Mandal Insurance - Annual report [ENG] by mandaldaatgal

Mandal general insurance limited liability company

ANNUAL REPORT 2013

2013 Annual report

Contents

Our Vision

Positive Impact

Mandalâ&#x20AC;&#x2122;s Achievement

Audited financial statement

People for People

OUR MiSSION

To bring a positive change to people through the best professional conduct

OUR GOAL

To improve the understanding of risk management in society and provide high quality insurance products

OUR VISION

To create a Mongolian brand that competes globally by establishing a world class financial services franchise

2013 Annual report

Board members

Jordan Calonego

U.Ganzorig

Harris Kupperman

D.Jargalsaikhan

Jim Dwyer

Board Chairman

President, Board member

Board member

Jordan Calonego | Board Chairman Jordan Calonego is an entrepreneur, focused mainly on real estate and businesses related to real estate. He has over a decade of experience investing in public and private businesses with a focus on property and casualty insurance, real estate and various operating businesses. Mr. Calonego is also a board member and COO of Mongolia Growth Group Ltd. Mr. Calonego graduated from the Unitversity of Ottawa with an HBCom in Finance. He is also a Chartered Financial Analyst. U.Ganzorig | Board Member Ganzorig has extensive experience in trading, risk management, banking, insurance and private equity. He has held senior management positions at Tenger Insurance, Ulaanbaatar City Bank, Xac Bank and Trade and Development Bank before founding Mandal. He has a postgraduate degree in Financial management from MSM in Netherlands and BBA in accounting from National University of Mongolia. Harris kupperman | Board Member Harris Kupperman is the founder of Praetorian Capital, a hedge fund focused on using long-term macro trends to guide stock selection. Mr. Kupperman is also the Chairman and CEO of Mongolia Growth Group (YAK: Canada and MNGGF: USA). Mr. Kupperman graduated from Tulane University College in New Orleans, USA. D.Jargalsaikhan | Board Member Mr.Jargalsaikhan is a well-known economist, financial sector professional and publicist with 30 years of management experience. He is the host of a famous weekly TV talk show, DeFacto. Among his many assignments he had served as CEO of Xac Leasing and Capital bank and Head of Foreign Invesmtent and Foreign Trade agency of Mongolia. He obtained his MBA from University of Denver, his bachelor in economics from Moscow State University.

JIM DWYER | Board Member Mr.Jim Dwyer is a financial professional with twenty five years of experience in investment banking with senior responsibilities for over 100 completed assignments. He has founded two merger and acquisition departments in New York City for major global investment banking firms. Jim Dwyer currently heads the Business Council of Mongolia, an influential business community. Jim graduated with an MBA from the Columbia Graduate School of Business and a BBA from the University of Notre Dame.

OUR VISION

2013 Annual report

Mandal’s Vision There are seven summits in the world, highest mountains of each of the seven continents. It is a challenge for every true mountain climbers. October 16, 2013 @12:30p.m. Ulaanbaatar time. Climbers of Hairhan Traveler’s, Mandal’s sponsored team, reached to Uhuru Peak Mount Kilimanjaro, the highest point of Africa and waved Mandal’s flag. This is Mandal’s symbolic commitment to reach the highest possible peak of our business. Mongolia considered developing young nation which need to improve its infrastructure, health and education systems. As a developing nation, we need tirelessly work to achieve what developing nations achieved today. So, we need unified common goal to improve well being of Mongolians. At Mandal, we are committed to contribute to the rise of nation and become one of the leading business entities who can set examples to other Mongolian companies.

Back in 2011, when we established the company, we have chosen name of Mandal with ambition to become This notion has been deeply instilled languages of Buddhist cultures around Asia. It’s no coincident that we picked the name of Mandal with long-term vision to lay down a foundation of Pan-Asian financial services company

over the next six decades. To achieve such an ambitious goal, Mandal needs to pass certain milestones and we symbolically compare such milestones with mountains peaks. Mandal can and will be one of the stewardship leading Mongolia into prosperity, creating benchmark examples for other Mongolian companies, generating high ambitions in Mongolian people and cement the national pride. In 2013, Mandal’s revenue has totaled approximately MNT7.3 billion which is 14 times more revenue than MNT500 millions collected back in 2011. Mandal has become one of the leading non-life insurers among 16 insurers in terms of revenue and total assets. This was result of the thorough planning and well execution. Now the challenge is to keep up the achieved growth rate and set the pace for the next few years to become the leader of Mongolian insurance sector. To become well known global brand with presence of throughout Asia, Mandal needs to set higher goal than industry leaders, implement the leading technologies and familiarize with best available know-how and technics. This ambitious goal requires us to employ an iron discipline, a neat organization, tireless effort and swift execution to succeed. It’s not uncommon to Mongolians that our ancestors once conquered and built biggest

Our vision

Global financial crisis of 2008, Euro debt crisis and United States debt-ceiling crisis are strengthening Asia’s economic position day by day and determining the Asia as a core of world economy in the near future. With its globalizing economy and strong financial market, Asia will dominate the global economy inevitably. One of the special features of our business is that it is based on intellectual potential. Today it may seem that industralized nations trying to secure their access to natural resources, but in fact the rivalry is about whom to gain more power among the regions and world. Winston Churchill, British statesman, once said, “Empires of future are empires of the mind”. Our goal is to demonstrate that Mongolian development will not only dependent on the natural resources, but intelligence capacity of Mongolians. We should concentrate how to cope with rapid changing modern world and to find our competitive edge to prove that Mongolians will be able to contribute development to future of humanity. As John Scully, American businessman and entrepreneur, once said

“Future belongs to those who see possibilities before they become obvious”, we are working to create the future of Mongolia. If Mandal’s all employees are truly faithful to this vision, we will become more united and stronger to approach our goal step-by-step every moment. One of the hard objectives of the management to face is to create the environment where each and every employee accepts the vision and mission of the company sincerely. We believe that creating the opportunity for employee to become shareholder of the company is a substantial effort. Thus we aim to provide opportunity for everyone working for Mandal to become owner of the company. Mandal has successfully completed the purchase agreement with MGG, the co-founder of the company, this year and that is inevitable peak to reach in order to accomplish our plan. Now we fully own our company and become a national company that comply the requirements of international stock exchange for listed companies. We, Mandal will leave our mark on Mongolian development. There are many peaks and challenges are waiting for us on the way to reach our goal. We worked enthusiastically to reach our Everest in 2013 and starting 2014.

empire in human history through discipline, organization and warfare. Now it’s our generation’s turn to conquer the world with intelligence. The last two decades Mongolians have been building democratic society that allows any participant would be able to have an access of the flat world.

2013 Annual report

Management team

Myagmar DAVAANYAM

Chinbat BAT-IDER

Daadankhuu DOLGOR

Batsaikhan JAVKHLAN

Chief Executive Officer

Vice President

Head of Corporate Insurance

Head of Retail Insurance

M.Davaanyam | Chief Executive Officer After obtaining a bachelor degree majoring in insurance from National University of Mongolia, Ms.Davaanyam Myagmar had spent 16 successful years of career in Mongolian insurance industry. She has held senior and executive management positions at various large insurance companies including Tenger Insurance, Mongol Daatgal and Nomin Insurance. Ms.Davaanyam has a BSc in Financial management from National University of Mongolia.

CH.BAT-IDER | Vice President Bat-Ider Chinbat has 18 years of experience in finance, human resources management and general administration. His career has spunned through commercial banks, international organizations and more recently aviation sector. Prior to joining Mandal, he has spent 4 years at Eznis Airways, the largest private airline in Mongolia, as Chief Financial Officer. Bat-Ider earned his MBA degree from Shidler College of University of Hawaii, USA and BBA in accounting from ICB, Mongolia.

D.DOLGOR | Head of Corporate Insurance Ms. Dolgor is in charge of the corporate business portfolio and team development. Her career in insurance industry started at a Japanese life insurer, Dai-Ichi and progressed to senior management positions of General Manager and Chief Underwriter at Mongol Daatgal, where she spent 12 years. Dolgor has furthered her insurance industry know-how through advanced level insurance courses of Luxemburg ATTF agency and Malaysian Insurance Institute. She has BA degree in Japanese study from University of Foreign Language and Culture. B.JAVKHLAN | Head of Retail Insurance Before joining Mandal Mr.Javkhlan had undertaken a successful career in insurance and IT sector. Since 2000 he had accomplished numerous IT projects aimed at increasing the efficiency of business organizations by enabling state of the art technologies for end users. Javkhlan had spent 5 years in Tokyo, Japan as a project leader at international IT company. Javkhlan had graduated from Mongolian Technical University with cum laude specializing in computer science.

