Allianz EFU Health Insurance Limited Report of the

Allianz EFU Health Insurance Limited

Allianz EFU Health Insurance Limited Report of the Directors to Members For the Year Ended December 31, 2018

The Board of Directors of Allianz EFU Health Insurance Limited is pleased to present the Nineteenth Annual Report together with the Audited Financial Statements of the Company for the year ended December 31, 2018. COMPANY PERFORMANCE Total Gross Premium for the year (including Takaful Contribution of Rs. 70 million) was Rs. 2,096 million (USD 15.10 million) compared to Rs 1,989 million (including Takaful Contribution of Rs. 42 million) (USD 14.32 million) last year, an increase of 5%. Of this Total Premium, Individual Health Business (including Takaful Contribution of Rs. 1 million) was Rs 27 million (USD 0.19 million), CLAIMS RATIO The overall Claims Ratio (including Experience Refund & Takaful claims) has increased from 76% (2017) to 80% (2018). On sequential basis, the Claim Ratio for 4th Quarter was 82.67% as compared to 76.47% in 3rd Quarter 2018, 74.51% in 2nd Quarter 2018 & 85.88% in 1st Quarter 2018. MANAGEMENT EXPENSES The Management expenses for the year (including Takaful Operator Fund Management expenses of Rs. 8 million) increased to Rs. 295 million (USD 2.12 million) from Rs. 286 million (USD 2.06 million) (including Takaful Operator Fund Management expenses of Rs. 8 million), an increase of 3%. INVESTMENT The total investment at fair value as on December 31, 2018 (including Takaful investment of Rs. 57 million) stood at Rs. 753 million (USD 5.42 million). In view of the applicability of the Insurance Rules, 2017 (the Rules) issued by Securities and Exchange Commission of Pakistan, the Company has recorded its investment at fair value. The unrealized loss as on December 31, 2018 (net of deferred tax) was Rs. 11.75 million (USD 0.08 million).

The investment income (including Takaful investment income of Rs. 3 million) was Rs. 24 million (USD 0.17 million) compared to Rs. 46 million (including Takaful investment income of Rs. 2 million) (USD 0.33 million) during last year. The drop in investment income is primarily due to capital loss of Rs. 29.5 million (USD 0.21 million) in equity investments. CREDIT RATING Our Company is rated by JCR-VIS and has been assigned a rating of A+ with stable outlook. SALES TAX ON HEALTH INSURANCE The external auditors of the Company, M/s. KPMG Taseer Hadi & Co., Chartered Accountants, Karachi, have issued a qualified opinion in their audit report in respect of the Company not recording a liability for sales tax on health insurance premium in the financial statements for the period July 01, 2016 to December 31, 2018. The exemption for sales tax on health insurance premium granted by Sindh Revenue Authority (“SRB”) has expired on June 30, 2016 and Punjab Revenue Authority (“PRA”) has also introduced sales tax on health insurance premium effective from November 01, 2018. The qualified opinion sates as follows: Basis for Qualified Opinion

As more fully explained in note 28.2.9 to the financial statements, sales tax liability of Rs. 329.5 million has not been recorded in the financial statements as of 31 December 2018. This amount has not been

