 17,295 34.9 4,301 8.7 402 0.8 426 0.9 49,538 100.0 2,211 4.6 45 0.1 24,114 50.4 17,499 36.6 3,594 7.5 382 0.8 47,845 100.0 2,279 4.8 43 0.1 23,749 50.1 18,444 38.9 2,632 5.6 241 0.5 47,388 100.0 3,811 8.4 18 0.0 24,337 53.3 16,125 35.3 1,250 2.7 99 0.2 45,640 100.0 Total Equity Underwriting Provisions Deferred Taxation Deferred Liabilities Borrowings Creditors and Accruals Other Liabilities Total liabilities of WTO-OP Total Equity and Liabilities 25,390 23,937 2,031 270 927 2,446 6,361 279 61,641 41.2 38.8 3.3 0.4 1.5 4.0 10.3 0.5 100 22,235 44.9 19,380 39.1 1,375 2.8 212 0.4 166 0.3 1,806 3.6 4,103 8.3 243 0.5 49,520 100.0 21,380 43.2 20,848 42.1 1,330 2.7 225 0.5 1,719 3.5 3,840 7.8 196 0.4 49,538 100.0 19,663 41.1 20,784 43.4 944 2.0 199 0.4 2,206 4.6 3,819 8.0 230 0.5 47,845 100.0 20,365 43.0 20,639 43.6 1,567 3.3 154 0.3 1,884 4.0 2,638 5.6 141 0.3 47,388 100.0 21,872 47.9 17,184 37.7 2,223 4.9 81 0.2 1,661 3.6 2,573 5.6 46 0.1 45,640 100.0 12,552 100.0 7,204 57.4 3,153 25.1 1,523 12.1 672 5.4 2,469 19.7 131 1.0 138 1.1 961 7.7 59 0.5 3 0.0 50 0.4 139 1.1 4,405 35.1 1,269 10.1 3,136 25.0 13,295 100.0 7,987 60.1 3,099 23.3 1,833 13.8 376 2.8 1,093 8.2 113 0.8 231 1.7 62 0.5 12 0.1 15 0.1 164 1.2 1,910 14.4 35 0.3 1,875 14.1 15,434 100.0 9,877 64.0 3,397 22.0 1,507 9.8 654 4.2 1,372 8.9 30 0.2 64 0.4 12 0.1 59 0.4 5 0.0 8 0.1 (356) (2.3) 108 0.7 2,533 16.4 720 4.7 1,813 11.7 13,806 100.0 8,386 60.7 3,324 24.1 1,280 9.3 816 5.9 1,285 9.3 7 0.1 95 0.7 73 0.5 6 0.0 41 0.3 79 0.6 2,174 15.7 935 6.8 1,239 9.0 11,535 100.0 7,434 64.4 2,576 22.3 1,090 9.4 (122) (1.1) 557 4.8 1,494 13.0 9 0.1 96 0.8 44 0.4 5 0.0 63 0.5 67 0.6 2,121 18.4 900 7.8 1,221 10.6 9,615 100.0 6,210 64.6 1,615 16.8 763 7.9 (50) (0.5) 1,078 11.2 3,502 36.4 6 0.1 178 1.9 630 6.6 (2) (0.0) 83 0.9 4 0.0 4,054 42.2 561 5.8 3,493 36.3 Profit and Loss Account Revenue account Net Premium Revenue Net Claims Underwriting Expenses Net Commission Unexpired risk reserve Underwriting Result Investment Income Rental Income Other income Change in fair value of investment property General And Administration Expenses Exchange Gain / (Loss) Finance Charges Workers' welfare fund charge / (reversal) Profit before tax from WTO-OP Profit Before Tax Provision for Taxation Profit After Tax Annual Report 2021 118
- Six Years Financial Performance (2016 - 2021) Financial Ratios 2021 2020 2019 2018 2017 2016 2.9 2.1 2.9 4.0 3.0 6.6 Profitability Ratios Underwriting Result / Gross Premium (%) Underwriting Result / Net Premium (%) 5.4 2.8 4.2 5.9 4.8 11.2 Combined Ratio (%) 94.6 97.2 95.8 94.1 95.2 88.8 Total Expenses / Gross Premium (%) 13.8 17.3 13.8 16.9 14.5 14.3 Total Expenses / Net Premium (%) 25.6 23.8 20.1 24.9 23.3 24.2 Management Expenses / Net Premium (%) 25.1 23.3 22.0 24.1 22.3 16.8 0.5 0.5 0.4 0.5 0.9 6.6 Other Expenses / Net Premium (%) Net Claims / Net Premium (Claim Ratio) (%) 57.4 60.1 64.0 60.7 64.4 64.6 Net Commission / Net Premium (%) 12.1 13.8 9.8 9.3 9.4 7.9 Investment Income / Net Premium (%) 19.7 8.2 8.9 9.3 12.9 36.4 Profit Before Tax / Gross Premium (%) 18.9 10.4 11.3 10.7 11.5 24.9 Profit After Tax / Gross Premium (%) 13.4 10.3 8.1 6.1 6.6 21.5 Profit Before Tax / Net Premium (%) 35.1 14.4 16.4 15.7 18.4 42.2 Profit After Tax / Net Premium (%) 25.0 14.1 11.7 9.0 10.6 36.3 Overall Profitability Profit Before Tax / Total Income (%) 26.9 12.8 14.9 14.4 16.1 30.5 Profit After Tax / Total Income (%) 19.1 12.6 10.6 8.2 9.3 26.3 Return On Equity - PBT (%) 17.3 8.6 11.8 11.1 10.4 18.5 Return On Equity - PAT (%) 12.4 8.4 8.5 6.3 6.0 16.0 Return On Total Assets (%) 5.1 3.8 3.7 2.6 2.6 7.7 8.96 5.36 5.18 3.54 3.49 9.98 6.9 7.0 5.9 4.8 7.7 4.0 30.69 51.3 48.3 56.5 114.6 30.1 3.3 1.9 2.1 1.8 0.9 3.3 67.2 3.5 46.3 1.4 (65.0) 79.8 4.5 7.3 8.1 11.9 14.9 7.4 1.6 1.7 1.7 1.6 1.8 1.7 Return To Shareholders Earnings Per Share (Rs.) Dividend Yield (%) Dividend Payout (%) Dividend Cover (Times) Earnings Growth (%) P/E Ratio (Times) Performance/ Liquidity Current Ratio (Times) Liquid Ratio (Times) 1.2 1.3 1.2 1.1 0.9 1.0 Cash / Current Liabilities (%) 7.2 6.0 4.8 8.2 9.0 20.2 Total Assets Turnover (Times) 0.2 0.3 0.3 0.3 0.2 0.2 Fixed Assets Turnover (Times) 2.9 3.2 3.6 3.8 4.4 7.7 Liquid Assets / Total Assets (%) 66.2 66.5 66.7 48.5 44.2 46.4 Earning Assets / Total Assets (%) 54.9 57.7 55.3 50.4 50.1 53.3 Equity / Total Assets (Shareholders' Funds ratio) (%) 41.2 44.9 43.2 41.1 43.0 47.9 - 0.34 - - - - Paid Up Capital / Total Assets (%) Debt to Equity - Book Value (%) 5.7 7.1 7.1 7.3 7.4 7.7 Return On Capital Employed (%) 17.5 8.6 11.9 11.1 10.4 18.5 Annual Report 2021 119
- Six Years Graphical Summary (2016 - 2021) Equity 30,000 25,000 (Rupees in million) 20,000 15,000 10,000 5,000 2016 2017 2018 2019 2020 2021 Equity Total Assets & Liabilities 70,000 (Rupees in million) 60,000 50,000 40,000 30,000 20,000 10,000 2016 2017 2018 Total Assets 2019 2020 2021 2020 2021 Total Liabili es Investments 35,000 (Rupees in million) 30,000 25,000 20,000 15,000 10,000 5,000 2016 2017 2018 Investments (Book Value) 2019 Investments (Market Value) Annual Report 2021 120
- Six Years Graphical Summary (2016 - 2021) Gross Premium (Rupees in million) 25,000 20,000 15,000 10,000 5,000 2016 2017 2018 Gross Premium - Conven onal 2019 2020 2021 Gross contribu on wri en - WTO Underwriting Results (Rupees in million) 1,200 1,000 800 600 400 200 2016 2017 2018 2019 2020 2021 2020 2021 Underwri ng Result Investment Income (Rupees in million) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 2016 2017 2018 2019 Investment Income Annual Report 2021 121
- Six Years Graphical Summary (2016 - 2021) Profit (Rupees in million) 5,000 4,000 3,000 2,000 1,000 2016 2017 2018 Profit Before Tax 2019 2020 2021 Profit A er Tax Earnings Per Share (Rs.) 12 (Rupees) 10 8 6 4 2 0 2016 2017 2018 2019 2020 2021 2020 2021 Earnings Per Share (Rs.) Dividend Distribution 1,600 (Rupees in million) 1,400 1,200 1,000 800 600 400 200 2016 2017 2018 2019 Dividend Distribu on Annual Report 2021 122
- Six Years Graphical Summary of Ratios (2016 - 2021) Dividend Yield (%) 9 (Percentage) 8 7 6 5 4 3 2 1 2016 2017 2018 2019 2020 2021 2020 2021 2020 2021 Dividend Yield (%) P/E Ratio (Times) 16 14 12 10 8 6 4 2 2016 2017 2018 2019 P/E Ra o (Times) Current Ratio (Times) 1.80 1.75 1.70 1.65 1.60 1.55 2016 2017 2018 2019 Current Ra o (Times) Annual Report 2021 123
- Six Years Graphical Summary of Ratios (2016 - 2021) Liquid Ratio (Times) 1.40 1.20 1.00 0.80 0.60 0.40 0.20 2016 2017 2018 2019 2020 2021 2020 2021 Liquid Ra o (Times) Equity / Total Assets (%) 50.00 48.00 46.00 44.00 42.00 40.00 38.00 36.00 2016 2017 2018 2019 Equity / Total Assets (%) Annual Report 2021 124
- Comments on Horizontal and Vertical Analysis Profit & Loss Account Over the years 2016 to 2019, the Company continued to grow its business at a healthy rate. Owing to the devastating effects of Covid-19, the Company faced a moderate slump in business during the year 2020. However, during 2021 the gross written premium of the Company's conventional business started to revive and witnessed a 28% increase from last year. Both Inside & Outside Pakistan Operations showed strong growth in gross written premium of 26% and 31% respectively, year on year. However in order to maintain the risk profile, the Company decided to cede 42% of the Gross premium written as compared to 37% of the last year, causing the Net Insurance Premium to decrease by 6% from last year. Net claims expense decreased by 9.8% during the year resulting in 'Claim ratio' to reduce to 57% in current year as against 60% in last year. Management / underwriting expenses increased by 2% in current year as compared to year 2020. Underwriting result of the Company improved by 79% in the current year, while Investment income of the Company also witnessed an increase of 126% year on year. On the other hand, The Window Takaful Operations (WTO) of the Company, showed decline in gross contribution which decreased to Rs. 1.46 billion in 2021 as against Rs. 1.53 billion in 2020. WTO operator's fund contributed Rs. 139 million towards the profit before tax to the overall profits of the Company. Profit after tax for the year 2021 has increased by 67.23% amounting to Rs. 3,136 million as against Rs. 1,876 million in 2020 resulting in Earning per Share (EPS) of Rs. 8.96 in current year as against Rs. 5.36 in last year. Balance Sheet The Company has the largest paid up capital in the industry amounting to Rs. 3,500 million. The overall asset base of the Company increased by 24% (Rs. 12,120 million) reaching at Rs. 61,641 million as compared to Rs. 49,520 million in 2020. Investments are the biggest asset which constitute approximately 50% of the total assets of the Company. With an increase of 16.8%, investments of the Company stood at Rs. 31,069 million as against Rs. 26,596 million in 2020. The Company's Investments have shown continuous growth over the last six years, except for 2017 where a slight decline was witnessed, due to adverse market conditions. Cash and Bank balance of the Company increased by 66% approximately amounting to Rs. 2,174 million in current year as against Rs. 1,312 million in 2020. Equity & Reserves increased by 14% year on year, reaching to Rs. 25,390 million at current year end as against Rs. 22,235 million which reflects the improving strength of the Company. Underwriting liabilities increased by 24% year on year, reaching to Rs. 23,937 million at current year end as against Rs. 19,380 million in 2020. Net Assets of the Company's 'Window Takaful Operations - Operator's Fund' increased significantly from Rs. 346 million to Rs. 445 million registering a growth of 29% year on year. Annual Report 2021 125
- Comments on Ratios Profitability Ratios Profitability Ratios during the year depicted upward trends . Underwriting results stood at 5.4% of net premium in current year as against 2.8% in last year. Investment income as a percentage of Net Premium increased to 19.7% in current year as against 8.2% in last year. Profit after tax ratio, however, improved to 25% in current year as against 14.1% in last year. This is mainly related to decrease in Insurance claims and acquisition expenses amounting to Rs. 1,093 million and increase in dividend income from equity securities amounting to Rs. 1,260 million. Return to Shareholders Ratios Return to shareholders / investors' Ratios depicted overall favourable trends during the year. ‘Return on equity’ increased to 12.4% in current year as against 8.4% in last year. While ‘Return on total assets’ increased to 5.1% in current year as against 3.8% in last year. During the year, the Company has distributed Rs. 2.75 per share as dividend (Rs. 1.25/- per share as final dividend relating to year 2020 and Rs. 1.5/- per share as interim dividend relating to year 2021). Total dividend distribution amounted to Rs. 962.5 million. Liquidity Ratios Liquidity Ratios of the Company have remained in line as compared to last year ratios which reflect a stable working capital and cash flow management of the Company. The Company was able to maintain current ratio at 1.6 times while cash and bank balance to current liabilities ratio improved to 7.2% in current year as against 6.0% last year. The proportion of ‘Earning assets’ to ‘Total assets’ has slightly reduced to 54.9% as against 57.7% while the proportion of ‘Liquid assets’ to ‘Total assets’, also witnessed a slight decline to 66.2% in current year as against 66.5% last year. Annual Report 2021 126
- DuPont Analysis Rupees in Million Revenue 16 ,395 Profit After Tax 3,136 Net Profit Margin 19.1% 12.6% 1,876 0.27 Times 3.8% Return on Equity 13,259 13,030 0.30 Times 16,395 14,906 / Current Assets 55,336 44,143 Total Assets / 12.4% Total Expense Revenue Assets Turnover 5.1% _ / x Return on Assets 14,906 8.4% Owners' Equity Ownership Ratio 25,390 41.19% 44.9% 61,641 _ 22,235 Non Current Assets 6,305 Total Liabilities / 5,377 36,251 27,285 Total Assets 61,641 + 49,520 Current Liabilities + 33,903 25,550 49,520 Equity Owners' 25,390 22,235 2021 2020 + Non Current Liabilities 2,348 1,735 Analysis - The Net Profit Margin has increased by 6.5% from last year due to increase in Underwiting results and investment income. - Return on assets and return on equity have increased from last year by 1.3% and 4% respectively showing Company`s improved profitability. - Owners` equity has increased during the current year but ownership ratio has decreased from last year mainly due to substantial increase in total assets mainly due to valuation gains in investments in securities and investment properties. - The Company has shown significant growth in profitability as compared with last year. Annual Report 2021 127
- Free Cash flows to the Company 2021 2020 Rupees in Million Net cash flows generated from Underwriting activities 2,087 Net cash flows generated from Other operating activities (685) Total cash inflow from operating activities 1,402 Less: Capital Expenditures (277) Free Cash flow to the Company 1,125 968 (320) 648 (521) 127 FREE CASH FLOW 1,600 1,400 1,200 1,000 800 600 400 200 2020 Total cash inflow from operating activities 2021 Free Cash flow to the Company Comments on Free Cash Flow: The operating cashflows of the Company have improved reaching at Rs. 1,402 million from Rs. 648 million which is mainly due to the increase in collection of due outstanding premiums which is result of the regular monitoring and control of credit policies adopted by the management. Annual Report 2021 128
- Six Years ’ Summary of Cashflow Statements 2021 2020 2019 2018 2017 2016 Rupees in Million Cashflow Summary Cash inflow / (outflow) from operating activities 1,402 648 (93) 1,892 1,060 3 (1,275) (1,210) 2,225 (944) (685) (1,382) (1,035) (1,034) (68) (1,532) 1,412 3,811 2,889 Cash (outflow) / inflow from investing activities (259) 280 Cash outflow from financing activities (282) (793) Net cash inflow / (outflow) from all activities 862 135 Cash and cash equivalent at beginning of the year 1,312 1,177 Cash and cash equivalent at end of the year 2,174 1,312 2,211 1,177 2,279 2,211 2,279 222 4,301 Analysis Analysis of last 6 years of the summary of cashflow statement reveals that Company has been able to maintain sufficient liquidity in the form of cash and highly liquid assets ensuring Company`s strong ability to timely discharge its short term obligations mainly involving claims, reinsurance cessions and commission payments in addition to maintaining cash reserves for CAPEX, additional investments and dividend payout requirements as they arise. Annual Report 2021 129
- Graphical Presentation of Financial Statements Gross Premium - 5 % 7% 13% 11% 37% 40% 2020 2021 37% 40% 5% Fire and property damage Motor Miscellaneous 5% Fire and property damage Motor Miscellaneous Marine, avia on and transport Accident & Health Marine, avia on and transport Accident & Health Net Claims 27% 20% 5% 4% 6% 2021 2020 62% 58% Fire and property damage Motor Miscellaneous Marine, avia on and transport Accident & Health Fire and property damage Motor Miscellaneous 5% 9% 4% Marine, avia on and transport Accident & Health Analysis of Income 15% 20% 2020 2021 80% 85% Underwri ng profit Other income Underwri ng profit Other income Total Equity and Liabilities 59% 2021 Equity 41% Liabili es 55% 2020 Equity 45% Liabili es Annual Report 2021 130
- Graphical Presentation of Financial Statements Net Premium Revenue 6 % 7% 18% 7% 6% 5% 8% 14% 2020 2021 68% 61% Marine, avia on and transport Accident & Health Fire and property damage Motor Miscellaneous Fire and property damage Motor Miscellaneous Marine, avia on and transport Accident & Health Combined Expenses 13% 14% 2021 26% 2020 24% 61% Net claims Expenses 62% Net claims Net commission Expenses Net commission Total Assets 34% 37% 2021 2020 50% 3% 7% 3% Investment Property Cash and bank deposits 2% 8% 1% 3% Investments Fixed assets Other Assets 54% Investments Fixed assets Other Assets Investment Property Cash and bank deposits Investment Income 5% 3% 3% 2021 14% 2020 80% 93% Dividend Income Income from Govt. Securi es Capital Gains Income from Term Deposits Dividend Income Income from Govt. Securi es Capital Gains Income from Term Deposits Annual Report 2021 131
- Quarterly Performance Analysis 2021 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 -1000 First Quarter Second Quarter Gross Premium Underwriting Results Third Quarter Investment Income Fourth Quarter Pro fit After Tax Gross Premium The third quarter proved to be a major contributor of gross premium written of the current year by contributing 34% of the total Gross premium written during the year. The gross premium written at entity level increased by 28% from last year due to 26% and 31% increase in gross premium written for Inside and Outside Pakistan based operations respectively. This is a testament of strong recovery and business growth after facing decline in business growth last year brought about by pandemic of COVID-19 after a trend of positive growth of many years. Underwriting results Quarterly performance in terms of underwriting results remained profitable except for the last quarter which resulted in underwriting loss of Rs. 39 million due to high loss ratio of 62% which was a result of increase in claims booked during the last quarter. The main share of underwriting result was earned in 3rd quarter which is 49% of the total underwriting profit earned during the year which was mainly due to the lower claim ratio in the said quarter. The underwriting results at entity level have improved by 79% from last year mainly due to 9.8% decrease in net claims expense restricting the net claims expense ratio to 57% compared with 60% last year. Investment Income Current year witnessed 126% increase in investment income mainly due to increase in dividend income of Rs. 1,260 million. As illustrated graphically above, 40% of the total Investment income was earned during first quarter of the year which was due to the impact of high dividend payout by the banking sector. This was mainly due to temporary restrictions on dividend distribution imposed by State Bank of Pakistan for two quarters during COVID situation during last year 2020. Profitability Analysis The Company had a stable trend of profitability in all the quarters during the year with all the 4 quarters contributing 29%, 23%, 21% and 27% respectively which ultimately resulted in 67% increase in Profit after tax from the last year. This is largely due to management efforts concentrated on regular performance reviews of the Company and taking necessary actions and measures aimed at steering the Company towards meeting profitability objectives for the shareholders. Annual Report 2021 132
- Methods and Assumptions in Compiling Indicators The Company takes into account both internal and external performance measuring tools and sector specific KPIs in opting for indicators that objectively evaluate Company 's performance against standard benchmarks. Financial Operating Performance For evaluating the Company's operating performance, the management analyses for each line of business and its subsidiary classes the premium growth trends, loss ratio, commission ratio, combined ratio, operating profitability ratio and net margin ratio across the sector to gauge its own standing and identify the possible areas of improvement. Investor KPIs To analyze the Company's performance with regards to return to shareholders, the indicators mainly used involve return on equity, P/E ratio, price to book value, dividend yield, return on assets and earnings growth. Liquidity Strength Company's liquidity strength is measured by KPIs such as current ratio, quick ratio, liquid ratio, assets turnover and equity to total assets ratio. Non-Financial Underwriting The management realizes the importance of customer satisfaction and measures its performance by client reviews, client retention rate and client turnover ratio. Claims The Company closely monitors the claim turn around time to ensure claims are timely processed once they are intimated to the Company. These turn around time are set for each class of business. Human Resource The Company is keen to engage and develop Human Resource that adds value to the Company and to ensure the overall corporate objectives are achieved. The Company periodically evaluates employee turnover and employee satisfaction for each department whilst investing in employee training and development drills to facilitate job rotation, job enrichment and succession planning. Change in Indicators and Performance Measures The performance measures are subject to periodic reviews and are regularly updated to help management scale the competitive environment. Revised KPIs are agreed with functional managers to ensure management/employee have their buy-in. Annual Report 2021 133
- Market Statistics of AICL Share AICL 's share price along with daily trading volume from Pakistan Stock Exchange (PSX) on key dates during the year 2021 are given below: High Low Closing Daily TradingVolume Rupees No of shares December 31, 2021 40.00 39.75 40.00 250,500 September 30, 2021 35.90 34.25 35.26 95,500 June 30, 2021 43.00 40.00 41.47 1,623,500 March 31, 2021 40.49 39.00 39.23 320,000 Share price in 2021 Nov Dec Nov Dec Oct Sep Aug- Jul Jun May Apr Mar Feb Jan 50 45 40 35 30 25 20 15 10 5 0 Average Trading Volume in 2021 4000000 3500000 3000000 2500000 2000000 1500000 1000000 500000 Oct Sep Aug- Jul Jun May Apr Mar Feb Jan 0 Annual Report 2021 134
- Share price sensitivity analysis The Company 's share price is affected by various internal and external factors as below: a. Operating performance of the Company b. Performance of entities in which Company has invested (impacts investment income of the Company) c. Announcement of dividends d. Political stability e. Law & Order situation f. General economic conditions g. Changes in regulatory environment h. Stock market sentiment Sensitivity analysis of change in market capitalization Market capitalization is the aggregate value of a company based on its share price and total number of outstanding shares. It simply refers to how much a company is worth as determined by its share price. Below is market capitalization of AICL along with sensitivity analysis with change in market share price: Share price on December 31, 2021 (PSX) Rs. 40 Market capitalization on December 31, 2021 Rs. 14,000 million 10% change in share price would have the following impact on the market capitalization of AICL: 10% increase Rs. 1,400 million 10% decrease Rs. (1,400) million Sensitivity to Foreign Currency Fluctuations The Operations of the Company within Pakistan, at present are not materially exposed to fluctuations in foreign currency exchange rates as all transactions are carried out within Pakistan and financial statements are prepared in Pak Rupees (PKR). The amount of assets, liabilities, revenues and expenditures are also not sensitive to the fluctuation in exchange rates of foreign currencies. The branches at United Arab Emirates (UAE) and Export Processing Zone (EPZ) are however considered as “exchange translation reserve”, because these branches operate in foreign currencies, i.e. United Arab Emirates Dirham (AED) and US Dollar respectively. Transactions in foreign currencies (other than the results of foreign branches) are accounted for in Pak Rupees at the rates prevailing on the date of the transaction and exchange differences are taken to the profit and loss account. The assets and liabilities of foreign branches are translated into Pak Rupees at exchange rates prevailing at the reporting date. The results of the foreign branches are translated into Pak Rupees at the average rate of exchange for the year. Translation gains and losses arising on the translation of the Company's net investments in foreign branches are taken to the capital reserves 'Exchange Translation Reserve'. Annual Report 2021 135
- Major Capital Expenditures : During the year, the Company has incurred Rs. 277 million (2020: Rs. 521 million) on capital items relating to both tangible and intangible infrastructure. Major portion of this expenditure was incurred on the the items of office buildings, motor vechicles, machinery and equipment and IT related projects. Most of these expenditures were incurred based on the requirement for the new construction or long term maintenances in addition to new IT initiatives for which costs were capitalised during the year. The Company has planned capital expenditure for the year 2022. This expenditure would primarily be relating to IT related projects and routine replacements of tangible capital nature items. Fair Value and Forced Sale Value of Property and Equipment Owned Property assets, including land and buildings are stated at Cost less accumulated depreciation and accumulated impairment losses, if any. The Company had adopted the Cost model under IAS 16 - 'Property, plant and equipment' as its accounting model to account for property and equipment. The carrying amount of land and buildings class of assets as per Note 5.1 amounts to Rs. 3,008 million. The fair value calculated by an independent valuer, regarding the same land and building assets amounts to Rs. 3,858 million. The management assesses that the forced sale value of the land and building would be approximately 80% of the fair value. Significant immovable properties The Company possesses several properties in Pakistan including properties in Export processing zone and United Arab Emirates. The location and area of significant immovable properties are as follows: Particulars Address Area (Sq. ft) Adamjee House Building - Lahore 80A, E-1, Main Boulevard, Gulberg III, Lahore. 164,818 Adamjee House Building - Karachi Adamjee House, I I Chundrigar road, Karachi. 128,515 Dubai Office Unit 301,302 and 303, 3rd floor, One bay business building, Dubai. 7,202 Summary of significant transactions and events during the year The Company, during its conduct of business, has transacted some significant transactions that had significant effect on the company‘s financial position and performance during the year. During the year, the Company earned dividend income amounting to Rs. 2,260 million (2020: 1,000 million) on investments in equity securities. During the period ending December 2020, the State Bank of Pakistan through its External Relations Department had advised banking companies to suspend the quarterly dividend distribution by Banks, DFIs for the FY2020 to curb the growing concerns of COVID-19. As a result, the banking companies restricted their normal dividend payout ratios, causing dividend income from banking sector to decrease sharply. During the year ending December 2021, the banking companies have released substantial amount of dividends which was hampered due to SBP's restrictions in the previous year. Annual Report 2021 136
- During the year , the Company made further investment in lieu of right issue by Adamjee Life Assurance Company Limited, a wholly owned subsidiary of the Company, aggregating to Rs. 1,565 million (2020: Rs. 403 million). The transaction has been financed through short term financing facility obtained from MCB Bank Limited, a related party of the Company. The Company has also recognised gain on fair value measurement of its Investment property amounting to Rs. 961 million (2020: Nil) during the year which has also helped in sharp increase in profitability of the Company. Loans, advances or investments made in foreign companies or undertakings The Company operates foreign operations in United Arab Emirates consisting of 3 Branches in the cities of Abu Dhabi, Dubai and Sharjah. The foreign branches provide services through Fire and property damage, Marine, aviation and transport, Motor, Accident & Health and Miscellaneous classes of business with motor class contributing the most to profitability of the Company. The foreign operations of the Company are in growth phase and profitably continuing its operating cycle mainly through retained profits. Human resource accounting policy The Human Resource Accounting (HRA) philosophy of the Company recognizes its employees as an "Organizational Resource". The Company invests in its human assets by incurring costs to recruit, select, hire, train and develop its Human Resources. The Company acknowledges its employees as greatest asset being part of the financial service sector. The Company believes the ability to attract and retain quality Human Resources is the key driver of future success and innovation. Especially in fast-changing business environment with increased dependence on strong IT based platforms and distribution channels, the Company remains fully aware of retaining best quality of professionals with sound understanding of the insurance sector. The Company also regularly engages employees in training and development workshops and activities enabling them to keep employees abreast of the latest developments in their respective fields. With increased growth and presence in the multi-cultural business environment both locally and in United Arab Emirates, the Company also aims at developing personality traits of the employees which helps employees a long way in customer dealing and satisfaction in addition to improving internal inter-personal and inter-departmental communication flows. The HR philosophy adopted by the Company has helped improve the staff turnover ratio during the year which remained 13.08% compared with 14.84% of the last year. Investment in Human Resource development has resulted in increase in productivity of the employees as Gross premium written per employee for the current year is Rs. 25.63 million (2020: Rs. 19.65 million) and Profit before tax per employee for the current year is Rs. 4.84 million (2020: Rs. 2.05 million) showing increase of 30% and 136% from last year respectively. Management assessment of tax The Company holds provision for taxation in accordance with the applicable financial reporting framework. Contingencies with respect to the direct or indirect taxation have been disclosed in the Note 26 to the financial statements. Based on the comparison of tax provision recognized in the financial statements for last three years with the tax assessments, the management assesses that the provision of taxation maintained was sufficient. Annual Report 2021 137
- Solvency Margin The solvency requirements are set by the regulator to ensure that the insurers have adequate capital and ability to pay off financial obligations as they arise . The solvency requirement is a formula-based figure calibrated in a way so as to ensure that all the quantifiable risks are taken into account including underwriting risk, market risk, credit risk, operational and counterparty risks. In addition to meeting solvency requirements, the regulator also prescribes the minimum capital requirement which sets the threshold which is mandatory for the insurer to carry out general insurance business. Minimum Capital Requirement (MCR) The Company regularly reviews its minimum capital requirement and as of reporting date, the Company's paid-up capital is Rs. 3,500 million which is well in excess of the minimum capital requirement limit of Rs. 500 million as prescribed by the Securities and Exchange Commission of Pakistan (SECP) for the purpose. Minimum Solvency Requirement (MSR) The Company is subject to maintaining minimum solvency as per the applicable criteria laid down by the Insurance Ordinance, 2000 and the Insurance Rules, 2017. The Company makes assessment of its net admissible assets against the minimum solvency requirement enabling the Company to have net admissible assets well in excess of the minimum solvency requirement (MSR) at all reporting period ends. As of 31 December 2021, the Company has excess net admissible assets over minimum requirement by Rs. 2,865 million (2020: Rs. 4,099 million) as per the applicable criteria laid down by the Insurance Ordinance, 2000 and the Insurance Rules, 2017. Solvency margin is the excess of an insurer's net admissible assets over its minimum solvency requirement (MSR) set by regulator. This results in 91% (2020: 154%) excess solvency margin over the solvency requirement. The net admissible assets are 1.91 times (2020: 2.54 times) of the minimum solvency requirement (MSR). These excess net admissible assets are a testament of the Company's financial strength determined by its strong ability to pay out both existing and potential financial liabilities at the reporting date. Solvency Ratio In addition to statutory minimum solvency requirement, the Company also regularly reviews its Solvency Ratio based on conventional measurement criteria to ensure Company's cashflows are adequate to pay-off its total liabilities. This results in solvency ratio of 9.34% (2020: 7.92%) of the Company for the periods presented in the financial statements. If analyzed, the numerator constitutes the entity’s current cash flow, while the denominator comprises the entity's total liabilities as of the reporting date. Keeping in view the solvency ratios, it can be concluded that the Company is expected to have adequate liquid reserves to pay off the total liabilities when they fall due. The solvency ratio is being measured using the formula below: - Solvency Ratio = (Net Income + Depreciation & Amortization) / All Liabilities (Short-term + Long-term Liabilities) Annual Report 2021 138
- Review of assets quality The quality of the Company 's assets is determined by analyzing the credit worthiness of the counterparties with which the Company enters into transactions while carrying on business. The Company regularly monitors the credit exposures it has undertaken and periodically assesses the quality of its recoverables. The Company ensures adequate provisioning of the recoverables based on the applicable framework. The Company strives to address concentration of credit risk by maintaining adequate diversity with respect to distribution of its recoverables between entities of sound financial standings, covering various industrial sectors. The Company operates in-house Credit Control function which ensures timely collections of due balances in line with the credit limits allowed to the counterparties. A significant part of the Company's recoverables lies with the reinsurance partners, the panel of which is periodically selected and reviewed taking into account their current financial strength ratings. Apart from mandatory local cessions that the Company has to enter into, the Company engages reputable foreign reinsurers having past claim payment history and ability to pay large claims. As of the reporting date, the 78% (2020: 77%) of amounts due from other insurers on gross basis are recoverable from other insurers which are rated A or Above (including PRCL) with reference to their available external credit ratings. The Company also assesses the credit quality of the banking institutions with which its funds are placed. The Company has aimed at maintaining its liquid deposits with the financial institutions of sound financial strength based on the relative likelihood of their defaults. The Company assesses the relative financial strength of these financial institutions through available external credit ratings issued by reputable rating agencies. As of the reporting date, the 99.84% (2020: 99.74%) of the bank deposits are placed with banking institutions which are rated A1 or higher on basis of short term rating. Financial Events during the year Financial Results Announcement Date Dividend Declared/Proposed First Quarter Ended 31 March 2021 27 April 2021 Half Year Ended 30 June 2021 26 August 2021 @ 15% (Rs. 1.50 per share) Third Quarter Ended 30 September 2021 28 October 2021 Nil Year Ended 31 December 2021 8 February 2022 @ 15% (Rs. 1.50 per share) Investor Relations Events Subscription of right shares issued by Adamjee Life Assurance Company Limited - Subsidiary Company 61st Annual General Meeting Scheduled on Nil Month/Year 03 September 2021 28 April 2022 Annual Report 2021 139
- Annual Report 2021 140
- Forward Looking Statement In this statement Adamjee Insurance sets out its financial outlook based on known trends , future expectations of external environment and factors with the potential to impact the Company as well as Insurance Industry, and uncertainties that can cause the actual performance to significantly differ from the projections. This statement is based on assumptions of the Company’s management and being one of the largest general insurance companies of Pakistan, the Company possesses the required experience and skills to develop business plans based on current and past trends and current expectations of the future events. However, various factors can still cause the actual performance to significantly differ from the future projections as it is not possible to predict the future with absolute accuracy. The Company’s expectations, beliefs and projections are expressed in good faith and are believed to have a reasonable basis, but there can be no assurance that these expectations, beliefs or projections will hold in future or be achieved or accomplished. Hence, undue reliance on this statement is not advised. Outlook of External Environment External environment in which the Company operates has the ability to significantly affect the Company’s strategy, performance and capital. The Company’s expectations regarding the outlook of external environment are as below: Ÿ The political stability and law & order situation of a country has always been a major factor in deciding the growth of any industry. Political situation of Pakistan is expected to remain uncertain while law & order situation has been satisfactory and is expected to remain so. Ÿ The State Bank of Pakistan (SBP) has forecasted the GDP growth in range of 4% to 5% for the FY 2022. However, the Company envisages the economic outlook of the Country, especially amidst the inflationary pressures, trade & current account deficit, contractionary measures by SBP and prevailing internal & regional geopolitical developments, to remain relatively uncertain. Ÿ There is ever growing awareness about health, protection, work-life balance and gender equality at the workplace. Further, the Covid-19 pandemic has urged humanity to look more closely at the matters of health and general wellbeing. The Company expects that there would not be significant changes in the social environment in which the Company operates. Ÿ Innovative digital solutions are becoming a norm in the insurance market and have a positive impact on the profitability as well. Today customers look for convenience; hence, technological advancements have become a key factor in retaining and increasing the customer base. The Company foresees that technological advancement will have significant effect on its performance and adoption of advance technologies will provide it competitive advantage in the industry. Ÿ Climate change and resultant issues being faced by humanity such as global warming and extreme weather conditions pose significant risk to the insurance business as they affect the severity and likelihood of occurrence of insurance claims. Ÿ Legal and regulatory environment is expected to become stricter to achieve the transparency and address concerns of the international bodies. Outlook of UAE The United Arab Emirates continued to rank as the largest insurance market in the MENA region for more than a decade. A well-diversified economy, strong demographics and strong government-led infrastructure stimulus and increased construction activities are augmenting the growth of the industry. The UAE insurance industry continued its increasing trend in profitability along with premium growth in 2021. Though, first half of Year 2021 was slow due to COVID-19 Pandemic, business picked up in the 2nd half of the year. Expo 2020 Dubai also helped generate increased activity in the region. The UAE insurance market is expected to revive and maintain the growth pattern in the coming years. It is projected to grow to USD 15.7 billion by 2024. Annual Report 2021 141
- The Board and management of the Company closely monitor the external environment along with its probable impact on the Company ’s performance and regularly review the need to update its strategies and control mechanism to minimize and/or mitigate the adverse impact, if any, posed by the factors of external environment. Adamjee Insurance’s Outlook Adamjee Insurance’s strategy for 2022 is to continue achieving sustainable growth. The focus is on strengthening the risk and compliance management and use digital technologies supported by appropriate infrastructure to increase its market share and achieve competitive advantage. By adopting the latest digital technologies such as Artificial Intelligence (AI) and Robotic Process Automation (RPA), the Company is committed to redefine the customer experience by providing a superior interface with convenience. Further, the Company is diversifying its business portfolio in UAE market as well. The Company’s investment policy is focused on maximizing investment returns and increase shareholders’ wealth. The Company is also focusing on expanding the market share of its Window Takaful Operations. To achieve the objective of providing the customers with unparalleled service, the Company will continue to invest towards empowering employees through performance-based rewards, employee trainings and engagement activities. Quantitative Projections for 2022 Quantitative projections for 2022 along with associated risks that might cause hindrance in achieving these projections are as below: Targets Growth trends in Premiums to continue in Conventional Business and Contribution growth to recover in 2022 after a decline in 2021 for Window Takaful Operations Claim ratio to remain at around last 3 years' average Operational expenses percentage growth to remain in single digit Improvement in investment income Stable dividend payout Associated Risk Cut-throat competition in the market to retain existing and acquire new business, leading to softening of market Risk management to evaluate high risk businesses whilst following the Company's underwriting philosophy Inflation may pose risk in meeting the operational cost targets Stock market volatility would be the key associated risk to achieve the target Potential regulatory restrictions may cause deviation With the latest digital infrastructure, improved customer services and better stakeholder relations, the Company is committed to achieve its quantitative targets for 2022. Key Projects to Support Future Performance of Company Launch of Adamjee Digital Web - based CRM System Brokers Enterprise CRM System Direct Integration of Insurance Aggregators with B2C Module AI Based Risk Survey Launch of Loyalty Programme for Retention of Customers Fraud Control System Integration of Payment Gateways and Alliances Partners E-KYC Application updating with respect to Retail based Customers Data Analysis and Decision Making Annual Report 2021 142
- Uncertainties that could impact the strategies and projected performance In addition to various other factors and matters , the following are important factors that, in the view of the Company, could cause actual results to differ materially from those discussed in the forward-looking statements: Ÿ Adverse changes in Political environment, Law & Order situation and regional geopolitical environment Ÿ Changes in laws, regulations or judicial interpretations to which the Company is subject to, including those involving taxes, safety, employment, climate change, etc. Ÿ The Company’s ability to estimate accurately the timing of resources required to meet the targets. Ÿ The length and severity of the ongoing COVID-19 pandemic. Ÿ Changes in economic conditions, including inflationary pressures and global, national or regional recessions along with their effect on the demand and customers’ ability to pay for the Company’s products and services. Ÿ The creditworthiness or performance of the Company’s key suppliers, customers and counterparties. Ÿ The impact of information technology disruptions, cybersecurity or data security breaches. Ÿ Frequency, severity and development of the insurance claims. Ÿ Unexpected volatility in stock market. Performance against forward looking statement of 2021 disclosed in 2020 The Company disclosed the following quantitative projections for 2021 in its Annual Report 2020: Targets set for 2021 Performance in 2021 The Year 2020 was a challenging one especially due to the effects of Covid-19 pandemic. Gross Written Premium (GWP) of the Company declined by 19% in 2020. The Company analyzed the situation, devised the strategies accordingly and set the target for 2021 to revive the growth in GWP. Premium growth to recover Due to effective strategies and efficient management of resources, the Company was in 2021 after decline in 2020 able to achieve the premium growth target. GWP witnessed 28% growth in 2021 amounting to Rs. 23,320 million as against Rs. 18,279 million in 2020 (excluding contributions generated by Wndow Takaful Operations of the Company). There are significant uncertainties involved in determining the frequency, severity and Claim ratio to remain at around development of the claims. Still the Company set this aggressive target for 2021 and last 3 years' average successfully achieved it as well due to effective risk management. The net claims ratio remained at 57% during the year. Although unexpectedly higher inflation, especially towards the second half of year, Operational expenses posed a significant risk yet the Company was able to achieve this target as well. percentage growth to The percentage increase in expenses was approximately 2% in 2021. remain in single digit Due to effective analysis of the operational expenses to identify the areas where costs can be minimized without compromising quality of customer services and efficient measures to control these costs resulted in achieving this target. The Company successfully achieved this target as well. Investment income of the Improvement in Investment Company witnessed a significant increase of 126% in 2021 over the year 2020 resulting income is expected to be in 8% return on investments. achieved Annual Report 2021 143
- Status of Projects Disclosed in Annual Report 2020 Project Details New Branding Design Implementation across all branches UAE Website Online Selling Module Integration with ERP /CMS Creating Awareness of Cyber Security among all users of Company Motor Insurance Portal - Advance Version for Underwriting Status Completed Completed Completed In Process Sources of information and assumptions used for projections The Company has utilized its internal systems and databank as well as external public sources to obtain information relating to general economic indicators, known trends and industry specific data and processed the information by utilizing the expertise of in-house team and tools to prepare the projections regarding operational and financial projections. The Company has not obtained the services of external consultant for the purpose of projections disclosed in this statement. Response to the critical challenges and uncertainties The Company is well placed to respond to the critical challenges and uncertainties that could stem from the risks which if materialized, could have significant impact on the Company’s strategies, performance and can cause the actual performance to significantly differ from projections. A detailed analysis of such risks along with the Company’s response thereto is provided in ‘Risk and Opportunities Section’ of this report. Further, the Company’s Business Continuity Plan, Cybersecurity Policy and Pandemic Recovery Plan are also relevant to addressing the uncertainties. Annual Report 2021 144
- Annual Report 2021 145
- Stakeholder Relationship and Engagement Identification of stakeholders The importance of stakeholders ’ identification cannot be over emphasized. If an organization is able to clearly identify its stakeholders, it would be in a better position to manage and engage them. The Company has identified its stakeholders by identifying individuals as well as group of individuals, both internal and external, who are likely to be affected by the Company and who has the potential to influence the Company. Stakeholders’ engagement process & frequency Healthy and sustained relationship with the stakeholders is important for any organization to perform well in short term and achieve its strategic objectives in the long term. The table below highlights the various types of stakeholders who are generally engaged with the Company along with their expectations, role in achieving strategic objectives of the Company and frequency of their engagements: Stakeholder What matters to them Shareholders, Investors / Lenders and Analysts · Availability of transparent information on timely basis · Efficient management · Clear business objectives and strategies · Enhance business value and positive image of the Company · Customized solutions · Customer satisfaction and protection · Convenience · Innovative products to fulfil their emerging needs · Simple and smooth process · Efficient claim processing Customers Reasons to engage them They are the providers of capital and expect sustainable return on their investment and perform independent analysis of the financial position and performance. Customers are the center of our attention as they are the buyers of our policies through which the Company generates its revenue. Engagement method Quarterly, half yearly and annual reports. Board meetings, Annual General Meeting, Extraordinary General Meetings, Corporate Briefing Session and press releases and regular investor calls. Connecting with our customers using physical channels i.e. meetings, direct relationship through our branches as well as digital channels i.e. website, social media, call center etc. Frequencyof engagement Quarterly, half yearly and annually. As and when required. Continuous as well as on the specific requirements. . Annual Report 2021 146
- Stakeholder What matters to them Employees · Career growth · Continuous professional development through trainings · Work life balance · Recognition of their efforts · Flexible culture · Performance based rewards Regulator & Govt. Bodies · Statutory and legal Compliance · Development of the insurance sector · Transparent information and disclosures · Timely reporting · Guidance Media · Fair advertisement · Providing true information Supplier & Service Providers · Business opportunity · Fair dealing · Sustained business relationship Reasons to engage them Employees are one of the most important pillars on which the Company stands and help us to achieve our overall objectives. They develop laws and policies to regulate the business environment ensuring transparency in business operations and securing the interest of public at large. Ability to create brand awareness and influence public perception towards specific products or services. Suppliers and service providers including insurance agents, reinsurers & reinsurance broker are our business partners and provide us with goods and services necessary to achieve our goals and strategic objectives. Engagement method Employee engagement modes include team building sessions, meetings with management, appraisals, employee recreational events, newsletters, website and social media. Submission of regulatory information required under the applicable laws and responding to the specific queries requiring certain information Frequencyof engagement Daily, annually, quarterly, continuous availability Marketing campaigns, interaction through social media and press releases As and when required Interaction is maintained through direct relationship, meetings, provision of information, and social media. On regular basis Specific timelines and whenever required Annual Report 2021 147
- Stakeholder Society What matters to them · Create employment and provide equal opportunity to all members of society · Ethical standards · Protection of environment · Corporate social responsibility Reasons to engage them Society, as a whole, is an important stakeholder as it provides the necessary inputs as well as conducive environment to the Company to conduct its business. Engagement method Connecting with the society by providing employment opportunities, observing ethical standards, reducing carbon footprints, contributing towards health and education for betterment of the society. Frequencyof engagement Continuous Steps to encourage minority shareholders to attend the general meetings General meeting of an organization provides a platform to decide the important matters as well as solicit the viewpoints of shareholders, especially minority shareholders, regarding performance of the organization. It is, therefore, the Company takes immense interest in encouraging minority shareholders to participate in the general meetings of the Company. Below are the steps taken by the Company for this purpose: To ensure they know: Ÿ Notice of the general meetings specifying time and place of the meeting is forwarded to each shareholder and published in Urdu as well as English newspapers at least 21 days before the date of meeting. Further, the notice of general meetings is also made available on the Company’s website. To ensure they attend: Ÿ All shareholders are entitled to attend, speak and vote at the meetings of the Company and are entitled to appoint proxy to attend the meeting on their behalf. Annual Report of the Company is provided to all shareholders before Annual General Meeting (AGM) so that they can review performance of the Company. Further, a briefing on Company’s performance is provided in AGM and all shareholders, including minority shareholders, are encouraged to raise their queries and provide suggestions relating to performance of the Company. Covid-19: Ÿ During the Covid-19 pandemic and even to date, the general meetings are being conducted virtually through video link which enables and increases participation of shareholders from all over the country and globe. Investors' Relations section on the Company’s website As one of the leading insurance company, AICL is committed to providing the best service to its investors / shareholders and creating long term value for them. We ensure consistent and transparent reporting. The Company strives to provide the investors/shareholders with accurate financial information and this information is disseminated through various channels such as Annual and Quarterly reports, press releases, and the Company’s website. The information on the website is always kept up to date. The website contains section for investors which covers all the areas that an investor might be interested in. Furthermore, a complaint form is also available on the website and the Company’s management ensures efficient handling of any grievance or query. Annual Report 2021 148
- Issues raised in last AGM , decisions taken and their implementation status The Company takes keen interest in soliciting viewpoints of the shareholders regarding its performance. However, at the last Annual General Meeting (AGM) held on 27 April 2021, no significant issues were raised and all agenda items were unanimously adopted by the shareholders. Stakeholder engagement policy The Company engages wide range of stakeholders for the purpose of its business as detailed above as well and believes in maintaining effective, transparent and frequent interaction with them to share financial performance of the Company, significant changes in regulatory environment, future outlook and implications of the general economic conditions on the operations of the Company. The Company’s policy aims to achieve the following objectives: Ÿ Identification, prioritization and understanding of all stakeholders Ÿ Maintain healthy and sustained relationship with the stakeholders Ÿ Provide access to non-confidential and relevant information to stakeholders to enhance public image of the Company Ÿ Provision of platform to the stakeholders through which they can share their feedback and complaints and resolving their complaints as early as possible Corporate and Analyst briefing sessions The Company has planned to conduct its annual ‘Corporate Briefing Session’ in second quarter of year 2022 using video-link facility. The previous session was held on 3 December 2020 which was attended by senior management and various shareholders and analysts. The management presented a detailed analysis of the Company’s performance and answered the queries raised by the attendants. The Company also interacts with local as well as international credit rating agencies for the purpose of securing IFS ratings. Local credit rating agency ‘PACRA’ has assigned the Company with ‘AA+’ rating while one of the most renowned international agency AM Best (UK) assigned the Company with IFS rating of ‘B’. Highlights about redressal of Investors’ Complaints The Company assigns the grievances / Complaints from investors their due importance and strives hard to resolve them as soon as possible. Handling the complaints to the satisfaction of the parties involved and in such a way that it turns out to be a win-win situation for stakeholders is important for the public image and as a learning for better service delivery in future. Investors mainly complain about non receipt of dividend which is resolved at the earliest. Annual Report 2021 149
- Statement of Value Addition and its Distribution 2020 2021 WEALTH GENERATED (Rupees In '000') (Rupees In '000') % Gross premium earned Investment and all other income 20,999,883 3,839,287 24,839,170 20,308,335 1,599,533 21,907,868 Management and other expenses (18,374,667) (17,932,153) % 6,464,503 100.00 3,975,715 100.00 1,757,356 1,268,867 3,026,223 27.18 19.63 46.81 1,753,267 34,680 1,787,947 44.10 0.87 44.97 962,500 14.89 962,500 24.21 50,107 0.78 15,044 0.38 1,500 0.02 10,400 0.26 250,179 2,173,994 2,424,173 3.87 33.63 37.50 286,818 913,006 1,199,824 7.21 22.96 30.18 6,464,503 100.00 3,975,715 100.00 WEALTH DISTRIBUTED To employees To government To share holders Cash dividend To providers of financial capital as finance cost To society as donation Retained in business Depreciation and amortization Retained profit / (Loss) 23% 27% 34% 44% 2021 2020 7% 0% 0% 4% 1% 19% 15% 1% 24% 1% To Employees To Government Cash Dividend Finance Cost Donations Depreciation and Amortization Retained Profit To Employees To Government Cash Dividend Finance Cost Donations Depreciation and Amortization Retained Profit Annual Report 2021 150
- Annual Report 2021 151
- Sustainability & Corporate Social Responsibility Introduction The world is transforming at an unprecedented pace. At Adamjee Insurance, we believe we can have a positive impact in our role as insurer, investor and employer in society. We have the knowledge, skills and capabilities and spirit to make a difference. Being a responsible and sustainable organization is the foundation of our business. We’re swiftly reducing our carbon footprint, helping our customers adopt more sustainable behaviors, supporting employee wellbeing, and helping communities become more resilient to natural hazards and extreme weather. We see sustainability as part of the value we bring to our customers, communities, employees, agents, distributors, and shareholders. We are dedicated to creating a better world for all our stakeholders. We are proud to reveal our ‘Sustainability & Corporate Social Responsibility 2022 Strategy’, where you will find our disclosures in the insurance industry frameworks. Our focus on sustainability enables us to fulfill our purpose with a roadmap and clear priorities guiding us in our journey. The company has always been an active patron of women, youth empowerment & development. We have always been very proactive organization towards fulfilling our responsibilities in the society. At Adamjee Insurance, we earnestly believe that it’s the responsibility of the privileged to help the society to get a better life. As reflection to that belief, we actively take part in social causes that involve culture, heritage, women empowerment, and youth development etc. Some of the notable and regular CSR activities of Adamjee Insurance Company Limited are as follows: Sustainability at Adamjee Insurance Our policy revolves around taking an array of initiatives, including contributing to the society and an environment in all our practices, conduct business activities in line with our organizational values, promoting a culture of inclusion and diversity, extensive training, and employee engagement activities. The Company CSR is primarily focused on achieving compliance, upholding ethical standards, actively participating in corporate citizenship, and maintaining overall sustainability. The Company has undertaken an array of initiatives, including improved communication and extensive training, to cultivate these aspects of its operations. The Company recognizes its responsibility in reducing the impact of Covid-19 on its employees, customers, and society at large. All the directed SOPs were implemented efficiently and effectively, and all social distancing measures were taken very seriously when the offices started operations after lockdown. We ensure that employees and customers can operate in a safe environment. The Company was well equipped with the digital infrastructure which enabled it to serve its customers efficiently during difficult hard time. Our Responsibility Sustainability towards Strengthening Our Workforce At Adamjee Insurance, we work hard to ensure our employees are thriving, and feel like they belong to the organization. Our purpose guides our commitment. We have built a purpose driven and inclusive culture that energizes employees to make a difference. We navigated the pandemic with fluidity and adaptability as things shifted throughout the year, yet stood firm on our commitment to do what’s right for our people. We reaffirm our pledge to continue building inclusive workplaces and communities and began several new diversity, equity, and inclusion programs. Empowering Our Communities The Company has focused on supporting community for years through employee volunteerism and donations and long-term grassroots partnerships. In 2020, despite the pandemic, the company contributed towards improving local communities through supporting health sector of the country. Protecting Our Environment The Company has a longstanding commitment to environmental stewardship, which aligns with our purpose as a company. We are proud to be the insurance company to achieve carbon neutrality; to Annual Report 2021 152
- fulfil climate action agenda with International 2030 Environmental Goals that cover the scope of the Company and all its strengths , aiming to reduce the environmental impact of our operations and supply chain, while leveraging our products and services to help protect our communities and drive innovative solutions. Creating Value as an Investor The Company is committed towards a concrete contribution and impact in the communities where we work and live. That includes where and how we invest through our institutional investment management; How we deliver risk-adjusted returns for our investors by building tailored portfolio solutions that encompass environmental, social, and governance aspect. Remaining committed to fostering a culture of investing in, and working with, companies whose practices are consistent with our ideas. Providing Confidence to Our Customers We’ve been in the business of making and keeping promises for more than 62 years and that continued in 2020 &2021 in response to the COVID-19 pandemic. We evolved existing products to better serve customers during the COVID-19 pandemic, including expanding coverage, easing claims processes, and extending the grace period for premium payments. We helped customers to protect future with smart products and targeted services in Pakistan and United Arab Emirates. We developed solutions, incubated new technologies, and forged new partnerships that generated value locally and globally. We continued to invest in data analytics to enhance our customers’ digital experiences and in thought leadership that translated customer insights into useful trends and expertise that can benefit everyone. Managing Sustainably At Adamjee Insurance, we are proud to have a culture where every employee takes responsibility for their actions, adopts an ownership mindset, and feels comfortable speaking up. Despite the unprecedented challenges presented by the COVID-19 pandemic, our commitment to operating ethically and responsibly did not waiver. We adapted, evolved, and embraced flexibility and fluidity as the majority of our workforce went virtual and new ways of working were established. Activities During the Year Pink Ribbon Day - Adamjee Insurance has organized session for Breast Cancer Awareness in Lahore and Karachi offices and engage our women’s staff and aimed to educate women about the importance of early detection of breast cancer and its possible treatments. Our buildings went “Pink” to support the Pink Ribbon Campaign. breast cancer is recognized by survivors, family and friends of survivors or victims of the disease. A pink ribbon is worn to recognize the struggle that sufferers face when battling cancer. People are urged to wear Pink Ribbons to honor survivors, remember those lost to the disease, and to support the progress that is being made together to defeat breast cancer. Annual Report 2021 153
- Women ’s Day World Environment Day Being an equal opportunity employer, Adamjee Insurance is an avid supporter of women empowerment and strictly rejects discrimination against race, religion and colour. The company reiterated its resolve on International Women’s Day. On World Environment Day, a tree plantation activity was conducted at the company’s Lahore office. An awareness session was also organised to increase awareness of greenhouse emissions and encourage environment-friendly behaviour. Blood Donation Drive As a socially responsible corporate citizen, Adamjee Insurance promotes the values of care and compassion. Working together with its employees, The company carried out two blood donation drives at its Karachi and Lahore offices last year. World No Tobacco Day Celebrating World No Tobacco Day this year, the company put thorough restriction on smoking at its Lahore office. Earth Day An awareness session was conducted on Earth Day to increase the awareness of land preservation, environment conservation. Annual Report 2021 154
- Covid-19 Vaccination Adamjee Insurance and Adamjee Life jointly organised a Covid-19 vaccination drive at their Karachi Offices . The company’s employees & people from the general public were vaccinated during the drive. Patron of Polo Adamjee Insrance takes pride in being the patron of the polo team. The company’s own polo team has given an outstanding performance in the 2nd Jinnah Gold Polo Cup matches. Independance Day Celebration Annual Report 2021 155
- Celebration with Employees Our active and agile workforce is what makes us a successful organisation . We help employees achieve their potential by fostering health and happiness in their lives. Celebrations on occasions like the Independence Day, Pakistan Day and various other cake cutting ceremonies maintain the liveliness of our working environment. Employees are offered ample opportunities to play sports such as cricket, badminton and table tennis. Annual Report 2021 156
- Green Initiatives Adamjee Insurance is in step with the world towards a greener future . We have taken a host of inspiring green initiatives to pave the way for an environment-loving culture at our offices. 1. Plantation in Offices 4. A plantation activity is organised with the arrival of each season having employees grow plants and trees in pots and flower beds at their offices. 2. Adamjee Insurance, in line with this conservation drive, is fast-transforming its paper work into a high-tech and innovative digital operation. Various digital programs have been installed to conduct communication with customers and employees. 3. Adamjee Insurance organised a unique plantation activity in which employees were given plants to plant at their homes. This initiative was aimed at encouraging a culture of tree plantation and environment conservation and was welcomed by families of the employees. Paperless-Operations The corporate world is turning to paperless environment. It has learnt that minimising the use of paper can help conserve the environment, prevent deforestation and maintain the supply of fresh oxygen. 5. Virtual Trainings Adamjee Insurance operates a digital working environment that offers employees the opportunity to access virtual training and online books. The company regularly conducts virtual training sessions to improve employees’ skill sets enabling them to achieve their professional aims. 6. Use Natural Lights Adamjee Insurance promotes an energy-saving behaviour at work and employees make sure there are no appliances working when not required. Artificial lights have been reduced while the use of sunlight is maximised in the day time. All lights during the lunch break are switched off. Green Awareness Campaigns Reduction in Business Travel To reduce its carbon footprint and energy conservation initiatives, the company has minimised its travelling. Most operations requiring in-person interaction have been digitalized using online communication mediums. 7 Waste Minimization Economizing on the use of water is also a part of our environmental conservation initiatives. We are encouraging team members to take special care in saving water and prevent its wastage. To prevent the build-up of waste, cleanliness is regularly checked and paper, plastic, metal and wet garbage are segregated from trash to ease disposal and recycling. Annual Report 2021 157
- Annual Report 2021 158
- Independent Auditor ’s Report To the Members of Adamjee Insurance Company Limited Draft Report on the Audit of the Unconsolidated Financial Statements Opinion We have audited the annexed unconsolidated financial statements of Adamjee Insurance Company Limited (the Company), which comprise the unconsolidated statement of financial position as at December 31, 2021, and the unconsolidated profit and loss account, the unconsolidated statement of comprehensive income, the unconsolidated statement of changes in equity, and the unconsolidated statement of cash flows for the year then ended, and notes to the unconsolidated financial statements, including a summary of significant accounting policies and other explanatory information and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of the audit. In our opinion and to the best of our information and according to the explanations given to us, the unconsolidated statement of financial position, unconsolidated profit and loss account, unconsolidated statement of comprehensive income, the unconsolidated statement of changes in equity and the unconsolidated statement of cash flows together with the notes forming part thereof, conform with the accounting and reporting standards as applicable in Pakistan and give the information required by the Insurance Ordinance, 2000 and the Companies Act, 2017 (XIX of 2017), in the manner so required and respectively give a true and fair view of the state of the Company's affairs as at December 31, 2021 and of the profit, total comprehensive income, the changes in equity and its cash flows for the year then ended. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Unconsolidated 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 as adopted by the Institute of Chartered Accountants of Pakistan (the Code) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the unconsolidated financial statements of the current period. These matters were addressed in the context of our audit of the unconsolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Sr No. 1. Key audit matter(s) Revenue Recognition Risk Refer note 3.13 and 27 to the unconsolidated financial statements relating to revenue recognition and details in respect of net insurance premium respectively. The Company receives its revenue primarily from two main sources namely; premiums on insurance policies and investments income. Premiums from insurance policies comprise of 83.56% of the total revenue. We identified revenue recognition from premium income as a key audit matter because it is one of the key performance indicators of the Company and because of the potential risk that revenue transactions may not be recognized in the appropriate period. How the matter was addressed in our audit Our audit procedures in respect of this matter included the following: Ÿ Obtained the understanding, evaluated the design and tested the controls over the process of capturing, processing and recording of premiums; Ÿ Assessed the appropriateness of the Company’s accounting policy for recording of premiums and that it is in line with the requirements of applicable law, accounting and reporting standards; Ÿ Traced the premium recorded on sample basis from the underlying policies issued to insurance contract holders; Ÿ Tested the policies on sample basis where premium was recorded close to year end and subsequent to year end, and evaluated that these were recorded in the appropriate accounting period; and Annual Report 2021 159
- Sr No . Key audit matter(s) How the matter was addressed in our audit Ÿ 2. Valuation of Claims Liabilities Recalculated the unearned portion of premium income and ensured that appropriate amount has been recorded as provision for unearned premium in liabilities. Our audit procedures in respect of this matter included the following: Refer note 3.18 and 28 to the unconsolidated financial statements for accounting policies and details in respect Ÿ of claims liabilities. The Company’s claims liabilities represent 35.00% of its total liabilities. Valuation of these claim liabilities involves Ÿ significant management judgment regarding uncertainty in the estimation of claims payments and assessment of frequency and severity of claims. Claims liabilities are recognized on intimation of the insured event based on management judgment and estimate. The Company also maintains provision for claims incurred but not reported Ÿ (IBNR) based on the advice of an independent actuary. The actuarial valuation process also involves significant judgment and the use of actuarial assumptions. Therefore, we have identified the valuation of claims Ÿ liabilities as key audit matter. Assessed the appropriateness of the Company’s accounting policy for recording of claims in line with requirements of applicable accounting and reporting standards; Tested claims transactions on a sample basis with underlying documentation to evaluate whether the claims reported during the year are recorded in accordance with the requirements of the Company's policy and insurance regulations; Inspected significant arrangements with reinsurer to obtain an understanding of contracts terms and assessed on a sample basis that recoveries from reinsurance on account of claims reported have been accounted for based on agreed terms and conditions; Used an external actuarial specialist to assist us in evaluation of general principles, actuarial assumptions and methods adopted for actuarial valuations by the actuary of the Company for determination of IBNR; Ÿ Assessed competence, capability and objectivity of management’s expert; Ÿ Assessed the data provided by the Company to its actuary for completeness and accuracy and ensured that the same has been provided to us; and Ÿ Considered the adequacy of Company’s disclosures about the estimates used and the sensitivity to key assumptions. 3. Valuation of Investment Properties Our audit procedures in respect of this matter included the following: Refer note 3.4 and 7 to the unconsolidated financial Ÿ statements relating to valuation of Investment property. The Company has recorded its Investment property at Ÿ fair value, Fair value gain on investment properties represent 30.64% of its total profit after tax for the year. Valuation of these investment properties involves significant management judgment regarding uncertainty in the estimation of rates for the building and assessment Ÿ of frequency. Fair value gain / loss is recognized based Obtained an understanding of management process related to valuation of investment property; Used an external valuer to assist us in evaluation of Investment Properties, valuer assumptions and methods adopted for valuations by the valuer of the Company; Assessed the data provided by the Company to its valuer for completeness and accuracy and ensured that the same has been provided to us; Annual Report 2021 160
- Sr No . Key audit matter(s) How the matter was addressed in our audit on management judgment and estimated value from the Ÿ management expert. The investment property's valuation process also involves significant judgments and the use of valuer's assumptions. We identified the valuation of investment property as key audit matter because of the significance of fair value gain Ÿ and management’s judgment involved in, valuation. 4. Valuation of unquoted Investments Assessed the appropriateness of valuation of investment property held by the Company in accordance with accounting and reporting standards as applicable in Pakistan. Our audit procedures in respect of this matter included the following: Refer note 3.15 and 9 to the unconsolidated financial Ÿ statements relating to Valuation of Investments. The Company holds investment in the equity instrument of Hyundai Nishat Motor (Private) Limited (HNMPL) and Security General Insurance Company Limited (SGI). Due Ÿ to HNMPL and SGI being a non-listed companies, their shares do not have a quoted price in an active market. Therefore, fair value of their shares has been determined Ÿ through valuation methodology based on discounted cash flow method. This involves several estimation techniques and management’s judgements to obtain reasonable expected future cash flows of the business Ÿ and related discount rate. Due to the significant level of judgment and estimation required to determine the fair value of the investment, we consider it to be a key audit matter. Evaluated the professional valuer’s competence, capabilities and objectivity and assessed the appropriateness of methodology and assumptions used by the professional valuer engaged by the Company to estimate the fair value of investment property; and Understood and evaluated the process by which the cash flow forecast was prepared and approved, including confirming the mathematical accuracy of the underlying calculations; Evaluated the cash flow forecast by obtaining an understanding of respective businesses of HNMPL and SGI; Obtained an understanding of the work performed by the management’s expert on the model for the purpose of valuation; Obtained corroborating evidence relating to the values as determined by the valuer by challenging key assumptions for the growth rates in the cash flow forecast by comparing them to historical results and economic forecasts and challenging the discount rate by independently estimating a range based on market data; Ÿ Involved our internal valuation specialist to assist us in evaluating the assumptions and judgements adopted by the professional valuer in its discounted cash flow analysis used to derive the fair value of investment in unquoted equity; Ÿ Performed sensitivity analysis around key assumptions to ascertain the extent of change individually in the value of the investment; and Ÿ Examined the adequacy of the disclosures made by the Company in this area with regard to applicable accounting and reporting standards Information Other than the Financial Statements and Auditor’s Report Thereon Management is responsible for the other information. The other information comprises the information included in the company’s annual report, but does not include the unconsolidated financial statements and our auditor’s report thereon. Annual Report 2021 161
- Our opinion on the unconsolidated 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 unconsolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the unconsolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information when available, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and Board of Directors for the Unconsolidated Financial Statements Management is responsible for the preparation and fair presentation of the unconsolidated financial statements in accordance with the accounting and reporting standards as applicable in Pakistan and the requirements of Insurance Ordinance, 2000, Insurance Rules, 2017, Insurance Accounting Regulations, 2017 and, Companies Act, 2017 (XIX of 2017) and for such internal control as management determines is necessary to enable the preparation of unconsolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the unconsolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, 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. Board of Directors are responsible for overseeing the Company’s financial reporting process. Auditor’s Responsibilities for the Audit of the Unconsolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the unconsolidated 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 as applicable in Pakistan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these unconsolidated financial statements. As part of an audit, in accordance with ISAs as applicable in Pakistan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Ÿ Identify and assess the risks of material misstatement of the unconsolidated 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. Ÿ 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. Ÿ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Ÿ Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on 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 unconsolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Annual Report 2021 162
- Ÿ Evaluate the overall presentation, structure and content of the unconsolidated financial statements, including the disclosures, and whether the unconsolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the board of directors regarding, among other matters, the planned scope and timing of audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the board of directors 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 the board of directors, we determine those matters that were of most significance in the audit of the unconsolidated 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 public interest benefits of such communication. Report on Other Legal and Regulatory Requirements Based on our audit, we further report that in our opinion: a) proper books of account have been kept by the Company as required by the Insurance Ordinance, 2000 and the Companies Act, 2017 (XIX of 2017); b) the unconsolidated statement of financial position, the unconsolidated profit and loss account, the unconsolidated statement of comprehensive income, the statement of changes in equity and the statement of cash flows together with the notes thereon have been drawn up in conformity with Insurance Ordinance, 2000 and the Companies Act, 2017 (XIX of 2017) and are in agreement with the books of account; c) investments made, expenditure incurred and guarantees extended during the year were for the purpose of the Company’s business; and d) zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the Company and deposited in the Central Zakat Fund established under section 7 of that Ordinance. The engagement partner on the audit resulting in this independent auditor’s report is Rana M. Usman Khan. Chartered Accountants Lahore : 14 February 2022 UDIN: AR202110088RtvarAMeb Annual Report 2021 163
- Unconsolidated Statement of Financial Position As at 31 December 2021 Note ASSETS Property and equipment - Restated Intangible assets Investment property - Restated Investment in subsidiary Investments Equity securities Debt securities Term deposits Loans and other receivables Insurance / reinsurance receivables Reinsurance recoveries against outstanding claims Salvage recoveries accrued Deferred commission expense / acquisition cost Taxation - payment less provisions Prepayments Cash and bank 5 6 7 8 4,238,164 100,379 1,632,498 2,662,406 4,082,536 88,187 787,279 1,097,900 9 10 11 12 13 21,157,579 377,652 6,871,466 615,600 7,175,870 7,598,556 344,957 1,055,480 160,143 4,751,930 2,174,053 60,916,733 723,850 61,640,583 19,194,460 374,331 5,929,062 582,896 4,759,151 5,922,296 270,275 731,319 376,484 3,422,781 1,312,044 48,931,001 589,148 49,520,149 17 18 3,500,000 5,486,879 16,402,885 25,389,764 3,500,000 4,486,946 14,247,913 22,234,859 28 27 29 19 20 21 22 12,686,045 11,010,289 241,094 263,660 2,031,142 926,756 6,329 515,758 5,215,694 2,446,386 629,135 35,972,288 10,768,040 8,366,434 245,318 197,232 1,375,394 166,367 14,767 399,494 3,030,884 1,806,196 672,367 27,042,493 278,531 61,640,583 242,797 49,520,149 29 14 15 Total assets of Window Takaful Operations - Operator's Fund Total Assets 2021 2020 Rupees in thousand 16 EQUITY AND LIABILITIES Capital and reserves attributable to the Company's equity holders Ordinary share capital Reserves Unappropriated profit Total Equity LIABILITIES Underwriting provisions Outstanding claims including IBNR Unearned premium reserves Unearned reinsurance commission Retirement benefit obligations Deferred taxation Borrowings Deferred grant income Premium received in advance Insurance / reinsurance payables Other creditors and accruals Deposits and other liabilities 23 24 25 Total liabilities of Window Takaful Operations - Operator's Fund Total Equity and Liabilities 16 Contingencies and commitments 26 The annexed notes 1 to 50 form an integral part of these unconsolidated financial statements. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 164
