Corporate Information 02

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2 Listening is a powerful thing. When someone listens to you, bridges are built, chasms are crossed, and meaningful and lasting relationships are forged. That is why at Prudential, we have made listening to our customers the cornerstone of our business. By paying close attention to their needs and concerns, we are able to gain a deeper understanding into their individual hopes and plans for the future, and help them make good, informed financial decisions as they journey through different life stages. Every financial solution that we provide whether it is retirement, protection, education savings or wealth management, has been a direct result of this commitment. As your preferred insurer, we promise we will continue to listen and understand, while working hard to make sure that you get the most out of your investments. This is our commitment to you.

3 Corporate Information 02 Company Background 03 Board Of Directors 04 Executive Committee 05 Financial Highlights 06 Financial Statements 08

4 Company Secretaries Christopher Foo Kah Foong Kornia binti Majalis Registered Office 18th Floor, Wisma Sime Darby Jalan Raja Laut, Kuala Lumpur Auditors Messrs. KPMG Principal Banker Standard Chartered Bank Malaysia Berhad Solicitors Messrs. Raja, Darryl & Loh

5 (PAMB) s presence in Malaysia can be dated as far back as 1924 when we first began operations on the local shores. We are part of Prudential plc, a leading international financial services group that has operations in the UK, US and Asia. Founded in London in 1848, our parent company has been providing insurance and financial services directly and through its 4 main business units throughout the world. It has 25 million customers and more than 309 billion in assets under management as at 30 June Prudential also boasts a rich and extensive history in Asia for more than 85 years now, with life insurance operations in Malaysia, Singapore, Hong Kong, Thailand, Indonesia, the Philippines, India, Taiwan, Vietnam, China, Japan and Korea. We have built a powerful brand that is well known, highly regarded and trusted by millions of people from diverse backgrounds and cultures across the region. Closer to home, PAMB has undergone remarkable growth and transformations over the past decade to become a leading insurer in Malaysia today. For the financial year ended 2009, we achieved a record RM817 million in new business annual premium equivalent (APE) which comprised Life Insurance sales and Takaful contributions. This performance represented a 24% growth compared to Operating through our head office in Kuala Lumpur and 41 branches nationwide, we provide for the savings, protection, investment and retirement needs of Malaysians with a comprehensive range of financial solutions spanning life and general insurance, as well as unit trusts and Takaful offered by our sister companies, Prudential Fund Management Berhad and Prudential BSN Takaful Berhad respectively. This one-stop service proposition is well supported by more than 900 employees, as well as over 11,000 professional and highly productive agents and wealth planners who are currently serving the needs of our 878,000-strong customers across the country. Guided by our mission Together Securing Your Future, we are committed to helping more Malaysians achieve their hopes and dreams for a brighter future, fulfilling our promise to our customers that Prudential is the brand they can trust to provide for all their financial needs, today and tomorrow.

6 Tony Paul Wilkey Chairman Allen Ho Yik Dato' Dr Gan Khuan Poh Dato' Tharmaratnam s/o Kanagaratnam Abdul Khalil Abdul Hamid Charlie Espinola Oropeza

7 Lai Leong Pin General Manager, Agency Distribution Channel Seated from left to right: Charlie E. Oropeza Chief Executive Officer Andrew Sims Chief Financial Officer Standing from left to right: Norida Hamid Chief Human Resources Officer Heng Zee Wang Chief Product and Marketing Officer Tan Liling Chief Operations Officer Ng Jit Seng Director, Quality Re-engineering and Project Management Office Fiona Liao Director, Brand and Communications Khoo Ai Lin Chief Officer, Partnership Distribution and

8 RM'000 RM'000 RM'000 RM'000 RM'000 New Business Annual Premium Income 672, , , , ,529 Gross Premium Income - Life 3,064,947 2,618,443 2,579,253 2,090,590 1,854,723 Profit Before Tax 375, , , , ,927 Total Assets (Market Value) 11,963,439 9,007,310 8,827,373 6,903,093 5,686,159

9 RM RM New Business Annual Premium Income (RM Million) Gross Premium Income - Life (RM Million) RM RM Profit Before Tax (RM Million) Total Assets (Market Value) (RM Million)

10 Directors Report 09 Balance Sheet 19 Income Statement 20 Life Fund Balance Sheet 21 Life Fund Revenue Account 22 General Insurance Revenue Account 23 Statement Of Changes In Equity 24 Cash Flow Statement 25 Notes To The Financial Statements 26 Statement By Directors 69 Statutory Declaration 70 Independent Auditors Report To The Members 71

11 Directors report for the year ended 31 December 2009 The Directors have pleasure in submitting their report and the audited financial statements of the Company for the year ended 31 December Principal activities The Company is principally involved in the underwriting of life insurance business, which includes linked business and, related thereto, the investment of funds and general insurance business. There has been no significant change in the nature of these principal activities during the year. Results RM 000 Net profit for the year 292,990 Dividends Since the end of the previous financial year, the Company paid a final dividend of 67% tax exempt totaling RM67.0 million for the year ended 31 December 2008 on 24 June The Directors do not recommend any dividend to be paid for the year under review. Reserves and provisions There were no material transfers to or from reserves and provisions during the year under review except as disclosed in the financial statements. Provision for insurance liabilities Before the income statement, revenue accounts and balance sheet of the Company were made out, the Directors took reasonable steps to ascertain that there was adequate provision for its insurance liabilities in accordance with the valuation methods specified in Part D of the Risk-Based Capital Framework. Bad and doubtful debts Before the income statement, revenue accounts and balance sheet of the Company were made out, the Directors took reasonable steps to ascertain that action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and adequate allowance had been made for doubtful debts.

12 At the date of this report, the Directors of the Company are not aware of any circumstances that would render the amount written off for bad debts or the amounts of the allowance for doubtful debts in the financial statements of the Company inadequate to any substantial extent. Current assets Before the financial statements of the Company were made out, the Directors took reasonable steps to ensure that any current assets which were unlikely to be realised in the ordinary course of business at their values as shown in the accounting records of the Company have been written down to an amount which they might be expected to realise. At the date of this report, the Directors are not aware of any circumstances which would render the values attributed to the current assets in the financial statements of the Company misleading. Valuation methods At the date of this report, the Directors are not aware of any circumstances which have arisen which render adherence to the existing method of valuation of assets or liabilities in the financial statements of the Company misleading or inappropriate. Contingent and other liabilities At the date of this report, there does not exist:- (a) (b) any charge on the assets of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or any contingent liability in respect of the Company that has arisen since the end of the financial year. No contingent or other liability of the Company 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 Company to meet its obligations as and when they fall due. For the purpose of this paragraph, contingent or other liability do not include liabilities arising from contracts of insurance underwritten in the ordinary course of business of the Company. Change of circumstances At the date of this report, the Directors are not aware of any circumstances, not otherwise dealt with in this report or the financial statements of the Company which would render any amount stated in the financial statements misleading. Items of an unusual nature The results of the operations of the Company during the financial year were not, in the opinion of the Directors, substantially affected by any item, transaction or event of a material and unusual nature.

13 There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors, to affect substantially the results of the operations of the Company for the financial year in which this report is made. Issue of shares There were no changes in the issued and paid-up capital of the Company during the financial year. Statement on Corporate Governance and Internal Controls The Board of Directors ( Board ) supports the Prudential Framework of Corporate Governance for Insurers ( the Framework ) developed by Bank Negara Malaysia under BNM/RH/GL/ The Company has implemented practices to satisfy the Framework principles in the manner described below for the financial year ended 31 December i) The Board Except for the Chief Executive Officer, all other members of the Board are Non-executive Directors. Four of the Nonexecutive Directors are also Independent Directors. All the Board members have complied with the requirement of serving the board of not more than 5 (for Executive Director) or 15 (for Non-executive Director) companies. The Board met 6 times in 2009 to decide the objectives and strategy and any other specific matters which are reserved for its decision. ii) Board Committees The Board has established the following committees: Audit Committee Dato Tharmaratnam s/o Kanagaratnam (Chairman) Ho Yik Abdul Khalil bin Abdul Hamid Dato Dr Gan Khuan Poh The Audit Committee assists the Board in meeting its responsibilities in ensuring effective internal controls and accurate external financial reporting. It normally meets four times a year to review the reports submitted by the Internal Audit, Compliance and the external auditor.

14 Nominating Committee Ho Yik (Chairman) Dato Tharmaratnam s/o Kanagaratnam Abdul Khalil bin Abdul Hamid Dato Dr Gan Khuan Poh William Lisle (who was a member until 17 February 2009) Tony Paul Wilkey Charlie Espinola Oropeza (who became a member on 11 August 2009) The Nominating Committee is responsible for recommending and assessing nominees for directorship and the Chief Executive Officer position and for establishing minimum requirements for the Board and the Chief Executive Officer to perform their responsibilities effectively. The Committee takes into considerations the mix of skills, experience and other core competencies of nominees when overseeing the composition of the Board. The Committee meets as and when required, at least once a year to deliberate its responsibilities. Remuneration Committee Ho Yik (Chairman) Dato Tharmaratnam s/o Kanagaratnam Tony Paul Wilkey The Remuneration Committee is responsible for recommending a framework of remuneration for members of the Board, the Chief Executive Officer and key senior officers. The Committee meets at least once a year to review the remuneration packages. Risk Management Committee Dato Tharmaratnam s/o Kanagaratnam (Chairman) Ho Yik Tony Paul Wilkey Dato Dr Gan Khuan Poh The Risk Management Committee is responsible for reviewing and recommending risk management strategies, policies and risk tolerance for the Board s approval. It has adopted a risk management framework that requires all businesses and functions to establish processes for identifying, evaluating and managing the key risks faced by the Company. The Committee meets at least once every quarter to review the Management s reports on risk exposure and risk management activities.

