The Board of Directors is pleased to present the twenty-sixth annual report of the company to the distinguished shareholders together with the balance sheet and income statement for the financial year ended 31 December 2002.

This year is the third and last year in the term of the current Board, which earned your trust for the period from year 2000 to 2002. This Board has worked in close coordination with the management with a view to strengthen the company’s administration and financial position. Some of the remarkable and important achievements are summarized as below:

• Restructured the company and supported the role of the Bahrainis in its management.
• Reviewed and updated company’s policies and regulations.
• Bahrainized company’s general management.
• Gave special attention to training of Bahraini employees, in order to empower them to take up higher roles in the management of the company.
• Expanded the company’s activities through launching of new products in the market, especially in the classes of Medical and Life insurance.
• Developed the company’s performance in all areas - technical, marketing and investments and produced enhanced returns to the shareholders. This was made possible by laying down certain strategies and action plans for operations and investments as well as by reducing expenses. Further, guided the company’s management and the Executive Committee in their performance.
• The Board paid special attention to the preparation for raising the company’s capital and studied numerous options to meet the requirements of the proposed regulation.
• Modernized the company’s office and equipments in order to improve working conditions and develop levels of performance and productivity. We have successfully completed the installation and running of the General Insurance System (GIS) in place of the old system.
• Strengthened the co-operation and co-ordination with other local insurance companies as well as with regulatory authorities.
• During the period, underwriting and claims procedures manuals for various departments - Motor, Fire & General Accidents, Life & Medical and Marine and manual for Human Resource department were completed. Work is in progress for manuals of other departments.

In addition to the above, despite the difficult political and economic situation in the local and international insurance markets, coupled with the problem of fierce competition and stagnation locally, the company managed to achieve good returns for the shareholders in the past three years.

Insurance Market Conditions

The world insurance industry is still suffering from the difficult situations that prevailed in the past three years wherein major losses were suffered by insurance markets as a result of major claims from natural disasters and others.

As for the local market, the situation is still difficult and competition is strong, despite the positive effects brought in by the increase in oil prices and numerous new projects in the Kingdom. The current unstable political conditions following the threat of war in the region, would of course, have their adverse effects on the future development of the market not withstanding the opportunities for insurance of war risks on cargo and hull.

The Bahrain insurance market has witnessed a change in the supervising body from Ministry of Commerce to Bahrain Monetary Agency. It is hoped that this would add value to the local insurance market. The work is now in progress on revising the insurance regulations law in addition to a plan aimed at developing the activities and performance of the insurance market.

The company has prepared a draft of memorandum and articles of association to be in line with the new commercial company’s law issued by decree number 21 for the year 2001. This draft is being placed for the perusal and approval at your Extra-ordinary General Meeting that will be held immediately after the Annual General Meeting.

Difficult investment conditions that prevailed in the past two years continued and hope for improvements in the year 2002 did not materialise. The global war against terrorism had negative impacts on investment climate both on movement of market indices and levels of interest on bank deposits. The Board put in additional efforts to preserve shareholders’ wealth and manage the investments through safe and conservative means.

As for the international insurance industry, the market is still suffering from the negative impact of 11th September and military confrontations around the world as well as the downfall of international financial markets.

From all of the above, many re-insurance companies suffered tremendous damage to their financial stability. Some were forced out of the market altogether or from certain regional markets, especially from the Middle East. This has led to increase in cost of re-insurance programs of direct insurers, as a result of shortage of capacity available in the international market. All of this had major effects on financial results of direct insurers like your company.

The difficult market conditions faced by the international insurance market directly affect the regional and local direct insurance markets due to the strong and lively bond that exist between them. This is what makes it necessary to strengthen and increase investments towards supporting the Arab re-insurance industry.

Personal insurance, especially Life and Medical Insurance have the potential to grow compared to other general insurance branches. This is due to privatization of education, health and social insurance services by many countries in the region and around the world. Your company therefore pays a lot of attention to these branches of insurance and has ambitious plans to expand them to benefit from such growing demand in the Bahraini market.

Company Activities for the Year 2002

Despite what we have mentioned about the difficult conditions in the market on both operations and investments, the company has achieved good results compared to the budget, action plan and investment program for 2002.

Total premiums for the year reached BD 5,039,822 compared to BD 3,725,510 for 2001, an increase of BD 1,314,312 equivalent to a growth of 35.27%. This is attributed to the increase in premiums of almost all classes of insurance.

Net earned premiums increased by 28.25% from BD 1,047,654 for 2001 to BD 1,343,671 for 2002.

The company earned a net commission of BD 213,572 for the year 2002 compared to BD 223,825 in the year 2001 with a decrease of 4.58%.

Net claims for this year increased by 30.95% to reach BD 872,416 compared to BD 666,213 for the year 2001.

The company maintained a stable percentage of total loss ratio on its portfolio, with a slight increase from last year. Loss ratio reached 64.9% for the year 2002 compared to 63.6% last year.

Results of various insurance activities before deducting general expenses were as follows:

Investment income was BD 327,685 for the year 2002 compared with BD 357,662, a decrease of 8.38%. This is due to the difficult conditions existing in the market that we mentioned earlier.

The General expenses was BD 463,089 this year compared to BD 432,643 in the year 2001, an increase of 7%.

Net profit of the year was BD 557,871 for the year 2002 as compared to BD 421,223 for the year 2001 an increase of 32.4% despite the new provision of BD 93,947 for unearned commission for the first time and provision for staff bonus of BD 37,784 for the year 2002.

As for total shareholders’ equity has increased from BD 3,543,125 to BD 3,850,310.

Proposed Distributions

Amount available for distribution is BD 626,362 as follows:

Thanks and Appreciation:

On behalf of our shareholders, the Board of Directors would like to extend their sincere thanks and appreciation to HM Shaikh Hamad Bin Isa Al Khalifa, The King of Bahrain, HH Shaikh Khalifa Bin Salman Al Khalifa, the Prime Minister and HH Shaikh Salman Bin Hamad Al Khalifa, The Crown Prince and Commander-in-Chief of the Bahrain Defence Force.

The Board would also like to thank HE the Minister of Commerce and HE The Governor of The Bahrain Monetary Agency for their continuous support to the insurance industry in Bahrain and to all Ministers, the private sector establishments and individuals who dealt with our company and placed their trust. We also extend our thanks to all the distinguished shareholders for their trust and continuous encouragement to the Board. Our congratulations and sincere thanks go to the executive management and the employees for their loyalty and dedication.

A.Latif Sharif Al Rayes
Chairman
25 February 2003