shareholders’ circular [ ]

This Circular is an unofficial English translation of the official Arabic Circular and is provided for information purposes. The Arabic Circular published on

Tadawul's website (www.tadawul.com.sa) remains the only official, legally binding version and shall prevail in the event of any conflict between the two

versions

Shareholders’ Circular

The Mediterranean and Gulf Cooperative Insurance and Reinsurance Company (MEDGULF)

Capital Reduction of the Mediterranean and Gulf Cooperative Insurance and Reinsurance Company (MEDGULF) from 80,000,000 ordinary shares with a

value of 800,000,000 Saudi Riyals to 70,000,000 ordinary shares with a value of 700,000,000 Saudi Riyals

Shareholders’ Circular on the Extraordinary General Assembly regarding the Company's capital reduction (the "Circular").

[●]/[●] 1442H (corresponding to [●]/[●] 2021G)

Financial Advisor

Table of Contents

The Company ................................................................................................................................................................................................................................................ 1

The Mediterranean and Gulf Cooperative Insurance and Reinsurance Company ......................................................................................................................................... 1

Advisors ......................................................................................................................................................................................................................................................... 2

Financial Advisor .......................................................................................................................................................................................................................................... 2

Legal Advisor ................................................................................................................................................................................................................................................ 2

Auditor .......................................................................................................................................................................................................................................................... 2

1. Definitions and Terms .................................................................................................................................................................................................................... 3

2. Company Overview ........................................................................................................................................................................................................................ 4

3. General structure of the proposed capital reduction ................................................................................................................................................................ 10

4. Reasons for the Board of Directors' recommendation to reduce the share capital ................................................................................................................ 13

5. Evolution of the Company's accumulated losses ....................................................................................................................................................................... 13

6. Expected future reform plan and steps taken to prevent losses ............................................................................................................................................... 16

7. The capital reduction and its impact on shareholders .............................................................................................................................................................. 17

8. The impact of the capital reduction on the Company's operations, obligations, and shareholders' equity ......................................................................... 21

9. Potential risks ............................................................................................................................................................................................................................... 22

10. Expected time period of the capital reduction ........................................................................................................................................................................... 24

11. Required regulatory approvals ................................................................................................................................................................................................... 25

12. Relevant laws and regulations ..................................................................................................................................................................................................... 26

13. Auditor’s Report ........................................................................................................................................................................................................................... 27

14. Legal Advisor Opinion ................................................................................................................................................................................................................. 28

15. Important Information ................................................................................................................................................................................................................ 29

16. Documents Available for Inspection ........................................................................................................................................................................................... 30

Appendixes .................................................................................................................................................................................................................................................. 31

● Copy of the auditor's report ............................................................................................................................................................................................................ 31

● Power of attorney form to attend the Extraordinary General Assembly meeting .......................................................................................................................... 31

Appendix 1 .................................................................................................................................................................................................................................................. 32

Appendix 2 .................................................................................................................................................................................................................................................. 42

1

The Company

The Mediterranean and Gulf Cooperative Insurance and Reinsurance Company

Headquarters, Futuro Tower, King Saud Road

P.O. Box 2302

Riyadh 11451

Kingdom of Saudi Arabia

Tel: +966 11 405 5550

Fax: +966 11 405 5588

E-mail: [email protected]

Website: www.medgulf.com.sa

Contact Officer Name: Talal Al-Amani

Tel: +966 (11) 4055550 - 1583

Fax: +966 (11) 4055550

Website: www.medgulf.com.sa


mailto:[email protected]

http://www.medgulf.com.sa/

http://www.medgulf.com.sa/


2

Advisors

Financial Advisor

NBC Capital

The National Commercial Bank Regional Building, Tower B, King Saud Road

P.O. Box 22216, Riyadh 11495, Kingdom of Saudi Arabia

Tel: +966 11 874 7106

Fax: +966 11 406 0052


Website: www.alahlicapital.com

Legal Advisor

Abdulaziz Al-Ajlan & Partners, Attorneys and Legal Advisors

Olayan Complex, Tower 2, 3rd Floor, Al-Ahsa Street, Al-Malaz


Tel: +966 11 265 8900

Fax: +966 11 265 8999


Website: www.legal-advisors.com

Auditor

Al-Azem, Al-Sudairy, Al-Shaikh & Partners Certified Public Accountants

Unit No. 11, Prince Mohammad Bin Abdul Aziz Street


Tel: +966 11 217 5000

Fax: +966 11 217 6000


Website: www.crowe.com

All the above mentioned advisors have provided their written consent to the inclusion of their names, logos and statements (as applicable) in the form and content

contained in this Circular.

http://www.alahlicapital.com/


http://www.legal-advisors.com/


http://www.crowe.com/

3

1. Definitions and Terms

Term Meaning

Tadawul The Saudi Stock Exchange.

CMA The Capital Market Authority of Saudi Arabia.

The Company or MEDGULF The Mediterranean and Gulf Cooperative Insurance and Reinsurance Company.

Circular Circular to shareholders submitted to the Extraordinary General Assembly regarding the Company's capital reduction.

The Mediterranean and Gulf

Insurance Company BSC

The Mediterranean and Gulf Insurance and Reinsurance Company, a Bahraini closed joint stock company.

Eligible Shareholders Shareholders who own shares at the end of trading on the day of the Extraordinary General Assembly related to the capital

reduction and who are registered in the Company's shareholders’ registry at the Security Depository Center (“Edaa”) at

the end of the second trading day following the day of the Extraordinary General Assembly meeting related to the capital

reduction, held on [●]H (corresponding to [●]G).

Net Claims Incurred Claims that are paid during the period after the settlement of outstanding claims, whether reported or not.