15 Attendance at Board and Board Committee Meetings held during the financial year ended 31 December 2009 are as follows:- Board Audit Committee Nominating Committee Remuneration Committee Risk Management Committee Tony Paul Wilkey 5 out of 6 NA 4 out of 5 1 out of 1 2 out of 4 Dato Tharmaratnam s/o Kanagaratnam 6 out of 6 4 out of 4 5 out of 5 1 out of 1 4 out of 4 Ho Yik 6 out of 6 4 out of 4 5 out of 5 1 out of 1 4 out of 4 Abdul Khalil bin Abdul Hamid 6 out of 6 4 out of 4 5 out of 5 NA NA Dato Dr Gan Khuan Poh 6 out of 6 4 out of 4 5 out of 5 NA 4 out of 4 William Lisle (who was a member until 17 February 2009) 0 out of 1 NA 0 out of 1 NA NA Charlie Espinola Oropeza (who became a member on 11 August 2009) 2 out of 2 NA 2 out of 2 NA NA iii) Directors Qualifications, Training and Re-election Members of the Board possess the necessary qualifications and experience to discharge their duties and responsibilities effectively. They are also continually assessed to ensure that they meet the fit and proper criteria prescribed under the Insurance Regulations Members of the Board are required to submit themselves for re-election at regular intervals and at least every three years. iv) Organisational Structure The organisational structure of the Company is clearly defined by reference to business units for which individual chief officers are responsible. Authority is delegated by the Board to the Chief Executive Officer for implementing the strategy and for managing the Company. In discharging his responsibility, the Chief Executive Officer works with an executive committee, comprising all the chief officers and other business unit heads. The allocation of duties and responsibilities is documented in well-defined job descriptions for all our employees. Staff s individual goals are set each year with the full participation of the individuals concerned. They are set to be in line with the respective business units corporate objectives and responsibilities.

16 v) Communication To support an effective flow of information within the Company, the following practices have been adopted: The documentation of procedure in operating manuals for critical functions; Frequent divisional/departmental meetings to discuss issues of common concerns; Induction and training program for new recruits to familiarise them with the company structure, policies, procedures and regulatory requirements; and Channelling of important information to the appropriate personnel in a timely manner. vi) Corporate Independence The Company has strictly complied with the Bank Negara Malaysia ( BNM ) s Guidelines on Related-Party Transactions (BNM/RH/GL-003-3) in respect of all its related-party undertaking. Full disclosure had been made to the Board and when the amount involved in a transaction was material, the Board s approval for the transaction had also been sought. vii) Internal Controls and Operational Risk Management The Board has the responsibility for the Company s system of internal control and risk management. In order to fulfil this responsibility, the Board through its Board Risk Management Committee, approves the overall framework for managing risks faced by the Company and provides strategic direction on the amount and type of risks which the Company is prepared to accept. In discharging and managing key risks faced by the Company, the Board Risk Committee established an operational Risk Committee, chaired by the Chief Executive Officer. The operational Risk Committee is responsible for implementing and maintaining risk framework and monitoring compliance with policies for risk management. Additionally, the Company is required to confirm annually to its regional head office namely, Prudential Corporation Asia ( PCA ), that the risk management practices are in accordance with PCA Risk Framework, and that it has reviewed the effectiveness of the systems of internal control - through the established SOX review practices by PCA. In addition, the external auditors also perform independent review of the internal controls as part of the annual audit procedures. Regular reports on key risks identified and the management of such risks are presented regularly to the Board Risk Management Committee for its review and endorsement, and to the PCA Risk Management as part of its oversight responsibility. The PCA Risk Management conduct reviews on the operational Risk Committee s work and terms of reference, to ensure that they remain effective and is in accordance with the established Group Risk Framework, with recommendations being made to the PCA Board, as necessary. During the year, the underwriting, policy servicing and claims which were outsourced to Prudential Services Asia ( PSA ) had been in-sourced back to the Company whilst the call centre and IT operations continued to be outsourced to PSA. The respective functional heads continue to play an active role in monitoring and managing the outsourced activities.

17 The established ongoing process for identifying, managing and reporting risks and internal control issues in the various areas are as follows: Investment Control The investment activities have been outsourced to Prudential Fund Management Bhd. However, the investment strategy, roles and responsibilities, compliance and performance continued to be guided by and defined in the Company s Investment Guidelines. The investment limits and the life funds capital adequacy ratio are monitored every month. This is to ensure that the Company complied with the Risk-Based Capital Framework for Insurers (BNM/RH/GL ) which came into effect on 1 January The performance of each class of assets is also reported regularly to the Investment Committee, which is a management committee established with the responsibility of overseeing the investment activities of the Company. Segregation of Duties and Financial Control The Company observed proper segregation of duties in many critical areas of its operations to ensure that staff are not assigned with potentially conflicting responsibilities. Areas of potential conflict such as the approval of disbursement of funds and the actual disbursement as well as operations and compliance functions are segregated within the Company. When a business unit identifies an internal control deficiency or a breach, the issue is reported to the Management and corrective action is taken in a timely manner. Internal Audit The Internal Audit function has been outsourced to Prudential GroupWide Internal Audit ( GwIA ). GwIA carries out audits of the Company s internal control systems. Its findings and recommendations are communicated to the Management and the staff concerned. The internal audit reports incorporating any management actions undertaken, are then submitted to the Audit Committee for its review. Information Systems Even though the IT operations have now been outsourced to PSA, the Company continues to be responsible for compliance with the requirements of BNM s Guidelines on Management of IT Environment (GPIS 1). The IT Steering Committee is assigned with the responsibility to monitor the compliance with the BNM s Guidelines and the risks associated with the outsourcing arrangement. The Company s business resumption and contingency plan has been designed to coordinate with the PSA s contingency arrangement to ensure that it can continue to operate critical functions in the event of a management information failure. Business continuity plan and disaster recovery plan are carried out by users in compliance with the Guidelines on Business Continuity Management issued by BNM.

18 New Products The Company has an established procedure for introducing new insurance and financial products. Before a new product is introduced, the senior management and the Board take into considerations the internal and external risks factors and the impacts that the new product has on the business. viii) Public Accountability Certain procedural requirements have been established and communicated to the staff and agency force to ensure that the Company strictly complies with the provisions relating to policies under Parts XII and XV of the Insurance Act Each member of the staff and the agency force is also required to adhere to the LIAM s Code of Ethics and Conduct when dealing with customers. Members of the public are made aware of avenues for appeal against the Company practices or decisions. A policy contract issued to policyholders contains a written disclosure alerting them to the existence of the Financial Mediation Bureau ( FMB ) and BNM s Customer Service Bureau ( CSB ). The Company s letter to any claimant rejecting any element of a claim also includes the similar information for appeal to FMB and CSB. ix) Financial Reporting The Company fully complies with the requirements of statutory reporting to BNM. It also exercises due care and diligence in ensuring the accuracy of information contained in the reports, as well as maintaining appropriate accounting records. The external auditor provides an annual independent opinion that the financial statements at the financial year end are prepared in accordance with the provisions of the Companies Act, 1965 and approved accounting standards and presents a true and fair view of the Company s financial state of affairs and its results and cash flows. The Board receives and reviews regular management reports on the Company s financial condition and performance. These reports cover all key operation areas and provide a sound basis for the Board to assess the Company s financial performance and to identify potential problems facing the Company. Options granted over unissued shares No options were granted to any person to take up unissued shares of the Company during the year.

19 Directors of the Company The Directors who have held office during the year since the date of the last report are as follows:- Tony Paul Wilkey Ho Yik Dato Tharmaratnam s/o Kanagaratnam Abdul Khalil bin Abdul Hamid Dato Dr Gan Khuan Gan Miew Chee Charlie Espinola Oropeza (appointed on 11 August 2009) Directors benefits During and at the end of the financial year, no arrangements subsisted to which the Company is a party with the object of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. Since the end of the previous financial year, no Director of the Company has received nor become entitled to receive any benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by Directors shown in the financial statements) 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. Directors interests According to the Register of Directors Shareholdings, the interest of Directors in office at the end of the financial year in shares of the Company and of its related corporations during the financial year were as follows: Other share awards Number of Ordinary Shares of GBP 0.05 each Balance Acquired/ Disposed/ Balance at date of Granted Lapsed at appointment The ultimate holding company, Prudential plc.: Charlie Espinola Oropeza - 28,457-28,457* * Conditional right to receive Prudential Public Limited Company Shares in 2012 under PCA LTIP 2009 Award. Other than as stated above, none of the Directors in office at the end of the financial year had any interest in shares or debentures of the Company or of its related corporations during the financial year.