Our vision

OUR people bring in rich experiences that enrich our culture and promote professionalism.

Avaasuren BATZORIG

Bold BAYASAL

Chuluunbaatar Ankhbayar

Gavaa OTGONJARGAL

Chief Risk Officer

Senior Insurance Manager

Senior Risk Manager

Chief Financial Officer

B.BAYASAL | Senior Insurance Manager Mr. Bayasal has joined Mandal Insurance after 10 years of successful career in trading ventures and telecommunications business. A talented entrepreneur, Bayasal had created number of successful business ventures during his career. He has a bachelor in Linguistics from Ulaanbaatar University, bachelor in Japanese studies from University of Bonn in Germany and masters in International relations from National University of Mongolia.

CH.ANKHBAYAR | Senior Risk Manager Mr. Ankhbayar had spent 10 years specializing in risk management, mathematical modeling, actuary and econometrics in banking and insurance. Before joining Mandal he has been Head of Risk department at Transport Development Bank and Senior risk manager at Savings Bank of Mongolia. He obtained his BSc in economics from IFE and MSc in Applied mathematics from National University of Mongolia. G.Otgonjargal | Chief Financial Officer Mr.Otgonjargal has experience in corporate finance and investment management. Previously he has been working at the Trade and Development bank as a fixed income securities dealer, mid level management positions in U.S. pharmaceutical and international trading companies. He has MBA from California State University, Long Beach, CA, and BBA in banking from National University of Mongolia.

A.BATZORIG | Chief Risk Officer Mr. Batzorig has an extensive career in risk management working for Trade and Development bank for the last 11 years. Before joining Mandal he had been Head of Risk management department at TDB. He was responsible for setting up internationally accepted financial risk management framework in Mongolia through his directorship role at PRMIA, the largest risk association in the world. Batzorig has BA in banking and finance from IFE and dual MBA in banking and finance from University of Wales and Chartered Bankers Institute in Scotland, UK.

Annual report

2013

Social Impact

MANDALâ&#x20AC;&#x2122;S POSITIVE IMPACT

2013 Annual report

Corporate social responsibility

We are proud that, since our establishment, we have been delivering information on how to minimize, manage and transfer the potential corporate risks. In 2013, we have focused on quality of contents that we produce to our customers.

Business dictionary defines Corporate Social Responsibility as “A company’s sense of responsibility towards the community and environment (both ecological and social) in which it operates. Companies express this citizenship (1) through their waste and pollution reduction processes, (2) by contributing educational and social programs, and (3) by earning adequate returns on the employed resources”1. At Mandal, we are focused on corporate and consumer risk education and awareness.

Risk Management Forum

Annual Risk Forum held at the Ministry of Foreign Affairs in November. Risk Forum became most prominent event in the area of risk management. This year’s main topic of the Forum was how to create efficient risk management system for the corporations in Mongolia. Also Mandal’s analysts presented their research findings on exchange rate and macroeconomics factors for real economic sectors. Delegates for over 130 business entities participated for this year’s forum.

At Mandal, we are organizing series of events on risk management for our valued customers as well as individuals and corporations.

Social Impact

Risk Report

Since 2012 Mandal has identified 10 essential risks for our everyday life and started to analyze and published it as â&#x20AC;&#x153;Risk Reportâ&#x20AC;? and presented to public. This report not only contains origin and causes of risks but also future consequences of these risks. Our goal is we annually publish this report and raise public awareness of these existing risks and establish a risk database for Mongolia. In 2013, through our Purplebook we published monthly articles for one particular risks and now is ready to publish entire report with our Annual Report.

2013 Annual report

Economic news, Risk analysis At люandal, we acknowledge that there is lack of accredited economic and financial market information based on historic data. It will be irresponsible for professional organizations to commit only mass media to deliver economic and financial market information. Starting from 4th quarter of 2012, analysts of Mandal Insurance has been delivering economic and financial market research and information on social risk via TV5 and NTV channels at the peak hours of weekdays.

Risk management seminar

We organize risk management seminars with particular topics in quarterly for our corporate customers for free of charge. We introduce risk nature, different methods of managing risks and identify and manage particular risks exists in the different organizations through our seminars. In 2013, we were able to involve approximately 200 individuals from our clients into our risk seminars.

Social Impact

Purplebook Purplebook (www.purplebook.mn) is independent analysis on economic and business issues for policy makers and business owners and managers to make decisions for their respective branches of economy. These analysis prepared by Mandal’s researchers and distributed free of charge. This publication includes international economic and market developments, particularly, those events that may directly impact Mongolian economy. Mandal’s researchers review and analyze market and economic developments purely on professional basis and we try to be deliver unbiased analysis to our readers. Our researchers focused on future consequences of any events not the historical results.

RiskBook It is our tradition to sponsoring translation and publication of interesting book in every year since Mandal’s establishment. In the past, we published The Checklist Manifesto (2011) and Steve Jobs (2012). In 2013, we published Risk Book for our clients and partners.

In modern Mongolia, we live among many risks. Most of these surrounding risks depend on human factors. Mandal’s research team put together concept of risk and risk management with easy to understand simple words. We believe that if we unite our efforts to minimize risks we will be able bring peaceful society step by step.

Annual report

2013

Mandal’s Achievement

MANDAL’S Achievement

2013 Annual report

Mandalâ&#x20AC;&#x2122;s achievement The company underwrote MNT 6.4 trillion risk or MNT 3 trillion risk after deducting the reinsured amount and collected MNT 7.3 billion premium income.

Mandal Insurance has been working hard to bring Risk management service into new level and delivering Underwriting Report to our clients regularly. This is one of the results that we are not only competing with other insurance companies under correct principle, but also striving to create benchmark example. It has been a while since Mongolian economy has come to the door of historical opportunity for sharp rise. Perhaps we are living in the time of golden chance that every generation has been waiting for. A strong financial system, especially strong insurance sector to support economic growth is necessary in Mongolia. Mandal insurance is ready to lead the market to develop such strong insurance sector.

Total assets of Mandal Insurance are MNT11.3 billion by the end of December 2013, which is 1.4 times greater than the market average. The company is remaining in the market-leading position in terms of reserve fund (MNT5 billion) and in the first position

in terms of risk tolerance or risk rate per equity capital. Mandal Insuranceâ&#x20AC;&#x2122;s total assets are about 9 percent of the market and ranks in third out of 16 companies. The company underwrote MNT 6.4 trillion risk or MNT 3 trillion risk after deducting the reinsured amount and collected MNT 7.3 billion premium income. Net premium income was MNT3.5 billion. If we classify the total risk by customer type, corporate customer is 91% or MNT 5.9 trillion risk (552 customers) and individual customer is 9% or MNT 0.5 trillion risk (11.377 customers). We aim to create opportunity for each employee to become owner of the company. As part of that plan Mandal has successfully completed the purchase agreement with MGG, the co-founder of the company, in 2013. Now we fully own our company and add the number of national companies that meet requirements of international stock exchange for listed companies.

Mandal’s Achievement

Net premium income was MNT3.5 billion. If we classify the total risk by customer type, corporate customer is 91% or MNT 5.9 trillion risk (552 customers) and individual customer is 9% or MNT 0.5 trillion risk (11.377 customers).

Risk management

In the course of risk management we define, assess and reduce the risk by surveying our clients’ business operation and gaining comprehensive information. We learn together with our clients the art of risk management by assessing daily operational risks based on our underwriting assessment which is more technical in nature and distillation of our underlying know-how. Our risk management advisory team is by far the largest among other insurance companies and possesses a broad experience in this area. We

have been assessing our clients’ risk, providing risk advisory service, benchmarking market leading practice and confirming our distinctive feature. We provide Risk Training for Managers™ for senior management, Safety training for staff™ and Risk evaluation™ services. Our Risk evaluation product follows internationally accepted risk management methodologies and in-house valuation models in order to quantify and measure. Furthermore Mandal held the Fourth Annual Risk Management Forum, including representatives from more than 150 leading enterprises and showed that Mandal is the leading team for risk management in insurance sector. We aspire to work closely with our clients by protecting them from risk by providing insurance products that fulfill their needs, training management team and employees about risk management philosophy and detailed trainings and giving advice on how to reduce the risk and protect their businesses.

