annual report 2011 Kurnia Asia Berhad K annual report 2011

Transcription

1 Kurnia Asia Berhad K 10th Floor, Bangunan Kurnia, No. 32, Jalan Yap Ah Shak, Kuala Lumpur T: F: E: Kurnia Asia Berhad K B u i l d i n g S t r e n g t h Together

2 A Special Tribute To Our Staff. Kurnia Asia Berhad has come a long way since its establishment and is still the forerunner in the general insurance business. The Group owes much of its success to its dedicated team of staff who has worked together over the years to uphold and raise the brand name above its peers. Their undivided commitment and loyalty towards the Company s performance has built a strong and dynamic force to be reckoned with. Innovation coupled with professionalism and integrity, the team will continue to join hands in Building Strength Together to achieve greater heights.

3 Kurnia Asia Berhad page 1 VISION & MISSION TO BE A LEADING FINANCIAL SERVICES GROUP IN THE ASEAN REGION To expand regionally into neighbouring countries and become a leading insurer in the ASEAN region To provide quality services to customers To generate reasonable returns to shareholders consistently Contents page Notice of Annual General Meeting 2 Corporate Information 4 Branch Network 6 Financial Highlights 8 Corporate Milestones 10 Chairman s Statement 12 Board of Directors Profile 18 Management Team 22 Statement on Corporate Governance 23 Audit Committee Report 27 Statement on Internal Control 29 Products & Services 32 Analysis on the Financial Statements 36 Financial Statements 39 Additional Compliance Information 135 List of Top 10 Properties 136 Analysis of Shareholdings 138 Form of Proxy 143

4 page 2 Kurnia Asia Berhad Notice of Annual General Meeting NOTICE IS HEREBY GIVEN THAT the ELEVENTH ANNUAL GENERAL MEETING of Kurnia Asia Berhad ( KAB ) will be held at 9th Floor, Training Auditorium, Menara Kurnia, Block B4, Leisure Commerce Square, No. 9 Jalan PJS 8/9, Petaling Jaya, Selangor Darul Ehsan on Wednesday, 27 June 2012 at a.m. to transact the following businesses :- AGENDA 1. To receive the Audited Financial Statements for the financial year ended 31 December 2011 and the Reports of Directors and Auditors thereon. RESOLUTION 1 2. To re-elect the following Directors who retire pursuant to Article 110 of the Company s Articles of Association :- (a) (b) Dato Wira Othman bin Abdul Datuk Kua Chung Sen RESOLUTION 2 RESOLUTION 3 3. To re-appoint Messrs. KPMG as Auditors of the Company and to authorise the Directors to fix their remuneration. RESOLUTION 4 4. AS SPECIAL BUSINESS To consider and if thought fit, to pass the following resolutions:- 4.1 Ordinary Resolution Authority to Issue Shares RESOLUTION 5 THAT subject always to the Companies Act, 1965 ( the Act ) and the approvals of the relevant governmental and/or regulatory authorities, the Directors be and are hereby authorised pursuant to Section 132D of the Act to issue shares in the Company at any time until the conclusion of the next Annual General Meeting upon such terms and conditions and for such purposes that the Directors may in their absolute discretion deem fit provided that the aggregate number of shares to be issued pursuant to this Resolution does not exceed 10% of the issued share capital of the Company for the time being. 4.2 Special Resolution Proposed Change of Name from Kurnia Asia Berhad to KSK Group Berhad RESOLUTION 6 THAT the name of the Company be changed from Kurnia Asia Berhad to KSK Group Berhad with effect from the date of the Certificate of Incorporation on Change of Name of the Company to be issued by the Companies Commission of Malaysia, AND THAT all references in the Memorandum and Articles of Association to the name Kurnia Asia Berhad, wherever the same may appear, shall be deleted and substituted with KSK Group Berhad. AND THAT the Directors and/or Company Secretary of the Company be and are hereby authorised to carry out all necessary formalities to effect the Proposed Change of Name of the Company. 5. To transact any other business for which due notice shall have been received.

5 Kurnia Asia Berhad Notice of Annual General Meeting (cont d) page 3 Notes: 1. In respect of deposited securities, only depositors whose names appear in the Record of Depositors as at 21June 2012 be regarded as members and entitled to attend, speak and vote at the Meeting, 2. A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote in his stead. A proxy need not be a Member of the Company and a Member may appoint any persons to be his proxy. The provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. 3. A Member shall be entitled to appoint not more than three (3) proxies to attend and vote at the Meeting. Where a Member appoints more than one (1) proxy, the appointment shall be invalid unless the Member specifies the proportions of his holding to be represented by each proxy. 4. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing, or if the appointer is a corporation, either under its Common Seal or under the hand of its attorney duly authorised. 5. The instrument appointing a proxy and the power of attorney or other authority (if any), under which it is signed or a notarially certified copy thereof, must be deposited at the Registered Office of the Company at 10th Floor, Bangunan Kurnia, No. 32 Jalan Yap Ah Shak, Kuala Lumpur not less than forty eight (48) hours before the time for holding the Meeting or any adjournment thereof. 6. Explanatory Notes on Special Business: Resolution 5 Authority to Issue Shares At last year s Annual General Meeting ( AGM ), mandate was given to the Directors of the Company to issue and allot not more than 10% of the issued share capital of the Company. However, the mandate was not utilised and accordingly will lapse at this forthcoming AGM. As such, the Board would like to seek for a renewal of the mandate. The proposed Ordinary Resolution 5, if passed, will empower the Directors of the Company to issue and allot not more than 10% of the issued share capital of the Company subject to the approvals of all the relevant governmental and/or other regulatory bodies and for such purposes as the Directors consider would be in the interest of the Company. The authority will provide flexibility to the Company for any possible fund raising activities, including but not limited to further placing of shares, for purpose of funding future investment project(s), working capital and/or acquisitions. This authorisation will, unless revoked or varied by the Company in a general meeting, expire at the next AGM of the Company. Resolution 6 Proposed Change of Name The Board proposed to change the Company s name from Kurnia Asia Berhad to KSK Group Berhad (Proposed Change of Name). The proposed change of name is to facilitate the terms of the Sale and Purchase Agreement ( SPA ) dated 12 April 2012 in relation to the proposed disposal by the Company of its 100% equity interest in Kurnia Insurans (Malaysia) Berhad to AmG Insurance Berhad, to be approved at the EGM of the Company to be held on a date to be announced. The approval of the Companies Commission of Malaysia ( CCM )for the proposed name KSK Group Berhad had been obtained on 23 May The proposed Change of Name is now subject to the shareholders approval to be obtained at the forthcoming AGM. The proposed Change of Name, if approved by the shareholders of the Company, will be effective from the date of issuance of the Certificate of Incorporation on Change of Name by CCM. The Memorandum and Articles of Association of the Company will be amended accordingly to reflect the change of name. BY ORDER OF THE BOARD CHUNG PEI PEI SEOW FEI SAN Secretaries Kuala Lumpur Date : 5 June 2012

6 page 4 Kurnia Asia Berhad Corporate Information Board of Directors Tan Sri Dato Paduka Kua Sian Kooi (Executive Chairman/ Non-Independent Executive Director) Datuk Kua Chung Sen (Deputy Executive Chairman/ Non-Independent Executive Director) Dato Quah Teong Moo (Non-Independent Non-Executive Director) Dato Wira Othman Bin Abdul (Independent Non-Executive Director) Leow Ming Leow Min Fong (Independent Non-Executive Director) Dato Dr. Sharifuddin bin Abdul Wahab (Independent Non-Executive Director) Audit Committee Leow Ming Leow Min Fong (Chairman) Dato Wira Othman bin Abdul (Member) Dato Dr. Sharifuddin bin Abdul Wahab (Member) Company Secretary Chung Pei Pei (F) (MAICSA ) Seow Fei San (F) (MAICSA ) Registered Office Kurnia Asia Berhad 10th Floor, Bangunan Kurnia No. 32, Jalan Yap Ah Shak Kuala Lumpur Tel No. : Fax No. : kab@kurnia.com Website : Principal Banker Malayan Banking Berhad Bandar Sunway Branch No , Jalan PJS 11/28A Bandar Sunway Petaling Jaya Selangor Darul Ehsan Tel No. : Fax No. : Auditors KPMG (Firm No. AF0758) Chartered Accountants KPMG Tower No. 8 First Avenue Bandar Utama Petaling Jaya Selangor Darul Ehsan Tel No. : Fax No. : Registrar Symphony Share Registrars Sdn Bhd Level 6, Symphony House Block D13, Pusat Dagangan Dana 1 Jalan PJU 1A/ Petaling Jaya Selangor Darul Ehsan Tel No. : Fax No. :

7 Innovative Thinking Creative ideas come from innovative thinking. At Kurnia, we pride ourselves as innovators of various valuable protection plans. We constantly come up with new ideas to enhance our products and services to meet the ever-changing needs of our customers.

8 page 6 Kurnia Asia Berhad Branch Network KURNIA ASIA BERHAD ( K) 10th Floor Bangunan Kurnia No 32, Jalan Yap Ah Shak Kuala Lumpur Malaysia Tel : Fax : kab@kurnia.com Web : KURNIA INSURANS (MALAYSIA) BERHAD (44191-P) Menara Kurnia No. 9, Jalan PJS 8/ Petaling Jaya Selangor Darul Ehsan Malaysia Tel : Fax : corporate@kurnia.com Web : PT. KURNIA INSURANCE INDONESIA Plaza GRI, 12th Floor JI. H. R. Rasuna Said Blok X-2, No. 1 Jakarta Indonesia Tel : (62) Fax : (62) Web : indonesia KURNIA INSURANCE (THAILAND) CO., LTD. 9th-10th FL. Vorawat Building 849, Silom Road Silom, Bangrak Bangkok Tel : Fax : Web : thailand ALOR SETAR Wisma Kurnia No. 18, Lebuhraya Darul Aman Alor Setar, Kedah Tel : Fax : BATU PAHAT No. 12, Jalan Maju Barat Taman Maju Batu Pahat, Johor Tel : Fax : BUTTERWORTH No. 9, Jalan Todak 1 Pusat Bandar Sunway Seberang Jaya Prai, Butterworth, Penang Tel : Fax : CENTRAL Menara Kurnia No. 9, Jalan PJS 8/ Petaling Jaya, Selangor Tel : Fax : IPOH No. 16 & 18, Persiaran Greentown 6 Pusat Perdagangan Greentown Ipoh, Perak Tel : Fax : JOHOR BAHRU No. 12, 12A & 12B Jalan Padi Satu Bandar Baru Uda Johor Bahru, Johor Tel : Fax : JOHOR JAYA No. 110, Jalan Ros Merah 2/17 Taman Johor Jaya Johor Bahru, Johor Tel : Fax : KAJANG No. 31, Jalan Ria Satu (1) Kawasan Perindustrian Ria Off Jalan Semenyih Kajang, Selangor Tel : Fax : KANGAR No. 58, Jalan Penjara Medan Syed Alwi Kangar, Perlis Tel : Fax : KEPONG No. 4-G To 4-3, Block B Lot B2, Jalan Prima 5 Pusat Niaga Metro Prima Kuala Lumpur Wilayah Persekutuan Tel : Fax : KLANG No. 27, Jalan Tiara 3 Bandar Baru Klang Klang, Selangor Tel : Fax : KLUANG No. 8, Jalan Persiaran Yayasan Kluang, Johor Tel : Fax :

9 Kurnia Asia Berhad Branch Network (cont d) page 7 KOTA BHARU Lot 358 & 359, Seksyen 27 Jalan Sri Cemerlang Kota Bharu, Kelantan Tel : Fax : KOTA KINABALU Lot 47, Lrg Bandaran Berjaya 5 Bandaran Berjaya, Jalan Padang Kota Kinabalu, Sabah Tel : Fax : KUALA LUMPUR Bangunan Kurnia No. 32, Jalan Yap Ah Shak Kuala Lumpur Wilayah Persekutuan Tel : Fax : KUALA TERENGGANU No. 26, Jalan Sultan Mahmud Kuala Terengganu Terengganu Tel : Fax : KUANTAN B-344, Jalan Beserah Kuantan, Pahang Tel : Fax : KUCHING No. 246 & 247 Jalan Datuk Wee Kheng Chiang Kuching, Sarawak Tel : Fax : MELAKA No. 162, Jalan Taman Melaka Raya 75000, Melaka Tel : Fax : MIRI Lot 665, Jalan Permaisuri Miri, Sarawak Tel : Fax : PENANG 2F, Lorong Selamat 10400, Penang Tel : Fax : SEGAMAT No. 55, Jalan Genuang Kampung Segamat, Johor Tel : Fax : SELANGOR Wisma Kurnia, No Jalan Maharajalela Kuala Lumpur Wilayah Persekutuan Tel : Fax : SEREMBAN No. 32, Beta Ria Business Centre Jalan Durian Emas 4 Off Jalan Dato Siamang Gagap Seremban, Negeri Sembilan Tel : Fax : SIBU Lot 438, Block 5 1st Floor, Town District No. 16-E, Lane 4, Lanang Road Sibu, Sarawak Tel : Fax : SITIAWAN No. 11, Taman Sentosa Dua Jalan Lumut Sitiawan, Perak Tel : Fax : SUNGAI PETANI No. 9, Jalan Cempaka 1/1 Bandar Aman Jaya Sungai Petani, Kedah Tel : Fax : TAIPING No. 408, Taman Saujana Jalan Kamunting Kamunting Taiping, Perak Tel : Fax : TAWAU TB311, 1st Floor Block 36, Fajar Complex Jalan Haji Karim Tawau, Sabah Tel : Fax : TEMERLOH 27, Jalan Sudirman 3 Bandar Sri Semantan Temerloh, Pahang Tel : Fax :

10 page 8 Kurnia Asia Berhad Financial Highlights For the financial year ended 30 June For the 6 months ended 31 December For the financial year ended 31 December Kurnia Asia Berhad RM Million Restated 1 Restated 2 Gross premium written 1, , , ,109.7 Net premium 1, Earned premium 1, Underwriting (deficit) / surplus (377.3) (4.3) 3.6 (51.0) (4.8) Investment & other income Profit / (Loss) before tax (290.0) Profit / (Loss) for the year / period (277.4) Total assets 2, , , , ,761.2 Insurance contract liabilities 1, , , , ,690.8 Shareholders fund Restated 1 Prior year figures have been restated to reflect the effect of change in accounting policies in respect of insurance claims liabilities arising from the adoption of the Risk-Based Capital Framework by the Malaysian insurance subsidiary. Restated 2 31 December 2009 figures have been restated to conform with FRS 4 Insurance Contracts, whereby the element of deferred acquisition cost has been excluded from the earned premium in income statements; and reinsurance recovery of insurance contract liabilities were reclassed to be presented as reinsurance assets in statement of financial position. Prior years (financial year ended 30 June 2008 to 2009) were not restated as it is impractical to carry out recomputation. Gross Premium (RM Million) Net Premium (RM Million) , , , , , ^ 09^ 09 * 10 ** 11 ** R1 R1 R2 08^ 09^ 09 * 10 ** 11 ** R1 R1 R2

11 Kurnia Asia Berhad Financial Highlights (cont d) page 9 Total Assets (RM Million) Shareholders Fund (RM Million) 08^ 09^ 09 * 10 ** 11 ** R1 R1 R2 08^ 09^ 09 * 10 ** 11 ** R1 R1 R2 Profit/(Loss) Before Tax (RM Million) Profit/(Loss) for The Year/Period (RM Million) (290.0) (277.4) , , , , , ^ 09^ 09 * 10 ** 11 ** R1 R1 R2 08^ 09^ 09 * 10 ** 11 ** R1 R1 R2 ^ For 12 months ended 30 June * For 6 months ended 31 December 2009 ** For 12 months ended 31 December

12 page 10 Kurnia Asia Berhad Corporate Milestones KURNIA INSURANS (MALAYSIA) BERHAD KURNIA ASIA BERHAD 1991 Assumed present name as Kurnia Insurans (Malaysia) Berhad 1993 Gross premium surpassed RM200 million 1995 Total assets surpassed RM500 million 1996 Pre-tax profit surpassed RM100 million; Attained MS ISO Gross premium surpassed RM500 million 1998 Paid-up capital increased to RM100 million 1999 Total assets surpassed RM1 billion; A Rating for Claims Paying Ability by MARC 2000 Launch of Kurnia Auto Assist (KAA) 2001 Paid-up capital increased to RM200 million; Corporate Head Office moved to the 25-storey Menara Kurnia 2002 A Rating for General Insurance Financial Strength, accredited by MARC; Attained MS ISO 9000: Total assets surpassed RM1.5 billion; Launch of Kurnia Express (KE) 2004 Gross premium surpassed RM1 billion; A+ Rating for General Insurance Financial Strength, upgraded by MARC; Launch of MediGuard and MediGuard Express Assumed present name as Kurnia Asia Berhad (KAB) Acquisition of Kurnia Insurans (Malaysia) Berhad; Formation of Kurnia Asia Berhad Group 2005 Listing on the then Main Board of Bursa Securities (KURASIA 5097); Inclusion in the MSCI Malaysia Index; Inclusion in the then Kuala Lumpur Composite Index (KLCI) 2006 A Rating for General Insurance Financial Strength re-affirmed by MARC; Launch of 2 new divisions - Property & Casualty Division & Motor Division; Launched 8 new medical insurance policies - MediGuard Junior, Grads, Family, Senior, Biz, Lady, Premier and Value Declaration of Interim Dividend of sen per share for Financial Year Ended 30 June Total assets surpassed RM2 billion Completed acquisition of effective 100% equity interest in PT. Kurnia Insurance Indonesia; Launch of TOP (Transformation of Operations & Performance) Programme 2008 Launch of Auto Shield plan; Awarded Malaysia s Most Valuable Brand (MMVB) 2007; Partnership with Microsoft Malaysia to become the first user of Microsoft Dynamics CRM 4.0; Won Bronze in Brand Leadership Award under Life and General Insurance Category by Malaysia Brand Equity 2009 Launch of Perfect 10 personal accident plan, KAA Riders & enhanced KE services; Introduced Compensation for Assessed Repair Time (CART) extension service; SMS alerts & notifications; Awarded MMVB 2008 and 2009; Launch of Perfect Rider ; Launch of One Touch Campaign ; Upgraded compliance certification to MS ISO 9001: Launch of Perfect 10 Plus, Pet Insurance and Student Personal Accident plans; KAA Riders service extended to Johor, Penang and Malacca; Launch of KurniaInsurance Facebook and Twitter pages; First general insurer to adopt the Insurance Services Malaysia (ISM) Automotive Business Intelligence system, which is an independent vehicle valuation system; Integrated its sales systems with the ISM No Claims Discount (NCD) system for reference of eligible NCD for motor insurance 2011 Launch of Kurnia Mobile iphone application; Launch of MediGuard Supreme ; Launch of AutoGuard Warranty and PA Supreme ; Launch of Kurnia Mobile One Touch application Further capitalisation of existing subsidiaries, Kurnia Insurans (Malaysia) Berhad and PT. Kurnia Insurance Indonesia (KII); Acquisition of 25% of Kurnia Insurance Thailand (KIT) KII was awarded 2009 Third Best Insurer with equity below IDR 50 billion by Media Asuransi Incorporated Kurnia (Cambodia) Incorporated Co., Ltd (KCI) with 60% equity interest in KCI; Further capitalisation of associated company, KIT KAB won Industry Excellence Award based on the Malaysia 1000 ranking exercise.

13 Nurturing Potential People are the core component of a successful and sustainable business. We believe in nurturing individuals abilities and potential, recognising talents and rewarding achievements to strengthen the team in sustaining the Company s growth. This is a testimonial of several milestones that we have achieved in the past.

14 page 12 Kurnia Asia Berhad Chairman s Statement Dear Shareholders, On behalf of the Board of Directors, I am pleased to present the Annual Report and Audited Financial Statements of Kurnia Asia Berhad (KAB or Group) for the financial year ended 31 December 2011 (FYE 2011). FINANCIAL REVIEW Stronger Net Earnings and Growth in Non-Motor Segment The year 2011 was a significant year for us as it marked the 20th anniversary of our main subsidiary, Kurnia Insurans (Malaysia) Berhad (KIMB). From its humble beginnings two decades ago, KIMB has grown to become a household brand and is now a leading general insurer in the country. Throughout the years, together, we have upheld the spirit of strengthening the company s operations and performance, and we are delighted to see the resilient and commendable growth in our non-motor business as we grow and diversify our business. We are pleased to announce that for the year under review, the Group s overall gross premiums grew by a healthy 4.8% year-onyear (y-o-y), driven by the non-motor segment, which posted a strong growth rate of 20.2%. This was mainly attributed to KIMB, whose overall gross premium registered a 3.8% growth y-o-y, led by its non-motor gross premium, which expanded by 18.7%. As a result, KIMB s portfolio mix of motor and non-motor continued to improve to 80%: 20% ratio ( %: 18%). We achieved a net profit of RM47.8 million for the year under review, a significant increase of 218%, from the RM15.0 million recorded last year. This was mainly due to stronger underwriting performance, from a deficit of RM51.0 million recorded last year to a small deficit of RM4.8 million, almost a breakeven. KIMB s investment income for the FYE 2011 stood at RM103.7 million, 9.7% or RM11.2 million lower than previous year s performance. This was mainly attributable to the weaker investment environment in particular during the third quarter of Nevertheless, the prudent and defensive nature of KIMB s investment portfolio continued to be the driving force for a sustained income contribution. Net investment yield for the FYE 2011 stood at 5.8% vis-à-vis 6.3% last year. Aside from KIMB, we are also pleased to report that KAB s two other insurance operations recorded encouraging growth for the FYE PT. Kurnia Insurance Indonesia (KII) grew by 50% in terms of gross premium compared to the same period last year, while Kurnia Insurance (Thailand) Co., Ltd. (KIT) achieved a 48% gross premium growth during the same period. The Group is optimistic about the growth potential in both Indonesia and Thailand. The potential to grow in these two markets is undeniable, as these economies have remained resilient despite the external turbulent economic conditions In 2011, Indonesia enjoyed an economic growth of over 6% while the economic growth in Thailand was in excess of 4%. Nonlife insurance product led by motor insurance is set to grow significantly in these two markets in the coming years. Taking cue from the successful transformation programme at KIMB, KII and KIT have since last year embarked on their own transformation programmes, which aim to strengthen the companies fundamentals and operational platform to prepare for rapid growth in the years to come. In line with the Group s direction, KIT is projected to achieve gross premium income of THB2 billion for the year ending 31 December 2012, while KII s gross premium target is IDR300 billion for the same period. We are happy that our strategy to accelerate the growth of our non-motor business continues to show positive and improving trend while prudent underwriting and cost control measures have helped the Group to improve its underwriting results without compromising on the quality of our service to customers. Moving forward, the Group will continue to build on its strengths, and focus on its business goals and strategies to enhance shareholders value. On the same note, the Group will also explore various opportunities to grow and expand its business. The net asset value of the Group improved to RM401.4 million as at 31 December 2011 from RM327.8 million as at 31 December The increase was primarily due to the surplus on revaluation of properties amounting to RM30.7 million, as well as RM47.8 million net profits recorded during the period.

15 Kurnia Asia Berhad Chairman s Statement (cont d) page 13 OPERATIONS REVIEW While we continue to maintain our market leadership in the motor insurance industry, we have also stamped a strong footing in the non-motor sector. KIMB has aggressively strived towards achieving stronger growth in its non-motor business. The growth in the non-motor segment has been the key driver to achieve a more balanced portfolio during the recent years, including the year under review. In pursuit of diversification, we have taken several initiatives to increase our capability and competency in underwriting nonmotor business. Some of these include driving agency sales, developing alternative distribution channels to achieve bigger market reach, strengthening our non-motor team s underwriting and technical knowledge, and enhancing our service level. Committed to excellence and guided by the high standards of business ethics in the insurance industry, KAB was awarded the Industry Excellence Award in the Insurance category at the launching ceremony of the 5 th Edition of Malaysia 1000, Directory of Top Malaysian Companies on 14 September The award further reaffirmed the strong Kurnia brand value and its position as one of the leading general insurers in the country. Value Added Products and Services To remain competitive, we recognise the need for innovation, via the introduction of new non-motor products in profitable segments and provision of continuous enhancements to our existing products and value-added services. This is also in line with our customer service commitment to offer quality products and excellent services to our customers. Over the last 15 months, KIMB has strengthened its product development teams, which focused on introducing innovative and value-added products to meet customers needs and expectations. The Malaysian medical and health insurance sector is expected to sustain strong growth, driven by upward trends in consumer awareness coupled with an increasing need for cover against escalating healthcare costs. During the first half of 2011, KIMB launched a new medical product, MediGuard Supreme, an enhanced comprehensive medical insurance protection until the age of 85 years. This yearly renewable hospital and surgical policy added extra features for the benefits of its policyholders, such as double overall annual limit upon diagnosis of critical illnesses, noclaim bonus, medical second opinion, family discount, renewable until age 85, high annual limits for both outpatient kidney dialysis or cancer treatment, and in-hospital physician visitation. The enhanced extended coverage provides relief to customers in view of the rising healthcare costs when the unexpected hospitalisation takes place due to an accident or illness. The introduction of the health insurance plan designated for foreign workers will also bode well and drive growth for KIMB s foreign workers insurance products. KIMB has been appointed by the Human Resource Ministry and Health Ministry of Malaysia to provide insurance coverage for employment accidents, surgical and hospitalisation to foreign workers. Foreign Worker Compensation Scheme (FWCS) and Foreign Worker Hospitalisation and Surgical Insurance Scheme (SKHPPA) are designed to reduce the financial burden of the foreign workers employers in the event of an accident or illness. We are pleased that KIMB has garnered strong support from its industrial clients for these two products. In March 2011, KIMB became the first general insurer in Malaysia to launch its very own mobile application for iphone users called Kurnia Mobile, which offers ease and convenience to customers and agents alike. This significant initiative is part of the company s continuous effort in providing the best customer service as well as keeping up with the advancement in mobile technology. Following the successful launch of Kurnia Mobile, KIMB continues to further enhance its mobile technology through the launch of its second mobile application called Kurnia One Touch in October Living up to its name, Kurnia One Touch aims to reach out to our policyholders with just a click away, to further assist them in the event of any road emergency and to expedite our claims service. Kurnia One Touch is a free mobile application and is currently available for major mobile platforms such as iphone, Android and BlackBerry, making it relevant for the vast majority of data capable smartphones.

