The address of the company's registered office is at 4130 Northern Ring Road Al Wadi, Unit Number 1, Riyadh Kingdom of Saudi Arabia. The purpose of the company is to conduct cooperative reinsurance and related activities within and outside the Kingdom of Saudi Arabia.
BASIS OF PREPARATION (a) Basis of presentation
Saudi Reinsurance Company (the "Company") is a Saudi Joint Stock Company registered in the Kingdom of Saudi Arabia under Commercial Registration Number Entity Number dated 12 Jumad Al-Awal 1429H (corresponding to 17 May 2008) with a branch in the Federal Territory of Labuan, Malaysia with license number IS2014146. These financial statements are presented in Saudi Arabian Riyal (SR), which is also the Company's functional currency.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared on the historical cost basis, except for the measurement at fair value of investments held at fair value through income statement and Investment in an equity-accounted investment company which is accounted for according to the equity method and End of Employment Benefits (EOSB). ) at present value of future obligations using projected unit credit method.
Amendments to existing standards
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Standards issued but not yet effective
There are no other relevant IFRSs or interpretations of IFRSs that are not yet in effect that are expected to have a material impact on the Company's financial statements, other than IFRS 9 and IFRS 17, as explained below. The Company does not accept any reinsurance or retrocession contracts that contain embedded derivatives or separate investment components.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Standards issued but not yet effective (continued)
For each contract, the Company will estimate the combined ratio upon initial recognition of the contract. The Company has elected to include all reinsurance financing income or expenses for the year in the statement of income.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Investment in an equity accounted investee
An assessment is made at each balance sheet date to determine whether there is objective evidence that a specific financial asset or group of financial assets may be impaired. For assets listed at fair value, impairment is the difference between cost price and fair value less any previously recognized impairment in the income statement. For assets recognized at amortized cost, impairment is the difference between the carrying amount and the present value of future cash flows discounted at the original effective special commission rate.
These are then charged to the profit and loss account as they are consumed or expire over time. Any gain or loss arising from derecognition of the asset (calculated as the difference between the net sales proceeds and the carrying amount of the asset) is recognized in the income statement or in profit or loss in the year in which it is asset is no longer included in the balance sheet.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Lease
The Company does not discount its liabilities for unpaid claims, as substantially most claims are expected to be paid within one year of the financial reporting date. Accruals are made against the present value of expected future payments in respect of services rendered by the employees up to the end of the reporting period using the projected unit credit method. The Company is subject to Zakat in accordance with the regulations of the Zakat, Taxation and Customs Authority (“ZATCA”).
Segment revenues, costs, and results then include transfers between business segments, which are then eliminated at the corporate financial statement level. The estimate of ultimate liability arising from claims made under reinsurance contracts is the Company's most critical accounting estimate.
SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS (CONTINUED) Fair values of financial instruments
REINSURANCE PREMIUMS RECEIVABLES, NET Reinsurance operations
INVESTMENTS HELD AT FAIR VALUE THROUGH INCOME STATEMENT i. Investments held at fair value through income statement consist of the following
This model considers the present value of the net cash flows generated by the debt security, discounted at the market yield of similar quoted instruments. The following table shows a reconciliation of opening to closing balances for the fair value measurement at level 3 of the fair value hierarchy. For the fair value of level 3 investments, reasonably possible changes in the reporting date for one of the unobservable inputs, holding other inputs constant, would have the following effects.
Between the year ended December 31, 2022 and the year ended December 31, 2021, there were no transfers between Level 1 and Level 2 fair value measurements and no transfers into or out of the fair value measurement level. The geographical breakdown of investments at fair value through the income statement is as follows:
INVESTMENTS HELD AT FAIR VALUE THROUGH INCOME STATEMENT (CONTINUED) iv. The geographical split of investments held at fair value through income statement is as follows
UNEARNED PREMIUMS - NET
Pipeline premiums are those premiums that are written but not reported at the statement of financial position date (expected to be reported in the future).
DEFERRED POLICY ACQUISITION COSTS
TIME DEPOSITS
ACCRUED REINSURANCE PREMIUMS
UNEARNED RETROCESSION COMMISSION
On October 6, 2017, the Company acquired 49.9% of the ordinary shares of Probitas Holdings (Bermuda) Limited (“PHBL”). During the year, the company recognized its share of the board's shareholders' share in the capital contribution of the investment in the company, which is accounted for using the equity method, in the amount of SR 3.3 million in connection with stock options granted to certain employees of PHBL by the board's shareholders, i.e. funded in the Employee Benefit Trust. The following table summarizes PHBL's financial information as included in its own financial statements.
The table also reconciles the summarized financial information with the carrying amount of the Company's interest in PHBL. The total accrued interest on these sukuk and bonds amounted to SR 3.7 million (2021: SR 3.4 million), classified under accrued dividends and special commission income from bonds, sukuk and held-to-maturity investments.
