The board of directors is pleased to present the shareholders with the company's 27th Annual Report that comprises the company's activities, financial statistics, balance sheet and income statement for the financial year ended 31 December 2003.

The year 2003 was the first year for the current board in its present term that ends in 2005. With regard to work management, the board has continued in the footsteps of its predecessor based on the one team spirit enriched by the pro-active involvement with the company's executive management team. This approach facilitates the board's endeavour to achieve the targets stipulated in the company's operational and investment plans as well as the company's annual developments in the administration, financial and technical levels.

All the goals and objectives set out by the management have been achieved at a satisfactory level of which we summarise the following:

• The achievement of performance results higher than the estimated performance levels for the year 2003. The results of the company are the best ever since its establishment, despite the political and economical difficulties and the instability which the region witnessed.
• The completion of the procedures regarding the compliance of your company with the requirements stipulated by the commercial companies law number 21 for the year 2001 and the executive legislation that regulates the issued law as stated by the Minister of Commerce's order number 6 for the year 2002.
• The continued support of the Bahrainisation policy within the company, including those of senior management. In addition the company continued to train and encourage national cadres to takeover more responsibilities within the firm.
• The development and organisation of the board of directors' audit performance through the formation of an internal audit committee in addition to the executive committee. The appointment of a legal audit office to carryout the task of the internal auditor.
• The review of the company's investment policies and guidelines in response to the anticipated changes that are expected to be introduced by the Bahrain Monetary Agency (BMA) to the special supervisory procedures concerning the kingdom's insurance sector.
• The constant development of the company's existing products and the introduction of new products to the market, especially in the health insurance which alongside life insurance is more likely to grow compared to other insurance classes. In this respect, the company recently signed an agreement with the International Health Insurance (IHI) Company whereby your company will market IHI's new medical insurance products in Bahrain. These products will be officially launched in Bahrain in the next two months.
• The completion of identifying and specifying all work steps, guidelines regarding the company's underwriting, administration and financial operations.

Furthermore the company has continued to bolster its working relationship with both local and international insurances companies and the government supervisory authorities. The efforts and investments are continuing towards improving and enhancing the company's information systems that will contributes towards the relentless efforts to modernise and enhance the overall work procedures within the company.

With regard to investments the board of directors, despite low interest rates and the difficulties surrounding the investment climate within some international markets, has been able to achieve acceptable rate of return on investments of both shareholders and policyholders. This was possible through the adoption of safe approaches to management and development of the company's investment portfolio.

Insurance Market Developments

The difficult and exceptional circumstances which the international insurance markets have witnessed in the past three to four years continues despite improvements in the premiums of a number risks and the growth of investment returns.

The underwriting capacity remains limited while the restrictions of international insurance underwriters in terms of rates and conditions continue.

It is estimated that the existence of such a condition during 2004 will lead to the shift from proportionate reinsurance treaties for general insurance to non-proportionate treaties. Such a move would result in the increase of risk level affecting the net growth results of direct insurance portfolios.

Moreover regarding the Bahraini Insurance Markets, competition remains high amongst the operating insurance firms, which resulted in negative implications despite the proportional increase in the premiums of some risks.

It is to be noted that strenuous efforts is being exerted by the BMA to promote the Kingdom as the region's insurance centre, which will place Bahrain at a better regional level provided that these efforts are concentrated towards building the necessary infrastructure needed to support such a vision.

The local insurance market, currently observing a limited growth, is expected to witness in the year 2004 strong competition among local companies. This competition is prompted by the entrance of new direct insurance companies who are keen to acquire new business and the granting of licenses for Takaful reinsurance firms with large capital, will offer extra underwriting capacity for local insurance companies. Furthermore the competition is intensified with the granting of licenses for international brokerage firms, who are establishing Bahrain as a centre for their operations.

It is expected that discussions between BMA and Bahrain Insurance Association regarding pricing of third party motor insurance will conclude by 2004. It is expected that the outcome of the talks will impact the profit results of this insurance class which is generally negative.

Company Performance for the Year 2003

Business results of the Company for the year 2003 are very encouraging. Gross premium grew to BD 5,506,615 for the year 2003 compared to BD 5,039,822 for the previous year registering a growth of 9%. This increase is attributed to the increase in premiums of all classes of business.

Net earned premium has increased from BD 1,343,671 for 2002 to BD 1,681,188 for 2003 showing a growth of 25%.

Net commission income earned has grown from BD 213,572 for 2002 to BD 405,649 for 2003 showing a growth of 90%.

Net claims for 2003 increased marginally by 2.9% only to reach BD 897,520 compared to BD 872,416 for 2002.

However, the loss ratio was only 53.4% in 2003 as against the loss ratio of 64.9% in 2002.

Results of various insurance activities before deducting general and administration expenses are as follows:

Investment income was BD 427,046 for the year 2003 as compared to BD 327,685 for the previous year, a growth of 30%.

The general and administrative expenses were reasonably stable at BD 465,649 for 2003 as compared to BD 463,089 for 2002.

The net profit for the year was BD 853,039 as compared to BD 557,871 for the previous year, a growth of 52.9% over the previous year.

The overall performance has increased the Shareholders' equity from BD 3,850,310 as at 31 December 2002 to BD 4,960,383 as at 31 December 2003.

Proposed Distributions


Amount available for distribution is BD 913,614 as follows:

Thanks and Appreciation:

On behalf of our shareholders and the Board of Directors, I would like to extend my sincere thanks and appreciation to HM King Hamad Bin Isa Al Khalifa, The King of the kingdom 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.

I acknowledge with thanks the support given to our company by the Bahrain Monetary Agency headed by the Governor, HE Shaikh Ahmed Bin Mohamed Al Khalifa.

On behalf of the Board, I would like to express my gratitude to all the distinguished shareholders for their continuous support and encouragement to the Board.

Finally, I would like to congratulate the management and staff for the excellent business results of this year and also thank them for their loyalty and dedication.

A.Latif Sharif Al Rayes
Chairman
6 March 2004