Annual Report - armeec · Annual Report 2007 // 5. The annual growth of premium income generated by Armeec JSC was 57% compared to 2006. The company increased its market share by

Annual Report 2007 // 3

Contents

1. Message to the Shareholders 4

2. Brief History 6

3. Shareholders and Share Capital 7

4. Membership 8

5. Management Bodies 9

6. Insurance Products and Reinsurance Program 10

7. Bulgarian Economy in 2007 12

8. Insurance Market in 2007 14

9. Overview of Company Aactivities in 2007 15

10. Financial Statements 20

Balance Sheet 20

Income Statement 22

Statement of Cash Flows 23

Statement of Changes in Equity 24

Insurance Reserves 25

11. Report of Independent Auditors 26

12. Distribution and Branch Network 28

// 4

Dear Shareholders,

The past 2007 can be determined as a year of challenges and achievements.

The challenges resulted from some internal factors as well as from factors, which were external for the company. The first year of the full-right membership of Bulgaria in the EU brought changes in all business sectors in the country. In the field of the non-banking financial services the trend of the recent years was preserved, which was marked by a stable increase in assets and a strong competition. Such market environment required dynamic, innovative and prompt management decisions.

The internal challenges for the company were in relation to the fact that 2007 was the sixth successive year in which the company, following its long-term strategy, developed at a growth rate, which outpaced the growth of the Bulgarian non-life insurance market. This brought to a significant expansion of the company portfolio and the necessity of increased capacity to guarantee quality service. Our tasks were to build up a team of professionals, to implement new technological solutions and improve the organization of activities and these were the major directions on which we concentrated our efforts.

The support of our shareholders and the team of professionals, working in the company, and the confidence of the clients helped us to meet these challenges and allowed us to define 2007 as a successful year.

Message to the Shareholders1

Rumen Georgiev

Chairman of the Management Board and Executive Director

Tsvetanka Krumova

Member of the Management Board and Executive Director


The annual growth of premium income generated by Armeec JSC was 57% compared to 2006. The company increased its market share by two percentage points and declared its definite ambition to be one of the leaders in the Bulgarian non-life insurance market. At the same time, the long-term rating of Armeec JSC for its ability to pay claims was increased from BB+ to iBBB-, based on its financial condition and investment activities. Another indicator of the company activities was the profit gained in the last year of about BGN 15 million, representing 16% of the premium income of the company.

These results were a solid ground to set ourselves higher goals to achieve in the present 2008 year. They can be briefly outlined by several major trends in our business, such as innovation and quality in everything we do, diversification of the insurance portfolio and maintenance of the long-term relations with our clients. Based on these factors we are aiming to achieve an increased market share and high financial and social efficiency for the company.

We are planning this year to prepare and start working for implementation of a comprehensive program for corporate social responsibility, which includes a number of major projects, designed for our customers and partners, as well as for the company employees.

We believe that our results so far will be a solid background for a prosperous future because our present day is predetermined by what has occurred yesterday.

1 Message to the Shareholders

Rumen Georgiev Chairman of the Management Board and

Executive Director

Tsvetanka Krumova Member of the Management Board and

Executive Director

Sofia, 29th February 2008

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9 April 1996 Insurance and reinsurance company Armeec JSC was established based on Court decision for company registration No 6148 issued by Sofia City Court. Its main shareholders were the Ministry of Defence and trade companies from the system of the Ministry of Defence.

June 1998 Armeec JSC was licensed to carry out activities in the field of non-life insurance pursuant to Licence No 7 for performance of insurance activities, issued by the National Insurance Council.

July 2002 Chimimport AD acquired 91.92% of the company capital. The Ministry of Defence and the trade companies from its system retained a 8.08% share of the company capital.

6 July 2005 Armeec JSC was granted a licence for performance of reinsurance business.

June 2006 Armeec JSC was assigned a rating of its capability to pay claims BB+ from the Bulgarian Credit Rating Agency (BCRA), and the International Credit Rating Agency (ICRA), a member of Мoody’s Investors Service.

November 2007 The long-term rating for capability to pay claims of Armeec JSC was increased from BB+ to iBBB-.

Brief History2


As at 31st December 2007 the paid-up capital of Armeec JSC was BGN 15 019 000.

