Arab Re Annual Report · Mr. Jamil Bakri Heads of Departments Managers Arab Reinsurance Pool Mr. Moh’d Naji Ahmed Mr. Mohamed Hammoud Mr. Salim Zeidan Mr. Khaled Hawwa Ms. Rima

Independent

Auditor's

Report

Letter

From The

Chairman

Board of

DirectorsManagement Board of

Directors’

Report

Balance Sheet Notes to

Financial

Statements

Cash Flow

Statement

Statement of

Changes in

Equity

Income

Statement

Shareholders

Dear Shareholders,

It gives me pleasure to present to the Shareholders of Arab Reinsurance Company a report on its activities along with the financial statements on

its achievements during the year ended 31/12/2008. In this report, I will be dwelling on the most important financial, technical and administrative

developments that have taken place during the reporting period.

These developments, as will be noticed, have transpired into satisfactory results in all aspects leading to the achievement of a noticeable increase

in the net profit for the year compared to the previous year, despite the political environment that has prevailed in Lebanon and the tough

international financial economic crisis which hit the world in the last year’s quarter, repercussions of which will be felt in many sectors and for

many years to come. This increase in net profit is attributable to the strategy that has been adopted by the Board of Directors and diligently

implemented by the executive management of the Company. The key features of this strategy were geographical diversification in written

business, as well as in investment portfolio. The following clarifications and policy invariables will shed more light on our strategy:

1. The portfolio of Arab Re comprises of inward reinsurance business from all Arab insurance markets, as well as neighboring markets in

the Afro-Asian area. This portfolio is handled and serviced by a highly qualified technical team, enjoying a good expertise in marketing,

investment and actuarial sciences. Its volume has been steadily growing over the preceding few years, in spite of the company’s

commitment to its cautious underwriting policy, based on geographical diversification and good underwriting criteria.

2. Implementing the policy and guidelines adopted by the Board of Directors with respect to the financial and investment spheres, the

executive management of the Company have sought after and succeeded in maintaining an equitable return on our investments, through

diversification and redistribution of investments in many regions, currencies and sectors, thus yielding a satisfactory return amounting to

7.68%. The adequacy between investment periods and the financial needs of the company were taken into consideration. In fact, our

investment policy prevented losses which could have influenced the income development. However, in the next phase, we are compelled

by the international crisis to adopt an investment policy which shall avoid the crisis’ implications. Moreover, bringing competent and

experienced new blood to the Company’s investment section is another important factor that helps to maintain adequate investment

returns, and to increase them afterwards.

3. The follow-up of the Board of Directors regarding the performance of the executive management in the fields of training, development,

and participation in scientific seminars, as well as recruiting experienced elements, lead to the development of the Company’s technical,

financial and administrative business. Furthermore, the Audit Committee’s follow-up and effort, and the internal audit section’s

commitment to the charter of internal audit, resulted in effectively controlling and coordinating among all the Company’s departments;

consequently introducing a new trait, which is an essential and positive point in the study of companies’ rating worldwide.

Letter From The Chairman

The full coordination between the Board of Directors and the executive management, and the continuous support of our Shareholders, helped the

Company to achieve more growth in its portfolio, maintain an excellent liquidity level and improve its international rating rationale.

Based on the above-mentioned positive developments, and on the success in overcoming difficulties, reflected in the numbers and profits achieved

in the attached financial statements, I would like to stress that we are confident of the bright future of the Company, and I am strongly hopeful that

our Company will record better rates of growth and profitability in year 2009, insha’Allah.

At last, I would like to express to our Shareholders and Board’s Members my sincere thanks and appreciation for their support and cooperation to

the executive management. I also take this opportunity to thank the executive management and staff for their good efforts during the year. Our

thanks are also due to financial institutions, to our consultants and to the Company’s clients in the insurance and reinsurance markets.

Peace be upon you and God bless.

Khaldoun Barakat

Chairman of the Board

Letter From The Chairman

Board of Directors

Vice Chairman

Member

Member

Member

Member

Member

Member

Member

Chairman

Sheikh Khaldoun Barakat

Chairman and General Manager

Red Sea Insurance Company

(Saudi Arabia)

Mr. Tanous Feghali


General Insurance Company for the Near East

Al Ittihad Al Watani

(Lebanon)

Mr. Suleiman El Hassan


Syrian Insurance Company

(Syria)

Mr. Khaled El-Hasan

CEO & Managing Director

Gulf Insurance Company

(Kuwait)

Mr. Ahmad Zinoun

Managing Director

Société Centrale de Réassurance

(Morocco)

Mr. Seba Hadj Mohamed


Compagnie Centrale de Réassurance

(Algeria)

Mr. Abdullah R. Ibraheem

Chairman & General Manager

Iraq Reinsurance Company

(Iraq)

Mr. Mahmoud Suleiman Alkharraz

Delegated member

Libya Insurance Company

(Libya)

Mr. Adel Fattouh Hammad

Chairman & Delegated Member

Misr Insurance Company

(Egypt)

Management

Sheikh Khaldoun BarakatChairman

Mr. Tannous FeghaliVice-Chairman

Mr. Tayseer TrekyDeputy General Manager

Mr. Salim Kojok Mr. Khalil HouraniMr. Zouhair DaoudFinancial ControllerAssistant General Manager

(Administration)

Assistant General Manager

(Finance)

Ms. Karen BitarAssistant General Manager

(Marketing)

Management

Mr. Jamil Bakri

Heads of Departments

Managers Arab Reinsurance Pool

Mr. Salim ZeidanMr. Mohamed HammoudMr. Moh’d Naji Ahmed

Mr. Khaled Hawwa

Ms. Rima El-Osta

Deputy Manager

Financial Accounts

Technical

Technical Accounts

Financial AccountsTechnical

Ms. Basma Barakat

Technical

Mr. Ibrahim Yassin

Internal Audit

For the Financial Year Ended December 31,2008

Report of the Board of Directors

Dear Shareholders,

The Board of Directors of Arab Reinsurance Company is pleased to submit to you its 36th Annual Report for the year ended December 31, 2008, together with the balance

sheet as at December 31, 2008 and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant

accounting policies and other explanatory notes. The report and statements were prepared in accordance with the International Financial Reporting Standards (IFRS).

Our Company continues to achieve positive results. Our net profit from the technical and financial operations, as reflected in the accompanying financial statements, has

amounted to USD 9.5 million, compared to USD 8.4 million in the previous year. The result of year 2008 was achieved despite the facts that USD 1.3 million was allocated as

provision for doubtful debts, interest on term deposits and the return on bonds declined in the international and local markets, the world financial and economic crisis which

prevailed in the last quarter of 2008, in addition to several severe extra-ordinary losses which were reported during the period under review.

The continued growth in our business portfolio is being looked at with full satisfaction and appreciation because the achieved rate of growth is within our budgeted figure. On

the other hand, we would like to emphasize that the management of our Company is following, and will continue to follow, conservative underwriting policy and guidelines

as set by our Board of Directors which instruct the management to focus on the business emanating from Arab Insurance Markets at this stage, taking into consideration that

the management has started to expand in selective insurance markets in Asia and Africa after it fulfilled the necessary technical and administrative arrangements.