- Unconsolidated Pro fit and Loss Account For the year ended 31 December 2021 Note 2021 2020 Rupees in thousand Net insurance premium 27 12,552,477 13,294,626 Net insurance claims Net commission and other acquisition costs Insurance claims and acquisition expenses Management expenses Underwriting results 28 29 (7,203,883) (1,522,908) (8,726,791) (3,153,423) 672,263 (7,986,856) (1,833,190) (9,820,046) (3,098,880) 375,700 Investment income Rental income Other income Fair value adjustment to investment property Other expenses Results of operating activities 31 32 33 7 34 2,469,444 131,413 140,789 961,132 (58,840) 4,316,201 1,092,506 112,717 242,866 (62,333) 1,761,456 Finance cost Profit from Window Takaful Operations - Operator's fund 35 16 (50,107) 139,267 (15,044) 163,774 4,405,361 1,910,186 (1,268,867) (34,680) 3,136,494 1,875,506 30 Profit before taxation Income tax expense 36 Profit after taxation Rupees Earnings (after tax) per share - basic and diluted 37 5.36 8.96 The annexed notes 1 to 50 form an integral part of these unconsolidated financial statements. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 165
- Unconsolidated Statement of Comprehensive Income For the year ended 31 December 2021 2021 2020 Rupees in thousand 3 ,136,494 1,875,506 (19,022) 9,906 601,205 (145,278) 177,198 73,704 85 (473) - Net effect of translation of foreign branches 221,445 3,502 Other comprehensive income / (loss) for the year 980,911 (58,639) 4,117,405 1,816,867 Profit after taxation Items that will not be subsequently reclassified to profit and loss account - Re-measurement of retirement benefit obligations Items that may be subsequently reclassified to profit and loss account - Unrealized gain / (loss) on 'available-for-sale' investments - net of tax - Reclassification adjustment relating to 'available for sale' investments disposed of in the year - net of tax - Unrealized gain / (loss) on 'available for sale' investment from Window Takaful Operations - net of tax Total comprehensive income for the year The annexed notes 1 to 50 form an integral part of these unconsolidated financial statements. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 166
- Unconsolidated Cash Flow Statement For the year ended 31 December 2021 2021 2020 Rupees in thousand Cash flows from operating activities Underwriting activities Insurance premiums received Reinsurance premiums paid Claims paid Surrenders paid Reinsurance and other recoveries received Commissions paid Commissions received Other underwriting payments Net cash inflow from underwriting activities 21,166,988 (7,555,946) (11,343,930) (142,294) 4,057,858 (2,089,856) 554,992 (2,560,185) 2,087,627 19,452,743 (6,488,542) (11,973,346) (55,690) 4,326,300 (1,952,076) 532,528 (2,873,666) 968,251 (674,329) (6,877) (36,422) (60,445) 54,547 38,380 (685,146) (341,322) (7,373) (30,192) (45,178) 49,691 53,910 (320,464) 1,402,481 647,787 213,991 7,305 39,672 2,263,362 133,865 (13,794,008) 11,081,618 (240,259) (36,768) 72,367 (258,855) 280,219 10,221 24,641 997,266 121,113 (11,103,896) 10,367,467 (495,237) (25,837) 104,134 280,091 Payments against lease liability Dividends paid Loan obtained Loan principal payment made Interest expense against loan paid Net cash outflow from financing activities (47,400) (967,626) 1,390,000 (639,304) (17,287) (281,617) (44,092) (926,576) 178,609 (460) (792,519) Net cash inflow from all activities Cash and cash equivalent at beginning of the year Cash and cash equivalent at end of the year 862,009 1,312,044 2,174,053 135,359 1,176,685 1,312,044 Other operating activities Income tax paid Finance cost paid on lease liability Other operating payments Loans advanced Loans repayments received Other operating receipts Net cash outflow from other operating activities Total cash inflow from operating activities Cash flows from investing activities Profit received on bank deposits Income received from Pakistan Investment Bonds Income from Treasury Bills Dividends received Rentals received Payments made for investments Proceeds from disposal of investments Fixed capital expenditure - operating assets Fixed capital expenditure - intangible assets Proceeds from disposal of operating assets Total cash (outflow) / inflow from investing activities Cash flows from financing activities Annual Report 2021 167
- Unconsolidated Cash Flow Statement For the year ended 31 December 2021 Reconciliation to pro fit and loss account 2021 2020 Rupees in thousand Operating cash flows Depreciation expense Provision for retirement benefit obligations Finance cost on borrowing Provision for doubtful balances against insurance / reinsurance receivables Other income - bank & term deposits Gain on disposal of operating assets Rental income Fair value adjustment to investment property Increase / (decrease) in assets other than cash Increase in liabilities Gain on disposal of investments Amortization expense (Increase) / decrease in unearned premium Increase / (decrease) in loans Income tax paid Increase in tax liabilities Reversal / (provision) for impairment of 'available-for-sale' investments Dividend income Income from Treasury Bills Income from Pakistan Investment Bonds Income against deferred grant Profit for the year from Window Takaful Operations - Operator's fund 1,402,481 (220,360) (42,682) (43,230) (67,667) 184,160 26,207 133,486 961,132 6,083,240 (4,518,712) 5,421 (29,819) (2,643,855) 5,898 674,329 (1,268,867) 49,899 2,260,313 26,161 11,253 8,439 139,267 647,787 (263,522) (50,016) (7,671) (44,062) 280,987 74,944 114,576 (1,486,218) (635,351) 41,112 (23,296) 1,875,914 (4,513) 341,322 (34,680) (158,641) 1,000,315 27,218 11,284 4,243 163,774 3,136,494 1,875,506 Profit after taxation 2021 2020 Rupees in thousand Cash and bank for the purposes of the cash flow statement consists of: Cash and cash equivalents Current and saving accounts 10,049 2,164,004 5,141 1,306,903 Total cash and cash equivalents 2,174,053 1,312,044 The annexed notes 1 to 50 form an integral part of these unconsolidated financial statements. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 168
- Unconsolidated Statement of Changes in Equity For the year ended 31 December 2021 Attributable to equity holders of the Company Share capital Issued , subscribed and paid up Capital reserve Reserve for exceptional losses Investment fluctuation reserve Revenue reserve Exchange translation reserve Fair Value Reserve General reserve Unappropriated Profit Total Rupees in thousand Balance as at January 01, 2020 3,500,000 Profit after taxation Other comprehensive income Total comprehensive income for the year ended December 31, 2020 22,859 3,764 674,936 2,917,432 936,500 13,325,001 21,380,492 - - - 3,502 3,502 (72,047) (72,047) - - - - - - - 22,859 3,764 - - - - - - 22,859 3,764 1,875,506 1,875,506 9,906 (58,639) 1,885,412 1,816,867 Transactions with owners of the Company Final cash dividend at Rs. 1.5 per share - December 31, 2019 Interim cash dividend at Rs. 1.25 per share - June 30, 2020 3,500,000 Balance as at December 31, 2020 Profit after taxation Other comprehensive income Total comprehensive income for the year ended December 31, 2021 678,438 2,845,385 221,445 221,445 (525,000) (437,500) (962,500) (525,000) (437,500) (962,500) 936,500 14,247,913 22,234,859 778,488 778,488 - 3,136,494 3,136,494 (19,022) 980,911 3,117,472 4,117,405 Transactions with owners of the Company Final cash dividend at Rs. 1.25 per share - December 31, 2020 Interim cash dividend at Rs. 1.5 per share - June 30, 2021 3,500,000 Balance as at December 31, 2021 - - 899,883 3,623,873 - (437,500) (525,000) (962,500) (437,500) (525,000) (962,500) 936,500 16,402,885 25,389,764 The annexed notes 1 to 50 form an integral part of these unconsolidated financial statements. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 169
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 1 Legal status and nature of business Adamjee Insurance Company Limited ('the Company') is a public limited Company incorporated in Pakistan on September 28, 1960 under the repealed Companies Act, 1913 (now the Companies Act, 2017). The Company is listed on Pakistan Stock Exchange limited and is principally engaged in the general insurance business. The registered office of the Company is situated at Adamjee House Building, 80/A Block E-1, Main Boulevard Gulberg-III, Lahore. The Company operates 91 (2020: 91) branches in addition to 20 (2020: 20) specialized agriculture field offices within Pakistan. The Company also operates 3 (2020: 3) branches in the United Arab Emirates (UAE) and 1 (2020: 1) branch in the Export Processing Zone, Karachi (EPZ). The Company was granted authorization on December 23, 2015 under Rule 6 of the Takaful Rules, 2012 to undertake Window Takaful Operations in respect of general takaful products by the Securities and Exchange Commission of Pakistan (SECP) and commenced Window Takaful Operations on January 01, 2016. The Company's Window Takaful Operations operates 5 (2020: 5) branches in Pakistan. 2 Basis of preparation and statement of compliance 2.1 These unconsolidated financial statements have been prepared in accordance with accounting and reporting standards as applicable in Pakistan. The accounting and reporting standards comprise of: - International Financial Reporting Standards 'IFRS' issued by the International Accounting Standards Board 'IASB' as are notified under the Companies Act, 2017; and - Provisions of and directives issued under the Companies Act, 2017, the Insurance Ordinance, 2000, the Insurance Rules, 2017, the Insurance Accounting Regulations, 2017, the Takaful Rules, 2012 and the General Takaful Accounting Regulations, 2019. In case requirements differ, the provisions of or the directives issued under the Companies Act, 2017, the Insurance Ordinance, 2000, the Insurance Rules, 2017, the Insurance Accounting Regulations, 2017, the Takaful Rules, 2012 and the General Takaful Accounting Regulations, 2019, shall prevail. These financial statements represent separate unconsolidated financial statements of the Company, prepared in accordance with the format of financial statements prescribed under the Insurance Rules, 2017 and the Insurance Accounting Regulations, 2017. The consolidated financial statements of the group are issued separately. As per the requirements of the Takaful Rules, 2012 and SECP Circular No. 25 of 2015 dated July 09, 2015, the assets, liabilities and profit and loss account of the Operator's Fund of the Window Takaful Operations of the Company have been presented as a single line item in the statement of financial position and profit and loss account of the Company respectively. A separate set of financial statements of the Window Takaful Operations has been annexed to these unconsolidated financial statements as per the requirements of the Takaful Rules, 2012. 2.2 Basis of measurement These unconsolidated financial statements have been prepared under historical cost convention except for certain foreign currency translation adjustments, certain financial instruments carried at fair value, investment property carried at fair value and retirement benefit obligations under employees benefits carried at present value. All transactions reflected in these financial statements are on accrual basis except for those reflected in cash flow statement. 2.3 Functional and presentation currency Items included in the unconsolidated financial statements are measured using the currency of the primary economic environment in which the Company operates ('the functional currency'). The financial statements are presented in Pak Rupees, which is the Company's functional and presentation currency. All the financial information presented in Rupees has been rounded off to the nearest thousand rupees, except otherwise stated. Annual Report 2021 170
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 2 .4 Standards, interpretations and amendments to accounting and reporting standards as applicable in Pakistan that are effective in current year The following standards, amendments and interpretations of accounting and reporting standards that will be effective for accounting periods beginning on January 01, 2021: Effective from annual period beginning on or after: Standards or Interpretations IBOR 2 'Interest Rate Benchmark Reform — Phase 2' Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)' with amendments that address issues that might affect financial reporting after the reform of an interest rate benchmark, including its replacement with alternative benchmark rates. 2.5 January 01, 2021 New accounting standards / amendments and IFRS interpretations that are not yet effective The following International Financial Reporting Standards (IFRS Standards) as notified under the Companies Act, 2017 and the amendments and interpretations thereto will be effective for accounting periods beginning on or after January 01, 2022: Standards or Interpretations Effective from annual period beginning on or after: Amendments to IFRS 16 ‘Leases’ - Provide lessees with an exemption from assessing whether a COVID-19 related rent concession is a lease modification. April 01, 2021 Amendments to IAS 16 'Property, Plant and Equipment', prohibiting the Company from deducting from the cost of property plant and equipment, amount received from selling items produced while the Company is preparing the asset for its intended use. January 01, 2022 Amendments to IFRS 3 'Business Combinations' that updated an outdated reference in IFRS 3 without significantly changing its requirements. January 01, 2022 Amendments to IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' regarding the costs of fulfilling the contract to include when assessing whether a contract is Onerous. January 01, 2022 Amendments to IAS 1 'Presentation of Financial Statements' - Classification of liabilities as current or non-current. January 01, 2023 Amendments to IAS 12 'Income Taxes' - regarding deferred tax on leases and decommissioning obligations. January 01, 2023 Amendments to IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors' - regarding the definition of accounting estimates. January 01, 2023 Amendments to IFRS 10 'Consolidated Financial Statements' and IAS 28 'Investments in Associates and Joint Ventures' - Sale or contribution of assets between an investor and its associate or joint venture. Effective from accounting period beginning on or after a date to be determined. Earlier application is permitted. Certain annual improvements have also been made to a number of IFRSs. Other than the aforesaid standards, interpretations and amendments, the International Accounting Standards Board (IASB) has also issued the following standards which have not been adopted locally by the Securities and Exchange Commission of Pakistan: - IFRS 1 – First Time Adoption of International Financial Reporting Standards IFRS 17 – Insurance Contracts Annual Report 2021 171
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 There are certain other new and amended standards and interpretations that are mandatory for the insurance accounting periods beginning on or after January 01 , 2022 but are considered either not to be relevant or do not have any significant impact on these financial statements. IFRS 9 - Financial Instruments IFRS 9 'Financial Instruments' has become applicable, however as an insurance company, the management has opted temporary exemption from the application of IFRS 9 as allowed by International Accounting Standards Board (IASB) for entities whose activities are predominantly connected with insurance. Additional disclosures, as required by the IASB, for being eligible to apply the temporary exemption from the application of IFRS 9 are given below: The tables below set out the fair values as at the end of reporting period and the amount of change in the fair value during that period for the following two groups of financial assets separately: (a) Financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding, excluding any financial asset that meets the definition of held for trading in IFRS 9, or that is managed and whose performance is evaluated on a fair value basis, and (b) All other financial assets Financial assets Cash and Bank* Investment in subsidiary* Investments in equity securities - available-forsale Investment in debt securities held to maturity Term deposits* Loans and other receivables* Total As at December 31, 2021 Fail the SPPI test Pass the SPPI test Change in Change in unrealized Carrying Cost less unrealized gain / Fair value gain / (loss) Value Impairment (loss) during the during the period period Rupees in thousand 1,417,419 2,662,406 - 21,157,579 1,096,342 426,558 25,663,962 1,096,342 756,634 377,652 6,871,466 3,517 8,009,269 - - - - - - * The carrying amount of these financial assets measured applying IAS 39 are a reasonable approximation of their fair values. 3 Summary of significant accounting policies The significant accounting policies adopted in preparation of these financial statements are set out below. Accounting policies relating to Window Takaful Operations are disclosed in separate financial statements of Window Takaful Operations which have been annexed to these financial statements. These accounting policies have been consistently applied to all the years presented. 3.1 Property and equipment Owned operating assets, other than freehold land which is not depreciated are stated at cost, signifying historical cost, less accumulated depreciation and any provision for accumulated impairment. Freehold land and capital work-in-progress are carried at cost less accumulated impairment losses, if any. Depreciation is charged to profit and loss account applying reducing balance method depending upon the nature of the asset, at the rates specified for calculation of depreciation after taking into account residual value, if any. The useful lives, residual values and depreciation method are reviewed, and adjusted if appropriate, at each reporting date. Annual Report 2021 172
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 Subsequent costs are included in the asset 's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future benefits associated with the asset will flow to the Company and the cost of the asset can be measured reliably. All other repairs and maintenance costs are charged to profit and loss account as and when incurred. Depreciation on additions is charged from the month the assets are available for use while on disposals, no depreciation is charged in the month in which the assets are disposed of. The carrying values of operating assets are reviewed for impairment when events or changes in circumstances indicate that this carrying value may not be recoverable. If any such indications exist and where the carrying values exceed the estimated recoverable amounts, the assets are written down to their recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount of the assets disposed of. These are taken to profit and loss account. 3.2 Capital work in progress Capital work in progress is stated at cost less any identified impairment loss. All expenditure including borrowing costs connected with specific assets incurred during installation and construction period are carried under capital work-inprogress. These are transferred to operating assets as and when these are available for use. 3.3 Intangible assets These are stated at cost less accumulated amortization and provision for accumulated impairment, if any. Amortization is calculated from the month the assets are available for use using the straight-line method, whereby the cost of the intangible asset is amortized over its estimated useful life over which economic benefits are expected to flow to the Company. The useful life and amortization methods are reviewed, and adjusted if appropriate, at each reporting date. Software development costs are only capitalized to the extent that future economic benefits are expected to be derived by the Company. The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate that this carrying value may not be recoverable. If any such indications exist and where the carrying values exceed the estimated recoverable amounts, the assets are written down to their recoverable amount. 3.4 Investment property Investment property is measured at purchase cost on initial recognition including costs directly attributable to the acquisition of the investment property and subsequently at fair value with any change therein recognized in profit and loss account. Subsequent costs are included in the carrying amount of the investment property, only when it is probable that the future economic benefits associated with the items will flow to the Company and the cost of the item can be measured reliably. Other repair and maintenance costs are charged to profit and loss account as and when incurred. 3.5 Insurance contracts Insurance contracts are those contracts where the Company (the insurer) has accepted significant insurance risk from another party (the policy holders) by agreeing to compensate the policy holders on the occurrence of a specified uncertain future event i.e. insured event that adversely affects the policy holders. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its contract period, even if the insurance risk reduces significantly during this period, unless all rights and liabilities are extinguished or expired. Insurance contracts issued by the Company are generally classified in five basic categories i.e. Fire & property, Marine, aviation & transport, Motor, Accident & health and Miscellaneous, and are issued to multiple types of clients with businesses in engineering, automobiles, cement, power, textiles, paper, agriculture, services and trading sectors etc. and individuals as well. The tenure of these insurance contracts depends upon terms of the policies written and vary accordingly. Annual Report 2021 173
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 - Fire and property insurance contracts generally cover the assets of the policy holders against damages by fire , earthquake, riots and strike, explosion, atmospheric disturbance, flood, electric fluctuation and impact, burglary, loss of profit followed by the incident of fire, contractor's all risk, erection all risk, machinery breakdown and boiler damage, etc. according to the terms and conditions of the policy. - Marine, aviation and transport insurance contracts generally provide cover against damages by cargo risk and damages occurring during transit between the points of origin and final destination including loss of or damage to carrying vessel etc. according to the terms and conditions of the policy. - Motor insurance contracts provide indemnity for accidental damage to or total loss of insured vehicle including loss of or damage to third party and other comprehensive car coverage etc. according to terms and conditions of the policy. - Accident and health insurance contracts mainly compensate hospitalization and out patient medical coverage to the insured according to term and conditions of the policy. - Miscellaneous insurance contracts provide variety of coverage including cover against burglary, loss of cash in safe, cash in transit and cash on counter, fidelity guarantee, personal accident, workmen compensation, travel and crop, mobilization and performance bond etc. according to terms and conditions of the policy. In addition to direct insurance, the Company also participates in risks under co-insurance contracts from other companies and also accepts risks through re-insurance inward by way of facultative acceptance on case to case basis provided such risks are within the underwriting policies of the Company. The nature of the risks undertaken under such arrangement are consistent with the risks in each class of business as stated above in direct and other lead insurance contracts. 3.6 Deferred commission expense / acquisition cost Commission expense incurred in obtaining and recording policies is deferred and recognized as an expense in accordance with the pattern of recognition of premium revenue. Other acquisition costs are charged to profit and loss account at the time the policies are accepted. 3.7 Unearned premium The unearned premium represents the portion of premium written relating to the unexpired period of insurance coverage at the reporting date. It is recognized as a liability. Such liability is calculated as a ratio of the unexpired period of the policy and the total policy period, both measured to the nearest day except: - for marine cargo, as a ratio of the unexpired shipment period to the total expected shipment period, both measured to the nearest day. - for crop business, as a ratio of the unexpired crop period to the total expected crop period, both measured to the nearest day. Policy for recognition of premium revenue is disclosed in detail in note 3.13 to these financial statements. Unearned premium reserve calculated by the Company is also confirmed by an independent actuary. 3.8 Premium deficiency In order to comply with the requirements of section 34(2)(d) of the Insurance Ordinance, 2000, a premium deficiency reserve is maintained for each class of business, where the unearned premium liability for any class of business is not adequate to meet the expected future liability, after re-insurance, for claims and other expenses, including reinsurance expense, commissions, and other underwriting expenses, expected to be incurred after the reporting date in respect of the policies in force at the reporting date, in that class of business. For this purpose, premium deficiency reserve is determined by independent actuaries. The actuary determines the prospective loss ratios for each class of business and applies factors of unearned and earned premiums and uses Annual Report 2021 174
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 assumptions appropriate to arrive at the expected claims settlement cost which when compared with unearned premium reserve (UPR) shows whether UPR is adequate to cover the unexpired risks. If these ratios are adverse, premium deficiency is determined. Based on actuary's advice, management creates a reserve for the same in these unconsolidated financial statements. The movement in the premium deficiency reserve on net basis is recorded as an expense / income in profit and loss account for the year. 3.9 Reinsurance contracts held The Company enters into reinsurance contracts in the normal course of business in order to limit the potential for losses arising from certain exposures. Reinsurance contracts include treaty reinsurance, whereby certain agreed proportion of risks are shared with the participating companies, hence higher underwriting capacity with larger spread becomes available. Depending upon the nature and / or size of the risk at times reinsurance of excess of capacity is also placed on case to case basis under facultative reinsurance arrangement. The Company also accepts facultative reinsurance from other local insurance companies provided the risk meets the underwriting requirements of the Company. Outward reinsurance premiums are accounted for in the same period as the related premiums for the direct or accepted reinsurance business being reinsured. The risks undertaken by the Company under these contracts for each class of business are stated in note 3.5 to the financial statements. Reinsurance liabilities represent the balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the related reinsurance contract. Reinsurance assets represent balances due from reinsurance companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the provision for outstanding claims or settled claims associated with the reinsurance policies and are in accordance with the related reinsurance contract. Reinsurance assets or liabilities are derecognized when the contractual rights or obligations are extinguished or expired. Furthermore, reinsurance assets are not offset against related insurance liabilities. Income or expenses from reinsurance contract are not off set against income or expenses from related insurance assets. The Company assesses its reinsurance assets for impairment on reporting date. If there is an objective evidence that the reinsurance asset is impaired, the Company reduces the carrying amount of the reinsurance asset to its recoverable amount and recognizes the impairment loss in the profit and loss account. The portion of reinsurance premium not recognized as an expense is shown as a prepayment. Prepayment (i.e. premium ceded to reinsurers) is recognized as follows: - for reinsurance contracts operating on a proportional basis, a liability to the reinsurer is recognized on attachment of the underlying policies reinsured, while an asset is recognized for the unexpired period of reinsurance coverage at the reporting date as prepaid reinsurance premium ceded and the same is expensed over the period of underlying policies. Commission income from reinsurers is recognized at the time of issuance of the underlying insurance policy by the Company. This income is deferred and brought to profit and loss account as commission income in accordance with the pattern of recognition of the reinsurance premium to which it relates. Profit commission and no claim bonus (if any), which the Company may be entitled to under the terms of reinsurance, is recognized on accrual basis. Annual Report 2021 175
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 3 .10 Receivables and payables related to insurance contracts Insurance / reinsurance receivable and payable including premium due but unpaid, relating to insurance contracts are recognized when due and carried at cost less provision for impairment (if any) . The cost is the fair value of the consideration to be received / paid in the future for services rendered / received. These amounts also include due to and from other insurance companies and brokers. Premium received in advance is recognized as liability till the time of issuance of insurance contract there against. An assessment is made at each reporting date to determine whether there is an objective evidence from external as well as internal sources of information that a financial asset or group of assets may be impaired i.e. recoverable amount at the reporting date is less than the earning amount of the asset. If such evidence exists, the estimated recoverable amount of that asset is determined and any impairment loss is recognized, in the profit and loss account, for the difference between the recoverable amount and the carrying amount. Provisions for impairment are reviewed at each reporting date and adjusted to reflect the current best estimates. Changes in the provisions are recognized as income or expense, in the profit and loss account. 3.11 Segment reporting A business segment is a distinguishable component of the Company that is engaged in providing services that are subject to risks and returns that are different from those of other business segments. The Company accounts for segment reporting of operating results using the classes of business as specified under the Insurance Ordinance, 2000 and the Insurance Rules, 2017. The reported operating segments are also consistent with the internal reporting provided to Board of Directors which is responsible for allocating resources and assessing performance of the operating segments. The performance of segments is evaluated on the basis of underwriting results of each segment. Assets, liabilities and capital expenditures that are directly attributable to segments have been assigned to them. Those assets and liabilities which cannot be allocated to a particular segment on a reasonable basis are reported as unallocated corporate assets and liabilities. 3.12 Cash and cash equivalents Cash and cash equivalents are carried in the statement of financial position at cost. It comprises cash in hand, policy stamps and bank balances. 3.13 Revenue recognition 3.13.1 Premiums Premiums including administrative surcharge under an insurance contract are recognized as written from date of issuance to the date of attachment of risk to the policy / cover note. Where premium for a policy is payable in installments, full premium for the duration of the policy is recognized as written, where the first such installment has been duly received by the Company, at the inception of the policy and related asset is recognized as premium receivable. Revenue from premiums is determined after taking into account the unearned portion of premiums. The unearned portion of premium income is recognized as a liability as explained in note 3.7. Reinsurance premium is recognized as expense after taking into account the proportion of prepaid reinsurance premium which is recognized as a proportion of the gross reinsurance premium of each policy, determined as the ratio of the unexpired period of the policy and the total period, both measured to the nearest day. The prepaid portion of premium is recognized as a prepayment as explained in note 3.7. 3.13.2 Commission Income Commission income from other insurers / reinsurers is deferred and recognized as liability and recognized in the profit and loss account as commission income in accordance with the pattern of recognition of the reinsurance premiums. Annual Report 2021 176
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 3 .13.3 Investment income Following are recognized as investment income: - Income from held to maturity investments is recognized on a time proportion basis taking into account the effective yield on the investments. The difference between the redemption value and the purchase price of the held to maturity investments is amortized and taken to the profit and loss account over the term of the investment. - Dividend income is recognized when the Company's right to receive the dividend is established. - Gain / loss on sale of available-for-sale investments is recognized in profit and loss account in the year of sale. - Return on bank deposits is recognized on a time proportion basis taking into account the effective yield. 3.14 Investment in Subsidiary Investment in subsidiary is measured at cost less any identified impairment loss in the Company’s separate financial statements. Cost represents the fair value of the consideration given, including any transaction costs paid, by the Company at the time of purchase of such equity instruments. In case of an increase in the investment in a subsidiary the accumulated cost represents the carrying value of the investment. At each statement of financial position date, the Company reviews the carrying amounts of the investments in subsidiary to assess whether there is any indication that such investments have suffered an impairment loss. If any such indication exists, the recoverable amount is estimated in order to determine the extent of the impairment loss, if any. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Impairment losses are recognised as expense in the profit and loss account. Investment in subsidiary that suffered an impairment, is reviewed for possible reversal of impairment at each reporting date. Impairment losses recognised in the profit and loss account are reversed through the profit and loss account. The carrying amount of an investment carried at cost is derecognised when it is sold or otherwise disposed of. The difference between the fair value of any consideration received on disposal and the carrying amount of the investment is recorded in the profit and loss account as a gain or loss on disposal. 3.15 Investments Investments are recognized and classified as follows: - Held to maturity - Available-for-sale The classification depends on the purpose for which the financial assets were acquired. The Company does not have any 'investment at fair value through profit or loss' at the statement of financial position date. 3.15.1 Held to maturity Investments with fixed determinable payments and fixed maturity, where management has both the intent and the ability to hold to maturity, are classified as held to maturity. Subsequently, these are measured at amortized cost less provision for impairment, if any. Any premium paid or discount availed on government securities and term finance certificates is deferred and amortized over the period to maturity of investment using the effective yield. 3.15.2 Available-for-sale Investments which are not eligible to be classified as 'fair value through profit or loss' or 'held to maturity' are classified as 'available-for-sale'. These investments are intended to be held for an indefinite period of time which may be sold in response to the need for liquidity, changes in interest rates, equity prices or exchange rates. Annual Report 2021 177
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 These are initially measured at cost and subsequently re-measured at fair value at each reporting date . The unrealized gains and losses arising from changes in fair values are directly recognized in equity in the year in which these arise. When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the profit and loss account as gains and losses from investment securities. The Company assesses at each statement of financial position date whether there is an objective evidence that the financial asset is impaired. If any such evidence exists for an 'available for sale' asset, the accumulated loss is removed from equity and recognized in the profit and loss account. Quoted Subsequent to initial recognition, these investments are re-measured at fair value. Gains or losses on investments on re-measurement of these investments are recognized in statement of comprehensive income. Unquoted Fair value of unquoted investments is determined on the basis of appropriate valuation techniques as allowed by IAS 39 'Financial Instruments: Recognition and Measurement'. Where fair value cannot be measured reliably, these are carried at cost. The valuation of unquoted investments as at December 31, 2021 has been carried out by independent valuer for determination of fair value of these investments. 3.15.3 Fair / market value measurements For investments in Mutual funds, fair / market value is determined by reference to rates quoted by Mutual Fund Association of Pakistan (MUFAP). For investments in quoted marketable securities, other than Term Finance Certificates, fair / market value is determined by reference to Pakistan Stock Exchange quoted market price at the close of business on reporting date. The fair market value of Term Finance Certificates is as per the rates issued. 3.15.4 Date of recognition Regular way purchases and sales of investments that require delivery within the time frame established by regulations or market convention are recognized at the trade date. Trade date is the date on which the Company commits to purchase or sell the investment. 3.16 Off setting of financial assets and financial liabilities A financial asset and a financial liability is offset and the net amount is reported in the statement of financial position when the Company has a legally enforceable right to set-off the recognized amounts and it intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. 3.17 Provisions Provisions are recognized when the Company has a present, legal or constructive obligation as a result of past events and, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made of the amount of obligation. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. 3.18 Provision for outstanding claims including IBNR The Company recognizes liability in respect of all claims incurred up to the reporting date which is measured at the undiscounted value of the expected future payments. The claims are considered to be incurred at the time of the incident giving rise to the claim except as otherwise expressly indicated in the insurance contract. The liability for claims include amounts relating to unpaid reported claims, claims incurred but not reported (IBNR), expected claims settlement costs, a reduction for the value of salvage and other recoveries, and any adjustments to claims outstanding from previous years. SECP through its circular 9 of 2016 dated March 09, 2016 issued 'SEC guidelines for estimation of incurred but not reported (IBNR) claims reserve 2016' for non-life insurance Companies and required to comply with all provisions of these guidelines with effect from July 01, 2016. Annual Report 2021 178
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 The Guidelines require that estimation for provision for claims incurred but not reported (IBNR) for each class of business, by using prescribed Method 'Chain Ladder Method' and other alternate method as allowed under the provisions of the Guidelines. The Chain Ladder Method involves determination of development factors or link ratios for each period. These are then subsequently combined to determine Cumulative Development Factor (CDF) which represents the extent of future development of claims to reach their ultimate level to derive an IBNR estimate. The actuarial valuation as at December 31, 2021 has been carried out by independent firm of actuaries for determination of IBNR for each class of business. The actuarial valuation is based on a range of standard actuarial claim projection techniques, based on empirical data and current assumptions as explained in preceding paragraph that may include a margin for adverse deviation as required / allowed by the circular 9 of 2016. The methods used, and the estimates made, are reviewed regularly. 3.19 Taxation Income tax comprises current and deferred tax. Income tax is recognized in the profit and loss account except to the extent that relates to items recognized directly in equity or other comprehensive income, in which case it is recognized directly in equity or other comprehensive income. Current Provision for current taxation is based on taxable income for the year determined in accordance with the prevailing law for taxation of income. The charge for current tax is calculated using prevailing tax rates or tax rates expected to apply to the profit for the year, if enacted. The charge for current tax also includes adjustments, where considered necessary, to provision for tax made in previous years arising from assessments finalized during the current year for such years. Deferred Deferred taxation is accounted for using the statement of financial position liability method in respect of all temporary differences arising from differences between the carrying amount of assets and liabilities in the unconsolidated financial statements and the corresponding tax bases used in the computation of the taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused tax losses and tax credits can be utilized. Deferred tax is calculated at the rates that are expected to apply to the period when the differences reverse based on tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax is charged or credited in the profit and loss account, except in the case of items credited or charged to statement of comprehensive income in which case it is included in statement of comprehensive income. 3.20 Retirement benefit obligations The main features of the scheme operated by the Company for its employees are as follows: 3.20.1 Defined contribution plan The Company operates an approved contributory provident fund scheme for all its eligible employees. Equal monthly contributions to the fund are made by the Company and the employees at the rate of 8.33% of basic salary. Contributions made by the company are recognized as expense. The Company has no further payment obligations once the contributions have been paid. Obligation for contributions to defined contribution plan is recognized as an expense in the profit and loss account as and when incurred. 3.20.2 Defined benefit plans The Company operates the following defined benefit plans: (a) an approved funded gratuity scheme for all its permanent employees in Pakistan. Annual contributions are made to this scheme on the basis of actuarial recommendations. The Company recognizes expense in accordance with IAS 19 'Employee Benefits'. The contributions have been made to gratuity fund in accordance with the actuary’s recommendations based on the actuarial valuation of these funds as at December 31, 2021. Annual Report 2021 179
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 (b) unfunded gratuity scheme covering the employees in the UAE branches as per the requirements of the applicable regulations. Provision is made in these unconsolidated financial statements on the basis of the actuarial valuation carried out by an independent actuary using the projected unit credit method. The latest valuation has been carried out at December 31, 2021. Past-service costs are recognized immediately in profit and loss account, unless the changes to the plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortized on a straight-line basis over the vesting period. The Company's net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets. The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Company, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements. Re-measurement of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit and loss account. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit and loss account. The Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs. 3.20.3 Employees' compensated absences The Company accounts for these benefits in the period in which the absences are earned. The Company provides annually for the expected cost of accumulating compensated absences on the basis of actuarial valuation. Regular employees of the Company are entitled to 30 days earned leaves in a calendar year and they can accumulate the unutilised privilege leaves upto 60 days (2020: 60). The most recent valuation is carried out as at December 31, 2021 using the LIFO method. The liabilities are presented as a current employees benefit obligations in the statement of financial position. 3.21 Impairment of assets Financial assets A financial asset is considered to be impaired if objective evidence indicate that one or more events had a negative effect on the estimated future cash flow of that asset. An impairment loss in respect of a financial asset measured at amortized cost is calculated as a difference between its carrying amount and the present value of estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of available for sale financial asset is calculated with reference to its current fair value. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. Non financial assets The carrying amounts of Company's non-financial assets are reviewed at each statement of financial position date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of such asset is estimated. An impairment loss is recognized wherever the carrying amount of asset exceeds its recoverable amount. Annual Report 2021 180
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 Impairment losses are recognized in profit and loss account . A previously recognized impairment loss is reversed only if there has been change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit and loss account. 3.22 Dividend distribution Dividend distribution to the Company's shareholders and other appropriations are recognized in the Company's financial statements in the period in which these are approved. Appropriations of profit are reflected in the statement of changes in equity in the period in which such appropriations are approved. 3.23 Management expenses Expenses of management both direct and indirect are allocated on the basis of activity in each class of business. Expenses not allocable to the underwriting business are charged as other expenses. 3.24 Leases As a lessee, the Company recognizes right of use asset and lease liability at the lease commencement date. Right of use assets The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payment made at or before the commencement date, plus any initial direct cost incurred and less any lease incentives received. The right of use assets are subsequently depreciated using the straight-line method over the lease term as this method most closely reflects the expected pattern of consumption of future economic benefits. In addition, the right of use asset is periodically reduced by impairment losses, if any, and adjusted for the certain remeasurement of the lease liability. Lease liability The lease liability is initially measured at present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise of the following: - fixed payments , including in-substance fixed payments; - variable lease payments that depend on an index, or a rate, initially measured using the index or rate as at commencement date; - amount expected to be payable under a residual guarantee; and - the exercise price under purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of lease unless the Company is reasonably certain not to terminate early. " The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change Company's estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right of use asset, or is recorded in Profit and loss account if the carrying amount of the right of use asset has been reduced to zero. Annual Report 2021 181
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 3 .25 Foreign currencies Transactions in foreign currencies (other than the result of foreign branches) are accounted for in Pak Rupees at the rates prevailing on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Pak Rupees at the rates of exchange prevailing at the reporting date. Exchange differences are taken to the profit and loss account. The assets and liabilities of foreign branches are translated to Pak Rupees at exchange rates prevailing at the reporting date. The results of the foreign branches are translated to Pak Rupees at the average rate of exchange for the year. Translation gains and losses are included in the profit and loss account, except those arising on the translation of the Company net investments in foreign branches, which are taken to the capital reserves (exchange translation reserve). 3.26 Financial instruments Financial assets and liabilities are recognized at the time when the Company becomes a party to the contractual provisions of the instrument and de-recognized when the Company loses control of contractual rights that comprise the financial assets and in the case of financial liabilities when the obligation specified in the contract is discharged, cancelled or expired. Any gain or loss on the de-recognition of the financial assets and liabilities is included in the profit and loss account. Financial instruments carried in the statement of financial position include cash and bank, loans, investments, premiums due but unpaid, amount due from other insurers / reinsurers, premium and claim reserves retained by cedants, accrued investment income, reinsurance recoveries against outstanding claims, sundry receivables, provision for outstanding claims, amounts due to other insurers / reinsurers, accrued expenses, other creditors and accruals, liabilities against asset subject to finance lease and unclaimed dividends. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. 3.27 Earnings per share The Company presents basic and diluted earnings per share (EPS) for its shareholders. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated if there is any potential dilutive effect on the Company's reported net profits. 3.28 Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost, any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the profit and loss account over the period of the borrowings using the effective interest rate. Finance costs are accounted for on accrual basis and are reported under accrued markup to the extent of the amount remaining unpaid. 3.29 Government grant Government grants are transfers of resources to the Company by a government entity in return for compliance with certain past or future conditions related to the Company's operating activities - e.g. a government subsidy. The definition of 'government' refers to governments, government agencies and similar bodies, whether local, national or international. The Company recognises government grants when it is reasonably probable that grants will be received and the Company will be able to comply with conditions associated with grants. Government grants are recognized at fair value, as a deferred income, when there is reasonable assurance that the grants will be received and the Company will be able to comply with the conditions associated with the grants. Grants that compensate the Company for expenses incurred, are recognized on a systematic basis in the income for the year in which the related expenses are recognized. Grants that compensate for the cost of an asset are recognized in income on a systematic basis over the expected useful life of the related asset. Annual Report 2021 182
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 Loan at subsidized rate under SBP refinancing scheme for payment of wages and salaries is initially measured at the fair value i .e. the present value of the expected future cash flows discounted at a market-related interest rate. The difference between the amount received and the fair value is recognized as a government grant. 4 Critical accounting estimates and judgments 4.1 Use of estimates and judgments The preparation of these unconsolidated financial statements in conformity with approved accounting standards requires the management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years. The areas involving a higher degree of judgment and complexity, or areas where assumptions and estimates are significant to these financial statements or judgment was exercised in application of accounting policies, are as follows: Note - 4.2 Premium deficiency Provision for doubtful insurance / reinsurance receivables Provision for outstanding claim including claims incurred but not reported (IBNR) Retirement benefit obligation Valuation of unquoted investments Provision for taxation including the amount relating to tax contingency Impairment of assets - Financials / Non financial assets Useful lives, pattern of economic benefits and impairments - Property and Equipment Segment Reporting 3.8 3.10 3.18 3.20 3.15.2 3.19 3.21 3.1 3.11 Change in accounting estimate The management reviews the useful lives of property and equipment on regular basis. During the current year, the management has revised its estimate of the residual values of its operating fixed assets ranging from 10% to 25% of the cost of respective assets based on the consultation with the valuer. The management has also reviewed the useful lives of the respective assets and concluded that the current estimates of useful lives are appropriate. Management believes that the said change in estimate is more accurate and better reflects the pattern of consumption of economic benefits of the respective classes of assets. The aforementioned revision has been accounted for as change in accounting estimate in accordance with the requirement of IAS - 8 (Accounting Policies, Changes in Accounting Estimates and Errors). The effects of this change in accounting estimate has been recognised prospectively in the current period. The change in estimates of residual values has resulted in decrease in depreciation charge as follows: Class of assets Buildings Furniture and fixtures Motor vehicles Machinery and equipment Computer Equipment Rs in thousands (20,370) (7,100) (18,402) (19,999) (6,203) (72,074) Annual Report 2021 183
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 Had there been no revision , profit before taxation for the current year would have been lower by Rs. 72,074 thousands whereas the carrying value of operating assets would have been reduced by same amount. Accordingly, earnings per share for the year ended December 31, 2021 would have been lower by Rs. 0.15. Impact of change in accounting estimate on future period has not been disclosed because it can not be estimated reliably. Note 5 Property and equipment Operating assets Capital work in progress Right of use asset 5.1 2021 2020 Rupees in thousand 5.1 5.2 5.3 4,132,230 16,205 89,729 3,970,750 11,170 100,616 4,238,164 4,082,536 Operating assets - owned 2021 As at Jan 01 Cost Exchange Transfer from Additions / differences and Disposals investment other Transfers property adjustments As at Dec 31 As at Jan 01 Depreciation Exchange Transfer from Charge for differences and On investment other the year disposals property adjustments Net Book value As at Dec 31 As at Dec 31 Rate % Rupees in thousand Land - Restated Buildings* Furniture and fixtures Motor vehicles Machinery and equipment Computer equipment 900,609 2,290,149 365,328 720,272 713,469 346,986 90,714 21,907 64,299 50,697 6,732 52,447 10,035 4,775 4,246 4,099 (30,555) (2,500) (68) (39,273) (11,536) (1,672) 8,640 878,694 107,273 2,538,083 397,202 750,073 756,876 356,145 346,272 137,945 418,103 200,317 263,426 44,215 28,913 31,918 61,552 20,421 19,086 5,480 2,223 1,898 2,518 (830) (30) (27,795) (9,181) (1,608) - Total 5,336,813 234,349 75,602 (85,604) 115,913 5,677,073 1,366,063 187,019 31,205 (39,444) - 878,694 408,743 2,129,340 3.0% 172,308 224,894 15.0% 424,449 325,624 15.0% 254,586 502,290 15.0% 284,757 71,388 30.0% 1,544,843 4,132,230 2020 As at Jan 01 Cost Exchange Transfer from Additions / differences and Disposals investment other Transfers property adjustments As at Dec 31 As at Jan 01 Depreciation Exchange Transfer from Charge for differences and On investment other the year disposals property adjustments Net Book value As at Dec 31 As at Dec 31 Rate % Rupees in thousand Land - Restated Buildings* Furniture and fixtures Motor vehicles Machinery and equipment Computer equipment 900,609 2,025,725 264,638 751,133 605,110 302,342 254,005 98,177 26,596 108,615 45,645 15,364 3,022 1,577 734 806 (4,945) (509) (59,034) (990) (1,807) - 900,609 2,290,149 365,328 720,272 713,469 346,986 287,589 112,434 395,857 125,929 245,595 54,421 25,039 53,300 74,678 17,633 8,615 809 1,201 423 635 (4,353) (337) (32,255) (713) (437) - Total 4,849,557 533,038 21,503 (67,285) - 5,336,813 1,167,404 225,071 11,683 (38,095) - 900,609 346,272 1,943,877 3.0% 137,945 227,383 15.0% 418,103 302,169 15.0% 200,317 513,152 15.0% 263,426 83,560 30.0% 1,366,063 3,970,750 *The Company owns 4 buildings and resulting area of land and 8 corporate offices in Pakistan and 1 corporate office in UAE. *The Company has restated the cost of Land amounting to Rs. 385 million from Property and equipment to Investment property for the year ended December 31, 2019 and December 31, 2020 as explained in Note 7.1. Annual Report 2021 184
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 5 .1.1 Details of tangible assets disposed of during the year are as follows: Description Land and Building Model Town premises Accumulated Book Cost depreciation value Sale proceeds Mode of disposal Relationship Particulars of purchaser Rupees in thousand 33,055 33,055 830 32,225 33,055 830 32,225 33,055 Negotiation Chief Executive Officer Muhammad Ali Zeb Auction Auction Auction Auction Auction Auction Auction Auction Auction Auction Auction Auction Auction Auction Auction Auction Auction Auction Auction Auction Auction Auction Auction Auction Auction Negotiation Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Employee Syed Al E Hasan Bukhari Nasir Mehmood Muhammad Nadeem Farooqui Ashraf Ali Khan Syed Muhammad Naeem Muhammad Sohaib Augmentech Business Solution (Private) Limited Augmentech Business Solution (Private) Limited Muhammad Anwar Syed Al E Hasan Bukhari Augmentech Business Solution (Private) Limited Rana Muhammad Zahid Muhammad Nadeem Farooqui Mehmood Hayat Chaudhry Rab Nawaz Khan Farrukh Anwer Bajwa Augmentech Business Solution (Private) Limited Muhammad Nadeem Farooqui Muhammad Arshad Abbasi Muhammad Tufail Rana Muhammad Zahid Muhammad Tufail Farrukh Anwar Bajwa Augmentech Business Solution (Private) Limited Augmentech Business Solution (Private) Limited Salman Chaudhry - employee Auction Auction Auction Auction Auction Independent third party Independent third party Independent third party Independent third party Independent third party Muhammad Asim Muhammad Asim Muhammad Asim Muhammad Asim Muhammad Asim Furniture and fixtures Items having book value below Rs. 50,000 68 68 30 30 38 38 3 3 846 600 1,365 1,373 935 918 1,514 995 995 950 1,478 1,542 1,507 1,034 1,572 1,685 2,169 1,054 1,325 1,069 1,651 1,561 708 1,076 1,126 2,262 754 540 1,097 1,105 747 735 1,210 767 762 725 1,125 913 1,076 734 1,092 1,128 1,417 652 837 633 978 913 373 766 630 959 92 60 268 268 188 183 304 228 233 225 353 629 431 300 480 557 752 402 488 436 673 648 335 310 496 1,303 980 536 1,320 1,375 817 770 1,285 827 820 860 1,457 1,238 1,608 605 1,255 1,551 1,702 871 1,760 1,010 1,638 1,633 671 867 1,186 976 Motor vehicles Honda Citi (ANW-119) Suzuki Cultus (AMU-983) Honda Citi (AUV-482) Toyota Corolla Gli (AUW-681) Suzuki Cultus (AVB-652) Suzuki Cultus (AVA-979) Toyota Corolla Gli (AWA-988) Suzuki Cultus (AWV-141) Suzuki Cultus (AWY-191) Suzuki Cultus (AXU-579) Toyota Corolla Gli (AXS-164) Toyota Corolla Gli (AXS-158) Honda Citi (AYU-712) Suzuki Cultus (BAV-761) Toyota Corolla Xli (BAU-953) Honda Citi Mt (BBT-674) Honda Civic Exi (BCL-671) Suzuki Cultus (BDB-832) Honda Citi (BDA-810) Suzuki Cultus (LEH-15-3032) Toyota Corolla Xli (BET-488) Honda Citi (BFE-384) Suzuki Mehran (LEA-16A-8924) Suzuki Cultus (BAV-756) Suzuki Cultus (BGA-490) Ford Explorer (92187) Items having book value below Rs. 50,000 5,963 5,127 836 1,534 39,273 27,795 11,478 31,152 Machinery and equipment Diesel Generator Generator Generator Generator Generator Items having book value below Rs. 50,000 1,646 2,311 3,348 460 3,715 700 1,993 2,893 379 3,162 946 318 455 81 553 3,217 1,082 1,547 275 1,880 56 11,536 54 9,181 2 2,355 26 8,027 1,672 1,672 1,608 1,608 64 64 130 130 Computer equipment Items having book value below Rs. 50,000 Grand Total 85,604 39,444 46,160 72,367 Annual Report 2021 185
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 5 .2 2021 2020 Rupees in thousand Capital work in progress Mobilization advance Advance for computer hardware equipment Advance for ERP software 5.3 5,868 5,302 16,205 11,170 100,616 14,274 (33,341) 8,180 100,574 40,955 (38,451) (2,462) 89,729 100,616 Right of use asset As at January 01 Additions during the year Depreciation charge during the year Exchange differences and other adjustments Closing Net Book Value 5.3.1 6 11,778 4,427 All the right of use assets include premises obtained on rent for branch operations (inside and outside of Pakistan). 2021 2020 Rupees in thousand Intangible assets Cost As at January 01 Additions during the year Exchange differences and other adjustments As at December 31 355,583 37,643 14,671 407,897 310,990 40,886 3,707 355,583 As at January 01 Amortization charged during the year Exchange differences and other adjustments As at December 31 267,396 29,819 10,303 307,518 242,063 23,296 2,037 267,396 Net book value as at December 31 100,379 88,187 Accumulatedamortization Rate of amortization 7 20.00% 20.00% 787,279 (115,913) 961,132 787,279 - 1,632,498 787,279 Investment property Net book value as at January 01 - Restated Transfer to Property and equipment Unrealized fair value gain Net book value as at December 31 7.1 Investment property as at December 31, 2021 consists of the following: - 5 floors of Adamjee House, Karachi which are rented out. - 1 floor of Adamjee House, Lahore which is rented out. Market value of these investment properties amounts to Rs. 1,632 million based on a valuation carried out by independent valuer, as at December 31, 2021. The fair value of investment properties was determined by external, independent property valuers having adequate qualifications and experience in the location and category of the property being valued. Investment properties of the Company are valued every year. Annual Report 2021 186
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 The valuation has been carried out considering the segment and location of the property , size, utilization and current trends in price of real estate in close proximity, current market rents for similar properties including assumptions that ready buyers are available in the current market which is analyzed through detailed market surveys and the properties that have recently been sold or purchased or offered/quoted for sale into the same vicinity to determine the better estimates of the fair value. 7.1 The Company recognised part of the Buildings as Investment property in the financial statements for the year ended December 31, 2019. However, the related cost of the land was previously recorded in Property and equipment. During the current year, the Company has restated the respective cost of land amounting to Rs. 385 million from Property and equipment to Investment property retrospectively to reflect its more appropriate treatment. The fair value of the land as at December 31, 2019 and December 31, 2020 was estimated to be the same as its carrying value on the respective dates. The Company has not presented the restated Statement of Financial Position for the year ended December 31, 2019 as the impact on the Statement of Financial Position for the year then ended was not considered material. The impact of this restatement is as follows: (a) Impact of change on the Statement of Financial Position as at December 31, 2019: As previously Adjustment reported Rupees in thousand Property and equipment Investment property 4,232,130 401,896 (385,383) 385,383 Restated 3,846,747 787,279 (b) Impact of change on the Statement of Financial Position as at December 31, 2020: As previously Adjustment reported Rupees in thousand Property and equipment Investment property 4,467,919 401,896 (385,383) 385,383 Restated 4,082,536 787,279 (c) There is no impact of change on the profit and loss account for the years ended December 31, 2019 and December 31, 2020. 7.2 Previously, the Company had identified two floors to rent out at Adamjee House, Lahore; however, during the year, the Company occupied one floor for their own use whilst renting out only one floor. Note 8 Investment in subsidiary Beginning of year Addition during the year 8.4 End of year 8.1 2021 2020 Rupees in thousand 8.1, 8.2 & 8.3 1,097,900 1,564,506 694,895 403,005 2,662,406 1,097,900 Number of shares 2021 2020 No. of Shares 250,000,000 93,549,400 Face value Rupees 10 Company's Name Adamjee Life Assurance Company Limited [Equity held 100.00% (2020: 100.00%)] 2020 2021 Rupees in thousand 2,662,406 1,097,900 Annual Report 2021 187
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 8 .2 The Company's interests in its subsidiary is as follow: Name Country of Incorporation Adamjee Life Assurance Company Limited Total liabilities Total revenues Total profit % interest held Rupees in thousand Pakistan Total at the end of 2021 Adamjee Life Assurance Company Limited Total assets Pakistan Total at the end of 2020 61,917,559 58,667,831 20,658,169 173,804 100.00% 61,917,559 58,667,831 20,658,169 173,804 100.00% 50,839,416 49,348,801 17,100,887 191,014 100.00% 50,839,416 49,348,801 17,100,887 191,014 100.00% 8.3 Adamjee Life Assurance Company Limited was incorporated in Pakistan on August 04, 2008 as a public unlisted company under repealed Companies Ordinance, 1984 (now the Companies Act, 2017). The registered office of the Company is located at 1st floor, Islamabad Stock Exchange Towers, 55-B, Jinnah Avenue, Blue Area, Islamabad while its principal place of business is located at Adamjee House, 3rd and 4th Floor, I.I Chundrigar Road, Karachi. 8.4 During the year, the Company has made further investment in Adamjee Life Assurance Company Limited for 156,450,600 (2020: 24,059,855) shares aggregating to Rs. 1,565 million (2020: Rs. 403 million). 9 Investment in equity securities Available-for-sale Note Cost 2021 Impairment / Provision Carrying value Cost 2020 Impairment / Provision Carrying value Rupees in thousand Related parties Listed shares Unlisted shares 9.1 9.2 9,543,446 949,456 10,492,902 9.3 9.4 9.5 9.6 6,701,235 925,360 48,550 161 7,675,306 18,168,208 9,543,446 949,456 10,492,902 2,096,135 12,589,037 8,318,076 924,333 9,242,409 (2,108,194) (5,117) (2,113,311) 4,593,041 925,360 43,433 161 5,561,995 3,006,547 8,568,542 7,135,270 925,360 48,130 161 8,108,921 (2,163,210) (2,163,210) 4,972,060 925,360 48,130 161 5,945,711 2,699,027 8,644,738 (2,113,311) 21,157,579 17,351,330 (2,163,210) 19,194,460 - Unrealized gain - 8,318,076 924,333 9,242,409 1,307,313 10,549,722 Others Listed shares Unlisted shares Mutual Funds NIT Units Unrealized gain Total Annual Report 2021 188
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 9 .1 Related Parties - Listed shares Cost No. of Shares 2020 2021 Face value Rupees Company's Name 2021 Market Value 2020 2020 2021 Rupees in thousand Commercial Banks 55,196,435 47,827,287 10 MCB Bank Limited [Equity held 4.658% (2020: 4.036%)] Textile Composite 9,187,854 7,962,484 8,464,374 8,861,440 2,050 2,050 10 144 144 163 208 25,631,181 25,631,181 10 355,448 355,448 615,148 504,934 80,829,666 73,460,518 Nishat Mills Limited [Equity held 0.001% (2020: 0.001%)] Power Generation & Distribution Pakgen Power Limited [Equity held 6.889% (2020: 6.889%)] 9,543,446 8,318,076 9,079,685 9,366,582 9.1.1 9.2 3,716,710 (2020 : 3,716,710) shares of MCB Bank Limited have been pledged against Standby Letter of Credit (SBLC) issued in favour of Meezan Bank Limited on behalf of Hyundai Nishat Motor (Private) Limited, a related party of the Company. Related Parties - Unlisted shares No. of Shares 2020 2021 94,873,000 9.2.1 92,360,700 Face value Rupees 10 Cost Company's Name Automobile Assembler Hyundai Nishat Motor (Private) Limited [Equity held 10.000% (2020: 10.000%)] 2021 949,456 Market Value 2020 2020 2021 Rupees in thousand 924,333 3,509,352 1,183,140 This represents investment in the ordinary shares of Hyundai Nishat Motor (Private) Limited (HNMPL) which is principally engaged in vehicle assembling. Since HNMPL's ordinary shares are not listed, an independent valuer engaged by the Company has estimated a fair value of Rs. 36.99 per ordinary share as at December 31, 2021 (Rs. 12.81 per ordinary share as at December 31, 2020) through a valuation technique based on discounted cash flows. Hence, it has been classified under level 3 of the fair value hierarchy as further explained in note 44 to these unconsolidated financial statements. The significant assumptions used in this valuation technique are as follows: 9.2.2 - Discount rate of 18.52% (2020: 14.87%) per annum. - Terminal growth rate in revenue of 4% (2020: 2%) per annum. Sensitivity analysis Sensitivity analysis of the significant assumptions used in the valuation technique are as follows: - If the discount rate increases by 1% with all other variables held constant, the impact on fair value as at December 31, 2021 would be Rs. 247,619 thousand lower. - If the terminal growth rate increase by 1% with all other variables held constant, the impact on fair value as at December 31, 2021 would be Rs. 160,335 thousand higher. Annual Report 2021 189
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 9 .3 Others - listed shares Cost No. of Shares 2020 2021 987,795 731,701 Face value Rupees 10 Company's Name Automobile Assembler Millat Tractors Limited Cable & Electrical Goods Siemens (Pakistan) Engineering Company Limited 2021 Market Value 2020 2020 2021 Rupees in thousand 591,172 591,172 851,714 800,547 116,770 116,770 98,141 80,760 148,131 148,131 10 645,100 3,358,344 645,100 10 10 Cement D.G. Khan Cement Company Limited Fecto Cement Limited 77,534 434,035 77,534 17,398 384,799 22,133 4,113,500 4,113,500 10 Close - End Mutual Fund HBL Investment Fund 'A' 27,235 27,235 10,284 13,040 6,277,500 330,300 8,240,950 1,250,000 6,277,500 330,300 8,240,950 1,250,000 10 10 10 10 Commercial Banks Allied Bank Limited Habib Bank Limited National Bank of Pakistan United Bank Limited 641,638 88,086 504,670 242,721 641,638 88,086 504,670 242,721 516,450 38,520 284,478 170,725 535,910 43,692 354,031 157,325 174,677 100,000 300,000 - 105,600 100,000 300,000 - 10 10 10 10 Engineering Aisha Steel Mills Limited Crescent Steel & Allied Products Limited International Steel Limited Mughal Iron & Steel Industries Limited 282 20,324 46,811 - 282 20,324 46,811 - 2,631 5,138 19,836 - 2,460 8,411 27,969 - 1,481,000 9,998,900 1,481,000 9,998,900 10 10 Fertilizer Engro Fertilizers Limited Fauji Fertilizer Company Limited 105,935 1,050,979 105,935 1,050,979 112,689 1,002,490 93,644 1,084,881 5,740 70,304 5,740 70,304 10 10 Food & Personal Care Products Nestle Pakistan Limited Rafhan Maize Products Limited 59,278 223,250 59,278 223,250 32,864 660,858 38,257 688,909 4,800 230,000 286,843 4,800 230,000 286,843 10 10 10 Insurance EFU General Insurance Company Limited IGI Holdings Limited Pakistan Reinsurance Company Limited 211 66,917 6,326 211 66,917 6,326 504 35,335 6,425 576 46,791 7,894 2,220,100 5,462,000 2,220,100 5,462,000 10 10 324,933 149,789 324,933 149,789 212,064 193,792 269,831 153,428 1,524,300 5,696,595 1,524,300 5,696,595 10 10 Oil & Gas Exploration Companies Oil & Gas Development Company Limited Sui Northern Gas Pipelines Limited 245,134 309,302 245,134 309,302 131,395 190,551 158,177 253,043 11,750 11,750 10 Paper & Board Packages Limited 6,144 6,144 5,843 7,014 369,400 369,400 10 Pharmaceuticals Abbott Laboratories Pakistan Limited 320,902 320,902 265,048 279,033 5,731,000 27,348,388 923,500 4,935,882 5,731,000 27,348,388 923,500 4,935,882 10 10 10 10 Power Generation & Distribution Kot Addu Power Company Limited Lalpir Power Limited Nishat Power Limited Saif Power Limited 491,086 371,516 42,001 163,072 491,086 371,516 42,001 163,072 185,398 385,886 18,359 93,091 155,883 350,606 21,804 71,669 37,500 506,450 37,500 506,450 10 10 Refinery Attock Refinery Limited National Refinery Limited 13,133 394,084 13,133 394,084 5,401 144,131 6,827 177,176 6,701,235 7,135,270 5,697,439 6,296,520 Investment Companies Dawood Hercules Corporation MCB Arif Habib Savings & Investment Limited Annual Report 2021 190
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 9 .3.1 9.4 369,000 (2020 : 155,000) shares of Abbot Laboratories Limited, 2,220,000 (2020 : 1,405,000) shares of Dawood Hercules Corporation Limited, 1,480,000 (2020 : Nil) shares of Engro Fertilizers Limited, 9,250,000 (2020 : 3,650,000) shares of Fauji Fertilizer Company Limited, 330,000 (2020 : Nil) shares of Habib Bank Limited, 300,000 (2020 : Nil) shares of International Steels Limited, 823,000 (2020 : 255,000) shares of Millat Tractors Limited, 8,240,000 (2020 : Nil) shares of National Bank of Pakistan, 5,700 (2020 : Nil) shares of Nestle Pakistan Limited, 1,524,000 (2020 : Nil) shares of Oil & Gas Development Company Limited and 1,250,000 (2020 : 850,000) shares of United Bank Limited have been pledged against SBLC (Standby Letter of Credit) issued in favour of Meezan Bank Limited on behalf of Hyundai Nishat Motor (Private) Limited, a related party of the Company and loans obtained from MCB Bank Limited, a related party of the Company. Others - Unlisted shares Cost No. of Shares 2020 2021 9,681,374 9,681,374 9.4.1 Face value Rupees 10 Company's Name Security General Insurance Company Limited [Equity held 14.224% (2020: 14.224%)] 2021 925,360 Market Value 2020 2020 2021 Rupees in thousand 925,360 2,826,768 2,301,069 This represents investment in the ordinary shares of Security General Insurance Company Limited ("SGI") which is principally engaged in general insurance business. Since SGI's ordinary shares are not listed, an independent valuer engaged by the Company has estimated a fair value of Rs. 291.98 per ordinary share as at December 31, 2021 ( Rs. 237.68 per ordinary share as at December 31, 2020) through a valuation technique based on discounted cash flow analysis of SGI. Hence, it has been classified under level 3 of the fair value hierarchy as further explained in note 44 to these unconsolidated financial statements. The significant assumptions used in this valuation technique are as follows: - 9.4.2 Discount rate of 15% (2020: 15%) per annum. Terminal growth rate of 2% (2020: 2%) per annum. Sensitivity analysis Sensitivity analysis of the significant assumptions used in the valuation technique are as follows: 9.5 - If the discount rate increases by 1% with all other variables held constant, the impact on fair value as at December 31, 2021 would be Rs. 8,574 thousand lower. - If the terminal growth rate increases by 1% with all other variables held constant, the impact on fair value as at December 31, 2021 would be Rs. 5,667 thousand higher. Others-Mutual Fund Certificates Open-Ended-Mutual Funds No. of Units 2020 2021 9.6 Cost Face value Rupees Fund's Name 2021 Market Value 2020 2020 2021 Rupees in thousand 45,669 42,779 100 Alfalah GHP Money Market Fund 4,488 4,206 4,492 4,201 22,246 4,234,546 20,880 4,234,546 100 10 HBL Cash Fund HBL Investment Fund - Class B 2,242 41,820 2,104 41,820 2,269 36,703 2,122 39,956 48,550 48,130 43,464 46,279 Open-Ended Equity Funds Cost No. of Units 2020 2021 12,540 12,540 Face value Rupees 10 Fund's Name National Investment Trust Grand Total 2021 161 Market Value 2020 2020 2021 Rupees in thousand 161 18,168,208 17,351,330 871 870 21,157,579 19,194,460 Annual Report 2021 191
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 10 2021 2020 Rupees in thousand Investment in debt securities Held to maturity Treasury Bills Pakistan Investment Bonds 275 ,005 102,647 275,631 98,700 Total 377,652 374,331 Treasury Bills Cost Face value Yield Rate% Profit Payment Rupees 100,000,000 100,000,000 82,000,000 100,000,000 100,000,000 82,000,000 10.67% 7.32% 7.43% 10.39% 11.32% 8.17% On maturity On maturity On maturity On maturity On maturity On maturity 2020 Carrying amount 2020 2021 97,665 94,656 80,486 90,382 93,195 76,344 - 98,452 95,419 81,134 97,801 97,900 79,930 - 272,807 259,921 275,005 275,631 Type of security Maturity date 2021 12 Month Treasury Bills 12 Month Treasury Bills 12 Month Treasury Bills 3 Month Treasury Bills 6 Month Treasury Bills 3 Month Treasury Bills 25-Mar-21 22-Apr-21 6-May-21 24-Feb-22 30-Jun-22 13-Jan-22 Rupees in thousand Pakistan Investment Bonds Cost Face value Yield Rate% Profit Payment Rupees 100,000,000 11.7130% 11 On maturity Investments in Term Deposits Type of security 3 Years Pakistan Investment Bonds 2020 Carrying amount 2020 2021 Maturity date 2021 19-Sep-22 98,389 96,136 102,647 98,700 98,389 96,136 102,647 98,700 Note Rupees in thousand 2021 2020 Rupees in thousand Held to maturity Deposits maturing within 12 months Inside Pakistan - related parties - others Outside Pakistan - related parties - others 175,066 175,066 6,811 175,066 181,877 1,441,691 5,170,710 6,612,401 6,787,467 1,305,429 4,364,568 5,669,997 5,851,874 8,811 75,188 83,999 2,000 75,188 77,188 6,871,466 5,929,062 Deposits maturing after 12 months Inside Pakistan - related parties - others 11.1 Annual Report 2021 192
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 11 .1 These include fixed deposits amounting to Rs. 5,526,486 thousands (AED 115,000,000) [2020: Rs. 4,904,014 thousands (AED 112,698,915)] kept in accordance with the requirements of Insurance Regulations applicable to the United Arab Emirates (UAE) branches for the purpose of carrying on business in (UAE). These also include liens against cash deposits of Rs. 259,065 thousands (2020: Rs. 259,065 thousands) with banks in Pakistan essentially in respect of guarantees issued by the banks on behalf of the Company for claims under litigation filed against the Company, bid bond guarantees and guarantee to Meezan Bank Limited (MBL) against the loan provided by MBL to Hyundai Nishat Motor (Private) Limited, a related party. Note 12 2021 2020 Rupees in thousand Loans and other receivables - considered good Rent receivable Receivable from related parties Accrued income Security deposits Advances to employees and suppliers Advance agent commission Loans to employees Other receivables 12.1 7,397 58,745 96,481 50,627 177,729 7,796 51,929 164,896 7,776 43,135 129,361 46,713 237,051 4,478 45,336 69,046 615,600 582,896 12.1 This represents receivable from Adamjee Life Assurance Company Limited, subsidiary of the Company, in respect of cash value of life policies obtained for key management personnel of the Company. The Company is the beneficiary in respect of policies obtained for the employees. 13 Note 2021 2020 Rupees in thousand 13.1 7,336,121 4,723,214 13.2 (1,078,100) 6,258,021 (932,384) 3,790,830 1,119,151 1,169,623 (201,302) 917,849 7,175,870 (201,302) 968,321 4,759,151 Insurance / reinsurance receivables - unsecured and considered good Due from insurance contract holders Provision for impairment of receivables from insurance contract holders Due from other insurers / reinsurers Provision for impairment of due from other insurers / reinsurers 13.3 13.1 Due from insurance contact holders include an amount Rs. 237,666 thousands (2020: Rs. 192,060 thousands) held with related parties. 2021 2020 Rupees in thousand 13.2 Reconciliation of provision for impairment of receivables from insurance contract holders Balance as at January 01 Charge for the year Exchange difference Balance as at December 31 932,384 67,667 78,049 1,078,100 868,586 44,062 19,736 932,384 Annual Report 2021 193
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 2021 2020 Rupees in thousand 13 .3 Reconciliation of provision for impairment of due from other insurers / reinsurers Balance as at January 01 Charge for the year Write off against provision for the year Balance as at December 31 14 201,302 201,302 4,627,169 124,761 3,307,863 114,918 4,751,930 3,422,781 353 9,696 10,049 438 4,703 5,141 Prepayments Prepaid reinsurance premium ceded Prepaid miscellaneous expenses 15 201,302 201,302 Cash and bank Cash and cash equivalents Inside Pakistan Cash in hand Policy & revenue stamps, bond papers Cash at bank Inside Pakistan Current accounts Savings accounts 537,244 755,152 1,292,396 237,821 931,898 1,169,719 Outside Pakistan Current accounts Savings accounts 870,126 1,482 871,608 136,313 871 137,184 2,164,004 1,306,903 2,174,053 1,312,044 15.1 Cash at bank includes an amount of Rs. 151,077 thousands (2020: 368,010 thousands) held with MCB Bank Limited, a related party of the Company. 15.2 Lien of Rs. 432,571 thousands (2020: Rs. 440,000 thousands) is marked on cash deposits in saving accounts against SBLC (Standby Letter of Credit) issued in favor of Meezan Bank Limited on behalf of Hyundai Nishat Motor (Private) Limited, a related party of the Company. 15.3 Saving / Profit and loss accounts placed in Pakistan carry expected profit rates ranging from 3.50% to 10.90% (2020: 4.50% to 11.35%). Annual Report 2021 194
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 Note 16 2021 2020 Rupees in thousand Window Takaful Operations - Operator 's Fund Assets Cash and bank deposits Qard e Hasna to Participants' Takaful Fund Investments - Equity securities Investments - Debt securities Intangible assets Property and equipment Current assets - others Total Assets 264,235 146,460 38,326 75,000 10,409 22,883 166,537 723,850 209,446 146,460 35,873 12,421 20,793 164,155 589,148 Total liabilities 278,531 242,797 430,587 (137,910) (172,925) 2,340 17,852 3,144 (3,821) 139,267 (40,388) 98,879 408,608 (119,082) (143,206) 3,584 14,170 3,521 (3,821) 163,774 (47,369) 116,405 Wakala income Commission expense Management expenses Investment income Other income Mudarib's share of PTF investment income Other expenses Profit before taxation Taxation Profit after taxation Details of assets, liabilities and segment disclosures of Window Takaful Operations are stated in the annexed financial statements. 17 Share capital 17.1 Authorized share capital 2020 2021 Number of shares Ordinary shares of Rs. 10 each 17.2 2020 2021 Rupees in thousand 375,000,000 375,000,000 3,750,000 3,750,000 250,000 250,000 2,500 2,500 349,750,000 350,000,000 349,750,000 350,000,000 3,497,500 3,500,000 3,497,500 3,500,000 Issued, subscribed and paid up capital Ordinary shares of Rs. 10 each fully paid in cash Ordinary shares of Rs. 10 each issued as fully paid bonus shares 17.3 As at December 31, 2021, associated undertakings MCB Bank Limited, Nishat (Aziz Avenue) Hotels & Properties Limited and Nishat Mills Limited held 70,861,241 (2020: 70,861,241), 1,203,000 (2020: 1,083,000) and 102,809 (2020: 102,809) ordinary shares of the Company. Annual Report 2021 195
