prism arabian shield cooperative insurance company …

PRISM

ARABIAN SHIELD COOPERATIVE INSURANCE COMPANY

A SAUDI JOINT STOCK COMPANY

DIRECTORS’ REPORT

FOR THE YEAR ENDED 31 DECEMBER 2020

ARABIAN SHIELD COOPERATIVE INSURANCE COMPANY DIRECTORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2020 ALL AMOUNTS IN SAUDI RIYAL

1

Major Developments during the year ended 31 December 2020

General Assembly Meetings:

An Ordinary General Assembly was held on 30 June 2020 and dealt with the following business: • Approved the Directors’ Report for the year ended 31 December 2019; • Ratified the Financial Statements for the year ended 31 December 2019; • Received and accepted the report of the external auditors for the year ended 31 December 2019; • Absolved the Board of Directors from responsibility for their actions during the year ended 31 December 2019; • Approved the appointment of external auditors as recommended by the Audit Committee and approved their remuneration; 1- Crowe (Al Azem, Al Sudairy, Al Shaikh & Partners) and 2- PKF (Ibrahim Ahmad

Al-Bassam & Co). • Approved the recommendation of the Board of Directors to pay up to SAR 1.2 million in respect of 2019 remuneration, attendance fees and reimbursement of expenses for board members, members of the

executive, investment, audit, risk and nomination & remuneration committees and the board secretary - all payable in 2020; • Approved all contracts and transactions entered into between the Company, Board Members and Related Parties during the year ended 31 December 2019; • Authorised all contracts and transactions to be entered into between the Company, Board Members and Related Parties during the year ending 31 December 2020; • Approved the recommendation of the Board of Directors not to pay an annual dividend in respect of the year ended 31 December 2019;

SAMA granted its approval on 26 January 2020 to renew the Company’s operating license for three hijri year term starting from 3 Jumada Al Thani 1441 to 2 Jumada Al Thani 1444 (corresponding to the period starting from 29 January 2020 to 26 December 2022). CCHI granted its approval on 12 February 2020 to renew the Company’s operating license for three year term starting from 15 February 2020 to 14 February 2023.


2

Corporate Governance The Company’s corporate governance policy sets out the guidelines, standards and principles regulating its activities. The Company has implemented all applicable provisions prescribed in both Capital Market Authority and SAMA Corporate Governance Regulations with except to the following:

Article No. / Clause No. Article Reason for Non-application Date of Implementation

Article 41 / E The Board shall carry out the necessary arrangements to obtain an assessment of its performance from a competent third party every three years.

Guiding article. Company planned to implement this article in 2020. Due to COVID-19, and since the current board was appointed recently, the board of directors agreed to conduct the evaluation before the end of current term.

After the end of the current term

Article 51 / (B) The Company shall take into consideration while forming the remuneration and nomination committees that their members are of Independent Directors. The Board may appoint Non-Executive Directors or persons other than Board members either from shareholders or 34 others, provided that the chairmen of committees mentioned in this paragraph are of the Independent Directors.

Nomination and remuneration committee was formed to ensure majority of members are independent and/or non-board members. After the corporate governance policy was updated by CMA, the nomination and remuneration committee was re-formed according to the new regulations. The newly appointed Chairman is independent as per the regulations.

Implemented according to regulations

Article 61 / (1) preparing a clear policy for the remunerations of the Board members and its committees and the Executive Management, and presenting such policy to the Board in preparation for approval by the General Assembly, provided that such policy follows standards that linked to performance, and disclosing and ensuring the implementation of such policy;

The company has a comprehensive remuneration policy. As required by article 61, remuneration details of board of directors and committee members were separated. The policy will be shared with shareholders in the upcoming annual general meting to be scheduled at a later date.

Next Annual General Meeting

Article 70 The Company's Board shall, by resolution therefrom, form a committee to be named the “risk management committee.”. Chairman and majority of its members shall be Non-Executive Directors. The members of that committee shall possess an adequate level of knowledge in risk management and finance.

Guiding article. The current risk management committee was formed according to The Saudi Central Bank governance regulations. The committee was re-formed according to CMA regulations.

Implemented according to regulations

Article 85 The Company shall establish programmes for developing and encouraging the participation and performance of the Company’s employees. The programmes shall particularly include the following: 1) forming committees or holding specialised workshops to hear the opinions of the Company’s employees and discuss the issues and topics that are subject to important decisions; 2) establishing a scheme for granting Company shares or a percentage of the Company profits and pension programmes for employees, and setting up an independent fund for such programme; and 3) establishing social organisations for the benefit of the Company’s employees.

Guiding Article Board of Directors will evaluate the necessity of implementation later

Article 87 The Ordinary General Assembly, based on the Board recommendation, shall establish a policy that guarantees a balance between its objectives and those of the community for purposes of developing the social and economic conditions of the community.


Article 88 The Board shall establish programmes and determine the necessary methods for proposing social initiatives by the Company, which include:


Article 93 / B The disclosures in this article and in the Board report shall be pursuant to the appended schedule.

The company committed to disclose total remuneration of the senior executive management in accordance with the requirements of Article 93(4-b) of the Corporate Governance Rules. In order to protect the interests of the Company, its shareholders and its employees, and to avoid any damage that may result from the disclosure in details as per job titles and positions, hence description of remuneration is not presented pursuant to Appendix (1) Remuneration Schedule of Corporate Governance Rules related to Senior Executives.

Will be reviewed by Board of Directors next year

Article 95 If the Board forms a corporate governance committee, it shall assign to it the competences stipulated in Article (94) of these Regulations. Such committee shall oversee any matters relating to the implementation of governance, and shall provide the Board with its reports and recommendations at least annually.

Guiding article. The compliance department is responsible for ensuring correct application of effective governance standards, directly under the supervision of the audit committee. An annual report is shared with the board of directors regarding the required governance standards. If the company appoints a governance committee in the future, these responsibilities will be transferred and will fall under the governance committee

Board of Directors will evaluate the necessity of implementation annually

From incorporation of the Company to date the Company has not had any Subsidiary or Associated Companies. Board of Directors, Board Secretary, Committees and Executive Management


3

Board of Directors and Board Secretary

Name Capacity Classification Current Job Title Previous Job Title

(Last 3 Years)

Relevant

Qualifications

Relevant

Experience

HH Prince Naif Bin Sultan Bin Saud Al Kabeer Chairman Non Executive

Chairman - Zain Chairman - Almarai Co Board Member - Tejoury Board Member - Yamama Saudi Cement Co

Chairman - Zain Board Member - Almarai Co Board Member - Tejoury Board Member - Yamama Saudi Cement Co

BA Administrative Science 10 Years

Mr. Sameer Al Wazzan Vice Chairman Non Executive CEO - The Bahrain National Holding Co CEO - The Bahrain National Holding Co BA Engineering 40 Years

Mr. Abdallah Al Obeikan Member Non Executive CEO - Obeikan Investment Group Co CEO - Obeikan Investment Group Co BA Electrical Engineering 30 Years

Mr. Turki Al Mutawa Member Non Executive VP Investments - Samama Group Co VP Investments - Samama Group Co Board Member - Arabian Water Proofing Co

BA Business & Marketing 10 Years

Mr. Mohammed Bin Ali Member Independent Director of Finance & Administration - Haboob for Comm. and Information Technology Audit Committee Chairman - Tamkeen Technologies

Finance Manager - Aja Pharmaceutical Industries Co BA Administrative Science 20 Years

Mr. Raed Al Saif Member Independent Chairman - ANBI Board Member - Zain Board Member - IBC Environmental

Chairman - ANBI Board Member - Zain Board Member - IBC Environmental


Mr. Abdulaziz Bin Saeed Board Secretary Executive Compliance and Regulatory Manager Compliance and Regulatory Manager Bachelor of Law Master of Law

10 Years

Board of Directors appointed at General Assembly on 11 September 2019 for three year term beginning 11 September 2019 and ending 10 September 2022 - SAMA approval granted on 17 December 2019.

Mr. Abdulaziz Bin Saeed appointed as Board Secretary from 11 September 2019 - SAMA approval granted on 17 December 2019.


4

Executive Committee

Name Capacity Current Job Title Previous Job Title

(Last 3 Years) Relevant

Qualifications Relevant

Experience

Mr. Abdallah Al Obeikan Chairman CEO - Obeikan Investment Group Co CEO - Obeikan Investment Group Co BA Electrical Engineering 30 Years

Mr. Sameer Al Wazzan Member CEO - The Bahrain National Holding Co CEO - The Bahrain National Holding Co BA Engineering 40 Years

Mr. Raed Al Saif Member Chairman - ANBI Board Member - Zain Board Member - IBC Environmental



Mr. Salman Al Sudairy Member Chairman - Tasliah Limited MD - Tejoury CJSC Board Member - PRISM International

Chairman - Tasliah Limited MD - Tejoury CJSC Board Member - PRISM International

BA Business Administration 10 Years

New Committee appointed on 11 September 2019 for three year term beginning 11 September 2019 and ending 10 September 2022 - SAMA approval granted on 17 December 2019.

Investment Committee


(Last 3 Years)

Relevant

Qualifications

Relevant

Experience

Mr. Raed Al Saif Chairman Chairman - ANBI Board Member - Zain Board Member - IBC Environmental



Mr. Turki Al Mutawa Member VP Investments - Samama Group Co VP Investments - Samama Group Co Board Member - Arabian Water Proofing Co

BA Business & Marketing 10 Years

Mr. Salman Al Sudairy Member Chairman - Tasliah Limited MD - Tejoury CJSC Board Member - PRISM International

Chairman - Tasliah Limited MD - Tejoury CJSC Board Member - PRISM International

Master of Science in Finance 10 Years



5

Audit Committee


(Last 3 Years)

Relevant

Qualifications

Relevant

Experience

Mr. Mohammed Bin Ali Chairman Director of Finance & Administration - Haboob for Comm. and Information Technology Audit Committee Chairman - Tamkeen Technologies


Mr. Loutfi Chahade Member Audit Committee Member - SACO Audit Committee Member - Al Khaleej for Training Audit Committee Member - ARASCO

Risk and Audit Committee Member - Al Khorayef Group Audit Committee Member - SACO Audit Committee Member - Al Khaleej for Training

BA Business Administration and Accounting

35 Years

Mr. Majed Qwaider Member CFO - National Gas & Industrialization Company CFO - Saudi Chemical Company Bachelor of Science - Accounting CPA

35 Years


Nomination and Remuneration Committee




Experience

Mr. Sameer Al Wazzan Chairman CEO - The Bahrain National Holding Co CEO - The Bahrain National Holding Co BA Engineering 40 Years

Mr. Mohammed Bin Ali Member Director of Finance & Administration - Haboob for Comm. and Information Technology Audit Committee Chairman - Tamkeen Technologies


Mr. Taha Azhari Member CFO - Saudi Civil Aviation Holding Co CFO - Saudi Civil Aviation Holding Co Bachelor of Science - Accounting 20 Years

New Committee appointed on 11 September 2019 for three year term beginning 11 September 2019 and ending 10 September 2022 - SAMA approval granted 17 December 2019.


6

Risk Committee




Experience

Mr. Abdallah Al Obeikan Chairman CEO - Obeikan Investment Group Co CEO - Obeikan Investment Group Co BA Electrical Engineering 30 Years

Mr. Taha Azhari Member CFO - Saudi Civil Aviation Holding Co CFO - Saudi Civil Aviation Holding Co Bachelor of Science - Accounting 20 Years

Mr. Sultan Al Kharji Member Senior Manager - Public Pension Agency Senior Manager - Public Pension Agency Bachelor of Science 10 Years



7

Executive Management

Name Current Job Title Previous Job Title

(Last 3 Years)

Relevant

Qualifications

Relevant

Experience

Mr. Basem Odeh CEO (to 31 December 2020) Advisor to the BOD (1 January 2021)

CEO Board Secretary

Bachelor of Law Dip. CII

30 Years

Mr. Bassel Al Abdulkarim Deputy CEO (to 31 December 2020) CEO (1 January 2021)

Deputy CEO

BA Computer Engineering MBA Management Information Systems MS Engineering Management Cert. CII

10 Years

Mr. Faisal Al Qahtani CFO – Acting Treasury and Investments Manager BA Business Administration Master in Finance

10 Years

Mr. Ghassan Abdul Halim Medical Insurance Manager Medical Insurance Manager Bachelor of Biochemistry 25 Years

Mr. Mohammed Shafeeq Technical Manager Technical Manager Bachelor of Science Associate of Insurance Institute of India

25 Years

Mr. Abdul Aziz Binsaeed Compliance and Regulatory Manager Board Secretary

Compliance and Regulatory Manager Board Secretary

Bachelor of Law Master of Law

10 Years

Mr. Abdulrahman Al Jabreen Chief Risk Officer Risk Manager Bachelor of Computer Science Master in Finance

10 Years

Mr. Ahmed Al-Thufairi HR Manager HR Manager BA Business Administration 10 Years

Mr. Mohammed Al Shammari Claims Manager Sales Manager Diploma in Insurance 10 Years

Mr. Abdullah AlGhamdi Head of Information Technology - Acting Business Solution Assistant BS – Information System MS – Computer & Information Science

5 Years

Mr. Basem Odeh resigned from his position as CEO as at 31 December 2020

BOD recommended to appoint Mr. Bassel Al Abdulkarim to the CEO position from 1 January 2021 – SAMA approval granted on 3 January 2021


8

Entities of which a Board Member is or previously was in last three years a member of Board or Management

Entities in which Board Member is a member of the Board or Management

Arabian Shield Board

Current Last Three Years

Board or Management of Role KSA

Non KSA Listed

Unlisted Board or Management of Role

KSA Non KSA

Listed Unlisted

HH Prince Naif Bin Sultan Bin Saud Al Kabeer - Chairman

Almarai Zain Tejoury Yamama Saudi Cement Co

Board Board Board Board

KSA KSA KSA KSA

Listed Listed

Unlisted Listed

Almarai Zain Tejoury Yamama Saudi Cement Co

Board Board Board Board

KSA KSA KSA KSA

Listed Listed

Unlisted Listed

Mr. Sameer Al Wazzan - Vice Chairman Bahrain National Holding Co United Insurance Co

Management Board

Non KSA Non KSA

Listed Unlisted

Bahrain National Holding Co United Insurance Co

Management Board

Non KSA Non KSA

Listed Unlisted

Mr. Abdallah Al Obeikan National Water Co Obeikan Investment Group Co’s

Board Board & Management

KSA KSA

Unlisted Unlisted

Middle East Specialised Cables Co National Water Co Obeikan Investment Group Co’s

Board Board

Board & Management

KSA KSA KSA

Listed Unlisted Unlisted

Mr. Turki Al Mutawa Arabian Water Proofing Co Samama Group Co’s


KSA KSA

Unlisted Arabian Water Proofing Co Samama Group Co’s


KSA KSA

Unlisted Unlisted

Mr. Mohammed Bin Ali Haboob for Comm. and Information Technology

Management KSA Listed Aja Pharmaceutical Industries Co Management KSA Listed

Mr. Raed Al Saif ANBI Zain IBC Environmental

Board Board Board

KSA KSA KSA

Unlisted Listed

Unlisted

ANBI Zain IBC Environmental

Board Board Board

KSA KSA KSA

Unlisted Listed

Unlisted


Mr. Abdulaziz Bin Saeed appointed as Board Secretary from 11 September 2019 - SAMA approval granted on 17 December 2019


9

Board of Directors Meetings and Attendance

Board of Directors Meetings and Attendance

Director Capacity Meetings and Attendance in 2020

19 April 28 June 15 September 17 December Total

HH Prince Naif Bin Sultan Bin Saud Al Kabeer Chairman A A A A 4

Mr. Sameer Al Wazzan Vice Chairman A A A A 4

Mr. Abdallah Al Obeikan Member A A A A 4

Mr. Turki Al Mutawa Member AB AB A A 2

Mr. Mohammed Bin Ali Member A A A A 4

Mr. Raed Al Saif Member A A A A 4

(A) Attendance (P) Proxy (AB) Absent


Mr. Abdulaziz Bin Saeed appointed as Board Secretary from 11 September 2019 - SAMA approval granted on 17 December 2019.

The most recent Shareholders General Assembly was held on 30 June 2020.

As there are no Executive Directors it is not necessary to hold closed meetings - the Executive Management and Board Secretary are requested to leave the meeting during any discussions, if needed.


10

Procedures taken by Board of Directors to inform members (particularly non-executive members) regarding activities, performance and shareholder suggestions At every meeting of the Board of Directors a presentation of the activities, progress and resulting financial performance and status is made and any interaction with shareholders reported.

Principal Roles and Responsibilities of Committees, meetings and attendance in 2020

Executive Committee

Name Capacity Meetings and Attendance in 2020

2 February 19 April 25 June 1 November 17 December 31 December Total

Mr. Abdallah Al Obeikan Chairman A A A A A A 6

Mr. Sameer Al Wazzan Member P A A A A A 5

Mr. Raed Al Saif Member A A A A A A 5

Mr. Salman Al Sudairy Member A A A AB A A 6



Principal roles and responsibilities of Executive Committee are:

• Review strategy and agree targets with management and present for Board of Directors approval.

• Monitor operations and ensure that financial results are in line with Board of Directors approved targets.

• Report to the Board of Directors any significant variations and to recommend changes to achieve improvements.

• Review annual budgets and present for Board of Directors approval.

• Recommend to the Board of Directors authority limits for day-to-day operations as agreed with management.

• Review and approve the appointment of senior staff as requested by the Nomination & Remuneration Committee.

• Monitor corporate governance and risk management policies.


11

Investment Committee


11 February 5 May 15 October 21 October Total

Mr. Raed Al Saif Chairman A A A A 4

Mr. Turki Al Mutawa Member AB AB A A 2

Mr. Salman Al Sudairy Member A A AB A 3



Principal roles and responsibilities of Investment Committee are:

• Define the investment objectives of the Company.

• Formulate the investment policy of the Company.

• Ensure that management secure SAMA approval of the investment policy.

• Choose between internal and external investment management.

• Ensure all investments conform to statutory limitations.

• Approve specific investments.

• Delegate authority as appropriate.

• Review investment performance.


12

Audit Committee


4 February 28 April 23 June 27 July 29 September 26 October 7 December 17 December Total

Mr. Mohammed Bin Ali Chairman A A A A A A A A 8

Mr. Loutfi Chahade Member A A A A A A A A 8

Mr. Majed Qwaider Member A A A A A A A A 8



Principal roles and responsibilities of Audit Committee are:

• Ensure adherence to applicable laws and regulations through the compliance officer and the internal and external auditors.

• Review annual & interim Financial Statements, consider whether they are complete and consistent with information known to committee members and reflect appropriate accounting principles.

• Periodically review the financial and accounting policies in practice and provide comments and recommendations on such policies to the Board of Directors.

• Review the adequacy and integrity of internal control systems.

• Review internal audit plans and progress reports, discuss reports arising from internal audit reviews, management response and evaluate implementation of agreed action plans.

• Recommend to the Board of Directors appointment, re appointment, removal, resignation and dismissal of external auditors.

• Review the external auditors’ findings and reports to ensure appropriate and prompt remedial action on all deficiencies.

• Review the effectiveness of the system for monitoring compliance with laws and regulations and the results of management's investigation and follow-up (including disciplinary action) of any instances of non-compliance.

• Regularly report to the Board of Directors about committee activities, issues, and related recommendations.


13

Nomination and Remuneration Committee


25 June 5 October Total

Mr. Sameer Al Wazzan Chairman A A 2

Mr. Mohammed Bin Ali Member A A 2

Mr. Taha Azhari Member A A 2



Principal roles and responsibilities of Nomination & Remuneration Committee are:

• Recommend to the Board of Directors appointments to membership of the Board of Directors in accordance with the approved policies and standards.

• Annual review of the requirement of suitable skills for membership of the Board of Directors and the preparation of a description of the required capabilities and qualifications for such membership including, inter alia, the time that a member should reserve for the activities of the Board of Directors.

• Review the structure of the Board of Directors and recommend changes.

• Determine the points of strength and weakness in the Board of Directors and recommend remedies.

• Ensure on an annual basis the independence of the independent members and the absence of any conflict of interest in case a Board member also acts as a member of the Board of Directors of another company.

• Draw clear policies regarding the indemnities and remunerations of the members of Board of Directors, Committees and Executive Management. In laying down such policies the standards related to performance shall be followed.


14

Risk Committee


16 January 20 April Total

Mr. Abdallah Al Obeikan Chairman A A 2

Mr. Taha Azhari Member A A 2

Mr. Sultan Al Kharji Member A A 2



Principal roles and responsibilities of Risk Committee are:

• Define a comprehensive risk management strategy and oversee its implementation.

• Review and update the risk management strategy on a regular basis taking into account internal and external developments.

• Re-evaluate tolerance for and exposure to risk on a regular basis and incorporate stress testing techniques.

• Identify risks that may imperil the Company and ensure an acceptable risk profile is maintained at all times.

• Continually oversee risk management systems and assess their effectiveness.

• Review, update and amend risk management policies regularly.

• Report to the Board of Directors details of key and any new risk exposures and recommend actions to manage them.

• Advise the Board of Directors regarding all issues related to risk management.


15

Performance evaluation methodology deployed by the Board of Directors

Nomination and Remuneration Committee developed appraisal processes to evaluate performance of Board of Directors, Board Members, Board Secretary, Committees and Committee Members.

In addition an evaluation by an external body must be undertaken at least once every three years and is scheduled for 2021.

Principal roles and responsibilities of Board of Directors are:

• Setting standards for membership of the Board of Directors and implementing them after General Assembly approval.

• Approving the strategic plans and main objectives of the Company and supervising their implementation.

• Setting and updating comprehensive strategies and policies related to risk management and ensuring their implementation.

• Ensuring the integrity of financial and accounting procedures and preparation of financial reports.

• Determining the most appropriate capital structure, financial objectives and approving budgets and capital expenditure.

• Setting performance objectives and supervising their implementation.

• Reviewing and approving the organisational and functional structures of the Company.

• Developing a conflict of interest written policy for members of the Board of Directors, Key Executives and Shareholders.

• Approving a corporate governance code for the Company including internal control policies and systems, annually supervising and monitoring effectiveness and amending it whenever necessary.

• Approving a code of conduct for the Company’s executives and employees compatible with proper professional and ethical standards for protecting the rights of and relationships with stakeholders including settlement of complaints or disputes arising and the protection of related confidential information.

Company Policy for Remuneration of Board of Directors, Board Secretary, Committees and Key Executives

Company policy for remuneration of members of the Board of Directors, Board Secretary, Committees and Key Executives is developed by the Nomination and Remuneration Committee and approved by the Board of Directors.

The main features of the current policy are:

• Comply with the Articles of Association which define maximum and minimum amounts;

• Propose annual remuneration for Members of Board of Directors, Committees and Board Secretary for approval by the Board of Directors to be presented to the General Assembly for final approval and payment;

• Propose remuneration for CEO for approval by the Board of Directors; and

• Ensure remuneration for Key Executives is in accordance with the Company compensation policy.

There were no deviations from approved policy at the beginning of, at any time during or at the end of 2020. Remuneration of Board of Directors, Committee Members and Board Secretary for the year ended 31 December 2019 – paid in the year ended 31 December 2020

A provision amounting to 1,140,000 was made in the Financial Statements for the year ended 31 December 2019 in respect of board fees, attendance fees and reimbursement of expenses for the board and for members of the audit, executive, investment, risk and nomination and remuneration committees for the year 2019.

Approval to pay up to this amount was granted at the General Assembly held on 30 June 2020 and 1,140,000 was subsequently paid in 2020.

A provision amounting to 50,000 was made in the Financial Statements for the year ended 31 December 2019 in respect of remuneration for the Board Secretary for the year 2019.

Approval to pay up to this amount was granted at the General Assembly held on 30 June 2020 and 60,000 was subsequently paid in 2020.


16

Remuneration of Board of Directors and Board Secretary in respect of 2019 payable in 2020 - All amounts in SAR ‘000

Fixed Remuneration Variable Remunerations

End

of

Serv

ice

Aw

ard

Tota

l

Exp

en

ses

Allo

wan

ce

Fixe

d R

emu

ne

rati

on

Allo

wan

ce f

or

Att

en

din

g B

oar

d

Mee

tin

gs

Fixe

d R

emu

ne

rati

on

an

d A

llow

ance

for

Att

en

din

g C

om

mit

tee

Mee

tin

gs

In-K

ind

Be

ne

fits

Rem

un

era

tio

ns

for

Tech

nic

al,

Man

age

rial

an

d C

on

sult

ativ

e W

ork

Rem

un

era

tio

n o

f th

e C

hai

rman

,

MD

or

Secr

eta

ry, i

f a

mem

ber

Tota

l

Pe

rce

nta

ge o

f th

e P

rofi

ts

Pe

rio

dic

Rem

un

erat

ion

s

Sho

rt-T

erm

Ince

nti

ve P

lan

s

Lon

g-Te

rm In

cen

tive

Pla

ns

Gra

nte

d S

har

es

Tota

l

Independent Directors

Mr. Ahmed Al Abdulkarim (to 10 September 2019) 60 0 30 0 0 0 90 0 0 0 0 0 0 0 90 0

Mr. Mohammed Bin Ali (from 01 April 2019) 70 0 81 0 0 0 151 0 0 0 0 0 0 0 151 0

Mr. Raed Al Saif (from 11 September 2019) 30 0 0 0 0 0 30 0 0 0 0 0 0 0 30 0

Total Independent Directors 160 0 111 0 0 0 271 0 0 0 0 0 0 0 271 0

Non Executive Directors

HH Prince Sultan Bin Mohamed Bin Saud Al Kabeer (to 10 September 2019) 70 0 0 0 0 0 70 0 0 0 0 0 0 0 70 0

HH Prince Naif Bin Sultan Bin Saud Al Kabeer (from 11 September 2019) 30 0 0 0 0 0 30 0 0 0 0 0 0 0 30 0

Mr. Sameer Al Wazzan – Vice Chairman 100 0 86 0 0 0 186 0 0 0 0 0 0 0 186 55

Mr. Abdallah Al Obeikan 100 0 50 0 0 0 150 0 0 0 0 0 0 0 150 0

Mr. Turki Al Mutawa 100 0 45 0 0 0 145 0 0 0 0 0 0 0 145 0

Total Non Executive Directors 400 0 181 0 0 0 581 0 0 0 0 0 0 0 581 0

Total Directors 560 0 292 0 0 0 852 0 0 0 0 0 0 0 852 55

Board Secretary

Mr. Basem Odeh (to 10 September 2019) 42 0 0 0 0 0 42 0 0 0 0 0 0 0 42 0

Mr. Abdulaziz Bin Saeed (from 11 September 2019) 18 0 0 0 0 0 18 0 0 0 0 0 0 0 18 0

Total Board Secretary 60 0 0 0 0 0 60 0 0 0 0 0 0 0 60 0


17

Remuneration of Committee Members in respect of 2019 paid in 2020 - All amounts in SAR ‘000

Board

Member

Fixed Committee Remuneration

(Except for the Allowance for Attending Board Meetings)

Allowance for Attending Committee Meetings

Total

Executive Committee Members

Mr. Abdallah Al Obeikan - Chairman Yes 50 0 50

Mr. Sameer Al Wazzan Yes 50 0 50

Mr. Christopher Ledwidge (to 10 September 2019) No 35 0 35

Total 135 0 135

Investment Committee Members

Mr. Abdallah Al Obeikan – Chairman Yes 0 0 0


Mr. Turki Al Mutawa Yes 45 0 45

Mr. Christopher Ledwidge (to 10 September 2019) No 0 0 0

Total 45 0 45

Audit Committee Members

Mr. Mohammed Bin Ali - Chairman (from 1 April 2019) Yes 38 15 53

Mr. Majed Qwaider No 50 21 71

Mr. Taha Azhari (to 10 September 2019) No 35 15 50

Mr. Lotfi Shahadah (from 11 September 2019) No 15 6 21

Total 138 57 195

Nomination and Remuneration Committee Members

Mr. Ahmed Al Abdulkarim - Chairman (to 10 September 2019) Yes 30 0 30

Mr. Abdulrahman Al Turaigi (to 10 September 2019) No 28 0 28

Mr. Mohammed Bin Ali (from 1 April 2019) Yes 28 0 28

Total 86 0 86

Risk Committee Members

Mr. Abdulrahman Al Turaigi – Chairman (to 10 September 2019) No 28 0 28


Total 64 0 64


18

Remuneration of Board of Directors, Committee Members and Board Secretary for the year ended 31 December 2020 - to be paid in the year ended 31 December 2021 A provision amounting to 1,700,000 was made in the Financial Statements for the year ended 31 December 2020 in respect of board fees, attendance fees and reimbursement of expenses for the board and for members of the audit, executive, investment, risk and nomination and remuneration committees all for the year 2020.

Approval to pay up to this amount shall be sought at the General Assembly to be held in 2021.

A provision amounting to 50,000 was made in the Financial Statements for the year ended 31 December 2020 in respect of remuneration for the Board Secretary for the year 2020.

Approval to pay up to this amount shall be sought at the General Assembly to be held in 2021. Remuneration of Key Executives In the table below:

Key Executives means the CEO, the CFO and the four other executives earning the highest remuneration. Salaries and Allowances include provision for end of service benefits. Fixed medical and motor allowances are reported as Allowances and the costs of providing health insurance and cars (including operating costs and depreciation) are reported as Benefits in Kind.

Remuneration of Key Executives for 2020

All amounts in SAR ‘000 Total

Salaries 5,736

Allowances 1,543

Periodic and annual bonuses 572

Incentive schemes 0

Any compensation or other benefits in kind payable monthly or annually 163

Total 8,014

The company committed to disclose total remuneration of the senior executive management in accordance with the requirements of Article 93(4-b) of the Corporate Governance Rules. In order to protect the interests of the Company, its shareholders and its employees, and to avoid any damage that may result from the disclosure in details as per job titles and positions, hence description of remuneration is not presented pursuant to Appendix (1) Remuneration Schedule of Corporate Governance Rules related to Senior Executives.


19

Penalties, Sanctions or Controls imposed on the Company or on any Subsidiary or Associated Company or on any Related Party by the Regulator or by any other Supervisory or Judicial Authority. The Company received on 16 December 2020 a fine from SAMA of 15,000 for violating SAMA instructions relating to COVID-19 precautionary measures (2019: no violations or fines). The Company has taken corrective actions to ensure precautionary measures are strictly followed. No other penalties, sanctions or controls were imposed by any Regulatory, Supervisory or other Judicial Authority on the Company, Board of Directors, Board of Directors Members, Board Secretary, Committee, Committee Members, Executive Management or any other Related Party regarding any matter related to the Company during 2020. From incorporation of the Company to date the Company has not had any Subsidiary or Associated Companies. Report of Audit Committee regarding effectiveness of internal controls The annual audit and quarterly reviews carried out by the external auditors found that internal control procedures are effective. There were no significant annual audit or quarterly review adjustments required to any of the Financial Statements and no material internal control weaknesses were notified. This outcome provides comfort that the internal control procedures followed are appropriate and effective relative to the size of the Company and its current operations, ensuring the accuracy of financial reporting, compliance with internal policies, controls and regulations. The internal audit department successfully completed the program of audits and reviews contained in the audit plan agreed with and supervised by the Audit Committee. The Audit Committee did not report any material issues regarding the effectiveness of internal control procedures. Audit Committee recommendation to appoint Internal Auditor As the Company has an established internal audit department, it was not necessary for the Audit Committee to make a recommendation in this regard during 2020, with the exception of what concerns the replacement of the resigning Head of Internal Audit. Audit Committee Reports There was no report received from the Audit Committee during 2020 of any conflict between the Board of Directors and the Audit Committee regarding decisions made by either of them. There was no report received from the Audit Committee during 2020 of any refusal by the Board of Directors to follow the recommendation of the Audit Committee regarding appointment or termination of the external auditors or agreeing their fees. All recommendations made by the Audit Committee during 2020 were accepted and endorsed by the Board of Directors. The Audit Committee reviewed and referred to the Board of Directors for approval all Financial Statements issued during the year 2020.


20

Shareholder General Assembly Meetings

Shareholder General Assembly Meetings held during 2020 showing attendance of Board Members

Board Member Dates of and attendance at General Assembly Meetings held on 30 June 2020 (Online)

HH Prince Naif Bin Sultan Bin Saud Al Kabeer - Chairman A

Mr. Sameer Al Wazzan - Vice Chairman A

Mr. Abdallah Al Obeikan A

Mr. Turki Al Mutawa A

Mr. Mohammed Bin Ali A

Mr. Raed Al Saif A



Breakdown of core Company Activities showing for each the impact and contributions to results The principal activities for which Arabian Shield Cooperative Insurance Company (“Company”) was licensed were the conducting of insurance and reinsurance business in general and medical classes in Saudi Arabia in accordance with License No. TMN/6/20079 issued on 11 September 2007 by the Saudi Central Bank ("SAMA" or "Regulator"). The License was renewed for three year periods on 10 August 2010, 07 July 2013, 03 June 2016 and 26 January 2020. At the request of the Company, SAMA approved an amendment to the License to exclude reinsurance business with effect from 30 September 2013. A licence to write Protections and Savings lines was obtained in 2018. As per the Articles of Association (“Articles”), the Company may undertake all activities required to transact cooperative insurance operations and related activities and to invest its funds. In addition to its principal offices located in Riyadh, Jeddah and Khobar the Company operates through a small network of sales and service outlets throughout the Kingdom. From incorporation of the Company to date the Company has not had any Subsidiary or Associated Companies.


21

Important plans and decisions (including any structural changes, business expansion, discontinued operations) and future business expectations The Company’s focus has always been on profitable growth by adopting sound underwriting practices and careful expansion plans in the Saudi large and diversified insurance market. The objective is to maintain a balanced portfolio in the corporate and retail sectors, with focus on offering high-quality insurance products and services across all active insurance classes. The COVID-19 outbreak in 2020 introduced various operational challenges, which imposed immense pressure to develop and implement a responsive plan to mitigate the newly-introduced risks and minimize any interruption to the business flow. The Company has responded successfully to the new business norms and managed to service its customer base uninterruptedly and with utmost quality. Several initiatives and plans were introduced in 2020 to penetrate new market segments and increase the Company’s base of corporate and retail clients without compromising the quality of the offered insurance products or the desired profit margins. Throughout 2020, the Company continued to address pricing and structural issues in the two main portfolios, medical and motor, which resulted in improved returns. The Company will continue using well-grounded actuarial measures to ensure sustainable and profitable growth in these two large market segments. The Company continued following solid technical standards in underwriting all other classes to seize growth opportunities and maximize technical returns, in spite of hardening reinsurance markets and intensive competition. Tight control was maintained in 2020 on Payroll and Operating Overheads to ensure utmost efficiency and maximum utilization of the resources, with a strategic focus on investing heavily in the recruitment and development of young Saudi nationals, and expenses related to digitalization of all operational processes. As planned, close to 80% of the workforce are Saudi nationals leading most of the Company’s senior managerial roles, including the Chief Executive Officer – with effect from 3 January 2021 –. Investments across the globe had taken a significant hit in 2020 following the COVID-19 outbreak. The Company’s conservative investing approach helped the Company achieving a reasonably acceptable returns, in light of low interest rates and fluctuating bonds and equities markets. The Company made a strategic decision in 2018 to upgrade its IT infrastructure and replace its legacy systems with an all-inclusive solution that facilitates reliance on technology and supports future growth, efficiency, enhanced controls, and customer experiences. Key milestones of the implementation plan met in 2020 in terms of delivering on core systems and functionalities. The remaining supporting tools and e-commerce platforms are on track to roll out in the first half of 2021. As a result of the COVID-19 outbreak, e-commerce channels flourished in 2020, particularly in the retail market. The Company has embraced this rapid shift from conventional sales channels by reducing the number of retail outlets to five outlets only in 2020, and concentrating on sales from active aggregators and own website. The Company’s all-new website and mobile application are expected to launch in the first half of 2021 to boost sales and ultimately replace all existing retail outlets. The Company has developed a lively annual strategic plan for 2021 with four cornerstones:

• Structure & People: Revamp organizational structure, fulfill vacancies with capable national resources, and boost employees’ engagement and loyalty

• Market positioning: identify targeted market segments and re-focus efforts and resources while maintaining sound underwriting practices

• Digitalization: purify vision and stabilize the information technology infrastructure to optimize capabilities and output

• Strategic alliances: capitalise and build on the existing long and stable relationship with key clients and reinsurers to ensure longevity and sustainability The Board and Management are determined to achieve the targeted deliverables by deploying comprehensive and detailed operational plans with specific timelines aimed at all functions within the Company. Due to the current market fragmentation within the Saudi insurance market, mergers and acquisitions are considered a successful strategy for small and medium-sized companies to acquire additional market share and enhance their competitive position within the industry. The Company maintains an open mind to embrace the possibility of a future engagement if it can identify a strong and suitable fit with mutual interest, synergies of skill sets, and geographic spread.


22

Implementation of the new Insurance accounting standard: IFRS 17 This standard was published in May 2017. It establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts and supersedes the current standard (IFRS 4 – Insurance Contracts). The implementation of the new standard was delayed several times and the effective date has now been deferred to annual reporting periods beginning on or after 1 January 2023. The Company expects the new standard will result in a change to the accounting policies for insurance contracts, reinsurance contracts and to any investment contracts with discretionary participating features together with amendments to presentation and disclosures. The Company had performed the Financial Impact Assessment in order to assess the financial impact of implementing IFRS 17 and this work was completed on 30 April 2020. The Company is currently in Phase III of IFRS 17 implementation design phase that requires developing and designing new processes and procedures for the business including any system developments required under IFRS 17 and detailed assessment of business requirements. The Company is making a good progress in terms of meeting SAMA deadlines and has put a comprehensive plan to ensure smooth transition to the new standard and avoid any potential delays. Social Contributions In addition premium discounts are granted to licensed charitable organisations, the total social contributions amounting to 778,668 were paid in cash during 2020:

Social Contributions for 2020 - All amounts in SAR ‘000

Initiative / Entity Description Total

Health Endowment Fund Combating the spread of coronavirus (COVID-19) 726

Adults Motor Disability Association (Harakeya) Contribute to reducing Motor insurance rates for the association’s members 33

Health Charitable Association (Inaya) Contribute to reducing Motor insurance rates for the association’s members 14

Ammen Taslam Initiative To encourage citizens and residents to obtain insurance coverage for vehicles, with the participation

of the General Traffic Department and Najm Insurance Services Company

6

Total 779


23

Operations and Financial Results Gross Written Premiums (GWP) in 2020 amounted to 552,708,045 (2019: 543,717,414) and Gross Earned Premiums (GEP) in 2020 amounted to 529,634,416 (2019: 597,380,825).

The low growth in the GWP in 2020 is mainly attributed to the disruption caused by the COVID-19 outbreak at the beginning of 2020 which caused substantial operational challenges, practically in relation to the imposed lockdown and precautionary measures.

Gross Earned Premiums (GEP) in 2020 declined by 11% to 529,634,416 compared to 597,380,825 in 2019, arising primarily as a result of not renewing an underperforming large corporate medical policy that was active for most of 2019 (expired in August 2019).

In 2020 medical class represented 46% of GWP and 54% of GEP (2019: 57% and 62%), motor class 30% of GWP and 21% of GEP (2019: 13% and 12%), Protections & Savings 7% of GWP and 10% of GEP (2019: 12% and 10%), with other classes at 18% of GWP and 18% of GEP (2019: 18% and 16%).

Medical still represents the highest proportion of the total, which is in line with the market as a whole. A reasonable balance exists between the other classes with considerable growth in motor resulting from the Company’s active efforts to regain its footprint in this large market segment.

Net Underwriting Result (NUR) amounted to 87,593,735 being 17% of GEP (2019: 36,091,604 being 6% of GEP).

The increase in NUR % GEP from 6% to 17% is primarily accounted for by the significant improvement in medical class performance following actions taken by the management to restructure the portfolio components and focus on selective underwriting. In addition, the partial lockdown throughout 2020 caused by the COVID-19 outbreak has had a positive impact on the claims frequency.

Control on all payroll costs and operating overheads including depreciation was maintained in spite of slight increase of 227,612 or less than 1% compared to 2019.

Although the overall accounts and reinsurers’ receivables reduced significantly by 32% in 2020, the provision for bad and doubtful debts – which is calculated by a formula provided by SAMA in the Insurance Implementing Regulations – was increased by 15% in 2020 to 8,360,000 (2019: 7,120,000). This is a reflection of the close monitoring of the receivables and the calculated extension of credit terms to some of the corporate accounts to help them mitigate COVID-19 impact on their businesses.

Returns from bank deposits and investments were lower by 6,120,919 or 22% mainly due to reduced interest rates and in spite of increased realised gains on other investments.

Combined ratio (calculated before returns from bank deposits and investments, taxes, and change in receivable’ provision) has improved significantly in 2020 to 93% compared to 105% in 2019.

This is a reflection of the Company’s actions to improve underwriting standards across all classes and partially attributed to the positive impact of the COVID-19 lockdown throughout 2020, in spite of the extreme competitive nature of the market.

Operating Income, including the change on receivables’ provision and before the charge for taxes and for allocation to policyholders’ insurance operations, amounted to 43,602,397 (2019: 16,941,180).

Other comprehensive loss of 7,412,118 in 2020 compared to an income of 2,711,024 in the prior year is mainly attributed to a devaluation in one of the investments which was disrupted by the COVID-19 outbreak – management is closely monitoring the developments and expects an improvement in the upcoming periods.

Comprehensive Income after deducting zakat and income tax and allocation to policyholders’ insurance operations increased to 24,245,279 (2019: 9,974,180).

Earnings per Share increased significantly from 0.24 in 2019 to 1.06 in 2020. At 31 December 2020 the Statement of Financial Position reflects Shareholders’ Equity of 461,904,275 (2019: 437,658,996).

Strong technical reserves are maintained ensuring stability for the Company and security for its policyholders.

Saudi nationals represented 79% of the workforce at the end of 2020.


24

Summarised Assets, Liabilities and Results for the past five financial years The table below is based on extracts from the financial statements for the year ended 31 December 2020 and the preceding four years.

All amounts in SAR ‘000 2020 2019 2018 2017 2016

Insurance Operations

Total assets 702,466 633,971 721,492 619,375 710,384

Total liabilities 697,896 631,274 718,795 607,380 699,153

Insurance operations’ accumulated surplus 4,570 2,697 2,697 11,995 11,231

Gross written premiums 552,708 543,717 625,101 593,078 754,470

Net written premiums 336,993 357,974 452,566 394,268 480,790

Gross earned premiums 529,634 597,380 559,623 716,385 636,150

Net earned premiums 349,011 414,688 379,851 461,054 403,365

Net underwriting income / (loss) 87,592 36,089 89,251 192,731 130,290

Bank deposit commission 3,322 7,039 7,028 6,938 9,156

Surplus / (deficit) from insurance operations 31,385 (1,346) 26,965 119,947 85,492

Shareholders’ appropriation from surplus (28,247) 1,346 (24,268) (107,952) (76,943)

Surplus after shareholders’ appropriation 3,138 0 2,697 11,995 8,549

Shareholders’ Operations

Total assets 506,099 474,662 460,654 433,418 370,072

Total liabilities 44,195 37,003 32,969 28,632 19,910

Shareholders’ equity 461,904 437,659 427,685 404,786 350,162

Appropriation of insurance operations surplus 28,247 (1,346) 24,268 107,952 76,943

Commission and investment income 18,085 20,489 12,202 4,240 6,154

Operating income / (loss) for the year 43,602 16,941 34,292 108,175 80,950

Zakat charge (11,321) (9,513) (10,960) (13,363) (8,248)

Income tax charge (624) (164) (789) (2,109) (2,194)

Income / (loss) for the year 31,657 7,264 22,543 92,703 70,508

Earnings per share 1.06 0.24 0.75 3.09 2.35

Net Change in unrealised fair value of investments (7,412) 2,710 355 (1,920) 0

Comprehensive income / (loss) for the year 24,245 9,974 22,898 90,783 70,508

Earnings per share based on income after charging zakat and income tax and on the number of shares in issue after the bonus share issue on 22 May 2018 and prior comparatives have been restated accordingly.


25

Summarised Financial Results - Insurance Operations - All amounts in SAR ‘000

For the Year Ended 31 December 2020 2019 Change % Change

Gross written premiums 552,708 543,717 8,991 1.65%

Net written premiums 336,993 357,974 (20,981) (5.86%)

Gross earned premiums 529,634 597,380 (67,746) (11.34%)

Net earned premiums 349,011 414,688 (65,677) (15.84%)

Earned commission income 32,170 38,034 (5,864) (15.42%)

Net incurred claims (237,777) (383,589) 145,812 (38.01%)

Net other underwriting income / (expense) (55,812) (33,044) (22,768) 68.90%

Net underwriting income / (loss) 87,592 36,089 51,503 142.71%

Insurance operations’ operating expenses (58,289) (55,454) (2,835) 5.11%

Provision for bad and doubtful debts (1,240) 10,980 (12,220) ---

Surplus / (deficit) before policyholders bank deposit commission 28,063 (8,385) 36,448 ---

Bank deposit commission 3,322 7,039 (3,717) (52.81%)

Surplus / (deficit) from Insurance operations 31,385 (1,346) 32,731 ---

Shareholders’ appropriation from surplus (28,247) 1,346 (29,593) ---

Surplus after shareholders’ appropriation 3,138 0 3,138 ---

Summarised Financial Results - Shareholders Operations - All amounts in SAR ‘000

For the Year Ended 31 December 2020 2019 Change % Change

Shareholders’ appropriation from surplus 28,247 (1,346) 29,593 ---

Commission and investment income 18,085 20,489 (2,404) (11.73%)

Total income 46,332 19,143 27,189 142.03%

Shareholders’ operations operating expenses (2,730) (2,202) (528) 23.98%

Operating income / (loss) for the year 43,602 16,941 26,661 157.38%

Zakat charge (11,321) (9,513) (1,808) 19.01%

Income tax charge (624) (164) (460) 280.49%

Income / (loss) for the year 31,657 7,264 24,393 335.81%

Net Change in unrealised fair value of investments (7,412) 2,710 (10,122) ---

Comprehensive income / (loss) for the year 24,245 9,974 14,271 143.08%


26

The tables below analyse the operating business by summarised product segment:

FOR THE YEAR ENDED 31 DECEMBER 2020 - All amounts in SAR ‘000

Motor Medical Property &

Casualty

Protection & Savings

Total

Gross written premiums 166,373 252,156 96,770 37,409 552,708

Net written premiums 66,523 252,156 13,967 4,347 336,993

Gross earned premiums 110,849 286,131 96,143 36,511 529,634

Net earned premiums 43,697 286,131 14,929 4,254 349,011 Earned commission income 12,643 0 13,712 5,815 32,170 Net incurred claims (17,009) (220,522) 1,019 (1,265) (237,777) Net other underwriting income / (expense) (18,104) (25,379) (6,636) (5,693) (55,812)

Net underwriting income / (loss) 21,227 40,230 23,024 3,111 87,592 Insurance operations’ operating expenses (20,399) (17,485) (14,576) (5,829) (58,289) Provision for bad and doubtful debts (217) (731) (205) (87) (1,240)

Surplus / (deficit) before policyholders bank deposit commission 611 22,014 8,243 (2,805) 28,063 Bank deposit commission 1,162 997 831 332 3,322

Surplus / (deficit) from Insurance Operations 1,773 23,011 9,074 (2,473) 31,385 Shareholders’ appropriation from surplus (1,596) (20,710) (8,167) 2,226 (28,247) Surplus after shareholders’ appropriation 177 2,301 907 (247) 3,138

FOR THE YEAR ENDED 31 DECEMBER 2019 - All amounts in SAR ‘000

Motor Medical Property &

Casualty

Protection & Savings

Total

Gross written premiums 73,104 311,134 98,223 61,256 543,717 Net written premiums 28,568 311,134 13,450 4,822 357,974 Gross earned premiums 73,484 368,467 95,607 59,822 597,380

Net earned premiums 28,706 368,467 12,947 4,568 414,688 Earned commission income 8,143 0 17,147 12,744 38,034 Net incurred claims (12,830) (367,273) (1,221) (2,265) (383,589) Net other underwriting income / (expense) (2,709) (13,302) (7,099) (9,934) (33,044)

Net underwriting income / (loss) 21,310 (12,108) 21,774 5,113 36,089 Insurance operations’ operating expenses (19,408) (16,635) (13,865) (5,546) (55,454) Provision for bad and doubtful debts 1,300 8,000 1,080 600 10,980

Surplus / (deficit) before policyholders bank deposit commission 3,202 (20,743) 8,989 167 (8,385) Bank deposit commission 2,463 2,113 1,760 703 7,039

Surplus / (deficit) from Insurance Operations 5,665 (18,630) 10,749 870 (1,346) Shareholders’ appropriation from surplus (5,665) 18,630 (10,749) (870) 1,346 Surplus after shareholders’ appropriation 0 0 0 0 0


27

Geographical Split of Revenues From incorporation of the Company to date the Company has not had any Subsidiary or Associated Companies.

From incorporation of the Company to date the Company’s activities were carried out entirely in the Kingdom of Saudi Arabia.

Gross Written Premiums by Region - All amounts in SAR ‘000 2020 2019

Central 475,423 458,331

Eastern 63,866 69,063

Western 12,374 15,100

Southern 671 901

Northern 374 322

Total 552,708 543,717

Risks faced by the Company The Company is exposed to normal risks associated with operating an insurance business. The Company’s risk governance is manifested in a set of established policies, procedures and controls. The apex of risk governance is the centralised oversight of the Board of Directors providing direction and necessary approvals. The Company is continuously reviewing and updating Risk Appetite Framework (RAF) and Risk Appetite Statement (RAS) in managing and controlling risk exposure. Operational risk is the risk of loss arising from systems failures, control failures, fraud and human errors which can result in financial or reputation loss and legal consequences. Management mitigates operational risk through appropriate controls, segregation of duties and internal checks and balances. The audit committee supported by the work of the internal auditor and compliance officer continually audit and monitor activities. The operations of the Company are subject to regulatory requirements in Saudi Arabia. Such regulations not only prescribe approval and monitoring of activities but also impose certain restrictive provisions e.g. capital adequacy to minimise the risk of default and insolvency and to enable unforeseen liabilities to be met. The principal risks to which the Company is exposed and mitigating factors are set out below.


28

Insurance risk

Insurance risk is the risk that actual claims payable to contract holders in respect of insured events exceed the carrying amount of insurance liabilities. Insurance risk is currently influenced by the exceptionally competitive nature of the market and the increase in both frequency and severity of claims particularly motor and medical claims where cost inflation has been very evident. Careful evaluation of risks through implementation of underwriting strategy and pricing together with the use of reinsurance reduce insurance risk. The diversification and short term nature of contracts written by the Company further mitigates risk.

Reinsurance risk

The Company effects reinsurance with other parties in the normal course of business in order to minimise its financial exposure to potential losses arising from large insurance claims. Although the Company has reinsurance arrangements it is not relieved of its direct obligations to its policyholders in the event that a reinsurer failed to meet its obligations. Reinsurers are selected using parameters such as minimum acceptable credit rating, reputation and past performance. To minimise its exposure to significant losses the Company regularly evaluates the financial condition of its reinsurers.

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party a loss. The Company seeks to limit credit risk with respect to customers, agents and brokers by constant monitoring of outstanding receivables and setting credit limits. Bank time deposits are placed with reputable banks and generally for periods of not more than three months. Reinsurers are required to have a minimum acceptable security rating level affirming their financial strength.

Currency risk

Currency risk is the risk that values will fluctuate due to changes in exchange rates but the Company believes that there is minimal risk as it primarily transacts in Saudi Riyals and balances held in other currencies are of immaterial amounts.

Interest rate and investment risk

Interest rate risk arises from the possibility of changes in interest rates and this risk is minimised as investments normally comprise fixed rate instruments while deposits are generally placed for periods not exceeding three months. Investment risk is mitigated by focusing on relatively low risk investments in a diversified portfolio.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its commitments when they fall due and to mitigate this liquidity requirements are monitored on a monthly basis to ensure sufficient liquid funds are available to meet commitments.

Employees

The Company is exposed to a highly competitive recruitment of the qualified labour with key insurance skills in the market and suffers a high labour turnover.


29

Statements of Compliance

The Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and other standards and pronouncements endorsed by the Saudi Organization for Certified

Public Accountants (“SOCPA”) (collectively referred to as “IFRS as endorsed in KSA”).

Subsidiary and Associated Companies and stocks or debt instruments issued by them From incorporation of the Company to date the Company has not had any Subsidiary or Associated Companies. Dividend distribution policy The Articles of Association stipulate the basis for distribution of shareholder profits as follows: 1. Deduct required zakat and income tax. 2. Deduct (20%) of the net profit to constitute the statutory reserve. The Ordinary General Assembly may stop this deduction once the reserve reaches an amount equal to total paid up capital. 3. Ordinary General Assembly upon a proposal made by the Board of Directors may deduct a percentage of the net annual profits to constitute an additional reserve to be used for a specified purpose or purposes

as decided by the General Assembly. 4. Out of the remaining balance, a first payment equivalent to at least (5%) of the paid up capital is distributed to the shareholders. 5. The balance is distributed to the shareholders as a portion of the profits or transferred to the retained profits account. 6. The Board of Directors may approve a decision to distribute periodical profits to be discounted from the annual profits specified in paragraph No. (4) above according to the regulating rules issued by the

competent authorities. The Board of Directors review dividend distribution policy annually taking into account such factors as profitability, financial status including solvency compliance, growth prospects and resultant capital requirements and shareholder returns. No dividend was declared or paid in 2020 in respect of the year ended 31 December 2019 and there were no interim dividend distributions during 2020 in respect of the year ended 31 December 2019. The Board of Directors will refer to the General Assembly to be held in 2021 its recommendation concerning dividend distribution in respect of the year ended 31 December 2020.


30

Ownership of Shares and Debt Instruments issued by the Company or by any Subsidiary or Associated Company held by Board of Directors Members, Board Secretary, Committees Members, Executive Management and Related Parties showing changes during 2020

Shares held by Board of Directors Members, Board Secretary, Committee Members, Executive Management and Related Parties during 2020

Name Classification Start of Year End of Year

Net Change Percentage

Change Shares % Ownership Shares % Ownership

HH Prince Sultan Bin Mohamed Bin Saud Al Kabeer Board & Related Party 4,275,000 14.25% 4,275,000 14.25% 0 0%

Mr. Abdallah Al Obeikan Board & Committee &

Related Party 45,000 0.15% 45,000 0.15% 0 0%

Bahrain National Holding Co BSC Related Party 4,500,000 15.00% 4,500,000 15.00% 0 0%

Mr. Nasser Al Mutawa Related Party 2,137,500 7.13% 2,137,500 7.13% 0 0%

Mr. Christopher Ledwidge Related Party 1,067,267 3.56% 1,067,267 3.56% 0 0%

Mr. John Davies Related Party 0 0.00% 65,000 0.22% (65,000) (0.22%)

From incorporation of the Company to date the Company has not had any Debt Instruments in issue.

From incorporation of the Company to date the Company has not had any Subsidiary or Associated Companies.


31

Details of notifications regarding change in ownership of shares During 2020 the Company did not receive notification from any party (other than Board of Directors Members, Board Secretary, Committee Members, Executive Management and Related Parties) of ownership of or interest in 5% or more of its shares or of increase or decrease in their shareholding by 1% or more of the total share capital.

Borrowings by the Company or any Subsidiary or Associated Company From incorporation of the Company to date the Company has not had any borrowings. From incorporation of the Company to date the Company has not had any Subsidiary or Associated Companies.

Convertible debt instruments, contractual securities or instruments carrying conversion or similar rights issued by the Company or by any Subsidiary or Associated Company and any compensation received in this regard From incorporation of the Company to date the Company has not had any instruments of this nature in issue. From incorporation of the Company to date the Company has not had any Subsidiary or Associated Companies.

Rights of the Company or any Subsidiary or Associated Company pertaining to convertible debt instruments, contractual securities or instruments carrying conversion or similar rights From incorporation of the Company to date the Company has not had any instruments of this nature in issue. From incorporation of the Company to date the Company has not had any Subsidiary or Associated Companies.

Recovery or purchase or cancellation by the Company or any Subsidiary or Associated Company of any convertible debt instruments, contractual securities or instruments carrying conversion or similar rights From incorporation of the Company to date the Company has not had any instruments of this nature in issue. From incorporation of the Company to date the Company has not had any Subsidiary or Associated Companies.

Requests by the Company for the Register of Shareholders

Requests by the Company for the Register of Shareholders during 2020

Date of Request Reason for Request

1 January Company Procedure

15 June Company Procedure

12 July Company Procedure

13 September Other

7 December Company Procedure


32

Transactions conducted in the ordinary course of business and any other transactions of any nature between the Company and any Related Party There were no transactions conducted between the Company and any Related Party during 2020 other than in the ordinary course of business. Definitions and explanations Related parties represent shareholders, both individual and corporate, directors, members of the audit, executive, investment, risk and nomination and remuneration committees, the board secretary, key executives and entities controlled (including jointly controlled) or significantly influenced by such parties. The immediate families of the above are related parties. The following table identifies the individuals forming the relationship links for corporate related parties.

Shareholders Relationship link

Arabian Shield - Bahrain

HH Prince Sultan Bin Mohamed Bin Saud Al Kabeer Mr. Nasser Al Mutawa Mr. Christopher Ledwidge Mr. John Davies

Obeikan Investment Group Mr. Abdallah Al Obeikan

Entities controlled or significantly influenced Relationship link

Almarai Company

HH Prince Naif Bin Sultan Bin Saud Al Kabeer

Obeikan Investment Group Companies Mr. Abdallah Al Obeikan

Samama Group Companies Mr. Turki Al Mutawa

Yamama Saudi Cement Company HH Prince Naif Bin Sultan Bin Saud Al Kabeer

HH Prince Sultan Bin Mohd Bin Saud Al Kabeer entities HH Prince Naif Bin Sultan Bin Saud Al Kabeer

Bahrain National Insurance Company Mr. Sameer Al Wazzan

National Water Company Mr. Abdallah Al Obeikan

Arabian Shield Cooperative Insurance Company All


33

Key Executives, in the context of defining Related Parties, for the year ended 31 December 2020 means the following six people (year ended 31 December 2019: six people) – the Chief Executive Officer (CEO), the Chief Financial Officer (CFO) and the four other executives (year ended 31 December 2019: four other executives) who earned the highest remuneration. All transactions with related parties are made on an arm’s length basis and no conflicts or potential conflicts of interest were identified during the year ended 31 December 2020 and 2019. Amounts due to related parties do not include amounts provided for outstanding claims under processing or IBNR. Balances due to or from related parties are unsecured, interest free and are settled in cash and no guarantees have been made or received in relation to any related party transaction or balance. An impairment assessment is undertaken examining the financial position of and the market in which each related party operates. For the year ended 31 December 2020, the Company has not recorded any impairment of receivables relating to amounts due from related parties (year ended 31 December 2019: Nil). Transactions with related parties are in respect of purchase of insurance portfolio and related business, investments, remuneration and annual insurance contracts. Purchase from a Related Party of insurance portfolio and related business The insurance portfolio and related business of Arabian Shield Insurance Company EC was acquired by the Company effective 1 January 2009 at a purchase consideration approved by SAMA resulting in a Goodwill amount of 49,100,000. The related assets and liabilities of Arabian Shield Insurance Company EC were also acquired at book value amounting to 20,825,600 as per the audited Financial Statements of Arabian Shield Insurance Company EC at 31 December 2008. The combined sum due to Arabian Shield Insurance Company EC in consideration for goodwill and net assets acquired amounted to 69,925,600. Based on criteria related to the Company’s earnings up to 31 December 2015 the Goodwill amount was subsequently reduced by 2,306,137 to 46,793,863. This in turn resulted in a reduction in the combined sum due to Arabian Shield Insurance Company EC from 69,925,600 to 67,619,463 which has been fully paid with no further amounts owing. Investment in a Related Party An investment of 3,000,000 in a Sukuk issued by an entity controlled or significantly influenced by a related party was redeemed in full on 07 March 2019. This investment generated an income for the year ended 31 December 2020 of Nil (year ended 31 December 2019: 25,179).


34

Annual insurance contracts with Related Parties for 2020 - Transactions and Balances - All amounts in SAR ‘000

Related Party Relationship to Arabian Shield Gross

Written Premiums

Ceded Written

Premiums

Commission Received

from

Commission Paid to

Gross Claims

Incurred

Ceded Claims

Incurred

Amounts Due

From

Amounts Due To

HH Prince Sultan Bin Mohamed Bin Saud Al Kabeer Chairman and Non Executive Director 22

Mr. Basem K. Odeh Key Executive - CEO 11

Mr. Ghassan Abdulhalim Key Executive - Medical Insurance Manager 7

Obeikan Investment Group Shareholder 203 46

Almarai Company Entity controlled or significantly influenced 149,596 74,695 16 28,630

Obeikan Investment Group Companies Entity controlled or significantly influenced 25,397 12,602 573 431

Samama Group Companies Entity controlled or significantly influenced 10,666 6,722 4,899 30

Yamama Saudi Cement Company Entity controlled or significantly influenced 14,759 (1) 3,841 1,738

HH Prince Sultan Bin Mohamed Bin Saud Al Kabeer Co.’s Entity controlled or significantly influenced 1,107 1,330 750 3

Bahrain National Insurance Company Entity controlled or significantly influenced 166 39 (52) 1 293

National Water Company Entity controlled or significantly influenced 4 8

Arabian Shield Cooperative Insurance Company Entity controlled or significantly influenced 2,007 945

Statement if any member of the Board of Directors, Board Secretary or Senior Management waived any remuneration From incorporation of the Company to date no such waivers have occurred. Statement if any Shareholder of the Company waived any rights to profits From incorporation of the Company to date no such waivers have occurred.


35

Details of Paid, Accrued and Prepaid Taxes Regulatory Fees and all Statutory Fees and Levies - All amounts in SAR ‘000 The following payments were made during the year.

Description of Fee or Charge Reason for Fee or Charge 2020

Withholding Tax - Reinsurers Department of Zakat and Income Tax Regulations 8,441

Withholding Tax - Other Department of Zakat and Income Tax Regulations 161

Zakat Department of Zakat and Income Tax Regulations 6,645

Income Tax Department of Zakat and Income Tax Regulations 748

Value Added Tax Department of Zakat and Income Tax Regulations 31,460

CCHI Levy Council of Cooperative Health Insurance Regulations 2,829

SAMA Levy Saudi Central Bank Regulations 1,153

Chamber of Commerce Chamber of Commerce Membership and Attestation Fees 113

GOSI Social Insurance Contributions 4,000

Employees and Dependents’ Levies Labour Levies 986

Visas, Iqamas and Others Government Services for corporate and employment affairs 126

The following amounts were outstanding due / (prepaid) at the end of the year.

Description of Fee or Charge Reason for Fee or Charge 2020

Withholding Tax - Reinsurers Department of Zakat and Income Tax Regulations 9,561

Withholding Tax - Other Department of Zakat and Income Tax Regulations 0

Zakat Department of Zakat and Income Tax Regulations 36,483

Income Tax Department of Zakat and Income Tax Regulations 1,752

Value Added Tax Department of Zakat and Income Tax Regulations 281

CCHI Levy Council of Cooperative Health Insurance Regulations 753

SAMA Levy Saudi Central Bank Regulations 2,191

Chamber of Commerce Chamber of Commerce Membership and Attestation Fees 0

GOSI Social Insurance Contributions (260)

Employees and Dependents’ Levies Labour Levies 0

Visas, Iqamas and Others Government Services for corporate and employment affairs 0


36

Statement of the value of any investment or revenues created for the benefit of employees From incorporation of the Company to date no such transactions occurred. Statements The Board of Directors state that: x Proper books of account are maintained. x The system of internal control is sound in design and has been effectively implemented. x There are no significant doubts concerning the ability of the Company to continue as a going concern. External Auditors’ Qualifications There are no qualifications in the Auditor’s Report. Change of External Auditors The General Assembly held 30 June 2020 approved the appointment as external auditors for one year of Crowe (Al Azem, Al Sudairy, Al Shaikh & Partners) and PKF (Ibrahim Ahmad Al-Bassam & Co) as recommended by the Audit Committee and approved their remuneration. There was no recommendation by the Board of Directors to change External Auditor before the end of the existing appointment period. Treasury Stocks From incorporation of the Company to date no such transactions occurred. ___________________________ ___________________________ Mohammed Bin Ali Bassel Al Abdulkarim Authorized Board Member CEO Riyadh 07 March 2021

prism arabian shield cooperative insurance company …

Documents