Our future plan aims at achieving an annual growth in our premium income of around 7% without compromising the fundamentals of our underwriting policy. We believe

that this percentage is considered to be reasonable taking into account the intensity of competition for reinsurance business emanating from our markets in addition to the

regression effects of the world financial and economic crisis. Still, we strongly hope that through increasing and diversifying our Company's portfolio in addition to increasing

the volume of our invested funds, we will be able to achieve our projected growth and improve the return thereon.

In year 2008, our Company managed to maintain its B+ (Very good) rating assigned to it by A.M. Best Co. However, a careful reading of the detailed report would reveal

that our Company has scored several positive points, in spite of the prevailing circumstances in Lebanon. We hope to have our rating upgraded in the future based on our

positive expectations for the coming years and depending mainly on the upgrade of the sovereign rating of the Lebanese Republic.

Our Company has continued the follow-up and implementation of its comprehensive development plan, as adopted by our Board of Directors including, but not limited to,

intensive investment in the field of human resources development and seeking distinguished expertise in various fields.

Finally, we would like to express to our clients and to our Shareholders, our sincere thanks and appreciation for their support and cooperation. We also take this opportunity to

thank our staff on their untiring efforts and commendable performance.

May God bless our efforts and we hope that you will find our audited financial statements, relating to our Company’s results for the year ended December 31, 2008, to be

satisfactory.

Board of Directors



1) Operating Activities

a) Gross Premium Income (GPI)

GPI in 2008 was USD 65,005,573 compared to USD 58,073,411in the previous year.

GPI generated from the Arab markets represented 86% of our portfolio.

The following table shows the GPI for each class of business in 2008 compared to 2007:

Branch 2008 2007 Increase(Decrease) %

Marine

Cargo 8,917,147 7,866,173 13.36

Hull 4,215,510 3,416,510 23.39

Aviation 86,788 82,118 5.69

Total Marine 13,219,445 11,364,801 16.32

Non-Marine

Fire 22,796,793 23,053,426 (1.11)

General Accident 13,713,603 11,044,458 24.17

Engineering 14,997,846 12,260,692 22.32

Total Non-Marine 51,508,242 46,358,576 11.11

Life 277,886 350,034 (20.61)

Total Gross Premium 65,005,573 58,073,411 11.94

Currency: US Dollars 2008

2007

Gross Premium Distribution

Fire

35.1%

Accident

21.1%

Engineering

23.1%

Life

0.4%Cargo

13.7% Hull

6.5%

Aviation

0.1%



b) Retained Premiums

The Company retains various percentages of its acceptances in the various reinsurance classes. This retention is protected by appropriate

Excess of Loss covers. Retained premiums in all classes during the period under review amounted to USD 49,065,052 representing 75.5% of

GPI compared to USD 42,091,622 in the previous year representing 72.5% of GPI.

c) Acquisition Costs

Acquisition costs include commission, brokerage, profit commission and other costs relating to reinsurance activities. The total amount paid

during the period under review amounted to USD 19,362,522 representing 29.8% of GPI compared to USD 17,580,326 in the previous year

representing 30.3% of GPI. This continuous decrease was a result of the continuous increase of acceptances in facultative reinsurance and

non-proportional reinsurance treaties which are characterized with lower commissions in comparison with other types of treaties.

d) Claims Paid

Total claims paid during 2008 amounted to USD 35,283,010 compared to USD 30,421,434 in the previous year representing an increase of

16%. This increase was as a result of settling several losses in the previous year, reserved for earlier, in addition to settling several losses in the

period under review.

The Company’s retention (net of our retrocessionnaires’ share) of paid claims was USD 24,470,039 compared to USD 21,697,927 in the

previous year representing an increase of 12.8%.

The claims paid during the period under review represent 49.9% of retained premium compared to 51.5% in the previous year.

e) Technical Provisions

Technical provisions at the end of year 2008 amounted to USD 53,215,000 compared to USD 45,715,000 in the previous year with an increase

of USD 7,500,000 representing 16.4%. These provisions represent 108.0% of the retained premiums in 2008.

The following table shows the technical provisions in 2008 compared to 2007:

Currency: US Dollars

Technical Provisions 2008 2007

Provision for Unearned Premiums 16,715,000 15,215,000

Provision for Outstanding Claims 36,500,000 30,500,000

Total 53,215,000 45,715,000

The provision for outstanding claims includes claims incurred but not reported (IBNR) amounted to USD 6,500,000 compared to USD

5,750,000 in the previous year.

108.0%109.0%

124.2%132.7%126.3%

20082007200620052004



Technical Provisions to Retained Premiums

f) Result of Reinsurance Activities

For the year under review, our Company recorded a technical profit amounting to USD 573,988 compared to a profit amounting to USD

294,103 in the previous year.

The breakdown being as follows:


BranchReinsurance Result

2008 2007

Marine 1,729,530 1,098,137

Non-Marine (1,395,359) (1,023,056)

Life 239,817 219,022

Total 573,988 294,103



2) Investments

Cash at banks, bank term deposits and investments in securities including accrued interest receivable and cumulative change in fair value of

available-for-sale securities amounted to USD 117,639,755 in 2008 compared to USD 111,758,653 in 2007 with an increase of USD 5,881,102

representing 5.0%.

It is worth mentioning that all of the Company’s investments in term deposits are maintained with non-resident banks and financial institutions.

During the year under review, our Company’s investment income amounted to USD 9,031,489 compared to USD 8,359,167 in the previous year.

3) General and Administrative Expenses

These expenses amounted to USD 3,100,759 in 2008 compared to USD 2,478,542 in 2007 with an increase of USD 622,217 representing 25.1%.

4) Results of the Financial Year

The Board of directors, in its meeting held on February 26, 2009 decided to appropriate the net income of the financial year ended December 31,

2008, subject to the approval of the General Assembly of the Company’s Shareholders, as follows:


2008

Net income for the year 9,536,245

Proposed appropriations:

- Transfer to capital reserve at 10% 953,625

- Distribution of dividends at 5% of paid up capital as at December 31, 2008 as a first allotment according to Company's by-laws 2,500,000

- Distribution of dividends at 5% of paid up capital as at December 31, 2008 as an additional allotment 2,500,000

Total proposed appropriations 5,953,625

Net balance after proposed appropriations to be carried forward to retained earnings account 3,582,620



The appropriations of net income, except for the transfer to capital reserve, are subject to the approval of the General Assembly of the

Company’s Shareholders which will be held to approve the financial statements for the year ended December 31, 2008.

According to Article 60 of the Company’s by-laws, 10% of the annual net income should be transferred to capital reserve until the total of this

reserve becomes equal to the Company’s capital. This reserve includes the legal reserve required according to Article 165 of the Lebanese Code

of Commerce. This reserve is not available for distribution to Shareholders.