Allianz EFU Health Insurance Limited Report of the Directors to Members For the Year Ended December 31, 2018 charged by the company to its customers since the matter of the renewal of exemption is under discussion with the sales tax authorities. IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’ requires that provision should be recognized when the entity has a present legal obligation as a result of past event. Accordingly, had the above liability been recorded, profit for the year and equity of the Company as of 31 December 2018 would have reduced by Rs. 136.5 million and Rs 329.5 million respectively, while the sales tax liability would had increased by Rs. 329.5 million. Order – Sindh Revenue Board Further, on 26 September 2018, SRB issued an order to the Company demanding SST of Rs. 325 million on account of failure to collect SST on health insurance business of the company for the period from July 2016 to September 2017 (which figure is higher than the above cumulative figure as this is based on certain approximations and also includes the policies written in the Punjab Province). Further penalty of Rs. 16.258 million was also imposed for default in the payment of due amount of SST. However the company has filed an appeal against the said order and has also obtained a stay order to restrain SRB from taking any coercive action. Current Status of Sales Tax on Health Insurance Company is of the view that the levy of sales tax on health insurance business is not fair and is unjust. The matter for the renewal of the exemption was taken up at the collective level by the Insurance Association of Pakistan (IAP) with the sales tax authorities. Further, the Sindh Cabinet in its meeting held on February 27, 2019 has also deferred the levy of taxes on Health and Life Insurance premium till the next financial year. The Company has also sought a legal opinion from the legal counsel and based on his opinion and, the Company has not billed sales tax on health insurance premium to its customers amounted to Rs. 329.5 million. Based on the IAP’s discussions with the sales tax authorities, the decision of the Sindh Cabinet and the legal opinion, we are hopeful that the exemption will be granted. Accordingly, the provision against sales tax liability has not made by the Company in these financial statements. FINANCIAL RESULT The Company made a pre-tax profit of Rs. 77 million (USD 0.55 million) as compared to Rs 122 million (USD 0.88 million) in 2017 and after tax profit of Rs 57 million (USD 0.41 million) as compared to Rs 84 million (USD 0.60 million) in 2017. This fall in profit for the years ended December 31, 2018 & December 31, 2017 compared to previous years is primarily attributable to the capital loss on sale of investments (explained above) and new investment in fixed income securities yielding lower returns. APPROPRIATION AND DIVIDEND The Board of Directors has recommended cash dividend of Rs. 1/- i.e. 10 % per share to the shareholders whose names appear in the register of the Company at the close of business on April 18, 2019. FUTURE OUTLOOK We will continue to focus on procuring/renewing businesses which can be managed profitably and shed those which we feel we cannot.

Allianz EFU Health Insurance Limited Report of the Directors to Members For the Year Ended December 31, 2018 As for the Individual health insurance line of business, we will focus on identifying new distribution channels by broadening our bancassurance partnerships. We will explore the possibility of entering into Micro Health Insurance via Micro Finance Banks and Telecommunication Companies. CODE OF CORPORATE GOVERNANCE The requirement of the Code of Corporate Governance as set out by Securities and Exchange Commission of Pakistan for Insurance Companies for the year ended December 31, 2018 have been duly complied with. A statement to this effect is annexed with the report. As required under the Code of Corporate Governance for Insurance Companies, the Directors are pleased to state as follows: The financial statements, prepared by the Management of the Company present fairly its state of affairs, the results

of its operations, cash flows and changes in equity. Proper books of accounts of the Company have been maintained. Appropriate accounting policies have been consistently applied in preparation of financial statements and

accounting estimates are based on reasonable and prudent judgment. International Accounting Standards, as applicable in Pakistan, have been followed in preparation of financial

statements and any departure there from has been adequately disclosed. The sound system of internal controls has been effectively implemented and monitored. These are being

continuously reviewed so that any weakness in the controls could be removed immediately. There are no significant doubts upon the Company’s ability to continue as a going concern There has been no material departure from the best practices of Corporate Governance. Key operating and financial data for the last 6 years is included in the report. The market value of investments made by the Staff Provident Fund as at 31 December 2018 was Rs. 89.04 million. The statement of the pattern of shareholding in the Company as at December 31, 2018 is annexed with the report. The earning per share for the year 2018 was Rs 1.14 (USD 0.008) {2017: earning per share of Rs 1.68 (USD

0.012)}. The number of meetings attended by each Director/CEO/CFO/Corporate Secretary was as follows:


BOARD COMMITTEES Your Company has following Board Committees and composition:

Name of Executives Audit Ethics, Human

Resource & Remuneration

Investment

Mr. Saifuddin N. Zoomkawala √ √ √ Mr. Taher G. Sachak √ √ Mr. Rafique R. Bhimjee √ √ Mr. Shahabuddin C. Subjally √ Mr. Hasanali Abdullah √ √ Mr. Akhtar Kurban Alavi √ √ Mr. Nooruddin Jaffer Ali √ MANAGEMENT COMMITTEE As part of the Corporate Governance, your Company maintains following four management committees which meet at least once every quarter:

1. Underwriting Committee 2. Claim Settlement Committee 3. Reinsurance & Co-insurance Committee 4. Risk Management & Compliance Committee

Name Position Number of Meetings Attended Saifuddin N. Zoomkawala Chairman 3 out of 4 Taher G. Sachak Vice Chairman 4 out of 4 Akhtar Kurban Alavi Chief Executive 4 out of 4 Heinz Walter Dollberg Director 2 out of 4 Rafique R. Bhimjee Director 4 out of 4 Shahabuddin C. Subjally Director 3 out of 4 Hasanali Abdullah Director 4 out of 4 Muneer R. Bhimjee Director 3 out of 4 Mahmood Lotia Director 2 out of 4 Nooruddin Jaffer Ali / Amjed Bahadur Ali (Resigned)

Chief Financial Officer & Corporate Secretary

4 out of 4

Leave of absence was granted to Directors who could not attend the Board Meetings.

Allianz EFU Health Insurance Limited Report of the Directors to Members For the Year Ended December 31, 2018 COMPANY AUDITORS On the recommendations of the Audit Committee, the Board of Directors proposes appointing KPMG Taseer Hadi & Co. Chartered Accountants as statutory auditors of the Company for the next term. ACKNOWLEDGEMENT The Directors would like to place on record their appreciation to all members of staff and field force for their support and contribution to the development and growth of the Company. The Board of Directors would also like to thank its valued customers, Allianz SE, EFU General Insurance Limited and EFU Life Assurance Limited for their continuous guidance and support.

Director Director Chief Executive Chairman Karachi: March 29, 2019

Allianz EFU Health Insurance Limited Report of the Directors to Members For the Year Ended December 31, 2018 Pattern of Shareholding

Number of Shareholders Shareholdings

Shares held From To

2 1 166 332 1 167 500 500 1 501 833 833 1 834 44,996 44,996 1 44,997 844,996 844,996 1 844,997 3,618,996 3,618,996 1 3,618,997 4,000,496 4,000,496 1 4,000,497 4,990,000 4,990,000 1 4,990,001 11,999,017 11,999,017 1 11,999,018 24,499,834 24,499,834

11 Total 50,000,000 Information as required under the Code of Corporate Governance

Categories of Shareholders Shareholders Shares held Percentage

Associated companies, undertakings and related parties Allianz SE 24,499,834 EFU Services (Private) Limited 11,999,017 Jahangir Siddiqui & Sons Ltd 4,990,000 Jahangir Siddiqui 3,618,996 4 45,107,847 90.22 CEO, Directors, their Spouses and minor children Saifuddin N. Zoomkawala 4,000,496 Rafique R. Bhimjee 844,996 Hasanali Abdullah 44,996 Muneer R. Bhimjee [Nominee of EFU Services (Pvt.) Ltd]

833

Mahmood Lotia 500 Shahabuddin C. Subjally [Nominee of EFU Services (Pvt.) Ltd]

166

Heinz Walter Dollberg [Nominee of Allianz SE]

166

7 4,892,153 9.78 Total 11 50,000,000 100 Shareholders holding 5% or more voting interest Allianz SE 24,499,834 49.00 EFU Services (Private) Limited 11,999,017 24.00 Jahangir Siddiqui & Sons Ltd 4,990,000 9.98 Saifuddin N. Zoomkawala 4,000,496 8.00 Jahangir Siddiqui 3,618,996 7.24


Years KEY FINANCIAL DATA 2018 2017 2016 2015 2014 2013 PKR in million

Gross Premium Written / Contribution

2,096 1,989 2,005 1,665 1,493 1,294

Net Premium / Contribution Revenue

1,387 1,247 1,286 1,027 995 798

Investment Income

24 46 111 123 101 87

Profit before Tax

77 122 217 230 234 183

Investments

753

812 (restated)

889

(restated) 910 759 757

Cash & Bank Balances

131 47 91 67 41 34

Total Assets

1,814

1,821 (restated)

1,775

(restated)1,581 1,349 1,266

Allianz EFU Health Insurance Limited

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Allianz EFU Health Insurance Limited Report of the