Our team create opportunity for our clients to make their planned profit by practicing good risk management. Therefore during this social development, we work hard to spread risk management through distinctive method of managing any risk and succeeding together incorporation with our clients. This meets our company mission to bring positive change to people.

2013 Annual report

Claims Claim is an essential part of insurance company. Insurance indemnity is considered to be complicated and time consuming for insured. But now it is time to forget this idea completely. Our clients through our close, fast and friendly service appreciate claim department of Mandal Insurance. Based on that respect and belief of our clients, we strive to introduce international standard claim service system and to be the leading team of the market. Our professional and experienced team is delighted to serve you. Mandal Insurance’s granted indemnity amount in 2013 was increased by 3 times than 2012. Our advantages Claims, million MNT

 Claim process is clear and fast  Customer care  Online, real-time checking of claim process Quick repsonse claims department Quick response claims department is commited to go to the event of accident to collect required documents and give advise to customers. Our quick response claims department operates 24/7 and provide proffesional service. Customer care

We are operating customer care service in order to work closely with our clients, insureds and individuals. You can get all information about insurance and claim by coming to our office or calling our customer care service. It is our pleasure to serve you.

Mandal’s Achievement

CORPORATE BUSINESS Corporate insurance team is working hard to improve our insurance products and offer innovative services. We aim to bring the best international know-how and underwriting techniques in Mongolia. As a matter of course we, at Mandal, provide our clients the first ever “Underwriting Report”. The “Underwriting Report” allow our clients to better understand and manage their risks. In 2014, we will enforce international standards whereas insurance premiums are strictly tied to the risk level of insured’s business sector as well as country risk of Mongolia. Therefore, our account managers will professionalize more, clients will pay insurance premium adequate to their risk level and become familiar to receive risk advisory to decrease existing risk.

Corporate department underwrote risk of 180 clients and collected about MTN6 billion premium in 2013. We are conducting all types of insurance with high degree of professionalism with the crew of excellent among other Mongolian insurers. We are glad to state here that we are leading the market to insure Bank and Financial insurance, Mining all risk insurance, Constructors all risk insurance, Aviation insurance and all types of liability insurance.

Reinsurance

We cooperate with the global leading reinsurers and reinsurance brokers to bring international standard insurance products and services to Mongolia. We work with reinsurers that are rated “BBB” from Standard & Prros and Fitch , “BAA” from Moody’s and “A+” from A.M.Best or higher. Also, we are increasing our risk-bearing capacity by 3 to 5 times by using treaty reinsurance agreement whereby certain portion of risks are transferred to offshore market.

2013 Annual report

RETAIL BUSINESS Retail business department aims to increase the insurance knowledge of Mongolian citizens and provide insurance products and services that fulfill customer needs through effective sales channel. We added the number of our branches in rural area by opening branch office in Drakhan city in order to work closely with our customers and held risk forum for our clients and enterprisers in Darkhan. In 2013, we renewed the cooperation agreement with Banks, Non bank financial institutions and established cooperation with State Bank, Xac Bank and Khan Bank. Furthermore, branch employees of these institutions were trained by our training program of basic insurance knowledge. Therefore, we are insuring customers’ risk via Khan Bank’s 82 Ulaanbaatar branches, Xac Bank’s 11 branches, Golomt Bank’s 24 branches, State Bank’s 16 branches and Capitron Bank’s 18 branches.

As we expand the number of cooperating organizations with increased channels closer to customers, favorable condition for customers who choose Mandal Insurance to get service from any branch in Ulaanbaatar city is created.

Cooperation agreement with Mongolian Students’ Union has been renewed and 110,000 students have been insured by accident insurance within the 2013-2014 academic year. As part of this insurance, trainings about the importance of insurance have been organized in Universities and Colleges. We integrated the customer care service with our department and aimed to listen our customer complains and serve with fast and flawless service. As part of the work, we increased the number of our claim personnel and that allows us to go to the event of accident and give advise to our customers by our day and night shifts. We are working to establish standard for the customer care service. In 2013, 13 types of insurance products have been provided to our customers by our department. We are establishing the foundation to increase that number in 2014 and working hard to offer new insurance products that suit customer needs.

Mandalâ&#x20AC;&#x2122;s Achievement

2013 In photos

Annual report

2013

Financial statement

Audited Financial Statement

2013 Annual report

“ULAANBAATAR AUDIT CORPORATION”LLC Auditing, Accounting, Consulting, Training and Appraisal firm Correspondent firm of Grant Tornton International in Mongolia (www.gti.org)

INDEPENDENT AUDITOR’S REPORT To: The Management of Mandal General Daatgal LLC We have audited the accompanying financial statements which comprise Statement of Financial Position at December 31, 2013 and Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows and additional notes to the financial statements (hereinafter referred to “financial statements”) for the year then ended of “MANDAL GENERAL DAATGAL” LLC (hereinafter referred to “Company”). Management’s responsibilities for the financial statements The company’s management is responsible for the preparation and fair presentation of these financial statements in compliance of International Financial Reporting Standards (IFRS) and regulation and guidance approved from the Financial Regulatory Commission of Mongolia (FRC). This responsibility includes selecting and applying appropriate accounting policy; designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error; and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibilities for the financial statements Our responsibility is to express an independent opinion on these financial statements based on our audit work. We conducted our audit in accordance with the International Standards on Auditing (ISA). Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts, explanatory notes and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risk of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies and the reasonableness of accounting estimates made by management. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4th Floor, Margad Center Building, Chingeltei district, 5th Khoroo, Ikh Toiruu, Ulaanbaatar, Mongolia Phone: 976-11329430, Fax: 976-11-321844 Website: www.ulaanbaatar-audit.mn, E-mail: ubaudit_corp@mongol.net

Financial statement

Opinion In our opinion, the financial statements of â&#x20AC;&#x153;MANDAL GENERAL DAATGALâ&#x20AC;? LLC, which comprise Statement of Financial Position as at December 31, 2013 and Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows and additional notes to the financial statements give true and fair presentation, in all material respect, in accordance with guidelines and rules adopted by the Financial Regulatory Commission inconformity with the International Financial Reporting Standards . Usage of the report In accordance with the Article 94 of Law on Company, this audit report is devoted to the usage only for company shareholders and lending financial organizations, not for any other third parties. Within the audit report, we will not bear any responsibilities to any other third parties.

2013 Annual report

STATEMENT OF FINANCIAL POSITION For the year ended 31 December 2013

(In thousands of Togrogs) Note

2013

2012

Cash and cash equivalents

821,170

136,993

Short term investment

5,060,704

3,289,300

Receivables

2,213,596

941,905

Inventories

24,790

21,583

Prepaid expenses

287,676

135,057

Investment property

110,000

323,774

291,549

2,699

729

Assets

Property, plant and equipment Intangible assets Long term investment Total assets

2,200,000

8,844,409

7,017,117

1,915,495

164,381

Liabilities and ownersâ&#x20AC;&#x2122; equity Short term payables

Reserve fund

Total liabilities

2,344,453

1,722,580

4,259,948

1,886,961

Owners' equity Share capital

5,000,000

8,051,496

Accumulated loss

(415,539)

(2,921,340)

Total owners' equity

4,584,461

5,130,156

Total liabilities and owners' equity

8,844,409

7,017,117

The accompanying notes are an integral part of these financial statements.

Financial statement

STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2013

(In thousands of Togrogs) Note Gross written premiums Premiums ceded Cancelled premiums Net insurance premiums Changes in unearned premiums reserve fund

15 16

Net premiums earned Claims paid from earned premiums Change in loss reserves

Profit/loss after tax Dividend for minority General operations profit/loss Extraordinary items, Net Net profit/loss for the reporting year

(46,465)

(87,717)

3,480,150

1,427,676

(741,755)

(615,946)

2,738,395

811,730

(876,271)

(207,625) (646,815)

1,686,574

(42,710)

19 20 21

Profit/loss before tax Income tax expense

2,720,289 (1,204,896)

(175,549)

Net operating profit/loss Non operating profit loss

7,318,592 (3,791,977)

Gross income General and administrative expenses

2012

Net underwriting income Non-premium income

2013

1,157,586

837,024

2,844,160

794,314

(1,927,027)

(1,467,393)

917,133

(673,079)

(131,513)

(318,546)

785,620

(991,624)

(94,947)

(78,452)

690,673

(1,070,076)

690,673

(1,070,076)

690,673

(1,070,076)

The accompanying notes are an integral part of these financial statements.