Withholding Tax A specific percentage of the income received by a non-resident enterprise in Saudi Arabia that provides services inside the

KSA and generates sources of income, in accordance with the percentages specified in the Implementing Regulations of

the Income Tax Law.

Written Insurance Premiums Premiums of insurance policies issued by the Company during a financial period, regardless of the duration of these

policies.

Net Written Insurance Premiums The total premiums of insurance contracts written with the Company after subtracting its reinsurance premiums.

Net Insurance Premiums Earned Premiums that are carried over to income over the periods of the related insurance policies on a proportional basis. They

represent the insurance premiums for the accounting period covered by the financial statements of the documents in effect

after adjusting for unearned premiums.

4

2. Company Overview

The Mediterranean and Gulf Cooperative Insurance and Reinsurance Company (“MEDGULF” or the "Company”) began its journey back in 1995G under an agency

contract. It was then established independently under Royal Decree No. (M/60) issued on 18/09/1427H (corresponding to 11/10/2006G), Council of Ministers Resolution

No. (233) on 16/09/1427H (corresponding to 09/10/2006G), and Commercial Register No. 1010231925 issued on 08/04/1428H (corresponding to 26/04/2007G).

The Company operates under Saudi Central Bank (formerly the Saudi Arabian Monetary Agency) License No. (TMN/3/20079) dated 29/08/1428H (corresponding to

11/09/2007G), and its core activity is engaging in the insurance business in the following areas: general insurance, health insurance, protection and savings insurance.

The Company's current share capital is eight hundred million (800,000,000) Saudi Riyals, divided into eighty million (80,000,000) ordinary shares with a nominal value

of ten (10) Saudi Riyals per share.

5

2.1 Major developments in the Company's share capital

Date Event

18/09/1427H (corresponding to 11/10/2006G)

The Company was established as a Saudi joint stock company with a share capital of eight hundred million (800,000,000) Saudi

Riyals.


The Company listed and registered eighty million (80,000,000) ordinary shares with a nominal value of ten (10) Saudi Riyals per

share on the Saudi Stock Exchange (Tadawul). Twenty million (20,000,000) ordinary shares were offered to the public through an

Initial Public Offering (IPO) with a nominal value of ten (10) Saudi Riyals per share, representing 25% of the Company's share

capital.


The Company’s share capital was increased from eight hundred million (800,000,000) Saudi Riyals to one billion (1,000,000,000)

Saudi Riyals through offering bonus shares from the retained earnings, as two hundred million (200,000,000) Saudi Riyals were

capitalized out of retained earnings, representing 84.2% of all retained earnings.


The Company’s share capital was reduced from one billion (1,000,000,000) Saudi Riyals to four hundred million (400,000,000)

Saudi Riyals by canceling sixty million (60,000,000) ordinary shares with a nominal value of ten (10) Saudi Riyals per share to

offset the accumulated losses amounting to 73.5% of the share capital. After the capital reduction, the accumulated losses amounted

to 33.5% of the share capital.


The Extraordinary General Assembly approved the recommendation of the Board of Directors to increase the Company’s share

capital by 100%, from four hundred million (400,000,000) Saudi Riyals to eight hundred million (800,000,000) Saudi Riyals by

offering forty million (40,000,000) ordinary shares with an offering price of ten (10) Saudi Riyals per share through a rights issue.


The Company obtained the approval of the Capital Market Authority (“CMA” or the “Authority”) to reduce the Company's share

capital from eight hundred million (800,000,000) Saudi Riyals to seven hundred million (700,000,000) Saudi Riyals, by canceling

ten million (10,000,000) ordinary shares from the Company's issued shares with a nominal value of ten (10) Saudi Riyals per share.

This approval was announced on the Authority’s website and Tadawul website on 26/06/1442H (corresponding to 08/02/2021G).

[●]H (corresponding to [●]G)

The Extraordinary General Assembly agreed during its meeting held on [●]H (corresponding to [●]G) to reduce the Company's

share capital from eight hundred million (800,000,000) Saudi Riyals to seven hundred million (700,000,000) Saudi Riyals, by

canceling ten million (10,000,000) ordinary shares of the Company's issued shares with a nominal value of ten (10) Saudi Riyals

per share. This approval was announced on the Tadawul website.

6

2.2 Board of Directors

The Board of Directors consists of seven (7) members appointed for a period of three (3) years starting on 08/04/2019G. The following table sets out the members of

the Board of Directors and the Company shares owned by each as at [03/02/2021G]:

Name* Position Status

Percentage of shares owned before and after the

capital reduction Date of appointment

Direct Indirect

Rakan Abdullah Abunayyan Chairman Non-executive 0.00425% 7.9%** 08/04/2019G

Raad Ghaith Al-Barakati Deputy Chairman Independent - - 08/04/2019G

Yousef Hamad Al-Yousfi Member Independent - - 08/04/2019G

Mohamed Saad BinDawood Member Independent - - 08/04/2019G

Mohamed Omar Al-Oyaidi Member Independent - - 08/04/2019G

Suliman Abdulaziz Al-Obaid Member Non-executive - - 08/04/2019G

Ahmed Abdullah bin Ahmed Member Independent 0.00625% - 08/04/2019G

Source: The Company and Tadawul

* The following directors resigned: Mr. Abdulaziz bin Badr Al-AbduJabbar on 03/03/1442H (corresponding to 20/10/2020G), Engineer Nasser Al-Qahtani on 21/10/1441H (corresponding to 13/06/2020G) and Mr. Mohammed Al-

Muqrin on 20/05/1442H (corresponding to 04/01/2021G).

** Through Chairman Rakan Abdullah Abunayyan's ownership in Abdullah Abunayyan Trading Company as at 21/06/1442H, corresponding to 03/02/2021G.

