USD5 million. USD2 million CORPORATE PROFILE. Authorised Capital of. Paid-up Capital of. a wholly owned subsidiary of

Transcription

1 CORPORATE PROFILE MALAYSIAN RE (DUBAI) LTD. Authorised Capital of USD5 million Paid-up Capital of USD2 million Malaysian Re (Dubai) Limited (MRDL), a wholly owned subsidiary of MNRB Holdings Berhad, was incorporated on 7 December 2006 in Dubai, the United Arab Emirates. Its office is situated within the strategic Dubai International Financial Centre (DIFC) and regulated by the Dubai Financial Services Authority (DFSA). MRDL is engaged in developing business for its sister company, Malaysian Reinsurance Berhad (Malaysian Re) in the Middle East and North Africa (MENA) region. Its primary functions are to develop relationships with clients around the MENA region as well as provide services and underwriting support to them. Its close proximity to this target market gives MRDL an edge when servicing its clients. All businesses of MRDL are fully underwritten by Malaysian Re, an a- (Excellent) rated company by A.M. Best and A by Fitch Ratings. MRDL will continue to expand its market presence in the MENA region and is committed to being at the forefront of the reinsurance segment within the region. CAPITAL STRUCTURE MRDL has an authorised Capital of USD5 million and a Paid-up Capital of USD2 million. 105

2 CORPORATE INFORMATION MALAYSIAN RE (DUBAI) LTD. Board of Company Secretary Norazman Hashim (MIA 5817) Senior Executive Officer Zaini Abdul Aziz Sharkawi Alis NON-INDEPENDENT NON-EXECUTIVE CHAIRMAN Zainudin Ishak Non-Independent Non-Executive Director Mohd Din Merican Non-Independent Non-Executive Director Principal Banker Standard Chartered Bank Precinct Building 1 DIFC Branch Dubai, United Arab Emirates Tel : Fax : Auditors Moore Stephens Chartered Accountants Suite M5-A, Zalfa Building Al Garhoud Area P. O. Box Dubai, United Arab Emirates Tel : Fax : Registered Office Unit 101, Level 1 Gate Village 4, The Gate District Dubai International Financial Centre P. O. Box Dubai, United Arab Emirates Tel : Fax : Website: 106

3 DIRECTORS PROFILE MALAYSIAN RE (DUBAI) LTD. 2/2 Board meeting attended Non-Independent Non-Executive Chairman SHARKAWI ALIS SHARKAWI ALIS, aged sixty-eight (68), Malaysian. Non-Independent Non-Executive Chairman since 17 December Other information on Sharkawi Alis is disclosed in the Directors Profile section of MNRB on page 22 of this Annual Report. ZAINUDIN ISHAK N/A Board meeting attended Non-Independent Non-Executive Director ZAINUDIN ISHAK, aged forty-eight (48), Malaysian. Non-Independent Non-Executive Director since 23 April Other information on Zainudin Ishak is disclosed in the Directors Profile section of Malaysian Re on page 69 of this Annual Report. 107

4 DIRECTORS PROFILE (CONT D) MALAYSIAN RE (DUBAI) LTD. MOHD DIN MERICAN 2/2 Board meeting attended Non-Independent Non-Executive Director MOHD DIN MERICAN, aged fifty-three (53), Malaysian. Non-Independent Non-Executive Director since 5 February Other information on Mohd Din Merican is disclosed in the Directors Profile section of MNRB on page 22 of this Annual Report. 108

5 SENIOR EXECUTIVE OFFICER S PROFILE MALAYSIAN RE (DUBAI) LTD. ZAINI ABDUL AZIZ 2/2 Board meeting attended Senior Executive Officer ZAINI ABDUL AZIZ, is the Senior Executive Officer of MRDL. Prior to this, he served as Vice President, International Treaties Department of Malaysian Re, a sister company of MRDL. He has been with Malaysian Re for twenty (20) years, and comes to the role with extensive on the ground client-facing experience. He joined Malaysian Re as a Risk Surveyor upon obtaining his Bachelor of Business from Temple University, Philadelphia, in He has had a successful career with Malaysian Re in various departments where he gained his knowledge and experience in many aspects of reinsurance business. 109

6 CORPORATE PROFILE MALAYSIAN MOTOR INSURANCE POOL (MMIP) The Malaysian Motor Insurance Pool (MMIP) was collectively set up in 1992 by the local insurance companies to provide motor insurance to vehicle owners who are unable to obtain insurance protection for their vehicles. Malaysian Re was then appointed as the Administration Manager for the pool. MMIP Services Sdn. Bhd. (MSSB), a subsidiary of MNRB Holdings Berhad, was incorporated on 23 March Following its incorporation, the duties and functions of the Administration Manager were transferred from Malaysian Re to MSSB on 12 April The duties and functions of MSSB, include inter alia, dealing with the overall administrative and financial functions of the MMIP as well as Bodily Injury claims administration. CORPORATE INFORMATION Board of Senior Vice President S. Manogaran Company Secretary Lena Abd Latif (LS 8766) Zainudin Ishak DIRECTOR Norazman Hashim DIRECTOR Principal Banker CIMB Bank Berhad Auditors Ernst & Young Level 23A, Menara Millenium Jalan Damanlela Pusat Bandar Damansara Damansara Heights Kuala Lumpur Tel : Fax : Registered Office 6 th Floor, Bangunan Malaysian Re No. 17, Lorong Dungun Damansara Heights Kuala Lumpur Tel : Fax :

7 Directors Report Statement by Directors Statutory Declaration Independent Auditors Report Income Statements Statements of Comprehensive Income Statements of Financial Position Statements of Changes in Equity Statements of Cash Flows Notes to the Financial Statements FINANCIAL STATEMENTS

8 DIRECTORS REPORT Directors Report The Directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 March Principal Activities The Company is an investment holding company, principally engaged in the provision of management services to its subsidiaries. The principal activities of the subsidiaries have been disclosed in Note 17 to the financial statements. There have been no significant changes in the nature of the principal activities of the Group and of the Company during the financial year. Results Group RM 000 Company RM 000 Net profit for the year 139,148 11,539 There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the financial statements. In the opinion of the Directors, the results of the operations of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature. Dividend The amount of dividend paid by the Company since the end of the previous financial year was as follows: RM 000 In respect of the financial year ended 31 March 2014: First and final single-tier dividend of 16.5%, paid on 29 October ,156 The Directors do not recommend the payment of any dividend in respect of the current financial year. 112

9 DIRECTORS REPORT (CONT D) Directors The names of the Directors of the Company in office since the date of the last report and at the date of this report are: Sharkawi bin Alis Mohd Din bin Merican P. Raveenderen Dato Syed Ariff Fadzillah bin Syed Awalluddin Yusoff bin Yaacob Datuk Mohd Khalil bin Dato Mohd Noor (Resigned with effect from 1 June 2015) Megat Dziauddin bin Megat Mahmud Paisol bin Ahmad Hijah Arifakh binti Othman (Appointed with effect from 1 June 2015) In accordance with Article 86 of the Company s Articles of Association, Yusoff bin Yaacob and Paisol bin Ahmad will be retiring by rotation at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election. In accordance with Article 92 of the Company s Articles of Association, Hijah Arifakh binti Othman retires and, being eligible offers herself for re-election. P. Raveenderen, who will be retiring pursuant to Section 129 of the Companies Act, 1965 at the forthcoming Annual General Meeting, offers himself for re-appointment as Director in accordance with Section 129 of the said Act to hold office until the conclusion of the next Annual General Meeting of the Company. Dato Syed Ariff Fadzillah bin Syed Awalluddin who will be also retiring pursuant to Section 129 of the Companies Act 1965 at the forthcoming Annual General Meeting, had informed that he would not be seeking re-election. Directors Benefits Neither at the end of the financial year, nor at any time during that year, did there subsist any arrangement to which the Company was a party, whereby the Directors might acquire benefits by means of acquisition of shares in or debentures of the Company or any other body corporate. Since the end of the previous financial year, no Director has received or become entitled to receive any benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the Directors from the Company or the fixed salary and benefits receivable as a full-time employee of the Company as disclosed in Notes 9, 10 and 32 to the financial statements or benefits receivable from related corporations) 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 during the financial year are as follows: Number of ordinary shares of RM1.00 each As at 1 April 2014 Acquired Sold As at 31 March 2015 Direct Interests: P. Raveenderen 10, ,000 Datuk Mohd Khalil bin Dato Mohd Noor (Resigned with effect from 1 June 2015) 5, ,000 Other than as stated above, none of the Directors in office at the end of the financial year had any interest in shares of the Company or its related corporations during the financial year. 113

10 DIRECTORS REPORT (CONT D) Significant and Subsequent Events The significant events during the financial year are as disclosed in Note 39 to the financial statements. The Board of the Company had on 22 April 2015, announced that the Company s reinsurance subsidiary, Malaysian Re, had been granted an approval from Bank Negara Malaysia ( BNM ), vide its letter dated 16 April 2015, to conduct General and Family retakaful business under Section 10 of the Islamic Financial Services Act, 2013 ( IFSA ) via the establishment of a retakaful division. Following this, the MNRB Group plans to undertake an internal restructuring exercise for its retakaful business, the details of which will be announced at a later date. Other Statutory Information (a) Before the income statements and statements of financial position of the Group and of the Company were made out, the Directors took reasonable steps: (i) (ii) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of provision for doubtful debts and satisfied themselves that there were no known bad debts and that adequate provision had been made for doubtful debts; and to ensure that any current assets which were unlikely to realise their values as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise. (b) At the date of this report, the Directors are not aware of any circumstances which would render: (i) (ii) it necessary to write off any bad debts or the amount of the provision for doubtful debts in the financial statements of the Group and of the Company inadequate to any substantial extent; and the values attributed to the current assets in the financial statements of the Group and of the Company misleading. (c) (d) (e) At the date of this report, the Directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or in the financial statements of the Group and of the Company which would render any amount stated in the financial statements misleading. As at the date of this report, there does not exist: (i) (ii) any charge on the assets of the Group or 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 of the Group or of the Company which has arisen since the end of the financial year other than those arising in the normal course of business of the Group and of the Company. 114

11 DIRECTORS REPORT (CONT D) Other Statutory Information (CONT D) (f) In the opinion of the Directors: (i) (ii) no contingent liability or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group or of the Company to meet their obligations when they fall due; and no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Company for the financial year in which this report is made. For the purpose of paragraphs (e)(ii) and (f)(i) above, contingent or other liabilities do not include liabilities arising from reinsurance, takaful and retakaful contracts underwritten in the ordinary course of business of the reinsurance, takaful and retakaful subsidiaries and associate companies. Auditors The retiring auditors, Messrs. Ernst & Young, have expressed their willingness to accept re-appointment. Signed on behalf of the Board in accordance with a resolution of the Directors dated 31 July Sharkawi bin Alis Mohd Din bin Merican Kuala Lumpur, Malaysia 115

12 STATEMENT BY DIRECTORS Pursuant to Section 169(15) of the Companies Act, 1965 We, Sharkawi bin Alis and Mohd Din bin Merican, being two of the Directors of MNRB Holdings Berhad, do hereby state that, in the opinion of the Directors, the accompanying financial statements set out on pages 119 to 235 are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia, so as to give a true and fair view of the financial position of the Group and of the Company as at 31 March 2015 and of the results and the cash flows of the Group and of the Company for the year then ended. In the opinion of the Directors, the information set out in Note 41 and page 236 of the financial statements has been compiled in accordance with the Guidance On Special Matter No. 1 Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Bursa Malaysia Securities Berhad Listing Requirements issued by the Malaysian Institute of Accountants on 20 December 2010, and presented based on the format prescribed by Bursa Malaysia Securities Berhad. Signed on behalf of the Board in accordance with a resolution of the Directors dated 31 July Sharkawi bin Alis Mohd Din bin Merican Kuala Lumpur, Malaysia Statutory declaration Pursuant to Section 169(16) of the Companies Act, 1965 I, Norazman bin Hashim, being the officer primarily responsible for the financial management of MNRB Holdings Berhad, do solemnly and sincerely declare that the accompanying financial statements set out on pages 119 to 236 are in my opinion 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 abovenamed Norazman bin Hashim ) at Kuala Lumpur in Wilayah Persekutuan ) on 31 July 2015 ) Norazman bin Hashim Before me, 116