2013 Annual report

STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2013

(In thousands of Togrogs) Share capital Treasury stock

Retained earnings

Total

6,243,016

(289,048)

5,953,968

1,465,538

(1,562,215)

(96,677)

6,243,016

1,465,538

(1,851,263)

5,857,291

Increase/decrease of investment revaluation

342,942

Net profit for the reporting year

(1,070,076)

6,243,016

1,808,480

(2,921,339)

5,130,157

(1,808,480)

1,815,127

6,647

6,243,016

(1,808,480)

(1,106,212)

5,136,804

(1,243,016)

Balance at December 31, 2011 Accounting policy changes, adjustments, rectifications Adjusted balance

Balance at December 31, 2012 Accounting policy changes, adjustments, rectifications Adjusted balance Changes in equity Net profit for the reporting year Balance at December 31, 2013

690,673

6,243,016

(1,243,016)

(415,539)

4,584,461

The accompanying notes are an integral part of these financial statements.

Share based payment reserve

Financial statement

STATEMENT OF CASH FLOWS For the year ended 31 December 2013

(In thousands of togrogs) 2013

2012

5,326,362

2,286,953

5,124,449

2,276,655

Cash flows of operating activities Total cash inflows (+) Insurance premiums income Reinsurance claims

6,361

Other cash inflows

195,552

10,299

(3,383,794)

(2,793,269)

678,441

478,753

95,404

105,737

79,215

45,815

3,623

7,072

854,235

Total cash outflows(-) Cash paid to employees Cash paid to Social security administration Cash paid for inventories Cash paid for utilities Reinsurance premium paid to reinsurer Claims paid Sales commission Cash paid for fuel, transportation, and spare parts Cash paid to suppliers Cash paid to tax authority Cash paid for insurance Other cash outflows Net cash flows of operating activities

590,918

243,652

49,717

36,979

922,218

188,391

126,496

6,016

109,661

594,184

960,538

1,942,567

(506,316)

5,087,218

3,053,216

625,541

Cash flows of investing activities Total cash inflows (+) Proceeds from disposal of noncurrent assets

3,839,573

2,745,177

Repayment of lending and prepayments

185,575

Interest income received

436,530

209,158

98,881

(9,391,137)

(2,849,192)

731,519

117,625)

4,037

Cash paid for acquisition of investments

7,349,367

(2,731,567)

Cash paid for other noncurrent assets acquisition

1,243,016

Proceeds from disposal of investments

Dividend received Total cash outflows(-) Cash paid for acquisition of noncurrent assets Cash paid for acquisition of intangible assets

Prepayments and lending provided Net cash flows of investing activities

63,199

(4,303,919)

204,024

3,045,528

183,000

Total cash inflows (+)

Cash flows of financing activities

2013 Annual report

STATEMENT OF CASH FLOWS (continued) For the year ended 31 December 2013

(In thousands of togrogs) Cash received from borrowings and bonds issued Total cash outflows (-)

183,000

(114,008)

Repayment of borrowings and payment on bonds

(970)

Financial lease liabilities paid

(113,038)

3,045,528

68,992

Total net cash flows

684,177

(233,300)

Cash and cash equivalent brought forward

136,993

370,293

Cash and cash equivalent carried forward

821,170

136,993

Net cash flows from financing activities

The accompanying notes are an integral part of these financial statements.

3,045,528

Financial statement

NOTE 1. BRIEF INTRODUCTION

All cash flows of the Company are presented in its cash report and its business activities are introduced in Note 1.

1.1 Establishment of the Company

Accounting activities of the Company are in compliance with Accounting Law of Mongolia and other related laws and rules.

The Company was established in April 26, 2011 as “Mandal General” LLC. Later its name was changed to “Mandal General Insurance” LLC after it obtained a special license for property and casualty insurance operations from the Financial Regulatory Commission issued under Order No.146 dated June 2, 2011 and started insurance services.

2.3 Financial reporting currency

Currently, the Company provides 17 types of insurance products with 2 branch offices.

2.4 Going concern assumptio

1.2 Core business: The Company’s insurance services include the following products. • • • • • • • • • • • • • • • •

Accident insurance, medical cost cover Property insurance Auto insurance Construction insurance Cargo insurance Aviation insurance Driver’s liability insurance Compulsory driver’s liability insurance Agricultural insurance Livestock insurance Financial insurance Credit insurance Trust insurance Rail/marine transportations means insurance Liability insurance for rail/marine transportation means Liability insurance for aviation

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

The financial statements are prepared in Mongolian Togrog which is the functional currency of the Company.

The Company prepares the financial statements based on “Going concern assumption” with intention to keep running ordinary course of the business further. This going concern assumption is based on future events that will happen in uncertain future.

2.5 Main accounting policies The Company adheres to the following policies in its accounting: Insurance accounting policy

Net insurance premium Net insurance premium is determined by gross insurance premium less premiums ceded and cancelled premium. Premium ceded is determined by the amount which paid by the insurer to a local/domestic reinsurer company for partially or fully reinsuring its obligations. Cancelled premium is determined by the amount of premium given back to the insured by estimating portions attributable for the remaining period of the insurance contract in accordance with related law.

Earned premium

The financial statements of Mandal General Insurance LLC which comprise Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity and Statement Cash Flows are prepared within a broad framework of the IFRS and in compliance with “Regulation on Setting forms and contents of financial reports and accounting documents of insurance intermediaries” adopted by the Financial Regulatory Commission based on the Order No.275 dated December 23, 2009.

2.2 Financial reporting basis The Company prepared the financial statements on accrual basis of accounting at historical cost principle in accordance with insurance accounting guidelines and rules adopted by the Financial Regulatory Commission in 2009 inconformity with the IFRS.

Earned premium is estimated by net insurance premium less net change of net unearned premium reserve for the fiscal year.

Insurance reserving policy The Company adopts rates and limits specified in the following regulations in establishing reserve fund for unearned insurance premiums: • “Regulation on establishment of an insurance reserve fund, its expenditure and control” adopted by the Financial Regulatory Commission Order No.232 in 2009; and • “ Regulations for investments made from insurance paidin-capital and reserve funds” adopted by the Financial Regulatory Commission Order No.250 dated July 17, 2013. The Company established 4 types of reserve funds in accordance with the above regulations:

2.1 Preparation of financial statements

MANDAL GENERAL INSURANCE LLC

Additional note to the Financial Statements for the year ended December 31, 2013

• • • •

Unearned premium reserve (UPR) Incurred but not reported loss reserve (IBNR) Reported but nor settled reserve (RBNS) Unexpired risk reserve (URR)

Unearned premium reserve (UPR) Unearned premium reserve is calculated from quarterly net premium income and is estimated using 1/8 method by amortizing the insurance premium received from insured over the period of the insurance policy. This reserve is established for the future indemnity to be paid by insurer to insured.

Incurred but not reported loss reserve (IBNR) Incurred but nor reported loss reserve is a reserve established for contingent claims of losses incurred but not yet have been reported to the Company. The reserve is established in every quarter with premiums estimated by actuaries based on the preceding indemnity information in the previous years’ financial statements.

Нэхэмжилсэн хохирлын нөөц Нэхэмжилсэн хохирлын нөөц сан гэдэгт тайлант хугацаанд учирсан хохирлыг даатгуулагчаас нэхэмжилсэн боловч хараахан төлөгдөөгүй байгаа хохирлыг нөхөн төлөхөд зориулагдсан нөөц сан ба тайлант хугацаанд байгуулсан гэрээний дагуу даатгуулагчаас нэхэмжлэл ирсэн тохиолдолд орлогод тооцсон хураамжаас нэхэмжилсэн хохирлын нөөц санг байгуулна.

Reported but not settled loss reserve (RBNS) Reported but not settled loss reserve is a reserve established to compensate loss incurred and claimed in the fiscal year but not yet have been paid to the insured as of reporting date. This reserve is expensed out of the earned premium in case the insured claims that loss is incurred in the fiscal year.