Annual Growth of Company's Profit

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

2004 2005 2006 2007 2008

BT 4288/DTT

To the Shareholders

Arab Reinsurance Company S.A.L. (Inter-Arab Company)

Beirut, Lebanon

We have audited the accompanying financial statements of Arab Reinsurance Company S.A.L. (Inter-Arab Company), which comprise the

balance sheet as at December 31, 2008, and the income statement, statement of changes in equity and cash flow statement for the year then ended,

and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial

Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair

presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate

accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with

International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures

selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due

to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation

of the financial statements 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and

the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of Arab Reinsurance Company S.A.L. (Inter-

Arab Company) as of December 31, 2008, and its financial performance and its cash flows for the year then ended in accordance with

International Financial Reporting Standards.

Beirut, Lebanon

February 26, 2009 Deloitte & Touche

Independent Auditor’s Report

Balance SheetArab Reinsurance Company SAL (Inter-Arab Company)

December 31,

ASSETS Notes 2008 2007

USD USD

Cash and cash equivalents 5 24,376,513 20,058,036

Bank term deposits, with an original maturity of more than 3 months 6 36,536,161 43,853,301

Investments in securities:

-Held to maturity 7 40,748,846 35,821,950

-Available for sale 7 15,978,235 12,025,366

Receivables from insurance and reinsurance companies:

-Reinsurance recoverable on outstanding claims 8 16,000,000 16,000,000

-Receivables arising from reinsurance contracts 9 8,426,199 8,454,121

-Accounts retained by ceding companies 10 20,224,326 17,018,694

Prepayments and other assets 11 108,415 141,776

Property and equipment 12 3,537,286 3,594,165

Total Assets 165,935,981 156,967,409

LIABILITIES

Technical Provisions:

-Unearned premium 13 16,715,000 15,215,000

-Outstanding claims 13 52,500,000 46,500,000

Payables to insurance and reinsurance companies:

-Payables arising from reinsurance contracts 4,130,337 3,142,962

-Regularization accounts 574,036 839,369

-Accounts retained on outward reinsurance business 14 12,178,189 10,545,474

Accrued liabilities and other credit balances 15 3,319,784 4,150,437

Total Liabilities 89,417,346 80,393,242

EQUITY

Capital 22 50,000,000 50,000,000

Capital reserve 20 8,200,591 7,355,876

General reserve 4,500,000 4,500,000

Cumulative change in fair value of available-for-sale securities 7 (832,384) 1,259,393

Retained earnings carried forward 5,114,183 5,011,744

Net profit for the year 20 9,536,245 8,447,154

Total equity 76,518,635 76,574,167

Total Liabilities and Equity 165,935,981 156,967,409

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Income StatementYear Ended December 31,

Notes 2008 2007

USD USD

Inward premium 65,005,573 58,073,411

Premium ceded to reinsurance (15,940,521) (15,981,789)

Net premium earned 49,065,052 42,091,622

Change in provision for unearned premium 13 (1,500,000) (3,500,000)

Commission income from outward business 5,102,407 5,421,717

Gross reinsurance income 52,667,459 44,013,339

Net interest income from reserves retained by cedants 273,924 273,225

Net (loss)/gain in exchange from technical operations (80,525) 244,486

Total reinsurance revenues 16 52,860,858 44,531,050

Claims incurred 35,283,010 30,421,434

Outward reinsurance share (10,812,973) (8,723,507)

Net claims incurred 24,470,037 21,697,927

Change in outstanding claims 13 6,000,000 3,000,000

Inward premium acquisition costs 19,362,522 17,580,326

Reinsurance share of general and administrative expenses 19 2,454,311 1,598,694

Total reinsurance expenses 16 52,286,870 44,236,947

Net reinsurance income 573,988 294,103

Provisions for bad and doubtful debts & debts written off 9 (1,334,174) (500,000)

Investment income 17 9,031,489 8,359,167

Other income 18 2,123,660 772,850

Gain in exchange from operations (162,260) 252,882

General and administrative expenses from operations 19 (646,448) (519,848)

Profit before income tax 9,586,255 8,659,154

Income tax 15 (50,010) (212,000)

Net profit for the year 20 9,536,245 8,447,154

Arab Reinsurance Company SAL (Inter-Arab Company)S

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Statement of Changes in EquityArab Reinsurance Company SAL (Inter-Arab Company)

Capital

Capital

Reserve

General

Reserve

Retained

Earnings

Net Profit for

the Year

Cumulative

Change in Fair

Value of

Available-For-

Sales Securities Total

USD USD USD USD USD USD USD

Balance, January 1, 2007 40,000,000 6,585,000 4,000,000 4,773,862 7,708,758 1,508,023 64,575,643

Transfer of 2006 profit - - - 7,708,758 (7,708,758) - -

Capital increase 10,000,000 - - - - - 10,000,000

Appropriation of 2006 profit:

-Transfer to capital reserve - 770,876 - (770,876) - - -

-Dividends paid - - - (6,000,000) - - (6,000,000)

-Transfer to general reserve - - 500,000 (500,000) - - -

-Board of Directors’ remunerations - - - (200,000) - - (200,000)

Net profit for the year 2007 - - - - 8,447,154 - 8,447,154

Net change in fair value of investments (Note7) - - - - - (248,630) (248,630)

Balance, December 31, 2007 50,000,000 7,355,876 4,500,000 5,011,744 8,447,154 1,259,393 76,574,167

Transfer of 2007 profit - - - 8,447,154 (8,447,154) -

Appropriation of 2007 profit:

-Transfer to capital reserve - 844,715 - (844,715) - - -

-Dividends paid - - - (7,500,000) - - (7,500,000)

Net profit for the year 2008 - - - - 9,536,245 - 9,536,245

Net change in fair value of investments (Note 7) - - - - - (2,091,777) (2,091,777)

Balance, December 31, 2008 50,000,000 8,200,591 4,500,000 5,114,183 9,536,245 (832,384) 76,518,635

Year Ended December 31, 2008

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Cash Flow StatementArab Reinsurance Company SAL (Inter-Arab Company)

Year Ended December 31

2008 2007

USD USD

Cash flows from operating activities:

Net profit for the year 9,536,245 8,447,154

Adjustments to reconcile net profit to net cash generated by operating activities:

Amortization of discount on securities (30,482) (27,050)

Provision for bad and doubtful debts and debts written off 1,334,174 500,000

Reversal of deferred income (1,358,753) -

Provision for end-of-service indemnity 44,000 55,000

Depreciation and amortization 91,675 87,000

Gain on sale of investments in securities (1,398,201) (890,475)

Gain on sale of fixed assets (2,276) -

Provision for unearned premiums 1,500,000 3,500,000

Provision for outstanding claims 6,000,000 3,000,000

Increase in receivables arising from reinsurance contracts (1,306,252) (1,460,823)

Increase in accounts retained by ceding companies (3,205,632) (3,132,899)

Decrease in prepayments and other assets 17,919 2,061

(Increase)/decrease in accrued interest receivable on investments (186,938) 223,056