20 Ultimate holding company The Directors regard Prudential plc., a company incorporated in the United Kingdom as the Company s ultimate holding company. Auditors The auditors, Messrs KPMG, have indicated their willingness to continue in office. Signed on behalf of the Board in accordance with a resolution of the Directors: Ho Yik Abdul Khalil bin Abdul Hamid Kuala Lumpur, Date: 08 June 2010

21 Balance sheet as at 31 December 2009 Note RM 000 RM 000 ASSETS General Business and Shareholders Fund Assets Property and equipment Investments in debt and equity securities 5 510, ,379 Loans 6 8,064 4,961 Receivables 7 347, ,976 Cash and bank balances 488 4,245 Total General Business and Shareholders Fund Assets 867, ,219 Less: Amount due from life fund 7 (295,556) (229,556) 571, ,663 Total Life Business Assets (page 24) 11,096,037 8,363,670 Total Assets 11,667,883 8,759,333 LIABILITIES General Business and Shareholders Fund Liabilities Claim liabilities/provision for outstanding claims 8 8,060 4,525 Payables 9 6,933 5,761 Taxation 37,844 36,769 Deferred taxation 11 2,652 2,298 Total General Business and Shareholders Fund Liabilities 55,489 49,353 Total Life Business Liabilities (page 24) 814, ,039 Less: Amount due to shareholders fund 9 (295,556) (229,556) 519, ,483 Premium Liabilities/Unearned Premium Reserves 12 8,978 5,909 Life Policyholders Fund 13 10,281,229 7,757,631 10,864,948 8,189,376 SHAREHOLDERS EQUITY Share capital , ,000 Retained earnings , , , ,957 Total Liabilities and Shareholders Equity 11,667,883 8,759,333 The notes set out on pages 26 to 68 form an integral part of, and should be read in conjunction with, these financial statements.

22 Income statement for the year ended 31 December 2009 Note RM 000 RM 000 Operating Revenue 16 3,351,055 2,918,582 Shareholders Fund: Management expenses 18 (3,105) (1,831) Investment income 20 7,797 14,035 Other operating income/(expense)-net 21 1,826 (240) 6,518 11,964 Transfers from Insurance Revenue Accounts - General business (page 26) 4,473 7,425 - Life business (page 25) 364, ,636 Profit Before Taxation 375, ,025 Taxation 22 (82,616) (74,250) Net Profit for the Year 292, ,775 Earnings Per Share (Sen) The notes set out on pages 26 to 68 form an integral part of, and should be read in conjunction with, these financial statements.

23 Life fund balance sheet as at 31 December 2009 Note RM 000 RM 000 ASSETS Property and equipment 3 94,516 89,733 Prepaid lease payments 4 10,221 10,496 Investments in debt and equity securities 5 5,282,106 4,462,237 Tax recoverable 9 9,415 Loans 6 384, ,434 Receivables 7 122, ,956 Cash and bank balances 31,497 33,119 5,925,102 5,087,390 Investment linked business assets 30 5,172,331 3,285,080 Less: Amount due from life fund 30 (1,396) (8,800) 5,170,935 3,276,280 Total Life Business Assets (Page 22) 11,096,037 8,363,670 LIABILITIES Claim liabilities/provision for outstanding claims 8 137, ,503 Payables 9 537, ,078 Taxation 14,716 6,906 Retirement gratuity benefits 10 34,143 30,178 Deferred taxation 11 25,777 2, , ,162 Less: Amount due to investment-linked funds 9 (1,396) (8,800) 747, ,362 Investment - linked business liabilities 30 66,822 24,677 Total Life Business Liabilities (Page 22) 814, ,039 Life Policyholders Fund 13 10,281,229 7,757,631 Total Life Business Liabilities and Life Policyholders Fund 11,096,037 8,363,670 The notes set out on pages 26 to 68 form an integral part of, and should be read in conjunction with, these financial statements.

24 Life fund revenue account for the year ended 31 December 2009 Note RM 000 RM 000 Premium revenue Gross premium 16 3,064,947 2,618,443 Reinsurance (38,620) (36,773) Net premium 3,026,327 2,581,670 Benefits paid and payable: Death (54,944) (53,246) Maturity (64,940) (48,892) Surrender (193,100) (169,773) Cash bonus (5,680) (795) Medical (384,564) (337,811) Others (374,942) (214,393) (1,078,170) (824,910) 1,948,157 1,756,760 Commission and agency expenses 17 (475,384) (453,743) Management expenses 18 (241,618) (196,285) (717,002) (650,028) 1,231,155 1,106,732 Investment income , ,855 Other operating income - net ,066 6,326 Surplus Before Taxation 1,731,293 1,375,913 Taxation 22 (44,785) (14,339) Surplus After Taxation 1,686,508 1,361,574 Surplus/(Deficit) from Investment Linked Business 30 1,117,312 (930,663) 2,803, ,911 Life Policyholders Fund at Beginning of Year 7,757,631 7,604,356 Effect of adoption of RBC Framework 84,393 - Life Policy holders Fund at Beginning of Year, restated 7,842,024 7,604,356 10,645,844 8,035,267 Transfer to income statement (page 23) (364,615) (277,636) Life Policyholders Fund at End of Year 13 10,281,229 7,757,631 The notes set out on pages 26 to 68 form an integral part of, and should be read in conjunction with, these financial statements.

25 General insurance revenue account for the year ended 31 December 2009 Note Fire Motor Miscellaneous Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Gross premium 16 2,002 1,693 7,392 3,924 14,735 13,267 24,129 18,884 Reinsurance (241) (216) (508) (377) (2,236) (2,827) (2,985) (3,420) Net Premium 1,761 1,477 6,884 3,547 12,499 10,440 21,144 15,464 Movement in premium liabilities 12 (6) (60) (1,721) (474) (346) 577 (2,073) 43 Earned Premium 1,755 1,417 5,163 3,073 12,153 11,017 19,071 15,507 Net claims incurred 23 (505) (284) (4,919) (2,062) (3,570) (3,714) (8,994) (6,060) Net commission (259) (224) (475) (297) (3,061) (2,725) (3,795) (3,246) Underwriting Surplus/ (Deficit) Before Management Expenses (231) 714 5,522 4,578 6,282 6,201 Management Expenses 18 (4,398) (3,332) Other Operating (Expenses)/Income - net 21 (521) 191 Underwriting Surplus 1,363 3,060 Investment Income 20 3,110 4,365 Transfer to Income Statement (page 23) 4,473 7,425 The notes set out on pages 26 to 68 form an integral part of, and should be read in conjunction with, these financial statements.

26 Statement of changes in equity for the year ended 31 December 2009 Distributable Share Retained Note capital earnings Total RM 000 RM 000 RM 000 At 1 January , , ,182 Net profit for the year - 222, ,775 At 31 December 2008/1 January , , ,957 Effects of adopting Risk Based Capital Framework: Effect of fair value measurement for securities (held for trading) - 8,494 8,494 Effect of remeasurement of General Insurance Liabilities - Claims liabilities 23 - (510) (510) - Premium liabilities 12 - (996) (996) At 1 January 2009, restated 100, , ,945 Net profit for the year - 292, ,990 Dividends 25 - (67,000) (67,000) At 31 December , , ,935 Note 14 The notes set out on pages 26 to 68 form an integral part of, and should be read in conjunction with, these financial statements.

27 Cash flow statement for the year ended 31 December 2009 Note RM 000 RM 000 Cash flows from operating activities Premium receipts 3,097,536 2,653,270 Commission (481,012) (480,576) Payment of claims (1,077,083) (801,135) Interest income 287, ,021 Dividend income 106, ,779 Payment of management expenses (263,696) (170,855) Purchase of investments (3,361,426) (2,445,915) Proceeds from sale of investments 1,803,716 1,409,976 Net disbursement of loans receivable (22,750) (8,264) Net change of fixed and call deposits 73,062 (406,343) Cash generated from operations 162, ,958 Income tax paid (85,544) (118,659) Net cash from operating activities 76,594 22,299 Cash flows from investing activities Purchase of property and equipment (14,948) (9,865) Proceeds from sale of property and equipment 205 1,917 Net cash used in investing activities (14,743) (7,948) Cash flows from financing activity Dividends paid (67,000) - Net cash used in financing activity (67,000) - Net increase in cash and bank balances 26 (5,149) 14,351 Cash and bank balances at beginning of year 37,488 23,137 Cash and bank balances at end of year 32,339 37,488 The notes set out on pages 26 to 68 form an integral part of, and should be read in conjunction with, these financial statements.

28 Notes to the financial statements is a public limited liability company, incorporated and domiciled in Malaysia. The addresses of its registered office and principal place of business are as follows: Registered office RDL Corporate Services Sdn Bhd 18th Floor, Wisma Sime Darby Jalan Raja Laut Kuala Lumpur Principal place of business Level 17, Menara Prudential No. 10, Jalan Sultan Ismail Kuala Lumpur The Company is principally involved in the underwriting of life insurance business, which includes linked business and, related thereto, the investment of funds and general insurance business. There has been no significant change in the nature of these principal activities during the year. The holding company is Sri Han Suria Sdn. Bhd., a company incorporated in Malaysia. The ultimate holding company is Prudential plc., a company incorporated in the United Kingdom which is listed on the London and New York Stock Exchanges. The financial statements were approved by the Board of Directors on 08 June Basis of preparation (a) Statement of compliance These financial statements of the Company have been prepared in accordance with Financial Reporting Standards (FRS), as modified by Guidelines/Circulars issued by Bank Negara Malaysia pursuant to Section 90 of the Insurance Act 1996, accounting principles generally accepted in Malaysia, Companies Act, 1965 in Malaysia, the Insurance Act, 1996, Insurance Regulations, 1996 in Malaysia in all material aspects. The following accounting standards (including its consequential amendments) and interpretations have been issued by the Malaysian Accounting Standards Board ( MASB ) but are not yet effective: FRSs, Interpretations and amendments effective for annual periods beginning on or after 1 July 2009 FRS 8, Operating Segments