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 18 Reserves Capital reserves Reserves for exceptional losses Investment fluctuation reserves Exchange translation reserves Fair value reserves Note 18.1 18.2 18.3 18.4 2021 2020 Rupees in thousand 22,859 3,764 899,883 3,623,873 4,550,379 22,859 3,764 678,438 2,845,385 3,550,446 936,500 936,500 936,500 936,500 5,486,879 4,486,946 Revenue reserves General reserves 18.1 The reserve for exceptional losses represents the amount set aside by the Company in prior years up to December 31, 1978, in order to avail the deduction while computing the taxable income under the old Income Tax Act of 1922. Subsequent to the introduction of repealed Income Tax Ordinance, 1979, which did not permit such deduction, the Company discontinued the setting aside of reserves for exceptional losses. 18.2 This amount has been set aside by the Company in prior years for utilization against possible diminution in the value of investments. 18.3 The exchange translation reserve represents the gain resulted from the translation of foreign branches (having business in foreign currencies) of the Company into Pak Rupees. For the purpose of exchange translation reserve, the UAE and Export Processing Zone branches are treated as foreign branches since their functional currencies are AED and US Dollars, respectively. 18.4 The fair value reserve represents the net cumulative unrealized gain on available for sale investments held by the Company as at December 31, 2021. Note 19 Retirement benefit obligations Unfunded gratuity scheme Funded gratuity scheme 19.1 19.2 2021 2020 Rupees in thousand 82,145 181,515 64,359 132,873 263,660 197,232 19.1 Unfunded gratuity scheme 19.1.1 This provision relates to the Company's operations in UAE branches. The eligible employees under the scheme are 64 (2020 : 66). The latest actuarial valuation of gratuity scheme was carried out as at December 31, 2021 under the Projected Unit Credit Method as per the requirements of approved accounting standard - International Accounting Standard 19, the details of which are as follows: 19.1.2 Movement in the net assets / (liabilities) recognized in the statement of financial position are as follows: 2021 2020 Rupees in thousand Present value of defined benefit obligation as at January 01 64,359 82,708 Charge for the year Benefits paid Remeasurement loss / (gain) on obligation Exchange loss 9,551 (2,847) 3,511 7,571 14,605 (20,984) (14,899) 2,929 Present value of defined benefit obligation as at December 31 82,145 64,359 Annual Report 2021 196
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 2021 (Percentages) 2020 19.1.3 Principal actuarial assumptions used are as follows: - Valuation discount rate - Expected rate of increase in salary level 2.20 2.00 2.20 2.00 2021 2020 Rupees in thousand 19.1.4 The amount charged in profit and loss account is as follows: Service cost Interest cost Expense for the year 8,139 1,412 9,551 12,934 1,671 14,605 3,511 3,511 (14,899) (14,899) 19.1.5 The amounts charged to statement of comprehensive income are as follows: Remeasurement of the present value of defined benefit obligation due to: - Changes in financial assumptions - Experience adjustments 19.2 Funded gratuity scheme 19.2.1 The Company operates an approved funded gratuity scheme for all employees. The eligible employees under the scheme are 750 (2020 : 718). The latest actuarial valuation of gratuity scheme was carried out as at December 31, 2021 under the Projected Unit Credit Method as per the requirements of approved accounting standard International Accounting Standard 19, the details of which are as follows: Principal actuarial assumptions used are as follows: 2021 - Discount rate - Expected rate of increase in salary level (Percentages) 2020 11.50 8.50 9.50 6.50 2021 2020 Rupees in thousand Movement in the net liabilities recognized in the statement of financial position are as follows: Net liabilities as at January 01 Expenses recognized Contribution paid during the year Remeasurement loss recognized - net 132,873 33,131 15,511 142,469 35,411 (50,000) 4,993 Net liabilities as at December 31 181,515 132,873 21,836 29,498 (18,203) 20,728 40,594 (25,911) 33,131 35,411 The amounts recognized in the profit and loss account are as follows: - Service cost - Interest cost - Interest income on plan assets Annual Report 2021 197
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 The amounts recognized in statement of comprehensive income are as follows : 2021 2020 Rupees in thousand Remeasurement of plan obligation from: - Experience on obligation - Change in financial assumptions 10,807 - (6,608) - 4,704 11,601 15,511 4,993 (211,676) 393,191 (230,138) 363,011 181,515 132,873 Present value as at January 01 Interest income on plan assets Actual benefits paid during the year Contribution made during the year Remeasurement loss due to investment return 230,138 18,203 (31,961) (4,704) 198,745 25,911 (32,917) 50,000 (11,601) Fair value of plan assets as at December 31 211,676 230,138 18,203 (4,704) 25,911 (11,601) 13,499 14,310 Present value of defined benefit obligation as at January 01 Current service cost Interest cost Actual benefits paid during the year Remeasurement loss / (gain) on obligation 363,011 21,837 29,498 (31,961) 10,806 341,214 20,728 40,594 (32,917) (6,608) Present value of defined benefit obligation as at December 31 393,191 363,011 Remeasurement of plan assets: - Investment return 19.2.2 The amounts recognized in the statement of financial position are as follows: Fair value of plan assets Present value of defined benefit obligation 19.2.3 Movement in fair value of plan assets Actual return on plan assets Expected return on plan assets Remeasurement loss due to investment return 19.2.4 19.2.5 Movement in present value of defined benefit obligation Comparison for five years Funded gratuity scheme 2021 2020 2019 2018 2017 Rupees in thousand Present value of defined obligation Fair value of plan assets 393,191 211,676 363,011 230,138 341,214 198,745 326,883 193,756 283,925 199,482 Deficit 181,515 132,873 142,469 133,127 84,443 Loss on plan assets (% age of plan assets) (2.22) (5.04) (0.21) (5.92) (19.27) Gain / (loss) on obligations (% age of obligation) 2.75 (1.82) (4.78) 5.54 (1.26) Experience adjustments Annual Report 2021 198
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 Unfunded gratuity schemes 2021 Present value of de fined obligation 2020 2019 Rupees in thousand 2018 2017 82,145 64,359 82,708 65,853 69,953 (4.27) 23.15 (9.71) (2.44) (3.10) Experience adjustments (Loss) / gain on obligations (% age of obligation) 2020 2021 (Percentages) 2021 2020 Rupees in thousand 19.2.6 Plan assets consist of the following: Mutual funds - Equity Mutual funds - Debt Government Bonds - Debt Shares, bank deposits & cash equivalents Others Benefits due 9.43 30.36 50.98 9.23 17.92 17.06 46.43 18.59 - - 100.00 100.00 19,958 64,258 107,903 19,557 41,252 39,255 106,842 42,789 - 211,676 230,138 19.2.7 Plan assets do not include any investment in the Company's ordinary shares as at December 31, 2021 : Nil (2020: Nil). 19.2.8 Expected cost to be recorded in the profit and loss account for the year ending December 31, 2022 is Rs. 42,498 thousands. 19.2.9 The expected return on plan assets is based on the market expectations and depends upon the asset portfolio of the fund, at beginning of the year. 19.2.10 The weighted average duration of the defined benefit obligation for gratuity plan is 3.1 years (2020: 3.2 years). 19.2.11 These defined benefit plans expose the Company to actuarial risks such as investment risk and salary risk. 19.2.12 The main features of the gratuity schemes are as follows: - All confirmed employees are eligible to the scheme and the normal retirement age for all employees is 60 years. - A member shall be entitled to gratuity on resignation, termination, retirement, early retirement, retrenchment, death and dismissal based on the Company's Service rules. - The scheme is subject to the regulations laid down under the Income Tax Rules, 2002. 19.2.13 The implicit objective is that the contribution to the gratuity schemes should remain reasonably stable as a percentage of salaries, under the actuarial cost method employed. Annual Report 2021 199
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 19 .2.14 Sensitivity analysis The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is as follows: Change in assumptions Discount rate Salary growth rate Impact on Gratuity plans Unfunded Funded Increase in Decrease in Increase in Decrease in assumption assumption assumption assumption Rupees in thousand 1% 1% (2,892) 3,119 3,144 (2,925) (10,487) 11,260 11,156 (10,768) The above sensitivity analysis are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied when calculating the defined benefit obligation recognized within the statement of financial position. 2021 2020 Rupees in thousand 20 Deferred taxation Deferred tax debits arising in respect of: Provision for gratuity Lease liability 23,822 21,946 45,768 18,664 29,461 48,125 Deferred tax credits arising in respect of: Tax depreciation allowance Right of use assets Investments - Available for sale (571,111) (26,021) (1,479,778) (2,076,910) (2,031,142) (232,501) (29,179) (1,161,839) (1,423,519) (1,375,394) 1,375,394 1,329,898 (5,158) 7,515 (3,158) 338,610 337,809 5,322 1,012 13 68,385 74,732 317,939 (29,236) 2,031,142 1,375,394 20.1 Movement in deferred tax balances is as follows: As at January 01 Recognized in profit and loss account: - provision for gratuity - lease liability against right of use asset - right of use assets - tax depreciation allowance Recognized in statement of comprehensive income: - investments - Available for sale As at December 31 Annual Report 2021 200
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 21 Borrowings Note Loan from financial institution MCB Bank Limited - Refinance scheme MCB Bank Limited - Demand finance - General Current portion Non-current portion 21.1 21.2 2021 2020 Rupees in thousand 86,756 840,000 166,367 - 926,756 166,367 926,756 926,756 90,310 76,057 166,367 21.1 This represents long term financing facility availed from MCB Bank Limited, a related party of the Company under State Bank of Pakistan's (SBP) Refinance Scheme for Payment of Wages and Salaries to the Workers and Employees of Business Concerns ('Refinance Scheme'), with the approval of SBP. The total facility available amounts to Rs 183 million. The interest rate applicable is SBP rate + 1.00%. This facility has been secured against pledge of 125,000 shares of Millat Tractors Limited, 690,000 shares of Dawood Hercules Corporation Limited and 850,000 shares of United Bank Limited with security margin of 30%. 21.2 This represents short term financing facility from MCB Bank Limited, a related party of the Company. The interest rate applicable is 3 month KIBOR + 0.1%. This facility has been secured against pledge of 214,000 shares of Abbot Laboratories Limited, 815,000 shares of Dawood Hercules Corporation Limited, 1,480,000 shares of Engro Fertilizers Limited, 4,450,000 shares of Fauji Fertilizer Company Limited, 330,000 shares of Habib Bank Limited, 300,000 shares of International Steels Limited, 568,000 shares of Millat Tractors Limited, 8,240,000 shares of National Bank of Pakistan, 5,700 shares of Nestle Pakistan Limited, 1,524,000 shares of Oil & Gas Development Company Limited and 400,000 shares of United Bank Limited with security margin of 30%. 2021 2020 Rupees in thousand 22 Deferred grant income Deferred grant income 6,329 14,767 Government grant has been recorded as the difference between the fair value of the loan on initial recognition and the amount received, which is accounted for according to the nature of the grant. In accordance with the terms of the facility, the Company is prohibited to lay-off the employees at least during three months period from the date of first disbursement except in case of any disciplinary action. 2021 2020 Rupees in thousand 23 Insurance / reinsurance payables Due to other insurers / reinsurers 5,215,694 3,030,884 840,609 346,924 35,707 76,485 86,451 229,363 156,627 88 674,132 554,372 94,242 29,854 76,485 92,945 204,872 161,753 143 591,530 2,446,386 1,806,196 This amount represents amount payable to other insurers and reinsurers. 24 Other creditors and accruals Agents commission payable Federal Excise Duty / Sales tax / VAT Federal Insurance Fee payable Workers' welfare fund payable Tax deducted at source Accrued expenses Unpaid and unclaimed dividend Payable to employees' provident fund Sundry creditors Annual Report 2021 201
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 Note 25 2021 2020 Rupees in thousand Deposits and other liabilities Cash margin against performance bonds Lease liability 25 .1 25.2 553,460 75,675 570,776 101,591 629,135 672,367 25.1 This represents margin deposit on account of performance and other bond policies issued by the Company. 2021 2020 Rupees in thousand 25.2 Maturity analysis Not later than 1 year Later than 1 year and not later than 5 years 26 33,509 42,166 34,105 67,486 75,675 101,591 Contingencies and commitments 26.1 Contingencies The Company has filed appeals in respect of certain assessment years mainly on account of the following: Income tax (a) Deputy Commissioner Inland Revenue (DCIR) passed order u/s 161/205 of the Ordinance for tax year 2013 raising an income tax demand of Rs. 9,066 thousands. The Company agitated the order before Commissioner Inland Revenue Appeals (CIR - Appeals). CIR - Appeals decided the case in the favor of the Company. Following the said order, the learned DCIR has passed an appeal effect order in which certain directions of the learned CIR-Appeals have not been followed for which a rectification appeal under section 221 of the Ordinance has been filed before learned DCIR which is still to be processed. (b) The Taxation Officer has passed an order in the tax years 2005 and 2006 under section 221 of the Income Tax Ordinance, 2001 (the Ordinance) levying minimum tax liability aggregating to Rs. 38,360 thousands. An appeal was filed before the CIR - Appeals who upheld the order of the Taxation Officer. The Company has filed an appeal before the Additional Tribunal Inland Revenue (ATIR) which is yet to be heard. (c) The Tax Authorities amended the assessments for tax years 2003 to 2005 on the ground that the Company has not apportioned management and general administration expenses against capital gain and dividend income. The Company filed constitutional petition in the Honorable Sindh High Court (the Court) against the amendment in the assessment order. The Company may be liable to pay Rs. 5,880 thousands in the event of decision against the Company, out of which Rs. 2,730 thousands have been provided resulting in a shortfall of Rs. 3,150 thousands. (d) Learned DCIR has passed an order under section 161/205 of the Ordinance for tax year 2017 creating a demand of Rs. 22,105 thousands on account of Non-Deduction of Income Tax while making payments. The Company has paid partial payment of Rs. 9,065 thousands under protest and agitated the order before learned CIR - Appeals I and the appeal has not yet been fixed. (e) During the year, the Assistant Commissioner, Sindh Revenue Board has passed order under section 23(1) of the Sindh Sales Tax On Services Act 2011 creating a demand of Rs. 469,020 thousands for the period from July 2011 to December 2011. The impugned demand has been created on account of non levy of sales tax on reinsurance services acquired from foreign reinsurance companies. The Company has challenged the order before Commissioner (Appeals) Sindh Revenue Board. However, the same has not been fixed for hearing till now. The Company, based on reasonable grounds, expects that the ultimate outcome of the case will be in the favour of the Company. Annual Report 2021 202
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 Pending resolution of the above-mentioned appeals filed by the Company , no provision has been made in these unconsolidated financial statements for the aggregate amount of Rs. 532,636 thousands (2020: Rs. 72,681 thousands) as the management is confident that the eventual outcome of the above matters will be in favor of the Company. Others The Company has provided a guarantee to Meezan Bank Limited (MBL) against the loan provided by MBL to Hyundai Nishat Motor (Private) Limited, a related party, amounting to Rs. 1,269,671 thousands (2020: Rs. 1,209,000 thousands). The Company has issued letter of guarantees of AED 219,000 amounting to Rs.10,524 thousands (2020: AED 251,500 amounting to Rs.10,944 thousands) relating to UAE branch. 2021 2020 Rupees in thousand 27 Net insurance premium Written gross premium Unearned premium reserve - opening Unearned premium reserve - closing Currency translation effect 23,319,840 8,366,434 (11,010,289) 323,898 18,279,110 10,242,348 (8,366,434) 153,311 Premium earned 20,999,883 20,308,335 Reinsurance premium ceded Prepaid reinsurance premium - opening Prepaid reinsurance premium - closing Currency translation effect (9,740,756) (3,307,863) 4,627,169 (25,956) (6,818,262) (3,500,512) 3,307,863 (2,798) Reinsurance expense (8,447,406) (7,013,709) 12,552,477 13,294,626 Written gross premium Unearned premium reserve - opening Unearned premium reserve - closing 17,036,745 6,021,464 (7,393,851) 13,469,232 6,197,501 (6,021,464) Premium earned 15,664,358 13,645,269 Reinsurance premium ceded Prepaid reinsurance premium - opening Prepaid reinsurance premium - closing (9,108,055) (3,260,277) 4,302,258 (6,583,537) (3,425,355) 3,260,277 Reinsurance expense (8,066,074) (6,748,615) 7,598,284 6,896,654 6,283,095 2,344,970 (3,616,438) 323,898 5,335,525 4,809,878 4,044,847 (2,344,970) 153,311 6,663,066 (632,701) (47,586) 324,911 (25,956) (381,332) (234,725) (75,157) 47,586 (2,798) (265,094) 4,954,193 6,397,972 27.1 Net insurance premium - Business underwritten inside Pakistan 27.2 Net insurance premium - Business underwritten outside Pakistan Written gross premium Unearned premium reserve - opening Unearned premium reserve - closing Currency translation effect Premium earned Reinsurance premium ceded Prepaid reinsurance premium - opening Prepaid reinsurance premium - closing Currency translation effect Reinsurance expense Annual Report 2021 203
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 2021 2020 Rupees in thousand 28 Net insurance claims expense Claim paid Outstanding claims including IBNR - closing Outstanding claims including IBNR - opening Currency translation effect Claim expense 11 ,343,930 12,686,045 (10,768,040) (540,775) 12,721,160 11,973,346 10,768,040 (10,367,347) (196,160) 12,177,879 Reinsurance and other recoveries received Reinsurance and other recoveries in respect of outstanding claims - closing Reinsurance and other recoveries in respect of outstanding claims - opening Currency translation effect Reinsurance and other recoveries revenue (4,007,386) (4,346,714) (7,943,513) (6,192,571) 6,192,571 241,051 (5,517,277) 7,203,883 6,233,348 114,914 (4,191,023) 7,986,856 5,792,876 7,131,251 (4,920,475) 5,799,654 4,920,475 (4,398,967) 8,003,652 6,321,162 (1,707,578) (1,684,522) (5,482,393) (3,526,278) 3,526,278 (3,663,693) 4,339,959 2,948,471 (2,262,329) 4,058,833 Claim paid Outstanding claims including IBNR - closing Outstanding claims including IBNR - opening Currency translation effect Claim expense 5,551,054 5,554,794 (5,847,565) (540,775) 4,717,508 6,173,692 5,847,565 (5,968,380) (196,160) 5,856,717 Reinsurance and other recoveries received Reinsurance and other recoveries in respect of outstanding claims - closing Reinsurance and other recoveries in respect of outstanding claims - opening Currency translation effect Reinsurance and other recoveries revenue (2,299,808) (2,662,192) (2,461,120) (2,666,293) 2,666,293 241,051 (1,853,584) 2,863,924 3,284,877 114,914 (1,928,694) 3,928,023 28.1 Net insurance claims expense - Business underwritten inside Pakistan Claim paid Outstanding claims including IBNR - closing Outstanding claims including IBNR - opening Claim expense Reinsurance and other recoveries received Reinsurance and other recoveries in respect of outstanding claims - closing Reinsurance and other recoveries in respect of outstanding claims - opening Reinsurance and other recoveries revenue 28.2 Net insurance claims expense - Business underwritten outside Pakistan Annual Report 2021 204
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 28 .3 Claim development table The Company maintains adequate reserves in respect of its insurance business in order to protect against adverse future claims experience and developments. The following table shows the development of the claims over a period of time. All amounts are presented in gross numbers before reinsurance. 2016 2017 2018 2019 2020 2021 Total Rupees in thousand At the end of accident year One year later Two years later Three years later Four years later Five years later 11,752,724 11,307,403 13,278,246 14,544,497 12,607,367 14,166,057 77,656,294 7,075,979 6,362,632 6,250,676 6,218,787 5,366,245 31,274,319 2,369,539 1,978,478 1,880,335 2,149,028 8,377,380 1,662,339 956,949 863,553 3,482,841 646,905 725,072 1,371,977 760,020 760,020 Current estimate of cumulative claims Less: Cumulative payments to date Liability recognized in statement of financial position 760,020 725,072 863,553 2,149,028 5,366,245 14,166,057 24,029,975 29,141 82,526 348,519 1,062,884 3,369,367 6,451,493 11,343,930 730,879 642,546 515,034 1,086,144 1,996,878 7,714,564 12,686,045 2021 2020 Rupees in thousand 29 Net commission and other acquisition costs Commission paid or payable Deferred commission expense - opening Deferred commission expense - closing Currency translation effect Net Commission 2,346,874 731,319 (1,055,480) 59,606 2,082,319 1,867,093 1,190,146 (731,319) 32,239 2,358,159 (554,992) (245,318) 241,094 (195) (559,411) 1,522,908 (532,528) (237,751) 245,318 (8) (524,969) 1,833,190 Commission paid or payable Deferred commission expense - opening Deferred commission expense - closing 1,139,371 285,324 (393,554) 857,203 352,673 (285,324) Net Commission 1,031,141 924,552 (549,408) (240,971) 239,650 (550,729) 480,412 (523,673) (236,381) 240,971 (519,083) 405,469 Commission received or recoverable Unearned reinsurance commission - opening Unearned reinsurance commission - closing Currency translation effect Commission from reinsurance 29.1 Net commission and other acquisition costs - Business underwritten Inside Pakistan Commission received or recoverable Unearned reinsurance commission - opening Unearned reinsurance commission - closing Commission from reinsurance Annual Report 2021 205
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 Note 2021 2020 Rupees in thousand 29 .2 Net commission and other acquisition costs Business underwritten Outside Pakistan 30 Commission paid or payable Deferred commission expense - opening Deferred commission expense - closing Currency translation effect Net Commission 1,207,503 445,995 (661,926) 59,606 1,051,178 1,009,890 837,473 (445,995) 32,239 1,433,607 Commission received or recoverable Unearned reinsurance commission - opening Unearned reinsurance commission - closing Currency translation effect Commission from reinsurance (5,584) (4,347) 1,444 (195) (8,682) 1,042,496 (8,855) (1,370) 4,347 (8) (5,886) 1,427,721 Management expenses Employee benefit costs 30.1 Travelling expenses Advertisement & sales promotion Printing & stationery Depreciation 5.1 & 5.3 Amortization 6 Rent, rates & taxes Legal & professional charges - business related Electricity, gas & water Entertainment Vehicle running expenses Office repairs & maintenance Bank charges Postages, telegrams & telephone Supervision fee IT related costs Tracking and monitoring charges Provision for doubtful balances against due from insurance contract holders Regulatory fee Miscellaneous 1,757,356 36,157 38,951 32,468 220,360 29,819 10,563 120,440 79,351 19,308 96,208 71,566 54,774 20,390 52,116 104,786 142,976 67,667 131,560 66,607 1,753,267 39,015 48,223 28,155 263,522 23,296 4,665 116,822 62,191 13,128 87,135 51,612 38,739 23,574 52,768 98,373 179,587 44,062 117,028 53,718 3,153,423 3,098,880 1,672,953 84,403 1,662,908 90,359 1,757,356 1,753,267 30.1 Employee benefit costs Salaries, allowances and other benefits Charges for post employment benefit Annual Report 2021 206
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 31 Investment Income 2021 2020 Rupees in thousand Business underwritten Inside Pakistan Income from equity securities Available-for-sale Dividend income - related parties - others 1 ,546,502 713,477 2,259,979 535,951 462,049 998,000 11,253 26,161 37,414 11,284 27,218 38,502 12,173 12,173 336 14,765 15,101 5,421 5,421 2,314,987 40,413 40,413 1,092,016 49,899 2,364,886 (158,641) 933,375 334 334 2,315 2,315 Income from debt securities Held to maturity Return on Pakistan Investment Bonds Profit on Treasury Bills Income from term deposits - related parties others Net realized gains on investments Available-for-sale Realized gains on equity securities - related parties - others Provision of impairment in value of 'available-for-sale' investments Business underwritten Outside Pakistan Income from equity securities Available-for-sale Dividend income - related parties - others Net realized gains on investments - related parties - others Return on term deposits - related parties - others Net investment income 699 699 22,980 81,244 104,224 104,558 27,871 128,246 156,117 159,131 2,469,444 1,092,506 Annual Report 2021 207
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 32 Rental income Note Rental income Expenses of investment property 33 133 ,486 (2,073) 114,576 (1,859) 131,413 112,717 67,763 26,207 190 8,439 2,758 14,030 21,402 109,769 74,944 210 4,243 12,330 12,980 28,390 140,789 242,866 29,092 14,319 8,773 1,500 320 1,298 3,538 23,776 14,318 7,250 10,400 236 1,905 4,448 58,840 62,333 2,850 500 556 463 4,369 2,850 500 556 463 4,369 8,276 1,102 572 9,950 8,275 1,101 573 9,949 14,319 14,318 Other income Return on bank balances Gain on sale of operating assets Return on loans to employee Income against deferred grant Exchange gain Shared expenses received Miscellaneous 34 2021 2020 Rupees in thousand Other expenses Legal & professional charges other than business Auditors’ remuneration Subscription Fee Donations Directors` fee Central depository expense Others 34.1 34.2 34.1 Auditors' remuneration Inside Pakistan: Audit fee Interim review fee Special certifications and sundry advisory services Out-of-pocket expenses Outside Pakistan Audit fee Interim review fee Out-of-pocket expenses 34.2 The Company has paid the donation amounting to Rs. 1.5 million (2020: Nil) to Pakistan Agricultural Coalition during the current year. 2021 2020 Rupees in thousand 35 Finance cost Finance cost on borrowing Finance cost on lease liability 43,230 6,877 7,671 7,373 50,107 15,044 Annual Report 2021 208
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 2021 2020 Rupees in thousand 36 Taxation Current taxation For the year - General - Window Takaful Operations - Operator 's fund 491,854 890,670 40,490 47,605 - (579,273) 931,160 (39,814) 337,809 74,730 Prior year Deferred taxation For the year - General - Window Takaful Operations - Operator's fund (102) (236) 337,707 74,494 1,268,867 34,680 (Effective tax rate) 2021 (Percentage) 2020 36.1 Tax Charge Reconciliation Tax at the applicable rate of 29% (2020: 29%) Prior year 37 29.00 29.00 (30.33) - Tax effect of provision for impairment of investments (0.32) 2.41 Others 0.12 0.74 28.80 1.82 Earnings per share - basic and diluted 2021 2020 Rupees in thousand There is no dilutive effect on the basic earnings per share which is based on: Profit after tax for the period attributable to ordinary shareholders 1,875,506 3,136,494 Number of shares Weighted average number of ordinary shares outstanding 350,000,000 350,000,000 Rupees Earnings (after tax) per share - basic and diluted 8.96 Annual Report 2021 5.36 209
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 38 Compensation of Directors and Executives The aggregate amount charged in the accounts for remuneration including all benefits to the Chief Executive Officer , Directors and Executives of the Company are as follows: Chief Executive Officer 2021 2020 Directors 2021 Executives 2020 2021 2020 Rupees in thousand Fees Managerial remuneration - 31,013 27,691 - 320 236 - - - - 853,793 866,120 - - 36,553 32,470 Leave encashment 4,135 Bonus 4,723 4,360 - - 66,735 59,727 Charge of defined benefit plan 1,085 2,400 - - 33,266 36,094 1,551 1,384 - - 27,362 24,251 Contribution to defined contribution plan House rent allowance - - - - 127,515 124,277 Utilities 448 556 - - - - Medical - - - - 28,337 57,737 Conveyance - - - - 86,729 87,162 Special allowance 1,800 1,800 - - - - 447 473 - - - - 45,202 38,664 320 236 1,260,290 1,287,838 1 1 Other allowance Number 7 7 356 354 38.1 In addition, the Chief Executive Officer (CEO) is also provided with Company maintained car(s), certain household items, furniture and fixtures and equipment in accordance with the policy of the Company. 38.2 No remuneration was paid to Non-Executive Directors of the Company except for meeting fees. Annual Report 2021 210
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 39 Transactions with related parties The Company has related party relationships with its associates , subsidiary company, employee retirement benefit plans, key management personnel and other parties. Transactions are entered into with such related parties for the issuance of policies to and disbursements of claims incurred by them and other transactions carried out for normal business operations. There are no transactions with key management personnel other than those specified in their terms of employment. Investments, bank deposits and borrowing arrangements with related parties have been disclosed in note 8, 9, 11, 15 & 21 and related cashflows included in these unconsolidated financial statements. Other transactions and balances with related parties are summarized as follows: 2021 2020 Rupees in thousand i) ii) Transactions Relationship with the Company Premiums underwritten Premiums received Investments made Claims paid Claims received Premium paid Security deposit received Rent paid / payable Rent / service charges / expenses received Subsidiary company Subsidiary company Subsidiary company Subsidiary company Subsidiary company Subsidiary company Subsidiary company Subsidiary company Subsidiary company 24,078 22,983 1,564,506 15,296 3,000 20,875 4,463 59,388 17,713 19,659 11,731 6,000 20,839 3,190 66,694 Premiums underwritten Premiums received Claims paid Security deposit received Security deposit paid Commission Paid Guarantee commission received Rent paid Rent received Dividends received Dividends paid Income on bank deposits Investments made Investments sold Fixed assets sold Purchases Fee / service charges paid Fee / service charges received / accrued Payments made to provident fund Other related parties Other related parties Other related parties Other related parties Other related parties Other related parties Other related parties Other related parties Other related parties Other related parties Other related parties Other related parties Other related parties Other related parties Other related parties Other related parties Other related parties Other related parties Employees' fund 1,734,106 1,264,474 647,164 5,173 27,939 11,542 6,689 63,767 1,320,294 197,921 42,794 1,250,493 33,055 15,941 17,298 36,543 1,699,869 1,573,675 665,463 115 33,537 8,460 8,067 39,247 459,884 197,582 88,763 226,107 3,538 10,931 10,485 35,124 Subsidiary company Subsidiary company Other related parties Other related parties Employees' fund 64,112 5,186 243,103 299,939 88 48,364 5,684 206,040 313,285 143 Period end balances Balances receivable Balances payable Balances receivable Balances payable Payable to provident fund Annual Report 2021 211
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 39 .1 Following are the particulars of the related parties other than employee retirement benefit plans, key management personnel and Directors of the Company at the reporting date. Name of Related Party Basis of relationship Aggregate % of Shareholding in the Company AA Joyland (Private) Limited Common directorship Nil Adamjee Life Assurance Company Limited Subsidiary Agro Hub International (Private) Limited Common directorship Nil Cotton Web Limited Company director Chairman Nil Dupak Developers Pakistan (Private) Limited Common directorship Nil Dupak Properties (Private) Limited Common directorship Nil Dupak Tameer Limited Common directorship Nil Export Development Funds Common directorship Nil Fortress Financials Services (Private) Limited Common directorship Nil Fortress Square Services (Private) Limited Common directorship Nil Fortress Supplies (Private) Limited Common directorship Nil Golf View Land (Private) Limited Common directorship Nil Hyundai Nishat Motor (Private) Limited Common directorship 10.000% Joyland (Private) Limited Common directorship Nil Mahmood Textile Mills Limited Common directorship Nil Masood Spinning Mills Limited Common directorship Nil MCB Bank Limited Common directorship 4.658% MCB Islamic Bank Limited Common directorship Nil National Textile Foundation Common directorship Nil Nishat (Aziz Avenue) Hotels & Properties Limited Company director Shareholder Nil Nishat (Raiwind) Hotels & Properties Limited Common directorship Nil Nishat Agriculture Farming (Private) Limited Common directorship Nil Nishat Agrotech Farms (Private) Limited Common directorship Nil Nishat Dairy (Private) Limited Common directorship Nil Nishat Developers (Private) Limited Common directorship Nil Nishat Hotels & PropertiesLimited Common directorship Nil Nishat Mills Limited Common directorship 0.001% Nishat Sutas Dairy Limited Common directorship Nil Pakgen Power Limited Common directorship 6.889% Pakistan Single Window Common directorship Nil 100.000% Punjab Industrial Estate Development & Management Company Common directorship Nil Punjab Social Security Health Management Company Common directorship Nil Roomi Foods (Private) Limited Common directorship Nil Roomi Poultry (Private) Limited Common directorship Nil Siddiqsons Limited Common directorship Nil Siddiqsons Tin Plate Limited Common directorship Nil SiddiqsonsEnergy Limited Common directorship Nil Annual Report 2021 212
- 40 (468,287) (420,779) Commission expense Management expense Inside Pakistan Motor Outside Pakistan Inside Pakistan Outside Pakistan Accident & health 2021 Inside Pakistan Outside Pakistan Miscellaneous Inside Pakistan Total Outside Pakistan Aggregate 28,176 1,149,567 37,421 2,923,636 8,898,921 1,812,336 808,489 651,760 2,400,998 1,765,915 18,123 16,220 5,517,277 (3,153,423) (2,082,319) (7,203,883) 9,791,130 805,415 10,596,545 19,877,751 5,776,523 25,654,274 209,873 104,558 1,774 43,812 (13,748) (1,968) - 75,445 Annual Report 2021 36,250,819 29,668,881 6,581,938 61,640,583 20,802,031 40,838,552 4,405,361 2,469,444 131,413 140,789 961,132 (58,840) (50,107) 139,267 672,263 (4,887,430) (12,439,625) (972,328) (1,051,178) 11,591,214 771,191 1,853,584 (2,863,924) Segment Liabilities Unallocated Liabilities 4,089,417 (8,447,406) 12,552,477 559,411 13,111,888 20,999,883 23,319,840 23,106,037 19,422 194,381 23,319,840 25,858,790 (2,369,488) (169,462) 23,319,840 (4,717,508) (12,721,160) (381,332) 4,954,193 8,682 4,962,875 5,335,525 6,283,095 6,271,601 11,494 6,283,095 6,597,775 (314,616) (64) 6,283,095 13,061,211 1,472,253 596,818 (7,552,195) (2,181,095) (1,031,141) (4,339,959) 3,663,693 (8,003,652) (8,066,074) 7,598,284 550,729 8,149,013 15,664,358 17,036,745 16,834,436 19,422 182,887 17,036,745 19,261,015 (2,054,872) (169,398) 17,036,745 48,579,372 11,616 5,079 446 (294) (344) 1,084 (305) 1,389 (7,173) 1,461 3,172 4,633 8,634 5,775 5,744 31 5,775 6,069 (293) (1) 5,775 4,793,710 8,267,501 819,410 71,468 (721,506) (220,458) (117,059) (383,989) 241,652 (625,641) (524,885) 713,740 79,234 792,974 1,238,625 1,109,771 1,098,530 11,241 1,109,771 1,231,339 (110,456) (11,112) 1,109,771 16,008,321 32,571,051 24,697 (37,564) (224,790) (47,005) (37,176) (140,609) 264,885 (405,494) (211,443) 185,729 1,497 187,226 397,172 823,350 823,350 823,350 864,518 (41,168) 823,350 11,179,552 88,529 (1,988,532) (138,969) (60,013) (1,789,550) - (1,789,550) 2,077,061 2,077,061 2,077,061 2,207,793 2,205,538 2,255 2,207,793 2,246,780 (16,909) (22,078) 2,207,793 Segment Assets Unallocated assets 77,771 (4,653,488) (914,421) (1,005,328) (2,733,739) 1,649,193 (4,382,932) (148,410) 4,731,259 4,731,259 4,879,669 5,398,807 5,387,399 11,408 5,398,807 5,668,747 (269,940) 5,398,807 4,195,488 260,781 (2,674,511) (1,049,841) (218,793) (1,405,877) 71,545 (1,477,422) (58,042) 2,931,460 3,832 2,935,292 2,989,502 3,221,192 3,101,934 119,258 3,221,192 3,695,480 (441,612) (32,676) 3,221,192 Profit before taxation 10,148 (19,123) (9,808) (5,699) (3,616) 76 (3,692) (149) 29,271 29,271 29,420 35,121 35,121 35,121 36,981 (1,843) (17) 35,121 2,364,886 129,639 96,977 961,132 (45,092) (48,139) 139,267 24,103 (954,465) (351,048) (166,989) (436,428) 170,463 (606,891) (263,765) 976,619 1,949 978,568 1,240,384 1,275,700 1,243,508 1,476 30,716 1,275,700 1,452,013 (163,331) (12,982) 1,275,700 Net investment income Rental income Other income Change in fair value of investment property Other expenses Finance cost Workers' welfare fund reversal Profit from Window Takaful Operations - Operator's fund Underwriting result (800) (2,631) 12,956 (60,265) 20,011 (324,115) Net claims 151,937 3,180,033 Insurance claim recoveries from reinsurer 73,221 9,525 (3,504,148) Insurance claims (14,157) 6,473 4,013 10,486 20,630 20,042 19,987 55 20,042 21,460 (1,372) (46) 20,042 (1,213,181) 8,118,786 (7,219,382) 899,404 465,714 1,365,118 9,222,289 9,184,926 17,946 19,417 9,222,289 10,635,403 (1,322,564) (90,550) 9,222,289 Insurance premium ceded to reinsurers Net insurance premium Commission income Net underwriting income Net insurance claims and expenses Inside Pakistan Outside Pakistan Marine, aviation & transport -------------------------------------------------------------------------------------- Rupees in thousands -------------------------------------------------------------------------------------- Inside Pakistan Outside Pakistan Fire & property damage Insurance premium earned Gross written premium (inclusive of administrative surcharge) Gross direct premium Facultative inward premium Administrative surcharge Premium receivable (Inclusive of federal excise duty, Federal insurance fee and Administrative surcharge) Federal excise duty / VAT Federal insurance fee Segment Information Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 213
- (415,970) (368,958) Commission expense Management expense 6,767,220 7,633,997 Segment Assets Unallocated assets Segment Liabilities Unallocated Liabilities Profit before taxation Net investment income Rental income Other income Change in fair value of investment property Other expenses Finance cost Workers' welfare fund reversal Profit from Window Takaful Operations - Operator's fund Underwriting result 35,947 (1,082) (2,645) (71,810) 99,635 84,504 (64,413) (642,249) Net claims (191,297) 1,577,406 Insurance claim recoveries from reinsurer (107,757) (75,537) (2,219,655) Insurance claims (20,701) 8,521 2,603 11,124 29,222 21,313 21,242 71 21,313 22,809 (1,448) (48) 21,313 (1,427,177) 6,638,334 (5,816,310) 822,024 413,856 1,235,880 6,751,981 6,700,563 33,239 18,179 6,751,981 7,807,455 (987,504) (67,970) 6,751,981 Insurance premium ceded to reinsurers Net insurance premium Commission income Net underwriting income Net insurance claims and expenses Inside Pakistan Outside Pakistan Marine, aviation & transport Inside Pakistan Motor Outside Pakistan Inside Pakistan Outside Pakistan Accident & health 2020 Inside Pakistan Outside Pakistan Miscellaneous Inside Pakistan Total Outside Pakistan Aggregate 736,427 498,520 (101,435) (775,717) (351,320) (118,735) (305,662) 42,523 (348,185) (263,140) 672,555 1,727 674,282 935,695 960,500 937,043 415 23,042 960,500 1,093,491 (123,365) (9,626) 960,500 22,678 7,214 11,416 (8,011) (8,989) (2,465) 3,443 - 3,443 19,427 19,427 19,427 21,191 21,191 21,191 21,577 (363) (23) 21,191 2,397,597 1,111,411 393,084 (2,301,406) (995,497) (184,654) (1,121,255) 162,184 (1,283,439) (47,389) 2,690,343 4,147 2,694,490 2,737,732 2,759,184 2,654,141 215 104,828 2,759,184 3,164,282 (377,194) (27,904) 2,759,184 8,116,777 4,087,762 142,539 (6,231,714) (965,423) (1,424,474) (3,841,817) 1,849,868 (5,691,685) (195,141) 6,374,253 6,374,253 6,569,394 4,643,149 4,635,746 7,403 4,643,149 4,874,936 (231,787) 4,643,149 1,433,789 503,065 102,610 (1,771,300) (131,697) (72,073) (1,567,530) - (1,567,530) 1,873,910 1,873,910 1,873,910 1,809,254 1,806,431 2,823 1,809,254 1,843,638 (16,327) (18,057) 1,809,254 141,733 99,727 (48,920) (43,086) (19,884) (3,431) (19,771) 42,390 (62,161) (41,406) (7,739) 1,905 (5,834) 33,667 114,513 114,513 114,513 120,239 (5,726) 114,513 2,206,070 1,812,432 126,483 (810,692) (255,435) (133,120) (422,137) 480,216 (902,353) (621,776) 837,822 99,353 937,175 1,459,598 1,188,313 1,151,574 27,876 8,863 1,188,313 1,318,979 (118,270) (12,396) 1,188,313 21,468 19,049 5,633 745 (595) (592) 1,932 489 1,443 (7,846) 3,510 1,378 4,888 11,356 9,712 9,692 20 9,712 10,319 (601) (6) 9,712 20,308,335 18,279,110 18,052,136 61,745 165,229 18,279,110 4,191,023 (3,098,880) (2,358,159) (7,986,856) 8,402,291 641,246 9,043,537 18,241,753 10,892,804 38,627,345 14,407,880 3,833,873 4,298,256 6,594,548 246,247 159,131 1,983 56,725 (13,588) (4,259) - 46,255 Annual Report 2021 27,285,290 22,810,171 4,475,119 49,520,149 14,990,904 34,529,245 1,910,186 1,092,506 112,717 242,866 (62,333) (15,044) 163,774 375,700 (6,357,603) (13,443,895) (995,973) (1,433,607) (3,928,023) 1,928,694 (5,856,717) (12,177,879) (265,094) (7,013,709) 6,397,972 13,294,626 5,886 524,969 6,403,858 13,819,595 6,663,066 4,809,878 4,802,384 7,494 4,809,878 5,049,880 20,277,725 (239,925) (1,862,585) (77) (136,030) 4,809,878 18,279,110 10,692,648 27,934,697 1,663,939 933,375 110,734 186,141 (48,745) (10,785) 163,774 329,445 (7,086,292) (2,102,907) (924,552) (4,058,833) 2,262,329 (6,321,162) (6,748,615) 6,896,654 519,083 7,415,737 13,645,269 13,469,232 13,249,752 61,745 157,735 13,469,232 15,227,845 (1,622,660) (135,953) 13,469,232 -------------------------------------------------------------------------------------- Rupees in thousands -------------------------------------------------------------------------------------- Inside Pakistan Outside Pakistan Fire & property damage Insurance premium earned Gross written premium (inclusive of administrative surcharge) Gross direct premium Facultative inward premium Administrative surcharge Premium receivable (Inclusive of federal excise duty, Federal insurance fee and Administrative surcharge) Federal excise duty / VAT Federal insurance fee 40.1 Segment Information Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 214
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 41 Movement in investments Investment in subsidiary Available for sale Held to Maturity Total Rupees in thousand As at January 01 , 2020 694,895 18,843,017 6,349,760 25,887,672 Additions Disposals (sales and redemptions) 403,005 - 1,580,251 (969,356) 9,120,640 (9,356,998) 11,103,896 (10,326,354) - (100,811) (158,641) 184,091 5,900 - (100,811) 184,091 5,900 (158,641) Fair value net gains (excluding net realized gain) Currency translation effect Unwinding of discount on debt securities Impairment losses As at December 31, 2020 1,097,900 19,194,460 6,303,393 26,595,753 Additions Disposals (sales and redemptions) 1,564,506 - 1,250,913 (434,035) 10,978,589 (10,642,162) 13,794,008 (11,076,197) 1,096,342 49,899 618,862 (9,564) - 1,096,342 618,862 (9,564) 49,899 21,157,579 7,249,118 31,069,103 Fair value net gains (excluding net realized gain) Currency translation effect Unwinding of discount on debt securities Impairment losses As at December 31, 2021 42 2,662,406 Management of insurance and financial risk The Company's activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest / mark-up rate risk, price risk and currency risk).The Company's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance. Overall risks arising from the Company's financial assets and liabilities are limited. The Company consistently manages its exposure to financial risk without any material change from previous period in the manner described in notes below. The Board of Directors (the Board) has overall responsibility for the establishment and oversight of Company's risk management framework. The Board is also responsible for developing the Company's risk management policies. The individual risk wise analysis is given below : 42.1 Insurance risk The principal risk that the Company faces under insurance contracts is that the actual claims and benefit payments or the timing thereof may differ from expectations. This is influenced by the frequency of claims, severity of claims, actual benefits paid and subsequent development of long-term claims. Therefore, the objective of the Company is to ensure that sufficient reserves are available to cover these liabilities. The above risk exposure is mitigated by diversification across a large portfolio of insurance contracts and geographical areas. The variability of risks is also improved by careful selection and implementation of underwriting strategy guidelines, as well as the use of reinsurance arrangements. Further, strict claims review policies to assess all new and ongoing claims, regular detailed review of claims handling procedures and frequent investigation of possible fraudulent claims and similar procedures are put in place to reduce the risk exposure of the Company. The Company further enforces a policy of actively managing and promptly pursuing of claims, in order to reduce its exposure to unpredictable future developments that can negatively impact the Company. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contracts. Annual Report 2021 215
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 Although the Company has reinsurance arrangements , it is not relieved of its direct obligations to its policy holders and thus a credit exposure exists with respect to ceded insurance, to the extent that any reinsurer is unable to meet its obligations assumed under such reinsurance agreements. The Company's placement of reinsurance is diversified such that it is neither dependent on a single reinsurer nor are the operations of the Company substantially dependent upon any single reinsurance contract. Reinsurance policies are written with approved reinsurers on either a proportionate basis or non-proportionate basis. The reinsurers are carefully selected and approved and are dispersed over several geographical regions. Experience shows that larger the portfolio is in similar reinsurance contracts, smaller will be the relative variability about the expected outcome. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The Company has developed its insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. The Company principally issues the general insurance contracts e.g. Fire & property, Marine, aviation & transport, Motor, Accident & health and other Miscellaneous. Risks under non-life insurance policies usually cover twelve month or lesser duration. For general insurance contracts the most significant risks arise from accidental fire, atmospheric disaster and terrorist activities . Insurance contracts at times also cover risk for single incidents that expose the Company to multiple insurance risks. 42.1.1 Geographical concentration of insurance risk To optimize benefits from the principle of average and law of large numbers, geographical spread of risk is of extreme importance. There are a number of parameters which are significant in assessing the accumulation of risks with reference to the geographical location, the most important of which is risk survey. 42.1.2 Reinsurance arrangements Keeping in view the maximum exposure in respect of key zone aggregate, a number of proportional and nonproportional reinsurance arrangements are in place to protect the net account in case of a major catastrophe. Apart from the adequate event limit which is the multiple of the treaty capacity or the primary recovery from the proportional treaty, any loss over and above limit would be recovered from the non-proportional treaty which is very much in line with the risk management philosophy of the Company. Gross sum insured 2020 2021 Reinsurance 2021 Net 2020 2021 2020 Rupees in thousand Fire & property damage Marine aviation & transport Motor Accident & health Miscellaneous 6,924,274,110 3,430,150,972 302,050,319 213,755,098 463,322,671 5,362,654,044 2,745,235,895 226,188,600 115,702,675 432,883,227 6,170,569,904 339,471,868 7,328,767 44,005,051 363,891,891 4,603,407,292 327,249,038 5,677,579 1,188,805 340,447,752 753,704,206 3,090,679,104 294,721,552 169,750,047 99,430,780 759,246,752 2,417,986,857 220,511,021 114,513,870 92,435,475 11,333,553,170 8,882,664,441 6,925,267,481 5,277,970,466 4,408,285,689 3,604,693,975 42.1.3 Sources of uncertainty in estimation of future claim payments The key source of estimation uncertainty at the statement of financial position date relates to the valuation of outstanding claims, whether reported or not, and includes expected claims settlement costs. Considerable judgment by management is required in the estimation of amounts due to policy holders arising from claims made under insurance contracts. Such estimates are necessary based on assumptions about several factors involving varying and possibly significant degrees of judgment and uncertainty, and actual results may differ from management's estimates resulting in future changes in estimated liabilities. Qualitative judgments are used to assess the extent to which past trends may not apply in the future, for example one-off occurrence, changes in market factors such as judicial decisions and government legislation affect the estimates. In particular, estimates have to be made both for the expected ultimate cost of claims reported at the statement of financial position date and for the expected ultimate cost of claims incurred but not reported (IBNR) at the statement of financial position date. Annual Report 2021 216
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 42 .1.4 Key assumptions for claim estimation The process used to determine the assumptions for calculating the outstanding claim reserves is intended to result in neutral estimates of the most likely or expected outcome. The nature of the business makes it very difficult to predict with certainty the likely outcome of any particular claim and the ultimate cost of notified claims. Each notified claim is assessed on separate, case to case basis, with due regard to claim circumstances, information available from surveyors and historical evidence of the size of similar claims. Case estimates are reviewed regularly and updated as and when new information is available. The estimation of IBNR is generally subject to a greater degree of uncertainty that the estimation of the cost of settling claims already notified to the Company, in which case the information about the claim event is available. IBNR provision is initially estimated at a gross level and a separate calculation is carried out to estimate the size of the reinsurance recoveries. The estimation process takes into account the past claims reporting pattern and details of reinsurance programs. The premium liabilities have been determined such that the total premium liability provisions (unearned premium reserve and premium deficiency reserve) would be sufficient to service the future expected claims and expenses likely to occur on the unexpired policies as of reporting date. The expected future liability is determined using estimates and assumptions based on the experience during the expired period of the contracts and expectations of future events that are believed to be reasonable. 42.1.5 Sensitivity analysis The risks associated with the insurance contracts are complex and subject to a number of variables which complicate quantitative sensitivity analysis. The Company makes various assumptions and techniques based on past claims development experience. This includes indications such as average claims cost, ultimate claims numbers and expected loss ratios. The Company considers that the liability for insurance claims recognized in the statement of financial position is adequate. However, actual experience may differ from the expected outcome. As the Company enters into short term insurance contracts, it does not assume any significant impact of changes in market conditions on unexpired risks. However, some results of sensitivity testing are set out below, showing the impact on profit / (loss) before tax, net of reinsurance. Pre tax profit / (loss) 10% increase in claims liability Net: Fire & property Marine, aviation and transport Motor Accident & health Miscellaneous 10% decrease in claims liability Net: Fire & property Marine, aviation and transport Motor Accident & health Miscellaneous 2021 2020 Rupees in thousand (31,116) (44,004) (413,961) (193,016) (38,291) (71,406) (30,222) (496,307) (158,730) (42,021) (720,388) (798,686) 31,116 44,004 413,961 193,016 38,291 71,406 30,222 496,307 158,730 42,021 720,388 798,686 Annual Report 2021 217
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 Statement of Age-wise breakup of unclaimed insurance bene fits Particulars 1 to 6 months Total 7 to 12 months 13 to 24 months 25 to 36 months Beyond 36 months Rupees in thousand Claims not encashed 491,571 347,675 13,993 49,902 41,627 ` 38,374 42.2 Financial Risk Maturity profile of financial assets and liabilities: 2021 Financial assets Investment Equity securities- quoted Equity securities- unquoted Debt securities Term deposits Investment in subsidiary Investments of Window Takaful Operations - Operator's Fund Loans and other receivables Insurance / reinsurance receivables - unsecured and considered good Reinsurance recoveries against outstanding claims Cash and bank Other Assets of Window Takaful Operations - Operator's Fund Interest / markup bearing Maturity Maturity upto after one year one year Sub total Non - interest / markup bearing Maturity Maturity upto after one year one year Sub total Total Rupees in thousand 377,652 6,787,467 - 83,999 75,000 377,652 6,871,466 75,000 14,821,459 6,336,120 38,326 2,662,406 - 711 - 2,806 - 3,517 - 359,714 7,175,870 66,844 - 426,558 7,175,870 430,075 7,175,870 - 7,598,556 1,417,419 577,232 7,598,556 2,174,053 577,232 14,821,459 14,821,459 6,336,120 6,336,120 377,652 6,871,466 2,662,406 2,662,406 38,326 113,326 756,634 - - 756,634 - 7,598,556 1,417,419 577,232 7,922,464 161,805 8,084,269 38,324,696 926,756 - - 926,756 - 12,686,045 5,215,694 1,900,819 629,135 278,531 - 12,686,045 12,686,045 926,756 5,215,694 5,215,694 1,900,819 1,900,819 629,135 629,135 278,531 278,531 926,756 - 926,756 20,710,224 - 20,710,224 21,636,980 7,157,513 17,614,472 2,729,250 41,053,946 49,138,215 Financial liabilities Outstanding claims Borrowings Insurance / reinsurance payables Other creditors and accruals Deposits and other liabilities Total liabilities of Window Takaful Operations- Operator's Fund 6,995,708 161,805 2,729,250 20,343,722 27,501,235 Annual Report 2021 218
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 2020 Interest / markup bearing Maturity Maturity upto after Sub total one year one year Non - interest / markup bearing Maturity Maturity upto after Sub total one year one year Total Rupees in thousand Financial assets Investment Equity securities- quoted - - - 15,710,251 - Equity securities- unquoted - - - 3,484,209 - Debt securities 275,631 98,700 374,331 - - - 374,331 Term deposits 5,851,874 77,188 5,929,062 - - - 5,929,062 Investment in subsidiary - - - - 1,097,900 Investments of Window Takaful Operations - Operator's Fund - - - 35,873 - 15,710,251 15,710,251 3,484,209 3,484,209 1,097,900 1,097,900 35,873 35,873 Loans and other receivables 521 2,964 3,485 277,082 60,800 337,882 341,367 Insurance / reinsurance receivables - unsecured and considered good - - - 4,759,151 - 4,759,151 4,759,151 Reinsurance recoveries against outstanding claims Cash and bank Other Assets of Window Takaful Operations - Operator's Fund - - - 5,922,296 - 5,922,296 5,922,296 932,769 - 932,769 379,275 - 379,275 1,312,044 - - - 520,061 - 520,061 520,061 7,060,795 178,852 7,239,647 31,088,198 1,158,700 32,246,898 39,486,545 10,768,040 - 10,768,040 10,768,040 Financial liabilities Outstanding claims - - 90,310 76,057 Insurance / reinsurance payables - - Other creditors and accruals - Deposits and other liabilities Total liabilities of Window Takaful Operations- Operator's Fund Borrowings 166,367 - - - 3,030,884 - 3,030,884 3,030,884 - - 1,512,670 - 1,512,670 1,512,670 - - - 672,367 - 672,367 672,367 - - - 242,797 - 242,797 242,797 90,310 76,057 166,367 16,226,758 - 16,226,758 16,393,125 6,970,485 102,795 7,073,280 14,861,440 1,158,700 16,020,140 23,093,420 - 166,367 Interest / mark - up rate risk Interest / mark-up rate risk is the risk that the value of a financial instrument or future cash flows of a financial instrument will fluctuate due to changes in the market interest / mark - up rates. Sensitivity to interest / mark-up rate risk arises from mismatching of financial assets and liabilities that mature or are repaid in a given period. The Company manages this mismatch, through risk management strategies where significant changes in gap position can be adjusted. At the reporting date, the interest / mark-up rate profile of the Company's significant interest / mark-up bearing financial instruments was as follows: Annual Report 2021 219
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 Effective interest rate (%) 2020 2021 Carrying amounts 2020 2021 Rupees in thousand Fixed rate of financial instruments Financial assets: Investments- PIBs and Treasury Bills Loans 7.32% - 11.71% 5% 7.32% - 11.71% 5% 377,652 3,517 374,331 3,485 3.50% - 10.90% 4.50% - 11.35% 7,628,100 6,861,831 Floating rate financial instruments Financial assets: Bank and term deposits Sensitivity analysis The Company does not account for any fixed rate financial assets and liabilities at fair value through profit and loss account. Therefore, a change in interest rate will not affect the fair value of any financial instruments. For cash flow sensitivity analysis of variable rate instruments, a hypothetical change of 100 basis points in interest rates at the reporting date would have decreased / (increased) profit for the year by the amounts shown below. It is assumed that the changes occur immediately and uniformly to each category of instrument containing interest rate risk. Variation in market interest rates could produce significant changes at the time of early repayments. For these reasons, actual results might differ from those reflected in the details specified below. The analysis assumes that all other variables remain constant. Effect on profit before tax Effect on equity Increase Decrease Increase Decrease Rupees in thousand As at December 31, 2021 - Fluctuation of 100 bps Cash flow sensitivity - variable rate financial liabilities Cash flow sensitivity - variable rate financial assets 76,281 (76,281) 54,160 (54,160) As at December 31, 2020 - Fluctuation of 100 bps Cash flow sensitivity - variable rate financial liabilities Cash flow sensitivity - variable rate financial assets 68,618 (68,618) 48,719 (48,719) Currency risk Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company's principal transactions are carried out in Pak Rupees and its exposure to foreign exchange risk arises primarily with respect to AED and US dollars in respect of foreign branches. Assets and liabilities exposed to foreign exchange risk amounted to Rs. 13,061,212 thousands (2020: Rs. 10,892,805 thousands) and Rs. 10,596,545 thousands (2020: Rs. 9,043,537 thousands), respectively, at the end of the year. The following significant exchange rates were applied during the year: Rupees per US Dollar Average rate Reporting date rate Rupees per AED Average rate Reporting date rate 2021 2020 Rupees in thousand 162.8972 176.5135 161.8459 159.8344 44.3528 48.0564 44.0622 43.5143 Annual Report 2021 220
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 Price risk Price risk represents the risk that the fair value of financial instruments will fluctuate because of changes in the market prices (other than those arising from interest / mark-up rate risk or currency risk), whether those changes are caused by factors specific to an individual financial instrument or its issuer, or factors affecting all or similar financial instruments traded in the market. The Company is exposed to equity price risk that arises as a result of changes in the levels of PSX - Index and the value of individual shares. The equity price risk arises from the Company's investment in equity securities for which the prices in the future are uncertain. The Company policy is to manage price risk through a selection of blue chip securities. The Company's strategy is to hold its strategic equity investments on a long term basis. Thus, Company is not affected significantly by short term fluctuation in its strategic investments provided that the underlying business, economic and management characteristics of the investees remain favorable. The Company strives to maintain above average levels of shareholders' capital to provide a margin of safety against short term equity volatility. The Company manages price risk by monitoring exposure in quoted equity securities and implementing strict discipline in internal risk management and investment policies. The Company has investments in quoted equity securities amounting to Rs. 14,821,459 thousands (2020: Rs. 15,710,251 thousands) at the reporting date. The carrying value of investments subject to equity price risk is, in almost all instances, based on quoted market prices as of the reporting date. Market prices are subject to fluctuation which may result from perceived changes in the underlying economic characteristics of the investee, the relative price of alternative investments and general market conditions. Sensitivity analysis For the equity investment portfolio, a 10% increase / (decrease) in redemption value and share prices at year end would have increased / (decreased) impairment loss of investment recognized in profit and loss account as follows: Impact on profit before tax Impact on equity Rupees in thousand 2021 Effect of increase in share price Effect of decrease in share price 719,988 (2,199,267) 511,192 (1,561,479) 2020 Effect of increase in share price Effect of decrease in share price 999,344 (489,780) 709,534 (347,744) 42.3 Credit risk and concentration of credit risk Credit risk is the risk that arises with the possibility that one party to a financial instrument will fail to discharge its obligation and cause the other party to incur a financial loss. The Company attempts to control credit risk by monitoring credit exposure by undertaking transactions with a large number of counterparties in various sectors and by continually assessing the credit worthiness of counterparties. Concentration of credit risk occurs when a number of counterparties have a similar type of business activities. As a result any change in economic, political or other conditions would affect their ability to meet contractual obligations in a similar manner. The Company's credit risk exposure is not significantly different from that reflected in these unconsolidated financial statements. The management monitors and limits the Company's exposure and makes conservative estimates of provisions for doubtful assets, if any. The management is of the view that it is not exposed to a significant concentration of credit risk as its financial assets are adequately diversified in entities of sound financial standing, covering various industrial sectors. Annual Report 2021 221
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 The carrying amount of financial assets represents the maximum credit exposure , as specified below: 2021 2020 Rupees in thousand Investments Loans and other receivable Due from insurance contract holders Due from other insurers / reinsurers Reinsurance recoveries against outstanding claims Salvage recoveries accrued Bank deposits 31,069,103 615,600 6,258,021 917,849 7,598,556 344,957 2,164,004 26,595,753 582,896 3,790,830 968,321 5,922,296 270,275 1,306,903 48,968,090 39,437,274 Provision for impairment is made for doubtful receivables according to the Company's policy. The impairment provision is written off when the Company expects that it cannot recover the balance due. The movement in the provision for doubtful debt account is shown in notes 13.2 and 13.3 to these unconsolidated financial statements. Age analysis of due from insurance contact holders (net of provision) is as follows: 2021 2020 Rupees in thousand Upto one year Above one year Provision for doubtful balances 5,883,838 1,452,283 7,336,121 3,261,295 1,461,919 4,723,214 (1,078,100) (932,384) 6,258,021 3,790,830 The credit quality of Company's bank balance can be assessed with reference to external credit rating as follows: Short Term Abu Dhabi Commercial Bank Allied Bank Limited Askari Bank Limited Bank Al Habib Limited Bank Alfalah Limited FINCA Micro Finance Bank Limited First Abu Dhabi Bank Habib Bank Limited Habib Metropolitan Bank Khushhali Microfinance Bank Limited MCB Bank Limited Mobilink Micro Finance Bank National Bank of Pakistan Samba Bank Limited Soneri Bank Limited The Punjab Provincial Cooperative Bank Limited United Bank Limited Zarai Taraqiati Bank Limited Rating Long Term A1 A1+ A1+ A1+ A1+ A1 A-1+ A1+ A1+ A1 A1+ A1 A1+ A1 A1+ Not available A1+ A1+ A AAA AA+ AAA AA+ A AAAAA AA+ A+ AAA A AAA AA AANot available AAA AAA Rating Agency S&P PACRA PACRA PACRA PACRA PACRA S&P JCR-VIS PACRA JCR-VIS PACRA PACRA PACRA JCR-VIS PACRA Not available JCR-VIS JCR-VIS 2021 2020 Rupees in thousand 362,605 6,070 20 15,764 834,946 3,519 144,169 162,289 (149) 6,662 151,077 49,291 12,402 9,653 1 3,425 225,124 177,136 141,791 5,020 46 24,757 690,417 2,369 59,015 (149) 5,706 368,010 8,781 1,703 33,710 1 3,425 (46,594) 8,895 2,164,004 1,306,903 Annual Report 2021 222
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 The credit quality of amount due from other insurers (gross of provisions) can be assessed with reference to external credit rating as follows: Reinsurance and Amounts due other recoveries from other 2020 2021 against insurers / outstanding reinsurers claims Rupees in thousand A or Above (including PRCL) BBB Others 1,008,046 29 111,076 5,815,338 915,443 867,775 6,823,384 915,472 978,851 5,453,647 1,053,293 584,979 Total 1,119,151 7,598,556 8,717,707 7,091,919 42.4 Capital risk management The Company's goals and objectives when managing capital are : - To be an appropriately capitalized institution in compliance with the paid-up capital requirement set by the SECP. Minimum paid-up capital requirement for non-life insurers as at December 31, 2021 is Rs. 500,000 thousands. The Company's current paid-up capital is well in excess of the limit prescribed by the SECP; - To safeguard the Company's ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for the other stakeholders; - To provide an adequate return to shareholders by pricing insurance contracts commensurately with the level of risk; - To maintain strong ratings and to protect the Company against unexpected events / losses; and - To ensure a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. 2021 43 Statement of Solvency Rupees in thousand Assets Property and equipment Intangible assets Investment properties Investment in subsidiary Investments Equity securities Debt securities Term deposits Loans and other receivables Insurance / reinsurance receivables Reinsurance recoveries against outstanding claims Salvage recoveries accrued Deferred commission expense / acquisition cost Taxation - payment less provisions Prepayments Cash and bank Total assets of Window Takaful Operations - Operator's Fund Total assets 4,238,164 100,379 1,632,498 2,662,406 21,157,579 377,652 6,871,466 615,600 7,175,870 7,598,556 344,957 1,055,480 160,143 4,751,930 2,174,053 60,916,733 723,850 61,640,583 Annual Report 2021 223
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 2021 In-admissible assets as per following clauses of Section 32 (2) of the Rupees in thousand Insurance Ordinance, 2000 Loans to employees 48,412 Investment in subsidiary 2,662,406 Premium due from insurance contract holder 1,299,474 Due from other insurers / reinsurers 866,695 Intangible assets 100,379 Lien on term deposits Other prepayments and sundry receivables Bank balances subject to encumbrances Equity investment Movable properties Inadmissible assets of Window Takaful Operations - Operator's Fund Total of in-admissible assets Total admissible assets 6,225,551 243,251 948,510 11,229,530 1,230,131 37,530 (24,891,869) 36,748,714 Liabilities Underwriting provisions: Outstanding claims including IBNR Unearned premium reserve Unearned reinsurance commission Retirement benefits obligations Deferred taxation Borrowings 7,159,559 11,010,289 241,094 263,660 2,031,142 926,756 Deferred grant income Premium received in advance 6,329 515,758 Insurance / reinsurance payables 5,215,694 Other creditors and accruals 2,446,386 Deposits and other liabilities 629,135 Taxation - provision less payment 30,445,802 Total liabilities of Window Takaful Operations - Operator's Fund Total liabilities Total net admissible assets 278,531 30,724,333 6,024,381 Minimum solvency requirement (higher of following) - Method A - U/s 36(3)(a) 150,000 - Method B - U/s 36(3)(b) 2,510,495 - Method C - U/s 36(3)(c) 3,159,345 3,159,345 Excess in Net Admissible Assets over minimum requirement 2,865,036 Annual Report 2021 224
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 44 Fair value measurement 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 . Underlying the definition of fair value is the presumption that the company is a going concern and there is no intention or requirement to curtail materially the scale of its operations or to undertake a transaction on adverse terms. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. IFRS 13 'Fair Value Measurement' requires the company to classify fair value measurements and fair value hierarchy that reflects the significance of the inputs used in making the measurements of fair value hierarchy has the following levels: - Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) - Inputs other than quoted prices included within level 1 that are observable for the asset either directly (that is, derived from prices) (Level 2) - Inputs for the asset or liability that are not based on observable market data (that is, unadjusted) inputs (Level 3) Transfer between levels of the fair value hierarchy are recognized at the end of the reporting period during which the changes have occurred. Note Receivables and other financial assets Held to maturity Available for sale Cash and cash equivalents Total Level 1 Level 2 Level 3 Total Rupees in thousand Financial assets - measured at fair value Investment Equity securities- quoted Equity securities- unquoted Investments of Window Takaful Operations Operator's Fund 2021 Other financial liabilities 9 9 14,821,459 6,336,120 - - - - 14,821,459 6,336,120 14,821,459 - - - 14,821,459 6,336,120 6,336,120 16 38,326 75,000 - - - 113,326 113,326 - - 113,326 10 - 377,652 6,871,466 - 430,075 2,662,406 - - 377,652 430,075 6,871,466 2,662,406 - 377,652 - - 377,652 - 15 - - 7,175,870 7,598,556 - 2,174,053 - 7,175,870 7,598,556 2,174,053 - - - - 16 - - 312,997 264,235 - 577,232 - - - - 21,195,905 7,324,118 18,179,904 2,438,288 - 49,138,215 - - - 926,756 - 12,686,045 - 5,215,694 - 1,900,819 629,135 278,531 926,756 12,686,045 5,215,694 1,900,819 629,135 278,531 - - - - - - - - 21,636,980 21,636,980 - - - - Financial assets - not measured at fair value Debt securities Loans and other receivables * Investment - Term deposits* Investment in subsidiary Insurance / reinsurance receivables - unsecured and considered good * Reinsurance recoveries against outstanding claims * Cash and bank * Other Assets of Window Takaful Operations Operator's Fund* 11 8 13 14,934,785 377,652 6,336,120 21,648,557 Financial liabilities - not measured at fair value Underwriting provisions: Borrowings* Outstanding claims (including IBNR)* Insurance / reinsurance payables * Other creditors and accruals* Deposits and other liabilities* Total liabilities of Window Takaful Operations- Operator's Fund* 21 28 23 25 16 * The Company has not disclosed the fair value of these items because their carrying amounts are a reasonable approximation of fair value. Annual Report 2021 225
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 Note Receivables and other financial assets Held to maturity Available for sale Cash and cash equivalents Financial assets - measured at fair value Investment Equity securities- quoted Equity securities- unquoted Investments of Window Takaful Operations Operator's Fund 2020 Other financial liabilities Total Level 1 Level 2 Level 3 Total Rupees in thousand 9 9 15,710,251 3,484,209 - - - - 15,710,251 15,710,251 - 3,484,209 - - 15,710,251 - 3,484,209 3,484,209 16 35,873 - - - - 35,873 35,873 - - 35,873 10 - 374,331 5,929,062 - 341,367 1,097,900 - - 374,331 341,367 5,929,062 1,097,900 - 374,331 - - 374,331 - 15 - - 4,759,151 5,922,296 - 1,312,044 - 4,759,151 5,922,296 1,312,044 - - - - 16 - - 310,615 209,446 - 520,061 - - - - 19,230,333 6,303,393 12,431,329 1,521,490 - - - - - - - Financial assets - not measured at fair value Debt securities Loans and other receivables * Investment - Term deposits* Investment in subsidiary Insurance / reinsurance receivables - unsecured and considered good * Reinsurance recoveries against outstanding claims * Cash and bank * Other Assets of Window Takaful Operations Operator's Fund* 11 8 13 - 39,486,545 15,746,124 374,331 3,484,209 19,604,664 Financial liabilities - not measured at fair value Underwriting provisions: Borrowings* Outstanding claims (including IBNR)* Insurance / reinsurance payables * Other creditors and accruals* Deposits and other liabilities* Total liabilities of Window Takaful Operations- Operator's Fund* 21 28 23 25 16 - 166,367 166,367 - 10,768,040 10,768,040 - 3,030,884 3,030,884 - 1,512,670 1,512,670 672,367 672,367 242,797 242,797 - - - - - - 16,393,125 16,393,125 - - - - * The Company has not disclosed the fair value of these items because their carrying amounts are a reasonable approximation of fair value. Annual Report 2021 226
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 45 Provident fund related disclosure The following information is based on unaudited financial statements for the year ended December 31 , 2021 and audited financial statements for the year ended December 31, 2020. 2021 2020 Rupees in thousand Size of fund - Total assets Cost of investments Fair value of investments Investments made (Percentage) 1,077,345 1,060,707 1,102,345 100.00 1,094,909 1,034,843 1,119,190 100.00 45.1 The break-up of cost of investments is as follows: 2020 2021 (Percentage) 2021 2020 Rupees in thousand Investment in Money Market Collective Investment Scheme Investment in Equity Collective Investment Schemes Investment in Debt Collective Investment Schemes 14.84 12.24 157,358 126,672 2.53 4.50 26,871 46,599 - - Investment in Listed Debt Securities Investment in Listed Equity Securities Investment in Government Securities Bank balances Others 3.46 7.18 66.75 1.80 3.44 4.19 6.24 63.51 6.12 3.20 36,667 76,143 708,020 19,078 36,570 43,333 64,543 657,183 63,321 33,192 100.00 100.00 1,060,707 1,034,843 - - The above investments / placement of funds in special bank accounts have been made in accordance with the provisions of section 218 of the Companies Act, 2017 and the rules formulated for this purpose. 46 Non - Adjusting events after the statement of financial position date 46.1 The Board of Directors of the Company in their meeting held on February 08, 2022 proposed a final cash dividend for the year ended December 31, 2021 @ 15% i.e. Rupees 1.5/- share (2020: 12.5% i.e. Rupees 1.25/- share). This is in addition to the interim cash dividend @ 15% i.e. Rupees 1.5/- per share (2020: 12.5% i.e. Rupees 1.25/- per share) resulting in a total cash dividend for the year ended December 31, 2021 of Rupees 3/- per share (2020: Rupees 2.5/- share). The approval of the members for the final dividend will be obtained at the forthcoming Annual General Meeting. The financial statements for the year ended December 31, 2021 do not include the effect of final dividend which will be accounted for in the financial statements for the year ending December 31, 2022. 46.2 The Company follows the development of the Covid-19 corona virus and evaluates the extent to which this may affect the Company's operations in the short and long term. With the high levels of uncertainty surrounding the situation and potential additional initiatives by authorities and customers, it is very difficult to predict the full financial impact that the situation may have on the Company. Annual Report 2021 227
- Notes to the Unconsolidated Financial Statements For the year ended 31 December 2021 47 Number of employees The average number of employees during the year and as at December 31 , 2021 and 2020, are as follows: 2021 48 Numbers 2020 As at December 31 921 900 Average during the year 910 930 Corresponding figures Reclassification / rearrangement of corresponding figures have been made in these unconsolidated financial statements wherever necessary. 49 Date of authorization for issue These unconsolidated financial statements were authorized for issue on February 08, 2022 by the Board of Directors of the Company. 50 General Figures have been rounded off to the nearest thousand rupees unless other wise stated. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 228
- Annual Report 2021 229
- INDEPENDENT AUDITOR ’S REPORT To the Members of Adamjee Insurance Company Limited Report on the Audit of the Consolidated Financial Statements Opinion We have audited the annexed consolidated financial statements of Adamjee Insurance Company Limited and its subsidiary (the “Group”), which comprise the consolidated statement of financial position as at December 31, 2021, and the consolidated profit and loss account, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information. In our opinion consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at December 31, 2021 and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with the accounting and reporting standards as applicable in Pakistan. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants as adopted by the Institute of Chartered Accountants of Pakistan (the Code) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matter We draw attention to note 27.2 of the consolidated financial statements, which describes that the Group has challenged the scope and applicability of Punjab Sales Tax (PST) and Sindh Sales Tax (SST) on life insurance services. Our opinion is not modified 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 consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Following are the Key audit matter(s): Sr No. 1. Key audit matter(s) Revenue Recognition Risk Refer note 3.2 and 28 to the consolidated financial statements relating to revenue recognition and details in respect of net insurance premium respectively. The Group receives its revenue primarily from two main sources namely; premiums on insurance policies and investments income. Premiums from insurance policies comprise of 84.49% of the total revenue. We identified revenue recognition from premium income as a key audit matter because it is one of the key performance indicators of the Group and because of the potential risk that revenue transactions may not be recognized in the appropriate period How the matter was addressed in our audit Our audit procedures in respect of this matter included the following: Ÿ Obtained the understanding, evaluated the design and tested the controls over the process of capturing, processing and recording of premiums; Ÿ Assessed the appropriateness of the Group’s accounting policy for recording of premiums and that it is in line with the requirements of applicable law, accounting and reporting standards; Ÿ Traced the premium recorded on sample basis from the underlying policies issued to insurance contract holders; Ÿ Tested the policies on sample basis where premium was recorded close to year end and subsequent to Annual Report 2021 230
- Sr No . Key audit matter(s) How the matter was addressed in our audit year end, and evaluated that these were recorded in the appropriate accounting period; and Ÿ 2. Valuation of Claims Liabilities Refer note 3.2.7, 19.2, and 29 to the consolidated financial statements for accounting policies and details in respect of claims liabilities. The Group’s claims liabilities represent 13.55% of its total liabilities. Valuation of these claim liabilities involves significant management judgment regarding uncertainty in the estimation of claims payments and assessment of frequency and severity of claims. Claims liabilities are recognized on intimation of the insured event based on management judgment and estimate. The Group also maintains provision for claims incurred but not reported (IBNR) based on the advice of an independent actuary. The actuarial valuation process also involves significant judgment and the use of actuarial assumptions. Therefore, we have identified the valuation of claims liabilities as key audit matter. 3. Recalculated the unearned portion of premium income and ensured that appropriate amount has been recorded as provision for unearned premium in liabilities. Our audit procedures in respect of this matter included the following: Ÿ Assessed the appropriateness of the Group’s accounting policy for recording of claims in line with requirements of applicable accounting and reporting standards; Ÿ Tested claims transactions on a sample basis with underlying documentation to evaluate whether the claims reported during the year are recorded in accordance with the requirements of the Group's policy and insurance regulations; Ÿ Inspected significant arrangements with reinsurer to obtain an understanding of contracts terms and assessed on a sample basis that recoveries from reinsurance on account of claims reported have been accounted for based on agreed terms and conditions; Ÿ Used an external actuarial specialist to assist us in evaluation of general principles, actuarial assumptions and methods adopted for actuarial valuations by the actuary of the Group for determination of IBNR; Ÿ Assessed competence, capability and objectivity of management’s expert; Ÿ Assessed the data provided by the Group to its actuary for completeness and accuracy and ensured that the same has been provided to us; and Ÿ Considered the adequacy of Group’s disclosures about the estimates used and the sensitivity to key assumptions. Valuation of Investment Properties Our audit procedures in respect of this matter included the following: Refer note 3.6 and 7 to the consolidated financial statements relating to valuation of Investment property. Ÿ Obtained an understanding of management process related to valuation of investment property; Ÿ Used an external valuer to assist us in evaluation of Investment Properties, valuer assumptions and methods adopted for valuations by the valuer of the Group; The Group has recorded its Investment property at fair value, Fair value gain on investment properties represent 22.90% of its total profit after tax for the year. Valuation of these investment properties involves significant Annual Report 2021 231
- Sr No . Key audit matter(s) management judgment regarding uncertainty in the estimation of rates for the building and assessment of frequency. Fair value gain / loss is recognized based on management judgment and estimated value from the management expert. The investment property's valuation process also involves significant judgments and the use of valuer's assumptions. We identified the valuation of investment property as key audit matter because of the significance of fair value gain 4. Valuation of unquoted Investments Refer note 3.14.3, 8.1.2 and 8.1.4 to the consolidated financial statements relating to Valuation of Investments. The Group holds investment in the equity instrument of Hyundai Nishat Motor (Private) Limited (HNMPL) and Security General Insurance Company Limited (SGI). Due to HNMPL and SGI being a non-listed companies, their shares do not have a quoted price in an active market. Therefore, fair value of their shares has been determined through valuation methodology based on discounted cash flow method. This involves several estimation techniques and management’s judgements to obtain reasonable expected future cash flows of the business and related discount rate. How the matter was addressed in our audit Ÿ Assessed the data provided by the Group to its valuer for completeness and accuracy and ensured that the same has been provided to us; Ÿ Evaluated the professional valuer’s competence, capabilities and objectivity and assessed the appropriateness of methodology and assumptions used by the professional valuer engaged by the Group to estimate the fair value of investment property; and Ÿ Assessed the appropriateness of valuation of investment property held by the Group in accordance with accounting and reporting standards as applicable in Pakistan. Our audit procedures in respect of this matter included the following: Ÿ Understood and evaluated the process by which the cash flow forecast was prepared and approved, including confirming the mathematical accuracy of the underlying calculations; Ÿ Evaluated the cash flow forecast by obtaining an understanding of respective businesses of HNMPL and SGI; Ÿ Obtained an understanding of the work performed by the management’s expert on the model for the purpose of valuation; Ÿ Obtained corroborating evidence relating to the values as determined by the valuer by challenging key assumptions for the growth rates in the cash flow forecast by comparing them to historical results and economic forecasts and challenging the discount rate by independently estimating a range based on market data; Ÿ Involved our internal valuation specialist to assist us in evaluating the assumptions and judgements adopted by the professional valuer in its discounted cash flow analysis used to derive the fair value of investment in unquoted equity; Ÿ Performed sensitivity analysis around key assumptions to ascertain the extent of change individually in the value of the investment; and Ÿ Examined the adequacy of the disclosures made by the Group in this area with regard to applicable accounting and reporting standards. Due to the significant level of judgment and estimation required to determine the fair value of the investment, we consider it to be a key audit matter. Annual Report 2021 232
