Mandal Insurance - Annual report 2014 [ENG] by mandaldaatgal

Content 04

Greeting

Greeting from the Board Chairman

Management team

Our Mission

Мandal’s Positive Impact

Risk management and insurance events organized by Mandal

Published materials for increasing risk education

Seminars and forums

Sponsorship

2014 at a glance

Highlights of 2014 performance

Insurance industry in 2014

Premium Income

Reinsurance

Claim Settlement

Investment

Risk Management

Customer Service Our team

Corporate Business

Retail Business

Annual report 2014

Мandal’s Achievement

MANDAL general insurance limited liability company

Audited financial report

2014

U.Ganzorig Board Chairman

We are happy to say that, although the economic growth has come to a halt and reached 6,8%, we have increased our total number of employees and our scope of business.

Dear Customers and Partners, In the year 2014 the total asset of Mandal General Insurance has grown 6% and the amount of compensation granted has grown 34%. We are happy to say that, although the economic growth has come to a halt and reached 6,8%, we have increased our total number of employees and our scope of business. This year the leading financial group in Mongolia, Golomt Financial Group, has become an investor in Mandal General Insurance and has been a success in the new page of the company’s history. Golomt Financial Group has Golomt Bank and Golomt Securities within their rank.

Substantial parts of the risk portfolio we receive from our clients are reinsured at an international reinsurance market. Thereby, protecting the company’s solvency and compensation towards our customers and creating reliable and secure repayable conditions. In 2014 we partook in the first double insurance “Package Treaty” from Mongolia.

Board members

M.Bayarbakhdal

Jim Dwyer

N.monsor

G.Otgonjargal

Board Member

Independent Board Member

Board Member

U.Ganzorig | Board Chairman 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. Ganzorig is an Independent Director at Mongolian Stock Exchange, President at Mongolian Financial Markets Association among other boards and committees he sits on. Ganzorig holds ACI Dealing certificate. He has a postgraduate degree in Financial management from MSM in Netherlands and BBA in accounting from National University of Mongolia. M.Bayarbakhdal | Board member Mr.Bayarbakhdal has held senior management positions in strategic planning, management, project management, marketing and sales at Universal Copper, QGX, Unitel and MCS Eelectronincs. He has worked as an executive officer in development and investment of gold, copper, coking coal mining projects. Mr.Bayarbakhdal graduated with an MBA from the SUNY New Platz University, USA and a BBA from Institute of Finance and Economics.

JIM DWYER | Independent 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. N.Monsor | Board member Monsor has over 6 years of business administration experience accumulated during his tenures in organizations as such as Darkhan Metallurgical Plant and Mongolian Chamber of Commerce. He is specialized in distressed real estate investment, deal structuring and post investment management. He holds a position of an advisor to Chairman of Mongolian Chamber of Commerce and Board member of UMC Group. Monsor has a bachelor degree in IT and MBA degree from Computer Science School of Mongolia. G.Otgonjargal | Board member, Гүйцэтгэх удирдлагад ордог 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.

Annual report

Greeting from the Board chairman

2014

Chinbar BAT-IDER

Chief Executive Officer

Gavaa OTGONJARGAL Chief Risk Officer

CH.BAT-IDER Chief Executive Officer Mr.Bat-Ider is specialized in banking and finance, aviation and international project management. He has 20 years of experience in finance, human resources management and general administration. Mr.Bat-Ider worked as a Chief Financial Officer of Eznis Airways in 2008-2012, and Vice president of Corporate Sales at Mandal General Insurance in 2013-2014. BatIder earned his MBA degree from Shidler College of University of Hawaii, USA and BBA in accounting from ICB, Mongolia.

G.OTGONJARGAL Chief Risk 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.

Enkhbold Bayanmynkh Chief Financial Officer

Batsaikhan JAVKHLAN Head of Retail Insurance

E.BAYANMUNKH Chief Financial Officer Mr.Bayanmunkh is specialized in accounting, investment and corporate finance. He has a 9 years of experience working as financial analyst, chief accountant and investment analyst in Newcom LLC, Eznis Airways and International Finance Corporation. He has Bachelor degree in Accounting from National University of Mongolia. Mr.Bayanmunkh is CPA. 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.

Bolorbold ZAYA

Vice President, Corporate Insurance

Dashdendev NYAMRAGCHAA Senior Insurance Manager

Bold BAYASAL

Senior Insurance Manager

Б.ЗАЯА Vice President, Corporate Insurance Mrs.Zaya Bolorbold, Vice President of Mandal Insurance, was previously a consultant of the World Bank project to improve risk management of Mongolian insurance sector. She had been Vice President in charge of Business Development and Reinsurance at Mandal General Insurance and Tenger Insurance. Her work experience include Head of Marketing at MCS Anungoo in Mongolia, General Manager at Teavana Corporation in Florida, and various management posts in number of U.S. companies while she was living there. Zaya has 13 years of business management experience, including the last 6 years in insurance and risk management. She has BA in Marketing and International Business from University of South Florida, USA. D.Nyamragchaa Senior Insurance Manager Mr.Nyamragchaa has a 6 year experience in Information technology sector and 3 year experience in insurance sector. Prior joining Mandal, he has worked in Ulaanbaatar Energy Distribution Network Government owned company. Nyamragchaa has a bachelor degree in IT from Mongolian University of Science and Technology.

Chuluunbaatar ANKHBAYAR Senior Risk Manager

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.

Annual report

Management team

2014 Annual report

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

Our MISSION

2014

Our MISSION

At Mandal, we consider ourselves as a risk solution provider for all our recent and future customers. We see challenge as an opportunity to turn things better. In 2014, we fully exploit our potential and invested to our human capital and prepared for next year’s expansion. We identified retail market is our growth opportunity and invested into the product development for retail customers.

We have been countinually spent effort and resources into our software improvement and upgrade as a backbone of our operation. We have developed two entire new modules, Claims module and Reinsurance module, for our core system. Especially, Claims module will fully automatisize entire claims process and shorten payment process and in the nearest future Mandal’s customer’s will be able to monitor extension of their policy and claims handling process inline through our website.

We have been able to complete and sign whole account quota share treaty with our reinsurance partners. The whole process took almost two years and took a lot of effort and negotiation with our partners. It is not only Mandal’s success, it also signifies Mongolian insurers are able to work with other foreign partners evenly. This particular treaty enables Mandal to reinsure other Mongolian insurers risks at limited capacity. In 2014, we jointly organized with Mongolian Insurers Association conference on risk management and insurance solution among students, professors and researchers. We intend to continue this event annual basis. On behalf of entire family of Mandal and myself accept our most gracious and heart warmth thanks. We promise that we will continue to deliver most innovative risk solution products and friendly services. I firmly believe that our partnership will continue in the future in mutually beneficial manner.

Annual report

Our Mission

2014 Annual report

Mandal’s Positive Impact

The journey to the peak continues...

Mount Kilimanjaro

In October 16th, 2013, at 07:30 AM Mandal’s flag waved on Mr.Kilimanjaro, fourth highest summit in the world.

Mount Aconcagua

In January 1st, 2015 Mandal’s flag waved on Mt.Aconcagua, the highest mountain in the Western hemisphere

Mandal positive impact

2014 Annual report Жилийн тайлан

Mandal’s Positive Impact

MANDAL’S POSITIVE IMPACT

city were identified and solutions to manage them were discussed. Over 250 organizations and media representatives exchanged opinion on risk management in Mongolia and discussed about ways of determining risks that affect organization’s operation directly and indirectly, how to handle them and include them into organization’s plan of actions more specifically based on proven practices and theories.

Every step in life has its risk. It is insurance companies’ role to minimize the impact of that risk. Especially in these times when living and working in Mongolia is becoming riskier than ever, combined efforts of the insurance sector and the community is crucial. We truly believe that everyone can contribute to risk mitigation and managing the risks we face. Citizens with risk education and awareness play important role in creating low risk environment for all to work and live in comfort. In the last few years, we at Mandal have taken many steps towards improving risk education of citizens and business community alike. We are proud to have set new standards of social responsibility and accomplished what’s never before been done in Mongolian insurance sector.

Aviation sector insurance seminar In March 2014, we organized the seminar “Aviation Sector Insurance”.

Risk management and insurance events organized by Mandal Risk forum

Mongolian Risk Forum has been organized 5 years in a row and has become a tradition of its kind. During Risk Forum 2014, Macro environmental conditions and risks into the business plan of 2015, risks in Ulaanbaatar

Mongolian Risk Forum has been organized on an annual basis since 2010. The purpose of the forum is to research and define concrete risks that are relevant to Mongolia, develop ways to manage them with assistance from professional organizations, and consequently share the results with the public in order to increase their knowledge about risk management.

During this seminar we held important discussions with the civil aviation sector’s stakeholders, about current overview of aviation insurance, future outlook and broker’s role and participation in this line of insurance, loss assessment and legal environment surrounding global aviation insurance.