16 page 14 Kurnia Asia Berhad Chairman s Statement (cont d) The new features of the application include the ability to: Locate users through GPS, Store and send user s information, such as name, car plate number and contact details, Notify claim by allowing user to take, attach and send photos of damaged vehicle, accident scene or third-party s details using the mobile camera function, Locate nearest Kurnia branches and workshops, Access emergency numbers listing, and Provide more information about Kurnia Insurans. In August 2011, KIMB continued to roll out two new innovative products, namely AutoGuard Warranty, a warranty plan that covers unforeseen mechanical and electrical breakdown of the vehicle, and PA Supreme, a personal accident plan that covers beyond accidental injuries. While standard personal accident policies are triggered only in the case of accidents, PA Supreme provides extra features for the benefits of its policyholders, covering: Medical expenses caused by Dengue, Malaria, Japanese Encephalitis (JE), and Chikungunya Expenses related to trauma counseling, physiotherapy, psychotherapy or rehabilitation Cashless hospital admission and discharge from panel hospitals Actual costs of orthopedic equipment for permanent disablement Renewal bonus on accidental death and permanent disablement benefit Other benefits and free extensions. This policy also provides peace of mind as KIMB partnered with internationally acclaimed service provider, International SOS to provide overseas medical advice, referral, evacuation and repatriation for PA Supreme policyholders. As for the new motor insurance product, AutoGuard Warranty protects unforeseen mechanical and electrical breakdown of the vehicle, and provides savings for major repairs. The plan is available through selected secondhand car dealers for unregistered reconditioned vehicles below 6 years old from the date of manufacturer, or with mileage of less than 100,000 kilometres at the point of registration. In early 2012, KIMB was among the six insurance companies being appointed as official travel insurance service providers to provide the mandatory travel insurance for members of Malaysian Association of Tour & Travel Agents (MATTA). The move is to ensure consumers welfare is protected when traveling. The insurance will cover all or most of the eight critical points that are crucial, which include medical, hospitalisation and travel expenses, emergency medical evacuation and repatriation, reimbursement of deposits or full payment of air tickets or tour packages, repatriation of mortal remains, compassionate visitation benefits, accidental death, permanent disability and 24-hour emergency hotline. As part of our non-motor expansion initiatives, KIMB signed a Memorandum of Understanding (MoU) with Yayasan Guru Malaysia Berhad (YGMB) on 17 February 2012 to underwrite Group Personal Accident for a total of 79,000 members/teachers of YGMB. On the international front, the Group has embarked on the Information Technology (IT) platform to enhance operational efficiency and make it easy for business partners to conduct business with the companies. KII recently launched an industry first e-policy system, which is a business portal designed for KII agents to issue policies to customers on the spot. At KIT, an e-surveyor system has been launched to improve claims service to policyholders, where loss surveying is conducted on the spot after an accident occurs. Going forward, KIT and KII will continue to be IT savvy for the benefit of its business partners and customers. To this end, the Group s strategy has served it well, and moving ahead, KAB remains committed to drive business growth and profitability to ensure that its headline numbers remain strong for the benefit of all stakeholders.

17 Kurnia Asia Berhad Chairman s Statement (cont d) page 15 Corporate Social Responsibility The Group believes in giving back to the community as it endeavors to create a more caring community and make a significant difference in the lives of many in the society. As a responsible corporate citizen, we are committed to serve and support the community through various events and campaigns. In April 2011, KIMB sponsored RM10,000 in support of the 8 th Annual Blind Leading the Blind Charity Walk, organised by The Lions Club of Petaling Jaya. This charitable cause, which was held at Civic Hall, Petaling Jaya gathered more than 2,500 participants for the 3km walk. It was a memorable experience for our 200 employees who took part in the event. Walkers are to take off in pairs with one completely blindfolded and the other leading. The campaign gave the sighted the opportunity to experience blindness, to value sight and appreciate teamwork. Most importantly, to raise the much needed fund. KIMB continued such charitable supports by sponsoring the 10 th Hospis Malaysia Charity Treasure Hunt in May The hunters flagged off from Cheras and headed up north to Miami Beach on the renowned Batu Ferringhi stretch. Other than goodies bags and bottles of drinking water, KIMB also provided auto assist breakdown and towing services to the treasure hunt participants during the hunt. It was KIMB s day of sharing with 27 underprivileged children when the company organised a visitation to Rumah Shalom in August Themed A Day We Share, the objective of this corporate social responsibility initiative was to share our blessings with the less fortunate children and raise awareness on the importance of sharing, giving and caring. We received overwhelming response for this charitable event, with donations in cash and kind from our kindhearted employees. The funds collected were use to buy provisions for the home and items for the children to use in their daily life. In sports, KIMB once again co-hosted the Kurnia Saujana Amateur Championship with Saujana Golf and Country Club for the 3rd consecutive year. This annual amateur golf tournament is to acknowledge and applaud outstanding young talents in the golf fraternity. We believe that this event will continue to serve as a platform to encourage more aspiring young Malaysians golfers to test their skills against other international talents and excel in the game. We are honoured to be the preferred choice insurance provider for the local golfing community. Our aim is to strengthen our customer base by reaching out to more golfers in the country. As part of our community projects, KIMB recently donated RM35,000 for Taman Pusat Kepong Residents Association to build a basketball court. Sharing the vision and enthusiasm of such community project, KIMB is happy to be given the opportunity to be associated and be part of the Taman Pusat Kepong community in contributing to the well-being of the neighbourhood and fostering a healthy lifestyle among the younger generation. KIMB trusts that the new basketball court will serve as a platform to encourage more youths to get active and take up the game. The court can also be an avenue for other sports or recreational activities, as well as to gather the residents. Acknowledging Staff Contribution The Group has a passion to excel, a desire to bring the best out of its people and a commitment to take the Group to greater heights. These have been the very spirit and values that drove us to what we are today and will continue to take us to higher levels in time to come. While we celebrate our 20 th anniversary last year, we are deeply honoured for the series of successes and milestones that we have accomplished throughout the years with the support of all our stakeholders. As we expand our business, we continue to grow our people. It has always been the Group s philosophy to enrich its employees welfare, expertise and performance. Various staff benefits and incentives have been introduced and put in place to ensure that employees contribution are acknowledged and rewarded accordingly. Some of these include promotions, salary adjustments, bonus payments, free motor/group term life insurance, complementary lunches, low interest rates for car/ housing loans, and more. We also continue to invest in staff training and development by organising series of workshops and seminars throughout the year to further enhance our human capital capabilities.

18 page 16 Kurnia Asia Berhad Chairman s Statement (cont d) On 20 May 2011, in the spirit of camaraderie, our staff and their families came together to celebrate our Family Day at Taman Botani, Putrajaya. With the theme, 1Kurnia, the event gathered a total of over 600 staff and their family members for a fun-filled Sunday. This event was significant as it brought staff and their families together, which not only strengthens the family ties and co-worker relationships, but also gave an opportunity for us to get to know one another. It was also our token of appreciation in recognition of staff s contributions towards the company s growth. I would like to take this opportunity to thank all staff for working together as a family, with mutual respect and consideration for one another. Let s continue to provide a harmonious working environment in which our employees contributions and ideas are both recognised and valued. We definitely look forward to continuing our meaningful and fruitful journey with you. Celebrating Agents Achievements KIMB celebrated its agents achievements in its Annual Agency Convention and Awards Night at Genting International Convention Centre on 30 July The 3-day event, which gathered a total of over 437 agents nationwide, was organised to pay tribute to KIMB s agency force for their hard work and productivity in 2010/2011. In total, over 100 top agents strode up the stage to accept awards in various categories, which included Million Ringgit Producers, Top Profitable Agents, Top Rookie of the Year, Top Medical Producer, Top Overall Producers, Top Non Motor Producers and Chairman s Challenge Trophy. Industry Outlook According to the Fitch Ratings Outlook for Malaysia s insurance report, the industry in 2012 is stable, supported by sound operating profitability, steady market growth and manageable exposure to investment risks. The growth of the Malaysian insurance market will be driven by various government measures, a low penetration rate, as well as improving product reach through bancassurance and direct distribution. The General Insurance Association of Malaysia (PIAM) also foresees the outlook for the general insurance industry this year to be positive with an increased demand for insurance products and services. In addition, the Government backed Economic Transformation Program (ETP) is expected to lead growth in demand for insurance products and services. In addition, as Bank Negara plans to de-tariff motor insurance premiums by 2016, there will be gradual increments to motor insurance premiums with the new motor cover framework. This bodes well for KIMB, as being the largest motor insurer in the market, the revised tariff structure is expected to improve its profitability. There will be more emphasis now on speedy and quality customer service, as customers will be expecting more from insurance companies due to the gradual increase in motor insurance premiums. Hence, we seize this opportunity to differentiate ourselves from our peers by providing superior customer service coupled with more value-added services to attract and satisfy customers. KIMB has, for the past 20 years undertaken various initiatives to arrive at where it is today in terms of its distribution network. Such initiatives involved the collective efforts and dedication from employees, agents, distributors and partners who work together for the mutual benefit of our customers. With this synergy, we continue to develop long-term partnerships, increase our agency network and share knowledge and experiences to move forward.

19 Kurnia Asia Berhad Chairman s Statement (cont d) page 17 MOVING FORWARD APPRECIATION It has always been our vision to project the Kurnia brand to prevail as a household name in Malaysia, a name built to last. Over the past 20 years, despite lacking an advantage of being associated with a bank or corporate group franchise, KIMB has leapt ahead of its peers, and has built a strong agency network and sizeable customer base. In the midst of intense competition and stringent regulatory framework, KIMB has grown to reach a size and market position whereby it would benefit from a merger with a strong and strategic insurance operator to spur its next phase of growth. To this end, on 12 April 2012, KAB has entered into a sale and purchase agreement with AmG Insurance Berhad (AmG) for the proposed disposal of 100% equity interest in KIMB for a total cash consideration of RM1.55 billion. We are excited about this prospect to accelerate the growth of the Kurnia brand and are proud to undertake this exercise for the mutual benefit of all stakeholders of the Group and to create a win-win situation for all parties. For KIMB, the merger with AmG will create Malaysia s largest general and motor insurance player giving an opportunity for KIMB to grow to the next level with the experience of AmG. For KAB, the disposal will enable the Group to focus on driving the business growth potential of the Indonesian and Thailand insurance operations. It will also give the Group an opportunity to diversify into other investment potentials for the continued growth of the Group, and at the same time, reward its shareholders. On behalf of the Board of Directors, I would like to take this opportunity to extend my heartfelt and deepest gratitude to all our loyal shareholders, valued policyholders, agents, brokers, business associates, reinsurers and media for their continuous support and faith in our Group. We also extend our gratitude to Bank Negara Malaysia, Persatuan Insurans Am Malaysia (PIAM) and all other relevant authorities for their continuous support and guidance. Finally, I would also like to express my sincere appreciation to our employees, who represent the backbone of our Group. The success of the Group during the last two decades is the consequence of your hard work, team spirit and dedication. I thank you for your contribution and look forward to celebrate another exciting chapter of success in the decades to come. Tan Sri Dato Paduka Kua Sian Kooi Executive Chairman Kurnia Asia Berhad 29 May 2012 As we look towards the next financial year and beyond, the Group is confident and positive of the future given its solid foundation that has been laid over the years, strong economy and a disciplined and robust strategy that will ensure continued growth and sustainable shareholders value.

20 page 18 Kurnia Asia Berhad Board of Directors Profile Tan Sri Dato Paduka Kua Sian Kooi (Executive Chairman/ Non-Independent Executive Director) Tan Sri Dato Paduka Kua Sian Kooi, Malaysian, 59 years of age was appointed as Director of Kurnia Asia Berhad ( KAB ) on 12 April 2004 and is currently the Executive Chairman of KAB. Tan Sri Dato Paduka Kua is also currently a Director of Kurnia Insurans (Malaysia) Bhd ( KIMB ), a subsidiary of KAB, which underwrites general insurance. He has over 30 years of vast insurance experience and in the later years appointed as the director and chairman of KIMB. Through determination and diligence, he engineered the transformation of KIMB into the indisputable leader of the general insurance industry in Malaysia, whether measured in terms of profits, policyholders, premiums or assets. His other directorship in a public company is Kurnia Foundation. Tan Sri Dato Paduka Kua has attended six (6) out of the seven (7) Board meetings held during the financial year. Save for Datuk Kua Chung Sen and Dato Quah Teong Moo, who are his brothers, he has no other relationships with any Directors of KAB. He has no conflict of interest with KAB and has no convictions of any offences within the past ten (10) years. Datuk Kua Chung Sen (Deputy Executive Chairman/ Non-Independent Executive Director) Datuk Kua Chung Sen, Malaysian, 52 years of age was appointed as Director of KAB on 12 April He is currently the Deputy Executive Chairman of KAB and also serves as a member of the Remuneration Committee. Together with Tan Sri Dato Paduka Kua Sian Kooi, he has served in the top management position of KIMB since 1991 when the then present management took over which was then an insolvent insurer, Industrial & Commercial Insurance (M) Bhd. He was also instrumental in turning around the company into the leader in the general insurance industry. He was responsible for overseeing the establishment and strengthening of the financial and investment division of KIMB in the early years. He also led in the re-engineering of operational procedures of critical processes. Following that, he spearheaded the implementation of ISO procedures, resulting in KIMB being ISO accredited in He is also very much involved in the strategic direction of the company as well as in ensuring that business strategies are accurately and effectively implemented. Under his guidance, KIMB has strengthened all aspects of its operations. His other directorship in a public company is Kurnia Foundation. Datuk Kua has attended six (6) out of the seven (7) Board meetings held during the financial year. Save for Tan Sri Dato Paduka Kua Sian Kooi and Dato Quah Teong Moo, who are his brothers, he has no other relationships with any Directors of KAB. He has no conflict of interest with KAB and has no convictions of any offences within the past ten (10) years.

21 Kurnia Asia Berhad Board of Directors Profile (cont d) page 19 Dato Wira Othman bin Abdul (Independent Non-Executive Director) Dato Wira Othman bin Abdul, Malaysian, 61 years of age was appointed Director of KAB on 13 April He serves as the Chairman of the Nominating and Remuneration Committee and is also a member of the Audit Committee. He was the Chairman of KIMB from March 2005 to June 2008 and served as a member of the Audit Committee of KIMB until June Dato Wira Othman is an alumnus of University Kebangsaan Malaysia, majoring in sociology. Upon graduation in 1978, he served with the Family Planning Board and the Kedah State Development Corporation. From 1980 to 1983, he was the Assistant District Officer of Pendang. He was elected as a Member of Parliament from April 1983 to 2004 and he was appointed twice as Parliamentary Secretary in the Prime Minister s Department from 1987 to 1995 and subsequently his second appointment was from 1997 to Thus, Dato Wira Othman has 10 years of experience as a Parliamentary Secretary in the Prime Minister s Department. He was appointed as MARA s Chairman from 1995 to Subsequently, he was also Chairman of Westport from 1996 to During the same period from 1996 to 1998, he was also the Director for MBF Cards Services Sdn Bhd, MBF Discount Card and MBF Pacific Rent-A-Car Sdn Bhd. Dato Wira Othman has attended all of the seven (7) Board meetings held during the financial year. He has no family relationship with any Director and/or major shareholder of KAB. He has no conflict of interest with KAB and has no convictions of any offences within the past ten (10) years. Dato Quah Teong Moo (Non-Independent Non- Executive Director) Dato Quah Teong Moo, Malaysian, 56 years of age was appointed Director of KAB on 29 June Dato Quah was a director of KIMB from April 2004 until June 2008 before he was appointed to his current post as Advisor to KIMB. Dato Quah has over 15 years of insurance experience, starting his career with KIMB as an entry-level executive, and has been steadily promoted through the ranks to senior management position. During this period, he has accumulated vast marketing experience and an in-depth knowledge of the general insurance industry in Malaysia. Dato Quah has attended all of the seven (7) Board meetings held during the financial year. Save for Tan Sri Dato Paduka Kua Sian Kooi and Datuk Kua Chung Sen, who are his brothers, he has no other relationships with any Directors of KAB. He has no conflict of interest with KAB and has no convictions of any offences within the past ten (10) years.

22 page 20 Kurnia Asia Berhad Board of Directors Profile (cont d) Leow Ming Leow Min Fong (Independent Non-Executive Director) Leow Ming Leow Min Fong, Malaysian, 62 years of age was appointed Director of KAB on 16 June He is the Chairman of the Audit Committee and a member of the Remuneration Committee and Nominating Committee. Leow Min Fong brings with him over more than 30 years of experience in the accounting/auditing field, having served as an audit partner and concurring partner for several portfolio of clients including several public listed companies and multinational companies. Upon graduation, he commenced his articleship with a firm of Chartered Accountants in London, United Kingdom. Prior to his appointment with the company, he joined KPMG Malaysia until his retirement as one of the senior partners after a period of 32 years. During his KPMG experience, he has been posted to various KPMG branches as audit partner inclusive of short-term assignments in Singapore, British Guinea in South America and Vietnam. He has also acted as partner in charge of KPMG Cambodia for 3 1/2 years from late 1995 to early In addition, he has been involved in special work for fraud investigation, due diligence for merger and acquisitions, reporting accountant for various corporate exercises for public listed companies. He is a fellow of the Institute of Chartered Accountants in England and Wales and member of the Malaysian Institute of Certified Public Accountants and Malaysian Institute of Chartered Accountants. His other directorships in public listed companies in Malaysia is Focus Point Holdings Berhad. He is also a director in Canadia Bank PLC, a bank incorporated in Cambodia. Leow Min Fong has attended all of the seven (7) Board meetings held during the financial year. He has no family relationship with any Director and/or major shareholder of KAB. He has no conflict of interest with KAB and has no convictions of any offences within the past ten (10) years.

23 Kurnia Asia Berhad Board of Directors Profile (cont d) page 21 Dato Dr. Sharifuddin bin Abdul Wahab (Independent Non-Executive Director) Dato Dr. Sharifuddin bin Abdul Wahab, Malaysian, 56 years of age was appointed Director of KAB on 7 May He is also a member of the Audit, Remuneration and Nominating Committee. Dato Dr. Sharifuddin started his career in the education field as a lecturer in University Pertanian Malaysia in Besides lecturing, he was also active in various research and development work. Subsequently, he left the education field in 1989 and joined Schmidt Scientific Sdn Bhd from 1989 to In 1995, he was appointed the Executive Director of Schmidt Vietnam Co. Ltd and later appointed as the Regional Managing Director of Schmidt Singapore & Malaysia in 1999 to He was promoted to head the newly restructured organization of Schmidt BioMedTech Asia Ltd in April 2000 as the President and CEO. During his stint with Schmidt group of companies, he has demonstrated continous growth, achievements and remarkable leadership in the management of complex activities within the Bio Science, Technology and Medical field. He left Schmidt BioMedTech Asia Ltd in 2007 and joined Naim Holdings Berhad in 2008 as Deputy Managing Director. He was also assigned to head the overseas business development operations in Naim, until his resignation in January Dato Dr. Sharifuddin holds a doctorate in Veterinary Medicine from the University of Agriculture, Faisalabad, Pakistan and a Masters of Science in Animal Reproduction from University Pertanian Malaysia. For his achievement in the animal reproduction research work, he was given a commendation award from the former Prime Minister, Tun Dr. Mahathir Mohammad. He was also awarded the Darjah Utama Yang Amat Mulia Bintang Kenyalang Sarawak which carries the title Pegawai Bintang Kenyalang (PBK) in 2009 from Tuan Yang Terutama Tun Datuk Patinggi Abang Haji Muhammad Salahuddin. He was recently awarded the Darjah Dato Paduka Mahkota Perak, DPMP which carries the title Dato by His Royal Highness, Paduka Sultan Perak Darul Ridzuan, Sultan Azlan Muhibbudin Shah ibni Almarhum Sultan Yussuf Izzuddin Shah Ghafarullahu-lah on 19 April Dato Dr. Sharifuddin has attended all of the seven (7) Board meetings during the financial year. He has no family relationship with any Director and/or major shareholder of KAB. He has no conflict of interest with KAB and has no convictions of any offences within the past ten (10) years.

24 page 22 Kurnia Asia Berhad Management Team KURNIA ASIA BERHAD (KAB) Board of Directors Tan Sri Dato Paduka Kua Sian Kooi Group Executive Chairman Datuk Kua Chung Sen Dato Quah Teong Moo Dato Wira Othman bin Abdul Leow Ming Leow Min Fong Dato Dr. Sharifuddin bin Abdul Wahab Executive Committee (EXCO) Tan Sri Dato Paduka Kua Sian Kooi Datuk Kua Chung Sen Joanne Kua Ying Fei Management Team Tan Sri Dato Paduka Kua Sian Kooi Executive Chairman Datuk Kua Chung Sen Deputy Executive Chairman Joanne Kua Ying Fei Director, Group Executive Chairman s Office Rachel Ho Director, Corporate Finance / Strategy & Planning / Operations Chung Pei Pei Company Secretary Belinda Cheah Sze Yun Associate Director, Accounts KURNIA INSURANS (MALAYSIA) BERHAD (KIMB) Board of Directors Dato Dr. Sharifuddin bin Abdul Wahab Chairman Tan Sri Dato Paduka Kua Sian Kooi Raymond Fam Chye Soon Lian Gee Meng Wong Kim Teck Silvius von Lindeiner Genannt von Wildau PT KURNIA INSURANCE INDONESIA (KII) Board of Commissioners Datuk Kua Chung Sen President Commissioner Kua Sian Ten Benny Haryanto Djie KURNIA INSURANCE THAILAND (KIT) Board of Directors Tan Sri Dato Paduka Kua Sian Kooi Eugene Foong Jun Seong Pol Gen Watcharapol Prasarnrajkit Norawat Suwan Kitti Pusittisak Rawat Bhudhatham Chaweng Tatha Theodor Schupbach

25 Kurnia Asia Berhad Statement on Corporate Governance page 23 The Board of Directors of Kurnia Asia Berhad ( KAB ) is committed to ensure that the highest standard of corporate governance is practiced throughout the Group as a fundamental objective of protecting and enhancing the interest of all stakeholders. The Board is pleased to report to shareholders the manner in which the Principles of corporate governance contained in the Malaysian Code on Corporate Governance ( Code ) are applied and the extent of compliance thereof during the financial year under review. A. BOARD OF DIRECTORS Board Balance The Board currently has six (6) members comprising an Executive Chairman, Deputy Executive Chairman, three (3) Independent Non Executive Directors and one (1) Non- Independent Non Executive Director. The Board composition is in line with Bursa Malaysia Securities Berhad ( Bursa Securities ) Main Market Listing Requirements ( Main LR ) that requires one-third (1/3) of the Board members to be Independent Directors to ensure independence of judgment. The present size and composition of the Board is optimum and well balanced. As presently constituted, the Board has the stability, continuity and commitment as well as capacity to discharge its responsibilities effectively. At the Company s level, the Executive Chairman is primarily responsible for the working of the Board and at Group level he is responsible to oversee the group s business and performance. Decisions of the Board of Directors are based upon majority decisions and no single Board member can make decisions for and on behalf of the Board unless duly authorised by the Board of Directors. This is to ensure that no individual or small group of individuals can dominate the Board s decision making. The involvement and participation of Independent Non Executive Directors further provide an element of independent judgment to bear on the issues of strategy, performance, resources and standards of conduct in the Board s decision making and deliberation. Furthermore, the three (3) Independent Directors in effect represent minority shareholders interests in the Company by virtue of their roles and responsibilities as Independent Directors. Board Meetings During the financial year under review from 1 January 2011 to 31 December 2011, the Board met on seven (7) occasions. The Board s meeting main focus of deliberation is on financial performance and corporate developments of the Group. Prior to each Board meeting, the Board members are given appropriate documentation in advance of each meeting. These documents include the agenda and reports covering the areas of corporate, financial and operational matters. The Board has full access to the senior management of the Group and the advice and services of the company secretary. In addition, the Directors, whether as a full board or in their individual capacity, in furtherance of their duties may seek independent professional advice at the Company s expense. The attendance of the Directors at the Board meetings is set out in the Director s Profile, which appear on pages 18 to 21 of this Annual Report. Appointment of Directors The appointment of new directors is under the purview of the Nominating Committee comprised exclusively of nonexecutive directors, majority of whom are independent which is responsible for identifying and proposing new candidates for the Board and for assessing directors on an on-going basis. Any new appointment to the Board must be upon recommendation by the Nominating Committee after assessment is done with the consideration of mix skills, experiences and other qualities that the new candidate should bring to the Board. As a holding company of an insurance company, Bank Negara Malaysia s approval is sought after approval from the Board is obtained for any new appointment to the Board of the Company.