13 Independent auditors report to the members of MNRB Holdings Berhad (Incorporated in Malaysia) Report on the financial statements We have audited the financial statements of MNRB Holdings Berhad, which comprise the statements of financial position as at 31 March 2015 of the Group and of the Company, the income statements, the statements of comprehensive income, the statements of changes in equity and the statements of cash flows of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 119 to 235. Directors responsibility for the financial statements The directors of the Company are responsible for the preparation of financial statements so as to give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. opinion In our opinion, the financial statements give a true and fair view of the financial position of the Group and of the Company as at 31 March 2015 and of their financial performance and cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. Report on other legal and regulatory requirements In accordance with the requirements of the Companies Act, 1965 ( the Act ) in Malaysia, we also report the following: (a) (b) (c) (d) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiaries of which we have acted as auditors have been properly kept in accordance with the provisions of the Act. We have considered the financial statements and the auditors report of the subsidiary of which we have not acted as auditors, which are indicated in Note 17 to the financial statements, being financial statements that have been included in the consolidated financial statements. We are satisfied that the financial statements of the subsidiaries that have been consolidated with the financial statements of the Company are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes. The auditors reports on the financial statements of the subsidiaries were not subject to any qualification and, in respect of the subsidiaries incorporated in Malaysia, did not include any comment required to be made under Section 174(3) of the Act. 117

14 independent auditors REPORT (CONT D) to the members of MNRB Holdings Berhad (Incorporated in Malaysia) Other reporting responsibilities The supplementary information set out in Note 41 on page 236 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad and is not part of the financial statements. The directors are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants ( MIA Guidance ) and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad. Other matters This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. Ernst & Young AF: 0039 Chartered Accountants Dato Abdul Rauf bin Rashid No. 2305/05/16(J) Chartered Accountant Kuala Lumpur, Malaysia 31 July

15 income statements for the year ended 31 march 2015 Group Company Note RM 000 RM 000 RM 000 RM 000 Gross earned premiums/contributions 4(a) 2,191,597 2,182, Premiums/contributions ceded to reinsurers/retakaful operators 4(b) (244,266) (199,524) - - Net earned premiums/contributions 1,947,331 1,983, Investment income 5 199, ,235 62, ,787 Net realised gains/(losses) 6 9,733 21,056 (85) (763) Net fair value (losses)/gains 7 (5,839) 3, Fee and commission income 8 35,737 24,574 33,868 31,072 Other operating revenue 10,471 12, Other revenue 249, ,903 96, ,943 Gross claims and benefits paid (1,240,681) (1,064,335) - - Claims ceded to reinsurers/retakaful operators 154, , Gross change in contract liabilities (147,847) (380,014) - - Change in contract liabilities ceded to reinsurers/ retakaful operators (36,130) 11, Net claims and benefits (1,269,971) (1,281,256) - - Fee and commission expense 8 (435,399) (451,224) - - Management expenses 9 (209,555) (195,411) (36,866) (35,898) Finance costs (18,123) (17,916) (18,123) (17,916) Other operating expenses 11 (7,680) (5,154) (30,330) (32,474) Change in expense liabilities (10,764) (18,637) - - Tax borne by participants 12 (13,265) (13,992) - - Other expenses (694,786) (702,334) (85,319) (86,288) Share of results of associates 4,157 2, Operating profit before surplus attributable to takaful participants, zakat and taxation 236, ,188 10,729 50,655 Surplus attributable to takaful participants 23(a) (45,635) (23,460) - - Operating profit before zakat and taxation 190, ,728 10,729 50,655 Zakat (960) (400) - - Taxation 12 (50,597) (58,342) 810 (25,616) Net profit for the year attributable to equity holders of the Parent 139, ,986 11,539 25,039 Basic and diluted earnings per share attributable to equity holders of the Parent (sen): The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 119

16 statements of comprehensive income for the year ended 31 march 2015 Group Company RM 000 RM 000 RM 000 RM 000 Net profit for the year 139, ,986 11,539 25,039 Other comprehensive income/(losses) Other comprehensive income/(losses) to be reclassified to income statement in subsequent periods: Effects of post-acquisition foreign exchange translation reserve on investment in associate 9,689 5, Effects of foreign exchange translation reserve on investment in subsidiary 1, Net gain/(loss) on Available-for-sale ( AFS ) financial assets: Gain/(loss) on fair value changes 44,155 (50,487) - (770) Realised (gains)/losses transferred to income statement (Note 6) (7,378) (13,626) Deferred tax relating to net (gain)/loss on AFS financial assets (3,389) 8,646-2 Other comprehensive (gains)/losses attributable to participants (Note 23(b)) (27,120) 34, Other comprehensive income not to be reclassified to income statement in subsequent periods: Revaluation of land and buildings 8,032 4, Deferred tax relating to revaluation of land and buildings (937) (141) - - Other comprehensive income attributable to participants (Note 23(c)) (2,140) (2,909) - - Total comprehensive income for the year 161, ,662 11,539 25,034 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 120

17 statements of financial position as at 31 march 2015 Group Company Note RM 000 RM 000 RM 000 RM 000 Assets Property, plant and equipment , ,936 2,907 2,610 Investment properties 14 7,100 6, Intangible assets 15 14,632 14,519 3,797 2,497 Deferred tax assets 16 11,484 24,180 2,313 1,503 Investments in subsidiaries , ,032 Investments in associates ,567 96,053 1,957 1,957 Financial assets: Financial assets at fair value through profit or loss ( FVTPL ) 19(a) 137, , Held-to-maturity ( HTM ) investments 19(b) 722, , AFS financial assets 19(c) 2,530,716 2,303, Loans and receivables ( LAR ) 19(d) 1,917,938 1,783,211 37,071 26,927 Reinsurance/retakaful assets , , Insurance/takaful receivables , , Tax recoverable 25,216 5,462-5,461 Cash and bank balances 82,702 36,644 2,877 2,904 Non-current assets held for sale 22-1, Total assets 6,476,711 6,136, , ,941 Liabilities and Participants funds Participants funds , , Borrowings , , , ,000 Insurance/takaful contract liabilities 20 4,159,278 4,012, Insurance/takaful payables , , Other payables , ,393 9,203 8,933 Deferred tax liabilities 16 7,676 8, Provision for taxation 12,455 26,965 2,083 - Provision for zakat Total liabilities and participants funds 5,127,237 4,912, , ,933 Equity Share capital , , , ,070 Reserves 1,136,404 1,010, , ,938 Total equity attributable to equity holders of the Parent 1,349,474 1,223, , ,008 Total liabilities, participants funds and equity 6,476,711 6,136, , ,941 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 121

18 statements of changes in equity for the year ended 31 march 2015 Attributable to equity holders of the Company Reserves Non-distributable Distributable Share capital Share premium Foreign exchange translation reserve AFS reserve Revaluation reserve Retained profits Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Group At 1 April , ,051 16,728 8,472 30, ,963 1,131,944 Net profit for the year , ,986 Other comprehensive income/(loss) for the year - - 5,529 (20,552) 1,699 - (13,324) Total comprehensive income/(loss) for the year - - 5,529 (20,552) 1, , ,662 Dividend paid during the year (Note 28) (51,137) (51,137) Reclassification upon disposal of property (115) At 31 March , ,051 22,257 (12,080) 32, ,927 1,223,469 Net profit for the year , ,148 Other comprehensive income for the year ,790 6,268 4,955-22,013 Total comprehensive income for the year ,790 6,268 4, , ,161 Dividend paid during the year (Note 28) (35,156) (35,156) At 31 March , ,051 33,047 (5,812) 37, ,919 1,349,474 Company At 1 April , , , ,111 Net profit for the year ,039 25,039 Other comprehensive loss for the year (5) - - (5) Total comprehensive (loss)/income for the year (5) - 25,039 25,034 Dividend paid during the year (Note 28) (51,137) (51,137) At 31 March , , , ,008 Net profit and total comprehensive income for the year ,539 11,539 Dividend paid during the year (Note 28) (35,156) (35,156) At 31 March , , , ,391 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 122

19 statements of cash flows for the year ended 31 march 2015 Group Company RM 000 RM 000 RM 000 RM 000 Cash flows from operating activities Profit before zakat and taxation 190, ,728 10,729 50,655 Adjustments for: Net fair value losses/(gains) on financial assets at FVTPL 4,266 (3,987) - - Impairment loss/(reversal of impairment loss) on AFS financial assets 2,043 1,229 - (794) (Reversal of impairment loss)/impairment loss on HTM investments (54) Reversal of impairment loss on properties (216) (477) - - Impairment loss on other receivables Impairment loss/(reversal of impairment loss) on insurance/ takaful receivables 6,947 (2,575) - - Depreciation of property, plant and equipment 8,310 10, Amortisation of intangible assets 3,950 3, Fair value gains on investment properties (200) (700) - - Net losses/(gains) on disposals of property, plant and equipment 81 (149) 85 - (Decrease)/increase in gross premium and contribution liabilities (11,596) 20, Impairment loss on investment in subsidiary ,327 32,469 Interest/profit income (184,589) (162,749) (1,164) (789) Dividend income (15,122) (11,578) (61,000) (105,000) Rental income (4,888) (5,436) - - Finance cost 18,123 17,916 18,123 17,916 Realised (gains)/losses on disposals of investments (9,761) (20,907) Realised gains on disposals of non-current assets held for sale (53) Net amortisation of premiums on investments 3,579 3, Share of results of associates (4,157) (2,437) - - Profit/(loss) from operations before changes in operating assets and liabilities 7,400 61,486 (2,384) (3,273) Increase in placements with licensed financial institutions, Islamic investment accounts and marketable securities (147,007) (128,744) (9,657) (10,042) Net (purchase)/disposal of investments (171,646) (448,067) Increase in staff loans (1,294) (1,976) (135) (1,447) Decrease in insurance/takaful receivables 58,746 37, (Increase)/decrease in other receivables (7,413) (12,439) Net change in balances with subsidiaries - - (147) 1,312 Increase in gross claim and actuarial liabilities 147, , Increase in expense liabilities 10,764 18, Increase in participants funds 45,635 23, Decrease/(increase) in reinsurance/retakaful assets 25,134 (11,811) - - Decrease in insurance/takaful payables (441) (41,859) - - Increase/(decrease) in other payables 13,414 40,418 (288) (382) Taxes and zakat (paid)/refunded (78,615) (52,884) 7,544 2,514 Interest/profit received 172, ,327 1, Dividends received 24,118 11,536 61,000 81,000 Rental received 4,175 4, Net cash generated from operating activities 103,223 41,654 57,450 71,

20 statements of cash flows (CONT D) for the year ended 31 march 2015 Group Company RM 000 RM 000 RM 000 RM 000 Cash flows from investing activities Subscription of shares in subsidiary - - (2,000) - Purchase of property, plant and equipment (2,413) (6,438) (1,094) (1,359) Purchase of intangible assets (3,503) (4,682) (1,375) (810) Proceeds from disposal of intangible assets Proceeds from disposal of non-current assets held for sale 1, Proceeds from disposal of property, plant and equipment Net cash used in investing activities (3,886) (10,700) (4,198) (2,169) Cash flows from financing activities Profit paid (18,123) (17,901) (18,123) (17,901) Dividend paid (35,156) (51,137) (35,156) (51,137) Net cash used in financing activities (53,279) (69,038) (53,279) (69,038) Cash and bank balances Net increase/(decrease) during the year 46,058 (38,084) (27) (28) At beginning of the year 36,644 74,728 2,904 2,932 At end of the year 82,702 36,644 2,877 2,904 The accompanying accounting policies and explanatory notes form an integral part of the financial statements. 124