- Information Other than the Financial Statements and Auditors ’ Report Thereon Management is responsible for the other information. The other information comprises the information included in the Group’s annual report, but does not include the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated 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 consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information when available, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and Board of Directors for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the accounting and reporting standards as applicable in Pakistan and the requirements of Insurance Ordinance, 2000, Insurance Rules, 2017, Insurance Accounting Regulations, 2017 and, Companies Act, 2017 (XIX of 2017) and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Board of Directors are responsible for overseeing the Group’s financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated 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 as applicable in Pakistan 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 consolidated financial statements. As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Ÿ Identify and assess the risks of material misstatement of the consolidated 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. Ÿ 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 Group’s internal control. Ÿ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Ÿ 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 Annual Report 2021 233
- Group ’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 consolidated financial statements or, if such disclosures are 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 Group to cease to continue as a going concern. Ÿ Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Ÿ Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the board of directors regarding, among other matters, the planned scope and timing of audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the board of directors 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 the board of directors, we determine those matters that were of most significance in the audit of the consolidated 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 public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Rana M. Usman Khan. Chartered Accountants Lahore : 15 February 2022 UDIN: AR20211008884ljRouhC Annual Report 2021 234
- Directors ' Report to the Members on Consolidated Financial Statements For the year ended December 31, 2021 On behalf of the Board, We are pleased to present the consolidated financial statements of Adamjee Insurance Company Limited and its subsidiary, Adamjee Life Assurance Company Limited, for the year ended December 31, 2021. The following appropriation of profit has been recommended by the Board of Directors: 2021 2020 Rupees in thousand Profit before tax 4,269,861 2,230,566 Taxation (1,326,268) (153,858) Profit after tax 2,943,593 2,076,708 Less: Profit attributable to non-controlling interest (2,786) - Profit attributable to ordinary shareholders 2,943,593 2,073,922 Unappropriated profit brought forward 14,650,455 13,610,534 Profit available for appropriation 17,594,048 15,684,456 (437,500) (525,000) (525,000) (437,500) Final dividend for the year ended 31 December 2020 @ 12.5% (Rupees 1.25/- per share) [31 December 2019 @ 15% (Rupees 1.5/- per share)] Interim dividend for the half year ended 30 June 2021 @ 15% (Rupee 1.5/- per share) [30 June 2020 @ 12.5% (Rupee 1.25/- per share)] (57,794) - Acquisition of non-controlling interest Other Comprehensive Income / (Loss) – remeasurement of defined benefit obligation Profit after appropriation 6,885 (13,707) 16,638,433 14,650,455 2021 Earnings (after tax) per share - Basic and diluted Rupees 2020 8.41 5.93 For and on behalf of the Board Lahore: 08 February 2022 Imran Ibrahim Maqbool Shamsi Director Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 235
- Consolidated Statement of Financial Position As at 31 December 2021 Note 2021 2020 Rupees in thousand ASSETS Property and equipment - Restated Intangible assets Investment properties - Restated Investments Equity securities Debt securities Term deposits Loan secured against life insurance policies Loans and other receivables Insurance / reinsurance receivables Reinsurance recoveries against outstanding claims Salvage recoveries accrued Deferred commission expense / acquisition cost Taxation - payment less provisions Prepayments Cash and bank 5 6 7 5,415,445 123,465 1,259,667 4,468,641 127,381 1,473,367 8 9 10 38,014,361 25,619,017 14,451,466 39,499 965,110 7,311,312 7,598,556 344,957 1,055,480 730,267 4,790,632 11,900,126 119,619,360 723,850 34,863,749 15,290,166 13,891,062 29,912 985,744 4,991,328 5,922,296 270,275 731,319 691,558 3,468,952 11,267,096 98,472,846 589,148 13 14 Total assets of Window Takaful Operations - Operator's Fund (Parent Company) 15 120,343,210 99,061,994 3,500,000 5,482,136 16,638,433 25,620,569 3,500,000 4,487,307 14,650,455 22,637,762 11 12 30 Total Assets EQUITY AND LIABILITIES Capital and reserves attributable to the Parent Company's equity holders Ordinary share capital Reserves Unappropriated profits Equity attributable to equity holders of the Parent Company Non-controlling interest 16 17 18 - 25,620,569 22,637,762 19 56,874,290 46,990,343 29 28 30 20 21 22 23 12,686,045 11,010,289 241,094 257,200 2,262,665 1,011,650 10,627 946,956 5,215,694 3,189,647 737,953 37,569,820 10,768,040 8,366,434 245,318 309,581 1,581,977 330,849 28,574 724,448 3,161,519 2,892,994 781,358 29,191,092 Total Equity LIABILITIES Insurance liabilities Underwriting provisions: Outstanding claims including IBNR Unearned premium reserves Unearned reinsurance commission Retirement benefits obligations Deferred taxation Borrowings Deferred grant income Premium received in advance Insurance / reinsurance payables Other creditors and accruals Deposits and other liabilities 24 25 26 Total liabilities of Window Takaful Operations - Operator's Fund (Parent Company) 15 Total Equity and Liabilities Contingencies and commitments 278,531 242,797 120,343,210 99,061,994 27 The annexed notes 1 to 49 form an integral part of these consolidated financial statements. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 236
- Consolidated Pro fit and Loss Account For the year ended 31 December 2021 Note 2021 2020 Rupees in thousand Net insurance premium 28 32,651,255 29,808,605 Net insurance claims Net commission and other acquisition costs Insurance claims and acquisition expenses 29 30 (16,309,641) (4,661,204) (20,970,845) (14,825,487) (4,525,262) (19,350,749) Management expenses Net change in insurance liabilities (other than outstanding claims) Underwriting results 31 (4,344,697) (9,490,171) (2,154,458) (4,051,227) (9,937,066) (3,530,437) Investment income Net fair value (loss) / gain on financial assets at fair value through profit or loss Rental income Other income Fair value adjustment to investment property Other expenses Results of operating activities 32 5,995,959 4,339,163 33 34 35 7 36 (869,463) 83,620 523,130 674,140 (68,447) 4,184,481 738,783 69,812 559,041 (21,000) (68,689) 2,086,673 (53,887) 139,267 (19,881) 163,774 4,269,861 2,230,566 (1,326,268) (153,858) 2,943,593 2,076,708 2,943,593 2,943,593 2,073,922 2,786 2,076,708 Finance cost Profit from Window Takaful Operations - Operator's Fund (Parent Company) 15 Profit before taxation Income tax expense 37 Profit after taxation Profit attributable to: Equity holders of the Parent Non-controlling interest 18 Rupees Earnings (after tax) per share - basic and diluted 38 5.93 8.41 The annexed notes 1 to 49 form an integral part of these consolidated financial statements. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 237
- Consolidated Statement of Comprehensive Income For the year ended 31 December 2021 2021 2020 Rupees in thousand 2 ,943,593 2,076,708 6,885 (13,707) Items that may be subsequently reclassified to profit and loss account Unrealized gain / (loss) on 'available-for-sale' investments - net of tax 596,101 (141,355) Reclassification adjustment relating to 'available for sale' investments disposed off in the year - net of tax 177,198 73,704 85 (473) 221,445 3,502 Other comprehensive income / (loss) for the year 1,001,714 (78,329) Total comprehensive income for the year 3,945,307 1,998,379 3,945,307 3,945,307 1,994,896 3,483 1,998,379 Profit after taxation Items that will not be subsequently reclassified to profit and loss account Re-measurement of retirement benefit obligations - net of tax Unrealized gain / (loss) on 'available for sale' investment from Window Takaful Operations - net of tax Net effect of translation of foreign branches Total comprehensive income attributable to: Equity holders of the Parent Non-controlling interest The annexed notes 1 to 49 form an integral part of these consolidated financial statements. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 238
- Consolidated Cash Flow Statement For the year ended 31 December 2021 2021 2020 Rupees in thousand Cash flows from operating activities Underwriting activities Insurance premiums received Reinsurance premiums paid Claims paid Reinsurance and other recoveries received Commissions paid Commissions received Other underwriting payments Net cash inflow from underwriting activities Other operating activities Income tax paid Finance cost paid on lease liability Other operating payments Loans advanced Loans repayments received Other operating receipts Net cash outflow from other operating activities Total cash inflow from operating activities 41,783,255 (7,675,050) (20,485,604) 4,057,858 (4,715,797) 554,992 (4,505,906) 9,013,748 36,589,154 (6,632,269) (19,072,381) 4,326,300 (4,021,112) 532,528 (4,973,401) 6,748,819 (970,337) (6,877) (36,422) (60,445) 54,547 38,380 (981,154) (411,376) (31,483) (30,192) (45,178) 49,691 113,738 (354,800) 8,032,594 6,394,019 Cash flows from investing activities Profit / return received from bank deposits Income from Debt Securities Dividends received Rentals received Payments made for investments Acquisition of Non controlling interest Loan to policy holder Proceeds from disposal of investments Fixed capital expenditure - operating assets Fixed capital expenditure - intangible assets Proceeds from disposal of operating assets Total cash outflow from investing activities 2,942,182 46,977 2,898,860 136,865 (294,021,339) (5,925) 280,869,881 (315,528) (36,768) 74,305 (7,410,490) 874,898 1,054,181 1,352,787 124,863 (180,332,348) (403,005) 5,998 173,248,318 (540,093) (27,247) 104,832 (4,536,816) (47,400) 1,390,000 (746,048) (967,626) (371,074) (80,213) 357,351 (913) (926,576) (650,351) 251,030 19,229,096 19,480,126 1,206,852 18,022,244 19,229,096 Cash flows from financing activities Payments against lease liability Loan obtained Loan paid including interest expense on loan Dividends paid Total cash outflow from financing activities Net cash inflow from all activities Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Annual Report 2021 239
- Consolidated Cash Flow Statement For the year ended 31 December 2021 2021 2020 Rupees in thousand Reconciliation to pro fit and loss account 8,032,594 (329,923) (75,462) (14,690) (72,104) 1,012,640 23,799 85,693 (869,463) 674,140 6,250,883 (15,676,663) 396,109 (2,643,855) 5,898 970,337 49,899 2,885,995 2,098,499 Operating cash flows Depreciation and amortization expense Finance cost on borrowing Provision for retirement benefit obligations Provision for doubtful balances against insurance / reinsurance receivables Other income - bank & term deposits Gain on disposal of operating assets Rental income Revaluation of investment Fair value adjustment to investment property Increase / (decrease) in assets other than cash Increase in liabilities Gain on disposal of investments (Increase) / Decrease in unearned premium Increase / (decrease) in loans Income tax paid Provision for impairment of 'available-for-sale' investments Dividend and other income Capital contribution from Shareholders' Fund Income from Debt Securities Profit for the year from Window Takaful Operations - Operator's fund (Parent Company) Profit after taxation 6,394,019 (367,157) (13,664) (26,403) (47,968) 934,440 72,039 71,671 738,783 (21,000) (1,032,963) (10,901,509) 700,910 1,875,914 (4,513) 411,376 (158,641) 1,362,106 1,925,494 139,267 163,774 2,943,593 2,076,708 20,554 11,879,572 7,580,000 11,079 11,256,017 7,962,000 19,480,126 19,229,096 Cash and bank for the purposes of the cash flow statement consists of: Cash and cash equivalents Current and other accounts Term deposit maturing within three months The annexed notes 1 to 49 form an integral part of these consolidated financial statements. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 240
- Consolidated Statement of Changes in Equity For the year ended 31 December 2021 Share capital Issued , subscribed and paid up 3,500,000 Balance as at January 01, 2020 Profit after taxation Other comprehensive income Total comprehensive income for the year ended December 31, 2020 Reserve for exceptional losses Equity Unappropriated attributable to Non-controlling profits equity holders of interest General reserve Total Equity the Parent Rupees in thousand Capital reserves Investment Exchange fluctuation translation reserve reserve Revenue reserves Fair Value Reserve 22,859 3,764 674,936 2,914,787 936,500 13,610,534 21,663,380 341,508 22,004,888 - - - 3,502 3,502 (68,821) (68,821) - 2,073,922 (13,707) 2,060,215 2,073,922 (79,026) 1,994,896 2,786 697 3,483 2,076,708 (78,329) 1,998,379 - - - - (220) (220) - (57,794) (525,000) (437,500) (1,020,294) (58,014) (525,000) (437,500) (1,020,514) (344,991) (344,991) (403,005) (525,000) (437,500) (1,365,505) 22,859 3,764 678,438 2,845,746 936,500 14,650,455 22,637,762 - 22,637,762 - - 221,445 221,445 773,384 773,384 - 2,943,593 6,885 2,950,478 2,943,593 1,001,714 3,945,307 - 2,943,593 1,001,714 3,945,307 22,859 3,764 899,883 3,619,130 936,500 17,600,933 26,583,069 - 26,583,069 - - - (437,500) (525,000) (962,500) (437,500) (525,000) (962,500) - (437,500) (525,000) (962,500) 22,859 3,764 899,883 16,638,433 25,620,569 - 25,620,569 Transactions with owners, recognized directly in equity Acquisition of Non-controlling interest Final cash dividend at Rs. 1.5 per share - December 31, 2019 Interim cash dividend at Rs. 1.25 per share - June 30, 2020 3,500,000 Balance as at December 31, 2020 Profit after taxation Other comprehensive income Total comprehensive income for the year ended December 31, 2021 3,500,000 Transactions with owners, recognized directly in equity Final cash dividend at Rs. 1.25 per share - December 31, 2020 Interim cash dividend at Rs. 1.5 per share - June 30, 2021 Balance as at December 31, 2021 3,500,000 - - 3,619,130 936,500 The annexed notes 1 to 49 form an integral part of these consolidated financial statements. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 241
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 1 The Group and its operations : These consolidated financials statements comprise of Adamjee Insurance Company Limited ('the Parent Company') and Adamjee Life Assurance Company Limited ('the Subsidiary Company'), together referred to as 'the Group'. Equity of the Subsidiary Company held by the Parent Company is 100.00% (2020: 100.00%). The operations of the Group are described below: Adamjee Insurance Company Limited Adamjee Insurance Company Limited ('the Parent Company') is a public limited Company incorporated in Pakistan on September 28, 1960 under the repealed Companies Act, 1913 (now the Companies Act, 2017). The Parent Company is listed on Pakistan Stock Exchange limited and is principally engaged in the general insurance business. The registered office of the Parent Company is situated at Adamjee House Building, 80/A Block E-1, Main Boulevard Gulberg-III, Lahore. The Parent Company operates 91 (2020: 91) branches in addition to 20 (2020: 20) specialized agriculture field offices within Pakistan. The Parent Company also operates 3 (2020: 3) branches in the United Arab Emirates (UAE) and 1 (2020: 1) branch in the Export Processing Zone, Karachi (EPZ). The Parent Company was granted authorization on December 23, 2015 under Rule 6 of the Takaful Rules, 2012 to undertake Window Takaful Operations in respect of general takaful products by the Securities and Exchange Commission of Pakistan (SECP) and commenced Window Takaful Operations on January 01, 2016. The Parent Company's Window Takaful Operations operates 5 (2020: 5) branches in Pakistan. Adamjee Life Assurance Company Limited Adamjee Life Assurance Company Limited ("the Subsidiary Company") was incorporated in Pakistan on August 04, 2008 as a public unlisted company under the Companies Act, 2017. The Subsidiary Company started its operations from April 24, 2009. Registered office of the Subsidiary Company is at 5th floor, Islamabad Stock Exchange Towers, 55-B, Jinnah Avenue, Blue Area, Islamabad while its principal place of business is at Adamjee House, 3rd and 4th Floor, I.I Chundrigar Road, Karachi. The Subsidiary Company is a wholly owned subsidiary of Adamjee Insurance Company Limited. The Subsidiary Company is engaged in life insurance business carrying on non-participating business only. In accordance with the requirements of the Insurance Ordinance, 2000, the Subsidiary Company has established a shareholders' fund and the following statutory funds in respect of each class of its life insurance business: - Conventional Business - Accident and Health Business - Individual Life Non-unitized Investment Linked Business - Individual Life Unit Linked Business - Individual Family Takaful Business - Group Family Takaful Business The Subsidiary Company was granted authorisation on May 04, 2016 under Rule 6 of Takaful Rules, 2012 to undertake Takaful Window Operations in respect of family takaful products by Securities and Exchange Commission of Pakistan (SECP) and subsequently the Subsidiary Company commenced Window Takaful Operations from July 14, 2016. The Subsidiary Company formed a Waqf Fund namely the Adamjee Life Assurance Company Limited - Window Takaful Operations Waqf Fund (here-in-after referred to as the Participant Takaful Fund (PTF)) on December 22, 2015 under a Waqf deed executed by the Subsidiary Company with the cede amount of Rs. 500,000. The cede money is required to be invested in Shariah compliant investments and any profit thereon can be utilised only to pay benefits to participants or defray Annual Report 2021 242
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 PTF expenses . Waqf deed also governs the relationship of the Subsidiary Company and policyholders for the management of Takaful operations, investment of policyholders' funds and shareholders' funds as approved by the Shariah Advisor appointed by the Subsidiary Company. The Subsidiary Company issued supplemental policies to the Window Takaful Operations Waqf Fund on October 29, 2019 to include Group Family Participant's Takaful Fund business in existing Window Takaful Operations Waqf Fund and the same was authorised by the Securities and Exchange Commission of Pakistan (SECP) on December 11, 2019 and the Subsidiary Company commenced its Group Family Takaful Business in the second Quarter of 2020. During the year, on March 10, 2021 the Board of Directors resolved that the Subsidiary Company would apply for listing on Pakistan Stock Exchange. In this connection, the Subsidiary Company has issued 156,450,600 right shares during the year to its Parent Company to increase its share capital to Rs. 2.5 billion. The Subsidiary Company has initiated the regulatory process of listing and intends to offer 25,000,000 shares to the public which represents 10% of its existing paid-up capital through Offer for sale for which Offer for sale document is made public subsequent to the year end. 2 Basis of preparation and statement of compliance 2.1 These consolidated financial statements have been prepared in accordance with accounting and reporting standards as applicable in Pakistan. The accounting and reporting standards comprise of: - International Financial Reporting Standards 'IFRS' issued by the International Accounting Standards Board 'IASB' as are notified under the Companies Act, 2017; - Provisions of and directives issued under the Companies Act, 2017, the Insurance Ordinance, 2000, the Insurance Rules, 2017, the Insurance Accounting Regulations, 2017, the Takaful Rules, 2012 and the General Takaful Accounting Regulations, 2019. In case requirements differ, the provisions of or the directives issued under the Companies Act, 2017, the Insurance Ordinance, 2000, the Insurance Rules, 2017, the Insurance Accounting Regulations, 2017, the Takaful Rules, 2012 and the General Takaful Accounting Regulations, 2019, shall prevail. As per the requirements of the Takaful Rules, 2012 and SECP Circular No. 25 of 2015 dated July 09, 2015, the assets, liabilities and profit and loss account of the Operator's Fund of the Window Takaful Operations of the Parent Company have been presented as a single line item in the statement of financial position and profit and loss account of the Parent Company respectively. A separate set of financial statements of the Window Takaful Operations of Parent Company has been annexed to these consolidated financial statements as per the requirements of the Takaful Rules, 2012. 2.2 Consolidation 2.2.1 Subsidiary Company The Subsidiary Company is the entity in which the Parent Company directly or indirectly controls, beneficially owns or holds more than 50% of the voting securities or otherwise has power to elect and appoint more than 50% of its directors. The financial statements of the Subsidiary Company are included in the consolidated financial statements from the date the control commences until the date that control ceases. The assets and liabilities of the Subsidiary Company have been consolidated on a line by line basis and carrying value of investments held by the Parent Company is eliminated against the Parent Company's share in paid up capital of the Subsidiary Company. Intragroup balances and transactions have been eliminated. Non-controlling interests are that part of net results of the operations and of net assets of the Subsidiary Company attributable to interest which are not owned by the Parent Company. Non-controlling interests are presented as separate line item in the consolidated financial statements. Annual Report 2021 243
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 2 .3 Basis of measurement These consolidated financial statements have been prepared under historical cost convention except for certain foreign currency translation adjustments, certain financial instruments carried at fair value, investment property carried at fair value and retirement benefit obligations under employees benefits carried at present value. All transactions reflected in these financial statements are on accrual basis except for those reflected in cash flow statement. 2.4 Functional and presentation currency Items included in the consolidated financial statements are measured using the currency of the primary economic environment in which the Group operates ('the functional currency'). The financial statements are presented in Pak Rupees, which is the Group's functional and presentation currency. All the financial information presented in Rupees has been rounded off to the nearest thousand rupees, except otherwise stated. 2.5 Standards, interpretations and amendments to accounting and reporting standards as applicable in Pakistan that are effective in current year Standards or Interpretations IBOR 2 'Interest Rate Benchmark Reform — Phase 2' Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)' with amendments that address issues that might affect financial reporting after the reform of an interest rate benchmark, including its replacement with alternative benchmark rates. Effective from annual period beginning on or after: January 01, 2021 The following standards, amendments and interpretations of accounting and reporting standards that will be effective for accounting periods beginning on January 01, 2021: 2.6 New accounting standards / amendments and IFRS interpretations that are not yet effective The following International Financial Reporting Standards (IFRS Standards) as notified under the Companies Act, 2017 and the amendments and interpretations thereto will be effective for accounting periods beginning on or aſter January 01, 2022: Standards or Interpretations Effective from annual period beginning Amendments to IFRS 16 ' Leases' - Provide lessees with an exemption from assessing whether a COVID-19 related rent concession is a lease modification. April 01, 2021 Amendments to IAS 16 'Property, Plant and Equipment', prohibiting the Company from deducting from the cost of property plant and equipment, amount received from selling items produced while the Company is preparing the asset for its intended use. January 01, 2022 Amendments to IFRS 3 'Business Combinations' that updated an outdated reference in IFRS 3 without significantly changing its requirements. January 01, 2022 Amendments to IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' regarding the costs of fulfilling the contract to include when assessing whether a contract is Onerous. January 01, 2022 Amendments to IAS 1 'Presentation of Financial Statements' - Classification of liabilities as current or non-current. January 01, 2023 Amendments to IAS 12 'Income Taxes' - regarding deferred tax on leases and decommissioning obligations. January 01, 2023 Amendments to IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors' - regarding the definition of accounting estimates. January 01, 2023 Amendments to IFRS 10 'Consolidated Financial Statements' and IAS 28 'Investments in Associates and Joint Ventures' - Sale or contribution of assets between an investor and its associate or joint venture. Certain annual improvements have also been made to a number of IFRSs. Effective from accounting period beginning on or after a date to be determined. Earlier application is permitted. Annual Report 2021 244
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Other than the aforesaid standards , interpretations and amendments, the International Accounting Standards Board (IASB) has also issued the following standards which have not been adopted locally by the Securities and Exchange Commission of Pakistan: - IFRS 1 – First Time Adoption of International Financial Reporting Standards - IFRS 17 – Insurance Contracts There are certain other new and amended standards and interpretations that are mandatory for the insurance accounting periods beginning on or after January 01, 2022 but are considered either not to be relevant or do not have any significant impact on these consolidated financial statements. IFRS 9 - Financial Instruments IFRS 9 'Financial Instruments' has become applicable, however as an insurance company, the management has opted temporary exemption from the application of IFRS 9 as allowed by International Accounting Standards Board (IASB) for entities whose activities are predominantly connected with insurance. Additional disclosures, as required by the IASB, for being eligible to apply the temporary exemption from the application of IFRS 9 are given below: The tables below set out the fair values as at the end of reporting period and the amount of change in the fair value during that period for the following two groups of financial assets separately: (a) Financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding, excluding any financial asset that meets the definition of held for trading in IFRS 9, or that is managed and whose performance is evaluated on a fair value basis, and (b) All other financial assets 2021 Fail the SPPI test Change in unrealized gain / Fair value (loss) during the period Pass the SPPI test Carrying Value Cost less Impairment Change in unrealized gain / (loss) during the period Rupees in thousand Financial assets Cash and Bank* Investments in equity securities Investment in debt securities Term deposits* Loan secured against life insurance policies Loans and other receivables* Total 1,479,210 38,014,361 - 275,380 - 10,420,916 25,619,017 14,451,466 - - 961,593 40,455,164 275,380 39,499 3,517 50,534,415 - - * The carrying amount of these financial assets measured applying IAS 39 are a reasonable approximation of their fair values. 3 Summary of significant accounting policies The significant accounting policies adopted in preparation of these consolidated financial statements are set out below. Accounting policies relating to Window Takaful Operations of Parent Company are disclosed in a separate financial statements of Window Takaful Operations which have been annexed to these financial statements. These accounting policies have been consistently applied to all the years presented. Annual Report 2021 245
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 3 .1 Insurance contracts Insurance contracts are those contracts where the Group (the insurer) has accepted significant insurance risk from another party (the policy holders) by agreeing to compensate the policy holders if a specified uncertain future event (the insured event) adversely affects the policy holders. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its life time, even if the insurance risk reduces significantly during this period, unless all rights and liabilities are extinguished or expired. Insurance contracts issued by the Group are generally classified in eleven basic categories among them five categories are covered by the Parent Company i.e. Fire & property, Marine, aviation & transport, Motor, Health and Miscellaneous and six categories i.e. Conventional Business, Accident and Health Business, Individual Life Non-unitized Investment Linked Business, Individual Life Unit Linked Business, Individual Family Takaful Business and General Family Takaful Business are covered by the Subsidiary Company. These are issued to multiple types of clients with businesses in engineering, automobiles, cement, power, textiles, paper, agriculture, services & trading sectors and individuals as well. The tenure of these insurance contracts depends upon terms of the policies written and vary accordingly. General Insurance Business The non life general insurance consist of the following categories: - Fire and property insurance contracts generally cover the assets of the policy holders against damages by fire, earthquake, riots and strike, explosion, atmospheric disturbance, flood, electric fluctuation and impact, burglary, loss of profit followed by the incident of fire, contractor's all risk, erection all risk, machinery breakdown and boiler damage, etc. - Marine aviation and transport insurance contracts generally provide cover for loss or damage to cargo while in transit to and from foreign land and inland transit due to various insured perils including loss of or damage to carrying vessel, etc. - Motor insurance contracts provide indemnity for accidental damage to or loss of insured vehicle including loss of or damage to third party and other comprehensive car coverage. - Accident and health insurance contracts mainly compensate hospitalization and out patient medical coverage to the insured. - Miscellaneous insurance contracts provide variety of coverage including cover against burglary, loss of cash in safe, cash in transit and cash on counter, fidelity guarantee, personal accident, workmen compensation, travel and crop, etc. Life Insurance Business The life insurance business consists of the following categories: - The Conventional Business includes individual life, group life and group credit life assurance: - The individual life business segment provides coverage to individuals against deaths and disability under conventional policies issued by the Subsidiary Company. Additional riders are included on the discretion of the policyholder. The business is written through Bancassurance, tele-sales and through website. - Group Life and group credit life contracts are mainly issued to employers to insure their commitments to their employees as required under the The Industrial and Commercial Employment (Standing Orders) Ordinance, 1968. The group life business segment provides coverage to members / employees of business enterprises and corporate entities, against death and disability under group life assurance schemes issued by the Subsidiary Company. The group credit life business segment provides coverage to a group of members or subscribers registered under a common platform against death and disability. The business is written mainly through direct sales force. Annual Report 2021 246
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 - Accident and Health Business provides fixed pecuniary benefits or benefits in the nature of indemnity or a combination of both in case of accident or sickness to individuals . The risk underwritten is mainly related to medical expenses relating to hospitalisation and death by accidental means. This business is written through direct sales force. - Individual Life Non-unitised Investment Linked Business provides life assurance coverage to individuals under universal life policies issued by the Subsidiary Company. Benefits are expressed in terms of account value of the policyholder account which is related to the market value of the underlying assets of the investment fund. The risk underwritten is mainly death and disability. This business is written through bancassurance channel. - Individual Life Unit Linked Business provides life assurance coverage to individuals under unit-linked investment policies issued by the Subsidiary Company. Benefits are expressed in terms of account value of the policyholder account which is related to the market value of the underlying assets of the investment fund. Various types of riders (accidental death, family income benefits etc.) are also sold along with the basic policies. Some of these riders are charged through deductions from policyholders fund value, while others are not charged i.e. additional premium is charged thereof against. The risk underwritten is mainly death and disability. This business is written through bancassurance channel and Subsidiary Company's own agency distribution channel. - The Subsidiary Company offers Individual Family Takaful Unit Linked contracts. Family Takaful contract is an arrangement which rests on key Shariah principles of mutual cooperation, solidarity and well being of a community, and is based on the principles of Wakalah Waqf Model. Under a Takaful arrangement, individuals come together and contribute towards the common objective of protecting each other against financial losses by sharing the risk on the basis of mutual assistance. - Group Family Takaful contracts are mainly issued to employers to insure their commitments to their employees as required under the The Industrial and Commercial Employment (Standing Orders) Ordinance, 1968. The group life business segment provides coverage to members / employees of business enterprises and corporate entities, against death and disability under group life assurance schemes issued by the Subsidiary Company. The group credit life business segment provides coverage to a group of members or subscribers registered under a common platform against death and disability. The business is written mainly through direct sales force. In addition to direct insurance, the Group also participates in risks under co-insurance contracts from other companies and also accepts risks through re-insurance inward by way of facultative acceptance on case to case basis provided such risks are within the underwriting policies of the Group. The nature of the risks undertaken under such arrangement is consistent with the risks in each class of business as stated above. Since, the nature of insurance contracts entered into by the Parent Company and its Subsidiary Company are different, the respective accounting policies have separately been disclosed here as under: 3.2 General Insurance Business 3.2.1 Revenue recognition 3.2.1.1 Premiums Premiums including administrative surcharge under an insurance contract are recognized as written from date of issuance to the date of attachment of risk to the policy / cover note. Where premium for a policy are payable in installments, full premium for the duration of the policy is recognized as written, where the first such installment has been duly received by the Parent Company, at the inception of the policy and related assets are recognized as premium receivable. Revenue from premiums is determined after taking into account the unearned portion of premiums. The unearned portion of premium income is recognized as a liability. Annual Report 2021 247
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Reinsurance premium is recognized as an expense after taking into account the proportion of prepaid reinsurance premium which is recognized as a proportion of the gross reinsurance premium of each policy , determined as the ratio of the unexpired period of the policy and the total period, both measured to the nearest day. The prepaid portion of premium is recognized as a prepayment. 3.2.1.2 Commission Income Commission income from other insurers / reinsurers is deferred and recognized as a liability and recognized in the profit and loss account as a commission income in accordance with the pattern of recognition of the reinsurance premiums. 3.2.2 Deferred commission expense / acquisition cost Commission expense incurred in obtaining and recording policies is deferred and recognized as an expense in accordance with pattern of recognition of the premium revenue. Other acquisition costs are charged to profit and loss account at the time the policies are accepted. 3.2.3 Unearned premium The unearned premium represents the portion of premium written relating to the unexpired period of insurance coverage at the reporting date. It is recognized as a liability. Such liability is calculated as a ratio of the unexpired period of the policy and the total policy period, both measured to the nearest day except: - for marine cargo, as a ratio of the unexpired shipment period to the total expected shipment period, both measured to the nearest day. - for crop business, as a ratio of the unexpired crop period to the total expected crop period, both measured to the nearest day. Policy for recognition of premium revenue is disclosed in these consolidated financial statements. Unearned premium reserve calculated by the Parent Company is also confirmed by an independent actuary. 3.2.4 Premium deficiency In order to comply with the requirements of section 34(2)(d) of the Insurance Ordinance, 2000, a premium deficiency reserve is maintained for each class of business, where the unearned premium liability for any class of business is not adequate to meet the expected future liability, after re-insurance, for claims and other expenses, including reinsurance expenses, commissions, and other underwriting expenses, expected to be incurred after the reporting date in respect of the policies in force at the reporting date, in that class of business. For this purpose, premium deficiency reserve is determined by independent actuaries. The actuary determines the prospective loss ratios for each class of business and applies factors of unearned and earned premiums and uses assumptions appropriate to arrive at the expected claims settlement cost which when compared with unearned premium reserve ('UPR') shows whether UPR is adequate to cover the unexpired risks. If these ratios are adverse, premium deficiency is determined. Based on actuary's advice the management creates a reserve for the same in these consolidated financial statements. The movement in the premium deficiency reserve on net basis is recorded as an expense / income in profit and loss account for the year. 3.2.5 Reinsurance contracts held The Parent Company enters into reinsurance contracts in the normal course of business in order to limit the potential for losses arising from certain exposures. Reinsurance contracts include treaty reinsurance, whereby certain agreed proportion of risks are shared with the participating companies, hence higher underwriting capacity with larger spread becomes available. Depending upon the nature and / or size of the risk at times reinsurance of Annual Report 2021 248
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 excess of capacity is also placed on case to case basis under facultative reinsurance arrangement . The Parent Company also accepts facultative reinsurance from other local insurance companies provided the risk meets the underwriting requirements of the Parent Company. Outward reinsurance premiums are accounted for in the same period as the related premiums for the direct or accepted reinsurance business being reinsured. The risks undertaken by the Parent Company under these contracts for each class of business are stated in note 3.1 to the consolidated financial statements. Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the related reinsurance contract. Reinsurance assets represent balances due from reinsurance companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the provision for outstanding claims or settled claims associated with the reinsurance policies and are in accordance with the related reinsurance contract. Reinsurance assets or liabilities are derecognized when the contractual rights or obligations are extinguished or expired. Furthermore, reinsurance assets are not offset against related insurance liabilities. Income or expenses from reinsurance contract are not off set against income or expenses from related insurance assets. The Parent Company assesses its reinsurance assets for impairment on reporting date. If there is an objective evidence that the reinsurance asset is impaired, the Parent Company reduces the carrying amount of the reinsurance asset to its recoverable amount and recognizes the impairment loss in the profit and loss account. The portion of reinsurance premium not recognized as an expense is shown as a prepayment. Prepayment (i.e. premium ceded to reinsurers) is recognized as follows: - for reinsurance contracts operating on a proportional basis, a liability to the reinsurer is recognized on attachment of the underlying policies reinsured, while an asset is recognized for the unexpired period of reinsurance coverage at the reporting date as prepaid reinsurance premium ceded and the same is expensed over the period of underlying policies. Commission income from reinsurers is recognized at the time of issuance of the underlying insurance policy by the Parent Company. This income is deferred and brought to profit and loss account as commission income in accordance with the pattern of recognition of the reinsurance premium to which it relates. Profit commission and no claim bonus (if any), which the Parent Company may be entitled to under the terms of reinsurance, is recognized on accrual basis. 3.2.6 Receivables and payables related to insurance contracts Insurance / reinsurance receivable and payable including premium due but unpaid, relating to insurance contracts are recognized when due and carried at cost less provision for impairment (if any). The cost is the fair value of the consideration to be received / paid in the future for services rendered / received. These amounts also include due to and due from other insurance companies and brokers. Premium received in advance is recognized as liability till the time of issuance of insurance contract there against. An assessment is made at each reporting date to determine whether there is objective evidence from external as well as internal sources of information that a financial asset or group of assets may be impaired i.e. recoverable amount at the reporting date is less than the carrying amount of the asset. If such evidence exists, the estimated recoverable amount of that asset is determined and any impairment loss is recognized, in the profit and loss account, for the difference between the recoverable amount and the carrying amount. Provisions for impairment are reviewed at each reporting date and adjusted to reflect the current best estimates. Changes in the provisions are recognized as income or expense, in the profit and loss account. Annual Report 2021 249
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 3 .2.7 Provision for outstanding claims including IBNR The Parent Company recognizes liability in respect of all claims incurred up to the reporting date which is measured at the undiscounted value of the expected future payments. The claims are considered to be incurred at the time of the incident giving rise to the claim except as otherwise expressly indicated in the insurance contract. The liability for claims include amounts relating to unpaid reported claims, claims incurred but not reported ('IBNR'), expected claims settlement costs, a reduction for the value of salvage and other recoveries, and any adjustments to claims outstanding from previous years. SECP through its circular 9 of 2016 dated March 09, 2016 issued 'SEC guidelines for estimation of incurred but not reported (IBNR) claims reserve 2016' for non-life insurance companies and required to comply with all provisions of these guidelines with effect from July 01, 2016. The Guidelines require that estimation for provision for claims incurred but not reported (IBNR) for each class of business, by using prescribed Method 'Chain Ladder Method' and other alternate method as allowed under the provisions of the Guidelines. The Chain Ladder Method involves determination of development factors or link ratios for each period. These are then subsequently combined to determine Cumulative Development Factor (CDF) which represents the extent of future development of claims to reach their ultimate level to derive an IBNR estimate. The actuarial valuation as at December 31, 2021 has been carried out by independent firm of actuaries for determination of IBNR for each class of business. The actuarial valuation is based on a range of standard actuarial claim projection techniques, based on empirical data and current assumptions as explained in preceding paragraph that may include a margin for adverse deviation as required / allowed by the circular 9 of 2016. The methods used, and the estimates made, are reviewed regularly. 3.3 Life Insurance Business 3.3.1 Conventional Business The Conventional Business includes individual life, group life and group credit life assurance. 3.3.1.1 Individual life Revenue recognition First year individual life premiums are recognised once the related policies have been issued and the premium is received. Renewal premiums are recognised upon receipt of premium. Recognition of policy holders' liabilities Policyholders’ liabilities included in the statutory fund are determined based on the appointed actuary’s valuation conducted as at the reporting date, in accordance with Section 50 of the Insurance Ordinance, 2000. Claim expenses Claim expenses are recognised on the earlier of the policy expiry or the date when the intimation of the insured event giving rise to the claim is received. Surrender of conventional business policies is made after these have been approved in accordance with the Subsidiary Company's policy. Liability for outstanding claims includes amounts in relation to unpaid reported claims and is stated at estimated claims settlement cost. Full provision is made for the estimated cost of claims incurred and reported till the date of reporting. Liability for claims "Incurred But Not Reported" (IBNR) is included in the policyholders' liabilities in accordance with the estimates recommended by the appointed actuary. Annual Report 2021 250
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 3 .3.1.2 Group life and group credit life Revenue recognition Premiums are recognised as and when due. In respect of certain group policies the Subsidiary Company continues to provide insurance cover even if the premium is received after the grace period. Provision for unearned premiums is included in the policyholders’ liabilities. Recognition of policy holders' liabilities Policyholders’ liabilities included in the statutory fund are determined based on the appointed actuary’s valuation conducted as at the reporting date, in accordance with Section 50 of the Insurance Ordinance, 2000. Claim expenses Claim expenses are recognised on the date the insured event is intimated. Liability for outstanding claims includes amounts in relation to unpaid reported claims and is stated at estimated claims settlement cost. Full provision is made for the estimated cost of claims incurred and reported till the date of reporting. Liability for claims "Incurred But Not Reported" (IBNR) is included in the policyholders' liabilities in accordance with the estimates recommended by the appointed actuary. Experience refund of premium Experience refund of premium payable to policyholders' is included in policyholders' liability in accordance with the policy of the Subsidiary Company and the advice of the appointed actuary. 3.3.2 Accident and Health Business Revenue recognition Premiums are recognised once the related policies have been issued and the premiums have been received. Recognition of policy holders' liabilities Policyholders’ liabilities included in the statutory fund are determined based on the appointed actuary’s valuation conducted as at the reporting date, in accordance with Section 50 of the Insurance Ordinance, 2000. Claim expenses Claims expenses are recognised after the date the insured event is intimated and a reliable estimate of the claim amount can be made. Liability for outstanding claims includes amounts in relation to unpaid reported claims and is stated at estimated claims settlement cost. Full provision is made for the estimated cost of claims incurred and reported till the date of reporting. Liability for claims "Incurred But Not Reported" (IBNR) is included in the policyholders' liabilities in accordance with the estimates recommended by the appointed actuary. Annual Report 2021 251
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 3 .3.3 Non-unitized Investment Linked Business Revenue recognition First year individual life premiums are recognised once the related policies have been issued and the premium is received. Renewal premiums are recognised upon receipt of premium. Single premiums are recognised once the related policies are issued against the receipts of premium. Premium of riders like 'Waiver of Premium' will be recognised upon actuarial assumptions where actuary deems that all premiums due have been received. Recognition of policy holders' liabilities Policyholders’ liabilities included in the statutory fund are determined based on the appointed actuary’s valuation conducted as at the reporting date, in accordance with Section 50 of the Insurance Ordinance, 2000. Claim expense Claim expenses are recognised on the earlier of the policy expiry or the date when the intimation of the event giving rise to the claim is received. Claim of 'Waiver of Premium' is created when intimated with the amount to be applied by the Subsidiary Company on behalf of policyholder. Surrender of Non-unitized Investment Linked Business policies is made after these have been approved in accordance with the Subsidiary Company's policy. Liability for outstanding claims includes amounts in relation to unpaid reported claims and is stated at estimated claims settlement cost. Full provision is made for the estimated cost of claims incurred and reported till the date of reporting. Liability for claims "Incurred But Not Reported" (IBNR) is included in the policyholders' liabilities in accordance with the estimates recommended by the appointed actuary. 3.3.4 Unit Linked Business Revenue recognition First year individual life premiums are recognised once the related policies have been issued and the premium is received. Renewal premiums are recognised upon receipt of premium. Single premiums are recognised once the related policies are issued against the receipts of premium. Premium of riders like 'Waiver of Premium' will be recognised upon actuarial assumptions where actuary deems that all premiums due have been received. Recognition of policy holders' liabilities Policyholders’ liabilities included in the statutory fund are determined based on the appointed actuary’s valuation conducted as at the reporting date, in accordance with Section 50 of the Insurance Ordinance, 2000. Claim expenses Claim expenses are recognised on the earlier of the policy expiry or the date when the intimation of the event giving rise to the claim is received. Claim of 'Waiver of Premium' is created when intimated with the amount to be applied by the Subsidiary Company on behalf of policyholder. Surrender of Unit Linked Business policies is made after these have been approved in accordance with the Subsidiary Company's policy. Liability for outstanding claims includes amounts in relation to unpaid reported claims and is stated at estimated claims settlement cost. Full provision is made for the estimated cost of claims incurred and reported till the date of reporting. Annual Report 2021 252
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Liability for claims "Incurred But Not Reported" (IBNR) is included in the policyholders' liabilities in accordance with the estimates recommended by the appointed actuary. 3.3.5 Individual Family Takaful Unit Linked Business Revenue recognition First year individual life contribution are recognised once the related policies have been issued and the contribution is received. Renewal contribution are recognised upon receipt of contribution. Single contribution are recognised once the related policies are issued against the receipts of contribution. Premium of riders like 'Waiver of Premium' will be recognised upon actuarial assumptions where actuary deems that all premiums due have been received. Recognition of policy holders' liabilities Policyholders’ liabilities included in the statutory fund are determined based on the appointed actuary’s valuation conducted as at the reporting date, in accordance with Section 50 of the Insurance Ordinance, 2000. Claim expenses Claim expenses are recognised on the earlier of the policy expiry or the date when the intimation of the event giving rise to the claim is received. Claim of 'Waiver of Premium' is created when intimated with the amount to be applied by the Subsidiary Company on behalf of policyholder. Surrender of Unit Linked Takaful Business policies is made after these have been approved in accordance with the Subsidiary Company's Policy. Liability for outstanding claims includes amounts in relation to unpaid reported claims and is stated at estimated claims settlement cost. Full provision is made for the estimated cost of claims incurred and reported till the date of reporting. Liability for claims "Incurred But Not Reported" (IBNR) is included in the policyholders' liabilities in accordance with the estimates recommended by the appointed actuary. 3.3.6 Group Family Takaful Business Revenue recognition Contribution are recognised as and when due. In respect of certain group policies the Subsidiary Company continues to provide insurance cover even if the contribution is received after the grace period. Provision for unearned contribution is included in the policyholders’ liabilities. Recognition of policy holders' liabilities Policyholders’ liabilities included in the statutory fund are determined based on the appointed actuary’s valuation conducted as at the reporting date, in accordance with Section 50 of the Insurance Ordinance, 2000. Claim expenses Claim expenses are recognised on the date the insured event is intimated. Liability for outstanding claims includes amounts in relation to unpaid reported claims and is stated at estimated claims settlement cost. Full provision is made for the estimated cost of claims incurred and reported till the date of reporting. Liability for claims "Incurred But Not Reported" (IBNR) is included in the policyholders' liabilities in accordance with the estimates recommended by the appointed actuary. Annual Report 2021 253
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Experience refund of contribution Experience refund of contribution payable to policyholders ' is included in policyholders' liability in accordance with the policy of the Subsidiary Company and the advice of the appointed actuary. 3.3.7 Reinsurance / Retakaful contracts held Individual policies (including joint life policies underwritten as such) are reinsured under an individual life reinsurance / retakaful agreement whereas group life and group credit life policies are reinsured under group life and group credit life reinsurance agreements respectively. 3.3.7.1 Conventional Reinsurance premium Reinsurance premium ceded is recognised at the same time when the related premium revenue is recognised. It is measured in line with the terms and conditions of the reinsurance treaties. Reinsurance Recoveries Reinsurance recoveries from reinsurers are recognised at the same time when the claim is intimated and giving rise to the right of recovery is recognised in the books of accounts of the Subsidiary Company. Experience Refund Experience refund receivable from reinsurers is included in the reinsurance recoveries of claims. Amount due from / to reinsurer All receivables (reinsurer's share in claims, commission from reinsurer and experience refund) and payables (reinsurance premium) under reinsurance agreements are recognised on net basis in the Subsidiary Company's financial statements, only under the circumstances that there is a clear legal right of off-set of the amounts. Amounts due from / to reinsurers are carried at cost which is the fair value of the consideration to be received / paid in the future for services rendered / received, less provision for impairment, if any. 3.3.7.2 Takaful Retakaful Contribution Retakaful contribution ceded is recognised at the same time when the related contribution revenue is recognised. It is measured in line with the terms and conditions of the reinsurance treaties. Retakaful Recoveries Retakaful recoveries from retakaful operators are recognised at the same time when the claim is intimated and giving rise to the right of recovery is recognised in the books of accounts of the Subsidiary Company. Experience refund Experience refund receivable from retakaful operators is included in the retakaful recoveries of claims. Amount due from / to retakaful operator All receivables (retakaful operator's share in claims, commission from retakaful operator and experience refund) and payables (retakaful contribution) under retakaful agreements are recognised on net basis in the Subsidiary Company's financial statements, only under the circumstances that there is a clear legal right of off-set of the amounts. Annual Report 2021 254
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Amounts due from / to retakaful operator are carried at cost which is the fair value of the consideration to be received / paid in the future for services rendered / received, less provision for impairment, if any. 3.3.8 Statutory funds The Subsidiary Company maintains statutory funds in respect of each class of life assurance business in which it operates. Assets, liabilities, revenues and expenses of the Subsidiary Company are referable to the respective statutory funds. However, where these are not referable to statutory funds, these are allocated to shareholders' fund on the basis of actuarial advice. Apportionment of assets, liabilities, revenues and expenses, whenever required between funds are made on the basis certified by the appointed actuary of the Subsidiary Company. Policyholders’ liabilities have been included in statutory funds on the basis of the actuarial valuation carried out by the appointed actuary of the Subsidiary Company on the reporting date as required under Section 50 of the Insurance Ordinance, 2000. 3.3.9 Policy holders' liabilities 3.3.9.1 Conventional Business Individual Life Policyholders' liabilities constitute the reserves for basic plans and riders attached to the basic plans and reserves for IBNR Claims. Policy reserves pertaining to the basic plans are based on Net Premium method of valuation as prescribed in Annexure V of Insurance Rules 2017 requires the use of the SLIC (2001-05) Individual Life Ultimate mortality table and a valuation interest rate of 3.75% p.a. to establish the valuation of Net level Premium. The interest rate is considerably lower than the actual investment return the Subsidiary Company is managing on its conventional portfolio. The difference between the above and actual investment return is intended to be available to the Subsidiary Company for meeting administrative expense and for providing margins against adverse deviations. For yearly renewable contracts and contracts where premiums are not age related, the reserves are based on net unearned premiums. Policy reserves for both waiver of premium and accidental death riders are based on net unearned premiums. Reserves for IBNR claims have been estimated using claims run-off triangle. Group Life and Group Credit Life Policy reserves for these plans are based on the unearned premium method net of allowances made for acquisition expenses, unexpired reinsurance premium and profit commission. Consideration is also given to the requirement for a Premium Deficiency Reserve. The reserves also comprise allowance for "Incurred But Not Reported" (IBNR) claims. The provision for 'Incurred But Not Reported' (IBNR) claims as included in policyholders' liability is estimated as 15% and 25% of earned premium for the year of group life and group credit life respectively. 3.3.9.2 Accident and Health Business Main Plan Policy reserves are based on net unearned premiums. Reserves for yearly renewable riders are based on net unearned premiums. 3.3.9.3 Non-unitized Investment Linked Business Policyholders' liabilities constitute the account value of investment linked contracts as well as non-investment or risk reserves of these contracts. Risk reserves constitute liabilities held to account for risks such as death and risk only riders (accidental death and disability, monthly income benefit, waiver of premium, etc.). Reserves for risk only contracts where premiums are level over the term of the contract are based on the Net Premium Method whereas reserves for age related risk contracts are based on net unearned premiums. Annual Report 2021 255
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Reserves for IBNR claims have been estimated using claims run-off triangle . 3.3.9.4 Unit Linked Business Policyholders' liabilities constitute the fund value of unit linked contracts as well as non-investment or risk reserves of these contracts. Risk reserves constitute liabilities held to account for risks such as death and risk only riders (accidental death and disability, monthly income benefit, waiver of premium, etc.). Reserves for risk only contracts where premiums are level over the term of the contract are based on the Net Premium Method whereas reserves for age related risk contracts are based on net unearned premiums. Reserves for IBNR claims have been estimated using claims run-off triangle. 3.3.9.5 Individual Family Takaful Unit Linked Business Policyholders' liabilities constitute the fund value of unit linked contracts as well as non-investment or risk reserves of these contracts. Risk reserves constitute liabilities held to account for risks such as death and risk only riders (accidental death and disability, monthly income benefit, waiver of contribution, etc.). Reserves for risk only contracts where contribution are level over the term of the contract are based on the Net Premium Method whereas reserves for age related risk contracts are based on net unearned contribution. Reserves for IBNR claims have been estimated using claims run-off triangle. 3.3.9.6 Group Family Takaful Business Policy reserves for these plans are based on the unearned contribution method net of allowances made for acquisition expenses, unexpired retakaful contribution and profit commission. Consideration is also given to the requirement for a Premium Deficiency Reserve. The reserves also comprise allowance for "Incurred But Not Reported" (IBNR) claims. The provision for 'Incurred But Not Reported' (IBNR) claims as included in policyholders' liability is estimated based on the gross and net loss ratio of 75% and 65% respectively. 3.4 Acquisition costs - Life Insurance Business These are costs incurred in acquiring insurance policies / takaful contracts, maintaining such policies / takaful contracts, and include without limitation all forms of remuneration paid to insurance agents / takaful agents. Commission and other expenses are recognised as expense in the earlier of the financial year in which they are paid and the financial year in which they become payable, except that commission and other expenses which are directly referable to the acquisition or renewal of specific contracts are recognised not later than the period in which the premium to which they refer is recognised as revenue. 3.5 Takaful operator fee - Life Insurance Business The shareholders of the Subsidiary Company manage the Window Takaful Operations for the participants. Accordingly, the Subsidiary Company is entitled to Takaful Operator's Fee for the management of Window Takaful Operations under the Waqf Fund, to meet its general and administrative expenses. The Takaful Operator's Fee, termed Wakalah fee, is recognised upfront. 3.6 Investment Properties Investment property is measured at purchase cost on initial recognition including directly attributable to the acquisition of the investment property and subsequently at fair value with any change therein recognized in profit and loss account. Subsequent costs are included in the carrying amount of the investment property, only when it is probable that the future economic benefits associated with the items will flow to the Group and the cost of the item can be measured reliably. Other repair and maintenance cost are charged to profit and loss account as and when incurred. Annual Report 2021 256
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 3 .7 Property and equipment Owned operating assets, other than freehold land which is not depreciated are stated at cost, signifying historical cost, less accumulated depreciation and any provision for accumulated impairment. Freehold land and capital work-in-progress are carried at cost less accumulated impairment losses, if any. Depreciation is charged to profit and loss account applying reducing balance method depending upon the nature of the asset, at the rates specified for calculation of depreciation after taking into account residual value, if any. The useful lives, residual values and depreciation method are reviewed, and adjusted if appropriate, at each reporting date. Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future benefits associated with the asset will flow to the Group and the cost of the asset can be measured reliably. All other repairs and maintenance costs are charged to profit and loss account as and when incurred. Depreciation on additions is charged from the month the assets are available for use while on disposals, no depreciation is charged in the month in which the assets are disposed off. The carrying values of operating assets are reviewed for impairment when events or changes in circumstances indicate that this carrying value may not be recoverable. If any such indications exist and where the carrying values exceed the estimated recoverable amounts, the assets are written down to their recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount of the assets disposed off. These are taken to profit and loss account. 3.8 Capital work in progress Capital work in progress is stated at cost less any identified impairment loss. All expenditure including borrowing costs connected with specific assets incurred during installation and construction period are carried under capital work-inprogress. These are transferred to operating assets as and when these are available for use. 3.9 Leases As a lessee, the Group recognizes right of use asset and lease liability at the lease commencement date. Right of use assets The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payment made at or before the commencement date, plus any initial direct cost incurred and less any lease incentives received. The right of use assets are subsequently depreciated using the straight-line method over the lease term as this method most closely reflects the expected pattern of consumption of future economic benefits. In addition, the right of use asset is periodically reduced by impairment losses, if any, and adjusted for the certain remeasurement of the lease liability. Lease liability The lease liability is initially measured at present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise of the following: - fixed payments, including in-substance fixed payments; - variable lease payments that depend on an index, or a rate, initially measured using the index or rate as at commencement date; Annual Report 2021 257
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 - amount expected to be payable under a residual guarantee ; and - the exercise under purchase option that the Group is reasonably certain to exercise, lease payments in an optional r e n e w a l period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of lease unless the Group is reasonably certain not to terminate early." The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change Group's estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right of use asset, or is recorded in Profit and loss account if the carrying amount of the right of use asset has been reduced to zero. 3.10 Intangible assets These are stated at cost less accumulated amortization and provision for accumulated impairment, if any. Amortization is calculated from the month the assets are available for use using the straight-line method, whereby the cost of the intangible asset is amortized over its estimated useful life over which economic benefits are expected to flow to the Group. The useful life and amortization methods are reviewed, and adjusted if appropriate, at each reporting date. Software development costs are only capitalized to the extent that future economic benefits are expected to be derived by the Group. The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate that this carrying value may not be recoverable. If any such indications exist and where the carrying values exceed the estimated recoverable amounts, the assets are written down to their recoverable amount. 3.11 Segment reporting A business segment is a distinguishable component of the Group that is engaged in providing services that are subject to risks and returns that are different from those of other business segments. The Group accounts for segment reporting of operating results using the classes of business as specified under the Insurance Ordinance, 2000 and the Insurance Rules, 2017. The reported operating segments are also consistent with the internal reporting provided to Board of Directors which is responsible for allocating resources and assessing performance of the operating segments. The performance of segments is evaluated on the basis of underwriting results of each segment. Assets, liabilities and capital expenditures that are directly attributable to segments have been assigned to them. Those assets and liabilities which cannot be allocated to a particular segment on a reasonable basis are reported as unallocated corporate assets and liabilities. 3.12 Cash and cash equivalents Cash and cash equivalents are carried in the statement of financial position at cost. It comprise cash in hand, policy stamps and bank balances. 3.13 Investment income Following are recognized as investment income: - Income on investments designated at fair value through profit or loss are included in profit and loss account. - Income from held to maturity investments is recognized on a time proportion basis taking into account the effective yield on the investments. The difference between the redemption value and the purchase price of the held to maturity investments is amortized and taken to the profit and loss account over the term of the investment. Annual Report 2021 258
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 - Dividend income is recognized when the Group 's right to receive the dividend is established. - Gain / loss on sale of available-for-sale investments is recognized in profit and loss account in the year of sale. - Return on term deposits is recognized on a time proportion basis taking into account the effective yield. - Return on fixed income and government securities are recognized on time proportion basis using the effective interest rate method. 3.14 Investments Investments are recognized and classified as follows: - Investment at fair value through profit or loss - Held to maturity - Available-for-sale The classification depends on the purpose for which the financial assets were acquired. 3.14.1 Investment at fair value through profit or loss Financial assets that are designated upon initial recognition as one to be measured at fair value through profit or loss include those group of financial assets which are managed and their performance is evaluated on fair value basis and were held for active trading. 3.14.2 Held to maturity Investments with fixed determinable payments and fixed maturity, where management has both the intent and the ability to hold to maturity, are classified as held to maturity. Subsequently, these are measured at amortized cost less provision for impairment, if any. Any premium paid or discount availed on government securities and term finance certificates is deferred and amortized over the period to maturity of investment using the effective yield. 3.14.3 Available-for-sale Investments which are not eligible to be classified as 'fair value through profit or loss' or 'held to maturity' are classified as 'available-for-sale'. These investments are intended to be held for an indefinite period of time which may be sold in response to the need for liquidity, changes in interest rates, equity prices or exchange rates. These are initially measured at cost and subsequently re-measured at fair value at each reporting date. The unrealized gains and losses arising from changes in fair values are directly recognized in equity in the year in which these arise. When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the profit and loss account as gains and losses from investment securities. The Group assesses at each statement of financial position date whether there is an objective evidence that the financial asset is impaired. If any such evidence exists for an 'available for sale' asset, the accumulated loss is removed from equity and recognized in the profit and loss account. Quoted Subsequent to initial recognition, these investments are re-measured at fair value. Gains or losses on investments on re-measurement of these investments are recognized in statement of comprehensive income. Annual Report 2021 259
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Unquoted Fair value of unquoted investments is determined on the basis of appropriate valuation techniques as allowed by IAS 39 'Financial Instruments: Recognition and Measurement'. Where fair value cannot be measured reliably, these are carried at cost. The valuation of unquoted investments as at December 31, 2021 has been carried out by independent valuer for determination of fair value of these investments. 3.14.4 Fair / market value measurements For investments in Mutual funds, fair / market value is determined by reference to rates quoted by Mutual Fund Association of Pakistan ('MUFAP'). For investments in quoted marketable securities, other than Term Finance Certificates, fair / market value is determined by reference to Stock Exchange quoted market price at the close of business on reporting date. The fair market value of Term Finance Certificates is as per the rates issued. 3.15 Date of recognition Regular way purchases and sales of investments that require delivery within the time frame established by regulations or market convention are recognized at the trade date. Trade date is the date on which the Group commits to purchase or sell the investment. 3.16 Off setting of financial assets and financial liabilities A financial asset and a financial liability is offset and the net amount is reported in the statement of financial position when the Group has a legally enforceable right to set-off the recognized amounts and it intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. 3.17 Provisions Provisions are recognized when the Group has a present, legal or constructive obligation as a result of past events and, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made of the amount of obligation. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. 3.18 Taxation Income tax comprises current and deferred tax. Income tax is recognized in the profit and loss account except to the extent that relates to items recognized directly in equity or other comprehensive income, in which case it is recognized directly in equity or other comprehensive income. Current Provision for current taxation is based on taxable income for the year determined in accordance with the prevailing law for taxation of income. The charge for current tax is calculated using prevailing tax rates or tax rates expected to apply to the profit for the year, if enacted. The charge for current tax also include adjustments, where considered necessary, to provision for tax made in previous years arising from assessments finalized during the current year for such years. Deferred Deferred taxation is accounted for using the statement of financial position liability method in respect of all temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of the taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused tax losses and tax credits can be utilized. Deferred tax is calculated at the rates that are expected to apply to the period when the differences reverse based on tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax is charged or credited in the profit and loss account, except in the case of items credited or charged to statement of comprehensive income in which case it is included in statement of comprehensive income. Annual Report 2021 260
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 3 .19 Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost, any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the statement of profit and loss over the period of the borrowings using the effective interest rate. Finance costs are accounted for on accrual basis and are reported under accrued markup to the extent of the amount remaining unpaid. 3.20 Government grant Government grants are transfers of resources to the Group by a government entity in return for compliance with certain past or future conditions related to the Group's operating activities - e.g. a government subsidy. The definition of 'government' refers to governments, government agencies and similar bodies, whether local, national or international. The Group recognises government grants when it is reasonably probable that grants will be received and the Group will be able to comply with conditions associated with grants. Government grants are recognized at fair value, as a deferred income, when there is reasonable assurance that the grants will be received and the Group will be able to comply with the conditions associated with the grants. Grants that compensate the Group for expenses incurred, are recognized on a systematic basis in the income for the year in which the related expenses are recognized. Grants that compensate for the cost of an asset are recognized in income on a systematic basis over the expected useful life of the related asset. Loan at subsidized rate under SBP refinancing scheme for payment of wages and salaries is initially measured at the fair value i.e. the present value of the expected future cash flows discounted at a market-related interest rate. The difference between the amount received and the fair value is recognized as a government grant. 3.21 Retirement benefit obligations 3.21.1 General Insurance Business Defined contribution plan The Parent Company operates an approved contributory provident fund scheme for all its eligible employees. Equal monthly contributions to the fund are made by the Parent Company and the employees at the rate of 8.33% of basic salary. Contributions made by the Parent Company are recognized as expense. The Parent Company has no further payment obligations once the contributions have been paid. Obligation for contributions to defined contribution plan is recognized as an expense in the profit and loss account as and when incurred. Defined benefit plans The Parent Company operates the following defined benefit plans: - An approved funded gratuity scheme for all its permanent employees in Pakistan. Annual contribution are made to this scheme on the basis of actuarial recommendations. The Parent Company recognizes expense in accordance with IAS 19 'Employee Benefits'. The contributions have been made to gratuity fund in accordance with the actuary’s recommendations based on the actuarial valuation of these funds as at December 31, 2021. - An unfunded gratuity scheme covering the employees in the UAE branches as per the requirements of the applicable regulations. Provision is made in these consolidated financial statements on the basis of the actuarial valuation carried out by an independent actuary using the projected unit credit method. The latest valuation has been carried at December 31, 2021. Past-service costs are recognized immediately in profit and loss account, unless the changes to the plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortized on a straight-line basis over the vesting period. Annual Report 2021 261
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 The Parent Company 's net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets. The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Parent Company, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements. Re-measurement of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Parent Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit and loss account. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit and loss account. The Parent Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs. Employees' compensated absences The Parent Company accounts for these benefits in the period in which the absences are earned. The Parent Company provides annually for the expected cost of accumulating compensated absences on the basis of actuarial valuation. Regular employees of the Parent Company are entitled to 30 days earned leaves in a calendar year and they can accumulate the unutilized privilege leaves upto 60 days (2020: 60). The most recent valuation is carried out as at December 31, 2021 using the LIFO method. The liabilities are presented as a current employees benefit obligations in the statement of financial position. 3.21.2 Life Insurance Business Defined benefit plan The Subsidiary Company operates an approved funded gratuity scheme for all permanent, confirmed and full time employees who have completed minimum qualifying eligible service period of six months. Contribution to the fund is made and expense is recognized on the basis of actuarial valuation carried out as at each year end using the Projected Unit Credit Method. Provisions are made to cover the obligations under the scheme on the basis of actuarial assumptions. The Subsidiary Company's obligation under the gratuity schemes are determined through actuarial valuations. Actuarial valuations are conducted annually and the latest valuation was conducted as at December 31, 2021. Service costs are recognized in profit and loss in the year in which they occur. Net interest on net defined benefit liability is also recognized in profit and loss. Net of tax remeasurement comprising actuarial gain / loss , the return on plan assets excluding interest are recognized in other comprehensive income. Employees accumulated compensated absences The Subsidiary Company accounts for the liability in respect of employees accumulated compensated absences in the period in which they are earned. Annual Report 2021 262
