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ADAMJEE INSURANCE COMPANY LIMITED

37TH ANNUAL REPORT

FOR THE YEAR ENDED DECEMBER 31, 1997

BOARD OF DIRECTORS

MOHAMED HANIF ADAMJEE

Chairman

ABDUL HAMID ADAMJEE

Director

ABDUL RAZAK ADAMJEE

Director

ABDUL GAFFAR ADAMJEE

Director

IQBAL ADAMJEE

Director

I.A. RAFIQUI

Director

MOHAMMED CHOUDHURY

Managing Director &

Chief Executive

General Managers

I.A. RAFIQUI

A. K. ALAVI, A.C.I.I. (London)

M. U. MOHAMMADI

MOIEZ M. SHAIKHALI

SULTAN A. S1DDIQI, B.A.

MOHAMMED NASEEM, A.C.I.I. (London)

SYED ZIAUDDIN AHMED, M.Com., F.C.A.

JABBAR AKHTAR, M.A., LL.B., F.C.I.I. (London)

MIRZA ALl MAHMOOD, B.E. (Mech. & Elec.)

SALIM RAFIK SIDIKI, B.A. (Hons.), M.A. (Eco.)

KHAWAJA KHALID MUSTAFA, M.A.

CAPT. MAHMOOD SULTAN, Master Mariner, F.I.C.S. (London), F.C.I.I. (London),

Chartered Ship Broker, Chartered Insurer

MOHAMMED ANWAR ABDULLAH, A.C.I.I. (London)

General Manager (Car Clinic)

MOHAMMED SALEEM

General Managers (Development)

ABDUL RAZAK RAHIMTULLAH BRAMCHARI

ABDUL AZIZ KHADELI, B.Com.

Joint General Managers

SYED BASIT HUSSAIN, B.Com.

TAHIR AHMED, B.E. (Met.), M.B.A., A.C.I.I. (London), Chartered Insurer

JAMEEL KHAN, M. A., LL.B.

AHSAN MAHMOOD ALVI, F.C.A. (England & Wales)

SYED MOHAMMAD NAZIM KAZMI, B.A., Chartered Insurer

M. JAHANGIR CHUGHTAI, M.A.

ABDUL HAMID, B. Corn., F.C.I.I. (London), Chartered Insurer

IQBAL MOHAMMAD, B.A.

Jr. General Managers

SHAMSUL ARFEEN QURESHI, B. Corn.

(Development)

JAHANGIR ANWAR, B. Com.

MAHMOOD A. WAHAB, B.A.

Secretary / Joint

General Manager

A. AZIZ CHASHMAWALA, B.Com., LL.B.

AUDITORS

FORD, RHODES, ROBSON, MORROW

Chartered Accountants, Karachi.

HEAD OFFICE

Adamjee House

P.O. Box No.4850

I. I. Chundrigar Road, Karachi

Phone

:PABX 2412623 (4 Lines)

Fax

:(92-21) 2412627

Telex

:21594 & 29719 AIC PK

Cable

: ADAMJINSUR

E-mail

: adamjee@biruni.emm.com.pk

Website: http://www.adamjeeinsurance.corr

DEPUTY GENERAL MANAGERS

SYED KHADIM ALl, B.Com., LL.B.

NASIMUDDIN, M. A., A. C. I. I. (London)

SHAMSUL HAQUE, A. C. I. I. (London)

M. IQBAL VAKIL, B.Com.

S.M.M. RIZVI, B.A.

T.A. ABBASI, B.Com.

AUSTEN B. FREITAS

M. QASIM KAZMI, B.A.

MOHAMMED EUSOPH JAMAL, M.B.A.

EDRIS H.M. GOAWALA, B.Com., A.C.I.I. (London),Chartered Insurer

SAEED JAN AWAN, M.Com.

SYED AGHA HAIDER, M.A.

TINKU I. JOHNSON, B.E. (Mech.), M.B.A.

DEPUTY GENERAL MANAGERS

ALTAF A. KARIM, B. A.

(DEVELOPMENT

MAZHAR SALEEM

ZERSIS RUSTOM BIRDIE

ALl MOHD. DADA

ASST. GENERAL MANAGERS

MOHD. YOUSUF, B.Com.

SYED ABDUL KHALIQUE, M.A. (Eco.)

RAMESH MULRAJ BHERWANI, B.A.