2014 Annual report

Mandal’s Positive Impact

“Insurance - 80” Academic Conference Mongolian Insurers Association and Mandal General Insurance LLC have co-organized the “Insurance - 80” Academic Conference in commemoration of the 80th Anniversary of Mongolian insurance sector development. Students from universities that offer insurance and risk management studies and insurance sector employees participated in this Academic Conference.

of these risks, making this the first professionally analyzed risk publication in Mongolia. Risk analysts at Mandal strive to publish this report annually and establish risk database for Mongolia. Each year, we publish and deliver complimentary copies of the Mongolian Risk Report to business entities.

Purplebook

The purpose of this conference was about analyzing the country’s insurance sector current situation, defining the underlying challenges and problems, finding solutions, and offering a platform to collectively discuss insurance sector’s further development and inspiring the young generation of analysts. Mandal Insurance’s Senior Risk Analyst Mr. Ch.Ankhbayar’s research titled “Stochastic modeling of the insurance sector advertising” was ranked first place among all the participants’ research.

Published materials for increasing risk education Risk Report It has been 3 years since we started analyzing the economic and social risk events that happened and foreseeable in the near future and publishing them into a comprehensive risk report because we at Mandal are the risk management professionals managing major Mongolian businesses and citizens’ risks.

Purplebook is an independent analysis on economic and business issues presented to business owners and

executives as well as policy makers to assist them in making informed decisions to run their business and the country. The analysis are prepared by Mandal’s researchers and distributed free of charge and also are published onto www.purplebook.mn. The publication aims to give professional analysis of global 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 write with forward looking mind rather than focusing on historical results only.

“Don’t Sweat the Small Stuff” book “Don’t Sweat the Small Stuff” is a New York Times bestseller, at 20 million copies sold worldwide. In 2014, we organized to have this book translated and published in Mongolia and delivered 1,200 complimentary copies to our customers. This book will be your desk book and helper in managing daily stress, seeing problems from a grounded perspective and balancing your mind.

In 2012, Mandal published the “Risk Report”, first ever comprehensive risk analysis done by a business entity and in it we identified top 10 priority risks that exist within our society and which require immediate attention. This report not only contains cause and origins of each risk but also future consequences

2014 Annual report

Mandal’s Positive Impact

How to make cities more resilient? Handbook for local government leaders

Risk seminar Mandal Insurance sponsored and published “How to make cities more resilient?” handbook from United Nations for local government leaders, in cooperation with Disaster Research Institute of National Emergency Management Agency. This handbook provides mayors, governors, councillors and other local government leaders with a generic framework for risk reduction and points to good practices and tools that are already being applied in different cities for that purpose. It discusses why building disaster resilience is beneficial, what kind of strategies and actions are required, and how to go about the task. It offers practical guidance to understand and take action on the “Ten Essentials for Making Cities Resilient” as set out in the global campaign “Making Cities Resilient: My City is Getting Ready!” which was initiated by the United Nations and its donor organizations in 2010.

Seminars and Forums “Mandal-Purplebook” forum

One of the activities of Mandal Insurance in reducing social risks is to organize Risk Management Seminars. These seminars focus on various risks, their essence, methods to manage risks as well as tools to identify and mitigate organizational risks. Each quarter, we choose a specific topic and conduct complimentary Risk Seminars for our customers, and we are happy to report that it became one of the most appreciated events according to Mandal’s customers.

“Gold miners’ risk and investment opportunities” seminar In November 2014, we organized our risk seminar on the subject of “Gold miners’ risks and investment opportunities” jointly with Mongolian Union of Gold Miners. For a whole day, professionals in gold mining industry have discussed trend in gold pricing of 2015, currency risk management, investment opportunities, gold transportation, secure custody and more.

In 2014, Mandal successfully organized the “MandalPurplebook” event within our sponsorship of the Purplebook magazine, quarterly independent analysis on economic and business issues. Over 350 professionals participated in this open forum and discussed about multilateral economic issues.

2014 Annual report

Mandal’s Positive Impact

Sponsorships Business Case Challenge 2014 The 4th annual “Business Case Challenge” competition among all Mongolian university students is sponsored by Mandal General Insurance. This competition is the largest case challenge competition aimed for innovative, confident, business-minded students in Mongolia.

Mandal’s achievement

Social responsibility Donor Campaign

Our 25 employees joined the campaign organized by National Blood Transfusion and Research Center for voluntary, unpaid blood donor pool and supported the appeal “Saving human life doesn’t necessarily depend on doctors” in order to advocate the concept of humanitarian actions through public awareness.

2014 Annual report Жилийн тайлан

Mandal’s Achievement

2014 at a glance After two years of research, we at Mandal are proud to have successfully implemented a whole account quota share treaty program for first time in Mongolian insurance history.

We are still the only one P&C insurer on the market that meets the upcoming escalation in minimum capital requirement set by the Financial Regulatory Committee, for the end of 2016.

With an assistance of a reputable reinsurance broker Tysers, we entered into agreement with reinsurers, with Qatar Re (AM Best A) being the lead underwriter, along with Sava Re (AM Best B+) and Russian Re (AM Best B). Introduction of this reinsurance agreement is not only a great achievement on the local insurance markets, but another activity demonstrating a Mongolian insurance company is capable of competing with international insurers. Another feature is that under the agreement, Mandal General Insurance is allowed to reinsure other insurance companies’ underwritten risk within certain limits, alongside its own risk. This achievement of ours marks another milestone for Mongolian insurance companies in the global market. In 2014, Mandal General Insurance’s total written premium reached MNT 8 billion. Though we did not hit our target, the premium income of MNT 8 billion remains a suitable achievement for a young company, which has been operating for only three years. Out of 16 property and casualty insurers operating locally, Mandal General Insurance is ranked in fourth and fifth in terms of total assets and total premium income, respectively. We kept the leading position in the market in terms of share capital, with capital of MNT 5 billion. Moreover, Mandal is the only insurance company that currently satisfies the minimum share capital requirements to be enforced by the end of 2016 by the Mongolian Financial Regulatory Commission. Throughout the year, Mandal has also met regulatory solvency requirements.

The company underwrote MNT 8 billion in premiums in 2014 against the risk of MNT 4.3 trillion in value. Out of these, MNT 1.6 trillion was ceded to reinsurance, with net premium income being MNT 3.4 billion. Approximately 80% of the business came from our corporate clients and 20% for retail customers.

Highlights of 2014 performance This was a year of business development and preparation for further growth. • Insurance premium totaled MNT 8 billion, showing 10% growth y-o-y. • Bancassurance business increased 2.7 times, making up 30% of premium income. • Loss ratio was 38.9%, 1.5 percent less than the previous year. • We have paid MNT 1.6 billion in claims, to 2,800 Insureds. • Reserve fund increased by MNT 919 million, or 39.2% from the previous year; making total assets MNT 9.4 billion. • ROI was 14%, showing a 1.0 percent increase from the previous year. • As an improvement in risk management, the company introduced a whole account quote share treaty reinsurance program for the first time in Mongolia.

Total Premium Income, million MNT

7,318

8,034

2,720

2012

2013

2014

Total Assets, million MNT

8,844

9,390

7,017

2012

2013

2014

Claims paid, million MNT 1,570 1,172

209 2013

2014

2012

2014

Regulatory Changes

Insurance industry in 2014 General Statistics

During 2014, the Financial Regulatory Committee emphasized accessibility of insurance services. Under this premiss, the committee made a number of changes to relevant regulatory frameworks.

Performance of an economy is measured by GDP. Similarly, performance of an insurance industry can be measured by its total assets and growth by its revenue.

The committee worked to boost the merit of insurance in the consumer mindset by addressing fairness and legibility of standard insurance on the retail markets.

In 2014 the economy grew by 7.5%, which is 3.8% lower compared to the previous year. However, the insurance industry continued to display higher growth compared with other industries.

Decree number 355, issued by the Committee in 2012, increased the minimum capital requirement of insurance carriers. As a result, as of Dec 31st 2014, the minimum equity capital requirement for property insurance carriers is 3.5 billion MNT.

Premium Income, billion MNT

107.6

2008

2009

2010

Total Assets

2012

2013

Growth rate

2014

107.3

60% 50%

30%

20 0

47.5

40 10%

Additionally, in order to improve corporate governance of insurance carriers, the Committee made appointment of an independent director mandatory for all insurance carriers. Carriers are also now required to make shareholders information publicly available.

40%

21% 17%

2011

36%

20%

56.7

41.1

34.3

70%

49%

30%

81.3

20%

100

2008

2009

Premium

2010

20%

16%

17%

31.8

40%

66%

120

32%

126.4

38%

120

152.5

150

50%

43%

23.4

180

92.8

Total Assets, billion MNT

21.5

Annual report

Mandalâ&#x20AC;&#x2122;s Achievement

10% 2011

2012

2013

2014

Premium Income

Growth rate

Total assets grew by 21% to reach 152.5 billion MNT and premiums grew by 17% to reach 107.3 billion MNT.