Unexpired risk reserve (URR) Unexpired risk reserve is an excess fund to pay actual claims of the fiscal year that exceeded the estimated claims. If the claims to be paid to the insured is greater than the unearned premiums, then this reserve is created from the earned premiums with the amount equal to the difference.

Claims Claims and/or Claims expense is recognised in the income statement based on the liability to be paid to the insured/ indemnitee or third party depending on the insurance case at the amount evaluated when the incident happened.

Reinsurance contract

The Company cedes certain part of its insurance liability to reinsurer companies through reinsurance contract. Reinsurance contract is an agreement made with reinsurer to get partial or full claim payment for possible liability as per the Company’s obligation to the insured.

Subrogation income The Company has the right to make subrogation claim for its paid claims against the third party (determined as a faulty party) that caused an insurance loss to the insured in accordance with the Insurance Law of Mongolia. The Company incurs receivable with the faulty party at the claim amount and close the receivable when it gets repaid by the faulty party. In case it is determined that the faulty party is unable to pay the claim, the Company creates bad debt provision and writes off the receivable.

Deferred Acquisition Costs (DAC) Insurance contract related costs such as commission and other contract conducting expenses are accrued in the balance sheet and recognised as Deferred acquisition cost and expensed over the subsequent reporting periods as same as the premiums income is amortised over the lifetime of the insurance contract.

Deferred income of reinsurance contract The Company withholds insurance commission from the insurance premium ceded to the reinsurer and accrues the commission. The commission is recognised over the following reporting periods as same as the premium income is amortised over the lifetime of the insurance contract.

2.6 Foreign currency transactions The amount of the transactions denominated in foreign currencies are converted into the amount of base currency using the exchange rate between foreign currency and base currency at the date of transaction, and recorded at initial recognition. Cash, cash equivalents and liabilities recorded in foreign currencies are converted at the date of the Statement of Financial Position. Foreign currency rate differences on conversion are recorded in the Statement of Comprehensive Income. Gains and losses on the foreign currency exchange rate related to the Income Statements are presented as other income in the Statement of Comprehensive Income. The historical costs of non-cash items expressed in foreign currencies are converted into Togrog using the exchange rate at the date of transaction. The exchange rate of US Dollar against Togrog established by the Bank of Mongolia on December 31, 2013 was equal to MNT1,654.10.

2.7 Specific accounting policies Mandal General Daatgal LLC adheres to the following accounting policies in preparation of financial statements.

2.7.1. Cash and cash equivalents The Company classifies its cash and cash equivalents as

Financial statement

Cash and cash equivalents are booked at their nominal values. Balance of cash in foreign currency is booked converting into Togrog using the rate established by the Bank of Mongolia as at the date of Statement of Financial Position.

2.7.2. Financial assets Financial assets consist of short term investments or marketable securities, bond, loan stock, Government bond, investment securities, receivables, loans extended to others and advances. Those financial statements are classified as follows: a) loans and receivables; b) available-for-sale financial assets; c) financial assets held to maturity; and d) financial assets at fair value through profit or loss.

Initial measurement and valuation In terms of an initial recognition of financial assets/ liabilities, the Company measures them at their costs that are the fair value of indemnity paid (for assets) and received (for liabilities). Except for the available-for-sale finnancial assets/liabilties, transaction costs related to financial asset acquisition and financial liability incurrence are included in the initial measurements of all financial assets and liabilities.

Fair value estimation Fair values of financial assets/liabilities traded in the active market are based on quoted market price or quoted dealer price (supply price for long position, demand price for short position). The quoted prices are based on the prices determined by stock exchange, dealer, broker, companies, financial market, price setters and regulatory institutions. Those prices are considered as financial instruments expressed in active market value if the prices are constant in the market. If not, the market is deemed as inactive. Financial instruments are recorded at their cost less impairments in case the fair value of inactive own equities cannot be determined fairly.

Financial asset impairments The Company assesses at each statement of financial position 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, there is an objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred â&#x20AC;&#x2DC;loss eventâ&#x20AC;&#x2122;) 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. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where

observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

2.7.3. Receivables and advances The Companyâ&#x20AC;&#x2122;s receivables are classified as receivables incurred with customer within its operating activities, receivables from orderers for the services provided, livestock index based insurance related receivables, insurance premium receivables and receivables from insurance representatives. Other receivables are classified as receivables related with operating activities, tax and SHI excess payments, fixed assets sold on credit, settlements with employees and interbranches receivables etc. Once the first installment is received as per the insurance contract payment schedule, the contract is deemed as effective and the received premiums are recognised/ recorded as income. The remaining payment of the contract is recognised/reported as premium receivable. Receivables are booked at their net realizable values and reported at the nominal values less bad debt provision. Receivables denominated in foreign currency are converted into Togrog using the official rate of the Bank of Mongolia at the date of Statement of Financial Position. Bad debt provision is created at the following rates depending on the receivables aging. Aging (days)

1-180

181-270

271-365

366-455

Over 455

Percentage to establish bad debt provision

25%

50%

75%

100%

Advances received in the fiscal year as per the contract and expenses, assets, work/service fee receivables to be recognised in the next fiscal year are booked as advances in the receivables account. Advances are recognised when it is incurred and recognised as expense in the income statement when services in respect of the prepayments have been performed.

Tax, social and health insurance receivables Receivables for corporate income tax, value added tax, social and health insurance premuims, and other taxes, fees and payments and social and health insurance overpayments at the end of the fiscal period are included here. The year and/or quarter ending balance of social and health insurance premiums receivables equal to the amounts confirmed by the Social Insurance Administration.

Prepayments These are expenses already paid but not yet been incurred. Prepayments are booked as assets at its paid amounts initially. In the subsequent accounting period, they are reported in the income statements as services in respect of the prepayments are performed in the subsequent period or

cash on hand, cash and cash equivalents at bank current accounts, demand deposits and term deposits with up to 3 months of maturities.

MANDAL GENERAL INSURANCE LLC

Additional note to the Financial Statements for the year ended December 31, 2013

as per the contract.

regocnition. Intangible asset is amortised in 3 years on straight line basis.

2.7.3. Inventories Inventories consist of materials required for ordinary course of business, stationaries and supply items. Inventories are booked on perpetual basis and disbursed on average costing method. Balance of inventories is mainly immaterial over the fiscal year thus no allowance for revaluation is considered. Cost determination. Inventories are valued at the lowest of cost or net market realizable value and reported in the company’s financial statements. The preparation costs are allocated using the price method. Valuation. Inventories are recognised at their costs initially and valued at the lowest of cost or market realizable value and reported in the financial statements.

2.7.4. Property, plant and equipment

Cost. The initial costs of property, plant and equipment consist of their purchase prices, import tax, incidental costs incurred until the property, plant and equipment are ready for use. The Company decides whether to capitalize the cost of fixed assets since its acquisition as additional expense to the reporting period by considering whether the fixed assets are enhancing the expected economic benefit. Property, plant and equipment are reported at its net cost less accumulated depreciation and impairments. Depreciation. Fixed assets are depreciated on straight line basis over their useful lives. Useful lives of the assets are determined as below and depreciation built up in the reporting year is recorded as depreciation expense. The Company depreciates its fixed assets as per the following durations.

Equipment Furniture and fixtures Computers and equivalent items Vehicles Other assets

Useful lives 10 10 3 10 10

2.7.5. Intangible assets The Company books computer software as intangible asset. Intangible asset is purchased separately and its cost is recognised including purchased price and direct expenses incurred to set up it for the intended use. Intangible asset is presented in the financial statements at net value less amortisation and impairment after its initial

2.7.6. Payables Paying the Company’s existing liabilities can reduce the future economic resources. Payables are the transaction amounts which incur liabilities for the Company that consist: accounts payables, bank overdraft, dividend payables, taxes, premium payables, deferred income of insurance contract, salary payables and etc. Payables are recognised when they are measurable.

2.7.7. Owners’ equity

The Company’s property, plant and equipment consist of equipment, vehicles, furniture, fixtures, computers and its accessories and intangible.

Particulars

Fixed assets and intangible assets are written off at their residual values. Gains/losses from asset disposals are recognised at difference between residual values and proceeds from sales.

Ordinary shares, additions of revaluation, retained earnings/ loss and reserve funds are treated as owners’ equity. When dividend is announced, changes shall be recorded in the owners’ equity. Owners’ equity is booked at its nominal value.