SALEEM TARIQ AHMED

NAQI ZAMIN ALI, B.Sc. (Hons.)

MOHD. FATEH ALI SHAH

ATEEQ AHMED KHAN, M.Sc. (Agri. Eco.)

SYED KAISER ABBAS

A. RAH1M A. GHANI, B.Com.

A.G. NAWAZ

ABDUL HAMEED BHURI

WAJIH AHMED KHAN, B.A.

M. BASHIR SEJA, B.Com.

A. SATTAR MOHAMMADI, B.A.

GHULAM ABBAS

JALALUDDIN ALVI, M.A.

CAPT. SALEEM AHMED, Master Mariner,

M.I.C.S. (London), M.C.I.T. (London), A.C.I.I. (London)

PARVAIZ SIDDIQ, M.B.A., F.C.I.I. (London), Chartered Insurer

BURHANUDDIN KHAN, B.Com.

SYED FARHAT HUSSAIN RIZV1, B.A., A.C.I.I. (London)

NADEEM AHMED

SHAHID A. ZAIDI

IMTIAZ AHMED PIRACHA, B.Sc.

ASST. GENERAL MANAGERS

ABDULLAH HAMID

(DEVELOPMENT)

A.W. KARIM

SYED ALl JAFFERY

ABDUL KARIM WAQAR, B.Com.

ARSHAD HUSSAIN

ABDUL SATTAR A. ABDULLAH

MOHAMMAD UMER MEMON

ALI MOHD. SHEKHA, B.A.

MOHAMMED IBRAHIM

MOHD. SALEEM KHAN

SULEMAN LAKHANI

JAWED USMANI

ASGHAR JALIL

NOTICE OF THE THIRTY-SEVENTH ANNUAL GENERAL MEETING

NOTICE is hereby given that the Thirty-seventh Annual General Meeting of the Company will be held at the auditorium

of the Institute of Chartered Accountants of Pakistan, G-31/8, Kehkashan, Clifton, Karachi on Saturday the June 27, 1998 at

11.00 a.m. to transact the following business:--

1. To receive and adopt Directors' and Auditors' Reports and Statement of Accounts for the year ended

December 31, 1997.

2. To approve the final dividend recommended by the directors.

3. To consider and if thought fit to pass the following resolution as Ordinary Resolution:

RESOLVED:--

i) "That a sum of Rs.78,074,340 out of the Company's Reserve for issue of Bonus Shares be capitalised and

applied in-paying up in full to issue at par 7,807,434 fully paid Ordinary Shares of Rs. 10 each to be allot-

ted as Bonus Shares to and amongst the holders of the Ordinary Shares of the Company whose names

appear in the Register of Members of the Company at the close of business on June 15, 1998 in the pro-

portion of one Ordinary Share for every four Ordinary Shares held and that such new shares shall rank pari

passu as regards future dividends and in all other respects with the existing Ordinary Shares of the

Company."

ii) "That all fractions of Bonus Shares arising on such allotment be consolidated and sold through the

Company's broker and that the net proceeds thereof be distributed pro-rata to the members entitled

thereto."

iii) "That for the purpose of giving effect to the foregoing, the directors be and are hereby authorised to give

such directions as may be necessary and to settle any questions or difficulties that may arise in regard to the

distribution of the Bonus Shares or the sale proceeds of the fractions as the directors in their discretion shall

deem fit."

4. To appoint auditors and fix their remuneration.

Notes:

(a) The Share Transfer Books of the Company will remain closed from June 16, 1998 to June 30, 1998 (both

days inclusive).

(b) A member entitled to attend and vote at the General Meeting is entitled to appoint another member as a

proxy to attend and vote instead of him.

48 hours before the time appointed for the Meeting. A member shall not be entitled to appoint more than

one proxy. If a member appoints more than one proxy and more than one instruments of proxy are deposit-

ed by a member with the Company, all such instruments of proxy shall be rendered invalid.