21 notes to the financial statements 1. Corporate information The Company is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Main Market of Bursa Malaysia Securities Berhad. The registered office of the Company is located at 12 th Floor, Bangunan Malaysian Re, No. 17, Lorong Dungun, Damansara Heights, Kuala Lumpur, Malaysia. The Company is an investment holding company, principally engaged in the provision of management services to its subsidiaries. The principal activities of the subsidiaries have been disclosed in Note 17 to the financial statements. There have been no significant changes in the nature of the principal activities of the Group and of the Company during the financial year. The number of employees in the Group and in the Company at the end of the financial year were 893 and 193 (2014: 862 and 196) respectively. The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the Directors on 31 July Significant accounting policies 2.1 Basis of preparation The financial statements of the Group and of the Company have been prepared in accordance with Malaysian Financial Reporting Standards ( MFRSs ), International Financial Reporting Standards ( IFRSs ) and the requirements of the Companies Act, 1965 in Malaysia. The financial statements of the Group and of the Company have been prepared under the historical cost convention, unless otherwise stated in the accounting policies. The financial statements are presented in Ringgit Malaysia (RM) and all values are rounded to the nearest thousand (RM 000) except when otherwise indicated. 2.2 Accounting period For the general reinsurance business, the Group adopts quarterly accounting periods ending on 31 March, 30 June, 30 September and 31 December, insofar as the underwriting income and outgo for Market Cessions business is concerned. This is to correspond with the ceding companies accounting periods. Underwriting income and outgo in respect of other business classes and all other income and expenditure are for the 12 months ended 31 March Subsidiaries, associates and basis of consolidation (i) Subsidiaries A subsidiary is an entity over which the Group has all the following: (a) (b) (c) power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee); exposure, or rights, to variable returns from its investment with the investee; and the ability to use its power over the investee to affect its returns. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. 125

22 2. Significant accounting policies (cont d) 2.3 Subsidiaries, associates and basis of consolidation (cont d) (i) Subsidiaries (cont d) Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: (a) (b) (c) the contractual arrangement with the other vote holders of the investee; rights arising from other contractual arrangements; and the Group s voting rights and potential voting rights. In the Company s separate financial statements, investments in subsidiaries are stated at cost less any accumulated impairment losses. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in the income statement. (ii) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the reporting date. The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Company. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. In preparing the consolidated financial statements, intragroup balances, transactions and unrealised gains or losses resulting from intragroup transactions are eliminated in full. Uniform accounting policies are adopted in the consolidated financial statements for like transactions and events in similar circumstances. Acquisitions of subsidiaries are accounted for using the acquisition method. The acquisition method of accounting involves allocating the cost of the acquisition to the fair value of the assets acquired and liabilities and contingent liabilities assumed at the date of acquisition. The cost of an acquisition is measured as the aggregate of the fair values, at the date of exchange, of the assets given, liabilities incurred or assumed, and equity instruments issued, plus any costs directly attributable to the acquisition. Any excess of the cost of the acquisition over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities represents goodwill. Any excess of the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is recognised immediately in the income statement. (iii) Takaful and retakaful operations and funds Under the concept of takaful/retakaful, individuals/cedants make contributions to a pool which is managed by a third party with the overall aim of using the monies to aid fellow participants in times of need. Accordingly, the takaful and retakaful subsidiaries of the Company manage the general and family takaful and retakaful funds in line with the principles of Wakalah (agency), which is the main business model used by the takaful and retakaful subsidiaries. Under the Wakalah model, the takaful/retakaful operator is not a participant in the fund but manages the funds (including the relevant assets and liabilities) towards the purpose outlined above. 126 In accordance with the IFSA 2013 and, previously, the Takaful Act 1984, the assets and liabilities of the takaful funds are segregated from those of the takaful operator: a concept known as segregation of funds. However, in compliance with MFRS 10 Consolidated Financial Statements, the assets, liabilities, income and expenses of the takaful and retakaful funds are consolidated with those of the takaful and retakaful subsidiaries to represent the control possessed by the takaful/retakaful operator over the respective funds.

23 2. Significant accounting policies (cont d) 2.3 Subsidiaries, associates and basis of consolidation (cont d) (iii) Takaful and retakaful operations and funds (cont d) In preparing the Group financial statements, the balances and transactions of the shareholders funds of the takaful and retakaful subsidiaries were amalgamated and combined with those of the takaful and retakaful funds respectively. Interfund balances, transactions and unrealised gains or losses are eliminated in full during amalgamation and consolidation. The takaful and retakaful funds of the takaful and retakaful subsidiaries are consolidated and amalgamated from the date of control and continue to be consolidated until the date such control ceases which will occur when the takaful and retakaful subsidiaries licences to manage takaful and retakaful businesses respectively are withdrawn or surrendered. (iv) Associates Associates are entities in which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but not in control or joint control over those policies. Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting. Under the equity method, the investments in associates are carried in the consolidated statement of financial position at cost adjusted for postacquisition changes in the Group s share of net assets of the associates. The Group s share of the net profit or loss of the associates is recognised in the consolidated income statement. Where there has been a change recognised directly in the equity of the associates, the Group recognises its share of such changes. In applying the equity method, unrealised gains and losses on transactions between the Group and the associates are eliminated to the extent of the Group s interest in the associates. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group s net investments in the associates. The investments in associates are accounted for using the equity method from the date the Group obtains significant influence until the date the Group ceases to have significant influence over the associates or the investments become subsidiaries. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. Any excess of the Group s share of the net fair value of the associates identifiable assets, liabilities and contingent liabilities over the cost of the investments is excluded from the carrying amount of the investments and is instead included as income in the determination of the Group s share of the associates profit or loss in the period in which the investments are acquired. When the Group s share of losses in associates equal or exceed its interest in the associates, including any long-term interests that, in substance, form part of the Group s net investment in the associates, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associates. The most recent available audited financial statements of the associates are used by the Group in applying the equity method. Where the dates of the audited financial statements used are not co-terminous with those of the Group, the share of results is derived from the last audited financial statements available and management financial statements to the end of the accounting period. Uniform accounting polices are adopted for like transactions and events in similar circumstances. In the Company s separate financial statements, investments in associates are stated at cost less any accumulated impairment losses. On disposal of such investments, the difference between net disposal proceeds and the carrying amount is included in the income statement. 127

24 2. Significant accounting policies (cont d) 2.4 General reinsurance, takaful and retakaful underwriting results The general reinsurance, takaful and retakaful underwriting results are determined after taking into account premiums/contributions, reinsurance/retakaful/retrotakaful costs, commissions, movements in premium/contribution liabilities, net claims incurred and wakalah fees. The general takaful and retakaful funds are maintained in accordance with the IFSA 2013 and consist of AFS reserves and the accumulated surplus/deficit in the funds. Any deficit will be made good by the shareholder s fund via a loan or Qard. In general takaful and retakaful funds, the surplus distributable to the participants is determined after deducting retakaful/retrotakaful costs, movements in contribution liabilities, commissions, net claims incurred, wakalah fees, expenses, taxation and surplus administration charges. The surplus may be distributed to the shareholder and participants in accordance with the terms and conditions of the respective contracts or prescribed by the Shariah Committee. (i) Premium and contribution recognition Gross premiums/contributions are recognised in a financial period in respect of risks assumed during the particular financial period. Gross premiums/contributions include premium/contribution income in relation to direct general business, inwards facultative business, inwards proportional treaty reinsurance/retakaful and inwards non-proportional treaty reinsurance/retakaful. Contributions from direct businesses are recognised as soon as the amount of contribution can be reliably measured in accordance with the principles of Shariah. Contributions are recognised in a financial period in respect of risks assumed during that particular financial period. Inwards facultative premiums/contributions are recognised in the financial period in respect of the facultative risk assumed during the particular financial period following individual risks inception dates. Inwards proportional treaty premiums/contributions are recognised on the basis of periodic advices received from cedants given that the periodic advices reflect the individual underlying risks being incepted and reinsured/covered at various inception dates of these risks and contractually accounted for under the terms of the proportional reinsurance/retakaful treaty. Premium/contribution income on inward non-proportional treaties, which cover losses occurring during a specified treaty period, are recognised based on the contractual premiums/contributions already established at the start of the treaty period under the terms and conditions of each contract. (ii) Premium and contribution liabilities Premium/contribution liabilities represent the future obligations on insurance/takaful contracts as represented by premiums/ contributions received for risks that have not yet expired. The movement in premium/contribution liabilities is released over the term of the insurance/takaful contracts and recognised as earned premium/contribution income. Premium/contribution liabilities are reported at the higher of the aggregate of the unearned premium reserves ( UPR )/unearned contribution reserves ( UCR ) respectively for all lines of business or the best estimate value of the unexpired risk reserves ( URR ) and a provision of risk margin for adverse deviation ( PRAD ) calculated at 75% confidence level at the end of the financial year. 128

25 2. Significant accounting policies (cont d) 2.4 General reinsurance, takaful and retakaful underwriting results (cont d) (ii) Premium and contribution liabilities (cont d) (a) Unexpired risk reserves The URR is a prospective estimate of the expected future payments arising from future events insured or covered under policies or contracts in force and expected to be incurred as at the end of the financial year and also includes allowance for expenses, including overheads and costs of reinsurance/retakaful, expected to be incurred during the unexpired period in administering these policies or contracts and settling the relevant claims, and shall allow for expected future premium/contribution refunds. URR is estimated via an actuarial valuation performed by a qualified actuary, using a mathematical method of estimation similar to incurred but not reported ( IBNR ) claims. (b) Unearned premium and contribution reserves The UPR/UCR represent the portion of the net premiums/contributions of insurance/takaful contracts written that relate to the unexpired periods of the contracts at the end of the financial year. The UCR is calculated on net contribution income with a further deduction for wakalah fee expenses to reflect the wakalah business principle. The methods of computation of UPR/UCR are as follows: - For inwards proportional treaty reinsurance/retakaful business, UPR/UCR are computed on the 1/8 th method commencing from the quarter corresponding to the reporting quarter of the treaty statement; - For inwards non-proportional treaty reinsurance/retakaful business, UPR/UCR is computed at 1/2 of the last quarter Minimum Deposit Premiums/Contributions received; - For inwards facultative reinsurance/retakaful business, UPR/UCR is computed on the 1/8 th method commencing from the date of inception; - Time apportionment method for all classes of general takaful business within Malaysia except Marine and Aviation Cargo; and - 25% method for Marine and Aviation Cargo. (iii) Claim liabilities The amount of outstanding claims is the best estimate value of claim liabilities, which include provision for claims reported, claims incurred but not enough reserved ( IBNER ) and IBNR claims together with related expenses less recoveries to settle the present obligation as well as a PRAD calculated at 75% confidence level at the end of the financial year. Liabilities for outstanding claims are recognised when a claimable event occurs and/or as advised/notified. IBNER and IBNR claims are based on an actuarial valuation by a qualified actuary, using a mathematical method of estimation based on, amongst others, actual claims development patterns. 129