2.7.8. Revenue Revenue is recognised when there is an economic benefit to the Company is expected and the revenue is measurable. Revenue is measured by its fair value received and/or expected to be recieved less VAT, other taxes, discounts and rewards. The Company evaluated that its all revenue have been earned from its operating activities.

2.7.9. Expenses Economic benefit is reduced by decreasing financial assets and increasing liabilties. Expense can be recorded as profit/ loss when economic benefit is measurable. Relation between income and expense shall be cohesive in recording expenses as profit/loss. Expense is recorded in a systematic and appropriate method if economic benefit is to be received through several reporting period or consistency between income and expense cannot be determined directly and connected with broad scope. Expense is directly recognised and recorded if the expense has not created future benefit or the future benefit does not meet a requirement to be recorded as an asset in the statement of financial position.

2.7.10. Deferred tax Deferred tax is recognised at temporary difference between taxable amount of assets and liabilities at the financial statement date and the recording amount in the financial statement using the liability method.

Financial statement

Deferred tax liabilities derived from temporary difference are recognised except the following cases: • Initial recognition of goodwill • Not business consolidation • Transactions that have no impact on either accounting profit or taxable profit/loss. Deferred tax assets derived from temporary difference are recognised except the following cases: • Not business consolidation • Transactions that have no impact on either accounting profit or taxable profit/loss. Deferred tax assets and liabilities should be measured at the amount of the implementation of deferred tax assets in accordance with valid tax laws at the end of the fiscal period, and at the amount of the expected tax rates at the tax payment period.

2.7.11. Corporate Income tax The Company determines its income tax on the incomes determined in the financial statements as adjusted as incomes which do not increase gross taxable income and expenses that are non-deductible from gross taxable income at respective rates valid as at the Statement of Financial Position. As a taxpayer legal entity, the Company is subject to pay income tax in accordance with the Article 17.1 of Economic Entity Income Tax Law of Mongolia: “If annual taxable income is 0-3.0 billion togrogs, it shall be taxed at the rate of 10 percent. If annual taxable income exceeds 3.0 billion togrogs, it shall be 300.0 million togrogs plus 25 percent of income exceeding 3.0 billion togrogs.

2.7.12. Other taxes The Company withholds personal income tax from its employees’ salaries at rates specified in related law and pays to the tax authority. Additionally, it withholds 10% of income tax from fees for work/service performed by others.

2.7.13. Employees salaries and benefits Short term benefits: The company recognises salaries, wages, and other equivalent items to employees as salary expenses of the fiscal year. It also provides allowances for annual and sick leaves to its employees in compliance with related laws.

Certain charges:

The company contributes SHI premiums at 11% in accordance with law and recognizes them as expenses of the fiscal year.

MANDAL GENERAL INSURANCE LLC

Additional note to the Financial Statements for the year ended December 31, 2013

NOTE 3. CASH AND CASH EQUIVALENTS Fiscal year end balance of cash and cash equivalents are as follows:

(In thousands of togrogs)

Cash on hand Total cash on hand

2013

2012

1,859

1,974

1,859

1,974

819,311

135,019

819,311

135,019

821,170

136,993

Bank current accounts Cash at bank current accounts Total cash at bank current accounts Total cash and cash equivalents

Bank current accounts Golomt Bank

(In thousands of togrogs) 2013

2012

38,460

95,088

State bank

759

2,147

Khan Bank

548,524

8,606

638

7,948

179,723

15,993

710

3,677

50,497

1,560

819,311

135,019

XacBank Trade and Development Bank Ulaanbaatar City Bank Capitron Bank Total cash at bank current accounts

NOTE 4. SHORT TERM INVESTMENT Term deposit at banks Golomt Bank

2013

2012

150,000

1,050,000

830,704

250,000

2,830,000

750,000

Capitron Bank

400,000

200,000

State bank

650,000

839,300

200,000

5,060,704

3,289,300

XacBank Khan Bank

Ulaanbaatar City Bank Non banking financial institution Total term deposits at banks Assets in the short term investment account are term deposits at banks that have not less than 3 months of maturities with interest rates ranging from 9% to 16.3%.

(In thousands of togrogs)

Current and saving accounts are placed at commercial banks operating in Mongolia.

Financial statement

NOTE 5. RECEIVABLES

(In thousands of togrogs)

Premium receivables Subrogation receivables Staff advances Interest receivables Other receivables Total receivables

2013

2012

1,695,019

307,167

134,724

49,272

8,281

9,670

280,387

537,770

95,185

38,026

2,213,596

941,905

NOTE 6. INVENTORIES Supply materials Total inventories

2013

2012

24,790

21,583

24,790

21,583

NOTE 7. PREPAID EXPENSES Prepaid expenses Total prepaid expenses

2013

2012

287,676

135,057

287,676

135,057

2013

2012

110,000

NOTE 8. INVESTMENT PROPERTY Investment property Total investment property

NOTE 9. PROPERTY, PLANT AND EQUIPMENT

(In thousands of togrogs)

Equipment

Vehicles

Computers and accessories

Furniture and fixtures

Other fixed assets

Balance at 2012.12.31

37,366

40,880

133,308

211,554

Additions

(4,727)

(6,147)

(165)

(11,039)

Disposals

(1,831)

( 6,199)

( 6,396)

(14,426)

2013.12.31 Balance

32,639

34,733

133,143

200,515

Total

Cost

Accumulated depreciation Balance at 2012.12.31

56,208

43,916

50,148

150,293

Additions

(9,422)

(20,824)

(14,587)

(44,833)

Disposals

88,847

78,670

183,291

350,808

Balance at 2013.12.31

(11,253)

(27,023)

(20,983)

(59,259)

2012.12.31

15,669

148,919

50,959

72,783

3,219

291,549

2013.12.31

15,190

166,812

51,154

87,762

2,856

323,774

Book value

MANDAL GENERAL INSURANCE LLC

Additional note to the Financial Statements for the year ended December 31, 2013

NOTE 10. INTANGIBLE ASSETS (In thousands of togrogs) Software

Total

Cost Balance at 2012.12.31

2,195

Additions

4,037

6,232

Balance at 2012.12.31

1,466

Additions

2,067

Disposals Balance at 2013.12.31 Amortisation

3,533

2012.12.31

729

2013.12.31

2,699

Disposals Balance at 2013.12.31 Book value

NOTE 11. SHORT TERM LIABILITIES (In thousands of togrogs) 2012

1,695,425

43,717

Claims payables

1,026

2,494

Prepaid income

94,685

8,440

8,310

2,042

Bank overdraft

652

Other payables

2,814

999

113,235

106,037

1,915,495

164,381

Reinsurance payables

Tax payables

Accounts payables Total payables

2013

Reinsurance payables consist of payables for reinsurance policies of, employees’ reinsurance, construction liability reinsurance, construction materials reinsurance, aircraft hull’s reinsurance, aircraft owner/holder’s liability reinsurance. Most of the reinsurance payables are construction work reinsurance amounting MNT 1,125,625 thousand, aircraft hull’s and its owner/holder’s liability reinsurance amounting MNT 499,641 thousand.

Prepaid income consist of prepaid insurance premiums for financial risk insurance, light/heavy industry insurance, corporate responsibility insurance, professional responsibility insurance, salary loan insurance. Most of the prepaid income consist of prepaid premium for salary loan insurance is MNT69,248; prepaid premium for light/heavy industry insurance is MNT 10,403; and prepaid premium for financial risk insurance is MNT 7,677.

Claims payables consist of individual and commercial vehicles insurance claims and driver’s liability insurance claims.

Accounts payables consist of payables to individuals, entities and insurance intermediary fees. Major part is the intermediary fees which amount to MNT 76,133.

