Notes to the Financial Statements

Bupa Arabia for Cooperative Insurance Company (the “Company”) is a Saudi Joint Stock Company incorporated in the Kingdom of Saudi Arabia as per the Ministry of Commerce’s resolution number 138/K dated 24 Rabi Thani 1429H (corresponding to 1 May 2008). The Commercial Registration number of the Company is 4030178881 dated 5 Jumad Awwal 1429H (corresponding to 11 May 2008). The Registered Office of the Company is situated at:

Al-Khalediyah District,

Prince Saud Al Faisal Street,

Front of Saudi Airlines Cargo Building,

P.O. Box 23807, Jeddah 21436,

Kingdom of Saudi Arabia.

The Company is licensed to conduct insurance business in the Kingdom of Saudi Arabia under cooperative principles in accordance with Royal Decree No. M/74 dated 29 Shabaan 1428H (corresponding to 11 September 2007) pursuant to the Council of Ministers’ Resolution No 279 dated 28 Shabaan 1428H (corresponding to 10 September 2007).

The objective of the Company is to transact cooperative insurance operations and related activities in the Kingdom of Saudi Arabia in accordance with its articles of association, and applicable regulations in the Kingdom of Saudi Arabia. The Company underwrites medical insurance only.

The Board of Directors approves the distribution of the surplus from insurance operations in accordance with the Implementing Regulations issued by the Saudi Central Bank (“SAMA”), whereby the shareholders of the Company are to receive 90% of the annual surplus from insurance operations and the policyholders are to receive the remaining 10%. Any deficit arising on insurance operations is transferred to the shareholders’ operations in full.

(a) Basis of presentation and measurement

The Financial Statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRSs) as endorsed in the Kingdom of Saudi Arabia, and other standards and pronouncement issued by Saudi Organisation for Chartered and Professional Accountants (“SOCPA”) (referred to as “IFRS as endorsed in KSA”).

The Financial Statements are prepared under the going concern basis and the historical cost convention, except for the measurement of investments at their Fair Value through Statement of Income (FVSI) and available-for-sale investments and liabilities for cash-settled-share based payments and defined benefit obligations [Employees’ End of Service Benefits (“EOSBs”)] recorded at the present value. The Company’s Statement of Financial Position is presented in order of liquidity. Except for available-for-sale investments, fixtures and furniture and Right-of-use assets, intangible assets, goodwill, statutory deposit, accrued income on statutory deposit, provision for end-of-service benefits and accrued income payable to SAMA, all other assets and liabilities are of short-term nature, unless, stated otherwise.

As required by the Saudi Arabian Insurance Regulations (The Implementation Regulations), the Company maintains separate books of accounts for “Insurance Operations” and “Shareholders’ Operations”. Accordingly, assets, liabilities, revenues and expenses attributable to either operation are recorded in the respective accounts. Note 36 to these Financial Statements provides the Statement of Financial Position, Statements Of Income, comprehensive income and cash flows of the insurance operations and shareholders operations, separately.

During 2018, SAMA issued illustrative Financial Statements for the insurance sector in the Kingdom of Saudi Arabia. In preparing the Company level Financial Statements in compliance with IFRS as endorsed in the Kingdom of Saudi Arabia, the balances and transactions of insurance operations are combined with those of shareholders’ operations. Inter-operation balances and transactions, if any, are eliminated in full. The accounting policies adopted for the insurance and shareholders’ operations are uniform for like transactions and events in similar circumstances.

(b) Functional and presentation currency

These Financial Statements are presented in Saudi Arabian Riyals (SR), which is the Company’s functional currency. All financial information presented in SR has been rounded off to the nearest thousand except where otherwise indicated.

(c) Fiscal year

The Company follows a fiscal year ending on 31 December.

(d) Critical accounting judgments, estimates and assumptions

The preparation of the Company’s Financial Statements requires management to make judgments, estimates and assumptions that affect the reported amount of revenue, expenses, assets and liabilities, and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require material adjustment to the carrying amount of assets or liabilities affected in future years. Estimates and judgments are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The following are the accounting judgments and estimates that are critical in the preparation of these Financial Statements:

(i) The ultimate liability arising from claims made under insurance contracts

Judgment by management is required in the estimation of amounts due to medical providers and third parties arising from claims made under insurance contracts. Such estimates are necessary based on assumptions derived from several factors involving varying degrees of judgment and uncertainty as well as actual results may differ from management’s estimates resulting in future changes in estimated liabilities. The Company estimates its claims based on its previous experience of its insurance portfolio. The provision for claims incurred but not reported (IBNR) is an estimation of claims which are expected to be reported subsequent to the date of Statement of Financial Position, for which the insured event has occurred prior to the date of Statement of Financial Position.

The primary technique adopted by management in estimating the cost of notified and IBNR claims, is that of using the past claims settlement trends to predict future claims settlement trends. Claims requiring court or arbitration decisions, if any, are estimated individually. The Management reviews its provisions for claims incurred, and claims incurred but not reported, on a monthly basis. Any difference between the provisions at the Statement of Financial Position date and actual settlement is included in provisions in the following year in the Statement of Income for that year. The provision for outstanding claims, as at 31 December, is also verified by an independent actuary.

A range of methods such as the Chain Ladder Method, the Bornhuetter-Ferguson Method and the Expected Loss Ratio Method are used by the actuaries to determine these provisions. Also, the Actuaries have used a segmentation approach which includes analyzing the costs per member per year for the medical line of business. Underlying these methods are also a number of explicit or implicit assumptions relating to the expected settlement amount and the settlement patterns of the claims.

Estimation of premium deficiency for medical insurance is highly sensitive to a number of assumptions as to the future events and conditions. It is based on an expected loss ratio for the unexpired portion of the risks for active written policies. To arrive at the estimate of the expected loss ratio, the Company’s actuarial team, and also the independent actuary, consider the claims and premiums relationship which is expected to apply on a month-to-month basis, and ascertain, at the end of the financial period, whether a premium deficiency reserve is required.

(ii) Impairment of receivables

A provision for impairment of receivables and reinsurance receivables is established when there is an objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtors, probability that the debtors will enter into bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the receivable is impaired.

(iii) Deferred acquisition costs

Acquisition costs related to the sale of new policies are recorded as deferred acquisition costs and are amortized in the Statement of Income over the period of policy coverage. If the assumptions relating to future profitability of these policies are not realized, the amortization of these costs could be accelerated and this may also require additional impairment write-offs in the Statement of Income.

(iv) Useful lives of Fixtures, Furniture and Right-of-use assets

The Company’s management determines the estimated useful lives of its Fixtures, Furniture and Right-of-use assets for calculating depreciation. These estimates are determined after considering the expected usage of the assets or physical wear and tear. Management reviews residual values and useful lives annually and future depreciation charges are adjusted where management believes the useful lives differ from previous estimates.

(v) Fair value of financial instruments

The fair value for financial instruments traded in active markets at the reporting date is based on their quoted market price. Where the fair values of financial assets and financial liabilities recorded on the Statement of Financial Position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but if this is not available, judgment is required to establish fair values.

(vi) Impairment of available for sale investments

The Company exercises judgment to consider impairment on the available for sale investments at each reporting date. This includes determination of a significant or a prolonged decline in the fair value of equity securities below cost. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. In making this judgment, the Company evaluates among other factors, the normal volatility in share prices. In addition, the Company considers impairment to be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational & financing cash flows.

The Company considers 30% or more, as a reasonable measure for significant decline below its cost, irrespective of the duration of the decline, which is recognized in the Statement of Income as an impairment charge on investments. A prolonged decline represents a decline below cost that persists for 1 year or longer irrespective of the amount and is recognized in the Statement of Income accordingly as an impairment charge on investments. The previously recognized impairment loss in respect of equity investments cannot be reversed through the Statement of Income. The Company reviews its debt securities classified as available for sale at each reporting date to assess whether they are impaired.

(vii) Going concern

The Company’s management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern. Therefore, the Financial Statements continue to be prepared on the going concern basis.

(viii) Impairment of Goodwill

The Company tests whether goodwill has suffered any impairment on an annual basis. For the 2021 and 2020 reporting periods, the recoverable amount of the cash-generating units (CGUs) was determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets approved by management covering a three-year period. Cash flows beyond the three-year period are extrapolated using the estimated growth rates stated in note 4. These growth rates are consistent with forecasts included in industry reports specific to the industry in which each CGU operates.

Goodwill is initially measured at cost being the excess of the net fair value of the identifiable assets and liabilities acquired. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment for goodwill is determined by assessing the recoverable amount of the cash generating unit (or a group of cash generating units) to which the goodwill is related. When the recoverable amount of the cash-generating unit (or a group of cash generating units) is less than the carrying amount of the cash generating unit (or a group of cash generating units) to which goodwill has been allocated, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. The recoverable amount is the greater of its value in use or fair value less cost to sell. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset.

The significant accounting policies applied in the preparation of these Financial Statements are summarized below. These policies have been consistently applied to each of the years presented except new IFRS standards, IFRIC interpretations and amendments thereof, adopted by the Company as explained below:

(a) New IFRS Standards, IFRIC interpretations and amendments thereof, adopted by the Company:

The following new standards, amendments and revisions to existing standards, which were issued by the International Accounting Standards Board (IASB), have been effective from 1 January 2021 and accordingly adopted by the Company. The Company has assessed that the amendments have no significant impact on the Company’s Financial Statements, as applicable:

Standard/Amendments	Description	Effective date
Amendment to IFRS 16, “Leases” – COVID-19 related rent concessions	As a result of the coronavirus (COVID-19) pandemic, rent concessions have been granted to lessees. Such concessions might take a variety of forms, including payment holidays and deferral of lease payments. On 28 May 2020, the IASB published an amendment to IFRS 16 that provides an optional practical expedient for lessees from assessing whether a rent concession related to COVID-19 is a lease modification. Lessees can elect to account for such rent concessions in the same way as they would if they were not lease modifications. In many cases, this will result in accounting for the concession as variable lease payments in the period(s) in which the event or condition that triggers the reduced payment occurs.	Annual periods beginning on or after 1 June 2020

(b) Standards issued but not yet effective:

Standards issued but not yet effective up to the date of issuance of the Company’s Annual Financial Statements are listed below. The Company intends to adopt these standards when they become effective.

Standard, interpretation, amendments	Description	Effective date
Amendment to IFRS 16, “Leases” – COVID-19 related rent concessions Extension of the practical expedient	As a result of the coronavirus (COVID-19) pandemic, rent concessions have been granted to lessees. In May 2020, the IASB published an amendment to IFRS 16 that provided an optional practical expedient for lessees from assessing whether a rent concession related to COVID-19 is a lease modification. On 31 March 2021, the IASB published an additional amendment to extend the date of the practical expedient from 30 June 2021 to 30 June 2022. Lessees can select to account for such rent concessions in the same way as they would if they were not lease modifications. In many cases, this will result in accounting for the concession as variable lease payments in the period(s) in which the event or condition that triggers the reduced payment occurs.	Annual periods beginning on or after 1 April 2021.
A number of narrow-scope amendments to IFRS 3, IAS 16, IAS 37 and some annual improvements on IFRS 1, IFRS 9, IAS 41 and IFRS 16.	Amendments to IFRS 3, “Business combinations” update a reference in IFRS 3 to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations. Amendments to IAS 16, “Property, plant and equipment” prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognize such sales proceeds and related cost in statement of income. Amendments to IAS 37, “Provisions, contingent liabilities and contingent assets” specify which costs a company includes when assessing whether a contract will be loss-making. Annual improvements make minor amendments to IFRS 1, “First-time Adoption of IFRS”, IFRS 9, “Financial instruments”, IAS 41, “Agriculture” and the Illustrative Examples accompanying IFRS 16, “Leases’.	Annual periods beginning on or after 1 January 2022.
Narrow scope amendments to IAS 1, Practice statement 2 and IAS 8	The amendments aim to improve accounting policy disclosures and to help users of the Financial Statements to distinguish between changes in accounting estimates and changes in accounting policies.	Annual periods beginning on or after 1 January 2023.
Amendment to IAS 12 – deferred tax related to assets and liabilities arising from a single transaction	These amendments require companies to recognize deferred tax on transactions that, on initial recognition give rise to equal amounts of taxable and deductible temporary differences.	Annual periods beginning on or after 1 January 2023.
IFRS 17	Insurance Contracts	See note below
IFRS 9	Financial Instruments	See note below

IFRS 17 – Insurance Contracts

Overview

This standard which was published on 18 May 2017 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts and supersedes IFRS 4 – Insurance contracts.

The new standard applies to insurance contracts issued, to all reinsurance contracts and to investment contracts with discretionary participating features provided the entity also issues insurance contracts. It requires to separate the following components from insurance contracts:

(i) embedded derivatives, if they meet certain specified criteria; (ii) distinct investment components; and (iii) any promise to transfer distinct goods or non-insurance services.

These components should be accounted for separately in accordance with the related standards (IFRS 9 and IFRS 15).