29 1. Basis of preparation (continued) (a) Statement of compliance (continued) FRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2010 FRS 4, Insurance Contracts FRS 7, Financial Instruments: Disclosures FRS 101, Presentation of Financial Statements (revised) FRS 123, Borrowing Costs (revised) FRS 139, Financial Instruments: Recognition and Measurement Amendments to FRS 1, First-time Adoption of Financial Reporting Standards Amendments to FRS 2, Share-based Payment: Vesting Conditions and Cancellations Amendments to FRS 7, Financial Instruments: Disclosures Amendments to FRS 101, Presentation of Financial Statements Puttable Financial Instruments and Obligations Arising on Liquidation Amendments to FRS 127, Consolidated and Separate Financial Statements: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate Amendments to FRS 132, Financial Instruments: Presentation Puttable Financial Instruments and Obligations Arising on Liquidation Separation of Compound Instruments Amendments to FRS 139, Financial Instruments: Recognition and Measurement Reclassification of Financial Assets Improvements to FRSs (2009) IC Interpretation 9, Reassessment of Embedded Derivatives IC Interpretation 10, Interim Financial Reporting and Impairment IC Interpretation 11, FRS 2 Group and Treasury Share Transactions IC Interpretation 13, Customer Loyalty Programmes IC Interpretation 14, FRS 119 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and Their Interaction FRSs, Interpretations and amendments effective for annual periods beginning on or after 1 March 2010 Amendments to FRS 132, Financial Instruments: Presentation Classification of Rights Issues FRSs, Interpretations and amendments effective for annual periods beginning on or after 1 July 2010 FRS 1, First-time Adoption of Financial Reporting Standards (revised) FRS 3, Business Combinations (revised) FRS 127, Consolidated and Separate Financial Statements (revised) Amendments to FRS 2, Share-based Payment Amendments to FRS 5, Non-current Assets Held for Sale and Discontinued Operations Amendments to FRS 138, Intangible Assets IC Interpretation 12, Service Concession Agreements IC Interpretation 15, Agreements for the Construction of Real Estate IC Interpretation 16, Hedges of a Net Investment in a Foreign Operation IC Interpretation 17, Distribution of Non-cash Assets to Owners Amendments to IC Interpretation 9, Reassessment of Embedded Derivatives

30 1. Basis of preparation (continued) (a) Statement of compliance (continued) FRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2011 Amendments to FRS 1, First-time Adoption of Financial Reporting Standards Limited Exemption from Comparative FRS 7 Disclosures for First-time Adopters Amendments to FRS 7, Financial Instruments: Disclosures Improving Disclosures about Financial Instruments The Company plans to adopt the abovementioned FRSs, amendments or interpretations: from the annual period beginning 1 January 2010 for those standards, amendments or interpretations that will be effective for annual periods beginning on or after 1 July 2009 or 1 January 2010, except for FRS 8, FRS 123, Amendments to FRS 1, Amendments to FRS 2 and FRS 127, IC Interpretation 10, 11, 13 and 14 which are not applicable to the Company; from the annual period beginning 1 January 2011 for those standards, amendments or interpretations that will be effective for annual periods beginning on or after 1 March 2010, 1 July 2010 and 1 January 2011, except for FRS 1, FRS 3, FRS 127, Amendments to FRS 1, FRS 2, FRS 5, and FRS 132, Amendments to FRS 138, IC Interpretation 12, 15, 16 and 17 which are not applicable to the Company. The impact of applying FRS 4, FRS 7 and FRS 139 on the financial statements upon first adoption as required by FRS (b), Accounting Policies, Changes in Accounting Estimates and Errors, is not disclosed by virtue of the exemptions given in these respective FRSs. The initial application of the other applicable standards, amendments and interpretations is not expected to have any material impact on the financial statements of the Company or any material change in accounting policy. Risk-Based Capital Framework for Insurers Bank Negara Malaysia has issued detailed guidelines under the Risk-Based Capital Framework for Insurers ( the RBC Framework ) which is effective for annual period beginning on or after 1 January In accordance with the RBC Framework, the Company has adopted the accounting policies on investments in debt and equity securities, premium liabilities, claim liabilities and insurance liabilities as specified in the Framework for the annual period beginning on 1 January The adoption of these accounting policies is disclosed in Note 2(d), Note 2(h) and Note 2(i) to the financial statements. The financial impact arising from the adoption of the RBC Framework is applied in accordance to the transitional provision of the RBC Framework which allows the recognition of the difference arising from the new policies/methodologies adopted to be recognized as adjustments to the retained earnings and unallocated surplus at the beginning of the financial year. The impact and effect on the initial adoption of RBC Framework is disclosed in Note 12, 13 and 23.

31 1. Basis of preparation (continued) (b) Basis of measurement The financial statements have been prepared on the historical cost basis except as disclosed in the notes to the financial statements. General business assets and liabilities relate to both General Insurance Fund and Shareholders Fund. (c) Functional and presentation currency These financial statements are presented in Ringgit Malaysia (RM), which is the Company s functional currency. All financial information presented in RM has been rounded to the nearest thousand, unless otherwise stated. (d) Use of estimates and judgements The preparation of financial statements 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 significant effect on the amounts recognised in the financial statements other than those disclosed in the following notes: Note 2(d) Note 2(h) Note 2(h) Note 2(i) - Investments in debt and equity securities - Premium liabilities - Claims liabilities - Life insurance liabilities 2. Significant accounting policies The accounting policies set out below have been applied consistently to the periods presented in these financial statements, except as stated in Note 2(d), Note 2(h) and Note 2(i). (a) Foreign currency Transactions in foreign currencies are translated to the functional currency of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies are translated at exchange rates at the dates of the transactions except for those that are measured at fair value, which are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in the income statement/ revenue account.

32 2. Significant accounting policies (continued) (b) Property and equipment (i) Recognition and measurement Items of property and equipment are stated at cost less any accumulated depreciation and any impairment losses, if any. 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 other income or other operating expenses respectively in the income statement/revenue account. (ii) Subsequent costs The cost of replacing 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 Company and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property and equipment are recognised in the income statement/revenue account as incurred. (iii) Depreciation Depreciation is recognised in the income statement/revenue account on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Freehold land and capital-work-in-progress are not depreciated. Property and equipment under construction are not depreciated until the assets are ready for their intended use.

33 2. Significant accounting policies (continued) (b) Property and equipment (continued) (iii) Depreciation (continued) The estimated useful lives for the current and comparative periods are as follows: Buildings 50 years 50 years Motor vehicles 5 years 5 years Computer equipment 3 years 3 years Office furniture, fittings and equipment 10 years 10 years Depreciation methods, useful lives and residual values are reassessed at the balance sheet date. (c) Leased assets (i) Finance lease Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, 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 that asset. Minimum lease payments made under finance leases 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. (ii) Operating lease Leases, where the Company does not assume substantially all the risks and rewards of the ownership are classified as operating leases and, except for property interest held under operating lease, the leased assets are not recognised on the Company s balance sheet. 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. Leasehold land that normally has an indefinite economic life and title is not expected to pass to the lessee by the end of the lease term is treated as an operating lease. The payment made on entering into or acquiring a leasehold land is accounted for as prepaid lease payments and amortised over a period of the shorter of 50 years or the lease term.

34 2. Significant accounting policies (continued) (c) Leased assets (continued) (ii) Operating lease (continued) Payments made under operating leases are recognised in the income statement/revenue account on a straightline basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. (d) Investments in debt and equity securities Arising from the adoption of the RBC Framework issued by BNM with effect form 1 January 2009, investments are categorised and measured using the valuation basis as mentioned below. Before 1 January 2009, different accounting policies were applied. (i) Initial recognition and measurement Investments are recognised initially at purchase price plus directly attributable transaction costs and are accounted for using trade date accounting in which the security is recognised on the day it is transacted by the Company. (ii) Categories of securities and subsequent measurement Effective 1 January 2009, the Company categorises investments in debt and equity securities as follows:- Held for Trading ( HFT ) A security is classified as HFT if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or it is part of a portfolio of identified securities that are managed together and which there is evidence of a recent actual pattern of short-term profit-taking. Securities classified as HFT are subsequently measured at their fair value and any gain or loss arising from a change in the fair value will be recognised in the income statement/revenue account.

35 2. Significant accounting policies (continued) (d) Investments in debt and equity securities (continued) (ii) Categories of securities and subsequent measurement (continued) Held-to-maturity ( HTM ) HTM investments are securities with fixed or determinable payments and fixed maturity that the Company has the positive intention and ability to hold to maturity. Securities categorised as HTM are subsequently measured at amortised cost using the effective interest method. A gain or loss is recognised in the income statement/revenue account when the security is derecognised or impaired. The amortisation of premiums or accretion of discounts shall be recognised in the income statement/ revenue account based on the effective interest method. Available-for-sale ( AFS ) AFS category comprises securities that are not held for trading or held-to-maturity. Securities categorised 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 equity as fair value reserves through the statement of changes in equity, except for impairment losses and foreign exchange gains and losses arising from monetary items which are recognised in the income statement/revenue account. When the securities are derecognised, the cumulative gain or losses previously recognised in equity as fair value reserves shall be reclassified from equity into the income statement/revenue account. Investments in equity securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured will be stated at cost. (iii) Accounting policies prior to 1 January 2009 Subsequent measurement:- Malaysian Government Securities and other investments as specified by Bank Negara Malaysia and held to maturity are stated at cost adjusted for amortisation of premiums or accretion of discounts, calculated on a yield to maturity basis over the period from the date of purchase to maturity date. The amortisation of premiums and accretion of discounts are recognised in the income statement/revenue account. Other bonds are carried at lower of cost and net realisable value.