Increase in payables arising from reinsurance contracts 987,375 422,648

Decrease in regularization accounts (265,333) (405,139)

Increase in accounts retained on outward reinsurance business 1,632,715 1,235,354

Decrease in accrued liabilities and other credit balances (282,561) (217,509)

Payments of end-of-service indemnity (137,510) (57,424)

Net cash generated by operating activities 12,970,165 11,280,954

Cash flows from investing activities:

Decrease/ (increase) in term bank deposits 7,317,140 (31,820,240)

Acquisition of investments in securities (13,747,301) (7,471,436)

Proceeds from sale of fixed assets 3,000 -

Proceeds from sale of investment securities 4,391,380 5,854,822

Purchase of property and equipment (19,209) (12,645)

Addition to deferred charges (869) (10,852)

Net cash used in investing activities (2,055,859) (33,460,351)

Cash flows from financing activities:

Payment of dividends (6,595,829) (6,000,000)

Payment of Board of Directors’ remunerations - (200,000)

Increase in capital - 10,000,000

Net cash (used in) generated by financing activities (6,595,829) 3,800,000

Net increase/ (decrease) in cash and cash equivalents 4,318,477 (18,379,397)

Cash and cash equivalents - Beginning of year 20,058,036 38,437,433

Cash and cash equivalents - End of year 24,376,513 20,058,036

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Notes To The Financial StatementsArab Reinsurance Company SAL (Inter-Arab Company)


1. ESTABLISHMENT AND OBJECTIVE OF THE COMPANY

The Company was established and licensed by a Special Presidential Decree Number 2933 on March 11, 1972 as a Lebanese joint-stock company (Inter-Arab Company) to

carry out all reinsurance and investments activities and was registered in the Commercial Register of Beirut - Lebanon under commercial registration Number 26233.

2. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

In the current year, the Company has adopted the new and revised standards and interpretations issued by the International Accounting Standards Board (IASB) and the

International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to the Company’s operations and effective for annual reporting periods

beginning on January 1, 2008. The adoption of these new and revised Standards and Interpretations did not have any significant impact on the Company’s financial statements

or changes to the Company’s accounting policies.

In addition, and as of the date of authorization of these financial statements, certain standards and interpretations were in issue but not yet effective. Management anticipates

that the adoption of these Standards and Interpretations in the related future periods will have no material financial impact on the financial statements of the Company.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance:

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS).

Basis of Preparation:

The financial statements have been prepared on the historical cost basis, except certain available-for-sale of financial instruments.

The financial statements are presented in U.S. Dollars which is the reporting currency of the Company and the primary currency of the economic environment in which the

Company operates (functional currency).

Assets and liabilities are grouped according to their nature and are listed in an approximate order that reflects their relative liquidity.

The principal accounting policies adopted are set out below:

A. Cash and Cash Equivalents:

Cash and cash equivalents comprise bank current accounts and term bank deposits with original maturities of less than 3 months from the date of placement.

B. Investment Securities:

Investment securities are initially measured at fair value plus incremental direct transaction costs, and are subsequently measured depending on their classification as either

held-to-maturity or available-for-sale.

Held-to-Maturity Investment Securities:

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company has the positive intention and

ability to hold to maturity, and which are not designated at fair value through profit or loss or available-for-sale. Held-to-maturity investments are carried at amortized cost.

Any sale or reclassification of a significant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held-to-maturity

investments as available-for-sale, and prevent the Company from classifying investment securities as held-to-maturity for the current and the following two financial years.

Held-to-maturity investment securities are carried at their amortized cost less impairment loss, if any.



Available-for-Sale Investment Securities:

Available-for-sale investments are non-derivative financial assets that are either designated as such or are not designated as another category of financial assets.

Available-for-sale investments are carried at fair value. Unrealized gains or losses arising from changes in fair value are recognized directly in equity until the

investment is derecognized or determined to be impaired at which time the cumulative changes previously recorded in equity are recognized in profit or loss.

The determination of fair values of financial instruments traded in active markets is based on quoted market prices. For financial instruments where there is no

quoted price, and where fair value is not available the instrument is kept at cost less impairment loss, if any.

C. Technical Provisions:

The Company computes its technical provisions for reinsurance operations retained for its own account as follows:

Provision for Unearned Premium

The provision for unearned premium includes premiums received for risks that have not yet expired at the balance sheet date. Generally, the risk is released

over the term of the contract and is recognized as premium income.

No provision is taken on the inward treaties that follow “clean cut system”.

Provision for Outstanding Claims

This provision is calculated on the basis of the most recent statements that are provided by the ceding companies.

Provision for Losses Incurred But Not Reported (IBNR)

This provision is estimated by the Company’s management taking into consideration the extent of response of ceding companies in sending the outstanding

claims, the Company’s previous experience in this respect and other relevant factors. This provision is included in the financial statements within the “provision

for outstanding claims”.

D. Foreign Currencies:

Transactions in currencies other than the U.S. Dollars are translated into U.S. Dollars at the rates of exchange prevailing at the dates of the transactions. At year

end, monetary assets and liabilities denominated in such currencies are retranslated into U.S. Dollars at the rates of exchange prevailing at the balance sheet

date.

Gains and losses on exchange are booked in the income statement.

E. Receivables Arising from Reinsurance Contracts:

Receivables are carried at anticipated realizable value. Doubtful debts are estimated based on the revision of all balances at the end of the year.

F. Software Cost:

Cost of computer software is amortized over a period of 3 years.

G. Property and Equipment:

Property and equipment are stated at historical cost net of accumulated depreciation and impairment loss, if any. Cost is depreciated using the straight-line

method over the estimated useful lives of these assets as follows:

Annual Depreciation Rate

Furniture 10%

Equipment 20%

Building and apartment 2%



H. Recognition of Revenue and Expenses:

Premium earned

Premium earned is recognized in income over the term of the reinsurance contract to which it relates on a pro-rata basis. Unearned premium represents the portion of net

premium relating to the unexpired period of coverage. The change in the provision for unearned premium is recognized in the income statement.

Claims incurred and provision for outstanding claims

Claims comprising amounts paid during the year and payable to contract holders and third parties at the end of the year, incurred but not reported claims and related loss

adjustment expenses, net of salvage and other recoveries, are charged to income as incurred.

Inward premium acquisition costs

Commissions paid to insurance companies incurred in relation to the acquisition and renewal of contracts are amortized over the terms of the re-contracts to which they relate

as premiums are earned.

Commissions earned

Commissions earned from outward reinsurance business are recognized at the time of recognition of the related premiums.

Reinsurance ceded

Reinsurance ceded and claim recoveries under outward reinsurance treaties are recognized in the same period as the related premiums and claims.

Investment Income

Investment income mainly comprises interest, dividend income, and realized capital gains and losses on sale of investments. Financial income is stated net of direct charges.

Interest income is recognized in the income statement on an accrual basis. Interest includes interest earned on bank deposits and debt securities. Dividend income is

recognized when it is declared. Realized gains and losses on investments are calculated as the difference between net sales proceeds and the carrying value of investments.