7

2.3 Senior Executives

The following table sets out the Company's Senior Executives as at the date of this Circular:

Name Position Date Joined

Tariq Al-Naim* Chief Executive Officer 04/11/2018G

Umar Al Mahmoud** Acting Chief Executive Officer - Chief Operating Officer 06/12/2020G

Abdullah Al-Qubaily Acting Chief Sales Officer 04/10/2016G

Ahmed Tarboush Chief Financial Officer 03/04/2016G

Suhail Hayyan Chief Investment Officer 14/06/2020G

Bandar Al-Momen Chief Information Officer 01/12/2019G

Yasser Al-Gholaikah Chief Human Resources and Administrative Affairs Officer 24/04/2019G

Source: The Company

* Dr. Tariq Al-Naim resigned on 03/03/1442H (corresponding to 20/10/2020G).

** Mr. Umar Al Mahmoud was assigned as acting Chief Executive Officer on 21/04/1442H (corresponding to 06/12/2020G), and the Company obtained a non-objection letter from the Saudi Central Bank on 28/12/2020G in relation

to his assignment as acting Chief Executive Officer as of that date for a period of six (6) months.

8

2.4 Names and ownerships of the Company's shareholders

Name Before capital reduction After capital reduction Ownership percentage after

capital reduction Value (SAR) Number of shares Value (SAR) Number of shares

The Saudi Investment Bank 152,000,000 15,200,000 133,000,000 13,300,000 19.00%

The Mediterranean and Gulf

Insurance Company BSC 136,960,000 13,696,000 119,840,000 11,984,000 17.12%

Abdullah Abunayyan Trading

Company 79,920,000 7,992,000 69,930,000 6,993,000 9.99%

The public 431,120,000 43,112,000 377,230,000 37,723,000 53.89%

Total 800,000,000 80,000,000 700,000,000 70,000,000 100.00%

Source: The Company and Tadawul, as at 21/06/1442H (corresponding to 03/02/2021G).

9

2.5 The Company's Organizational Structure

Investment

Committee Risk

Management

Committee

Board of

Directors

Governance

Committee Audit

Committee

Nomination

and

Remuneration

Committee

Executive

Committee

Sharia

Committee CEO

Internal

Audit

Compliance

Legal Affairs

and

Governance

Risk

Management

Strategic

Planning

Operations Technology Sales Information

Technology Finance

Human

Resources

Customer

Care Actuarial Investment

Source: The Company.

10

3. General structure of the proposed capital reduction

The Company's current share capital is eight hundred million (800,000,000) Saudi Riyals, divided into eighty million (80,000,000) ordinary

shares with a nominal value of ten (10) Saudi Riyals per share. On 19/02/1442H (corresponding to 06/10/2020G), the Company announced

through Tadawul's website that its Board of Directors had recommended to reduce the Company's share capital from eight hundred million

(800,000,000) Saudi Riyals to seven hundred million (700,000,000) Saudi Riyals divided into seventy million (70,000,000) ordinary shares

with a nominal value of ten (10) Saudi Riyals per share.

The share capital is being reduced by 12.5% through the cancellation of ten million (10,000,000) ordinary shares of the Company's issued

shares (with a nominal value of ten (10) Saudi Riyals per share), i.e., the cancellation of one (1) share for every eight (8) shares of the

Company's issued shares. The reason behind the capital reduction, is to offset 94.7% of the Company's accumulated losses amounting to one

hundred five million, six hundred forty-three thousand, one hundred twenty-eight (105,643,128) Saudi Riyals, based on the Company's

unaudited internal financial statements for the period ending on 30/09/2020G.

The fractional shares (if any) resulting from the Company's capital reduction will be collected in one portfolio to be sold on the Saudi Stock

Exchange (Tadawul) at the prevailing price at that time. The proceeds of their sale will be distributed to the Eligible Shareholders, each

according to their ownership in such fractional shares, within thirty (30) days from the day of the Extraordinary General Assembly in which

the shareholders approve the capital reduction.

The Company has carried out various procedures to complete the capital reduction, as follows:

− On 19/02/1442H (corresponding to 06/10/2020G), through the Tadawul website, the Company announced the Board of Directors’

recommendation to reduce the Company’s share capital from 800,000,000 Saudi Riyals to 700,000,000 Saudi Riyals, by canceling

10,000,000 ordinary shares of the Company's issued shares with a nominal value of ten (10) Saudi Riyals per share.

− On 19/02/1442H (corresponding to 06/10/2020G), the Company appointed NCB Capital Company ("NCB Capital") as a financial advisor

for the capital reduction.

− On 24/02/1442H (corresponding to 11/10/2020G), the Company appointed Abdulaziz Al-Ajlan & Partners, Attorneys and Legal

Advisors, as a legal advisor for the capital reduction.

− On 11/03/1442H (corresponding to 28/10/2020G), the Company appointed Al Azem, Al Sudairy, Al Shaikh & Partners (Certified Public

Accountants) as an auditor to prepare the report on the capital reduction.

− On 02/05/1442H (corresponding to 17/12/2020G), the Company prepared and submitted an application file to the Authority requesting

approval of the capital reduction.

11

− On [●]/[●]/1442H (corresponding to [●]/[●]/2021G), the Company submitted a notice to Tadawul regarding the capital reduction.

− On 26/06/1442H (corresponding to 08/02/2021G), the Company obtained the approval of the Authority to reduce the Company's share

capital from eight hundred million (800,000,000) Saudi Riyals to seven hundred million (700,000,000) Saudi Riyals by canceling ten

million (10,000,000) ordinary shares of the Company's issued shares with a nominal value of ten (10) Saudi Riyals per share. Such approval

was announced on the Authority’s website and the Saudi Stock Exchange website (Tadawul) on 26/06/1442H (corresponding to

08/02/2021G).