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 3 .22 Impairment of assets Financial assets A financial asset is considered to be impaired if objective evidence indicate that one or more events had a negative effect on the estimated future cash flow of that asset. An impairment loss in respect of a financial asset measured at amortized cost is calculated as a difference between its carrying amount and the present value of estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of available for sale financial asset is calculated with reference to its current fair value. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. Non financial assets The carrying amounts of the Group's non-financial assets are reviewed at each statement of financial position date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of such asset is estimated. An impairment loss is recognized wherever the carrying amount of asset exceeds its recoverable amount. Impairment losses are recognized in profit and loss account. A previously recognized impairment loss is reversed only if there has been change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit and loss account. 3.23 Dividend distribution Dividend distribution to the Parent Company's shareholders and other appropriations are recognized in the Group's financial statements in the period in which these are approved. Appropriations of profit are reflected in the statement of changes in equity in the period in which such appropriations are approved. 3.24 Management expenses Expenses of management both direct and indirect are allocated on the basis of activity in each class of business. Expenses not allocable to the underwriting business are charged as other expenses. 3.25 Foreign currencies Transactions in foreign currencies (other than the result of foreign branches) are accounted for in Pak Rupees at the rates prevailing on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Pak Rupees at the rates of exchange prevailing at the reporting date. Exchange differences are taken to the profit and loss account currently. The assets and liabilities of foreign branches are translated to Pak Rupees at exchange rates prevailing at the reporting date. The results of the foreign branches are translated to Pak Rupees at the average rate of exchange for the year. Translation gains and losses are included in the profit and loss account, except those arising on the translation of the Group net investments in foreign branches, which are taken to the capital reserves (exchange translation reserve). 3.26 Financial instruments Financial assets and liabilities are recognized at the time when the Group becomes a party to the contractual provisions of the instrument and de-recognized when the Group loses control of contractual rights that comprise the financial assets and in the case of financial liabilities when the obligation specified in the contract is discharged, cancelled or expired. Any gain or loss on the de-recognition of the financial assets and liabilities is included in the profit and loss account. Annual Report 2021 263
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Financial instruments carried in the statement of financial position include cash and bank , loans, investments, premiums due but unpaid, amount due from other insurers / reinsurers, premium and claim reserves retained by cedants, accrued investment income, reinsurance recoveries against outstanding claims, sundry receivables, provision for outstanding claims, amounts due to other insurers / reinsurers, accrued expenses, other creditors and accruals, liabilities against asset subject to finance lease and unclaimed dividends. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. 3.27 Earnings per share The Group presents basic and diluted earnings per share (EPS) for its shareholders. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated if there is any potential dilutive effect on the Group's reported net profits. 3.28 Window Takaful Operations - Parent Company The accounting policies followed by Window Takaful Operations of the Parent Company are stated in the annexed financial statements of Window Takaful Operations for the year ended December 31, 2021. 4 Critical accounting estimates and judgments 4.1 Use of estimates and judgments The preparation of these consolidated financial statements in conformity with approved accounting standards requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years. The areas involving a higher degree of judgment and complexity, or areas where assumptions and estimates are significant to these consolidated financial statements or judgment was exercised in application of accounting policies, are as follows: - Provision for doubtful receivables - Provision for outstanding claim including claims incurred but not reported (IBNR) - Premium deficiency - Retirement benefit obligations - Valuation of unquoted investments - Provision for taxation including the amount relating to tax contingency - Useful lives, pattern of economic benefits and impairments - Property and Equipment - Useful lives, pattern of economic benefits and impairments - Intangible Assets - Policy holders' liabilities and underlying actuarial assumptions - Provision for outstanding claims - Impairment of assets - financial assets - Segment Reporting 3.2.6 3.2.7 3.2.4 3.21 3.14.3 3.18 3.7 3.10 3.3.9 3.3 3.22 3.11 Annual Report 2021 264
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 4 .2 Change in accounting estimate The management reviews the useful lives of property and equipment on regular basis. During the current year, the management of the Parent Company has revised its estimate of the residual values of its operating fixed assets ranging from 10% to 25% of the cost of respective assets based on the consultation with the valuer. The management has also reviewed the useful lives of the respective assets and concluded that the current estimates of useful lives are appropriate. The management believes that the said change in estimate is more accurate and better reflects the pattern of consumption of economic benefits of the respective classes of assets. The aforementioned revision has been accounted for as change in accounting estimate in accordance with the requirements of IAS - 8 (Accounting Policies, Changes in Accounting Estimates and Errors). The effects of this change in accounting estimate has been recognised prospectively in the current period. The change in estimates of residual values has resulted in decrease in depreciation charge as follows: Class of assets Buildings Furniture and fixtures Motor vehicles Machinery and equipment Computer Equipment Rs in thousands (20,370) (7,100) (18,402) (19,999) (6,203) (72,074) Had there been no revision, profit before taxation for the current year would have been lower by Rs. 72,074 thousands whereas the carrying value of operating assets would have been reduced by same amount. Accordingly, earnings per share for the year ended December 31, 2021 would have been lower by Rs. 0.15. Impact of change in accounting estimate on future period has not been disclosed because it can not be estimated reliably. Note 5 Property and equipment Operating assets Capital work in progress Right of use asset 5.1 5.2 5.3 2021 2020 Rupees in thousand 5,190,298 53,719 171,428 4,245,254 28,116 195,271 5,415,445 4,468,641 Annual Report 2021 265
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 5 .1 Operating assets 2021 Cost As at Jan 01 Exchange Transfer Additions / differences Disposals / from Transfers and other Write Offs investment adjustments property As at Dec 31 As at Jan 01 Depreciation Net Book value Exchange Transfer Charge for differences Disposals / from the year and other Write offs investment adjustments property As at Dec 31 Rate As at Dec 31 (Rupees in thousands) Freehold: Land 995,651 Building* 2,366,653 Furniture and fixtures 421,171 Motor vehicles 739,816 Machinery and equipment 752,706 Computer equipment 481,604 771,927 90,714 30,760 70,455 58,503 26,523 52,447 10,035 4,775 4,246 4,099 (30,555) (2,500) (1,115) (43,015) (12,146) (2,275) 8,640 107,273 - 45,542 12,095 - (5,618) - 5,803,143 1,060,977 75,602 (97,224) 115,913 Leasehold Improvements Total % 1,745,663 2,614,587 460,851 772,031 803,309 509,951 352,568 158,122 429,860 223,536 382,584 45,131 37,259 35,549 67,808 32,952 19,086 5,480 2,223 1,898 2,518 (830) (607) (30,645) (9,517) (2,211) - 415,955 200,254 436,987 283,725 415,843 1,745,663 2,198,632 260,597 335,044 519,584 94,108 52,019 11,219 7,038 - (2,908) - 15,349 36,670 6,958,411 1,557,889 225,737 31,205 (46,718) - 1,768,113 5,190,298 3.0% 14.3% - 15.0% 15.0% - 20.0% 15.0% - 20.0% 30.0% - 33.3% 14.3% 2020 As at Jan 01 Cost Exchange Transfer to Additions / differences Disposals / investment Transfers and other Write Offs property adjustments As at Dec 31 As at Jan 01 Depreciation Exchange Transfer to Charge for differences Disposals / investment the year and other Write offs property adjustments Net Book value As at Dec 31 Rate As at Dec 31 % (Rupees in thousands) Freehold: Land** Building* Furniture and fixtures Motor vehicles Machinery and equipment Computer equipment 995,651 2,102,229 320,264 771,751 642,810 434,938 254,005 107,479 26,596 116,307 52,313 Leasehold Improvements 60,711 5,651 5,328,354 562,351 Total 15,364 3,024 1,577 733 806 (4,945) (9,596) (60,108) (7,144) (6,453) - 995,651 2,366,653 421,171 739,816 752,706 481,604 291,705 128,431 404,250 146,954 346,974 56,601 33,114 57,040 80,620 40,058 8,615 809 1,201 423 635 (4,353) (4,232) (32,631) (4,461) (5,083) - 352,568 158,122 429,860 223,536 382,584 995,651 2,014,085 263,049 309,956 529,170 99,020 - (20,820) - 45,542 11,935 8,204 - (8,920) - 11,219 34,323 21,504 (109,066) - 5,803,143 1,330,249 275,637 11,683 (59,680) - 1,557,889 4,245,254 3.0% 14.3% - 15.0% 15.0% - 20.0% 15.0% - 20.0% 30.0% - 33.3% 14.3% * The Group owns 4 buildings and resulting area of land and 8 corporate offices in Pakistan and 1 corporate office in UAE. ** The Parent Company has restated the cost of Land amounting to Rs. 290 million from Property and equipment to Investment property for the year ended December 31, 2019 and December 31, 2020 as explained in Note 7.1. Annual Report 2021 266
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 5 .1.1 Details of tangible assets disposed off during the year are as follows: Description Cost Accumulated depreciation Book value Sale proceeds (Rupees in thousands) Mode of disposal Relationship Particulars of purchaser Land and Building Negotiation Chief Executive Officer Muhammad Ali Zeb 980 536 1,320 1,375 817 770 Auction Auction Auction Auction Auction Auction Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party 304 1,285 Auction Independent third party 767 762 725 228 233 225 827 820 860 Auction Auction Auction Independent third party Independent third party Independent third party 1,478 1,542 1,507 1,034 1,572 1,685 1,125 913 1,076 734 1,092 1,128 353 629 431 300 480 557 1,457 1,238 1,608 605 1,255 1,551 Auction Auction Auction Auction Auction Auction Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Honda Civic Exi (BCL-671) Suzuki Cultus (BDB-832) Honda Citi (BDA-810) Suzuki Cultus (LEH-15-3032) Toyota Corolla Xli (BET-488) Honda Citi (BFE-384) Suzuki Mehran (LEA-16A-8924) 2,169 1,054 1,325 1,069 1,651 1,561 708 1,417 652 837 633 978 913 373 752 402 488 436 673 648 335 1,702 871 1,760 1,010 1,638 1,633 671 Auction Auction Auction Auction Auction Auction Auction Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Independent third party Suzuki Cultus (BAV-756) 1,076 766 310 867 Auction Independent third party Suzuki Cultus (BGA-490) Ford Explorer (92187) 1,126 2,262 630 959 496 1,303 1,186 976 Independent third party Employee Honda Civic (BJL-527) 2,588 1,984 604 1,172 Employee Ahmed Subhan - employee Honda City (BHS-817) Items having book value below Rs. 50,000 1,154 866 288 546 Auction Negotiation Final Settlement As per company policy Syed Al E Hasan Bukhari Nasir Mehmood Muhammad Nadeem Farooqui Ashraf Ali Khan Syed Muhammad Naeem Muhammad Sohaib Augmentech Business Solution (Private) Limited Augmentech Business Solution (Private) Limited Muhammad Anwar Syed Al E Hasan Bukhari Augmentech Business Solution (Private) Limited Rana Muhammad Zahid Muhammad Nadeem Farooqui Mehmood Hayat Chaudhry Rab Nawaz Khan Farrukh Anwer Bajwa Augmentech Business Solution (Private) Limited Muhammad Nadeem Farooqui Muhammad Arshad Abbasi Muhammad Tufail Rana Muhammad Zahid Muhammad Tufail Farrukh Anwar Bajwa Augmentech Business Solution (Private) Limited Augmentech Business Solution (Private) Limited Salman Chaudhry - employee Employee Nasir Mehmood - employee 5,963 43,015 5,127 30,645 836 12,370 1,534 32,870 1,646 2,311 3,348 460 3,715 700 1,993 2,893 379 3,162 946 318 455 81 553 3,217 1,082 1,547 275 1,880 Auction Auction Auction Auction Auction Independent third party Independent third party Independent third party Independent third party Independent third party Muhammad Asim Muhammad Asim Muhammad Asim Muhammad Asim Muhammad Asim 666 12,146 390 9,517 276 2,629 26 8,027 2,275 2,275 2,211 2,211 64 64 190 190 Model Town premises 33,055 33,055 830 830 32,225 32,225 33,055 33,055 1,115 1,115 607 607 508 508 163 163 Motor vehicles (Owned) Honda Citi (ANW-119) Suzuki Cultus (AMU-983) Honda Citi (AUV-482) Toyota Corolla Gli (AUW-681) Suzuki Cultus (AVB-652) Suzuki Cultus (AVA-979) 846 600 1,365 1,373 935 918 754 540 1,097 1,105 747 735 92 60 268 268 188 183 Toyota Corolla Gli (AWA-988) 1,514 1,210 995 995 950 Toyota Corolla Gli (AXS-164) Toyota Corolla Gli (AXS-158) Honda Citi (AYU-712) Suzuki Cultus (BAV-761) Toyota Corolla Xli (BAU-953) Honda Citi Mt (BBT-674) Furniture and fixtures Items having book value below Rs. 50,000 Suzuki Cultus (AWV-141) Suzuki Cultus (AWY-191) Suzuki Cultus (AXU-579) Machinery & equipment Diesel Generator Generator Generator Generator Generator Items having book value below Rs. 50,000 Computer equipment Items having book value below Rs. 50,000 Leasehold improvements Items having book value below Rs. 50,000 Grand Total 5,618 5,618 2,908 2,908 2,710 2,710 - 97,224 46,718 50,506 74,305 Annual Report 2021 267
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 5 .2 Capital work in progress Mobilization advance Advance for computer hardware equipment Advance for ERP softwares Leasehold improvements 5.3 2021 2020 Rupees in thousand 11,778 16,999 24,942 5,868 5,302 16,946 53,719 28,116 As at January 01 Derecognition / Adjustments in Agency branches Additions during the year Depreciation charged during the year Exchange difference 195,271 (3,768) 30,004 (58,259) 8,180 272,496 (109,176) 78,114 (43,701) (2,462) Closing Net Book Value 171,428 195,271 Right of use asset 5.3.1 All the right of use assets include premises obtained on rent for branch operations (inside and outside of Pakistan). 6 Intangible assets 2021 2020 Rupees in thousand Cost As at January 01 Additions during the year Exchange differences and other adjustments As at December 31 524,073 37,643 14,671 576,387 478,070 42,296 3,707 524,073 As at January 01 Amortization charged during the year Exchange differences and other adjustments As at December 31 396,692 45,927 10,303 452,922 346,834 47,821 2,037 396,692 Net book value as at December 31 123,465 127,381 Rate of amortization 20.00% 20.00% Net book value as at January 01 Additions and capital improvements Transfer to property and equipment Unrealized fair value gain / (loss) 1,473,367 (887,840) 674,140 1,494,367 (21,000) Net book value as at December 31 1,259,667 1,473,367 Less: Accumulatedamortization 7 Investment Properties Investment property as at December 31, 2021 consists of the following: - 3 floors of Adamjee House, Karachi which are rented out. - 1 floor of Adamjee House, Lahore which is rented out. Market value of these investment properties amounts to Rs. 1,259 million based on a valuation carried out by independent valuer, as at December 31, 2021. Annual Report 2021 268
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 The fair value of investment properties was determined by external , independent property valuers having adequate qualifications and experience in the location and category of the property being valued. Investment properties of the Group are valued every year. The valuation has been carried out considering the segment and location of the property, size, utilization and current trends in price of real estate in close proximity, current market rents for similar properties including assumptions that ready buyers are available in the current market which is analyzed through detailed market surveys and the properties that have recently been sold or purchased or offered/quoted for sale into the same vicinity to determine the better estimates of the fair value. 7.1 The Parent Company recognised part of the Buildings as Investment property in the financial statements for the year ended December 31, 2019. However, the related cost of the land was previously recorded in Property and equipment. During the current year, the Parent Company has restated the respective cost of land amounting to Rs. 290 million from Property and equipment to Investment property retrospectively, from the year 2019 onwards to reflect its more appropriate treatment. The fair value of the land as at December 31, 2019 and December 31, 2020 was estimated to be the same as its carrying value on the respective dates. The Parent Company has not presented the restated Statement of Financial Position for the year ended December 31, 2019 as the impact on the Statement of Financial Position for the year then ended was not considered material. The impact of this restatement is as follows: As previously reported Adjustment Restated Rupees in thousand (a) Impact of change on the Statement of Financial Position as at December 31, 2019: Property and equipment Investment property 4,626,364 1,204,026 (290,341) 290,341 4,336,023 1,494,367 (b) Impact of change on the Statement of Financial Position as at December 31, 2020: Property and equipment Investment property 4,758,982 1,183,026 (290,341) 290,341 4,468,641 1,473,367 (c) Previously, the Parent Company had identified two floors to rent out at Adamjee House, Lahore; however, during the year, the Parent Company occupied one floor for their own use whilst renting out only one floor. Note 8 2021 2020 Rupees in thousand Investments in equity securities Available-for-sale 8.1 21,177,227 19,213,873 Fair value through profit or loss (designated upon initial recognition) 8.2 16,837,134 15,649,876 38,014,361 34,863,749 Annual Report 2021 269
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Cost Note 8 .1 2021 Impairment / Unrealized provision Gain / (loss) Carrying value Cost 2020 Impairment / Unrealized Carrying value provision Gain / (loss) -------------------------------------------------------------------------------------------- (Rupees in thousand) -------------------------------------------------------------------------------------------- Available-for-sale Related parties Listed shares Unlisted shares 8.1.1 8.1.2 9,586,807 949,456 10,536,263 (23,854) (23,854) (464,114) 2,559,896 2,095,782 9,098,839 3,509,352 12,608,191 9,104,774 924,333 10,029,107 (265,237) (265,237) 1,187,635 258,807 1,446,442 10,027,172 1,183,140 11,210,312 8.1.3 8.1.4 8.1.5 8.1.6 6,678,467 925,360 48,550 161 7,652,538 (2,084,340) (5,117) (2,089,457) 1,103,806 1,901,408 31 710 3,005,955 5,697,933 2,826,768 43,464 871 8,569,036 6,369,165 925,360 48,130 161 7,342,816 (1,897,973) (1,897,973) 1,184,151 1,375,709 (1,851) 709 2,558,718 5,655,343 2,301,069 46,279 870 8,003,561 18,188,801 (2,113,311) 5,101,737 21,177,227 17,371,923 (2,163,210) 4,005,160 19,213,873 Others Listed shares Unlisted shared Mutual Funds NIT Units 8.1.1 Related parties- Listed Shares No. of shares 2020 2021 Face value Rupees Company's Name 55,196,435 47,827,287 10 Commercial Banks MCB Bank Limited 2,050 2,050 10 3,358,344 963,500 25,631,181 81,793,166 Market Value 2020 2021 Rupees in thousand 8,464,374 8,861,440 Textile Composite Nishat Mills Limited 163 208 10 Cement D.G. Khan Cement Company Limited - 384,799 923,500 25,671,181 10 10 Power Generation & Distribution Nishat Power Limited Pakgen Power Limited 19,154 615,148 21,804 505,878 5,696,595 10 Oil & Gas Exploration Companies Sui Northern Gas Pipelines Limited - 253,043 83,478,957 9,098,839 10,027,172 8.1.1.1 3,716,710 (2020 : 3,716,710) shares of MCB Bank Limited have been pledged against Standby Letter of Credit (SBLC) issued in favour of Meezan Bank Limited on behalf of Hyundai Nishat Motor (Private) Limited, a related party of the Group. Annual Report 2021 270
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 8 .1.2 Related Parties - Unlisted shares No. of shares 2020 2021 94,873,000 92,360,700 Face value Rupees 10 Company's Name Automobile Assembler Hyundai Nishat Motor (Private) Limited Market Value 2020 2021 Rupees in thousand 3,509,352 1,183,140 8.1.2.1 This represents investment in the ordinary shares of Hyundai Nishat Motor (Private) Limited (HNMPL) which is principally engaged in vehicle assembling. Since HNMPL's ordinary shares are not listed, an independent valuer engaged by the Parent Company has estimated a fair value of Rs. 36.99 per ordinary share as at December 31, 2021 (Rs. 12.81 per ordinary share as at December 31, 2020) through a valuation technique based on discounted cash flows. Hence, it has been classified under level 3 of the fair value hierarchy as further explained in note 44 to these consolidated financial statements. The significant assumptions used in this valuation technique are as follows: - Discount rate of 18.52% (2020: 14.87%) per annum. - Terminal growth rate in revenue of 4% (2020: 2%) per annum. 8.1.2.2 Sensitivity analysis Sensitivity analysis of the significant assumptions used in the valuation technique are as follows: - If the discount rate increases by 1% with all other variables held constant, the impact on fair value as at December 31, 2021 would be Rs. 247,619 thousand lower. - If the terminal growth rate increase by 1% with all other variables held constant, the impact on fair value as at December 31, 2021 would be Rs. 160,335 thousand higher. 8.1.3 Others - listed shares No. of shares 2020 2021 987,795 148,131 731,701 148,131 Face value Rupees Company's Name 10 Automobile Assembler Millat Tractors Limited 10 Cable & Electrical Goods Siemens (Pakistan) Engineering Company Limited Market Value 2020 2021 Rupees in thousand 851,714 800,547 98,141 80,760 Annual Report 2021 271
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 8 .1.3 Others - listed shares (continued) No. of shares 2020 2021 Face value Rupees Company's Name Market Value 2020 2021 Rupees in thousand 24,000 645,100 24,000 645,100 10 10 Cement Attock Cement Pakistan Limited Fecto Cement Limited 3,335 17,398 3,601 22,133 4,113,500 4,113,500 10 Close - End Mutual Fund HBL Investment Fund 'A' 10,284 13,040 6,277,500 389,107 8,320,012 1,279,400 6,277,500 389,107 8,320,012 1,279,400 10 10 10 10 Commercial Banks Allied Bank Limited Habib Bank Limited National Bank of Pakistan United Bank Limited 516,450 45,378 287,207 174,740 535,910 49,647 357,428 161,025 178,637 100,000 300,000 109,560 100,000 300,000 10 10 10 Engineering Aisha Steel Mills Limited Crescent Steel & Allied Products Limited International Steel Limited 2,697 5,138 19,836 2,574 8,411 27,969 1,481,000 9,000 9,998,900 1,481,000 9,000 9,998,900 10 10 10 Fertilizer Engro Fertilizers Limited Fatima Fertilizer Company Limited Fauji Fertilizer Company Limited 112,689 324 1,002,490 93,644 262 1,084,881 5,740 70,304 5,740 70,304 10 10 Food & Personal Care Products Nestle Pakistan Limited Rafhan Maize Products Limited 32,864 660,858 38,257 688,909 4,800 230,000 286,843 4,800 230,000 286,843 10 10 10 Insurance EFU General Insurance Company Limited IGI Holdings Limited Pakistan Reinsurance Company Limited 504 35,335 6,425 576 46,791 7,894 2,220,100 5,462,000 2,220,100 5,462,000 10 10 Investment Companies Dawood Hercules Corporation Limited MCB Arif Habib Savings & Investment Limited 212,064 193,792 269,831 153,428 1,524,300 600 5,696,595 1,524,300 600 - 10 10 10 Oil & Gas Exploration Companies Oil & Gas Development Company Limited Pakistan Oilfields Limited Sui Northern Gas Pipelines Limited 131,395 215 190,551 158,177 239 - 11,750 11,750 10 Paper & Board Packages Limited 5,843 7,014 369,400 369,400 10 Pharmaceuticals Abbott Laboratories Pakistan Limited 265,048 279,033 5,743,000 130,000 27,348,388 4,960,882 5,743,000 130,000 27,348,388 4,960,882 10 10 10 10 Power Generation & Distribution Kot Addu Power Company Limited K-Electric Limited Lalpir Power Limited Saif Power Limited 185,786 447 385,886 93,563 156,209 508 350,606 72,032 37,500 49 506,450 37,500 49 506,450 10 10 10 Refinery Attock Refinery Limited Pakistan Petroleum Limited National Refinery Limited 5,401 4 144,131 6,827 4 177,176 88,860,783 82,839,017 5,697,933 5,655,343 Annual Report 2021 272
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 8 .1.3.1 369,000 (2020 : 155,000) shares of Abbot Laboratories Limited, 2,220,000 (2020 : 1,405,000) shares of Dawood Hercules Corporation Limited, 1,480,000 (2020 : Nil) shares of Engro Fertilizers Limited, 9,250,000 (2020 : 3,650,000) shares of Fauji Fertilizer Company Limited, 330,000 (2020 : Nil) shares of Habib Bank Limited, 300,000 (2020 : Nil) shares of International Steels Limited, 823,000 (2020 : 255,000) shares of Millat Tractors Limited, 8,240,000 (2020 : Nil) shares of National Bank of Pakistan, 5,700 (2020 : Nil) shares of Nestle Pakistan Limited, 1,524,000 (2020 : Nil) shares of Oil & Gas Development Company Limited and 1,250,000 (2020 : 850,000) shares of United Bank Limited have been pledged against SBLC (Standby Letter of Credit) issued in favour of Meezan Bank Limited on behalf of Hyundai Nishat Motor (Private) Limited, a related party of the Group and loans obtained from MCB Bank Limited, a related party of the Group. 8.1.4 Others - Unlisted shares No. of shares 2020 2021 9,681,374 Face value Rupees 9,681,374 10 Company's Name Security General Insurance Company Limited Market Value 2020 2021 Rupees in thousand 2,826,768 2,301,069 8.1.4.1 This represents investment in the ordinary shares of Security General Insurance Company Limited ("SGI") which is principally engaged in general insurance business. Since SGI's ordinary shares are not listed, an independent valuer engaged by the Parent Company has estimated a fair value of Rs. 291.98 per ordinary share as at December 31, 2021 ( Rs. 237.68 per ordinary share as at December 31, 2020) through a valuation technique based on discounted cash flow analysis of SGI. Hence, it has been classified under level 3 of the fair value hierarchy as further explained in note 44 to these consolidated financial statements. The significant assumptions used in this valuation technique are as follows: - Discount rate of 15% (2020: 15%) per annum. - Terminal growth rate of 2% (2020: 2%) per annum. 8.1.4.2 Sensitivity analysis Sensitivity analysis of the significant assumptions used in the valuation technique are as follows: - If the discount rate increases by 1% with all other variables held constant, the impact on fair value as at December 31, 2021 would be Rs. 8,574 thousand lower. - If the terminal growth rate increases by 1% with all other variables held constant, the impact on fair value as at December 31, 2021 would be Rs. 5,667 thousand higher. 8.1.5 Others-Mutual Fund Certificates Open-Ended-Mutual Funds No. of units 2020 2021 45,669 22,246 4,234,546 42,779 20,880 4,234,546 4,302,461 4,298,205 Market Value Face value Rupees Fund Name 100 100 10 Alfalah GHP Money Market Fund HBL Cash Fund HBL Investment Fund - Class B 2020 2021 Rupees in thousand 4,492 2,269 36,703 4,201 2,122 39,956 43,464 46,279 871 870 8.1.6 Open-Ended Equity Funds 12,540 12,540 National Investment Trust Annual Report 2021 273
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 8 .2 Fair value through profit or loss Related Party 2020 2021 Impairment / Unrealized Carrying Impairment / Unrealized Carrying Cost Cost value provision Gain / (loss) provision Gain / (loss) value Note ----------------------------------------------------------------- (Rupees in thousand) ---------------------------------------------------------------- Listed shares Mutual Funds 8.2.1 8.2.2 1,411,292 6,902,701 - (208,805) (11,942) 1,202,487 6,890,759 1,283,897 5,517,488 - 5,319 656,652 1,289,216 6,174,140 8,313,993 - (220,747) 8,093,246 6,801,385 - 661,971 7,463,356 9,407,055 960,373 - (2,632,258) 1,008,718 6,774,797 1,969,091 7,786,807 2,084,774 - (2,023,136) 338,075 5,763,671 2,422,849 10,367,428 18,681,421 - (1,623,540) 8,743,888 (1,844,287) 16,837,134 9,871,581 16,672,966 - (1,685,061) (1,023,090) 8,186,520 15,649,876 Others Listed shares Mutual Funds 8.2.1 8.2.3 8.2.4 Related parties- Listed Shares No. of shares 2020 2021 Company's Name 6,363,681 6,048,331 10 Commercial Banks MCB Bank Limited 1,290,000 400 451,900 10 10 Textile Composite Nishat Chunian Limited Nishat Mills Limited 2,023,450 738,300 10 Cement D.G. Khan Cement Company Limited - 1,847,000 10 - 100 10 9,677,531 8.2.2 Face value Rupees Market Value 2020 2021 Rupees in thousand 975,871 1,120,635 58,760 32 45,990 167,824 84,594 Miscellaneous Siddiqsons Tin Plate Limited - 37,993 Oil & Gas Exploration Companies Sui Northern Gas Pipelines Limited - 4 9,085,631 1,202,487 1,289,216 Related parties- Mutual Fund Certificates Open-Ended-Mutual Funds No. of units 2020 2021 127,332,624 1,813,615 2,976,246 8,455,118 3,878,276 38,403,219 2,716,884 55,847 159,350,568 49,244 2,520,442 504,207 6,004,684 37,778,525 - 185,575,982 206,263,517 Face value Rupees Fund's Name 100 10 100 50 100 100 50 50 Alhamra Daily Dividend Fund Alhamra Islamic Stock Fund Alhamra Islamic Income Fund Alhamra Islamic Asset Allocation Fund MCB Cash Management Optimizer Fund MCB Pakistan Asset Allocation Fund MCB Pakistan Stock Market Fund Pakistan Income Fund Market Value 2020 2021 Rupees in thousand 1,342,085 192,160 216,781 854,353 327,871 3,804,011 153,498 5,585 1,725,767 5,180 188,673 50,862 495,370 3,702,703 - 6,890,759 6,174,140 Annual Report 2021 274
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 8 .2.3 Others - listed shares No. of shares 2020 2021 Face value Rupees Company's Name 141,000 170 189,300 119,900 220,400 941 295,430 500 - 5 10 10 10 10 10 Automobile Assembler Agriauto Industries Limited Atlas Honda Limited Millat Tractors Limited Indus Motor Company Limited Honda Atlas Cars (Pakistan) Limited Pak Suzuki Motor Company Limited 674,000 2,509,337 341,900 416,100 10 10 5 Automobile Part & Accessories General Tyre & Rubber Company of Pakistan Panther Tyres Limited Thal Limited 4,292,000 1,963,500 4,120,000 - 10 10 Cable & Electrical Goods Pak Elektron Limited Waves Singer Pakistan Limited 1,145,800 401,300 3,364,000 692,501 5,246,758 600 2,200,000 8,591 537,200 13,500 7,971,500 273,556 1,000,422 500 - 10 10 10 10 10 10 10 10 18,392 120,560 4,471 - 1,000 1,964 15,960 8,288,575 5,500 7,506,775 1,357,284 2,189,500 4,450,000 1,220,080 1,000,000 931,675 Market Value 2020 2021 Rupees in thousand 57,249 209 44,823 27,968 51,627 1,030 353,913 164 - 31,246 104,790 130,842 196,682 96,656 30,611 165,336 - Cement Cherat Cement Company Limited Bestway Cement Limited Dewan Cement Limited Fauji Cement Company Limited Lucky Cement Limited Maple Leaf Cement Factory Limited Pioneer Cement Limited Power Cement Limited 169,934 61,985 61,797 470,403 188,620 53 13,992 1,256 86,672 140 172,742 190,420 45,029 52 - 10 10 Leather & Tanneries Service Industries Limited Bata Pakistan Limited 8,617 261,754 3,729 - 900 2,464 2,250,394 4,569,404 7,611,000 1,275 3,258,432 1,050,000 305,992 1,000,000 89,466 10 10 10 10 10 10 10 10 10 10 10 10 Commercial Banks Allied Bank Limited Askari Bank Limited Bank Al Habib Limited Bank Alfalah Limited Bank of Punjab Limited Faysal Bank Limited Habib Bank Limited Habib Metropolitan Bank Limited JS Bank Limited Meezan Bank Limited National Bank of Pakistan United Bank Limited 82 43 1,101 286,785 47 172,656 158,286 93,776 21,449 163,625 34,520 127,248 77 58 156,627 161,437 70,554 22 432,849 40,940 31,958 42,960 11,260 5,250 1,730,500 1,464,500 275,200 309,375 4,680 603,500 2,500 241 377,000 - 10 10 10 10 10 10 Engineering Agha Steel Industries Limited Aisha Steel Mills Limited Amreli Steels Limited International Industries Limited Mughal Iron & Steel Industries Limited Sazgar Engineering Works Limited 138 26,061 65,551 38,201 32,209 456 23,784 58 43 28,550 - 90,700 1,338,669 10,200 2,211,500 240 79,400 52,650 3,458,669 59,600 200 - 10 10 10 10 10 10 10 Chemical Archroma Pakistan Limited Dynea Pakistan Limited Engro Polymer and Chemicals Limited ICI Pakistan Limited Lotte Chemical Pakistan Limited Pakistan Oxygen Limited Sitara Chemical Industries Limited 19,546 72,570 7,761 30,209 37 24,461 29,394 164,321 45,301 31 - 36,300 1,172,343 2,000,273 500 36 36,300 626,951 2,000,301 62,500 224,532 10 10 10 10 10 10 Fertilizer Arif Habib Corporation Limited Engro Corporation Limited Engro Fertilizers Limited Fatima Fertilizer Company Limited Fauji Fertilizer Bin Qasim Limited Fauji Fertilizer Company Limited 1,301 319,369 152,201 12 4 1,454 192,700 126,479 1,819 24,362 Annual Report 2021 275
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 8 .2.3 Others - listed shares (continued) No. of shares 2020 2021 Face value Rupees Company's Name 2,248 387,750 16,401 671,400 2,140 676,000 860,000 614,532 5,050 280,200 12,641 945,600 - 10 10 10 5 10 10 10 10 Food & Personal Care Products At-Tahur Limited Murree Brewery Company Limited Nestle Pakistan Limited National Foods Limited Rafhan Maize Products Company Limited The Organic Meat Company Limited Unity Foods Limited Unity Foods Limited (R) 144,600 - 7,500 10 10 Insurance IGI Holdings Limited Pakistan Reinsurance Company Limited 1,478,300 1,633,387 1,038,000 160,000 18,000 2,295,735 824 10 10 10 10 600 573,000 299 16,403,000 55 2,000 2,000 90 - 3,950,000 - 2,410,500 - Market Value 2020 2021 Rupees in thousand 51 192,766 93,905 102,476 20,116 21,450 22,763 451 102 175,803 84,252 206,510 - 22,215 - 206 Textile Composite Gul Ahmed Textile Mills Limited Interloop Limited Azgard Nine Limited Kohinoor Textile Mills Limited 69,569 118,731 13,587 30,176 662 156,271 56 10 10 10 10 10 10 Technology & Communication Avanceon Limited Netsol Technologies Limited Octopus Digital Limited Pakistan Telecommunication Company Limited Systems Limited TRG Pakistan Limited 55 53,782 23 142,707 42 236 186 38 - 10 Transport Companies Pakistan International Bulk Terminal Limited 29,072 - 10 Investment Companies Jahangir Siddiqui & Company Limited 38,568 - 491,898 142,703 159,242 107,229 30,928 320,508 265,187 231,772 - 307,437 - 42,322 5 297,357 1,655,479 445,284 884,800 924,600 239,217 2,555,530 586,157 - 10 10 10 10 10 Oil & Gas Exploration Companies Mari Petroleum Company Limited Oil & Gas Development Company Limited Pakistan Oilfields Limited Shell Pakistan Limited Sui Northern Gas Pipelines Limited 618,250 - 70,900 23 10 10 Paper & Board Packages Limited Cherat Packaging Limited 92,950 553,400 318,700 60,700 36,740 70,400 190,350 605,000 369,400 50,000 697 10 10 10 10 10 10 Pharmaceuticals Abbott Laboratories Pakistan Limited AGP Limited Glaxosmithkline Pakistan Limited GlaxoSmithKline Consumer Healthcare Pakistan Limited Highnoon Laboratories Limited The Searle Company Limited 66,686 53,674 43,506 14,632 23,068 10,118 143,785 68,897 70,862 29,991 174 1,203,000 13,861,500 394,690 1,809,500 16,338,000 3,871,473 10 10 10 Power Generation & Distribution Kot Addu Power Company Limited K-Electric Limited Hub Power Company Limited 38,917 47,684 28,157 49,218 63,882 307,124 505,832 8,000,000 444,242 205,220 4,000 - 10 10 10 10 Miscellaneous Synthetic Products Enterprises Limited Tri-Pack Films Limited Cnergyico Pk Limited Shifa International Hospitals Limited 9,130 54,480 84,152 8,925 651 - 386,550 3,451 734,200 872,007 380,950 4,200,000 179,500 986,858 10 10 10 10 Oil & Gas Marketing Companies Attock Petroleum Limited Hascol Petroleum Limited Hi-Tech Lubricants Limited Pakistan State Oil Company Limited 121,376 21 31,938 158,609 127,477 61,698 7,859 212,471 Annual Report 2021 276
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 8 .2.3 Others - listed shares (continued) No. of shares 2020 2021 8.2.4 43,329 40,169 1,351,210 2,825,500 250 2,999,013 - 128,767,549 81,717,060 Face value Rupees 10 10 10 10 Company's Name Market Value 2020 2021 Rupees in thousand Refinery Attock Refinery Limited National Refinery Limited Pakistan Petroleum Limited Pakistan Refinery Limited 6,241 11,432 106,800 40,744 46 270,901 - 6,774,797 5,763,671 Others-Mutual Fund Certificates Open-Ended-Mutual Funds No. of units 2020 2021 2,086,997 478,044 311,709 5,281,206 1,055,876 921 4,054,498 3,496,857 4,399,915 23,587,717 6,398,752 5,138,741 - 2,059,100 14,742,274 146,456 1,476,006 2,301,661 985,010 864 3,819,347 3,263,683 535,400 6,331,208 4,172,762 22,333,717 3,404,310 3,167,048 56,291,233 68,738,846 Face value Rupees 10 10 100 100 100 100 100 100 100 10 10 10 10 10 10 100 100 Fund's Name ABL Islamic Stock Fund ABL Stock Fund Al Ameen Islamic Asset Allocation Fund Al Ameen Shariah Stock Fund Alfalah GHP Money Market Fund Alfalah GHP Islamic Income Fund Faysal Income & Growth Fund Faysal Savings and Growth Fund Faysal Money Market Fund Meezan Balanced Fund NAFA Islamic Stock Fund NBP Islamic Mahana Amdani Fund NBP Islamic Savings Fund NBP Islamic Stock Fund NBP Money Market Fund UBL Financial Sector Fund UBL Stock Advantage Fund Market Value 2020 2021 Rupees in thousand 31,593 61,483 48,817 519,492 107,975 103 433,426 357,074 45,943 234,421 77,832 50,932 - 32,189 221,762 18,601 224,796 226,013 100,545 96 404,698 332,746 8,349 77,030 43,256 218,870 275,426 238,472 1,969,091 2,422,849 Annual Report 2021 277
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Note 9 2021 2020 Rupees in thousand Investments in debt securities Held to maturity Treasury Bills Pakistan Investment Bonds 9 .1.1 9.1.2 275,005 102,647 377,652 275,631 98,700 374,331 9.2.1 9.2.2 98,412 98,412 688,532 101,736 790,268 9.3.1 1,553,480 1,425,000 1,465,126 892,516 17,845,946 1,960,885 25,142,953 1,125,156 100,000 2,155,587 464,354 6,371,663 3,908,807 14,125,567 25,619,017 15,290,166 Available for sale Treasury Bills Pakistan Investment Bonds Fair value through profit or loss Term Finance Certificate Advance against purchase of term finance certificate Corporate Sukuks Ijara Sukuks Treasury Bills Pakistan Investment Bonds 9.1 Held to maturity 9.1.1 Treasury Bills Face value rupees in thousand 100,000 100,000 82,000 100,000 100,000 82,000 9.1.2 9.3.2 9.3.3 9.3.4 9.3.5 Yield Rate % Profit Payment Type of Security 10.39% 11.32% 8.17% 10.67% 7.32% 7.43% On maturity On maturity On maturity On maturity On maturity On maturity 3 Month Treasury Bills 6 Month Treasury Bills 3 Month Treasury Bills 12 Month Treasury Bills 12 Month Treasury Bills 12 Month Treasury Bills Maturity year 2022 2022 2022 2021 2021 2021 Carrying amount 2020 2021 Rupees in thousand 98,452 95,419 81,134 - 97,801 97,900 79,930 275,005 275,631 Pakistan Investment Bonds Face value rupees in thousand 100,000 9.2 Available for sale 9.2.1 Treasury Bills Face value rupees in thousand 220,870 355,000 122,000 Yield Rate % Profit Payment Type of Security 11.71% On maturity 3 Years Pakistan Investment Bonds Yield Rate % 7.12% 6.77% - 7.13% 7.08% Profit Payment Type of Security On maturity On maturity On maturity 1 Year Treasury Bills 6 Month Treasury Bills 3 Month Treasury Bills Maturity year 2022 Maturity year 2021 2021 2021 Carrying amount 2020 2021 Rupees in thousand 102,647 98,700 102,647 98,700 Carrying amount 2020 2021 Rupees in thousand - 216,740 351,097 120,695 - 688,532 Annual Report 2021 278
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 9 .2.2 Pakistan Investment Bonds Yield Rate % Face value rupees in thousand 100,000 9.00% 9.3 Fair value through profit or loss 9.3.1 Term Finance Certificates Face value rupees in thousand 1000 1000 5 5 100 100 100 100 4 1000 5 9.3.2 Coupon Rate % 12.97% 12.01% 8.03% - 14.76% 9.03% 12.19% 9.99% 11.97% 7.71% - 15.00% 8.94% 8.89% 9.00% Type of Security On maturity 3 Years Pakistan Investment Bonds 2020 2021 No. of certificates 100 100 20,000 3,400 2,580 500 30,000 4,250 10,000 100 100 39,680 3,400 2,580 500 590 10,000 Maturity year 2022 98,412 101,736 98,412 101,736 Carrying amount 2020 2021 Rupees in thousand Company's Name Askari Bank Limited VI Askari Bank Limited VII Bank Al Habib Limited Bank Alfalah Limited Bank of Punjab I Bank of Punjab II Habib Bank Limited II Habib Bank Limited Jahangir Siddiqui and Company Limited Samba Bank Limited Soneri Bank Limited 100,000 101,000 92,893 353,402 266,012 50,000 100,929 438,299 50,945 100,000 99,040 178,788 336,202 252,802 50,000 58,894 49,430 1,553,480 1,125,156 Corporate Sukuks Face value rupees in thousand 40 60 70 1000 100 46 100 5 1000 1000 1000 1000 5 750 9.3.3 Profit Payment Carrying amount 2020 2021 Rupees in thousand Yield Rate % 11.43% 8.30% - 14.75% 8.30% - 14.75% 8.16% 8.86% 9.32% 9.02% 8.67% - 15.4% 7.68% - 14.63% 8.58% 10.11% 8.58% 9.06% 11.19% 2020 2021 No. of certificates 820 58 900 600 1,000 50 250 450 90,000 30 820 2,380 4,400 58 900 600 1,000 30,000 40 750 90,000 30 Carrying amount 2020 2021 Company's Name Rupees in thousand Aspin Pharma (Pvt) Limited Dawood Hercules Limited I Dawood Hercules Limited II Dubai Islamic Bank (Pakistan) Limited Engro Polymer & Chemicals Limited Ghani Chemical Industries Limited International Brands Limited JS Limited Meezan Bank Limited I Meezan Bank Limited II Meezan Bank Limited II Perpetual Meezan Bank Limited III Pakistan Energy II TPL Tracker Limited Ijara Sukuk Face value rupees in thousand Yield Rate % 430,000 475,000 470,430 6.3% - 8.3% 7.8% - 8.7% 6.27% - 8.37% Profit Payment On maturity On maturity On maturity Type of Security Maturity year 5 year GOP Ijara Sukuk 5 year GOP Ijara Sukuk 5 year GOP Ijara Sukuk 2025 2026 2025 32,800 59,943 96,845 20,700 16,787 104,000 250,000 416,000 456,750 11,301 49,593 144,365 311,807 59,622 91,935 25,123 64,659 123,656 40,877 768,750 452,700 22,500 1,465,126 2,155,587 Carrying amount 2020 2021 Rupees in thousand 420,773 471,743 - 464,354 892,516 464,354 Annual Report 2021 279
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 9 .3.4 Treasury Bills Face value rupees in thousand 9,149,500 1,135,000 600,000 7,457,700 1,332,500 5,011,000 115,000 9.3.5 Profit Payment 8.2% - 10.7% 8.3% - 10.4% 10.10% 7.3% - 11.4% 6.74% - 10.67% 7.07% - 7.15% 6.47% On maturity On maturity On maturity On maturity On maturity On maturity On maturity Type of Security Maturity year 3 Months Treasury Bills 3 Months Treasury Bills 6 Months Treasury Bills 6 Months Treasury Bills 12 Month Treasury Bills 3 Month Treasury Bills 6 Month Treasury Bills 2022 2022 2022 2022 2021 2021 2021 Carrying amount 2020 2021 Rupees in thousand 8,976,935 1,118,769 595,560 7,154,682 - 1,310,144 4,946,806 114,713 17,845,946 6,371,663 Pakistan Investment Bond Face value rupees in thousand 25,000 110,000 1,100,000 50,000 30,000 25,500 50,000 625,000 50,000 500,000 500,000 2,865,000 10 Yield Rate % Yield Rate % 7.50% 8.00% 7.1% - 8.2% 8.20% 8.20% 7.50% 6.80% 8.0% - 8.3% 7.00% 8.11% - 8.27% 7.00% 7.12% - 8.27% Investments in Term Deposits Profit Payment On maturity On maturity On maturity On maturity On maturity On maturity On maturity On maturity On maturity On maturity On maturity On maturity Type of Security 5 years Pakistan Investment Bond 10 years Pakistan Investment Bond 2 years Pakistan Investment Bond 2 years Pakistan Investment Bond 3 years Pakistan Investment Bond 5 years Pakistan Investment Bond 10 years Pakistan Investment Bond 10 years Pakistan Investment Bond 10 year Pakistan Investment Bond 10 year Pakistan Investment Bond 2 year Pakistan Investment Bond 3 year Pakistan Investment Bond Note Deposits maturing within 12 months Inside Pakistan - related parties - others Outside Pakistan - related parties - others Deposits maturing after 12 months Inside Pakistan - related parties - others Outside Pakistan - related parties - others 10.1 Maturity year Carrying amount 2020 2021 Rupees in thousand 2025 2030 2022 2023 2023 2025 2028 2030 2028 2030 2022 2023 22,046 88,417 1,097,250 49,665 29,986 22,487 49,660 601,374 - 49,420 499,400 498,250 2,861,737 1,960,885 3,908,807 2021 2020 Rupees in thousand 405,000 7,350,066 7,755,066 448,811 7,695,066 8,143,877 1,441,691 5,170,710 6,612,401 14,367,467 1,305,429 4,364,568 5,669,997 13,813,874 8,811 75,188 83,999 2,000 75,188 77,188 83,999 14,451,466 77,188 13,891,062 Annual Report 2021 280
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 10 .1 These include fixed deposits amounting to Rs. 5,526,486 thousands (AED 115,000,000) [2020: Rs. 4,904,014 thousands (AED 112,698,915)] kept in accordance with the requirements of Insurance Regulations applicable to the United Arab Emirates (UAE) branches for the purpose of carrying on business in (UAE). These also include liens against cash deposits of Rs. 259,065 thousands (2020: Rs. 259,065 thousands) with banks in Pakistan essentially in respect of guarantees issued by the banks on behalf of the Group for claims under litigation filed against the Group, bid bond guarantees and guarantee to Meezan Bank Limited (MBL) against the loan provided by MBL to Hyundai Nishat Motor (Private) Limited, a related party. Note 11 Loans and other receivables - considered good Rent receivable Accrued investment income Security deposits Advances to employees and suppliers Advance agent commission Loans to employees Receivable against the sale of investment Receivable from related parties Other receivables 12 2021 2020 Rupees in thousand 7,397 279,766 124,857 177,729 7,796 64,567 131,128 171,870 7,776 251,749 102,938 237,051 4,478 52,335 233,958 16,694 78,765 965,110 985,744 12.1 7,370,193 4,753,304 12.2 (1,086,443) 6,283,750 (936,290) 3,817,014 1,228,864 1,375,616 (201,302) 1,027,562 (201,302) 1,174,314 7,311,312 4,991,328 Insurance / reinsurance receivables - unsecured and considered good Due from insurance contract holders Provision for impairment of receivables from insurance contract holders Due from other insurers / reinsurers Provision for impairment of due from other insurers / reinsurers 12.3 12.1 Due from insurance contact holders include an amount Rs. 249,292 thousands (2020: Rs. 201,453 thousands) held with related parties. Note 2021 2020 12.2 Reconciliation of provision for impairment of receivables Rupees in thousand from insurance contract holders Balance as at 01 January Charge for the year Exchange difference Balance as at 31 December 936,290 72,104 78,049 1,086,443 868,586 47,968 19,736 936,290 201,302 201,302 201,302 201,302 4,627,169 163,463 4,790,632 3,307,863 161,089 3,468,952 12.3 Reconciliation of provision for impairment of due from other insurers / reinsurers Balance as at 01 January Charge for the year Write off against provision for the year Balance as at 31 December 13 Prepayments Prepaid reinsurance premium ceded Prepaid miscellaneous expenses 28 Annual Report 2021 281
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Note 14 Cash and bank 2021 2020 Rupees in thousand Cash and cash equivalents Inside Pakistan Cash in hand Policy and revenue stamps , bond papers 372 20,182 20,554 580 10,499 11,079 Outside Pakistan 20,554 11,079 588,530 10,419,434 11,007,964 331,680 10,787,153 11,118,833 870,126 1,482 871,608 136,313 871 137,184 11,879,572 11,256,017 11,900,126 11,267,096 Cash at bank Inside Pakistan Current accounts Savings accounts Outside Pakistan Current accounts Savings accounts 14.1 Cash at bank includes an amount of Rs. 1,819,586 thousands (2020: Rs. 3,674,945 thousands) held with MCB Bank Limited and MCB Islamic Bank Limited, related parties of the Group. 14.2 Lien of Rs. 432,571 thousands (2020: Rs. 440,000 thousands) is marked on cash deposits in saving accounts against SBLC (Standby Letter of Credit) issued in favor of Meezan Bank Limited on behalf of Hyundai Nishat Motor (Private) Limited, a related party of the Group. 14.3 Saving / Profit and loss accounts placed in Pakistan carry estimated profit rates ranging from 3.50% to 10.90% (2020: 4.50% to 13.00%). Note 14.4 Cash and bank for the purposes of the cash flow statement consists of: Cash and cash equivalents Current and other accounts Term deposit maturing within three months 2021 2020 Rupees in thousand 20,554 11,879,572 7,580,000 19,480,126 11,079 11,256,017 7,962,000 19,229,096 Annual Report 2021 282
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Note 15 Window Takaful Operations - Parent Company 2021 2020 Rupees in thousand Operator 's Fund Assets: Cash and bank deposits Qard e Hasna to Participant Takaful Fund Investments - Equity securities Investments - Debt securities Intangible assets Property and equipment Current assets - Others Total Assets 264,235 146,460 38,326 75,000 10,409 22,883 166,537 723,850 209,446 146,460 35,873 12,421 20,793 164,155 589,148 Total Liabilities 278,531 242,797 430,587 (137,910) (172,925) 2,340 17,852 3,144 (3,821) 139,267 408,608 (119,082) (143,206) 3,584 14,170 3,521 (3,821) 163,774 (40,388) (47,369) 98,879 116,405 Profit and loss account Wakala income Commission expense Management expenses Investment income Other income Mudarib's share of PTF investment income Other expenses Profit before taxation Taxation Profit after tax Details of assets, liabilities and segment disclosures of 'Window Takaful Operations' of the Parent Company are stated in the annexed financial statements of the 'Window Takaful Operations'. 16 Share capital 16.1 Authorized share capital 2020 2021 ------ Number of shares------Ordinary shares of Rs. 10 each 16.2 2020 2021 ------ Rupees in thousand------- 375,000,000 375,000,000 3,750,000 3,750,000 250,000 250,000 2,500 2,500 349,750,000 349,750,000 3,497,500 3,497,500 350,000,000 350,000,000 3,500,000 3,500,000 Issued, subscribed and paid up capital Ordinary shares of Rs. 10 each fully paid in cash Ordinary shares of Rs. 10 each issued as fully paid bonus shares 16.3 As at December 31, 2021, associated undertakings MCB Bank Limited, Nishat (Aziz Avenue) Hotels & Properties Limited and Nishat Mills Limited held 70,861,241 (2020: 70,861,241), 1,203,000 (2020: 1,083,000) and 102,809 (2020: 102,809) ordinary shares of the Parent Company. Annual Report 2021 283
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 17 Reserves Capital Reserves Reserves for exceptional losses Investment fluctuation reserves Exchange translation reserves Fair value reserves Note 17.1 17.2 17.3 17.4 Revenue Reserves General reserves 2021 2020 Rupees in thousand 22,859 3,764 899,883 3,619,130 4,545,636 22,859 3,764 678,438 2,845,746 3,550,807 936,500 5,482,136 936,500 4,487,307 17.1 The reserve for exceptional losses represents the amount set aside by the Parent Company in prior years up to December 31, 1978, in order to avail the deduction while computing the taxable income under the old Income Tax Act of 1922. Subsequent to the introduction of repealed Income Tax Ordinance, 1979, which did not permit such deduction, the Parent Company discontinued the setting aside of reserves for exceptional losses. 17.2 This amount has been set aside by the Parent Company in prior years for utilization against possible diminution in the value of investments. 17.3 The exchange translation reserve represents the gain resulted from the translation of foreign branches (having business in foreign currencies) of the Parent Company into Pak Rupees. For the purpose of exchange translation reserve, the UAE and Export Processing Zone branches are treated as foreign branches since their functional currencies are AED and US Dollars, respectively. 17.4 The fair value reserve represents the net cumulative unrealized gain / (loss) on available for sale investments held by the Group as at December 31, 2021. 18 Non-controlling interest Note Share capital Total comprehensive income for the year Opening retained earnings Acquisition of Non Controlling Interest by Parent Company 19 2021 2020 Rupees in thousand - 240,599 3,483 100,909 (344,991) - - 1,584,176 151,489 54,225,136 19,682 101,308 751,807 56,833,598 40,692 56,874,290 1,174,790 121,153 44,785,142 20,242 117,241 753,378 46,971,946 18,397 46,990,343 1,674,238 (90,062) 1,584,176 1,326,579 (151,789) 1,174,790 Insurance liabilities - Life Insurance Business Reported outstanding claims (including claims in payment) Incurred but not reported claims Investment component of unit-linked and account value policies Liabilities under individual conventional insurance contracts Liabilities under group insurance contracts (other than investment linked) Other insurance liabilities Gross insurance liabilities Surplus of Participant Takaful Fund Total Insurance Liabilities 19.1 19.2 19.3 19.4 19.5 19.6 19.1 Reported outstanding claims Gross of reinsurance Payable within one year Recoverable from reinsurers Net reported outstanding claims Annual Report 2021 284
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Note 19 .2 Incurred but not reported claims Individual Life Gross of reinsurance Reinsurance recoveries Net of reinsurance Group Life Gross of reinsurance Reinsurance recoveries Net of reinsurance 2021 2020 Rupees in thousand 181,434 (58,467) 122,967 129,220 (47,826) 81,394 92,026 (63,504) 28,522 109,567 (69,808) 39,759 151,489 121,153 52,229,977 1,995,159 54,225,136 42,311,677 2,473,465 44,785,142 21,735 (2,053) 19,682 22,159 (1,917) 20,242 186,441 (85,133) 101,308 232,665 (115,424) 117,241 864,668 (112,861) 751,807 889,169 (135,791) 753,378 19.3 Investment component of unit linked and account value policies Investment component of unit linked policies Investment component of account value policies 19.4 Liabilities under individual conventional insurance contracts Gross of reinsurance Reinsurance credit Net of reinsurance 19.5 Liabilities under group insurance contracts (other than investment linked) Gross of reinsurance Reinsurance credit Net of reinsurance 19.6 Other insurance liabilities Gross of reinsurance Reinsurance credit Net of reinsurance 20 Retirement benefit obligations Parent Company Unfunded gratuity scheme Funded gratuity scheme 20.1 20.2 82,145 181,515 64,359 132,873 Subsidiary Company Funded gratuity scheme 20.3 (6,460) 257,200 112,349 309,581 20.1 Unfunded gratuity scheme 20.1.1 This provision relates to the Parent Company's operations in UAE branches. The eligible employees under the scheme are 64(2020: 66). The latest actuarial valuation of gratuity scheme was carried out as at December 31,2021 under the Projected Unit Credit Method as per the requirements of approved accounting standard - International Accounting Standard 19, the details of which are as follows: 20.1.2 Movement in the net liabilities recognized in the statement of financial position are as follows: Present value of defined benefit obligation as at January 01 Charge for the year Benefits paid Remeasurement loss / (gain) on obligation Exchange loss Present value of defined benefit obligation as at December 31 64,359 9,551 (2,847) 3,511 7,571 82,145 82,708 14,605 (20,984) (14,899) 2,929 64,359 Annual Report 2021 285
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 20 .1.3 The following significant assumptions have been used for the valuation of this scheme: 2021 - Valuation discount rate - Expected rate of increase in salary level Percentage 2020 2.20 2.00 2.20 2.00 Note 2021 20.1.4 The amount charged in profit and loss account is as follows: Service cost Interest cost Expense for the year Rupees 8,139 1,412 9,551 Note 2020 12,934 1,671 14,605 2021 2020 Rupees in thousand 20.1.5 The amounts charged to other comprehensive income are as follows: Remeasurement of the present value of defined benefit obligation due to: - Changes in financial assumptions - Experience adjustments 3,511 3,511 2021 Percentage (14,899) (14,899) 2020 20.2.2 The following significant assumptions have been used for valuation of this scheme: - Discount rate - Expected rate of increase in salary level 8.50 6.50 11.50 9.50 20.2 Funded gratuity scheme 20.2.1 The Parent Company operates an approved funded gratuity scheme for all employees. The eligible employees under the scheme are 750 (2020 : 718). The latest actuarial valuation of gratuity scheme was carried out as at December 31, 2021 under the Projected Unit Credit Method as per the requirements of approved accounting standard - International Accounting Standard 19, the details of which are as follows: Note 2021 2020 Rupees in thousand 20.2.3 Movement in the net liabilities recognized in the statement of financial position are as follows: Net liabilities as at January 01 Expenses recognized Contribution paid during the year Remeasurement loss recognized - net 132,873 33,131 15,511 142,469 35,411 (50,000) 4,993 Net liabilities as at December 31 181,515 132,873 21,836 29,498 (18,203) 20,728 40,594 (25,911) 33,131 35,411 20.2.4 The amounts recognized in the profit and loss account are as follows: - Service cost - Interest cost - Interest income on plan assets Annual Report 2021 286
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 20 .2.5 The amounts recognized in statement of comprehensive income are as follows: Remeasurement of plan obligation from: - Experience on obligation - Change in financial assumptions 2021 2020 Rupees in thousand 10,807 - (6,608) - 4,704 11,601 15,511 4,993 (211,676) 393,190 (230,138) 363,011 181,514 132,873 Fair value as at January 01 Interest income on plan assets Actual benefits paid during the year Contributions made during the year Remeasurement loss due to investment return 230,138 18,203 (31,961) (4,704) 198,745 25,911 (32,917) 50,000 (11,601) Fair value of plan assets as at December 31 211,676 230,138 18,203 (4,704) 13,499 25,911 (11,601) 14,310 Present value of defined benefit obligation as at January 01 Current service cost Interest cost Actual benefits paid during the year Remeasurement loss / (gain) on obligation 363,011 21,836 29,498 (31,961) 10,806 341,214 20,728 40,594 (32,917) (6,608) Present value of defined benefit obligation as at December 31 393,190 363,011 Remeasurement of plan assets: - Investment return 20.2.6 The amounts recognized in the statement of financial position are as follows: Fair value of plan assets Present value of the obligation Net asset 20.2.7 Movement in fair value of plan assets 20.2.8 Actual return on plan assets Expected return on plan assets Remeasurement loss due to investment return 20.2.9 Movement in present value of defined benefit obligation 20.2.10 Comparison for five years Funded gratuity scheme 2021 2020 2019 2018 Rupees in thousand 2017 Present value of defined obligation Fair value of plan assets 393,190 211,676 363,011 230,138 341,214 198,745 326,883 193,756 283,925 199,482 Deficit 181,514 132,873 142,469 133,127 84,443 (2.22) (5.04) (0.21) (5.92) (19.27) 2.75 (1.82) (4.78) 5.54 (1.26) 82,145 64,359 82,708 65,854 69,953 (4.27) 23.15 (9.71) (2.44) (3.10) Experience adjustments Gain / (loss) on plan assets (% age of plan assets) Gain / (loss) on obligations (% age of obligation) Unfunded gratuity schemes Present value of defined obligation Experience adjustments Gain / (loss) on obligations (% age of obligation) Annual Report 2021 287
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 20 .2.11 Plan assets consist of the following: Mutual funds - Equity Mutual funds - Debt Government Bonds - Debt Shares, bank deposits & cash equivalents - Others Benefits due 2020 2021 ---- (Percentage)---- 2020 2021 ---- Rupees in thousand---- 9.43 30.36 50.98 9.24 - 17.92 17.06 46.43 18.59 - 19,958 64,258 107,903 19,557 - 41,252 39,255 106,842 42,789 - 100.00 100.00 211,676 230,138 20.2.12 Plan assets do not include any investment in the Parent Company's ordinary shares as at December 31, 2021 : Nil (2020: Nil). 20.2.13 Expected cost to be recorded in the profit and loss account for the year ending December 31, 2022 is Rs. 42,498 thousands. 20.2.14 The expected return on plan assets is based on the market expectations and depends upon the asset portfolio of the fund, at beginning of the year. 20.2.15 The weighted average duration of the defined benefit obligation for gratuity plan is 3.1 years (2020: 3.2 years). These defined benefit plans expose the Parent Company to actuarial risks such as investment risk and salary risk. 20.2.16 The main features of the gratuity schemes are as follows: - All confirmed employees are eligible to the scheme and the normal retirement age for all employees is 60 years. - A member shall be entitled to gratuity on resignation, termination, retirement, early retirement, retrenchment, death and dismissal based on the Parent Company's Service rules. - The scheme is subject to the regulations laid down under the Income Tax Rules, 2002. 20.2.17 The implicit objective is that the contribution to the gratuity schemes should remain reasonably stable as a percentage of salaries, under the actuarial cost method employed. Annual Report 2021 288
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 20 .2.18 Sensitivity analysis The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is as follows: Unfunded Change in assumptions Increase in assumption Impact on Gratuity plans Funded Decrease in assumption Increase in assumption Decrease in assumption --------------------------(Rupees in thousands)------------------------Discount rate Salary growth rate 1% 1% (2,892) 3,119 3,144 (2,925) (10,487) 11,260 11,156 (10,768) The above sensitivity analysis are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied when calculating the defined benefit obligation recognized within the statement of financial position. 20.3 Funded gratuity scheme- Subsidiary Company 20.3.1 The Subsidiary Company operates a funded gratuity scheme covering eligible employees who have completed the minimum qualifying eligible service period of six months. The employees are entitled to gratuity on the basis of last drawn monthly gross salary on normal retirement or on death in service on the number of years of services with the Subsidiary Company. Contribution to the fund is made and expense is recognised on the basis of actuarial valuations carried out at each year end using the projected unit credit method. 20.3.2 Responsibility for the governance of the plans, including investment decisions and contribution schedules, lies with the Board of Trustees. The Subsidiary Company appoints the Trustees and all trustees are employees of the Subsidiary Company. Details of the Subsidiary Company's obligation under the staff gratuity scheme determined on the basis of an actuarial valuation carried out by an independent actuary as at December 31, 2021 under the Projected Unit Credit Method are as follows: Note Present value of defined benefit obligations at December 31 Fair value of plan assets at December 31 2021 2020 Rupees in thousand 178,588 (185,048) 178,021 (65,672) (6,460) 112,349 20.3.5 20.3.5 178,021 49,035 22,303 (27,752) 107,094 35,925 15,892 (12,217) 20.3.5 (43,019) 31,327 178,588 178,021 20.3.3 20.3.4 Net liability at end of the year 20.3.3 Movement in present value of defined benefit obligations Present value of defined benefit obligations at Jan 01 Current service cost Interest cost on defined benefit obligation Benefits paid during the year Remeasurement loss / (gain) on obligation: - due to changes in financial assumptions Present value of defined benefit obligations at Dec 31 Annual Report 2021 289
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 2021 2020 Rupees in thousand 20 .3.4 Movement in fair value of plan assets Fair value of plan assets at Jan 01 Contributions made Interest income on plan assets Benefits paid during the year Remeasurement gain on plan assets Fair value of plan assets at Dec 31 65,672 145,211 8,447 (27,752) (6,530) 185,048 70,068 9,752 (12,217) (1,931) 65,672 49,035 22,303 (8,447) 35,925 15,892 (9,752) 62,891 42,065 (43,019) 6,530 (36,489) 31,327 1,931 33,258 112,349 62,891 (36,489) (145,211) (6,460) 37,026 42,065 33,258 112,349 20.3.5 Expense recognized in profit and loss Current service cost Net interest cost Interest income on plan assets Expense for the year recognized in the profit and loss account 20.3.6 Expense recognized in other comprehensive income Remeasurement losses on defined benefit obligation Remeasurement gain on fair value of plan assets Amount recognized in the statement of other comprehensive income 20.3.7 Net recognized liability Net liability at Jan 01 Expense recognized in profit and loss account Expense recognized in other comprehensive income Contributions made to the fund during the year Net liability at Dec 31 20.3.8 Estimated Gratuity Cost for the year ending December 31, 2022, is as follows: 2022 (Rupees in thousand) Current service cost Net interest cost Total expense to be recognized in profit and loss account 20.3.9 Plan assets comprise of following: 2021 (Rupees in thousands) Listed Equities Government Securities Bank balance Mutual funds Fair value of plan assets at end of the year 40,817 2,007 42,824 %age 2020 (Rupees in thousands) %age 61,355 97,691 26,002 - 33.16 52.79 14.05 - 40,975 24,697 62.39 37.61 185,048 100.00 65,672 100.00 20.3.10 The assets are represented by cash in the Scheme's bank deposit account with Standard Chartered Bank, directly held T-Bills and funds invested with BMA Capital Management. 20.3.11 The principal assumptions used in the actuarial valuations carried out as of December 31, 2021, using the ‘Projected Unit Credit Method', are as follows: Annual Report 2021 290
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 2020 2021 Gratuity fund Percentage Discount rate per annum Expected per annum rate of return on plan assets Expected per annum rate of increase in salary level Expected mortality rate Expected withdrawal rate 11 .75 10.25 11.75 10.25 3.00 - 11.00 11.00 LIC 94-96 Mortality table for males (rated down by 3 years for females) 60 LIC 94-96 Mortality table for males (rated down by 3 years for females) Age dependent 20.3.12 The plans expose the Subsidiary Company to actuarial risks such as: Salary risks The risks that the final salary at the time of cessation of service is higher than what was assumed. Since the benefit is calculated on the final salary, the benefit amount increases similarly. Discount risks The risk of volatile discount rates over the funding life of the scheme. The final effect could go either way depending on the relative of salary increases, timing of contributions, performance of investments and outgo of benefits. Mortality / withdrawal risks The risks that the actual mortality / withdrawal experience is different from expected. The effect depends upon the beneficiaries' service / age distribution and the benefit. Investment risks The risk of the investment underperforming and not being sufficient to meet the liabilities. This is managed by formulating an investment policy and guidelines based on which investments are made after obtaining approval of trustees of funds. In case of the funded plans, the investment positions are managed within an Asset-Liability Matching (ALM) framework to ensure that long-term investments are in line with the obligation under the retirement benefit plan. The Subsidiary Company actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the retirement benefit obligations. The Subsidiary Company has not changed the process used to manage its risks from previous periods. Investments are well diversified. The expected return on plan assets is assumed to be the same as the discount rate (as required by International Accounting Standard IAS 19). The actual return depends on the assets underlying the current investment policy and their performance. Expected yields on fixed interest investments are based on gross redemption yields as at the date of financial statement. Expected return on equity investments reflect long-term real rates of return experienced in the market. Annual Report 2021 291
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 20 .3.13 Sensitivity analysis - Subsidiary Company Sensitivity analysis for actuarial assumptions The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is: 2021 2020 Rupees in thousand (10,168) 11,531 12,464 (11,177) Discount rate (1% increase) Discount rate (1% decrease) Future salary increase rate (1% increase) Future salary increase rate (1% decrease) (18,161) 21,745 22,769 (19,290) The impact on defined benefit obligation due to increase in life expectancy by 1 year would be Rs. 13,646 (2020: Rs.77,935) The above sensitivity analysis are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant assumptions, same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the gratuity liability. The weighted average duration of the defined benefit obligation is 7.32 years. Besides the number of employees covered in the scheme at December 31, 2021 were 891 (2020: 1,110). 20.3.14 Historical Information 2021 2020 2019 2018 2017 65,465 (79,886) (14,421) 90,586 (59,079) 31,507 2018 2017 Rupees in thousand Present value of defined benefit obligation Fair value of plan assets (Surplus) / deficit 178,588 (185,048) (6,460) 178,021 (65,672) 112,349 107,094 (65,672) 41,422 20.3.15 Experience adjustment 2021 2020 2019 Percentage Experience adjustments on obligation (24.00) 18.00 20.00 (36.00) 8.00 Experience adjustments on asset (4.00) (3.00) (11.00) (10.00) (18.00) 20.3.16 Gratuity cost to be recognised in the statement of profit or loss in the next financial period is not necessarily the amount of the contribution for that period. Decision about the contribution is made by the Subsidiary Company based on the allowability under the Insurance Tax Rules, 2002 and the availability of surplus funds, etc. Annual Report 2021 292
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Note 21 2021 2020 Rupees in thousand Deferred taxation Deferred tax debits arising in respect of : Provision for gratuity Fixed assets and intangibles Lease liability Unused tax losses Accelerated accounting amortization 23,822 7,405 21,946 53,173 18,664 27 29,461 8,348 56,500 Deferred tax credits arising in respect of: Tax depreciation allowance Right of use assets Provision for leave encashment & bonus Business attributable to shareholders (Ledger Account D) Investments - Available for sale (571,111) (26,021) (240,865) (1,477,841) (2,315,838) (2,262,665) (232,501) (29,179) (214,810) (1,161,987) (1,638,477) (1,581,977) 1,581,977 1,425,938 (5,158) 7,515 (3,158) 8,200 17,558 41 329,253 354,251 5,322 1,012 13 21,080 9,165 90,259 (1,974) 68,440 193,317 315,854 10,583 326,437 (27,633) (9,645) (37,278) 2,262,665 1,581,977 171,650 840,000 330,849 - 1,011,650 330,849 21.1 Movement in deferred tax balances is as follows: At beginning of the year Recognized in profit and loss account: - provision for gratuity - lease liability against right of use asset - right of use assets - Provision for leave encashment & bonus - Unused tax losses - Business attributable to shareholders (Ledger Account D) - Accelerated accounting amortization - tax depreciation allowance Recognized in other comprehensive income: - investments - Available for sale - Remeasurement of post retirement defined benefits 22 Borrowings MCB Bank Limited - Refinance scheme MCB Bank Limited - Demand finance - General Loan from financial institution - MCB Bank Limited 22.1 22.2 22.1 This represents long term financing facility availed from MCB Bank Limited, a related party of the Group under State Bank of Pakistan's (SBP) Refinance Scheme for Payment of Wages and Salaries to the Workers and Employees of Business Concerns ('Refinance Scheme'), with the approval of SBP. The interest rate applicable is SBP rate + 1.00%. 22.2 This represents short term financing facility from MCB Bank Limited, a related party of the Group. The interest rate applicable is 3 month KIBOR + 0.1%. Annual Report 2021 293
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 23 2021 2020 Rupees in thousand Deferred grant income Deferred grant income 28 ,574 10,627 Government grant has been recorded during the year which is measured as the difference between the fair value of the loan on initial recognition and the amount received, which is accounted for according to the nature of the grant. In accordance with the terms of the facility, the Group is prohibited to lay-off the employees at least during three months period from the date of first disbursement except in case of any disciplinary action. 24 Insurance/reinsurance payables Due to other insurers / reinsurers 24.1 This amount represents amount payable to other insurers and reinsurers. 25 Note 2021 2020 Rupees in thousand 24.1 5,215,694 3,161,519 1,148,121 30,524 346,924 35,707 6,070 76,485 99,348 623,583 156,627 88 666,170 3,189,647 1,077,695 237,167 94,242 29,854 4,801 76,485 107,570 510,725 161,753 143 592,559 2,892,994 Other creditors and accruals Agents commission payable Payable against the purchase of investment Federal Excise Duty / Sales tax / VAT Federal Insurance Fee payable Payable to related parties Workers' welfare fund Tax deducted at source Accrued expenses Unpaid and unclaimed dividend Payable to employees' provident fund Sundry creditors 25.1 25.1 This represents charges payable to MCB Arif Habib Savings & Investment Limited and MCB Financial Services Limited for providing services related to management of fund and for acting discretionary portfolio's trustees of the Subsidiary Company. 2021 2020 Note Rupees in thousand 26 Deposits and other liabilities Cash margin against performance bonds Lease liability 26.1 553,460 184,493 570,776 210,582 737,953 781,358 26.1 This represents margin deposit on account of performance and other bond policies issued by the Parent Company. 27 Contingencies and commitments 27.1 Contingencies The Group has filed appeals in respect of certain assessment years mainly on account of the following: Income tax (a) Deputy Commissioner Inland Revenue (DCIR) passed order u/s 161/205 of the Ordinance for tax year 2013 raising an income tax demand of Rs. 9,066 thousands. The Parent Company agitated the order before Commissioner Inland Revenue -Appeals (CIR - Appeals). CIR - Appeals decided the case in the favor of the Parent Company. Following the said order, the learned DCIR has passed an appeal effect order in which certain directions of the learned CIR-Appeals have not been followed for which a rectification appeal under section 221 of the Ordinance has been filed before learned DCIR which is still to be processed. Annual Report 2021 294
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 (b) The Taxation Officer has passed an order in the tax years 2005 and 2006 under section 221 of the Income Tax Ordinance, 2001 (the Ordinance) levying minimum tax liability aggregating to Rs. 38,360 thousands. An appeal was filed before the CIR - Appeals who upheld the order of the Taxation Officer. The Parent Company has filed an appeal before the Additional Tribunal Inland Revenue (ATIR) which is yet to be heard. (c) The Tax Authorities amended the assessments for tax years 2003 to 2005 on the ground that the Parent Company has not apportioned management and general administration expenses against capital gain and dividend income. The Parent Company filed constitutional petition in the Honorable Sindh High Court (the Court) against the amendment in the assessment order. The Parent Company may be liable to pay Rs. 5,880 thousands in the event of decision against the Parent Company, out of which Rs. 2,730 thousands have been provided resulting in a shortfall of Rs. 3,150 thousands. (d) Learned DCIR has passed an order under section 161/205 of the Ordinance for tax year 2017 creating a demand of Rs. 22,105 thousands on account of Non-Deduction of Income Tax while making payments. The Parent Company has paid partial payment of Rs. 9,065 thousands under protest and agitated the order before learned CIR - Appeals I and the appeal has not yet been fixed. (e) During the year, the Assistant Commissioner, Sindh Revenue Board has passed order under section 23(1) of the Sindh Sales Tax On Services Act 2011 creating a demand of Rs. 469,020 thousands for the period from July 2011 to December 2011. The impugned demand has been created on account of non levy of sales tax on reinsurance services acquired from foreign reinsurance companies. The Parent Company has challenged the order before Commissioner (Appeals) Sindh Revenue Board. However, the same has not been fixed for hearing till now. The Parent Company, based on reasonable grounds, expects that the ultimate outcome of the case will be in the favour of the Parent Company. Pending resolution of the above-mentioned appeals filed by the Parent Company, no provision has been made in these unconsolidated financial statements for the aggregate amount of Rs. 532,636 thousands (2020: Rs. 72,681 thousands) as the management is confident that the eventual outcome of the above matters will be in favor of the Parent Company. 27.2 Sales tax on life insurance premium Sindh Revenue Board (SRB) vide notification no. SRB 3-4/5/2019 dated May 8, 2019 extended the exemption on life insurance till June 30, 2019. Subsequent to it, life insurance was made taxable from July 1, 2019 at the rate of 3% and group life insurance at the rate of 13%. Further, SRB extended exemption on health insurance till June 30, 2020. With effect from November 1, 2018, the Punjab Revenue Authority (PRA) withdrew its exemption on life and health insurance and made the same subject to Punjab Sales Tax (PST). The Subsidiary Company collectively through the forum of Insurance Association of Pakistan (“IAP”) had filed a constitutive petition in the Lahore High Court (LHC) and in the High Court of Sindh at Karachi on September 28, 2019 and November 28, 2019 against PRA and SRB respectively. According to the grounds of the petition and legal opinion obtained by the Subsidiary Company the insurance premium does not fall under the definition of service rather an insurance policy is a financial arrangement, which is in the nature of a contingent contract, and not a service upon which sales tax can be levied (and that an insurance Subsidiary Company is not rendering a service). The opinion also mentions that vast majority of premium received from a policy holder, during the life of the policy, is in fact channeled it to the policy holder's investment account and as such this is critically important in exposing the legal fallacies embodied in the Rules. In view of the above the Subsidiary Company has not started billing sales tax to its customers. The amount of sales tax involved (for both Sindh and Punjab region) is around Rs.538.14 million (2020: Rs. 347.54 million) computed on the basis of risk based premium, as per the advice of legal advisor, which nonetheless the Subsidiary Company maintains, based on the legal view, cannot be levied as the insurance is not a service. Further subsequent to filing petition, all the provincial tax authorities i.e. SRB, PRA and BRA have called a meeting of the industry representatives on January 11, 2020 in Karachi to discuss the matters relating to sales tax on premium. The matter Annual Report 2021 295
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 was discussed in details and it was agreed to form a joint committee of the industry representatives as well as from all the provincial tax authorities and agreed in the meeting that the sales tax on Life and Health be kept exempt till June 30 , 2020 however, a formal notification in this regard has not yet been issued. Further, the committee formed met on February 5, 2020 in Lahore at PRA office to work out the way forward. Based on the legal opinion obtained the Subsidiary Company considers that it has a reasonably strong case on the merits in the constitution petition and the writ petition filed in the High Courts. The petition is still pending for hearing. 27.3 Commitments Life Insurance Business: Commitments represent ljarah rentals for vehicles payable in future period. Not later than one year Later than one year and not later than five years 2021 2020 Rupees in thousand 60,461 161,923 222,384 37,844 102,066 139,910 27.4 Others The Parent Company has provided a guarantee to Meezan Bank Limited (MBL) against the loan provided by MBL to Hyundai Nishat Motor (Private) Limited, a related party, amounting to Rs. 1,269,671 thousands (2020: Rs. 1,209,000 thousands). 28 The Parent Company has issued letter of guarantees of AED 219,000 amounting to Rs.10,524 thousands (2020: AED 251,500 amounting to Rs.10,944 thousands) relating to UAE branch. 2021 2020 Rupees in thousand Note Net insurance premium General Insurance Business: Written gross premium Unearned premium reserve - opening Unearned premium reserve - closing Currency translation effect Premium earned Reinsurance premium ceded Prepaid reinsurance premium - opening Prepaid reinsurance premium - closing Currency translation effect Reinsurance expense Net insurance premium - General Insurance Business Life Insurance Business: Regular premium / contributions individual policies - first year - second year renewal - subsequent years renewal Single premium / contributions individual policies Group policies without cash values Experience refund Total gross premiums / contributions Reinsurance premiums / retakaful contributions ceded On individual life first year business On individual life second year business On individual life subsequent renewal business On single premium individual policies On group policies Profit commission on reinsurance Net premiums / contributions - Life Insurance Business 13 28.1 & 28.2 23,295,763 8,366,434 (11,010,289) 323,898 20,975,806 18,261,397 10,242,348 (8,366,434) 153,311 20,290,622 (9,740,756) (3,307,863) 4,627,169 (25,956) (8,447,406) 12,528,400 (6,818,262) (3,500,512) 3,307,863 (2,798) (7,013,709) 13,276,913 3,754,155 2,303,228 6,593,866 7,539,327 537,705 (75,375) 20,652,906 3,169,929 2,743,961 5,271,022 5,330,905 626,616 (46,774) 17,095,659 (58,064) (33,052) (173,190) (10,586) (281,309) 26,150 (530,051) 20,122,855 (33,523) (25,742) (131,383) (5,083) (381,266) 13,030 (563,967) 16,531,692 32,651,255 29,808,605 Annual Report 2021 296
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 28 .1 Net insurance premium - Business underwritten inside Pakistan 2021 2020 Rupees in thousand Written gross premium Unearned premium reserve - opening Unearned premium reserve - closing Premium earned 17,012,668 6,021,464 (7,393,851) 15,640,281 13,451,519 6,197,501 (6,021,464) 13,627,556 Reinsurance premium ceded Prepaid reinsurance premium - opening Prepaid reinsurance premium - closing Reinsurance expense (9,108,055) (3,260,277) 4,302,258 (8,066,074) 7,574,207 (6,583,537) (3,425,355) 3,260,277 (6,748,615) 6,878,941 6,283,095 2,344,970 (3,616,438) 323,898 5,335,525 4,809,878 4,044,847 (2,344,970) 153,311 6,663,066 (632,701) (47,586) 324,911 (25,956) (381,332) 4,954,193 (234,725) (75,157) 47,586 (2,798) (265,094) 6,397,972 28.2 Net insurance premium - Business underwritten outside Pakistan Written gross premium Unearned premium reserve - opening Unearned premium reserve - closing Currency translation effect Premium earned Reinsurance premium ceded Prepaid reinsurance premium - opening Prepaid reinsurance premium - closing Currency translation effect Reinsurance expense Annual Report 2021 297
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 29 Net insurance claims expense Note 2021 2020 Rupees in thousand General Insurance Business : Claim paid Outstanding claims including IBNR - closing Outstanding claims including IBNR - opening Currency translation effect Claim expense 11,343,930 12,686,045 (10,768,040) (540,775) 12,721,160 11,973,346 10,768,040 (10,367,347) (196,160) 12,177,879 (4,007,386) (7,943,513) 6,192,571 241,051 (5,517,277) (4,346,714) (6,192,571) 6,233,348 114,914 (4,191,023) 7,203,883 7,986,856 Gross claims Claims under individual policies - by death - by insured event other than death - by maturity - by surrender Total gross individual policy claims 708,320 2,081 2,126,722 6,240,319 9,077,442 435,106 (606) 1,679,897 4,676,523 6,790,920 Claims under group policies - by death - by insured event other than death Total gross group policy claims 451,141 11,544 462,685 651,184 10,316 661,500 10,933 7,074 9,551,060 7,459,494 (147,520) (297,782) (445,302) (143,365) (477,498) (620,863) 9,105,758 6,838,631 16,309,641 14,825,487 Claim paid Outstanding claims including IBNR - closing Outstanding claims including IBNR - opening Claims expense 5,792,876 7,131,251 (4,920,475) 8,003,652 5,799,654 4,920,475 (4,398,967) 6,321,162 Reinsurance and other recoveries received / receivable Reinsurance and other recoveries in respect of outstanding claims - closing Reinsurance and other recoveries in respect of outstanding claims - opening Reinsurance and other recoveries revenue (1,707,578) (5,482,393) 3,526,278 (3,663,693) (1,684,522) (3,526,278) 2,948,471 (2,262,329) 4,339,959 4,058,833 29.3 Reinsurance and other recoveries received / receivable Reinsurance and other recoveries in respect of outstanding claims - closing Reinsurance and other recoveries in respect of outstanding claims - opening Currency translation effect Reinsurance and other recoveries revenue Net insurance claims expense - General Insurance Business 29.1 & 29.2 Life Insurance Business: Claim related expenses Total gross claims Reinsurance recoveries - on individual claims - on group claims Net insurance claims expense - Life Insurance Business 29.1 Net insurance claims expense - Business underwritten inside Pakistan Annual Report 2021 298
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 2021 2020 Rupees in thousand 29 .2 Net insurance claims expense - Business underwritten outside Pakistan Claim paid Outstanding claims including IBNR - closing Outstanding claims including IBNR - opening Currency translation effect Claims expense 5,551,054 5,554,794 (5,847,565) (540,775) 4,717,508 6,173,692 5,847,565 (5,968,380) (196,160) 5,856,717 Reinsurance and other recoveries received / receivable Reinsurance and other recoveries in respect of outstanding claims - closing Reinsurance and other recoveries in respect of outstanding claims - opening Currency translation effect Reinsurance and other recoveries revenue (2,299,808) (2,461,120) 2,666,293 241,051 (1,853,584) 2,863,924 (2,662,192) (2,666,293) 3,284,877 114,914 (1,928,694) 3,928,023 29.3 Claims development tables The Group maintains adequate reserves in respect of its insurance business in order to protect against adverse future claims experience and developments. The following table shows the development of the claims over a period of time. All amounts are presented in gross numbers before reinsurance. 29.3.1 General Insurance Business: 2016 & prior 2017 Accident year 2019 2018 2020 2021 Total Rupees in thousand Estimate of the ultimate claim cost: At the end of accident year One year later Two years later Three years later Four years later Five years later Current estimate of cumulative claims 11,752,724 11,307,403 7,075,979 6,362,632 2,369,539 1,978,478 1,662,339 956,949 646,905 725,072 760,020 760,020 Less: Cumulative payments to date 29,141 Liability recognized in statement of financial position 730,879 13,278,246 6,250,676 1,880,335 863,553 - 14,544,497 6,218,787 2,149,028 - 12,607,367 5,366,245 - 14,166,057 - 77,656,294 31,274,319 8,377,380 3,482,841 1,371,977 760,020 725,072 863,553 2,149,028 5,366,245 14,166,057 24,029,975 82,526 348,519 1,062,884 3,369,367 6,451,493 11,343,930 642,546 515,034 1,086,144 1,996,878 7,714,564 12,686,045 Annual Report 2021 299