Shareholders and Share Capital 3Shareholders

Number of shares

Participation (%)

Capital (BGN)

CCB Group Assets Management EAD 125 562 83.602% 12 556 200

Central Co-operative Bank (CCB) AD 13 601 9.056% 1 360 100

Chimimport Invest AD 6 920 4.607% 692 000

Financial House Logos-TM JSC 1 376 0.916% 137 600

Intendantsko Obsluzhvane ЕАD 1 376 0.916% 137 600

Military Construction Engineering Ltd 1 030 0.686% 103 000

FC CSKA 306 0.204% 30 600

Elektron Consortium AD 19 0.013% 1 900

Total: 150 190 100% 15 019 000

// 8

Membership of Armeec JSC4Armeec JSC is a member of:

Association of the Bulgarian Insurers

National Bureau of Bulgarian Motor Insurers

Bulgarian Chamber of Commerce and Industry

Sofia Chamber of Commerce and Industry

Bulgarian-Russian Chamber of Commerce and Industry

Bulgarian National Insurance Nuclear Pool


Armeec JSC has a two-tier management system consisting of a Supervisory Board and a Management Board.

The Supervisory Board has three members and it elects the Management Board. The Management Board, on its part, elects the Executive Directors with the approval of the Supervisory Board.

Supervisory Board

Chairman:

Chimimport AD, represented by Nikola Mishev

Members:

Sonya Yankulova

Central Cooperative Bank AD, represented by Georgi Konstantinov, Lazar Iliev, Victor Mechkarov and Tihomir Atanasov

Management Board

Chairman:

Rumen Georgiev

Members:

Valentin Dimov Alexander Kerezov Tsvetanka Krumova

The Company is represented by the Executive Directors:

Rumen Georgiev Tsvetanka Krumova

Management Bodies5

// 10

Insurance Products andReinsurance Program6

The company offers the following insurance products:

Motor insurance

Motor Third Party Liability and Border Insurance; Green Card, Motor Casco, Casco Extended Guarantee; Personal Accident of the Passengers in the Public Transport

Property insurance

Protected Home Insurance, Protected Family Insurance, Protected Property Insurance, Industrial Fire Insurance

Technical insurances

Electronic Equipment Insurance, Machinery Breakdown Insurance, Business Interruption

Contractors’ insurances

Contractor’s All Risks; Construction and Erection Works, Professional Indemnity of Participants in Engineering and Construction.

Agricultural insurances

Crop Insurance; Livestock, Poultry and Bee Hives Insurance; Perennial Plants Insurance

Tourist and personal insurances

Individual and group insurances: Personal Accident and Medical Expenses, Personal Accident and Illness, Employment Accident, Personal Accident of Students, Personal Accident of Sportsmen, Medical Insurance of Foreign Visitors in Bulgaria, Travel Assistance during Trips Abroad

Liability insurance

Third Party Liability of Legal Entities, including Product Liability, Third Party Liability of Physical Persons, Employer’s Liability Insurance

Professional Indemnity insurance: Professional indemnity of lawyers, notaries, certified accountants and financial auditors, tour operators, insurance brokers and insurance agents, medical staff, hotel and restaurant owners, syndics, private enforcement agents, teachers and supervisors, etc.

Liabilities insurance, related to certain activities, such as design and construction, certification, licensing and control, possession and use of firearms, etc.


Financial and commercial risks insurances

Credit Insurance, Lease Contracts Insurance, Suretyship Insurance, Insurance of Various Financial Loses

Transport insurance

Goods in Transit – Cargo Insurance, Carrier’s Liability for Carriage of Goods by Road, Freight Forwarder’s Liability Insurance, Money in Transit

Marine insurance

Marine Hull Insurance, Third Party Liability of Shipowners and Charterers, Insurance of Small Vessels (Pleasure Craft) – comprehensive Marine Hull and Third Party Liability Insurance of Owners And Users of Small Vessels

Aviation insurance

Aviation Hull Insurance, Aviation Third Party Liability Insurance, Liability of Airport Owners and Operators (ARIEL)

The company offers also other insurance products, providing specific insurance cover.

Reinsurance program

Armeec JSC has a stable and adequate reinsurance program aiming to protect its clients. The program is based on several types of reinsurance contracts, such as combined quota share/excess of loss reinsurance, some surplus reinsurance treaties, two catastrophe and a number of proportional (predominantly aviation) facultatives.

Traditionally Armeec JSC places its reinsurance program with large international reinsurance brokers such as AON, MARSH, WILLIS and others, based in London, UK.

Armeec JSC has established business relations with reinsurance companies of the highest class, namely Mitsui Sumitomo Reinsurance Ltd, Japan; Hannover Re, Germany; Munich Re, Germany; Alliance International Reinsurance Company Ltd, Cyprus etc.