Measurement

In contrast to the requirements in IFRS 4, which permitted insurers to continue to use the accounting policies for measurement purposes that existed prior to January 2005, IFRS 17 provides the following different measurement models:

The General model is based on the following “building blocks”:

(a) The Fulfilment Cash flows (FCF), which consists of:

• probability-weighted estimates of future cash flows;
• an adjustment to reflect the time value of money (i.e. discounting) and the financial risks associated with those future cash flows; and
• a risk adjustment for non-financial risk.(b) The Contractual Service Margin (CSM). The CSM represents the unearned profit for a group of insurance contracts and will be recognized as the entity provides services in the future. The CSM cannot be negative at inception; any net negative amount of the fulfilment cash flows at inception will be recorded in profit or loss immediately. At the end of each subsequent reporting period the carrying amount of a group of insurance contracts is remeasured to be the sum of:
• the liability for remaining coverage, which comprises the FCF related to future services and the CSM of the group at that date; and
• the liability for incurred claims, which is measured as the FCF related to past services allocated to the group at that date.

The CSM is adjusted subsequently for changes in cash flows related to future services but the CSM cannot be negative, so changes in future cash flows that are greater than the remaining CSM are recognized in Statement of Income. Interest is also accreted on the CSM at rates locked in at initial recognition of a contract (i.e. discount rate used at inception to determine the present value of the estimated cash flows). Moreover, the CSM will be released into Statement of Income based on coverage units, reflecting the quantity of the benefits provided and the expected coverage duration of the remaining contracts in the group.

The Variable Fee Approach (VFA) is a mandatory model for measuring contracts with direct participation features (also referred to as ‘direct participating contracts’). This assessment of whether the contract meets these criteria is made at inception of the contract and not reassessed subsequently. For these contracts, the CSM is also adjusted for in addition to adjustment under general model.

(i) changes in the entity’s share of the fair value of underlying items; and (ii) changes in the effect of the time value of money and financial risks not relating to the underlying items.

In addition, a simplified Premium Allocation Approach (PAA) is permitted for the measurement of the liability for the remaining coverage if it provides a measurement that is not materially different from the general model or if the coverage period for each contract in the group is one year or less. With the PAA, the liability for remaining coverage corresponds to premiums received at initial recognition less insurance acquisition cash flows, unless the Company chooses to recognize the payments as an expense. The general model remains applicable for the measurement of incurred claims. However, the entity is not required to adjust future cash flows for the time value of money and the effect of financial risk if those cash flows are expected to be paid/received in one year or less from the date the claims are incurred.

Effective date

The effective date of IFRS 17 and the deferral of the IFRS 9 temporary exemption in IFRS 4, is currently 1 January 2023. Earlier application is permitted if both IFRS 15 – Revenue from Contracts with Customers and IFRS 9 – Financial Instruments have also been applied. The Company intend to apply the standard on its effective date.

Transition

Retrospective application is required. However, if full retrospective application for a group of insurance contracts is impracticable, then the entity is required to apply either a modified retrospective approach or a fair value approach.

Presentation and Disclosures

The Company expects that the new standard will result in a change in accounting policies for insurance contracts together with amendments to presentation and disclosures.

Impact

The Company is currently assessing the impact of the application and implementation of IFRS 17. As of the date of the publication of these Financial Statements, the Company expects the implementation of IFRS 17 to have impact on the following areas:

Impact area	Summary of impact
Financial impact	The financial impact of applying IFRS 17 compared to IFRS 4 was not significant based on the assessment conducted in 2020.
Data impact	Management is assessing data storage and infrastructure considering systems interfaces and data integrity. However, management believes that the data impact is not likely to be significant.
IT Systems	Management is assessing the current IT systems and considering the migration to a new system in phases by utilizing the current system capabilities before the migration is carried out ensuring IFRS17 disclosure and reconciliation requirements are met.
Process impact	The Company will need to establish new processes to ensure that required line items and additional breakdowns are fed into downstream systems to create the required presentations and disclosures.
Impact on RI Arrangements	The Company’s reinsurance arrangements are not material (less than 1% of GWP is reinsured). New/enhanced systems would be flexible to account for any changes in the Company’s reinsurance strategy.
Impact on Policies & Control Frameworks	The Company needs to update the actuarial and accounting policies and develop guidance papers; From governance perspective, management needs to make sure all IFRS 17 key decisions and results are appropriately reviewed and signed off by the auditors, appointed actuary, audit committee as well as the Board of Directors and internal control functions.

IFRS 9 – Financial Instruments

Overview

This standard was published on 24 July 2014 and has replaced IAS 39. The new standard addresses the following items related to financial instruments:

Classification and measurement

IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost, fair value through other comprehensive income or fair value through Statement of Income. A financial asset is measured at amortized cost if both:

• the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows and;
• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (“SPPI”).

The financial asset is measured at fair value through other comprehensive income and realized gains or losses would be classified through the Statement of Income upon sale, if both conditions are met:

(i) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows and for sale and; (ii) the contractual terms of cash flows are SPPI.

Assets not meeting either of these categories are measured at fair value through Statement of Income. Additionally, at initial recognition, an entity can use the option to designate a financial asset at fair value through Statement of Income if doing so eliminates or significantly reduces an accounting mismatch.

For equity instruments that are not held for trading, an entity can also make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of the instruments (including realized gains and losses), dividends being recognized in Statement of Income.

Additionally, for financial liabilities that are designated as at fair value through Statement of Income, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognized in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in Statement of Income.

Impairment

The impairment model under IFRS 9 reflects expected credit losses, as opposed to incurred credit losses under IAS 39. Under the IFRS 9 approach, it is no longer necessary for a credit event to have occurred before credit losses are recognized. Instead, an entity always accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition.

Hedge accounting

IFRS 9 introduces new requirements for hedge accounting that align hedge accounting more closely with Risk Management. The requirements establish a more principles-based approach to the general hedge accounting model. The amendments apply to all hedge accounting with the exception of portfolio fair value hedges of interest rate risk (commonly referred to as “fair value macro hedges”). For these, an entity may continue to apply the hedge accounting requirements currently in IAS 39. This exception was granted largely because the IASB is addressing macro hedge accounting as a separate project.

Effective date

The published effective date of IFRS 9 was 1 January 2018. However, amendments to IFRS 4 – Insurance Contracts: Applying IFRS 9 – Financial Instruments with IFRS 4 – Insurance Contracts, published on 12 September 2016, changes the existing IFRS 4 to allow entities issuing insurance contracts within the scope of IFRS 4 to mitigate certain effects of applying IFRS 9 before the IASB’s new insurance contract standard (IFRS 17 – Insurance Contracts) becomes effective. The amendments introduce two alternative options:

(1) apply a temporary exemption from implementing IFRS 9 until the earlier of: (a) the effective date of a new insurance contract standard; or (b) annual reporting periods beginning on or after 1 January 2023. Additional disclosures related to financial assets are required during the deferral period. This option is only available to entities whose activities are predominately connected with insurance and have not applied IFRS 9 previously; or; (2) adopt IFRS 9 but, for designated financial assets, remove from Statement of Income the effects of some of the accounting mismatches that may occur before the new insurance contract standard is implemented. During the interim period, additional disclosures are required.

The Company performed a detailed assessment beginning 1 January 2017: (1) The carrying amount of the Company’s liabilities arising from contracts within the scope of IFRS 4 (including deposit components or embedded derivatives unbundled from insurance contracts) were compared to the total carrying amount of all its liabilities; and (2) the total carrying amount of the company’s liabilities connected with insurance were compared to the total carrying amount of all its liabilities. Based on these assessments the Company determined that it is eligible for the temporary exemption. Consequently, the Company has decided to defer the implementation of IFRS 9 until the effective date of the new insurance contracts standard. Disclosures related to financial assets required during the deferral period are included in the Company’s Financial Statements.

Impact assessment

As at 31 December 2021, the Company has total financial assets and insurance related assets amounting to SR 9,298 million and SR 2,724 million, respectively. Financial assets mainly represent:

• Cash and cash equivalents,
• Held to maturity investments,
• Term deposits and designated sukuks amounting to SR 3,925 million (2020: SR 2,854 million).
• FVSI investments amounting to SR 3,258 million (2020: SR 3,695 million).
• Other financial assets, including available for sale investments amounting to SR 2,115 million (2020: SR 2,203 million).

The Company is still finalizing its assessment to measure the impact of applying and implementing IFRS 9. The Company, however, does not expect IFRS 9 to have a material impact on the classification and measurement of financial assets.

The significant accounting policies used in preparing these Financial Statements are set out below:

(i) Financial instruments – initial recognition and subsequent measurement

Financial instruments comprise financial assets and financial liabilities.

Financial assets consist of cash and cash equivalents, premiums receivable, investments, term deposits, statutory deposit and other receivables. Financial liabilities consist of insurance operations surplus payable, amounts due to related parties, and certain other liabilities.

Date of recognition

Regular way sale and purchase of financial instruments is recognized on the trade date, i.e., the date that the Company becomes a party to the contractual provisions of the instrument. Regular way purchases or sales are purchases or sales of financial instruments that require settlement of instrument within the time frame generally established by regulation or convention in the market place.

Measurement of financial instruments

All financial instruments are measured initially at their fair value plus, in the case of financial assets and financial liabilities not at fair value through Statement of Income, any directly attributable incremental costs of acquisition or issue. The classification of financial instruments at initial recognition depends on the purpose for which the financial instruments were acquired and their characteristics. Subsequent to initial measurement, financial instruments are carried at amortized cost except for FVSI and AFS investments which are carried at fair value.

(ii) Cash and cash equivalents

Cash and cash equivalents consist of bank balances and term deposits that have original maturity periods not exceeding three months from the date of acquisition.

(iii) Premiums receivable

Premiums receivable are stated at gross written premiums receivable from insurance contracts, less an allowance for any uncollectible amounts. An allowance for uncollectible amount is established when there is an objective evidence that the Company will not be able to collect all amounts due according to their original terms. Bad debts are written off as incurred. Subsequent recoveries of amounts previously written off are credited in the Statement of Income.

(iv) Policy acquisition costs

Commission and incremental direct costs incurred in relation to the acquisition and renewal of insurance contracts are deferred. The deferred acquisition costs are subsequently amortized over the terms of the insurance contract as premiums are earned and reported in the Statement of Income. Changes in the contractual useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period and are treated as a change in accounting estimate. If the assumptions relating to future profitability of these policies are not realized, the amortization of these costs could be accelerated and this may also require additional impairment write-offs in the Statement of Income. Deferred policy acquisition costs are also considered in the liability adequacy test for each reporting year.

(v) Investments

(a) Financial assets at fair value through Statement of Income

Investments are classified as at fair value through Statement of Income if they are classified as held-for-trading or are designated as such on initial recognition. The investments in sukuks, equities and mutual funds are held for trading and accordingly are classified as FVSI. Directly attributable transaction costs are recognized in the Statement of Income as incurred. Subsequently, such investments are re-measured at fair value, with all changes in fair value being recorded in the Statement of Income.

(b) Available for sale investments

Available for sale investments are non-derivative investments that are designated as available for sale or not classified as another category of financial assets, and are intended to be held for an unspecified period of time, which may be sold in response to needs for liquidity or changes in special commission rates, exchange rates or equity prices.

Investments which are classified as available for sale are initially recognized at fair value including direct and incremental transaction costs and subsequently measured at fair value except for unquoted equity securities where fair value cannot be reliably measured are carried at cost. Any unrealized gains or losses arising from changes in fair value are recognized through the Statement of Comprehensive Income until the investments are derecognized or impaired whereupon any cumulative gains or losses previously recognized in equity are reclassified to Statement of Income for the period and are disclosed as gains/(losses) on non-trading investments.

(c) Held to maturity investments

Held to maturity investments are investments having fixed or determinable payments and fixed maturity that the management has the positive intention and ability to hold to maturity are classified as held to maturity. Investments are initially recognized at fair value including direct and incremental transaction cost. Subsequent to initial measurement, these are measured at amortized cost less impairment losses, if any.

(vi) Term deposits

Term deposits, with original maturity of more than three months, are initially recognized in the Statement of Financial Position at fair value and are subsequently measured at amortized cost using the effective interest method, less any impairment in value.

(vii) Fixtures and Furniture

Fixtures and Furnitures are initially recorded in the statement of financial position at cost. Subsequent measurement is carried out at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives of the assets for the calculation of depreciation are as follows:

	Years
Leasehold Improvements (civil, construction work and fixtures)	15 years or lease term
Fixtures, Furniture and Right-of-use assets	5 to 20
Computer and IT equipment and infra-structure	2.5 to 7
Motor vehicles	4

Residual values, useful lives and the methods of depreciation are reviewed and adjusted as appropriate at each financial year end. Impairment reviews take place when events or changes in circumstances indicate that the carrying value may not be recoverable. The depreciation charge for the year is recognized in the Statement of Income on an actual basis. Similarly, impairment losses, if any, are recognized in the Statement of Income.

Expenditure for repairs and maintenance is charged to the Statement of Income. Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Company. Gain/loss on sale of Fixtures, Furniture and Right-of-use assets is included in Statement of Income.

(viii) Intangible assets

Separately acquired intangible assets (software) are shown at historical cost. They have a finite useful life and are subsequently carried at cost less accumulated amortization and impairment losses. The Company amortizes intangible assets with a limited useful life using straight-line method over the following periods:

	Years
IT development and software	3 To 7

(ix) Goodwill

Goodwill is initially measured at excess of the fair value of the consideration paid over the fair value of the identifiable assets and liabilities acquired. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment for goodwill is determined by assessing the recoverable amount of the cash generating unit (or a group of cash generating units) to which the goodwill is related. When the recoverable amount of the cash-generating unit (or a group of cash generating units) is less than the carrying amount of the cash generating unit (or a group of cash generating units) to which goodwill has been allocated, an impairment loss is recognized in the Statement of Income. Impairment losses relating to goodwill cannot be reversed in future periods.