36 2. Significant accounting policies (continued) (d) Investments in debt and equity securities (continued) (iii) Accounting policies prior to 1 January 2009 (continued) Quoted investments are stated at the lower of cost and market value, determined on an aggregate portfolio basis by category of investments, except that if diminution in value of a particular investment is not regarded as temporary, allowance is made against the value of that investment. Diminution in value of a particular investment is not regarded as temporary when the market value has been less than 80% of its cost at all times during the preceding 24 months, by writing down the cost of that quoted investment to the average median price for each month during that 24 months period. Unquoted investments are stated at cost. An allowance is made when the Directors are of the view that there is a diminution in their value which is other than temporary. Investments in quoted shares and securities of the investment-linked business are stated at the closing market prices. Debentures, bonds and loan stocks of corporations are stated at the prevailing prices quoted by financial institutions. Any increase or decrease in value of these investments is taken into the investment-linked business revenue account. (iv) Impairment All securities, except for securities as HFT, are subject to review of impairment (see Note 2(g)). (e) Receivables Receivables are initially recognised at their cost when the contractual right to receive cash or another financial asset from another entity is established. Subsequent to initial recognition, receivables are stated at cost less allowance for doubtful debts. Receivables are not held for the purpose of trading. Known bad debts are written off and specific allowances are made for any outstanding premiums or reinsurance balances, which remain outstanding for more than 6 months (except for motor premium balances which remain outstanding for more than 30 days, if any) from the date on which they become receivable, and for all debts which are considered doubtful. (f) Cash and cash equivalents Cash and cash equivalents consist of cash on hand and balances with banks and highly liquid investments which have an insignificant risk of changes in value but excludes fixed and call deposits.

37 2. Significant accounting policies (continued) (g) Impairment of assets The carrying amount of the assets, except for financial assets (other than securities available-for-sale and securities held-to-maturity), deferred tax assets that is measured at fair value are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, then the asset s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset to which it belongs exceeds its recoverable amount. Impairment losses are recognised in the income statement/revenue account. The policies on impairment of assets are summarised as follows: (i) HTM For securities carried at amortised cost in which there is objective evidence of impairment, impairment loss is measured as the difference between the securities carrying amount and the present value of the estimated future cash flows discounted at the securities original effective interest rate. The amount of the impairment loss is recognised in the income statement/revenue account. Subsequent reversals of 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 securities carrying amount does not exceed its amortised cost if no impairment had been recognised. The reversal is recognised in the income statement/revenue account. For securities carried at cost, impairment loss is measured as the difference between the securities carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for similar securities. The amount of impairment loss is recognised in the income statement/revenue account and such impairment losses are not reversed subsequent to its recognition. (ii) AFS Impairment losses on securities AFS are recognised by transferring the differences between the amortised acquisition cost and current fair value from equity to income statement/revenue account, even though the securities have not been derecognised. The cumulative impairment loss is measured as the difference between the acquisition cost (net of any principal repayment and amortisation) and the current fair value, less any impairment loss previously recognised in the income statement/revenue account. Impairment losses recognised on investments in equity instruments classified as available-for-sale are not reversed subsequent to its recognition. Reversals of impairment losses on debt instruments classified as available-for-sale are recognised in the income statement/revenue account if the increase in fair value can be objectively related to an event occurring after the recognition of the impairment loss in the income statement/revenue account. For unquoted equity securities carried at cost, impairment loss is measured as the difference between the securities carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for similar securities. The amount of impairment loss is recognised in the income statement/ revenue account and such impairment losses are not reversed subsequent to its recognition.

38 2. Significant accounting policies (continued) (g) Impairment of assets (continued) (iii) Other assets When indication of impairment exists for other assets, the asset s recoverable amount is estimated. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or group of assets (the 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. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement/revenue account. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of the other assets in the unit (groups of units) on a pro rata basis. Impairment losses recognised in prior periods are assessed at the end of each reporting period 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 statement/revenue account in the year in which the reversals are recognised. (h) General insurance underwriting results The general insurance underwriting results are determined for each class of business after taking into account inter alia reinsurances, movement in premium liabilities, commissions and claims incurred. Premium income Premium is recognised in a financial period in respect of risks assumed during that particular financial period.

39 2. Significant accounting policies (continued) (h) General insurance underwriting results (continued) Premium liabilities Premium liabilities 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. The URR requirement was established pursuant to the Framework which became effective on 1 January As a result of this accounting policy change, additional premium liabilities of approximately RM1.0 million was recognised and this is recorded as an adjustment to retained earnings brought forward on 1 January 2009 pursuant to the RBC requirements. Unearned Premium Reserves The Unearned Premium Reserves (UPR) represents the portion of net premium income of insurance policies written that relates to the unexpired periods of the policies at the end of the financial year. The 1/24th method is used for all general policies business of the Company. Unexpired Risk Reserves The URR is the prospective estimate of the expected future payments arising from future events insured under policies in force as at the valuation date and also includes allowance for the insurer s expenses, including overheads and cost of reinsurance, expected to be incurred during the unexpired period in administering these policies and settling the relevant claims, and expected future premium refunds. Claims liabilities Outstanding claims provision are based on the estimated ultimate cost of all claims incurred but not settled at the balance sheet date, 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 balance sheet date. The liability is calculated at the reporting date by the appointed actuary using a range of standard actuarial claim projection techniques based on empirical data and current assumptions that included a regulatory risk margin for adverse deviation. The liability is not 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.

40 2. Significant accounting policies (continued) (h) General insurance underwriting results (continued) Claims liabilities (continued) Estimating the outstanding claims provision involves projection of the Company s future claims experience based on current claims experience. As with all projections, there are elements of uncertainty and thus the projected future claims experience may be different from its actual claims experience due to the level of uncertainty involved in projecting future claims experience based on past claims experience. These uncertainties arise from changes in underlying risks, changes in spread of risks, timing and amounts of claims settlement as well as uncertainties in the projection model and underlying assumptions. Prior to 1 January 2009, claims handling costs were not included in the computation of the outstanding claims provision. The effect, had the claims handling costs been included in the computation of the outstanding claims, was not material to the financial statements in previous years. However, as a result of accounting policy change requiring a provision for adverse deviation, additional claims liabilities of approximately RM0.5 million was recognised and this is recorded as an adjustment to retained earnings brought forward on 1 January 2009 pursuant to RBC requirements. Acquisition cost The 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. (i) Life insurance underwriting results Surplus transfer The surplus transferable from the Life fund to the income statement is based on the surplus determined by an annual actuarial valuation of the long term liabilities to policyholders. Premium income Premium is recognised as soon as the amount of the premium can be reliably measured. i) Unit-linked business First premium income is recognised on the assumption of risk and subsequent premiums are recognised on a cash basis. Subsequent risk is assumed based on sufficiency of units of the policyholder.

41 2. Significant accounting policies (continued) (i) Life insurance underwriting results (continued) Premium income (continued) ii) Non-linked business First premium is recognised from inception date and subsequent premium is recognised when it is due. At the end of the financial period, all due premiums are accounted for to the extent that they can be reliably measured and are recoverable. Commission and agency expenses Commission and agency expenses, which are costs directly incurred in securing premium on insurance policies, net of income derived from reinsurers in the course of ceding of premium to reinsurers, are charged to the revenue account in the period in which they are incurred. Benefits, claims and expenses Claims and settlement costs that are incurred during the financial period are recognised when a claimable event occurs and/or the insurer is notified. Benefits and claims arising on life insurance policies, including settlement costs, are accounted for using the case basis method and for this purpose, the benefits payable under a life insurance policy are recognised as follows: (a) (b) (c) maturity or other policy benefit payments due on specified dates are treated as claims payable on the due dates. death, surrender and other benefits without due dates are treated as claims payable on the date of receipt of intimation of death of the assured or occurrence of contingency covered. for accident & health business, provision is made for the cost of claims, together with related expenses, and IBNR is estimated at balance sheet date, using a mathematical method of estimation by an independent actuary based on past claims experience. As with all projections, there are elements of uncertainty and thus the projected future claims experience may be different from its actual claims experience due to the level of uncertainty involved in projecting future claims experience based on past claims experience. These uncertainties arise from changes in underlying risks, changes in spread of risks, timing and amounts of claims settlement as well as uncertainties in the projection model and underlying assumptions.

42 2. Significant accounting policies (continued) (i) Life insurance underwriting results (continued) Life insurance liabilities The insurance liabilities for contracts held within the participating insurance fund are taken as the higher of the following at the fund level: (i) (ii) sum of the present value of future guaranteed benefits, and the expected future management and distribution expenses, less the present value of future gross considerations arising from the policy discounted at the risk-free discount rate. sum of the present value of future guaranteed and non-guaranteed benefits, and the expected future management and distribution expenses, less the present value of future gross considerations arising from the policy discounted at a suitable rate, taking into account historical yields and the future investment outlook of the fund. The insurance liabilities for traditional non-participating contracts are determined as the sum of the present value of future guaranteed benefits, and the expected future management and distribution expenses, less the present value of future gross considerations arising from the policy discounted at the risk-free discount rate. For investment-linked and universal life type policies, insurance liabilities were set up based on a cash flow projection method set to ensure that any future negative cashflows that would otherwise arise are eliminated. The liabilities include an appropriate amount to cover the guaranteed minimum benefits offered under certain contracts, calculated using a stochastic method. The insurance liabilities are based on best estimate assumptions and with due regard to significant recent experience. An appropriate allowance for provision of risk margin for adverse deviation from expected experience is made in the valuation of non-participating life policies, the guaranteed benefits insurance liabilities of participating life policies, and non-unit liabilities of investment-linked policies. Valuation method prior to 1 January 2009 for traditional life policies is the net premium valuation method based on certain prescribed assumptions.