26 page 24 Kurnia Asia Berhad Statement on Corporate Governance (Cont d) Re-election of Directors In accordance with the Company s Articles of Association, one-third (1/3) or the number nearest to one-third (1/3) shall retire from office at each Annual General Meeting. A retiring Director is eligible for re-appointment. Article 100 of the Company s Articles of Association provides that any new or additional Director appointed by the Board during the year shall hold office until the next Annual General Meeting and shall then be eligible for re-election. The election of each Director is voted on separately. Directors Training The Directors have participated in and benefitted from conferences, seminars and training programmes on areas pertinent to the enhancement of their roles and responsibilities as Directors. During the financial year ended 31 December 2011, the Directors in office had attended the following conferences, seminars and training: Members of the Board Tan Sri Dato Paduka Kua Sian Kooi Datuk Kua Chung Sen Dato Wira Othman bin Abdul Dato Quah Teong Moo Conferences, seminars and training Leow Ming Leow Min Fong MIA Conference 2011 Making Sense of the Auditors Report and its Impact Making Sense of the Auditors Report and its Impact Assessing the Risk and Control Environment Failed Business : Deriving Sound Strategic Insights Dato Dr. Sharifuddin bin Abdul Wahab Law Governing Directors in a Nutshell: Malaysia Companies Act 1965 Board Committees In discharging its fiduciary duties, the Board has delegated certain responsibility to the following committees and each committee operates under their respective approved terms of reference. a. Audit Committee The Committee members are as follows : Chairman Leow Ming Leow Min Fong Independent Non Executive Director Members Dato Wira Othman bin Abdul Independent Non-Executive Director Dato Dr. Sharifuddin bin Abdul Wahab Independent Non-Executive Director Terms of reference of the Committee are disclosed in the Audit Committee Report which appear on pages 27 to 28 of this Annual Report. b. Nominating Committee The Committee appointed by the Board of Directors consists of not less than 2 members comprising exclusively of independent non-executive directors. The Committee s members are: Dato Wira Othman bin Abdul (Chairman) Leow Ming Leow Min Fong Dato Dr. Sharifuddin bin Abdul Wahab

27 Kurnia Asia Berhad Statement on Corporate Governance (Cont d) page 25 The primary functions of the Nominating Committee are as follows: a. To recommend the nomination of a person or persons for all directorships to be filled by the shareholders or the board; b. To consider, in making its recommendations, candidates for directorships proposed by the Managing Director/Chief Executive Officer and, within the bounds of practicability, by any other senior executive or any director or shareholder; c. To recommend to the board, directors to fill the seats on board committees; d. To identify, evaluate and recommend candidates for appointment as Company Secretary; e. To assess annually the effectiveness of the board as a whole, the committees of the board and the contribution of each existing individual director and thereafter, recommend its findings to the board; and f. To review annually the required mix of skills and experience and other qualities, including core competencies which nonexecutive directors should bring to the board and thereafter, recommend its findings to the board. c. Remuneration Committee The Committee appointed by the Board of Directors consists of not less than two (2) members comprising mainly of nonexecutive directors. The Committee members are as follows: Dato Wira Othman bin Abdul (Chairman) Leow Ming Leow Min Fong Datuk Kua Chung Sen Dato Dr. Sharifuddin bin Abdul Wahab The Committee is responsible for recommending to the Board the remuneration packages of managing directors, executive directors and senior management of the Company in all its forms, drawing from outside advice as necessary. The remuneration packages of non executive directors shall be determined by the Board of Directors as a whole. The number of directors of the Company who served during the financial year ended 31 December 2011 whose remuneration falls into the following bands:- Range of Remuneration Executive No. of Directors Non-Executive RM50, ,000-2 RM100, ,000-1 RM150, , RM400, ,000-1 RM450,001 1,750, RM1,750,001 RM1,800, RM1,800,001 RM4,150, RM4,150,001 RM4,200, Aggregate Remuneration of the Director of the Company receivable from the group for serving on the Board of the Company:- Executive Directors (RM 000) Non Executive Directors (RM 000) Directors Fee Salaries and other emoluments 5,

28 page 26 Kurnia Asia Berhad Statement on Corporate Governance (Cont d) B. RELATIONSHIP WITH SHAREHOLDERS AND INVESTORS RELATION The Board appreciates feedback from their valued shareholders and consistent with this, it is the intention of the Board that the shareholders are well informed of all major developments that have an impact on the Group. Announcements of quarterly financial results, corporate proposals and other required announcements were released on time to ensure fast and efficient dissemination of information to the shareholders. The Company s website, provides a comprehensive avenue for up-todate information dissemination, such as dedicated sections on corporate information including financial information, press releases and company news. The Annual General Meeting is used as another forum to inform the shareholders of current developments with an opportunity for shareholders to seek clarifications and provide feedback and comments to the Directors and Management for consideration. C. ACCOUNTABILITY AND AUDIT Financial Reporting In submitting the annual audited financial statements, the Board is aware of its responsibilities and the requirement to present a balanced, clear as well as meaningful assessment of the Group s performance and future prospects. The Company s Financial Statements are prepared in accordance with the requirements of the provisions of the Companies Act, 1965 and applicable approved accounting standards in Malaysia. In discharging its responsibilities, the Board is assisted by the Audit Committee in scrutinizing information for disclosure to ensure accuracy, adequacy and completeness. The Statement of Responsibility by Directors in respect of the preparation of the annual audited financial statements is set out on page 40 of this Annual Report. Internal Control The Board recognizes that it is responsible for the Group s internal control systems and for reviewing its effectiveness. The Board also maintains a sound internal control system to safeguard the shareholders investments and the Group s assets. The overview of the state of the Group s internal control is spelt out in the Statement on Internal Control set out on pages 29 to 30 of this Annual Report. Relationship with the Auditors The Board through the Audit Committee has an appropriate and transparent relationship with the external auditors and the external auditors are given access to books and records of the Group. A summary of the activities of the Audit Committee during the year are set out under the Audit Committee Report on this Annual Report. The amount of non-audit fees paid to the external auditors and it s affiliated company during the financial year was RM335, for review of RBC Forms, tax and IT advisory services and divestiture services. Compliance with the Code The Board strives to ensure that the Company complies with the Principles and Best Practices of the Code. The Board will endeavour to improve and enhance the procedures from time to time. The Group has complied with the Best Practice of the Code. D. BOARD COMMITTEES OF SUBSIDIARY COMPANY As a measure of good corporate governance, Kurnia Insurans (Malaysia) Berhad ( KIMB ), the subsidiary of the Company has formed the following committees:- Audit Committee Risk Management Committee Remuneration Committee Nominating Committee

29 Kurnia Asia Berhad Audit Committee Report page 27 Membership and Attendance During the financial year ended 31 December 2011, a total of five (5) Audit Committee meetings were held. The details of attendance of the Audit Committee (Committee) members are as follows:- Composition of Audit Committee Leow Ming Leow Min Fong Chairman/Independent Non-Executive Director Dato Wira Othman bin Abdul Member/Independent Non-Executive Director Dato Dr. Sharifuddin bin Abdul Wahab Member/Independent Non-Executive Director Attendance of Meetings 5/5 5/5 5/5 COMPOSITION The Audit Committee shall be appointed by the directors from amongst themselves and its number shall not be less than three (3) members and all members must be non-executive directors, with a majority of whom shall be independent non-executive directors. The Chairman of the Audit Committee shall be an independent director. RIGHTS The Audit Committee shall, in accordance with the procedure determined by the Board and at the cost of the Company have authority to investigate any matter within its terms of reference, full and unrestricted access to any information pertaining to the Company and all the resources required to perform its duties. The Audit Committee shall have direct communication channels with the external auditors and person(s) carrying out the internal audit function or activity and be able to obtain independent professional or other advice and to secure the attendance of outsiders with relevant experience and expertise if it considers necessary. FUNCTIONS AND DUTIES The functions of the Audit Committee are as follows:- (1) to review the following and report the same to the Board of Directors:- (a) with the external auditor, the audit plan, the evaluation of the system of internal controls, the audit report and the assistance given by the employees of the company to the external auditors; (b) the adequacy of the scope, functions, competency and resources of the internal audit functions and that it has the necessary authority to carry out its work; (c) the internal audit plan, the results of the internal audits or investigation undertaken and whether or not appropriate action is taken on the recommendations of the internal audit function; (d) the quarterly results and year end financial statements, prior to the approval by the board of directors. and (e) any related party transaction and conflict of interest situation that may arise within the company or group including any transaction, procedure or course of conduct that raises questions of management integrity. (2) to meet with the external auditors, the internal auditors or both without the presence of the senior management. (3) to recommend the re-appointment/nomination of auditors and to review any letter of resignation from the external auditors of the company; and

30 page 28 Kurnia Asia Berhad Audit Committee Report (Cont d) (4) to report promptly to Bursa Securities where the Committee is of the view that a matter reported by it to the Board of Directors has not been satisfactorily resolved resulting in a breach of the Listing Requirements. MEETINGS The Committee shall meet at least four (4) times in a year subject to the quorum of at least two (2) independent directors or more frequently as circumstances required or upon the request of any member of the Committee, the external auditors or the internal auditors with due notice of issues to be discussed and shall record its conclusions in discharging its duties and responsibilities. The Committee may invite any Board member or any member of management or any employee of the Company who the Committee deems fit to attend its meetings to assist and to provide pertinent information as necessary. PROCEDURE OF AUDIT COMMITTEE The Audit Committee may regulate its own procedures, in particular:- (a) the calling of meetings; (b) the notice to be given of such meetings; (c) the voting and proceedings of such meetings; (d) the keeping of minutes; and (e) the custody, production and inspection of such minutes. SECRETARY The Company Secretary or other appropriate senior official shall be the Secretary to the Audit Committee. SUMMARY OF ACTIVITIES During the financial year, the activities undertaken by the Committee include the following:- a. Reviewed the external auditors scope of work and audit plans for the year; b. Reviewed the internal auditors scope of work and audit plans for the year; c. Reviewed the financial statements of the Group on a quarterly basis; d. Reviewed 34 branches audit reports, 32 departmental audit reports and 10 investigative audit reports as well as the audit recommendation and management response to these recommendations; and e. Met with the external auditors twice during the financial year without the presence of the executive Board members. THE INTERNAL AUDIT FUNCTION The principal subsidiary company, Kurnia Insurans (Malaysia) Berhad has a well-established Internal Audit Department (IAD), which reports to the Audit Committee (AC) in the monitoring and managing of risks and internal controls of the Group. The IAD is independent of the activities or operations of other departments and is guided by its Audit Charter. Audit assignments are prioritised based on audit risk assessment where the audit plan is reviewed and approved by the AC. The IAD also performs ad-hoc assignments as directed by the AC. The IAD s primary role is to assist the AC to discharge its duties and responsibilities by independently reviewing and reporting: on the adequacy and integrity of the company s system of internal controls on various departments, to provide reasonable assurance that such system continue to operate satisfactorily and effectively, and on the compliance with the established policies and procedures as well as relevant statutory requirements. Upon completion of each audit, audit reports together with the recommended action plans and its implementation status are presented to the Management and AC. The IAD will monitor closely the implementation progress of its audit recommendations to obtain assurance that all major risks and controls have been addressed by the Management. The IAD also follow-up on the findings reported by Bank Negara Malaysia / External Auditors. The Head of the IAD has regular meetings with the AC during the financial year in order for the audit findings to be raised and addressed promptly. The cost of the IAD in respect of the financial year ended 31 December 2011 is RM699,041.65

31 Kurnia Asia Berhad Statement on Internal Control page 29 The Malaysian Code on Corporate Governance stipulates that the Board of Directors of listed companies should maintain a sound system of internal control to safeguard shareholders investments and Group assets. The Statement on Internal Control is prepared under the requirement of Paragraph 15.26(b) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad and in accordance with the Statement on Internal Control: Guidance for Directors of Public Listed Companies issued by the Institute of Internal Auditors Malaysia and as adopted by Bursa Malaysia Securities Berhad. The Board recognises the importance of a sound system of internal control to safeguard shareholders investments and the Group s assets, enhance accountability and monitoring function, minimise fraud and ensure the accuracy and reliability of information reporting to management. Responsibility The Board affirms its overall responsibility for the Group s system of internal control. This includes reviewing the adequacy and integrity of financial, operational and compliance controls and risk management procedures. In view of the limitations that are inherent in any system of internal control, this system is designed to manage rather than eliminate the risk of failure to achieve business objectives. Accordingly, it can only provide reasonable but not absolute assurance against material misstatement or error. The Group structure The Group comprises Kurnia Asia Berhad (KAB), its subsidiaries, Kurnia Insurans (Malaysia) Berhad (KIMB), PT. Kurnia Insurance Indonesia, Premier Assist Sdn. Bhd., Kurnia Asia Pte. Ltd., Kurnia (Cambodia) Incorporated Co. Ltd and its associate, Kurnia Insurance (Thailand) Co. Ltd. Premier Assist Sdn. Bhd. is a company involved in the provision of car breakdown assistance services, Kurnia Asia Pte. Ltd. is an investment holding company and Kurnia (Cambodia) Incorporated Co. Ltd. is a dormant company. The principal operating subsidiary of the Group, KIMB, is regulated by Bank Negara Malaysia. KIMB s internal control processes constitute a major part of the Group s system of internal control. In addition, two committees were established at the holding company, KAB level, namely an Executive Committee (EXCO) and an Audit Committee to enhance the internal control function of the Group as a whole. Key internal control processes The key processes that have been established in reviewing the adequacy of the system of internal controls of the Group include the following: At holding company level, KAB s EXCO was established by the Board to implement policy decisions made by the Board and to monitor the Group s business direction formulated by the Board. The EXCO is also to set corporate philosophy /direction, strategy, goals and targets for the Group, and to review the performance of the Group on a monthly basis, together with other functions as stipulated in its terms of reference. The EXCO receives monthly reports on the performance of the respective subsidiaries and associate company. The Audit Committee of KAB, together with the Audit Committee of KIMB, are responsible for reviewing the internal control issues identified by the Internal Audit Department and the external auditors, as well as to improve the Group s business efficiency, the quality of the accounting function, the system of internal controls and internal audit function. The committee s function also includes reviewing the annual and quarterly financial results and making appropriate recommendation to the KAB Board for its approval. During the financial year, the Audit Committee of KAB met 5 times. Further details of the activities undertaken by the Audit Committee are set out in the Audit Committee Report.

32 page 30 Kurnia Asia Berhad Statement on Internal Control (Cont d) At the principal insurance subsidiary, KIMB level, The Audit Committee of KIMB is responsible for reviewing the internal control issues identified by the Internal Audit Department and the external auditors, and their recommendations to improve the company s business efficiency, the quality of the accounting function, the system of internal controls and internal audit function. It is also responsible for reviewing the adequacy of the scope, functions and resources of the Internal Audit Department. The Audit Committee of KIMB held 13 meetings during the financial year ended 31 December 2011 and had met with the external auditors twice during the year without the presence of the management. The Internal Audit Department of KIMB reviews compliances with selected operational policies and procedures and the effectiveness of the internal control systems and highlights significant findings in respect of any non-compliance. Audits are carried out on the selected operating units and branches as approved by the Audit Committee, focusing on their critical operational and management activities. The frequency of the audits is determined by the level of risk assessed. The annual audit plan is reviewed and approved by the Audit Committee of KIMB. The annual audit plan is subject to a half yearly review and any changes to the audit plan is approved by the Audit Committee of KIMB.The findings of the audits are submitted to the Audit Committee of KIMB for review at its regular meetings. The Risk Management Committee of KIMB is responsible for reviewing and approving the company s Risk Management Policy and Framework annually so that they remain relevant and effective. The Committee is also responsible for overseeing the implementation of the risk management process. The Committee met 6 times during the financial year to receive and review reports on risk management activities of the company as submitted by the Enterprise Risk Management Department, which is independent from the management or operational units. The Committee also reviews and monitors the related risk exposures and ensures that there are appropriate and adequate internal controls to actively manage these risks. An Investment Committee is also in place with the following responsibilities:- - to review KIMB s portfolio and strategic investments and supervise KIMB s Investment Department on investment strategies, and major investment evaluations, decisions and recommendations, with due consideration to and in compliance with KIMB s Capital Adequacy management framework; - to determine the investment objectives of each fund and appropriate benchmarks to evaluate investment performance; - to monitor the performance returns of the fund; - to approve all counter party risk exposures stockbrokers, counter party, financial institutions and depository banks; - As necessary, to enter into any agreements with third parties that have appropriate skills and experience to provide direct or ancillary services relating to the investment arrangement of the investment funds of the company; - to undertake and decide on any matters, including establishing investment guidelines, from time to time that are aimed at establishing a framework for, and pertaining to, the prudent management of investment funds of KIMB. Annual business plans are prepared by the Management and reviewed and approved by the Board of Directors of KIMB. Year-to-date performance and results are regularly presented at the KIMB Board meetings. There are Human Resource management guidelines within KIMB for hiring and terminating of staff, formal training programs and annual performance appraisals to ensure that staffs are competent and appropriately motivated in carrying out their responsibilities. Policies and procedures for compliance with internal controls and the relevant laws and regulations are set out in the various operations manuals of KIMB. These are updated as and when the need arises.

33 Building Human Capital Unlike paid-up capital, human capital cannot be quantified in ringgits and cents. But it is human capital that determines the real worth of the Company and its brand.

34 page 32 Kurnia Asia Berhad Products & Services At Kurnia Insurans, we anticipate the needs of our extensive customer base through a diverse range of general insurance products and services. We are committed to fulfilling the needs of our customers by providing them with the best possible financial protection tools. Motor When you buy a motor vehicle, you need to have a motor insurance. Kurnia s comprehensive motor policy protects against losses or damages to vehicles, third party bodily injuries and properties. Kurnia s Private Car Comprehensive policy includes Kurnia Auto Assist (KAA), a free 24-hour service for breakdowns and accidents and Kurnia Express (KE), a 1-hour motor claims service, where you will receive immediate settlement* at our designated Kurnia Express Centers. This service is extended to windscreen claim for policyholders who have their insurance coverage for windscreen. The KAA service is also further enhanced with the deployment of KAA Riders on motorcycles in the Klang Valley. These riders will arrive at breakdown scene within 15 minutes in the Klang Valley area to carry out repair if possible. Otherwise, alternative arrangements will be made through the KAA call center. The KAA Riders service is also available in the major towns of Penang, Johor and Malacca. Under the KAA service, policyholders are entitled to a free towing service up to 50km, while for policyholders who purchase the Personal Accident plan, Perfect Rider will enjoy free towing service for unlimited distance. For motorcyclists, Kurnia s Motorcyclist Personal Accident policy provides 24-hour worldwide coverage against accidental death or total permanent disablement. In 2009, Kurnia launched a product extension, Compensation for Assessed Repair Time (CART), which provides compensation to policyholder for the number of days the car is being repaired at the workshop according to the loss adjuster s assessment. In 2010, Kurnia has introduced the Agreed Value concept for vehicles below 10 years. The car models include Perodua, Proton, Toyota, Honda, Nissan and Mitsubishi. The Agreed Value concept is deemed the best avenue, as the car owners need not worry about underinsurance or overinsurance, and will be compensated as per the agreed Sum Insured. *cheque or direct deposit into your bank account

35 Kurnia Asia Berhad page 33 Personal Accident Kurnia offers a wide range of Personal Accident products that cater to the different needs and demands of our customers. Personal Accident insurance provides compensation in the event of death or disablement caused by accidental, violent, external and visible means. Coverage is available for individual, family or on group basis by employers, associations, clubs and similar groups. In general, the period of insurance coverage is on annual basis. Home Insures home, property and personal effects against fire, theft, natural disasters and accidental physical loss or damage. Available to private dwellings, houses, flats, garages and out-buildings depending on the type of coverage. Kurnia s home protection plans include Fire Insurance, Houseowner and Householder Insurance as well as Householder Plus Insurance. Insurance for maids is also available to cover personal accident, repatriation expenses, hospital and surgical expenses, weekly benefits for temporary total disablement, fidelity guarantee and personal liability. Engineering Kurnia s various engineering insurance protection plans are designed to cover projects involving construction and other civil engineering works, and includes comprehensive protection for machinery and equipment.

36 page 34 Kurnia Asia Berhad Products & Services (cont d) Fire with Risk Management Kurnia s fire insurance plans protect your property against material damage caused by fire or lightning. In fact, it is more than just fire insurance. With an additional premium, it also protects you against damages resulting from other causes, such as riot, strike, malicious damage, flood and landslide. Kurnia also conducts Fire Risk Management Surveys to assess the fire hazards, standard of fire safety and evaluation of loss potential of the insured property with a view to recommend measures for loss control and risk management. Medical Proper healthcare is no longer a privilege, but a right for everyone as health insurance coverage is one of the key components of a sound financial plan and a necessity in view of the escalating medical cost. Kurnia s MediGuard medical policy guarantees hassle-free admission and discharge for a covered condition at any of our panel hospitals nationwide. Alternatively, insured can opt for the reimbursement plan, with a lower premium, where the insured settles the bill upon discharge and submit for reimbursement for a covered condition. Kurnia has individual medical insurance products that are specially designed for everyone and anyone from all walks of life. In addition, Kurnia also customize Group Medical Insurance plan to cover employees medical expenses that suit the needs of the company.

37 Kurnia Asia Berhad Asia page 35 Europe AfriCa America Travel Kurnia Care Travel and Traveller s Personal Accident safeguard the insured while they are on a vacation, excursion or a business trip. The policies extend from local activities to overseas travels, be it individually or in groups. BizGuard Your business is your achievement and pride. But should a fire, theft or any unfortunate event occur, you could lose everything that you have established in a single instant. Kurnia BizGuard is a comprehensive insurance package that allows you to find the best solution from 3-easy plans; allowing you to focus on growing your business. Employee Benefits The policy gives protection to an employer against any compensation amount they may be liable to pay to any employee or their dependents for personal injuries sustained by accident or disease arising out of and in the course of his employment. Marine Marine Cargo Insurance policies provides cover against physical loss or damage to cargoes whilst in the course of transit by air, sea and/or overland. Generally the cover ceases once the cargoes are delivered to the final destination. Whereas, Goods In Transit Insurance policies provides cover for goods conveyed by land whether by lorry, train or other mode of land conveyance licensed to carry goods throughout the year. Liability Kurnia s range of liability insurance policies indemnifies the insured in respect of its legal liability to pay compensation for accidental bodily injury to or accidental property damage of Third Party caused by or through the negligence of the insured or his/her employees. The policies also pay for legal fees and litigation expenses incurred with the written consent of the Company.

38 page 36 Kurnia Asia Berhad Analysis on the Financial Statements Balance Sheet Net assets value (NAV) Total Assets The Group s total assets stood at RM2,761.2 million as at , reflecting a 6.8% growth from RM2,584.4 million as at Investments made up 59.2% (2010: 65.9%) of the Group s total assets, followed by reinsurance assets and property and equipment that accounted for 20.0% and 8.4% (2010: 14.4% and 7.8%) respectively. The Group s net assets value (NAV) improved to RM401.4 million as at (2010: RM327.8 million) which mainly resulted from the revaluation surplus of RM30.7 million and net profit of RM47.8 million recorded for the financial year. This translates into NAV per share of sen as at (2010: sen). Investments The Group s investment portfolio stood at RM1.635 billion as at (2010: RM1.703 billion), and the composition is as follows: (RM 000) Total: 1,702, (RM 000) Total: 1,634,934 1,000 1, , , Fixed & Call Deposits Private Debt Securities Government Securities Equities 975,928 Unit Trust 947,342 Others Available for sales 501,836 Held to maturity 457,728 Held for trading 399,300 Loan & receivables (excluding insurance assets) 327,236 10,179 43,420 19,055 20,322 11,443 63,278 62, , , , ,171 Analysed by types of investment Analysed by classifications Reinsurance Assets As at , Group s reinsurance assets that consist of reinsurers share of provision for outstanding claims and provision for unearned premium increased by RM178.5 million or 47.9% to RM551.3 million from RM372.8 million as at The increase was driven by higher gross premium written and reinsurance outwards during the current financial year. Insurance Receivables The Group s insurance receivables rose by 7.5% or RM4.0 million to RM56.8 million from RM52.8 million as at The increase was mainly attributed to growth in gross premium written during the current financial year.

39 Kurnia Asia Berhad Analysis on the Financial Statements (cont d) page 37 Cash and Cash Equivalents Other Financial Liabilities The Group s cash and cash equivalents are made up of cash in hand, balance with banks and fixed deposits placed with licensed financial institutions with maturities of three months or less. The Group s cash and cash equivalents stood at RM130.8 million, increased slightly from RM129.6 million as at Total Liabilities The Group s total liabilities increased by 4.6% or RM103.2 million to RM2,359.8 million from RM2,256.6 million as at This increase was primarily due to higher insurance contract liabilities which accounted for 71.6% (2010: 74.0%) of the Group s total liabilities. Insurance Contract Liabilities The Group s insurance contract liabilities consist of: - gross provision for outstanding claims which amounted to RM1,136.4 million (2010: RM1,155.8 million) and - gross provision for unearned premium which amounted to RM554.5 million (2010: RM513.4 million) Total insurance contract liabilities increased by RM21.7 million or 1.3% mainly due to higher provision for unearned premium in tandem with the expanded business portfolio. The Group s other financial liabilities increased by 3.5% or RM15.3 million to RM450.6 million from RM435.3 million as at , mainly due to the increase in deposits received from reinsurers. Other Payables The Group s other payables increased by 13.5% or RM12.3 million to RM103.0 million from RM90.7 million as at , mainly due to the additional advance from a major shareholder. Income Statement The Group s results are mainly derived from its insurance subsidiary in Malaysia, Kurnia Insurans (M) Berhad ( KIMB ). The contribution of PT Kurnia Insurance Indonesia ( KII ) and the equity-accounted associated company, Kurnia Insurance (Thailand) Co. Ltd. ( KIT ) to the performance of the Group was not significant. The Group recorded an improved net profit of RM million for the financial year ended (2010: RM million). The Group s underwriting experience for the financial year was as reflected by the performance indicators tabled below: Underwriting Performance Indicators Retention ratio (Net premium / Gross premium) 69.6% 79.2% Net commission ratio (Net Commission / Net premium) 9.0% 9.5% Net claims incurred ratio (Net claims inccurred / Earned premium) 70.8% 75.9% Management expense ratio (Management expense / Net premium) 20.9% 21.0% Underwriting margin (Underwriting margin / Earned premium) -0.6% -6.0%

40 page 38 Kurnia Asia Berhad Analysis on the Financial Statements (cont d) Motor/Non-Motor (RM 000) 1,109, ,449 (78.0%) 244,280 (22.0%) Motor 1,058, ,564 (80.8%) 203,189 (19.2%) Non-Motor Business portfolio During the financial year under review, the Group recorded RM1,109.7 million in gross premium (2010: RM1,058.8 million), which represented a 4.8% growth yearon-year. Based on this, 78.0% (2010: 80.8%) was derived from Motor business whilst 22.0% (2010: 19.2%) was from Non-Motor business. Retention Ratio The Group recorded lower retention ratio of 69.6% during the current financial year (2010: 79.2%) as KIMB started to cede out its 25% of motor premium via quota share arrangement since the second half of financial year Net claims incurred ratio The Group s net claims incurred ratio improved to 70.8% (2010: 75.9%), owing to the more stringent risk selection and better claims management and control. Management expense ratio The Group s management expenses ratio maintained at 20.9% (2010: 21.0%), despite the lower absolute amount of management expense incurred during the year, as the net premium base was lower compared to previous year. The lower management expense of RM161.6 million (2010: RM176.4 million) was largely due to better cost management and more efficient use of resources. Net commission ratio The Group recorded lower net commission over net premium ratio of 9.0% during the current financial year (2010: 9.5%) as the commission received from reinsurance premium increased. Net investment income (insurance fund) During the financial year, the Group recorded net investment income (including realised and unrealised gain / (loss) recognised in income statement) of RM104.0 million (2010: RM115.7 million). This translated into a net investment yield of 5.8% p.a. (2010: 6.3%p.a.). Non-Motor (RM 000) Non-Motor (RM 000) Engineering 23,556 (9.7%) Medical 35,233 (14.4%) Fire 62,905 (25.8%) Engineering 15,960 (7.9%) Medical 24,068 (11.9%) Fire 47,979 (23.6%) Personal Accident 57,721(23.6%) Non-Motor Marine 17,402 (7.1%) Misceleneous Accident 47,463 (19.4%) Personal Accident 58,203 (28.6%) Non-Motor Marine 16,067 (7.9%) Misceleneous Accident 40,912 (20.1%) Total: 244,280 Total: 203,189

41 Kurnia Asia Berhad page 39 Financial Statements Statement of Directors Responsibility 40 Directors Report 41 Statements of Financial Position 46 Income Statements 48 Statements of Comprehensive Income 49 Statements of Changes in Equity 50 Statements of Cash Flow 52 Notes to the Financial Statements 55 Statement by Directors 130 Statutory Declaration 131 Independent Auditors Report 132 page

42 page 40 Kurnia Asia Berhad Statement of Directors Responsibility pursuant to paragraph 15.26(a) of the Listing Requirements of Bursa Malaysia Securities Berhad The Directors are responsible for ensuring that the audited financial statements of the Group and of the Company are drawn up in accordance with the requirements of the applicable approved Financial Reporting Standards issued by the Malaysian Accounting Standards Board as modified by Bank Negara Malaysia s Guidelines, the Listing Requirements of Bursa Malaysia Securities Berhad and the provisions of the Companies Act, The Directors are also responsible for ensuring that the audited financial statements of the Group and of the Company are prepared with reasonable accuracy from the accounting records of the Group and of the Company so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2011, and of the results of their operations and cash flows for the year ended on that date. In preparing the audited financial statements, the Directors have: applied the appropriate and relevant accounting policies on a consistent basis; made judgements and estimates that are reasonable and prudent; and prepared the annual audited financial statements on a going concern basis. The Directors and Management are also responsible for ensuring that the Group and the Company maintain proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Group and of the Company. The Directors and Management also have a general responsibility for taking reasonable steps to safeguard the assets of the Group and of the Company to prevent and detect fraud and other irregularities.