Financial statement

NOTE 12. INSURANCE RESERVE FUND (In thousands of togrogs)

Compulsory insurance

2012.12.31

Additions

Deductions

2013.12.31

Unearned premium reserve fund (I)

950,639

1,617,074

950,639

1,617,074

Incurred but not reported loss reserve fund (II)

510,651

35,661

510,651

35,661

Reported loss reserve fund (III)

64,797

130,568

64,797

130,568

Contingent loss reserve fund (IV)

335,315

Unearned premium reserve fund (I)

119,090

194,410

119,090

194,410

Incurred but not reported loss reserve fund (II)

64,077

7,002

64,077

7,002

Reported loss reserve fund (III)

13,326

20,452

13,326

20,452

Contingent loss reserve fund (IV)

3,971

3971

1,722,580

2,344,453

1,722,580

2,344,453

Total

(I) Unearned premium reserve fund

(In thousands of togrogs) 2012.12.31

Additions

Deductions

2013.12.31

77,366

458,939

77,366

458,939

Property insurance

471,522

345,127

471,522

345,127

Auto insurance

256,012

608,135

256,012

608,135

3,690

9,472

3,690

9,472

Accident insurance, medical cost insurance

Cargo insurance

26,376

64,778

26,376

64,778

Agricultural insurance

Livestock insurance

1,748

Aviation insurance

7,600

Construction insurance

Driverâ&#x20AC;&#x2122;s liability insurance

119,090

12,878

119,090

12,878

Liability insurance

54,420

65,479

54,420

65,479

Financial insurance

61,253

998

61,253

998

194,410

Credit insurance

36,497

Trust insurance

4,124

Compulsory driverâ&#x20AC;&#x2122;s liability insurance

Liability insurance for aviation Total

(II)

1,300

1,069,729

1,811,484

1,069,729

1,811,484

Incurred but not reported loss reserve

(In thousands of togrogs) 2012.12.31

Additions

Deductions

2013.12.31

Accident insurance, medical cost insurance

32,162

8,210

32,162

8,210

Property insurance

60,476

19,980

60,476

19,980

Auto insurance

56,117

5,274

56,117

5,274

Cargo insurance

11,971

Voluntary insurance

Insurance reserve fund

MANDAL GENERAL INSURANCE LLC

Additional note to the Financial Statements for the year ended December 31, 2013

Construction insurance

12,233

468

Agricultural insurance

Livestock insurance

Aviation insurance

Driver's liability insurance

64,077

184

64,077

184

Liability insurance

60,933

232

60,933

232

Financial insurance

276,759

299

276,759

299

Compulsory driver's liability insurance

7,003

Credit insurance

968

Trust insurance

Liability insurance for aviation

574,728

42,663

574,728

42,663

Total

(III)

Reported but not settled loss reserve (RBNS)

(In thousands of togrogs) 2012.12.31

Accident insurance, medical cost insurance Property insurance

2013.12.31

Additions

Deductions

100

4,429

100

4,429

57,812

923

54,426

923

54,426

Driver's liability insurance

13,326

Financial insurance

Auto insurance

63,774

Compulsory driver's liability insurance

20,452

Credit insurance

13,901

78,123

151,020

78,123

151,020

Total reported loss reserve

(IV)

Unexpired risk reserve fund

Accident insurance, medical cost insurance

(In thousands of togrogs) 2012

Additions

Deductions

2013

81,169

Property insurance

137,968

Auto insurance

38,995

Cargo insurance

5,014

Livestock insurance

149

Aviation insurance

649

Driver's liability insurance

1,464

Liability insurance

55,722

Financial insurance

13,030

Compulsory driver's liability insurance

3,972

Trust insurance

1,042

Liability insurance for aviation

111

151,020

339,286

Total

12,233

Financial statement

NOTE 13. SHARE CAPITAL

(In thousands of togrogs) 2013

Ordinary share Share based payment reserve Treasury stock Total owners' equity As at 31 December 2013, the Company issued total of 6,243,016 pieces of shares which each has MNT1,000 of nominal value. All issued shared have been fully repaid. Each ordinary share has 1 voting rate. No changes have been made in the Company’s statutory fund in 2012. In the basis of the Board decision, the statutory capital has been decreased by MNT1,243,016

2012

6,243,016

1,808,480

(1,243,016)

5,000,000

8,051,496

thousand, and now statutory capital amounts to MNT5,000,000 in 2013. The Company’s only shareholder is UMC Capital LLC. UMC Capital LLC bought the Company’s shares from Canadaregistered Mongolia Growth Group Ltd in December 2013. A former shareholder Mongolian Growth Group Ltd is publicly traded company whose shares are traded on Toronto Stock Exchange under ticker symbol “YAK”.

NOTE 14. RETAINED EARNINGS

(In thousands of togrogs) 2013

2012

Retained earnings/losses Reporting year profit/loss Previous year profit/loss Cancellation of share based payment fund Total retained earnings/losses

NOTE 15. NET INSURANCE PREMIUM

690,673

(1,070,076)

(2,921,340)

(1,851,264)

1,815,128

(415,539)

(2,921,340)

(In thousands of togrogs)

Gross written premium Premium ceded Cancelled insurance premium Net insurance premium

2013

2012

7,318,592

2,720,289

(3,791,977)

(1,204,896)

(46,465)

(87,717)

3,480,150

1,427,676

Types of insurance Auto insurance Driver's liability insurance Liability insurance for aviation Aviation insurance

Gross Written Premium

Cancellation

Reinsurance

Net premium

999,338

4,532

39,453

955,353

20,804

280

20,524

202,271

200,785

1,485

507,390

498,705

8,685

75,526

48,054

27,472

1,465,669

1,318,241

147,427

Accident insurance, medical cost insurance

821,895

16,126

63,757

742,012

Compulsory driver's liability insurance

451,953

10,078

441,875

Cargo insurance Construction insurance

insurance breakdown of the Gross written premium by insurance products is shown below:

MANDAL GENERAL INSURANCE LLC

Additional note to the Financial Statements for the year ended December 31, 2013

Credit insurance

67,882

Trust insurance

6,642

Livestock insurance

1,998

Financial insurance

405,619

11,672

334,737

59,211

Liability insurance Property insurance Total

511,830

3,039

146,345

362,447

1,779,776

739

1,141,899

637,137

7,318,592

46,465

3,791,977

3,480,150

NOTE 16. CHANGES IN UNEARNED PREMIUM RESERVE FUND (UPR) (In thousands of togrogs) 2013

2012

Opening balance of UPR fund

1,069,729

453,785

Closing balance of UPR fund

4,306,443

1,069,729

(3,236,714)

(615,946)

Closing balance of reinsurance share of the unearned premium

2,494,959

Changes in reinsurance share of UPR

2,494,959

(741,755)

(615,946)

Changes in UPR fund Opening balance of reinsurance share of the unearned premium

Total changes in UPR

NOTE 17. INSURANCE CLAMS (In thousands of togrogs) Out of: Types of insurance

Claims paid from earned premium

Total Claims

Accident insurance, medical cost insurance

52,061

Property insurance

34,420

980

35,399

Auto insurance

242,614

23,283

265,897

Construction insurance

35,667

17,522

53,190

Liability insurance

13,669

2,434

16,103

Financial insurance

185,705

232,930

418,636

Compulsory driver's liability insurance

281,939

19,239

301,178

30,196

876,271

296,388

1,172,660

Cargo insurance

Credit insurance Total

Claims paid from reserve fund

Financial statement

NOTE 18. CHANGES IN INSURANCE RESERVES

(In thousands of togrogs) Out of:

2013.12.31

2012.12.31

Net changes in reserve funds

42,662

574,728

RBNS

151,020

URR

339,287 532,969

IBNR

Total

Additionally created

Decreased

Claims paid

-532,066

363,823

168,242

78,122

72,898

200,086

127,188

339,287

652,850

-119,881

539,373

363,823

295,430

NOTE 19. NON-PREMIUM INCOME (In thousands of togrogs)

Short term investment income Reinsurance commission income Other income Total non-premium income

2013

2012

836,006

777,393

77,915

7,561

243,665

52,070

1,157,586

837,024

Interest income for bank savings account is booked in the investment income. Subrogation income is booked in the other income account.