− The Company called for a meeting of the Extraordinary General Assembly for the Company's shareholders to vote on the capital reduction

and announced the meeting on the Saudi Stock Exchange website (Tadawul) on [●]/[●]/1442H (corresponding to [●]/[●]/2021G). A copy

of this Circular was also included in the announcement.

− In the event the shareholders approve the capital reduction in the Extraordinary General Assembly, trading of the Company's shares will

be suspended for a period of two working days starting on [●]/[●]/1442H (corresponding to [●]/[●]/2021G) until [●]/[●]/1442H

(corresponding to [●]/[●]/2021G), after which the shares will be traded at the adjusted price on [●]/[●]/1442H (corresponding to

[●]/[●]/2021G).

12

Structure of the parties involved in the capital reduction:

Capital

Reduction

Extraordinary

General

Assembly

Regulatory

approvals

Vote of the Company's shareholders

Financial Advisor

Legal Advisor

Auditor

13

4. Reasons for the Board of Directors' recommendation to reduce the share capital

The main reasons for the recommendation of the Company's Board of Directors to reduce the share capital are as follows:

o Offset most of the Company's accumulated losses (i.e. 94.7%), based on the Company's unaudited internal financial statements for the period ending

on 30/09/2020G, amounting to 105,643,128 Saudi Riyals, which represent 13.2% of its share capital.

o Support the Company's 2021G strategic plan, as it will assist to achieve the following:

Increase the possibility of the Company being entrusted to provide insurance services to major companies within various sectors and becoming

eligible to enter into large tenders, after reducing the accumulated losses according to the Company's unaudited internal financial statements

for the period ending on 30/09/2020G.

Support the Company's future dividends distribution and its employee share scheme.

5. Evolution of the Company's accumulated losses

The following table summarizes the evolution of the accumulated losses in chronological order since 2013G:

Financial year Share capital

(SAR’000)

Accumulated losses

(SAR’000)

Percentage of

accumulated losses

of share capital

Reason for the increase/decrease of the accumulated losses

2013G 1,000,000 (159,695) 15.97% The reason for the increase in accumulated losses was due to the increase in Net Claims Incurred

by 45%, which was a result of the increase in net claims provisions based on the actuary's

recommendations.

2014G 1,000,000 19,990 - The reason for the decrease in accumulated losses was due to the increase in Net Insurance

Premiums Earned by 20%, which resulted from the change in the Company's pricing policy, as

the pricing policy applied in the previous year led the Company to incur high losses, especially

in the health insurance sector, which led the Company to review the pricing policy.

2015G 1,000,000 (249,265) 24.93% The Company incurred losses during 2015G amounting to (261,267) thousand Saudi Riyals. The

losses are due to the increase in Net Claims Incurred by 25% as a result of the increase in net

claims provisions according to the actuary's recommendations, and the increase in general

expenses as a result of the increase in Withholding Tax expenses.

2016G 1,000,000 (232,171) 23.22% The reason for the decrease in accumulated losses was due to the decrease in Net Claims Incurred

by 25% as a result of the decrease in net claims provisions.

2017G 400,000 (40,777) 10.19% The Company incurred losses during 2017G amounting to (388,026) thousand Saudi Riyals. The

losses are due to a decrease in net underwriting results by 57% due to the decrease in Net Written

Insurance Premiums and the increase in the net loss percentage of insurance policies by 5%. The

Company also enhanced the provision for doubtful debts by 295 million Saudi Riyals, including

14

the following: a 240 million Saudi Riyals allowance for doubtful debts from reinsurance

transactions balances and premiums for policyholders, and a 55 million Saudi Riyals allowance

for doubtful debts from related party transactions. In addition, since the Company ceased using

its ERP IT system and commenced the selection process for a new and suitable IT system for the

Company, the Company wrote off the ERP system, with a value of 26 million Saudi Riyals,

which negatively affected the Company's solvency margin.

The Company's share capital was also reduced from 1,000,000 thousand Saudi Riyals to 400,000

thousand Saudi Riyals by canceling 60,000 thousand ordinary shares with a nominal value of ten

(10) Saudi Riyals per share, to offset the accumulated losses. The accumulated losses in the

second quarter of 2017G amounted to (733,970) thousand Saudi Riyals constituting 73% of the

Company’s total share capital, and 82% of the total accumulated losses were offset.

2018G 800,000 (259,606) 32.45% The increase in accumulated losses was due to the decrease in underwriting revenues by 86.7%,

which led the Company incur a net loss before zakat and tax amounting to 205 million Saudi

Riyals.

2019G 800,000 (256,482) 32.06% Accumulated losses decreased due to the decrease in the premium deficit reserve, according to

the actuary's recommendation, by an amount of 21 million Saudi Riyals, equal to 40%, in

addition to the increase in the net underwriting results by 214%.

31 March 2020G 800,000 (252,248) 31.53% Accumulated losses decreased due to the increase in net underwriting results by 43% resulting

from the increase in Net Written Insurance Premiums.

31 June 2020G 800,000 (109,262) 13.66% In the second quarter of 2020G, the accumulated losses decreased to (229,262) thousand Saudi

Riyals compared to (252,248) thousand Saudi Riyals in the first quarter of 2020G, due to the

increase in net underwriting results by 20%.

In addition, 120 million Saudi Riyals was offset from the statutory reserve to cover part of the

Company's accumulated losses in the second quarter of 2020G reaching (109,262) thousand

Saudi Riyals of accumulated losses, representing 13.7% of the Company's share capital.

30 September

2020G

800,000 (105,643) 13.21% Accumulated losses decreased in the third quarter of 2020G due to the income earned from

dividends and gains made from the Company's investments available for sale, as accumulated

losses amounted to (105,643) million Saudi Riyals constituting 13.2% of the Company's share

capital.

Source: The Company.