43 2. Summary of significant accounting policies (continued) (j) Employee and life field agents 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 Company s contribution to the Employee s Provident Fund are charged to the income statement/revenue account in the year to which they relate. Once the contributions have been paid, the Company has no further payment obligations. Gratuities payable to entitled employees are computed based on a certain percentage of the monthly basic salaries and are remitted to the Employees Provident Fund when due. The Company is also obligated under the agreement with the Life field agents to pay retirement benefits to eligible agents upon retirement. Such retirement benefits have been provided for in the financial statements to the extent of the Company s contractual liability. (k) Provision A provision is recognised if, as a result of a past event, the Company has 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. (l) Payables Payables are measured initially and subsequently at cost. Payables are recognised when there is a contractual obligation to deliver cash or another financial asset to another entity. (m) Other revenue recognition Interest on loans is recognised on an accrual basis except where a loan is considered non-performing, i.e. where repayment is in arrears for more than six months, in which case recognition of such interest is suspended. Subsequent to suspension, interest is recognised on the receipt basis until all arrears have been paid. Other interest is recognised on a time proportion basis that takes into account the effective yield of the asset. Rental 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, income is recognised on the receipt basis until all arrears have been paid. Dividend is recognised when the right to receive payment is established. Gains or losses arising on disposal of investments are credited or charged to the income statement/revenue account.

44 2. Summary of significant accounting policies (continued) (n) Taxation Tax expense comprises current and deferred tax. Tax expense is recognised in the income statement/revenue account except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for reporting purposes and the amounts used for taxation purposes. 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 / 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 by the balance sheet date. 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 each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (o) Earnings per share The Company presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the net profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. (p) Contingent liabilities 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.

45 3. Property and equipment Office furniture, Capital Computer fittings and work-in- General business equipment equipment progress Total and shareholders fund RM 000 RM 000 RM 000 RM 000 Cost At 1 January , ,690 Additions Disposals - (1) - (1) Transfers (200) - At 31 December 2008/ 1 January , ,067 Additions Disposals (8) - - (8) Transfers 77 - (77) - At 31 December , ,327 Accumulated depreciation At 1 January , ,189 Charge for the year At 31 December 2008/1 January , ,409 Charge for the year Written off (8) - - (8) At 31 December , ,624 Carrying amount At 1 January At 31 December 2008/1 January At 31 December

46 3. Property and equipment (continued) Office furniture, Capital Freehold Motor Computer fittings and work-inland Buildings vehicles equipment equipment progress Total Life fund RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Cost At 1 January ,448 51,167 3,378 34,393 57,615 7, ,673 Additions ,373 5,754 1,736 9,487 Disposals - (1,806) (1,216) (14) (71) (458) (3,565) Written off - - (1) (61) (129) - (191) Transfers ,894 (2,995) - At 31 December 2008/ 1 January ,448 49,366 2,780 35,792 66,063 5, ,404 Additions ,090 2,893 6,697 14,680 Disposals - - (411) (119) - (26) (556) Written off (83) (1,071) - (1,154) Transfers , (3,243) - At 31 December ,448 49,366 2,369 43,412 68,396 9, ,374 Accumulated depreciation At 1 January ,405 1,969 31,686 26,875-71,935 Charge for the year - 1, ,813 5,790-9,391 Disposals - (439) (986) (12) (66) - (1,503) Written off - - (1) (60) (91) - (152) At 31 December 2008/ 1 January ,169 1,567 33,427 32,508-79,671 Charge for the year - 1, ,262 5,882-9,696 Disposals - - (411) (411) Written off (79) (1,019) - (1,098) At 31 December ,345 1,532 35,610 37,371-87,858 Carrying Amount At 1 January ,448 39,762 1,409 2,707 30,740 7,672 91,738 At 31 December 2008/ 1 January ,448 37,197 1,213 2,365 33,555 5,955 89,733 At 31 December ,448 36, ,802 31,025 9,383 94,516

47 3. Property and equipment (continued) Included in property and equipment of the Life fund and General business are the costs of the following fully depreciated assets which are still in use: General business At cost Life fund At cost RM 000 RM 000 RM 000 RM 000 Motor vehicles Computer equipment 2,957 2,915 30,703 28,863 Office furniture, fittings and equipment ,178 7,824 2,977 2,934 39,531 37,099 The strata titles of land and buildings with a cost of RM15,370,418 ( RM15,370,418) are in the process of being transferred to the Company. 4. Prepaid lease payments Life Fund Unexpired period more than 50 years RM 000 Cost At 1 January 2008/31 December 2008/1 January 2009/31 December ,808 Accumulated amortisation At 1 January ,036 Amortisation for the year 276 At 31 December 2008/1 January ,312 Amortisation for the year 275 At 31 December ,587 Carrying amount At 1 January ,772 At 31 December 2008/1 January ,496 At 31 December ,221 The lease term of the leasehold land is 99 years.

48 5. Investments in debt and equity securities Carrying Fair value/ Fair value/ amount Market value Cost Market value RM 000 RM 000 RM 000 RM 000 General business and shareholders fund Unquoted: Shares of corporations Related corporation 48,000 24,000 Others 1,944 1,944 49,944 25,944 Debentures, bonds and loan stocks of corporations At cost 68,049 74,024 Accretion of discounts - 4,824 Gain arising from change in fair value 12,006-80,055 80,055 78,848 87,342 Fixed deposits with Licensed banks 380, ,587 Total investments of general business and shareholders fund 510, ,379 Investments maturing after 12 months 72,444 73,539 Life fund Malaysian Government Securities At cost 326, ,871 Amortisation of premiums - (84) Gain arising from change in fair value 2, , , , ,208 Central Bank Bills At cost 4,984 - Gain arising from change in fair value 4-4,988 4,

49 5. Investments in debt and equity securities (continued) Carrying Fair value/ Fair value/ amount Market value Cost Market value RM 000 RM 000 RM 000 RM 000 Life fund (continued) Quoted in Malaysia: Shares of corporations At cost 465, ,814 Allowance for diminution in value - (24,154) Gain arising from change in fair value 132, , , , ,660 Unquoted: Shares of corporations 3,352 27,351 Debentures, bonds and loan stocks of corporations At cost 3,518,883 3,089,116 Accretion of discounts - 76,576 Gain arising from change in fair value 150,330-3,669,213 3,669,213 3,165,692 3,231,664 Foreign managed fund At cost 109, ,899 Loss arising from change in fair value (13,683) (36,141) 96,216 96,216 73,758 73,758 Fixed and call deposits with Licensed banks 581, ,989 Total investments of life fund 5,282,106 4,462,237 Investments maturing after 12 months 3,931,330 3,138,092

50 5. Investments in debt and equity securities (continued) Carrying amount Cost/Market Value RM 000 RM 000 Investment-linked funds Malaysian Government Securities At cost 38,611 - Loss arising from change in fair value (294) - 38,317 - Quoted in Malaysia: Shares of corporations At cost 2,876,467 2,286,394 Gain/ (loss) arising from change in fair value 697,565 (356,504) 3,574,032 1,929,890 Irredeemable convertible unsecured loan stock At cost Gain arising from change in fair value Unquoted: Debentures, bonds and loan stocks of corporations At cost 738, ,071 Gain arising from change in fair value 15, , ,558 Foreign managed fund At cost 304, ,408 Gain/ (loss) arising from change in fair value 36,386 (76,487) 340, ,921 Fixed deposits with Licensed banks 439, ,626 Gain arising from change in fair value 2,330 2, , ,785 Total investments of investment - linked funds (Note 30) 5,149,751 3,213,154 Investments maturing after 12 months 732, ,497 All the investment in equity and debt instruments are categorised as held-for-trading. The figures as at 31 December 2009 are stated at fair value or at book value (for investments without quoted market price and whose fair value cannot be measured reliably). The fair value of quoted securities is their closing market prices at the balance sheet date. For other financial instruments listed above, the fair values are indicative prices at the balance sheet date. The comparative figures as at 31 December 2008 were not restated to fair value based on the new measurement basis in accordance with the RBC Framework. Hence, the figures remain to be measured using the valuation basis disclosed in note 2(d)(iii).

51 6. Loans General business and shareholders fund Life fund RM 000 RM 000 RM 000 RM 000 Policy loans , ,866 Mortgage loans - - 6,845 8,479 Unsecured loans 8,064 4,961 1,479 1,109 8,064 4, , ,454 Allowance for doubtful debts - - (43) (20) 8,064 4, , ,434 Receivable after 12 months ,190 9,461 Mortgage and unsecured loans comprise mainly of housing and car loans to employees and agents. Policy loans are mainly loans secured by the cash surrender values of the relevant policies. No portion of the balance was included as part of the receivables after twelve months disclosure as it is not practicable to determine such portion with sufficient reliability given that the policy loans are not subject to any fixed terms of repayment. During the year, bad debts amounting to RM20,409 (2008 Nil) have been written off against allowance for doubtful debts.