6 Insurance Products and Reinsurance Program

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Bulgarian Economy in 2007 7In 2007 the Bulgarian economy maintained the high and sustainable growth observed over the past 5 years. The GDP for the year amounted to BGN 56 520 million and reached a real growth of 6.2% compared to the previous year. The gross domestic product per capita for 2007 was BGN 7 379, which represented a 15.1% growth on annual basis.

Because of the outpacing increase of imports, which exceeded that of exports, the current account balance remained negative in 2007 and amounted to EUR 6 219.9 million, or 11% of GDP. The positive balance of the financial account reached EUR 10 129.4 million and the foreign direct investments for 2007 totalled EUR 6 108.9 million.

In 2007 the average annual inflation was 8.4%, which was 1.1 percentage points higher than the average inflation rate for 2006.

A relative increase in the basic interest rate was reported: at the end of 2007 it was 3.9% against average rate of 2.7% for 2006.

The downward trend in the level of unemployment observed over the past five years continued in 2007. The average unemployment rate for 2007 was 6.1% or it was 1.3 percentage points lower than the 2006 figure. According to data from the National Statistical Institute, the average annual salary for 2007 amounted to BGN 5 174 and reached 19.66% growth on annual basis in nominal terms.

Basic macroeconomic indicators

2003 2004 2005 2006 2007

REAL SECTOR Thousand BGN Thousand BGN Thousand BGN Thousand BGN Thousand BGN

National accounts

GDP in current prices 34 627 545 38 822 636 42 797 407 49 360 950 56 519 818

End consumption 30 921 876 34 069 790 37 742 097 42 963 571 48 208 883

Gross formation in basic capital 6 694 368 7 969 398 10 346 504 12 805 199 16 832 494

Export of goods and services 18 445 934 22 123 042 25 765 854 31 861 424 35 830 730

Import of goods and services 22 174 458 26 603 075 32 692 326 41 131 447 48 317 462

Real growth of GDP on annual basis 5.0% 6.6% 6.2% 6.3% 6.2%

Bulgarian National Standards current prices

29 604 494 32 437 092 35 220 410 40 350 296 46 400 728

Agricultural and forest industry 3 477 704 3 559 923 3 322 232 3 444 018 2 897 646

Industry 8 620 450 9 486 953 10 343 645 12 473 138 14 985 498

Services 17 506 340 19 390 216 21 554 533 24 433 140 28 517 584

Inflation

Inflation at the end of the year 5.6% 4.0% 6.5% 6.5% 12.5%

Average annual inflation 2.3% 6.2% 5.0% 7.3% 8.4%


2003 2004 2005 2006 2007

Labour market

Average annual number of the employed

3 166 499 3 226 343 3 253 518 3 349 199 -

Average monthly wage 273.3 292.0 323.8 360.3 431.2

Number of registered unemployed 500 664 450 566 397 340 337 796 255 910

Level of unemployment – average for the period

12.7% 11.8% 9.9% 8.4% 6.1%

Fiscal sector Mln BGN Mln BGN Mln BGN Mln BGN Mln BGN

Incomes of the consolidated budget 14 069.7 15 855.4 18 012.2 20 034.0 24 063.0

Expenses of the consolidated budget 14 068.8 15 198.9 16 678.5 18 286.4 22 103.4

Balance 0.9 656.4 1 333.7 1 747.7 1 959.6

Domestic national debt (average annual values)

2 224.4 2 511.8 2 782.4 2 960.4 3 199.9

Foreign national debt (average annual values)

15 119.0 14 005.9 11 232.0 9 537.1 7 967.3

Financial sector Thousand BGN Thousand BGN Thousand BGN Thousand BGN Thousand BGN

Broad money (М3) 16 566 457 20 394 366 25 259 580 32 061 383 42 061 610

Annual change 19.6% 23.1% 23.9% 26.9% 31.2%

Credit of the non-government sector 9 487 449 14 109 843 18 662 582 23 255 949 37 783 019

Annual change 48.3% 48.7% 32.3% 24.6% 62.5%

Basic interest rate 2.7% 2.6% - 2.7% 3.9%

Exchange rate USD/BGN (average for the period)