Salaries and bonuses Social insurance contributions Maintenance Utilities Rental

(In thousands of togrogs) 2013

2012

800,151

524,642

88,477

61,605

3,532

4,234

6,414

6,192

198,970

187,881

Business trips /training/

15,527

14,777

Transport

22,894

17,704

Raw materials

17,649

22,636

Depreciation

63,893

46,284

247,964

233,513

Advertisement Post, communication

30,801

22,871

Fuel

33,684

21,280

767

1,063

Fees for services performed by others

101,329

214,348

Insurance intermediary fee

258,578

45,425

36,398

42,937

1,927,027

1,467,393

Loan interest expense

Other expense Total general and administrative expenses

NOTE 20. GENERAL AND ADMINISTRATIVE EXPENSES

MANDAL GENERAL INSURANCE LLC

Additional note to the Financial Statements for the year ended December 31, 2013

NOTE 21. NON OPERATING PROFIT/LOSS (In thousands of togrogs)

Non operating services/manufacturing profit/loss Realised FX gain/loss Unrealised FX gain/loss Others Total non operating profit/loss

NOTE 22. INCOME TAX EXPENSE

2013

2012

(120,420)

(391,432)

(9,355)

(11,888)

(20,234)

16,158

18,495

68,616

(131,513)

(318,546)

(In thousands of togrogs) 2013

2012

785,620

524,642

Donation, personal use expense

29,325

391,432

Other

114,301

Profit before tax Permanent difference

Total permanent difference

143,626

391,432

Tax imposed at particular rate

836,007

784,518

Forex unrealised gain/loss

(20,234)

16,158

Total temporary difference

(20,234)

16,158

113,467

(1,400,869)

11,347

83,600

78,452

94,947

78,452

Temporary difference

Taxable income Tax imposed Tax imposed at particular rate Total income tax expense

NOTE 23. FINANCIAL RISK The purpose of the financial risk management policy of the company is to manage and decrease probable negative impacts such as market risks, credit risks, loan interest risks and foreign currency rate risk relevant to the companyâ&#x20AC;&#x2122;s operational activities and to verify whether the company has enough financial resources to develop its operational activities.

Market risk

The Company holds various financial assets such as account receivables, investments, cash on hand, bank accounts and these are all incurred within its operating activities.

There is high risks of losing/reducing customers and weakening competitiveness as there are 17 insurance companies operating similar insurance services countrywide.

The main risks that might influence the Companyâ&#x20AC;&#x2122;s financial assets/liabilities and the future cashflows are market risk, insurance risk, interest risk and foreign currency risk.

Foreign currency risk

Therefore, the management focuses on those risks and controls whether the performance of the Company is complying with its financial risk policies.

Assessing and reducing probable risks and taking appropriate actions in right time to convert those risks into opportunities enable the Company to hedge possible market risks as well as other risks and ensure an environment for sustainable business.

Possible foreign currency risk of the Company is mainly associated with exchange rate risk of US Dollar and Japanese Yen. The Company adheres to a policy to use the best possible rate in managing financial assets and liabilities expressed in foreign currency.

Financial statement

The table below shows how foreign currency rate changes ( in case, other variables are constant) derived from the recording amount differences of assets and liabilities

expressed in cash can influence the Company’s profit after tax.

(In thousands of togrogs) Balance /USD/

Balance / JPY/

Balance /thousand MNT/

Rate changes (+10)

Rate changes (-10)

Cash and cash equivalents

5,705.9

9,438

944

(944)

Cash and cash equivalents

33,486,454.6

525,737

52,574

(52,574)

5,705.9

33,486,454.6

535,175

53,518

(53,518)

Total

Impact on profit before tax

(In thousands of togrogs) 2013

Increase/decrease in Forex changes 10%

53,518

-10%

(53,518)

Solvency risk The Company manages its operating cash flows and investment opportunities actively, and describes all repayments and demand of investments. In order to provide requirements of working capital as a part of solvency, the Company endeavors to keep the rational level of cash and cash equivalents. The following table shows the Company’s solvency:

(In thousands of togrogs) Durations 1 year

Over 1 year

Total

Financial assets Cash and cash equivalents Short term investment Receivables Total financial assets

821,170

5,060,704

2,213,596

8,095,470

Financial liabilities Payables Other payables

1,915,495

2,344,453

Total financial liabilities

4,259,948

Net financial assets

3,835,522

Liquidity risk

Insurance claims are indemnified from investment income or cash generated from operating activities cash flows.

The following table shows financial assets/liabilities and insurance assets/liabilities for the fiscal year end by contract terms and insurance loss reserve (sum total) by pending durations. Figures shown in the tables are contractual undiscounted cash flows. Contractual undiscounted cash flows differ from discounted figures in the Statement of Financial Position. Payments denominated in foreign currency are converted using official rate as at the end of the fiscal year.

It is a risk that assets cannot be sold at desired time to meet its liabilities. The management controls the Company’s liquidity risk. We believe that liquidity risk associated with the Company’s assets and liabilities held as of December 31, 2013 are non material. The Company does not have any significant liability to be claimed unexpectedly.

MANDAL GENERAL INSURANCE LLC

Additional note to the Financial Statements for the year ended December 31, 2013

(In thousands of togrogs) Up to 3 months

In thousand MNT

3-6 months

6-9 months

9-12 months

Total

Over 1 year

Assets 821,170

821,170

2,340,543

811,750

1,800,000

200,000

110,000

5,262,292

498,992

2,494,959

Cash and cash equivalents Savings at banks Reinsurance reserve fund attributable to reinsurer Receivables

267,048

13,665

295,163

1,546,131

2,122,008

Total assets

3,927,752

1,324,407

2,594,155

2,245,123

608,992

10,700,429

84,352

628,714

499,641

74,075

1,915,495

Liabilities Payables

(8,532)

(42,662)

RLS

(151,020)

IBNR

(145,409)

(145,408)

(48,470)

(339,287)

Total liabilities

(220,609)

474,773

491,109

65,542

1,382,526

3,707,143

1,799,180

3,165,867

2,736,232

674,534

12,082,955

3,707,143

5,506,323

8,672,190

11,408,421

12,082,955

IBNR

Net difference of liquidity Accumulated difference of liquidity

NOTE 26. FAIR VALUE OF FINANCIAL INSTRUMENTS Financial instruments consist of financial assets and financial liabilities. Fair value of financial instruments is a trading price of financial instruments without any discounts between the interested parties that have sound knowledge of financial instruments. If there are not any financial assets or liabilities traded in the stock markets, and of which fair value is determined at the rate of stock markets, the fair value of the assets and liabilities are measured at the appropriate discount rates of the qualities and durations of the assets and liabilities.

NOTE 27. ASSET MANAGEMENT

571,712

The Company is obligated to meet the following asset requirements of the FRC. • To meet the minimum level specified in the “Regulation on approving minimum level of statutory funds for insurance companies” adopted by the Financial Regulatory Commission Order No.153 dated June 25, 2009. • To meet rate and limits specified in the “Regulation on solvency requirements and its supervision” adopted by the Financial Regulatory Commission Order No.249 dated July 17, 2013. • To meet rate and limits specified in the “Conditions for investments to be financed from insurance paid-in-capital and reserve funds” adopted by the Financial Regulatory Commission Order No.250 dated July 17, 2013. As of December 31, 2013 the Company met all the above requirements of assets.

NOTE 28. CONTINGENT LIABILITIES

The Company’s key policy on asset management is: •

•

To meet asset requirements of the FRC which regulates insurance and other activities stated in related law. To concentrate on the Company’s liquidity indicators required for sustainable operations.

There is no contingent liability was observed during the course of audit work.

Financial statement

NOTE 29. TRANSACTIONS WITH RELATED PARTIES Transactions with related parties of the Company are shown below: Receivables from related parties:

(In thousands of togrogs) Transactions

Related parties

2013

Relationship

2012

UMC Holding LLC

Parent company

Creative Mind LLC

Under common control

449

UMC Alpha LLC

Under common control

2,181

2,135

4,492

2,599

1,892

Total

Debit

Credit

1,861

Payables to related parties:

1,846

(In thousands of togrogs) Transactions Relationship

2012

UMC Alpha LLC

Under common control

Creative Mind LLC

2013

Debit

Credit

3,116

3,159

Under common control

10,273

10,350,

NPC Mandal LLC

Under common control

150

Bridge Head LLC

Under common control

Mandal Life LLC

Under common control

5,753

25,182

22,585

3,156

Mandal Asset Management LLC

Under common control

5,796

38,571

36,335

3,474

Total

NOTE 30. SUBSEQUENT EVENTS There are no material amount of transactions were occurred or decisions were made that are influential to the financial statements after the presentation and preparation of the financial statements for the year ended December 31, 2013.

NOTE 31. TRANSLATION These financial statements are prepared and submitted both in Mongolian and English languages. In the event of discrepancies between the Mongolian and English versions, the Mongolian version shall prevail.

Related parties