26 2. Significant accounting policies (cont d) 2.4 General reinsurance, takaful and retakaful underwriting results (cont d) (iv) Liability adequacy test At each reporting date, the Group reviews all insurance/takaful contract liabilities to ensure that the carrying amount of the liabilities is sufficient or adequate to cover the obligations of the Group, contractual or otherwise, with respect to insurance/takaful contracts issued. In performing this review, the Group compares all contractual cash flows against the carrying value of insurance/takaful contract liabilities. Any deficiency is recognised in the income statement. The estimation of claim/benefit and premium/contribution liabilities performed at the reporting date is part of the liability adequacy tests performed by the Group. (v) Acquisition costs and commission expense The acquisition costs and commission expenses, which are costs directly incurred in acquiring and renewing reinsurance/takaful/ retakaful business, are recognised as incurred and properly allocated to the periods in which it is probable they give rise to income. 2.5 Family takaful and retakaful underwriting results The family takaful and retakaful underwriting results are determined after taking into account contributions, retakaful/retrotakaful costs, commissions, net benefits incurred and wakalah fees. The family takaful and retakaful funds are maintained in accordance with the requirements of the IFSA 2013 and consist of AFS reserves and the accumulated surplus/deficit in the funds. The family takaful and retakaful fund surplus/deficit is determined by an annual actuarial valuation of the funds. Any actuarial deficit in the family takaful and retakaful funds will be made good by the shareholder s fund via a loan or Qard. In family takaful and retakaful funds, the surplus distributable to the participants is determined after deducting retakaful/retrotakaful costs, net benefits incurred, wakalah fees, expenses, taxation and surplus administration charges. The surplus may be distributed to the shareholder and participants in accordance with the terms and conditions of the respective contracts or prescribed by the Shariah Committee. (i) Contribution recognition Takaful contribution is recognised as soon as the amount of contribution can be reliably measured in accordance with the principles of Shariah. First year contribution is recognised on the assumption of risks and subsequent takaful contributions are recognised on due dates. Takaful contributions outstanding at the reporting date is recognised as income for the period provided they are within the grace period allowed for payment and there are sufficient funds available in the participants accounts to cover such contributions due. Retakaful contributions are recognised in respect of risks assumed during a particular financial period. Inwards treaty retakaful contributions are recognised on the basis of statements received from ceding companies. 130

27 2. Significant accounting policies (cont d) 2.5 Family takaful and retakaful underwriting results (cont d) (ii) Contract liabilities Family takaful contract liabilities are recognised when contracts are in-force and contributions are charged. Liabilities of benefits payable of the family retakaful fund are recognised as advised by ceding companies. For a one year family contract or a one year extension to a family contract covering contingencies other than life or survival, the liability for such family takaful contracts comprises contribution and claim liabilities with an appropriate allowance for PRAD from the expected experience. The family takaful contract liabilities are derecognised when the contracts expire, are discharged or are cancelled. At each reporting date, an assessment is made of whether the recognised family takaful contract liabilities are adequate by performing a liability adequacy test as disclosed in Note 2.5(iv). Liabilities of family takaful business are determined in accordance with valuation guidelines for takaful operators issued by BNM. All family takaful liabilities have been valued using a prospective actuarial valuation based on the sum of the present value of future benefits and expenses less future gross considerations arising from the contracts, discounted at the appropriate risk discount rate. This method is known as the gross contribution valuation method. In the case of a family contract where a part of, or the whole of, the contributions are accumulated in a fund, the accumulated amount as declared to the participants are set as the liabilities. Zerorisation is applied at contract level and no contract is treated as an asset under the valuation method adopted. In respect of the family takaful and retakaful risk fund, the expected future cash flows of benefits are determined using best estimate assumptions with an appropriate allowance for PRAD from expected experience such that an overall level of sufficiency of contract reserves at a 75% confidence level is secured. In the case of investment-linked business, the fund value is treated as a liability. Surpluses arising from the difference between the value of the family fund and the liabilities, including accumulated surplus, will be distributed to the participants after deduction for surplus administration charges, as appropriate. If the difference between the value of the family fund and the liabilities results in a deficit, the deficit is made good via a Qard from the takaful subsidiary which will be repaid when the fund returns to a surplus position. (iii) Creation/cancellation of units of family takaful fund Amounts received for units created represent contributions paid by participants or unitholders as payment for new contracts or subsequent payments to increase the amount of the contracts. Creation/cancellation of units are recognised in the financial statements at the next valuation date, after the request to purchase/sell units are received from the participants or unitholders. (iv) Liability adequacy test At each reporting date, the Group reviews all insurance/takaful contract liabilities to ensure that the carrying amount of the liabilities is sufficient or adequate to cover the obligations of the Group, contractual or otherwise, with respect to insurance/takaful contracts issued. In performing this review, the Group compares all contractual cash flows against the carrying value of insurance/takaful contract liabilities. Any deficiency is recognised in the income statement. 131

28 2. Significant accounting policies (cont d) 2.6 Shareholder s fund of takaful and retakaful subsidiaries (i) Commission expenses Commission expenses, which are costs directly incurred in securing contributions on takaful contracts, are recognised as incurred and properly allocated to the periods in which it is probable they give rise to income. Commission expenses are recognised in the income statement at an agreed percentage for each contract underwritten. This is in accordance with the principles of Wakalah as approved by the Shariah Committee and as agreed between the participants and the takaful subsidiary. (ii) Expense liabilities The expense liabilities of the shareholder s fund consist of expense liabilities of the general takaful and retakaful funds and the family takaful and retakaful funds which are based on estimations performed by qualified actuaries. The movement in expense liabilities is released over the term of the takaful contracts and recognised in the income statement. (a) Expense liabilities of general takaful and retakaful funds The expense liabilities of the general takaful and retakaful funds are reported at the higher of the aggregate of the reserves for unearned wakalah fees ( UWF ) and the best estimate value of the provision for unexpired expense reserves ( UER ) and a PRAD at a 75% confidence level at the end of the financial year. Unexpired expense reserves The UER is determined based on the expected future expenses payable by the shareholder s fund in managing the general takaful and retakaful funds for the full contractual obligation of the takaful and retakaful contracts as at the end of the financial year, less any expected cash flows from future wakalah fee income, and any other income due to the shareholder s fund that can be determined with reasonable certainty, calculated at 75% confidence level. The method used to value the UER is consistent with the method used in estimating the URR as disclosed in Note 2.4(ii)(a). Reserves for unearned wakalah fees The UWF represent the portion of wakalah fee income allocated for management expenses of general takaful and retakaful contracts that relate to the unexpired periods of contracts at the end of the financial year. The method used in computing UWF is consistent with the calculation of UCR under Note 2.4(ii)(b). (b) Expense liabilities of family retakaful and takaful fund The valuation of expense liabilities in relation to contracts of the family retakaful and takaful fund is conducted separately by the Appointed Actuaries. The method used to value expense liabilities is consistent with the method used to value retakaful liabilities of the corresponding family retakaful/takaful contracts. In valuing the expense liabilities, the present value of expected future expenses payable by the shareholder s fund in managing the retakaful fund for the full contractual obligation of the retakaful/takaful contracts less any expected cash flows from future wakalah fee income, and any other income due to the shareholder s fund that can be determined with reasonable certainty, are taken into consideration. The estimation includes a PRAD at a 75% confidence level. (c) Liability adequacy test 132 At each reporting date, the Group reviews the expense liabilities to ensure that the carrying amount is sufficient or adequate to cover the obligations of the Group for all managed takaful contracts. In performing this review, the Group considers all contractual cash flows and compares this against the carrying value of expense liabilities. Any deficiency is recognised in the income statement.

29 2. Significant accounting policies (cont d) 2.7 Product classification Financial risk is the risk of a possible future change in one or more of a specified interest/profit rate, financial instrument price, commodity price, foreign exchange rate, index of price or rate, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Insurance/underwriting risk is the risk other than financial risk. An insurance/takaful contract is a contract under which the reinsurance, takaful and retakaful subsidiaries have accepted significant insurance/ underwriting risk from another party by agreeing to compensate the party if a specified uncertain future event adversely affects the party. As a general guideline, the reinsurance, takaful and retakaful subsidiaries determine whether significant insurance/underwriting risk has been accepted by comparing claims/benefits payable on the occurrence of an insured event with claims/benefits payable if the event had not occurred. Conversely, investment contracts are those contracts that transfer financial risk with no significant insurance/underwriting risk. Once a contract has been classified as an insurance/takaful contract, it remains an insurance/takaful contract for the remainder of its life-time, even if the insurance/underwriting risk reduces significantly during the period, unless all rights and obligations expire or are extinguished. 2.8 Reinsurance/retakaful The reinsurance, takaful and retakaful subsidiaries cede insurance/underwriting risk in the normal course of business. Ceded reinsurance/ retakaful arrangements do not relieve the reinsurance, takaful and retakaful subsidiaries from their obligations to cedants/participants. For both ceded and assumed reinsurance/retakaful, premiums/contributions and claims/benefits are presented on a gross basis. Reinsurance/retakaful arrangements entered into by the reinsurance, takaful and retakaful subsidiaries that meet the classification requirements of insurance/takaful contracts as described in Note 2.7 are accounted for as noted below. Arrangements that do not meet these classification requirements are accounted for as financial assets. Reinsurance/retakaful assets represent amounts recoverable from reinsurers/retakaful operators for insurance/takaful contract liabilities which have yet to be settled at the reporting date. Amounts recoverable from reinsurers/retakaful operators are measured consistently with the amounts associated with the underlying insurance/takaful contracts and the terms of the relevant reinsurance/retakaful arrangement. At each reporting date, the reinsurance, takaful and retakaful subsidiaries assess whether objective evidence exists that reinsurance/ retakaful assets are impaired. Objective evidence of impairment for reinsurance/retakaful assets are similar to those noted for insurance/ takaful receivables. If any such evidence exists, the amount of the impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest/profit rate. The impairment loss is recognised in the income statement. Reinsurance/retakaful assets are derecognised when the contractual rights expire or are extinguished or when the contract is transferred to another party. 2.9 Property, plant and equipment and depreciation (i) Recognition and measurement All items of property, plant and equipment are initially recorded at cost. Subsequent to recognition, plant and equipment are stated at cost less accumulated depreciation and any impairment losses, whilst properties are stated at revalued amounts less subsequent accumulated depreciation and subsequent impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. In respect of freehold land and buildings, valuations are performed with sufficient frequency to ensure that the carrying amount does not differ materially from the fair value of the freehold land and buildings at the reporting date. 133

30 2. Significant accounting policies (cont d) 2.9 Property, plant and equipment and depreciation (cont d) (i) Recognition and measurement (cont d) Any revaluation surplus is recognised in other comprehensive income and accumulated in equity under the asset revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in the income statement, in which case the increase is recognised in the income statement. A revaluation deficit is recognised in the income statement, except to the extent that it offsets an existing surplus on the same asset carried in the asset revaluation reserve. Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. On disposal of property, plant and equipment, the difference between net proceeds and the carrying amount is recognised in the income statement and the unutilised portion of the revaluation surplus on that item is taken directly to retained profits. (ii) Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised in the income statement as incurred. (iii) Depreciation Freehold land has an unlimited useful life and therefore is not depreciated. Leased properties are depreciated over the shorter of the lease term and their useful lives. Work in progress is also not depreciated as it is not available for use. When work in progress is completed and the asset is available for use, it is reclassified to the relevant category of property, plant and equipment and depreciation of the asset begins. During the period in which the asset is not yet available for use, it is tested for impairment annually. Depreciation of other property, plant and equipment is provided for on a straight-line basis to write off the cost of each asset to its residual value over its estimated useful life, at the following annual rates: Buildings 2% to 4% Computer equipment 10% to 33.3% Office equipment 10% to 33.3% Furniture and fittings 10% to 15% Motor vehicles 20% The residual values, useful lives and depreciation method are reviewed at the end of each financial year to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment. 134