Fair value gains and losses on investments disposed of which were previously recognized in equity are transferred to the income statement. The discounts earned on the

acquisition of the investment securities are amortized over the terms of the investment securities and recorded net of the related interest earned.

Rental Income

Rental income arising from operating leases of leased property is recognized on a straight-line basis over the term of the lease.

I. Provision for End-of-Service Indemnity:

The Company provides for employees’ end-of-service indemnities in accordance with the related internal employment National Social Security Fund regulations or in

accordance with the terms and conditions of the contracts. The Company settles end-of-service indemnity contributions to the National Social Security Fund on the basis of 8

percent of the employees’ benefits. However, upon completion of twenty years of service or upon termination of employment and for those employees wishing to settle their

account with the Fund, the related indemnities are computed on the basis of last salary paid times the number of years of service. Differences between indemnities due and

contributions already paid are settled to the Fund at that time. In this connection, the Company follows the policy of accruing for the indicated differences on a current and

undiscounted basis and recorded to the provision for end-of-service indemnity account.

The Company has also provided for end-of-service indemnities for employees that are not registered to the National Social Security Fund, the related indemnities are

computed on the basis of last salary paid times the number of years of service.

J. Income Tax:

Income tax is computed at 15% of profit that is calculated on the basis of 5% of inward premiums generated in Lebanon and other operating income, in accordance with the

local requirements.


Year Ended December 31, 2008K. Impairment of Financial Assets:

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired

where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the asset, the estimated future cash flows of the

investment have been impacted.

Impairment losses on assets carried at amortized cost are measured as the difference between the carrying amount of the financial assets and the present value of estimated

future cash flows discounted at the original effective interest rate. Losses are recognized in profit or loss and reduce the carrying amount of the asset to its estimated

recoverable amount. If, in a subsequent period, the amount of the impairment loss decreases, the previously recognized impairment loss is reversed through profit or loss to

the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment

not been recognized.

In respect of available-for-sale investment securities, the previously accumulated losses recorded under equity are recognized in profit or loss in case of impairment losses

substantiated by a prolonged decline in fair value of the investment securities. Any increase in fair value subsequent to an impairment loss is not recognized in profit or loss

for available-for-sale equity securities. Any increase in fair value subsequent to an impairment loss is recognized in profit or loss for available-for-sale debt securities.

4. CRITICAL ACCOUNTING JUDGMENTS AND USE OF ESTIMATES

In the application of the accounting policies described in Note 3, management is required to make judgments, estimates and assumptions about the carrying amounts of

assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are

considered to be relevant. 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.

5. CASH AND CASH EQUIVALENTS

This caption is composed of the following:

December 31,

2008 2007

USD USD

Short term bank deposits 22,923,404 19,361,378

Banks Current Accounts 1,416,259 617,010

Accrued interest receivable 36,850 79,648

24,376,513 20,058,036

Short term bank deposits are denominated in U.S. Dollars and placed at banks with an original maturity of less than 3 months. These deposits earned an average interest

rate about 6% per annum for the year 2008 (6.94% for the year 2007).

Notes To The Financial Statements

December 31,

2008 2007

USD USD

Bank term deposits 36,198,899 43,473,076


36,536,161 43,853,301

Arab Reinsurance Company SAL (Inter-Arab Company)


6. BANK TERM DEPOSITS, WITH AN ORIGNIAL MATURITY OF MORE THAN 3 MONTHS


These deposits are denominated in U.S. Dollars and placed at banks for a period of one year from the placement date. These deposits earned an average interest rate of

about 6% per annum for the year 2008 (7.046% for the year 2007).

7. INVESTMENTS IN SECURITIES

This caption consists of the following: December 31,

2008 2007

USD USD

Held-to-Maturity:

Debt securities - Lebanese commercial banks 3,138,700 3,135,850

Lebanese Treasury Bonds 36,670,370 31,917,300

39,809,070 35,053,150


40,748,846 35,821,950

Available-for-Sale:

Listed investments at fair value 6,426,159 6,709,252

Unlisted investments 9,476,808 5,256,808

15,902,967 11,966,060


15,978,235 12,025,366



Held-to-maturity securities are denominated in U.S. Dollars and are detailed as follows:

December 31, 2008

Security Average Interest Rate Cost Unamortized Discount Amortized Cost

% USD USD USD

Lebanese Banks Debt Securities maturity as follows:

July 2010 5.000 150,000 - 150,000

December 2012 7.625 3,000,000 (11,300) 2,988,700

Lebanese Treasury Bonds maturity as follows:

October 2009 10.250 3,050,000 (1,200) 3,048,800

May 2011 7.875 7,000,000 (15,800) 6,984,200

March 2013 9.125 4,000,000 (15,745) 6,984,255

May 2014 9.000 2,000,000 - 2,000,000

April 2015 10.000 2,000,000 (25,300) 1,974,700

June 2015 8.500 750,000 (4,185) 745,815

January 2016 8.500 13,000,000 (67,400) 12,932,600

April 2021 8.250 5,000,000 - 5,000,000

39,950,000 (140,930) 39,809,070

Accrued interest receivable 939,776

40,748,846

The fair value of the held-to-maturity securities amounted to USD 39.98million as of December 31, 2008.

December 31, 2007

Security Average Interest Rate Cost Unamortized Discount Amortized Cost

% USD USD USD

Lebanese Banks Debt Securities maturity as follows:

July 2010 5.000 150,000 - 150,000

December 2012 7.625 3,000,000 (14,150) 2,985,850

Lebanese Treasury Bonds maturity as follows:

June 2008 7.375 2,000,000 (1,000) 1,999,000

October 2009 10.250 3,050,000 (3,000) 3,047,000

May 2011 7.875 7,000,000 (22,400) 6,977,600

April 2015 10.000 2,000,000 (29,300) 1,970,700

January 2016 8.500 13,000,000 (77,000) 12,923,000

April 2021 8.250 5,000,000 - 5,000,000

35,200,000 (146,850) 35,053,150

Accrued interest receivable 768,800

35,821,950

The fair value of the held-to-maturity securities amounted to USD 33.48million as of December 31, 2007.