1.7 1.6 1.6 1.6 1.4

Foreign sector Mln EUR Mln EUR Mln EUR Mln EUR Mln EUR

Current account -972.3 -1 306.9 -2 705.7 -4 490.4 -6 219.9

Export 6 668.2 7 984.9 9 466.3 12 011.9 13 473.6

Import -9 093.8 -10 938.4 -13 876.1 -17 574.1 -20 830.6

Financial account 2 325.1 2 294.9 3 739.4 6 843.2 10 129.4

Direct foreign investments in the country

1 850.5 2 735.9 3 152.1 5 961.0 6 108.9

Total balance 630.3 1 414.6 569.3 1 785.6 3 163.7

Source: NSI, NEA, MF, BNB

7 Bulgarian Economy in 2007

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Insurance Market8At the end of 2007 the licensed insurance companies with registered office in Bulgaria totalled 37 (20 non-life insurance companies, 15 life insurance companies and 2 life insurance cooperatives). In 2007 164 insurers based in member countries of the European Economic Area sent notifications to the Financial Supervision Commission (FSC) for performance of activities in Bulgaria on the basis of the freedom to provide services.

Insurance intermediation was performed by 234 brokers and 49 802 agents as at the end of 2007. The insurance intermediaries from EU member states, which notified the FSC that they will carry out activities in Bulgaria under the conditions of freedom to provide services numbered 417 as at the end of 2007.

The gross premium income for 2007 generated by the insurance companies in Bulgaria amounted to BGN 1 505 070 000 compared to BGN 1 246 949 000 for 2006, representing a 20.7% rise on annual basis.

As at the end of 2007 the relative shares of non-life and life insurance business in the gross premium income are respectively 84.35% and 15.65% in comparison with 85.07% and 14.93% for 2006.

At the end of 2007 the gross premium income generated by the non-life insurance companies in the Republic of Bulgaria, amounted to BGN 1 268 582 389, representing 19.66% growth on annual basis. The insurance penetration was 2.25% compared to 2.15% for 2006 and the insurance density was EUR 166 per capita in comparison with BGN 138 in 2006.

The average inflation rate in Bulgaria for 2007 was 8.4% against 7.3% in 2006. The real growth of the gross premium income was at the rate of 10.41% in non-life insurance. The real growth in gross premium income reported from non-life business exceeded the real growth of GDP, which was 6.2% on annual basis.

Indicators of General Insurance Business in Bulgarian Economy

Indicators 2003 2004 2005 2006 2007

GDP (BGN)

Growth

34 627 545

000

5.00%

38 822 636

000

6.60%

42 797 407

000

6.20%

49 360 950

000

6.30%

56 519 818

000

6.20%

Population

Growth

7 801 300

-0.52%

7 761 049

-0.55%

7 718 750

-0.51%

7 679 290

-0.51%

7 640 240

-

Premium income (BGN)

Growth

591 608 369

26.75%

733 214 257

23.94%

919 189 396

25.36%

1 060 137 931

15.33%

1 268 582 389

19.66%

Penetration

Change

1.71%

-

1.89%

0.18%

2.15%

0.26%

2.15%

0.00%

2.25%

0.10%

Insurance density

Change

76

-

94

19

119

25

138

19

166

28

Source: FSC


Overview of Activities 9The year 2007 was another successful year for Armeec JSC. The company generated premium income of BGN 90.7 million, and ranked sixth in the Bulgarian non-life insurance market with a market share of 7.15%.

The results for the year 2007 logically continued the trend of company development over the past six years. The long-term market strategy followed by the management over this period was based on innovative product policy, combined with prompt and adequate customer service, constantly expanding distribution network and sound financial management.

As a result of its successful performance in recent years, Armeec JSC is reported to be the company, having most dynamic development in the non-banking financial market.

Premium Income of Armeec JSC Compared to the Non-life Insurance Market (BGN)

Insurance market: 2003 2004 2005 2006 2007

Premium income 591 608 369 733 214 257 919 189 396 1 060 137 931 1 268 582 389

Growth 26.75% 23.94% 25.36% 15.33% 19.66%

Market share of ARMEEC 3.10% 3.76% 4.87% 5.46% 7.15%

Premium income 18 323 969 27 544 968 44 745 668 57 888 798 90 725 000

Growth 90.45% 50.32% 62.45% 29.37% 56.72%

2003 2004 2005 2006 2007

Gross Premium Income of Armeec JSC (million BGN)

18.327.5

44.7

57.9

90.7

// 16

9 Overview of Activities

Liabilities2%

Personal Accident6%

Aviation insurance 6%

Property7%

Motor Casco53%

Cargo 1%

Financial risks 1%

Motor TPL 24%

Motor Casco58%

Liabilities1%

Personal Accident5%

Aviation insurance7%

Property7%

Cargo 1%

Financial risks 1%

Motor TPL20%

Premium Income of Armeec JSC per Line of Business (2006-2007)