52 7. Receivables General business and shareholders fund Life fund RM 000 RM 000 RM 000 RM 000 Trade receivables Outstanding premium including agent balances ,003 12,337 Amount due from reinsurers 1,922 2,286 11,907 6,726 1,922 2,286 24,910 19,063 Allowance for doubtful debts (728) (745) - - 1,194 1,541 24,910 19,063 Other receivables Other receivables, deposits and prepayments 4,842 3,597 21,078 18,053 Income due and accrued 28,193 15,876 76,445 80,605 Amount due from related companies 17,733 34, ,768 53,879 97,763 98,893 Amount due from life fund (Note 9) 295, , , , , ,956 Included in income due and accrued of general business and shareholders fund and life fund respectively, are RM25,634,879 ( RM9,833,656) and RM nil ( RM10,492,297) due from a related corporation. 8. Claims liabilities/provision for outstanding claims General business and shareholders fund Life fund RM 000 RM 000 RM 000 RM 000 Claims liabilities/provision for outstanding claims 8,060 4, , ,895 Recoverable from reinsurers - - (7,311) (7,392) Net outstanding claims 8,060 4, , ,503

53 9. Payables General business and shareholders fund Life fund RM 000 RM 000 RM 000 RM 000 Trade payables Amount due to reinsurers/ceding companies and co-insurers ,688 8,807 Commissions payable ,029 50,118 Advance premiums and premium deposits ,648 11, ,365 70,893 Other payables Other payables and accrued liabilities 6,622 5,661 98,576 89,837 Amount due to shareholders fund (Note 7) , ,556 Amount due to investment linked funds (Note 30) - - 1,396 8,800 Amount due to related companies ,805 20,992 6,622 5, , ,185 6,933 5, , ,078

54 10. Retirement gratuity benefits Life fund RM 000 RM 000 At 1 January 30,178 27,493 Provision for the year 4,439 3,571 34,617 31,064 Utilised during the year (474) (886) At 31 December 34,143 30,178 Payable after 12 months 32,539 29, Deferred taxation Recognised deferred tax liability The recognised deferred tax liability comprises the following: General business and shareholders fund Life fund RM 000 RM 000 RM 000 RM 000 Property and equipment - capital allowances Provisions 2,542 2,229 24,948 1,668 2,652 2,298 25,777 2,497

55 11. Deferred taxation (continued) Movement in recognised temporary differences during the year Recognised Recognised in income At in income At statement / statement At (Note 22) (Note 22) RM 000 RM 000 RM 000 RM 000 RM 000 General business and shareholders fund Property and equipment - capital allowances Provisions 1, , ,542 1,279 1,019 2, ,652 Life fund Property and equipment - capital allowances 1,085 (256) Provisions 5,088 (3,420) 1,668 23,281 24,948 6,173 (3,676) 2,497 23,281 25, Premium liabilities/unearned premium reserves Fire Motor Miscellaneous Total RM 000 RM 000 RM 000 RM At 1 January 657 1,583 3,669 5,909 Effects of adoption of Risk-Based Capital Framework on 1 January At 1 January Restated 770 1,805 4,330 6,905 Increase during the year 6 1, ,073 At 31 December 776 3,526 4,676 8, At 1 January 597 1,109 4,246 5,952 Increase/(decrease) during the year (577) (43) At 31 December 657 1,583 3,669 5,909

56 13. Life policyholders fund RM 000 RM 000 Life insurance liabilities/actuarial liabilities: At 1 January 6,902,276 6,774,761 Effect of adoption of RBC Framework on 1 January 2009 (435,066) - At 1 January, restated 6,467,210 6,774,761 Add: Increase in policy reserves 2,314,742 2,050 Bonus allocated to participating policyholders 140, ,465 2,455, ,515 At 31 December 8,922,352 6,902,276 Unallocated surplus: At 1 January 855, ,595 Effect of adoption of RBC Framework on 1 January ,459 - At 1 January, restated 1,374, ,595 Add: Surplus arising during the year 489, ,861 Less: Bonus allocated to policyholders (140,400) (125,465) Transfer to income statement (364,615) (277,636) At 31 December 1,358, ,355 Life policyholders fund at end of year: Life insurance liabilities/actuarial liabilities 8,922,352 6,902,276 Unallocated surplus 1,358, ,355 10,281,229 7,757, Share capital Number of Number of shares Amount shares Amount 000 RM RM 000 Authorised: Ordinary shares of RM1 each 500, , , ,000 Issued and fully paid: Ordinary shares of RM1 each 100, , , ,000

57 15. Section 108 tax credit Subject to agreement by the Inland Revenue Board, the Company has sufficient Section 108 tax credit to frank up to RM218,011,000 of its distributable reserves at 31 December 2009 if paid out as dividends. The Financial Act 2007 introduced a single tier company income tax system with effect from year of assessment As such, the Section 108 tax credit will be available to the Company until such time the credit is fully utilised or upon expiry of the six-year transitional period on 31 December 2013, whichever is earlier. 16. Operating revenue Shareholders General Life fund business fund Total RM 000 RM 000 RM 000 RM Gross premium - 24,129 3,064,947 3,089,076 Investment income (Note 20) 7,797 3, , ,979 7,797 27,239 3,316,019 3,351, Gross premium - 18,884 2,618,443 2,637,327 Investment income (Note 20) 14,035 4, , ,255 14,035 23,249 2,881,298 2,918, Commission and agency expenses Included in commission and agency expenses is an amount of retirement gratuity benefits for the agents of RM3,155,136 (2008 RM2,016,036).

58 18. Management expenses Shareholders fund General business Life fund RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Staff costs ,331 1,514 55,258 52,749 Auditors remuneration - current year prior year Directors emoluments ,143 Bad and doubtful debts - - (17) Rental of premises ,725 9,662 Depreciation of property and equipment ,696 9,391 Amortisation of prepaid lease payments Retirement benefits Property and equipment written off Outsourcing fees (#) ,785 41,994 Other expenses 1, ,639 1, ,181 80,320 3,105 1,831 4,398 3, , ,285 The estimated monetary value of Directors benefits-in-kind is RM65,529 ( RM60,377). Included in staff costs are contributions to the Employees Provident Fund of RM451,507 ( RM343,869) and RM6,909,982 ( RM5,310,201) for the General business and the Life fund, respectively. # This amount is in relation to fees for outsourcing services provided by a related company.

59 19. Directors and Chief Executive Officer s (CEO s) remuneration Shareholders fund General business Life fund RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Executive Director - Salaries Benefit-in-kind Other Remuneration ,203 Non-Executive Directors - Fees Total Directors Remuneration ,203 The remuneration, including benefit-in-kind, attributable to the CEO of the insurer during the year amounted to RM874,814 ( RM1,202,905).

60 20. Investment income Shareholders fund General business Life fund RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Gross dividends from shares of corporations: Quoted in Malaysia ,223 20,419 Unquoted in Malaysia 2,994 7, ,811 7,514 Reversal of overaccrued dividend on unquoted shares (4,275) (3,111) - Interest from: Malaysian Government Securities ,272 9,417 Cagamas bonds ,031 10,058 Unquoted debentures, bonds and loan stocks of corporations: 2,184 2,189 2,056 2, , ,113 Fixed deposits 6,891 3, ,414 18,809 24,466 Policy loans ,675 28,268 Mortgage loans Other loans Rental of properties Accretion of discounts/ (Amortisation of premiums) - net (150) - 12,549 Others , ,797 14,035 3,110 4, , ,855

61 21. Other operating income/(expense) - net Shareholders fund General business Life fund RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Gain on sale of investments ,221 30,269 Realised (loss)/gain on foreign exchange - (339) - - (175) 355 Gain/(loss) on sale of property and equipment (146) Unrealised gain/(loss) on investment-net/(allowance for) diminution in value of investments (380) - (933) - 170,536 (60,295) Retirement benefits (1,251) (1,285) Sundry income 2, ,674 37,428 1,826 (240) (521) ,066 6, Taxation General business and shareholders fund Life fund RM 000 RM 000 RM 000 RM 000 Current tax expense - current (89,213) (75,190) (23,098) (21,870) - prior year over provision 6,952 1,959 1,594 3,855 (82,261) (73,231) (21,504) (18,015) Deferred tax (expense)/income - current 1,032 (1,019) (16,510) 3,676 - prior year under provision (1,387) - (6,771) - (82,616) (74,250) (44,785) (14,339) The taxation charge on life business is based on the method prescribed under the Income Tax Act, 1967.

62 22. Taxation (continued) Reconciliation of effective tax rate and expense General business and shareholders fund % 2009 % 2008 RM 000 RM 000 Profit before taxation 375, ,025 Income tax using Malaysian tax rates , ,227 Income not subject to tax (1.0) (3,911) (0.9) (2,605) Non-deductible expenses Other items (0.6) (2,237) 0.4 1, , ,209 Under/(Over) provision in prior years -Taxation (1.9) (6,952) (0.7) (1,959) -Deferred tax expenses 0.4 1, Tax expense , ,250 Life fund % 2009 % 2008 RM 000 RM 000 Profit before taxation 1,731,293 1,375,913 Income tax using Malaysian tax rates , ,073 Items excluded from life insurer tax computation (5.7) (98,493) (6.4) (88,539) Income not subject to tax (0.2) (3,147) (0.2) (2,995) Other items 0.2 2,745 (0.0) (345) , ,194 Under/ (over) provision in prior years -Taxation (0.1) (1,594) (0.3) (3,855) -Deferred tax expenses 0.4 6, Tax expense/(income) , ,339

63 23. Net claims incurred Marine, aviation and Fire Motor transit Misc. Total RM 000 RM 000 RM 000 RM 000 RM Gross claims paid less salvage 452 3,885-2,784 7,121 Reinsurance recoveries (24) (980) - (148) (1,152) Net claims paid 428 2,905-2,636 5,969 Net outstanding claims: At end of year 498 3,253-4,309 8,060 At beginning of year (383) (1,089) (85) (2,968) (4,525) Effect of adoption of Risk-Based Capital Framework on 1 January 2009 (38) (150) 85 (407) (510) Net claims incurred 505 4,919-3,570 8, Gross claims paid less salvage 304 3,390-8,003 11,697 Reinsurance recoveries (15) (226) - (3,896) (4,137) Net claims paid 289 3,164-4,107 7,560 Net outstanding claims: At end of year 383 1, ,968 4,525 At beginning of year (388) (2,191) (85) (3,361) (6,025) Net claims incurred 284 2,062-3,714 6, Earnings per share The earnings per ordinary share has been calculated based on the profit for the year after taxation of RM292,990,000 ( RM222,775,000) and on the number of ordinary shares in issue during the year of 100,000,000 ( ,000,000).

