Elmo - Annual Report 2009 by 26th frame

Co. Reg. No. C3500

contents Directors’ report

4-5

Statement of directors’ responsibilities

Independent auditor’s report

Profit and loss account Technical account – general business Non-technical account

8 9

Balance sheet

Statement of comprehensive income

Statement of changes in equity

Statement of cash flows

Notes to the financial statements

13-44

directors’ report The directors present their report and the audited financial statements for the year ended 31 December 2009. Principal activities The principal activities of the company are that of an insurance company licensed in terms of Section 7 of the Insurance Business Act 1998 by the Malta Financial Services Authority to write general business in Malta. Review of the business During the year under review the company registered a profit before tax of €3,369,940 compared to €363,055 in 2008. The results for 2008 were well below expectations because of turmoil in the global financial markets. However, in 2009 the company recovered well and was able to register encouraging results. In 2009, the company recorded a significant turn-around in net investment income, a gain of €1.65m compared to a loss in 2008 of €2.01m. Despite a decrease of €0.7m in technical results in 2009, caused by significant increases in reserves for liability claims, the underwriting profit delivered of €1.75m was encouraging in the light of strong market competition in both motor and engineering classes. A reinsurance strategy that balances risk and reward is of critical importance to any insurance company, and that of course applies to the company. We take great care in our reinsurance structure and with whom we place our reinsurances, and in this respect we are well supported by reinsurers who not only have a minimum Standard & Poors security rating of A-, but who also provide technical advice and training whenever required. Our investment strategy is focused towards long-term stability spread across equities, property, bonds and cash, with our investments made both in Malta and internationally. The investment committee comprises members of the Board, as well as an external investment adviser. Key developments in 2009 2009 was significant in the life of the company as we launched our first two on-line products. Our SME and iCar products in time will meet the expectations of consumers who become accustomed to buying their insurances through the internet, in like manner to other financial products and services. Through this development, we are the first company in Malta to offer the local public the possibility of buying motor insurance totally online.

The company also widened its product range and entered the health insurance market, the results of which have been encouraging. Furthermore, the company embarked on raising our brand image and widening our network of distribution. A significant investment, both in time and money, is currently being undertaken in the implementation of an upgraded IT environment, aimed at delivering improved customer service and management information, both of which will benefit future results. In order to support our investment in technology, the company has proceeded with its plans of establishing its own IT department, in favour of sub-contracting its IT requirements to third parties. In addition to the substantial investment in IT, the company is in the process of investing heavily in the refurbishment of its head office, and will soon embark on a programme of refurbishing a number of our high street branches. Continued delivery The company has taken steps to consolidate its investment in its joint venture insurance management with the Jardine Lloyd Thompson Group. JLT Insurance Management Malta Limited is progressing well and meeting shareholder expectations. We embarked on 2010 knowing that meeting the ever increasing competitive environment, especially in Motor Insurance, facing difficult global economic times and implementing change in the company following the introduction of the EU Directive - Solvency II, will present immense challenges. Nevertheless, we have confidence that the competences and dedication of management and staff will ensure a future that meets the expectations of all our customers and stakeholders. Results and dividend The profit and loss account is set out on pages 8 and 9. During the year under review the company distributed a net dividend of €350,000 in August 2009, and a further net dividend of €490,000 in December 2009. This compares with a total net dividend distribution during 2008 of €740,000. The directors do not recommend the payment of a final dividend (2008: €Nil).

Directors The directors of the company who held office during the year were: William Harding – Chairman David Bartoli – Managing Director Alan Bartoli – appointed on 1 July 2009 John Cooper Roger Bellamy Godfrey Leone Ganado Harold Bartoli – resigned on 1 July 2009 Auditors The auditors, PricewaterhouseCoopers, have indicated their willingness to continue in office and a resolution for their re-appointment will be proposed at the Annual General Meeting.

By order of the Board

William Harding Chairman

David Bartoli Managing Director

“Elmo” Abate Rigord Street Ta’ Xbiex Malta 24 June 2010

statement of directors’ responsibilities The directors are required by the Insurance Business Act, 1998 and the Companies Act, 1995 to prepare financial statements which give a true and fair view of the state of affairs of the company as at the end of each financial period and of the profit or loss for that period. In preparing the financial statements, the directors are responsible for:  ensuring that the financial statements have been drawn up in accordance with International Financial Reporting Standards as adopted by the EU;  selecting and applying appropriate accounting policies;  making accounting estimates that are reasonable in the circumstances;  ensuring that the financial statements are prepared on the going concern basis unless it is inappropriate to presume that the company will continue in business as a going concern. The directors are also responsible for designing, implementing and maintaining internal controls relevant to the preparation and the fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error, and that comply with the Insurance Business Act, 1998 and the Companies Act, 1995. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

independent auditor’s report To the Shareholders of Elmo Insurance Limited

Opinion In our opinion the financial statements

Report on the Financial Statements We have audited the financial statements of Elmo Insurance Limited on pages 8 to 44 which comprise the balance sheet as at 31 December 2009 the profit and loss account, the statements of comprehensive income, changes in equity and cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes.

 give a true and fair view of the balance sheet of the company as at 31 December 2009, and of its financial performance and its cash flows for the year then ended in accordance with IFRSs as adopted by the EU; and

Directors’ Responsibility for the Financial Statements The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and with the requirements of the Maltese Companies Act, 1995 and the Insurance Business Act, 1998. As described in the statement of directors’ responsibilities on page 6, this responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgements, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

 have been properly prepared in accordance with the requirements of the Maltese Companies Act, 1995 and the Insurance Business Act, 1998. Report on Other Legal and Regulatory Requirements We also have responsibilities under the Maltese Companies Act, 1995 to report to you if, in our opinion:  The information given in the directors’ report is not consistent with the financial statements.  Adequate accounting records have not been kept, or that returns adequate for our audit have not been received from branches not visited by us.  The financial statements are not in agreement with the accounting records and returns.  We have not received all the information and explanations we require for our audit.  Certain disclosures of directors’ remuneration specified by law are not made in the financial statements, giving the required particulars in our report. We have nothing to report to you in respect of these responsibilities.

167 Merchants Street Valletta Malta David Valenzia Partner 24 June 2010

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

profit and loss account technical account – general business

Year ended 31 December

2009 Notes € Earned premiums, net of reinsurance Gross premiums written 4 13,278,591 Outward reinsurance premiums (4,092,749) ____________

2008 €

12,941,955 (3,885,687) ____________

Net premiums written

9,185,842 ____________

9,056,268 ____________

Change in the gross provision for unearned premiums 15 Change in the provision for unearned premiums, reinsurers’ share 15

70 (41,845) ____________ (41,775) ____________

(116,052) 62,628 ____________ (53,424) ____________

Earned premiums, net of reinsurance 9,144,067 Allocated investment return transferred from the non-technical account (page 9) 6 1,139,969 Other technical income 170,873 ____________ Total technical income

10,454,909 ____________

Claims incurred, net of reinsurance Claims paid - gross amount 7,765,402 - reinsurers’ share (1,480,447) ____________

6,284,955 ____________

9,002,844 121,049 ____________ 9,123,893 ____________

6,593,939 (903,678) ____________ 5,690,261 ____________

Change in the provision for claims - gross amount 15 (557,226) - reinsurers’ share 15 ____________ 19,927

(444,931) (194,193) ____________

(537,299) ____________

(639,124) ____________

Claims incurred, net of reinsurance 5,747,656 Net operating expenses 5 1,813,942 Allocated investment expenses and charges 6 - ____________

1,665,179 1,352,655 ____________

Total technical charges

7,561,598 ____________

8,068,971 ____________

2,893,311

1,054,922

5,051,137

____________ ____________ Balance on the technical account for general business (page 9)

profit and loss account non-technical account

Year ended 31 December

2009 Notes â&#x201A;Ź Balance on the technical account for general business (page 8) 2,893,311

2008 â&#x201A;Ź 1,054,922

Administration expenses 5 Investment income 6 Investment expenses and charges 6 Allocated investment (return)/expense transferred (to)/from the general business technical account (page 8) 6

(35,731) 1,732,080 (79,751)

(30,813) 229,498 (2,243,207)

(1,139,969) ____________

1,352,655 ____________

Profit before tax Tax expense 9

3,369,940 (899,067) ____________

363,055 (841,444) ____________

____________ ____________ Profit/(loss) for the year

2,470,873

(478,389)

The notes on pages 13 to 44 are an integral part of these financial statements.

balance sheet As at 31 December

2009 Notes € ASSETS Intangible assets – computer software 11 132,274 Tangible assets: - land and buildings 12 3,337,384 - plant and equipment 12 116,686 Investments: - investment in associated undertaking 13 26,213 - other investments 14 16,163,914 Deferred tax asset 20 164,571 Reinsurers’ share of technical provisions 15 3,216,483 Deferred acquisition costs 16 769,392 Debtors: - arising out of direct insurance operations 17 3,898,010 - other debtors 17 78,991 Prepayments and accrued income 17 155,719 Current taxation 10,212 Cash at bank and in hand 24 ____________ 164,680