There have been a number of developmentsacross different insurerâ&#x20AC;&#x2122;s strategies. The inner and outer circles on the chart below indicate 2013 and 2014 respectively. In 2013, our company focused mainly on property, construction, automobile and casualty insurance products, which made up 69% of total premium income. In 2014, there was a certain change in portfolio composition due to slower growth in the construction sector.

It is predicted that in 2015 premium growth will reach 137 billion MNT and total asset growth will reach 172 billion MNT. Key Events

Premium Income by classes

The number of brokers and loss adjusters increased by 10 and 6 respectively, whilst numbers of insurers remained same. 2014 marked the 80th anniversary of the birth of insurance industry in Mongolia. This gave an opportunity to promote the industry to general public. In addition, consumer knowledge of insurance further increased when the Financial Regulatory Authority held an accessible insurance campaign, providing policy support.

Inner circle 2013 Outer circle 2014

2013

2014

Automobile

14%

29%

Construction

20%

Casualty

11%

Driverâ&#x20AC;&#x2122;s Liability

Financial

Liability

13%

Property

24%

27%

Other

12%

In 2014, two more banks began offering insurance brokerage services. As a result insurance sales and marketing distribution channels increased. Brokers also became more involved in issuance of compulsory drivers liability insurance.

2014 Annual report

Mandalâ&#x20AC;&#x2122;s Achievement In 2013 income from construction insurance accounted for 20% of total, however, it reduced to 4% in 2014. This gap was filled by liability insurance income. We therefore we managed to become less dependent on any one industry. Going forward, we also aim to increase the share of casualty, financial and driverâ&#x20AC;&#x2122;s liability businesses. Reinsurance and Retention Reinsurance policy is essential for any insurer to maintain its stability. Mandal Insurance earned a premium income of MNT 8 billion, of which MNT 4.4 billion (55%) was ceded to reinsurers. We have achieved our objective of maintaining stability by employing our new treaty program, initiated during the second half of 2014. Whole Account Treaty Reinsurance covers automobile, driverâ&#x20AC;&#x2122;s liability, cargo, casualty, liability and financial insurance risks. This reinsurance agreement will increase our capacity up to USD 2 million when underwriting these types of insurance contracts, meaning any risks under USD 2 million will be automatically underwritten by the Reinsurer.

Reinsurance In 2014, we paid 4.4 billion MNT - 55% of premium income - against a total written premium of 8.03 billion MNT in reinsurance purchases. We became able to cede more diversified classes of insurance to treaty when we introduced whole account reinsurance on July 1. In general terms, 40.3% of premium income was reinsured by treaty reinsurance, with 59.7% of premium income reinsured through facultative reinsurance.

Reinsurance composition by type Facultative

58%

Whole Account Treaty

40%

Travel Treaty

Health Treaty

Reinsurance premium composition Net premium

36.1%

Cancelled premiums

8.8%

Treaty reinsurance

22.2%

Facultative reinsurance

32.8%

Facultative Reinsurance composition

Revenue by sales departments

Cargo

Construction

11%

Financial Insurance

24%

Liability

11%

Property

52%

Revenue by sales departments Corporate sales team

68%

Channel sales team

28%

Retail sales team

Treaty Reinsurance composition Motor hull

59%

Drivers liability

17%

Cargo

Personal Accident

10%

Liability

11%

Other

Whole account treaty program The main purpose of reinsurance is to protect the reserve built for insureds.

Typically, Mongolian insurers would come into an agreement with reinsurers to share the loss up to an amount that is exceeding predetermined amount in the event of a large loss. However, a large number of small losses can decrease, if not drain, the reserve. Therefore, in international insurance practice, treaty reinsurance is widely used.

2014 Annual report

Mandal’s Achievement We are the first company in the Mongolian insurance industry to have applied a treaty structure that is combination of quota share and surplus elements. This program is led by Qatar Re. Qatar Re is a global multi-line reinsurer, with offices in major insurance hubs such as Zurich and access to Lloyds. Qatar Re enjoys AM Best A Excellent and S&P A Stable ratings. Our treaty program covers the following insurance lines • • • • • • •

General Liability Personal Accident, Workers Compensation & EL Trucks and heavy machinery Drivers liability Agriculture Cargo Payment Interruption

Claim Settlement It’s all about speed In 2014 we greatly improved our claims settlement speed compared to previous years. On average we now take just 6 days to settle claims. In 2014, we received an average of 70.5 claim calls per week. 89.6% of all calls received at our emergency assistance service were related to road-traffic accidents. Our emergency assistance team attended 82% of these accidents and assisted motorists. In 2014 we paid 1,570 million MNT in claims. Out of this 435 million MNT belonged to claims made for accidents the previous year. A further 248 million MNT was paid by reinsurance. Therefore, cost net claims payments of 888 million MNT were made in 2014, an increase of 1.3% compared to 2013. Claims paid, million MNT 315

405

1100

1570

2011

2012

2013

2014

Information Technology Claims management activities appear to be simple and straightforward. In reality, this type of operation is time consuming and labor intensive.

In order to save time and reduce the burden for our clients seeking claim settlements, Mandal insurance began applying more sophisticated claims management software since the first quarter of 2014. As a result, the majority of our claims settlement processes have now become fully automated, saving crucial time and improving service quality.

2014 Annual report

Mandal’s Achievement Customer Satisfaction

Testimony from our clients I insured my own car with Mandal Insurance cover and the organization where I work also insured their cars through Mandal. I believe that Mandal’s friendly and responsible service is rare among insurers in Mognolia. I would like specially to emphasize an outstanding conduct of Claims Processing Officer Ms. Myagmarsuren. The company should have more quality employees like her. Good luck. Davaadalai.Ts

My name is Gankhuyag Margad-Erdene and I am a loyal customer of Mandal Insurance. I am very grateful to work with such fast, friendly and reliable people. I wish you good luck and success in your work.

We believe customers seek good service in the time of claims, that’s why we are constantly concerned with our claims service quality and aim to be close to our clients, reducing their waiting period as far as we can. To us, who work everyday to uphold the trust of our clients, receiving everyday words of appreciation and gratitude from our clients provides us an enormous amount of inspiration. We know what we do Our professional and experienced team delivers fast and efficient claims services even with complicated cases. We also employ expertise without additional cost to clients, which is key to service complicated claim cases in timely manner.

Walking an extra mile for our customers A real life story On May 11, 2014, fire broke out in food market Bars-2, on the east side of Ulaanbaatar. Once the fire was out Mandal’s Insurance claims team worked tirelessly alongside firefighters and the State Professional Inspection Agency to determine that the fire was caused by a gas-fire in a food court, which had quickly spread across trade counters. Mandal’s quick response claims department met with insureds whose assets were affected by the fire, documented the full loss and items that were exposed to fire and smoke damage. We identified foods to be sent to the State Professional Inspection Agency to test whether or not they could still be sold.

Our areas of expertise Heavy machinery Health Industrial accident Fire in commercial buildings Preventing loss progression

Many of those foods were perishable and they would already be unsalable by the time the test results came out. The entire food market was out of electricity due to fire and freezers and refrigerators in which food was stored became useless.

Our claims services department constantly advises our insureds on how to manage and contain damage in the event of loss. At the time of incident, our claims team themselves visit accident sites and advise clients on how to reduce further hazards in order to prevent loss progression.

Mandal’s quick response claims department promptly moved all insured’s’ refrigerators and freezers to another warehouse location in order to minimize further loss. All of this was resolved without any costs incurred to customers and they were very satisfied with our service.

Margad-Erdene.G

CustomerService Department

2014 Annual report

Mandal’s Achievement

Investment

Risk management Compared to other sectors, the insurance industry has one unique feature - the reverse production cycle.

Capitalization As of 2014, Mandal continues to be the highest capitalized insurer (5 billion MNT) within the Mongolian insurance industry. Shareholder’s capital will, in principle, be used to pay claims in the event the reserve has diminished. Therefore, high capitalization would mean greater solvency than our competitors.

In many businesses it is possible to calculate the cost. However, when it comes to future risks, such as fire, terrorism, crime, natural catastrophe, probability can be predicted, but impossible to determine with 100% accuracy.

Current investment portfolio

We introduced quota share treaty reinsurance for the first time in the Mongolian insurance markets, with Qatar Re partnering with us as leading underwriter on this program.

In 2014, Mandal Insurance held an average 9.2 billion MNT in total assets, out of which 6.3 billion MNT was available for investment. We earned 885 million MNT from investment activities in 2014, making our investment yield 14%.