2007 2006

2007 2006 (+/-)

%Premium

incomeBGN

Share%

Premium income

BGN

Share %

Personal Accident 2 501 282 2.8% 2 308 393 4.0% 8.36%

Motor Casco 52 453 079 57.8% 30 705 802 53.0% 70.82%

Aviation insurance 6 068 961 6.7% 3 688 911 6.4% 64.52%

Marine insurance 416 165 0.5% 154 661 0.3% 169.08%

Cargo 575 508 0.6% 338 275 0.6% 70.13%

Property 6 439 233 7.1% 3 953 132 6.8% 62.89%

Motor TPL 1 8197 897 20.1% 13 822 008 23.9% 31.66%

Liabilities 1 026 413 1.1% 878 095 1.5% 16.89%

Financial risks 1 289 235 1.4% 676 089 1.2% 90.69%

Travel assistance 1 756 829 1.9% 1 363 431 2.4% 28.85%

Total: 90 724 602 100.0% 57 888 797 100.0% 56.72%

The premium income reported in 2007 exceeded the 2006 result by nearly BGN 33 million. The review per line of business indicated that the Motor Casco, Motor TPL, Property and Aviation insurance generated the largest shares. Based on these results, some changes occurred in the distribution of the company portfolio per line of business. Highest growth was reported by Motor Casco at the expense of a reduced share in Motor TPL and Personal Accident insurance. The other lines of business in the company portfolio maintained their relative share.


In 2007 the company gained a reputation as an indisputable leader in the aviation insurance market with market share of about 35% and premium income of BGN 6.1 million. The company strengthened its leading market positions in Motor Casco, Motor TPL, Personal Accident (including Travel Assistance) and Liabilities insurance.

The premium income from Motor Casco amounted to BGN 52.5 million, representing approximately 10% market share of Armeec JSC. The company ranked third in the market of Personal Accident and Travel Assistance with 14% market share for 2007.

The written premiums from Property insurance amounted to BGN 6.4 million in 2007, which represented 63% growth compared to the 6% growth of the market.

9 Overview of Activities

2007 2006

Claims paidBGN

Share%

Claims paidBGN

Share %

Personal Accident 264 493 0.9% 296 095 1.7%

Motor Casco 20 476 139 73.1% 12 721 183 74.9%

Aviation 176 030 0.6% 163 246 1.0%

Marine 66 719 0.2% - --

Cargo 365 769 1.3% 1 730 0.0%

Property 727 603 2.6% 1 168 641 6.9%

Motor TPL 5 709 852 20.4% 2 388 263 14.1%

Liabilities 61 701 0.2% 23 603 0.1%

Financial Risks 42 233 0.2% 104 443 0.6%

Travel Assistance 122 865 0.4% 126 536 0.7%

28 013 404 100.00% 16 993 740 100.0%

Claims Paid by Armeec JSC per Line of Business (2006-2007)

// 18

The Financial Risks insurance reported good results, though the company applied restrictive policy in respect of this type of business. The premium income from Financial risks insurance was BGN 1.3 million in 2007 compared to BGN 676 thousand for the previous year.

The written premiums generated from Liabilities insurance increased by 17%, while the market reported a lack of growth in this line of business. The premium income amounted to BGN 1 million in comparison with BGN 880 thousand in 2006.

Significant growth was reported also under Cargo and Marine Hull insurance.

Product development

In accordance with the company strategy for development and launch of updated insurance cover Armeec JSC offered some new insurance products in 2007.

Motor Insurance

In the beginning of 2007 the European practices in motor insurance were implemented regarding the free extension of the cover under Motor Casco for corporate clients. The product Motor Casco PLUS was

9 Overview of Аctivities

Market Share of Armeec JSC by Major Lines of Business as of 31 December 2007

Armeec JSC Market

Property

Financial risks

Motor Casco Aviation insurance

Motor TPL

Travel assistance

Personal Accident

Cargo

Liabilities


launched in the market to provide the company clients with the opportunity to continue their trip or in case the motor vehicle could not continue the journey, the insurance covered the return journey or a stay overnight or rent-a-car as well as rendering assistance in some specific emergency cases.

In the middle of 2007 Armeec JSC launched a new product – Casco Extended Guarantee, which was new for the market. The insurance cover which is well-known in the European market was developed in co-operation with a leading international company. It provided insurance protection against mechanical and electric breakdown of motor cars and heavy trucks up to 3.5 t.