43 Kurnia Asia Berhad Directors Report for the year ended 31 December 2011 page 41 The Directors hereby submit their report and the audited financial statements of the Group and of the Company for the financial year ended 31 December Principal activities The Company is principally engaged in investment holding whilst the principal activities of the subsidiaries are stated in Note 7.2 to the financial statements. There has been no significant change in the nature of these activities during the financial year, except as disclosed in Note 7.2. Results Group RM 000 Company RM 000 Profit / (Loss) for the year 47,844 (10,593) Reserves and provisions There were no material transfers to or from reserves and provisions during the financial year under review except as disclosed in the financial statements. Dividend No dividend was paid during the financial year and the Directors do not recommend any dividend to be paid for the financial year ended 31 December Directors of the Company Directors who served since the date of the last report are: Tan Sri Dato Paduka Kua Sian Kooi Datuk Kua Chung Sen Dato Wira Othman Bin Abdul Dato Quah Teong Moo Leow Ming Leow Min Fong Dato Dr. Sharifuddin Bin Abdul Wahab

44 page 42 Kurnia Asia Berhad Directors Report for the year ended 31 December 2011 (cont d) Directors interests The interests and deemed interests in the ordinary shares of the Company and of its related corporations (other than wholly-owned subsidiaries) of those who were Directors at the financial year end (including the interests of the spouses and children of the Directors who themselves are not Directors of the Company) as recorded in the Register of Directors Shareholdings are as follows: Number of ordinary shares at RM0.25 each At At Bought Sold Tan Sri Dato Paduka Kua Sian Kooi Interest in the Company Own 765,646, ,646,824 Others # 5,000, ,000,000 Datuk Kua Chung Sen Interest in the Company Own 12,702, ,702,000 Deemed interest in the Company Own 60,000, ,000,000 Dato Wira Othman Bin Abdul Interest in the Company Own 32,857, ,800 32,054,600 Others # 334, ,600 Dato Quah Teong Moo Interest in the Company Own 17,867, ,867,300 # Includes the spouse of Tan Sri Dato Paduka Kua Sian Kooi and children of Dato Wira Othman Bin Abdul respectively. In accordance with Section 134(12)(c) of the Companies Act, 1965, the interests and deemed interests of the spouses and children of the Directors in the ordinary shares of the Company and of its related corporations (other than wholly-owned subsidiaries) shall be treated as the interests of the Directors respectively. Leow Ming Leow Min Fong and Dato Dr. Sharifuddin Bin Abdul Wahab did not have any interest in the ordinary shares of the Company and of its related corporations during the financial year.

45 Kurnia Asia Berhad Directors Report for the year ended 31 December 2011 (cont d) page 43 Directors benefits Since the end of the previous financial year, no Director of the Company has received nor become entitled to receive any benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by Directors as shown in the financial statements of the Company and its related companies) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest except for those disclosed in Note 35 to the financial statements. There were no arrangements during and at the end of the financial year, which had the object of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in the Company or any other body corporate. Issue of shares There were no changes in the authorised, issued and paid-up capital of the Company during the financial year. Options granted over unissued shares No options were granted to any person to take up unissued shares of the Company during the financial year. Other statutory information Before the financial statements of the Group and of the Company were made out, the Directors took reasonable steps to ascertain that: (i) (ii) (iii) all known bad debts have been written off and adequate provision had been made for doubtful debts; any current assets, which were unlikely to be realised in the ordinary course of business have been written down to an amount which they might be expected so to realise; and there was adequate provision for insurance contract liabilities in the Group in accordance with the valuation methods specified in Part D of the Risk-Based Capital ( RBC ) Framework issued by Bank Negara Malaysia ( BNM ).

46 page 44 Kurnia Asia Berhad Directors Report for the year ended 31 December 2011 (cont d) Other statutory information (cont d) At the date of this report, the Directors are not aware of any circumstances: (i) (ii) (iii) (iv) that would render the amount written off for bad debts, or the amount of the provision for doubtful debts in the Group and in the Company inadequate to any substantial extent, or that would render the value attributed to the current assets in the financial statements of the Group and of the Company misleading, or which have arisen which render adherence to the existing method of valuation of assets and liabilities of the Group and of the Company misleading or inappropriate, or not otherwise dealt with in this report or the financial statements, that would render any amount stated in the financial statements of the Group and of the Company misleading. At the date of this report, there does not exist: (i) (ii) any charge on the assets of the Group or of the Company that has arisen since the end of the financial year and which secures the liabilities of any other person, or any contingent liability in respect of the Group or of the Company that has arisen since the end of the financial year. No contingent liability or other liability of any company in the Group has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations when they fall due. For the purpose of this paragraph, contingent and other liabilities do not include liabilities arising from contracts of insurance underwritten in the ordinary course of business of the Group. In the opinion of the Directors, the financial performance of the Group and of the Company for the financial year ended 31 December 2011 have not been substantially affected by any item, transaction or event of a material and unusual nature nor has any such item, transaction or event occurred in the interval between the end of the financial year and the date of this report. Significant event On 19 December 2011, the Company submitted an application to Bank Negara Malaysia ( BNM ) for the approval of the Minister of Finance ( MOF ) pursuant to Section 67 of the Malaysian Insurance Act and Regulations, 1996, to review a proposal to enter into an agreement with AmG Insurance Berhad ( AmG ) for the possible disposal of the Company s 100% equity interest in Kurnia Insurans (Malaysia) Berhad ( KIMB ) to AmG. On 3 April 2012, the Company received written approval from MOF via BNM to enter into an agreement with AmG for the possible disposal of the Company s 100% equity interest in KIMB to AmG.

47 Kurnia Asia Berhad Directors Report for the year ended 31 December 2011 (cont d) page 45 Auditors The auditors, Messrs KPMG, have indicated their willingness to accept re-appointment. Signed on behalf of the Board of Directors in accordance with a resolution of the Directors: Tan Sri Dato Paduka Kua Sian Kooi Datuk Kua Chung Sen Petaling Jaya, Selangor Date: 9 April 2012

48 page 46 Kurnia Asia Berhad Statements of Financial Position as at 31 December 2011 Group Note RM 000 RM 000 Assets Property and equipment 4 231, ,236 Goodwill Investment property 6 7,713 7,500 Investments 9 1,634,934 1,702,846 Held-to-maturity 62,123 63,278 Available-for-sale 947, ,928 Held for trading 156, ,482 Loans and receivables 469, ,158 Investment in associate 8 14,668 13,279 Reinsurance assets , ,759 Insurance receivables 11 56,832 52,851 Other receivables, deposits and prepayments 12 80,333 35,207 Deferred acquisition costs 13 26,070 36,275 Deferred tax assets 20 3,670 1,172 Current tax assets 23,746 30,613 Cash and cash equivalents , ,632 Total assets 2,761,171 2,584,370 Equity Share capital , ,000 Reserves 22 36,689 10,938 Accumulated losses (10,303) (58,147) Total equity attributable to owners of the Company 401, ,791 Non-controlling interests 6 6 Total equity 401, ,797 Liabilities Insurance contract liabilities 15 1,690,838 1,669,152 Deferred tax liabilities 20-5,928 Other financial liabilities , ,322 Insurance payables 17 87,373 29,630 Current tax liabilities Other payables ,976 90,748 Provision for retirement benefits 19 27,333 25,544 Total liabilities 2,359,779 2,256,573 Total equity and liabilities 2,761,171 2,584,370 The accompanying notes form an integral part of these financial statements.

49 Kurnia Asia Berhad Statements of Financial Position as at 31 December 2011 (cont d) page 47 Company Note RM 000 RM 000 Assets Property and equipment Investments in subsidiaries 7 740, ,852 Other receivables, deposits and prepayments Current tax assets 2,372 - Cash and cash equivalents 14 1,543 3,272 Total assets 745, ,823 Equity Share capital , ,000 Reserves Accumulated losses (40,951) (30,358) Total equity attributable to owners of the Company 334, ,249 Liabilities Other financial liabilities , ,000 Current tax liabilities Other payables 18 48,281 28,135 Provision for retirement benefits 19 2,479 2,244 Total liabilities 410, ,574 Total equity and liabilities 745, ,823 The accompanying notes form an integral part of these financial statements.

50 page 48 Kurnia Asia Berhad Income Statements for the year ended 31 December 2011 Group Company Note RM 000 RM 000 RM 000 RM 000 Operating revenue 23 1,161,263 1,096,936 22,451 21,538 Gross written premiums ,109,729 1,058, Change in unearned premiums provision (41,094) (52,666) - - Gross earned premiums ,068,635 1,006, Gross written premiums ceded to reinsurers 15.2 (337,714) (220,387) - - Change in unearned premiums provision 43,697 66, Premiums ceded to reinsurers 15.2 (294,017) (153,812) - - Net earned premiums , , Investment income 24 92,628 90,849 22,451 21,538 Realised gains and losses 25 6,773 14, Fair value gains and losses 26 4,590 10, Commission income 27 72,230 48, Other operating income Other income 177, ,955 22,559 21,538 Gross claims paid 29 (805,496) (858,953) - - Claims ceded to reinsurers ,054 86, Gross change in claims liabilities 29 19, , Change in claims liabilities ceded to reinsurers 29 66,956 (33,006) - - Net claims incurred 29 (548,078) (646,937) - - Commission expense 27 (141,944) (128,772) - - Management expenses 30 (175,681) (187,912) (11,221) (9,052) Finance costs (22,451) (21,193) (22,451) (21,193) Other operating expenses (2,109) Other expenses (342,185) (337,877) (33,672) (30,245) Share of loss of equity accounted associate (557) (2,780) - - Profit/(Loss) before tax 60,819 29,636 (11,113) (8,707) Tax (expense)/credit 32 (12,975) (14,624) 520 (2,269) Net profit/(loss) for the year 47,844 15,012 (10,593) (10,976) The accompanying notes form an integral part of these financial statements.

51 Kurnia Asia Berhad Statements of Comprehensive Income for the year ended 31 December 2011 page 49 Group Company Note RM 000 RM 000 RM 000 RM 000 Net profit/(loss) for the year 47,844 15,012 (10,593) (10,976) Other comprehensive income Foreign currency translation differences for foreign operations 463 (1,686) - - Net (loss)/gain on fair value of available-for-sale financial assets 9.5 (7,277) 7, Net gain on revaluation of property 4 32, ,550 6, Tax effects thereon 201 (1,961) - - Total other comprehensive income for the year, net of tax 25,751 4, Total comprehensive income/(loss) for the year 73,595 19,209 (10,593) (10,976) Profit/(Loss) attributable to: Owners of the Company 47,844 15,012 (10,593) (10,976) Total comprehensive income/(loss) attributable to: Owners of the Company 73,595 19,209 (10,593) (10,976) Earnings per share (sen) Basic The accompanying notes form an integral part of these financial statements.

52 page 50 Kurnia Asia Berhad Statements of Changes in Equity for the year ended 31 December 2011 Attributable to owners of the Company Non-distributable Distributable Fair Property Non- Share Treasury Share value Translation revaluation Accumulated controlling Total capital shares premium reserve reserve reserve losses interest equity Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At 1 January ,000 (11,971) 12,578 6,952 (818) - (73,159) - 308,582 Fair value of available-forsale financial assets , ,883 Foreign currency translation differences for foreign operations (1,686) (1,686) Total other comprehensive income for the year ,883 (1,686) ,197 Profit for the year ,012-15,012 Total comprehensive income for the year ,883 (1,686) - 15,012-19,209 Issuance of shares for newly incorporated subsidiary At 31 December 2010 / 1 January ,000 (11,971) 12,578 12,835 (2,504) - (58,147) 6 327,797 Revaluation of property , ,746 Fair value of available-forsale financial assets (5,458) (5,458) Foreign currency translation differences for foreign operations Total other comprehensive income for the year (5,458) , ,751 Profit for the year ,844-47,844 Total comprehensive income for the year (5,458) ,746 47,844-73,595 At 31 December ,000 (11,971) 12,578 7,377 (2,041) 30,746 (10,303) 6 401,392 Note 21 Note 22.2 Note 22.3 Note 22.1 Note 22.4 The accompanying notes form an integral part of these financial statements.

53 Kurnia Asia Berhad Statements of Changes in Equity for the year ended 31 December 2011 (cont d) page 51 Attributable to owners of the Company Non-distributable Distributable Share Treasury Share Accumulated Total capital shares premium losses equity Company RM 000 RM 000 RM 000 RM 000 RM 000 At 1 January ,000 (11,971) 12,578 (19,382) 356,225 Loss and total comprehensive loss for the year (10,976) (10,976) At 31 December 2010 / 1 January ,000 (11,971) 12,578 (30,358) 345,249 Loss and total comprehensive loss for the year (10,593) (10,593) At 31 December ,000 (11,971) 12,578 (40,951) 334,656 Note 21 Note 22.2 The accompanying notes form an integral part of these financial statements.

54 page 52 Kurnia Asia Berhad Statements of Cash Flow for the year ended 31 December 2011 Group Company Note RM 000 RM 000 RM 000 RM 000 Operating activities Profit/(Loss) before tax 60,819 29,636 (11,113) (8,707) Investment income (92,628) (90,849) (22,451) (21,538) Realised gains recorded in income statements (6,773) (14,356) - - Fair value gains recorded in income statements (4,590) (10,544) - - Purchase of held for trading financial investments (114,982) (82,534) - - Proceeds from sale of held for trading financial investments 109, , Purchase of available-for-sale financial investments 9.5 (309,156) (690,313) - - Proceeds from sale of available-for-sale financial investments 197, , Maturity of available-for-sale financial investments ,000 92, Maturity of held-to-maturity financial investments , Change in loans and receivables ,267 (8,976) ,537 (62,584) (33,564) (30,245) Non-cash items: Depreciation of property and equipment 13,534 16, Write off of property and equipment Gain on disposal of property and equipment (1,127) (920) (10) (130) (Reversal) / Allowance for impairment loss on property and equipment (351) 1, Allowance for impairment loss on reinsurance asset 1, Insurance receivables: Reversal of allowance for impairment loss (12,346) (10,066) - - Impairment loss written off 11,050 6, Impairment loss recovered (118) (29) - - Retirement benefits expense 3,022 3, Impairment loss on goodwill - 4, Impairment loss on investment in subsidiary - 2,394-4,373 Share of loss of equity accounted associate 557 2, Finance costs 22,451 21,193 22,451 21,193 Total non-cash items 38,427 47,032 22,837 25,790

55 Kurnia Asia Berhad Statements of Cash Flow for the year ended 31 December 2011 (cont d) page 53 Group Company RM 000 RM 000 RM 000 RM 000 Changes in working capital: Change in reinsurance assets (179,959) (33,569) - - Change in insurance receivables (2,567) Change in other receivables (40,176) (11,213) (391) 287 Change in deferred acquisition costs 10, Change in insurance contract liabilities 21,686 (106,264) - - Change in other financial liabilities 15,308 67, Change in insurance payables 57,743 3, Change in other payables 11,131 44,015 19,030 22,225 Net changes in working capital (106,629) (35,709) 18,639 22,512 Cash (used in)/ generated from operating activities (39,665) (51,261) 7,912 18,057 Dividend income received 46,814 44, Interest income received 40,914 52, Retirement benefits paid (1,233) (1,252) (20) (68) Income tax paid (13,921) (16,513) (2,047) (1,721) Net cash flows from operating activities 32,909 28,032 5,845 16,268 Investing activities Proceeds from disposal of property and equipment 1,752 2, Purchase of property and equipment (10,650) (8,900) - (390) Interest received ,451 21,563 Investment in associate (1,644) (2,206) - - Investment in a subsidiary - - (8,700) - Net cash flows (used in)/from investing activities (10,542) (7,821) 13,761 21,303 Financing activities Proceeds from issuance of shares in a subsidiary Term loan interest paid (21,335) (20,845) (21,335) (20,845) Repayment of term loan - (40,000) - (40,000) Net cash flows used in financing activities (21,335) (60,839) (21,335) (60,845) Net increase/(decrease) in cash and cash equivalents 1,032 (40,628) (1,729) (23,274) Effect of exchange rate fluctuations on cash held Cash and cash equivalents at beginning of year 129, ,786 3,272 26,546 Cash and cash equivalents at end of year 130, ,632 1,543 3,272

56 page 54 Kurnia Asia Berhad Statements of Cash Flow for the year ended 31 December 2011 (cont d) Group Company RM 000 RM 000 RM 000 RM 000 Cash and cash equivalents comprise: Cash and bank balances 37,436 38,818 1,543 3,272 Fixed and call deposits (with maturity of less than three months): Licensed financial institutions in Malaysia 82,741 90, Financial institutions outside Malaysia 10, Cash and cash equivalents 130, ,632 1,543 3,272 Included in the fixed and call deposits are RM6,487,000 (2010: RM6,708,000) held as cash collateral for guarantees issued on behalf of policyholders (Note 16). The accompanying notes form an integral part of these financial statements.

57 Kurnia Asia Berhad Notes to the Financial Statements page Principal activity and general information The Company is a public limited liability company, incorporated and domiciled in Malaysia and listed on the Main Market of Bursa Malaysia Securities Berhad. The address of the registered office and principal place of business of the Company is located at: Menara Kurnia Block B4, Pusat Dagang Setia Jaya Leisure Commerce Square No. 9, Jalan PJS 8/ Petaling Jaya Selangor The consolidated financial statements of the Company as at and for the financial year ended 31 December 2011 comprise the Company and its subsidiaries (together referred to as the Group ) and the Group s interest in an associate. The financial statements of the Company as at and for the financial year ended 31 December 2011 do not include other entities. The Company is principally engaged in investment holding, whilst the principal activities of the subsidiaries are stated in Note 7.2 to the financial statements. There has been no significant change in the nature of these activities during the financial year, except as disclosed in Note 7.2. The financial statements were approved by the Board of Directors on 9 April Basis of preparation 2.1 Statement of compliance The financial statements of the Group and of the Company have been prepared in accordance with Financial Reporting Standards ( FRSs ) as modified by Bank Negara Malaysia ( BNM ) Guidelines, generally accepted accounting principles in Malaysia, the Companies Act, 1965 and the Insurance Act and Regulations, The following are accounting standards, amendments and interpretations of the FRS framework that have been issued by the Malaysian Accounting Standards Board (MASB) but have not been adopted by the Group and Company: FRSs, Interpretations and amendments effective for annual periods beginning on or after 1 July 2011 IC Interpretation 19, Extinguishing Financial Liabilities with Equity Instruments Amendments to IC Interpretation 14, Prepayments of a Minimum Funding Requirement FRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2012 FRS 124, Related Party Disclosures (revised) Amendments to FRS 1, First-time Adoption of Financial Reporting Standards Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters Amendments to FRS 7, Financial Instruments: Disclosures Transfers of Financial Assets Amendments to FRS 112, Income Taxes Deferred Tax: Recovery of Underlying Assets FRSs, Interpretations and amendments effective for annual periods beginning on or after 1 July 2012 Amendments to FRS 101, Presentation of Financial Statements Presentation of Items of Other Comprehensive Income

58 page 56 Kurnia Asia Berhad 2. Basis of preparation (cont d) 2.1 Statement of compliance (cont d) FRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2013 FRS 10, Consolidated Financial Statements FRS 11, Joint Arrangements FRS 12, Disclosure of Interests in Other Entities FRS 13, Fair Value Measurement FRS 119, Employee Benefits (2011) FRS 127, Separate Financial Statements (2011) FRS 128, Investments in Associates and Joint Ventures (2011) IC Interpretation 20, Stripping Costs in the Production Phase of a Surface Mine Amendments to FRS 7, Financial Instruments: Disclosures Offsetting Financial Assets and Financial Liabilities Amendments to FRS 7, Financial Instruments: Disclosures Mandatory Date of FRS 9 and Transition Disclosures FRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2014 Amendments to FRS 132, Financial Instruments: Presentation Offsetting Financial Assets and Financial Liabilities FRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2015 FRS 9, Financial Instruments (2009) FRS 9, Financial Instruments (2010) The Group s and the Company s financial statements for annual period beginning on 1 January 2012 will be prepared in accordance with the Malaysian Financial Reporting Standards (MFRSs) issued by the MASB that will also comply with International Financial Reporting Standards (IFRSs). As a result, the Group and the Company will not be adopting the above FRSs, Interpretations and amendments that are effective for annual periods beginning on or after 1 January Basis of measurement The financial statements have been prepared on the historical cost basis except as disclosed in the notes to the financial statements, on the assumption that the Group and the Company are going concerns. The Company incurred a net loss of RM10,593,000 during the year ended 31 December 2011, and as of that date, the Company s current liabilities exceeded its current assets by RM243,690,000 which may indicate the existence of a significant uncertainty about the Company s ability to continue as a going concern. The Company has considered prospective cash flow information and events that may occur in the next twelve months and the possible actions to be taken by the Company. In this regards, the Company had on 3 April 2012 obtained approval from MOF via BNM, to enter into an agreement with AmG to dispose the Company s 100% equity interest in KIMB. The validity of the going concern assumption in the preparation of financial statements is dependent on the successful outcome of the various initiatives being undertaken by the Company and the Company achieving future profitable operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, and relating to amounts and classification of liabilities that may be necessary if the Company is unable to continue as a going concern. General business assets and liabilities relate to both general insurance fund and shareholders fund.

59 Kurnia Asia Berhad page Basis of preparation (cont d) 2.3 Functional and presentation currency These financial statements are presented in Ringgit Malaysia (RM), which is the Company s functional currency. All financial information is presented in RM and has been rounded to the nearest thousand, unless otherwise stated. 2.4 Use of estimates and judgements The preparation of financial statements in conformity with FRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. There are no significant areas of estimation uncertainty and critical judgements in applying accounting policies that have a significant effect on the amounts recognised in the financial statements other than those disclosed in the following notes: Note revaluation of property and equipment Note determination of fair value of investment properties Note financial instruments Note valuation for retirement benefits Note valuation of general insurance contract liabilities 3. Significant accounting policies The accounting policies set out below have been applied consistently to the periods presented in these financial statements, and have been applied consistently by the Group entities, except for: i) the change in accounting policy to adopt the revaluation model to measure freehold land and buildings and leasehold land and buildings classified as property and equipment in accordance with FRS 116, Property, plant and equipment. This change in accounting policy has been accounted for prospectively upon the initial application of the revaluation model in accordance with FRS 116. Under the revaluation model, the properties are stated at revalued amounts, which are the fair values at the date of the revaluation less subsequent accumulated depreciation (except for freehold land which has an unlimited useful life and therefore is not depreciated) and any subsequent accumulated impairment losses. Any revaluation surplus is credited to the revaluation reserve included within equity. ii) the change in accounting policy with respect to the subsequent measurement of investment property from the cost model to the fair value model, with changes in fair value recognised in income statement, in accordance to FRS 140, Investment Property. The Group applied the impact of adopting fair value model, which amounted to RM160,000, prospectively rather than making an adjustment to the opening balance of retained earnings as required by FRS 140, since the impact is not material to the Group s financial results.

60 page 58 Kurnia Asia Berhad 3. Significant accounting policies (cont d) 3.1 Basis of consolidation Subsidiaries Subsidiaries are entities, including unincorporated entities, controlled by the Group. Control exists when the Group has the ability to exercise its power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. Subsidiaries are consolidated using the purchase method of accounting. Investments in subsidiaries are stated in the Company s statement of financial position at cost less any impairment losses. Investment in Irredeemable Convertible Subordinated Debt ( ICSD ) issued by the subsidiary of the Company is treated as cost of investment in the subsidiary as the ICSD is non-redeemable and convertible during the tenure of the ICSD. ICSD which has not been converted will be fully converted on maturity date Associates Associates are entities, including unincorporated entities, in which the Group has significant influence, but not control, over the financial and operating policies. Associates are accounted for in the consolidated financial statements using the equity method less any impairment losses, unless it is classified as held for sale or distribution. The consolidated financial statements include the Group s share of the profit or loss and other comprehensive income of the equity accounted associates, after adjustments, if any, to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group s share of losses exceeds its interest in an equity accounted associate, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group s interest in the investees. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment Accounting for business combinations Business combinations are accounted for using the acquisition method from the acquisition date, which is the date on which control is transferred to the Group. The Group has changed its accounting policy with respect to the accounting for business combinations. From 1 January 2011 the Group has applied FRS 3, Business Combinations (revised) in accounting for business combinations. The change in accounting policy has been applied prospectively in accordance with the transitional provisions provided by the standard and does not have impact on earnings per share.

61 Kurnia Asia Berhad page Significant accounting policies (cont d) 3.1 Basis of consolidation (cont d) Accounting for business combinations (cont d) Acquisitions on or after 1 January 2011 For acquisition on or after 1 January 2011, the Group measures goodwill at the acquisition date as: - the fair value of the consideration transferred; plus - if the recognised amount of any non-controlling interests in the acquiree; plus - if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less - the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in income statements. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in income statements. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in income statements Non-controlling interests Non-controlling interests at the end of the reporting period, being the equity in a subsidiary not attributable directly or indirectly to the equity holders of the Company, are presented in the consolidated statement of financial position and statement of changes in equity within equity, separately from equity attributable to the owners of the Company. Non-controlling interests in the results of the Group is presented in the consolidated statement of comprehensive income as an allocation of the profit or loss and the comprehensive income for the year between non-controlling interests and the owners of the Company. Since the beginning of the reporting period, the Group has applied FRS 127, Consolidated and Separate Financial Statements (revised) where losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. This change in accounting policy is applied prospectively in accordance with the transitional provisions of the standard and does not have impact on earnings per share. In the previous years, where losses applicable to the non-controlling interests exceed the interest in the equity of a subsidiary, the excess, and any further losses applicable to the non-controlling interests, were charged against the Group s interest except to the extent that the non-controlling interests had a binding obligation to, and was able to, make additional investment to cover the losses. If the subsidiary subsequently reported profits, the Group s interest was allocated with all such profits until the non-controlling interests share of losses previously absorbed by the Group had been recovered.

62 page 60 Kurnia Asia Berhad 3. Significant accounting policies (cont d) 3.2 Foreign currency Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of the Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the end of the reporting period date are retranslated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies are not retranslated at the end of reporting date except for those that are measured at fair value are retranslated to the functional currency at the exchange rates at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in the income statements Operations denominated in functional currencies other than Ringgit Malaysia ( RM ) The assets and liabilities of operations denominated in functional currencies other than RM, including goodwill and fair value adjustments, are translated to RM at exchange rates at the end of the reporting period, except for goodwill and fair value adjustments arising from business combinations before 1 January 2006 which are reported using the exchange rates at the dates of the acquisitions. The income and expenses of foreign operations in functional currencies other than RM, are translated to RM at exchange rates at the dates of the transactions. Foreign exchange differences are recognised in other comprehensive income and accumulated in the foreign currency translation reserve. On disposal of such operations, the accumulated translation differences are recognised in the consolidated income statements as part of the gain or loss on disposal. 3.3 Property and equipment Recognition and measurement Items of property and equipment except for property under construction are stated at cost/ valuation less any accumulated depreciation and any accumulated impairment losses. Property under construction is stated at cost. The Group revalues its properties comprising land and buildings every 5 years and at shorter intervals whenever the fair value of the revalued assets is expected to differ materially from their carrying value. The revalued amounts of property are determined by using comparison and investment methods. The comparison method entails critical analysis of recent evidence of values of comparable properties in the neighborhood and making adjustments for differences such as differences in location, size and shape of land, age and condition of building, tenure, title restrictions if any and other relevant characteristics. The investment method entails the determination of the probable gross annual rental the property is capable of producing and deducting there from the outgoings to arrive at the annual net income. The annual net income is capitalised using a rate of interest to arrive at the capital value of the property. Valuation of properties involves a degree of judgement before arriving at the respective property s revalued amount. As such, the revalued amount of the properties may be different from its actual market price.