Qatar Re is a global multi-line reinsurance group, operating in the Lloyd’s market. Their Zurich branch serves as the global center of competence for several support functions. Qatar Re is rated “A/Stable” by Standard and Poor’s and A (Excellent) by A. M. Best and benefits from QIC’s strong and growing capital base. Loss ratio

In 2012, the total investment portfolio of European insurance companies stood at 8.4 trillion Euro, making it equal to 58% of the EU GDP and a critical source of investment funds. An insurance company would keep the premium that it takes from the insured in reserve and would deploy that fund to pay claims in the event of insured loss. The premiums collected in the reserve would normally be deployed in investment activities where there is no loss.

It is common that a recently established insurance company has a loss ratio that is lower than the permissible until reaching in a normal operation. Mandal Insurance’s loss ratio increased until 2013 and then decreased during 2014. Although our loss ratio has appears to have stabilized, FY 2015 will indicate if this isa lasting stability.

Loss Ratio 2014

38.88%

2013

40.36%

2012 2011

Finance and Administration Department

24.62% 1.05%

Risk Department

Insurance company is crucial investor

2014 Annual report

Mandalâ&#x20AC;&#x2122;s Achievement

Customer service

Our TEAM

CRM â&#x20AC;&#x201C; IT solutions We understand that prioritizing client relationships is a key to maintianing high levels of customer service. We recognize that the foundation of good customer service is good communication, listening to customersâ&#x20AC;&#x2122; expectations and offering our products and services to them based upon their requirements. After extensive research on various CRM systems, we decided to co-develop a proprietary CRM, designed to suit the specific requirements of our business. The first version of our CRM program was introduced in January 2014 and then was fully integrated into business operation starting from July 2014. Availability of service, access points and their locations In order to make our service more accessible, we now operate 24/7 call-centers and promptly visit accident sites any time of the day or night to serve our customers. We also now operate front-desk locations on longer hours to reach our customers.

Our service centers Front desk at Headquarters Sukhbaatar District, 2nd khoroo, Seoul Street 7/1, Mandal Office Tel: (976) 70107007 Darkhan Branch Darkhan Uul Province, Darkhan Soum, 12th Bag, Tedy Centre, Level 2, Tel: 7037 0370 Umnugobi Branch Umnugobi Province, Tsogttsetsii soum, Golomt Bank Building, Level 2, Number 204 Tel: 7053 5515 Quick response department (UB) Sukhbaatar District, 2nd khoroo, Seoul Street 7/1, Mandal Office Tel: (976) 9409 7007 Call Center Tel: 7575 2000

Corporate Sales Department

CORPORATE BUSINESS We prefer long term cooperation instead of short term gain. Our corporate insurance team offer comprehensive insurance and risk management service to our customers in all industries, especially in mining, bank and finance, property, agriculture and petroleum industries, starting from risk identification, assessment, mitigation and risk transfer. We conducted property risk assessment including fire and electricity hazard identification in accordance with the international standard to some of the major corporations in Mongolia thus helping them to reduce their operational risk and pay less insurance premiums.

We prefer long term cooperation instead of short term gain.

Mandal Insurance underwriters, customer service and claim managers improve their professional skills by participating in expertise programs in mining, bank and finance and construction industries every year. Last year, we invited foreign experts from mining and finance industries who shared their experience with us. It was the great opportunity for our employees to expand their industry specific knowledge. These exercises are very important in improving the quality of our Underwriting report that we give to our customers at the renewal of their policy. In 2014, we ranked 1st place in terms of equity capital and ranked in Top 5 in terms of gross written premium and total assets among all Mongolian insurance companies.

In addition, we became a sole insurance company in Mongolian insurance sector which introduced the comprehensive systems such as Business Core System (business process automation), Customer Relationship Management system (customer database) and Customer Care Solutions system.

2014 Annual report

Financial report

Иргэдийн Даатгалын Алба

RETAIL BUSINESS Gross written premium increased by 98%, number of customers increased by 58% and average policy premium increased by 61%.

2014 was a full achievement year for Mandal’s retail insurance team. To highlight a few, gross written premium increased by 98%, number of customers increased by 58% and average policy premium increased by 61%. These stellar results have come about as direct result of our retail distribution channels created in 2012 and 2013 as well as our product development technology based on research. In terms of retail distribution channels, Mandal Insurance cooperate with 8 major banks which indirectly increase our sales agents’ number by 182 in Ulaanbaatar city making our retail insurance products more accessible. We focused our attention on developing coproducts in partnership with banks. For example, we became the leader in the market share of traveler’s insurance for platinum card holders of major banks.

Audited financial report

Until recently, purchase of voluntary insurance by retail insurance market was not up to standards. The reasons behind this lack of insurance were products that don’t meet people’s risk needs and demand, difficulty in getting claim reimbursement and unfavorable payment terms and conditions. We took all the above into consideration and introduced new technologies in our product development that allowed us to solve these problems and promote voluntary retail insurance market. In order to understand our customers’ needs of specific insurance product and to fulfill it, we conducted extensive research through questionnaires and focus groups. As we learned from successful implementation of similar global products and our team modified our existing products and introduced new kind of auto insurance called “Songolt” which means “Choice” and also a package insurance called “Peaceful Family” tailored exclusively to the retail market.

In the development of voluntary retail insurance market, having accessible and available insurance professionals who can advise the public about insurance needs and the various products is vital. Therefore, Mandal modified our human resource policies and increased the number of our retail sales force by two fold. Moreover, we are aiming to increase our accessibility through adding more interaction points to meet our customers and introduce our new products and services.

2014 Annual report

Financial 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

Auditor’s unqualified opinion

To: The Management of Mandal General Daatgal LLC

In our opinion, the financial statements of “Mandal General Daatgal” LLC, which comprise Statement of Financial Position as of December 31, 2014 and Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows and notes to the financial statements give a true and fair presentation, in all material respect, in accordance with rules and guidances adopted by the Financial Regulatory Commission in conformity with the International Financial Reporting Standards .

We have audited the accompanying financial statements which comprise Statement of Financial Position as of December 31, 2014 and Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows and 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 adopted by 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.

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.

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

2014

STATEMENT OF FINANCIAL POSITION

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2014

(In thousands of togrogs) Notes

2014

2013

Cash and cash equivalents

207,848

821,170

Short term investment

6,112,495

5,060,704

Receivables

2,128,967

2,213,596

Notes

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

(204,166)

(46,465)

3,409,339

3,480,150

(7,006)

Inventories

26,590

24,790

(741,755)

Prepayments

387,605

287,676

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

8,863,505

8,407,936

369,547

323,774

7,441

2,699

150,000

110,000

Total non-current assets Total assets

526,988

436,473

9,390,493

8,844,409

Short term payables

1,730,242

1,915,495

Loss reserves

3,264,067

2,344,453

4,994,309

Total liabilities

(887,716)

(876,271)

Change in loss reserves

(1,347,778)

(175,549)

1,166,839

1,686,574

1,374,436

1,157,586

2,541,275

2,844,160

(2,666,355)

(1,927,027)

Net underwriting income Non-premium income

Gross income General and administrative expenses Non-operating profit(loss)

Dividend for minority

Profit(loss) after tax 13

5,000,000

Accumulated loss

(603,816)

(415,539)

4,396,184 9,390,493

4,584,461 8,844,409

Profit(loss) before tax

4,259,948

Share capital

The accompanying notes are integral parts of these financial statements.

2,738,395

Net premiums earned

Income tax expense

Owners’ equity

Total liabilities and owners’ equity

3,402,333

Claims paid from earned premiums

Net operating profit (loss)

Liabilities and owners’ equity

Total owners’ equity

Cancelled premiums Net insurance premiums

2013

8,034,552

Premiums ceded

Changes in unearned premiums reserve fund

2014 (4,421,047)

Gross written premiums

Assets

(In thousands of togrogs)

General operations profit(loss) Extraordinary items, net Net profit(loss) for the reporting year

(125,080)

917,133

24,116

(131,513)

(100,964)

785,620

(87,313)

(94,947)

(188,277)

690,673

(188,277)

690,673

(188,277)

690,673

The accompanying notes are integral parts of these financial statements.

Annual report

Financial report

2014 Annual report

Financial report

STATEMENT OF CASH FLOWS

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2014

(In thousands of togrogs) Items Balance as of December 31, 2012 Accounting policy changes, adjustments, rectifications

Share capital

Treasury stock

Share based payment reserve

Retained earnings

Total

(In thousands of togrogs)

6,243,016

1,808,480

(2,921,339)

5,130,157

(1,808,480)

1,815,127

6,647

Total operating cash inflows (+) Insurance premiums

5,326,362

8,264,143

5,124,449

5,730

6,361 195,552

(9,076,234)

(3,383,794)

Cash paid to employees

(901,190)

(678,441)

Cash paid for Social Insurance

(225,849)

(95,404)

6,243,016

(1,106,212)

5,136,804

Reinsurance claims

(1,243,016)

Other cash inflows

Net profit for the reporting period

690,673

6,243,016

(1,243,016)

(415,539)

4,584,461

Accounting policy changes, adjustments, rectifications

Adjusted balance

Changes in equity

Balance as of December 31, 2014

9,047,086

777,213

Adjusted balance

Net profit for the reporting period

2013

Cash flows of operating activities

Changes in equity

Balance as of December 31, 2013

2014

Total operating cash outflows (-)

(43,559)

(79,215)

(294,947)

(3,623)

Reinsurance premium ceded to reinsurer

(4,278,567)

(854,235)

Cash paid for inventories Cash paid for utilities

(188,277)

Claims paid

(1,529,888)

(590,918)

6,243,016

(1,243,016)

(603,816)

4,396,184

Sales commissions paid to insurance representatives

(176,195)

(243,652)

Sales commissions paid to insurance brokers

(339,789)

(64,884)

(49,717)

(220,380)

(188,391)

Cash paid for fuel, transportation, and spare parts Cash paid to tax authority Cash paid for insurance Other cash outflows Net cash flows from operating activities

(6,259)

(6,015)

(994,728)

(594,184)

(29,148)

1,942,567

6,280,790

5,087,219

Cash flows of investing activities Total investing cash inflows (+) Proceeds from disposal of noncurrent assets Proceeds from disposal of investments Repayment of lending and prepayments Interest income received Dividends Total investing cash outflows (-) Cash paid for noncurrent assets Cash paid for intangible assets Cash paid for investments Cash paid for long term investments Cash paid for prepayments and loan disbursement Net cash flows from investing activities

625,541

6,144,535

3,839,573

185,575

136,255

436,530

(6,864,964)

(9,391,137)

114,296

731,519

4,037

6,750,668

7,349,367

1,243,016

63,199

(584,174)

(4,303,919)

The accompanying notes are integral parts of these financial statements.

2014 Annual report

Financial report

STATEMENT OF CASH FLOWS (continued)

NOTE 1. BRIEF INTRODUCTION

For the year ended 31 December 2014

1.1 Establishment of the Company The Company was established in April 26, 2011 as “Mandal General” LLC. The company changed its name into “Mandal General Daatgal” LLC after obtaining a special license for property and casualty insurance operations from the Financial Regulatory Commission (FRC) issued under Order No.146 dated June 2, 2011 and started insurance services.

(In thousands of togrogs) Cash flows of financing activities Total financing cash inflows (+)

3,045,528

Repayment of borrowings and bonds

Cash paid for finance lease

3,045,528

(613,322)

684,177

Cash and cash equivalent brought forward

821,170

136,993

Cash and cash equivalent carried forward

207,848

821,170

Cash proceeds from borrowings and issuance of bonds Total financing cash outflows (-)

Net cash flows from financing activities Total net cash flows

Currently, the Company provides 17 types of insurance products with 3 branch offices.

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

Accident & health Property Motor Construction all risk Cargo Aviation Driver’s liability Compulsory driver’s liability Agricultural Livestock Financial Credit insurance Fidelity Railway and marine Railway and marine liability Aviation liability

(MNT) which is the functional currency of the Company. Transactions in foreign currencies are converted into Mongolian Togrog using the official foreign currency rates of the Mongol Bank of the transation dates.

2.3 Going concern assumption 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.

2.4 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 or foreign reinsurer company for partially or fully transferring its obligations to the reinsurer. 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 Earned premium is estimated by net insurance premium less net changes of net unearned premium reserve for the fiscal year.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES 2.1 Preparation of financial statements The financial statements of Mandal General Daatgal LLC for the year of 2014 composed of Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows are prepared within a broad framework of the IFRS and in compliance with the Mongolian related rules and guidelines adopted by Regulatory agencies.

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 FRC in conformity with the IFRS.

2.2 Financial reporting currency

The Company adopts rates and limits specified in the following regulations in establishing reserves for unearned insurance premiums: • “Regulation on establishment of an insurance reserves, its expenditure and control” adopted by the FRC Order No.232 in 2009. The Company established 4 types of reserves in accordance with the above regulations: • 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 determined based on net premium income and is estimated using 1/8 method by amortizing the insurance premiums over the period of the insurance policies.

The financial statements are prepared in Mongolian Togrog

The accompanying notes are integral parts of these financial statements.

Insurance reserving policies

Financial report

Annual report

Notes to the Financial Statements For the year ended December 31, 2014

This reserve is established for the future indemnity to be paid by insurer to insured.

to the reinsurer and accrues the commissions. The deferred commission income is amortized over the the lifetime of the insurance contracts through using pro-rata method.

Incurred but not reported loss reserve (IBNR) Incurred but not reported loss reserve is a reserve established for contingent claims of losses incurred in previous period 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. The reserve is established quarterly basis by actuary based on historical loss data.

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

Unexpired risk reserve (URR) Unexpired risk reserve is a fund to compensate actual claims that exceeded the estimated claims. If the claims to be paid to the insured is greater than the unearned premiums, the reserve is established and charged to the earned premiums with the amount equal to the difference.

Claims Claims and claim handling expenses are recognised in the statement of comprehensive income based on the liability to be paid to the insured or third parties suffered from the occurrence of the insurance events.

Reinsurance contract The Company cedes certain part of its insurance liability to reinsurer through reinsurance contracts. Contracts entered into by the Company with reinsurers under which the company is compensated for losses on contracts issued by the Company, classified as reinsurance contracts.

Subrogation income The Company has the right to pursue liable third parties for payment of costs related to the claims settlement of the company. Subrogation income and related receivable from liable parties recognized at the time of claim settlement and subsequent reimbursements by the liable parties recorded against the receivable.

2.6 Foreign currency transactions The amount of the transactions denominated in foreign currencies are translated into the functional currency using the official exchange rate between foreign currency and functional currency at the date of transaction, and recorded as initial recognition. Cash, cash equivalents and liabilities are translated into functional currency at the exchange rate of the end of reporting period. Gains or losses on foreign currency translation are recognized in the statement of comprehensive income. Foreign exchange gains and losses related to the items measured at fair value are presented as other income in the statement of comprehensive income. The historical costs of non-monetary items expressed in foreign currencies are translated 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, 2014 was equal to MNT1,885.60.

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 cash on hand, cash and cash equivalents at bank current accounts, demand deposits and term deposits with up to 3 months of maturities. Cash and cash equivalents are booked at their nominal values. Balance of cash in foreign currency is translated into functinal currency using the official exchange rate of 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.

Deferred Acquisition Costs (DAC) Costs related to securing insurance contracts and renewing existing ones, such as commission and other acquisition costs are accrued in the balance sheet and recognised as deferred acquisition cost and subsequently expensed over the lifetime of the insurance contracts.

Deferred income of reinsurance commission

The Company receives commissions for the premiums ceded

2.7.3. Receivables and advances Accounts receivables refer to amount owed by entities to the Company for sale of products or services rendered on credit and the amount of other monetary obligations to the Company. The Company’s receivables are classified as receivables from individuals and corporates. Receivables denominated in foreign currency are translated into functional currency using the official exchange rate at the date of statement of financial position.

Impaired receivables are directly written off against income at the time when they are actually determined as uncolletable.

assets are determined as below and depreciation built up in the reporting year is recorded as depreciation expense.

Tax, social and health insurance receivables

The Company depreciates its fixed assets as per the following durations.

Receivables for corporate income tax, other taxes, social and health insurance premuims and other charges 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 Department.

2.7.4. 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, prepayments will be reported in the income statements when services are provided as per the contract.

2.7.5. Short-term investments The investment is the management of free and excess cash over payments due for the reporting period to earn higher income. Investments with the maturity of 3 to 12 months are classified as short-term invsetments.

2.7.6. Inventories Inventories consist of materials required for ordinary course of business, stationaries and supply items. The cost of inventory is determined on the basis of actual costs. Cost determination. Inventories are booked on perpetual basis and disbursed on first in first out 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.

Particulars Equipment Furniture and fixtures Computers and equivalent items Vehicles Other assets

Useful lives 10 10 3 10 10

2.7.8. Intangible assets The Company records computer software as intangible asset. Intangible asset is purchased separately and the cost of intangible assets consists of costs incurred to acquire and bring to use. Intangible asset is presented in the financial statements at net value less amortisation and impairment after its initial recognition. Intangible asset is amortised in 3 years on straight line basis. 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.

2.7.9. Payables Payables are amount due to customers and suppliers and accrued at the time of they perform their obligations that consist: accounts payables, bank overdraft, dividend payables, taxes, premium payables, deferred income of insurance contracts, salary payables and etc. Payables are classified short-term and long-term payables.

2.7.10. Owners’ equity 2.7.7. Property, plant and equipment The Company’s property, plant and equipment which consist of equipment, vehicles, furniture, fixtures, computers and its accessories and intangible.

Cost. The directly attributable and relevant costs of property, plant and equipment consist of their purchase prices, import tax, related costs incurred until the property, plant and equipment are ready for use. The Company decides whether to capitalize of expense the subsequent costs after initial recognition such as repairs and maintenance by considering any enhancement and the expected economic benefit. Property, plant and equipment are reported at cost less accumulated depreciation and impairments.

Owner’s equity is the sum of paid in capital and retained earnings. And owner’s equity equals total assets less liabilities. Ordinary shares, additions of revaluation, retained earnings/loss and reserve funds are treated as owner’s equity. When dividend is announced, changes shall be recorded in the owners’ equity. Owners’ equity is booked at its nominal value.

2.7.11. 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 taxes, discounts and rebates. The Company evaluated that its all revenue have been earned from its core operation.

Depreciation. Property, plant and equipment is depreciated on straight line basis over their useful lives. Useful lives of the

2014

Mandal general insurance LLC

2014

Mandal general insurance LLC

Financial report

Annual report

Notes to the Financial Statements For the year ended December 31, 2014

2.7.12. Expenses Economic benefit is reduced by decreasing financial assets and increasing liabilties. Expense can be recorded as profit or loss when economic benefit is measurable. Relation between revenue and related expense shall be cohesive in recording expenses and 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 brought future benefit or the future benefit does not meet a requirement to be recorded as an asset in the statement of financial position.

2.7.13. Corporate Income tax As a taxpayer, the Company is subject to pay income tax in accordance with the Article 17.1 of Corporate Income Tax Law of Mongolia: â&#x20AC;&#x153;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, tax shall be 300.0 million togrogs plus 25 percent of taxable income exceeding 3.0 billion togrogs.

2.7.14. Other taxes The Company withholds personal income tax from its employeesâ&#x20AC;&#x2122; salaries at rates specified in related law and pays to the tax authority. Also, it withholds 10% of income tax from fees for services performed by individuals.

2.7.15. Employees salaries and benefits

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

(In thousand togrogs) 2014

2013

3,680

1,859

3,680

1,859

Current accounts at banks

204,168

819,311

Total cash at banks

204,168

819,311

207,848

821,170

Cash on hand Total cash on hand

Total cash and cash equivalents

NOTE 4. SHORT TERM INVESTMENT (In thousand togrogs) 2014

2013

4,889,740

4,242,045

Certificates of deposits at banks

740,290

618,659

Domestic securities

482,465

200,000

6,112,495

5,060,704

Types of short term investments Deposits at banks

Total short term investment

The short term investments of the Company consist of deposits and certificates of deposits at local commercial banks and securities. The annual interest rates of deposits and certificates of deposits at the banks varies from 9.7% to 18% and with the maturity range of 3 to 12 months. Deposits and certificates of deposits are placed in commercial banks operating in Mongolia. As well as, the Company acquired Mongoliaâ&#x20AC;&#x2122;s Government bond with a maturity of 3 months and bears 15.795 % interest rate.

Short term benefits: Salaries, wages, and other equivalent expenses are recognized as salary expenses for the year. Allowances for annual and sick leaves to its employees recorded accordingly in compliance with related laws.

NOTE 5. RECEIVABLES

(In thousand togrogs) 2014

2013

75,975

Particulars Reinsurance receivables

Certain charges:

Premium receivables

The Company contributes to the Social insurance fund at 11% in accordance with the law and recognizes expenses for the year.

Subrogation receivables

737,857

1,695,019

297,194

134,724

Employee advances

37,118

8,281

Interest receivables

408,189

280,387

Other receivables

572,635

95,185

2,128,968

2,213,596

Total receivables

Reinsurance receivables include share of claims to be covered by reinsurer and reinsurance premium cancellation. Premium receivables include receivables related to insurance policies. Subrogation receivables include amount to compensate by liable third parties for the costs related to the claims. Interest receivables include interest receivable, bank deposits, certificates of deposits and domestic securities.

Receivables by ages, 90% of total receivables or MNT 1,918,006 thousand receivables are aged less than 180 days, and the remaining receivables of MNT 210,961 thousand are more than 180 days.

2014

Mandal general insurance LLC

Financial report

Annual report

Notes to the Financial Statements For the year ended December 31, 2014

NOTE 6. INVENTORIES

NOTE 9. INTANGIBLE ASSETS (In thousand togrogs) Particulars

Supply materials Total inventories

2014

2013

26,590

24,790

26,590

24,790

Particulars Balance at 2013.12.31 Additions

6,232

11,222

17,454

Disposals

NOTE 7. PREPAYMENTS

Balance at 2014.12.31

Prepayments Total prepayments

Total

Software

Cost

Amortization

2014

2013

387,605

287,676

Balance at 2013.12.31

3,533

387,605

287,676

Additions

6,480

10,013

Disposals

Prepayment includes deferred commission expenses of MNT 294,938 which is amortized over the effective period of the policies.

Balance at 2014.12.31 Book value

NOTE 8. PROPERTY, PLANT AND EQUIPMENT (In thousand togrogs) Particulars

Equipment

Vehicles

Computers and accessories

Furniture and fixtures

Other fixed assets

2,699

7,441

NOTE 10. INVESTMENT PROPERTY 18,389

205,015

111,450

105,197

3,520

443,571

Additions

447

77,670

34,923

8,622

3,573

125,235

Disposals

18,836

282,685.0

146,373

113,819

7,093

568,806

2014.12.31 Balance

2,699

2014.12.31

Total

Cost Balance at 2013.12.31

2013.12.31

Particulars Investment property Total investment property

(In thousand togrogs) 2014

2013

150,000

110,000

150,000

110,000

The investment property, amounts to MNT 150,000 thousand as at December 31, 2014 and the Company plans to sell the assets in 2015.

Accumulated depreciation Balance at 2013.12.31

(3,199)

(38,203)

(60,296)

(17,435)

(664)

(119,797)

Additions

(2,114)

(26,548)

(39,151)

(11,115)

(534)

(79,463)

Disposals

(5,313)

(64,751)

(99,447)

(28,550)

(1,198)

(199,259)

2013.12.31

15,190

166,812

51,154

87,762

2,856

323,774

Reinsurance payables

2014.12.31

13,523

217,934

46,926

85,269

5,895

369,547

Claims payables

1,026

Prepaid income

449,293

94,685

209

8,310

140,561

116,049

1,730,242

1,915,495

Balance at 2014.12.31 Book value

NOTE 11. SHORT TERM PAYABLES (In thousand togrogs) Particulars

There are no revaluations and disposals of fixed assets for the reporting period.

Tax payables Other payables Total short term liabilities

2014

2013

1,140,179

1,695,425

Reinsurance payables are scheduled payables as per reinsurance contracts. The prepaid income includes the reinsurance deferred commissions and prepaid insurance premiums.

2014

Mandal general insurance LLC

Financial report

Annual report

Notes to the Financial Statements For the year ended December 31, 2014

NOTE 12. INSURANCE RESERVES

Voluntary insurance

468

204

672

Livestock insurance

1,659

1,660

Aviation insurance

Driver's liability insurance

184

498

682

Construction insurance

(In thousand togrogs) Insurance reserves

2013.12.31

Additions

Deductions

2014.12.31

Unearned premium reserve (I)

1,617,074

1,429,197

1,341,708

1,704,563

Incurred but not reported loss reserve fund (II)

35,661

111,193

63,118

83,735

Liability insurance

232

3,636

940

2,927

Financial insurance

299

2,052

2,352

7,003

25,904

32,906

968

3,212

2,195

1,985

Compulsory insurance

Reported but not settled reserve (III)

130,568

389,598

219,773

300,393

Contingent loss reserve (IV)

335,315

831,621

128,380

1,038,556

Unearned premium reserve (I)

194,410

113,860

194,343

113,927

Incurred but not reported loss reserve (II)

7,002

25,904

32,906

Reported loss reserve (III) Contingent loss reserve (IV) Total

20,452

46,260

43,819

Compulsory driver's liability insurance Credit insurance Fidelity insurance Total

22,893

3,972

3,978

7,949

2,344,453

2,951,611

2,031,996

3,264,067

132

140

42,663

137,097

96,024

83,735

The establishment methodologies of IBNR include the Chain ladder method and average cost coefficient method. Although the gross amount of the establishment of the reserve fund for quarters is sufficient, the individual establishments of the vehicle insurance, credit insurance, compulsory driverâ&#x20AC;&#x2122;s liability insurance, and driverâ&#x20AC;&#x2122;s liability insurance for some quarters are not sufficient. In case the above reserves are insufficient, shortfalls are paid from respective URR or earned premiums if the URR is not sufficient.

(In thousand togrogs)

12.3

Reported but not settled loss reserve

Additions

Deductions

2014.12.31

Accident and health insurance

458,939

99,254

270,410

287,782

Property insurance

345,127

434,440

344,812

434,755

Accident and health insurance

4,429

12,982

9,738

7,673

Property insurance

57,812

170,799

73,616

154,995

105,809

88,166

Particulars

2013.12.31

Additions

Deductions

2014.12.31

Motor insurance

608,135

616,574

533,621

691,088

Cargo insurance

9,472

8,062

9,472

8,062

Motor insurance

54,426

139,549

64,778

19,488

56,972

27,294

Cargo insurance

5,691

Construction insurance

7,471

Liability insurance

6,666

20,452

46,260

43,819

22,893

Construction insurance Livestock insurance

1,748

55,407

1,748

55,407

Aviation insurance

7,600

Driver's liability insurance

12,878

3,347

12,878

3,347

Liability insurance

65,479

147,146

65,479

147,146

998

27,404

998

27,404

194,410

113,860

194,343

113,927

Credit insurance

36,497

4,626

32,294

8,829

Fidelity insurance

4,124

13,447

4,124

13,447

Aviation liability insurance

1,300

1,811,484

1,543,057

1,536,051

1,818,490

Financial insurance Compulsory driver's liability insurance

Total

Compulsory driver's liability insurance Credit insurance Total reported but not settled loss reserve

12.4

Particulars

Particulars Accident and health insurance Property insurance

2012.12.31

Additions

Deductions

2013.12.31

8,210

25,662

6,422

27,451

19,980

36,463

30,148

26,295

Motor insurance

5,274

37,223

23,413

19,084

Cargo insurance

451

486

23,140

37,202

263,592

323,286

(In thousand togrogs) 2013.12.31

Additions

Deductions

2014.12.31

81,169

201,102

23,729

258,542

137,968

222,034

54,642

305,359

Motor insurance

38,995

149,170

45,496

142,669

Cargo insurance

5,014

10,127

15,141

13,001

Livestock insurance

149

8,181

8,330

Aviation insurance

649

3,455

4,105

1,464

11,028

12,492

Property insurance

(In thousand togrogs)

46,440 435,858

Unexpired risk reserve fund

Accident and health insurance

12.2 Incurred but not reported loss reserve

13,901 151,020

The establishment of RBNS is based on occurred and reported, but not settled amounts of claims at the end of the reporting period, and the reserve is reduced by the amount of claims settled. The establishment and disbursement of the reserve is fair and true in compliance with the regulations adopted by the FRC.

The UPR is calculated in accordance with the appropriate rules and guidelines and the reserve is increased by MNT 7,006 thousand as end of the reporting period.

(In thousand togrogs)

2013.12.31

Particulars

Construction insurance

Driver's liability insurance

12.1 Unearned premium reserve fund

Financial report

Annual report

Notes to the Financial Statements For the year ended December 31, 2014

Liability insurance

55,722

181,670

4,512

232,880

Financial insurance

13,030

20,460

33,489

3,972

3,978

7,949

5,661

Compulsory driver's liability insurance Credit insurance Fidelity insurance Aviation liability insurance Total

1,042

5,422

6,464

111

311

422

339,286

835,599

136,329

1,038,556

NOTE 14. RETAINED EARNINGS 2014

2013

Reporting year profit (loss)

(188,277)

690,673

Previous year profit (loss)

(415,539)

(2,921,340)

1,815,128

(603,816)

(415,539)

Particulars Retained earnings (losses)

Cancellation of share based payment fund Total retained earnings (losses)

The unexpired risk reserve fund is established in accordance with the methodology adopted by the FRC.

NOTE 15. NET INSURANCE PREMIUM

NOTE 13. SHARE CAPITAL

(In thousand togrogs) 2014

2013

Ordinary share

6,243,016

Treasury stock

(1,243,016)

5,000,000

Share capital

In 2012, the Company issued 6,243,016 ordinary shares with a nominal value of MNT 1,000 each, and in 2013 according to the decision of the Board of Directors, the Company bought back its 1,243,016 ordinary shares and share capital changed to MNT 5,000,000 thousand. At that time, the sole shareholder of the Company was Canada’s “Mongolia Growth Group” LTD, listed in the Toronto Stock Exchange under ticker symbol “YAK” The Mongolian partner of “Mongolian Growth Group” LTD, UMC Capital LLC, bought and became the sole shareholder of the Company in November 2013.

Changes in the shareholder structure of the Company in 2014 are as follows.

Gross written premium Premium ceded Cancelled insurance premium Net insurance premium

Gross written premium

Insurance types

"UMC Capital"LLC "Golomt Financial Group"LLC "Mandal General Daatgal" LLC Treasury stock Total

Beginning balance

Changes

Ending balance

Beginning balance

5,000,000,000

(2,550,000,000)

2,450,000,000

80.09%

39.24%

2,550,000,000

40.85%

1,243,016,000

19.91%

(1,243,016,000)

5,000,000,000

100.00%

(3,791,977)

(204,166)

(46,465)

3,409,339

3,480,150

Reinsurance

Cancellation

Net premium

638,355

260,344

24,362

353,649

1,322,454

9,510

837,130

Motor insurance

2,290,065

1,057,043

22,016

1,211,007

Cargo insurance

124,907

82,016

42,891

Construction insurance

337,860

277,545

64,787

(4,473)

78,259

1,841

(1,841)

22,872

12,884

310

9,678

1,035,017

475,588

62,159

497,271

Financial insurance

667,739

606,699

197

60,844

Compulsory driver's liability insurance

Liability insurance

593,391

296,287

18,204

278,900

Credit insurance

53,205

24,266

28,938

Fidelity insurance

23,787

5,920

17,867

Aviation liability insurance Total

(4,421,047)

2,169,094

Driver's liability insurance Ending balance

2013 7,318,592

Property insurance

Aviation insurance

Proportion of share capital %

2014 8,034,552

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

Livestock insurance Share capital

(In thousand togrogs)

Particulars

Accident and health insurance

UMC Capital LLC sold 2,550,000 ordinary shares to “Golomt Financial Group” in October 2014.

Shareholders

(In thousand togrogs)

782

(782)

8,034,552

4,421,047

204,166

3,409,339

2014

Mandal general insurance LLC

2014

Mandal general insurance LLC

Financial report

Annual report

Notes to the Financial Statements For the year ended December 31, 2014

NOTE 16. CHANGES IN UNEARNED PREMIUM RESERVE

NOTE 19. NON-PREMIUM INCOME (In thousand togrogs)

(In thousand togrogs) 2014

2013

4,306,443

1,069,729

Particulars Beginning balance of gross UPR

5,048,896

4,306,443

(742,453)

(3,236,714)

3,230,406

2,494,959

Changes in reinsurance share of UPR

735,447

2,494,959

Net changes in UPR

(7,006)

(741,755)

Ending balance of gross UPR Changes in gross UPR Ending balance of reinsurance share of UPR

2014

2013

Short term investment income

885,029

836,006

Reinsurance commission income

239,035

77,915

Other income

250,373

243,665

1,374,436

1,157,586

Particulars

Total non-premium income

Short-term investment income for the reporting period is MNT 885,029 thousand includes term deposit interest income of MNT 736,807 thousand, certificate of deposit interest income of MNT 92,915 thousand, government bond interest income of MNT 11,900 thousandand companyâ&#x20AC;&#x2122;s bond interest income of MNT 35,104 thousand respectively. The reinsurance commission income for the reporting period is MNT 239,035 thousand and subrogation income is recorded as other income.

NOTE 17. CLAIMS NOTE 20. GENERAL AND ADMINISTRATIVE EXPENSES

(In thousand togrogs)

Out of: Types of insurance

Claims paid from earned premium

Claims paid from reserves

Total Claims

29,896

39,714

69,611

Accident and health insurance Property insurance Motor insurance

50,202

116,434

166,636

490,439

156,619

647,058

497

7,471

Liability insurance

3,546

4,923

8,469

Financial insurance

25,351

259,865

84,673

344,539

27,921

25,334

53,255

887,716

435,169

1,322,885

Cargo insurance Construction insurance

Compulsory driver's liability insurance Credit insurance Total

Particulars Salaries and bonuses Social security contributions Maintenance

(In thousand togrogs) Thereof:

2013.12.31

Net changes in reserves

Additions

Deductions

Claims paid

IBNR

83,735

42,662

41,073

137,097

96,024

RBNS

323,286

151,020

172,266

435,304

263,038

1,038,556

339,287

699,269

775,377

76,107

1,445,577

532,969

912,608

1,347,778

435,169

URR Total

88,477

4,977

3,532 6,414 198,970

Business trip and training

25,097

15,527

Transportation

26,219

22,894

Raw materials, stationery

27,259

17,649

Depreciation

85,943

63,893

Advertising

168,114

247,964

Postal and communication

39,322

30,801

Fuel

30,852

33,684

767

Professional service fee

104,466

101,329

Commission expense

451,427

258,578

Other expense

160,337

36,398

2,666,355

1,927,027

Number of employees of the Company was 79 as at December 31, 2014 and staff salary, benefits, and social security contribution covers more than 50 % of the general and administrative expenses.