The new systems Bonus Loyal Client and Preferential Client were implemented in the year 2007 to offer preferences to the clients of Armeec JSC.

Liabilities Insurance

In 2007 the company launched two new products, which cover professional liabilities:

Professional indemnity in connection with certification, licensing and controlling activities;

Professional indemnity of investment brokers.

Personal Accident Insurance

The following insurance products were launched in 2007:

Cancellation of the professional pilot’s flight licence;

Personal Accident of the passengers in the aircraft;

Salvage expenses.

Future development

In the competitive market environment the company’s philosophy is based on the perceived need for innovation, searching and providing the best solutions and quick and timely adaptation to the everchanging customer requirements.

Through its products and services the company ensures high quality and professionalism. The management strategy aims to offer the best for our clients and partners and positions the company as a leading insurer on the Bulgarian market.

The company is planning a number of projects, which will allow further development of its Program for corporate social responsibility focused on the company employees and the general public.

9 Overview of Аctivities

// 20

Financial Statements10Balance sheet

2007BGN’000s

2006BGN’000s

Assets

Non-current

Property, plant and equipment 1 723 1 443

Investment property 11 582 11 572

Intangible assets 535 278

Investment in associates 300 300

Investment in subsidiaries 50 50

Deferred tax assets 47 26

14 237 13 669

Current

Insurance and reinsurance contract receivables 21 989 13 551

Short-term financial assets 54 821 43 293

Related parties receivables 3 130 415

Other receivables 3 541 4 474

Cash and cash equivalents 20 268 5 474

103 749 67 207

Total assets 117 986 80 876

Prepared by: J. Staneva

Date: 01 March 2008.

Executive Director:

R. Georgiev

Audited by:


10 Financial Statements

Balance sheet2007

BGN’000s2006

BGN’000s

Equity

Share capital 15 019 15 019

Other reserves 18 459 962

Retained earnings 14 910 17 497

Total equity 48 388 33 478

Insurance reserves 58 460 37 787

Liabilities - -

Non-current - -

Deferred tax liabilities 14 68

Finance lease 128 113

Payables to employees 91 -

233 181

Current

Insurance payables 4 533 2 376

Reinsurance and other insurance payables 3 312 659

Tax liabilities 1 116 2 965

Payables to employees and social security institutions 628 756

Related parties payables 1 176 1 355

Other liabilities 140 1 319

10 905 9 430

Total liabilities 11 138 9 611

Total equity, liabilities and insurance reserves 117 986 80 876



Executive Director:

R. Georgiev

Audited by:

// 22


Income statement2007

BGN’000s2006

BGN’000s

Insurance income 134 286 83 733

Insurance expenses (114 083) (68 709)

Reinsurance income 7 171 3 954

Reinsurance expenses (11 816) (8 282)

Technical result 15 558 10 696

Other incomes 97 70

Administrative expenses (11 993) (9 556)

Employee benefits expenses (6 426) (4 560)

Expenses for depreciation of financial assets (340) (855)

Gains from increases in fair value of investment property - 8 846

Gains from operations with financial instruments 18 454 15 404

Interest expenses, net (2) (8)

Other financial expenses, net (225) (92)

Result for the year before tax 15 123 19 945

Tax expenses, net (213) (2 448)

Profit for the year 14 910 17 497

2007 2006

Earnings per share BGN 99.28 BGN 142.79



Executive Director:

R. Georgiev

Audited by:



Statement of cash flows (direct method)2007

BGN’000s2006

BGN’000s

Cash flow from insurance operations

Cash inflow from insurance premiums 80 064 52 931

Insurance collaterals paid (28 013) (15 510)

Tax payables (298) (325)

Other cash inflow from insurance operations 73 54

Other cash outflow for insurance operations (25 893) (31 908)

Net cash flow from insurance operations 25 933 5 242

Cash flow from investing operations

Interests received 795 33

Purchase of property, plant and equipment (716) (718)

Acquisition of intangible assets (391) (116)

Acquisition of financial assets (10 289) (1 213)

Net cash flow from investing operations (10 601) (2 014)

Cash flow from financial operations

Interest paid (79) (40)

Other cash outflow for financial activities (410) (386)

Net cash flow from financial operations (489) (426)

Exchange loss on cash and cash equivalents (49) (17)