(x) Liability adequacy test

At each reporting date the Company assesses annually whether its recognized insurance liabilities are adequate using current estimates of future cash flows under its insurance contracts. If that assessment shows that the carrying amount of its insurance liabilities is inadequate in the light of estimated future cash flows, the entire deficiency is immediately recognized in the Statement of Income and an unexpired risk provision is created.

(xi) Accounts payable and accruals

Liabilities are recognized for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.

(xii) Provisions

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the obligation amount.

(xiii) Employee-end-of-service benefits (EOSB)

Accruals are made at the present value of expected future payments in respect of services provided by the employees up to the end of the reporting period using the projected unit credit method. Consideration is given to the expected future wages and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period of high-quality corporate bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. The benefit payments obligation is discharged as it falls due. Re-measurement (actuarial gains/losses) as a result of experience adjustments and changes in actuarial assumptions are recognized in the Statement of other Comprehensive Income.

(xiv) Share based payments (LTIP)

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. Grant date is the date at which the entity and an employee agree to a share based payment arrangement, being when the entity and the counterparty have a shared understanding of the terms and conditions of the arrangement. The cost of equity-settled transactions is recognized, together with a corresponding increase in equity as a reserve for a share based payment, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘the vesting date’). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit in the Statement of Income for a period represents the movement in cumulative expense recognized as at the beginning and end of that period.

In cases where an award is forfeited (i.e. when the vesting conditions relating to an award are not satisfied), the Company reverses the expense relating to such awards previously recognized in the Statement of Income. Where an equity-settled award is cancelled (other than forfeiture), it is treated as if it vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately.

The value of the shares repurchased, including costs associated with the acquisition, is recognized as a deduction from equity.

(xv) Impairment of financial assets

The Company assesses at each reporting date, whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is an objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred loss event) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. If such evidence exists, an impairment loss is recognized in the Statement of Income. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing a significant financial difficulty, default or delinquency in repayments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Impairment is determined as follows:

(a) For assets carried at cost, impairment is the difference between carrying value and the present value of future cash flows discounted at the current market rate of return for a similar financial asset; and (b) For assets carried at amortized cost, impairment is the difference between the carrying amount and the present value of future cash flows discounted at the original effective commission rate.

For impaired available for sale securities any subsequent increase in fair value of these impaired securities is recognized in the statement of other comprehensive income and recorded in the investment fair value reserve unless this increase represents a decrease in the impairment loss that can be objectively related to an event occurring after the impairment loss was recognized in the Statement of Income. In such an event, the reversal of the impairment loss is recognized as a gain in the Statement of Income. Impairment relating to investments in available-for-sale equity instruments are not reversed through profit or loss.

(xvi) Impairment of non-financial assets

The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices or other available fair value indicators.

The Company bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Company’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of three to five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year.

Impairment losses of continuing operations are recognized in the Statement of Income.

For assets, excluding goodwill, an assessment is made at each reporting date whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the Statement of Income.

(xvii) De-recognition

Financial asset

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when:

• the rights to receive cash flows from the asset have expired; or
• the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a ‘pass-through’ arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

Financial liability

A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired.

(xviii) Revenue recognition

Premiums earned

The Company only issues short-term insurance contracts for providing health care services (‘medical insurance’) in Saudi Arabia. Premiums are taken to income over the terms of the policies to which they relate on a pro-rata basis based on 365th method. Unearned premiums represent the portion of premiums written relating to the unexpired period of coverage. The change in the provision for unearned premiums is taken to the Statement of Income.

Investment and commission income

Investment income or loss comprises of unrealized and realized gains and losses on investments. Commission income on term deposits is recognized using the effective interest method in the Statement of Income.

(xix) Reinsurance premiums (ceded)

Reinsurance premiums ceded are recognized as a reduction in net written premium when payable. Reinsurance premiums are charged to income over the terms of the policies to which they relate on a pro-rata basis.

(xx) Claims

Claims, comprising amounts payable to medical providers and other third parties are charged to income as incurred. Claims comprise the estimated amounts payable, in respect of claims reported to the Company and those not reported at each reporting date.

The Company estimates its claims based on previous experience. In addition, a provision based on the management’s judgment and the Company’s prior experience is maintained for the cost of settling claims incurred but not reported at each reporting date. Any difference between the provisions at the Statement of Financial Position date and actual settlement is included in provisions in the following year in the Statement of Income for that year.

The Company does not discount its liability for unpaid claims as substantially all claims are expected to be paid within one year of the Statement of Financial Position date.

(xxi) Insurance contracts

Insurance contracts are those contracts where the Company (the insurer) has accepted significant insurance risk from another party (the policyholders) by agreeing to compensate the policyholders if a specified uncertain future event (the insured event) adversely affects the policyholders. As a general guideline, the Company determines whether it has significant insurance risk by comparing benefits paid with benefits payable if the insured event did not occur.

Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expired.

(xxii) Reinsurance contracts held

In order to optimise financial exposure from large claims, the Company enters into reinsurance agreements with local and internationally reputable reinsurers. Claims receivable from reinsurers are estimated in a manner consistent with the claim liability and in accordance with the reinsurance contracts. These amounts, if any, are shown as “Reinsurers” share of outstanding claims” in the Statement of Financial Position until the claim is agreed and paid by the Company. Once the claim is paid, the amount due from the reinsurers in connection with the paid claim is transferred to amounts due from/(to) reinsurers.

At each reporting date, the Company assesses whether there is any indication that a reinsurance asset may be impaired. Where an indicator of impairment exists, the Company makes a formal estimate of recoverable amount. Where the carrying amount of a reinsurance asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

(xxiii) Expenses

Selling and marketing expenses are those which specifically relate to salesmen, sales promotion, advertisements, regulatory levies, trademark fees and fulfillment costs. All other expenses are classified as general and administration expenses.

(xiv) Segment reporting

An operating segment is a component of an entity:

– that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity); and – whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and – for which discrete financial information is available.

(xv) Leases

Right of Use Assets

The Company recognizes Right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use).

Company applies cost model, and measure right of use asset at cost;

(1) less any accumulated depreciation and any accumulated impairment losses; and (2) adjusted for any re-measurement of the lease liability for lease modifications

Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, Generally, right of use asset would be equal to the lease liability. However, if there are additional costs such as site preparation, non-refundable deposits, application money, other expenses related to transaction etc. it needs to be added to the right of use asset value.

The recognized Right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.

Lease Liabilities

On initial recognition, the lease liability is the present value of all remaining payments to the lessor, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.

After the commencement date, Company measures the lease liability by:

(1) Increasing the carrying amount to reflect interest on the lease liability. (2) Reducing the carrying amount to reflect the lease payments made and; (3) Re-measuring the carrying amount to reflect any re-assessment or lease modification.

The lease liability is measured at amortized cost using the effective interest method. It is re-measured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option.

When the lease liability is re-measured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

Short-term leases and leases of low-value assets

The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets, including IT equipment. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

(xxvi) Zakat and income tax

The income tax expense or credit for the year is the tax payable on the current year’s taxable income, based on the applicable income tax rate, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities.

Deferred Tax

Deferred income tax is provided using the liability method on temporary differences arising between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amounts of assets and liabilities using the tax rates enacted or substantively enacted at the reporting date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available and the credits can be utilized. Deferred tax asset is reduced to the extent that it is no longer probable that the related tax benefits will be realized.

Deferred tax assets and liabilities are not recognized for temporary differences between the carrying amount and tax bases of investments in foreign operations where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. Current and deferred tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity.

(xxvii) Foreign currencies

The accounting records of the Company are maintained in Saudi Riyals. Transactions in foreign currencies are recorded in Saudi Riyals at the approximate rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the spot rate at the reporting date. All differences are taken to the Statement of Income.

(xxviii) Offsetting

Financial assets and financial liabilities are offset and the net amount is reported in the Statement of Financial Position only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. Income and expenses are not offset in the Statement of Income unless required or permitted by any accounting standard or interpretation, as specifically disclosed in the accounting policies of the Company.

(xxix) Cash dividend to shareholders

The Company recognizes a liability to make cash distributions to shareholders of the Company when the distribution is authorized and is no longer at the discretion of the Company. A distribution is authorized when it is approved by the shareholders and SAMA. A corresponding amount is recognized directly in equity.

(xxx) Statutory reserve

In accordance with the Company’s by-laws, the Company shall allocate 20% of its net income from shareholders operations each year to the statutory reserve until it has built up a reserve equal to the share capital. The reserve is not available for distribution.

On 31 December 2008, the Company entered into an agreement with Bupa Middle East Limited E.C. (the “Seller”), a related party, pursuant to which it acquired the Seller’s insurance operations in the Kingdom of Saudi Arabia, effective from 1 January 2009. The acquisition transaction was approved by SAMA and resulted in goodwill of SR 98 million. The entire amount was paid in the previous years, to the Seller, after obtaining the required regulatory approvals.

The Company’s management annually carry out impairment test in respect of the above-mentioned goodwill. Management conducted the impairment exercise for the year ended 31 December 2021. The recoverable amount of operations has been determined based on value in use. The two key assumptions used in the test are the discount rate and estimated future cash flows from the business as follows:

• An average discount rate of 12% was used to discount future cash flows.
• EBTIDA growth rate of 3% was used for the first three years. Thereafter, a growth rate of 3% was used in the terminal value calculation.
• A change in discount rate by +/- 300 basis point with other variables held constant would not result in impairment of goodwill.
• A change in growth rate by +/- 150 basis point with other variables held constant would not result in impairment of goodwill.

Cash and cash equivalents comprise the following:

	2021 (SR ’000)
	Insurance operations	Shareholders’ operations	Total
Bank balances	430,300	30,067	460,367
Term Deposits	500,391	–	500,391
	930,691	30,067	960,758

	2020 (SR ’000)
	Insurance operations	Shareholders’ operations	Total
Bank balances	195,232	438,019	633,251
	195,232	438,019	633,251

The amount payable to/receivable from shareholders’ operations is settled by transfer of cash at each reporting date.

During the year ended 31 December 2021, the insurance operations transferred cash of SR 435.3 million to the shareholders’ operations (31 December 2020: SR 142 million).

Receivables comprise amounts due from the following:

	2021 SR ’000	2020 SR ’000
Policyholders	1,401,823	1,159,253
Brokers	590,833	383,314
	1,992,656	1,542,567
Provision for doubtful receivables	(231,356)	(222,524)
Premiums receivable – net	1,761,300	1,320,043

Movement in provision for doubtful debts during the year was as follows:

	2021 SR ’000	2020 SR ’000
Balance at the beginning of the year	222,524	197,187
Provision made during the year	22,458	28,770
Write-offs during the year	(13,626)	(3,433)
Balance at end of the year	231,356	222,524

The aging analysis of premiums receivable – net arising from insurance contracts is as follows:

	2021 (SR ’000)
	Not past due	Up to three months	Above three and up to six months	Above six and up to twelve months	Above twelve months
Policyholders	829,825	262,290	63,756	54,340	–	1,210,211
Brokers	395,183	126,790	22,924	6,192	–	551,089
	1,225,008	389,080	86,680	60,532	–	1,761,300

 

	2020 (SR ’000)
	Not past due	Up to three months	Above three and up to six months	Above six and up to twelve months	Above twelve months
Policyholders	389,768	481,842	89,359	14,213	1,835	977,017
Brokers	222,027	52,705	57,196	8,392	2,706	343,026
	611,795	534,547	146,555	22,605	4,541	1,320,043

Unimpaired receivables are estimated, on the basis of past experience, to be fully recoverable. It is not the practice of the Company to obtain collateral over receivables.

The Company only enters into insurance and reinsurance contracts with recognized, creditworthy parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivables are monitored on an ongoing basis in order to reduce the Company’s exposure to bad debts.

The five largest customers account for 13.22% (31 December 2020: 18.8%) of the premiums receivable as at 31 December 2021.