The Company obtained the approval of the Authority to reduce the Company's share capital from eight hundred million (800,000,000) Saudi Riyals to seven hundred

million (700,000,000) Saudi Riyals on 26/06/1442H, corresponding to 08/02/2021G.

15

The Company called for the Extraordinary General Assembly and announced it on the Saudi Stock Exchange website (Tadawul) on [●]/[●]/1442H, corresponding to

[●]/[●]/2021G. A copy of this Circular was also included in the announcement. If the Extraordinary General Assembly approves the article reducing the Company's

share capital, the percentage of accumulated losses will decrease from 13.2% to 0.8% of the share capital after completion of the capital reduction.

16

6. Expected future reform plan and steps taken to prevent losses

The Company’s Board of Directors recommended in its decision issued on 18/02/1442H (corresponding to 05/10/2020G) reducing the Company's share capital from

800,000,000 Saudi Riyals to 700,000,000 Saudi Riyals. The Board of Directors believes that this decision is in the interest of the Company and its shareholders. In order

to enhance the Company's solvency margin and support the expansion of its activities, the Board of Directors recommended increasing the Company's share capital

after it was reduced through a rights issue by 350,000,000 Saudi Riyals, so that the Company's share capital becomes 1,050,000,000 Saudi Riyals, after obtaining the

approval of the Saudi Central Bank, the Capital Market Authority, Tadawul, and the Extraordinary General Assembly.

In 2018G, the Company developed a new strategy to enhance its financial and administrative performance. It is called the 2019–2022G Transformation Strategy,

which will contribute to achieving the following:

Increasing customer satisfaction during and after signing or before and after obtaining insurance services, and working toward ongoing communication with

customers to secure their loyalty by following a customer-centric methodology, where the focus is on the customer's experience and harnessing all services

necessary for MEDGULF customers to obtain the highest levels of satisfaction for the services provided to them.

Improving the solvency margin, the profitability of insurance services, and covering accumulated losses by enhancing the Company's capabilities to build a

profitable insurance portfolio, excluding the Company's sources of loss and attracting a segment of customers that contribute to increasing annual profits.

Strengthening governance, ensuring compliance and managing risks.

Developing the Company and meeting the regulations of the Saudi Central Bank by relying on multiple strategies prepared by various experts that focus on all

of the Company's activities and customer segments.

In order to achieve this strategy, the Company will adopt the necessary corrective measures, including, but not limited to:

Developing the best talent at the senior management level to implement this strategy.

Building a work environment that is in line with the Company's strategic direction that distinguishes and rewards the best talents.

Developing and implementing the best work procedures and technology at the Company.

Redesigning the applied policies and procedures and enhancing the capabilities of the Company's financial management department, while enabling cost

allocation.

Improving the Company's business image to reflect change and attract new customers.

17

7. The capital reduction and its impact on shareholders

The Company intends to reduce its share capital from eight hundred million (800,000,000) Saudi Riyals to seven hundred million (700,000,000) Saudi Riyals, a decrease

of 12.5%, thus reducing the number of the Company's shares from eighty million (80,000,000) ordinary shares to seventy million (70,000,000) ordinary shares. This

means that the reduction ratio will be one (1) share for every eight (8) shares.

The reduction of the Company's share capital is mainly to offset most of the Company's accumulated losses, based on the Company's unaudited internal financial

statements for the period ending 30/09/2020G, by the amount of shares canceled amounting to one hundred million (100,000,000) Saudi Riyals. The accumulated losses

of five million, six hundred forty-three thousand, one hundred twenty-eight (5,643,128) Saudi Riyals will represent 0.8% of the Company's share capital after the

reduction is completed.

Fractional shares (if any) resulting from the capital reduction will be collected in one portfolio to be sold on Tadawul at the prevailing price at the time, and the proceeds

of their sale will be distributed to the Eligible Shareholders, each according to their ownership in the fractional shares, within thirty (30) days from the date of the

Extraordinary General Assembly in which the shareholder approve the capital reduction.

The reduction of the Company's share capital will not affect the market value of the Company's shareholder portfolios, as evidenced by the hypothetical table below:

Item (estimated) Before capital reduction After capital reduction

Shares owned prior to the reduction 1,000 shares 1,000 shares

Share price before the reduction

(closing price of the share on 21/06/1442H

(corresponding to 03/02/2021G))

SAR 21.20 SAR 21.20

Shares canceled N/A 125 shares

Reduction percentage N/A 12.5%

Shares owned after the reduction 1,000 shares 875 shares

Share price after the reduction (estimated)* N/A SAR 24.23

Market value of the shares before the reduction

(estimated) SAR 21,200 N/A

Market value of shares after the reduction (estimated) N/A SAR 21,201

Fractional equity compensation (estimated) N/A 1.25

*Note: The expected share price after the capital reduction has been rounded from 24.2285714285714 to 24.23 Saudi Riyals.

18

The capital reduction and its impact on shareholders, continued

It should be noted that in the event of a shareholder that has one (1) of the Company’s shares in their portfolio, such share will be canceled and the shareholder will be

compensated for that share. The table below sets out the impact on shareholders who own one share, two shares, three shares, four shares, five shares, six shares, seven

shares, eight shares, nine shares, or ten shares:

Value Value Value Value Value Value Value Value Value Value Item (estimated)

10 shares 9 shares 8 shares 7 shares 6 shares 5 shares 4 shares 3 shares 2 shares 1 share

Shares owned

prior to the

reduction

21.20 21.20 21.20 21.20 21.20 21.20 21.20 21.20 21.20 21.20 Share price before

the reduction

21/06/1442H

(corresponding to

03/02/2021G)

2 2 1 1 1 1 1 1 1 1 Shares canceled

8 7 7 6 5 4 3 2 1 N/A Shares owned after

the reduction

24.23 24.23 24.23 24.23 24.23 24.23 24.23 24.23 24.23 24.23 Share price after

the reduction

(estimated)*

212.00 190.80 169.60 148.40 127.20 106.00 84.80 63.60 42.40 21.20

Market value of the

shares before the

reduction

(estimated)

193.84 169.61 169.61 145.38 121.15 96.92 72.69 48.46 24.23 N/A

Market value of

shares after the

reduction

(estimated)

18.16 21.19 N/A 3.02 6.05 9.08 12.11 15.14 18.17 21.20

Compensation

amount as a result

of fractional shares

*Note: The expected share price has been rounded from 24.2285714285714 to 24.23 Saudi Riyals after the capital reduction.