31 2. Significant accounting policies (cont d) 2.10 Investment properties Investment properties are properties which are held either to earn rental income and/or for capital appreciation. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value. Fair value is arrived at by reference to market evidence of transaction prices for similar properties and is performed by registered independent valuers having an appropriate recognised professional qualification and recent experience in the location and category of the properties being valued. Gains or losses arising from changes in the fair values of investment properties are recognised in the income statement in the year in which they arise. Investment properties are derecognised when either they have been disposed of or when the investment properties are permanently withdrawn from use and no future economic benefit is expected from the disposals. Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year in which they arise. Transfers are made to or from investment property only when there is a change in use. For a transfer from owner-occupied property to investment property, any excess of the property s carrying value over its fair value is accounted for as a revaluation surplus which is recognised in other comprehensive income. Any deficit between the property s carrying value and its fair value is recognised as an impairment loss in the income statement. Subsequent to the date of change in use, the property is measured similar to other investment properties. Any revaluation surplus previously recognised in other comprehensive income is transferred to the income statement only upon disposal of the property Intangible assets All intangible assets are initially recorded at cost. Subsequent to recognition, intangible assets are stated at cost less any accumulated amortisation and any impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. On disposal of intangible assets, the difference between net proceeds and the carrying amount is recognised in the income statement. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised on a straight-line basis over the estimated economic useful lives and assessed for impairment whenever there is an indication that the intangible assets may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed annually at the end of each reporting period. Amortisation is charged to the income statement. Intangible assets with indefinite useful lives are not amortised but tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired either individually or at the cash-generating unit level. The useful life of an intangible asset with an indefinite life is also reviewed annually to determine whether the useful life assessment continues to be supportable. (i) Software development in progress Software development in progress represent development expenditure on software. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated impairment losses. When development is complete and the asset is available for use, it is reclassified to computer software and amortisation of the asset begins. It is amortised over the period of expected future use. During the period in which the asset is not yet available for use, it is tested for impairment annually. 135

32 2. Significant accounting policies (cont d) 2.11 Intangible assets (cont d) (ii) Computer software and licences 2.12 Financial assets The useful lives of computer software and licences are considered to be finite because computer software and licences are susceptible to technological obsolescence. The acquired computer software and licences are amortised using the straight-line method over their estimated useful lives not exceeding 6 years. Impairment is assessed whenever there is an indication of impairment and the amortisation period and method are also reviewed annually at the end of each financial year. (i) Initial recognition and measurement Financial assets are recognised in the statement of financial position when, and only when, the Group and the Company become a party to the contractual provisions of the instrument. A financial asset is recognised initially, at its fair value plus, in the case of a financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial asset. An embedded derivative is recognised separately from the host contract and accounted for as a derivative if, and only if, it is not closely related to the economic characteristics and risks of the host contract and the host contract is not categorised at FVTPL. The host contract, in the event an embedded derivative is recognised separately, is accounted for in accordance with the policy applicable to the nature of the host contract. (ii) Classification and subsequent measurement The Group and the Company determine the classification of its financial assets at initial recognition and this depends on the purpose for which the investments were acquired or originated. The following classifications are used by the Group and the Company in categorising its financial assets: (a) Financial assets at FVTPL Financial assets are classified as financial assets at FVTPL if they are held for trading or are designated as such upon initial recognition. Financial assets held for trading are derivatives (including separated embedded derivatives) or financial assets acquired principally for the purpose of selling in the near term. Subsequent to initial recognition, financial assets at FVTPL are measured at fair value. Any gains or losses arising from changes in fair value are recognised in the income statement. Net gains or net losses on financial assets at FVTPL do not include exchange differences, interest and dividend income. Exchange differences and interest and dividend income on financial assets at FVTPL are recognised in the appropriate categories of income and expenses in the income statement. 136

33 2. Significant accounting policies (cont d) 2.12 Financial assets (cont d) (ii) Classification and subsequent measurement (cont d) (b) HTM investments Financial assets with fixed or determinable payments and fixed maturities are classified as HTM when the Group and the Company have the positive intention and ability to hold the investments to maturity. Subsequent to initial recognition, HTM investments are measured at amortised cost using the effective interest/yield method less any accumulated impairment losses. Gains and losses are recognised in the income statement when the HTM investments are derecognised or impaired, and through the amortisation process. (c) Loans and receivables Financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest/yield method. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, and through the amortisation process. (d) AFS financial assets AFS financial assets are financial assets that are designated as available for sale or are not classified in any of the three preceding categories. After initial recognition, AFS financial assets are subsequently measured at fair value. Any gains or losses from changes in fair value of the financial asset are recognised in other comprehensive income, except that impairment losses, foreign exchange gains and losses on monetary instruments and interest/profit calculated using the effective interest/yield method are recognised in the income statement. The cumulative gain or loss previously recognised is reclassified from other comprehensive income to the income statement as a reclassification adjustment when the financial asset is derecognised. Interest/profit income calculated using the effective interest/yield method is recognised in the income statement. Investments in equity instruments whose fair value cannot be reliably measured are measured at cost less accumulated impairment losses. (iii) Derecognition A financial asset is derecognised when the contractual right to receive cash flows from the asset has expired or the Group and the Company have transferred their rights to receive cash flows from the asset or have assumed an obligation to pay the received cash flows in full. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in the income statement. (iv) Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously. 137

34 2. Significant accounting policies (cont d) 2.13 Fair value measurement The Group and the Company measure financial instruments, such as, financial assets at FVTPL, and non-financial assets such as investment properties, at fair value at each reporting date. The fair values of financial instruments measured at amortised cost are disclosed in Notes 19 and 40. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: (i) (ii) In the principal market for the asset or liability; or In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group and the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group and the Company use valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 - Inputs that are based on observable market data, either directly or indirectly; and Level 3 - Inputs that are not based on observable market data. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group and the Company determine whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. The fair value hierarchy of financial instruments is disclosed in Note

35 2. Significant accounting policies (cont d) 2.14 Impairment of assets (i) Financial assets The Group and the Company assess at the end of each reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired. (a) Financial assets carried at amortised cost The Group and the Company first assess whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. The impairment assessment is performed at the end of each reporting period. If there is objective evidence that an impairment loss on assets carried at amortised cost has been incurred, the amount of the impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset s original effective interest rate/yield. The carrying amount of the asset is reduced and the loss is recorded in the income statement. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. (b) AFS financial assets Significant or prolonged decline in fair value below cost, significant financial difficulties of the issuer or obligor, and the disappearance of an active trading market are considerations to determine whether there is objective evidence that investment securities classified as AFS financial assets are impaired. If an AFS financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment losses previously recognised in the income statement, is transferred from equity to the income statement. Impairment losses on AFS equity investments are not reversed in the income statement in subsequent periods. Increases in fair value, if any, subsequent to impairment loss is recognised in other comprehensive income. For AFS debt investments, impairment losses are subsequently reversed in the income statement if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss in the income statement. 139

36 2. Significant accounting policies (cont d) 2.14 Impairment of assets (cont d) (ii) Non-financial assets 140 The carrying amounts of non-financial assets are reviewed at the end of each reporting period to determine whether there is any indication of impairment. If any such indication exists, then 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 groups of assets (the cash-generating unit ). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination. 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. Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of the other assets in the unit (or groups of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at the end of each reporting period for any indications that the losses have decreased or no longer exist. 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 the income statement in the period in which the reversals are recognised Non-current assets held for sale Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition subject only to terms that are usual and customary. Immediately before classification as held for sale, the non-current assets are measured in accordance with applicable MFRSs. On initial classification as held for sale, non-current assets are then measured at the lower of its carrying amount and fair value less costs to sell. Any difference is included in the income statement. Non-current assets classified as held for sale are not depreciated Measurement and impairment of Qard Any deficits in the takaful/retakaful funds are made good via a loan or Qard, granted by the shareholder s funds to the takaful/retakaful funds. The Qard is stated at cost less any impairment losses in the shareholder s funds. In the takaful/retakaful funds, the Qard is stated at cost. The Qard shall be repaid from future surpluses of the takaful/retakaful funds. The Qard is tested for impairment on an annual basis via an assessment of the estimated surpluses or cash flows from the takaful/retakaful funds to determine whether there is any objective evidence of impairment. If the Qard is impaired, an amount comprising the difference between its cost and its recoverable amount, less any impairment loss previously recognised, is recognised in the income statement. Impairment losses are subsequently reversed in the income statement if objective evidence exists that the Qard is no longer impaired.

37 2. Significant accounting policies (cont d) 2.17 Share capital and dividend expenses An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Ordinary shares are recorded at the proceeds received, net of directly attributable incremental transaction costs. Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared Cash and cash equivalents Cash and cash equivalents include cash in hand and at banks, excluding fixed and call deposits with licensed financial institutions, which have an insignificant risk of changes in value. The statement of cash flows has been prepared using the indirect method Insurance and takaful receivables Insurance/takaful receivables are amounts receivable under the contractual terms of an insurance/takaful contract. On initial recognition, insurance/takaful receivables are measured at fair value based on the consideration receivable. Subsequent to initial recognition, insurance/ takaful receivables are measured at amortised cost, using the effective interest/yield method. Insurance/takaful receivables are assessed at each reporting date for objective evidence of impairment. If any such evidence exists, the amount of impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the insurance/takaful receivable s original effective interest/yield rate. The impairment loss is recognised in the income statement. The basis for recognition of such impairment loss is as described in Note 2.14(i)(a). Insurance/takaful receivables are derecognised when the rights to receive cash flows from them have expired or when they have been transferred and the Group has also substantially transferred all risks and rewards of ownership Borrowings All borrowings are classified as other financial liabilities and are recognised initially at fair value plus directly attributable transaction costs. The profits payable are recognised as finance costs in the income statement in the period in which they are incurred. After initial recognition, profit-bearing borrowings are subsequently measured at amortised cost using the effective profit rate method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective profit rate method Leases (i) Classification A lease is recognised as a finance lease if it substantially transfers to the Group all the risks and rewards incidental to ownership. Leases of land and buildings are classified as operating or finance leases in the same way as leases of other assets. The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification. All leases that do not substantially transfer all risks and rewards are classified as operating leases, with the following exceptions: (a) (b) Property held under operating leases that would otherwise meet the definition of an investment property is classified as an investment property on a case-by-case basis and, if classified as investment property, is accounted for as if held under a finance lease, as disclosed in Note 2.10; and Land held for own use under an operating lease, the fair value of which cannot be measured separately from the fair value of a building situated thereon at the inception of the lease, is accounted for as being held under a finance lease, unless the building is also clearly held under an operating lease. 141

38 2. Significant accounting policies (cont d) 2.21 Leases (cont d) (ii) Finance leases - the Group as lessee Assets acquired by way of hire purchase or finance lease are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at the inception of the lease, less accumulated depreciation and impairment losses. The corresponding liability is included in the statement of financial position as borrowings. In calculating the present value of the minimum lease payments, the discount factor used is the interest/profit rate implicit in the lease, when it is impracticable to determine; otherwise, the Group and the Company s incremental borrowing rate is used. Any initial direct costs are also added to the carrying amount of such assets. Lease payments are apportioned between the finance costs and the reduction of the outstanding liability. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are recognised in the income statement over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period. The depreciation policy for leased assets is in accordance with that for depreciable property, plant and equipment as described in Note 2.9(iii). (iii) Operating leases - the Group as lessee Operating lease payments are recognised as an expense on a straight-line basis over the term of the relevant lease. The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straight-line basis. In the case of a lease of land and buildings, the minimum lease payments or the upfront payments made are allocated, whenever necessary, between the land and the buildings elements in proportion to the relative fair values of leasehold interests in the land element and buildings element of the lease at the inception of the lease. The up-front payments represent prepaid lease payments and are amortised on a straight-line basis over the lease term. (iv) Operating leases - the Group as lessor Assets leased out under operating leases are presented in the statement of financial position according to the nature of the assets. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease, as disclosed in Note 2.27(ii). Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term Financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. Financial liabilities, within the scope of MFRS 139 Financial Instruments: Recognition and Measurement, are recognised in the statement of financial position when, and only when, the Group and the Company become a party to the contractual provisions of the financial instrument. Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities. 142