Investments are classified as follows:

	2021 (SR ’000)			2020 (SR ’000)
	Insurance operations	Shareholders’ operations	Total	Insurance operations	Shareholders’ operations	Total
Held as FVSI	1,808,199	1,449,736	3,257,935	2,869,628	825,133	3,694,761
Available for sale	691,230	1,423,358	2,114,588	698,553	1,504,882	2,203,435
Held to maturity	100,000	231,250	331,250	–	131,250	131,250
	2,599,429	3,104,344	5,703,773	3,568,181	2,461,265	6,029,446

(i) Investments held as FVSI comprise the following:

	2021 (SR ’000)
	Insurance operations		Shareholders’ operations
	Domestic	International	Domestic	International	Total
Sukuks	18,014	–	55,045	–	73,059
Funds	1,782,875	7,310	1,372,761	21,930	3,184,876
	1,800,889	7,310	1,427,806	21,930	3,257,935

 

	2020 (SR ’000)
	Insurance operations		Shareholders’ operations
	Domestic	International	Domestic	International	Total
Sukuks	18,025	–	55,079	–	73,104
Funds	2,843,985	7,618	747,199	22,855	3,621,657
	2,862,010	7,618	802,278	22,855	3,694,761

(ii) Available-for-sale investments comprise the following:

	2021 (SR ’000)
	Insurance operations		Shareholders’ operations
	Domestic	International	Domestic	International	Total
Sukuks	470,858	183,613	793,312	105,726	1,553,509
Funds	–	36,759	127,646	17,287	181,692
Equities	–	–	316,826	12,372	329,198
Investments in discretionary portfolios	–	–	50,189	–	50,189
	470,858	220,372	1,287,973	135,385	2,114,588

 

	2020 (SR ’000)
	Insurance operations		Shareholders’ operations
	Domestic	International	Domestic	International	Total
Sukuks	422,351	238,029	900,236	147,710	1,708,326
Funds	–	38,173	107,501	7,111	152,785
Equities	–	–	228,716	5,625	234,341
Investments in discretionary portfolios	–	–	107,983	–	107,983
	422,351	276,202	1,344,436	160,446	2,203,435

(iii) Held-to-maturity investments comprise the following:

	2021 (SR ’000)
	Insurance operations		Shareholders’ operations
	Domestic	International	Domestic	International	Total
Sukuks	100,000	–	156,250	75,000	331,250
	100,000	–	156,250	75,000	331,250

 

	2020 (SR ’000)
	Insurance operations		Shareholders’ operations
	Domestic	International	Domestic	International	Total
Sukuks	–	–	131,250	–	131,250
	–	–	131,250	–	131,250

The movements in the investments balance are as follows:

(i) Held as FVSI

	2021 (SR ’000)
	Insurance operations	Shareholders’ operations	Total
Balance at the beginning of the year	2,869,628	825,133	3,694,761
Purchases during the year	7,880,130	6,741,192	14,621,322
Disposals during the year	(8,944,090)	(6,116,701)	(15,060,791)
Unrealized gains during the year, net	2,531	112	2,643
	1,808,199	1,449,736	3,257,935

 

	2020 (SR ’000)
	Insurance operations	Shareholders’ operations	Total
Balance at the beginning of the year	161,548	107,968	269,516
Purchases during the year	9,476,721	3,295,447	12,772,168
Disposals during the year	(6,769,701)	(2,578,100)	(9,347,801)
Unrealized gains during the year, net	1,060	(182)	878
	2,869,628	825,133	3,694,761

(ii) Available-for-sale investments

	2021 (SR ’000)
	Insurance operations	Shareholders’ operations	Total
Balance at the beginning of the year	698,553	1,504,882	2,203,435
Purchases during the year	152,630	192,166	344,796
Disposals during the year	(144,870)	(335,475)	(480,345)
Unrealized (losses)/gains during the year, net	(15,083)	61,785	46,702
	691,230	1,423,358	2,114,588

 

	2020 (SR ’000)
	Insurance operations	Shareholders’ operations	Total
Balance at the beginning of the year	564,003	876,063	1,440,066
Purchases during the year	289,000	687,693	976,693
Disposals during the year	(166,004)	(215,685)	(381,689)
Unrealized gains during the year, net	11,554	156,811	168,365
	698,553	1,504,882	2,203,435

(iii) Held to maturity investments

	2021 (SR ’000)
	Insurance operations	Shareholders’ operations	Total
Balance at the beginning of the year	–	131,250	131,250
Purchases during the year	100,000	100,000	200,000
	100,000	231,250	331,250

 

	2020 (SR ’000)
	Insurance operations	Shareholders’ operations	Total
Balance at the beginning of the year	–	131,250	131,250
Purchases during the year	–	–	–
	–	131,250	131,250

Prepaid expenses and other assets comprise the following:

	2021 (SR ’000)			2020 (SR ’000)
	Insurance operations	Shareholders’ operations	Total	Insurance operations	Shareholders’ operations	Total
Prepayments	54,034	–	54,034	48,529	–	48,529
Accrued income	7,635	13,256	20,891	6,122	13,919	20,041
Other receivables	38,329	–	38,329	16,516	–	16,516
	99,998	13,256	113,254	71,167	13,919	85,086

The term deposits are held with reputable commercial banks and financial institutions. These deposits are predominantly in Murabaha structure with a small allocation in Mudaraba structure. The term deposits are classified as held to maturity investments. They are mostly denominated in Saudi Arabian Riyals and have an original maturity of more than three months to more than one year (2020: three months to more than one year) and yield financial income at rates ranging from 0.95% to 4.30% per annum (2020: 1.2% to 4.30% per annum). The movements in term deposits during the year ended 31 December 2021 are as follows:

	2021 (SR ’000)
	Insurance operations	Shareholders’ operations	Total
Balance at the beginning of the year	1,645,292	1,151,255	2,796,547
Matured during the year	(1,507,552)	(466,960)	(1,974,512)
Commission income earned during the year	31,182	27,175	58,357
Placed during the year	1,839,000	374,328	2,213,328
	2,007,922	1,085,798	3,093,720

 

	2020 (SR ’000)
	Insurance operations	Shareholders’ operations	Total
Balance at the beginning of the year	3,407,055	1,747,255	5,154,310
Matured during the year	(2,330,514)	(936,277)	(3,266,791)
Commission income earned during the year	79,901	40,277	120,178
Placed during the year	488,850	300,000	788,850
	1,645,292	1,151,255	2,796,547

10.1 Fixtures, Furniture

	2021 (SR ’000)
	Office, furniture, and fixtures	Computer equipment	Motor vehicles	Leasehold improvements	Capital work in progress	Total
Cost:
At 1 January 2021	86,232	60,005	404	42,572	2,764	191,977
Additions during the year	–	52	–	–	9,063	9,115
Transferred during the year	862	7,661	–	832	(9,355)	–
Disposals during the year	(44)	(338)	–	(3,969)	–	(4,351)
At 31 December 2021	87,050	67,380	404	39,435	2,472	196,741
Accumulated depreciation:
At 1 January 2021	(63,166)	(40,835)	(161)	(9,422)	–	(113,584)
Charge for the year	(5,062)	(5,985)	(101)	(4,068)	–	(15,216)
Disposal	7	330	–	1,493	–	1,830
At 31 December 2021	(68,221)	(46,490)	(262)	(11,997)	–	(126,970)
Net book value:
At 31 December 2021	18,829	20,890	142	27,438	2,472	69,771

 

	2020 (SR ’000)
	Office, furniture, and fixtures	Computer equipment	Motor vehicles	Leasehold improvements	Capital work in progress	Total
Cost:
At 1 January 2020	85,828	46,167	404	41,039	6,699	180,137
Additions during the year	–	2,892	–	–	8,948	11,840
Transferred during the year	404	10,946	–	1,533	(12,883)	–
At 31 December 2020	86,232	60,005	404	42,572	2,764	191,977
Accumulated depreciation:
At 1 January 2020	(57,194)	(35,703)	(60)	(5,361)	–	(98,318)
Charge for the year	(5,972)	(5,132)	(101)	(4,061)	–	(15,266)
At 31 December 2020	(63,166)	(40,835)	(161)	(9,422)	–	(113,584)
Net book value:
At 31 December 2020	23,066	19,170	243	33,150	2,764	78,393

10.2 Right-of-Use Assets

The movement of Right-of-use assets are as follows:

	2021 SR ’000	2020 SR ’000
As at 1 January	125,626	87,622
Additions during the year	2,929	54,245
Amortization during the year	(15,939)	(16,241)
As at 31 December	112,616	125,626

	2021 (SR ’000)
	Software	Capital work-in-progress	Total
Cost:
At 1 January 2021	139,538	18,484	158,022
Additions during the year	100	19,665	19,765
Transfers during the year	12,902	(12,902)	–
At 31 December 2021	152,540	25,247	177,787
Accumulated amortization:
At 1 January 2021	(96,064)	–	(96,064)
Charge for the year	(14,446)	–	(14,446)
At 31 December 2021	(110,510)	–	(110,510)
Net book value:
At 31 December 2021	42,030	25,247	67,277

	2020 (SR ’000)
	Software	Capital work-in-progress	Total
Cost:
At 1 January 2020	128,316	8,262	136,578
Additions during the year	1,453	19,991	21,444
Transfers during the year	9,769	(9,769)	–
At 31 December 2020	139,538	18,484	158,022
Accumulated amortization:
At 1 January 2020	(80,333)	–	(80,333)
Charge for the year	(15,731)	–	(15,731)
At 31 December 2020	(96,064)	–	(96,064)
Net book value:
At 31 December 2020	43,474	18,484	61,958

As required by SAMA Insurance Regulations, the Company deposited an amount equivalent to 10% of its paid-up share capital, amounting to SR 120 million (2020: SR 120 million), in a bank designated by SAMA. Accrued income on this deposit is payable to SAMA amounting to SR 14.9 million (2020: SR 13.8 million) and this deposit cannot be withdrawn without approval from SAMA.

13.1 Movement in unearned premiums

Movements in unearned premiums are as follows:

	2021 (SR ’000)
	Gross	Reinsurance	Net
Balance at beginning of the year	4,023,331	(20,108)	4,003,223
Premium written/(ceded) during the year	11,382,194	(86,082)	11,296,112
Premium earned during the year	(10,695,970)	78,255	(10,617,715)
	4,709,555	(27,935)	4,681,620

	2020 (SR ’000)
	Gross	Reinsurance	Net
Balance at beginning of the year	4,376,219	(20,625)	4,355,594
Premium written/(ceded) during the year	10,447,353	(65,242)	10,382,111
Premium earned during the year	(10,800,241)	65,759	(10,734,482)
	4,023,331	(20,108)	4,003,223

13.2 Net outstanding claims and reserves

Net outstanding claims and other technical reserves consist of the following:

	2021 SR ’000	2020 SR ’000
Outstanding claims	601,168	446,519
Claims incurred but not reported	1,413,888	1,378,294
Premium deficiency reserve	74,602	263,751
Claims handling reserve	21,797	20,755
	2,111,455	2,109,319
Less:
Reinsurers’ share of outstanding claims	(7,207)	(1,475)
Reinsurers’ share of claims incurred but not reported	(7,829)	(6,461)
	(15,036)	(7,936)
Net outstanding claims reserve	2,096,419	2,101,383

	2021 SR ’000	2020 SR ’000
Balance at beginning of the year	68,214	134,022
Deferred during the year	476,255	564,926
Amortization for the year	(343,427)	(630,734)
	201,042	68,214

The following table reflects the estimated ultimate claim cost, including claims notified and incurred but not reported for each successive treatment year at each financial position date, together with the cumulative payments to date. The development of insurance liabilities provides a measure of the Company’s ability to estimate the ultimate value of the claims. The Company aims to maintain adequate reserves in respect of its insurance business in order to protect against adverse future claims experience and developments. As claims develop and the ultimate cost of claims becomes more certain, adverse claims experiences will be eliminated which results in the release of reserves from earlier treatment years. In order to maintain adequate reserves, the Company transfers much of this release to the current treatment year reserves when the development of claims is less mature and there is much greater uncertainty attached to the ultimate cost of claims. By end of 2020, incurred claims were less than anticipated as the expected deferred claims from the lockdown period were deferred further to the following year, which resulted in a favourable claims experience and the release of reserves in 2021 against the surge in claims observed in the second half of the year.

Treatment year – gross outstanding claims

	2018 and prior SR ’000	2019 SR ’000	2020 SR ’000	2021 SR ’000	Total SR ’000
Estimate of ultimate claims cost:
At the end of treatment year	33,980,026	7,842,155	8,742,056	9,775,177	60,339,414
One year later	33,876,622	7,841,118	8,048,412	–	49,766,152
Two years later	33,905,075	7,847,016	–	–	41,752,091
Three years later	33,909,347	–	–	–	33,909,347
Current estimate of ultimate claims	33,909,347	7,847,016	8,048,412	9,775,177	59,579,952
Ultimate payments to date	33,892,979	7,841,124	8,037,277	7,793,516	57,564,896
Liability recognized in the statement of financial position	16,368	5,892	11,135	1,981,661	2,015,056
Premium deficiency reserve					74,602
Claims handling provision					21,797
Balance at 31 December					2,111,455

Treatment year – net outstanding claims

	2018 and prior SR ’000	2019 SR ’000	2020 SR ’000	2021 SR ’000	Total SR ’000
Estimate of ultimate claims cost:
At the end of treatment year	33,789,144	7,768,195	8,693,491	9,708,417	59,959,247
One year later	33,678,799	7,765,376	7,997,356	–	49,441,531
Two years later	33,707,296	7,767,317	–	–	41,474,613
Three years later	33,711,162	–	–	–	33,711,162
Current estimate of ultimate claims	33,711,162	7,767,317	7,997,356	9,708,417	59,184,252
Ultimate payments to date	33,694,815	7,761,430	7,986,510	7,741,477	57,184,232
Liability recognized in the Statement of Financial Position	16,347	5,887	10,846	1,966,940	2,000,020
Premium deficiency reserve					74,602
Claims handling provision					21,797
Balance at 31 December					2,096,419

During the year ended 31 December 2018, after obtaining SAMA’s approval, the Company entered into a Third Party Administration agreement (TPA) with a customer under which the Company facilitates healthcare services to the employees of the customer with specific terms and conditions. The agreement is effective from 1 March 2018. The services are remunerated against administration fees.