Net increase of cash and cash equivalents 14 794 2 785

Cash and cash equivalents, beginning of year 5 474 2 689

Cash and cash equivalents, end of year 20 268 5 474



Executive Director:

R. Georgiev

Audited by:

// 24


Statement of changes in equityAll amounts are presented in BGN’000s

Share capital

Common reserves

Retainedearnings

Total equity

Balance 1 January 2006 8 591 685 6 705 15 981

Increase of the capital 6 428 - (6 428) -

Distribution of the profit - 277 (277) -

Profit for the year till 31 December 2006 - - 17 497 17 497

Balance 31 December 2006 15 019 962 17 497 33 478

Distribution of the profit - 17 497 (17 497) -

Profit for the year till 31 December 2007 - - 14 910 14 910

Balance 31 December 2007 15 019 18 459 14 910 48 388



Executive Director:

R. Georgiev

Audited by:



Insurance reserves

All amounts are presented in BGN’000s

Premium reserves

carried forward

Reserves for outstanding

payments

Contingency fund

Total

Balance 1 January 2006 12 952 9 759 58 22 769

Balance 1 January 2006 6 525 8 272 68 14 865

Changes in reinsurers’ share (344) 497 - 153


Changes in gross insurance reserves 13 980 8684 75 22 739

Changes in reinsurers’ share in the reserves formed (1 701) (365) - (2 066)




Executive Director:

R. Georgiev

Audited by:

// 26

Report of Independent Auditors11

Independent Auditor’s ReportTo the Shareholders of ZPAD Armeec

We have audited the accompanying financial statements of ZPAD Armeec which comprise the balance sheet as of 31 December 2007, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, as adopted by EU and the national legislation. This responsibility includes:

designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from 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 from 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 judgment, 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 management, as well as evaluating the overall presentation of the financial statements.


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

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of ZPAD Armeec as of 31 December 2007, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by EU and the national legislation.

Report on other legal and regulatory requirements - Management’s report for the year ended 31 December 2007.

We have reviewed the management’s report for the year ended 31 December 2007 of ZPAD Armeec, which is not part of the financial statements. The historical financial information in the Management’s report, prepared by the management, complies in its main aspects with the financial information, presented in the financial statements for the year ended 31 December 2007, prepared in accordance with International Financial Reporting Standards, as adopted by EU and the national legislation. The preparation of the management’s report is responsibility of the management.

11 Report of Independent Auditors

24 March 2008

Registered auditor

Mariana Mihaylova Auditing company

Grant Thornton LTD

Registered auditor

Mariy Apostolov

// 28

Distribution and Branch Network12

As at 31st December 2007 the company performed activities in 52 towns through 42 agencies and 31 representative offices.

All types of non-life insurance products are offered in the offices of Armeec JSC and through insurance intermediaries, working for the company.

Offices

Balchik, 8 Primorska Str.; tel.: 0579/7-25-30Bansko, 56 Tsar Simeon Str.; tel.: 0749 / 8-85-73Blagoevgrad, 7 Bratya Kitanovi Str.; tel.: 073 / 88-01-37Bourgas, 1 Aleksandrovska Str.; tel.: 056 / 84-28-29; fax 84-31-14V. Tarnovo, 42 N.Gabrovski Str.; tel.: 062 / 60-02-38Varna, 31 Tsar Simeon I Str.; tel.: 052 / 63-07-75, 60-24-60Varna, 13 Kap. Petko Voyvoda Str.; tel.: 052 / 60-37-26Varna, 27 Primorski Blvd.; tel.: 052/65-40-00; fax 65-46-00Vidin, 4 Vrashka chuka Str.; tel.: 094 / 60-04-34Vratsa, 7 Krastyu Balgariyata Str.; tel.: 092 / 66-04-96