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 2017 29 .3.2 Accident year 2019 2020 2018 2021 Total Rupees in thousand Life Insurance Business: 29.3.2.1 Individual life claims Estimate of the ultimate claim cost: At the end of accident year One year later Two years later Three years later Four years later 181,455 283,617 294,168 294,168 300,075 178,516 255,404 262,037 266,902 - 237,921 345,129 362,799 - 292,496 530,932 - 466,544 - 1,356,932 1,415,082 919,004 561,070 300,075 Current estimate of cumulative claims 300,075 266,902 362,799 530,932 466,544 1,927,252 Less: Cumulative payments to date 266,101 237,026 316,088 452,754 234,885 1,506,854 33,974 29,876 46,711 78,178 231,659 420,398 2021 Total Liability recognized in statement of financial position 29.3.2.2 Group life claims 2017 Accident year 2019 2020 2018 Rupees in thousand Estimate of the ultimate claim cost: At the end of accident year One year later Two years later Three years later Four years later 413,991 549,012 556,060 557,251 557,251 419,348 531,056 532,356 532,356 - 342,820 452,433 454,575 - 559,852 663,992 - 349,345 - 2,085,356 2,196,493 1,542,991 1,089,607 557,251 Current estimate of cumulative claims 557,251 532,356 454,575 663,992 349,345 2,557,519 Less: Cumulative payments to date 557,251 532,356 454,575 662,142 326,799 2,533,123 - - - 1,850 22,546 24,396 Liability recognized in statement of financial position Annual Report 2021 300
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 30 Net commission and other acquisition costs Note General Insurance Business : Commission paid or payable Deferred commission expense - opening Deferred commission expense - closing Currency translation effect Net commission Commission received or recoverable Unearned reinsurance commission - opening Unearned reinsurance commission - closing Currency translation effect Commission from reinsurance Net commission and other acquisition costs - General Insurance Business 30.1 & 30.2 2021 2020 Rupees in thousand 2,346,874 731,319 (1,055,480) 59,606 2,082,319 1,867,093 1,190,146 (731,319) 32,239 2,358,159 (554,992) (245,318) 241,094 (195) (559,411) (532,528) (237,751) 245,318 (8) (524,969) 1,522,908 1,833,190 1,540,707 134,820 157,477 160,249 392,674 2,385,927 1,379,956 147,256 122,821 114,036 357,106 2,121,175 22,061 2,142 24,203 21,908 3,344 25,252 434,049 2,869 2,121 3,600 38,626 49 33,951 489 30,952 6,603 16,494 34,245 10,559 2,220 39,223 8,254 401 60,310 3,151 728,166 3,138,296 315,913 1,691 3,620 3,257 23,378 193 40,442 336 25,874 4,717 9,018 23,331 6,509 1,466 38,129 1,156 608 44,260 1,747 545,645 2,692,072 4,661,204 4,525,262 Life Insurance Business: Remuneration to insurance / takaful intermediaries on individual policies: Commission on first year contribution / premium Commission on second year contribution / premium Commission on subsequent years renewal contribution / premium Commission on single contribution premium Other benefits to insurance intermediaries Remuneration to insurance intermediaries on group policies: Commission Other benefits to insurance intermediaries Other acquisition costs: Employee benefit cost Traveling expenses Information technology expense Printing & stationary Depreciation Amortization Rent, rates and taxes Insurance cost Car fuel & maintenance Postage Electricity, gas and water Office maintenance Entertainment Training & development Marketing cost Financial charges Brokerage charges Legal & professional charges Stamp duty Medical examination fee Net commission and other acquisition costs - Life Insurance Business Annual Report 2021 301
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 30 .1 Net commission and other acquisition costs Business underwritten inside Pakistan Note Commission paid or payable Deferred commission expense - opening Deferred commission expense - closing Net commission Commission received or recoverable Unearned reinsurance commission - opening Unearned reinsurance commission - closing Commission from reinsurance 30.2 Net commission and other acquisition costs Business underwritten outside Pakistan Commission paid or payable Deferred commission expense - opening Deferred commission expense - closing Currency translation effect Net commission Commission received or recoverable Unearned reinsurance commission - opening Unearned reinsurance commission - closing Currency translation effect Commission from reinsurance 31 Management expenses Employees benefit cost Travelling expenses Advertisement & sales promotion Printing & stationary Depreciation Amortization Rent, rates & taxes Legal & professional charges - business related Electricity, gas & water Entertainment Vehicle running expenses Office repairs & maintenance Bank charges Postages, telegrams & telephone Supervision fee IT related costs Tracking and monitoring charges Provision for doubtful balances against due from insurance contract holders Regulatory fee Miscellaneous 31.1 Employee benefit cost Salaries, allowances and other benefits Charges for post employment benefit 31.1 2021 2020 Rupees in thousand 1,139,371 285,324 (393,554) 1,031,141 857,203 352,673 (285,324) 924,552 (549,408) (240,971) 239,650 (550,729) 480,412 (523,673) (236,381) 240,971 (519,083) 405,469 1,207,503 445,995 (661,926) 59,606 1,051,178 1,009,890 837,473 (445,995) 32,239 1,433,607 (5,584) (4,347) 1,444 (195) (8,682) (8,855) (1,370) 4,347 (8) (5,886) 1,042,496 1,427,721 2,349,331 46,760 243,973 54,717 245,370 45,878 20,347 198,861 87,364 26,046 142,423 105,492 60,068 45,067 72,921 174,336 142,976 2,263,570 48,209 166,148 48,662 295,958 47,628 10,301 157,677 74,643 18,314 121,272 73,353 41,840 42,165 79,416 161,652 179,587 72,104 131,560 79,103 47,968 117,028 55,836 4,344,697 4,051,227 2,217,286 132,045 2,140,506 123,064 2,349,331 2,263,570 Annual Report 2021 302
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Note 32 2021 2020 Rupees in thousand Investment income Business underwritten Inside Pakistan Income from equity securities Dividend Income - Available for sale - Fair value through pro fit or loss Income from debt securities Return on debt securities - Fair value through profit or loss Return on government securities - Available for Sale - Fair value through profit or loss - Held to maturity Income from term deposit receipts - Held to maturity Tax on dividend under final tax regime Net realized fair value gains on investments Available for sale - Equity securities - Government securities Fair value through profit or loss - Equity securities - Debt securities - Government securities Provision for impairment in value of 'available-for-sale' investments 2,261,245 624,416 2,885,661 998,602 366,669 1,365,271 297,512 297,512 380,360 380,360 28,426 1,735,147 37,414 1,800,987 45,106 1,461,526 38,502 1,545,134 461,233 461,233 353,177 353,177 - (5,480) (5,480) 5,421 (30) 5,391 40,413 40,413 466,723 5,454 (81,459) 381,804 (1,240) 279,234 390,718 659,798 49,899 (158,641) 5,891,401 4,180,032 334 334 2,315 2,315 - 699 699 104,224 104,224 156,117 156,117 104,558 159,131 5,995,959 4,339,163 Business underwritten Outside Pakistan Income from equity securities Dividend income - Available for Sale Net realized gains on investments - Available for Sale Return on term deposits - Held to maturity Total investment income Annual Report 2021 303
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Note 33 2021 2020 Rupees in thousand Net fair value gain / (loss) on financial assets at fair value through profit or loss Held for trading Net unrealized gains / (losses) on: - Mutual Funds - Listed equities - Fixed income securities - Government securities Investment related expenses 34 (869,463) 738,783 85,693 (2,073) 71,671 (1,859) 83,620 69,812 447,183 3,662 23,799 190 8,439 2,758 14,030 23,069 425,146 3,125 72,039 210 4,243 12,330 12,980 28,968 523,130 559,041 29,092 20,066 9,909 5,851 320 1,298 1,911 23,776 18,459 8,462 12,211 236 1,905 3,640 68,447 68,689 4,585 1,795 2,125 1,611 10,116 4,427 1,041 2,416 626 8,510 8,276 1,102 572 9,950 20,066 8,275 1,101 573 9,949 18,459 Other income Return on bank balances Mark-up on policy loans Gain on sale of operating assets Return on loans to employees Income against deferred grant Exchange gain Shared expenses received Miscellaneous 36 711,944 105,610 32,079 (8,540) (102,310) Rental income Rental income Expenses of investment property 35 2,049 (823,246) 62,970 (10,759) (100,477) Other expenses Legal & professional charges other than business Auditors' remuneration Subscription fee Donations Directors' fee Central depository expense Others 36.1 Auditors' remuneration 36.1 36.2 Inside Pakistan: Audit fee Interim review fee Special certifications and sundry advisory services Out-of-pocket expenses Outside Pakistan: Audit fee Interim review fee Out-of-pocket expenses Annual Report 2021 304
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 36 .2 The Company has paid the donation amounting to Rs. 1.5 million (2020: Nil) to Pakistan Agricultural Coalition, Rs. 3.1 million (2020: Nil) to Dr. Jameel Jalibi Foundation and Rs. 1.2 million (2020: Nil) to Indus Hospital during the current year. 37 2021 2020 Rupees in thousand Taxation - net Current tax For the year - Group - Window Takaful Operations 931,628 40,490 492,446 47,605 Prior year - Group 972,118 (579,273) (39,222) - Group - Window Takaful Operations 354,252 (102) 354,150 193,316 (236) 193,080 1,326,268 153,858 Deferred tax For the year 37.1 Tax charge reconciliation Tax at the applicable rate of 29 (2019: 29) Prior year Tax effect of provision for impairment of investments Others 38 Earnings per share (Effective tax rate) 2020 2021 Percentage 29.00 (0.32) 2.12 29.00 (30.33) 2.41 5.82 30.80 6.90 2021 2020 Rupees in thousand There is no dilutive effect on the basic earnings per share which is based on: Net profit after tax for the year attributable to owners of the parent 2,943,593 2,073,922 2020 2021 Number of shares Weighted average number of ordinary shares 350,000,000 2021 Earning per share - basic and diluted 39 Rupees 350,000,000 2020 8.41 5.93 Compensation of Directors and Executives The aggregate amount charged in the accounts for remuneration, including all benefits, to the Chief Executives, Directors and Executives of the Group are as follows: Annual Report 2021 305
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Chief Executive Of ficer 2020 2021 Directors Executives 2020 2021 2020 2021 Rupees in thousand Fees Managerial remuneration Leave encashment Bonus Charge of defined benefit plan Contribution to defined contribution plan House rent allowance Utilities Medical Conveyance Special allowance Other allowance Number 31,013 4,135 4,723 1,085 27,691 4,360 2,400 740 - 516 - 1,042,566 47,989 111,445 33,266 1,030,353 41,956 92,950 36,094 1,551 448 1,800 447 45,202 1,384 556 1,800 473 38,664 740 516 27,362 203,024 18,877 43,662 162,561 1,690,752 24,251 189,970 16,423 71,597 156,633 1,660,227 2 2 13 13 521 493 39.1 In addition, the Chief Executive Officer (CEO) of the Parent Company is also provided with Company maintained car (s), certain household items, furniture and fixtures and equipment in accordance with the policy of the Parent Company. Whereas, no remuneration was paid to CEO of the Subsidiary Company. 39.2 No remuneration was paid to Non - Executive Directors of the Group except for meeting fees. 40 Transactions with related parties The Group has related party relationships with its associates, employee retirement benefit plans, key management personnel and other parties. Transactions are entered into with such related parties for the issuance of policies to and disbursements of claims incurred by them and payments of rentals for the use of premises rented from them. There are no transactions with key management personnel other than those specified in their terms of employment. Investments and bank deposits with related parties have been disclosed in note 8, 10, 14 and 22 to the consolidated financial statements. Other transactions with related parties are summarized as follows: Annual Report 2021 306
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 2021 2020 Rupees in thousand Parent Company i ) Transactions Basis of relationship Premiums underwritten Common directorship 1,734,106 1,699,869 Premiums received Common directorship 1,264,474 1,573,675 Claims paid Common directorship 647,164 665,463 Security deposit received Common directorship 5,173 Security deposit paid Common directorship - Commission Paid Common directorship 27,939 33,537 Guarantee commission received Common directorship 11,542 8,460 Rent paid Common directorship 6,689 8,067 Rent received Common directorship 63,767 39,247 Dividends received Common directorship 1,320,294 459,884 Dividends paid Common directorship 197,921 197,582 Income on bank deposits Common directorship 42,794 88,763 Investments made Common directorship 1,250,493 226,107 Fixed assets sold Common directorship 33,055 3,538 Fee / service charges paid Common directorship 15,941 10,931 Fee / service charges received / accrued Common directorship 17,298 10,485 Payments made to provident fund Employees' fund 36,543 35,124 115 ii) Period end balances Balances receivable Common directorship 243,103 206,040 Balances payable Common directorship 299,939 313,285 Payable to provident fund Employees' fund 88 143 Common directorship Common directorship 277,742 208,492 238,335 186,146 Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Directors Employees' fund 1,675,938 145,486 3,391 12,220,338 11,431,722 35,991 163,733 9,199 29 26,402 1,536,137 105,228 1,832 5,608,773 4,936,058 25,317 91,535 9,450 75,323 Subsidiary Company i) Transactions Premium written Claims expense Commission and other incentives in respect of Bancassurance Profit on bank deposits Bank charges Investments purchased Investments sold Investment advisor fee Dividend income Reinsurance claim recoveries Reinsurance premium ceded Trustee fee Purchase of right shares Expense in relation to gratuity fund Annual Report 2021 307
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 2021 2020 Rupees in thousand ii ) Period end balances Basis of relationship Premium due but unpaid Premium received in advance Bank deposits Investments held Dividend receivables Accrued Income Commission payable Claims payable Reinsurance receivable Remuneration payable for the management of discretionary investment portfolio Remuneration payable to Trustee Other payable/(receivables) Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship 11,626 1,668,509 8,499,041 6,221 250 289,696 5,700 - 8,130 3,306,935 7,868,307 593 453,358 33,107 - Common directorship Common directorship Common directorship 3,284 903 - 1,849 968 16,694 Employees' fund 6,460 (112,349) Retirement Benefit Obligation Plan (Gratuity Fund) Receivable from / (payable to) Gratuity fund 40.1 Following are the particulars of the related parties of the Group at the reporting date. Name of Related Party Basis of relationship AA Joyland (Private) Limited Agro Hub International (Private) Limited Cotton Web Limited Dupak Developers Pakistan (Private) Limited Dupak Properties (Private) Limited Dupak Tameer Limited D.G. Khan Cement Company Limited Export Development Funds Fortress Financials Services (Private) Limited Fortress Square Services (Private) Limited Fortress Supplies (Private) Limited Golf View Land (Private) Limited Hyundai Nishat Motor (Private) Limited Joyland (Private) Limited Mahmood Textile Mills Limited Masood Spinning Mills Limited MCB Bank Limited MCB Islamic Bank Limited National Textile Foundation Nishat (Aziz Avenue) Hotels & Properties Limited Nishat (Raiwind) Hotels & Properties Limited Nishat Agriculture Farming (Private) Limited Nishat Agrotech Farms (Private) Limited Nishat Dairy (Private) Limited Nishat Developers (Private) Limited Nishat Hotels & PropertiesLimited Nishat Mills Limited Nishat Sutas Dairy Limited Nishat Chunian Limited Nishat Power Limited Pakgen Power Limited Pakistan Single Window Punjab Industrial Estate Development & Management Company Punjab Social Security Health Management Company Roomi Foods (Private) Limited Roomi Poultry (Private) Limited Siddiqsons Limited Siddiqsons Tin Plate Limited SiddiqsonsEnergy Limited Common directorship Common directorship Company director Chairman Common directorship Common directorship Common directorship Associated Company Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Company director Shareholder Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Associated Company Associated Company Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Common directorship Aggregate % of Shareholding in the Group Nil Nil Nil Nil Nil Nil 0.462% Nil Nil Nil Nil Nil 10.000% Nil Nil Nil 5.195% Nil Nil Nil Nil Nil Nil Nil Nil Nil 0.001% Nil 0.537% 0.272% 6.889% Nil Nil Nil Nil Nil Nil Nil Nil Annual Report 2021 308
- 41 Segment Information 11 ,179,552 11,591,214 Segment Liabilities Unallocated Liabilities 9,220,699 9,183,336 17,946 19,417 9,220,699 8,117,196 (7,219,382) 897,814 465,714 1,363,528 (3,504,148) 3,180,033 (324,115) (468,287) (420,779) (1,213,181) 150,347 10,633,813 (1,322,564) (90,550) 9,220,699 Segment Assets Unallocated assets Insurance premium earned Insurance premium ceded to reinsurers Net insurance premium Commission income Net underwriting income Insurance claims Insurance claim recoveries from reinsurer Net claims Commission expense Management expense Net insurance claims and expenses Net change in insurance liabilities (other than outstanding claims) Underwriting result Net investment income Net fair value unrealized gain on financial assets at fair value through profit or loss Change in fair value of investment property Rental income Other income Other expenses Finance cost Profit from Window Takaful Operations - Operators Fund (Parent Company) Profit before taxation Gross written premium (inclusive of administrative surcharge) Gross direct premium Facultative inward premium Administrative surcharge Premium receivable (Inclusive of federal excise duty, Federal insurance fee and Administrative surcharge) Federal excise duty / VAT Federal insurance fee Inside Pakistan 28,176 24,697 20,042 19,987 55 20,042 20,630 (14,157) 6,473 4,013 10,486 73,221 (60,265) 12,956 (2,631) (800) 9,525 20,011 21,460 (1,372) (46) 20,042 Outside Pakistan 1,149,567 819,410 1,275,694 1,243,502 1,476 30,716 1,275,694 1,240,378 (263,765) 976,613 1,949 978,562 (606,891) 170,463 (436,428) (166,989) (351,048) (954,465) 24,097 1,452,007 (163,331) (12,982) 1,275,694 Inside Pakistan 37,421 11,616 35,121 35,121 35,121 29,420 (149) 29,271 29,271 (3,692) 76 (3,616) (5,699) (9,808) (19,123) 10,148 36,981 (1,843) (17) 35,121 Outside Pakistan Fire and property damage Marine, aviation and transport 2,923,636 1,472,253 3,220,797 3,101,539 119,258 3,220,797 2,989,107 (58,042) 2,931,065 3,832 2,934,897 (1,477,422) 71,545 (1,405,877) (218,793) (1,049,841) (2,674,511) 260,386 3,695,085 (441,612) (32,676) 3,220,797 Inside Pakistan 8,898,921 4,089,417 2021 2,225,261 (16,909) (22,078) 2,186,274 1,812,336 771,191 Outside Pakistan 808,489 651,760 823,350 823,350 823,350 397,172 (211,443) 185,729 1,497 187,226 (405,494) 264,885 (140,609) (37,176) (47,005) (224,790) (37,564) 864,518 (41,168) 823,350 2,400,998 1,765,915 1,109,204 1,097,963 11,241 1,109,204 1,238,058 (524,885) 713,173 79,234 792,407 (625,641) 241,652 (383,989) (117,059) (218,510) (719,558) 72,849 1,230,772 (110,456) (11,112) 1,109,204 Aggregate Life Insurance General Insurance 1,774 43,812 (13,748) (1,968) 209,873 757,607 81,846 95,350 (45,092) (47,978) 139,267 3,925,838 757,607 83,620 139,162 (58,840) (49,946) 139,267 4,135,711 23,295,763 23,081,960 19,422 194,381 23,295,763 20,975,806 (8,447,406) 12,528,400 559,411 13,087,811 (12,721,160) 5,517,277 (7,203,883) (2,082,319) (3,146,212) (12,432,414) 655,397 2,469,444 46,487,619 (2,369,488) (169,462) 43,948,669 Aggregate (869,463) (83,467) 383,968 (9,607) (3,941) 134,150 45,640,542 13,061,211 58,701,753 61,641,457 120,343,210 18,123 19,877,751 9,791,130 29,668,881 58,021,231 87,690,112 5,768,468 805,415 6,573,883 458,646 7,032,529 25,646,219 10,596,545 36,242,764 58,479,877 94,722,641 79,918,418 40,424,792 (869,463) 674,140 83,620 523,130 (68,447) (53,887) 139,267 4,269,861 20,652,906 43,948,669 20,652,906 43,734,866 19,422 194,381 20,652,906 43,948,669 20,652,906 41,628,712 (530,051) (8,977,457) 20,122,855 32,651,255 559,411 20,122,855 33,210,666 (9,551,060) (22,272,220) 445,302 5,962,579 (9,105,758) (16,309,641) (3,138,296) (5,220,615) (1,198,485) (4,344,697) (13,442,539) (25,874,953) (9,490,171) (9,490,171) (2,809,855) (2,154,458) 3,526,515 5,995,959 4,793,710 20,802,031 59,116,387 8,267,501 37,899,722 2,525,070 6,283,095 6,271,601 11,494 6,283,095 5,335,525 (381,332) 4,954,193 8,682 4,962,875 (4,717,508) 1,853,584 (2,863,924) (1,051,178) (972,328) (4,887,430) 75,445 104,558 17,012,668 16,810,359 19,422 182,887 17,012,668 15,640,281 (8,066,074) 7,574,207 550,729 8,124,936 (8,003,652) 3,663,693 (4,339,959) (1,031,141) (2,173,884) (7,544,984) 579,952 2,364,886 16,220 16,008,321 29,632,221 5,775 5,744 31 5,775 8,634 (7,173) 1,461 3,172 4,633 1,389 (305) 1,084 (344) (294) 446 5,079 Outside Pakistan 6,597,775 25,834,713 20,652,906 (314,616) (2,369,488) (64) (169,462) 6,283,095 23,295,763 20,652,906 Total Inside Pakistan 6,069 19,236,938 (293) (2,054,872) (1) (169,398) 5,775 17,012,668 Outside Pakistan Miscellaneous Inside Pakistan Rupees in thousands Inside Pakistan Accident & health General Insurance 5,398,807 2,186,274 5,387,399 2,184,019 11,408 2,255 5,398,807 2,186,274 4,879,669 2,055,542 (148,410) 4,731,259 2,055,542 4,731,259 2,055,542 (4,382,932) (1,789,550) 1,649,193 (2,733,739) (1,789,550) (1,005,328) (60,013) (914,421) (133,706) (4,653,488) (1,983,269) 77,771 72,273 5,668,747 (269,940) 5,398,807 Outside Pakistan Motor The Group conducts general insurance business both inside and outside Pakistan while life assurance is conducted only in Pakistan. Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Annual Report 2021 309
- Segment Information 6 ,767,220 7,633,997 Segment Assets Unallocated assets Segment Liabilities Unallocated Liabilities 99,635 84,504 (75,537) (64,413) Insurance premium earned Insurance premium ceded to reinsurers Net insurance premium Commission income Net underwriting income Insurance claims Insurance claim recoveries from reinsurer Net claims Commission expense Management expense Net insurance claims and expenses (1,427,177) Net change in insurance liabilities (other than outstanding claims) Underwriting result (192,670) Net investment income Net fair value unrealized gain on financial assets at fair value through profit or loss Net unrealized gains on investment property Rental income Other income Other expenses Finance cost Profit from Window Takaful Operations - Operators Fund (Parent Company) Profit before tax 22,809 (1,448) (48) 21,313 21,313 21,242 71 21,313 29,222 (20,701) 8,521 2,603 11,124 (107,757) 35,947 (71,810) (2,645) (1,082) 7,806,082 (987,504) (67,970) 6,750,608 Outside Pakistan 6,750,608 6,699,190 33,239 18,179 6,750,608 6,636,961 (5,816,310) 820,651 413,856 1,234,507 (2,219,655) 1,577,406 (642,249) (415,970) (368,958) Gross written premium (inclusive of administrative surcharge) Gross direct premium Facultative inward premium Administrative surcharge Premium receivable (Inclusive of federal excise duty, Federal insurance fee and Administrative surcharge) Federal excise duty / VAT Federal insurance fee Inside Pakistan Fire and property damage 736,427 498,520 (775,717) (101,435) 960,500 937,043 415 23,042 960,500 935,695 (263,140) 672,555 1,727 674,282 (348,185) 42,523 (305,662) (118,735) (351,320) 1,093,491 (123,365) (9,626) 960,500 Inside Pakistan 22,678 7,214 (8,011) 11,416 21,191 21,191 21,191 19,427 19,427 19,427 3,443 3,443 (2,465) (8,989) 21,577 (363) (23) 21,191 Outside Pakistan Marine, aviation and transport 4,874,936 (231,787) 4,643,149 Outside Pakistan 2,397,597 8,116,777 4,087,762 Outside Pakistan 1,827,861 (16,327) (18,057) 1,793,477 1,433,789 503,065 141,733 99,727 (43,086) (48,920) 114,513 114,513 114,513 33,667 (41,406) (7,739) 1,905 (5,834) (62,161) 42,390 (19,771) (3,431) (19,884) 120,239 (5,726) 114,513 2,206,070 1,812,432 (804,780) 132,172 1,188,090 1,151,351 27,876 8,863 1,188,090 1,459,375 (621,776) 837,599 99,353 936,952 (902,353) 480,216 (422,137) (133,120) (249,523) 1,318,756 (118,270) (12,396) 1,188,090 Inside Pakistan Aggregate Life Insurance General Insurance Aggregate 67,829 185,333 (48,745) (10,120) 163,774 1,609,090 69,812 242,058 (62,333) (14,379) 163,774 1,855,337 738,783 (21,000) 316,983 (6,356) (5,502) 375,229 738,783 (21,000) 69,812 559,041 (68,689) (19,881) 163,774 2,230,566 37,470,345 10,892,804 48,363,149 50,698,845 99,061,994 21,468 14,407,880 8,402,291 22,810,171 48,555,896 71,366,067 3,823,993 641,246 4,465,239 592,926 5,058,165 18,231,873 9,043,537 27,275,410 49,148,822 76,424,232 4,298,256 14,990,904 49,580,853 64,571,757 6,594,548 33,372,245 1,117,992 34,490,237 1,983 56,725 (13,588) (4,259) 246,247 (7,080,380) (6,357,603) (13,437,983) (10,488,962) (23,926,945) (9,937,066) (9,937,066) 317,644 46,255 363,899 (3,894,336) (3,530,437) 933,375 159,131 1,092,506 3,246,657 4,339,163 13,451,519 4,809,878 18,261,397 17,095,659 35,357,056 13,232,039 4,802,384 18,034,423 17,095,659 35,130,082 61,745 61,745 61,745 157,735 7,494 165,229 165,229 13,451,519 4,809,878 18,261,397 17,095,659 35,357,056 13,627,556 6,663,066 20,290,622 17,095,659 37,386,281 (6,748,615) (265,094) (7,013,709) (563,967) (7,577,676) 6,878,941 6,397,972 13,276,913 16,531,692 29,808,605 519,083 5,886 524,969 524,969 7,398,024 6,403,858 13,801,882 16,531,692 30,333,574 (6,321,162) (5,856,717) (12,177,879) (7,459,494) (19,637,373) 2,262,329 1,928,694 4,191,023 620,863 4,811,886 (4,058,833) (3,928,023) (7,986,856) (6,838,631) (14,825,487) (924,552) (1,433,607) (2,358,159) (2,692,072) (5,050,231) (2,096,995) (995,973) (3,092,968) (958,259) (4,051,227) 19,049 10,692,648 26,777,697 745 5,633 9,712 9,692 20 9,712 11,356 (7,846) 3,510 1,378 4,888 1,443 489 1,932 (592) (595) Outside Pakistan 5,049,880 20,260,012 17,095,659 37,355,671 (239,925) (1,862,585) (1,862,585) (77) (136,030) (136,030) 4,809,878 18,261,397 17,095,659 35,357,056 Total 10,319 15,210,132 (601) (1,622,660) (6) (135,953) 9,712 13,451,519 Outside Pakistan Miscellaneous Inside Pakistan Rupees in thousands Inside Pakistan (2,301,406) (6,231,714) (1,771,300) 392,744 142,539 86,833 1,111,411 2020 Accident & health General Insurance 2,758,844 4,643,149 1,793,477 2,653,801 4,635,746 1,790,654 215 104,828 7,403 2,823 2,758,844 4,643,149 1,793,477 2,737,392 6,569,394 1,858,133 (47,389) (195,141) 2,690,003 6,374,253 1,858,133 4,147 2,694,150 6,374,253 1,858,133 (1,283,439) (5,691,685) (1,567,530) 162,184 1,849,868 (1,121,255) (3,841,817) (1,567,530) (184,654) (1,424,474) (72,073) (995,497) (965,423) (131,697) 3,163,942 (377,194) (27,904) 2,758,844 Inside Pakistan Motor The Group conducts general insurance business both inside and outside Pakistan while life assurance is conducted only in Pakistan. 41.1 Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Annual Report 2021 310
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 42 Movement in investments Available for sale 43 Fair value through pro fit or loss Rupees in thousand Held to Maturity Total As at January 01, 2020 19,518,010 15,934,760 20,818,151 56,270,921 Additions Disposals (sales and redemptions) Fair value net gains (excluding net realized gain) Currency translation effect Unwinding of discount on debt securities Impairment losses 4,021,717 (3,281,660) (95,285) (158,641) 63,571,640 (65,430,998) 184,091 5,900 - 167,134,793 (159,018,594) 841,093 - 234,728,150 (227,731,252) 745,808 184,091 5,900 (158,641) As at December 31, 2020 20,004,141 14,265,393 29,775,443 64,044,977 Additions Disposals (sales and redemptions) Fair value net gains (excluding net realized gain) Currency translation effect Unwinding of discount on debt securities Impairment losses 1,250,913 (1,118,467) 1,089,153 49,899 79,563,589 (79,609,162) 618,862 (9,564) - 281,585,194 (268,611,564) (768,986) - 362,399,696 (349,339,193) 320,167 618,862 (9,564) 49,899 As at December 31, 2021 21,275,639 14,829,118 41,980,087 78,084,844 Management of insurance and financial risk The Group's activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest / mark-up rate risk, price risk and currency risk).The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance. Overall risks arising from the Group's financial assets and liabilities are limited. The Group consistently manages its exposure to financial risk without any material change from previous period in the manner described in notes below. The Board of Directors (the Board) has overall responsibility for the establishment and oversight of Group's risk management framework. The Board is also responsible for developing the Group's risk management policies. The individual risk wise analysis is given below : Parent Company 43.1 Insurance risk The principal risk that the Parent Company faces under insurance contracts is that the actual claims and benefit payments or the timing thereof may differ from expectations. This is influenced by the frequency of claims, severity of claims, actual benefits paid and subsequent development of long-term claims. Therefore, the objective of the Parent Company is to ensure that sufficient reserves are available to cover these liabilities. The above risk exposure is mitigated by diversification across a large portfolio of insurance contracts and geographical areas. The variability of risks is also improved by careful selection and implementation of underwriting strategy guidelines, as well as the use of reinsurance arrangements. Further, strict claims review policies to assess all new and ongoing claims, regular detailed review of claims handling procedures and frequent investigation of possible fraudulent claims and similar procedures are put in place to reduce the risk exposure of the Parent Company. The Parent Company further enforces a policy of actively managing and promptly pursuing of claims, in order to reduce its exposure to unpredictable future developments that can negatively impact the Parent Company. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contracts. Annual Report 2021 311
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Although the Parent Company has reinsurance arrangements , it is not relieved of its direct obligations to its policy holders and thus a credit exposure exists with respect to ceded insurance, to the extent that any reinsurer is unable to meet its obligations assumed under such reinsurance agreements. The Parent Company's placement of reinsurance is diversified such that it is neither dependent on a single reinsurer nor are the operations of the Parent Company substantially dependent upon any single reinsurance contract. Reinsurance policies are written with approved reinsurers on either a proportionate basis or non-proportionate basis. The reinsurers are carefully selected and approved and are dispersed over several geographical regions. Experience shows that larger the portfolio is in similar reinsurance contracts, smaller will be the relative variability about the expected outcome. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The Parent Company has developed its insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. The Parent Company principally issues the general insurance contracts e.g. Fire & property, Marine, aviation & transport, Motor, Accident & health and other Miscellaneous. Risks under non-life insurance policies usually cover twelve month or lesser duration. For general insurance contracts the most significant risks arise from accidental fire, atmospheric disaster and terrorist activities . Insurance contracts at times also cover risk for single incidents that expose the Parent Company to multiple insurance risks. 43.1.1 Geographical concentration of insurance risk To optimize benefits from the principle of average and law of large numbers, geographical spread of risk is of extreme importance. There are a number of parameters which are significant in assessing the accumulation of risks with reference to the geographical location, the most important of which is risk survey. 43.1.2 Reinsurance arrangements Keeping in view the maximum exposure in respect of key zone aggregate, a number of proportional and nonproportional reinsurance arrangements are in place to protect the net account in case of a major catastrophe. Apart from the adequate event limit which is the multiple of the treaty capacity or the primary recovery from the proportional treaty, any loss over and above limit would be recovered from the non-proportional treaty which is very much in line with the risk management philosophy of the Parent Company. Gross sum insured 2020 2021 Fire & property damage Marine aviation & transport Motor Accident & health Miscellaneous Reinsurance 2020 2021 Rupees in thousand Net 2021 2020 6,924,274,110 3,430,150,972 302,050,319 213,755,098 463,322,671 5,362,654,044 2,745,235,895 226,188,600 115,702,675 432,883,227 6,170,569,904 339,471,868 7,328,767 44,005,051 363,891,891 4,603,407,292 327,249,038 5,677,579 1,188,805 340,447,752 753,704,206 3,090,679,104 294,721,552 169,750,047 99,430,780 759,246,752 2,417,986,857 220,511,021 114,513,870 92,435,475 11,333,553,170 8,882,664,441 6,925,267,481 5,277,970,466 4,408,285,689 3,604,693,975 43.1.3 Sources of uncertainty in estimation of future claim payments The key source of estimation uncertainty at the statement of financial position date relates to valuation of outstanding claims, whether reported or not, and includes expected claims settlement costs. Considerable judgment by management is required in the estimation of amounts due to policy holders arising from claims made under insurance contracts. Such estimates are necessary based on assumptions about several factors involving varying and possibly significant degrees of judgment and uncertainty, and actual results may differ from management's estimates resulting in future changes in estimated liabilities. Qualitative judgments are used to assess the extent to which past trends may not apply in the future, for example one-off occurrence, changes in market factors such as judicial decisions and government legislation affect the estimates. Annual Report 2021 312
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 In particular , estimates have to be made both for the expected ultimate cost of claims reported at the statement of financial position date and for the expected ultimate cost of claims incurred but not reported (IBNR) at the statement of financial position date. 43.1.4 Key assumptions for claim estimation The process used to determine the assumptions for calculating the outstanding claim reserves is intended to result in neutral estimates of the most likely or expected outcome. The nature of the business makes it very difficult to predict with certainty the likely outcome of any particular claim and the ultimate cost of notified claims. Each notified claim is assessed in separate, case to case basis, with due regard to claim circumstances, information available from surveyors and historical evidence of the size of similar claims. Case estimates are reviewed regularly and updated as and when new information is available. The estimation of IBNR is generally subject to a greater degree of uncertainty that the estimation of the cost of settling claims already notified to the Company, in which case the information about the claim event is available. IBNR provision is initially estimated at a gross level and a separate calculation is carried out to estimate the size of the reinsurance recoveries. The estimation process takes into account the past claims reporting pattern and details of reinsurance programs. The premium liabilities have been determined such that the total premium liability provisions (unearned premium reserve and premium deficiency reserve) would be sufficient to service the future expected claims and expenses likely to occur on the unexpired policies as of reporting date. The expected future liability is determined using estimates and assumptions based on the experience during the expired period of the contracts and expectations of future events that are believed to be reasonable. 43.1.5 Sensitivity analysis The risks associated with the insurance contracts are complex and subject to a number of variables which complicate quantitative sensitivity analysis. The Company makes various assumptions and techniques based on past claims development experience. This includes indications such as average claims cost, ultimate claims numbers and expected loss ratios. The Company considers that the liability for insurance claims recognized in the statement of financial position is adequate. However, actual experience may differ from the expected outcome. As the Company enters into short term insurance contracts, it does not assume any significant impact of changes in market conditions on unexpired risks. However, some results of sensitivity testing are set out below, showing the impact on profit / (loss) before tax, net of reinsurance. Pre tax profit / (loss) 2020 2021 Rupees in thousand 10% increase in claims liability Net: Fire & property Marine, aviation and transport Motor Accident & health Miscellaneous 10% decrease in claims liability Net: Fire & property Marine, aviation and transport Motor Accident & health Miscellaneous (31,116) (44,004) (413,961) (193,016) (38,291) (71,406) (30,222) (496,307) (158,730) (42,021) (720,388) (798,686) 31,116 44,004 413,961 193,016 38,291 71,406 30,222 496,307 158,730 42,021 720,388 798,686 Annual Report 2021 313
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Statement of Age-wise breakup of unclaimed insurance bene fits Particulars Claims not encashed Total 491,571 13 to 24 25 to 36 months months -------------------- Rupees in thousand -------------------- 1 to 6 months 347,675 7 to 12 months 13,993 49,902 Beyond 36 months 41,627 38,374 Subsidiary Company 43.2 Conventional business 43.2.1 Individual Life The risk underwritten is mainly death and sometimes disability. The risk of death and disability will vary in degree by age, gender, occupation, income group and geographical location of the assured person. The Subsidiary Company's exposure to poor risks may lead to unexpectedly high severity and frequency in claims' experience. This can be a result of anti-selection, fraudulent claims, a catastrophe or poor persistency. The Subsidiary Company may also face the risk of poor investment return, inflation of business expenses and liquidity issues on amount invested in the fund. The Subsidiary Company faces the risk of under-pricing particularly due to the fact that majority of these contracts are long term. Additionally, the risk of poor persistency may result in the Subsidiary Company being unable to recover expenses incurred at policy acquisition. The Subsidiary Company manages these risks through its underwriting, reinsurance, claims handling policy and other related controls. The Subsidiary Company has a well defined medical underwriting policy and avoids selling policies to high risk individuals. This puts a check on anti-selection. The need for profit testing is reviewed on an annual basis to ensure reasonableness of premiums charged. Reinsurance contracts have been purchased by the Subsidiary Company to limit the maximum exposure on any one insured person. The Subsidiary Company is developing and intends to eventually have a good spread of business throughout the country thereby ensuring diversification of geographical risks. To avoid poor persistency the Subsidiary Company applies quality controls on the standard of service provided to policyholders and has placed checks to control mis-selling and to track improvements in the standard of service provided to policyholders. For this, a regular monitoring of lapsation rates is conducted. On the claims handling side, the Subsidiary Company has procedures in place to ensure that payment of any fraudulent claims is avoided. For this, Claims Committee with variable materiality limits review all claims for verification and specific and detailed investigation of all apparently doubtful claims (particularly of high amounts) is conducted. Further, all payments on account of claims are made after necessary approval of relevant authority as per policy of the Subsidiary Company. The Subsidiary Company maintains adequate liquidity in its fund to cater for a potentially sudden and high cash requirement. a) Frequency and severity of claims The Subsidiary Company measures concentration of risk by geographical area. Concentration of risk is not currently a factor of concern as the business is developing and aims to achieve a spread of risks across various parts of the country. However, undue concentration by amounts could have an impact on the severity of benefit payments on a portfolio basis. The table below presents the concentration of insured benefits across five bands of insured benefits per individual life assured. The benefit insured figures are shown gross and net of the reinsurance contracts described above. The amounts presented are showing total exposure of the Subsidiary Company including exposure in respect of riders attached to the main policies. Annual Report 2021 314
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Bene fits assured per life Rupees Sum assured at the end of 2021 Total benefits assured Before reinsurance After reinsurance Rupees in thousand Percentage Rupees in thousand Percentage 0-200,000 200,000 - 400,000 400,001 - 800,000 800,001 - 1,000,000 More than 1,000,000 Total Benefits assured per life Rupees 3,158 4,521 6,261 7,345 16,856 38,141 2,644 2,783 2,915 6,928 5,210 20,480 12.91% 13.59% 14.23% 33.83% 25.44% 100.00% Sum assured at the end of 2020 Total benefits assured Before reinsurance After reinsurance Rupees in thousand Percentage Rupees in thousand Percentage 0-200,000 200,000 - 400,000 400,001 - 800,000 800,001 - 1,000,000 More than 1,000,000 Total b) 8.28% 11.85% 16.42% 19.26% 44.19% 100.00% 3,862 4,918 5,980 6,158 16,576 37,494 10.30% 13.12% 15.95% 16.42% 44.21% 100.00% 3,244 2,920 2,771 4,472 5,106 18,513 17.52% 15.77% 14.97% 24.16% 27.58% 100.00% Sources of uncertainty in the estimation of future benefit payments and premium receipts Uncertainty in the estimation of future benefit payments and premium receipts for long-term conventional assurance contracts arises from the unpredictability of long-term changes in overall levels of mortality and morbidity incidence rates. c) Factors impacting future benefit payments and premium receipts are as follows: The Subsidiary Company assumes the expected mortality to be 80% of SLIC (2001-05). Morbidity incidence rates are taken as a percentage of reinsurer's risk premium rate. Persistency: The Subsidiary Company exercises a periodic analysis on recent and historic experience and persistency is calculated by applying statistical methods. Persistency rates vary by products and more importantly the sales distribution channel. An allowance is then made for any trend in the data to arrive at best estimate of future persistency rates for each sales distribution channel. d) Process used to decide on assumptions For long-term conventional assurance contracts, long-term assumptions are made at the inception of the contract. Keeping the statutory minimum reserving basis in view, the Subsidiary Company determines assumptions on future mortality, morbidity, persistency, administrative expenses and investment returns. At regular intervals, profit testing is conducted on main policies. Assumptions used for profit testing of the main policies are as follows: - Mortality: The Subsidiary Company assumes the expected mortality to be 80% of SLIC (2001-05). - Persistency: The Subsidiary Company exercises a periodic analysis on recent and historic experience and persistency is calculated by applying statistical methods. Persistency rates vary by products and more importantly the sales distribution channel. An allowance is then made for any trend in the data to arrive at best estimate of future persistency rates for each sales distribution channel. - Expense levels and inflation: A periodic study is conducted on the Subsidiary Company’s current business expenses and future projections to calculate per policy expenses. Expense inflation is assumed in line with assumed investment return. Annual Report 2021 315
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 e ) Investment returns: The investment returns are based on the historic performance of the assets and asset types underlying the fund. Changes in assumptions There are no changes in assumptions. f) Sensitivity analysis After reinsurance, the overall liability for individual life conventional business stands at less than 1% of the total policyholder liability held in respect of individual life business. Due to its immateriality, sensitivity analysis has not been conducted. 43.2.2 Group Life The main risk written by the Subsidiary Company is mortality. The Subsidiary Company may be exposed to the risk of unexpected claim severity or frequency. This can be a result of writing business with higher than expected mortality (such as mining or other hazardous industries), writing high cover amounts without adequate underwriting, difficulty of verification of claims, fraudulent claims or a catastrophe. The Subsidiary Company also faces risk such as that of under-pricing to acquire business in a competitive environment and of non-receipt of premium in due time. There also exists a potential risk of asset liability term mismatch due to liabilities being very short term in nature. The Subsidiary Company manages these risks through underwriting, reinsurance, effective claims handling and other related controls. The Subsidiary Company has a well defined medical under-writing policy and avoids writing business for groups with overly hazardous exposure. Pricing is done in line with the actual experience of the Subsidiary Company. The premium charged takes into account the actual experience of the client and the nature of mortality exposure the group faces. The Management undertakes to write business in line with the limits set by the appointed actuary, especially for large groups having a group assurance policy with annual premium of Rs 2 million or above in accordance with the requirements of Circular 11 of 2013 dated June 14, 2013. The Subsidiary Company also maintains a Management Information System (MIS) to track the adequacy of the premium charged. Reinsurance contracts have been purchased by the Subsidiary Company to limit the maximum exposure to any one life. The Subsidiary Company ensures writing business with good geographical spread and tries to maintain a controlled exposure to large groups which generally have poor experience. Writing business of known hazardous groups is also avoided. On the claims handling side, the Subsidiary Company ensures that payment of any fraudulent claims is avoided. For this, Claims Committee with variable materiality limits review all claims for verification and specific and detailed investigation of all apparently doubtful claims (particularly of high amounts) is conducted. Strict monitoring is in place at the Board of Directors level in order to keep the outstanding balances of premium at a minimum, especially the ones that are due for more than 90 days. The bulk of the assets held against liabilities of this line of business are cash to money market with short durations and high liquidity, thus mitigating the risk of asset value deterioration and liability mismatch. a) Frequency and severity of claims The Subsidiary Company measures concentration of risk by geographical area. Concentration of risk is not currently a factor of concern as the business is developing and aims to achieve a spread of risks across various parts of the country. The table below presents the concentration of insured benefits across five bands of insured benefits per individual life assured. The benefit insured figures are shown gross and net of the reinsurance contracts described above. The amounts presented are showing total exposure of the Subsidiary Company including exposure in respect of riders attached to the main policies. Annual Report 2021 316
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Bene fits assured per client Rupees Sum assured at the end of 2021 Total benefits assured Before reinsurance After reinsurance Rupees in thousand Percentage Rupees in thousand Percentage 0-500,000 500,001-1,000,000 1,000,001-1,500,000 1,500,001-2,000,000 More than 2,000,000 Total Benefits assured per client Rupees 47,926,846 54,760,037 37,197,192 14,245,645 308,245,228 462,374,948 47,907,098 44,453,539 18,996,050 5,714,250 51,303,080 168,374,017 28.45% 26.40% 11.28% 3.39% 30.47% 100.00% Sum assured at the end of 2020 Total benefits assured Before reinsurance After reinsurance Rupees in thousand Percentage Rupees in thousand Percentage 0-500,000 500,001-1,000,000 1,000,001-1,500,000 1,500,001-2,000,000 More than 2,000,000 Total b) 10.37% 11.84% 8.04% 3.08% 66.67% 100.00% 50,628,936 39,602,826 26,208,190 31,649,728 336,844,640 484,934,320 10.44% 8.17% 5.40% 6.53% 69.46% 100.00% 31,519,652 22,742,636 11,812,300 10,347,750 51,844,196 128,266,534 24.57% 17.73% 9.21% 8.07% 40.42% 100.00% Sources of uncertainty in the estimation of future benefit payments and premium receipts Other than conducting a liability adequacy for Unexpired Risk Reserves (URR), there is no need to estimate mortality for future years because of the short duration of the contracts. c) Process used to decide on assumptions Industry experience, the insured group's own past experience and reinsurer risk rates are used to determine the expected level of risk in relation to the SLIC (2001-05) Individual Life Ultimate Mortality Table. d) Changes in assumptions There are no changes in assumptions. e) Sensitivity analysis The table below shows the level of respective variation in liabilities for change in each assumption while holding all other assumptions constant: Variables Worsening of mortality rates for risk policies Increase in reporting lag Change in Variable Increase in liability 2021 (Rupees in '000') 2,149 2,149 +10% pa +10% pa 43.2.3 Non unitized Investment Linked Business The risk underwritten is mainly death and sometimes disability and/or critical illness. The risk of death and disability will vary in degree by age, gender, occupation, income group and geographical location of the insured person. The Subsidiary Company's exposure to poor risks may lead to unexpectedly high severity and frequency in claims' experience. This can be a result of anti-selection, fraudulent claims, a catastrophe or poor persistency. The Subsidiary Company may also face the risk of poor investment return, inflation of business expenses and liquidity issues on monies invested in the fund. The Subsidiary Company faces the risk of under-pricing particularly due to the fact that these contracts are long term. Additionally, the risk of poor persistency may result in the Subsidiary Company being unable to recover expenses incurred at policy acquisition. Annual Report 2021 317
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 The Subsidiary Company manages these risks through its underwriting , reinsurance, claims handling policy and other related controls. The Subsidiary Company has a well defined medical underwriting policy and avoids selling policies to high risk individuals. This puts a check on anti-selection. The need for profit testing is reviewed on an annual basis to ensure reasonableness of premiums charged. Reinsurance contracts have been purchased by the Subsidiary Company to limit the maximum exposure on any one insured person. The Subsidiary Company is developing and intends to eventually have a good spread of business throughout the country thereby ensuring diversification of geographical risks. To avoid poor persistency the Subsidiary Company applies quality controls on the standard of service provided to policyholders and has placed checks to control mis-selling and to track improvements in the standard of service provided to policyholders. For this, a regular monitoring of lapsation rates is conducted. On the claims handling side, the Subsidiary Company has procedures in place to ensure that payment of any fraudulent claims is avoided. For this, Claims Committee with variable materiality limits review all claims for verification and specific and detailed investigation of all apparently doubtful claims (particularly of high amounts) is conducted. The Subsidiary Company maintains adequate liquidity in its fund to cater for a potentially sudden and high cash requirement. Further, all payments on account of claims are made after necessary approval of relevant authority as per policy of the Subsidiary Company. The Subsidiary Company reserves the right to review the charges deductible under the contracts, thus limiting the risk of under pricing. a) Frequency and severity of claims The Subsidiary Company measures concentration of risk by geographical area. Concentration of risk is not currently a factor of concern as the business is developing and aims to achieve a spread of risks across various parts of the country. However, undue concentration by amounts could have an impact on the severity of benefit payments on a portfolio basis. The Subsidiary Company charges for mortality risk on a monthly basis for all insurance contracts. It has the right to alter these charges based on its mortality experience and hence minimises its exposure to mortality risk. Delays in implementing increases in charges and market or regulatory restraints over the extent of the increases may hinder its mitigating effect. The Subsidiary Company manages these risks through its underwriting strategy and reinsurance arrangements. The table below presents the concentration of insured benefits across five bands of insured benefits per individual life assured. The benefit insured figures are shown gross and net of the reinsurance contracts described above. The amounts presented are showing total exposure of the Subsidiary Company including exposure in respect of riders attached to the main policies. Benefits assured per life Rupees 0-200,000 200,000 - 400,000 400,001 - 800,000 800,001 - 1,000,000 More than 1,000,000 Total Sum assured at the end of 2021 Total benefits assured Before reinsurance After reinsurance Rupees in thousand Percentage Rupees in thousand Percentage 47,128 187,555 375,261 294,255 175,005 1,079,204 4.37% 17.38% 34.77% 27.27% 16.22% 100.00% 14,507 58,295 114,776 91,076 32,342 310,996 4.66% 18.74% 36.91% 29.29% 10.40% 100.00% Annual Report 2021 318
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Bene fits assured per life Rupees Sum assured at the end of 2020 Total benefits assured Before reinsurance After reinsurance Rupees in thousand Percentage Rupees in thousand Percentage 0-200,000 200,000 - 400,000 400,001 - 800,000 800,001 - 1,000,000 More than 1,000,000 Total b) 72,699 246,330 549,367 505,842 322,245 1,696,483 4.29% 14.52% 32.38% 29.82% 18.99% 100.00% 22,174 76,304 168,241 153,503 55,766 475,988 4.66% 16.03% 35.35% 32.25% 11.72% 100.00% Sources of uncertainty in the estimation of future benefit payments and premium receipts Uncertainty in the estimation of future benefit payments and premium receipts for long-term non-unitised investment linked assurance contracts arises from the unpredictability of long-term changes in overall levels of mortality and morbidity of the insured population and variability in policyholders' behaviour. Factors impacting future benefit payments and premium receipts are as follows: - Mortality: The expected mortality is assumed to be 80% of SLIC (2001-05) - Persistency: The Subsidiary Company exercises a periodic analysis on recent and historic experience and persistency is calculated by applying statistical methods. Persistency rates vary by products and more importantly the sales distribution channel. An allowance is then made for any trend in the data to arrive at best estimate of future persistency rates for each sales distribution channel. c) Process used to decide on assumptions For long-term non-unitised investment linked assurance contracts, assumptions are made in two stages. At inception of the contract, the Subsidiary Company determines assumptions on future mortality, morbidity, persistency, administrative expenses and investment returns. At regular intervals, profit testing is conducted on main policies. Assumptions used for profit testing of the main policies are as follows: - Mortality: The Subsidiary Company assumes the expected mortality to be 80% of SLIC (2001-05). - Persistency: The Subsidiary Company exercises a periodic analysis on recent and historic experience and persistency is calculated by applying statistical methods. Persistency rates vary by products and more importantly the sales distribution channel. An allowance is then made for any trend in the data to arrive at best estimate of future persistency rates for each sales distribution channel. - Expense levels and inflation: A periodic study is conducted on the Subsidiary Company’s current business expenses and future projections to calculate per policy expenses. Expense inflation is assumed in line with assumed investment return. - Investment returns: The investment returns are based on the historic performance of the assets and asset types underlying the fund. d) Changes in assumptions There are no changes in assumptions. 43.2.4 Unit Linked Business The risk underwritten is mainly death and sometimes disability and/or critical illness. The risk of death and disability will vary from region to region. The Subsidiary Company may get exposed to poor risks due to unexpected Annual Report 2021 319
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 experience in terms of claim severity or frequency . This can be a result of anti-selection, fraudulent claims, a catastrophe or poor persistency. The Subsidiary Company may also face the risk of poor investment return, inflation of business expenses and liquidity issues on monies invested in the fund. The Subsidiary Company faces the risk of under-pricing particularly due to the fact that these contracts are long term. Additionally, the risk of poor persistency may result in the Subsidiary Company being unable to recover expenses incurred at policy acquisition. The Subsidiary Company manages these risks through its underwriting, reinsurance, claims handling policy and other related controls. The Subsidiary Company has a well defined medical under-writing policy and avoids selling policies to high risk individuals. This puts a check on anti-selection. The need for profit testing is reviewed on an annual basis to ensure reasonableness of premiums charged. Reinsurance contracts have been purchased by the Subsidiary Company to limit the maximum exposure on any one policyholder. The Subsidiary Company has a good spread of business throughout the country thereby ensuring diversification of geographical risks. To avoid poor persistency the Subsidiary Company applies quality controls on the standard of service provided to policyholders and has placed checks to curb mis-selling and improvement in standard of service provided to the policyholders. For this, a regular branch wise monitoring of lapsation rates is conducted. On the claims handling side, the Subsidiary Company has procedures in place to ensure that payment of any fraudulent claims is avoided. For this, Claims Committee with variable materiality limits review all claims for verification and specific and detailed investigation of all apparently doubtful claims (particularly of high amounts) is conducted. The Subsidiary Company maintains adequate liquidity in each unit fund to cater for potentially sudden and high cash requirement. Further, all payments on account of claims are made after necessary approval of relevant authority as per policy of the Subsidiary Company. The Subsidiary Company reserves the right to review the charges deductible under the contracts, thus limiting the risk of under pricing. Frequency and severity of claims The Subsidiary Company measures concentration of risk by geographical area. Concentration of risk is not currently a factor of concern as the business is developing and aims to achieve a spread of risks across various parts of the country. However, undue concentration by amounts could have an impact on the severity of benefit payments on a portfolio basis. The Subsidiary Company charges for mortality risk on a monthly basis for all insurance contracts. It has the right to alter these charges based on its mortality experience and hence minimises its exposure to mortality risk. Delays in implementing increases in charges and market or regulatory restraints over the extent of the increases may hinder its mitigating effect. The Subsidiary Company manages these risks through its underwriting strategy and reinsurance arrangements. The table below presents the concentration of insured benefits across five bands of insured benefits per individual life assured. The benefit insured figures are shown gross and net of the reinsurance contracts described above. The amounts presented are showing total exposure of the Subsidiary Company including exposure in respect of riders attached to the main policies. Benefits assured per life Rupees 0-200,000 200,000 - 400,000 400,001 - 800,000 800,001 - 1,000,000 More than 1,000,000 Total Sum assured at the end of 2021 Total benefits assured Before reinsurance After reinsurance Rupees in thousand Percentage Rupees in thousand Percentage 2,933,068 13,838,612 29,828,672 27,435,652 38,152,704 112,188,708 2.61% 12.34% 26.59% 24.45% 34.01% 100.00% 2,351,756 11,469,209 24,033,130 16,275,720 10,992,286 65,122,101 3.61% 17.61% 36.90% 24.99% 16.89% 100.00% Annual Report 2021 320
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Bene fits assured per life Rupees Sum assured at the end of 2020 Total benefits assured Before reinsurance After reinsurance Rupees in thousand Percentage Rupees in thousand Percentage 0-200,000 200,000 - 400,000 400,001 - 800,000 800,001 - 1,000,000 More than 1,000,000 Total a) 2,897,364 14,087,312 29,372,875 27,231,334 36,900,887 110,489,772 2.62% 12.75% 26.58% 24.65% 33.39% 100.00% 2,248,696 11,201,286 22,386,891 15,180,826 9,893,933 60,911,632 3.69% 18.39% 36.75% 24.92% 16.25% 100.00% Sources of uncertainty in the estimation of future benefit payments and premium receipts Uncertainty in the estimation of future benefit payments and premium receipts for long–term unit linked insurance contracts arises from the unpredictability of long-term changes in overall levels of mortality and variability in policyholder’s behaviour. b) Factors impacting future benefit payments and premium receipts are as follows: Mortality: The expected mortality is assumed to be 80% of SLIC (2001-05) Persistency: The Subsidiary Company exercises a periodic analysis on recent and historic experience and persistency is calculated by applying statistical methods. Persistency rates vary by products and more importantly the sales distribution channel. An allowance is then made for any trend in the data to arrive at best estimate of future persistency rates for each sales distribution channel. c) Process used to decide on assumptions For long-term unit linked insurance contracts, assumptions are made in two stages. At inception of the contract, the Subsidiary Company determines assumptions on future mortality, persistency, administrative expenses and investment returns. At regular intervals, profit testing is conducted on main policies. Assumptions used for profit testing of the main policies are as follows: Mortality: The Subsidiary Company assumes the expected mortality to be 80% of SLIC (2001-05) Persistency: The Subsidiary Company exercises a periodic analysis on recent and historic experience and persistency is calculated by applying statistical methods. Persistency rates vary by products and more importantly the sales distribution channel. An allowance is then made for any trend in the data to arrive at best estimate of future persistency rates for each sales distribution channel. Expense levels and inflation: As the business is new, estimates from business projections have been used. Once established, a periodic study will be conducted on the Subsidiary Company’s current business expenses and future projections to calculate per policy expenses. Expense inflation is assumed in line with assumed investment return. Investment returns: The investment returns are based on the historic performance of the assets and asset types underlying the fund. d) Changes in assumptions There are no changes in assumptions. 43.2.5 Individual Family Takaful Unit Linked Business The risk covered is mainly death and sometimes disability and / or critical illness. The risk of death and disability will vary from region to region. The PTF may get exposed to poor risks due to unexpected experience in terms of claim Annual Report 2021 321
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 severity or frequency . This can be a result of anti-selection, fraudulent claims, a catastrophe or poor persistency. The PTF may also face the risk of poor investment return, and liquidity issues on monies invested in the fund. The PTF faces the risk of inadequacy of the Mortality Charge (Takaful Contribution) particularly due to the fact that these contracts are long term. Additionally, the risk of poor persistency can lead to an impact on the size of the PTF. A larger PTF may allow for a greater degree of cross subsidization of Mortality Risk, increasing the probability of convergence between actual and expected Mortality experience. The Subsidiary Company manages these risks through its underwriting, retakaful, claims handling policy and other related controls. The Subsidiary Company has a well defined medical under-writing policy and avoids issuing cover to high risk individuals. This puts a check on anti-selection. The need for profit testing is reviewed on an annual basis to ensure reasonableness of contribution charged for risk underwritten by the PTF. Retakaful contracts have been purchased by the Subsidiary Company to limit the maximum exposure on any one participant. The Subsidiary Company has a good spread of business throughout the country thereby ensuring diversification of geographical risks. To avoid poor persistency, the Subsidiary Company applies quality controls on the standard of service provided to Participants of the PTF and has placed checks to curb mis-selling and improvement in the standard of customer service. For this, a regular branch wise monitoring of lapsation rates is conducted. On the claims handling side, the Subsidiary Company has procedures in place to ensure that payment of any fraudulent claims is avoided. For this, a Claims Committee with variable materiality limits review all claims for verification and specific and detailed investigation of all apparently doubtful claims (particularly of high amounts) is conducted. The Subsidiary Company maintains adequate liquidity in each unit fund to cater for potentially sudden and high cash requirement. Further, all payments on account of claims are made after necessary approval of relevant authority as per policy of the Subsidiary Company. The Subsidiary Company reserves the right to review the Takaful Contributions deductible under the contracts, thus limiting the risk of under pricing. a) Frequency and severity of claims The Subsidiary Company measures concentration of risk by geographical area. Concentration of risk is not currently a factor of concern as the business is developing and aims to achieve a spread of risks across various parts of the country. However, undue concentration by amounts could have an impact on the severity of benefit payments on a portfolio basis. The Subsidiary Company charges for mortality risk on a monthly basis for all Takaful contracts. It has the right to alter these charges based on its mortality experience and hence minimises its exposure to mortality risk. Delays in implementing increases in charges and market or regulatory restraints over the extent of the increases may hinder its mitigating effect. The Subsidiary Company manages these risks through its underwriting strategy and retakaful arrangements. The table below presents the concentration of covered benefits across five bands of covered benefits per participant. The benefit covered figures are shown gross and net of the retakaful contracts described above. The amounts presented are showing total exposure of the PTF including exposure in respect of riders attached to the main policies. Benefits covered per life Rupees 0-200,000 200,000 - 400,000 400,001 - 800,000 800,001 - 1,000,000 More than 1,000,000 Total Sum cover at the end of 2021 Total benefits covered Before retakaful After retakaful Rupees in thousand Percentage Rupees in thousand Percentage 908,949 4,551,231 11,622,067 11,334,018 18,192,610 46,608,875 1.95% 9.76% 24.94% 24.32% 39.02% 100.00% 903,369 4,525,204 11,165,995 7,779,698 5,407,906 29,782,172 3.03% 15.19% 37.49% 26.12% 18.16% 100.00% Annual Report 2021 322
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Bene fits covered per life Rupees Sum assured at the end of 2020 Total benefits covered Before retakaful After retakaful Rupees in thousand Percentage Rupees in thousand Percentage 0-200,000 200,000 - 400,000 400,001 - 800,000 800,001 - 1,000,000 More than 1,000,000 Total b) 681,908 3,311,104 7,733,473 7,905,473 11,409,907 31,041,865 2.20% 10.67% 24.91% 25.47% 36.76% 100.00% 674,493 3,276,141 7,439,941 5,366,875 3,454,945 20,212,395 3.34% 16.21% 36.81% 26.55% 17.09% 100.00% Sources of uncertainty in the estimation of future benefit payments and contribution receipts Uncertainty in the estimation of future benefit payments and contribution receipts for long–term unit linked takaful contracts arises from the unpredictability of long-term changes in overall levels of mortality and variability in participant’s behaviour. c) Factors impacting future benefit payments and contribution receipts are as follows: Mortality: The expected mortality is assumed to be 80% of SLIC (2001-05). Persistency: The Subsidiary Company exercises a periodic analysis on recent and historic experience and persistency is calculated by applying statistical methods. Persistency rates vary by products and more importantly the sales distribution channel. An allowance is then made for any trend in the data to arrive at best estimate of future persistency rates for each sales distribution channel. d) Process used to decide on assumptions For long-term unit linked takaful contracts, assumptions are made in two stages. At inception of the contract, the Subsidiary Company determines assumptions on future mortality, persistency, administrative expenses and investment returns. At regular intervals, profit testing is conducted on main policies. Assumptions used for profit testing of the main policies are as follows: Mortality: The Subsidiary Company assumes the expected mortality to be 80% of SLIC (2001-05) Persistency: The Subsidiary Company exercises a periodic analysis on recent and historic experience and persistency is calculated by applying statistical methods. Persistency rates vary by products and more importantly the sales distribution channel. An allowance is then made for any trend in the data to arrive at best estimate of future persistency rates for each sales distribution channel. Expense levels and inflation: A periodic study is conducted on the Subsidiary Company’s current business expenses and future projections to calculate per policy expenses. Expense inflation is assumed in line with assumed investment return. Investment returns: The investment returns are based on the historic performance of the assets and asset types underlying the fund. e) Changes in assumptions There are no changes in assumptions. Annual Report 2021 323
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 43 .2.6 Group Life Family Takaful The main exposure of the PTF is to mortality risk. The PTF may be exposed to the risk of unexpected claim severity or frequency. This can be a result of writing business with higher than expected mortality, writing high cover amounts without adequate underwriting, difficulty of verification of claims, fraudulent claims or a catastrophe. The PTF also faces risk such as that of under-pricing to acquire business in a competitive environment and of nonreceipt of takaful contributions in due time. There also exists a potential risk of asset liability term mismatch due to liabilities being very short term in nature. The Subsidiary Company manages these risks through underwriting, retakaful, effective claims handling and other related controls. The Subsidiary Company has a well defined medical under-writing policy and avoids writing business for groups with overly hazardous exposure. Pricing is done using the retakaful rates. The contribution charged takes into account the actual experience of the client and the nature of mortality exposure the group faces. The rates are certified by the appointed actuary for large groups. The Subsidiary Company also maintains an MIS to track the adequacy of the takaful contribution charged. Retakaful contracts have been purchased by the Subsidiary Company to limit the maximum mortality exposure of any one covered person. The Subsidiary Company ensures writing business with good geographical spread and tries to maintain a controlled exposure to large groups which generally have poor experience. Writing business of known hazardous groups is also avoided. On the claims handling side, the Subsidiary Company ensures that payment of any fraudulent claims is avoided. Strict monitoring is in place in order to keep the outstanding balances of contribution at a minimum, especially the ones that are due for more than 90 days. The bulk of the assets held against liabilities of this line of business are cash to money market with short durations and high liquidity, thus mitigating the risk of asset value deterioration and liability mismatch. a) Frequency and severity of claims The Subsidiary Company measures concentration of risk by geographical area. Concentration of risk is not currently a factor of concern as the business is developing and aims to achieve a spread of risks across various parts of the country. The table below presents the concentration of covered benefits across five bands of covered benefits per participant. The benefit covered figures are shown gross and net of the retakaful contracts described above. The amounts presented are showing total exposure of the PTF including exposure in respect of riders attached to the main policies. Benefits covered per life Rupees 0 - 500,000 500,001-1,000,000 1,000,001-1,500,000 1,500,001-2,000,000 More than 2,000,000 Total Sum cover at the end of 2021 Total benefits covered Before retakaful After retakaful Rupees in thousand Percentage Rupees in thousand Percentage 11,528,919 8,823,451 2,260,910 4,875,495 25,880,570 53,369,345 24.19% 18.51% 4.74% 10.23% 54.30% 100.00% 11,475,157 8,178,673 1,214,104 2,299,894 10,437,280 33,605,108 99.93% 71.22% 10.57% 20.03% 90.88% 300.00% Annual Report 2021 324
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Bene fits covered per life Rupees Sum cover at the end of 2020 Total benefits covered Before retakaful After retakaful Rupees in thousand Percentage Rupees in thousand Percentage 0 - 500,000 500,001-1,000,000 1,000,001-1,500,000 1,500,001-2,000,000 More than 2,000,000 Total b) 5,252,290 7,540,050 2,173,100 4,760,845 27,934,683 47,660,968 11.02% 15.82% 4.56% 9.99% 58.61% 100.00% 3,389,030 4,477,095 489,900 814,800 2,312,400 11,483,225 29.51% 38.99% 4.27% 7.10% 20.13% 100.00% Sources of uncertainty in the estimation of future benefit payments and contribution receipts Other than conducting a liability adequacy for Unexpired Risk Reserves (URR), there is no need to estimate mortality for future years because of the short duration of the contracts. c) Process used to decide on assumptions The business is too new for any meaningful investigation into the group’s past experience. However, industry experience, the insured group's own past experience and retakaful risk rates are used to determine the expected level of risk in relation to the SLIC (2001-05) Individual Life Ultimate Mortality Table. d) Changes in assumptions There are no changes in assumptions. e) Sensitivity analysis The table below shows the level of respective variation in liabilities for change in each assumption while holding all other assumptions constant. Variables Worsening of mortality rates for risk policies Increase in reporting lag Change in Variable +10% pa +10% pa Increase in liability 2021 (Rupees in '000') 703 703 43.3 Liability Adequacy Test Liability adequacy test is applied to all long term contracts. Liability adequacy test is carried out using current best estimates of assumptions and future net cash flows, including premiums receivable, benefits payable and investment income from related assets. To determine the adequacy of liabilities, assumptions must be based on realistic best estimates. We have compared our valuation mortality assumption (SLIC mortality table) with the mortality of developing Asian countries, namely: India and Malaysia. The comparison suggests that the best estimate assumption is better than the experience reflected in SLIC mortality table. The investment return assumed for valuation is 3.75% per annum. This rate is prescribed by law. We have valued our liabilities based on the 10-Year PIB rate of 11.5% to determine adequacy. The table below compares total policyholder liabilities in Unit Linked Business, Non unitised Investment Linked Business, Individual Life Conventional business and Individual Family Takaful Unit Linked Business under existing valuation basis with policyholder liabilities calculated using best estimate assumptions: Annual Report 2021 325
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Policyholder liabilities using best estimate assumptions Policyholder liabilities on existing valuation basis Assumptions Rupees in thousand Mortality Investment Returns 55 ,178,079 55,178,079 55,167,904 55,172,323 The liabilities evaluated under the assumptions suggest the recognised liabilities are adequate and no further provision is required. 43.4 Financial Risk Maturity profile of financial assets and liabilities: 2021 Interest / markup bearing Maturity upto one year Financial assets Investment Equity securities- quoted Equity securities- unquoted Debt securities Term deposits Investments of Window Takaful Operations - Operator's Fund Loans and other receivables Loan secured against life insurance policies Insurance / reinsurance receivables - unsecured and considered good Reinsurance recoveries against outstanding claims Cash and bank Other Assets of Window Takaful Operations - Operator's Fund Financial liabilities Outstanding claims (including IBNR) Insurance / reinsurance payables Borrowings Other creditors and accruals Total liabilities of Window Takaful Operations- Operator's Fund Maturity after one year Non - interest / markup bearing Sub total Maturity upto one year 17,664,677 14,367,467 7,954,340 83,999 25,619,017 14,451,466 31,678,241 6,336,120 - 711 39,499 2,806 - 3,517 39,499 113,326 894,749 - - - - 10,420,916 42,493,270 1,011,650 1,011,650 41,481,620 8,041,145 8,041,145 Maturity after one year - Sub total Total 31,678,241 6,336,120 - 31,678,241 6,336,120 25,619,017 14,451,466 66,844 - 113,326 961,593 - 113,326 965,110 39,499 7,311,312 - 7,311,312 7,311,312 10,420,916 7,598,556 1,479,210 - 7,598,556 1,479,210 7,598,556 11,900,126 50,534,415 577,232 55,988,746 66,844 577,232 56,055,590 577,232 106,590,005 1,011,650 - 12,686,045 5,215,694 3,184,643 - 12,686,045 5,215,694 3,184,643 12,686,045 5,215,694 1,011,650 3,184,643 1,011,650 49,522,765 278,531 21,364,913 34,623,833 66,844 278,531 21,364,913 34,690,677 278,531 22,376,563 84,213,442 Annual Report 2021 326
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 2020 Interest / markup bearing Maturity upto one year Financial assets Investment Equity securities- quoted Equity securities- unquoted Debt securities Term deposits Investments of Window Takaful Operations - Operator's Fund Loans and other receivables Loan secured against life insurance policies Insurance / reinsurance receivables - unsecured and considered good Reinsurance recoveries against outstanding claims Cash and bank Other Assets of Window Takaful Operations - Operator's Fund Financial liabilities Outstanding claims Insurance / reinsurance payables Borrowings Other creditors and accruals Total liabilities of Window Takaful Operations- Operator's Fund Maturity after one year 7,335,826 13,813,874 Non - interest / markup bearing Sub total Maturity upto one Maturity after one year year Rupees in thousand 7,954,340 77,188 15,290,166 13,891,062 31,379,540 3,484,209 - 521 29,912 2,964 - 3,485 29,912 35,873 921,459 - - - - 10,788,024 - - Sub total Total 31,379,540 3,484,209 - 31,379,540 3,484,209 15,290,166 13,891,062 60,800 - 35,873 982,259 - 35,873 985,744 29,912 4,991,328 - 4,991,328 4,991,328 10,788,024 5,922,296 479,072 - 5,922,296 479,072 5,922,296 11,267,096 31,968,157 8,034,492 40,002,649 520,061 47,733,838 60,800 520,061 47,794,638 520,061 87,797,287 179,452 - 151,397 - 330,849 - 10,768,040 3,161,519 3,155,619 - 10,768,040 3,161,519 3,155,619 10,768,040 3,161,519 330,849 3,155,619 179,452 31,788,705 151,397 7,883,095 330,849 39,671,800 242,797 17,327,975 30,405,863 60,800 242,797 17,327,975 30,466,663 242,797 17,658,824 70,138,463 43.4.1 Interest / mark - up rate risk Interest / mark-up rate risk is the risk that the value of a financial instrument or future cash flows of a financial instrument will fluctuate due to changes in the market interest / mark - up rates. Sensitivity to interest / mark-up rate risk arises from mismatching of financial assets and liabilities that mature or are repaid in a given period. The Group manages this mismatch through risk management strategies where significant changes in gap position can be adjusted. At the reporting date the interest / mark-up rate profile of the Group's significant interest / mark-up bearing financial instruments was as follows: Effective interest rate (%) 2020 2021 Percentage Carrying amounts 2020 2021 Rupees in thousand Fixed rate of financial instruments Financial assets: Investments- PIBs and Treasury Bills Loans 7.10 - 11.71 5.00 6.47 - 13.83 5.00 20,282,895 3,517 11,445,069 3,485 Floating rate of financial instruments Financial assets: Bank and term deposits Investments - TFCs & Sukuks 3.50 - 10.90 6.30 - 12.97 4.50 - 11.35 6.27 - 24.53 24,872,382 5,336,122 24,679,086 3,845,097 Annual Report 2021 327
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Sensitivity analysis The Group does not account for any fixed rate financial assets and liabilities at fair value through profit and loss account . Therefore, a change in interest rate will not affect the fair value of any financial instruments. For cash flow sensitivity analysis of variable rate instruments, a hypothetical change of 100 basis points in interest rates at the reporting date would have decreased / (increased) profit for the year by the amounts shown below. It is assumed that the changes occur immediately and uniformly to each category of instrument containing interest rate risk. Variation in market interest rates could produce significant changes at the time of early repayments. For these reasons, actual results might differ from those reflected in the details specified below. The analysis assumes that all other variables remain constant. Effect on profit before tax Increase Decrease Effect on equity Increase Decrease Rupees in thousand As at December 31, 2021 - Fluctuation of 100 bps Cash flow sensitivity - variable rate financial liabilities Cash flow sensitivity - variable rate financial assets 248,724 (248,724) 176,594 (176,594) As at December 31, 2020 - Fluctuation of 100 bps Cash flow sensitivity - variable rate financial liabilities Cash flow sensitivity - variable rate financial assets 246,791 (246,791) 175,222 (175,222) Currency risk Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Parent Company's principal transactions are carried out in Pak Rupees and its exposure to foreign exchange risk arises primarily with respect to AED and US dollars in respect of foreign branches. Assets and liabilities exposed to foreign exchange risk amounted to Rs. 13,061,212 thousands (2020: Rs. 10,892,805 thousands) and Rs. 10,596,545 thousands (2020: Rs. 9,043,537 thousands), respectively, at the end of the year. The following significant exchange rates were applied during the year: Rupees per US Dollar Average rate Reporting date rate Rupees per AED Average rate Reporting date rate 2021 2020 Rupees in thousand 162.8972 176.5135 161.8459 159.8344 44.3528 48.0564 44.0622 43.5143 Price risk Price risk represents the risk that the fair value of financial instruments will fluctuate because of changes in the market prices (other than those arising from interest / mark-up rate risk or currency risk), whether those changes are caused by factors specific to individual financial instrument or its issuer, or factors affecting all or similar financial instrument traded in the market. The Group is exposed to equity price risk that arises as a result of changes in the levels of PSE - Index and the value of individual shares. The equity price risk arises from the Group's investment in equity securities for which the prices in the future are uncertain. The Group policy is to manage price risk through selection of blue chip securities. The Group's strategy is to hold its strategic equity investments on a long term basis. Thus, Group is not affected significantly by short term fluctuation in its strategic investments provided that the underlying business, economic and management characteristics of the investees remain favorable. The Group strives to maintain above average levels of shareholders' capital to provide a margin of safety against short term equity volatility. The Group manages price risk by monitoring exposure in quoted equity securities and implementing the strict discipline in internal risk management and investment policies. Annual Report 2021 328
