The Mediterranean and Gulf Insurance and Reinsurance Co. announces the interim financial results for the period ending on 30-09-2017 (Nine Months)

MEDGULF 8030 -2.95% 28.97 -0.88
Element Current quarter Similar quarter for previous year % Change current Previous quarter % Change previous
Net profit (loss) before Zakat 60,122 60,048 0.12 -417,318 -
Surplus (deficit) of insurance transactions less returns of policy holders investment (operating transactions results) 55,784 57,395 -2.81 -419,127 -
Gross written premiums (GWP) 513,177 510,966 0.43 869,031 -40.95
Net written premiums (NWP) 425,589 419,997 1.33 702,335 -39.4
Net incurred claims 458,832 539,481 -14.95 539,794 -15
Net profit (loss) of policy holders investment 1,827 5,544 -67.05 2,143 -14.75
Net profit (loss) of shareholders capital investment 3,609 2,432 48.4 1,430 152.38
All figures are in (Thousands) Saudi Arabia, Riyals
Element Current period Similar period for previous year % Change
Net profit (loss) before Zakat -450,167 55,626 -
Surplus (deficit) of insurance transactions less returns of policy holders investment (operating transactions results) -461,108 29,086 -
Gross written premiums (GWP) 2,166,222 2,635,929 -17.82
Net written premiums (NWP) 1,815,136 2,239,089 -18.93
Net incurred claims 1,565,423 1,871,096 -16.34
Net profit (loss) of policy holders investment 8,164 14,131 -42.23
Net profit (loss) of shareholders capital investment 6,755 19,886 -66.03
Earning or loss per share, Riyals -11.25 1.39 -
All figures are in (Thousands) Saudi Arabia, Riyals
Element EXPLAINATION
Reasons of increase (decrease) for the quarter compared with same quarter last year The reason behind the increase in net profit in the current quarter compared to the same quarter of the previous year is the reversal of net provision for doubtful debts by SR 56 million. The reason behind the increase in shareholders investments income during the current quarter compared to the same quarter of the previous year is the increase in income from investment in associate.
Reasons of increase (decrease) for the period compared with same period last year The reason behind the net loss during the current period compared to net profit in the same period of the previous year is the decrease in net underwriting result by 57.6% due to the decrease in business and increase in net loss ratio of 6%. In addition, the company has strengthened its doubtful debt provisions amounting to SR 377 million which consist of: SR 48 million related to provision on related parties receivable, SR 163 million related to others reinsurance receivable balances and SR 166 million additional doubtful debt provisions on policyholders receivable. Also, the company has written off discontinued ERP system amounting to SR 26 million. The reason behind the decrease in shareholders investments income during the current period compared to the same period of the previous year is the decrease in special commission income by 42.3% and the decrease in realized gain on sale of available for sale investments.
Reasons of increase (decrease) for the quarter compared with the previous quarter The reason behind the net profit during the current quarter compared to net loss in the previous quarter is the improvement in underwriting results with lowered net loss ratio by 11% that contributed in the increase in net underwriting result by 218.2%. In addition, during the current quarter, the company has reversed net provision for doubtful debts by SR 56 million. The reason behind the increase in shareholders investments income during the current quarter compared to the previous quarter is the is the increase in income from investment in associate.
External auditor's report containing reservation BASIS FOR QUALIFIED CONCLUSION As disclosed in Note 11 to the accompanying interim condensed financial information, during the three-month period ended 30 September 2017, the Company appointed a consultant to carry out an exercise that includes identification of all related party relationships and related party balances within reinsurance balances receivable and reinsurance balances payable. This exercise is still on-going and on completion certain parties included in the net reinsurance balance receivable of Saudi Riyals 174.3 million and reinsurance balance payable of Saudi Riyals 64.2 million may be identified as related parties which may eventually require such balances to be reclassified to related party balances. The underlying transactions with such related parties will then require disclosure under related party transactions. As the exercise is still on-going, management is unable to provide a complete list of all related parties balances and transactions which impacts both the presentation and disclosure of related parties. Had we been able to complete our review procedures on the completeness of related parties, matters might have come to our attention indicating that adjustments may be necessary to the accompanying interim condensed financial information.
QUALIFIED CONCLUSION
Based on our review, except for the possible effects of the matter described in the Basis for Qualified Conclusion paragraph, nothing has come to our attention that causes us to believe that the accompanying interim condensed financial information is not prepared, in all material respects, in accordance with IAS 34 and SAMA guidance on accounting for zakat and income taxes. EMPHASES OF MATTER
Without further qualifying our conclusion. We draw attention to Note 1 and Note 16 to the accompanying interim condensed financial information which states that on 2 October 2017, SAMA issued a follow-up letter to the Company to comply with the solvency margin requirement by 31 December 2017 and intimated that failure to do so will result in the suspension of the Companys operations. Further, on 23 October 2017, SAMA issued another letter highlighting the critical financial condition of the Company and significant deterioration in its solvency margin despite repeated follow-ups. SAMA in its aforesaid letter also highlighted the serious irregularities in governance issues and delays in the collection of long outstanding related party balances. SAMA in its letter also urged the Companys Board of Directors to come up with urgent and effective solution for its critical financial condition. In addition, SAMA reiterated that it may suspend the operations of the Company at any time even before 31 December 2017 if no tangible actions are taken to improve the deteriorating solvency margin situation. Due to the continuous decline in the financial performance of the Company, management does not expect to meet the solvency margin requirements by 31 December 2017. This condition indicates that a material uncertainty exists that may cast significant doubt on the Companys ability to continue as a going concern. We draw attention to Note 1 to the accompanying interim condensed financial information which states that the Company in its extra-ordinary general meeting held on 22 September 2017 approved the reduction of share capital from Saudi Riyals 1 billion to Saudi Riyals 400 million to absorb the accumulated losses in order to comply with the requirements of the Regulations for Companies. This resulted in the accumulated losses to decline below one-half of the Companys share capital as at 30 September 2017. The reduction of capital has been approved by the regulatory authorities.
Reclassifications in quarterly financial results We reclassified some numbers within the annual financial results for comparative reasons to ensure consistency with the current period, there was no financial impact on net income or accumulated surplus after the reclassification.
Other notes Basic and diluted earnings/ losses per share (EPS) for the period was calculated by dividing the net income for the period by the weighted average number of shares issued and outstanding during the period amounting to 40 million shares. The loss per share for the current period is SR 11.25 compared to earning per share SR 1.39 for the same period of the previous year. The total shareholders equity (no minority interest) at current period is SR 474 million compared to SR 945 million during the same period of the previous year, a decrease of 49.8%. The total insurance operations comprehensive income during the current quarter is 0.01 million compared to 4 million during the same quarter of the previous year , a decrease of 99.8%, and compared to 0.012 million during the previous quarter of the same year, a decrease of 16.7%. The total shareholders, comprehensive income during the current quarter is 60.5 million compared to 59.7 thousand during the same quarter of the previous year, an increase of 1.3%, and compared to shareholders, comprehensive loss of 417 million during the previous quarter of the same year. The total insurance operations comprehensive income during the current period is 0.039 million compared to 3 million during the same period of the previous year, a decrease of 98.6%. The total shareholders comprehensive loss during the current period is 450 million compared to shareholders, comprehensive income of 48 million during the same period of the previous year. The accumulated losses as at 30 September 2017 has reached to SR 78 million which is 19.5% of the paid up share capital.

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