12 Distribution and Branch Network

Gabrovo, 54 Bryanska Str.; tel.: 066 / 80-48-97Gotse Delchev, 10 Rakovski Str.; tel.: 0751 / 6-09-64Dobrich, 7 Ekzarh Yosif Str.; tel.: 058 / 60-25-64, 60-22-10Dupnitsa, 21A Hr.Botev Str.; tel.: 0701 / 5-11-51Kardzhali, 47 Republikanska Str.; tel.: 0361 / 6-58-17Lovech, 5 Balgaria blvd, fl.1; tel.: 068 / 60-17-91Montana, 13 Vasil Levski Str.; tel.: 096/30-43-05; fax 30-43-06Pazardzhik, 3 K.Velichkov Str.,; tel.: 034 / 44-04-74, 034 / 44-36-73Pernik, 7 Yuriy Gagarin Str.; tel.: 076 / 67-20-90; 67-20-91Pleven, 7 Danail Popov Str.; tel.: 064 / 83-05-31Plovdiv, 2A Mendeleev Str.; tel.: 032 / 62-24-02, 63-30-61; fax 62-31-68Plovdiv, 2 Tzaribrod Str.; tel.: 032/63-85-65; fax 63-03-94Plovdiv, 15 Georgi Komitata Str.; tel.: 032 / 99-00-09Plovdiv, 2A Mendeleev Str.; tel.: 032/63-30-61; fax 62-31-68Razgrad, 7 Stefan Karadzha Str.; tel.: 084 / 66-06-38Rousse,10 Sv. Troitsa Sq.; tel.: 082 / 83-43-77; fax 83-46-40Samokov; 1 Zhitna charshiya Str.; tel.: 0722 / 6-61-94Sandanski, 55 Makedonia Str.; tel.: 0746 / 3-28-08, 0746/3-31-30Svishtov, 81 Patriarh Evtimiy Str.; tel.: 0631 / 4-00-70Silistra, 3 Rakovska Str.; tel.: 086 / 82-16-75Sliven, 11 Tsar Osvoboditel blvd.; tel.: 044 / 66-29-62Smolyan,1 Dimitar Blagoev Str.; tel.: 0301 / 6-39-37Sofia, 78 Hr. Smirnenski Str; Lozenets; tel.: 02 / 868-61-33; fax 868-40-95Sofia, 21 Gen. Gurko Str, center; tel.: 02 / 981-11-12; 981-55-54Sofia, 17 Zh. Kyuri Str,, bl.156-2, Iztok; tel.: 02 / 870-30-38, 870-30-88Sofia, Lozenets quarter 30 Kr, Sarafov Str.; fl.1; tel.: 02 / 866-25-96; fax 866-24-96Sofia, 20 Zh. Kyuri Str.; tel.: 02 / 8190856Sofia, Airport Sofia; tel.: 0888 / 16-61-69Sofia, 31 Gotse Delchev Str. Bl.76; tel.: 02 / 859-83-41Sofia, 46A Rayko Aleksiev Str, Iztok quarter; tel.: 02 / 870-13-40;870-13-41; fax 870-12- 54Sofia, 9-11 Hadzhi Dimitar Str:center; tel.: 02 / 986-77-84, 986-77-85Sofia, Vazrazhdane, 22 Otets Paisiy Str; tel.: 02 / 981-96-60Sofia; Shipchenski prohod blvd, bl.40, entr. A, fl.1; tel.: 02 / 979-70-11;971-99-17Sofia, Razsadnika, A. Stamboliyski blvd.; tel.: 02 / 929-21-95Sofia, Mladost 1, 47 A.Saharov blvd.; tel.: 02 / 974-43-36Sofia, 2 Nikolai Haitov Str., entr. A floor 6; tel.: 02/872-77-01, fax 872-77-02Sofia, Obikolna Str. , Ovcha kupel 2; tel.: 02 / 957-30-16, 02 / 956-22-75Stara Zagora, 7 Metodi Kusev Str.; fax: 042 / 62-33-03, 62-03-33Тargovishte, 2 V.Levski Str.; tel.: 0601 / 6-16-06

// 30

12 Distribution and Branch Network

The premium income per employee has increased over the last 5 years by 50% and for 2007 it amounted to BGN 250 000.

The distribution of the insurance products is also carried out by over 4000 agents and 190 brokers on the territory of the country. 2003 2004 2005 2006 2007

Gross Premium Income per Employee (2003-2007)

123,811 BGN

144,974 BGN

175,473 BGN

181,470 BGN

249,215 BGN

0 50 100 150 200 250

Distribution of the Personnel by Positions (2003-2007)

Administrative personnel

Head Office Staff

(experts and directors)

Insurers

49

50

24

105

52

38

210

153

86

2007

2006

2005

2004

2003

Haskovo, 2 Bulair Str.; tel.: 038 / 62-25-84; 66-54-51Shumen, 6 Tsar Osvoboditel Str.; tel.: 054 / 83-08-49Yambol, 44 Strahil voivoda Str.fl.1 office 1; tel.: 046 / 66-58-58

***As at 31st December 2007 the number of company employees was 364.

Documents

Annual Report - armeec · Annual Report 2007 // 5. The annual growth of premium income generated by Armeec JSC was 57% compared to 2006. The company increased its market share by