THIRTY-SEVENTH REPORT OF THE DIRECTORS

FOR THE YEAR ENDED DECEMBER 31, 1997

THE SHAREHOLDERS

ADAMJEE INSURANCE COMPANY LIMITED

We have pleasure in presenting to you our 37th Annual

Report and Accounts for the year 1997. In a difficult year

with restricted economic growth and activities, the

Company has shown satisfactory progress and a good net

profit due to judicious financial planning, investment pol-

icy and money management. Following are the highlights

of our performance:

1997

1996

Rupees

Gross Direct Premium

3,123,263,728

2,855,830,930

Premium Retained

2,208,497,599

1,894,000,473

Net Claims Paid and Outstanding

1,450,903,769

1,077,709,628

Commission and Discount

187,716,202

105,554,622

Expenses of Management

457,430,915

375,572,597

Premium reserve strain (net charge)

124,702,881

147,211,818

Net Profit (After Tax)

290,502,267

221,872,528

UNDERWRITING PERFORMANCE

The gross direct premium increased from Rs 2.855 billion

in 1996 to Rs 3.123 billion in 1997, registering a growth

of 10%. The net premium however showed an increase of

17%, amounting to Rs 2.208 billion. Claims on the other

hand showed deterioration indicating a loss ratio of 65%

as compared to 57% in the previous year. The increase in

the loss was largely due to a number of industrial fires,

high loss provision for P&I (Hulls); and increase in theft

and snatching of vehicles. As a result, the Company had

to make additional provision for losses Incurred But Not

Reported (IBNR) leading to a loss ratio of 65% for the

year. It is comforting that the loss provision is more than

adequate and hopefully the Company will receive the

benefit of it in the next year. The overall increase in the

loss provision is 55% higher than the previous year's

provision.

FIRE BUSINESS

The gross direct premium of the fire department

increased from Rs 754 million to Rs 844 million. A num-

ber of major fires at the beginning of the year led to the

loss ratio in the fire department going up by 10% over the

previous year. Certain corrective measures were

necessary to avoid recurrence of similar fire losses and

this has led to some increase in the expenses of this

department. Hopefully this will yield good result in

future. The profit during the year was Rs 47 million

against previous year's Rs 131 million.

MARINE BUSINESS

Marine Cargo business performed very well - although

there was no growth - largely due to import trade being

rather restricted. The net profit in the cargo

department was Rs 90 million.

Marine hull on the other hand suffered because of the

international soft market, yielding smaller premium. This

was topped by need for making large delayed provisions

in Protection and Indemnity insurance, leading to a

substantial loss of Rs 72 million.

Nevertheless the overall marine department's profit was

Rs 18 million.

MOTOR AND MISCELLANEOUS BUSINESS

Incidence of theft and car snatching continued at a high

rate during the year. In spite of several measures includ-

ing minor rate increases, we were still not able to break

even. This position worsened due to losses of London

Branch at a higher proportion. The overall result was a

loss of Rs 31 million.

Miscellaneous Insurance consisting of engineering,

bonding and surety, bankers' insurance, burglary and

theft, kidnap & ransom, personal accident, medical

insurance and number of other miscellaneous lines

showed satisfactory result with a profit of Rs 53 million.

The overall result of motor and miscellaneous depart-

ment thus showed a profit of Rs 21 million.

OVERSEAS OPERATION

Our business in the UAE and Saudi Arabia continued to

perform well showing a growth in premium as well as

profit. More than 20% of our total premium came from

overseas, thus being an important segment of our busi-

ness. Towards the end of the year we opened our third

branch in Saudi Arabia at Riyadh.

We opened our London Branch in January 1997 with high

expectation. Most unfortunately premium written by the

branch was mainly Motor and its premium volume was

larger than the limit prescribed. The loss experience

turned out to be very adverse and this was topped by very

high Excess of Reinsurance cost for Unlimited Liability

Cover, high administrative and management expense. As

a result we soon realised that profitability in the foresee-

able future was a far cry. Your management took early

decision to cut the losses by stopping new business and

put the branch on runoff. The branch is now functioning

only to handle outstanding claims and servicing the

existing policies, all of which will expire by the end of

October 1998.

INVESTMENT AND MONEY MANAGEMENT

It appeared at the beginning of the year that the invest-

ment income might not be substantial due to poor perfor-

mance of most of the companies listed on the Stock

Exchange and the reduced rate of dividend from NIT in

which your Company had substantial holding. We thus

adopted the policy of booking capital gains on shares that

were quoted at inflated price. We also dis-invested almost

half of our NIT Units in view of the anticipated decline in

price and poor results. Investments have been re-organ-

ised in order to spread them in a manner that we achieve

high yield from fixed income government securities and

capital appreciation from blue chip stocks. At the same

time maintain the liquidity at a high level by having a

large sum kept in fixed income deposit accounts in the

banks of which a substantial amount is held in different

foreign currencies in the overseas bank accounts.