In order to fulfil the commitment relating to this agreement, the Company has received funds in advance from the customer to settle anticipated claims from medical service providers. As the Company acts as an agent, the relevant bank balance and outstanding claims at the reporting date, are excluded from the statement of financial position. The assets and liabilities held in fiduciary capacity amounted to SR 260 million as of 31 December 2021 (2020: SR 317.1 million).

The Company’s commitments and contingencies are as follows:

• The Company is subject to legal proceedings in the ordinary course of business. There was no material change in the status of legal proceedings as at 31 December 2021.
• As of 31 December 2021, total Letters of Guarantee issued by banks amounted to SR 128 million (2020: SR 138 million).

18.1 Accrued and other liabilities comprise the following:

	2021 (SR ’000)			2020 (SR ’000)
	Insurance operations	Shareholders’ operations	Total	Insurance operations	Shareholders’ operations	Total
Accrued expenses	200,249	6,863	207,112	282,902	6,249	289,151
VAT payable	85,516	–	85,516	23,254	–	23,254
Advances from policyholders	80,578	–	80,578	52,583	–	52,583
VAT payable to providers	170,708	–	170,708	121,595	–	121,595
Other liabilities	60,860	–	60,860	53,867	–	53,867
	597,911	6,863	604,774	534,201	6,249	540,450

18.2 Lease liability

As of 31 December 2021, lease liability amounted SR 125.3 million (2020: SR 135.6 million). Below is the movement during the year:

	2021 SR ’000	2020 SR ’000
Balance at the beginning of the year	135,600	90,329
Finance cost	5,834	5,244
Additions during the year	2,929	54,245
Lease settlement	(19,030)	(14,218)
	125,333	135,600

During 2010, the Company entered into an agreement with a related party (a Group Company) for obtaining a license to use the trademark (the word Bupa with or without logo) of the related party. As per the terms of the agreement, the trademark fee is payable at different rates linked to the results of the Company, subject to a maximum of 5% of the Company’s profits in any financial year. Accordingly, a sum of SR 26.6 million (2020: SR 26.9 million) payable to a related party has been accrued for during the year (see Notes 24 and 32).

	2021 SR ’000	2020 SR ’000
Balance at the beginning of the year	200,391	168,454
Income attributable to insurance operations during the year	58,347	80,141
Surplus paid to policyholders during the year	(68,678)	(48,204)
Net surplus payable to policyholders	190,060	200,391

Accruals are made in accordance with the actuarial valuation under the projected unit credit method while the benefit payments obligation is discharged as and when it falls due. The amounts recognized in the Statement of Financial Position and movement in the obligation during the year based on its present value are as follows:

21.1 Movement of end-of-service benefits

	2021 SR ’000	2020 SR ’000
Balance at the beginning of the year	140,012	96,341
Current service costs	24,251	23,163
Finance costs	3,244	4,131
Actuarial (gains)/losses	(7,535)	20,700
Benefits paid during the year	(7,686)	(4,323)
Balance at the end of the year	152,286	140,012

21.2 Principal actuarial assumptions

The following range of significant actuarial assumptions was used by the Company for the valuation of end-of-service benefits:

	2021 %	2020 %
Valuation discount rate	2.65	2.45
Expected rate of increase in salary level across different age bands	4.5	4.5
Employee turnover rate	13	11
Mortality rate	0.06	0.06

The impact of changes in sensitivities on present value of employees’ end-of-service (Increase)/Decrease) benefits is as follows:

	2021 SR ’000	2020 SR ’000
Valuation discount rate
– Increase by 0.5%	6,883	6,521
– Decrease by 0.5%	(7,423)	(7,046)
Expected rate of increase in salary level across different age bands
– Increase by 1%	(15,046)	(14,259)
– Decrease by 1%	13,216	12,482
Mortality rate
– Increase by 50%	(66)	(74)
– Decrease by 50%	66	74
Employee turnover
– Increase by 20%	3,322	3,501
– Decrease by 20%	(3,427)	(3,634)

The average duration of the employees’ end-of-service benefits at the end of the reporting period is 10.6 years, (2020: 10.9 years)

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction takes place either:

– in the accessible principal market for the asset or liability, or – in the absence of a principal market, in the most advantageous accessible market for the asset or liability.

(a) Determination of fair value and fair value hierarchy

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments:

Level 1 : quoted prices in active markets for the same or identical instrument that an entity can access at the measurement date;

Level 2 : quoted prices in active markets for similar assets and liabilities or other valuation techniques for which all significant inputs are based on observable market data; and

Level 3 : valuation techniques for which any significant input is not based on observable market data.

(b) Carrying amounts and fair value

The following table shows the carrying amount and fair value of financial assets, including their levels in the fair value hierarchy for financial instruments measured at fair value. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation to fair value. There were no transfers in between levels during the years ended 31 December 2021 and 2020.

	Fair value
	Level 1 SR ’000	Level 2 SR ’000	Level 3 SR ’000	Total SR ’000	Carrying value SR ’000
2021
Financial assets measured at fair value
– Investments held as FVSI	–	3,257,935	–	3,257,935	3,257,935
– Available-for-sale investments	1,421,562	670,903	22,123	2,114,588	2,114,588
	1,421,562	3,928,838	22,123	5,372,523	5,372,523

 

	Fair value
	Level 1 SR ’000	Level 2 SR ’000	Level 3 SR ’000	Total SR ’000	Carrying value SR ’000
2020
Financial assets measured at fair value
– Investments held as FVSI	–	3,694,761	–	3,694,761	3,694,761
– Available-for-sale investments	1,404,736	793,074	5,625	2,203,435	2,203,435
	1,404,736	4,487,835	5,625	5,898,196	5,898,196

(c) Measurement of fair value

Valuation technique and significant unobservable inputs

The following table shows the valuation techniques used in measuring Level 2 fair value at 31 December 2021 and 31 December 2020, as well as the significant unobservable inputs used.

Type	Valuation technique	Significant unobservable inputs	Inter-relationship between significant unobservable inputs and fair value measurement
Floating rate sukuks and mutual funds	Valuations are based on quotations as received by the custodians at the end of each period and on published net asset value (NAV) closing prices.	Not applicable	Not applicable

The Company only issues short-term insurance contracts for providing health care services (“medical insurance”). All the insurance operations of the Company are carried out in the Kingdom of Saudi Arabia. For management reporting purposes, the operations are monitored in two customer categories, based on the number of members covered. Major customers represent members of large corporations, and all others are considered as non-major. Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision maker, who is responsible for allocating resources and assessing the performance of operating segments in line with the strategic decisions. No inter-segment transactions occurred during the year.

Operating segments do not include shareholders’ operations of the Company.

Segment results do not include investment and commission income, other income, selling and marketing expenses, and general and administration expenses.

Segment assets do not include cash and cash equivalents, fixtures, furniture and right-of-use assets, term deposits, investments, prepaid expenses and other assets. Segment liabilities do not include reinsurance balance payable, accrued and other liabilities, due to shareholders’ operations, share based payment and policyholders’ share of surplus from insurance operations.

Consistent with the Company’s internal reporting, operating segments have been approved by the management in respect of the Company’s activities, assets and liabilities as stated below:

	31 December 2021
	Insurance operations
Operating segments	Major customers SR ’000	Non-major customers SR ’000	Total – Insurance operations SR ’000	Shareholders’ operations SR ’000	Total SR ’000
ASSETS
Premiums receivable – net	1,034,713	726,587	1,761,300	–	1,761,300
Reinsurers’ share of unearned premiums	15,353	12,582	27,935	–	27,935
Reinsurers’ share of outstanding claims	2,560	4,647	7,207	–	7,207
Reinsurers’ share of claims incurred but not reported	2,623	5,206	7,829	–	7,829
Deferred policy acquisition costs	114,645	86,397	201,042	–	201,042
Unallocated assets			5,638,040	4,755,749	10,393,789
Total assets			7,643,353	4,755,749	12,399,102
LIABILITIES
Unearned premiums	2,588,246	2,121,309	4,709,555	–	4,709,555
Outstanding claims	425,245	175,923	601,168	–	601,168
Claims incurred but not reported	1,000,536	413,352	1,413,888	–	1,413,888
Premium deficiency reserve	40,999	33,603	74,602	–	74,602
Claims handling reserve	15,421	6,376	21,797	–	21,797
Unallocated liabilities			813,368	569,700	1,383,068
Total liabilities			7,634,378	569,700	8,204,078

 

	31 December 2020
	Insurance operations
Operating segments	Major customers SR ’000	Non-major customers SR ’000	Total – Insurance operations SR ’000	Shareholders’ operations SR ’000	Total SR ’000
ASSETS
Premiums receivable – net	775,488	544,555	1,320,043	–	1,320,043
Reinsurers’ share of unearned premiums	11,759	8,349	20,108	–	20,108
Reinsurers’ share of outstanding claims	490	985	1,475	–	1,475
Reinsurers’ share of claims incurred but not reported	1,959	4,502	6,461	–	6,461
Deferred policy acquisition costs	28,520	39,694	68,214	–	68,214
Unallocated assets			5,479,872	4,600,182	10,080,054
Total assets			6,896,173	4,600,182	11,496,355
LIABILITIES
Unearned premiums	2,352,884	1,670,447	4,023,331	–	4,023,331
Outstanding claims	319,669	126,850	446,519	–	446,519
Claims incurred but not reported	988,089	390,205	1,378,294	–	1,378,294
Premium deficiency reserve	189,017	74,734	263,751	–	263,751
Claims handling reserve	14,869	5,886	20,755	–	20,755
Unallocated liabilities			739,465	721,387	1,460,852
Total liabilities			6,872,115	721,387	7,593,502

 

	2021
Operating segments	Major customers SR ’000	Non-major customers SR ’000	Total SR ’000
REVENUES
Gross premiums written	7,428,502	3,953,692	11,382,194
Reinsurance premiums ceded – Local	(3,286)	(2,059)	(5,345)
Reinsurance premiums ceded – International	(49,629)	(31,108)	(80,737)
Net premiums written	7,375,587	3,920,525	11,296,112
Changes in unearned premiums – net	(231,768)	(446,629)	(678,397)
Net premiums earned	7,143,819	3,473,896	10,617,715
UNDERWRITING COSTS AND EXPENSES
Gross claims paid	(6,420,918)	(2,653,008)	(9,073,926)
Reinsurers’ share of claims paid	15,879	6,514	22,393
Net claims paid	(6,405,039)	(2,646,494)	(9,051,533)
Changes in outstanding claims	(105,576)	(49,073)	(154,649)
Changes in claims incurred but not reported	(12,447)	(23,147)	(35,594)
Changes in premium deficiency reserve	148,018	41,131	189,149
Changes in claims handling reserves	(552)	(490)	(1,042)
Reinsurance share of changes in outstanding claims	2,070	3,662	5,732
Reinsurance share of changes in claims incurred but not reported	664	704	1,368
Net claims incurred	(6,372,862)	(2,673,707)	(9,046,569)
Policy acquisition costs	(206,056)	(137,371)	(343,427)
Total underwriting costs and expenses	(6,578,918)	(2,811,078)	(9,389,996)
NET UNDERWRITING INCOME	564,901	662,818	1,227,719
OTHER OPERATING (EXPENSES)/INCOME
Allowance for doubtful receivables			(22,458)
Unallocated income			298,027
Unallocated expenses			(714,240)
Total other operating (expenses)/income			(438,671)
Income before Surplus, Zakat and Income Tax			789,048
Income attributed to the insurance operations (transfer to surplus payable)			(58,347)
Income attributed to the shareholders before Zakat and income tax			730,701
Zakat charge			(41,136)
Income tax charge			(63,995)
NET INCOME ATTRIBUTED TO SHAREHOLDERS AFTER ZAKAT AND INCOME TAX			625,570

 

Gross Written Premium details	2021 SR ’000
Corporates	8,458,117
Medium Enterprises	2,019,303
Small Enterprises	803,492
Micro-enterprises	78,920
Individuals	22,362
Total	11,382,194

 

	2020
Operating segments	Major customers SR ’000	Non-major customers SR ’000	Total SR ’000
REVENUES
Gross premiums written	6,972,563	3,474,790	10,447,353
Reinsurance premiums ceded – Local	(3,691)	(2,262)	(5,953)
Reinsurance premiums ceded – International	(36,756)	(22,533)	(59,289)
Net premiums written	6,932,116	3,449,995	10,382,111
Changes in unearned premiums – net	365,443	(13,072)	352,371
Net premiums earned	7,297,559	3,436,923	10,734,482
UNDERWRITING COSTS AND EXPENSES
Gross claims paid	(5,878,457)	(2,383,593)	(8,262,050)
Reinsurers’ share of claims paid	14,902	6,085	20,987
Net claims paid	(5,863,555)	(2,377,508)	(8,241,063)
Changes in outstanding claims	7,872	(2,603)	5,269
Changes in claims incurred but not reported	(142,227)	(78,639)	(220,866)
Changes in premium deficiency reserve	(189,017)	(74,734)	(263,751)
Changes in claims handling reserves	(1,409)	(854)	(2,263)
Reinsurance share of changes in outstanding claims	(36)	293	257
Reinsurance share of changes in claims incurred but not reported	746	1,743	2,489
Net claims incurred	(6,187,626)	(2,532,302)	(8,719,928)
Policy acquisition costs	(378,440)	(252,294)	(630,734)
Total underwriting costs and expenses	(6,566,066)	(2,784,596)	(9,350,662)
NET UNDERWRITING INCOME	731,493	652,327	1,383,820
OTHER OPERATING (EXPENSES)/INCOME
Allowance for doubtful receivables			(28,770)
Unallocated income			240,776
Unallocated expenses			(692,016)
Total other operating (expenses)/income			(480,010)
Income before Surplus, Zakat and Income Tax			903,810
Income attributed to the insurance operations (transfer to surplus payable)			(80,141)
Income attributed to the shareholders before Zakat and income tax			823,669
Zakat charge			(64,297)
Income tax charge			(63,244)
NET INCOME ATTRIBUTED TO SHAREHOLDERS AFTER ZAKAT AND INCOME TAX			696,128

