Islamic Arab Insurance Company

1. Company Overview & Earnings Context

Islamic Arab Insurance Co. (SALAMA) PJSC is a UAE-based insurance company listed on the Dubai Financial Market (DFM). The Group provides general takaful and family takaful products in accordance with Islamic Shari’ah principles and applicable UAE regulations.

Its principal activities include:

• General takaful: Fire, marine, motor, general accident, engineering and medical insurance.

• Family takaful: Individual and group life takaful.

• Geographical operations: UAE, Egypt and Algeria for general takaful, and UAE and Egypt for family takaful. The Group also has holding and other non-takaful subsidiaries in Bahrain and Senegal.

The Group reported a significant improvement in profitability during 9M 2026. Total profit increased to AED50.67 million from AED11.06 million in the prior-year period, while profit attributable to shareholders rose to AED44.85 million from AED6.50 million.

The main improvement came from the takaful service result, which increased substantially from AED3.01 million to AED66.89 million. This reflected lower takaful service expenses and, importantly, a substantial reduction in net expenses from retakaful contracts.

Investment income remained an important contributor, although the overall net investment result declined compared with 2025. The Group also completed a major capital restructuring through the conversion of its Mandatory Convertible Sukuk into ordinary shares, strengthening reported equity.

The results therefore show a substantial recovery in underwriting performance and profitability, although the improvement should be assessed alongside the Group’s negative operating cash flow, investment-linked portfolio movements and foreign currency exposure.

SALAMA financial .pdf

2. Financial Performance Snapshot

Key financial metrics – 9M 2026

• Takaful revenue: AED718.45 million, down 6.5% from AED768.71 million.

• Takaful service expenses: AED603.73 million, compared with AED658.23 million, a reduction of 8.3%.

• Net expenses from retakaful contracts held: AED47.83 million, compared with AED107.48 million.

• Takaful service result: AED66.89 million, compared with AED3.01 million.

• Policyholders’ investment income: AED96.09 million, compared with AED120.95 million.

• Shareholders’ investment income: AED46.09 million, compared with AED35.29 million.

• Net investment result: AED142.18 million, compared with AED156.24 million.

• Net takaful finance expense: AED108.56 million, compared with AED125.40 million.

• Net takaful and investment result: AED100.51 million, compared with AED33.85 million.

• Other operating income: AED9.70 million, compared with AED6.02 million.

• Other operating expenses: AED51.46 million, compared with AED52.37 million.

• Release for expected credit losses: AED1.14 million, compared with AED30.37 million.

• Profit before tax: AED59.89 million, compared with AED17.87 million.

• Income tax expense: AED9.22 million, compared with AED6.80 million.

• Total profit for the period: AED50.67 million, compared with AED11.06 million.

• Profit attributable to shareholders: AED44.85 million, compared with AED6.50 million.

• Profit attributable to non-controlling interests: AED5.82 million, compared with AED4.57 million.

• Basic and diluted EPS: AED0.066, compared with AED0.007.

Underlying performance

The most important improvement was in takaful underwriting economics. Although takaful revenue declined, service expenses decreased at a faster rate. In addition, net expenses from retakaful contracts fell substantially, allowing the takaful service result to improve to AED66.89 million.

The investment contribution was more mixed. Shareholders’ investment income increased by approximately 30.6%, mainly because of higher income from deposits and Wakala certificates. However, policyholders’ investment income declined because unrealised gains on unit-linked portfolios were lower than in 2025. Consequently, total net investment income decreased by approximately 9%.

Another important comparison point is the expected credit loss release. The Group recognised only AED1.14 million in 9M 2026, compared with AED30.37 million in the previous period. Therefore, the improvement in reported profit was not simply driven by a larger credit-loss release; the stronger takaful service result was the principal positive development.

Overall, the earnings improvement appears to have been supported by better takaful service performance rather than by a single large investment or credit-loss gain.

SALAMA financial .pdf

3. Operating Highlights & Key Metrics

A. General and family takaful performance

The Group operates through two main business segments.

General takaful revenue declined by approximately 6.0%, while family takaful revenue fell by approximately 8.4%.

Despite lower revenue, both segments reported better service results:

• General takaful: Improved from a service loss of AED34.72 million to a service profit of AED9.40 million.

• Family takaful: Service result increased to AED57.50 million from AED37.73 million.

Family takaful was the larger contributor to the current-period service result, accounting for approximately 86% of the total. General takaful also made a meaningful turnaround, moving from a loss into profitability.

B. Geographical performance

The Group reports geographical performance across Africa and Asia.

Compared with 9M 2025:

• Africa revenue increased from AED180.94 million to AED212.94 million, growth of approximately 17.7%.

• Asia revenue declined from AED587.78 million to AED505.51 million, a decrease of approximately 14.0%.

• Africa recorded a service loss of AED3.72 million, compared with a loss of AED0.32 million.

• Asia’s service result increased substantially from AED3.32 million to AED70.61 million.

This shows that the Group’s service profitability is currently concentrated in its Asian operations. Africa delivered revenue growth, but its service result remained negative.

