I) Regulatory framework risk
the operations of the company are subject to local regulatory requirements in the Kingdom of Saudi Arabia. Such regulations not only prescribe approval and monitoring of activities but also impose certain restrictive provisions e.g. capital adequacy to minimize the risk of default and insolvency on the part of the insurance companies and to enable them to meet unforeseen liabilities as these arise.
2) Fair Values of financial instruments
financial instruments consist of financial assets and financial liabilities
Financial assets of the company include cash and cash equivalents, statutory deposit, receivables, investment and reinsurance share of outstanding claims. Its financial liabilities include gross outstanding claims, reinsurance balances payable, accrued expenses and other liabilities
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. the fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
IN THE PRINCIPAL MARKET FOR THE ASSET OR LIABILITY, OR
in the absence of a principal market, in the most advantageous market for the asset or liability
the principal or the most advantageous market must be accessible to by the company. the fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
the fair value of the company's financial assets and liabilities are not materially different from their carrying values.