Gross Written Premium details	2020 SR ’000
Corporates	7,904,182
Medium Enterprises	1,770,054
Small Enterprises	695,395
Micro Enterprises	62,104
Individuals	15,618
Total	10,447,353

Related parties represent major shareholders, Board members and key management personnel of the Company, and companies of which they are principal owners and any other entities controlled, jointly controlled or significantly influenced by them. Contract pricing policies and terms are conducted on an arm’s length basis and transactions approved by the Company’s management, or where required and applicable the Company’s Board of Directors. The following are the details of the major related party transactions during the year and their related balances:

Related party	Nature of transaction	Amount of transactions during the year		Receivable/(payable) balance as at
		2021 SR ’000	2020 SR ’000	2021 SR ’000	2020 SR ’000
Shareholders and others	Insurance premium written	215,821	392,020	2,726**	(536)**
Shareholders	Reinsurance Premium ceded	(59,358)	(41,431)	(19,672)*	(79,803)*
Shareholders and others	Claims paid	196,241	274,591	(17,289)***	(20,997)***
Shareholders	Medical costs charged by providers	179,055	140,333	(19,696)***	(15,303)***
Shareholders	Expenses charged to/(from) a related party-net	659	869	1,024*	966*
Shareholders	Tax equalisation – net	14,241	(1,873)	12,369*	(1,873)*
Shareholders	Board and committee member remuneration fees	833	915	(833)*	(915)*
Bupa Middle East Holdings Two W.L.L. (Related party)	Trademark fee (Note 19)	26,611	26,896	(26,611)*	(26,896)*

* Amounts due to related parties amounted to SR 33,723 thousand (2020: SR 108,521 thousand).

** Amounts included in premium receivables (Note 6).

*** Amounts are included in the outstanding claims.

a. Compensation to key management personnel:

	2021 SR ’000	2020 SR ’000
Salaries and allowances [Note (a) below]	17,481	17,836
Incentives [Note (b) below]	25,884	17,208
End of Service benefits	1,095	1,088
	44,460	36,132

(a) Includes the members’ direct salary related expenses, other than the incentives’ and EOS expenses.
(b) Includes the costs of the bonuses and the long-term incentive plan.

b. Board of Directors’ remuneration and related expenses

	2021 SR ’000	2020 SR ’000
Board of Directors’ remuneration	3,648	3,600
Board attendance fees	460	300
Other board and sub-committees’ expenses	1,358	1,377
	5,466	5,277

Reinsurance payable represents amounts payable to reinsurers of SR 25.4 million (2020: SR 4.9 million), for the excess of loss (XOL) reinsurance contract.

(a) Zakat

The Zakat payable by the Company has been calculated in accordance with Zakat regulations in Saudi Arabia.

The Zakat provision for the year is based on the following:

	2021 SR ’000	2020 SR ’000
Share capital (attributable to Saudi shareholders)	681,000	712,869
Opening retained earnings, reserve and surplus	1,309,570	1,189,671
Opening provisions	313,440	389,301
Adjusted net income	445,353	519,284
Fixtures, Furniture, Right-of-use assets and goodwill	(201,490)	(211,407)
Investments	(5,276,549)	(5,203,315)
Zakat Base	(2,728,676)	(2,603,597)
Adjusted net income attributable to Saudi shareholders and the general public (refer (*) below)	445,353	519,284

*Adjusted net income has been computed on a pro-rata basis taking into consideration before and after shareholding change.

The differences between the accounting profit and the Zakat base are mainly due to certain adjustments in accordance with the relevant fiscal regulations.

The Zakat charge relating to the Saudi shareholders consists of:

	2021 SR ’000	2020 SR ’000
Provision for Zakat	65,333	64,297
Adjustment for prior years	(24,197)	–
	41,136	64,297

The movements in the Zakat provision during the year were as follows:

	2021 SR ’000	2020 SR ’000
Balance at beginning of the year	285,448	232,444
Charge for the year	41,136	64,297
Payments made during the year	(123,764)	(11,293)
	202,820	285,448

(b) Income Tax

	2021 SR ’000	2020 SR ’000
Current tax charge	65,789	70,969
Deferred tax income	(1,794)	(7,725)
	63,995	63,244

The reconciliation of deferred tax is as follows:

	2021 SR ’000	2020 SR ’000
Opening deferred tax asset	37,941	30,216
Deferred tax income	1,794	7,725
	39,735	37,941

The movement in the income tax provision during the year was as follows:

	2021 SR ’000	2020 SR ’000
Balance at beginning of the year	31,751	42,265
Charge for the year	65,789	70,969
Payments made during the year	(63,750)	(81,483)
	33,790	31,751

(c) Provision for Zakat and income tax

	2021 SR ’000	2020 SR ’000
Zakat payable [Note (a) above]	202,820	285,448
Income tax payable [Note (b) above]	33,790	31,751
	236,610	317,199

(d) Status of assessment

The Company has filed its Zakat and income tax returns for the financial years up to and including the year 2020 with the Zakat, Tax and Custom Authority (“ZATCA”). The Company has received assessments for the fiscal periods 2008 through 2018 of additional Zakat, corporate income tax and withholding tax in addition to delay fines on various assessed items.

In February 2021, the Company reached a settlement with ZATCA on all Zakat, corporate income tax and withholding tax for the years 2008 through 2016 and 2018. All settled liabilities were provided for previously in respective year, and, hence, there is no significant financial impact on the Company. For the year 2017 assessments, the Company has escalated the matter to the General Secretariat of Tax Committees (the “GSTC”) and their review is awaited.

The authorised, issued and paid-up capital of the Company is SR 1,200 million at 31 December 2021 (31 December 2020: SR 1,200 million) consisting of 120 million shares (31 December 2020: 120 million shares) of SR 10 each.

The shareholding structure of the Company is as below:

	2021		2020
	Holding Percentage (%)	SR ’000	Holding Percentage (%)	SR ’000
Major shareholders	52.3	628,066	52.3	628,066
General Public	47.7	571,934	47.7	571,934
	100.0	1,200,000	100.0	1,200,000

The major shareholders of the Company along with their holding percentages are as below:

	2021		2020
	Holding Percentage (%)	SR ’000	Holding Percentage (%)	SR ’000
Bupa Investment Overseas	43.25	519,000	43.25	519,000
Nazer Group	9.05	109,066	9.05	109,066
	52.30	628,066	52.30	628,066

As required by the Saudi Arabian Insurance Regulations, 20% of the shareholders’ income shall be set aside as a statutory reserve until this reserve amounts to 100% of the paid-up share capital. The Company carries out this transfer on an annual basis at 31 December. As at 31 December 2021, SR 992.2 million (31 December 2020: SR 867.1 million) had been set aside as a statutory reserve, representing 82% (31 December 2020: 72%) of the paid-up share capital.

The Company established a share-based compensation scheme for its key management that entitles them to Bupa Arabia shares subject to successfully meeting certain service and performance conditions. Under the share-based compensation scheme, the Company manages various plans. Significant features of these plans are as follows:

Maturity dates	Between March 2022 and March 2024
Total number of shares granted on the grant date	497,769
Vesting period	3-4 years
Method of settlement	Equity
Fair value per share on grant date	Average SR 105.86

For the purpose of the Company’s capital management, capital includes share capital and all other equity reserves attributable to the shareholders. Objectives are set by the Board of Directors of the Company to maintain healthy capital ratios to support its business objectives and maximise shareholders’ value. The Company manages its capital requirements by assessing shortfalls between reported and required capital levels on a regular basis. Adjustments to current capital levels are made in light of changes in market conditions and the risk characteristics of the Company’s activities. To maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders or issue shares. Total capital amounted to SR 4,186,049 (31 December 2020: SR 3,878,795).

In the opinion of the Board of Directors, the Company has fully complied with the regulatory capital requirements during the reported financial year. No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2021 and 2020.

	2021 (SR ’000)			2020 (SR ’000)
	Insurance operations	Shareholders’ operations	Total	Insurance operations	Shareholders’ operations	Total
Employees’ costs	418,898	–	418,898	393,903	–	393,903
Rents and maintenance costs	60,171	–	60,171	51,377	–	51,377
Travelling expenses	5,230	–	5,230	4,192	–	4,192
Depreciation and amortisation	45,601	–	45,601	47,238	–	47,238
Communication expenses	12,696	–	12,696	11,151	–	11,151
Board expenses	–	5,466	5,466	–	5,277	5,277
Legal and Professional Fees	35,299	–	35,299	25,246	225	25,471
Others	8,109	7,124	15,233	32,092	14,848	46,940
	586,004	12,590	598,594	565,199	20,350	585,549

	2021 SR ’000	2020 SR ’000
Employees’ costs	51,508	47,875
Marketing expenses	32,255	24,816
Trade mark fee (see Note 19)	26,611	26,896
Others	5,272	6,880
	115,646	106,467

	2021 (SR ’000)			2020 (SR ’000)
	Insurance operations	Shareholders’ operations	Total	Insurance operations	Shareholders’ operations	Total
Commission income on held to maturity investments	35,355	35,040	70,395	79,098	45,537	124,635
Commission and dividend income on available for sale investments	22,923	81,606	104,529	19,644	50,894	70,538
Commission income on FVSI investments – net	15,853	8,182	24,035	10,818	6,476	17,294
Realised gains/(losses) on investment – net	8,182	50,654	58,836	11,170	(11,218)	(48)
Unrealised gains on FVSI investments – net	2,530	112	2,642	1,058	(182)	876
	84,843	175,594	260,437	121,788	91,507	213,295

The basic and diluted earnings per share has been calculated by dividing net income after zakat and tax for the year by the weighted average number of ordinary shares issued and outstanding at year end.

(a) Insurance risk

The Company provides short-term health insurance contracts in Saudi Arabia. Accordingly, the main insurance Risk within the Company is the claims reserve risk resulting from fluctuations in the estimated ultimate claims. The Company seeks to manage this through close monitoring of the claims’ trend and payments’ pattern to ensure that sufficient reserves are available to cover claim liabilities. The Company also have an external actuary to perform quarterly independent reviews of the reserves adequacy.

The Company has a reinsurance arrangement to reduce its exposure through transfer of risk. The reinsurance agreement is an excess of loss treaty per person per claim on losses occurring basis.

(i) The ultimate liability arising from claims made under insurance contracts

Claims reserves which are key components of the Company’s ultimate liability are estimated amounts of the outstanding claims, incurred but not reported claims (“IBNR”) and claims handling provisions. These reserves do not represent exact calculations but rather expectations based on historical claims’ trend (frequency and severity), payments’ pattern, medical inflation, members’ behaviour, seasonality and other factors.

The Company has a large insurance portfolio resulting in stable claims development patterns which relatively reduces the risk of fluctuations in the estimated ultimate claims. The short-tailed nature of the business is associated with higher consistency of the reserve estimates. The Company continually review the adequacy of claims reserves by conducting back-testing analysis, assessing the sufficiency of data, monitoring claims backlogs and settlement patterns. In addition, the external actuary runs independent valuation models after due reconciliation with financial statements to validate reserve adequacy.

(ii) Concentration of insurance risk

The insurance risk exposure related to policyholders is mainly concentrated in Saudi Arabia. However, through its underwriting strategy, the Company ensures that the portfolio is well diversified and not concentrated within few large clients. Its business is proportionally spread across all regions in the Saudi Arabia, and the Company targets both corporate and retail business. The insurance portfolio is not concentrated in a specific benefit level (diverse medical providers, different deductibles, annual limits and sub-limits)

(iii) Process used to decide on assumptions

The pricing team follows the Company’s underwriting guidelines (approved by the Board of Directors) in setting premiums taking into consideration credible claims experiences for both new business and renewals or medical declarations.

Assumptions used in determining claims reserves are based on the best estimate. Ultimate claims are estimated using historical claim trends adjusted for inflation, seasonality, membership growth and any other external or internal factors that may have impact on claim costs. Given the nature of the business, the Company may still be exposed to risk of insufficiency of claim reserves for which actual claim cost may turn out to be higher than the initial estimated ultimate claims.

The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the outstanding claims which are received but not yet settled with the providers. For the case of outstanding claims, the Company uses payment information of settled batches with providers to estimate the expected settlement amounts of recently submitted batches, while it uses mainly pre-authorization data to estimate IBNR. The Company seeks to avoid inadequate reserve levels by adopting established processes in determining claim reserve and using updated information from both claims received and pre-authorization data.