C. Investment portfolio

The Group maintains investments across financial securities, deposits, Wakala certificates, investment properties, associates and unit-linked portfolios.

At 30 September 2026:

• Investment securities: AED357.27 million, compared with AED263.48 million at December 2025.

• Participants’ investments in unit-linked contracts: AED1.677 billion, compared with AED1.780 billion.

• Statutory deposits: AED306.78 million, compared with AED314.23 million.

• Investment in associate: AED40.00 million, compared with AED39.23 million.

• Investment properties: AED50.89 million, compared with AED53.66 million.

The increase in investment securities was supported particularly by higher holdings of sukuk, government bonds and Islamic placements.

The Group’s investment income included:

• Policyholders’ unrealised gains on unit-linked portfolios: AED96.05 million.

• Shareholders’ income from deposits and Wakala certificates: AED40.59 million.

• Shareholders’ unrealised gains on FVTPL investments: AED2.43 million.

• Realised investment gains: AED0.85 million.

• Share of profit from associate: AED2.86 million.

• Unrealised loss on investment properties: AED0.90 million.

Management attributes the increase in shareholders’ investment income to higher yields on deposits, Wakala certificates and fixed-income investments, together with favourable investment portfolio performance.

D. Associate investment

The Group holds a 20% interest in The Islamic Insurance Company in Jordan.

• Carrying value at September 2026: AED39.995 million.

• Share of profit during 9M 2026: AED2.858 million.

• Dividend received: AED2.538 million.

The associate provides an additional source of investment income alongside the Group’s takaful activities.

E. Capital restructuring

A significant financial event during the period was the conversion of the Mandatory Convertible Sukuk.

• Issued share capital increased from AED483.02 million to AED819.98 million.

• Approximately 336.96 million new ordinary shares were issued.

• Conversion price: AED0.46 per share.

• Economic value attributable to the conversion after recognising the share issuance discount reserve: AED155 million.

• Share issuance discount reserve recognised: AED181.96 million.

The conversion strengthened the Group’s capital structure, although the share issuance discount reserve is presented as a deduction within equity and is not available for distribution.

SALAMA financial .pdf

4. Key Performance Drivers

Positive factors

• Significant improvement in the takaful service result: The increase from AED3.01 million to AED66.89 million was the strongest earnings driver.

• Lower service expenses: Takaful service expenses declined by 8.3%, exceeding the 6.5% decline in takaful revenue.

• Lower retakaful expenses: Net expenses from retakaful contracts fell from AED107.48 million to AED47.83 million, supporting underwriting profitability.

• Recovery in general takaful: The general takaful segment moved from a service loss to a positive result.

• Higher family takaful profitability: The family takaful service result improved by approximately 52.4%.

• Higher shareholders’ investment income: Income from deposits and Wakala certificates increased to AED40.59 million from AED31.17 million.

• Lower net takaful finance expense: This declined to AED108.56 million from AED125.40 million.

• Capital strengthening: Conversion of the Mandatory Convertible Sukuk increased share capital and contributed to the improvement in the Group’s equity position.

Negative factors and risks

• Declining takaful revenue: Revenue declined in both general and family takaful.

• Dependence on Asia: Asia generated AED70.61 million of service result, while Africa recorded a service loss.

• Lower total investment income: Net investment result declined by approximately 9%, largely due to lower policyholders’ investment income.

• Foreign currency exposure: The Group has operations in Egypt, Algeria and Senegal. Depreciation of the Egyptian pound resulted in foreign currency translation losses in other comprehensive income.

• Negative operating cash flow: The Group continued to use cash in operating activities, with the outflow increasing compared with 2025.

• Investment and credit exposure: Financial assets include substantial unquoted and externally managed holdings, with significant expected credit loss allowances against some investments.

• Policyholders’ fund deficit: The Group reported a policyholders’ fund deficit of AED199.91 million, which is financed by shareholders in accordance with its takaful arrangements.

• Legal and tax uncertainty: The Group is pursuing legal proceedings to recover contested assets and is challenging a VAT assessment and related penalties.

Important legal and tax matters

The Group disclosed a VAT assessment following an audit covering 2018–2020:

• Tax assessment: AED4.32 million.

• Administrative penalties assessment: AED3.99 million.

The Company has challenged the assessments through the statutory review process. The assessed VAT was paid to satisfy procedural requirements, but management states that payment does not constitute acceptance of the assessment. The Company considers the penalty outflow not probable, based on supporting documentation and external tax advice, and has not recognised a provision for the penalties.

The Group is also pursuing civil and criminal legal actions in Dubai and other jurisdictions to safeguard its rights and reclaim contested assets. Management, relying on legal advisers, does not currently consider that the ongoing policyholder, cedant and retakaful litigation will require additional material provisions beyond amounts already recognised.

SALAMA financial .pdf

5. Outlook & Forward Guidance

The interim financial statements do not provide specific quantitative full-year 2026 profit or revenue guidance.

Management’s outlook is centred on maintaining capital adequacy, managing investment and currency risks, and monitoring the Group’s takaful operations and liquidity.