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The Company’s closing price per share on [●]/[●]/1442H, corresponding to [●]/[●]/2021G, the day of the Extraordinary General Assembly, is [●] Saudi Riyals, and it

is expected to increase to [●] Saudi Riyals after the capital reduction. The expected share price is [●] Saudi Riyals on the opening of the market from [●]/[●]/1442H,

corresponding to [●]/[●]/2021G, to [●]/[●]/1442H, corresponding to [●]/[●]/2021G, where the trading of the Company's shares will be suspended for a period of two

working days if the shareholders approve the capital reduction in the Extraordinary General Assembly.

Value Change in share price after the capital reduction

SAR 21.20 The closing share price as of [●]/[●]/1442H, corresponding to [●]/[●]/2021G, the day of the

Extraordinary General Assembly

SAR 24.23 * Expected share price of the Company after the capital reduction

SAR 100,000,000 Value of capital reduction

10,000,000 shares Number of shares canceled

80,000,000 shares Number of shares outstanding and issued before the capital reduction

SAR 1,696,000,000 Market value of shares before the capital reduction (estimated)

70,000,000 shares Number of shares outstanding and issued after the capital reduction

SAR 24.23 * Share price after the capital reduction

SAR 1,696,000,000 Market value of the shares after the capital reduction (estimated)

Note: The values set out in this table are for demonstrative purposes to clarify the share price adjustment mechanism to shareholders. However, the update will take place on the closing

day at the share price on the day of the Extraordinary General Assembly meeting.


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The following table sets out how the share price is calculated after the capital reduction.

Value Share

SAR 21.20 (a) Share price before the capital reduction on [●]/[●]/1442H,

corresponding to [●]/[●]/2021G

80,000,000 shares (b) Number of shares before the reduction

SAR 1,696,000,000 (c) Market value of the Company's shares before the capital reduction =

(a) * (b)

70,000,000 shares (d) Number of shares after the capital reduction

SAR 24.23 * Market value of the Company's shares after the capital reduction = (c) ÷

(d)

Note: The values set out in this table are for demonstrative purposes to clarify the share price adjustment mechanism to shareholders. However, the update will take place at the closing price of the share on

the day of the Extraordinary General Assembly meeting.


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8. The impact of the capital reduction on the Company's operations, obligations, and shareholders' equity

The capital reduction has no effect on the Company's operations, obligations, and shareholders' equity, as reducing the share capital by canceling ten million (10,000,000)

of the Company's ordinary shares with a nominal value of ten (10) Saudi Riyals per share is just an entry in the Company's books to write off most of the accumulated

losses by transferring 100,000,000 Saudi Riyals from the share capital account to the accumulated loss account, according to the report of the auditor.

Details of the impact of the capital reduction on shareholders’ shares and accumulated losses based on the Company's unaudited internal financial statements for the

period ending 30/09/2020G (unaudited):

Net Impact (SAR'000) After the reduction (SAR’000) Before the reduction (SAR’000) Shareholders' equity

(100,000) 700,000 800,000 Share capital

0 26,135 26,135 Statutory reserve

100,000 (5,643) (105,643) Accumulated losses

0 (5,159) (5,159)

Re-measurement of defined

benefits liability – employee

benefits

0 16,106 16,106 Fair value reserve from

investments

0 727,820 727,820 Total

Source: The Company and Tadawul.

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9. Potential risks

The capital reduction aims to offset the accumulated losses, which will strengthen the Company's financial position and maintain its continuity. As previously

mentioned, the Company is working to rectify its situation to prevent losses and realize profits, which will benefit the Company's shareholders. Note that the

capital reduction has been studied from a financial and legal aspects. The auditor has confirmed that there are no risks that could affect the Company as a result

of the capital reduction.

After reducing the share capital, the percentage of accumulated losses will be 0.8% of the Company's share capital. There are no guarantees that the Company

will not record additional losses. If the accumulated losses are 20% or more of the Company's share capital, the Company will be subject to the “Procedures

and Instructions Related to Listed Companies with Accumulated Losses Amounting to 20% or more of its Share Capital” issued by the Authority.

In the event that the accumulated losses amount to 50% of the Company's share capital, then the Company will be subject to Article (150) of the Companies

Law, which stipulates that any Company official or the auditor must immediately inform the Chairman of the Board of Directors upon their knowledge of the

same. The Chairman must immediately inform the members of the Board, and the Board of Directors must, within 60 days of being informed, call a meeting of

the Extraordinary General Assembly within 180 days from the date on which it was informed of the losses to decide whether to increase or decrease the

Company’s share capital so that the percentage of losses is reduced to less than half of the paid-up share capital or to dissolve the Company before the term

specified in its Bylaws.