We have annexed to this report, two statements showing:

1 The Company's Investment and Cash Balance

2 20 Years' Profit Appropriation At A Glance

Our income was considerably supported by income tax

refund of a large sum, following the decision of the

Supreme Court of Pakistan in our favour. We had been in

litigation for this for many years. This refund has been

timely and has helped the Company further strengthen its

reserves and resources.

ALLOCATION OF PROFIT

The profit for the year (inclusive of balance of profit of

Rs 45,473 brought forward from last year) aggregated to

Rs 290,547,740 after making all such provisions as are

required under various statutes, more particularly in

respect of income tax, staff gratuity, bonus, depreciation,

employees' old-age benefits etc. The directors of your

Company are pleased to propose appropriation of the

above profit, in the manner set out below:-

Rupees

i) Interim dividend (already paid) @ 15%

46,844,602

ii) Proposed final dividend @ 20%

62,459,470

iii) Reserve for issue of bonus shares in the

ratio of one ordinary share for every four

ordinary shares

78,074,340

iv) General Reserve

103,000,000

v) Balance to be carried forward

169,328

----------

Total:

290,547,740

==========

PAID-UP CAPITAL AND RESERVES

As you are aware, increased business demands larger

capital base and financial reserves. Your Company, with

its large network of branches is growing steadily both in

Pakistan and overseas mainly owing to building of suffi-

cient financial and technical reserves as set out below,

along with the paid-up capital of the Company to

Rs 312.29 million in 1997 compared to Rs 249.83 million

in 1996. Similarly, accretion to the General Reserve for

1997 amounted to Rs 103 million against Rs 72 million

in 1996 or 43% higher than last year. It is, indeed, for the

first time that such a large amount has been added to the

General Reserve of the Company.

Following capitalisation of bonus shares and allocation of

profit to the General Reserve, the overall position of the

shareholders' equity and reserves emerges as under:-

1997

1996

Rupees

a) Paid-up Capital:

i)Initial Capital

2,500,000

ii)Capitalisation through issue

of bonus shares

309,797,350

247,337,880

----------

312,297,350

249,837,880

==========

b) Reserves:

i) FINANCIAL RESERVES

Reserve for issue of

bonus shares

78,074,340

62,459,470

General Reserve

587,000,000

484,000,000

Reserve for Exceptional Losses

22,859,514

Investment Fluctuation Reserve

3,763,625

Unappropriated profit carried

forward

169,328

45,473

----------

Sub Total (i)

691,866,807

573,128,082

==========

ii) TECHNICAL RESERVES

Premium Reserve

892,356,072

767,653,191

Reserve for Outstanding Claims

584,245,076

376,255,296

----------

Sub total (ii)

1,476,601,148

1,143,908,487

----------

2,168,467,955

1,717,036,569

Total Reserves b (i+ii)

----------

2,480,765,305

1,966,874,449

Grand Total (a+b)

==========

Messrs. Ford, Rhodes, Robson, Morrow, Chartered

Accountants, have been our auditors for

years. They continued to extend their full cooperation

and managed to finalise the audit of the Company within

the stipulated time. We would like to place on record our

appreciation of the good work being done by them. Since

their appointment is made on yearly basis, they retire and

being eligible, offer themselves for reappointment as

auditors of your Company for the year 1998.

The satisfactory result reported above, indeed, reflects

the excellent work performed by the executives, officers,

field officers, staff and agents of the Company. It is

hoped they would continue to work with greater

zeal in future.

The role of reinsurers and reinsurance brokers in the

insurance business cannot be over-emphasised. In fact,

no insurance company can carry out insurance business

unless it has adequate reinsurance protection from

reinsurers. Your Company made adequate reinsurance

arrangements with the leading reinsurers, namely Swiss

Reinsurance Company, Munich Reinsurance Company

etc., besides brokers, namely Benfield Greig Ltd., Willis

Corroon Group, J & H Marsh & McLennan Ltd., AON

Group Ltd. and Sedgwick Reinsurance Brokers Ltd.

They continued to provide us very prompt advice,

assistance and support throughout the year in all reinsur-

ance matters. We are, indeed, grateful to all of them and