The premium liabilities have been determined as such that the total premium liability provisions (unearned premium reserve and premium deficiency reserve, if applicable and required as per the result of the liability adequacy test) would be sufficient to service the future expected claims and expenses likely to occur on the unexpired policies. The expected future liability is determined using the Company’s loss ratio adjusted for seasonality and portfolio mix for the remaining unearned period. The details of estimation of the outstanding claims and premium deficiency reserves are given under Notes 2(d)(i).

(iv) Sensitivity analysis

The Company believes that the claim liabilities under insurance contracts outstanding at year-end are adequate. However, these amounts are not certain and actual payments may differ from the claims liabilities provided in the financial statements. The insurance claim liabilities are sensitive to the various assumptions. It has not been possible to quantify the sensitivity of specific variable such as legislative changes or uncertainty in the estimation process.

An assumed 5% change in the claims’ ratio, net of reinsurance, would impact net underwriting income as follows:

	2021 SR ’000	2020 SR ’000
Impact of change in claims ratio by 5%	+- 530,885	+- 536,724

(b) Reinsurance risk

The Company has a reinsurance arrangement to reduce its exposure through transfer of insurance risk. The reinsurance agreement is an excess of loss treaty per person per claim on losses occurring basis. Such arrangement protects the Company from large claims with a reasonable ceded premium given the stable underwriting performance and the size of the insurance portfolio.

The Reinsurers are selected based on the following criteria:

– All reinsurers should meet SAMA’s minimum acceptable rating of BBB (S&P Rating). – The reinsurers’ panel and the agreement should be reviewed and approved by the Company’s Board of Directors.

Reinsurance ceded business does not relieve the Company from its obligations to policyholders and as a result the Company remains liable for the portion of outstanding claims reinsured to the extent that the reinsurer fails to meet the obligations under the reinsurance agreements.

(c) Market risk

Market risk refers to the potential impact of various market dynamics on the fair value or the expected cash flows of financial instruments. The Company adopts asset allocation guidelines and diversification limits on asset classes, geographies, currencies and securities to ensure that market risk is contained and kept to minimal levels.

The Board of Directors sets the overall risk appetite to a prudent level that does not impact the Company’s operating results. The management prepares monthly and quarterly reports, highlighting deployment activities and exposure limits to ensure that appropriate monitoring and compliance with the approved guidelines. Management performs continuous assessment of developments in relevant markets to ensure that market risk is monitored and mitigated at the asset class and securities levels.

Market risk comprises three types: interest rate risk, price risk and currency risk.

(i) Interest rate risk

Interest rate risk is the potential change in the fair value of financial instruments and expected cash flows as a result of changes in interest rates. Management constantly monitors developments in global and local interest rates and accordingly allocates the durations of its term deposits and sukuk investments.

Investments in term deposits and sukuk instruments have various maturities in order to maximise investment returns while ensuring that liquidity requirements are continuously met. Details of maturities of interest-bearing securities as at 31 December are as follows:

	2021 (SR ’000)
	Less than 3 months	3 months to 1 year	1 year to 3 years	More than 3 years	Total
Term deposits	200,000	1,424,328	1,293,118	150,000	3,067,446
Investments in Sukuk – AFS	103,891	10,121	300,975	1,138,522	1,553,509
Investments in Sukuk – FVSI	26,000	–	18,000	29,059	73,059
Investments in Sukuk – HTM	–	–	–	331,250	331,250
	329,891	1,434,449	1,612,093	1,648,831	5,025,264

 

	2021 (SR ’000)
	Less than 3 months	3 months to 1 year	1 year to 3 years	More than 3 years	Total
Term deposits	668,555	1,011,500	650,094	393,024	2,723,173
Investments in Sukuk – AFS	125,000	88,089	306,472	1,188,765	1,708,326
Investments in Sukuk – FVSI	–	26,000	–	47,104	73,104
Investments in Sukuk – HTM	–	–	–	131,250	131,250
	793,555	1,125,589	956,566	1,760,143	4,635,853

(ii) Price risk

Price risk is the potential change in the fair value of financial instruments as a result of instrument-specific developments or systemic factors affecting the overall market in which the instrument is being traded.

The total size of investments which are exposed to market price risk is SR 5,704 million (2020: SR 6,029 million). The Company manages this risk conducting thorough due diligence on each instrument prior to investing as well as maintaining exposure limits guidelines to minimise the potential impact of marking to market on the overall portfolio.

The potential impact of a 10% increase or decrease in the market prices of investments on Company’s profit would be as follows:

	Fair value change %	Effect on Company’s profit SR ’000
2021	+- 10%	+- 32,586
2020	+- 10%	+- 22,378

The above sensitivity analysis is only on FVSI investments which directly impact the Company’s profit.

(iii) Currency risk

Currency risk is the potential fluctuation of the value of a financial instrument due to changes in foreign exchange rates. All Company’s transactions are in Saudi Arabian Riyals and US Dollar. Given the peg of Saudi Arabian Riyals and US Dollars, foreign exchange risk is minimal.

(d) 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 to incur a financial loss.

The Company seeks to manage its credit risk with respect to customers by following the Company’s credit control policy and monitoring outstanding receivables on an on-going basis in order to reduce the Company’s exposure to bad debts. The management estimates specific impairment provisions on a case by case basis. In addition to specific provisions, the Company also makes an additional portfolio provision, estimated on a collective basis, based on the ageing profile of the premiums receivable. The Company seeks to limit its credit risk with respect to other counterparties by placing term deposits and investments with reputable financial institutions. The Company enters into reinsurance contracts with recognised, creditworthy third parties (rated A or above).

The following table shows the maximum exposure to credit risk by class of financial asset:

	2021 SR ’000	2020 SR ’000
Cash and cash equivalents	960,758	633,251
Premiums receivable – net	1,761,300	1,320,043
Reinsurers’ share of outstanding claims	7,207	1,475
Reinsurers’ share of claims incurred but not reported	7,829	6,461
Investments	1,957,818	1,912,680
Other receivables	85,885	109,931
Term deposits	3,093,720	2,796,547
Statutory deposit	120,000	120,000
Accrued income on statutory deposit	14,885	13,806
	8,009,402	6,914,194

The table below provides information regarding the credit risk exposure of the Company by classifying assets according to the Company’s credit rating of counterparties. Investment grade ratings refers to companies with sound credit standing of AAA to BBB- (as per S&P) and/or Aaa to Baa3 (as per Moody’s). Ratings below the mentioned threshold are considered sub-investment grade with a higher default risk.

	2021 (SR ’000)
	Non-investment grade
	Investment grade	Not impaired	Impaired	Total
Cash and cash equivalents	960,758	–	–	960,758
Premiums receivable – net	1,761,300	–	–	1,761,300
Reinsurers’ share of outstanding claims	7,207	–	–	7,207
Reinsurers’ share of claims Incurred but not reported	7,829	–	–	7,829
Investments	1,957,818	–	–	1,957,818
Other receivables	85,885	–	–	85,885
Term deposits	3,093,720	–	–	3,093,720
Statutory deposit	120,000	–	–	120,000
Accrued income on statutory deposit	14,885	–	–	14,885
	8,009,402	–	–	8,009,402

 

	2020 (SR ’000)
	Non-investment grade
	Investment grade	Not impaired	Impaired	Total
Cash and cash equivalents	633,251	–	–	633,251
Premiums receivable – net	1,320,043	–	–	1,320,043
Reinsurers’ share of outstanding claims	1,475	–	–	1,475
Reinsurers’ share of claims Incurred but not reported	6,461	–	–	6,461
Investments	1,912,680	–	–	1,912,680
Other receivables	109,931	–	–	109,931
Term deposits	2,796,547	–	–	2,796,547
Statutory deposit	120,000	–	–	120,000
Accrued income on statutory deposit	13,806	–	–	13,806
	6,914,194	–	–	6,914,194

(e) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its operational or financial obligations when they are due. Liquidity requirements are monitored on monthly basis and management ensures that sufficient liquid funds are available to meet any commitments as they arise.

Unearned premiums have been excluded from the analysis as they are not contractual obligations. The table below summarises the maturity profile of the financial liabilities of the Company based on remaining expected undiscounted contractual obligations:

	2021 (SR ’000)
	Up to one year	More than one year	Total
Accrued and other liabilities	604,774	–	604,774
Lease liability	–	125,333	125,333
Insurance operations’ surplus payable	190,060	–	190,060
Reinsurers' balances payable	25,397	–	25,397
Outstanding claims	601,168	–	601,168
Claims incurred but not reported	1,413,888	–	1,413,888
Premium deficiency reserve	74,602	–	74,602
Claims handling reserve	21,797	–	21,797
Due to related parties	33,723	–	33,723
Accrued income payable to SAMA	–	14,885	14,885
	2,965,409	140,218	3,105,627

 

	2020 (SR ’000)
	Up to one year	More than one year	Total
Accrued and other liabilities	540,450	–	540,450
Lease liability	–	135,600	135,600
Insurance operations’ surplus payable	200,391	–	200,391
Reinsurers' balances payable	4,873	–	4,873
Outstanding claims	446,519	–	446,519
Claims incurred but not reported	1,378,294	–	1,378,294
Premium deficiency Reserve	263,751	–	263,751
Claims handling reserve	20,755	–	20,755
Due to related parties	108,521	–	108,521
Accrued income payable to SAMA	–	13,806	13,806
	2,963,554	149,406	3,112,960

(f) Liquidity profile

All assets excluding investments, Fixtures, Furniture and Right-of-use assets, intangible assets, goodwill, statutory deposit and accrued income on statutory deposit, are expected to be recovered or settled before one year. Term deposits amounting to SR 2,124 million (31 December 2020: SR 1,680 million) mature within one year and the remaining balance have maturities greater than one year.

None of the financial liabilities on the statement of financial position are based on discounted cash flows, with exception of end-of-service benefits and are all payable on a basis as set out above. There are no differences between contractual and expected maturity of the financial liabilities of the Company.

(g) Operation risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the processes, technology and infrastructure supporting the Company’s operations either internally within the Company or externally at the Company’s service providers, and from factors other than credit, market and liquidity risks such as those arising from regulatory requirements. Operational risks arise from all of the Company’s activities.

The Company’s objective is to manage operational risk so as to balance limiting of financial losses and damage to its reputation with achieving its investment objective of generating returns for investors. The primary responsibility for the development and implementation of controls over operational risk rests with the Board of Directors. This responsibility encompasses the controls in the following areas:

– Requirements for appropriate segregation of duties between various functions, roles and responsibilities; – Requirements for the reconciliation and monitoring of transactions; – Compliance with regulatory and other legal requirements; – Documentation of controls and procedures; – Requirements for the periodic assessment of operational risks, and the adequacy of controls and procedures to address those risks; – Ethical and business standards; and – Risk mitigation policies and procedures.

Statement of Financial Position

	2021 (SR ’000)			2020 (SR ’000)
	Insurance operations	Shareholders’ operations	Total	Insurance operations	Shareholders’ operations	Total
ASSETS
Cash and cash equivalents	930,691	30,067	960,758	195,232	438,019	633,251
Premiums receivables – net	1,761,300	–	1,761,300	1,320,043	–	1,320,043
Reinsurers’ share of unearned premiums	27,935	–	27,935	20,108	–	20,108
Reinsurers’ share of outstanding claims	7,207	–	7,207	1,475	–	1,475
Reinsurers’ share of claims Incurred but not reported	7,829	–	7,829	6,461	–	6,461
Deferred policy acquisition costs	201,042	–	201,042	68,214	–	68,214
Investments	2,599,429	3,104,344	5,703,773	3,568,181	2,461,265	6,029,446
Prepaid expenses and other assets	99,998	13,256	113,254	71,167	13,919	85,086
Term deposits	2,007,922	1,085,798	3,093,720	1,645,292	1,151,255	2,796,547
Fixtures, Furniture – net	–	69,771	69,771	–	78,393	78,393
Right-of-use assets – net	–	112,616	112,616	–	125,626	125,626
Intangible assets – net	–	67,277	67,277	–	61,958	61,958
Deferred tax asset	–	39,735	39,735	–	37,941	37,941
Goodwill	–	98,000	98,000	–	98,000	98,000
Statutory deposit	–	120,000	120,000	–	120,000	120,000
Accrued income on statutory deposit	–	14,885	14,885	–	13,806	13,806
TOTAL ASSETS	7,643,353	4,755,749	12,399,102	6,896,173	4,600,182	11,496,355
LIABILITIES
Accrued and other liabilities	597,911	6,863	604,774	534,201	6,249	540,450
Lease liability	–	125,333	125,333	–	135,600	135,600
Insurance operations’ surplus payable	190,060	–	190,060	200,391	–	200,391
Reinsurers’ balances payable	25,397	–	25,397	4,873	–	4,873
Unearned premiums	4,709,555	–	4,709,555	4,023,331	–	4,023,331
Outstanding claims	601,168	–	601,168	446,519	–	446,519
Claims incurred but not reported	1,413,888	–	1,413,888	1,378,294	–	1,378,294
Premium deficiency reserve	74,602	–	74,602	263,751	–	263,751
Claims handling reserve	21,797	–	21,797	20,755	–	20,755
Due to related parties	–	33,723	33,723	–	108,521	108,521
Provision for end-of-service benefits (EOSB)	–	152,286	152,286	–	140,012	140,012
Provision for Zakat and income tax	–	236,610	236,610	–	317,199	317,199
Accrued income payable to SAMA	–	14,885	14,885	–	13,806	13,806
TOTAL LIABILITIES	7,634,378	569,700	8,204,078	6,872,115	721,387	7,593,502
EQUITY
Share capital	–	1,200,000	1,200,000	–	1,200,000	1,200,000
Statutory reserve	–	992,210	992,210	–	867,096	867,096
Share based payments reserve	–	43,500	43,500	–	32,800	32,800
Shares held under employees share scheme	–	(53,356)	(53,356)	–	(48,779)	(48,779)
Retained earnings	–	1,790,700	1,790,700	–	1,684,003	1,684,003
Re-measurement reserve of end-of-service benefits	–	(23,638)	(23,638)	–	(31,173)	(31,173)
Investments fair value reserve	8,975	236,633	245,608	24,058	174,848	198,906
TOTAL EQUITY	8,975	4,186,049	4,195,024	24,058	3,878,795	3,902,853
TOTAL LIABILITIES AND EQUITY	7,643,353	4,755,749	12,399,102	6,896,173	4,600,182	11,496,355