63 Kurnia Asia Berhad page Significant accounting policies (cont d) 3.3 Property and equipment (cont d) Recognition and measurement (cont d) Surpluses arising from revaluation are dealt with in the revaluation reserve account. Any deficit arising is offset against the revaluation reserve to the extent of a previous increase for the same property. In all other cases, a decrease in carrying amount is charged to income statements. Cost includes expenditures that are directly attributable to the acquisition of the asset and any other costs directly attributable to bringing the asset to working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. The cost of self-constructed assets also includes the cost of materials and direct labour. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When significant parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment and are recognised net within management expenses in the income statements. When revalued assets are sold, the amounts included in the revaluation reserve account are transferred to retained earnings / accumulated losses Subsequent costs The cost of replacing a part of an item of property and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group or the Company and its cost can be measured reliably. The carrying amount of the replaced part is derecognised to income statements. The costs of the day-to-day servicing of property and equipment are recognised in the income statements as incurred Depreciation Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value. Depreciation is recognised in the income statements on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. Freehold land is not depreciated. Property and equipment under construction are not depreciated until the assets are ready for their intended use. The estimated useful lives for the current and comparative periods are as follows: Leasehold land Buildings Office improvements Furniture and fittings Office equipment and computers Motor vehicles over lease period 50 years 3-5 years 10 years 3-10 years 5 years Depreciation methods, residual values and useful lives are reviewed, and adjusted as appropriate at the end of the reporting period.

64 page 62 Kurnia Asia Berhad 3. Significant accounting policies (cont d) 3.4 Leased assets Finance leases Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. On initial recognition of the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to the asset. Minimum lease payments made under finance lease are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. Leasehold land which in substance is a finance lease is classified as property and equipment Operating leases 3.5 Intangible asset Leases, where the Group does not assume substantially all the risk and rewards of ownership are classified as operating leases and, except for property interest held under operating lease, the leased assets are not recognised on the Group s statement of financial position. Property interest held under an operating lease, which is held to earn rental income or for capital appreciation or both, is classified as investment property. Payments made under operating leases are recognised in the income statements on a straight-line basis over the term of the lease. Lease incentives received are recognised in income statements as an integral part of the total lease expense, over the term of the lease. Leasehold land which in substance is an operating lease is classified as prepaid lease payments Goodwill Goodwill arises on business combinations is measured at cost less any accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment and an impairment loss on such an investment is not allocated to any assets, including goodwill, that forms part of the carrying amount of the equity accounted investee. For acquisitions prior to 1 January 2006, goodwill represents the excess of the cost of the acquisition over the Group s interest in the fair values of the net identifiable assets and liabilities. For business acquisition between 1 January 2006 and 1 January 2011, goodwill represents the excess of the cost of the acquisition over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. Any excess of the Group s interest in the net fair value of acquiree s identifiable assets, liabilities and contingent liabilities over the cost of acquisition is recognised immediately in income statements.

65 Kurnia Asia Berhad page Significant accounting policies (cont d) 3.6 Investment properties Investment properties carried at fair value Investment properties are properties which are owned or held under leasehold interest to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business. These include land held for a currently undetermined future use. Investment properties are measured initially at cost and subsequently at fair value with any change therein recognised in income statements for the period in which they arise. Where the fair value of the investment property under construction is not reliably determinable, the investment property under construction is measured at cost until either its fair value becomes reliably determinable or construction is complete, whichever is earlier. Cost includes expenditure that is directly attributable to the acquisition of the investment property. The cost of self-constructed investment property includes the cost of materials and direct labour, any other costs directly attributable to bringing the investment property to a working condition for their intended use and capitalised borrowing costs. An investment property is derecognised on its disposal, or when it is permanently withdrawn from use and no future economic benefits are expected from its disposal. The difference between the net disposal proceeds and the carrying amount is recognised in the income statements in the period in which the item is derecognised Determining fair value An external, independent valuation firm, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued is engaged to, value the Group s investment properties every 3 years and at shorter intervals whenever the fair value of the revalued asset is expected to differ materially from their carrying value. The fair value of the investment property is determined by using comparison and investment methods. The comparison method entails critical analyses of recent evidence of values of comparable properties in the neighbourhood and making adjustments for differences such as differences in location, size and shape of the land, age and condition of building, tenure, title restrictions if any and other relevant characteristics. The investment method entails the determination of the probable gross annual rental the property is capable of producing and deducting therefrom the outgoings to arrive at the annual net income. The annual net income is capitalised using a rate of interest to arrive at the capital value of the property. Valuation of properties involves a degree of judgement before arriving at the respective property s revalued amount. As such, the revalued amount of the properties may be different from its actual market price. Investment property under construction is valued by estimating the fair value of the completed investment property and then deducting from that amount the estimated cost to complete construction, financing costs and a reasonable profit margin.

66 page 64 Kurnia Asia Berhad 3. Significant accounting policies (cont d) 3.7 Financial instruments Initial recognition and measurement A financial instrument is recognised in the financial statements when, and only when, the Group and the Company become a party to the contractual provisions of the instrument. A financial instrument is recognised initially, at its fair value plus, in the case of a financial instrument not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial instrument. An embedded derivative is recognised separately from the host contract and accounted for as a derivative if, and only if, it is not closely related to the economic characteristics and risks of the host contract and the host contract is not categorised at fair value through profit or loss. The host contract, in the event an embedded derivative is recognised separately, is accounted for in accordance with policy applicable to the nature of the host contract Financial instrument categories and subsequent measurement The Group and the Company categorise and measure financial instruments as follows: Financial assets Financial assets at fair value through profit or loss ( FVTPL ) Fair value through profit or loss category comprises financial assets that are held for trading ( HFT ) or financial assets that are specifically designated into this category upon initial recognition. A financial asset is classified as held for trading if it is acquired principally for the purpose of selling or repurchasing in the near term or it is part of a portfolio of identified securities that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking. Financial assets classified as HFT are subsequently measured at their fair values and any gain or loss arising from a change in the fair value will be recognised in the income statements Held-to-maturity investments ( HTM ) HTM investments category comprises debt instruments that are quoted in an active market and the Group and the Company have the positive intention and ability to hold to maturity. Financial assets categorised as HTM investments are subsequently measured at amortised cost using the effective interest method.

67 Kurnia Asia Berhad page Significant accounting policies (cont d) 3.7 Financial instruments (cont d) Financial instrument categories and subsequent measurement (cont d) Loans and receivables ( LAR ) Loans and receivables category comprises debt instruments that are not quoted in an active market and include other receivables and cash and cash equivalents. Financial assets categorised as loans and receivables are subsequently measured at amortised cost using the effective interest method Available-for-sale financial assets ( AFS ) AFS category comprises investments in equity and debt securities that are not held for trading or heldto-maturity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. Other financial assets classified as AFS are subsequently measured at their fair values and any gain or loss arising from a change in the fair value will be recognised in other comprehensive income, except for impairment losses and foreign exchange gains and losses arising from monetary items which are recognised in the income statements. On derecognition, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity into income statements. Interest calculated for a debt instrument using the effective interest method is recognised in the income statements Insurance receivables Insurance receivables are recognised when due and measured on initial recognition at the fair value of the consideration received or receivable. Subsequent to initial recognition, insurance receivables are measured at amortised cost, using the effective yield method. If there is objective evidence that the insurance receivable is impaired, the Group reduces the carrying amount of the insurance receivable accordingly and recognises that impairment loss in income statements. The Group gathers the objective evidence that an insurance receivable is impaired using the same process adopted for financial assets carried at amortised cost. The impairment loss is calculated under the same method used for these financial assets. These processes are described in Note 3.9. Insurance receivables are derecognised when the derecognition criteria for financial assets, as described in Note 3.7.5, have been met. All financial assets, except for those measured at fair value through profit or loss, are subject to review for impairment (see Note 3.9).

68 page 66 Kurnia Asia Berhad 3. Significant accounting policies (cont d) 3.7 Financial instruments (cont d) A regular way purchase or sale of financial assets A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the market place concerned. A regular way purchase or sale of financial assets is recognised and derecognised, as applicable, using trade date accounting. Trade date accounting refers to: - the recognition of an asset to be received and the liability to pay for it on the trade date, and - derecognition of an asset that is sold, recognition of any gain or loss on disposal and the recognition of a receivable from the buyer for payment on the trade date. All the financial assets are recognised using trade date except for debt instruments which are recognised using settlement date Financial liabilities All financial liabilities are initially measured at fair value and subsequently measured at amortised cost other than those categorised as fair value through profit or loss. Fair value through profit or loss category comprises financial liabilities that are held for trading or financial liabilities that are specifically designated into this category upon initial recognition. Financial liabilities categorised as fair value through profit or loss is subsequently measured at their fair values with the gain or loss recognised in income statements Derecognition A financial asset or part of it is derecognised when, and only when the contractual rights to the cash flows from the financial asset expire or the financial asset is transferred to another party without retaining control or substantially all risks and rewards of the asset. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in equity is recognised in the income statements. A financial liability or a part of it is derecognised when, and only when, the obligation specified in the contract is discharged or cancelled or expires. On derecognition of a financial liability, the difference between the carrying amount of the financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in the income statements. 3.8 Cash and cash equivalents Cash and cash equivalents consist of cash on hand, balances and deposits with banks and highly liquid investments which have an insignificant risk of changes in value with original maturities of three (3) months or less. Cash and cash equivalents are categorised and measured as loans and receivables in accordance with policy note

69 Kurnia Asia Berhad page Significant accounting policies (cont d) 3.9 Impairment Financial assets, excluding insurance receivables All financial assets (except for financial assets categorised as fair value through profit or loss, investment in subsidiaries, investment in associate and fixed and call deposits) are assessed at each reporting date whether there is any objective evidence of impairment as a result of one or more events having an impact on the estimated future cash flows of the asset. Losses expected as a result of future events, no matter how likely, are not recognised. For an equity instrument, a significant or prolonged decline in the fair value below its cost is an objective evidence of impairment Held-to-maturity ( HTM ) and loans and receivables ( LAR ) An impairment loss in respect of HTM investments and LAR is recognised in income statements and is measured as the difference between the financial asset s carrying amount and the present value of the estimated future cash flows discounted at the financial asset s original effective interest rate. The amount of the impairment loss is recognised in the income statement. The carrying amount of the assets is reduced through the use of an allowance account. Subsequent reversal in the impairment loss is recognised when the decrease can be objectively related to an event occurring after the impairment was recognised, to the extent that the financial assets carrying amount does not exceed its amortised cost if no impairment had been recognised. The reversal is recognised in the income statements Available-for-sale ( AFS ) An impairment loss in respect of available-for-sale financial assets is recognised in the income statements and is measured as the difference between the asset s acquisition cost (net of any principal repayment and amortisation) and the asset s current fair value, less any impairment loss previously recognised. Where a decline in the fair value of an available-for-sale financial asset has been recognised in the other comprehensive income, the cumulative loss in other comprehensive income is reclassified from equity and recognised to income statements. An impairment loss in respect of unquoted equity instrument that is carried at cost is recognised in income statements and is measured as the difference between the financial asset s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses recognised in income statements for an investment in an equity instrument classified as available-for-sale is not reversed through the income statements. If, in the subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in income statements, the impairment loss is reversed, to the extent that the asset s carrying amount does not exceed what the carrying amount would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in the income statements.

70 page 68 Kurnia Asia Berhad 3. Significant accounting policies (cont d) 3.9 Impairment (cont d) Insurance receivables Insurance receivables are assessed at each reporting date whether there is any objective evidence of impairment as a result of one or more events having an impact on the estimated future cash flows of the assets. Losses expected as a result of future events, no matter how likely, are not recognised. An objective evidence of impairment is deemed to exist where the principal or interest or both for insurance receivables is past due for more than 90 days or 3 months, as prescribed in the Guidelines on Financial Reporting for Insurers issued by BNM. An impairment loss in respect of insurance receivables is recognised in income statements and is measured as the difference between the financial asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. If, in subsequent period, the fair value of insurance receivable increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in income statements, the impairment loss is reversed, to the extent that the insurance receivables carrying amount does not exceed what the carrying amount would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in the income statements Other assets The carrying amounts of other assets (except for deferred tax assets and investment property that is measured at fair value) are reviewed at the end of each reporting period to determine whether there is any indication of impairment. For goodwill that have indefinite useful lives, the recoverable amount is estimated each period at the same time. When indication of impairment exists, the asset s recoverable amount is estimated. For the purpose of impairment testing, assets are grouped together into the smallest group of assets (known as the cash-generating unit ) that generates cash inflows from continuing use that are largely independent of the cash flows of other assets or groups of assets or cash-generating unit. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in the income statements. Impairment losses recognised in respect of cashgenerating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit or the group of cash-generating units and then to reduce the carrying amount of the other assets in the cashgenerating unit (or a group of cash-generating units) on a pro rata basis.

71 Kurnia Asia Berhad page Significant accounting policies (cont d) 3.9 Impairment (cont d) Other assets (cont d) An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at the end of each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount since the last impairment loss was recognised. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Reversals of impairment losses are credited to income statements in the year in which the reversals are recognised Product classification The Group issues contracts that transfer insurance risk. Insurance contracts are those contracts that transfer significant insurance risk. An insurance contract is a contract under which the Group (the insurer) has accepted significant insurance risk from another party (the policyholders) by agreeing to compensate the policyholders if a specified uncertain future event (the insured event) adversely affects the policyholders. As a general guideline, the Group determines whether it has significant insurance risk, by comparing benefits paid with benefits payable if the insured event did not occur. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expired Reinsurance The Group cedes the insurance risk in the normal course of business for all its businesses. Reinsurance assets represent balances due from reinsurance companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer s policies and are in accordance with the related reinsurance contracts. Ceded reinsurance arrangements do not relieve the Group from its obligations to policyholders. Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance. Reinsurance assets are reviewed for impairment at each reporting date or more frequently when an indication of impairment arises during the reporting period. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the Group may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer. The impairment loss is recorded in income statements. Gains or losses on buying reinsurance, if any, are recognised in income statements. The Group also assumes reinsurance risk in the normal course of business for general insurance contracts when applicable.

72 page 70 Kurnia Asia Berhad 3. Significant accounting policies (cont d) 3.11 Reinsurance (cont d) Premiums and claims on assumed reinsurance are recognised as revenue or expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business. Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the related reinsurance contract. Reinsurance assets or liabilities are derecognised when the contractual rights are extinguished or expire or when the contract is transferred to another party. Reinsurance contracts that do not transfer significant insurance risk are accounted for directly through the statements of financial position. These are deposit assets or financial liabilities that are recognised based on the consideration paid or received less any explicit identified premiums or fees to be retained by the reinsured Commission agency expenses Gross commission and agency expenses, which are costs directly incurred in securing premium on insurance policies, and income derived from reinsurers in the course of ceding of premiums to reinsurers, are charged to income statements in the period in which they are incurred or deferred where appropriate as set out in Note Equity instruments All equity instruments are stated at cost on initial recognition and are not remeasured subsequently Issue expenses Incremental costs directly attributable to the issue of equity instruments are recognised as a deduction from equity Repurchase of share capital When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a deduction from equity and is not re-valued for subsequent changes in the fair value or market price of shares. Repurchased shares are classified as treasury shares in the statement of changes in equity. Where treasury shares are distributed as share dividends, the cost of the treasury shares is applied in the reduction of the share premium account or distributable reserves, or both. Where treasury shares are reissued by re-sale in the open market, the difference between the sales consideration net of directly attributable costs and the carrying amount of the treasury shares is recognised in equity.

73 Kurnia Asia Berhad page Significant accounting policies (cont d) 3.14 Employee benefits Short term employee benefits Short term employee benefit obligations in respect of salaries, annual bonuses, paid annual leave and sick leave are measured on an undiscounted basis and are expensed as the related service is provided. The Group s and the Company s contributions to the Employees Provident Fund are charged to the income statements in the period to which they relate. Once the contributions have been paid, the Group and the Company have no further payment obligations Defined benefit plan The Group s and the Company s net obligation in respect of the defined benefit retirement plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine the present value. Any unrecognised past service costs and the fair value of the plan assets are deducted. The discount rate is the yield at the end of the reporting period on high quality corporate bonds or government bonds that have maturity dates approximating the terms of the Group s and the Company s obligation and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group and the Company, the recognised asset is limited to the net total of any unrecognised past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan. When the benefits of the plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in the income statements on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the income statements. In calculating the Group s and the Company s obligation in respect of a plan, to the extent that any cumulative unrecognised actuarial gain or loss exceeds ten percent of the greater of the present value of the defined benefit obligation and the fair value of plan assets, if any, that portion is recognised in the income statements over the expected average remaining working lives of the employees participating in the plan. Otherwise, the actuarial gain or loss is not recognised. The latest actuarial valuation on the Group s and the Company s obligations for their defined benefit plans was carried out on 22 February 2011.

74 page 72 Kurnia Asia Berhad 3. Significant accounting policies (cont d) 3.15 Provisions A provision is recognised if, as a result of a past event, the Group and the Company have a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of discount is recognised as finance cost. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote. Contingent liabilities do not include liabilities arising from contracts of insurance underwritten in the ordinary course of business of the Group Other financial liabilities and payables Other financial liabilities and payables are recognised when due and measured on initial recognition at the fair value of the consideration received less directly attributable transactions costs General insurance underwriting results The general insurance underwriting results are determined for each class of business after taking into account inter alia reinsurances, commissions, unearned premiums and claims incurred Premium income Premium is recognised in a financial period in respect of risks assumed during that particular financial period except for inwards treaty reinsurance premiums which are recognised on the basis of periodic advices / accounts received from ceding insurers Insurance contract liabilities General insurance contract liabilities are recognised when contracts are entered into and premiums are charged. These liabilities comprise provision for unearned premiums and provision for outstanding claims Provision for unearned premiums Provision for unearned premiums is the higher of the aggregate of the Unearned Premium Reserves ( UPR ) for all lines of business and the best estimate value of the Unexpired Risk Reserves ( URR ) at the required risk margin for adverse deviation.

75 Kurnia Asia Berhad page Significant accounting policies (cont d) 3.17 General insurance underwriting results (cont d) Insurance contract liabilities (cont d) Provision for unearned premiums (cont d) Unearned premium reserves The UPR represents the premiums received for risks that have not yet expired. Generally, the reserve is released over the term of the contract and is recognised as premium income. In determining the UPR at the end of the reporting period, the method that most accurately reflects the actual unearned premium reserves is as follows: - 25% method for marine cargo, aviation cargo and transit business of annual Malaysian general policies - 1/24th method for all other classes of annual Malaysian general policies - 1/8th method for all other classes of annual overseas inward treaty business - non-annual policies are time-apportioned over the period of the risks The UPR is adjusted for additional UPR in respect of premiums ceded to overseas reinsurers as required under the guidelines issued by BNM. Unexpired risk reserves At each reporting date, the Group reviews its unexpired risks and a liability adequacy test is performed to determine whether there is any overall excess of expected claims and deferred acquisition costs over unearned premiums. This calculation uses current estimates of future contractual cash flows (taking into consideration current loss ratios) after taking account of the investment return expected to arise on assets relating to the relevant general insurance technical provisions. If these estimates show that the carrying amount of the unearned premiums less related deferred acquisition costs is inadequate, the deficiency is recognised in income statements by setting up a provision for liability adequacy Provision for outstanding claims Outstanding claims provision are based on the estimated ultimate cost of all claims incurred but not settled at the end of the reporting period, whether reported or not, together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of certain types of claims, therefore, the ultimate cost of these claims cannot be known with certainty at the end of the reporting period. The liability is calculated at the reporting date by an independent actuarial firm using projection techniques as set out in Note 3.18 that included a regulatory risk margin for adverse deviation. The liability is discounted for the time value of money. No provision for equalisation or catastrophe reserves is recognised. The liabilities are derecognised when the contract expires, is discharged or is cancelled.

76 page 74 Kurnia Asia Berhad 3. Significant accounting policies (cont d) 3.17 General insurance underwriting results (cont d) Acquisition costs and deferred acquisition costs ( DAC ) The gross cost of acquiring and renewing insurance policies net of income derived from ceding reinsurance premiums is recognised as incurred and properly allocated to the periods in which it is probable they give rise to income. Acquisition costs or ceding income which are not recoverable, or not payable in the event of a termination of the policy to which they relate, are not deferred but are recognised in the period in which they occur. Those costs are deferred to the extent that these costs are recoverable out of future premiums. All other acquisition costs are recognised as an expense when incurred. Subsequent to initial recognition, these costs are amortised on a straight-line basis based on the term of expected future premiums. Amortisation is recognised in income statements. An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. When the recoverable amount is less than the carrying value, an impairment loss is recognised in income statements. DAC is also considered in the liability adequacy test for each accounting period. DAC is derecognised when the related contracts are either settled or disposed of Valuation of general insurance contract liabilities For general insurance contracts, estimates have to be made for both the expected ultimate cost of claims reported at the end of the reporting period and for the expected ultimate cost of claims incurred but not yet reported ( IBNR ) at the end of the reporting period. It can take a significant period of time before the ultimate claims costs can be established with certainty and for some type of policies, IBNR claims form the majority of the statements of financial position liability. The ultimate cost of outstanding claims is estimated by using a range of standard actuarial claims projection techniques, such as Chain Ladder and Bornheutter-Ferguson methods. The main assumption underlying these techniques is that a company s past claims development experience can be used to project future claims development and hence, the ultimate claims costs. As such, these methods extrapolate the development of paid and incurred losses, average costs per claim and claims numbers based on the observed development of earlier years and expected loss ratios. Historical claims development is mainly analysed by accident years, but can also be further analysed by significant business lines and claims type. Large claims are usually separately addressed, either by being reserved at the face value of loss adjustor estimates or separately projected in order to reflect their future development. In most cases, no explicit assumptions are made regarding their future rates of claims inflation or loss ratios. Instead, the assumptions used are implicit in the historic claims development data on which the projections are based. Additional qualitative judgement is used to assess the extent to which past trends may not apply in future, (for example, to reflect one-off occurrences, changes in external or market factors such as public attitudes to claiming, economic conditions, level of claims inflation, judicial decisions and legislation, as well as internal factors such as portfolio mix, policy features and claims handling procedures) in order to arrive at the estimated ultimate cost of claims that present the likely outcome for the range of possible outcomes, taking account of all the uncertainties involved.

77 Kurnia Asia Berhad page Significant accounting policies (cont d) 3.19 Other revenue recognition Interest income Interest income is recognised as it accrues, using the effective interest method except where an interest bearing investments is considered non-performing, i.e. where repayments are in arrears for more than six months, in which case recognition of such interest is suspended. Subsequent to suspension, interest income is recognised on the receipt basis until all arrears have been paid Dividend income Dividend income represents gross dividends from quoted and unquoted investments and is recognised in the income statements when the right to receive payment is established Rental income Rental income is recognised on an accrual basis except where default in payment of rent has already occurred and rent due remains outstanding for over six months, in which case recognition of rental income is suspended. Subsequent to suspension, rental income is recognised on the receipt basis until all arrears have been paid Realised gains and losses on investments 3.20 Tax expense Realised gains and losses recorded in income statements on investments include gains and losses on financial assets and investment properties. Gains and losses on the sale of investments are calculated as the difference between net sales proceeds and the original or amortised costs and are recorded on occurrence of the sale transaction. Tax expense comprises current and deferred tax. Tax expense is recognised in the income statements except to the extent that it relates to a business combination or items recognised directly in equity or other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using liability method, providing for temporary differences between the carrying amounts of assets and liabilities in the statements of financial position and their tax bases. Deferred tax is not recognised for the temporary differences in relation to the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting, nor taxable profit or loss. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the end of the reporting period. Deferred tax liability is recognised for all taxable temporary differences. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary difference can be utilised. Deferred tax assets are reviewed at the end of each reporting period and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

78 page 76 Kurnia Asia Berhad 3. Significant accounting policies (cont d) 3.21 Earnings per share The Group presents basic earnings per shares ( EPS ) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. No diluted EPS is disclosed in these financial statements as there are no dilutive potential ordinary shares Operating segments An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group s other components. An operating segment s operating results are reviewed regularly by the chief operating decision maker, which in the case is the Chief Executive Officer of the Group, to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. 4. Property and equipment Office Long term Office Furniture equipment Property Group Freehold leasehold improve- and and Motor under land land Buildings ments fittings computers vehicles construction Total Cost/ valuation RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At 1 January ,123 33, ,367 9,042 37,738 75,979 9,013 7, ,448 Additions ,601 1,066 5,854 8,900 Disposals - (312) (1,460) (7) (6) (1,451) (2,748) - (5,984) Effect of movements in exchange rates - - (31) (1) (17) (101) (71) - (221) At 31 December 2010 / 1 January ,123 32, ,876 9,061 38,067 76,028 7,260 12, ,143 Additions ,683 1,175 5,134 10,650 Disposals (85) (110) (3,400) (4,003) - (7,598) Written off (7,304) (19,812) (42,337) - (264) (69,717) Elimination of accumulated depreciation on revaluation - (2,762) (18,783) (21,545) Revaluation surplus 7,371 4,351 20, ,364 Effect of movements in exchange rates - - (58) At 31 December ,494 34, ,677 1,884 18,672 34,013 4,456 17, ,383

79 Kurnia Asia Berhad page Property and equipment (cont d) Office Property Long term Office Furniture equipment under Group Freehold leasehold improve- and and Motor conland land Buildings ments fittings computers vehicles struction Total Depreciation RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At 1 January ,180 14,662 6,315 22,320 56,291 6, ,306 Depreciation for the year , ,580 7, ,312 Disposals - (27) (283) (2) (5) (1,418) (2,243) - (3,978) Effect of movements in exchange rates - - (4) (2) (9) (61) (62) - (138) At 31 December 2010 / 1 January ,570 17,330 7,165 25,886 62,431 5, ,502 Depreciation for the year , ,944 5, ,534 Disposals (53) (89) (3,336) (3,474) - (6,952) Written off (6,724) (17,832) (41,717) - - (66,273) Elimination of accumulated depreciation on revaluation - (2,762) (18,783) (21,545) Effect of movements in exchange rates - - (15) At 31 December , ,922 22,924 2,522-39,323 Impairment loss At 1 January , , ,034 Impairment loss for the year ,383 Disposal (12) - - (12) At 31 December 2010 / 1 January , , ,405 Impairment loss/ (reversal) for the year (881) (351) Disposal (16) (5) - - (21) Written off (577) (1,958) (599) - - (3,134) At 31 December , ,899 Carrying amounts At 1 January ,123 30, ,838 2,150 13,444 19,072 2,475 7, ,108 At 31 December 2010 / 1 January ,663 30, ,861 1,319 10,207 12,993 2,140 12, ,236 At 31 December ,587 33, , ,750 11,089 1,934 17, ,161

80 page 78 Kurnia Asia Berhad 4. Property and equipment (cont d) Revaluation of land and buildings The Group s land and buildings have been revalued during the year based on valuations performed by independent professional qualified valuers. The fair value of the land and buildings are the estimated market value of the property derived using the market value of properties in the vicinity and past transaction prices. Had the land and buildings of the Group been carried under cost model, their carrying amounts would have been as follows:- Group RM 000 RM 000 Freehold land 16,512 16,663 Leasehold land 29,578 30,150 Buildings 112, ,441 At 31 December 158, ,254 Impairment loss and subsequent reversal The Group performed an impairment assessment on its property and equipment during the year ended 31 December As a result of the assessment, impairment loss of RM1,383,000 was recognised in the income statement. In 2011, impairment loss of RM351,000 was reversed as a result of the revaluation of land and buildings. Motor vehicles Total Company RM 000 RM 000 Cost At 1 January ,308 1,308 Additions Disposals (415) (415) At 31 December 2010 / 1 January ,283 1,283 Disposals (96) (96) At 31 December ,187 1,187 Depreciation At 1 January ,176 1,176 Depreciation for the year Disposals (415) (415) At 31 December 2010 / 1 January Depreciation for the year Disposals (96) (96) At 31 December

81 Kurnia Asia Berhad page Property and equipment (cont d) Motor vehicles Total Company RM 000 RM 000 Carrying amounts At 1 January At 31 December 2010 / 1 January At 31 December Goodwill Group RM 000 RM 000 Carrying amounts At 1 January - 5,061 Impairment loss - (4,373) Effect of movements in exchange rates - (688) At 31 December - - The entire carrying amount of goodwill was allocated to the general insurance business unit in Indonesia, PT Kurnia Insurance Indonesia ( KII ), which represents the lowest level within the Group at which the goodwill is monitored for internal management purposes. The goodwill was fully impaired in 2010, after management had considered the past historical financial track record and the uncertainties over the profitability of the cash-generating unit in the immediate future. 6. Investment property Group RM 000 RM 000 At 1 January 7,500 7,500 Change in fair value income statement At 31 December 7,713 7,500 The fair value of the investment property is the estimated market value of the property derived using the market value of properties in the vicinity and past transaction prices. Valuation is performed by independent professional qualified valuers.