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 The Group has investments in quoted equity securities amounting to Rs . 31,678,241 thousands (2020: Rs. 31,379,540 thousands) at the reporting date. The carrying value of investments subject to equity price risk are, in almost all instances, based on quoted market prices as of the reporting date. Market prices are subject to fluctuation which may result from perceived changes in the underlying economic characteristics of the investee, the relative price of alternative investments and general market conditions. Sensitivity analysis For the equity investment portfolio, a 10% increase / (decrease) in redemption value and share prices at year end would have increased / (decreased) impairment loss of investment recognized in profit and loss account as follows: Impact on profit Impact on equity before tax -----Rupees in thousand---2021 Effect of increase in share price Effect of decrease in share price 721,953 (2,201,232) 512,587 (1,562,875) 2020 Effect of increase in share price Effect of decrease in share price 1,001,285 (491,721) 710,912 (349,122) 43.5 Credit risk and concentration of credit risk Credit risk is the risk that arises with the possibility that one party to a financial instrument will fail to discharge its obligation and cause the other party to incur a financial loss. The Group attempts to control credit risk by monitoring credit exposure by undertaking transactions with a large number of counterparties in various sectors and by continually assessing the credit worthiness of counterparties. Concentration of credit risk occurs when a number of counterparties have a similar type of business activities. As a result any change in economic, political or other conditions would affect their ability to meet contractual obligations in a similar manner. The Group's credit risk exposure is not significantly different from that reflected in those consolidated financial statements. The management monitors and limits the Group's exposure and makes conservative estimates of provisions for doubtful assets, if any. The management is of the view that it is not exposed to significant concentration of credit risk as its financial assets are adequately diversified in entities of sound financial standing, covering various industrial sectors. The carrying amount of financial assets represents the maximum credit exposure, as specified below: Investments Loan secured against life insurance policies Loans and other receivable Due from insurance contract holders Due from other insurers / other reinsurers Reinsurance recoveries against outstanding claims Salvage recoveries accrued Bank deposits 2021 2020 Rupees in thousand 78,084,844 39,499 965,110 6,283,750 1,027,562 7,598,556 344,957 11,900,126 64,044,977 29,912 985,744 3,817,014 1,174,314 5,922,296 270,275 11,267,096 106,244,404 87,511,628 Provision for impairment is made for doubtful receivables according to the Group's policy. The impairment provision is written off when the Group expects that it cannot recover the balance due. The movement in the provision for doubtful debt account is shown in note 12.2 and 12.3 to these consolidated financial statements. Annual Report 2021 329
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 2021 2020 Rupees in thousand Age analysis of due from insurance contact holders (net of provision) is as follows: Upto one year Above one year Less: provision for doubtful balances 5,917,910 1,452,283 7,370,193 3,291,385 1,461,919 4,753,304 (1,086,443) (936,290) 6,283,750 3,817,014 The credit quality of Group's bank balance can be assessed with reference to external credit rating as follows: Short Term Abu Dhabi Commercial Bank Al Baraka Limited Allied Bank Limited Askari Bank Limited Bank Al Habib Limited Bank Al Habib Limited - Islamic A1 A1 A1+ A1+ A1+ Not available Bank Alfalah Limited A1+ Bank Islami Pakistan Limited A1 Dubai Islamic Bank Pakistan Limited A1+ Faysal Bank Limited A1+ FINCA Micro Finance Bank Limited A1 First Abu Dhabi Bank A-1+ Habib Bank Limited A1+ Habib Metropolitan Bank A1+ Khushhali Microfinance Bank Limited A1 MCB Bank Limited A1+ MCB Islamic Bank Limited A1 Mobilink Microfinance Bank A1 National Bank of Pakistan A1+ NRSP Microfinance Bank Limited A1 Samba Bank Limited A1 Silk Bank Limited A2 Soneri Bank Limited A1+ Standard Chartered Bank A1+ Telenor Microfinance Bank Limited A1 The Punjab Provincial Cooperative Bank Limited Not available United Bank Limited A1+ U Microfinance Bank Limited A1 Zarai Taraqiati Bank Limited A1+ Rating Long Term Rating Agency A S&P A PACRA AAA PACRA AA+ PACRA AAA PACRA Not available Not available AA+ A+ AA AA A AAAAA AA+ A+ AAA A A AAA A AA AAAAAA A+ Not available AAA A+ AAA PACRA PACRA JCR-VIS PACRA PACRA S&P JCR-VIS PACRA JCR-VIS PACRA PACRA PACRA PACRA PACRA JCR-VIS JCR-VIS PACRA PACRA PACRA Not available JCR-VIS JCR-VIS JCR-VIS 2020 2021 Rupees in thousand 362,605 27,709 6,070 834 15,764 141,791 16,799 5,020 18,993 24,757 - 851,382 507,952 117,124 28,687 3,909 144,169 6,912,689 3,274 7,925 1,505,069 314,517 49,797 16,906 3,067 9,658 6,667 1 84,937 20,239 3,425 230,184 467,876 177,136 727,222 413,196 12,256 60,687 2,759 5,733,316 (149) 19,518 3,465,069 209,876 16,565 7,818 2,059 34,263 21,486 1 52,669 7,176 3,425 (42,845) 293,395 8,895 11,879,572 11,256,017 The credit quality of amount due from other insurers (gross of provisions) can be assessed with reference to external credit rating as follows: Annual Report 2021 330
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 Amounts due from other insurers / reinsurers Reinsurance and other recoveries against outstanding claims 2020 2021 Rupees in thousand A or Above (including PRCL) BBB Others 1,117,759 29 111,076 5,815,338 915,443 867,775 6,933,097 6,933,097 915,472 915,472 978,851 5,659,640 1,053,293 584,979 Total 1,228,864 7,598,556 8,827,420 7,297,912 43.6 Capital risk management The Group's goals and objectives when managing capital are : - To be an appropriately capitalized institution in compliance with the paid-up capital requirement set by the SECP. Minimum paid-up capital requirement for non-life insurers as at 31 December 2021 is Rs. 500,000 thousands whereas for life insurers as at 31 December 2021 is Rs. 700,000 thousands. The Group's current paid-up capital is well in excess of the limit prescribed by the SECP; - To safeguard the Group's ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for the other stakeholders; - To provide an adequate return to shareholders by pricing insurance contracts commensurately with the level of risk; - To maintain strong ratings and to protect the Group against unexpected events / losses; and - To ensure a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. 43.7 Expense risk The risk that the Group faces is that future expenses may be higher than those used in pricing of products causing an expense overrun. The Group mitigates this risk by incorporating a certain level of acceptable conservatism in building future policy expense factors in pricing and expects to maintain its actual expenses within these limits. Regular monitoring of expenses allows the Group to adjust its pricing in time to account for higher than expected expenses. The Group closely monitors its expenses by regularly carrying out an expense analysis for its business. The assumptions for future policy expense levels are determined from the Group’s most recent annual expense analysis, with an extra margin built-in to account for variability in future expenses. A review of product pricing is carried out each year based on the latest available expense factors. Constant monitoring of expenses enables the Group to take corrective actions in time. Based on the results of expense analysis, the Group apportions its management expenses to different lines of business. 44 Fair value measurement 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. Underlying the definition of fair value is the presumption that the Group is a going concern and there is no intention or requirement to curtail materially the scale of its operations or to undertake a transaction on adverse terms. Annual Report 2021 331
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange dealer , broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. IFRS 13 'Fair Value Measurement' requires the Group to classify fair value measurements and fair value hierarchy that reflects the significance of the inputs used in making the measurements of fair value hierarchy has the following levels: - Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) - Inputs other than quoted prices included within level 1 that are observable for the asset either directly (that is, derived from prices) (Level 2) - Inputs for the asset or liability that are not based on observable market data (that is, unadjusted) inputs (Level 3) Transfer between levels of the fair value hierarchy are recognized at the end of the reporting period during which the changes have occurred. Available for sale Held to maturity Fair value through P&L Receivables Cash and and other cash financial assets equivalents Note 2021 Other financial liabilities Total Level 1 Level 2 Level 3 Total Rupees in thousand Financial assets - measured at fair value Investment Equity securities- quoted Equity securities- unquoted Debt securities Investments of Window Takaful Operations Operator's Fund 8 8 9 14,841,107 6,336,120 98,412 377,652 16,837,134 25,142,953 - - - 31,678,241 6,336,120 25,619,017 31,678,241 - 25,619,017 6,336,120 - 31,678,241 6,336,120 25,619,017 15 113,326 - - - - - 113,326 113,326 - - 113,326 Loans and other receivables * 11 Loan secured against life insurance policies* Investment - Term deposits* 10 Insurance / reinsurance receivables - unsecured and considered good * 12 Reinsurance recoveries against outstanding claims * Cash and bank * 14 Other Assets of Window Takaful Operations Operator's Fund* 15 - 14,451,466 - 965,110 39,499 - - - 965,110 39,499 14,451,466 - - - - - - - 7,311,312 7,598,556 - 11,900,126 - 7,311,312 7,598,556 11,900,126 - - - - - - - 312,997 264,235 - - - - - 21,388,965 14,829,118 41,980,087 16,227,474 12,164,361 - 577,232 106,590,005 31,791,567 25,619,017 6,336,120 63,746,704 22 25 - - - - - 12,686,045 5,215,694 1,011,650 3,184,643 12,686,045 5,215,694 1,011,650 3,184,643 - - - - 15 - - - - - 278,531 - - - - - - - - 22,376,563 278,531 22,376,563 - - - - Financial assets - not measured at fair value Financial liabilities - not measured at fair value Underwriting provisions: Outstanding claims (including IBNR)* Insurance / reinsurance payables * Borrowing* Other creditors and accruals* Total liabilities of Window Takaful OperationsOperator's Fund* 29 * The Group has not disclosed the fair value of these items because their carrying amounts are a reasonable approximation of fair value. Annual Report 2021 332
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 44 .1 Fair value measurement 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. Underlying the definition of fair value is the presumption that the Group is a going concern and there is no intention or requirement to curtail materially the scale of its operations or to undertake a transaction on adverse terms. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. IFRS 13 'Fair Value Measurement' requires the Group to classify fair value measurements and fair value hierarchy that reflects the significance of the inputs used in making the measurements of fair value hierarchy has the following levels: - Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) - Inputs other than quoted prices included within level 1 that are observable for the asset either directly (that is, derived from prices) (Level 2) - Inputs for the asset or liability that are not based on observable market data (that is, unadjusted) inputs (Level 3) Transfer between levels of the fair value hierarchy are recognized at the end of the reporting period during which the changes have occurred. Available for sale Held to maturity Fair value through P&L 2020 Other financial liabilities Receivables Cash and and other cash financial assets equivalents Total Level 1 Level 2 Level 3 Total Rupees in thousand Note Financial assets - measured at fair value Investment Equity securities- quoted Equity securities- unquoted Debt securities Investments of Window Takaful Operations Operator's Fund 8 8 9 15,729,664 3,484,209 790,268 374,331 15,649,876 14,125,567 - - - 31,379,540 3,484,209 15,290,166 31,379,540 - 15,290,166 3,484,209 - 31,379,540 3,484,209 15,290,166 15 35,873 - - - - - 35,873 35,873 - - 35,873 11 - 13,891,062 - 985,744 29,912 - - - 985,744 29,912 13,891,062 - - - - 14 - - - 4,991,328 5,922,296 - 11,267,096 - 4,991,328 5,922,296 11,267,096 - - - - 15 - - - 310,615 209,446 - 520,061 - - - - 20,040,014 14,265,393 29,775,443 12,239,895 11,476,542 - 87,797,287 31,415,413 15,290,166 3,484,209 50,189,788 22 25 - - - - - 10,768,040 3,161,519 330,849 3,155,619 10,768,040 3,161,519 330,849 3,155,619 - - - - 15 - - - - 242,797 - 242,797 - - - - - - - - 242,797 17,416,027 17,658,824 - - - - Financial assets - not measured at fair value Loans and other receivables * Loan secured against life insurance policies* Investment - Term deposits* Insurance / reinsurance receivables - unsecured and considered good * Reinsurance recoveries against outstanding claims * Cash and bank * Other Assets of Window Takaful Operations - Operator's Fund 10 12 Financial liabilities - not measured at fair value Underwriting provisions: Outstanding claims (including IBNR)* Insurance / reinsurance payables * Borrowing* Other creditors and accruals* Other Assets of Window Takaful Operations Operator's Fund* 29 * The Group has not disclosed the fair value of these items because their carrying amounts are a reasonable approximation of fair value. Annual Report 2021 333
- Notes to the Consolidated Financial Statements For the year ended 31 December 2021 45 Non - Adjusting events after the statement of financial position date The Board of Directors of the Parent Company in their meeting held on February 08 , 2022 proposed a final cash dividend for the year ended December 31, 2021 @ 15% i.e. Rupees 1.50/- share (2020: 12.5% i.e. Rupees 1.25/- share). This is in addition to the interim cash dividend @ 15% i.e. Rupee 1.50/- per share (2020: 12.5% i.e. Rupee 1.25/- per share) resulting in a total cash dividend for the year ended December 31, 2021 of Rupees 3/- per share (2020: Rupees 2.5/- share). The approval of the members for the final dividend will be obtained at the forthcoming Annual General Meeting. The financial statements for the year ended December 31, 2021 do not include the effect of final dividend which will be accounted for in the financial statements for the year ending December 31, 2022. The Group follows the development of the Covid-19 corona virus and evaluates the extent to which this may affect the Group's operations in the short and long term. With the high levels of uncertainty surrounding the situation and potential additional initiatives by authorities and customers, it is very difficult to predict the full financial impact that the situation may have on the Group. 46 Number of employees The total average number of employees during the year and as at December 31, 2021 and 2020, are as follows: 2021 47 Number 2020 As at 31 December Parent Company Subsidiary Company 921 1,991 900 1,810 Average during the year Parent Company Subsidiary Company 910 1,900 930 1,477 Corresponding figures Reclassification / rearrangement of corresponding figures have been made in these consolidated financial statements wherever necessary. 48 Date of authorization for issue These consolidated financial statements were authorized for issue on February 08, 2022 by the Board of Directors of the Group. 49 General Figures have been rounded off to the nearest thousand rupees unless other wise stated. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 334
- Annual Report 2021 335
- Shariah Advisor Pro file Mufti Muhammad Hassaan Kaleem Mufti Muhammad Hassaan Kaleem is a renowned figure in the field of Islamic Finance. He is considered as one of the most revered Shariah scholor in the Islamic Finance industry, who sits on the Shariah Advisory Boards of numerous financial institutions, Islamic investment Funds Takaful Companies, including and Al- Ameen UBL Funds, Adamjee Takaful, State Life-Window Takaful Operations, Pak Qatar Family Takaful Ltd-Pakistan, Hanover Re Takaful –Bahrain and Takaful Emirate-UAE etc. In addition, Mufti Hassaan is a Shariah Consultant of Deloitte (Global Islamic Finance Team),Trainer of Shariah Standard, a member of subcommittee of Shariah Standards at AAOIFI-Bahrain, Visiting faculty member of National Institute of Banking and Finance (State Bank of Pakistan) and Center for Excellence in Islamic Finance (CEIF)-IBA and a permanent faculty member of Center for Islamic Economics Karachi. Furthermore, he was former Shariah Advisor of Bank Al Baraka and Chairman Shariah board of SECP. Annual Report 2021 336
- Statement of Compliance with the Shariah Principles The financial arrangements , contracts and transactions, entered into by Window Takaful Operations of the Adamjee Insurance Company Limited (`the Company’) for the year ended 31 December 2021 are in compliance with the Takaful Rules, 2012. Further, we confirm that: - The Company has developed and implemented all the policies and procedures in accordance with the Takaful Rules, 2012 and rulings of the Shariah Advisor along with a comprehensive mechanism to ensure compliance with such rulings and Takaful Rules, 2012 in their overall operations. Further, the governance arrangements including the reporting of events and status to those charged with relevant responsibilities, such as the Audit Committee / Shariah Advisor and the Board of Directors have been implemented; - The Company has imparted trainings / orientations and ensured availability of all manuals / agreements approved by Shariah Advisor/Board of Directors to maintain the adequate level of awareness, capacity and sensitization of the staff and management; - All the products and policies have been approved by Shariah Advisor and the financial arrangements including investments made, policies, contracts and transactions entered into by Window Takaful Operations are in accordance with the polices approved by Shariah Advisor; and - The assets and liabilities of Window Takaful Operations (Participants’ Takaful Fund and Operator’s fund) are segregated from its other assets and liabilities, at all times in accordance with the provisions of the Takaful Rules, 2012. This has been duly confirmed by the Shariah Advisor of the Company. Lahore: February 14, 2022 Imran Maqbool Director Muhammad Ali Zeb Managing Director and Chief Executive Officer Annual Report 2021 337
- Independent Reasonable Assurance Report to the Board of Directors on the Statement of Compliance with the Shariah Principles We were engaged by the Board of Directors of Adamjee Insurance Company Limited (‘the Company’) to report on the management's assessment of compliance of the Window Takaful Operations (‘Takaful Operations’) of the Company, as set out in the annexed statement prepared by the management for the year ended December 31, 2021, with the Takaful Rules, 2012, in the form of an independent reasonable assurance conclusion about whether the annexed statement presents fairly the status of compliance of the Takaful Operations with the Takaful Rules, 2012, in all material respects. Applicable Criteria The criteria against which the subject matter information (the Statement) is assessed comprise of the provisions of Takaful Rules, 2012. Responsibilities of the management The Board of Directors / management of the Company are responsible for designing, implementing and maintaining internal controls relevant to the preparation of the annexed statement that is free from material misstatement, whether due to fraud or error. It also includes ensuring the overall compliance of the Takaful Operations with the Takaful Rules, 2012. The Board of Directors / management of the Company are also responsible for preventing and detecting fraud and for identifying and ensuring that the Takaful Operations comply with laws and regulations applicable to its activities. They are also responsible for ensuring that the management, where appropriate, the Board of Directors, and personnel involved with the Takaful Operations compliance with the Takaful Rules, 2012 are properly trained, systems are properly updated and that any changes in reporting encompass all significant business units. Our Independence and Quality Control We have complied with the independence and other ethical requirements of the Code of Ethics for Chartered Accountants issued by the Institute of Chartered Accountants of Pakistan, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior. The firm applies International Standard on Quality Control 1 “Quality Control for Firms That Perform Audit and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements” and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. Our responsibilities Our responsibility is to examine the annexed statement and to report thereon in the form of an independent reasonable assurance conclusion based on the evidence obtained. We conducted our engagement in accordance with International Standard on Assurance Engagements (ISAE) 3000, “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” issued by the International Auditing and Assurance Standards Board. That standard requires that we plan and perform our procedures to obtain reasonable assurance about whether the annexed statement presents fairly the status of compliance of the Takaful Operations with the Takaful Rules, 2012, in all material respects. The procedures selected depend on our judgment, including the assessment of the risks of material non-compliances with the Takaful Rules, 2012, whether due to fraud or error. In making those risk assessments, we have considered internal control relevant to the Takaful Operations compliance with the Takaful Rules, 2012, in order to design assurance procedures that are appropriate in the circumstances, but not for the purposes of expressing a conclusion as to the effectiveness of the Company's internal control over the Takaful Operations' compliance with the Takaful Rules, 2012. Reasonable assurance is less than absolute assurance. A system of internal control, because of its nature, may not prevent or detect all instances of non-compliance with Takaful Rules, 2012, and consequently cannot provide absolute assurance that the objective of compliance with Takaful Rules, 2012, will be met. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that the controls may become inadequate or fail. Annual Report 2021 338
- The procedures performed included : - Evaluating the systems, procedures and practices in place with respect to the Takaful operations against the Takaful Rules, 2012 and Shariah advisor's guidelines; - Evaluating the governance arrangements including the reporting of events and status to those charged with relevant responsibilities, such as the Audit Committee/ Shariah Advisor and the board of directors; - Testing for a sample of transactions relating to Takaful operations to ensure that these are carried out in accordance with the laid down procedures and practices including the regulations relating to Takaful operations as laid down in Takaful Rules, 2012; and - Review the statement of management's assessment of compliance of the Takaful transactions during the year ended December 31, 2021 with the Takaful Rules, 2012. Conclusion Our conclusion has been formed on the basis of, and is subject to, the matters outlined in this report. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion. In our opinion, the annexed statement, for the year ended December 31, 2021, presents fairly the status of compliance of the Takaful Operations with the Takaful Rules, 2012, in all material respects. Chartered Accountants Engagement Partner: Rana M. Usman Khan Lahore: 14 February 2022 Annual Report 2021 339
- Shariah Advisor ’s Report to the Board of Directors ! و ء وا ا م وا ۃ وا رب ا ا I have reviewed Takaful products, details of underwriting and other related documents, as well as, the Participant Takaful Fund (PTF) Policy, PTF pool position, Investment Policy, Re-Takaful arrangements, claims details and the related transactions of Adamjee Insurance – Window Takaful Operations (hereafter referred to as “Takaful Operator”). I acknowledge that as Shariah Advisor of Takaful Operator, it is my responsibility to approve the above mentioned document and ensure that the financial arrangements, contracts and transactions entered into by the Takaful Operator with its participants and stakeholders are in compliance with the requirements of Shariah rules and principles. It is the responsibility of the Takaful Operator to ensure that the rules, principles and guidelines set by the Shariah Advisor are complied with, and that all policies and services being offered are duly approved by the Shariah Advisor. The Takaful Operator’s activities, operations are periodically checked and monitored by Shariah Advisor. In my opinion and to the best of my understanding based on the provided information and explanations: i. Transactions undertaken by the Takaful Operator were in accordance with guidelines issued by Shariah Advisor as well as requirements of Takaful Rules 2012 and General Takaful Accounting Regulations 2019; ii. The investments have been done from the Participant’s Takaful Fund and Operator’s Fund into Shariah Compliant avenues with Shariah Approval. Further, all bank accounts related to Window Takaful Operations have been opened in Islamic Banking Institutions (IBIs) with Shariah Approval; and iii. The transactions and activities of Window Takaful Operations are in accordance with the Shariah principles in respect of the Participant’s Takaful Fund (Waqf Fund) and Operator’s Fund. And Allah knows best Mufti Muhammad Hassaan Kaleem Date: 14 February 2022 Shariah Advisor Annual Report 2021 340
- INDEPENDENT AUDITOR ’S REPORT To the Members of Adamjee Insurance Company Limited Draft Report on the Audit of the Financial Statements Opinion We have audited the annexed financial statements of Adamjee Insurance Company Limited – Window Takaful Operations (the ‘Operator’), which comprise the statement of financial position as at December 31, 2021, and the profit and loss account, the statement of comprehensive income, the statement of changes in funds, and the statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of the audit. In our opinion and to the best of our information and according to the explanations given to us, the statement of financial position, the profit or loss account, statement of comprehensive income, the statement of changes in funds and the statement of cash flows together with the notes forming part thereof, conform with the accounting and reporting standards as applicable in Pakistan and give the information required by the Insurance Ordinance, 2000 and the Companies Act, 2017 (XIX of 2017), in the manner so required and respectively give a true and fair view of the state of the Operator's affairs as at December 31, 2021 and of the profit, total comprehensive income, the changes in funds and its cash flows for the year then ended. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. 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 Operator in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants as adopted by the Institute of Chartered Accountants of Pakistan (the Code) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Information Other than the Financial Statements and Auditor’s Report Thereon Management is responsible for the other information. The other information comprises the information included in the Operator’s annual report but does not include the financial statements and our auditor’s report thereon. 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 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, we conclude that there is a material misstatement of this other information when available, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and Board of Directors for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting and reporting standards as applicable in Pakistan and the requirements of Insurance Ordinance 2000 and, Companies Act, 2017 (XIX of 2017) 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 Operator’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Operation or to cease operations, or has no realistic alternative but to do so. Board of Directors are responsible for overseeing the Company’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance 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 as applicable in Pakistan will Annual Report 2021 341
- 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 as applicable in Pakistan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Ÿ 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. Ÿ 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 Operator’s internal control. Ÿ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Ÿ Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Operator’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 are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to date of our auditor’s report. However, future events or conditions may cause the Operator to cease to continue as a going concern. Ÿ 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 the board of directors regarding, among other matters, the planned scope and timing of audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Report on Other Legal and Regulatory Requirements Based on our audit, we further report that in our opinion: a) proper books of account have been kept by the Operator as required by the Insurance Ordinance, 2000, the Takaful Rules, 2012, the General Accounting Regulations, 2019 and the Companies Act, 2017 (XIX of 2017); b) the statement of financial position, the profit and loss account, the statement of comprehensive income, the statement of changes in funds and the statement of cash flows together with the notes thereon have been drawn up in conformity with the Insurance Ordinance 2000, the Takaful Rules, 2012, the General Accounting Regulations, 2019 and the Companies Act, 2017 (XIX of 2017) and are in agreement with the books of account; c) investments made, expenditure incurred and guarantees extended during the year were for the purpose of the Company’s business; and d) no zakat was deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980). The engagement partner on the audit resulting in this independent auditor’s report is Rana M. Usman Khan. Chartered Accountants Lahore: 14 February 2022 Annual Report 2021 342
- Window Takaful Operations Statement of Financial Position As at 31 December 2021 Note Operator 's Takaful Fund December 31, December 31, 2021 2020 Rupees in thousand Participants' Takaful Fund December 31, December 31, 2021 2020 Rupees in thousand ASSETS Qard-e-Hasna to Participants' Takaful Fund Property and equipment Intangible assets Investments Equity securities Debt securities Term Deposits Loans and other receivables Takaful / re - takaful receivables Re - takaful recoveries against outstanding claims Salvage recoveries accrued Wakala and mudarib fee receivable Deferred commission expense Prepayments Cash and bank 10 146,460 146,460 - - 5 6 22,883 10,409 20,793 12,421 - - 7 8 9 11 12 38,326 75,000 13,009 108,181 45,347 264,235 577,390 35,873 7,411 116,783 39,961 209,446 442,688 53,900 125,000 50,000 72,157 423,514 144,551 46,385 125,530 522,515 1,563,552 50,614 125,000 27,650 384,445 279,132 35,986 104,047 552,900 1,559,774 723,850 589,148 1,563,552 1,559,774 50,000 968 394,351 445,319 50,000 883 295,468 346,351 22 13 14 TOTAL ASSETS FUNDS AND LIABILITIES Funds attributable to Operator's and Participants' Operator's Takaful Fund Statutory fund Reserves Unappropriated profit Waqf / Participants' Takaful Fund Ceded money Reserves Accumulated surplus Qard-e-Hasna from Operator's Takaful Fund Liabilities Underwriting provisions Outstanding claims including IBNR Unearned contribution reserve Unearned retakaful rebate Contribution deficiency reserve Retirement benefit obligations Deferred taxation Contribution received in advance Takaful / re - takaful payables Wakala and mudarib fee payable Unearned wakala fee Other creditors and accruals Taxation - provision less payments Total Liabilities 20 18 19 15 23 16 TOTAL FUNDS AND LIABILITIES Contingencies and commitments - - - - - - 500 11 239,134 239,645 500 436 172,580 173,516 - 146,460 146,460 3,878 456 191,460 64,872 17,865 278,531 3,878 527 178,766 54,168 5,458 242,797 354,540 441,519 22,466 12,582 4 67,232 96,834 108,181 69,834 4,255 1,177,447 558,082 421,449 17,183 178 11,037 79,436 116,783 35,650 1,239,798 723,850 589,148 1,563,552 1,559,774 17 The annexed notes from 1 to 39 form an integral part of these financial statements. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 343
- Window Takaful Operations Pro fit and Loss Account For the Year Ended 31 December 2021 Note 2021 2020 Rupees in thousand PARTICIPANTS' TAKAFUL FUND - REVENUE ACCOUNT Contributions earned Contributions ceded to retakaful Net contribution revenue 18 1,001,560 (347,518) 654,042 1,034,305 (288,826) 745,479 Re - takaful rebate earned Net underwriting income 19 63,928 717,970 53,995 799,474 Net takaful claims - reported / settled (Charge) / reversal of contribution deficiency reserve 20 Other direct expenses Surplus before investment income 21 (597,232) (12,582) (609,814) (69,043) 39,113 (721,657) 30,071 (691,586) (62,132) 45,756 Investment income Other income Mudarib's share of investment income Surplus before taxation 25 26 15,720 26,073 (3,144) 77,762 17,156 32,403 (3,521) 91,794 Provision for taxation 28 (11,208) - 66,554 91,794 Surplus transferred to accumulated surplus OPERATOR'S TAKAFUL FUND - REVENUE ACCOUNT Wakala fee Commission expense General, administrative and management expenses 23 22 24 430,587 (137,910) (172,925) 119,752 408,608 (119,082) (143,206) 146,320 Other income Mudarib's share of PTF investment income Investment income Direct expenses Profit before taxation 26 17,852 3,144 2,340 (3,821) 139,267 14,170 3,521 3,584 (3,821) 163,774 Provision for taxation 28 (40,388) (47,369) 98,879 116,405 25 27 Profit after taxation The annexed notes from 1 to 39 form an integral part of these financial statements. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 344
- Window Takaful Operations Statement of Comprehensive Income For the Year Ended 31 December 2021 Note 2021 2020 Rupees in thousand PARTICIPANTS ' TAKAFUL FUND Surplus for the year Other comprehensive (loss) / income for the year Total comprehensive income for the year 66,554 91,794 (425) 436 66,129 92,230 98,879 116,405 85 (473) 98,964 115,932 OPERATOR`S TAKAFUL FUND Profit after taxation Other comprehensive income: Unrealized gain / (loss) on available-for-sale investment- Net of tax Total comprehensive income for the year The annexed notes from 1 to 39 form an integral part of these financial statements. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 345
- Window Takaful Operations Statement of Changes in OPF and PTF For the Year Ended 31 December 2021 Statutory fund Balance as at December 31 , 2019 Profit after taxation Other comprehensive loss for the year Total comprehensive income for the year Balance as at December 31, 2020 Profit after taxation Other comprehensive income for the year Total comprehensive income for the year Balance as at December 31, 2021 Operator's Takaful Fund Unappropriated Fair value profit reserve Rupees in thousand Total 50,000 179,067 1,356 230,423 - 116,405 116,405 (473) (473) 116,405 (473) 115,932 50,000 295,472 883 346,355 - 98,879 98,879 85 85 98,879 85 98,964 50,000 394,351 968 445,319 Participants' Takaful Fund Ceded money Accumulated surplus Fair value reserve Total Rupees in thousand Balance as at December 31, 2019 500 80,786 - 81,286 Surplus for the year Other comprehensive surplus for the year Total comprehensive surplus for the year - 91,794 91,794 436 436 91,794 436 92,230 Balance as at December 31, 2020 500 172,580 436 173,516 Surplus for the year Other comprehensive loss for the year Total comprehensive surplus for the period - 66,554 66,554 (425) (425) 66,554 (425) 66,129 Balance as at December 31, 2021 500 239,134 11 239,645 The annexed notes from 1 to 39 form an integral part of these financial statements. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 346
- Window Takaful Operations Cash Flow Statement For the Year Ended 31 December 2021 Operator 's Takaful Fund Participants' Takaful Fund 2021 2020 Rupees in thousand 2021 2020 Rupees in thousand 455,027 (135,146) (170,383) 149,498 405,067 (104,624) (151,367) 149,076 1,544,047 (455,027) (189,486) (905,105) 69,211 (41,927) 21,713 (b) Other operating activities Income tax paid Other payments / (receipts) Net cash (outflows) / inflows from other operating activities (28,083) (28,083) (39,745) (39,745) (6,953) (32,213) (39,166) 6,013 6,013 Total cash inflows / (outflows) from operating activities 121,415 109,331 (17,453) 119,383 16,883 (111,963) 36,968 (8,514) 13,962 (34,627) 34,627 (5,742) 40,953 (53,885) - 48,859 (50,000) - (66,626) 8,220 (12,932) (1,141) Operating cash flows (a) Takaful activities Contributions received Wakala fee received / (paid) Retakaful / co-takaful received / (paid) Claims paid Retakaful and other recoveries received Commissions paid Commissions received Management expenses paid Other underwriting payments Net cash inflows / (outflows) from takaful activities 1,449,511 (405,067) 46,751 (1,036,469) 56,617 55,199 (53,172) 113,370 (c) Investment activities Profit received on bank deposits and investments Payment for investments Proceeds from disposal of investments Fixed capital expenditures Total cash (outflows) / inflows from investing activities (d) Financing activities - Contribution to Operator's fund Ceded money Total cash inflows from financing activities - Net Cash inflows / (outflows) from all activities Cash and cash equivalent at the beginning of the year Cash and cash equivalent at the end of the year - - - - - - 54,789 117,551 (30,385) 118,242 209,446 91,895 552,900 434,658 264,235 209,446 522,515 552,900 121,415 (3,484) (4,952) 1,411 (35,703) 2,340 17,852 109,331 (2,934) (4,977) 44,351 (47,120) 3,584 14,170 (17,453) (76,158) 118,372 15,720 26,073 119,383 341,681 (418,829) 17,156 32,403 98,879 116,405 66,554 91,794 Reconciliation to profit and loss account Operating cash flows Depreciation expense Amortization expense (Decrease) / Increase in assets other than cash (Increase) / Decrease in liabilities other than cash Investment income Other Income Net profit / surplus for the period Attributed to Operator's Fund Participants' Takaful Fund 2021 2020 Rupees in thousand 2021 2020 Rupees in thousand 98,879 Operator's Takaful Fund Participants' Takaful Fund 98,879 116,405 66,554 66,554 116,405 91,794 91,794 The annexed notes from 1 to 39 form an integral part of these financial statements. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 347
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 1 Legal status and nature of business Adamjee Insurance Company Limited ('the Operator') is a public limited company incorporated in Pakistan on September 28, 1960 under the Companies Act, 1913 (now the Companies Act, 2017). The Operator is listed on Pakistan Stock Exchange and is engaged in general takaful business comprising fire & property, marine aviation & transport, motor, accident & health and miscellaneous. The registered office of the Operator is situated at Adamjee House, 80/A, Block E-1, Main Boulevard, Gulberg-III, Lahore. The Operator was granted authorization on December, 23 2015 under Rule 6 of the Takaful Rules, 2012 to undertake Window Takaful Operations ("WTO") in respect of general takaful products by the Securities and Exchange Commission of Pakistan ("SECP"). For the purpose of carrying on the Takaful business, the Operator has formed a Waqf (Participants’ Takaful Fund (PTF)) on January 01, 2016 under the Waqf deed with a ceded money of Rs.500,000. The Waqf deed govern the relationship of Operator and Participants' for management of Takaful operations. 2 Basis of preparation and statement of compliance These financial statements have been prepared in accordance with accounting and reporting standards as applicable in Pakistan. The accounting and reporting standards comprise of: - International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as are notified under the Companies Act, 2017; - Islamic Financial Accounting Standards (IFAS) issued by the Institute of Chartered Accountant of Pakistan (ICAP) as or notified under companies act 2017; and - Provision of and directives issued under the Companies Act, 2017, the Insurance Ordinance, 2000, the Insurance Rules, 2017, Insurance Accounting Regulations, 2017, the Takaful Rules 2012 , and General Takaful Accounting Regulations 2019. Where the provisions of and directives issued under the Companies Act, 2017 differ, the Insurance Ordinance, 2000, the Insurance Rules, 2017, the Insurance Accounting Regulations, 2017, General Takaful Accounting Regulations 2019 and the Takaful Rules, 2012 shall prevail. 2.1 Basis of measurement These financial statements have been prepared under historical cost convention except for available for sale investments carried at fair value and retirement benefit obligation under employees' benefits carried at present value. All transaction reflected in these financial statements are on accrual basis except for those reflected in cash flow statements. 2.2 Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the Operator operates ("the functional currency"). The financial statements are presented in Pak Rupees, which is the Operator's functional and presentation currency. All the financial information presented in Rupees has been rounded off to the nearest thousand in rupee, unless otherwise stated. 2.3 Standards, interpretations and amendments to accounting and reporting standards as applicable in Pakistan that are effective in current year The following standards, amendments and interpretations of accounting and reporting standards that will be effective for accounting periods beginning on or after January 01, 2021: Annual Report 2021 348
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 Standards or Interpretations Effective from annual period beginning on or after : IBOR 2 'Interest Rate Benchmark Reform — Phase 2' Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)' with amendments that address issues that might affect financial reporting after the reform of an interest rate benchmark, including its replacement with alternative benchmark rates. 2.4 January 01, 2021 New accounting standards / amendments and IFRS interpretations that are not yet effective The following International Financial Reporting Standards (IFRS Standards) as notified under the Companies Act, 2017 and the amendments and interpretations thereto will be effective for accounting periods beginning on or after January 01, 2021: Standards or Interpretations Amendments to IFRS 16 ' Leases' - Provide lessees with an exemption from assessing whether a COVID-19 related rent concession is a lease modification. Effective from annual period beginning on or after: April 01, 2021 Amendments to IAS 16 'Property, Plant and Equipment', prohibiting the Company from deducting from the cost of property plant and equipment, amount received from selling items produce while the Company is preparing the asset for its intended use. January 01, 2022 Amendments to IFRS 3 'Business Combinations' that updated an outdated January 01, 2022 in IFRS 3 without significantly changing its requirements. Amendmentsto IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' regarding the costs of fulfilling the contract to include when assessing whether a contract is Onerous. January 01, 2022 Amendments to IAS 1 'Presentation of Financial Statements' - Classification of liabilities as current or non-current. January 01, 2023 Amendments regarding deferred tax on leases and decommissioning obligations January 01, 2023 Amendments to IFRS 10 'Consolidated Financial Statements' and IAS 28 'Investments in Associates and Joint Ventures' - Sale or contribution of assets between an investor and its associate or joint venture. Effective from accounting period beginning on or after a date to be determined.Earlier application is permitted. Certain annual improvements have also been made to a number of IFRSs. Other than the aforesaid standards, interpretations and amendments, the International Accounting Standards Board (IASB) has also issued the following standards which have not been adopted locally by the Securities and Exchange Commission of Pakistan: - IFRS 1 – First Time Adoption of International Financial Reporting Standards - IFRS 17 – Insurance Contracts There are certain other new and amended standards and interpretations that are mandatory for the insurance accounting periods beginning on or after January 01, 2021 but are considered either not to be relevant or do not have any significant impact on these financial statements. Annual Report 2021 349
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 3 Summary of significant accounting policies The significant accounting policies adopted in the preparation of these financial statements are set out below . These policies have been consistently applied to all years presented in these financial statements. 3.1 Property and equipment Owned operating assets, other than freehold land which is not depreciated and capital work-in-progress, are stated at cost, signifying historical cost, less accumulated depreciation and any provision for accumulated impairment. Cost comprises of purchase price including import duties and non-refundable purchase taxes after deducting trade discounts, rebates and includes other costs directly attributable to the acquisition or construction including expenditures on the material, labor and overheads directly relating to constructions, and installation of operating assets. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future benefits associated with the item will flow to the Operator and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to profit and loss account as and when incurred. Depreciation is charged to profit and loss applying reducing balance method depending upon the nature of the asset, at the rates specified for calculation of depreciation after taking into account residual value, if any. The useful lives, residual values and depreciation method are reviewed, and adjusted if appropriate, at each statement of financial position date. Depreciation on additions is charged from the month the assets are available for use while on disposals, no depreciation is charged in the month in which the assets are disposed off. The carrying values of tangible operating assets are reviewed for impairment when events or changes in circumstances indicate that this carrying value may not be recoverable. If any such indications exist and where the carrying values exceed the estimated recoverable amounts, the assets are written down to their recoverable amount. An item of equipment is derecognized upon disposals when no future economic benefits are expected from its use or disposals. Gains and losses on disposals are determined by comparing proceeds with the carrying amount of the assets disposed off. These are taken to profit and loss account. 3.2 Intangible assets These are stated at cost less accumulated amortization and any provision for accumulated impairment, if any. Amortization is calculated from the month the assets are available for use using the straight-line method, whereby the cost of the intangible asset is amortized over its estimated useful life over which economic benefits are expected to flow to the Operator. The useful life and amortization methods are reviewed, and adjusted if appropriate, at each statement of financial position date. Software development costs are only capitalized to the extent that future economic benefits are expected to be derived by the Operator. The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate that this carrying value may not be recoverable. If any such indications exist and where the carrying values exceed the estimated recoverable amounts, the assets are written down to their recoverable amount. 3.3 Takaful contracts Takaful contracts are based on the principles of Wakala. Takaful contracts so agreed usually inspire concept of tabarru (to donate benefits to others) and mutual sharing of losses with the overall objective of eliminating the element of uncertainty. Annual Report 2021 350
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 Takaful contracts are those contracts whereby the PTF has accepted significant takaful risk from the participants ' by agreeing to compensate the participants' if a specified uncertain future event (the takaful event) adversely affects the participants'. Once a contract has been classified as a takaful contract, it remains a Takaful contract for the remainder of its lifetime, even if takaful risk reduces significantly during this period, unless all rights and obligations are extinguished or expired. These contracts are provided to all types of customers based on assessment of takaful risk by the Operator. Normally personal Takaful contracts e.g. vehicle, personal accident, etc. are provided to individual customers, whereas, Takaful contracts of Fire & property, marine aviation & transport, accident & health and other commercial line products are provided to commercial organizations. Takaful contracts issued by the PTF are generally classified in five basic categories i.e. Fire & property, Marine aviation and transport, Motor, Accident & health and Miscellaneous. - Fire & property Takaful contracts generally cover the assets of the participants against damages by fire, earthquake, riots and strike, explosion, atmospheric disturbance, flood, electric fluctuation and impact, burglary, loss of profit followed by the incident of fire, contractor’s all risk, erection all risk, machinery breakdown and boiler damage, etc. Customers who undertake commercial activities on their premises could also receive compensation for the loss of earnings caused by the inability to use the takaful properties in their business activities. - Marine aviation and transport Takaful contracts generally provide cover for loss or damage to cargo while in transit to and from foreign land and inland transit due to various insured perils including loss of or damage to carrying vessel, etc. - Motor Takaful contracts provide indemnity for accidental damage to or loss of insured vehicle including loss of or damage to third party and other comprehensive car coverage. - Accident & health Takaful contracts mainly compensate hospitalization and out-patient medical coverage to the participant. - Miscellaneous Takaful contracts provide variety of coverage including cover against burglary, loss of cash in safe, cash in transit and cash on counter, fidelity guarantee, personal accident, workmen compensation, travel and crop, etc. In addition to direct takaful, the PTF also participates in risks under co-takaful contracts from other takaful funds and also accepts risks through re-takaful inward by way of facultative acceptance on case to case basis provided such risks are within the underwriting policies of the Operator. The nature of the risks undertaken under such arrangement is consistent with the risks in each class of business as stated above. 3.4 Deferred commission expense/ acquisition cost Deferred commission expense represents the portion of commission expense relating to the unexpired period of Takaful contract and is recognized as an asset. It is calculated in accordance with the pattern of its related provision for unearned contribution. 3.5 Unearned contributions Unearned contribution is determined as the ratio of the unexpired period of the policy and the total period, both measured to the nearest day except for marine cargo, where unearned contribution is determined as a ratio of the unexpired shipment period to the total expected shipment period, both measured to the nearest day. Administrative surcharge is recognized as a contribution at the time the policies are written and is included in above mentioned calculations. 3.6 Contribution deficiency reserve The Operator maintains a provision in respect of contribution deficiency (also called unexpired risk reserve) for the class of business where the unearned contribution liability is not adequate to meet the expected future liability, after re-takaful, from claims and other supplementary expenses expected to be incurred after the date of financial statements in respect of the unexpired takaful policies in that class of business at the statement of financial position date. Annual Report 2021 351
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 For this purpose , contribution deficiency reserve is determined by independent actuary. The actuary determines the prospective loss ratios for each class of business and applies factors of unearned and earned contributions and uses assumptions appropriate to arrive at the expected claims settlement cost which when compared with Unearned Contribution Reserve (UCR) shows whether UCR is adequate to cover the unexpired risks. If these ratios are adverse, contribution deficiency is determined. Based on actuary's advice, the management has created a reserve for the same in these financial statements. The movement in the contribution deficiency reserve is recorded as an expense / income in profit and loss account for the year. 3.7 Re-Takaful contracts held These are contracts entered into by the Operator with re-takaful operators for compensation of losses suffered on Takaful contracts issued. These Re-Takaful contracts include both facultative and treaty arrangement contracts and are classified in same categories of Takaful contracts for the purpose of these financial statements. The Operator recognizes the entitled benefits under the contracts as various re-takaful assets and liabilities. Re-takaful Contribution is recognized as an expense at the time the re-takaful is ceded. Rebate from re-takaful is recognized in accordance with the policy of recognizing contribution revenue. The portion of re-takaful contribution not recognized as an expense is shown as a prepayment. Re-takaful assets represent balances due from re-takaful operators and re-takaful recoveries against outstanding claims. Due from re-takaful operators are carried at cost less any provision for impairment (if any). Cost represents the fair value of the consideration to be received. Re-takaful recoveries against outstanding claims are measured at the amount expected to be received. Re-takaful liabilities represent balances due to re-takaful operators and are primarily re-takaful contributions payable for ReTakaful contracts and are recognized at the same time when re-takaful contributions are recognized as an expense. Re-takaful assets are not offset against related takaful liabilities. Income or expense from Re-Takaful contracts are not offset against expenses or income from related Takaful contracts. Re-takaful assets/liabilities are derecognized when the contractual rights are extinguished or expired. An impairment review of re-takaful assets is performed at each statement of financial position date. If there is an objective evidence that the asset is impaired, the Operator reduces the carrying amount of that re-takaful asset to its receivable amount and recognize the impairment loss in profit and loss account. 3.8 Receivables and payables related to Takaful contracts Receivables and payables, other than claim payables, relating to Takaful contracts are recognized when due. The claim payable is recorded when an intimation is received. These include contributions due but unpaid, contribution received in advance, contributions due and claims payable to participants. These are recognized at cost, which is the fair value of the consideration given less provision for impairment, if any. If there is an objective evidence that any contribution due but unpaid is impaired, the Operator reduces the carrying amount of that contribution receivable and recognize the loss in profit and loss account. 3.9 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker who is responsible for allocating resources and assessing performance of the operating segments. A business segment is a distinguishable component of the Operator that is engaged in providing services that are subject to risks and returns that are different from those of other business segments. The Operator accounts for segment reporting of operating results using the classes of business as specified under the Insurance Ordinance, 2000, the Insurance Rules, Annual Report 2021 352
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 2017 , Insurance Accounting Regulations, 2017 and Takaful Rules, 2012. The reported operating segments are also consistent with the internal reporting framework provided to Board of Directors who are responsible for allocating resources and assessing performance of the operating segments. The performance of segments is evaluated on the basis of underwriting results of each segment. Based on its classification of takaful contracts issued, the Operator has five primary business segments for reporting purposes namely Fire & property, marine aviation & transport, motor, accident & health and others including miscellaneous. The nature and business activities of these segments are disclosed in note 3.3 of these financial statements. Since the operation of the Operator are predominantly carried out in Pakistan, information relating to geographical segment is not considered relevant. The accounting policies of operating segment are the same as those described in the summary of significant accounting policies. Assets, liabilities and capital expenditure that are directly attributable to segments have been assigned to them while the carrying amount of certain assets used jointly by two or more segments have been allocated to segments on a reasonable basis. Those assets and liabilities which cannot be allocated to a particular segment on a reasonable basis are reported as unallocated corporate assets and liabilities. 3.10 Cash and cash equivalents Cash and cash equivalents are carried in the statement of financial position at cost. For the purpose of Cash Flow Statement, cash and cash equivalents comprise of cash in hand, policy stamps and bank balances. 3.11 Revenue recognition 3.11.1 Contribution Contribution including administrative surcharge under a Takaful contracts are recognized as written from date of issuance to the date of attachment of risk to the policy / cover note. Where contributions for a policy are payable in installments, full contribution for the duration of the policy is recognized as written, where the first such installment has been duly received by the Takaful operator, at the inception of the policy and related assets is recognized for contribution receivable. Revenue from contribution(s) is determined after taking into account the unearned portion of contributions. The unearned portion of contribution income is recognized as a liability. Re-takaful contribution is recognized as expense after taking into account the proportion of deferred contribution expense which is recognized as a proportion of the gross re-takaful contribution of each policy, determined as the ratio of the unexpired period of the policy and the total period, both measured to the nearest day. The deferred portion of contribution expense is recognized as a prepayment. 3.11.2 Rebate from re-takaful operators Rebate from re-takaful operators is deferred and recognized as revenue in accordance with the pattern of recognition of the re-takaful contribution ceded to which it relates. 3.11.3 Investment income - Gain / loss on sale of available-for-sale investments is recognized in profit and loss account in the year of sale. - Dividend income is recognized when the Operator's right to receive the dividend is established. - Profit on saving accounts is recognized on accrual basis. Annual Report 2021 353
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 3 .12 Investments All investments are initially recognized at cost, being the fair value of the consideration given and include transaction costs. These are recognized and classified as follows: - Investment at fair value through profit and loss account - Held to maturity - Available-for-sale The classification depends on the purpose for which the financial assets were acquired. The Operator does not have any 'investment at fair value through profit and loss account' at the statement of financial position date. 3.12.1 Available-for-sale Investments which are not eligible to be classified as 'fair value through profit and loss account' or 'held to maturity' are classified as 'available-for-sale'. These investments are intended to be held for an indefinite period of time which may be sold in response to the need for liquidity, changes in interest rates, equity prices or exchange rates are classified as available-for-sale. Quoted Subsequent to initial recognition, these investments are re-measured at fair value. Gains or losses on investments on re-measurement of these investments are recognized in statement of comprehensive income. Unquoted Fair value of unquoted investments is determined on the basis of appropriate valuation techniques as allowed by IAS 39 'Financial Instruments: Recognition and Measurement'. Where fair value cannot be measured reliably, these are carried at cost. 3.12.2 Fair / market value measurements For investments in Mutual funds fair / market value is determined by reference to rates quoted by Mutual Fund Association of Pakistan (MUFAP). For investments in quoted marketable securities, other than Term Finance Certificates, fair / market value is determined by reference to the Pakistan Stock Exchange limited quoted market price at the close of business on reporting date. The fair market value of Term Finance Certificates is as per the rates issued by the MUFAP. 3.12.3 Date of recognition Regular way purchases and sales of investments that require delivery within the time frame established by regulations or market convention are recognized at the trade date. Trade date is the date on which the Operator commits to purchase or sell the investment 3.13 Offsetting of financial assets and financial liabilities A financial asset and a financial liability is offset and the net amount is reported in the statement of financial position if the Operator has legal enforceable right to set off the recognized amount and intends either to settle on a net basis or to realize the assets and settle the liability simultaneously. 3.14 Creditors, accruals, provisions and contingencies Liabilities for creditors and other amounts payable are carried at cost which is the fair value of the consideration to be paid in the future for the goods and / or services received, whether or not billed to the Operator. Annual Report 2021 354
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 Provisions are recognized when the Operator has a legal or constructive obligation as a result of a past events and it is probable that outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of obligation . The provisions are reviewed at statement of financial position date and adjusted to reflect current best estimates. Where outflow of resources embodying economic benefits is not probable, a contingent liability is disclosed, unless the possibility of outflow is remote. 3.15 Provision for outstanding claims including incurred but not reported (IBNR) The Operator recognizes liability in respect of all claims incurred up to the statement of financial position date which is measured at the undiscounted value of the expected future payments. The claims are considered to be incurred at the time of the incident giving rise to the claim except as otherwise expressly indicated in the Takaful contract(s). The liability for claims include amounts relating to unpaid reported claims, claims incurred but not reported (IBNR), expected claims settlement costs, and any adjustments to claims outstanding from previous years. SECP through its circular 9 of 2016, dated March 09, 2016, issued 'SEC guidelines for estimation of incurred but not reported (IBNR) claims reserve 2016' ('Guidelines') and the Operator is required to comply with all provisions of these guidelines with effect from July 01, 2016. The Guidelines require that estimation for provision for claims incurred but not reported for each class of business, by using prescribed method “Chain Ladder Method (CLM)” and other alternate method as allowed under the provisions of the Guidelines. The CLM involves determination of development factors or link ratios for each period. These are then subsequently combined to determine Cumulative Development Factor (CDF) which represents the extent of future development of claims to reach their ultimate level to derive an IBNR estimate. As required under the guidelines, the Operator uses CLM by involving an actuary for determination of provision against IBNR. Accordingly, the actuarial valuation as at December 31, 2021 has been carried out by independent firm of actuaries for determination of IBNR for each class of business. The actuarial valuation is based on a range of standard actuarial claim projection techniques, based on empirical data and current assumptions (as explained in preceding paragraph) that may include a margin for adverse deviation as required / allowed by the circular 9 of 2016. The methods used, and the estimates made, are reviewed regularly. 3.16 Taxation Current Provision for current taxation is based on taxable income for the year determined in accordance with the prevailing law for taxation of income. The charge for current tax is calculated using prevailing tax rates or tax rates expected to apply to the profit for the year, if enacted. The charge for current tax also include adjustments, where considered necessary, to provision for tax made in previous years arising from assessments finalized during the current year for such years. Deferred Deferred taxation is accounted for using the statement of financial position liability method in respect of all temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of the taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused tax losses and tax credits can be utilized. Deferred taxation is calculated at the rates that are expected to apply to the period when the differences reverse based on tax rates that have been enacted or substantively enacted by the Statement of Financial Position date. Deferred tax is charged or credited in the profit and loss account, except in the case of items credited or charged to Statement of Comprehensive Income in which case it is included in Statement of Comprehensive Income. Annual Report 2021 355
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 3 .17 Employees' benefit Salaries, wages and benefits are accrued in the period in which the associated services are rendered by employees of the Operator and measured on an undiscounted basis. The accounting policy for employees retirement benefits is described below: 3.17.1 Defined contribution plan The Operator operates an approved contributory provident fund scheme for all its eligible employees at entity level. Equal monthly contributions to the fund are made by the WTO and its employees at the rate of 8.33% of basic salary. 3.17.2 Defined benefit plans The Operator operates a funded gratuity scheme for its employees at end of service benefits. The entitlement to these benefits is based upon the employees' final salary and length of service, subject to completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment. 3.17.3 Employees' compensated absences The Operator accounts for these benefits in the period in which the absences are earned. Employees are entitled to 30 days earned leave in a calendar year. They can accumulate up to 60 days leave. At the end of each calendar year, excess of leave balance over 60 days lapse. Employee must take 1 period of annual leave of at least 10 days in one stretch each calendar year. Encashment of leave is allowed at 1/30 of monthly gross salary per day. Serving employee can encase leave accumulated over 20 days. Minimum encashment is 16 calendar days and the ratio of encash leave can not exceed 4:1. Separating employees can encash 100% of their accumulated leave. 3.18 Impairment of assets Financial assets A financial asset is considered to be impaired if objective evidence indicate that one or more events had a negative effect on the estimated future cash flow of that asset. An impairment loss in respect of a financial asset measured at amortized cost is calculated as a difference between its carrying amount and the present value of estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of available for sale financial asset is calculated with reference to its current fair value. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. Non-financial assets The carrying amounts of Operator's non-financial assets are reviewed at each statement of financial position date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of such asset is estimated. An impairment loss is recognized wherever the carrying amount of asset exceeds its recoverable amount. Impairment losses are recognized in profit and loss account. A previously recognized impairment loss is reversed only if there has been change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit and loss account. Annual Report 2021 356
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 3 .19 Claims expense Claims are charged against PTF income as incurred based on estimated liability for compensation owed under the Takaful contracts. It includes claims handling costs that are directly related to the processing and settlement of claims, a reduction for the value of salvage and other recoveries and any adjustments to claims outstanding from previous years. 3.20 Takaful surplus Takaful surplus attributable to the participants is calculated after charging all direct cost and setting aside various reserves. Allocation to participants, if applicable, is made after adjustment of claims paid to them during the period. 3.21 Management expenses Expenses of management allocated to the underwriting business represent directly attributable expenses and indirect expenses allocated to the various classes of business on the basis of gross contribution written. Expenses not allocable to the underwriting business are charged as other expenses. Management expense of the Operator are charged to the Operator's Takaful Fund. 3.22 Financial instruments Financial assets and liabilities are recognized at the time when the Operator becomes a party to the contractual provisions of the instrument and de-recognized when the Operator loses control of contractual rights that comprise the financial assets and in the case of financial liabilities when the obligation specified in the contract is discharged, cancelled or expired. Any gain or loss on the de-recognition of the financial assets and liabilities is included in the profit and loss account. Financial instruments carried in the statement of financial position include cash and bank, loans, investments, contribution due but unpaid, amount due from other takaful / re-takaful, contribution and claim reserves retained by cedants, accrued investment income, re-takaful recoveries against outstanding claims, sundry receivables, provision for outstanding claims, amounts due to other takaful / re-takaful, accrued expenses, other creditors and accruals. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. 3.23 Commission expense / acquisition cost Commission expenses incurred in obtaining and recording takaful policies is deferred and recognized in Operator's Takaful Fund as an expense in accordance with pattern of recognition of contribution revenue. 3.24 Wakala fee The Operator manages the general takaful operations for the participants and charge wakala fee to PTF on gross contribution written including administrative surcharge to meet the general and administrative expenses of the operator including commission to agents at following rates: Wakala fee is recognized on issuance of takaful contract. Wakala fee is recognized as income in OTF on the same basis on which the related contribution revenue is recognized in PTF. Unearned portion of Wakala fee is recognized as a liability in OTF and an asset in PTF. Class 2021 2020 Percentage Fire & property Marine aviation & transport Motor Accident & health Miscellaneous 28.0% 35.0% 32.5% 25.0% 25.0% Annual Report 2021 28.0% 35.0% 32.5% 25.0% 25.0% 357
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 3 .25 Qard-e-Hasna If there is a deficit of admissible assets over liabilities in PTF, the Operator from the Operators Fund may provide Qard-eHasna to PTF so that PTF may become solvent as per Takaful Rules, 2012. Qard-e-Hasna from PTF can be recovered by the Operator over any period of time without charging any profit. 3.26 Mudarib's fee The Operator manages the participants' investment as Mudarib and charges 20% of the investment income earned by the PTF as Mudarib's fee. It is recognized on the same basis on which related revenue is recognized. 4 Critical accounting estimates and judgements 4.1 Use of estimates and judgments The preparation of financial statements in conformity with approved accounting standards requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The areas involving a higher degree of judgment and complexity, or areas where assumptions and estimates are significant to these financial statements or judgment was exercised in application of accounting policies, are as follows: Note - 5 Employee benefit Provision for outstanding claims (including IBNR) and re-takaful recoveries there against Residual values and useful lives of property and equipment Residual values and useful lives of intangible assets Taxation Segment reporting Property and equipment Operating assets Capital work in progress 3.17 3.15 3.1 3.2 3.16 3.9 Note 5.1 5.2 2021 2020 Rupees in thousand 18,903 3,980 22,883 18,793 2,000 20,793 Annual Report 2021 358
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 5 .1 Operating assets December 31,2021 Cost Depreciation Book value As at 01 Jan As at 31 Dec As at 01 Jan Acc. Dep on Charge for As at 31 Dec As at 31 Dec Rate Transfers Additions Disposals On disposal 2021 2021 2021 Transfers the year 2021 2021 Rupees in thousand Motor vehicles Office equipment Computer and related accessories Furniture and Fixture 24,300 691 1,940 632 - 3,509 84 - - 27,809 691 2,024 632 7,383 146 1,059 182 - 3,061 82 273 67 - 10,444 228 1,332 249 17,365 463 692 383 Total 27,563 - 3,593 - 31,156 8,770 - 3,483 - 12,253 18,903 15% 15% 30% 15% December 31,2020 Cost Depreciation Book value As at 01 Jan Additions / As at 31 Dec As at 01 Jan Acc. Dep on Charge for As at 31 Dec As at 31 Dec Rate Transfers Disposals On disposal 2020 Transfers 2020 2020 Transfers the year 2020 2020 Rupees in thousand Motor vehicles Office equipment Computer and related accessories Furniture and Fixture 19,318 393 1,492 632 1,277 - 3,705 298 448 - - 24,300 691 1,940 632 4,456 72 772 102 434 - 2,493 74 287 80 - 7,383 146 1,059 182 16,917 545 881 450 Total 21,835 1,277 4,451 - 27,563 5,402 434 2,934 - 8,770 18,793 15% 15% 30% 15% Operator's Takaful Fund Note 5.2 2021 2020 Rupees in thousand Capital work in progress 2,000 2,680 (700) 3,980 1,300 700 2,000 10,409 10,409 12,421 12,421 Opening balance - net book value Transfer from Capital work-in-progress Addition during the year 12,421 700 2,240 17,650 1,060 Book value of disposal during the year Amortization charged during the year (4,952) (4,952) 10,409 (1,312) (4,977) (6,289) 12,421 Opening balance Additions during the year Transfer to property and equipment Transfer to intangibles Closing balance This represent amount advanced to Ozoned Digital (Private) Limited for digital platform of motor Takaful. 6 Intangible assets Intangible assets 6.1 6.1 Operating Assets-Intangible Closing balance Annual Report 2021 359
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 December 31 , 2021 Impairment/ Carrying value provision Rupees in thousand Cost 7 December 31, 2020 Impairment/ Carrying value provision Rupees in thousand Cost Investments in equity securities Operator's Takaful Fund Available for sale Mutual fund Meezan Islamic Income Fund [718,218 units (2020: 673,205 units)] 36,963 36,963 - Unrealized gain on revaluation 34,628 - 34,628 1,363 1,245 38,326 35,873 Participants' Takaful Fund Available for sale Mutual fund Al Hamra Islamic Income Fund [508,738 units (2020: 481,118 units)] 53,885 53,885 - - 50,000 15 614 53,900 50,614 Unrealized gain on revaluation No. of Certificates December 31, December 31, 2021 2020 8 50,000 Face Value Investments in debt securities Value of Certificates December 31, December 31, 2021 2020 Rupees in thousand Participants' Takaful Fund Held - to - maturity Sukuk certificates Engro Polymer & Chemicals Limited The Hub Power Company Limited (HUBCO) 500 750 500 750 75 - 100,000 100,000 50,000 75,000 125,000 1,000,000 75,000 75,000 50,000 75,000 125,000 Operator's Takaful Fund Held - to - maturity Sukuk certificates Pak Electron Limited (PEL) - Participants' Takaful Fund 9 Investments in Term Deposits Held - to - maturity Deposit maturing within one month 2021 2020 Rupees in thousand 50,000 50,000 Annual Report 2021 - 360
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 Participants ' Takaful Fund 10 2021 2020 Rupees in thousand Qard-e-Hasna Opening balance Qard-e-Hasna transferred from OPF during the year Qard-e-Hasna returned by PTF during the year Impairment Adjustment Closing balance 146,460 146,460 Operator's Takaful Fund 2021 2020 146,460 146,460 Participants' Takaful Fund 2021 2020 Rupees in thousand 11 Loans and other receivables - Considered good Sales tax recoverable Federal excise duty Accrued income Loan to employees Security deposits Bid money for tenders Advances 2,309 3,928 310 6,462 13,009 14 1,339 1,160 366 4,532 7,411 50,967 4,387 16,803 72,157 14,770 3,548 9,332 27,650 Participants' Takaful Fund 2021 2020 Rupees in thousand 12 Takaful / Re - takaful receivables - Unsecured and considered good Due from takaful participants' holders Less: provision for impairment of takaful participants' holder 281,280 304,220 281,280 304,220 Due from other takaful / re - takaful operator's Less: provision for impairment of due from other takaful / re - takaful operator's 142,234 80,225 142,234 423,514 80,225 384,445 Participants' Takaful Fund 13 Prepayments Prepaid re - takaful contribution ceded Prepaid monitoring charges (Tracking device) 2021 2020 Rupees in thousand 109,704 15,826 125,530 83,834 20,213 104,047 Annual Report 2021 361
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 Note 14 Operator 's Takaful Fund 2021 2020 Participants' Takaful Fund 2021 2020 Rupees in thousand Cash and bank Cash and cash equivalents: Policy stamps in hand Cash In Hand 226 150 264,009 264,235 209,296 209,446 - - Current and other accounts: Profit or loss accounts 14.1 522,515 522,515 552,900 552,900 14.1 Saving accounts carry expected profit rates ranging from 5% to 10% (2020: 3% to 8%) Participants' Takaful Fund 15 2021 2020 Rupees in thousand Takaful / re - takaful payables Due to takaful participants' holders Due to other takaful / re - takaful operator's 15,641 81,193 96,834 Operator's Takaful Fund 2021 2020 16 Participants' Takaful Fund 2021 2020 Rupees in thousand Other creditors and accruals Agents commission payable Federal insurance fee Sales tax payable Income tax deducted at source Accrued expenses Others 11,059 68,377 79,436 47,448 1,450 625 8,921 6,428 64,872 39,299 2,066 7,423 5,380 54,168 3,617 33,071 33,146 69,834 3,522 21,711 10,417 35,650 Annual Report 2021 362
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 17 Contingencies and commitments There has been no contingencies and commitments as at December 31 , 2021. Note 18 2021 2020 Rupees in thousand Net contribution revenue Gross contribution written Wakala fee Contribution net of wakala fee Unearned contribution revenue - opening Unearned contribution revenue - closing Contribution earned Less: Re - takaful contribution ceded Prepaid re - takaful contribution ceded - opening Prepaid re - takaful contribution ceded - closing Re - takaful expense Net contribution revenue 19 1,464,911 (443,281) 1,021,630 421,449 (441,519) 1,001,560 1,525,564 (447,396) 1,078,168 377,586 (421,449) 1,034,305 373,388 83,834 (109,704) 347,518 654,042 290,974 81,686 (83,834) 288,826 745,479 69,211 17,183 (22,466) 63,928 55,199 15,979 (17,183) 53,995 905,105 354,540 (558,082) 701,563 1,036,469 558,082 (257,810) 1,336,741 228,513 402,302 190,936 315,118 (315,118) (102,336) 104,331 597,232 615,084 721,657 Re - takaful rebate Re - takaful rebate received Unearned re - takaful rebate - opening Unearned re - takaful rebate - closing Net re-takaful rebate 20 Participants' Takaful Fund Net Takaful Claims Claims Paid Outstanding claims including IBNR - closing Outstanding claims including IBNR - opening Claim expense Less: Re - takaful and other recoveries received Re - takaful and other recoveries in respect of outstanding claims - closing Re - takaful and other recoveries in respect of outstanding claims - opening Re-takaful and other recoveries revenue Net claim expense 20.1 Annual Report 2021 363
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 20 .1 Net Takaful Claims The following table shows the development of fire, marine and others including miscellaneous claims over a period of time. The disclosure goes back to the period when the earliest material claim arose for which there is still uncertainty about the amount and timing of the claims payments. For other classes of business the uncertainty about the amount and timings of claims payment is usually resolved within a year. Further, claims with significant uncertainties are not outstanding as at 31 December 2021. Accident year 2017 & prior 2018 2019 2020 2021 Total Rupees in thousand Estimate of ultimate claims cost At end of accident year with IBNR One year later Two years later Three years later Four years later Current estimate of cumulative claims Less: Cumulative payments to date Liability recognized in the statement of financial position 392,814 141,981 9,112 2,817 5,116 1,798 (103) 1,695 510,467 141,659 9,750 5,218 760,440 209,695 24,701 1,369,784 364,770 863,158 5,218 24,701 364,770 863,158 3,896,663 858,105 43,562 8,035 5,116 1,259,645 (3,251) (17,955) (295,823) (587,973) (905,105) 1,967 6,746 68,947 275,185 354,540 Participants' Takaful Fund 21 Other direct expenses Monitoring charges Non refundable taxes Inspection charges Bank charges Others 2021 2020 Rupees in thousand 49,872 8,124 2,749 146 1,241 62,132 43,475 4,898 187 20,483 69,043 Operator's Fund 22 Commission Expense Commission paid or payable Deferred commission - opening Deferred commission - closing Net commission 2021 2020 Rupees in thousand 117,112 41,931 (39,961) 119,082 143,296 39,961 (45,347) 137,910 Operator's Fund 23 Wakala Fee Gross Wakala fee Unearned Wakala fee - opening Unearned Wakala fee - closing Net wakala fee 2021 2020 Rupees in thousand 443,281 178,766 (191,460) 430,587 447,396 139,978 (178,766) 408,608 Annual Report 2021 364
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 The Operator manages the general takaful operations for the participants ' and charges 28 % (2020: 28 %) for Fire & Property, 35 % (2020: 35 %) for Marine, Aviation & Transport, 32.5 % (2020: 32.5 %) for Motor, 25 % (2020: 25%) for Health and 25 % (2020: 25 %) for Miscellaneous classes of gross contribution written including administrative surcharge as wakala fee against the services. Operator's Fund 24 2021 2020 Rupees in thousand General, administrative and management expenses 105,031 3,484 4,952 15,225 4,000 1,643 1,124 826 21,632 1,619 725 1,935 83 1,551 9,095 172,925 Employee benefit cost Depreciation Amortization Advertisement and sales promotion Rent, rates and taxes Communication Legal and professional charges - business related Travelling and conveyance expenses Shared expenses Entertainment Printing, stationery and postage Annual supervision fee SECP Bank charges Repairs and maintenance Others Operator's Takaful Fund 2021 2020 25 Investment income Profit on Mutual funds - dividend income Mutual funds - capital gain Term deposit-profit Sukuks 26 92,658 2,934 4,977 651 4,061 1,595 900 2,359 17,731 1,397 562 2,202 34 2,740 8,405 143,206 Participants' Takaful Fund 2021 2020 Rupees in thousand 31 2,309 2,340 24 3,560 3,584 2,134 2,071 342 11,173 15,720 17,156 17,156 17,852 17,852 14,091 79 14,170 26,073 26,073 32,403 32,403 Other income Profit on bank deposits Other Income Annual Report 2021 365