39 2. Significant accounting policies (cont d) 2.22 Financial liabilities (cont d) (i) Financial liabilities at FVTPL Financial liabilities at FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVTPL. Financial liabilities held for trading include derivatives entered into by the Group and the Company that do not meet the hedge accounting criteria. Derivative liabilities are initially measured at fair value and subsequently stated at fair value, with any resultant gains or losses recognised in the income statement. Net gains or losses on derivatives include exchange differences. The Group and the Company have not designated any financial liabilities as at FVTPL nor were there any financial liabilities held for trading during and at the end of the financial year. (ii) Other financial liabilities The Group and the Company s other financial liabilities include borrowings, insurance/takaful payables and other payables. Insurance/takaful and other payables are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest/yield method. For other financial liabilities, gains and losses are recognised in the income statement when the liabilities are derecognised, and through the amortisation process. A financial liability is derecognised when the obligation under the liability is extinguished. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement Provisions Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of provision is the present value of the expenditure expected to be required to settle the obligation Income tax Income tax on profit or loss for the year comprises current and deferred tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the year and is measured using the tax rates that have been enacted at the end of the financial year. Deferred tax is provided for, using the liability method, on temporary differences at the end of the financial year between the tax bases of assets and liabilities and their carrying amounts in the financial statements. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. Deferred tax is not recognised if the temporary difference arises from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit. 143

40 2. Significant accounting policies (cont d) 2.24 Income tax (cont d) Deferred tax is measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the end of the financial year. Deferred tax is recognised in the income statement, except when it arises from a transaction which is recognised directly in other comprehensive income, in which case the deferred tax is also charged or credited directly in other comprehensive income Employee benefits (i) Short-term benefits Wages, salaries, bonuses and social security contributions are recognised as an expense in the year in which the associated services are rendered by employees of the Group. Short-term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated balances. Short-term non-accumulating compensated absences such as sick leave are recognised when the absences occur. (ii) Defined contribution plan As required by law, the Group makes contributions to the national pension scheme, the Employees Provident Fund ( EPF ). The Group also makes additional contributions to the EPF for eligible employees by reference to their length of service and earnings. Such contributions are recognised as an expense in the income statement as incurred. (iii) Employees terminal benefits As required by law in the United Arab Emirates, the Group makes provision for terminal benefits for employees of its Dubai subsidiary, based on the employees salaries and number of years of service. The terminal benefits are paid to the employees on termination or completion of their terms of employment Foreign currencies (i) Functional and presentation currency The individual financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in Ringgit Malaysia ( RM ), which is also the Company s functional currency. (ii) Foreign currency transactions In preparing the financial statements, transactions in currencies other than the functional currency ( foreign currencies ) are recorded in the functional currency using the exchange rates prevailing at the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items or on translating monetary items at the reporting date are recognised in income statement except for exchange differences arising on monetary items that form part of the Group s net investment in foreign operations, which are recognised intially in other comprehensive income and accumulated under the foreign currency translation reserve in equity. The foreign currency translation reserve is reclassified from equity to the income statement of the Group on disposal of the foreign operation. 144

41 2. Significant accounting policies (cont d) 2.26 Foreign currencies (cont d) (ii) Foreign currency transactions (cont d) Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the income statement for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in other comprehensive income. Exchange differences arising from such non-monetary items are also recognised directly in other comprehensive income. (iii) Foreign operations The results and financial position of foreign operations that have a functional currency different from the presentation currency of the consolidated financial statements are translated into RM as follows: (a) (b) (c) (d) Assets and liabilities for each statement of financial position presented are translated at the closing rate prevailing at the reporting date; Income and expenses for each income statement are translated at average exchange rates for the year, which approximates the exchange rates at the dates of the transactions; All resulting exchange differences are taken to the foreign currency translation reserve within equity; and The results of an associate, Labuan Reinsurance (L) Limited, are translated at the closing rate prevailing at the reporting date with respect to the carrying amount of the investment in associate, and at the exchange rate at the date of the transactions with respect to the share of profits or losses. All resulting translation differences are included in the foreign exchange translation reserve in shareholders equity Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits flow to the Group and the Company and the revenue can be reliably measured. Revenue is measured at the fair value of consideration received or receivable. (i) (ii) (iii) (iv) (v) (vi) Interest and profit income are recognised using the effective interest/yield method. Rental income is accounted for on a straight-line basis over the lease terms. The aggregate costs of incentives provided to lessees are recognised as a reduction of rental income over the lease term on a straight-line basis. Dividend income is recognised when the right to receive payment is established. Management fees are recognised when services are rendered. Wakalah fees are recognised as soon as the amount of contribution can be reliably measured in accordance with the principles of Shariah. Premiums/contributions are recognised in accordance with the policies stated in Note 2.4(i) and 2.5(i) Zakat Zakat represents an obligatory amount payable by the takaful and retakaful subsidiaries to comply with the principles of Shariah. Zakat is computed using the net-asset method at a rate of 2.5%, as approved by the Shariah Committee. Only the zakat that is attributable to the individual and corporate Muslim shareholders of the holding company was provided for in the financial statements. The Zakat computation is reviewed by the Shariah Committee. The Board has the discretion to pay additional quantum above the obligatory amount payable. 145

42 2. Significant accounting policies (cont d) 2.29 Changes in Accounting Policies The accounting policies adopted by the Group and the Company are consistent with those of the previous financial year except for the following: Adoption of Amendments to MFRSs and Issues Committee ( IC ) Interpretation At the beginning of the current financial year, the Group and the Company had adopted all Amendments to MFRSs and IC Interpretation mandatory for annual periods beginning on or after 1 January 2014 as follows: Description Effective for annual periods beginning on or after Amendments to MFRS 10, MFRS 12 and MFRS 127: Investment Entities 1 January 2014 Amendments to MFRS 132: Offsetting Financial Assets and Financial Liabilities 1 January 2014 Amendments to MFRS 136: Recoverable Amount Disclosures for Non-Financial Assets 1 January 2014 Amendments to MFRS 139: Novation of Derivatives and Continuation of Hedge Accounting 1 January 2014 IC Interpretation 21 Levies 1 January 2014 The adoption of the above Amendments to MFRSs and IC Interpretation did not have any significant effect on the financial statements of the Group and the Company Standards issued but not yet effective The standards and amendments to standards that are issued but not yet effective up to the date of issuance of the Group s and the Company s financial statements are disclosed below. The Group and the Company intend to adopt these standards and amendments to standards, if applicable, when they become effective: Description Effective for annual periods beginning on or after Amendments to MFRS 119 Defined Benefit Plans: Employee Contributions 1 July 2014 Annual Improvements to MFRS Cycle 1 July 2014 Annual Improvements to MFRS Cycle 1 July 2014 MFRS 14 Regulatory Deferral Accounts 1 January 2016 Amendments to MFRS 10 and MFRS 128 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 1 January 2016 Amendments to MFRS 10, MFRS 12 and MFRS 128 Investment Entities: Applying the Consolidation Exception 1 January 2016 Amendments to MFRS 11 Accounting for Acquisitions of Interests in Joint Operations 1 January 2016 Amendments to MFRS 101 Disclosure Initiative 1 January 2016 Amendments to MFRS 116 and MFRS 138 Clarification of Acceptable Methods of Depreciation and Amortisation 1 January 2016 Amendments to MFRS 116 and MFRS 141 Agriculture: Bearer Plants 1 January 2016 Amendments to MFRS 127 Equity Method in Separate Financial Statements 1 January 2016 Annual Improvements to MFRS Cycle 1 January 2016 MFRS 15 Revenue from Contracts with Customers 1 January 2017 MFRS 9 Financial Instruments 1 January

43 2. Significant accounting policies (cont d) 2.30 Standards issued but not yet effective (cont d) The Directors expect that the adoption of the above standards and amendments to standards are not expected to have material impact on the financial statements in the period of initial application except as discussed below: MFRS 9 Financial Instruments ( MFRS 9 ) In November 2014, MASB issued the final version of MFRS 9 which reflects all phases of the financial instruments project and replaces MFRS 139 and all previous versions of MFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. MFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. The adoption of MFRS 9 will have an effect on the classification and measurement of the Group s financial assets, but no impact on the classification and measurement of the Group s financial liabilities. The Directors are in the process of assessing the financial implications for adopting the new standard. 3. Significant accounting estimates and judgements The preparation of the Group and the Company s financial statements requires management to make judgements, estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future. 3.1 Critical judgement made in applying accounting policies The following are the judgements made by management in the process of applying the Group s accounting policies that have the most significant effect on the amounts recognised in the financial statements. Judgements are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Classification between investment properties and property, plant and equipment The Group has developed certain criteria based on MFRS 140 Investment Property in making judgement whether a property qualifies as an investment property. Investment property is a property held to earn rentals and/or for capital appreciation. Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), the Group would account for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as investment property. Impairment of AFS financial assets The Company reviews its debt securities classified as AFS financial assets at each reporting date to assess whether they are impaired. The Company also records impairment charges on AFS equity investments when there has been a significant or prolonged decline in the fair value below their cost. The determination of what is significant or prolonged requires judgement. In making this judgement, the Company evaluates, among other factors, historical share price movements and the duration and extent to which the fair value of an investment is less than its cost. 147

44 3. Significant accounting estimates and judgements (cont d) 3.2 Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (a) Depreciation and amortisation Depreciation and amortisation are based on management s estimates of the future estimated average useful lives and residual values of property, plant and equipment and intangible assets respectively. Estimates may change due to technological developments, expected level of usage, competition, market conditions and other factors, and could impact the estimated average useful lives and the residual values of these assets and correspondingly, may result in future changes in depreciation or amortisation expenses. Accordingly, at the end of each reporting period, the residual values and estimated useful lives of property, plant and equipment and intangible assets are assessed to determine that they continue to be consistent as disclosed in Notes 2.9(iii) and 2.11, respectively. As at the reporting date, management has determined that the estimated useful lives and residual values of property, plant and equipment and intangible assets of the Group and of the Company remain consistent. (b) General reinsurance, takaful and retakaful business The principal uncertainty in the general reinsurance, takaful and retakaful business arises from the technical provisions which include the estimation of premium/contribution and claim liabilities. Premium/contribution liabilities are recorded as the higher of UPR/UCR and URR while claim liabilities mainly comprise provision for claims reported and IBNER and IBNR claims. Generally, claim liabilities are determined based upon previous claims experience, existing knowledge of events, the terms and conditions of the relevant policies and interpretation of circumstances. Particularly relevant is past experience with similar cases, historical claims development trends, legislative changes, judicial decisions and economic conditions. It is certain that actual future premium/contribution and claim liabilities will not exactly develop as projected and may vary from the projection. The estimates of premium/contribution and claim liabilities are therefore sensitive to various factors and uncertainties. The establishment of technical provisions is an inherently uncertain process and, as a consequence of this uncertainty, the eventual settlement of premium/contribution and claim liabilities may vary from the initial estimates. At each reporting date, the estimates of premium/contribution and claim liabilities are re-assessed for adequacy by an appointed actuary and changes will be reflected as adjustments to these liabilities. The appointment of the actuary is approved by BNM. (c) Family takaful and retakaful business The estimation of the ultimate liability arising from claims made under the family takaful and retakaful businesses is a critical accounting estimate. There are several sources of uncertainty that need to be considered in the estimation of the liabilities that the family takaful and retakaful funds will ultimately be required to pay as claims/benefits. For family takaful and retakaful contracts, estimates are made for future deaths, disabilities, maturities, investment returns, voluntary terminations and expenses in accordance with contractual and regulatory requirements. The family takaful and retakaful funds base the estimate of expected number of deaths on statutory mortality tables, adjusted where appropriate to reflect the funds unique risk exposures. The estimated number of deaths determines the value of possible future benefits to be paid out, which will be factored into ensuring sufficient cover by reserves, which in return is monitored against current and future contributions. 148

