Islamic Arab Insurance Salama : Financial statements for the year of 2021

ISLAMIC ARAB INSURANCE CO.

(SALAMA) PJSC AND ITS SUBSIDIARIES

INDEPENDENT AUDITOR'S REPORT AND

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021

Islamic Arab Insurance Co. (SALAMA) PJSC and its subsidiaries

Consolidated financial statements

31 December 2021

Contents	Page
Directors' report	1 - 2
Independent auditors' report	3 - 9
Consolidated Financial Position	10
Consolidated statement of profit or loss	11-12
Consolidated statement of comprehensive income	13
Consolidated statement of changes in equity	14 - 15
Consolidated statement of cash flows	16
Notes to the consolidated financial statements	17 - 74

Board of Directors Report

We are pleased to present the 42nd report to the Shareholders, along with the audited consolidated financial statements for the year ended on 31st December 2021.

SALAMA is one of the Middle East's oldest takaful insurance company. As the pioneer in a relatively nascent industry, we pride ourselves for being at the forefront of strong business practices, customer-focused product offerings and technology-driven solutions for growth. In the year 2021, SALAMA entities have performed well in their respective markets. Net profit for the year reached AED 48.17m, Gross written contributions reached AED 1.09bn amid challenging macroeconomic conditions, Assets under management (AUM) grew 7.5% YOY as a result of increased stakeholder confidence in SALAMA.

Performance of the Company and Corporate Governance

Over the last year, we have implemented disciplined and targeted underwriting practices to improve the core business performance. In our home market UAE, the Gross Written Contribution produced one of the best underwriting income, despite a highly competitive environment. We implemented cost optimization programs across the group companies to keep the costs at substantially effective and efficient manner.

The subsidiaries in Egypt Misr Emirate Takaful Life Company have also shown considerable improvement in their performances. The Gross Written Contribution of the Egyptian Saudi Insurance House (Non-Life company in Egypt) has increased by 17.%.

We continue to focus on improving the quality of the risk underwritten. To some extent, it has prevented our growth aspiration; however, we believe it is the right step for a solid growth foundation and also to be a responsible market participant in a crowded insurance market. The board has tasked the management to maintain a delicate balance between topline growth and underwriting income.

The regulatory framework in the UAE is evolving with various regulations issued in 2020 and 2021. Board is confident that these regulatory changes will improve the overall framework in which the insurance market operates in UAE. This regulation is going to have a far-reaching impact on the life insurance market from an initial adjustment phase where life insurance premiums may plummet and to healthy growth in years to come.

Another key area of focus is the improvement of our investment income. Over years SALAMA has not been able to profitably generate consistent cash earnings from its investment portfolio of nearly AED 1.3b of assets. The board is working to reprofile the investment book to low risk income yielding assets that provide stable cash income. We expect investment income to be a consistent and stable revenue stream and contribute to the bottomline as more assets are deployed in cash income generating assets.

The Board of Directors has been working with the management to realign the investment strategy of the Company. Following the review of all the investments across the various SALAMA entities, the Board has made numerous changes, which has led to a considerable shift in investment profile, making it less violate and more oriented towards sustainable cash income.

SALAMA had a history of investments in low yield "Mudarbah" investments with varying quality underlying assets from non-regulated counterparties. You will note that the auditors have had difficulty obtaining balance confirmations for these legacy investments. The external auditors have highlighted this matter through their qualified opinion to audited financial statements. The Board of Directors is endeavoring to resolve this matter with minimum financial impact and will vigorously defend the values and redemptions of all these assets.

On a separate note, a Performance Order was issued by the Court against the Company for an amount of approx. AED 258 million. As at reporting date, Appeal Court of Dubai has issued its judgement refuting the letter of demand and cancelling the legal actions taken against the Group, accordingly the above-mentioned bank accounts totaling AED 258 million was released. This will significantly increase the solvency and liquidity of the Group.

The commitment of the Board on the realignment of the investment strategy and continued support towards business growth throughout the SALAMA group has maintained the rating of SALAMA to BBB' Ratings Put On CreditWatch Negative On Audit Qualifications by S&P. Despite the COVID-19 outbreak, we remain optimistic of the long term growth of SALAMA and its subsidiaries. Our zero debt balance sheet and AAA-rated capital adequacy will be our bedrock to a solid growth. The current volatility will likely offer attractive avenues of organic and inorganic growth, which the Board continues to explore.

Finally, the Board of Directors would like to convey their gratitude to our clients, reinsurers, regulators, and all other partners for their continued and invaluable support. Board would like to thank the management team of all subsidiaries of the SALAMA and team members for their continued efforts and contribution toward the growth of SALAMA.

Board of Directors

Jassim Alseddiqi - Chairman

Saeed Mubarak Al-Hajeri - Vice Chairman Mohamed Hussain AlKhoori - Board Member Fraih Saeed AlQubaisi - Board Member Ahmad Al Sadah - Board Member Saeed Al Qassimi - Board Member

On behalf of the Board

Jassim Alseddiqi Chairman

29th March 2022

Ernst & Young Middle East (Dubai Branch)

Tel:

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Dubai International Financial Centre Dubai

United Arab Emirates

INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF ISLAMIC ARAB INSURANCE CO. (SALAMA) PJSC

Report on the audit of the consolidated financial statements

Qualified opinion

We have audited the consolidated financial statements of Islamic Arab Insurance Co. (Salama) PJSC (the Company) and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at 31 December 2021, and the consolidated statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, except for the effects of the matters described in the Basis for qualified opinion section of our report, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2021 and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).

Basis for qualified opinion

The Group's total assets include investment properties with a carrying amount of AED 142,055 thousand (2020: AED 139,534 thousand), investments which are carried at AED 559,066 thousand (2020: AED 676,596 thousand) and other assets and receivables which are carried at AED 256,354 thousand (2020 AED 375,540 thousand). The aforementioned assets include:

• • Investment property with a carrying amount of AED 84,957 thousand (2020: AED 84,957 thousand) (note 7);

• • Islamic placement investments of AED 47,142 thousand (2020: AED 45,889 thousand), available-for-sale investments of AED 62,561 thousand (2020: AED 58,244) and held to maturity investments of AED 65,738 thousand (2020: AED 65,738) (note 11); and

• • Other receivables with a carrying amount of AED 33,639 thousand (2020: AED 34,006 thousand) (note 17).

Due to the ongoing litigations between the Group and different parties, we were unable to obtain sufficient appropriate audit evidence about the carrying amount of the aforementioned assets because we were unable to verify the judgements applied and estimates made in the determination of the fair value of these assets, and we were unable to determine if the Group legally owned these assets. Consequently, we were unable to determine whether any adjustments to these amounts were necessary.

The predecessor auditor's audit opinion in the prior year was also modified in respect of this matter.

A member firm of Ernst & Young Global Limited

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