On 17/04/1442H, the Ministry of Commerce announced the issuance of the Royal Decree amending and suspending certain provisions of the Companies Law,

issued under Decree No. (M/3) on 28/01/1437H, for a period of two years, starting from 01/08/1441H, including:

o Extending the period during which the board of directors must call a meeting of the extraordinary general assembly from 15 days to 60 days after the

board becomes aware that the losses of the joint stock company have reached half of the paid-up share capital.

o Extending the period for holding the extraordinary general assembly meeting from 45 days to 180 days from the date the board of directors becomes

aware of the losses.

o Paragraph (2) of Article (150) of the Companies Law, whereby unlisted joint-stock companies must make ongoing disclosures on the developments of

their losses once such losses reach the amount specified in Paragraph (1) of Article (150), in accordance with the following controls:

1. Upon learning that the company’s losses have reached half of the share capital, the chairman of the company’s board of directors shall submit a

request to the Ministry of Commerce to publish an announcement of such on the Ministry’s website, including the amount of losses, their percentage

of the share capital, and the main reasons that led to such losses.

2. The chairman of the company’s board of directors shall submit to the Ministry of Commerce, on a quarterly basis, a statement on the developments

of the company's losses within fifteen days from the end of each quarter and request the publication of an announcement on the Ministry’s website.

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3. The chairman of the company’s board of directors, upon learning that the company's losses have been reduced to less than half of the share capital,

shall submit a request to the Ministry of Commerce to publish an announcement regarding such on the Ministry’s website, including the measures

taken by the company to correct its position.

According to Articles 66 and 68 of the Implementing Regulations of the Cooperative Insurance Companies Control Law, the Company must maintain certain

levels of financial solvency, where the minimum required for financial solvency is 100%. The Saudi Central Bank requires insurance companies that are not

committed to adequate levels of solvency to take a number of measures to correct their position, including:

o Increase the company’s share capital

o Adjust prices

o Reduce costs

o Stop accepting any new subscriptions

o Liquidate certain assets

o Any other procedure the company deems appropriate that is approved by the Saudi Central Bank

If the Company is unable to fulfill customer requirements for a period specified by the Saudi Central Bank, and after taking the above measures, the Saudi

Central Bank may appoint an advisor (to provide advice as needed) or withdraw the Company’s license in accordance with the provisions stipulated in Article

(68), Clause (2), Paragraph (d) of the Implementing Regulations of the Cooperative Insurance Companies Control Law.

ا

24

10. Expected time period of the capital reduction

Expected schedule of the capital reduction Date

The Company’s announcement on the Tadawul website regarding the recommendation of the

Board of Directors to reduce the Company's share capital and then increase its share capital by way

of offering rights issue.


Approval of the Saudi Central Bank to reduce the Company's share capital. 23/04/1442H (corresponding to 08/12/2020G)

Submission of the application file to the Capital Market Authority to approve the capital reduction. 02/05/1442H (corresponding to 17/12/2020G)

Receipt of the Capital Market Authority's approval of the request to reduce the Company's share

capital. This approval was announced on the Capital Market Authority website and the Saudi Stock

Exchange website (Tadawul).


Invitation to attend the Extraordinary General Assembly to reduce the Company’s share capital and

the announcement of such on the Saudi Stock Exchange website (Tadawul).


Announcement of the start of electronic voting on the items of the Extraordinary General Assembly

meeting that include the capital reduction.


Meeting of the Extraordinary General Assembly on the capital reduction*. [●]H (corresponding to [●]G)

Extraordinary General Assembly approval of the capital reduction. [●]H (corresponding to [●]G)

The Company announces the results of the Extraordinary General Assembly on the capital

reduction.


Suspension period for trading the Company's shares. From [●]H (corresponding to [●]G) to [●]H

(corresponding to [●]G)

Start of trading in the shares at the adjusted price. [●]H (corresponding to [●]G)

Announcement of the deposit of sums returned (if any) from the sale of fractional shares resulting

from the Company's capital reduction in the accounts of the Eligible Shareholders, within 30 days

from the date the shareholders approve the Company's capital reduction in the Extraordinary

General Assembly.


* In the event that the quorum necessary to hold the first meeting is not met, the second meeting will be held one hour after the end of the period specified for the first meeting. In the event that the quorum required to

hold the second meeting is not met, the third meeting will be held 21 days after the end of the period specified for the second meeting.

25

11. Required regulatory approvals

The Company obtained the approval of the Saudi Central Bank for reducing the share capital from eight hundred million (800,000,000) Saudi Riyals

to seven hundred million (700,000,000) Saudi Riyals for a decrease of 12.5%, thus reducing the number of the Company's shares from eighty million

(80,000,000) ordinary shares to seventy million (70,000,000) ordinary shares pursuant to Letter No. 42026560 dated 23/04/1442H (corresponding to

08/12/2020G).

The Company obtained the approval of the Capital Market Authority for the capital reduction on 26/06/1442H corresponding to 08/02/2021G.

The capital reduction depends on the shareholders’ approval in the Extraordinary General Assembly. Shareholders should know that if their approval

of the capital reduction is not obtained, the capital reduction will cease completely.

In the event that the shareholders’ approval is obtained during the Extraordinary General Assembly on the capital reduction, the Company will address

the Ministry of Commerce to obtain its approval to amend the Commercial Registry and the Company's Bylaws.

Other than the above, there are no other regulatory approvals that the Company did not obtain regarding the completion of the capital reduction

procedures.

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12. Relevant laws and regulations

The Companies Law, promulgated by Royal Decree No. (M/3) of 28/01/1437H (corresponding to 10/11/2015G) and the amendments thereto.

The Capital Market Law, promulgated by Royal Decree No. (M/3) of 02/06/1424H (corresponding to 31/07/2003G) and the amendments thereto.

Rules on the Offer of Securities and Continuing Obligations issued by the Capital Market Authority pursuant to Resolution No. 3-123-2017 of

09/04/1439H (corresponding to 27/12/2017G) amended by CMA Board Resolution No. 1-104-2019 dated 01/02/1441H (corresponding to

30/09/2019G).