45 3. Significant accounting estimates and judgements (cont d) 3.2 Key sources of estimation uncertainty (cont d) (c) Family takaful and retakaful business (cont d) For those contracts that cover risks related to disability, estimates are made based on recent past experience and emerging trends. However, epidemics as well as wide ranging changes to lifestyle, could result in significant changes to the expected future exposures. All of these will give rise to estimation uncertainties of the projected ultimate liabilities of the family takaful and retakaful funds. At each reporting date, these estimates are re-assessed for adequacy and changes will be reflected as adjustments to the liabilities by an appointed actuary. The appoinment of the actuary is approved by BNM. (d) Impairment of non-financial assets Assets are tested for impairment when indications of potential impairment exist. Indicators of impairment which could trigger an impairment review include evidence of obsolescence or physical damage, significant fall in market values, significant underperformance relative to historical or projected future operating results, significant changes in the use of assets or the strategy of the business and significant adverse industry or economic changes. Recoverable amounts of assets are based on management s estimates and assumptions of the net realisable value, cash flows arising from the future operating performance and revenue generating capacity of the assets and CGUs, and future market conditions. Changes in circumstances may lead to changes in estimates and assumptions, and result in changes to the recoverable amounts of assets and impairment losses needed. As at the reporting date, management has determined that recognised cumulative impairment losses as at the reporting date are appropriate. (e) Impairment of unquoted equity investments The Group and the Company follows the guidance of the applicable MFRS in determining whether there is a decline other than temporary in the fair value of its investment in unquoted corporations. This determination requires significant judgement. In making this judgement, the Group and the Company evaluate the quantitative and qualitative factors affecting the market position of the investee including the regulatory support it receives and its longer term business outlook and financial standing. Appropriate considerations are given to the investee s financial gestation period, financial projections, business prospects and the proprietary technology involved. It is also recognised that an initial decline in fair value of investments in new start-up investee companies, which is deemed temporary, may arise due to development and operational losses in the initial years. Based on an assessment performed at the reporting date, the Board of Directors and Management of the Group and the Company are of the opinion that there is no further indication of impairment of the Group and the Company s investment in unquoted corporations at this juncture. (f) Impairment of insurance/takaful receivables and reinsurance/retakaful assets The Group reviews its insurance/takaful and reinsurance/retakaful assets on a regular basis to assess whether impairment losses should be recognised in the income statement. In particular, judgement by management is required in the estimation of the amount and timing of future cash flows when determining the level of impairment required. Such estimates are necessarily based on assumptions about the probability of default and probable losses in the event of default, the value of the underlying security, and realisation costs. These estimates are revisited by management on a frequent basis, at least once a year, to determine if certain assumptions continue to be reasonable. As at the reporting date, the impairment losses recognised on insurance/takaful receivables and reinsurance/retakaful assets reflect the expected recoverable amounts of these assets. 149

46 3. Significant accounting estimates and judgements (cont d) 3.2 Key sources of estimation uncertainty (cont d) (g) Deferred tax Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences and unused tax losses to the extent that it is probable that taxable profits will be available against which the deductible temporary differences and unused tax losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based on the likely timing and level of future taxable profits together with future tax planning strategies. Assumptions about the generation of future taxable profits depend on management s estimates of future cash flows. These depend on estimates of future production and sales volume, operating costs, capital expenditure, dividends and other capital management transactions. Judgement is also required in the interpretation and application of income tax legislation. These judgements and assumptions are subject to risks and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets recognised in the statements of financial position and the amount of unrecognised tax losses and unrecognised temporary differences. The judgements and assumptions used in the estimation of deferred tax liabilities/assets are re-assessed at least once a year to determine that they continue to be appropriate. The total carrying value of recognised temporary differences of the Group and unrecognised temporary deductible differences are disclosed in Note 16 to the financial statements. As at the reporting date, recognised deferred tax assets represent a fair estimate of the Group s deductible temporary differences and deferred tax liabilities reflect a fair estimate of the Group s taxable temporary differences. 150

47 4. Net earned premiums/contributions Group RM 000 RM 000 (a) Gross earned premiums/contributions Insurance and takaful contracts 2,180,001 2,203,613 Change in premium/contribution liabilities 11,596 (20,651) 2,191,597 2,182,962 (b) Premiums/contributions ceded to reinsurers and retakaful operators Insurance and takaful contracts (255,262) (199,598) Change in premium/contribution liabilities 10, (244,266) (199,524) Net earned premiums/contributions 1,947,331 1,983, Investment income Group Company RM 000 RM 000 RM 000 RM 000 Financial assets at FVTPL Dividend income: - quoted shares in Malaysia unit trust funds 4,410 4, HTM investments Interest/profit income 28,507 29, AFS financial assets Interest/profit income 93,590 65, Dividend income: - quoted shares in Malaysia 9,554 5, unquoted shares in Malaysia unit and real estate investment trusts in Malaysia Loans and receivables Interest/profit income 62,492 68,066 1, Dividend income from institutional trust funds 900 1, Dividend income from subsidiaries , ,000 Rental income 4,888 5, Net amortisation of premiums on investments (3,579) (3,315) - - Investment expenses (1,513) (2,213) - (2) 199, ,235 62, ,

48 6. Net realised gains/(losses) Group Company RM 000 RM 000 RM 000 RM 000 Property, plant and equipment Net realised (losses)/gains (81) 149 (85) - Financial assets at FVTPL Net realised (losses)/gains: - quoted shares in Malaysia (471) Shariah approved unit trust funds 2,854 6, Structured products HTM investments Realised gains AFS financial assets Quoted shares in Malaysia 7,643 11,636 - (763) Quoted shares outside Malaysia (651) Unquoted corporate debt securities (225) Shariah approved unit trust funds Government investment issues Unquoted Islamic private debt securities Net realised gains/(losses) 7,378 13,626 - (763) Non-current assets held for sale Realised gains ,733 21,056 (85) (763) 7. Net fair value (losses)/gains Group Company RM 000 RM 000 RM 000 RM 000 Fair value gain on investment property (Note 14) Net fair value (losses)/gains on financial assets at FVTPL (4,266) 3, Reversal of impairment losses/(impairment losses) on HTM investments 54 (139) - - Reversal of impairment losses on properties (Impairment losses)/reversal of impairment losses on AFS financial assets (2,043) (1,229) (5,839) 3,

49 8. Fee and commission income/(expense) Group Company RM 000 RM 000 RM 000 RM 000 Fee and commission income Management fees 4,449 3,530 33,868 31,072 Commission income 31,288 21, ,737 24,574 33,868 31,072 Fee and commission expense Commission expense (434,627) (449,489) Brokerage (772) (1,735) (435,399) (451,224) 9. Management expenses Group Company RM 000 RM 000 RM 000 RM 000 Staff costs: Salaries, bonus and other related costs 88,368 81,540 22,317 22,145 Directors remuneration (Note 10) 9,181 8,407 4,179 3,480 Shariah Committee members remuneration Pension costs - EPF 12,076 11,178 2,983 2,804 Social security costs Retirement benefits Short term accumulating compensated absences , ,699 29,922 28,675 Auditors remuneration: Statutory auditors of the Group - statutory audit audit-related other services Component auditors of a foreign subsidiary Depreciation of property, plant and equipment 8,310 10, Amortisation of intangible assets 3,950 3, Property, plant and equipment written off Share of acquisition costs on quota share retakaful Agency expenses 6,360 6, Marketing and promotional costs 15,519 14, Electronic data processing costs 17,748 7, Office rental 4,188 3,937 1,623 1,237 Professional and legal fees 6,679 8, Contributions and donations Other management expenses 32,407 35,889 2,977 3, , ,411 36,866 35,

50 10. directors remuneration Group Company Number of non-executive directors Group Company RM 000 RM 000 RM 000 RM 000 Executive directors: Salaries and bonus 3,805 3,854 1,648 1,485 Pension costs - EPF Social security costs Allowances Benefits-in-kind Others ,935 4,630 2,241 1,811 Non-executive directors: Fees 2,729 2, Meeting allowances Benefits-in-kind ,430 3, Director of a subsidiary*: Salaries and bonus Pension costs - EPF Social security costs Other allowances Benefits-in-kind , , Total directors remuneration 9,444 8,618 4,315 3,643 Total directors remuneration excluding benefits-in-kind 9,181 8,407 4,179 3,480 * Director of a subsidiary refers to management personnel who is employed by the holding company. 154

51 10. directors remuneration (cont d) The number of non-executive directors of the Company whose total remuneration, borne by the Company and Group, during the financial year fell within the following bands is analysed below. Number of Directors Group Company Executive director: RM1,800,001 to RM1,850, RM2,200,001 to RM2,250, Non-executive directors: RM100,001 to RM150, RM150,001 to RM200, RM200,001 to RM250, RM250,001 to RM300, RM300,001 to RM350, RM350,001 to RM400, RM400,001 to RM450, RM450,001 to RM500, other operating expenses Group Company RM 000 RM 000 RM 000 RM 000 Loss on foreign exchange Impairment losses on insurance/takaful receivables 6, Impairment loss on other receivables Impairment loss on investment in subsidiary ,327 32,469 Sundry expenses 701 4, ,680 5,154 30,330 32,

52 12. Taxation Group Company RM 000 RM 000 RM 000 RM 000 Malaysian income tax: Tax expense for the year 54,074 64,652-22,919 (Over)/under provision in prior years (i) (10,180) 2,565-2,729 43,894 67,217-25,648 Deferred tax: Relating to origination and reversal of temporary differences (Note 16) 6,703 (8,875) (810) (32) 50,597 58,342 (810) 25,616 Domestic income tax for general business and shareholders fund is calculated at the Malaysian statutory tax rate of 25% (2014: 25%) of the estimated assessable profit for the year. Income tax on the Group s family takaful business is calculated at a preferential tax rate of 8% (2014: 8%). Income tax on the Group s offshore insurance/takaful business is calculated at a tax rate of 5% (2014: 5%) of the estimated assessable profit on the Group s offshore insurance/takaful business for the year. A reconciliation of income tax expenses applicable to profit before zakat and tax at the statutory income tax rate to income tax expense at the effective income tax rate of the Group and of the Company is as follows: Group Company RM 000 RM 000 RM 000 RM 000 Profit before zakat and tax 190, ,728 10,729 50,655 Taxation at Malaysian statutory tax rate of 25% 47,676 53,682 2,682 12,664 Effects of different tax rate in respect of offshore insurance (3,541) (3,392) - - Income not subject to tax (ii) (41,300) (10,052) (16,060) (2,282) Expenses not deductible for tax purposes (ii) 55,950 14,990 12,465 11,679 Unutilised current year business loss carried forward 2, Deferred tax assets not recognised (Over)/under provision of tax in prior year (i) (10,180) 2,565-2,729 Share of results of associates (1,040) (609) - - Tax expense for the year 50,597 58,342 (810) 25,616 (i) (ii) The tax expense from YA 2010 to YA 2014 of the takaful subsidiary, which represents the open tax periods on which the subsidiary is entitled to claim tax refunds under the Income Tax Act 1967, had been revised and the resultant changes had been recognised as an overprovision of tax in the current financial year. The details are as described in Note 39. Following the enactment of Finance (No. 2) Act 2014, effective from YA 2015, wakalah fee income received by the shareholder s fund of the takaful subsidiary from its family takaful fund is no longer subject to tax and accordingly, the commission and management expenses incurred by the shareholder s fund in connection with the management of the family takaful fund is also not deductible for tax purposes. Therefore, the deferred tax assets previously recognised for the expenses liability and management expenses in connection with the family fakaful fund were derecognised in the financial year. 156