NOTE 21. NON-OPERATING PROFIT (LOSS) (In thousand togrogs) Particulars Non-operating profit (loss) Penalty

2013

2012

(120,420)

(28,312)

Realized foreign exchange gain (loss)

(2,991)

(9,355)

Unrealized foreign exchange gain (loss)

46,783

(20,234)

Other Total non-operating profit (loss)

130,585 2,689

Rent

Total general and administrative expenses

2014.12.31

2013 800,151

299,425

Utilities

Loan interest

NOTE 18. CHANGES IN INSURANCE RESERVES

2014 1,109,642

8,636

18,495

24,116

(131,513)

(In thousand togrogs)

2014

Mandal general insurance LLC

Financial report

Annual report

Notes to the Financial Statements For the year ended December 31, 2014

(In thousand togrogs) The Company uses Heaven Pro 1 software for its accounting. To calculate the foreign exchange gain and loss, the Company put in both the commercial rate and official rate at the date of transaction date in conformity with IAS -21. Cash

NOTE 22. INCOME TAX EXPENSE Profits before tax

Indicators

(In thousand togrogs) 2014

2013

(100,964)

785,620

Receivables Payables Total

Balance /USD/

Balance /MNT/

Rate changes (+10)

Rate changes

307

578

40,292

75,975

7,597

115,500

217,787

21,779

(74,901)

(141,234)

(14,124)

14,124

Permanent difference Penalty, fines

16,503

Donations and personal expenses

11,810

29,325

Impact on profit before tax:

(In thousand togrogs) 2014

81,692

114,301

Total permanent differences

110,005

143,626

Increase(decrease) in Forex rates

Revenue imposed at particular rate

873,128

836,007

10%

(14,124)

-10%

14,124

Unrealized foreign exchange gain

149,493

Unrealized foreign exchange loss

(100,625)

(20,234)

Others

Temporary difference

Total temporary difference Taxable income imposed at general tax rate Tax imposed Tax imposed at particular rate Total income tax expense

48,868

(20,234)

(912,956)

113,467

11,347

87,313

83,600

87,313

94,947

The interest rate risk is a risk associated with the changes in the interest rates that impact on real values of financial assets, liabilities and their future cash flows. The Company’s investment assets are all short term deposits, diversified in several banks are at fixed rates. Therefore,the management of the Company considers that exposure to the interest rate risk is insignificant. At the end of the reporting period, there are no interest-bearing liabilities for the Company.

Liquidity risk

NOTE 23. FINANCIAL AND INSURANCE RISK MANAGEMENT The purpose of the financial and insurance risk management policy of the company is to manage and decrease the probable negative impacts that may occur from external and internal risks, to determine risk limits, to assess risks, and to ensure the adequate level of resources needed to sustain the business. The main risks that might affect adversely on financial assets, liabilities and future cash flows are market risk(foreign exchange risk, interest rate risk), liquidity risk and insurance operational risk.

The liquidity risk is a risk associated with that the insurer’s assets are not sufficient to fulfill its obligation to its clients on time, and the maturity of assets and liabilities does not match. The Company aims to match operating cash flows and investments with the maturities of liabilities and contingent claims and avoid mismatching. Moreover, the Company controls daily basis to keep the liquidity at desired level. Taking into consideration the ending cash balance as at December 31, 2014 including cash and cash equivalents of MNT 207,848 thousand and short-term deposits of MNT 6,122,495 thousand, the management of the Company believes that level of current assets and liabilities are not exposed into the significant liquidity risk.

Market risk

The Regulatory agency, controls the insurer’s solvency in accordance with the “Regulation on solvency requirements and its supervision” adopted by the FRC Order No.249 dated July 17, 2013.The solvency ratio of the Company at the end of the reporting period estimated according to the above guideline is 101.87% met the regulatory criteria.

The majority of the company’s investment is placed as short-term bank deposits in Togrogs. As the Company does not hold any marketable securities such as bonds(except Government bonds) and stocks, the risk of changes in market valuation does not expose the Company.

Insurance risk

Foreign currency risk is a risk associated with the foreign exchange rate differences that fluctuate the values of the Company’s financial assets, liabilities and their future cash flows. Possible risk of the Company is mainly associated with the exchange rate of US dollar. The Company decreases the foreign exchange risk by maintaining the position of the assets and liabilities expressed in foreign currencies at the same level or keeping the equality between the payment schedules of reinsurance contracts and the underlying insurance contracts. Following table shows how 10% fluctuation of foreign exhange rate (in case, other variables are constant) can influence the Company’s profit:

An insurance risk is a risk associated with any insurance contracts concluded for a possibility of the occurrence of an insured event and uncertainty of the amount of loss incurred. The very nature of an insurance contract implies that such a risk is random and, therefore, unpredictable. The Company implements risk management policy and reinsurance protection to minimize the risks that may arise from insurance contracts. To estimate insurance risk, premium level and the minimum rate, the Company uses “The methodology of portfolio risk analysis” developed in 2014. The framework includes the estimation of insurance contracts profitability, measurement and assessment of the risk exposures, portfolio risk assessment, risk sensitivity indicators and the calculation of the base rate. Within the risk management framework, the Company aims to keep an optimal tolerance level for any single occurrence and minimize the volatility. Significant insurance contracts are reinsured, and the Company managed to decrease the exposure to the insurance risks by entering into quota-share treaty agreement dated on July 01, 2014. In terms of claims, Claim division is responsible for collecting information of loss occurrences, registering invoices and estimating the claims. The Risk management committee makes decisions for significant amount of claims. The Company sets limits related to claim approval and settlement process.

The establishment of loss reserves is calculated by actuarial estimation in compliance with regulations adopted by the FRC.

Financial report

Annual report

Notes to the Financial Statements For the year ended December 31, 2014

NOTE 24. 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.

Payables to related parties:

NOTE 25. ASSET MANAGEMENT The Company’s key policy on asset management is: • •

№

To meet asset requirements of the FRC that regulates insurance sector. To focus on the Company’s liquidity indicators required for sustainable operations.

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 FRC Order No.355 dated December 12, 2012. To meet rate and limits specified in the “Regulation on solvency requirements and its supervision” adopted by the FRC Order No.249 dated July 17, 2013. To meet rate and limits specified in the “Conditions for investments to be financed from insurance reserves” adopted by the FRC Order No.250 dated July 17, 2013.

As of December 31, 2014 the Company met all the above requirements of assets.

NOTE 26. CONTINGENT LIABILITIES There is no contingent liability was observed during the course of audit work.

Related parties

Debit

Under common control

2 NPC and Mandal LLC

Under common control

152

1,249

3 Bridgehead LLC

Under common control

4 Mandal Life LLC

Under common control

3,156

23,234

5 Mandal Asset Management LLC

Under common control

6 Golomt Financial Group LLC 7 UMC Alpha LLC

Credit

1,097

Total

NOTE 28. SUBSEQUENT EVENTS

20,078

Shareholder Under common control

Ending balance of payables

772

3,476

25,423

21,947

NOTE 29. TRANSLATION These financial statements are prepared and submitted in both Mongolian and English languages. In the event of discrepancies between the Mongolian and English versions, the Mongolian version shall prevail.

Transactions with related parties of the Company are shown below:

(In thousand togrogs) Relationship

Beginning balance of receivables

Debit

Credit

Ending balance of receivables

1,846

497

119

2,225

Under common control

15,791

758

15,079

3 Mandal Life LLC

Under common control

7,650

6,143

1,507

Parent company

4 NPC and Mandal LLC

Under common control

3,615

3,571

5 UMC Mining LLC

Under common control

2,413

2,405

6 Bridgehead LLC

Under common control

564

7 Creative Mind LLC

Under common control

9,887

9,696

190

8 Mandal Asset Management LLC

Under common control

9 UMC Capital LLC

Under common control

5,447

2,570

2,878

7,339

40,498

25,907

21,931

Total

Beginning balance of payables

1 Creative Mind LLC

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, 2014.

2 UMC Alpha LLC

1 UMC Holding LLC

Relationship

NOTE 27. TRANSACTIONS WITH RELATED PARTIES

Receivables from related parties: №

Related parties

2014

Mandal general insurance LLC

Contact us Address: Мandal Office, Seoul street 7/1, Sukhbaatar district, 2nd khoroo Оффис, P.O.Box-2297/2772, Ulaanbaatar 15160, Mongolia Phone: (976) 7011 7017 Fax: (976) 7011 7017 Call center: (976) 7575 2000 Email: info@mandal.mn Webpage www.mandal.mn facebook.com/mandaldaatgal twitter.com/MandalDaatgal Mandal Daatgal youtube.com/mandaldaatgal pinterest.com/mandaldaatgal