Arab Insurance Group announces USD 7.6 million profit for 2003

The Group's successful return to profitability was marked not only by a steady improvement in the underwriting performance of its core reinsurance business but also by the positive returns contributed by all of its principal subsidiaries and associated companies. The 2003 earnings represent a 6.2% return on average shareholders' equity.

In late 2000, it became evident that a questionable expansion strategy, combined with adverse market conditions would lead to significant future losses. A strategic restructuring programme was launched building on the strength of ARIG as a regional Insurance Group and its core competence in reinsurance. However, the financial position of ARIG was further aggravated by the terrorist attacks in the USA in 2001 and ARIG's involvement in the related aviation claims, a line of business ARIG was already determined to discontinue. In addition, one of ARIG's reinsurance partners defaulted on payments leading to an overall loss for the Group out of these events alone in excess of US$ 60 million.

Various initiatives were undertaken, among them a return to regional rather than international markets, selective and prudent underwriting, reduction of portfolio volatility and a strong focus on cost containment. All of these measures led to an underwriting profit of US$ 9.8 million for 2003 as compared to underwriting losses of US$ 22.9 million for 2002.

Market forces supported this development. Increases in reinsurance premiums over the last two years appear to be sustainable and financial markets provided a number of promising investment opportunities.

Gross premium income of the Group increased by 15.1% in 2003 and amounts to US$ 232.7 million. Of these, reinsurance gross premiums accounted for US$ 113.6 million (2002: US$ 110.2 million) and gross premiums from subsidiaries amounted to US$ 119.1 million (2002: US$ 91.9 million). All of the principal operating subsidiaries of the Group registered profits for 2003. Net profits reported by the subsidiaries aggregated US$ 3.7 million for 2003 as compared to a loss of US$ 13.6 million for 2002.

The Group's total investment assets increased to US$ 940.5 million at the end of the year 2003 as compared to US$ 870.0 million at end December 2002. The increase in investment assets was contributed to by net operational cash inflows and currency appreciation. The Group continued to maintain a conservative stance towards managing its investment assets. Total investment income amounted to US$ 48.1 million compared to US$ 34.2 million in 2002, representing a rate of return of 5.3% on average investments.

Net technical provisions representing reserves held for unearned premium and claims provisions were further strengthened and rose to US$ 857.4 million at the end of 2003 (2002: US$ 759.9 million) Technical provisions held for the reinsurance business amounted to US$ 335.8 million (2002: US$ 326.7 million). Technical provisions for ARIG's subsidiaries were US$ 521.6 million (2002: US$ 433.2 million).

Streamlined operations and a considerably leaner organisational structure helped to further reduce operating expenses in 2003 to US$ 35.0 million, excluding the operating costs of Gulf Warranties (the subsidiary acquired in late 2002), compared to US$ 42.5 million in 2000 when the Group began its restructuring efforts.

Udo Krueger, ARIG's Chief Executive Officer, who announced the result in a press conference held at Arig House yesterday stated: "ARIG is now well positioned to contribute to and participate in the promising growth opportunities insurance markets in the Middle East and North Africa have to offer. Focus, perseverance and commitment by the Board of Directors, the Management and the employees of ARIG and the continued support of its shareholders are the major contributing factors to this result."