64 25. Dividends Total sen per amount Date of share RM 000 payment 2008 Final 2008 ordinary tax exempt , June 2009 The Directors do not recommend any dividend payment in respect of the financial year ended 31 December Segment information on cash flow Life General Shareholders fund business fund Total RM 000 RM 000 RM 000 RM Cash flows from: Operating activities 376,997 1,359 (301,762) 76,594 Investing activities (14,475) (268) - (14,743) Financing activities - - (67,000) (67,000) Net increase/(decrease) 362,522 1,091 (368,762) (5,149) 2008 Cash flows from: Operating activities 296,209 9,416 (283,326) 22,299 Investing activities (7,572) (352) (24) (7,948) Financing activities Net increase/(decrease) 288,637 9,064 (283,350) 14, Capital commitments RM 000 RM 000 Capital expenditure commitments: Contracted but not provided for and payable: Within one year

65 28. Holding and ultimate holding companies The holding company is Sri Han Suria Sdn. Bhd., a company incorporated in Malaysia. The ultimate holding company is Prudential plc., a company incorporated in the United Kingdom which is listed on the London and New York Stock Exchanges. 29. Related parties For the purposes of these financial statements, parties are considered to be related to the Company if 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 Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. Allowance Bad or doubtful Transactions Gross balance Net balance for doubtful receivables amount for outstanding outstanding receivables recognised the year ended at at at the year end 31 December 31 December 31 December 31 December 31 December RM 000 RM 000 RM 000 RM 000 RM Related companies Prudential Services Asia Sdn Bhd (1,573) (1,573) - - Outsourcing fees 54,785 Other charges 579 Prudential Corporation Asia Ltd (17,710) (17,710) - - Recharge expenses 20,396 Prudential BSN Takaful Berhad 3,729 3, Recharge income (19,240) Prudential Services Singapore Pte Ltd IT services 433 Prudential Fund Management Berhad (8,147) (8,147) - - Management fees 20,641

66 29. Related parties (continued) Allowance Bad or doubtful Transactions Gross balance Net balance for doubtful receivables amount for outstanding outstanding receivables recognised the year ended at at at the year end 31 December 31 December 31 December 31 December 31 December RM 000 RM 000 RM 000 RM 000 RM Related companies Prudential Services Asia Sdn Bhd (6,183) (6,183) - - Outsourcing fees and charges 55,028 Prudential Corporation Asia Ltd (2,614) (2,614) - - Recharge expenses 1,171 Prudential BSN Takaful Berhad 21,525 21, Recharge income (20,823) Prudential Services Singapore Pte Ltd (123) (123) - - IT services 246 Prudential Fund Management Berhad 1,219 1, Management fees 3,774

67 30. Investment - linked business BALANCE SHEET AS AT 31 DECEMBER RM 000 RM 000 ASSETS Investments in debt and equity securities (Note 5) 5,149,751 3,213,154 Income due and accrued 12,108 11,008 Amount due from brokers 1,582 - Amount due from life fund (Note 9) 1,396 8,800 Tax recoverable 7,140 17,886 Deferred taxation - 34,108 Cash and bank balances ,172,331 3,285,080 LIABILITIES Other payables 2,907 21,357 Taxation 3,777 3,320 Deferred taxation 60,138-66,822 24,677 Net Asset Value of Funds 5,105,509 3,260,403 REPRESENTED BY: Unitholders account 5,105,509 3,260,403 INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER RM 000 RM 000 Investment income 141, ,315 (Loss)/gain on disposal of investments (43,573) 4,253 Unrealised capital gain/(loss) on investments net 1,182,401 (1,113,896) Investment management fees (73,216) (57,670) Investment management fees rebate 15,094 11,996 Other income/(expenses) - net 682 (380) Surplus/(deficit) before taxation 1,222,834 (1,012,382) Taxation (105,522) 81,719 Net surplus/(deficit) for the year after taxation 1,117,312 (930,663)

68 31. Financial instruments Financial risk management objectives and policies The Board of Directors assumes the overall responsibility for the Company s financial risk management. In order to fulfil this responsibility, the Board approves the overall framework for managing the risks faced by the Company. The Risk Management Committee, which was established in 2003, is responsible for risk management strategies, policies and risk tolerance limits and meets every quarter to consider reports on key risks identified and the management of such risks. Detailed policies and procedures exist at the Company and the items of particular relevance to financial risk management include: i) Actuarial Procedures Manuals: Policies for all aspects of actuarial management including for regulatory reporting and asset liability management ii) iii) Financial Procedures Manuals: Financial control policies including for financial reporting, capital commitments and business planning Investment Guidelines: Investment management policies including the setting out of mandates between the Company and its fund managers Specific risks that affect the Company s financial position are: Insurance risk As a provider of financial services, in particular the underwriting of insurance products, the Company s business is the managed acceptance of risk. Policies and procedures have been put in place to manage the inherent uncertainty as to the occurrence, amount and timing of insurance liabilities. This includes adverse mortality, morbidity and persistency experience. The Board is updated by the Appointed Actuary on the financial condition of the Company on a regular basis. Credit risk The Company s exposure to credit risk arises mainly from investment in financial instruments issued by the Malaysian Government and private companies as well as deposits placed with licensed financial institutions in Malaysia. To manage this, the Company regularly evaluates minimum credit ratings of financial instruments issued by the Malaysian Government and private companies for investment purposes and adherence to the credit exposure guidelines for fixed income securities and deposits. There is no significant concentration of credit risk as at end of the balance sheet date.

69 31. Financial instruments (continued) Market risk Market risk consists of the risk that arises from adverse changes in the value of, or income from, assets and changes in interest rates or exchange rates. In managing this risk, the Company monitors interest rate movements and other economic indicators and takes appropriate measures to ensure that the investment objectives can continue to be met. In addition, this risk is mitigated as the Company holds a diversified portfolio of securities. The Investment Committee of the Company meets each quarter to monitor the investment activities of the Company and to consider changes to investment objectives and policies. Liquidity risk The Company monitors daily the cash flows and holds a sufficient quantity of financial assets that can readily be converted into cash. Fair values Recognised financial instruments The carrying amounts of cash and bank balances, deposits with licensed financial institutions, tax recoverable, receivables and payables approximate their fair values due to the relatively short term nature of these financial instruments. The carrying values of loan receivables with variable rates (eg. policy loans) which the Company reprices in the event of significant changes in the market rate of return are considered to approximate their fair values. For fixed rate loans (eg. mortgage loans and unsecured loans), the fair values are derived by discounting future cash flows, using interest rates for similar instruments, where applicable, taking into consideration the nature and contractual terms of these loans. Based on management s assessment as at 31 December 2009, the estimated fair values of the loans approximate their carrying values. No disclosure of fair value is made for unquoted shares of corporations for general and life insurance businesses as the Directors are of the view that the carrying amounts will not be significantly different from their fair values. The aggregate fair values of other financial assets are set out in their respective notes. The following table shows information about the Company s exposure to interest rate risk. Effective interest rates and repricing analysis In respect of interest earning financial assets, the following table indicates their effective interest rates at balance sheet date and the periods in which they reprice or mature, whichever is earlier.

70 31. Financial instruments (continued) Effective interest rates and repricing analysis (continued) Effective interest Within 1 5 After rates Total 1 year years 5 years % RM 000 RM 000 RM 000 RM Fixed rate instruments Debt securities held for trading: Malaysian Government Securities ,347-76, ,943 Central Bank Bills ,988 4, Debentures, bonds and loan stocks of corporations: - Unquoted ,503, ,768 1,611,302 2,757,695 Fixed and call deposits ,403,468 1,376,264 27,204 - Loans: Policy loans , , Mortgage loans , ,350 Other unsecured loans ,543 8, Fixed rate instruments Debt securities held to maturity: Malaysian Government Securities ,787-5, ,698 Debentures, bonds and loan stocks of corporations: - Unquoted ,839, ,462 1,353,278 2,174,358 Fixed and call deposits ,476,361 1,359, ,864 - Loans: Policy loans , , Mortgage loans , ,929 Other unsecured loans ,070 5,

71 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 19 to 68 are drawn up in accordance with the Companies Act, 1965 and Financial Reporting Standards, as modified by Bank Negara Malaysia Guidelines, so as to give a true and fair view of the financial position of the Company at 31 December 2009 and of its financial performance and cash flows for the year ended on that date. Signed on behalf of the Board of Directors in accordance with a resolution of the Directors: Ho Yik Abdul Khalil bin Abdul Hamid Kuala Lumpur Date: 08 June 2010

72 Statutory declaration pursuant to Section 169(16) of the Companies Act, 1965 I, Andrew Sims, the officer primarily responsible for the financial management of, do solemnly and sincerely declare that the financial statements set out on pages 19 to 68 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 Kuala Lumpur on 08 June Andrew Sims Before me: