Welcome to Gulf Insurance Co. – Kuwait: Shareholders

Chairman’s Message

It is my pleasure to welcome you on behalf of the Company's Board of Directors, and to present to you the forty sixth annual report of the company, showing the accomplishments that were realized and the major events that have affected the company's operations during 2009.

2009 was a year of numerous challenges both on economic and political levels. The government resigned and was reformed, and then the National Assembly was dissolved. Thereafter, the elections took place and many interpellations were submitted against the Prime Minister and other ministers. On the economic level, the year 2009 is deemed among the most challenging years. If we do not consider the Laws of Deposit Guarantee and Financial Stability, then the economic situation in Kuwait is viewed as being the worst among the Gulf Countries, in spite of the accumulated financial surplus ending with the financial surplus realized in the first eight months of the budget 2009 – 2010, estimated at about 6.4 billion dinars. The year 2009 ended without Kuwait Stock Exchange realizing any noticeable growth; it rather witnessed a recession while main stock markets in the region and the world realized an annual growth exceeding 20%. The price index of the market was closed with a recession of about 10% in comparison with that of 2008. As to the weighted index, it lost about 5.15%. Since the earlier stages of the emergence of the Global Financial Crisis, in addition to the declines in 2009 and what was lost in the market starting from the first of September 2008, it was the main indicator of the market's extensive loss rate of 50.71% for the price and 45.44% for the weight, while the market lost about 28 billion dinars of its capital value during that period… We can say that, in 2009, the Kuwait stock exchange witnessed the steepest correction operation during the last ten years and lost 22 billion dollars of its market value. This was reinforced by the abstention of the banks from financing the investment in shares and real estates, the shortage of cash flows and not activating the Financial Stability Law. The obvious paradox lies in that the markets of the States in which the spark of the crisis broke out have ended 2009 with significant gains, unlike the Kuwait stock exchange. The American Dow Jones index gained more than four thousand points between the bottom and the peak, with an increase of 63.5%, as to the Japanese Nikkei index, it gained about 3700 points from the lowest point that it has reached, i.e. with an increase of 53.3%. Concerning the British Financial Times index, it gained 57.3% in comparison with the lowest reached point (about two thousand points), as to German DAX index, it gained about 2500 points, i.e. 67.9%. Finally, French CAC (40) index gained about 1500 point's equivalent to 61.3%.

With regard to the performance of the Gulf stock markets in 2009, it was influenced by many factors, whether progressive or obstructive, of local, regional and worldwide nature. The performance of these markets varied between profits reaching 27.5% (highest) in Saudi Stock Exchange, and losses of 19.2% (lowest), in Bahrain Stock Exchange, while the performance of the five other Gulf markets witnessed fluctuation between them.

In order to improve the economic situation, and consequently the stock exchange, in 2010 in comparison to 2009, there are many economic files that should be accomplished, namely:

The determination of the government in executing the development projects as soon as possible, according to a time schedule.
The stimulation of the financial policies of the State and diversification of the investment channels.
The accomplishment of the economic laws (Capital Market Authority Law, Privatization Law, approval of the amendments of the Commercial Companies Law).
The introduction of strict supervisory laws, the separation of duality in some legislation along with developing these statutes.
The compliance with corporate governance and strong emphasis on it.

Concerning the oil and mineral markets, the (Brent) oil prices increased from 39 dollars in the middle of February 2009 to more than 80 dollars per barrel last October, ending the year above 79 dollars per barrel and marking the biggest annual leap in ten years. Moreover, the ounce of gold increased about 420 dollars between January and December 2009.

In the foreign exchange markets the US dollar jumped to a new exchange rate against the Japanese currency, i.e. to 93.07, following reports which demonstrated a decrease in the number of applications forum employment support in the United States of America to the lowest level in (17) months. The dollar registered (1.4323) against the euro, maintaining its high rate against the European unified currency.

Concerning the latest developments related to the company, 2009 was full of important events that will positively affect the company's activities and its future results, including:

The Acquisition of 55% of the capital of Arab Orient Insurance Company – Jordan.
Increasing our share in Arab Misr Insurance Group (AMIG) to reach 94.84%.
Increasing our share in the Syrian Kuwaiti Insurance Company to reach 53.8%.
Increasing our share in Fajr Al Gulf Insurance and Reinsurance Company – Beirut, to reach 54.7%.
GIC and it's partners in Saudi Arabia have offered 40% of Buruj cooperative insurance company in the IPO which has been covered successfully.
Completion of the combined reinsurance program which is scheduled to be applied as of 01/01/2010. This program encompasses the parent company and our subsidiary companies in Bahrain, Egypt, Jordan, Lebanon and Syria. The program will result in increasing premium retention and increasing reinsurance commission income, in addition to acquiring larger underwriting capacity.
Appointing an international auditing firm for reviewing the internal activities of the company.
Restructuring the investments of the parent company, in order to reduce investments in companies having direct relations with the group, to avoid the negative effect of fluctuations in securities' prices and to provide liquidity enabling us to seize the opportunity that may arise.
As part of company's strategy to expand its branches network, four new branches were opened this year in Khaitan, Al Salmiya, Hawally and Abu Ftaira. Indeed these branches started receiving customers and thereby increasing the number of active branches to eighteen.
Moreover, we have reviewed this year the credit rating of the company given by Standard & Poor's. In spite of the global financial and economic crisis that overwhelmed the world, we managed to maintain our BBB+ rating. However, the future outlook decreased from Positive Outlook to Stable Outlook.