2008 € 35,459 3,300,603 154,341 64,284 15,369,208 251,959 3,278,255 727,503 3,789,824 96,945 159,876 543,641 ____________

____________ ____________ Total assets 28,234,529 EQUITY AND LIABILITIES Capital and reserves Called up share capital 18 3,494,060 Revaluation reserve 19 1,230,696 Profit and loss account 4,312,167 ____________

27,771,898

3,494,060 1,230,696 2,681,294 ____________

Total equity 9,036,923 ____________ LIABILITIES Technical provisions 15 16,573,842 Provisions for other risks: deferred taxation 20 390,776 Creditors: - interest-bearing borrowings 21 277,163 - creditors arising out of direct insurance operations 22 920,708 - other creditors 22 16,480 - accruals and deferred income 22 1,018,637 Current taxation - ____________

7,406,050 ____________

Total liabilities 19,197,606 ____________ Total equity and liabilities 28,234,529

20,365,848 ____________

17,131,138 390,776 584,188 737,264 39,767 1,045,421 437,294 ____________

____________ ____________ 27,771,898

The notes on pages 13 to 44 are an integral part of these financial statements. The financial statements on pages 8 to 44 were authorised for issue by the Board on 24 June 2010 and were signed on its behalf by:

William Harding Chairman

David Bartoli Managing Director

statement of comprehensive income Year ended 31 December

Profit/(loss) for the year – total comprehensive income

2009 €

2008 €

____________ ____________ 2,470,873

(478,389)

statement of changes in equity Profit Share Revaluation and loss capital reserve account Note € € € Balance at 1 January 2008 3,494,060 1,230,696 3,899,683 Comprehensive income Loss for the year ____________ - - (478,389) ____________ ____________

(478,389) ____________

Transactions with owners Dividends - ordinary shares 10 ____________ - - (740,000) ____________ ____________

(740,000) ____________

Total € 8,624,439

____________ ____________ ____________ ____________

Balance at 31 December 2008 3,494,060 1,230,696 2,681,294

7,406,050

Balance at 1 January 2009 3,494,060 1,230,696 2,681,294 Comprehensive income Profit for the year ____________ - - 2,470,873 ____________ ____________

7,406,050

2,470,873 ____________

Transactions with owners Dividends - ordinary shares 10 ____________ - - (840,000) ____________ ____________

(840,000) ____________

____________ ____________ ____________ ____________

Balance at 31 December 2009 3,494,060 1,230,696 4,312,167

9,036,923

The notes on pages 13 to 44 are an integral part of these financial statements.

statement of cash flows Year ended 31 December

2009 Notes € Operating activities Cash generated from operations 23 1,291,649 Dividends received 6 214,109 Interest received 461,563 Tax paid (1,259,184) ____________ Net cash generated from operating activities

708,137 ____________

Investing activities Purchase of intangible assets 11 (145,896) Purchase of plant and equipment 12 (94,449) Purchase of investments – fair value through profit or loss 14 (2,829,186) Disposal of investments – fair value through profit or loss 14 2,880,266 Disposal of plant and equipment 12 500 Net movement in investments loans and receivables 14 248,692 ____________ Net cash used in investing activities

59,927 ____________

Financing activities Dividends paid 10 (840,000) ____________ Net cash used in financing activities (840,000) ____________ (Decrease)/increase in cash and cash equivalents (71,936)

2008 € 1,304,992 212,990 562,829 (970,667) ____________ 1,110,144 ____________

(41,516) (96,492) (3,481,328) 3,512,663 (148,512) ____________ (255,185) ____________

(740,000) ____________ (740,000) ____________

____________ ____________ Movement in cash and cash equivalents At beginning of year (40,547) Net cash (outflow)/inflow (71,936) ____________

114,959

(155,506) 114,959 ____________

____________ ____________ At end of year

The notes on pages 13 to 44 are an integral part of these financial statements.

(112,483)

(40,547)

notes to the financial statements 1. Summary of significant accounting policies The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

1.1. Basis of preparation These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU, the Insurance Business Act, 1998 and the Companies Act, 1995. The financial statements are prepared under the historical cost convention as modified by the fair valuation of financial assets at fair value through profit or loss and the revaluation of land and buildings. The preparation of financial statements in conformity with IFRSs as adopted by the EU requires the use of certain accounting estimates. It also requires directors to exercise their judgements in the process of applying the company’s accounting policies (see Note 2 – Critical accounting estimates and judgements). The balance sheet is organised in increasing order of liquidity, with additional disclosures on the current or non-current nature of the company’s assets and liabilities provided within the notes to the financial statements. Standards, interpretations and amendments to published standards effective in 2009 In 2009 the company adopted new standards, amendments and interpretations to existing standards that are mandatory for the company’s accounting period beginning on 1 January 2009. The adoption of these revisions to the requirements of IFRSs as adopted by the EU did not result in substantial changes to the company’s accounting policies. IAS 1 (revised), Presentation of financial statements, and IFRS 7 ‘Financial instruments - Disclosures’ (amendment), are both effective for periods beginning on or after 1 January 2009, but do not have any impact on the classification and measurement of the company’s elements of the financial statements. IAS 1 (revised) requires ‘non-owner changes in equity’ to be presented separately from owner changes in equity in a statement of comprehensive income, while IFRS 7 (amendment) requires enhanced disclosures about fair value measurement. In accordance with the respective transition provisions of these standards, comparative information has been re-presented in respect of the disclosures required by IAS 1 (revised) but has not been represented in respect of the disclosures required by IFRS 7 (amendment). Standards, interpretations and amendments to published standards that are not yet effective Certain new standards, amendments and interpretations to existing standards have been published by the date of authorisation for issue of these financial statements, but are mandatory for the company’s accounting periods beginning after 1 January 2009. The company has not early adopted these revisions to the requirements of IFRSs as adopted by the EU and the company’s directors are of the opinion that there are no other requirements that will have a possible significant impact on the company’s financial statements in the period of initial application. IFRS 9, Financial instruments, addresses the classification and measurement of financial assets, and replaces the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: amortised cost and fair value. Classification under IFRS 9 is driven by the entity’s business model for managing the financial assets and the contractual characteristics of the financial assets. Subject to adoption by the EU, IFRS 9 is effective for financial periods beginning on, or after, 1 January 2013.

notes to the financial statements 1. Summary of significant accounting policies (continued) 1.2. Foreign currency translation (a) Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The financial statements are presented in euro (€), which is the company’s functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement within ‘administrative expenses’.

1.3. Revenue recognition Revenue comprises the fair value for services and is recognised as follows: (a) Rendering of services Premium recognition is described in accounting policy 1.15 dealing with insurance contracts. (b) Interest income Interest income from financial assets not classified as fair value through profit or loss is recognised on a time proportionate basis using the effective interest method. When a receivable is impaired, the company reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument and continues unwinding the discount as interest income. (c) Dividend income Dividend income is recognised when the right to receive payment is established. (d) Other net fair value gains or losses from financial assets at fair value through profit or loss Other gains or losses arising from changes in the fair value of the ‘Financial assets at fair value through profit or loss’ category are presented in the profit and loss account within ‘Net fair value gains or losses on financial assets at fair value through profit or loss’ in the period in which they arise.

1.4. Investment return Investment return includes dividend income, other net fair value movements on financial assets at fair value through profit or loss (including interest income from financial assets, classified as fair value through profit and loss), interest income from financial assets not classified as fair value through profit or loss and is net of investment expenses, charges and interest. The investment return is allocated between the technical and non-technical profit and loss accounts on a basis which takes into account that technical provisions are fully backed by investments.

1.5. Property, plant and equipment Tangible assets comprising land and buildings, office furniture and equipment and motor vehicles are initially recorded at cost. Property is subsequently shown at market value, based on valuations by external independent valuers, less subsequent depreciation. Valuations are carried out on a regular basis such that the carrying amount of property does not differ materially from that which would be determined using fair values at the reporting date. All other plant and equipment are subsequently stated at historical cost less depreciation.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the profit and loss account during the financial period in which they are incurred. Increases in the carrying amount arising on revaluation are credited to the revaluation reserve in shareholders’ equity. Decreases that offset previous increases of the same asset are charged against the revaluation reserve; all other decreases are charged to the income statement. Depreciation is calculated on the straight line method to write off the cost of the assets, other than land, to their residual values over their estimated useful life as follows. Buildings Improvement to buildings Office furniture and equipment Motor vehicles

% 2 10 20 20

The assets residual values and useful lives are reviewed and adjusted as appropriate at each reporting date. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the profit and loss account. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

1.6. Intangible assets – computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised using the straight-line method over their estimated useful lives of 4 years. Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred.

1.7. Investment in associated undertakings Associated undertakings are all entities over which the company has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associated undertakings are accounted for by the equity method of accounting and are initially recognised at cost. Equity accounting involves recognising in the profit and loss account, the company’s share of the associate’s profit or loss for the year and the share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. The company’s investment in associated undertaking is carried in the balance sheet at an amount that reflects its share of the net assets of the associate and includes goodwill (net of any accumulated impairment loss) on acquisition. Equity accounting is discontinued when the carrying amount of an investment in an associated undertaking reaches zero, unless the company has incurred obligations or guaranteed obligations in respect of the associated undertaking. On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to the profit and loss account.

notes to the financial statements 1. Summary of significant accounting policies (continued) 1.8. Financial assets The company classifies its financial assets in the following categories: financial assets at fair value through profit or loss and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. The directors determine the appropriate classification of the financial assets at the time of purchase and re-evaluate such designation at every reporting date. (a) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are part of a group of investments that is managed on a portfolio basis and whose performance is evaluated and reported internally on a fair value basis to the company’s key management personnel in accordance with a documented investment strategy. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those that the company intends to sell in the short term or that it has designated as fair value through profit or loss. They include, inter alia, debtors, deposits held with credit or financial institutions and cash and cash equivalents. All purchases and sales of investments are recognised on the trade date, which is the date that the company commits to purchase and sell the asset. All investments are initially recognised at fair value plus, in the case of all financial assets not carried at fair value through profit or loss, transaction costs that are directly attributable to their acquisition. Investments are derecognised when the rights to receive cash flows from the investments have expired or where they have been transferred and the company has also transferred substantially all risks and rewards of ownership. Financial assets at fair value through profit or loss are subsequently re-measured at fair value. Loans and receivables are carried at amortised cost using the effective interest method, less any provision for impairment. Realised and unrealised gains and losses arising from changes in fair value of the ‘financial assets at fair value through profit or loss’ category are included in the profit and loss account in the period in which they arise. The fair value of quoted investments is based on quoted market prices at the reporting date. If the market for an investment is not active, the company establishes fair value by using valuation techniques.

1.9. Impairment of assets (a) Impairment of financial assets carried at amortised cost The company assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the company about the following events: (i) significant financial difficulty of the issuer or debtor (ii) a breach of contract, such as default or delinquency in payments (iii) it becoming probable that the issuer or debtor will enter bankruptcy or other financial reorganisation (iv) observable data indicating that there is a measurable decrease in the estimated future cash flow from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group.

The company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant. If the company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred on loans and receivables carried at amortised cost, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the profit and loss account. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as improved credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the profit and loss account. (b) Impairment of other non-financial assets Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

1.10. Cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents comprise cash in hand and deposits held at call with banks which are held for operational purposes, net of bank overdrafts.

1.11. Share capital Shares are classified as equity when there is no obligation to transfer cash or other assets.

1.12. Dividends Dividends on ordinary shares are recognised in equity in the period in which they are declared.

1.13. Current and deferred tax The tax expense for the period comprises current and deferred tax. Tax is recognised in the profit and loss account, except to the extent that it relates to items recognised directly in equity. In this case, the tax is also recognised in equity. Deferred tax is recognised using the liability method for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised only to the extent that future taxable profit will be available against which the temporary differences can be utilised.

notes to the financial statements 1. Summary of significant accounting policies (continued) 1.14. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Interest costs are charged against income without restriction. No borrowing costs have been capitalised.

1.15. Insurance contracts - classification The company issues contracts that transfer significant insurance risk and that are classified as insurance contracts. As a general guideline, the company defines as significant insurance risk the possibility of having to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. Insurance contracts – General business The results for direct business are determined on an annual basis whereby the incurred cost of claims, commissions and related expenses are charged against the earned proportion of premiums, net of reinsurance as follows: (i) Premiums written relate to business incepted during the year together with any differences between the booked premiums for prior years and those previously accrued, less cancellations. (ii) Unearned premiums represent the proportion of premiums written in the year that relate to unexpired terms of policies in force at the balance sheet date, calculated on a time apportionment basis. (iii)

Commissions and other acquisition costs that vary with and are related to securing new contracts and renewing existing contracts are deferred over the period in which the related premiums are earned. These are capitalised and are shown as deferred acquisition costs (“DAC”) in the balance sheet. DAC is amortised over the term of the policies as the premium is earned. All other costs are recognised as expenses when incurred.

(iv) Claims incurred comprise claims and related expenses paid in the year and changes in the provision for outstanding claims, including provisions for claims incurred but not reported (“IBNR”) and related expenses, together with any other adjustments to claims from previous years. Where applicable, deductions are made for salvage and other recoveries. (v)

Provision is made at the year-end for the estimated cost of claims incurred but not settled at the reporting date, including the cost of claims incurred but not yet reported to the company. The estimated cost of claims includes expenses to be incurred in settling claims and a deduction for the expected value of salvage and other recoveries. The company takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures. However, given the uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be different from the original liability established. Liabilities for unpaid claims are estimated using the input of assessments for individual cases reported to the company and statistical analysis for the claims incurred but not reported, and to estimate the expected ultimate cost of more complex claims that may be affected by external factors (such as court decisions). The company does not discount its liabilities for unpaid claims.

(vi)

Provision in the form of an unexpired risk provision is made for any deficiencies arising when unearned premiums, net of associated acquisition costs, are insufficient to meet expected claims and expenses after taking into account future investment return on the investments supporting the unearned premiums provision and unexpired risks provision. The expected claims are calculated having regard to events that have occurred prior to the reporting date.

(vii) The above method of provisioning satisfies the minimum liability adequacy that is required by IFRS 4.

Reinsurance contracts held Contracts entered into by the company with reinsurers under which the company is compensated for losses on one or more contracts issued by the company and that meet the classification requirements for insurance contracts are classified as reinsurance contracts held. The benefits to which the company is entitled under its reinsurance contracts held are recognised as reinsurance assets. These assets consist of short-term balances due from reinsurers (classified within debtors), as well as longer term receivables (classified within reinsurersâ&#x20AC;&#x2122; share of technical provisions) that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognised as an expense when due. The company assesses its reinsurance assets for impairment on a regular basis. If there is objective evidence that the reinsurance asset is impaired, the company reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in the profit and loss account. The company gathers the objective evidence that a reinsurance asset is impaired using the same process adopted for financial assets held at amortised cost. The impairment loss is also calculated following the same method used for these financial assets. These processes are described in accounting policy 1.9. Receivables and payables related to insurance contracts Receivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurance contract holders. If there is objective evidence that an insurance receivable is impaired, the company reduces the carrying amount of the insurance receivable accordingly and recognises that impairment loss in the profit and loss account. The company gathers the objective evidence that an insurance receivable is impaired using the same process adopted for financial assets held at amortised cost. The impairment loss is calculated following the same method used for these financial assets. These processes are described in accounting policy 1.9.

2. Critical accounting estimates and judgements in applying accounting policies Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the opinion of the directors, the accounting estimates and judgements made in the course of preparing these financial statements are not difficult, subjective or complex to a degree which would warrant their description as critical in terms of the requirements of IAS 1 (revised), other than the estimate of the ultimate liability arising from claims made under insurance contracts. There are several sources of uncertainty that need to be considered in the estimate of liabilities that the company will ultimately pay for insurance claims. In particular, insurance risks including exposure to liability can span over more than one accounting year, and this increases the uncertainty surrounding the estimate for final settlement. The company applies conventional statistical models in order to determine the ultimate liability of claims as further described in Note 3.1. The directors believe that the liability arising from claims under insurance contracts is adequately reserved as at the financial year end. Further detail is provided in Note 15 to these financial statements.

notes to the financial statements 3. Management of insurance and financial risk The company issues contracts that transfer insurance risk. The company is also exposed to financial risk. This section summarises these risks and the way the company manages them.

3.1. Insurance risk The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable. The terms and conditions of the contracts set out the bases for the determination of the companyâ&#x20AC;&#x2122;s liability should the insured event occur. The risks underwritten include accident, motor (including third party liability), marine and transport, fire and other damage to property, engineering, and liability. Details of gross premiums written and claims incurred analysed by class are provided in the segmental analysis (Note 4). For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the company faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims are greater than estimated. Insurance events are random and the actual number and amount will vary from year to year from the estimate established using statistical techniques. Experience shows that the larger the portfolio of similar insurance contracts, the smaller variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The company has developed its insurance underwriting strategy to diversify the type of insurance risks accepted and within each category of business to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. Factors that aggravate insurance risks include the lack of risk diversification in terms of type and amount of risk, geographical location and type of industry covered. (a) Frequency and severity of claims The frequency and severity of claims can be affected by several factors including increasing levels of court awards and the risks of a single event that can affect a number of individual risks insured by the company, such as flood or an earthquake. The company manages these risks through its underwriting strategy, adequate reinsurance arrangements and proactive claims handling. Underwriting risk The directors manage exposure to insurance risk through an Underwriting Committee (U.C.) that considers aggregation of risk, and establishes risk retention levels. The underwriting strategy attempts to ensure that the risks underwritten are well diversified in terms of type and amount of risk and industry. Disciplined underwriting, encompassing risk assessment, risk management, pricing and exposure control is critical to the companyâ&#x20AC;&#x2122;s success. The goal is for underwriters to be in a position to: - Understand and assess each risk, - Make appropriate decisions within their area of competence and authority limits, - Differentiate between risks, - Apply suitable terms and conditions in order to manage the portfolio, - Control exposure, - Improve the predictability of the loss experience and make appropriate use of the companyâ&#x20AC;&#x2122;s technical capacity.

(a) Frequency and severity of claims (continued) Each of the company’s underwriters has a specific license that sets clear parameters for the business that they can underwrite, based on the competence of the individual underwriter. The U.C. looks at company underwriting issues, reviewing and agreeing underwriting direction and setting policy and directives where appropriate, and limits on the overall retention of risk that the company carries. The company’s management of the underwriting and claims risks restricts underwriting of specific high risk classes of business to underwriters with appropriate technical competence and includes reviewing the performance and management of selected individual insurance portfolios throughout the company. Pricing is generally based upon historical claims frequencies and claims severity averages, adjusted for inflation and trended forward. While claims remain the company’s principal cost, allowance is also made in the pricing procedures for acquisition expenses, administration expenses, investment income, the cost of reinsurance, and for a profit loading that adequately covers the cost of the capital exposed to risk. The company has the right not to renew individual policies or to reprice on renewal, it can impose deductibles and it has the right to reject the payment of a fraudulent claim. Reinsurance arrangements are in place as further described below. Reinsurance risk The company reinsures a portion of the risks underwritten to control exposure to losses, to reduce volatility, and to protect capital. The type of reinsurance cover, and the level of retention, are based on the company’s internal risk management assessment, which takes into account the risk being covered and the sums assured. The reinsurance strategy and programme are set and agreed by the Reinsurance Committee on an annual basis. The reinsurance arrangements include a mix of proportional, facultative and non-proportional cover, which limit the liability of the company to any one individual claim or event. Monthly reviews of aggregates are carried out to ensure that adequate reinsurance is in place. Periodical meetings are held with the company’s reinsurance brokers, the purpose of which is to systematically agree the renewal process of the company’s reinsurance requirements, and to ensure a formalised means of communication between Elmo and its reinsurance brokers. Good “ad hoc” contact with reinsurance brokers is maintained during the year when dealing with risks that are not catered for by standard reinsurance treaties. Further, reinsurance arrangements are in place with RSA to protect Elmo from adverse development of outstanding claims that the company assumed from RSA when the portfolio transfer agreement between RSA and Elmo was executed on 1 May 2004. The company monitors the financial condition of reinsurers on an ongoing basis, and reviews its reinsurance arrangements regularly to ensure that its counterparty exposure to individual reinsurance groups is within the parameters set by the U.C., and the Malta Financial Services Authority. The company does not place reinsurance with reinsurers having a credit rating lower than ‘A-‘. Concentration of insurance risk All risks underwritten by the company are based in Malta. The distribution of premium by insurance business category is summarised in Note 4 to the financial statements. The directors consider that the insurance portfolio is not unduly concentrated, also taking into account the nature and extent of reinsurance protection acquired by the company.

notes to the financial statements 3. Management of insurance and financial risk (continued) 3.1. Insurance risk (continued) Claims handling Risks surrounding known claims are mitigated through the company’s inhouse teams of skilled claims technicians who apply their experience and knowledge to the circumstances of individual claims. These teams are responsible for investigating and adjusting claims, together with specialist independent loss adjustors that might be engaged depending on exigencies. Claim estimates are reviewed periodically and adjusted on the basis of information that becomes available specific to the claim as well as changes in external factors such as judicial decisions and legislation. The company generally pursues early settlement of claims to reduce its exposure to unpredictable developments. Sources of uncertainty in the estimation of future claim payments Claims on contracts are accounted for on a claims-occurrence basis. The company is liable for all insured events that occurred during the term of the contract, even if the loss is discovered after the end of the contract term. As a result, the estimation of claims incurred but not reported (‘IBNR’) is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to the company. Certain classes of business can take several years to develop, in particular claims involving casualty, and are therefore subject to a greater degree of uncertainty than other classes of business which are typically settled in a shorter period of time. The estimated cost of claims includes direct expenses to be incurred in settling claims, net of the expected subrogation value and recoveries. The company takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures. However, given the uncertainty in establishing claims provisions, it is possible that the final outcome will prove to be different from the original liability established. The liability for these contracts comprises a provision for IBNR and a provision for reported claims not yet paid at the balance sheet date (see Note 15). In calculating the estimated cost of unpaid claims, the company uses a combination of estimation techniques, based partly on known information and partly on statistical analyses of a historical experience. Reserves are analysed by line of business. Case reserves are established on each individual claim and are adjusted as new information becomes known during the course of handling the claim. Lines of business for which claims data (e.g. paid claims and case reserves) emerge over a long period of time are referred to as long tail lines of business. Lines of business for which claims data emerge more quickly are referred to as short tail lines of business. Risks underwritten by the company are typically short tail, although certain lines of business may take longer to develop, including, for example, personal accident and employers’ liability. The company’s claims managers regularly review reserves for both current and prior accident years using the most recent claims data. These reserve reviews incorporate a variety of judgements, and involve extensive analysis. The ultimate cost of outstanding claims, including claims incurred but not reported, is subsequently estimated through statistical analyses of historical claims trends, which are projected forward giving greater weighting to recent years. Additional qualitative judgement is applied to assess the extent to which past trends may not apply in the future. Note 15 presents the development of the estimate of ultimate claim cost for claims notified in a given year. This gives an indication of the accuracy of the company’s estimation techniques for claims payable.

3.2. Financial risk The company is exposed to financial risk through its financial assets, financial liabilities, and insurance and reinsurance assets and liabilities. The key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance risk. The most important components of this financial risk are the interest rate risk, equity price risk, currency risk, credit risk and liquidity risk. These risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The risk management policies employed by the company to manage these risks are discussed below. Market risk (a) Interest rate risk In general, the company is exposed to risk associated with the effects of fluctuations in the prevailing levels of market interest rates. Assets issued at variable rates expose the company to cash flow interest rate risk. Assets issued at fixed rates expose the company to fair value interest rate risk. The total assets and liabilities subject to interest rate risk are as follows:

2009 € ____________

2008 € ____________

Assets at floating interest rates Assets at fixed interest rates

2,043,935 8,214,470 ____________

4,005,847 7,523,064 ____________

10,258,405

11,528,911

Liabilities at floating interest rates

277,163

584,188

____________ ____________ ____________ ____________ Interest rate risk is principally managed through the investment in debt securities having a wide range of maturity dates. Moreover, investment parameters exist to limit exposure to any one particular issuer and any one particular security. Note 14 incorporates maturity information with respect to the company’s assets. The exposure to interest rate risk in respect of borrowings is not considered to be significant. Insurance liabilities are not directly sensitive to the level of market interest rates, as they are not discounted and contractually non-interest bearing. The impact of interest rates on insurance liabilities (e.g. in the case of damages awarded by the courts) is considered within the company’s reserving policy and is mitigated by interest accruing on investments. Up to the balance sheet date the company did not have any hedging policy with respect to interest rate risk as exposure to such risks was not deemed to be significant by the directors. i) Sensitivity Analysis - interest rate risk The sensitivity analysis for interest rate risk illustrates how changes in the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates at the reporting date. At 31 December 2009, if interest rates at that date would have been 25 basis points (2008: 150 basis points) lower with all other variables held constant, pre-tax profit for the year would have been €131,327 (2008: €705,978) higher. An increase of 25 basis points (2008: 150 basis points), with all other variables held constant, would have resulted in pre-tax profits being €128,371 (2008: €607,071) lower.

notes to the financial statements 3. Management of insurance and financial risk (continued) 3.2. Financial risk (continued) (b) Price risk The company’s financial assets are also susceptible to the risk of changes in value due to changes in the prices of equities in respect of investments held and classified on the balance sheet as fair value through profit or loss. The directors manage this risk of price volatility by entering into a diverse range of investments including equities and collective investment schemes. The company has an active Investment Committee that has established a set of investment guidelines that is also approved by the Board of Directors. These guidelines provide parameters for investment management, including contracts with external portfolio managers. The directors review market value fluctuations arising on the company’s investments on a regular basis. Investment parameters and diversification procedures also consider solvency restrictions imposed by the relevant Insurance Regulations. The total assets subject to equity price risk are as follows:

2009 € ____________

2008 € ____________

Assets subject to equity price risk

6,003,984

3,947,471

____________ ____________ i) Sensitivity analysis – equity price risk The sensitivity for equity price risk illustrates how changes in the fair value of equity securities will fluctuate because of changes in market prices, whether those changes are caused by factors specific to the individual equity issuer, or factors affecting all similar equity traded in the market. The sensitivity for equity price risk is based on global equity returns, assuming that currency exposures are hedged. Given the investment strategy of the company a 10% (2008 : 15%) positive or negative movement in equity prices is considered to be an appropriate benchmark for sensitivity purposes. An increase and a decrease of 10% (2008 :15%) in equity prices, with all other variables held constant, would result in an impact on the pre-tax profit for the year of €600,398 (2008: €592,120). (c) Currency risk Currency risk arises from the possibility that fluctuations in foreign exchange rates will impact on the amounts that are paid to settle liabilities and on the amounts that are realised from the company’s assets. Most of the company’s liabilities are in local currency and are therefore not subject to currency risk. The company’s exposure to foreign exchange risk arises primarily from investments that are denominated in currencies other than the euro. The company’s Investment Committee establishes allowable thresholds with regards to the company’s exposure to foreign exchange risk. Currency exposure is also regulated by the Regulations underlying the Maltese Insurance Business Act, 1998. i) Sensitivity analysis – currency risk As at 31 December 2009, the company’s exposure to foreign currency investments, represented 26% of the company’s total investments (2008: 25%). The strengthening or weakening of the functional currency by 10% (2008 : 10%) against the other currencies with all other variables held constant, would result in an impact on pre-tax profit for the year of €421,761 (2008 : €389,201).

(d) Credit risk Credit risk is the risk that a counterparty will be unable to pay amounts in full when due. Key areas where the company is exposed to credit risk are:  Investments and cash and cash equivalents  Reinsurers’ share of insurance liabilities  Amounts due from reinsurers in respect of claims already paid  Amounts due from policy holders and insurance intermediaries The company places limits on the level of credit risk undertaken from the main categories of financial instruments. These limits also take due consideration of the solvency restrictions imposed by the relevant Regulations. The investment strategy of the company considers the credit standing of the counterparty and control structures are in place to assess and monitor these risk thresholds. The company structures the levels of credit risk it accepts by limiting as far as possible its exposure to a single counterparty or groups of counterparty. Limits on the level of credit risk are approved by the directors, and the credit terms allowed depend on the distribution channel through which business is secured. Frequent meetings are held, attended by directors, in order to monitor the overall credit situation, and to take remedial measures as appropriate. Debtors are stated net of a provision for impairment (see Note 17). The directors consider that the company is not exposed to material concentration of credit risk in respect of trade debtors due to the large number of customers comprising the company’s debtor base. Reinsurance is used to manage insurance risk. This does not, however, discharge the company’s liability as primary insurer. If a reinsurer fails to pay a claim for any reason, the company remains liable for the payment to the policyholder. The creditworthiness of reinsurers is monitored on an annual basis by reviewing their financial strength prior to finalisation of any contract. The company’s policy is to only contract reinsurers with a minimum rating of A-. The company is also exposed to credit risk for its cash at bank and investments. The company’s cash is placed with quality financial institutions. Assets bearing credit risk at the balance sheet date are analysed as follows: As at 31 December 2009

AAA A to A- BBB Unrated Total to AA to BB € ____________ € ____________ € ____________ € ____________ € ____________

Debt securities at fair value 3,365,757 ____________ 6,420,678 ____________ 183,951 ____________ - ____________ 9,970,386 through profit or loss ____________ Loans and receivables Deposits with banks or credit institutions - 57,949 - 131,591 189,540 Insurance and other receivables 61,010 77,991 2,063 3,977,611 4,118,675 46,646 ____________ 7,769 ____________ - ____________ 110,265 ____________ 164,680 Cash and cash equivalents ____________ 107,656 ____________ 143,709 ____________ 2,063 ____________ 4,219,467 ____________ 4,472,895 ____________ Reinsurers’ share of technical 434,318 ____________ 1,323,155 ____________ - ____________ - ____________ 1,757,473 provisions (see note above) ____________ Total assets bearing credit risk 3,907,731 7,887,542 186,014 4,219,467 16,200,754

____________ ____________ ____________ ____________ ____________

notes to the financial statements 3. Management of insurance and financial risk (continued) 3.2. Financial risk (continued) As at 31 December 2008

AAA A to A- BBB Unrated Total to AA to BB € ____________ € ____________ € ____________ € ____________ € ____________

Debt securities at fair value 5,460,238 ____________ 5,523,267 ____________ - ____________ - ____________ 10,983,505 through profit or loss ____________ Loans and receivables Deposits with banks or credit institutions 407,376 56,972 253,562 127,697 845,607 Insurance and other receivables 66,301 72,814 - 3,889,934 4,029,049 - ____________ 17,280 ____________ - ____________ 118,986 ____________ 136,266 Cash and cash equivalents ____________ 473,677 ____________ 147,067 ____________ 253,562 ____________ 4,136,617 ____________ 5,010,922 ____________ Reinsurers’ share of technical 955,544 ____________ 821,856 ____________ - ____________ - ____________ 1,777,400 provisions (see note above) ____________ 6,889,459 6,492,190 253,562 4,136,617 17,771,827 Total assets bearing credit risk

____________ ____________ ____________ ____________ ____________

As at 31 December 2009 and 2008 the company had significant exposure with the Government of Malta through investments in debt securities and/or treasury bills. These were equivalent to 17% in 2009 (2008: 17%) of the company’s total assets. (e) Liquidity risk The company’s exposure to liquidity risk arises from the eventuality that the frequency or severity of claims are greater than estimated. Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. The directors do not consider this risk to be significant given the nature of the company’s financial assets and liabilities. The company’s financial assets are considered to be readily realisable as they consist of local and foreign securities listed on recognised stock markets. Moreover, the company ensures that a reasonable level of funds is available at any point in time for unexpected large claims and the company may also resort to overdraft facilities which provide a short-term means of finance. The table below analyses the company’s financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the expected timing cash flows arising from the company’s liabilities. As at 31 December 2009

Contracted undiscounted cash outflows

Between Between Less than one and two and Over one year two years five years five years Total € ____________ € ____________ € ____________ € ____________ € ____________ Bank overdraft Insurance and other payables

277,163 - - - 277,163 1,955,825 - - - 1,955,825 ____________ ____________ ____________ ____________ ____________ 2,232,988 - - - 2,232,988

____________ ____________ ____________ ____________ ____________

Expected undiscounted cash outflows

Between Between Less than one and two and Over one year two years five years five years Total € € € € € ____________ ____________ ____________ ____________ ____________ Technical provisions - Claims outstanding 4,173,548 1,349,623 3,547,125 1,491,757 10,562,053

____________ ____________ ____________ ____________ ____________

As at 31 December 2008

Contracted undiscounted cash outflows

584,188 - - - 584,188 1,822,452 - - - 1,822,452 437,294 ____________ - ____________ - ____________ - ____________ 437,294 ____________ 2,843,934 - - - 2,843,934

____________ ____________ ____________ ____________ ____________ Expected undiscounted cash outflows

Between Between Less than one and two and Over one year two years five years five years Total € € € € € ____________ ____________ ____________ ____________ ____________

____________ ____________ ____________ ____________ ____________

Technical provisions - Claims outstanding 3,910,151 1,341,603 3,495,268 2,372,257 11,119,279

3.3. Capital risk management The company’s objectives when managing capital are:

 to comply with the insurance capital requirements required by the Maltese insurance regulator (“MFSA”);

 to safeguard the company’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and,

 to provide an adequate return to shareholders by pricing insurance contracts commensurately with the level of risk. In order to maintain or adjust the capital structure, the company may issue new shares or capitalise contributions received from its shareholders. The company is required to hold regulatory capital for its general insurance business in compliance with the rules issued by the Malta Financial Services Authority (MFSA). The minimum capital requirement must be maintained at all times throughout the year. The company monitors its capital level on a regular basis, by ensuring that sufficient assets are maintained to match insurance liabilities and to provide solvency cover. Any transactions that may potentially affect the company’s solvency position are immediately reported to the directors and shareholders for resolution prior to notifying the MFSA. As at 31 December 2009, the company’s net admissible assets in this regard amounted to €9,048,923 (2008: €7,406,050). The company was compliant with its regulatory capital requirements throughout the financial period. The current year amounts are, in general, estimates that are updated once calculations prepared for regulatory submissions are final.

notes to the financial statements 3.4. Fair value estimate The fair value of publicly traded investments is based on quoted market prices at the balance sheet date. At 31 December 2009 and 31 December 2008, the carrying amount of the company’s other financial assets and liabilities approximated their fair values.

Effective 1 January 2009, the company adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value, this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:  Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).  Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).  Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The following table presents the company’s assets that are measured at fair value at 31 December 2009. Level 1 € ____________ Assets Fair value through profit or loss - Equity securities, other variable yield securities and units in unit trusts – listed 6,003,988 - Debt securities ____________ 9,970,386 Total assets The company’s investments are quoted in active markets and accordingly are classified as level 1.

____________

15,974,374

4. Segmental analysis General business Gross premiums written and gross premiums earned by class of business Gross premiums written Gross premiums earned 2009 2008 2009 2008 € € € € ____________ ____________ ____________ ____________ Direct insurance Motor (third party liability) 5,818,354 1,825,415 5,759,590 1,831,771 Motor (other classes) 1,775,933 5,775,037 1,821,724 5,814,912 Fire and other damage to property 3,404,303 3,190,749 3,453,537 3,119,443 Other classes 2,280,001 2,150,754 2,243,810 2,059,777 ____________ ____________ ____________ ____________ 13,278,591 12,941,955 13,278,661 12,825,903

____________ ____________ ____________ ____________

Gross claims incurred, gross operating expenses and reinsurance balance by class of business

Gross claims incurred Gross operating expenses Reinsurance balance 2009 2008 2009 2008 2009 2008 € € € € € € ____________ ____________ ____________ ____________ ____________ ____________

Direct insurance Motor (third party liability) 3,572,676 1,323,780 1,397,477 422,410 338,927 134,868 Motor (other classes) 1,219,789 3,134,343 441,575 1,326,068 16,932 375,513 Fire and other damage to property 1,638,964 1,229,738 772,945 634,253 614,771 712,822 776,747 ____________ 461,147 ____________ 550,754 ____________ 494,477 ____________ 354,635 ____________ 289,956 Other classes ____________ 7,208,176 6,149,008 3,162,751 2,877,208 1,325,265 1,513,159

____________ ____________ ____________ ____________ ____________ ____________

Gross premiums written emanate from contracts concluded in or from Malta. The reinsurance balance represents a charge or credit to the technical account arising from the aggregate of all items relating to reinsurance outwards.

5. Net operating expenses 2009 2008 ____________ € ____________ € Acquisition costs 2,652,703 2,434,000 Change in deferred acquisition costs, net of reinsurance (7,812) 32,449 Administrative expenses 553,591 441,572 Reinsurance commissions and profit participation (1,348,809) ____________ (1,212,029) ____________

____________ ____________

1,849,673 1,695,992 Allocated to: Technical profit and loss account 1,813,942 1,665,179 Non-technical account 35,731 30,813 ____________ ____________ 1,849,673 1,695,992

____________ ____________

Total commissions for direct business accounted for in the financial year amounted to €752,676 (2008: €765,614). Further detail on expenses by nature is provided in Note 7 to the financial statements.

notes to the financial statements 6. Investment return 2009 2008 ____________ € ____________ € Dividends received from investments at fair value through profit or loss 214,109 212,990 Interest receivable from other loans and receivables 13,803 12,480 Net gains from financial investments at fair value through profit or loss 1,542,238 Share of (losses)/profits of associated undertaking (38,070) 4,028 ____________ ____________ 1,732,080 ____________ 229,498 ____________ Investment expenses and charges Investment expenses and charges 79,751 79,489 Net losses from financial investments at fair value through profit or loss - 2,163,718 ____________ ____________ 79,751 ____________ 2,243,207 ____________

____________ ____________ Total investment return/(expense)

1,652,329

(2,013,709)

Allocated as follows: Technical profit and loss account 1,139,969 (1,352,655) Non-technical account 512,360 ____________ (661,054) ____________ 1,652,329 (2,013,709)

____________ ____________ 7. Expenses by nature

2009 2008 ____________ € ____________ € Staff costs (Note 8) 1,890,200 1,635,233 Directors’ remuneration 8,153 8,153 Amortisation of intangible assets (Note 11) 49,081 24,079 Depreciation of property, plant and equipment (Note 12) 95,323 97,348 Professional indemnity insurance 38,280 38,280 Increase in debtors impairment provision (Note 17) 29,970 9,504 Legal and professional fees 130,893 152,115 Advertising 137,976 91,375 Other expenses 926,947 847,994 ____________ ____________ Total administrative expenses 3,306,823 2,904,081

____________ ____________

Allocated to: Technical profit and loss account 3,271,092 2,873,268 Non-technical account 35,731 30,813 ____________ ____________ 3,306,823 2,904,081

____________ ____________

Fees charged by the auditor for services rendered during the financial period end 31 December 2009 and 2008 amounted to: 2009 2008 ____________ € ____________ € Annual statutory audit 24,600 24,600 Other assurance services 2,350 2,700 Tax advisory and compliance services 1,557 803 Other 620 2,591 ____________ ____________ 29,127 30,694

____________ ____________ 8. Staff costs

2009 2008 ____________ € ____________ € Salaries 1,788,343 1,544,516 Social security costs 101,857 90,717 ____________ ____________ 1,890,200 1,635,233

____________ ____________

The average number of persons employed during the year was: ____________ 2009 ____________ 2008 Managerial 12 12 Technical 62 56 Administrative 8 7 ____________ ____________

____________ ____________

82 75 Staff costs amounting to €173 were recharged to related undertakings. In 2008 staff costs amounting to €9,744 were recharged by related undertakings (see note 26).

9. Tax expense 2009 2008 ____________ € ____________ € Current tax expense 813,491 1,020,042 (Over)/under provision in prior years (1,812) 13,114 Deferred tax charge/(credit) (Note 20) 87,388 (191,712) ____________ ____________

____________ ____________ Tax expense

899,067

841,444

notes to the financial statements 9. Tax expense (continued) The tax on the company’s profit before tax differs from the theoretical amount that would arise using the basic tax rate as follows: 2009 2008 ____________ € ____________ € Profit before tax ____________ 3,369,940 ____________ 363,055 Tax on profit at 35% 1,179,479 127,069 Adjusted for tax effect of: Income subject to reduced rates of tax (44,000) (83,133) Expenses not deductible for tax purposes 15,040 14,773 (Gains)/losses not subject to tax (81,330) 432,081 Unrecognised deferred tax (201,683) 338,946 Other differences 31,561 11,708 ____________ ____________

____________ ____________

Tax expense 899,067 841,444 As at 31 December 2009, the company had temporary differences arising on unrealised fair value losses from financial assets at fair value through profit and loss of €588,272 (2008: €1,452,626). Deferred income tax assets are recognised for losses carry-forwards to the extent that the realisation of the related tax benefit through future taxable gains is probable. The company did not recognise deferred income tax assets of €137,263 (2008: €338,946) in respect of capital losses amounting to €392,181 (2008: €968,417) that can be carried forward against future taxable capital gains.

10. Dividends he directors paid a net interim dividend of €840,000 during 2009 equivalent to 56 cents per share. The directors do not T propose the payment of a final dividend in respect of 2009. The net dividend declared in respect of 2008 was €740,000 (49.33 cents per share).

11. Intangible assets Computer software € ____________ At 1 January 2008 Cost 129,983 Accumulated amortisation (111,961) ____________

____________

Net book amount 18,022 Year ended 31 December 2008 Opening net book amount 18,022 Additions 41,516 Amortisation charge ____________ (24,079)

____________

Closing net book amount 35,459 At 31 December 2008 Cost 171,499 Accumulated amortisation (136,040) ____________

____________

Net book amount 35,459 Year ended 31 December 2009 Opening net book amount 35,459 Additions 145,896 Amortisation charge ____________ (49,081)

____________

Closing net book amount 132,274 At 31 December 2009 Cost 317,395 Accumulated amortisation (185,121) ____________

____________ Net book amount Amortisation of €49,081 (2008: €24,079) is included in net operating expenses in the technical account.

132,274

notes to the financial statements 12. Tangible assets Office Land and furniture & Motor buildings equipment vehicles Total € € € € ____________ ____________ ____________ ____________ At 1 January 2008 Cost or valuation 3,422,381 412,190 133,170 3,967,741 Accumulated depreciation (96,886) (340,715) (74,340) (511,941) ____________ ____________ ____________ ____________

____________ ____________ ____________ ____________

Net book amount 3,325,495 71,475 58,830 3,455,800 Year ended 31 December 2008 Opening net book amount 3,325,495 71,475 58,830 3,455,800 Additions - 96,492 - 96,492 Depreciation charge (24,892) (49,551) (22,905) (97,348) ____________ ____________ ____________ ____________

____________ ____________ ____________ ____________

Closing net book amount 3,300,603 118,416 35,925 3,454,944 At 31 December 2008 Cost or valuation 3,422,381 508,682 133,170 4,064,233 Accumulated depreciation (121,778) (390,266) (97,245) (609,289) ____________ ____________ ____________ ____________

____________ ____________ ____________ ____________

Net book amount 3,300,603 118,416 35,925 3,454,944 Year ended 31 December 2009 Opening net book amount 3,300,603 118,416 35,925 3,454,944 Additions 61,673 14,510 18,266 94,449 Disposals - - (18,635) (18,635) Depreciation charge (24,892) (48,280) (22,151) (95,323) Depreciation released on disposal - - 18,635 18,635 ____________ ____________ ____________ ____________

____________ ____________ ____________ ____________

Closing net book amount 3,337,384 84,646 32,040 3,454,070 At 31 December 2009 Cost or valuation 3,484,054 523,192 132,801 4,140,047 Accumulated depreciation (146,670) ____________ (438,546) ____________ (100,761) ____________ (685,977) ____________

____________ ____________ ____________ ____________

Net book amount 3,337,384 84,646 32,040 3,454,070 The company’s land and buildings were revalued on 31 December 2007 by independent professional architects on the basis of an open market valuation. The surplus arising on revaluation, net of deferred taxation, was credited to the revaluation reserve in 2007.

13. Investment in associated undertaking 2009 2008 ____________ € ____________ € Year ended 31 December At beginning of year 64,284 60,256 Share of results of associate ____________ (38,071) ____________ 4,028

____________ ____________

At end of year 26,213 64,284 At 31 December Cost 73,687 73,687 Share of results (47,474) (9,403) ____________ ____________

____________ ____________ Closing cost and net book amount The associated undertaking at 31 December 2009 is shown below:

26,213

64,284

Associated undertaking Registered Class of Percentage of Office shares held shares held 2009 2008 JLT Insurance Management Malta Alfred Craig Street, Ordinary 49% 49% Limited Ta’ Xbiex Shares The following financial information available to the company relates to the investment that is classified as an associate as at the balance sheet date. Assets Liabilities Profit/(loss) € ____________ € ____________ € ____________

____________ ____________ ____________

2009 63,590 (10,475) (77,693) 2008 137,198 ____________ (6,390) ____________ 8,220 ____________

notes to the financial statements 14. Investments The investments are summarised by measurement category in the table below: 2009 2008 ____________ € ____________ € Fair value through profit or loss 15,974,374 14,930,976 Loans and receivables ____________ 189,540 ____________ 438,232

____________ ____________

16,163,914 15,369,208 (a) Investments at fair value through profit or loss 2009 2008 ____________ € ____________ € Equity securities, other variable yield securities and units in unit trusts - listed 6,003,988 3,947,471 Debt securities 9,970,386 10,983,505 ____________ ____________

____________ ____________

Total investments at fair value through profit or loss 15,974,374 14,930,976 Maturity of fixed income debt securities: Within one year 1,038,497 2,195,774 Between 1 and 2 years 1,196,932 784,302 Between 2 and 5 years 3,099,854 2,906,277 Over 5 years ____________ 4,635,103 ____________ 5,097,149 9,970,386 10,983,502 All other securities classified as fair value through profit or loss are non-current in nature.

____________ ____________ The movements in investments classified as fair value through profit or loss are summarised as follows:

2009 2008 ____________ € ____________ € Year ended 31 December At beginning of year 14,930,976 17,676,378 Additions 2,829,186 3,481,328 Disposals (sale and redemptions) (3,165,500) (3,704,612) Net fair value gains/(losses) ____________ 1,379,712 ____________ (2,522,118)

____________ ____________

At end of year 15,974,374 14,930,976 As at 31 December Cost 17,006,917 17,343,231 Accumulated net fair value losses (1,032,543) ____________ (2,412,255) ____________

____________ ____________ Net book amount 15,974,374

14,930,976

(b) Loans and receivables 2009 2008 ____________ € ____________ €

____________ ____________

Deposits with banks or credit institutions 189,540 438,232 Maturity of deposits with banks or credit institutions: 2009 2008 ____________ € ____________ € Within 3 months 135,964 131,224 Within 6 months 53,576 307,008 ____________ ____________ 189,540 438,232 The above deposits earn interest as follows: 2009 2008 ____________ € ____________ €

____________ ____________ ____________ ____________ At fixed rates

189,540

438,232

15. Insurance liabilities and reinsurance assets 2009 2008 ____________ € ____________ € Gross technical provisions Claims reported and loss adjustment expenses 9,988,994 10,559,889 Claims incurred but not reported 573,059 559,390 Provision for unearned premiums ____________ 6,011,789 ____________ 6,011,859

____________ ____________

16,573,842 17,131,138 Reinsurers’ share of technical provisions Claims reported and loss adjustment expenses 1,667,118 1,688,752 Claims incurred but not reported 90,355 88,648 Provision for unearned premiums 1,459,010 1,500,855 ____________ ____________ 3,216,483 3,278,255 Net technical provisions Claims reported and loss adjustment expenses 8,321,876 8,871,137 Claims incurred but not reported 482,704 470,742 Provision for unearned premiums 4,552,779 4,511,004 ____________ ____________

____________ ____________ ____________ ____________ 13,357,359 Technical provisions are considered to be substantially current in nature.

13,852,883

notes to the financial statements 15. Insurance liabilities and reinsurance assets (continued) The gross claims reported are net of expected recoveries from salvage and subrogation. The amounts for salvage and subrogation at the end of 2009 and 2008 are not material. Technical provisions are established to cover the expected ultimate liability for claims and loss adjustment expenses in respect of all claims that have occurred at the balance sheet date. The provisions established cover reported claims and associated loss adjustment expenses, as well as claims incurred but not yet reported to the company, and are based on undiscounted estimates of future claim payments. Outstanding claims provisions for reported claims are based primarily on individual case estimates by reference to known facts at the date of estimation. The ultimate cost of outstanding claims, including incurred but not reported claims, is estimated through statistical analysis of historical claims trends as further described in note 3.1 to these financial statements. The main assumption underlying this analysis is that past claims development experience can be used to project future claims development, and hence ultimate claims costs. Additional qualitative judgements is applied to assess the extent to which past trends may not apply in the future. Based on this process, no key variable has been identified for which a change could have a material impact on the profit or loss for the year. The development of insurance liabilities provides a measure of the company’s ability to estimate the ultimate value of claims. The top half of the table below illustrates how the company’s estimate of total claims incurred for each accident year has changed at successive year-ends. The bottom half of the table reconciles the cumulative claims to the amount appearing in the balance sheet. The accident-year basis is considered to be the most appropriate for the business written by the company. The development of insurance liabilities is presented for accident years 2004, 2005, 2006, 2007, 2008 and 2009 during which the company has been operating as insurance principal. The development of the liabilities assumed by the company on 1 May 2004 on transfer of the insurance portfolio formerly underwritten by Royal & Sun Alliance plc is presented separately. As described in Note 3.1, the adverse development of claims reserves acquired by way of this portfolio transfer is protected through a reinsurance arrangement with RSA. The development table is presented net of reinsurance. Development trends extracted in gross terms were found to be similar.

1 May 2004 to Pre 1 May 31 December 2004 2004 2005 2006 2007 2008 2009 Total € € ____________ € ____________ € ____________ € ____________ ____________ € € ____________ € ____________ ____________

Estimate of the ultimate claims costs: - at end of accident year 5,901,655 4,016,942 6,354,353 6,760,611 7,102,909 5,856,088 6,652,598 - one year later 5,958,612 3,778,515 5,934,930 6,575,277 7,245,191 5,550,170 - two years later 5,752,459 3,640,529 4,982,967 5,756,854 6,623,046 - three years later 5,636,865 3,455,629 4,936,520 5,547,184 - four years later 5,609,298 3,400,832 4,917,314 - five years later 5,896,475 3,365,652 Current estimates of cumulative claims 5,896,475 3,365,652 4,917,314 5,547,184 6,623,046 5,550,170 6,652,598 38,552,439 Cumulative payments (4,470,239) ____________ (3,155,852) ____________ (4,416,299) ____________ (4,594,004) ____________ (5,176,860) ____________ ____________ (4,358,999) (3,575,606) (____________ 29,747,859) to date ____________ Liability recognised in the balance sheet 1,426,236 209,800 501,015 953,180 1,446,186 1,191,171 3,076,992 8,804,580

____________ ____________ ____________ ____________ ____________ ____________ ____________ ____________

Movements in insurance liabilities and reinsurance assets (a) Claims and loss adjustment expenses (including IBNR) Year ended 2009 Gross Reinsurance Net ____________ € ____________ € ____________ € Total at beginning of year ____________ 11,119,279 ____________ (1,777,400) ____________ 9,341,879 Claims settled during the year (7,765,402) 1,480,447 (6,284,955) Increase/(decrease) in liabilities - arising from current year claims 7,779,172 (1,126,574) 6,652,598 - arising from prior year claims ____________ (570,996) ____________ (333,946) ____________ (904,942) Total at year end 10,562,053 (1,757,473) 8,804,580 Year ended 2008 Gross Reinsurance Net ____________ € ____________ € ____________ €

____________ ____________ ____________

Total at beginning of year ____________ 11,564,210 ____________ (1,583,207) ____________ 9,981,003 Claims settled during the year (6,593,939) 903,678 (5,690,261) Increase/(decrease) in liabilities - arising from current year claims 6,801,146 (945,057) 5,856,089 - arising from prior year claims ____________ (652,138) ____________ (152,814) ____________ (804,952) Total at year end 11,119,279 (1,777,400) 9,341,879 Variations occur when compared to prior year claims estimates due to a combination of factors including claims being settled for different amounts than estimated, and changes made to reserve estimates as more information becomes available. Favourable movements are indicative of a prudent reserving methodology in prior years.

____________ ____________ ____________ (b) Provision for unearned premiums

The movements for the year are summarised as follows: Year ended 2009 Gross Reinsurance Net ____________ € ____________ € ____________ € At beginning of year 6,011,859 (1,500,855) 4,511,004 Net (credit)/charge to profit and loss (70) ____________ 41,845 ____________ 41,775 ____________ At end of year 6,011,789 (1,459,010) 4,552,779 Year ended 2008 Gross Reinsurance Net ____________ € ____________ € ____________ €

____________ ____________ ____________

At beginning of year 5,895,807 (1,438,227) 4,457,580 Net charge/(credit) to profit and loss ____________ 116,052 ____________ (62,628) ____________ 53,424 At end of year 6,011,859 (1,500,855) 4,511,004

____________ ____________ ____________

notes to the financial statements 16. Deferred acquisition costs 2009 2008 ____________ € ____________ € Year ended 31 December At beginning of year 727,503 733,072 Net charge/(credit) to profit and loss ____________ 41,889 ____________ (5,569) At end of year 769,392 727,503

____________ ____________ Deferred acquisition costs are all classified as current assets.

17. Debtors and prepayments and accrued income 2009 2008 ____________ € ____________ € Debtors Debtors arising out of direct insurance operations - due from policyholders 2,892,453 2,785,002 - due from intermediaries 1,005,557 1,004,822 Amount due from related parties (Note 26) 67,729 84,221 Other debtors 11,262 12,724 ____________ ____________ 3,977,001 3,886,769 Prepayments and accrued income Accrued interest 141,674 142,279 Prepayments 14,045 17,597 ____________ ____________

____________ ____________

____________ ____________ 155,719 Amounts due from related parties and directors are unsecured, interest free and repayable on demand.

159,876

Debtors are presented net of an allowance for impairment of €300,783 (2008: €270,813). As at 31 December 2009, debtors amounting to €2,709,769 (2008: €2,677,599) were fully performing, whereas debtors amounting to €1,188,241 (2008: €1,112,225) were past due but not impaired. These dues related to a number of independent parties for whom there is no recent history of significant default. The ageing analysis of the trade receivables which were past due but not impaired at year end is as follows: 2009 2008 ____________ € ____________ € Within credit terms 570,060 551,982 Not more than 3 months overdue 326,178 393,404 More than 3 months overdue 292,003 166,839 ____________ ____________ 1,188,241 1,112,225

____________ ____________

18. Share capital 2009 2008 ____________ € ____________ € Authorised 745,000 ordinary “A” shares of €2.329373 each 1,735,383 1,735,383 745,000 ordinary “B” shares of €2.329373 each 1,735,383 1,735,383 10,000 ordinary “C” shares of €2.329373 each 23,294 23,294 ____________ ____________

____________ ____________

3,494,060 3,494,060 Issued and fully paid 745,000 ordinary “A” shares of €2.329373 each 1,735,383 1,735,383 745,000 ordinary “B” shares of €2.329373 each 1,735,383 1,735,383 10,000 ordinary “C” shares of €2.329373 each 23,294 23,294 ____________ ____________ 3,494,060 3,494,060 “A”, “B” and “C” ordinary shares rank pari passu in all respects except for the appointment of directors. The holders of ordinary “A” and ordinary “B” shares have the right to appoint one director for every ten percent of the share capital held by reference to the nominal value of shares. The holders of ordinary “C” shares have the right to appoint one director.

____________ ____________ 19. Revaluation reserve

2009 2008 ____________ € ____________ €

____________ ____________ At 1 January and 31 December

1,230,696

The balance at 31 December is made up as follows: 2009 2008 ____________ € ____________ €

____________ ____________ Revaluation reserve arising on land and buildings This reserve is not a distributable reserve.

1,230,696

20. Deferred taxation 2009 2008 ____________ € ____________ € Balance at 1 January 138,817 330,529 Movements during the year: Profit and loss account (Note 9) ____________ 87,388 ____________ (191,712) Balance at 31 December - net 226,205 138,817 Deferred taxation is calculated on temporary differences under the liability method using a principal tax rate of 35% (2008: 35%) except for temporary differences on investment property that are calculated under the liability method using a principal tax rate of 12% of the carrying amount.

____________ ____________

notes to the financial statements 20. Deferred taxation (continued) The year end balance comprises: 2009 2008 ____________ € ____________ € Temporary differences attributable to depreciation of fixed assets (1,292) 885 Temporary differences attributable to fair value adjustments - investments (68,632) (169,473) Temporary differences attributable to revaluation of land and buildings 390,776 390,776 Temporary differences attributable to capital losses (787) Temporary differences attributable to provision for impairment of doubtful debtors (93,860) (83,371) ____________ ____________ Balance at 31 December – net 226,205 138,817 Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off a current asset against a current tax liability. The following amounts determined after appropriate offsetting are shown in the balance sheet:

____________ ____________

2009 2008 ____________ € ____________ € Deferred tax asset (164,571) (251,959) Deferred tax liability 390,776 390,776 ____________ ____________

____________ ____________ The above temporary differences are considered to be substantially non-current in nature.

226,205

138,817

21. Interest-bearing borrowings 2009 2008 ____________ € ____________ €

____________ ____________ Bank overdraft (Note 24)

277,163

584,188

The bank overdraft is secured by a hypothec on the company’s property.

22. Creditors 2009 2008 ____________ € ____________ € Other creditors Creditors arising out of direct insurance operations 920,708 737,264 Amounts due to related parties (Note 26) 16,480 39,767 ____________ ____________ 937,188 777,031 Accruals and deferred income Accrued expenses 426,814 487,675 Deferred income ____________ 591,823 ____________ 557,746

____________ ____________ ____________ ____________ The above creditors are considered to be current in nature.

1,018,637

1,045,421

23. Cash generated from operations econciliation of profit before tax to cash generated from operations: R 2009 2008 ____________ € ____________ € Profit before tax 3,369,940 363,055 Adjustments for: Investment income (Note 6) (1,732,080) 1,934,220 Amortisation (Note 11) 49,081 24,079 Depreciation (Note 12) 95,323 97,348 Profit on disposal of fixed assets (Note 12) (500) Impairment of debtors (Note 17) 29,970 9,504 Movements in: Technical provisions (net) (495,524) (585,701) Debtors and prepayments, including DAC (157,934) (267,050) Creditors and accruals 133,373 (270,463) ____________ ____________ Cash generated from operations 1,291,649 1,304,992

____________ ____________ 24. Cash and cash equivalents

For the purpose of the statement of cash flows, the year end cash and cash equivalents comprise the following: 2009 2008 ____________ € ____________ € Cash at bank and in hand 164,680 543,641 Bank overdraft (277,163) (584,188) ____________ ____________ (112,483) (40,547) Interest bearing: - at floating rates (132,037) (69,636)

____________ ____________ ____________ ____________ 25. Commitments Capital commitments Commitments for capital expenditure not provided for in these financial statements are as follows:

2009 2008 ____________ € ____________ € Authorised and contracted - computer hardware and software 136,879 269,521

____________ ____________

notes to the financial statements 26. Related party transactions Due to common ultimate shareholders, the directors consider the Cassar and Cooper Group and the C & H Bartoli Group to be related parties (including related entities and close family of shareholders). Trading transactions with related parties during the year were as follows: 2009 2008 ____________ € ____________ € (a) Entities with significant influence over the entity (including related entities and close family of shareholders) Gross premium receivable, net of claims paid 59,447 101,430 Reimbursement of expenses for back-office support 173 (9,744) Rent payable 34,525 22,013 Commission payable 181,691 181,691 (b) Other related parties Fees payable 73,124 82,182 Year end balances arising from the above transactions: 2009 2008 ____________ € ____________ € Entities with significant influence over the entity (including related entities and close family of shareholders) Amounts due by 67,729 84,221 Amounts due to 16,480 (39,767) The above balances are unsecured, interest free and repayable on demand.

____________ ____________ ____________ ____________

____________ ____________ 27. Statutory information Elmo Insurance Limited is a limited liability company and is incorporated in Malta.

Head Office: Abate Rigord Street, Ta’ Xbiex XBX 1111, Malta Tel: (+356) 2343 0000 Fax: (+356) 2134 5037 Email: info@elmogroup.com Branches: Birkirkara • Bormla • Paola • Qormi • Rabat • Valletta • Zebbug Elmo Insurance Limited is authorised to carry out general insurance business and is regulated by the Malta Financial Services Authority.