2008 2007

USD USD

Beginning balance 35,053,150 34,876,100

Additions 6,725,438 150,000

Redemption (2,000,000) -

Amortized discounts 30,482 27,050

Ending balance 39,809,070 35,053,150

2008 2007

USD USD

Beginning of year 11,966,960 9,857,601

Additions 7,021,862 7,321,436

Disposals (1,103,718) (5,705,212)

Net change in fair value (1,981,237) 492,235

End of year 15,902,967 11,966,060

2008 2007

USD USD

Balance, beginning of year 1,259,393 1,508,023

Realized loss on disposal of investments - 33,300

Realized gain on disposal of investments (110,540) (774,165)

Unrealized net fair value (loss)/gain on remaining investments (1,981,237) 492,235

Balance, end of year-Net Unrealized (loss)/gain (832,384) 1,259,393


Year Ended December 31, 2008The movement of held-to-maturity investments is summarized as follows:

The available-for-sale investment are distributed as follows:

The movement in available-for-sale investments is summarized as follows:

Disposals of available-for-sale investments resulted in a net gain in the amount of USD1,398,201 for the year 2008 (USD 890,475 for the year 2007) as included under investment income in the income statement (Note 17).The movement of the cumulative change in fair value of available-for-sale securities is summarized as follows:

2008 2007

USD USD

Listed Securities:

Equity securities – Lebanese Commercial Banks 2,959,909 3,385,534

Citigroup, Inc. 469,700 -

Egyptian Gulf Bank 71,550 -

MERM – Jordan - 323,718

Bonds – Blue City Investment Ltd 1,000,000 1,000,000

Bonds – Daar International Sukuk 1,925,000 2,000,000

6,426,159 6,709,252

Unlisted Securities:

Investment in an American Fund 1,000,000 1,000,000

Investments in Real Estate Companies in the Gulf 6,448,538 2,228,538

Investments in a Real Estate Company in UK 2,028,270 2,028,270

9,476,808 5,256,808

15,902,967 11,966,060


December 31,

2008 2007

USD USD

Marine branches - 120,000

Non-Marine branches 16,000,000 15,880,000

Total 16,000,000 16,000,000

2008 2007

USD % USD %

Up to 3 months 3,863,183 38 2,959,220 33

From 3 to 6 months 2,578,475 25 2,065,644 23

From 6 months to 1 year 2,173,308 21 2,082,681 23

Over 1 year 1,611,233 16 1,846,576 21

10,226,199 100 8,954,121 100

Provision for doubtful balances (1,800,000) (500,000)

8,426,199 8,454,121

December 31,

2008 2007

USD USD

Premiums retained:

Marine branches 1,744,544 1,527,323


Life branch 9,962 10,647

9,577,593 7,985,671

Losses retained:



Life branch 1,555 1,555

10,646,733 9,033,023

20,224,326 17,018,694


Year Ended December 31, 20088. REINSURANCE RECOVERABLE ON OUTSTANDING CLAIMS


9. RECEIVABLES ARISING FROM REINSURANCE CONTRACTS

This caption represents receivables from insurance and reinsurance companies. Receivables arising from reinsurance contracts are non-interest bearing. The ageing of

these accounts receivable is summarized as follows:

10. ACCOUNTS RETAINED BY CEDING COMPANIES

This caption consists of accounts retained by ceding insurance and reinsurance companies on inward reinsurance business as follows:

The movement of the provision for doubtful debts is summarized as follows:

During the year 2008, the Company wrote-off accounts receivable in the amount of USD 34,174 recorded directly to the income statement.

2008 2007

USD USD

Beginning of year 500,000 -

Additions 1,300,000 500,000

End of year 1,800,000 500,000


December 31,

2008 2007

USD USD

Prepaid expenses 58,500 47,000

Other debit balances 39,118 68,537

Deferred charges (net of amortization) 10,797 26,239

108,415 141,776



11. PREPAYMENTS AND OTHER ASSETS

This caption consists of the following:

Deferred charges consist mainly of the value of computer software net of accumulated amortization of USD253,080 as at December 31, 2008 (USD236,769

as at December 31, 2007).

12. PROPERTY AND EQUIPMENT

This caption consists of the following: Land Building &Apartment

Furniture Equipment Total

USD USD USD USD USD

Cost:

Balance, January 1, 2007 1,500,000 2,387,095 334,122 175,307 4,396,524

Additions - - 2,812 9,855 12,667

Balance, December 31, 2007 1,500,000 2,387,095 336,934 185,162 4,409,191

Additions - - 13,571 5,638 19,209

Disposals - - (3,290) - (3,290)


Accumulated Depreciation:

Balance, January 1, 2007 - 341,364 242,039 154,303 737,706

Additions - 48,930 18,795 9,595 77,320

Balance, December 31, 2007 - 390,294 260,834 163,898 815,026

Additions - 47,742 19,897 7,725 75,364

Disposals - - (2,566) - (2,566)

Balance, December 31, 2008 - 438,036 278,165 171,623 887,824

Net Book Value:




December 31,

2008 2007

USD USD

Provision for unearned premium:



Life branch 111,000 140,000

16,715,000 15,215,000

December 31,

2008 2007

USD USD

Provision for outstanding claims:

Marine branches 11,100,000 10,970,000


Life branch 200,000 350,000

52,500,000 46,500,000



13. TECHNICAL PROVISIONS

Technical provisions consist of the following:

Provision for unearned premium is computed on the basis of 40% of the net inward premiums of all branches except for Marine Branch (Cargo) which is computed on

the basis of 25% of the related premiums.

The increase of the provision for unearned premium amounted to USD1,500,000 for the year 2008 (USD3,500,000 increase for the year 2007).

Provision for outstanding claims as at December 31, 2008 includes USD6,500,000 (USD5,750,000 as at December 31, 2007) representing provision for losses incurred

but not reported (IBNR).

The increase of the provision for outstanding claims amounted to USD6,000,000 for the year 2008 (USD3,000,000 for the year 2007).

14. ACCOUNTS RETAINED ON OUTWARD REINSURANCE BUSINESS

This caption consists of accounts retained by the Company in favor of the reinsurers on the outward reinsurance operations as follows:December 31,

2008 2007

USD USD

Premiums retained:


Losses retained:

Marine branches - 25,782


8,965,572 6,526,158

12,178,189 10,545,474



15. ACCRUED LIABILITIES AND OTHER CREDIT BALANCES

This account consists of the following: December 31,

2008 2007

USD USD

Scheduled tax payments - 426,672

Tax accruals 230,264 224,422

Provision for end-of-service indemnity 165,319 258,829

Accrued charges 181,734 13,200

Income tax payable 93,000 212,000

Due to a related party 1,496,042 1,496,042

Miscellaneous credit balances 1,153,425 1,519,272

3,319,784 4,150,437

The Company is subject to income tax at the rate of 15% of taxable profits that are determined at a fixed rate of 5% of the inward premium generated from the Lebanese

market and other operating income. The tax on profits for the years 2008 and 2007 amounted to USD93,000 and USD212,000, respectively. Tax withheld on interest

income from movable capital in the amount of USD71,406 for the year 2008 (USD82,062 in 2007) is reflected under general and administrative expenses in the income

statement.

The movement of the income tax payable for the year 2008 is summarized as follows:

USD

Beginning of year 212,000

Settlement tax for the year 2007 (169,010)

Additions 50,010

End of year 93,000

The tax returns for the years 2006, 2007 and 2008 remain subject to examination and final assessment by the tax authorities. Management does not expect material

additional tax assessments as a result of this examination.