82 page 80 Kurnia Asia Berhad 6. Investment property (cont d) The following are recognised in the income statement in respect of investment property: Group RM 000 RM 000 Rental income Direct operating expenses (31) (31) 7. Investments in subsidiaries Company RM 000 RM 000 Unquoted ordinary shares, at cost 519, ,225 Less: Accumulated impairment losses (9,373) (9,373) 510, ,852 Irredeemable Convertible Subordinated Debt , , , , On 10 September 2008, the Company subscribed for RM400,000,000 nominal value of Irredeemable Convertible Subordinated Debt ( ICSD ) issued by the Company s subsidiary, Kurnia Insurans (Malaysia) Berhad ( KIMB ). The ICSD has a tenure of 5 years from the date of issuance, and bears interest at the rate of 1.5% per annum above the cost of fund of CIMB Bank Berhad or such other amended rates at the discretion of the Company. The ICSD shall be convertible into fully paid ordinary shares of KIMB at the conversion price of RM1.00 per ordinary share ( Conversion Price ) at any time during the tenure of the ICSD. All ICSD not converted during the tenure of the ICSD shall be automatically converted on the maturity date. On 19 September 2008, RM400,000,000 nominal value of ICSD was issued to the Company, and on even date, RM170,000,000 nominal value of ICSD was converted into ordinary shares of KIMB at the Conversion Price.

83 Kurnia Asia Berhad page Investments in subsidiaries (cont d) 7.2 Details of the subsidiaries are as follows: Country of Effective ownership Name of subsidiary incorporation Principal activities interest Kurnia Insurans (Malaysia) Berhad Malaysia Underwriting of general insurance 100% 100% Kurnia Asia Pte. Ltd. # Singapore Investment holding 100% 100% PT Kurnia Insurance Indonesia # Indonesia Underwriting of general insurance Premier Assist Sdn. Bhd. (formerly known as Kurnia Auto Assist Sdn. Bhd.) * 100% 100% Malaysia Auto assists service 100% 100% Kurnia Cambodia Incorporated Co. Ltd. # Cambodia Dormant 60% - # Not audited by KPMG * The subsidiary was incorporated on 26 December 2001 and commenced business on 1 April Investment in associate Group RM 000 RM 000 Unquoted shares outside Malaysia, at cost 21,181 19,235 Less: Accumulated impairment losses (2,394) (2,394) 18,787 16,841 Share of post acquisition loss (4,119) (3,562) 14,668 13,279 Summary financial information for associate, not adjusted for the percentage ownership held by the Group: Effective Total Total Country of ownership Revenue Loss assets liabilities incorporation interest (100%) (100%) (100%) (100%) RM 000 RM 000 RM 000 RM 000 Kurnia Insurance (Thailand) Co. Ltd. Thailand 25% 75,316 2,228 74,429 59,902

84 page 82 Kurnia Asia Berhad 9. Investments The Group s investments are categorised as follow: Group RM 000 RM 000 Malaysian government securities - 10,179 Cagamas bonds 1,006 1,012 Government guaranteed bonds 5,062 20,177 Debt securities 321, ,111 Equity securities 19,055 43,420 Quoted unit and property trust funds 138,704 99,523 Collective investment funds 680, ,266 Loans and receivables 469, ,158 1,634,934 1,702,846 The following investments mature after 12 months: Group RM 000 RM 000 Held-to-maturity financial assets 58,059 63,278 Available-for-sale financial assets 820, ,378 Loans and receivables 149, ,173 1,027,988 1,479, Held-to-maturity Group RM 000 RM 000 Amortised cost Debt securities - Unquoted in Malaysia 62,123 63,278 Fair value Debt securities - Unquoted in Malaysia 63,290 60,531

85 Kurnia Asia Berhad page Investments (cont d) 9.2 Available-for-sale Group RM 000 RM 000 Fair value Collective investment funds 680, ,266 Malaysian government securities - 10,179 Debt securities - Unquoted in Malaysia 265, ,022 Cost Equity securities - Unquoted in Malaysia 1,430 1,430 - Unquoted outside Malaysia , , Held for trading Group RM 000 RM 000 Fair value Quoted equity securities in Malaysia 17,594 41,959 Quoted unit and property trust funds in Malaysia 138,704 99, , , Loans and receivables Group RM 000 RM 000 Amortised cost Fixed and call deposits - Licensed banks 457, ,427 Negotiable instruments of deposits ( NID ) - 29,409 Commercial loans - Performing loan - 6,590 - Non-performing loan 6,000 6,000 Mortgage loans 5,408 7,683 Other loans , ,158

86 page 84 Kurnia Asia Berhad 9. Investments (cont d) 9.4 Loans and receivables (cont d) Group RM 000 RM 000 Fair value Fixed and call deposits - Licensed banks 457, ,427 Negotiable instruments of deposits ( NID ) - 29,409 Commercial loans - Performing loan - 6,590 - Non-performing loan 6,000 6,000 Mortgage loans 5,408 7,683 Other loans , , Carrying values of financial instruments Group HTM LAR AFS HFT Total RM 000 RM 000 RM 000 RM 000 RM 000 At 1 January , , , ,934 1,683,404 Effect of adopting FRS ,269 1,545 10,814 Purchases - 16, ,313 82, ,060 Maturities (21,701) - (92,647) - (114,348) Disposals - (7,237) (568,771) (122,233) (698,241) Realised gains recorded in: - Income statements - - 5,195 9,161 14,356 Fair value gains recorded in: - Income statements ,544 10,544 - Other comprehensive income - - 7,844-7,844 Amortisation net of accretion (187) Translation difference (58) (922) (171) (3) (1,154) At 31 December , , , ,482 1,702,846

87 Kurnia Asia Berhad page Investments (cont d) 9.5 Carrying values of financial instruments (cont d) Group HTM LAR AFS HFT Total RM 000 RM 000 RM 000 RM 000 RM 000 At 31 December , , , ,482 1,702,846 Purchases , , ,138 Maturities (900) (14,700) (135,000) - (150,600) Disposals - (38,567) (197,256) (109,424) (345,247) Realised gains recorded in: - Income statements - - 1,892 4,881 6,773 Fair value gains/(losses) recorded in: - Income statements ,377 4,377 - Other comprehensive income - - (7,277) - (7,277) Amortisation net of accretion (255) 280 (101) - (76) At 31 December , , , ,298 1,634, Reinsurance assets Group Note RM 000 RM 000 Reinsurance of insurance contracts - Claims liabilities , ,759 - Premium liabilities , , , ,759

88 page 86 Kurnia Asia Berhad 11. Insurance receivables Group Note RM 000 RM 000 Due premiums including agents / brokers and co-insurers balances 60,955 59,288 Due from reinsurers and cedants ,652 23,684 74,607 82,972 Allowance for impairment 11.2 (17,775) (30,121) 11.1 Amount due from associate company 56,832 52,851 Included in the amount due from reinsurers and cedants is an amount of RM122,000 (2010: Nil) due from associate company. The transaction is based on normal trade terms and the balance outstanding is unsecured Allowance for impairment During the year, impairment loss of RM11,050,000 (2010: RM6,601,000) was written off against the allowance for impairment. 12. Other receivables, deposits and prepayments Group Company Note RM 000 RM 000 RM 000 RM 000 Income due and accrued 16,857 9, Other receivables, deposits and prepayments 59,478 18, Amount due from subsidiaries Malaysian Institute of Insurance bond ( MII ) Advance premium ceded to reinsurers 2,624 5, Commission paid to agents on advance premium 1,174 1, ,333 35, Receivable after 12 months 18,783 13,

89 Kurnia Asia Berhad page Other receivables, deposits and prepayments (cont d) Estimation of fair values The carrying amount of other receivables approximates its fair value due to the relatively short term nature of the financial instruments. The fair value of other receivables after 12 months was determined to approximate the carrying amounts as it is immaterial in the context of the financial statements Amounts due from subsidiaries The amounts due from subsidiaries are unsecured, interest-free and repayable on demand. 13. Deferred acquisition costs Group Note RM 000 RM 000 Gross of reinsurance At 1 January 41,646 43,151 Movement during the year 27 (4,639) (1,505) At 31 December 37,007 41,646 Reinsurance At 1 January (5,371) (6,326) Movement during the year 27 (5,566) 955 At 31 December (10,937) (5,371) Net of reinsurance At 1 January 36,275 36,825 Movement during the year (10,205) (550) At 31 December 26,070 36,275

90 page 88 Kurnia Asia Berhad 14. Cash and cash equivalents Group Company RM 000 RM 000 RM 000 RM 000 Cash and bank balances 37,436 38,818 1,543 3,272 Deposits placed with licensed banks in Malaysia 82,741 90, Deposits placed with licensed banks outside Malaysia 10, , ,632 1,543 3,272 The carrying amounts approximate their fair values due to the relatively short term nature of these financial instruments. 15. Insurance contract liabilities General insurance contract liabilities consist of: Gross Reinsurance Net Gross Reinsurance Net Group Note RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Provision for claims reported by policyholders 802,024 (257,716) 544, ,845 (170,555) 691,290 Provision for incurred but not reported claims ( IBNR ) 334,360 (127,860) 206, ,947 (80,204) 213,743 Provision for outstanding claims ,136,384 (385,576) 750,808 1,155,792 (250,759) 905,033 Provision for unearned premiums ,454 (165,697) 388, ,360 (122,000) 391, Provision for outstanding claims 1,690,838 (551,273) 1,139,565 1,669,152 (372,759) 1,296, Gross Reinsurance Net Gross Reinsurance Net Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At 1 January 1,155,792 (250,759) 905,033 1,314,722 (283,765) 1,030,957 Loss portfolio transfer - (67,861) (67,861) Claims incurred in the current accident year (direct and facultative) 469,924 (60,511) 409, ,820 (67,842) 519,978 Adjustment to claims incurred in prior accident years (direct and facultative) 298,448 (177,499) 120, ,898 14, ,654 Claims incurred during the year (treaty inwards claims) 17,716-17,716 3,305-3,305 Claims paid during the year (805,496) 171,054 (634,442) (858,953) 86,092 (772,861) At 31 December 1,136,384 (385,576) 750,808 1,155,792 (250,759) 905,033

91 Kurnia Asia Berhad page Insurance contract liabilities (cont d) 15.2 Provision for unearned premiums Gross Reinsurance Net Gross Reinsurance Net Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At 1 January 513,360 (122,000) 391, ,694 (55,425) 405,269 Premiums written during the year 1,109,729 (337,714) 772,015 1,058,753 (220,387) 838,366 Premiums earned during the year (1,068,635) 294,017 (774,618) (1,006,087) 153,812 (852,275) At 31 December 554,454 (165,697) 388, ,360 (122,000) 391, Other financial liabilities Group Company Note RM 000 RM 000 RM 000 RM 000 Treaty deposits from reinsurers 84,143 68, Performance bond deposits ,487 6, Term loan , , , , Performance bond deposits 450, , , ,000 Performance bond deposits are collateral deposits received from policyholders for guarantees issued on behalf of policyholders. The carrying amounts disclosed above approximate fair values at the end of the reporting period. All amounts, except for term loan, are payable within one year Term loan Security On 11 September 2008, the Company entered into an agreement with CIMB Bank Berhad ( CIMB ) for a term loan facility of up to RM400,000,000 for a tenure of 5 years from the date of first drawing. The term loan facility is for the purpose of subscribing for RM400,000,000 nominal value Irredeemable Convertible Subordinated Debt ( ICSD ) of its subsidiary, Kurnia Insurans (Malaysia) Berhad ( KIMB ). The term loan is secured by the entire issued and paid up share capital and the entire ICSD of KIMB held by the Company.

92 page 90 Kurnia Asia Berhad 16. Other financial liabilities (cont d) 16.2 Term loan (cont d) Term and repayment schedule Year of Carrying Under maturity amount 1 year years years Group and Company RM 000 RM 000 RM 000 RM Term loan 2012 to , , , Term loan 2011 to ,000 80, , ,000 The effective interest rate on the term loan during the year is 5.91% per annum (2010: 5.40%). During the financial year, CIMB agreed to extend the principal repayment of RM80,000,000 which was due in September 2011 to May Given that the Company had on 3 April 2012 obtained the approval from MOF via BNM to enter into an agreement with AmG to dispose the Company s 100% equity interest in KIMB to AmG, the Board of Directors intends to seek further extension of time from CIMB to repay the RM80,000,000 to facilitate the completion of the proposed disposal. 17. Insurance payables Group RM 000 RM 000 Due to agents, brokers, co-insurers and insured 10,824 10,890 Due to reinsurers and cedants 76,549 18,740 87,373 29,630

93 Kurnia Asia Berhad page Other payables Group Company Note RM 000 RM 000 RM 000 RM 000 Accrued expenses and deposits 26,007 18,487 2, Advance premium written 11,302 14, Commission received on advance premium ceded to reinsurers Other payables 33,264 34, Term loan interest Amount due to shareholders ,028 22,035 31,028 22,035 Amount due to subsidiaries ,786 5, ,976 90,748 48,281 28,135 The carrying amounts disclosed above approximate fair values at the end of the reporting period. All amounts, except for the amount due to shareholders, are payable within one year Amount due to shareholders Included in the amount due to shareholders is a loan amounting to RM27,371,000 extended by Tan Sri Dato Paduka Kua Sian Kooi to the Company, for the purpose of enabling the Company to meet its obligation under the term loan to repay CIMB and for working capital purposes. RM20,000,000 of the RM27,371,000 is unsecured and subordinated to the term loan from CIMB (Note 16.2). The effective interest rate on this amount during the year is 5.91% per annum (2010: 5.67%). The remaining balance of RM7,371,000 is unsecured, interest free and repayable on demand Amount due to subsidiaries Amount due to subsidiaries is unsecured, interest-free and repayable on demand.

94 page 92 Kurnia Asia Berhad 19. Provision for retirement benefits 19.1 The movements in the present value of the defined benefit obligation recognised in the statements of financial position are as follows: Group Company RM 000 RM 000 RM 000 RM 000 Defined benefit obligation at 1 January 25,544 23,785 2,244 2,066 Benefits paid (1,233) (1,252) (20) (68) Current service costs and interest 3,022 3, December 27,333 25,544 2,479 2,244 Present value of unfunded obligation 27,333 25,544 2,479 2,244 Recognised liability for defined benefit obligation 27,333 25,544 2,479 2, Expenses recognised in income statements as retirement benefits (Note 30): Group Company RM 000 RM 000 RM 000 RM 000 Current service cost 1,962 1, Interest cost 1,060 1, ,022 3,

95 Kurnia Asia Berhad page Provision for retirement benefits (cont d) 19.3 Actuarial assumptions Principal actuarial assumptions at the end of the reporting period (expressed as weighted average): Group Company Discount rate at 31 December (per annum) 4.50% 4.50% 4.50% 4.50% Future salary increases (per annum) 6.00% 6.00% 6.00% 6.00% The discount rate used is based on market yields at the end of the reporting period on high quality corporate bonds. The amount and terms of the corporate bonds are consistent with the current and estimated future post-employment benefit obligation. Assumption regarding future mortality is based on the experience of Malaysian insured lives between 1983 and 1988 with allowance for improvement in mortality rates allowed for by applying a 25% reduction to the standard rate. The average expected future working lives has been estimated at 7.9 years. Calculation of the unfunded defined retirement benefits involves the projection of the present value for unfunded obligations using certain principal actuarial assumptions such as the rate of interest at which to discount the future retirement benefits payments at the valuation date and the assumed rate of growth of liabilities, namely the rate of salary escalation. There are elements of uncertainty on the assumptions used and thus the projected future retirement benefits payable may be different from the actual retirement benefits paid. Under the scheme, eligible employees who have completed a minimum of 10 years of service are entitled to retire at 56 years of age or optional retirement age of 50 years. Employees who leave before the attainment of the normal retirement age or optional retirement age, are not entitled to the benefit. All new employees who are hired after 18 March 2011 will cease to be entitled for the retirement benefit.

96 page 94 Kurnia Asia Berhad 20. Deferred tax assets / (liabilities) 20.1 Recognised deferred tax assets and (liabilities) are attributable to the following: Assets Liabilities Net Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Property and equipment - - (2,916) (5,139) (2,916) (5,139) Provisions 8,884 3, ,884 3,830 Unutilised tax losses carry forward 1, , Other items (179) - (35) 20 10,842 4,661 (3,095) (5,139) 7,747 (478) Revaluation surplus - - (1,618) - (1,618) - Fair value reserve of securities available-for-sale - - (2,459) (4,278) (2,459) (4,278) 10,842 4,661 (7,172) (9,417) 3,670 (4,756) 20.2 Movement in temporary differences during the year: Recognised Recognised Effect of Recognised Recognised Effect of in income in equity movements in income in equity movements At statements statements in exchange At statements statements in exchange At Group (Note 32) (Note 32) rates (Note 32) (Note 32) rates RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Property and equipment (6,865) 1,797 - (71) (5,139) 2, (2,916) Provisions 6,525 (2,695) - - 3,830 5,699 - (645) 8,884 Unutilised tax losses carry forward 9,184 (8,373) ,814 Other items 75 (55) (179) (35) Tax assets / (liabilities) 8,919 (9,326) - (71) (478) 8, ,747 Revaluation surplus (1,618) - (1,618) Fair value reserve of securities available-forsale - - (4,278) - (4,278) - 1,819 - (2,459) Net tax assets / (liabilities) 8,919 (9,326) (4,278) (71) (4,756) 8, ,670 The estimation of the recognised deferred tax assets involves the projection of the Group s future profits. There are elements of uncertainty in the projection, which comprise of the global economic condition and market volatility among others. Thus the projected future profits may be different from its actual profits.

97 Kurnia Asia Berhad page Share capital Group and Company No. of No. of shares Amount shares Amount 000 RM RM 000 Authorised: Ordinary shares of RM0.25 each 5,000,000 1,250,000 5,000,000 1,250,000 Issued and fully paid: Ordinary shares of RM0.25 each 1,500, ,000 1,500, , Reserves The reserves as shown in the statements of changes in equity are as follows: 22.1 Translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations Treasury shares In 2008, the Company repurchased 11,577,400 of its issued shares from the open market. The average price paid for the shares purchased was approximately RM1.03 per ordinary share. The repurchase transactions were financed by internal funds. The repurchased shares are held as treasury shares and carried at cost. As at 31 December 2011, the Company held 11,577,400 of the Company s shares. The number of outstanding shares in issue after deducting treasury shares held was 1,488,422,600 ordinary shares of RM0.25 each. There were no shares repurchased during the financial year ended 31 December Fair value reserve The fair value reserve is in respect of the cumulative change in the fair value on securities available-for-sale, net of deferred taxation until the investments are derecognised or impaired Property revaluation reserve The property revaluation reserve relates to the revaluation of property and equipment, net of deferred taxation.

98 page 96 Kurnia Asia Berhad 23. Operating revenue Group Company RM 000 RM 000 RM 000 RM 000 Gross earned premiums 1,068,635 1,006, Investment income 92,628 90,849 22,451 21,538 1,161,263 1,096,936 22,451 21, Investment income Group Company RM 000 RM 000 RM 000 RM 000 Rental income Financial assets at FVTPL Held for trading Dividend / distribution income - equity securities quoted in Malaysia 1,502 2, equity securities quoted outside Malaysia quoted unit and property trust funds 7,257 6, Held-to-maturity financial assets Interest income 3,922 4, Amortisation of premiums, net of accretion of discounts (255) (187) - - Available-for-sale financial assets Interest income 14,782 18, Dividend / distribution income - equity securities unquoted in Malaysia collective investment funds 43,957 35, Loans and receivables Interest income Deposits with financial institutions Interest income 15,769 16, Amortisation of premiums, net of accretion of discounts on NID Cash and cash equivalents Interest income 3,415 4, Irredeemable Convertible Subordinated Debt Interest income ,451 21,193 Total investment income 92,628 90,849 22,451 21,538

99 Kurnia Asia Berhad page Realised gains and losses Group RM 000 RM 000 HFT financial assets Realised gains - equity securities quoted in Malaysia 4,864 6,910 - unit and property trust fund quoted in Malaysia 17 2,251 Total realised gains for HFT financial assets 4,881 9,161 AFS financial assets Realised gains - unit and property trust fund quoted in Malaysia debt securities quoted in Malaysia 1,892 4,897 - debt securities quoted outside Malaysia Total realised gains for AFS financial assets 1,892 5,195 6,773 14, Fair value gains and losses Group RM 000 RM 000 Financial investments - held for trading 4,377 10,544 Fair value gain on investment property Total fair value gains 4,590 10,544

100 page 98 Kurnia Asia Berhad 27. Commission income / expense Group Note RM 000 RM 000 Commission income Commission income 77,796 47,893 Movement in deferred acquisition costs 13 (5,566) ,230 48,848 Commission expense Commission expense (137,305) (127,267) Movement in deferred acquisition costs 13 (4,639) (1,505) (141,944) (128,772) 28. Other operating income Group Company RM 000 RM 000 RM 000 RM 000 Transfer fees and other contract fees Other income

101 Kurnia Asia Berhad page Net claims incurred Group RM 000 RM 000 Gross claims paid less salvage 805, ,953 Claims ceded to reinsurers (171,054) (86,092) Net claims paid 634, ,861 Gross change in claims liabilities At 31 December 1,136,384 1,155,792 At 1 January (1,155,792) (1,314,722) (19,408) (158,930) Change in claims liabilities ceded to reinsurers At 31 December (385,576) (250,759) Loss portfolio transfer * 67,861 - At 1 January 250, ,765 (66,956) 33, , ,937 * During the financial year, a subsidiary, KIMB entered into a Loss Portfolio Transfer with Adverse Deviation Cover Reinsurance Agreement ( LPT ) for 25% of all incurred claims after all inuring reinsurance protection in respect of the year of occurrence from 1 July 1998 to 30 June 2008 which have not been paid as at 31 December The incurred claims include case estimates, incurred but not reported ( IBNR ) and incurred but not enough reported ( IBNER ) claims, subject to a maximum aggregate losses paid of 144% of the undiscounted central estimate of claims liability.

102 page 100 Kurnia Asia Berhad 30. Management expenses Group Company RM 000 RM 000 RM 000 RM 000 Personnel expenses (including key management personnel): Contributions to Employees Provident Fund 9,380 8, Expenses related to defined benefit plan 3,022 3, Wages, salaries and others 94,284 88,491 7,042 1,476 Auditors remuneration KPMG Malaysia - current year prior year 13 (1) non-audit fees Subsidiaries auditors Insurance receivables: Reversal of allowance for impairment loss (12,346) (10,066) - - Impairment loss written off 11,050 6, Impairment loss recovered (118) (29) - - Depreciation of property and equipment 13,534 16, Rental of office and premises 1,293 1, IGSF levies 1,376 2, Advertisement expenses 1,859 2, Bank charges 10,515 10, Write off of property and equipment Gain on disposal of property and equipment (1,127) (920) (10) (130) Allowance for impairment loss on reinsurance assets 1, (Reversal)/Allowance for impairment loss on property and equipment (351) 1, Allowance for impairment loss on investment in subsidiary - 2,394-4,373 Allowance for impairment loss on goodwill - 4, Other expenses 40,762 50,649 2,592 2,785 Total management expenses 175, ,912 11,221 9,052

103 Kurnia Asia Berhad page Key management personnel compensation The key management personnel compensations are as follows: Group Company RM 000 RM 000 RM 000 RM 000 Executive Directors Remuneration 5,162 4,676 4, Other short term employee benefits (including estimated monetary value of benefits-in-kind) 1,865 1,145 1, ,027 5,821 5, Non-executive Directors Fees Other short term employee benefits (including estimated monetary value of benefits-in-kind) ,113 1, Total short term employee benefits 8,140 6,904 6,662 1,226 The Group and the Company provide non-cash benefits to Executive Directors and other key management personnel. The estimated non-cash benefits received by Executive Directors of the Group and of the Company amounted to RM302,000 (2010: RM280,000) and RM277,000 (2010: RM28,000) respectively. In addition to their non-cash benefits, Executive Directors and other key management personnel in Malaysia are also eligible to the Group s and the Company s retirement benefits as disclosed in Note Tax expense 32.1 Recognised in the income statements Group Company RM 000 RM 000 RM 000 RM 000 Current tax expense - Current year 21,823 4, ,096 - (Over) / Under provision in prior years (655) 1,120 (655) ,168 5,298 (520) 2,269 Deferred tax expense Origination and reversal of temporary differences (8,193) 9, Total tax expense 12,975 14,624 (520) 2,269

104 page 102 Kurnia Asia Berhad 32. Tax expense (cont d) 32.2 Income tax recognised directly in other comprehensive income Group RM 000 RM 000 Fair value reserve At 1 January 4,278 - Effect of adopting FRS139-2,317 Net (loss) / gain arising from change in fair value of securities available-for-sale (1,819) 1,961 At 31 December 2,459 4,278 Property revaluation reserve At 1 January - - Net gain arising from change in revaluation surplus 1,618 - At 31 December 1, Reconciliation of tax expense Group Company RM 000 RM 000 RM 000 RM 000 Profit / (Loss) before tax 60,819 29,636 (11,113) (8,707) Tax at Malaysian tax rate of 25% 15,205 7,409 (2,778) (2,177) Non-deductible expenses 6,472 8,602 2,851 4,028 Tax exempt income (13,739) (9,001) - - Non-deductible interest expense on ICSD 5,613 5, Others 79 1, ,630 13, ,096 (Over) /Under provision in prior years (655) 1,120 (655) 173 Total tax recognised in the income statements 12,975 14,624 (520) 2,269 With effect from year of assessment 2009, the corporate tax rate is at 25%. Consequently, deferred tax assets and liabilities are measured using this tax rate.

105 Kurnia Asia Berhad page Tax expense (cont d) 32.4 Unrecognised deferred tax assets Deferred tax has not been recognised for the following items: Company RM 000 RM 000 Provisions Deferred tax assets in respect of the above items have not been recognised because it is not probable that future taxable profit will be available against which the Company can utilise the benefits therefrom. 33. Basic earnings per ordinary share Basic earnings per ordinary share is calculated based on the profit for the year of RM47,844,000 (2010: RM15,012,000) divided by the weighted average number of ordinary shares in issue of 1,488,422,600 during the year Group RM 000 RM 000 Profit for the year attributable to ordinary shareholders 47,844 15,012 Weighted average number of ordinary shares: Issued ordinary shares at beginning of the year 1,500,000,000 1,500,000,000 Effect of treasury shares (11,577,400) (11,577,400) Weighted average number of ordinary shares 1,488,422,600 1,488,422,600 Sen Sen Basic earnings per ordinary share Diluted earnings per share are not presented as there were no dilutive potential ordinary shares as at the end of the reporting period. There have been no other transactions involving ordinary shares between the reporting date and the date of completion of these financial statements.