The Listing Rules issued by Tadawul and approved by CMA Board Resolution No. (3-123-2017) of 09/04/1439H (corresponding to 27/12/2017G),

amended by Board Resolution No. 1-104-2019 of 01/02/14410H (corresponding to 30/09/2019G).

The Cooperative Insurance Companies Control Law issued by Royal Decree No. (M/32) of 02/06/1424H (corresponding to 31/07/2003G) and its

implementing regulations, and the amendments thereto.

The Company's Bylaws.

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13. Auditor’s Report

The Company has authorized Al Azem, Al Sudairy, Al Shaikh & Partners, certified public accountants, to prepare a limited examination report to study the

reasons for reducing the share capital and the effect of that reduction on the Company's obligations in order to obtain the Capital Market Authority's approval

of the Company's capital reduction. The auditor's report shall be read to the shareholders during the Extraordinary General Assembly meeting, and the capital

reduction will not take place without the report being read.

A copy of the limited examination by the auditor was included in the announcement of the invitation to this Extraordinary General Assembly on the Saudi Stock

Exchange website (Tadawul) on [●]/[●]/1442H, corresponding to [●]/[●]2021G.

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14. Legal Advisor Opinion

The Company has appointed the legal advisor Abdulaziz Al-Ajlan & Partners, Attorneys and Legal Advisors, to express a legal opinion on the Company's

capital reduction.

The Company obtained the letter of the legal advisor, in which the advisor confirms that the request for the capital reduction and the supporting documents have

been prepared in accordance with the laws and regulations in force in the Kingdom of Saudi Arabia, after obtaining all the necessary regulatory approvals.

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15. Important Information

According to Article (144) of the Companies Law, it is permissible, by a resolution of the Extraordinary General Assembly, to reduce the Company’s

share capital if it incurs losses. In this case it is permissible to reduce the share capital below the limit stipulated in Article (54) of the Companies Law,

i.e., 500,000 Saudi Riyals. The resolution shall only be issued after the recital of the auditor's report on the reasons for the reduction, the Company's

obligations and the effect of the reduction on these obligations, taking into account the provisions of the Companies Law. The Resolution shall state the

method of reduction.

According to Article (94) of the Companies Law, a meeting of the extraordinary general assembly shall not be valid unless attended by shareholders

representing at least half of the company's share capital. If this quorum is not met at the first meeting, a second meeting is called. The second meeting

shall be valid if attended by a number of shareholders representing at least a quarter of the share capital. If the quorum is not met at the second meeting,

a third meeting will be called. The third meeting will be valid regardless of the number of shares represented therein after the approval of the competent

authority. Resolutions of the extraordinary general assembly to reduce the company’s share capital shall be issued by a three-quarters majority of the

shares represented in the meeting.

In the event that the Company's shareholders agree to reduce the share capital, the reduction resolution will be enforceable upon all of the Company's

shareholders registered in the Company's records with the Stock Exchange (Tadawul) at the end of trading on the day of the Extraordinary General

Assembly. This includes shareholders not attending the Extraordinary General Assembly meeting, as well as shareholders who attended the meeting

and did not vote for or against the resolution to reduce the share capital.

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16. Documents Available for Inspection

The Company will allow the shareholders to view the following documents at the Company's headquarters in Riyadh and on the Company's website, from the

date of CMA approval on 26/06/1442H (corresponding to 08/02/2021G) until the Extraordinary General Assembly meeting on [●]H (corresponding to [●]G)

during official working hours from [●] am until [●] pm:

A copy of the Board of Directors recommendation to reduce the share capital.

A copy of the financial advisor's appointment letter.

A copy of the legal consultant's appointment letter.

A copy of the Saudi Central Bank's letter approving the capital reduction, dated 23/04/1442H (corresponding to 08/12/2020G).

A copy of the announcement of the Capital Market Authority’s approval of the capital reduction, published on the Authority’s website and on the Saudi

Stock Exchange's website (Tadawul) on 26/06/1442H (corresponding to 08/02/2021G).

A copy of the shareholders' Circular submitted to the Extraordinary General Assembly.

A copy of the auditor's report on the capital reduction.

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Appendixes

● Copy of the Auditor's report

● Power of attorney form to attend the Extraordinary General Assembly meeting

32

Appendix 1

Report of the Auditor

42

Appendix 2

Power of Attorney form to attend the Extraordinary General Assembly meeting

Power of Attorney Form

I, the shareholder ...................................... (Full name of principal), of ................... nationality, ID No: ......................

(National ID, or resident ID or passport No. for non-Saudis) issued by: ...................... (In my personal capacity as/authorized

to sign on behalf of the director/chairman of the board of directors of) ................ (name of company), the owner of (........)

shares of the Mediterranean and Gulf Cooperative Insurance and Reinsurance Company (MEDGULF), a public Saudi joint

stock company registered in the Commercial Registry of Riyadh under No. 1010231925, in accordance with Article (25) of

the Company's Bylaws, do hereby authorize .................. (full name of authorized representative), to represent me in attending

the Extraordinary General Assembly meeting to be held at ............. (time) on .................. (day), ...................... H,

corresponding to .................... G, at .................................................. (link to meeting premises) ...................................., and

I authorize said person to vote on my behalf on the items set forth in the agenda and other items that might be submitted to

the Ordinary General Assembly for a vote, and to sign on my behalf all resolutions and documents related to such meeting.

This power of attorney is valid for this meeting or any subsequent postponed meeting thereof.

Power of Attorney Execution Date: .../.../...... Corresponding to: .../.../......

Name of Power of Attorney Signatory:

Capacity of Power of Attorney Signatory:

Civil Registry No. of Power of Attorney Signatory or Residency or Passport No. for non-Saudis:

Principal's Signature (with official seal if the shareholder is a legal person):