16.(a) INCOME AND EXPENSES OF REINSURANCE BRANCHES

Marine NON Marine Life Total

2008 2007 2008 2007 2008 2007 2008 2007

USD USD USD USD USD USD USD USD

Inward premium 13,219,445 11,364,801 51,508,242 46,358,576 277,886 350,034 65,005,573 58,073,411

Less: Premium ceded to reinsurance (261,158) (222,131) (15,679,363) (15,759,658) - - (15,940,521) (15,981,789)

Net premium earned 12,958,287 11,142,670 35,828,879 30,598,918 277,886 350,034 49,065,052 42,091,622

Provision for unearned premium at beginning of year 3,357,000 2,869,000 11,718,000 8,716,000 140,000 130,000 15,215,000 11,715,000

Provision for unearned premium at end of year (3,873,000) (3,357,000) (12,731,000) (11,718,000) (111,000) (140,000) (16,715,000) (15,215,000)

Change in provision for unearned premium (516,000) (488,000) (1,013,000) (3,002,000) 29,000 (10,000) (1,500,000) (3,500,000)

Add: Commission income from outward business - - 5,102,407 5,421,717 - - 5,102,407 5,421,717

Gross reinsurance income 12,442,278 10,654,670 39,918,286 33,018,635 306,886 340,034 52,667,459 44,013,339

Net interest income from reserves retained by cedants 117,995 99,334 155,520 173,425 409 466 273,924 273,225

Net (loss)/gain in exchange from technical operations 46,911 73,092 (127,436) 171,394 - - (80,525) 244,486

Total Reinsurance Revenues 12,607,193 10,827,096 39,946,370 33,363,454 307,295 340,500 52,860,858 44,531,050

Claims incurred 5,805,630 5,621,405 29,336,732 24,658,194 140,648 141,835 35,283,010 30,421,434

Less: Outward reinsurance share (45,249) (99,494) (10,767,724) (8,624,013) - - (10,812,973) (8,723,507)

Net claims incurred 5,760,381 5,521,911 18,569,008 16,034,181 140,648 141,835 24,470,037 21,697,927

Provision for outstanding claims at beginning of year (10,850,000) (10,725,000) (19,300,000) (16,300,000) (350,000) (475,000) (30,500,000) (27,500,000)

Provision for outstanding claims at end of year 11,100,000 10,850,000 25,200,000 19,300,000 200,000 350,000 36,500,000 30,500,000

Change in provision for outstanding claims 250,000 125,000 5,900,000 3,000,000 (150,000) (125,000) 6,000,000 3,000,000

Inward premium acquisition costs 4,368,248 3,698,731 14,927,934 13,788,705 66,340 92,890 19,362,522 17,580,326

Reinsurance share of general and administrative expenses 499,034 383,317 1,944,787 1,563,625 10,490 11,753 2,454,311 1,958,694

Total Reinsurance Expenses 10,877,663 9,728,959 41,341,729 34,386,511 67,478 121,478 52,286,870 44,236,947

Net reinsurance profit/(loss) 1,729,530 1,098,137 (1,395,359) (1,023,057) 239,817 219,022 573,988 294,103


2008 2007

USD USD

Arab Gulf area countries 32,928,156 27,990,418

Arab African countries 12,145,537 10,204,539

Middle East Arab countries 10,845,307 11,007,132

Non-Arab countries 9,086,573 8,871,322

Total premiums 65,005,573 58,073,411

2008 2007

USD USD

Interest income from deposits at banks 3,834,082 3,858,200

Interest income from investments in debt securities 3,799,206 3,610,492

Gain on disposal of available-for-sale securities 1,398,201 890,475

9,031,489 8,359,167



16.(b) GEOGRAPHICAL DISTRIBUTION OF PREMIUMS

Premiums are distributed geographically as follows:

2008 2007

USD USD

Management fees 581,561 663,410

Rent income 117,546 9,833

Reversal of deferred income 1,358,753 -

Gain on sale of fixed assets 2,276 -

Other income 63,524 99,607

2,123,660 772,850

17. INVESTMENT INCOME


18. OTHER INCOME



2008 2007

USD USD

Salaries and related charges 1,603,669 1,417,283

Depreciation and amortization 91,675 87,000

Directors and audit committee attendance fees and travel expenses 237,148 86,826

Stamp and duty fees on capital increase - 139,209

Property tax and other taxes 204,809 186,762

Miscellaneous operating expenses 963,458 561,462

3,100,759 2,478,542

2008 2007

USD USD

Reinsurance share 2,454,311 1,958,694

Operations share 646,448 519,848

3,100,759 2,478,542



19. GENERAL AND ADMINISTRATIVE EXPENSES


The general and administrative expenses are distributed as follows:



21. RELATED PARTIES

Part of the reinsurance business is carried out with related insurance and reinsurance companies at an arm’s length basis and in agreement with the Company’s policies.

22. CAPITAL

The Company’s capital is composed of 50 million nominal shares of par value USD1 each, fully paid.

23. STATEMENT OF CASH FLOWS AND NON-CASH ITEMS

The unrealized change in fair value on available-for-sale securities, amounting to USD1,981,237 for the year 2008 (USD492,235 for the year 2007), has been excluded in the

cash flow statement from the investing and financing activities for the year ended December 31, 2008.

24. CONTINGENCIES

A legal action was brought against the Company by one of its shareholders requesting the suspension of subscription in the third bracket of capital increase of USD10million.

In this respect, a decision was pronounced in favor of the Company by the court of first instance and the court of appeal in Beirut that rebutted the request of the plaintiff. On

the other hand, the court did not take a decision in connection with the plaintiff’s claim of the right to subscribe in the second bracket of capital increase in which it was not

able to participate claiming that it did not receive the invitation to subscribe.

There are tow lawsuits in front of the work counsel against the Company raised by two ex-employees, one of them is claiming an amount of USD72,144 as end-of-service

indemnity. According to the Company’s legal advisor, the outcome of these lawsuits depends on whether the work counsel will take into consideration the Decree No. 3775

on August 10, 1972 which exempts the Company from legal and financial obligations, and thus allows it to apply labor regulations that contradicts the Lebanese labor law.

The proposed appropriation of profits, except for the transfer to capital reserve, is subject to the approval of the General Assembly of the Company’s Shareholders which

will be held to approve the financial statements for the year ended December 31, 2008.

According to Article 60 of the Company’s by-laws, 10% of the annual net profit should be transferred to a capital reserve until the total of this reserve becomes equal to the

Company’s capital. This reserve includes the legal reserve required according to Article 165 of the Lebanese Code of Commerce. This reserve is not available for

distribution to shareholders.