106 page 104 Kurnia Asia Berhad 34. Capital and other commitments Capital expenditure and other commitments approved by the Directors but not provided for in the financial statements amounted to approximately: Group RM 000 RM 000 Property and equipment Contracted but not provided for 4,196 7, Related parties Identity of related parties For the purpose of these financial statements, parties are considered to be related to the Group or the Company if the Group or the Company has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the Company or the party are subject to common control or common significant influence. Related parties may be individuals or other entities. Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group or the Company either directly or indirectly. The key management personnel include all the Directors of the Group and the Company. Compensation of key management personnel have been disclosed in Note 31. The significant transactions and balances with related parties other than key management personnel compensation are as follows: Transaction Transaction amount amount Group RM 000 RM 000 A company in which Tan Sri Dato Paduka Kua Sian Kooi is a common director and has indirect interest: Reinsurance inwards premium (187) (169) A company in which Dato Wira Othman Bin Abdul is a common director and Dato Wira Othman Bin Abdul and Tan Sri Dato Paduka Kua Sian Kooi have indirect interest: Rental expense Shareholder Tan Sri Dato Paduka Kua Sian Kooi Interest expense on loan 1,

107 Kurnia Asia Berhad page Related parties (cont d) Transaction Transaction amount amount Company RM 000 RM 000 Subsidiaries Share of common expenses - (10,466) ICSD coupon payment (22,451) (21,193) Reimbursement of extension fee on term loan (1,600) - Shareholder Tan Sri Dato Paduka Kua Sian Kooi Interest expense on loan 1, The terms and conditions for the above transactions are based on normal trade terms or on a negotiated basis. Significant related party balances related to the above transactions are disclosed in Note 12 and Note 18. No allowance for impairment was made during the year. 36. Operating segments The Group has one reportable segment, namely the general insurance business in Malaysia, for which the Group Executive Chairman reviews internal management reports on at least a monthly basis. Other non-reportable segments comprise general insurance business unit in Indonesia and investment holdings. Performance is measured based on segment profit before tax, interest, depreciation and amortisation, as included in the internal management reports that are reviewed by the Group Executive Chairman, who is the Group s chief operating decision maker. Segment profit or loss is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Segment assets and liabilities The total of segment assets and liabilities is measured based on all assets and liabilities of a segment, as included in the internal management reports that are reviewed by the Group Executive Chairman. Segment total assets and liabilities are used to measure financial health of the segment.

108 page 106 Kurnia Asia Berhad 36. Operating segments (cont d) General insurance in Malaysia Others Consolidated RM 000 RM 000 RM Segment revenue 1,133,537 27,726 1,161,263 Segment results 100,094 (38,718) 61,376 Operating profit/(loss) before finance cost 100,094 (16,267) 83,827 Finance costs - (22,451) (22,451) Operating profit/(loss) 100,094 (38,718) 61,376 Share of loss of equity accounted associate - (557) (557) Profit/(Loss) before tax 100,094 (39,275) 60,819 Tax expense (12,975) Profit for the year 47, Segment revenue 1,063,301 33,635 1,096,936 Segment results 68,797 (36,381) 32,416 Operating profit/(loss) before finance cost 68,797 (15,188) 53,609 Finance costs - (21,193) (21,193) Operating profit/(loss) 68,797 (36,381) 32,416 Share of loss of equity accounted associate - (2,780) (2,780) Profit/(Loss) before tax 68,797 (39,161) 29,636 Tax expense (14,624) Profit for the year 15,012

109 Kurnia Asia Berhad page Operating segments (cont d) General insurance in Malaysia Others Consolidated RM 000 RM 000 RM Segment assets 2,682,032 51,723 2,733,755 Unallocated assets 27,416 Total assets 2,761,171 Segment liabilities 1,926, ,014 2,359,150 Unallocated liabilities 629 Total liabilities 2,359, Segment assets 2,492,965 59,620 2,552,585 Unallocated assets 31,785 Total assets 2,584,370 Segment liabilities 1,829, ,286 2,250,396 Unallocated liabilities 6,177 Total liabilities 2,256,573 General insurance in Malaysia Others Consolidated RM 000 RM 000 RM Capital expenditure property and equipment 9,302 1,348 10,650 Depreciation of property and equipment 12, ,534 Amortisation of premiums net of accretion of discounts Fair value (gains) /losses (4,591) 1 (4,590) Insurance receivables: (Reversal)/ allowance for impairment loss (14,248) 1,902 (12,346) Impairment loss written off 11,050-11,050 Impairment loss recovered (118) - (118) Retirement benefits expense 2, ,022 Allowance for impairment loss on reinsurance assets 1,445-1,445 Reversal of impairment loss on property and equipment (351) - (351) Write off of property and equipment

110 page 108 Kurnia Asia Berhad 36. Operating segments (cont d) General insurance in Malaysia Others Consolidated RM 000 RM 000 RM Capital expenditure property and equipment 8, ,900 Depreciation of property and equipment 15, ,312 Amortisation of premiums net of accretion of discounts Fair value gains and losses 10,544-10,544 Allowance for impairment loss on property and equipment 1,383-1,383 Allowance for impairment loss on goodwill - 4,373 4,373 Allowance for impairment loss on investments in subsidiary - 2,394 2,394 Retirement benefits expense 2, ,011 Reversal for allowance for impairment loss on insurance receivables (9,796) (270) (10,066) 37. Risk management framework Risk management overview The Board is committed to implement Enterprise Risk Management ( ERM ) to drive towards maintaining good governance and internal control system. The role of risk management is to ensure the risks are properly identified, evaluated and managed as to protect and increase the Group s long-term value to its shareholders and other stakeholders. Risk management strategy The risk management strategy formulated by the Risk Management Committee ( RMC ) and approved by the Board, serves to ensure the risk management framework, processes and internal control system are in place to identify, monitor, evaluate and manage the material risk consistently across all activities. Role and responsibility The RMC s responsibility is to oversee the activities in risk management and legal compliance. These include matters relating to the identification, assessment, monitoring and management of risks associated with the operations of the Group. The focus of the RMC is to support the Board to fulfill its duties in the oversight of activities in risk and business continuity management and legal compliance.

111 Kurnia Asia Berhad page Risk management framework (cont d) Role and responsibility (cont d) The roles of the RMC are: To approve risk management strategies and policies, monitor their implementation and review them at least once a year, to ensure they remain relevant and effective; Periodically assess the adequacy of these risk management policies and framework, inclusive of Business Continuity Management and Compliance Management framework; To define the risk appetite or the level of risk tolerance of the Group based on internal capacity and business objectives; To monitor the risk exposures regularly to ensure there is satisfactory level of internal control; To ensure that all significant risk factors and impact have been duly considered before approving new business initiatives or strategic changes; To ensure that the infrastructure is adequate and resources are sufficiently in place for ERM personnel to perform their roles effectively; To ensure ERM personnel are adequately trained and are performing their duties independently from the Group s risk taking activities; To monitor compliance risk with regards to legal and regulatory requirements; and To receive reports on risk management activities, review them and make recommendation to the Board when necessary. 38. Insurance risk The general insurance contracts written by the Group are mostly on annual coverage and annual premium basis, with the exception of short term policies such as Travel Insurance which covers only the travel period and Marine cargo which covers the duration in which the cargo is being transported. The majority of the general insurance business is motor insurance. Other insurance business includes Fire, Marine, Personal Accident, Engineering, Liabilities, Workmen Compensation and Employer Liabilities and other miscellaneous classes. The objectives of managing insurance risks are to enhance the financial performance of the business and limit any excessive variability of the insurance results. Insurance risk includes the risk of incurring higher claims cost than expected owing to the random nature of claims and their frequency and severity and the risk of change in legal or economic conditions of insurance or reinsurance cover. This may result in the insurer having either received too little premium for the risks it has agreed to underwrite and hence has not enough funds to invest and pay claims, or that claims are in excess of those expected.

112 page 110 Kurnia Asia Berhad 38. Insurance risk (cont d) Underwriting insurance contracts involves the pooling of a large number of uncorrelated risks to reduce relative variability. The Group adopts the following measures to manage the general insurance risk: Underwriting standards, by performing risk selection to control the exposure in accordance to the Group s established guidelines; Claims management, to pay claims fairly and control claims leakages and fraud; Pricing and reserve standards, to ensure adequate premium charge for risk and valuation of insurance liabilities; and Reinsurance protection, to limit exposure to large insurance contracts and catastrophe exposure. Concentration risk is particularly relevant in the case of natural disasters and other catastrophes. The Group s concentration risk is negligible as the Group s insurance contracts mostly cover perils and risks in Malaysia and Malaysia is hardly exposed to natural disasters. The table below sets out the concentration of general insurance business by type of product Gross Reinsurance Net Gross Reinsurance Net Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Motor 865,449 (242,424) 623, ,564 (146,925) 708,639 Fire 62,905 (42,745) 20,160 47,979 (29,564) 18,415 Marine Cargo, Aviation Cargo and Transit 17,402 (8,618) 8,784 16,067 (10,457) 5,610 Miscellaneous 163,973 (43,927) 120, ,143 (33,441) 105,702 1,109,729 (337,714) 772,015 1,058,753 (220,387) 838,366 The table below sets out the concentration of general insurance claims liabilities by type of product Gross Reinsurance Net Gross Reinsurance Net Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Motor 964,571 (269,873) 694, ,940 (139,994) 856,946 Fire 63,085 (52,319) 10,766 65,663 (57,272) 8,391 Marine Cargo, Aviation Cargo and Transit 20,110 (13,664) 6,446 14,941 (10,052) 4,889 Miscellaneous 88,618 (49,720) 38,898 78,248 (43,441) 34,807 1,136,384 (385,576) 750,808 1,155,792 (250,759) 905,033

113 Kurnia Asia Berhad page Insurance risk (cont d) 38.1 Insurance claims liabilities for general insurance The insurance contract liabilities comprised claims and premium liabilities and are computed in accordance with sound actuarial principles and regulatory guidelines. These liabilities comprise: best estimate of the premium liabilities; best estimate of the claims liabilities; and margins for adverse deviation with no less than a 75% probability of adequacy Valuation methodology Various actuarial techniques are used to project the provision for claims and loss adjustment expenses and provision for unexpired risk (claims and premium liabilities). These methods include: paid chain-ladder method (inflation and non-inflation adjusted, operational time and standard time, Bornhuetter Ferguson (BF) adjustments); reported chain-ladder method (operational time and standard time, Bornhuetter Ferguson (BF) adjusted); projected case estimates; and frequency/severity method. The valuation process involves using the Group s gross claims and policies data and net claims and policies data to estimate future claims experience. These insurance liabilities have been derived on a gross basis and are subsequently adjusted for reinsurance and other recoveries for a net basis Key assumptions The principal assumptions underlying the estimation of liabilities is that the Group s future claims development will follow a similar pattern to past claims development experience. This includes assumptions in respect of average claim cost, claim handling costs, claims inflation factors and average number of claims for each accident year. Additional qualitative judgements are used to assess the extent to which past trends may not apply in the future, for example, isolated occurrence, changes in market factors such as public attitude to claiming, economic conditions, as well as internal factors, such as portfolio mix, policy conditions and claims handling procedures. In this regards, an analysis performed on the claims data on an individual claims basis indicated that:- Part of the value in the case estimates relates to claims that will be settled with no further payment, which amount is expected to more than offset the future development required on claims that will settle for more than current case estimates and so lead to a reduction in the average size of claims to be settled; Despite annual reviews, there are a number of claims cases with no further development after the initial provision that will be closed after 6 years, or earlier upon due verification of no claims from third parties, which will result in a reduction in case estimates in the subsequent years. There are also a number of claims where liability may be in question but the reserves are held assuming a 100% liability.

114 page 112 Kurnia Asia Berhad 38. Insurance risk (cont d) 38.1 Insurance claims liabilities for general insurance (cont d) Key assumptions (cont d) This has led to a key assumption that the high probability of claims continuing to settle for no additional cost will in turn lead to a reduction in the average amount per open claim to a level which is lower than the current average case estimates across most accident years for the Motor Act classes. Other key circumstances affecting the reliability of assumptions include variation of interest rates, delays in settlement and changes in foreign currency rates. The key assumptions of the actuarial valuation models include: chain-ladder claim development factors loss ratios expense ratios reinsurance recovery ratios These assumptions are based on the Group s historical underwriting experience. For the valuation as at 31 December 2011, the basis of liability valuation assumptions has not been changed as compared to 31 December Margin for adverse deviation In accordance with the insurance regulations, the insurance liabilities include a risk margin with no less than a 75% probability of adequacy. The risk margin is determined to allow for the uncertainty and volatility of the claims experience. Effects of diversification on the risk margin, arising from writing diversified lines of business, are also taken into account Discounting The insurance liabilities have been discounted using the risk-free discount rate derived from a yield curve as follows: for durations of less than 15 years, zero-coupon spot yield of MGS with matching duration, and for durations of 15 years or more, zero-coupon spot yield of MGS with 15 years term to maturity.

115 Kurnia Asia Berhad page Insurance risk (cont d) 38.1 Insurance claims liabilities for general insurance (cont d) Sensitivities The general insurance claim liabilities are sensitive to key assumptions shown below. It has not been possible to quantify the sensitivity of certain assumptions such as legislative changes or uncertainty in the estimation process. The analysis below is performed for reasonable possible movements in key assumptions with all other assumptions held constant, showing the impact on Gross and Net liabilities, Profit before tax and Equity. The correlation of assumptions will have a significant effect in determining the ultimate claims liabilities, but to demonstrate the impact due to changes in assumptions, assumptions had to be changed on an individual basis. Impact on Impact Impact on Change in gross on net profit Impact on assumptions liabilities liabilities before tax equity* Group RM 000 RM 000 RM 000 RM Average claims cost +5% 54,407 35,759 (35,759) (26,819) Average claims cost -5% (54,407) (35,759) 35,759 26,819 Average number of claims +5% 54,407 35,759 (35,759) (26,819) Average number of claims -5% (54,407) (35,759) 35,759 26,819 Average claim settlement period Improved by 6 months 13,291 9,243 (9,243) (6,932) 2010 Average claims cost +5% 55,485 43,890 (43,890) (32,918) Average claims cost -5% (55,485) (43,890) 43,890 32,918 Average number of claims +5% 55,485 43,890 (43,890) (32,918) Average number of claims -5% (55,485) (43,890) 43,890 32,918 Average claim settlement period Improved by 6 months 22,640 18,793 (18,793) (14,095) * Impact on equity reflects adjustments for tax, where applicable. The method used for deriving sensitivity information and significant assumptions did not change from the previous period Claims development table The following tables show the estimate of cumulative incurred claims, including both claims notified and IBNR for each successive accident year at the end of each reporting period, together with cumulative payment to date. While the information in the tables provides a historical perspective on the adequacy of the unpaid claims estimate established in previous years, users of these financial statements are cautioned against extrapolating redundancies or deficiencies of the past on current unpaid loss balances. The management of the Group believes that the estimates of total claims outstanding as of 31 December 2011 are adequate. However, due to the inherent uncertainties in the reserving process, it cannot be assured that such balances will ultimately prove to be adequate.

116 page 114 Kurnia Asia Berhad 38. Insurance risk (cont d) 38.1 Insurance claims liabilities for general insurance (cont d) Claims development table (cont d) Gross general insurance claims liabilities as at 31 December 2011 Before Total Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Accident year At end of accident year 615, , , , , , , ,000 One year later 639, , , , , , ,649 - Two years later 666, , , , , , Three years later 727, , , , , Four years later 798, , , , Five years later 807, , , Six years later 831, , Seven years later 854, Current estimate of cumulative claims incurred 854, , , , , , , ,000 At end of accident year 195, , , , , , , ,053 One year later 417, , , , , , ,751 - Two years later 502, , , , , , Three years later 582, , , , , Four years later 686, , , , Five years later 739, , , Six years later 781, , Seven years later 815, Cumulative payments to-date 815, , , , , , , ,053 Gross general insurance claims liabilities (direct and facultative) 39,429 38,359 42,068 71,442 85, , , ,947 1,021,513 Gross general insurance claims liabilities (treaty inwards) 20,886 Best estimates of claims liabilities 1,042,399 Claims handling expenses 26,106 PRAD at 75% confidence level 108,375 Discounting (45,282) Gross general insurance claims liabilities pertaining to principal subsidiary in Malaysia 1,131,598 Gross general insurance claims liabilities pertaining to other subsidiary 4,786 Gross general insurance claims liabilities per statements of financial position 1,136,384

117 Kurnia Asia Berhad page Insurance risk (cont d) 38.1 Insurance claims liabilities for general insurance (cont d) Claims development table (cont d) Net general insurance claims liabilities as at 31 December 2011 Before Total Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Accident year At end of accident year 550, , , , , , , ,585 One year later 572, , , , , , ,142 - Two years later 596, , , , , , Three years later 650, , , , , Four years later 714, , , , Five years later 732, , , Six years later 731, , Seven years later 752, Current estimate of cumulative claims incurred 752, , , , , , , ,585 At end of accident year 180, , , , , , , ,304 One year later 386, , , , , , ,773 - Two years later 464, , , , , , Three years later 535, , , , , Four years later 629, , , , Five years later 677, , , Six years later 713, , Seven years later 735, Cumulative payments to-date 735, , , , , , , ,304 Net general insurance claims liabilities (direct and facultative) 16,811 16,939 23,706 31,155 57,109 86, , , ,120 Net general insurance claims liabilities (treaty inwards) 20,886 Best estimates of claims liabilities 705,006 Claims handling expenses 19,585 PRAD at 75% confidence level 55,828 Discounting (30,845) Net general insurance claims liabilities pertaining to principal subsidiary in Malaysia 749,574 Net general insurance claims liabilities pertaining to other subsidiary 1,234 Net general insurance claims liabilities per statements of financial position 750,808

118 page 116 Kurnia Asia Berhad 38. Insurance risk (cont d) 38.1 Insurance claims liabilities for general insurance (cont d) Claims development table (cont d) Gross general insurance claims liabilities as at 31 December 2010 Before Total Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Accident year At end of accident year 615, , , , , , ,810 One year later 639, , , , , ,375 - Two years later 666, , , , , Three years later 727, , , , Four years later 798, , , Five years later 807, , Six years later 831, Current estimate of cumulative claims incurred 831, , , , , , ,810 At end of accident year 195, , , , , , ,287 One year later 417, , , , , ,737 - Two years later 502, , , , , Three years later 582, , , , Four years later 686, , , Five years later 739, , Six years later 781, Cumulative payments to-date 781, , , , , , ,287 Gross general insurance claims liabilities (direct and facultative) 36,818 49,963 58,425 80,693 98, , , ,523 1,048,574 Gross general insurance claims liabilities (treaty inwards) 7,219 Best estimates of claims liabilities 1,055,793 Claims handling expenses 26,059 PRAD at 75% confidence level 127,204 Discounting (71,251) General insurance claims liabilities pertaining to principal subsidiary in Malaysia 1,137,805 General insurance claims liabilities pertaining to other subsidiary 17,987 General insurance claims liabilities per statements of financial position 1,155,792

119 Kurnia Asia Berhad page Insurance risk (cont d) 38.1 Insurance claims liabilities for general insurance (cont d) Claims development table (cont d) Net general insurance claims liabilities as at 31 December 2010 Before Total Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Accident year At end of accident year 550, , , , , , ,673 One year later 572, , , , , ,515 - Two years later 596, , , , , Three years later 650, , , , Four years later 714, , , Five years later 732, , Six years later 731, Current estimate of cumulative claims incurred 731, , , , , , ,673 At end of accident year 180, , , , , , ,785 One year later 386, , , , , ,232 - Two years later 464, , , , , Three years later 535, , , , Four years later 629, , , Five years later 677, , Six years later 713, Cumulative payments to-date 713, , , , , , ,785 Net general insurance claims liabilities (direct and facultative) 14,712 17,730 41,486 61,991 81, , , , ,114 Net general insurance claims liabilities (treaty inwards) 7,219 Best estimates of claims liabilities 852,333 Claims handling expenses 21,396 PRAD at 75% confidence level 86,786 Discounting (57,726) Net general insurance claims liabilities pertaining to principal subsidiary in Malaysia 902,789 Net general insurance claims liabilities pertaining to other subsidiary 2,244 Net general insurance claims liabilities per statements of financial position 905,033

120 page 118 Kurnia Asia Berhad 39. Financial risk 39.1 Financial risk management objectives and policies Exposure to credit, liquidity, market (currency risk, interest rate yield risk and price risk) and operational risk arises in the normal course of the Group s and the Company s business. The Board of Directors assumes overall responsibility for the Group s and the Company s financial risk management and has established certain committees to address these risks on an ongoing basis Credit risk Credit risk represents the potential losses that may result due to the inability of the counterparties to insurance, reinsurance and investment transactions in meeting their contractual obligations. The Group has a credit control department and a credit policy in place and the exposure of credit risk is monitored on an ongoing basis. Investments are made based on appropriate evaluations, in accordance with Guidelines / Circulars issued by BNM, whereby all bond investments must carry a minimum rating of BBB or P3 by rating agencies established in Malaysia. At the end of the reporting period, there were no significant concentrations of credit risk. The maximum exposure to credit risk for the Group is represented by the carrying amount of each financial asset. The Group considers rating BBB and above as investment grades. Financial assets which are not rated by rating agencies are classified as non- rated Credit exposure The table below shows the maximum exposure to credit risks for the financial assets components on the statements of financial position Group RM 000 RM 000 HTM financial investments Debt securities 62,123 63,278 Loans and receivables ( LAR ) Loans 11,443 20,322 Fixed and call deposits 457, ,836 AFS financial investments Malaysian government securities - 10,179 Debt securities 265, ,022 Reinsurance assets 385, ,759 Insurance receivables 56,832 52,851 Cash and cash equivalents 130, ,632 1,369,586 1,364,879

121 Kurnia Asia Berhad page Financial risk (cont d) 39.3 Credit exposure (cont d) Credit exposure by credit rating The table below provides information regarding the credit risk exposure of the Group by classifying assets according to the Group s credit rating of counterparties. Neither past due nor impaired / Past-due Investment but grade Non- rated not impaired Total Group RM 000 RM 000 RM 000 RM HTM financial investments Debt securities 62, ,123 Loans and receivables - 463,171 6, ,171 AFS financial investments Debt securities 265, ,113 Reinsurance assets 220, , ,576 Insurance receivables 8,685 36,641 11,506 56,832 Cash and cash equivalents - 130, , , ,439 17,506 1,369, HTM financial investments Debt securities 63, ,278 Loans and receivables 29, ,748 6, ,158 AFS financial investments Debt securities 346, ,201 Reinsurance assets 138, , ,759 Insurance receivables 7,035 32,466 13,350 52,851 Cash and cash equivalents - 129, , , ,856 19,350 1,364,879

122 page 120 Kurnia Asia Berhad 39. Financial risk (cont d) 39.3 Credit exposure (cont d) Credit exposure by credit rating The table below provides information regarding the credit risk exposure of the Group by classifying assets according to the Rating Agency of Malaysia s ( RAM ) or MARC s credit ratings of counterparties. AAA is the highest possible rating. AAA AA A BBB Non- rated Total Group RM 000 RM 000 RM 000 RM 000 RM 000 RM HTM financial investments Debt securities 14,833 43,226-4,064-62,123 LAR Loans ,443 11,443 Fixed and call deposits , ,728 AFS financial investments Debt securities 77, ,136 10, ,113 Reinsurance assets 13,144 29, , , ,576 Insurance receivables ,329-48,147 56,832 Cash and cash equivalents , , , , ,866 4, ,945 1,369, HTM financial investments Debt securities 14,777 43,516-4,985-63,278 LAR Loans ,322 20,322 Fixed and call deposits 29, , ,836 AFS financial investments Debt securities 88, ,946 10, ,201 Reinsurance assets 8,079 33,346 96, , ,759 Insurance receivables 691 1,005 5,339-45,816 52,851 Cash and cash equivalents , , , , ,190 5, ,206 1,364,879

123 Kurnia Asia Berhad page Financial risk (cont d) 39.3 Credit exposure (cont d) Age analysis of insurance receivables past-due but not impaired The Group maintains an ageing analysis in respect of insurance receivables only. The ageing of insurance receivables that are past due as at the reporting date but not impaired is as follow: < 30 days 31 to 60 days 61 to 90 days > 90 days Total Group RM 000 RM 000 RM 000 RM 000 RM December 2011 Insurance receivables 1,366-2,805 7,335 11, December 2010 Insurance receivables 7,398-2,360 3,592 13, Other receivable past due but not impaired Included in other receivables is a non-performing loan of RM6,000,000 (2010: RM6,000,000). The Group does not specifically monitor the ageing of the loan. Nevertheless, this amount has been overdue for more than 1 year. At the end of the reporting period, there was no indication that the loan is not recoverable as it is secured by land charged by the borrower with carrying value of approximately RM12,000,000 (2010: RM12,000,000) determined based on valuation performed by an independent professional qualified valuer Impaired financial assets At 31 December 2011, based on collective and individual assessment of receivables, there are impaired insurance receivables of RM17,775,000 (2010: RM30,121,000). No collateral is held as security for any past due or impaired assets. The Group records impairment allowance for loans and receivables and insurance receivables in separate Allowance for impaired loss accounts. A reconciliation of the allowance for impairment losses for loans and receivables and insurance receivables is as follows: Insurance receivables Other receivables Group RM 000 RM 000 RM 000 RM 000 At 1 January 30,121 40, Movement during the year (12,346) (10,066) - - At 31 December 17,775 30,

124 page 122 Kurnia Asia Berhad 39. Financial risk (cont d) 39.4 Liquidity risk Liquidity risk is the risk whereby the Group entities are unable to meet their obligations at a reasonable cost or at any time. The Group and the Company manage this risk by monitoring its daily and monthly estimated and actual cash flows. The Group and the Company also hold a sufficient quantity of liquid investments that can be readily converted to cash. The following policies and procedures are in place to mitigate the Group s and the Company s exposure to liquidity risk: The Group and the Company set guidelines on asset allocations, portfolio limit structures and maturity profiles of the assets, in order to ensure sufficient funding is available to meet insurance and investment contracts obligations. The Group and the Company monitor their liquidity risk and maintain a level of cash and cash flow deemed adequate by management to finance their operations and to mitigate the effect of fluctuations in cash requirements. The Group s catastrophe excess-of-loss reinsurance contracts contain clauses permitting the immediate draw down of funds to meet claims payments should claim events exceed a certain amount Maturity profiles The table below summarises the maturity profile of the financial liabilities of the Group and the Company based on remaining undiscounted contractual obligations, including interest / profit payable. For insurance claims liabilities, maturity profiles are determined based on estimated timing of net cash outflows from the recognised insurance liabilities. The carrying value of the insurance claims liabilities have been discounted using the risk-free discount rate derived from a yield curve as follows: for durations of less than 15 years, zero-coupon spot yield of MGS with matching duration, and for durations of 15 years or more, zero-coupon spot yield of MGS with 15 years term to maturity.