EMPLOYEES’ END OF SERVICE BENEFITS (CONTINUED) Risks associated with defined benefit plans
ACCRUED EXPENSES AND OTHER LIABILITIES
The development of the reinsurance obligations provides a measure of the Company's ability to estimate the ultimate value of the claims. The Company has appealed this additional amount to the Tax Commission for the Resolution of Tax Violations and Disputes (Level 1). On September 8, 2022, the Tax Violations and Disputes Committee (Level 1) concluded its hearing with the Company and ZATCA by issuing an oral ruling, dismissing the appeal and ruling in favor of the Company.
In June 2022, the Tax Offenses and Disputes Committee at the GZSTCC (i.e. GSZTCC Level 1) concluded its hearing with the Company and ZATCA by issuing its oral judgment for which it reversed the ZATCA's decision and ruled in favor of the Company . Based on the facts of the case, the Company is of the opinion that there are appropriate grounds to defend the position against the ZATCA's appeal.
SHARE CAPITAL
The company appealed to the General Secretariat of Zakat, Taxation and Customs Committees (“GSZTCC”) (formerly known as the General Secretariat of Taxation Committees (“GSTC”)) against ZATCA's rejection decision. At the same time, a complaint was also filed with the Alternative Dispute Resolution Committee (ADRC) to present the company's perspective to the ADRC. Adjustments to current capital levels are made based on changes in market conditions and the risk characteristics of the company's activities.
The board of directors is of the opinion that the company has fully complied with the externally imposed capital requirements in the financial year in question. The reason for the rights issue is to strengthen the Company's capital base and support its future expansion activities.
STATUTORY RESERVE
The Company manages its capital requirements by regularly assessing the shortfalls between reported and required capital levels. To maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders or issue shares. During the year, the Company's Board of Directors recommended, at their meeting on April 6, 2022, that the Company's ordinary share capital be increased from SR 891 million to SR 1,336.5 million, an increase of 50%, by offering rights issue.
The Company is currently in the process of meeting the regulatory requirements to complete the increase in its share capital.
GENERAL AND ADMINISTRATIVE EXPENSES
BOARD OF DIRECTORS’ REMUNERATION, MEETING FEES AND EXPENSES 2022
Key management personnel are persons who have authority and responsibility for planning, directing and controlling the Company's activities, directly or indirectly, and consist of senior management, including the Company's Chief Executive Officer and Chief Financial Officer. Transactions with related parties are carried out according to mutually agreed terms, which are approved by management. Balances with related parties are included in reinsurance premiums receivable, reinsurance premiums accrued, claims incurred but not reported, accrued expenses and other liabilities presented in the statement of financial position.
BASIC AND DILUTED EARNINGS PER SHARE
The statutory deposit generates special commission income which is accrued on a regular basis and shown as a separate line item as part of the shareholders'. During the year the Company received SR 1,134,784 as a result of accrued income on statutory deposit.
SEGMENTAL INFORMATION
- Business segments
- Business segments (continued)
- Geographical segments (continued)
- Reinsurance risk
- Regulatory framework risk
- Claims management risk
- Reserving and ultimate reserves risk
- Currency risk (continued)
- Special commission rate risk
- Capital management risk
The company is exposed to insurance, retrocession, special commission rate, credit, liquidity and currency risks. Such retrocession agreements allow for higher guarantee capacity and allow management to limit exposure with the company's risk appetite. Retrocessionaires are selected using the following parameters and guidelines established by the company's board of directors and risk and insurance committee.
The operations of the company are subject to local regulatory requirements in the Kingdom of Saudi Arabia. For all classes of financial assets held by the company, the maximum exposure to credit risk for the company is the carrying value as disclosed in the statement of financial position. The Company is exposed to special commission rate risk on its bond and sukuk investments.
It is the management's opinion that the company has fully complied with the externally imposed capital requirements in the reported financial year.
SUPLEMENTARY INFORMATION Statement of financial position
The Company operates in the reinsurance industry and is subject to legal proceedings in the ordinary course of business. The company has investments in fixed income securities in the amount of SR in December, which are classified as investments at fair value through the income statement. These items are not included in the statement of financial position and statement of cash flows.
During this period, the Company reclassified deposits with Lloyd's London from prepaid expenses, deposits and other assets to investments at fair value through profit or loss. Financial statement section (before reclassification) Reclassification (after reclassification) Prepaid expenses, deposits and other assets Investments at fair value through yield.
SUBSEQUENT EVENT
The reclassification was done to adapt to the current period presentation and the impact on the overall financial statement's presentation is not material.
APPROVAL OF FINANCIAL STATEMENTS