USD

Transfer to capital reserve at 10% 953,625

Distribution of dividends at 5% of paid up capital as of December 31, 2008 as a first allotment according to the company’s by-laws 2,500,000

Distribution of dividends at 5% of paid up capital as of December 31, 2008 as an additional allotment 2,500,000

Carry forward in retained earnings 3,582,620

Net profit for the year 9,536,245

20. APPROPRIATION OF PROFITS

The Board of Directors, in its meeting held on February 26, 2009, decided to appropriate the net profit for the year 2008, subject to the approval of the General Assembly of

the Company’s Shareholders, as follows:



Receivables Arising from Reinsurance Contracts

Payables Arising from Reinsurance Contracts Inward Premium Claims Incurred

USD % USD % USD % USD %

Currencies of the Gulf area 3,386,931 33 1,588,908 38 29,129,159 45 16,680,718 47

Currencies of Arab Africa countries 1,333,604 13 646,316 16 9,474,789 15 4,315,088 12

Currencies of Middle East countries 760,232 7 737,212 18 3,479,242 5 1,149,104 3

Non-Arab currencies 495,883 5 146,913 4 8,738,912 13 4,937,223 14

U.S. Dollars 4,249,549 42 1,010,988 24 14,183,471 22 8,200,877 24

10,226,199 100 4,130,337 100 65,005,573 100 35,283,010 100

C. Credit Risk:

The Company’s credit risk is primarily attributable to its bank deposits, debt securities and receivables. The amounts presented in the balance sheet are stated at net realizable

value, estimated by the Company’s management based on prior experience and current economic environment.

The Company’s debt securities are diversified as reflected in Note 7. The Company’s bank deposits are placed at the ratio of 99% with non-resident branches of local banks and

1% with local banks as of December 31, 2008. Accordingly, the related credit risk is spread over sovereign risk and banks with good reputation.

The Company has no significant concentration of risk in receivables, with exposure spread over a large number of insurance and reinsurance companies and brokers.

D. Interest Rate Risk:

The Company’s interest rate risk arises from the possibility that changes in market interest rates will affect the value of interest earning assets and interest bearing liabilities and

the value of the interests.

The Company’s interest rate risk is limited to the banks’ accounts and the accounts retained by the ceding companies on inward and outward reinsurance business which is

subject to variable interest rate.

E. Liquidity Risk:

Liquidity risk is the risk that the Company will be unable to meet its net funding requirements. Liquidity risk can be caused by market disruptions or credit downgrades, which

may cause certain sources of funding to dry up immediately. To mitigate this risk, management has diversified funding sources and assets are managed with a liquidity

approach, maintaining a healthy balance of cash, cash equivalents and readily marketable securities.

Maturities of the Company’s assets and liabilities are managed in a way to keep and maintain an adequate liquidity ratio.

25. FINANCIAL INSTRUMENTS - FAIR VALUE AND MANAGEMENT OF RISK

A. Fair Values of Financial Assets and Liabilities:

The carrying book values of financial assets and liabilities are not materially different from their fair values applicable at the balance sheet date.

B. Currency Risk:

Currency risk arises from the possibility that changes in currency exchange rates will affect the value of financial assets and liabilities, whereby, the Company does

not hedge its currency exposure by means of hedging instruments.

The table shown below summarizes the Company’s components of major exposures to foreign currency rate risk for the year ended December 31, 2008:



F. Reinsurance Risk:

In line with other reinsurance companies, and in order to minimize financial exposure arising from large claims, the company, in the normal course of business, enters into

arrangements with other parties for reinsurance purposes.

To minimize its exposure to significant losses from reinsurer insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentrations of

credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers.

The Company enters into reinsurance contracts that provide for the required capacities that fit its risk profiles at competitive costs, while optimizing its retention levels

through yearly as if exercises, taking into consideration financial resources such as equity capital and free reserves, portfolio size and liquid assets. Its retention levels fit the

empirical rules and general benchmarks, and most importantly, ensure that the company’s solvency ratio remains high.

Outward reinsurance contracts do not relieve the company from obligations to its insurers. The Company remains liable to its insurers for the portion reinsured to the extent

that any reinsurer does not meet the obligations assumed under the reinsurance agreements.

G. Capital Risk Management:

The Company manages its capital to ensure the Company’s ability to continue as a going concern, while maximizing the return through the optimization of the liabilities and

equity balance.

The Company manages the capital structure and makes the necessary revisions, in light of changes in the economics of the business and the market conditions, and the risk

characteristics of operations and underlying assets. The Company’s overall strategy remains unchanged from the previous year.

The capital structure of the Company consists of equity. Equity comprises issued capital, reserves, cumulative change in fair value of available-for-sale securities and

retained earnings.

The Company monitors capital on the basis of the ratio of total liabilities to capital. The ratio as at December 31, 2008 and 2007 was as follows:

December 31,

2008 2007

USD USD

Total liabilities 89,417,346 80,393,242

Total equity 76,518,635 76,574,167

Ratio 117% 105%

26. APPROVAL OF THE FINANCIAL STATEMENTS

The Company’s board of directors in its meeting held on February 26, 2009 approved the issue of the financial statements for the year ended December 31, 2008.

Shareholders

Lebanon

Bahrain

Syria

Egypt

Saudi Arabia

Algeria

UAE

Tunisia

Yemen

Morocco

Sudan

Iraq

Jordan

Libya

Kuwait

Saudi Arabia

• Sheikh Khaldoun Barakat

• Red Sea Insurance Co.

• Trade Union Insurance Co.

• Gulf Cooperation Insurance Co.

Lebanon

• La Phenicienne Co. d'Assurance

• General Insurance Company for the Near East –

Al Ittihad Al Watani

• United Commercial Assurance

• Al Nisr Insurance Co.

• Arabia Insurance Co.

• Banque Misr Liban

• Middle East Assurance & Reinsurance Co. (Mearco)

• Amana Insurance Co.

Libya

• Libya Insurance Co. SPL

Syria

• Syrian Insurance Co.

Egypt• Misr Insurance Company

• National Insurance Company of Egypt

Iraq

• Iraq Reinsurance Co.

• National Insurance Co.

• Iraq Insurance Co.

Kuwait

• Gulf Insurance Co.

• Kuwait Investment Authority

• Al Ahleia Insurance Co.

Algeria

• Compagnie Centrale de Reassurance

Morocco• Societe Centrale de Reassurance

• La Mutuelle Agricole Marocaine D'Assurances (MAMDA)

Tunis• Societe Tunisienne de Reassurance

• Societe Tunisienne d'Assurance et de Reassurance

• COMAR Assurances

• Groupe des Assurances de Tunisie

• ASTREE Assurances

• Mutuelle Generale d'Assurances

• Ministere de Finance - Direction des Assurances

• Cie. d'Assurance et de Reassurance Tuniso-Europeenne

Jordan• Manara Insurance Co.

• Holy Land Insurance Co.

• Arab Union Int’l Insurance Co.

• The United Insurance Co.

• Middle East Insurance Co.

• Jerusalem Insurance Co.

• Arab Bank

• Jordan Insurance Co.

• The National Ahlia Insurance Co.

United Arab Emirates

• Dubai Insurance Co. PSC

• Al Ain Ahlia Insurance Co. PSC

• Sharjah Insurance Co. PSC

Bahrain• Bahrain National Holding Co.

Sudan• The National Reinsurance Co.

Yemen• Yemen Insurance & Reinsurance Co.

Documents

Arab Re Annual Report · Mr. Jamil Bakri Heads of Departments Managers Arab Reinsurance Pool Mr. Moh’d Naji Ahmed Mr. Mohamed Hammoud Mr. Salim Zeidan Mr. Khaled Hawwa Ms. Rima