Statement of Income

	2021 (SR ’000)			2020 (SR ’000)
	Insurance operations	Shareholders’ operations	Total	Insurance operations	Shareholders’ operations	Total
REVENUES
Gross premiums written	11,382,194	–	11,382,194	10,447,353	–	10,447,353
Reinsurance premiums ceded – Local	(5,345)	–	(5,345)	(5,953)	–	(5,953)
Reinsurance premiums ceded – International	(80,737)	–	(80,737)	(59,289)	–	(59,289)
Net premiums written	11,296,112	–	11,296,112	10,382,111	–	10,382,111
Changes in unearned premiums – net	(678,397)	–	(678,397)	352,371	–	352,371
Net premiums earned	10,617,715	–	10,617,715	10,734,482	–	10,734,482
UNDERWRITING COSTS AND EXPENSES
Gross claims paid	(9,073,926)	–	(9,073,926)	(8,262,050)	–	(8,262,050)
Reinsurers’ share of claims paid	22,393	–	22,393	20,987	–	20,987
Net claims paid	(9,051,533)	–	(9,051,533)	(8,241,063)	–	(8,241,063)
Changes in outstanding claims	(154,649)	–	(154,649)	5,269	–	5,269
Changes in claims incurred but not reported	(35,594)	–	(35,594)	(220,866)	–	(220,866)
Changes in premium deficiency reserve	189,149	–	189,149	(263,751)	–	(263,751)
Changes in claims handling reserves	(1,042)	–	(1,042)	(2,263)	–	(2,263)
Reinsurance share of changes in outstanding claims	5,732	–	5,732	257	–	257
Reinsurance share of changes in claims incurred but not reported	1,368	–	1,368	2,489	–	2,489
Net claims incurred	(9,046,569)	–	(9,046,569)	(8,719,928)	–	(8,719,928)
Policy acquisition costs	(343,427)	–	(343,427)	(630,734)	–	(630,734)
TOTAL UNDERWRITING COSTS AND EXPENSES	(9,389,996)	–	(9,389,996)	(9,350,662)	–	(9,350,662)
NET UNDERWRITING INCOME	1,227,719	–	1,227,719	1,383,820	–	1,383,820
OTHER OPERATING (EXPENSES)/INCOME
Allowance for doubtful receivables	(22,458)	–	(22,458)	(28,770)	–	(28,770)
General and administrative expenses	(586,004)	(12,590)	(598,594)	(565,199)	(20,350)	(585,549)
Selling and marketing expenses	(115,646)	–	(115,646)	(106,467)	–	(106,467)
Investment income – net	84,843	175,594	260,437	121,788	91,507	213,295
Other income/(loss) – net	(4,985)	42,575	37,590	(3,762)	31,243	27,481
Total Other Operating (Expenses)/Income	(644,250)	205,579	(438,671)	(582,410)	102,400	(480,010)
Income before Surplus, Zakat and Income Tax	583,469	205,579	789,048	801,410	102,400	903,810
Transfer of surplus to shareholders	(525,122)	525,122	–	(721,269)	721,269	–
Income Attributed To The Shareholders Before Zakat And Income Tax	58,347	730,701	789,048	80,141	823,669	903,810
Zakat charge	–	(41,136)	(41,136)	–	(64,297)	(64,297)
Income tax charge	–	(63,995)	(63,995)	–	(63,244)	(63,244)
NET INCOME ATTRIBUTED TO THE SHAREHOLDERS AFTER ZAKAT AND INCOME TAX	58,347	625,570	683,917	80,141	696,128	776,269
Weighted average number of ordinary outstanding shares (in thousands)		119,558			119,421
Basic and diluted earnings per share (Expressed in SR per Share)		5.23			5.83

Statement of Comprehensive Income

	2021 (SR ’000)			2020 (SR ’000)
	Insurance operations	Shareholders’ operations	Total	Insurance operations	Shareholders’ operations	Total
Net income attributed to the shareholders after Zakat and income tax	58,347	625,570	683,917	80,141	696,128	776,269
Other comprehensive income
Items that will not be reclassified to statements of income in subsequent years
Re-measurement losses on employees’ EOSB	–	7,535	7,535	–	(20,700)	(20,700)
Items that are or may be reclassified to statement of income in subsequent years
Net changes in fair value of available-for-sale investments	(15,083)	61,785	46,702	11,554	156,813	168,367
TOTAL COMPREHENSIVE INCOME	43,264	694,890	738,154	91,695	832,241	923,936
Reconciliation:
Less: Net income attributable to insurance operations transferred to surplus payable			(58,347)			(80,141)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR			679,807			843,795

Statement of Cash flows

	2021 (SR ’000)			2020 (SR ’000)
	Insurance operations	Shareholders’ operations	Total	Insurance operations	Shareholders’ operations	Total
CASH FLOWS FROM OPERATING ACTIVITIES
Net income attributed to the shareholders before Zakat and income tax	–	730,701	730,701	–	823,669	823,669
Adjustments for non-cash items:
Net income attributed to the insurance operations	58,347	–	58,347	80,141	–	80,141
Depreciation of Fixtures, Furniture	15,216	–	15,216	15,266	–	15,266
Amortization of Right-of-use assets	15,939	–	15,939	16,241	–	16,241
Amortization of intangible assets	14,446	–	14,446	15,731	–	15,731
Loss on disposal of Fixtures and Furniture	–	2,521	2,521	–	–	–
Provision for LTIP	–	20,386	20,386	–	16,034	16,034
Allowance of doubtful receivables	22,458	–	22,458	28,770	–	28,770
Unrealized gains on investments held as FVSI	–	(2,643)	(2,643)	(1,058)	182	(876)
Commission Income on Term Deposits	(31,182)	(27,175)	(58,357)	(79,901)	(40,277)	(120,178)
Provision for end-of-service benefits	–	27,495	27,495	–	27,294	27,294
Finance cost	–	5,834	5,834	–	5,244	5,244
Changes in operating assets and liabilities:
Premiums receivable	(463,715)	–	(463,715)	340,564	–	340,564
Reinsurers’ share of unearned premiums	(7,827)	–	(7,827)	517	–	517
Reinsurers’ share of outstanding claims	(5,732)	–	(5,732)	(257)	–	(257)
Reinsurers’ share of claims incurred but not reported	(1,368)	–	(1,368)	(2,489)	–	(2,489)
Deferred policy acquisition costs	(132,828)	–	(132,828)	65,808	–	65,808
Prepaid expenses and other assets	(28,831)	663	(28,168)	92,167	9,056	101,223
Accrued and other liabilities	63,710	614	64,324	181,403	689	182,092
Reinsurers’ balances payable	20,524	–	20,524	(49,540)	–	(49,540)
Unearned premiums	686,224	–	686,224	(352,888)	–	(352,888)
Outstanding claims	154,649	–	154,649	(5,269)	–	(5,269)
Claims incurred but not reported	35,594	–	35,594	220,866	–	220,866
Premium deficiency reserve	(189,149)	–	(189,149)	263,751	–	263,751
Claims handling reserve	1,042	–	1,042	2,263	–	2,263
Due to related parties	–	(60,557)	(60,557)	–	27,800	27,800
Due to shareholders’ operations	(48,133)	48,133	–	(47,239)	47,239	–
	179,384	745,972	925,356	784,847	916,930	1,701,777
End-of-service benefits paid	–	(7,686)	(7,686)	–	(4,323)	(4,323)
Surplus paid to policyholders	(68,678)	–	(68,678)	(48,204)	–	(48,204)
Zakat and income tax paid	–	(187,514)	(187,514)	–	(92,776)	(92,776)
Net cash generated from operating activities	110,706	550,772	661,478	736,643	819,831	1,556,474
CASH FLOWS FROM INVESTING ACTIVITIES
Placement in term deposits	(1,839,000)	(374,328)	(2,213,328)	(488,850)	(300,000)	(788,850)
Proceeds from maturity of term deposits	1,507,552	466,960	1,974,512	2,330,514	936,277	3,266,791
Additions to investments	(8,132,760)	(7,033,358)	(15,166,118)	(9,765,721)	(3,983,139)	(13,748,860)
Disposals of investments	9,088,961	6,452,175	15,541,136	6,935,704	2,793,785	9,729,489
Additions to Fixtures, Furniture	–	(9,115)	(9,115)	–	(11,840)	(11,840)
Disposal of Fixtures, Furniture	–	–	–	–	–	–
Intangible assets acquired	–	(19,765)	(19,765)	–	(21,444)	(21,444)
Net cash used in investing activities	624,753	(517,431)	107,322	(988,353)	(586,361)	(1,574,714)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid	–	(408,000)	(408,000)	–	–	–
Purchase of shares under LTIP	–	(14,263)	(14,263)	–	–	–
Lease liability paid	–	(19,030)	(19,030)	–	(14,218)	(14,218)
Net cash used in financing activities	–	(441,293)	(441,293)	–	(14,218)	(14,218)
Net change in cash and cash equivalents	735,459	(407,952)	327,507	(251,710)	219,252	(32,458)
Cash and cash equivalents at beginning of the year	195,232	438,019	633,251	446,942	218,767	665,709
Cash and cash equivalents at end of the year	930,691	30,067	960,758	195,232	438,019	633,251

Certain comparative figures have been restated to conform with the current year’s presentation to these financial statements. These restatement have no impact on the net income for the year ended 31 December 2021 and retained earnings as at 31 December 2021.

As at 31 December 2020, an amount of SR 125.6 million has been reclassified from “Fixtures, Furniture and Right-of-use assets – net” to “Right-of-use assets – net”. Similarly as at 31 December 2020, an amount of SR 135.6 million has been reclassified from “Accrued and other liabilities” to “Lease liability”. In addition, an amount of SR 73.4 million has been reclassified from “Prepaid expenses and other assets” to ‘Term deposits’.

As many world economies grapple with the coronavirus (“COVID-19”) uncertainties, Bupa Arabia continues to monitor the situation closely and refresh its business continuity and risk management plans to ensure sustainability of its current service levels and operational activities under different scenarios while preserving the safety and health of its employees. COVID-19 is having a profound impact on many facets of the health insurance sector, including medical claim patterns as explained below. Given the many uncertainties surrounding the duration and severity of the pandemic, management continues reassessing and updating its estimates and judgments on a regular basis. Actual outcomes may differ from those projected. The liquidity and solvency positions of the Company remain strong as at the date of issuing these interim condensed Financial Statements.

After Saudi Arabia started easing COVID-19 lockdown and curfew measures towards the end of second quarter of 2020 for which a substantial drop in claims was observed, the demand for healthcare services gradually recovered during the second half of 2020 and throughout 2021. The claims levels in the second half of 2021 exceeded those of pre-COVID periods. The Company expects this pattern to persist over the next months; hence, the Company still holds a PDR balance of SR 74.6 million to ensure it holds adequate reserves to cover for the surge in claims. This PDR calculation follows SAMA Circular 173 dated 16 January 2019, which requires insurance companies to hold a Premium Deficiency Reserve (“PDR”) in case the relevant Unearned Premium Reserve (“UPR”) is insufficient to cover related projected claims and expenses.

Impact of Government Providers

The Council of Cooperative Health Insurance (“CCHI”) issued Circular 895, dated 17 December 2020, regarding the enforcement of Article 11 of the Cooperative Health Insurance Law, requesting medical insurance companies, effective 1 January 2021, to include all accredited government healthcare providers in their medical network while complying with the approved financial compensation structure. The circular is expected to have a material impact on future medical claims considering the mandated prices and protocols regulating the relationship between government health facilities and insurance companies. Given the many uncertainties surrounding the actual rollout and application of Circular 895, management continues monitoring the situation closely, while reassessing and updating its estimates and judgments on a regular basis.

On 25 April 2021, the Company’s Board of Directors proposed to pay dividends, for the year ended 31 December 2020, of SR 3.4 per share, totalling SR 408 million, to its shareholders. The dividends were approved by the shareholders in the Extraordinary General Assembly meeting, held on 24 June 2021, with payment executed in July 2021.

The financial statements have been approved by the Board of Directors, on 22 Rajab 1443H corresponding to 23 February 2022.