Dear shareholders,

The results achieved by the company during this year clearly demonstrate the above-mentioned as follows:

The increase of premiums written by 12.2%, to reach KD 97,218,702.
The increase of the net technical reserves at 20.3%, to reach KD 69,814,505.
The increase of the investment returns at KD 5,925,291, to reach KD 5,357,232.
The increase of the net profit at 40%, to reach KD 5,049,396.
The increase of the total budget at 6%, to reach KD 254,390,688.
The decrease of the investments, cash and goodwill at 2%, to reach KD 146,019,665.
The decrease of the shareholders' equity at 13.3%, to reach KD 66,711,248.
The net underwriting result realized a profit of KD 5,156,246.

Additional details regarding company's operation during 2009 are listed here-below:

Marine and Aviation Insurance Department

Although that branch witnessed a decrease in premiums of KD 1,318,458 in comparison with 2008, and the volume of its premiums was recorded at KD 9,127,731 due to the contraction of the import operations resulting from the global financial crisis; yet the turnovers of that branch were positive, since the profits of that Department climbed to KD 1,661,843, i.e. with an increase of 38.9% in comparison with 2008. This improved performance is due to the lower loss ratio and the reduced acquisition and administration costs.

Properties Department

The Department achieved a significant and substantial growth in respect of premium production and profits. Written Premium increased from KD 15,617,701 in 2008 to KD 17,847,356 in 2009, i.e. with a raise of KD 2,229,655, at a rate of 14.3%. Moreover, the profitability of the Department grew from KD 457,384 to KD 618,689, with a raise of KD 161,305, at a rate of 35.3%. This is due to the improved loss ratio and the reduced acquisition cost.

Casualty and Motor Department

In spite of the great increase in production of Casualty and Motor Department, which reached KD 3,214,765, at a rate of 7.9%; the written premiums therefore increased to KD 44,089,370 in comparison with KD 40,874,605, yet, the results of the Department witnessed a severe and major decrease reaching KD 3,041,058, at a rate of 81%, hence the profitability of that Department reached KD 713,295 in comparison with KD 3,754,353. This is due to the extraordinary losses under third party liability motor insurance in the Kuwaiti, Syrian and Jordanian markets, coupled with losses of the comprehensive motor insurance in the Saudi and Lebanese markets. The volume of those losses was unprecedented and we are currently studying its causes and laying the necessary solutions to prevent future occurrences.

Life and medical activities

The financial position and investment activity of the company: Despite the challenges of the global financial crisis and the continuation of its repercussions, we have sought to take the necessary allowances resulting from the decrease in value of the investment assets. The investments of the company registered positive returns of KD 5,357,232 at the end of 2009, after the realization of losses of KD 2,422,630 resulting from the decrease in values of our investments listed in the local, regional and international stock exchanges (KD 10,182,534 for the year 2008), in comparison to negative results of KD 568,059 in 2008. It is worth mentioning that due to the continuation of the decrease in values of the investment assets and the dissociation of the company from some of its investments; the cumulative change in the fair value of the investments available for sale and listed among the shareholders' equity decreased by KD 7,551,056. This negatively affected the total of the shareholders' equity which declined from KD 76,976,564 as on 31/12/2008 to KD 66,711,248 as at the end of 2009… In continuation to support of the financial position of the company, we have increased the capital reserves by KD 1,069,638, where the statutory reserve grew to reach KD 12,223,868 representing 72,1% of the company's capital . Voluntary reserve on the other hand reached KD 16,177,281, i.e. 95.4% of the capital… The total consolidated budget increased by KD 14,414,451, reaching 254,390,688, wherein the investment and cash represent 60.8% thereof.

Recommendations

The Board of Directors have the pleasure to recommend upon your esteemed assembly the following apportionments of the distributable profits amounting to KD 18,605,425 of the year, as follows:

10% for the statutory reserve: KD 534,819
10% for the voluntary reserve: KD 534,819
40% cash dividends to the shareholders: KD 6,859,484.

The remaining amounts of KD10,676,303, shall be carried forward to next year. In conclusion, on my own personal behalf and on behalf of all members of the company's board of directors and its executive management, I would like to express praise to HH the Emir of the State of Kuwait, HH the Crown Prince and HH the Prime Minister for their wise leadership of the country toward more prosperity and stability. Moreover, I would like to take this opportunity to congratulate you and the Kuwaiti people on the occasion of the Independence Day and Liberation Day. Our gratitude and appreciation is also given to the Ministry of Commerce & Industry and the persons in charge thereof, as well as to the Department of Insurance Companies for understanding the situation of local market and caring for its interests.

We thank the Ministry of Interior, represented by the General Traffic Department, for its continued attempts to improve the sector of compulsory third party motor insurance. We also show gratitude and appreciation to the customers of the company and to the international and local insurance brokers, for their continuous trust, support and cooperation with us. We would like to thank as well the management and the employees of the company, for their efforts and distinct loyalty contributing to the realization of the targeted results, together with Kuwait Projects Holding Company, the largest shareholder in our company, for its continuous support and cooperation.