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 Note Operator 's Fund 2021 2020 Rupees in thousand 27 Direct Expenses Auditors' remuneration Shariah audit fee 27.1 740 3,081 3,821 740 3,081 3,821 385 152 165 38 740 385 152 165 38 740 27.1 Auditors' remuneration Annual audit fee Half year review fee Sariah's compliance report Out of pocket expense Operator's Takaful Fund 2021 2020 28 Rupees in thousand Taxation Current Tax - for the year Deferred tax: - for the year Participants' Takaful Fund 2021 2020 40,490 47,605 11,208 - (102) 40,388 (236) 47,369 11,208 - Operator's Fund 29 Executives remuneration Managerial remuneration Leave encashment Bonus Rent and house maintenance Medical Conveyance Contribution to defined contribution plan Other perquisites and allowances Number of persons 2021 2020 Rupees in thousand 24,154 1,210 4,788 10,714 2,381 4,422 1,736 8,218 57,623 34,961 818 3,326 9,049 2,011 4,170 1,431 6,607 62,373 20 18 There has been no payments made to the directors / chief executive officer during the year 2021 (2020 : nil) from OPF . 30 Number of employees Total number of employees at the end and average number of employees during the year ended 2021 and 2020 are as follows: Operator's Fund 2021 2020 Rupees in thousand As at December, 31 80 68 Average during the year 71 68 Annual Report 2021 366
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 31 Transactions with related parties The Operator has related party relationships with its associates , subsidiary company, entities with common directorship, employee retirement benefit plans, key management personnel and other parties. Transactions are entered into with such related parties for the issuance of policies to and disbursements of claims incurred by them and payments of rentals for the use of premises rented from them. There are no transactions with key management personnel other than those specified in their terms of employment. Contributions and accruals in respect of staff retirement benefits and other benefit plans are made in accordance with the actuarial valuations / terms of the contribution plan. i) Transactions 2021 2020 Rupees in thousand Subsidiary Company Contribution underwritten Contribution received Claims paid 3,116 2,789 1,297 1,631 1,553 1,561 202,838 224,671 85,162 12,455 183,688 180,868 63,718 13,329 Other related parties Contribution underwritten Contribution received Claims paid Income on bank deposits 2021 2020 Rupees in thousand ii) Period end balances Subsidiary Company Balances payable Balances receivable 471 499 579 80 20,624 26,381 275,423 557 17,679 31,773 243,357 350 Other related parties Balances receivable Balances payable Cash and bank balances Contribution received in advance Annual Report 2021 367
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 32 Segment Information Each class of business has been identified as reportable segment . Class of business wise revenue and results have been disclosed in the profit and loss account prepared in accordance with the requirements of the Insurance Ordinance, 2000. The following is a schedule of class of business wise assets and liabilities. Participants' Takaful Fund December 31, 2021 Fire & Property Damage Marine, Aviation & Transport Motor Accident & Health Miscellaneous Total Rupees in thousand Contribution receivable (inclusive of Federal Excise Duty, Federal Insurance Fee and Administrative Surcharge) Less : Federal Excise Duty Federal Insurance Fee Gross Direct Written Contribution (inclusive of Administrative Surcharge) Facultative inward contribution Gross Contribution Written Wakala fee Contribution net of wakala fee Contribution earned Takaful contribution ceded to retakaful Net takaful contribution Re-takaful rebate Net underwriting income Takaful claims Re - takaful and other recoveries Net claims Contribution deficiency reserve Other direct expenses Net takaful claims and expenses (Deficit) / surplus before investment income 273,224 (34,934) (2,375) 79,573 (10,227) (687) 967,227 (118,583) (8,413) 231,510 (950) (2,278) 94,330 (11,726) (818) 1,645,864 (176,420) (14,571) 235,915 2,958 238,873 (66,885) 171,988 153,959 (176,136) (22,177) 38,682 16,505 68,659 30 68,689 (24,041) 44,648 45,165 (56,762) (11,597) 12,187 590 840,231 840,231 (273,075) 567,156 562,771 (40,487) 522,284 420 522,704 228,282 228,282 (57,071) 171,211 177,691 177,691 177,691 81,786 7,050 88,836 (22,209) 66,627 61,974 (74,133) (12,159) 12,639 480 1,454,873 10,038 1,464,911 (443,281) 1,021,630 1,001,560 (347,518) 654,042 63,928 717,970 (58,705) 48,923 (9,782) (4,042) (13,824) (33,158) 25,787 (7,371) (2,686) (10,057) (358,965) 860 (358,105) (58,568) (416,673) (218,961) (218,961) (12,582) (2,774) (234,317) (31,774) 28,761 (3,013) (973) (3,986) (701,563) 104,331 (597,232) (12,582) (69,043) (678,857) 2,681 (9,467) 106,031 (56,626) (3,506) 39,113 Other income Investment income Mudarib fee Surplus transferred to Balance of PTF 15,720 26,073 (3,144) 77,762 Corporate segment assets Corporate unallocated assets Total assets 236,130 236,130 45,641 45,641 296,000 296,000 65,998 65,998 80,385 80,385 724,154 839,398 1,563,552 Corporate segment liabilities Corporate unallocated liabilities Total liabilities 233,409 233,409 43,224 43,224 568,284 568,284 182,390 182,390 76,047 76,047 1,103,354 216,298 1,319,652 Annual Report 2021 368
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 Participants ' Takaful Fund December 31, 2020 Fire & Property Damage Marine, Aviation & Transport Motor Accident & Health Miscellaneous Total Rupees in thousand Contribution receivable (inclusive of Federal Excise Duty, Federal Insurance Fee and Administrative Surcharge) Less : Federal Excise Duty Federal Insurance Fee Gross Direct Written Contribution (inclusive of Administrative Surcharge) Facultative inward contribution Gross Contribution Written Wakala fee Contribution net of wakala fee 224,964 (28,774) (1,949) 58,311 (7,397) (505) 843,293 (101,829) (6,942) 465,540 (1,801) (4,591) 92,259 (11,627) (798) 1,684,367 (151,428) (14,785) 194,241 1,446 195,687 (54,792) 140,895 50,409 42 50,451 (17,658) 32,793 734,522 734,522 (238,720) 495,802 459,148 459,148 (114,787) 344,361 79,834 5,922 85,756 (21,439) 64,317 1,518,154 7,410 1,525,564 (447,396) 1,078,168 Contribution earned Retakaful expense Net contribution revenue Net rebate on re - takaful Net underwriting income 131,434 (149,403) (17,969) 30,013 12,044 32,805 (39,147) (6,342) 8,358 2,016 471,707 (24,615) 447,092 447,092 326,210 326,210 326,210 72,149 (75,661) (3,512) 15,624 12,112 1,034,305 (288,826) 745,479 53,995 799,474 Takaful claims Re - takaful and other recoveries Net claims Contribution deficiency reserve Direct expense Net takaful claims and expenses (522,059) 515,467 (6,592) (1,250) (7,842) (9,729) 16,556 6,827 (300) 6,527 (340,708) 80,007 (260,701) (57,163) (317,864) (460,751) (460,751) 30,071 (2,755) (433,435) (3,494) 3,054 (440) (664) (1,104) (1,336,741) 615,084 (721,657) 30,071 (62,132) (753,718) 4,202 8,543 129,228 (107,225) 11,008 45,756 Surplus / (deficit) before investment income Other income Investment income Mudarib fee Surplus transferred to Balance of PTF 17,156 32,403 (3,521) 91,794 December 31,2020 Fire & Property Damage Marine, Aviation & Transport Motor Accident & Health Miscellaneous Total Rupees in thousand Corporate segment assets Corporate unallocated assets Total assets 363,536 363,536 23,880 23,880 229,113 229,113 115,706 115,706 51,162 51,162 783,397 776,377 1,559,774 Corporate segment liabilities Corporate unallocated liabilities Total liabilities 388,928 388,928 20,481 20,481 501,097 501,097 253,059 253,059 40,405 40,405 1,203,970 182,288 1,386,258 Annual Report 2021 369
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 Operator 's Takaful Fund December 31, 2021 Fire & Property Damage Marine, Aviation & Transport Motor Accident & Health Miscellaneous Total Rupees in thousand Wakala fee income Less : Commission expense Management expenses 59,875 (31,369) (39,334) (10,828) 24,319 (9,043) (11,339) 3,937 266,504 (74,078) (92,886) 99,540 59,230 (15,626) (19,593) 24,011 20,659 (7,794) (9,773) 3,092 430,587 (137,910) (172,925) 119,752 3,144 2,340 (3,821) 17,852 139,267 Corporate segment assets Corporate unallocated assets Total assets 33,973 33,973 6,715 6,715 85,030 85,030 19,039 19,039 8,770 8,770 153,528 570,322 723,850 Corporate segment liabilities Corporate unallocated liabilities Total liabilities 30,574 30,574 336 336 129,324 129,324 26,076 26,076 5,150 5,150 191,460 87,071 278,531 Mudarib's share of PTF investment income Investment income Direct expenses Other income Profit before tax Operator's Takaful Fund December 31,2020 Fire and Property Damage Marine, Aviation and Transport Motor Accident & Health Miscellaneous Total Rupees in thousand Wakala fee income Less : Commission expense Management expenses 51,112 (27,127) (32,623) (8,638) 17,664 (7,702) (9,262) 700 207,046 (51,201) (61,573) 94,272 108,737 (22,505) (27,064) 59,168 24,049 (10,547) (12,684) 818 408,608 (119,082) (143,206) 146,320 3,521 3,584 (3,821) 14,170 163,774 Mudarib's share of PTF investment income Investment income Other expenses Other income Profit before tax December 31, 2020 Fire and Property Damage Marine, Aviation and Transport Motor Accident & Health Miscellaneous Total Rupees in thousand 33 Corporate segment assets Corporate unallocated assets Total assets 27,126 27,126 4,132 4,132 77,960 77,960 39,368 39,368 8,158 8,158 156,744 432,404 589,148 Corporate segment liabilities Corporate unallocated liabilities Total liabilities 23,564 23,564 614 614 122,753 122,753 28,235 28,235 3,600 3,600 178,766 64,031 242,797 Management of takaful and financial risk The Operator's activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest / mark-up rate risk, price risk and currency risk).The Operator's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance. Overall risks arising from the Operator's financial assets and liabilities are limited. The Operator consistently manages its exposure to financial risk without any material change from previous period in the manner described in notes below. The Board of Directors has overall responsibility for the establishment and oversight of Operator's risk management framework. The Board is also responsible for developing the Operator's risk management policies. Annual Report 2021 370
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 The individual risk wise analysis is given below : 33.1 Takaful risk The principal risk that the Operator faces under takaful contracts is that the actual claims and benefit payments or the timing thereof may differ from expectations. This is influenced by the frequency of claims, severity of claims, actual benefits paid and subsequent development of long-term claims. Therefore, the objective of the Operator is to ensure that sufficient reserves are available to cover these liabilities. The above risk exposure is mitigated by diversification across a large portfolio of takaful contracts and geographical areas. The variability of risks is also improved by careful selection and implementation of underwriting strategy guidelines, as well as the use of retakaful arrangements. Further, strict claims review policies to assess all new and ongoing claims, regular detailed review of claims handling procedures and frequent investigation of possible fraudulent claims and similar procedures are put in place to reduce the risk exposure of the Operator. The Operator further enforces a policy of actively managing and prompt pursuing of claims, in order to reduce its exposure to unpredictable future developments that can negatively impact the Operator. Amounts recoverable from retakaful are estimated in a manner consistent with the outstanding claims provision and are in accordance with the retakaful contracts. Although the Operator has retakaful arrangements, it is not relieved of its direct obligations to its policyholders and thus a credit exposure exists with respect to ceded takaful, to the extent that any retakaful operator is unable to meet its obligations assumed under such retakaful agreements. The Operator's placement of retakaful is diversified such that it is neither dependent on a single retakaful operator nor are the operations of the Operator substantially dependent upon any single retakaful contract. Retakaful contracts are written with approved retakaful operators on either a proportionate basis or nonproportionate basis. The retakaful operators are carefully selected and approved and are dispersed over several geographical regions. Experience shows that larger the portfolio is in similar retakaful contracts, smaller will be the relative variability about the expected outcome. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The Operator has developed its takaful underwriting strategy to diversify the type of takaful risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. The Operator principally issues the general takaful contracts e.g. fire and property damage, marine, aviation and transport, motor, accident & health and other miscellaneous. Risks under non-life takaful contracts usually cover twelve month or lesser duration. For general takaful contracts the most significant risks arise from accidental fire, atmospheric disaster and terrorist activities . Takaful contracts at times also cover risk for single incidents that expose the Operator to multiple takaful risks. 33.1.1 Geographical concentration of takaful risk To optimize benefits from the principle of average and law of large numbers, geographical spread of risk is of extreme importance. There are a number of parameters which are significant in assessing the accumulation of risks with reference to the geographical location, the most important of which is risk survey. 33.1.2 Retakaful arrangements Keeping in view the maximum exposure in respect of key zone aggregate, a number of proportional and nonproportional retakaful arrangements are in place to protect the net account in case of a major catastrophe. Apart from the adequate event limit which is the multiple of the treaty capacity or the primary recovery from the proportional treaty, any loss over and above limit would be recovered from the non-proportional treaty which is very much in line with the risk management philosophy of the Operator. Annual Report 2021 371
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 Gross sum covered 2021 2020 Class Fire and property Marine , aviation and transport Motor Accident and health Miscellaneous 259,167,731 237,455,490 47,515,931 14,449,822 20,153,012 578,741,986 212,596,719 114,158,337 36,598,225 33,902,621 2,962,076 400,217,978 Participants' Takaful Fund Re-takaful 2021 2020 Rupees in thousand 210,046,743 201,615,582 2,378,186 5,130,798 419,171,309 166,376,199 57,217,616 1,257,831 2,370,001 227,221,647 Net 2021 49,120,988 35,839,908 45,137,745 14,449,822 15,022,215 159,570,678 2020 46,220,520 56,940,721 35,340,394 33,902,621 592,075 172,996,331 33.1.3 Sources of uncertainty in estimation of future claim payments The key source of estimation uncertainty at the statement of financial position date relates to valuation of outstanding claims, whether reported or not, and includes expected claims settlement costs. Considerable judgment by management is required in the estimation of amounts due to participants arising from claims made under takaful contracts. Such estimates are necessary based on assumptions about several factors involving varying and possibly significant degrees of judgment and uncertainty, and actual results may differ from management's estimates resulting in future changes in estimated liabilities. Qualitative judgments are used to assess the extent to which past trends may not apply in the future, for example one-off occurrence, changes in market factors such as judicial decisions and government legislation affect the estimates. In particular, estimates have to be made both for the expected ultimate cost of claims reported at the statement of financial position date and for the expected ultimate cost of claims incurred but not reported (IBNR) at the statement of financial position date. 33.1.4 Neutral assumptions for claim estimation The process used to determine the assumptions for calculating the outstanding claim reserves is intended to result in neutral estimates of the most likely or expected outcome. The nature of the business makes it very difficult to predict with certainty the likely outcome of any particular claim and the ultimate cost of notified claims. Each notified claim is assessed in separate, case to case basis, with due regard to claim circumstances, information available from surveyors and historical evidence of the size of similar claims. Case estimates are reviewed regularly and updated as and when new information is available. The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to the Operator, in which case information about the claim event is available. IBNR provision is initially estimated at gross level and a separate calculation is carried out to estimate the size of retakaful recoveries. The Operator has taken actuarial advice for the determination of IBNR claims, which has been estimated using Chain Ladder (CL) methodology. The Chain Ladder (CL) Method involves determination of development factors or link ratios for each period. These are then subsequently combined to determine Cumulative Development Factor (CDF), which represents the extent of future development of claims to reach their ultimate level. The estimation process takes into account the past claims reporting pattern and details of retakaful programs. The contribution liabilities have been determined such that the total contribution liability provisions (unearned contribution reserve and contribution deficiency reserve) would be sufficient to service the future expected claims and expenses likely to occur on the unexpired policies as of statement of financial position date. The expected future liability is determined using estimates and assumptions based on the experience during the expired period of the contracts and expectations of future events that are believed to be reasonable. Annual Report 2021 372
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 33 .1.5 Sensitivity analysis The risks associated with the takaful contracts are complex and subject to a number of variables which complicate quantitative sensitivity analysis. The Operator makes various assumptions and techniques based on past claims development experience. This includes indications such as average claims cost, ultimate claims numbers and expected loss ratios. The Operator considers that the liability for insurance claims recognized in the statement of financial position is adequate. However, actual experience may differ from the expected outcome. As the Operator enters into short term takaful contracts, it does not assume any significant impact of changes in market conditions on unexpired risks. However, some results of sensitivity testing are set out below, showing the impact on surplus/(deficit), net of retakaful. Surplus/ (deficit) 2021 2020 Rupees in thousand 10% increase in claims liability Net: Fire Marine Motor Accident & Health Miscellaneous 10% decrease in claims liability Net: Fire Marine Motor Accident & Health Miscellaneous (978) (737) (35,811) (21,896) (301) (1,013) (335) (31,616) (19,244) (311) (59,723) (52,519) 978 737 35,811 21,896 301 1,013 335 31,616 19,244 311 59,723 52,519 Annual Report 2021 373
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 33 .2 Financial Risk Maturity profile of financial assets and liabilities: Participants' Takaful fund December 31, 2021 Non-markup bearing Markup bearing Maturity up to Maturity after one one year year Maturity up to one Maturity after year one year Sub total Sub total Total Rupees in thousand Financial assets Investments - Debt Securities Investments - Equity Securities Investments - Term Deposits Loans and other receivables Takaful / retakaful receivablesunsecured and considered good Retakaful recoveries against outstanding claims Salvage recoveries accrued Cash and bank 50,000 - 125,000 - 53,885 72,157 423,514 - 53,885 72,157 423,514 125,000 53,885 50,000 72,157 423,514 125,000 125,000 50,000 522,515 697,515 522,515 572,515 144,551 46,385 740,492 - 144,551 46,385 740,492 144,551 46,385 522,515 1,438,007 572,515 125,000 697,515 354,540 96,834 108,181 33,146 592,701 147,791 - 354,540 96,834 108,181 33,146 592,701 147,791 354,540 96,834 108,181 33,146 592,701 845,306 Financial liabilities Outstanding claims (including IBNR) Takaful / retakaful payables Wakala and mudarib fee payable Other creditors and accruals Participants'' Takaful fund December 31, 2020 Non-markup bearing Markup bearing Maturity up to Maturity after one one year year Sub total Maturity up to one Maturity after year one year Sub total Total Rupees in thousand Financial assets Investments - Debt Securities Investments - Equity Securities Loans and other receivables * Takaful / retakaful receivablesunsecured and considered good Retakaful recoveries against outstanding claims * Salvage recoveries accrued Cash and bank 552,900 552,900 125,000 - 125,000 - 50,614 27,650 384,445 - 50,614 27,650 384,445 125,000 50,614 27,650 384,445 125,000 552,900 677,900 279,132 35,986 777,827 - 279,132 35,986 777,827 279,132 35,986 552,900 1,455,727 125,000 677,900 558,082 79,436 116,783 10,417 764,718 13,109 - 558,082 79,436 116,783 10,417 764,718 13,109 558,082 79,436 116,783 10,417 764,718 691,009 Financial liabilities Outstanding claims (including IBNR) Takaful / retakaful payables Wakala and mudarib fee payable Other creditors and accruals 552,900 Annual Report 2021 374
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 Operator 's Takaful fund December 31, 2021 Non-markup bearing Markup bearing Maturity up to Maturity after one one year year Maturity up to one Maturity after year one year Sub total Total Sub total Rupees in thousand Financial assets Investment - Equity securities Investment - Debt securities Loans and other receivables * Wakala and mudarib fee receivable Cash and bank - 75,000 - 75,000 264,235 38,326 4,169 108,181 - 2,378 - 38,326 6,547 108,181 - 38,326 75,000 6,547 108,181 264,235 264,235 - 264,235 75,000 339,235 150,676 2,378 153,054 492,289 264,235 75,000 339,235 62,797 62,797 87,879 2,378 62,797 62,797 90,257 62,797 62,797 429,492 Financial liabilities Other creditors and accruals Operator's Takaful fund December 31, 2020 Non-markup bearing Markup bearing Maturity up to Maturity after one one year year Maturity up to one Maturity after year one year Sub total Total Sub total Rupees in thousand Financial assets Investment - Equity securities Loans and other receivables * Wakala and mudarib fee receivable Cash and bank - - 209,446 209,446 35,873 2,215 116,783 154,871 650 650 35,873 2,865 116,783 155,521 35,873 2,865 116,783 209,446 364,967 209,446 209,446 - 209,446 - 209,446 52,102 52,102 102,769 650 52,102 52,102 103,419 52,102 52,102 312,865 Financial liabilities Other creditors and accruals 33.2.1 Mark - up rate risk Mark-up rate risk is the risk that the value of a financial instrument or future cash flows of a financial instrument will fluctuate due to changes in the market mark - up rates. Sensitivity to mark-up rate risk arises from mismatching of financial assets and liabilities that mature or repaid in a given period. The Operator manages this mismatch through risk management strategies where significant changes in gap position can be adjusted. At the statement of financial position date the mark-up rate profile of the Operator's significant interest / mark-up bearing financial instruments was as follows: Floating rate financial instruments Financial assets: Cash at bank - saving account Effective interest rate (%) Carrying amounts 2020 2021 2020 2021 Rupees in thousand 5.00% - 10.00% 3.00% - 8.00% 786,750 762,346 Annual Report 2021 375
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 33 .2.2 Sensitivity analysis The Operator does not have any fixed rate financial assets and liabilities. For cash flow sensitivity analysis of variable rate instruments, a hypothetical change of 100 basis points in mark-up rates at the statement of financial position date would have decreased / (increased) profit for the year by the amounts shown below. It is assumed that the changes occur immediately and uniformly to each category of instrument containing interest rate risk. Variation in market interest rates could produce significant changes at the time of early repayments. For these reasons, actual results might differ from those reflected in the details specified below. The analysis assumes that all other variables remain constant. As at December 31, 2021 - Fluctuation of 100 bps Cash flow sensitivity - variable rate financial liabilities Cash flow sensitivity - variable rate financial assets As at December 31, 2020 - Fluctuation of 100 bps Cash flow sensitivity - variable rate financial liabilities Cash flow sensitivity - variable rate financial assets Effect on profit before tax Increase Decrease Effect on funds Increase Decrease 78,675 (78,675) 55,073 (55,073) 76,235 (76,235) 53,365 (53,365) Foreign currency risk Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Operator, at present is not materially exposed to currency risk as majority of the transactions are carried out in Pak Rupees. Price risk Price risk represents the risk that the fair value of financial instruments will fluctuate because of changes in the market prices (other than those arising from interest / mark-up rate risk or currency risk), whether those changes are caused by factors specific to individual financial instrument or its issuer, or factors affecting all or similar financial instrument traded in the market. The Operator is exposed to equity price risk that arises as a result of changes in the net asset value of mutual funds. The equity price risk arises from the Operator's investment in equity securities of mutual funds. The Operator's strategy is to hold its strategic equity investments on a long term basis. Thus, Operator is not affected significantly by short term fluctuation in its strategic investments provided that the underlying business, economic and management characteristics of the investees remain favorable. The Operator strives to maintain above average levels of shareholders' capital to provide a margin of safety against short term equity volatility. The Operator manages price risk by monitoring exposure in quoted equity securities and implementing the strict discipline in internal risk management and investment policies. The Operator has investments in quoted equity securities amounting to Rs. 38,326 thousands (2020: Rs. 35,873 thousands) at the statement of financial position date. The carrying value of investments subject to equity price risk are, in almost all instances, based on quoted market prices as of the statement of financial position date. Market prices are subject to fluctuation which may result from perceived changes in the underlying economic characteristics of the investee, the relative price of alternative investments and general market conditions. Annual Report 2021 376
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 33 .2.3 Sensitivity analysis As the entire investment portfolio has been classified in the 'available-for-sale' category, a 10% increase / decrease in unit prices at year end would have increased / decreased Operator's fund as follows: December 31, 2021 Impact on Impact on profit before tax operator's fund Rupees in thousand Effect of increase in unit price Effect of decrease in unit price - December 31, 2020 Impact on Impact on profit before tax operator's fund Rupees in thousand - 7,933 (7,933) 2,424 (2,424) 33.3 Credit risk and concentration of credit risk Credit risk is the risk that arises with the possibility that one party to a financial instrument will fail to discharge its obligation and cause the other party to incur a financial loss. The Operator attempts to control credit risk by monitoring credit exposure by undertaking transactions with a large number of counterparties in various sectors and by continually assessing the credit worthiness of counterparties. Concentration of credit risk occurs when a number of counterparties have a similar type of business activities. As a result any change in economic, political or other conditions would affect their ability to meet contractual obligations in a similar manner. The Operator's credit risk exposure is not significantly different from that reflected in these financial statements. The management monitors and limits the Operator's exposure and makes conservative estimates of provisions for doubtful assets, if any. The management is of the view that it is not exposed to significant concentration of credit risk as its financial assets are adequately diversified in entities of sound financial standing, covering various industrial sectors. The carrying amount of financial assets represents the maximum credit exposure, as specified below: December 31, 2021 Operator's Participants' Fund Takaful Fund Rupees in thousand Investment in equity securities Investment in debt securities Investment in term deposits Loans and other receivable Due from takaful contract holders Due from other takaful / other retakaful Retakaful recoveries against outstanding claims Salvage recoveries accrued Wakala and mudarib fee receivable Bank deposits 38,326 75,000 6,547 108,181 264,009 492,063 53,885 125,000 50,000 72,157 281,280 142,234 144,551 46,385 522,515 1,438,007 Aggregate 92,211 200,000 50,000 78,704 281,280 142,234 144,551 46,385 108,181 786,524 1,930,070 December 31, 2020 Operator's Participants' Fund Takaful Fund Rupees in thousand 35,873 2,865 116,783 209,296 364,817 50,614 125,000 27,650 304,220 80,225 279,132 35,986 552,900 1,455,727 Aggregate 86,487 125,000 30,515 304,220 80,225 279,132 35,986 116,783 762,196 1,820,544 Provision for impairment is made for doubtful receivables according to the Operator's policy. The impairment provision is written off when the Operator expects that it cannot recover the balance due. Age analysis of due from takaful contact holders (net of provision) other than related parties is as follows: Annual Report 2021 377
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 2021 2020 Rupees in thousand 216 ,075 44,082 260,157 Up to one year Above one year Less: provision for doubtful balances 241,618 44,870 286,488 - 260,157 286,488 20,625 497 21,122 16,927 805 17,732 Age analysis of due from related parties against takaful contracts is as follows: Up to one year Above one year Less: provision for doubtful balances - 21,122 17,732 The credit quality of Operator's bank balance can be assessed with reference to external credit rating as follows: Rating Short Term Long Term Dubai Islamic Bank Limited MCB Islamic Bank Limited Meezan Bank Limited Bank Islami Pakistan Limited Faysal Islamic Bank Limited UBL Ameen A1+ A1 A1+ A1 A1+ A1+ AA A AAA A+ AA AAA Rating Agency JCR-VIS PACRA JCR-VIS PACRA PACRA JCR-VIS 2021 2020 Rupees in thousand 297,846 275,423 97,824 109,479 5,849 104 355,244 243,357 60,275 103,319 - 786,525 762,195 The credit quality of amount due from other co-takaful/retakaful operators (gross of provisions) can be assessed with reference to external credit rating as follows: Amounts due from other cotakaful / retakaful operators Retakaful and other recoveries against outstanding claims 2021 Amounts due from other cotakaful / retakaful operators Retakaful and other recoveries against outstanding claims 2020 Rupees in thousand A or Above (including PRCL) BBB Others 142,234 - 117,975 24,259 2,317 260,209 24,259 2,317 80,225 - 176,439 15,342 87,351 256,664 15,342 87,351 Total 142,234 144,551 286,785 80,225 279,132 359,357 Annual Report 2021 378
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 33 .4 Capital adequacy risk The Operator’s objective when managing capital is to safeguard the Operator’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain a strong capital base to support the sustained development in its businesses. 34 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. Underlying the definition of fair value is the presumption that the company is a going concern and there is no intention or requirement to curtail materially the scale of its operations or to undertake a transaction on adverse terms. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. IFRS 13 'Fair Value Measurement' requires the company to classify fair value measurements and fair value hierarchy that reflects the significance of the inputs used in making the measurements of fair value hierarchy has the following levels: - Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) - Inputs other than quoted prices included within level 1 that are observable for the asset either directly (that is, derived from prices) (Level 2) - Inputs for the asset or liability that are not based on observable market data (that is, unadjusted) inputs (Level 3) Transfer between levels of the fair value hierarchy are recognised at the end of the reporting period during which the changes have occurred. Participants' Takaful Fund December 31, 2021 Available-for-sale Held to maturity Carrying amount Loans and Cash and cash receivables equivalents Note Fair value Other financial Total liabilities Rupees in thousand Level 1 Level 2 Level 3 Total Financial assets not measured at fair value Investments - Debt securities Investments - Equity securities Investments - Term Deposits Loan and other receivables Takaful / re - takaful receivables Re - takaful recoveries against outstanding claims Salvage recoveries accrued Cash and bank deposits 7 8 9 11 12 14 125,000 53,885 - 50,000 - 72,157 423,514 144,551 46,385 - 522,515 - 125,000 53,885 50,000 72,157 423,514 144,551 46,385 522,515 53,900 - - - - - 53,900 - 178,885 50,000 686,607 522,515 - 1,438,007 53,900 - - 53,900 - - - - 354,540 96,834 108,181 33,146 354,540 96,834 108,181 33,146 - - - - - - - - 592,701 592,701 - - - - Financial liabilities not measured at fair value Outstanding claims including IBNR Takaful / re - takaful payables Wakala and mudarib fee payable Other creditors and accruals 20 16 Annual Report 2021 379
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 Participants ' Takaful Fund December 31, 2020 Available-for-sale Held to maturity Carrying amount Loans and Cash and cash receivables equivalents Note Fair value Other financial Total liabilities Rupees in thousand Level 1 Level 2 Level 3 Total Financial assets not measured at fair value Investments - Debt securities Investments - Equity securities Loan and other receivables Takaful / re - takaful receivables Retakaful recoveries against outstanding claims Salvage recoveries accrued Cash and bank deposits 7 8 11 12 14 125,000 50,614 175,614 - 27,650 384,445 279,132 35,986 - - 125,000 50,614 27,650 384,445 279,132 35,986 552,900 - - - 727,213 552,900 552,900 - - - 1,455,727 - - - - - - - 558,082 79,436 116,783 10,417 558,082 79,436 116,783 10,417 - - - - - - - 764,718 764,718 - - - - Level 1 Level 2 Financial liabilities not measured at fair value Outstanding claims including IBNR Takaful / retakaful payables Wakala and mudarib fee payable Other creditors and accruals 20 16 Operator's Takaful Fund December 31, 2021 Available-for-sale Held to maturity Carrying amount Loans and Cash and cash receivables equivalents Note Fair value Other financial Total liabilities Rupees in thousand Level 3 Total Financial assets measured at fair value Investments - Equity securities Investments - Debt securities 7 8 38,326 75,000 - - - - 38,326 75,000 38,326 - - - 38,326 - 11 - - 6,547 108,181 - 264,235 - 6,547 108,181 264,235 - - - - 113,326 - 114,728 264,235 - 492,289 - - 38,326 Financial assets not measured at fair value Loan and other receivables Wakala and mudarib fee receivable Cash and bank deposits 14 38,326 Financial liabilities not measured at fair value Other creditors and accruals 16 - - - - 62,797 62,797 - - - - - - 62,797 62,797 - - - - Operator's Takaful Fund December 31, 2020 Available-for-sale Held to maturity Carrying amount Loans and Cash and cash receivables equivalents Note Fair value Other financial Total liabilities Rupees in thousand Level 1 Level 2 Level 3 Total Financial assets measured at fair value Investments - Equity securities 7 35,873 - - - - 35,873 35,873 - - 35,873 11 35,873 - 2,865 116,783 - - - - 119,648 - 2,865 116,783 209,446 - 209,446 209,446 364,967 35,873 - - 35,873 Financial assets not measured at fair value Loan and other receivables Wakala and mudarib fee receivable Cash and bank deposits 14 Financial liabilities not measured at fair value Other creditors and accruals 16 - - - - 52,102 52,102 - - - - - - - - 52,102 52,102 - - - - Annual Report 2021 380
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 35 Statement of Solvency - Participants ' Takaful Fund 2021 Rupees Assets Investments Loans and other receivables Takaful / Retakaful receivables Retakaful Recoveries against O/S benefits Salvage recoveries accrued Prepayments Cash and Bank Total Assets (A) 228,900 72,157 423,514 144,551 46,385 125,530 522,515 1,563,552 In-admissible assets as per following clauses 32(2) of the Insurance Ordinance, 2000 148,576 81,674 15,826 67,770 313,846 Contribution due but unpaid more than 3 months Direct Co-Takaful balances more than 3 months Prepaid Monitoring charges Loans and other receivables Total of In-admissible assets (B) 1,249,706 Total Admissible Assets (C=A-B) Total Liabilities 354,540 441,519 22,466 12,582 4 67,232 96,834 108,181 69,834 1,173,192 Outstanding benefits including IBNR Unearned contribution reserves Unearned commission income Contribution deficiency reserves Deferred taxation Contributions received in advance Takaful / Retakaful Payables Wakala and mudarib fee payable Other Creditors and Accruals Total Liabilities (D) 76,514 Total Net Admissible Assets (E=C-D) Operator's Takaful Fund Available for sale 36 Movement in Investment - Available for sale At the beginning of previous year Additions Disposals Fair value on gains (excluding net realized gain) At the beginning of current year Additions Disposals Fair value on gains (excluding net realized gain) At the end of current year Participants' Takaful Fund Available for sale Rupees in thousand Held to Maturity 32,958 34,627 (31,048) (665) 50,614 - 125,000 - 35,872 111,963 (35,873) 1,363 50,614 3,286 125,000 50,000 - 113,325 53,900 175,000 Annual Report 2021 381
- Window Takaful Operations Notes To and Forming Part of Financial Statements For the Year Ended 31 December 2021 37 Subsequent events - non adjusting event There are no significant events that need to be disclosed for the year ended December 31 , 2021. 38 Date of authorization for issue These financial statements were authorized for issue on February 08, 2022 by the Board of Directors of the Operator. 39 General Figures have been rounded off to the nearest thousand rupees unless other wise stated. Umer Mansha Chairman Imran Maqbool Director Muhammad Arif Hameed Director Muhammad Asim Nagi Chief Financial Officer Muhammad Ali Zeb Managing Director & Chief Executive Officer Annual Report 2021 382
- Annual Report 2021 383
- BCR Criteria BCR Criteria Page No . ORGANIZATIONAL OVERVIEW AND EXTERNAL ENVIRONMENT What does the organization do and circumstances under which it operates Principal business activities and markets local and international including key brands, products and services. 38 - 39 Geographical location and address of all business units including sales units and plants. 40 Mission, vision, code of conduct, culture, ethics and values. 12, 14 & 20 Ownership, operating structure and relationship with group companies (i.e. subsidiary, associated undertaking etc.) and number of countries in which the organization operates. Also name and country of origin of the holding company/subsidiary company, if such companies are a foreign company. 93 & 94 Organization chart indicating functional and administrative reporting, presented with legends. 42 Identification of the key elements of the business model of the company through simple diagram supported by a clear explanation of the relevance of those elements to the organization. (The key elements of business model are Inputs, Business activities, Outputs and Outcomes). 49 Key quantitative information (Number of persons employed as on the date of financial statements and average number of employees during the year, separately disclosing factory employees). 40 Position of the reporting organization within the value chain showing connection with other businesses in the upstream and downstream value chain. (This disclosure shall be provided by the companies in service and non-service sector organizations through graphical presentation). 47 Significant factors effecting the external environment and the associated organization’s response (external environment includes commercial, political, economic, social, technological, environmental and legal environment). Also describe the effect of seasonality on business in terms of production and sales. 45 Significant changes from prior years (regarding the information disclosed in this section). 51 Composition of local versus imported material and sensitivity analysis in narrative form due to foreign currency fluctuations. 135 Competitive landscape and market positioning (considering factors such as the threat of new competition and substitute products or services, the bargaining power of customers and suppliers, relative strengths and weaknesses of competitors and customer demand and the intensity of competitive rivalry). 44 STRATEGY AND RESOURCE ALLOCATION Where does the organization want to go and how does it intend to get there Short, medium and long term strategic objectives. Strategies in place or intended to be implemented to achieve those strategic objectives. 53 53 - 54 Annual Report 2021 384
- BCR Criteria Page No . "Resource allocation plans to implement the strategy and financial capital structure. (Resource mean CAPITALS including financial capital (e.g. liquidity, cash flows, financing arrangements); human capital, manufactured capital (e.g. building, equipment, infrastructure); intellectual capital (e.g. patents, copyrights, software, licenses, knowledge, system, procedures); social and relationship capital and natural capital).” 55 The effect of technological change, societal issues such as (population and demographic changes, human rights, health, poverty, collective values and educational systems), environmental challenges, such as climate change, the loss of ecosystems, and resource shortages, on the company strategy and resource allocation. 57 Specific processes used to make strategic decisions and to establish and monitor the culture of the organization, including its attitude to risk and mechanisms for addressing integrity and ethical issues. 57 Key performance indicators (KPIs) to measure the achievement against strategic objectives including statement as to whether the indicators used will continue to be relevant in the future. 54 Strategy to overcome liquidity problem and the company's plan to manage its repayment of debts and meet operational losses. 58 Significant plans and decisions such as corporate restructuring, business expansion and discontinuance of operations etc. 58 Significant changes in objectives and strategies from prior years. 59 RISKS AND OPPORTUNITIES Specific risks and opportunities that affect the organization’s ability to create value over the short, medium and long term, and how it is dealing with them Key risks and opportunities effecting availability, quality and affordability of CAPITALS in the short, medium and long term. 63 - 66 Description of the Risk Management Framework including risk management methodology. 61 Sources of risks and opportunities (internal and external). 63 - 66 The initiatives taken by the company in promoting and enabling innovation. 58 Assessment of the ‘likelihood’ that the risk or opportunity will come to fruition and the ‘magnitude’ of its effect if it does. 63 - 66 Specific steps being taken to mitigate or manage key risks or to create value from key opportunities by identifying the associated strategic objectives, strategies, plans, policies, targets and KPIs. 63 - 66 Board’s efforts for determining the company’s level of risk tolerance by establishing risk management policies. 62 A statement from the board of directors that they have carried out a robust assessment of the principal risks facing the company, including those that would threaten the business model, future performance and solvency or liquidity. 62 Inadequacy in the capital structure and plans to address such inadequacy. 67 Annual Report 2021 385
- BCR Criteria Page No . GOVERNANCE How does the organization’s governance structure support its ability to create value in the short, medium and long term Board composition: a) Leadership structure of those charged with governance. 26 & 72 b) Name of independent directors indicating justification for their independence. 94 c) Profile of each director including education, experience and involvement / engagement of in other entities as CEO, Director, CFO or Trustee etc. 26 Review Report by the Chairman of the company on the overall performance of the board and effectiveness of the role played by the board in achieving the company’s objectives. A statement of how the board operates, including a high-level statement of which types of decisions are to be taken by the board and which are to be delegated to management. 22 & 23 95 Shariah Advisor Report and Profile of the Shariah Advisor / Members’ of the Shariah Board. Annual evaluation of performance, along with description of criteria used for the members of the board and its committees, CEO and the Chairman. 95 Disclosure if the board’s performance evaluation is carried out by an external consultant once in three years. 95 Details of formal orientation courses for directors. 96 Directors’ Training Program (DTP) attended by directors, female executive and head of department from the institutes approved by the SECP and names of those who availed exemptions during the year. 96 Description of external oversight of various functions like systems audit / internal audit by an external specialist and other measures taken to enhance credibility of internal controls and systems. 96 "a) Policy for remuneration to non-executive directors including independent directors. 97 b) Policy of retention of board fee by the executive director earned by him against his services as non-executive director in other companies.” 97 Policy for security clearance of foreign directors. 97 How the organization’s implemented governance practices exceeding legal requirements. 98 Board’s policy on diversity (including gender), any measurable objectives that it has set for implementing the policy, and progress on achieving the objectives. 98 No. of companies in which the executive director of the reporting organization is serving as non-executive director. 26 a) Names of related parties in Pakistan and outside Pakistan, with whom the company had entered into transactions or had agreements and / or arrangements in place during the financial year, along with the basis of relationship describing common directorship and percentage of shareholding. 211 - 212 b) Contract or arrangement with the related party other than in the ordinary course of business on an arm’s length basis, if any along with the justification for entering into such contract or arrangement. N/A c) Approved policy for related party transactions including policy for disclosure of interest by directors in this regard. 99 Annual Report 2021 386
- BCR Criteria Page No . Details of board meetings held outside Pakistan during the year. 99 Disclosure of policy for actual and perceived conflicts of interest relating to members of the board of directors and a disclosure that how such a conflict is managed and monitored. 99 Investors’ grievance policy. 99 Policy for safety records of the company. 99 Disclosure of IT Governance Policy. 100 Disclosure of Whistle blowing policy established to receive, handle complains in a fair and transparent manner and providing protection to the complainant against victimization, and disclosure of the number of such incidences reported to the Audit Committee during the year. 100 Human resource management policies including preparation of a succession plan. 101 Social and environmental responsibility policy. 101 Review by the board of the organization’s business continuity plan or disaster recovery plan. 101 Disclosure of beneficial (including indirect) ownership and flow chart of group shareholding and relationship as holding company, subsidiary company or associated undertaking. 94 Compliance with the Best Practices of Code of Corporate Governance (No marks in case of any non-compliance). 87 A brief description about role of the Chairman and the CEO. 29 & 33 Shares held by Sponsors / Directors / Executives. 93 Salient features of TOR and attendance in meetings of the board committees (Audit, Human Resource, Nomination and Risk management). 102 - 108 "Timely Communication Date of authorization of financial statements by the board of directors: within 40 days ---6 marks within 60 days ---3 marks (Entities requiring approval from a Regulator before finalization of their Financial Statements would be provided a 20 days relaxation, on providing evidence to the Committee)." 228 "Audit Committee Report should describe the work of the committee in discharging its responsibilities. The report should include: a) Composition of the committee with at least one member qualified as “financially literate and all members are non-executive / Independent directors including the Chairman of the Audit Committee. b) Role of the committee in discharging its responsibilities for the significant issues in relation to the financial statements, and how these issues were addressed with details where particular attention was paid in this regard. c) Committee’s overall approach to risk management and internal control, and its processes, outcomes and disclosure. d) Role of Internal Audit to risk management and internal control, and approach to Internal Audit to have direct access to Audit Committee and evaluation of Internal Auditor’s performance. e) Review of arrangement for staff and management to report to Audit Committee in confidence, concerns, if any, about actual or potential improprieties in financial and other matters and recommended instituting remedial and mitigating measures. 104 - 106 Annual Report 2021 387
- BCR Criteria Page No . f) An explanation as to how it has assessed the effectiveness of the external audit process and the approach taken to the appointment or reappointment of the external auditor, and information on the length of tenure of the current statutory auditor; and if the external auditor provides non-audit services, an explanation as to how auditor’s objectivity and independence is safeguarded. g) If Audit Committee recommends external auditors other than the retiring external auditors, before the lapse of three consecutive years, reasons shall be reported. h) The Audit Committee’s views whether the Annual Report was fair, balanced and understandable and also whether it provided the necessary information for shareholders to assess the company’s position and performance, business model and strategy. i) Results of the self-evaluation of the Audit Committee carried out of its own performance." Presence of the chairman of the Audit Committee at the AGM to answer questions on the Audit Committee’s activities and matters within the scope of the Audit Committee’s responsibilities. 108 Where an external search consultancy has been used in the appointment of the Chairman or a non-executive director, it should be disclosed if it has any other connection with the company. 108 Chairman’s significant commitments and any changes thereto. 109 Disclosure about the Government of Pakistan policies related to company’s business/ sector in Directors’ Report and their impact on the company business and performance. 74 Pandemic Recovery Plan by the management and policy statement. 109 PERFORMANCE AND POSITION To what extent has the organization achieved its strategic objectives for the period and what are its outcomes in terms of effects on the capitals "Analysis of the financial and non-financial performance using both qualitative and quantitative indicators showing linkage between: (a) Past and current performance; and (b) Performance against targets /budget (c) Objectives to assess stewardship of management. The analysis should cover significant deviations from previous year in operating results and the reasons for loss, if incurred and future prospects of profits. Note: Analysis of non-financial performance shall be presented for material non-financial KPIs relevant for the business and stakeholders around other forms of capitals as mentioned under International Integrated Reporting Framework <IR>, i.e. human capital, manufactured capital, intellectual capital, social and relationship capital and natural capital. Inspiration can also be taken from the Specific Standard Disclosures of G4 Guidelines of the Global Reporting Initiative (GRI) for measurement and reporting on non-financial KPIs." 115 & 116 Analysis of financial statements: a) Financial Ratios (Refer Annexure ‘I’) 119 b) DuPont Analysis 127 c) Free Cash Flow 128 d) Economic Value Added (EVA) 150 Annual Report 2021 388
- BCR Criteria Page No . "Combined analysis both vertical and horizontal of the Balance Sheet and Profit and Loss Account for last 6 years.” 117 & 118 Summary of Cash Flow Statement for last 6 years. 129 Graphical presentation of the Balance Sheet, Profit & Loss Account and analysis in 5.02, 5.03 and 5.04 above. "120 - 124 & 130 - 131" Explanation of negative change in the performance against prior year including analysis of variation in results reported in interim reports with the final accounts, including comments on the results disclosed as per 5.02, 5.03 and 5.04 above. 115, 125, 126 Information about defaults in payment of any debts and reasons thereof period. Methods and assumptions used in compiling the indicators. 133 Cash Flow Statement based on Direct Method (separate Cash Flow for specific funds e.g. Zakat). N/A Segmental review of business performance. Share price sensitivity analysis using key variables (i.e. selling price, raw material cost, interest rate and currency) with the consequent impact on the company’s earning. 134 & 135 History of major events during the year. 139 Business rationale of major capital expenditure /projects during the year and for those planned for next year. 136 "Brief description and reasons; a) For not declaring dividend despite earning profits and future prospects of dividend. N/A b) Where any payment on account of taxes, duties, levies etc. is overdue or outstanding." 76 CEO presentation video on the organization’s website explaining the business overview, performance, strategy and outlook. (Please provide reference / web link on company's annual report). 111 OUTLOOK Challenges and uncertainties that the organization is likely to encounter in pursuing its strategy, and what are the potential implications for its business model and future performance "Forward looking statement in narrative and quantitative form including projections or forecasts about known trends and uncertainties that could affect the entity’s resources, revenues and operations in the short, medium and long term. 141 - 144 Also explaining the external environment including political, economic, social, technological, environmental and legal environment that is likely to be faced in the short, medium and long term and how it will affect the organization in terms of its business performance, strategic objectives and availability, quality and affordability of capitals." 141 - 144 Explanation as to how the performance of the entity meets the forward looking disclosures made in the previous year. 141 - 144 Status of the projects in progress and were disclosed in the forward looking statement in the previous year. 141 - 144 Sources of information and assumptions used for projections / forecasts in the forward looking statement and assistance taken by any external consultant. 141 - 144 Annual Report 2021 389
- BCR Criteria Page No . How the organization is currently equipped in responding to the critical challenges and uncertainties that are likely to arise. 141 - 144 STAKEHOLDERS RELATIONSHIP AND ENGAGEMENT State of key stakeholder relationships and how the organization has responded to key stakeholders’ legitimate needs and interests 146 - 148 How the company has identified its stakeholders. "Stakeholders’ engagement process and the frequency of such engagements during the year. Explanation on how these relationships are likely to affect the performance and value of the entity, and how those relationships are managed. These engagements may be with: a) Institutional investors; b) Customers & suppliers; c) Banks and other lenders; d) Media; e) Regulators; f) Local committees and g) Analysts." 146 "Steps taken by the management to encourage the minority shareholders to attend the general meetings.” 148 Investors' Relations section on the corporate website. 148 Issues raised in the last AGM, decisions taken and their implementation status. 149 "Statement of value added and its distribution with graphical presentation: a) Employees as remuneration b) Government as taxes (separately direct and indirect) c) Shareholders as dividends d) Providers of financial capital as financial charges e) Society as donation; and f) Retained within the business" 150 Stakeholders engagement policy and steps board has taken to solicit and understand the views of stakeholders through corporate briefing sessions and disclosure of brief summary of Analyst briefing conducted during the year. 149 Highlights about redressal of investors' complaints. 149 SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY Highlights of the entity's performance, policies, initiatives and plans in place relating to the various aspects of sustainability and corporate social responsibility (including environment related obligation applicable on the company and initiatives taken to fulfil during the year and company’s responsibility towards the staff, their health & safety). 152 - 157 Certifications acquired and international standards adopted for best sustainability and CSR practices. 152 - 157 Annual Report 2021 390
- BCR Criteria Page No . BUSINESS MODEL Business model is a system of transforming inputs, through business activities, into outputs and outcomes that aims to fulfil the organization’s strategic purposes and create value over the short, medium and long term Describe the business model including inputs, business activities, outputs and outcomes in accordance with the guidance as set out under section 4C of the International Integrated Reporting Framework <IR>. 49 STRIVING FOR EXCELLENCE IN CORPORATE REPORTING Statement by management of unreserved compliance of International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). 112 Adoption of International Integrated Reporting Framework <IR> by fully applying the ‘Fundamental Concepts’ and ‘Guiding Principles’ of <IR> into their corporate reporting in addition to the ‘Content Elements’ (disclosures) of <IR>, as covered in this criteria. 4&5 Disclosures beyond BCR criteria (Note: The participating organization to send the list of additional disclosures to BCR Committee). 395 OTHERS BCR criteria cross referred with page numbers of the annual report. Brief about contents, scope and boundaries of the annual report. SWOT analysis. 384 4&5 46 FINANCIAL RATIOS - Financial Sector Profitability Ratios 119 Profit before tax ratio Gross Yield on Earning Assets Gross Spread ratio Cost/Income ratio Return on Equity Return on Capital employed Shareholders' Funds Return on Shareholders' Funds Liquidity Ratios 119 Advances to deposits ratio Current ratio Quick / Acid test ratio Cash to Current Liabilities Net interest income as a percentage of working funds /Operating cost - Efficiency ratio Cash Reserve Ratio / Liquid Asset ratio Annual Report 2021 391
- BCR Criteria Page No . Gross Non-Performing assets to gross advances Non-Performing loans to Total Loans 119 Investment /Market Ratios Earnings per share (EPS) and diluted EPS Price Earnings ratio Price to Book ratio Dividend Yield ratio Dividend Payout ratio / Dividend Cover Ratio Cash Dividend per share / Stock Dividend per share Market value per share at the end of the year and high/low during the year Breakup value per share i. Without Surplus on Revaluation of property, plant and equipment ii. With Surplus on Revaluation of property plant and equipment including the effect of all Investments iii. Including Investment in Related Party at fair /market value and also with Surplus on Revaluation of property plant and equipment. 119 Capital Structure Capital Adequacy ratio Earning assets to total assets ratio Weighted Average cost of deposit Net assets per share Debt to Equity ratio (as per book and as per market value) Non-Financial Ratios Staff turnover ratio 137 Customer Satisfaction Index Not provided Employee Productivity Rate 137 SPECIFIC DISCLOSURES OF THE FINANCIAL STATEMENTS Fair value of Property, Plant and Equipment. 136 Segment analysis of segment revenue, segment results and profit before tax. 213 - 214 Reconciliation of weighted average number of shares for calculating EPS and diluted EPS. N/A Particulars of significant/ material assets and immovable property including location and area of land. 136 Disclosure of product wise data mentioning, product revenue, profit etc. 213 - 214 Disclosure of discounts on revenue. N/A Sector wise analysis of deposits and advances. N/A Complete set of financial statements (Balance sheet, Income statement & Cash flow) for Islamic banking operations. 341 - 380 Annual Report 2021 392
- BCR Criteria Page No . Status for adoption of Islamic Financial Accounting Standards (IFAS) issued by the ICAP. N/A Summary of significant transactions and events that have affected the company‘s financial position and performance during the year. 136 Forced sale value in case of revaluation of Property, Plant and Equipment or investment property. 136 Distribution of shareholders (Number of shares as well as category wise, e.g. Promoter, Directors/Executives or close family member of Directors/Executives etc.). 93 & 400 Particulars of major foreign shareholders, other than natural person, holding more than 5% of paid up capital in the company in Pattern of Shareholding. 400 Particulars where company has given loans or advances or has made investments in foreign companies or undertakings. 137 Accounts Receivable in respect of Export Sales - Name of company or undertaking in case of related party and in case of default brief description of any legal action taken against the defaulting parties. N/A Treasury shares in respect of issued share capital of a company. N/A In describing legal proceedings, under any court, agency or government authority, whether local or foreign, include name of the court, agency or authority in which the proceedings are pending, the date instituted, the principal parties thereto, a description of the factual basis of the proceeding and the relief sought. 202 Management assessment of sufficiency of tax provision made in the company’s financial statements shall be stated along with comparisons of tax provision as per accounts vis a vis tax assessment for last three years. 137 Income tax reconciliation as required by IFRS and applicable tax regime for the year. In respect of loans and advances, other than those to the suppliers of goods or services, the name of the borrower and terms of repayment if the loan or advance exceeds rupees one million, together with the collateral security, if any. N/A Disclosure about Human Resource Accounting (includes the disclosure of process of identifying and measuring the cost incurred by the company to recruit, select, hire, train, develop, allocate, conserve, reward and utilize human assets). 137 In financial statements issued after initial or secondary public offering(s) of securities or issuance of debt instrument(s) implementation of plans as disclosed in the prospectus/ offering document with regards to utilization of proceeds raised till full implementation of such plans. N/A Where any property or asset acquired with the funds of the company and is not held in the name of the company or is not in the possession and control of the company, this fact along with reasons for the property or asset not being in the name of or possession or control of the company shall be stated; and the description and value of the property or asset, the person in whose name and possession or control it is held shall be disclosed. N/A Standards, amendments and interpretations adopted during the current year along with their impact on the company's financial statements. 171 & 172 Standards, amendments and interpretations, not yet effective and not adopted along with their impact on the company's financial statements. 171 & 172 Annual Report 2021 393
- BCR Criteria Page No . SPECIFIC DISCLOSURES FOR INSURANCE COMPANY Claims management and details of outstanding claims (IBNR & IBNER) with ageing thereof. 205 Disclosures pertaining to Solvency Margin. 138 Certificate of Actuary giving details of the liabilities on account of live policies and estimates/ assumptions made for the same. Not provided "Following accounting ratios pertaining to insurance sector: • Claim Ratio 70 • Solvency Ratio" 138 Review of assets quality. 139 Annual Report 2021 394
- Disclosures beyond BCR Criteria The Company strives hard to provide information above and beyond minimum requirements to ensure transparency . Following list contains information beyond BCR Criteria presented in our annual report: Disclosures Chairman's Review Page No. 22 & 23 Awards and Achievements of the Company 38 IFS Rating of the Company 39 ISO 9001-2015 Certificate 43 Cybersecurity Policy 110 Anti-Money Laundering and Countering Financing Terrorism Policy 110 Proceedings regarding IFRS-17 implementation 106 Access to Reports and Enquiries 111 Stock Exchange listing code / symbol of the Company 111 Statement under Section 46(6) of the Insurance Ordinance, 2000 113 Sensitivity Analysis of change in market capitalization 134 Annual Report 2021 395
- Notice of 61st Annual General Meeting NOTICE is hereby given that the 61st Annual General Meeting (AGM) of Adamjee Insurance Company Limited (the “Company”) will be held on April 28, 2022 (Thursday) at 10:00 A.M. at Lahore through video-link facility to transact the following ordinary business: 1. To receive, consider and adopt the Standalone and Consolidated Audited Financial Statements of the Company for the year ended 31 December 2021, Directors’, and Auditors’ reports thereon and the Chairman’s Review Report. 2. To declare and approve, as recommended by the directors, the payment of final cash dividend of Rs. 1.50 per share i.e., @ 15% in addition to 15% interim cash dividend already declared and paid i.e., total 30% for the year ended 31 December 2021. 3. To appoint auditors and fix their remuneration. The members are hereby notified that the Board of Directors and the Audit Committee have recommended the name of retiring auditors M/s Yousuf Adil, Chartered Accountants for appointment as auditors of the Company. By Order of the Board Lahore: April 07, 2022 Tameez-ul-Haque Secretary NOTES: 1. Book Closure The share transfer books of the Company will remain closed from April 22, 2022 to April 28, 2022 (both days inclusive). Transfers received in order at the office of the Company’s Independent Share Registrar, M/s CDC Share Registrar Services Ltd., CDC House, 99- B, S.M.C.H.S, Main Shahrah e Faisal, Karachi by the close of business (1:00 PM) on April 21, 2022 will be treated in time for the purposes of entitlement of members to the final cash dividend and for attending and voting at the AGM. Proxy Forms, in English and Urdu languages, have been dispatched to the members along with the notice of AGM. 2. Instrument of Proxy A member entitled to attend and vote at this meeting may appoint any other member as his/her proxy to attend and vote. The Instrument appointing a proxy and the power of attorney or other authority under which it is signed or a notarial attested copy of the power of attorney must be deposited at the registered office of the Company at least 48 hours before the time of the meeting. A proxy must be a member of the company. A Company or a Corporation being a member of the Company may appoint a representative through a resolution of board of directors for attending and voting at the meeting. 3. Attendance To attend the meeting through video link, the members and their proxies are requested to register themselves by providing the following information along with their Name, Folio Number, Cell No., and Number of Shares held in their name, a valid copy of CNIC (both sides)/ passport attested copy of board resolution / power of attorney (in case of corporate shareholders) through email at zafar.iqbal@adamjeeinsurance.com and/or info@adamjeeinsurance.com by 21 April, 2022: Annual Report 2021 396
- Name of Member / proxyholders CNIC No. Folio No./ Participant Id/ Account No. Cell No./ WhatsApp’s No. Email ID. The shareholders who are registered after the necessary verification shall be provided a video link by the Company on the said email address. The login facility will remain open from start of the meeting till its proceedings are concluded. Shareholders can also provide their comments and questions for the agenda items of the AGM at the email address zafar.iqbal@adamjeeinsurance.com and/or info@adamjeeinsurance.com or at WhatsApp No_03400004421. 4. Video-Link Facility for the AGM: To ensure the safety and well-being of the shareholders and general public from Covid 19, the Company is holding this meeting through video link as allowed by the Securities and Exchange Commission of Pakistan. 5. Placement of Annual Reports, Financial Statements, AGM Notice The annual report containing inter alia audited standalone and consolidated financial statements and mandatory reports and notice of AGM have been placed on the website of the Company www.adamjeeinsurance.com 6. Members who have deposited their shares into Central Depository Company of Pakistan Limited (“CDC”) will further have to follow the applicable guidelines as laid down by the Securities and Exchange Commission of Pakistan in Circular No 1 of 2000. 7. Members are requested to timely notify any change in their addresses. 8. Notice to Shareholders who have not provided CNIC: The shareholders who have not yet provided their CNICs are once again advised to provide the attested copies of their CNICs (if not already provided) directly to our Independent Share Registrar at the address given at Note No. 9. Payment of Cash Dividend Electronically: Under the provision of Section 242 of Companies Act, 2017 and the Companies (Distribution of Dividends) Regulations, 2017, it is mandatory for a listed company to pay cash dividend to their shareholders only through electronic mode directly into the bank account designated by the entitled shareholders instead of issuing physical dividend warrant. In order to receive cash dividend directly into the designated bank account, shareholders are requested to fill and sign the “Mandate Form for e-dividend” available on the Company’s website link: https://www.adamjeeinsurance.com/pak/investors/downloads/shar eholder_useful_documents/Mandate_for_e_ dividend.pdf, and send to the relevant Broker/Participants/Investor Account Services of the CDC/Share Registrar of the Company (as the case may be) before April 21, 2022 along with a copy of their valid CNICs. The aforesaid form is also available at the end of Annual Report of the Company. The form has also been provided with CDs to the shareholders. In case of non-receipt or incorrect International Bank Account Number (IBAN) with other related details or non-availability of CNICs, the Company will withhold cash dividend of such members in terms of Section 242 of the Companies Act, 2017. Annual Report 2021 397
- 10 . Unclaimed Dividend: Shareholders, who by any reason, could not claim their dividends/shares, if any, are advised to contact our Share Registrar to collect / enquire about their unclaimed dividend/shares, if any. 11. Hardcopy of Annual Financials: Shareholders have passed Special Resolution in AGM held on 29th April 2017 to transmit annual report from 31st December 2017 onwards through CD/DVD/USB in compliance of directive of SRO 470(1)/2016 dated 31st May 2016. The annual report is emailed to shareholders who have provided their email address in terms of Section 223 (6) of the Companies Act, 2017 and through CD to other shareholders who have not so far provided their email addresses to the Company. The shareholders who wish to receive hard copy of the aforesaid documents may send to the Company Secretary / Share Registrar, the Standard Request Form available on the website of the Company and the Company will supply hard copies of the aforesaid document to the shareholders on demand, free of cost, within one week of such demand. 12. Deduction of Withholding Tax on the amount of Dividend: Pursuant to Circular No.19/2014 dated October 24, 2014, SECP has directed all companies to inform shareholders about changes made in the Section 150 of the Income Tax Ordinance, 2001. The Company, hereby advise to its shareholders, the important amendments, as under: The Government of Pakistan through Finance Act, 2019 has made certain amendments in Section 150 of the Income Tax Ordinance, 2001 whereby different rates are prescribed for deduction of withholding tax on the amount of dividend paid by the companies. These tax rates are as under: a. For filers of income tax returns 15% b. For non-filers of income tax retur0ns 30% To enable the company to make tax deduction on the amount of cash dividend @ 15% instead of 30%, all the shareholders whose names are not entered into the Active Taxpayers List (ATL) provided on the website of Federal Board of Revenue, despite the fact that they are filers, are advised to make sure that their names are entered into ATL before the date for payment of the cash dividend otherwise tax on their cash dividend will be deducted @ 30% instead @ 15%. In the case of shares registered in the name of two or more shareholders, each joint-holder is to be treated individually as either a filer or non-Filer and tax will be deducted by the Company on the basis of shareholding of each joint-holder as may be notified to the Company in writing. The joint-holders are, therefore, requested to submit their shareholdings otherwise each joint holder shall be presumed to have an equal number of shares. The corporate shareholders having CDC accounts are required to have their National Tax Number (NTN) updated with their respective participants, whereas corporate physical shareholders should send a copy of their NTN certificate to the Company or its Independent Share Registrar at the below mentioned address. The shareholders while sending NTN or NTN certificates, as the case may be, must quote company name and their respective folio numbers. 13. Zakat Declarations: The members of the Company are required to submit Declaration for Zakat exemption in terms of Zakat and Ushr Ordinance, 1980 to the Company. Annual Report 2021 398
- 14 . Deposit of Physical Shares into CDC Account: The Shareholders having physical shareholding may open CDC sub-account with any of the brokers or Investor Account directly with CDC to place their physical shares into script-less form. This will facilitate them in many ways including safe custody and sale of shares, any time they want, as the trading of physical shares is not permitted as per existing regulations of the Stock Exchange. Further, Section 72 of the Act states that after the commencement of the Act from a date notified by SECP, a company having share capital, shall have shares in book-entry form only. Every existing company shall be required to replace its physical shares with book-entry form in a manner as may be specified and from the date notified by SECP, within a period not exceeding four years from the promulgation of the Act. Annual Report 2021 399
- FORM 34 THE COMPANIES ACT 2017 THE COMPANIES (GENERAL PROVISIONS & FORMS) REGULATION, 2019 [Section 227(2)(f)] PATTERN OF SHAREHOLDING 1.1 Name of the Company ADAMJEE INSURANCE COMPANY LIMITED. 2.1 Pattern of holding of the shares held by the shareholders as at 31-12-2021 2.2 No. of Shareholders Shareholdings Total Shares Held 977 Shareholding From 1 To 100 25,931 910 Shareholding From 101 To 500 277,452 489 Shareholding From 501 To 1000 400,545 1,842 Shareholding From 1001 To 100000 22,714,667 96 Shareholding From 100001 To 475000 22,158,504 29 Shareholding From 480001 To 1085000 19,924,387 23 Shareholding From 1130001 To 10590000 69,027,284 1 Shareholding From 14665001 To 14670000 14,669,000 1 Shareholding From 17105001 To 17110000 17,107,420 1 Shareholding From 19210001 To 19215000 19,213,878 2 Shareholding From 27770001 To 27775000 27,771,587 1 Shareholding From 27875001 To 27880000 27,877,735 1 Shareholding From 37970001 To 37975000 37,970,369 2 Shareholding From 70860001 To 70865000 70,861,241 4,375 350,000,000 Annual Report 2021 400
- FORM 34 THE COMPANIES ACT 2017 THE COMPANIES (GENERAL PROVISIONS & FORMS) REGULATION, 2019 [Section 227(2)(f)] PATTERN OF SHAREHOLDING 2.3 Categories of Shareholders 2.3.1 Directors, Chief Executive Officer their spouses & minor children Shareholders Ibrahim Shamsi Imran Maqbool Malik Mian Umer Mansha Mohammad Ali Zeb Mohammad Arif Hameed Muhammad Anees Sadia Younas Mansha Shaikh Muhammad Jawed 2.3.1(a) Executives 2.3.2 a) b) c) Associated Companies, undertakings & related parties MCB Bank Limited - Treasury Nishat Mills Limited Nishat (Aziz Avenue) Hotels and Properties Limited Shares held Percentage 1 1 1 1 1 1 1 1 16,797 7,073 60,335 7,073 2,500 40,000 2,500 2,500 0.005 0.002 0.017 0.002 0.001 0.011 0.001 0.001 1 104 0.000 2 1 1 70,861,241 102,809 1,203,000 20.246 0.029 0.344 - - 2.3.3 NIT and ICP 2.3.4 Banks, Development Finance Institutions, Non-Banking Finance Companies 14 6,615,442 1.890 2.3.5 Insurance Companies 10 29,888,462 8.540 2.3.6 Modarabas and Mutual Funds 20 9,824,844 2.807 a) Local-Individuals b) Foreign Individuals c) Foreign Companies/organizations(on repatriable basis) 4,135 13 13 87,761,205 3,302,900 25.075 0.944 11,777,372 3.365 2.3.9 Others: (Joint Stock Cos., Pension/Provident Funds etc.) 157 4,375 128,523,843 350,000,000 36.721 100.000 2.3.7 Shareholders holding 5% or more voting interest (reflected in relevant category, reference given) i) MCB Bank Ltd (2.3.2a) 70,861,241 20.246 ii) Trustee-MCB Employees Pension Fund(2.3.9) 37,970,369 10.849 iii) Security General Insurance Co Ltd (2.3.5) 27,771,587 7.935 iv) D.G. Khan Cement Company Limited (2.3.9) 27,877,735 7.965 v) Anjum Nisar (2.3.8a) 19,213,878 5.490 2.3.8 General Public IMRAN MAQBOOL Director MUHAMMAD ALI ZEB Managing Director & Chief Executive Officer Annual Report 2021 401
- FOR YOUR IMMEDIATE ACTION E-dividend mandate form for shareholders of Adamjee Insuracne Company Limited in Compliance of Section 242 of the Companies Act 2017 Please fill the following details & forward by e-mail/letter to any of the following three (not to AICL): 1. Investor Account Services - Central Depository Company of Pakistan Limited. If you have an investor account in CDC, the email is mentioned below. 2. In case of a sub account with any of the broker participants, kindly convey information to your broker participant. 3. In case of Physical Shares, by post at the following address: CDC Share Registrar Services Ltd Share Registrar Adamjee Insurance Company Limited CDC House, 99-B, Block B, S.M.C.H.S., Main Shahrah-e-Faisal, Karachi - 74400 Participant ID Investor / Sub Account No. Folio In case of Physical Shareholder Title of Account IBAN Number Bank Name Branch Branch Address Mobile Number Email address Authorized Signatories (to be signed as per operating instruction) 1) 2) 3) 4) For information: A) IBAN Number (24 Digit) : PK37 HABB 0000 0700 3333 9999 B) E-mail Investor Account Services CDC : ias-khi@cdcpak.com C) CDC Participant : in case of a sub account with any of the broker participants, kindly convey information to your broker participants. For receipt of future dividend, the submission of this form is mandatory. Form also available on website: www.adamjeeinsaurance.com www.adamjeeinsaurance.com Annual Report 2021 402
- ADAMJEE INSURANCE COMPANY LIMITED Registered Office : Adamjee House, 80/A, E-1, Main Boulevard, Gulberg-III, Lahore. Form of Proxy I/We _______________________________________________________ of ___________________________________________________ being a member of Adamjee Insurance Company Limited and holder of __________________________ shares as per Folio No. _______________________________ CDC Participant ID No. ________________________ and Sub Account No. _______________________ / CDC Investors Account No. _____________________ hereby appoint Mr./Miss/Mrs. ____________________________________________ of ______________________________ (Folio No _________________CDC Participant ID No. ____________________ and Sub Account No. __________________ / CDC Investors Account No. _____________________) or failing him Mr./Miss/Mrs. _______________________________________ of ______________________ (Folio No. _____________CDC Participant ID No. ______________and Sub Account No. _________________ / CDC Investors Account No. ________________________ ) as my/our Proxy to attend, speak and vote for me/us and on my/our behalf at the 61th Annual General Meeting of the Company to be held on April 28, 2022 (Thursday) at 10:00 AM at Registered Office of the Company through video link facility and any adjournment thereof. Signed this .__________________ day of ________________ 2022 Witness 1: Signature _________________________________________ Name ____________________________________________ CNIC No. or Passport No. ___________________________ Rupees Five Revenue Stamp Address __________________________________________ Witness 2: Signature _________________________________________ Name ____________________________________________ CNIC No. or Passport No. ___________________________ Address __________________________________________ Signature of Member Notes 1. A member entitled to attend and vote at this meeting may appoint any other member as his/her proxy to attend and vote. The Instrument appointing a proxy and the power of attorney or other authority under which it is signed or a notarial attested copy of the power of attorney must be deposited at the registered office of the Company at least 48 hours before the time of the meeting. A proxy must be a member of the company. A Company or a Corporation being a member of the Company may appoint a representative through a resolution of board of directors for attending and voting at the meeting. 2. Members, who have deposited their shares into Central Depositary Company of Pakistan Limited, are being advised to bring their original National Identity Cards along with CDC Participant ID and account number at the meeting venue. 3. Members who have deposited their shares into Central Depository Company of Pakistan Limited (“CDC”) will further have to follow the under mentioned guidelines as laid down by the Securities and Exchange Commission of Pakistan in Circular No 1 of 2000. A. B. For Attending the Meeting i. In case of Individuals, the account holder and/or sub-account holder whose registration details are uploaded as per the CDC Regulations, shall authenticate his/her identity by showing his/her original CNIC or, original Passport at the time of attending the Meeting. ii. In case of corporate entity, the Board’s resolution / power of attorney with specimen signature of the nominee shall be produced (unless it has been provided earlier) at the time of the Meeting. For Appointing Proxies i. In case of individuals, the account holder and/or sub-account holder whose registration details are uploaded as per the CDC Regulations, shall submit the proxy form as per above requirements . ii. The proxy form shall be witnessed by two persons, whose names, addresses and CNIC numbers shall be mentioned on the form. iii. Attested copies of the CNIC or the passport of beneficial owners and the proxy shall be furnished with the proxy form. iv. The proxy shall produce his original CNIC or original passport at the time of the Meeting. v. In case of corporate entity, the Board’s resolution / power of attorney with specimen signature shall be furnished (unless it has been provided earlier) along with proxy form to the Company. Annual Report 2021 403
- ر وز ات ر 28ا / ر د 2022 10ر و وا 61و ا س م ۔ 2022 اہ 1 رٹ اہ 2 404 رٹ Annual Report 2021 ، ڈ آ ،ر اور ووٹ د ے /رے ے
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