Board of Directors Secretariat

General Authority for Financial Supervision Board of Directors Decision No. (27) of 2017 dated 6/3/2017 Issuing Appendix No. (1) to the Guide for Applying Egyptian Accounting Standards to the Insurance Sector Issued by Board of Directors Decision No. 70 of 2016

General Authority for Financial Supervision Board of Directors

Having reviewed the Law No. (10) of 1981 on Supervision and Regulation of Insurance in Egypt, its Executive Regulations, and amendments thereto; Law No. 10 of 2009 on Regulating Supervision over Non-Banking Financial Markets and Instruments; Presidential Decision No. 192 of 2009 Issuing the Basic Law of the General Authority for Financial Supervision; Minister of Investment Decision No. 356 of 2007 on Applying Egyptian Accounting Standards to Insurance Companies; Minister of Investment Decision No. (110) of 2015 on Egyptian Accounting Standards and its amendments; Minister of Investment Decision No. (16) of 2017 Issuing Appendix (A) to Standard No. 13 Amended in 2015; GAFS Board of Directors Decision No. (70) of 2016 Issuing the Guide for Applying Egyptian Accounting Standards to the Insurance Sector; Letter from the President of the Egyptian Union of Insurance Companies dated 27/2/2017; Memorandum prepared by the Committee for Updating the Guide for Applying Egyptian Accounting Standards to the Insurance Sector dated 28/2/2017, established by GAFS Chairman Decision No. (1067) of 2015, and the approval of the General Authority for Financial Supervision Board of Directors in its meeting held on 6/3/2017.

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Decided

(Article One)

Appendix No. (1) regarding "The Implications of the Foreign Exchange Rate Liberalization Decision of November 3, 2016" shall be added to the Guide for Applying Egyptian Accounting Standards to the Insurance Sector issued by GAFS Board of Directors Decision No. 70 of 2016.

(Article Two)

This Decision shall be published in the Egyptian Official Gazette and the Authority's website, and shall take effect from the day following the publication date.

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Chairman of the Board of Directors Sherif Samy

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Appendix No. (1)

Guide for Applying Egyptian Accounting Standards to the Insurance Sector

Special Accounting Treatment to Address the Implications of the Foreign Exchange Rate Liberalization Decision of November 3, 2016

Introduction

In light of the Egyptian Central Bank's decision dated November 3, 2016, regarding the liberalization of foreign exchange rates (the "Exchange Rate Liberalization Date"), and as a result of this exceptional economic measure, insurance companies holding significant and material foreign currency balances as part of their monetary nature assets and liabilities (which may largely be accumulated from prior years) experienced foreign exchange valuation differences for those assets and liabilities on the Exchange Rate Liberalization Date, thereby impacting business results. This necessitated the issuance of a special accounting treatment to address the implications of the foreign exchange rate liberalization on the financial statements of insurance companies whose functional currency is the Egyptian Pound.

It should be noted that this special accounting treatment was developed within the context of Appendix (A) to Egyptian Accounting Standard No. (13) Amended for 2015 – Effects of Changes in Foreign Exchange Rates – issued by Minister of Investment Decision No. 16 of 2017 regarding a special treatment to address the implications of the foreign exchange rate liberalization.

It should also be noted that this special treatment does not constitute an amendment to the Guide for Applying Egyptian Accounting Standards to the Insurance Sector issued by the General Authority for Financial Supervision via Decision No. 70 of 2016, except regarding the temporal scope of application of this special treatment.

Objective of This Appendix

The special accounting treatment set forth in this appendix aims to address the implications of the exceptional economic decision regarding exchange rate liberalization by establishing a temporary additional accounting treatment for Paragraph 5/B "Recognition of Foreign Currency Transactions" of the Guide for Applying Egyptian Accounting Standards to the Insurance Sector issued by GAFS Decision No. 70 of 2016, which requires recognizing foreign exchange valuation differences in the income statement or statement of revenues and expenses for the financial period as applicable. Instead, insurance companies must handle foreign exchange valuation differences resulting from the foreign exchange rate liberalization in accordance with the exceptional accounting treatment provided in this appendix.

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Definitions

The following terms are used herein with the meanings specified alongside each:

(A) Exchange Rate Liberalization Date: November 3, 2016.