125 Kurnia Asia Berhad page Financial risk (cont d) 39.4 Liquidity risk (cont d) Maturity profiles (cont d) No Carrying Up to a Over 15 maturity value year years years years years date Total Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM Insurance claims liabilities 1,136, , ,292 89,187 37, ,138,063 Other financial liabilities 450, , , ,207 Insurance payables 87,373 87, ,373 Other payables 102,976 84,192 21, ,408 Total liabilities 1,777,363 1,158, ,611 89,187 37, ,804, Insurance claims liabilities 1,155, , , , , ,218,454 Other financial liabilities 435, , , ,778 Insurance payables 29,630 29, ,630 Other payables 90,728 71,862 2,268 20, ,130 Total liabilities 1,711, , , , , ,815,992 Company 2011 Other financial liabilities 360, , , ,577 Other payables 48,281 29,497 21, ,713 Total liabilities 408, , , , Other financial liabilities 360,000 99, , ,456 Other payables 28,115 9,249 2,268 20, ,517 Total liabilities 388, , ,596 20, ,973

126 page 124 Kurnia Asia Berhad 39. Financial risk (cont d) 39.5 Market risk Market risk is the risk of loss arising from uncertainty concerning movements in the market prices and rates, including observable variables such as interest rates and others that may be only indirectly observable such as volatilities and correlations. Market risk includes factors such as changes in economic environment, consumption pattern and investor s expectation which may have significant impact on the value of the investments. The Group s investment portfolio is generally exposed to fluctuation in market prices. Risk and returns are constantly monitored and reviewed by the Investment Committee Members. The Group and the Company distinguish market risk as follows: Currency risk Interest rate risk Price risk Foreign currency risk The Group and the Company are exposed to foreign currency risk on gross direct premiums, reinsurance outwards, claims and intra-group borrowings that are denominated in a currency other than the respective functional currencies of the Group s entities. The currencies giving rise to this risk are primarily Singapore Dollar (SGD), Indonesian Rupiah and Thai Baht. In respect of monetary assets and liabilities held in currencies other than RM, the Group entities ensure that the net exposure is kept to an acceptable level. The exposure to currency risk of the Group entities is not material, and hence sensitivity analysis is not presented Interest rate risk Interest rate risk is the risk that the value or future cash flows of a financial instrument will fluctuate because of changes in market interest rate/profit yield. Floating rate/yield instruments expose the Group and the Company to cash flow interest/profit risk, whereas fixed rate/yield instruments expose the Group and the Company to fair value interest/profit risk. The Group s earnings are affected by changes in market interest rates as the impact of such changes has an effect on interest income from deposit placements and fixed income securities. To mitigate the interest rate risk, the deposit placements are made with various financial institutions at varying maturity dates and rates. Hence, the Group has no significant concentration of interest rate/profit yield risk. The Company s variable rate borrowings are exposed to a risk of change in cash flows due to changes in interest rates.

127 Kurnia Asia Berhad page Financial risk (cont d) 39.5 Market risk (cont d) Interest rate risk (cont d) The analysis below is performed for reasonable possible movements in key variables with all other variable held constant, showing the impact on profit before tax (due to changes in fair value of floating rate/yield financial instruments) and equity (that reflects adjustments to profit before tax and re-valuing fixed rate/yield AFS financial assets). The correlation of variables will have a significant effect in determining the ultimate impact on interest rate/profit yield risk but to demonstrate the impact due to changes in variables, variables had to be changed on an individual basis. It should be noted that movements in these variables are non-linear Impact Impact Change in on profit Impact on on profit Impact on variables before tax equity* before tax equity* Group RM 000 RM 000 RM 000 RM 000 Parallel shift in yield curves basis points (2,910) (5,385) (3,574) (8,087) Parallel shift in yield curves basis points 2,910 5,507 3,574 8,289 Company Parallel shift in yield curves basis points (2,910) (2,182) (3,574) (2,680) Parallel shift in yield curves basis points 2,910 2,182 3,574 2,680 * impact on equity reflects adjustments for tax, where applicable. The method used for deriving sensitivity information and significant variables did not change from the previous period Price risk Equity price risk is the risk that the fair value of future cash flows of financial instruments will fluctuate because of changes in market prices (other than those arising from interest/profit yield risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer or factors affecting similar financial instruments traded in the market. The Group s equity price risk exposure relates to financial assets and financial liabilities whose values will fluctuate as result of changes in market prices. The Group s price risk policy requires it to manage such risk by setting and monitoring objectives and constraints on investments, diversification plans, limits on investments in each country, sector, market and issuer, having regard also to such limits stipulated by BNM. The Group complies with BNM stipulated limits during the financial year and has no significant concentration of price risk.

128 page 126 Kurnia Asia Berhad 39. Financial risk (cont d) 39.5 Market risk (cont d) Price risk (cont d) The analysis below is performed for reasonable possible movements in key variables with all other variables held constant, showing the impact on profit before tax (due to changes in fair value of financial assets and liabilities whose changes in fair value are recorded in income statements) and equity (that reflects adjustments to profit before tax and changes in fair value of AFS financial assets). The correlation of variables will have a significant effect in determining the ultimate impact on price risk, but to demonstrate the impact due to changes in variables, variables had to be changed on an individual basis. It should be noted that movements in these variables are non-linear Impact Impact Change in on profit Impact on on profit Impact on variables before tax equity* before tax equity* Group RM 000 RM 000 RM 000 RM 000 Market price +5% 5,654 29,769 3,874 25,186 Market price -5% (5,654) (29,769) (3,874) (25,186) * impact on equity reflects adjustments for tax, where applicable. The method used for deriving sensitivity information and significant variables did not change from the previous period Fair value of financial instruments The fair value of negotiable instruments of deposits is based on indicative market price as determined by the issuer at the end of the reporting period. The fair values of quoted shares of corporations, unit and property funds trust are based on quoted closing market prices at the end of the reporting period. The fair values of collective investment funds are based on the net asset values of the unit trusts as at the date of the statements of assets and liabilities obtained from fund managers. The estimated fair values of Malaysian government securities, Cagamas bonds, Government guaranteed bonds and unquoted corporate debt securities are based on the average indicative market yields obtained from three financial institutions which involve projections of the market yields based on past transactions. There are elements of significant uncertainty in projecting the expected market yield and these uncertainties arise from changes in the underlying risk and overall economic conditions. As such, the projected market yields may be different from the actual market yields in future.

129 Kurnia Asia Berhad page Financial risk (cont d) 39.6 Fair value of financial instruments (cont d) The carrying amount of secured short term loans and fixed and call deposits with a maturity period less than one year are assumed to approximate their fair values. The mortgage loans with variable rates are considered to approximate their fair values. For mortgage and other loans with fixed rates, fair values are derived by discounting future cash flows, using interest rates for similar instruments, where applicable, taking into consideration the nature and contracted terms of these loans. Based on management s assessment as at 31 December 2011, the estimated fair values of the loans approximate their carrying values. It was not practical to estimate the fair value of the Group s investment in unquoted shares of corporations due to the lack of comparable quoted market price and the inability to estimate fair value without incurring excessive costs Fair value hierarchy Comparative figures have not been presented for 31 December 2010 by virtue of the exemption provided in paragraph 44G of FRS7. The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs). Level 1 Level 2 Level 3 Total Group RM 000 RM 000 RM 000 RM Financial assets Debt securities - 265, ,113 Quoted equity securities 17, ,594 Collective investment funds - 680, ,768 Quoted unit and property trust funds 138, , , ,881-1,102,179

130 page 128 Kurnia Asia Berhad 39. Financial risk (cont d) 39.8 Operational risks Operational risk is the risk of loss arising from system failure, human error, fraud or external events. When controls fail to perform, operational risk can cause damage to reputation, have legal or regulatory implications or can lead to financial loss. The Group cannot expect to eliminate all operational risks but by initiating a rigorous control framework and by monitoring and responding to potential risks, the Group is able to manage the risks. Controls include effective segregation of duties, access controls, authorisation and reconciliation procedures, staff training and evaluation procedures, including the use of Internal Audit. Business risks, such as changes in environment, technology and the industry are monitored through the Group s strategic planning and budgeting process. 40. Capital management The Group s objectives when managing capital is to maintain a strong capital base and safeguard the Group s ability to continue as a going concern, so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Directors monitor and are determined to maintain an optimal debt-to-equity ratio that complies with debt covenants and regulatory requirements. There were no changes in the Group s approach to capital management during the year. Under the requirement of Bursa Malaysia Practice Note No. 17/2005, the Company is required to maintain a consolidated shareholders equity equal to or not less than the 25% of the issued and paid up capital (excluding treasury shares) and such shareholders equity is not less than RM40 million. The Company has complied with this requirement. The Malaysian insurance subsidiary of the Group is subject to the RBC Framework which came into effect on 1 January Under the RBC Framework, insurance companies need to maintain a capital adequacy level that commensurate with their risk profiles. All insurance companies are required to maintain a minimum Capital Adequacy Ratio ( CAR ) of 130%. The Malaysian insurance subsidiary of the Group has met its regulatory requirement and has a CAR in excess of the minimum requirement.

131 Kurnia Asia Berhad page Supplementary financial information on the breakdown of realised and unrealised profits or losses The breakdown of the retained profits of the Group and of the Company as at 31 December, into realised and unrealised profits, pursuant to Paragraphs 2.06 and 2.23 of Bursa Malaysia Main Market Listing Requirements are as follows: Group Company RM 000 RM 000 RM 000 RM 000 Total accumulated (losses)/ profits of Kurnia Asia Berhad and its subsidiaries - realised (34,241) (65,334) (40,951) (30,358) - unrealised 25,633 10, Total share of accumulated (losses)/ profits from associates (8,608) (54,585) (40,951) (30,358) - realised (1,695) (3,616) unrealised Total accumulated losses as per statements of financial position (10,303) (58,147) (40,951) (30,358) The determination of realised and unrealised profits is based on the Guidance of Special Matter No.1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by the Malaysian Institute of Accountants on 20 December 2010.

132 page 130 Kurnia Asia Berhad Statement by Directors pursuant to Section 169(15) of the Companies Act, 1965 In the opinion of the Directors, the financial statements set out on pages 46 to 128 are drawn up in accordance with Financial Reporting Standards as modified by Bank Negara Malaysia Guidelines and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2011 and of their financial performance and cash flows for the financial year then ended on that date. In the opinion of the Directors, the information set out in Note 41 on page 129 to the financial statements has been compiled in accordance with the Guidance on Special Matter No.1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by the Malaysian Institute of Accountants, and presented based on the format prescribed by Bursa Malaysia Securities Berhad. Signed on behalf of the Board of Directors in accordance with a resolution of the Directors: Tan Sri Dato Paduka Kua Sian Kooi Datuk Kua Chung Sen Petaling Jaya, Selangor Date: 9 April 2012

133 Kurnia Asia Berhad Statutory Declaration pursuant to Section 169(16) of the Companies Act, 1965 page 131 I, Belinda Cheah Sze Yun, the officer primarily responsible for the financial management of Kurnia Asia Berhad, do solemnly and sincerely declare that the financial statements set out on pages 46 to 129 are, to the best of my knowledge and belief, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, Subscribed and solemnly declared by the above named in Petaling Jaya, Selangor on 9 April Belinda Cheah Sze Yun Before me: Radziah Binti Abdul Rahman Commissioner for Oaths

134 page 132 Kurnia Asia Berhad Independent Auditors Report to the members of Kurnia Asia Berhad We have audited the financial statements of Kurnia Asia Berhad, which comprise the statements of financial position as at 31 December 2011 of the Group and of the Company, and the income statements, statements of comprehensive income, changes in equity and cash flows of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 46 to 128. Directors Responsibility for the Financial Statements The Directors of the Company are responsible for the preparation of these financial statements that give a true and fair view in accordance with Financial Reporting Standards as modified by Bank Negara Malaysia Guidelines and the Companies Act, 1965 in Malaysia, and for such internal control as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. 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 our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation of financial statements that give a true and fair view 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 the Directors, 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 have been properly drawn up in accordance with Financial Reporting Standards as modified by Bank Negara Malaysia Guidelines and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as of 31 December 2011 and of their financial performance and cash flows for the year then ended.

135 Kurnia Asia Berhad Independent Auditors Report to the members of Kurnia Asia Berhad (cont d) page 133 Emphasis of Matter Without qualifying our opinion, we draw attention to Note 2.2 in the financial statements which discloses the premise upon which the Company has prepared its financial statements by applying the going concern assumption, notwithstanding that the Company incurred a net loss of RM10,593,000 during the year ended 31 December 2011, and as of that date, the Company s current liabilities exceeded its current assets by RM243,690,000 which may indicate the existence of a significant uncertainty about the Company s ability to continue as a going concern. The Company has considered prospective cash flow information and events that may occur in the next twelve months and the possible actions to be taken by the Company. In this regards, the Company had on 3 April 2012 obtained approval from Minister of Finance via Bank Negara Malaysia, to enter into an agreement with AmG Insurance Berhad to dispose the Company s 100% equity interest in Kurnia Insurans (Malaysia) Berhad. The validity of the going concern assumption in the preparation of financial statements is dependent on the successful outcome of the various initiatives being undertaken by the Company and the Company achieving future profitable operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, and relating to amounts and classification of liabilities that may be necessary if the Company is unable to continue as a going concern. Report on Other Legal and Regulatory Requirements In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following: (a) (b) (c) (d) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act. We have considered the accounts and the auditors reports of all the subsidiaries of which we have not acted as auditors, which are indicated in Note 7.2 to the financial statements. We are satisfied that the accounts of the subsidiaries that have been consolidated with the Company s financial statements are in form and content appropriate for the purposes of the preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes. The audit reports on the accounts of the subsidiaries did not contain any qualification or any adverse comment made under Section 174(3) of the Act. Other Reporting Responsibilities Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The information set out in Note 41 on page 129 to the financial statements has been compiled by the Company as required by the Bursa Malaysia Securities Berhad Listing Requirements and is not required by the Financial Reporting Standards. We have extended our audit procedures to report on the process of compilation of such information. In our opinion, the information has been properly compiled, in all material respects, in accordance with the Guidance of Special Matter No.1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, issued by the Malaysian Institute of Accountants and presented based on the format prescribed by Bursa Malaysia Securities Berhad.

136 page 134 Kurnia Asia Berhad Independent Auditors Report to the members of Kurnia Asia Berhad (cont d) Other Matter This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. KPMG Firm Number: AF 0758 Chartered Accountants foong Mun Kong Approval Number: 2613/12/12(J) Chartered Accountant Petaling Jaya, Selangor Date: 9 April 2012

137 Kurnia Asia Berhad Additional Compliance Information page Share Buy-Back There was no share buy-back by the Company during the financial year. 2. Option, warrants or convertible securities The Company did not issue any options, warrants or convertible securities during the financial year. 3. American Depository Receipt (ADR) or Global Depository Receipt (GDR) The Company did not sponsor an ADR or GDR programme during the financial year. 4. Imposition of sanctions and / or penalties. There was no material public sanction and / or penalty imposed on the Company and / or its subsidiaries, Directors or the Management by the relevant regulatory bodies during the financial year. 5. Variation in results There were no variation of 10% or more in results for the fourth quarter and year ended 31 December Profit guarantee There was no profit guarantee given by the Company during the financial year. 7. Material contracts Save as disclosed below, there was no material contract entered into by the Company / or its subsidiaries involving Directors and major shareholders interest which were still subsisting as at the end of the financial year or if not then subsisting, entered into since the end of the previous financial year. (i) Loan Agreement with Tan Sri Dato Paduka Kua Sian Kooi, dated 31/12/2010 The Company entered into a loan agreement with its major shareholder, Tan Sri Dato Paduka Kua Sian Kooi for a loan amounting RM20,000,000, for the purpose of enabling the Company to meet its obligation on a scheduled term loan repayment to CIMB Bank Berhad ( CIMB ). The loan is unsecured and subordinated to the term loan from CIMB. The effective interest rate of the loan during the financial year was 5.91% (2010: 5.67%) per annum.

138 page 136 Kurnia Asia Berhad List of Top 10 Properties No. Location Existing use Tenure Land area (Sq.meters) Type of building Age of building Latest date of revaluation(#)/ acquisition Carrying amounts as at (RM) 1 Menara Kurnia, No. 9, Jalan PJS 8/9, Petaling Jaya held under issue document of title H.S. (D) 63219, P.T. No , Mukim Damansara, Daerah Petaling, Selangor Darul Ehsan. Office L e a s e h o l d Expiring- 17 July , storey office building February 2011(#) 90,994, No. 32, Jalan Yap Ah Shak, Bangunan Kurnia, Kuala Lumpur held under issue document of title Grant No Lot 2485 Seksyen 41, Bandar Kuala Lumpur, Daerah Kuala Lumpur, Wilayah Persekutuan Kuala Lumpur. Office Freehold ½ -storey terraced corner office building March 2011(#) 30,698, Lot No. 14, Jalan Teknologi, Taman Sains Selangor 1, Kota Damansara, Daerah Petaling, Selangor Darul Ehsan. Archive Storage L e a s e h o l d Expiring- 11 September ,779 A data information resource centre consisting of a 3-storey office building Not available 10 February 2011(#) 19,794, No. 18, 18A, 18B, 18C, 18D, 18E & 18F, Leboh Raya Darul Aman, Alor Setar, Kedah Darul Aman held under title Grant No , Lot No. 62, Section 9, Town of Alor Setar, District of Kota Setar, Kedah Darul Aman. Office Freehold 2,519 1 unit 6-storey terraced corner office block, 5 units 3-storey terraced intermediate shoplots & 1 unit 3-storey terraced end-lot shoplots January 2011(#) 8,864, Lot 1246 to 1255, Seksyen 41, Lorong Haji Hussein 2, Kuala Lumpur on Grant No , 26313, 26314, 26315, to 28316, Lot No.1246 to 1255, Section 41, Bandar Kuala Lumpur, Daerah Kuala Lumpur, Wilayah Persekutuan Kuala Lumpur. Investment (Currently rented out as parking facilities) Freehold 2, pieces of land Not applicable 17 February 2011(#) 7,713,000.00

139 Kurnia Asia Berhad List of Top 10 Properties (Cont d) page 137 No. Location Existing use Tenure Land area (Sq.meters) Type of building Age of building Latest date of revaluation(#)/ acquisition Carrying amounts as at (RM) 6 No. 2F, Lorong Selamat, Pulau Pinang held under issue document of title Grant No , Lot No. 1296, Section 16 Daerah Timor Laut, Bandar George Town, Pulau Pinang. Office Freehold storey terraced corner office building January 2011(#) 5,929, No. 28, 30, 32 & 34, Jalan Kamunting, Kuala Lumpur on Grant No , 29793, & 29795, Lot No. 575 to 578, Seksyen 41, Bandar Kuala Lumpur, Daerah Kuala Lumpur, Wilayah Persekutuan Kuala Lumpur. Private parking for staff Freehold pieces of land Not applicable 09 February 2011(#) 4,800, No , Jalan Maharajalela, Wisma Kurnia, Kuala Lumpur, held under issue document of title Grant No & 4595, Lot 956 & 957 Seksyen 69, Bandar Kuala Lumpur, Daerah Kuala Lumpur, Wilayah Persekutuan Kuala Lumpur. Office Freehold units 5 ½ storey terraced intermediate shopoffice Not available 17 February 2011(#) 3,964, Lot 47, Lorong Berjaya 5, Bandaran Berjaya, Kota Kinabalu, Sabah Office Leasehold Expiring -21 January (+1)-storey corner shopoffice Not available 21 February 2011(#) 2,177, No. 16A-C & 18A-C, Persiaran Greentown 6, Greentown Business Centre, Ipoh, Perak Darul Ridzuan held under issue document of title PN N & PN N, Bandar Ipoh, Daerah Kinta, Perak Darul Ridzuan. Office L e a s e h o l d Expiring- 21 November units 4-storey intermediate shopoffice February 2011(#) 2,174,940.88

140 page 138 Kurnia Asia Berhad Analysis of Shareholdings as at 21 May 2012 Analysis of Shareholdings as at 21/05/2012 Authorised Share Capital Issued & Paid Up Share Capital Class of Shares Voting rights : RM1,250,000,000 : RM375,000,000 : Ordinary shares of RM0.25 each : One vote per ordinary share Size of Holdings No. of Holders No. of Holdings % M sian Foreign M sian Foreign M sian Foreign , ,597 2, ,001 10,000 3, ,700, , , ,000 1, ,977,300 1,453, ,001 74,421,129* ,790,187 55,951, ,421,130 and above** ,646, Total 6, ,430,833,490 57,589, No. of Holders No. of Holdings % of Holdings Grand Total 6,464 1,488,422,600*** Remark : * - Less than 5% of Issued Holdings ** - 5% and above of Issued Holdings *** - Excluding 11,577,400 treasury shares Top Thirty Securities Account Holders as at 21/05/2012 No. Name No. of Shares Held % 1. Kua Sian Kooi 413,999, Cimsec Nominees (Tempatan) Sdn Bhd CIMB for Kua Sian Kooi (PB) 351,647, C S Kua Sdn Bhd 60,000, Damai Asset Management Sdn Bhd 42,966, Kenanga Nominees (Tempatan) Sdn Bhd Pledged Securities Account for 40,000, Epic Portfolio Sdn Bhd 6. JF Apex Nominees (Tempatan) Sdn Bhd Pledged Securities Account for 38,011, Harta Rigap Sdn Bhd (Margin) 7. Cimsec Nominees (Tempatan) Sdn Bhd Siew Lee Guan 37,000, Othman bin Abdul 31,904, Kenanga Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Damai Asset 30,711, Management Sdn Bhd 10. Cartaban Nominees (Asing) Sdn Bhd Government of Singapore Investment Corporation Pte Ltd for Government of Singapore (C) 28,743,

141 Kurnia Asia Berhad Analysis of Shareholdings as at 21 May 2012 (cont d) page 139 Top Thirty Securities Account Holders as at 21/05/2012 (cont d) No. Name No. of Shares Held % 11. Modal Sekata Sdn Bhd 22,700, Quah Teong Moo 17,867, Modal Sekata Sdn Bhd 15,403, Kenanga Nominees (Tempatan) Sdn Bhd Pledged Securities Account for 13,036, Modal Sekata Sdn Bhd 15. Kenanga Nominees (Tempatan) Sdn Bhd Pledged Securities Account for 12,904, Harta Rigap Sdn Bhd 16. Kua Chung Sen 12,702, JF Apex Nominees (Tempatan) Sdn Bhd Pledged Securities Account for 11,678, Teh Siew Wah (Margin) 18. Cartaban Nominees (Asing) Sdn Bhd Government of Singapore Investment 9,299, Corporation Pte Ltd for Monetary Authority of Singapore (H) 19. Law Ah Moy 8,000, Cimsec Nominees (Tempatan) Sdn Bhd CIMB Bank for Harta Rigap Sdn Bhd 7,000, (MP0117) 21. Cimsec Nominees (Tempatan) Sdn Bhd CIMB Bank for Modal Sekata Sdn Bhd 7,000, (MP0116) 22. Siew Toh Ee 5,000, Citigroup Nominees (Tempatan) Sdn Bhd Exempt An For 4,991, OCBC Securities Private Limited (Client A/C-R ES) 24. Maybank Nominees (Tempatan) Sdn Bhd Pledged Securities Account for 4,700, Teh Siew Wah 25. Cimsec Nominees (Tempatan) Sdn Bhd Pledged Securities Account for 4,553, Law Ah Moy (Penang-CL) 26. Cartaban Nominees (Asing) Sdn Bhd Government of Singapore Investment 3,838, Corporation Pte Ltd for Monetary Authority of Singapore (B) 27. M.I.T Nominees (Tempatan) Sdn Bhd Pledged Securities Account for Ong Saw Peng 3,349, (MG ) 28. AIBB Nominees (Tempatan) Sdn Bhd Pledged Securities Account For 3,295, Cheong Chen Yue 29. Citigroup Nominees (Asing) Sdn Bhd CBNY For 3,263, DFA Emerging Markets Small Cap Series 30. HRH Sultan Hj Abdul Halim Muadzam Shah 3,046,

142 page 140 Kurnia Asia Berhad Analysis of Shareholdings as at 21 May 2012 (cont d) Directors Direct and Indirect Interest in the Company and its related corporations Direct Interest No. of Shares Held % Indirect Interest No. of Shares Held % Tan Sri Dato Paduka Kua Sian Kooi 765,646, ,000, Datuk Kua Chung Sen 12,702, ,000, Dato Wira Othman bin Abdul 31,904, , Dato Quah Teong Moo 17,867, Dato Dr. Sharifuddin bin Abdul Wahab Leow Ming Leow Min Fong Substantial Shareholders Name Direct Interest Indirect Interest Total Interest No. of Shares Held % No. of Shares Held % No. of Shares Held % Tan Sri Dato Paduka Kua Sian Kooi 765,646, ,000, ,646,

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145 Form of Proxy ( K) No. of Shares Held I/We of (Full name in block capitals) (Full address) being *a member(s) of KURNIA ASIA BERHAD ( K) ( KAB ), hereby appoint(s) of or failing him of as my/our proxy to attend and vote for me/us on my/our behalf at the Eleventh Annual General Meeting of the Company to be held at 9 th Floor, Training Auditorium, Menara Kurnia, Block B4, Leisure Commerce Square, No. 9, Jalan PJS 8/9, Petaling Jaya, Selangor Darul Ehsan on Wednesday, 27 June 2012 at a.m. or any adjournment thereof. Please indicate with an X in the space provided below as to how you wish your votes to be cast. If no specific direction as to voting is given, the proxy will vote or abstain at his/her discretion. Resolutions For Against Resolution 1 Resolution 2 Resolution 3 Resolution 4 Resolution 5 Resolution 6 To receive the Audited Financial Statements for the financial year ended 31 December 2011 and the Reports of Directors and Auditors thereon. To re-elect Dato Wira Othman bin Abdul who retires by rotation pursuant to Article 110 of the Company s Articles of Association as Director. To re-elect Datuk Kua Chung Sen who retires by rotation pursuant to Article 110 of the Company s Articles of Association as Director. To re-appoint Messrs. KPMG as Auditors of the Company and to authorise the Directors to fix their remuneration. Authority to issue shares. Proposed Change of Name from Kurnia Asia Berhad to KSK Group Berhad. Dated this, 2012 Signature of Member or Affix Common Seal Notes : 1. In respect of deposited securities, only depositors whose names appear in the Record of Depositors as at 21 June 2012 be regarded as members and entitled to attend, speak and vote at the Meeting. 2. A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote in his stead. A proxy need not be a Member of the Company and a Member may appoint any persons to be his proxy. The provisions of Section 149(1)(b) of the Companies Act, 1965 shall not apply to the Company. 3. A Member shall be entitled to appoint not more than three (3) proxies to attend and vote at the Meeting. Where a Member appoints more than one (1) proxy, the appointment shall be invalid unless the Member specifies the proportions of his holding to be represented by each proxy. 4. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing, or if the appointer is a corporation, either under its Common Seal or under the hand of its attorney duly authorised. 5. The instrument appointing a proxy and the power of attorney or other authority (if any), under which it is signed or a notarially certified copy thereof, must be deposited at the Registered Office of the Company at 10 th Floor, Bangunan Kurnia, No. 32 Jalan Yap Ah Shak, Kuala Lumpur not less than forty eight (48) hours before the time for holding the Annual General Meeting or any adjournment thereof.