Capital adequacy and solvency

The Group states that it remained compliant with applicable solvency regulations during the reporting period. However, the solvency position disclosed is for 30 June 2026, because the 30 September position had not yet been finalised.

The solvency position represents a significant improvement compared with December 2025, when the Group reported deficits against the SCR and MGF requirements. The improved position reflects the capital-raising and restructuring measures undertaken by the Group.

Balance Sheet & Liquidity

At 30 September 2026:

• Total assets: AED3.331 billion, compared with AED3.236 billion at December 2025.

• Total liabilities: AED2.785 billion, compared with AED2.876 billion.

• Total equity: AED546.10 million, compared with AED360.02 million.

• Equity attributable to owners: AED481.94 million, compared with AED300.04 million.

• Cash and bank balances: AED246.68 million, compared with AED193.76 million.

• Cash and cash equivalents: AED97.77 million, compared with AED163.22 million.

• Investment securities: AED357.27 million.

• Participants’ investments in unit-linked contracts: AED1.677 billion.

• Retakaful contract assets: AED477.61 million.

• Takaful contract liabilities: AED2.390 billion.

• Retakaful contract liabilities: AED81.65 million.

• Statutory deposits: AED306.78 million.

• Lease liabilities: AED4.51 million.

Although reported cash and bank balances increased, cash equivalents declined substantially. The difference is important because AED147.49 million of term deposits had maturities beyond three months and AED1.42 million of term deposits were under lien. The statutory deposits are also maintained for regulatory purposes and should not be treated as freely available operating liquidity.

Cash Flow Performance

• Net cash used in operating activities: AED96.33 million, compared with AED53.28 million used in 9M 2025.

• Cash used in investing activities: AED118.30 million, compared with AED80.03 million generated.

• Cash generated from financing activities: AED149.19 million, compared with AED3.57 million used.

• Net decrease in cash and cash equivalents: AED65.44 million, compared with an increase of AED23.19 million.

• Closing cash and cash equivalents: AED97.77 million, compared with AED158.92 million in the prior-year period.

The operating cash outflow was influenced by changes in takaful and retakaful balances, including reductions in takaful and retakaful contract liabilities and an increase in retakaful contract assets.

Investing cash outflow included AED97.51 million of net investment movements and AED118.36 million of additional term deposits with maturities beyond three months, partly offset by the movement in participants’ unit-linked investments and statutory deposits.

Financing cash flow was supported by the AED155 million capital increase, net of AED5.20 million of capital-raising expenses.

Commitments and Contingencies

• Total letters of guarantee: AED211.13 million.

• Guarantees in favour of the Central Bank of the UAE: AED210.00 million.

• Other letters of guarantee: AED1.13 million.

• Statutory deposits include AED70.00 million held under lien against the Central Bank guarantee.

• Other term deposits held under lien: AED1.42 million.

• No significant capital commitments were reported at 30 September 2026.

Management’s going-concern assessment

The Board considered the successful completion of the capital-raising exercise, available liquidity resources, projected operating performance and planned capital-management actions. Management concluded that adequate resources were available to continue operating for the foreseeable future, and not less than 12 months from the reporting date.

The Group also reported that the UAE, its principal market, remained stable during the period, with no significant direct impact from regional geopolitical developments on its takaful operations, investment portfolio or counterparty exposures.

SALAMA financial .pdf

6. Investor Takeaway

SALAMA delivered a substantial improvement in its 9M 2026 financial performance. Profit before tax increased to AED59.89 million from AED17.87 million, while total profit rose to AED50.67 million from AED11.06 million. EPS improved to AED0.066 from AED0.007.

The most important development is the recovery in underwriting performance. The takaful service result increased to AED66.89 million from AED3.01 million, supported by lower service expenses and significantly lower net retakaful expenses. Both general and family takaful reported improved service results, although family takaful remained the dominant contributor.

The investment portfolio continues to support earnings, particularly through shareholders’ income from deposits and Wakala certificates. However, total investment income declined as policyholders’ unit-linked investment gains were lower than in the previous year.

The Group’s capital position also improved following the conversion of the Mandatory Convertible Sukuk. Total equity increased to AED546.10 million, and the solvency figures disclosed at June 2026 showed a surplus against the main regulatory capital requirements.

Key investor monitoring points:

• Sustainability of the improved takaful service result and lower retakaful costs.

• Recovery in Asian revenue, which declined during the period.

• Improvement in the African segment, which remained loss-making at the service-result level.

• Conversion of reported accounting profit into positive operating cash flow.

• Management of unit-linked investment performance and the wider investment portfolio.

• Foreign exchange exposure, particularly from Egyptian operations.

• Resolution of the VAT assessment and ongoing legal proceedings.

• Maintenance of solvency and capital strength after the sukuk conversion.

Overall assessment: SALAMA’s 9M 2026 results show a meaningful improvement in its core takaful service performance and profitability. The turnaround is encouraging because it was achieved despite lower takaful revenue and a smaller expected credit loss release than in the prior period. Capital strengthening and improved disclosed solvency margins provide additional support. However, negative operating cash flow, declining cash equivalents, geographical concentration of service profitability and the policyholders’ fund deficit remain important areas of monitoring.