(B) Exchange Rate on the Liberalization Date: The official average closing rate announced by the Egyptian Central Bank for foreign currency exchange on the Exchange Rate Liberalization Date, as detailed in Paragraph (3) of the Implementation Guidelines in Appendix (A) to Egyptian Accounting Standard No. (13) Amended for 2015 – Effects of Changes in Foreign Exchange Rates – issued by Minister of Investment Decision No. 16 of 2017 regarding a special treatment to address the implications of the foreign exchange rate liberalization.

(C) Financial Period for Applying the Special Treatment: The financial period beginning on July 1, 2016 (start of the insurance companies' fiscal year) and ending on the Exchange Rate Liberalization Date, December 31, 2016.

Scope

Only insurance companies holding foreign currency balances in their records are permitted to apply this special treatment.

Valuation Differences of Monetary Assets and Liabilities in Foreign Currencies

(1) Notwithstanding the requirements of Paragraph 5/B of the Guide for Applying Egyptian Accounting Standards to the Insurance Sector issued by GAFS Decision No. 70 of 2016, companies whose business results were affected by net profits from foreign exchange valuation differences on monetary assets and liabilities (whether designated or undesignated) as a result of the exchange rate liberalization shall recognize and present at least 80% of the differences resulting from translating monetary assets and liabilities in foreign currencies at the official foreign currency selling rates announced by the Egyptian Central Bank, using the average official foreign currency selling closing rates announced by the Central Bank between the Exchange Rate Liberalization Date and November 10, 2016, in accordance with Paragraph (3) of the Implementation Guidelines in Appendix (A) to Egyptian Accounting Standard No. (13) Amended for 2015 – Effects of Changes in Foreign Exchange Rates – issued by Minister of Investment Decision No. 16 of 2017 regarding a special treatment to address the implications of the foreign exchange rate liberalization, (compared to foreign currency closing rates on the day preceding the Exchange Rate Liberalization Date), considering that these differences primarily resulted from the exchange rate liberalization decision. The remaining portion of profits resulting from foreign currency balance valuation shall be included in the income statement or statement of revenues and expenses, as applicable, representing the natural fluctuations in foreign exchange rates that occurred between July 1, 2016, and the day preceding the Exchange Rate Liberalization Date, excluding the fundamental change that occurred upon the November 3, 2016, liberalization.

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(2) Notwithstanding the requirements of Paragraph 5/B of the Guide for Applying Egyptian Accounting Standards to the Insurance Sector issued by GAFS Decision No. 70 of 2016, in the event of prior-year losses carried forward from the fiscal year preceding the exchange rate liberalization decision, and the company realizes profits from translating monetary assets and liabilities in foreign currencies, all such profits shall be presented by including those carried-forward profits and losses under the Other Comprehensive Income line item. Such carried-forward profits and losses shall be recognized only up to the amount of losses carried forward from the year preceding the exchange rate liberalization decision. Any increase in foreign currency valuation profits – if any – shall be allocated to a "Special Reserve" line item within shareholders' equity and shall not be distributed or disposed of except in accordance with the regulations established by the General Authority for Financial Supervision in this regard and after consulting it.

(3) Notwithstanding the requirements of Paragraph 5/B of the Guide for Applying Egyptian Accounting Standards to the Insurance Sector issued by GAFS Decision No. 70 of 2016, in the event of losses resulting from the valuation of monetary assets and liabilities in foreign currencies, such differences shall be presented under the Other Comprehensive Income line item and allocated to carried-forward profits and losses in the same financial period of applying the special accounting treatment set forth in this appendix.

Disclosure

(1) The company shall comply with the disclosure requirements set forth in Paragraph "29" of Amended Egyptian Accounting Standard No. (5) "Accounting Policies, Changes in Accounting Estimates and Errors".

(2) The company shall separately disclose in the statement of comprehensive income the amount of foreign exchange profits (losses) included under the comprehensive income line item during the period (before income tax effect), as well as amounts recorded to the Special Reserve or carried-forward profits or losses, along with disclosure of the related income tax amount.

(3) Disclosures regarding restrictions on the distribution or disposal of the Special Reserve shall be provided.

Effective Date and Transitional Provisions

(1) This special accounting treatment shall apply as an exceptional measure only to the financial statements for the period beginning on July 1, 2016, and ending on December 31, 2016.

(2) Comparative figures for previously presented financial periods, as well as related information disclosed for prior periods, shall not be adjusted retroactively due to this special treatment.

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