53 12. Taxation (cont d) Tax borne by participants Group RM 000 RM 000 Current year s provision 13,533 13,696 (Over)/under provision of tax expense in prior years (1,313) 422 Deferred tax relating to origination and reversal of temporary differences 1,045 (126) Tax expense for the year 13,265 13, Property, plant and equipment Furniture, Freehold land Buildings Computer equipment fittings and office equipment Motor vehicles Capital work-inprogress Total Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Cost At 1 April , ,971 12,555 36,065 3, ,947 Additions - 1,923 1,007 2, ,438 Disposals - (284) (193) (54) (409) - (940) Reclassification (90) - Revaluation surplus 1,600 3, ,749 Elimination of accumulated depreciation on revaluation - (2,355) (2,355) Transfer to non-current assets held for sale (Note 22) - (1,696) (1,696) At 31 March , ,798 13,369 38,699 3, ,143 Additions , ,413 Disposals - - (94) (502) (670) - (1,266) Write-offs - (623) (890) (1,627) - - (3,140) Reclassification (303) - Revaluation surplus 1,740 6, ,032 Elimination of accumulated depreciation on revaluation - (4,718) (4,718) Adjustments (247) (247) Transfer to intangible assets - - (562) (562) At 31 March , ,757 12,127 38,802 2, ,

54 13. Property, plant and equipment (cont d) Furniture, Freehold land Buildings Computer equipment fittings and office equipment Motor vehicles Capital work-inprogress Total Group (cont d) RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Accumulated depreciation and impairment loss At 1 April ,311 11,553 24,461 1,657-41,982 Depreciation charge for the year - 5, , ,726 Disposals - (16) (192) (53) (408) - (669) Elimination of accumulated depreciation on revaluation - (2,355) (2,355) Reversal of impairment losses during the year - (477) (477) At 31 March ,493 12,340 28,612 1,762-49,207 Depreciation charge for the year - 4, , ,310 Disposals - - (96) (501) (309) - (906) Write-offs - - (890) (1,627) - - (2,517) Elimination of accumulated depreciation on revaluation - (4,718) (4,718) Reversal of impairment losses during the year - (216) (216) At 31 March ,814 11,892 29,570 1,884-49,160 Net carrying amount At 31 March , , , ,495 At 31 March , ,305 1,029 10,087 1, ,

55 13. Property, plant and equipment (cont d) Revaluation of freehold land and buildings Freehold land and buildings in Malaysia have been revalued based on valuations performed by an accredited independent valuer having an appropriate recognised professional qualification. The valuations are based on the income approach. The income approach entails the determination of the probable gross annual rental the property is capable of producing and deducting therefrom the outgoings to arrive at the annual net income. Freehold buildings outside Malaysia have been revalued based on their value-in-use and a discount rate of 7% (2014: 7%) is applied, being the prevailing rental yield in the country where the buildings are located. During the financial year, the impairment losses on two of the buildings outside Malaysia were being reversed. The recoverable amount of these two buildings is RM2.963 million (2014: RM2.442 million). If the freehold land and buildings were measured using the cost model, the carrying amounts would be as follows: Cost Freehold land Buildings Total RM 000 RM 000 RM 000 At 1 April , , ,132 Additions - 1,923 1,923 Disposals - (230) (230) Reclassification from capital work-in-progress Transfer to non-current asset held for sale - (1,696) (1,696) At 31 March , , ,219 Additions Write-offs - (623) (623) At 31 March , , ,604 Accumulated depreciation At 1 April ,589 26,589 Depreciation charge for the year - 4,554 4,554 Disposals - (16) (16) Reversal of impairment losses during the year - (477) (477) At 31 March ,650 30,650 Depreciation charge for the year - 4,265 4,265 Reversal of impairment losses during the year - (216) (216) At 31 March ,699 34,699 Net carrying amount At 31 March , , ,905 At 31 March , , ,

56 13. Property, plant and equipment (cont d) Computer equipment Furniture, fittings and office equipment Motor vehicles Total Company RM 000 RM 000 RM 000 RM 000 Cost At 1 April ,253 2,403 1,808 8,464 Additions 170 1,189-1,359 Disposals (103) - - (103) At 31 March ,320 3,592 1,808 9,720 Additions 79 1, ,094 Disposals - (149) (596) (745) At 31 March ,399 4,453 1,217 10,069 Accumulated depreciation At 1 April ,765 1, ,258 Charge for the year Disposals (103) - - (103) At 31 March ,104 1,921 1,085 7,110 Charge for the year Disposals - (148) (241) (389) At 31 March ,297 1,844 1,021 7,162 Net carrying amount At 31 March , ,907 At 31 March , , Investment property Group RM 000 RM 000 At beginning of the year 6,900 6,200 Fair value gain (Note 7) At end of the year 7,100 6,

57 14. Investment property (cont d) The rental income and operating expenses in relation to the investment properties are as disclosed below: Group RM 000 RM 000 Rental Income Operating Expenses (32) (32) intangible assets Software development in progress Computer software and licences Total Group RM 000 RM 000 RM 000 Cost At 1 April ,689 29,291 37,980 Additions 3, ,682 Reclassification (714) At 31 March ,773 30,889 42,662 Additions 2, ,503 Disposal (2) - (2) Transfer from property, plant and equipment Reclassification (7,049) 7,049 - At 31 March ,092 38,633 46,725 Accumulated amortisation At 1 April ,791 24,791 Amortisation for the year - 3,352 3,352 At 31 March ,143 28,143 Amortisation for the year - 3,950 3,950 At 31 March ,093 32,093 Net carrying amount At 31 March ,092 6,540 14,632 At 31 March ,773 2,746 14,

58 15. intangible assets (cont d) Software development in progress Computer software and licences Total Company RM 000 RM 000 RM 000 Cost At 1 April ,837 6,584 8,421 Additions At 31 March ,047 7,184 9,231 Additions ,375 At 31 March ,819 7,787 10,606 Accumulated amortisation At 1 April ,182 6,182 Amortisation for the year At 31 March ,734 6,734 Amortisation for the year At 31 March ,809 6,809 Net carrying amount At 31 March , ,797 At 31 March , , Deferred taxation Group Company RM 000 RM 000 RM 000 RM 000 At beginning of year 15,882 (1,624) 1,503 1,469 Recognised in: Income statement (Note 12) (6,703) 8, Participants fund (3,744) 3, Other comprehensive income (1,627) 5,395-2 At end of year 3,808 15,882 2,313 1,503 These comprise the following: - Deferred tax assets 11,484 24,180 2,313 1,902 - Deferred tax liabilities (7,676) (8,298) - (399) 162 3,808 15,882 2,313 1,503

59 16. Deferred taxation (cont d) The components and movements of deferred tax assets/(liabilities) during the financial year are as follows: Provisions and payables Unabsorbed/ accelerated capital allowances Impairment losses on receivables Premium/ Expense liabilities Impairment losses on investments AFS financial assets Revaluation of land and buildings Others Total Group RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM At 1 April ,211 (1,034) 1,175 9,814 1,544 5,524 (7,264) 2,912 15,882 Recognised in: Income statement (Note 12) (2,106) 1,559 - (5,580) (931) (6,703) Participants fund - - (74) (1,513) - (2,513) (186) 542 (3,744) Other comprehensive income (876) (751) - (1,627) At 31 March , ,101 2,721 1,899 2,135 (8,201) 2,523 3, At 1 April ,190 (816) 846 2,638 1,376 (3,122) (7,123) 2,387 (1,624) Recognised in: Income statement (Note 12) 1,021 (218) - 7, ,875 Participants fund ,363 (253) (203) 3,236 Other comprehensive income , ,395 At 31 March ,211 (1,034) 1,175 9,814 1,544 5,524 (7,264) 2,912 15,882 Unabsorbed capital allowances Accelerated capital allowances Loans and receivables AFS financial assets Others Total Company RM 000 RM 000 RM 000 RM 000 RM 000 RM At 1 April (399) 4-1,483 1,503 Recognised in: Income statement (Note 12) (1) 810 At 31 March ,482 2, At 1 April (401) 4 (2) 1,463 1,469 Recognised in: Income statement (Note 12) Other comprehensive income At 31 March (399) 4-1,483 1,

60 16. Deferred taxation (cont d) Deferred tax assets have not been recognised in respect of the following items of the Company and its retakaful subsidiary as the probability of recognition cannot be determined with certainty given the lack of assessable profits in current and prior years. Group Company RM 000 RM 000 RM 000 RM 000 Unutilised business losses 21,040 18,008 6,423 6,320 Other temporary differences: - net contribution and expense liabilities 1, net accretion of discounts (21) financial assets others ,616 18,930 6,423 6, Investments in subsidiaries Company RM 000 RM 000 Unquoted shares, at cost: In Malaysia 907, ,000 Less: Impairment loss (69,665) (39,338) 837, ,662 Outside Malaysia 6,370 6, , ,032 Details of the subsidiaries are as follows: Name of subsidiaries Country of incorporation Principal activities Effective ownership interest % % Malaysian Reinsurance Berhad Malaysia Underwriting of all classes of general reinsurance business Takaful Ikhlas Berhad (formerly known as Takaful Ikhlas Sdn. Bhd.) 164 Malaysia Management of family, general and investment-linked takaful business MNRB Retakaful Berhad Malaysia Management of family and general retakaful business MMIP Services Sdn. Bhd. Malaysia Management of the Malaysian Motor Insurance Pool which provides motor insurance to vehicle owners who are unable to obtain insurance protection for their vehicles Malaysian Re (Dubai) Ltd.* Dubai, United Arab Emirates Marketing and promotional activities and servicing of clients on behalf of Malaysian Re AmIslamic Cash 1 Malaysia Investment in money market instruments and Sukuk AmIslamic Cash 2 Malaysia Investment in Shariah compliant money market instruments * Audited by a firm of chartered accountants other than Messrs. Ernst & Young.

61 17. Investments in subsidiaries (cont d) (a) Investment in retakaful subsidiary The cumulative impairment loss of RM69,665,000 (2014: RM39,338,000) was made in respect of the retakaful subsidiary, which had recorded a net loss in the prior years, mainly due to the losses incurred by the general and family retakaful funds. On 31 March 2015, the Company increased its investment in its retakaful subsidiary by RM2 million via the issuance of 2,000,000 new ordinary shares of RM1.00 each in the retakaful subsidiary at an issue price of RM1.00 per share, to meet regulatory capital requirements. With the above subscription, the issued and paid-up capital of the retakaful subsidiary has increased from RM100 million to RM102 million, comprising 102,000,000 ordinary shares of RM1.00 each. (b) Investment in wholesale unit trust funds There were no significant changes in the composition of the Group during the current financial year ended 31 March 2015 other than the reinsurance and takaful subsidiaries acquisition of 100% interest in two wholesale unit trust funds. During the financial year ended 31 March 2015, the Company s reinsurance and takaful subsidiaries acquired all units in two wholesale unit trust funds which are managed by an external fund manager. The principal activities of these funds are to invest in Shariah compliant money market instruments and Sukuk. As at the reporting date, the Company s subsidiaries have an effective direct interest of 100% in the funds. The Company s subsidiaries have assessed and determined that they have control over these two wholesale unit trust funds. Hence, these two wholesale unit trust funds would need to be consolidated in full. In accordance with the exemption provisions under MFRS 10 Consolidated Financial Statements, the financial statements of the funds are consolidated with the Group s consolidated financial statements from the date of control and continue to be consolidated until the date such control ceases. 18. Investments in associates Group RM 000 RM 000 Unquoted shares in Malaysia, at cost 77,615 77,615 Share of post-acquisition accumulated losses (3,456) (3,923) Share of post-acquisition AFS reserve 1, Post-acquisition foreign exchange translation reserve* 34,748 21, ,567 96,053 Represented by share of net assets 110,567 96,053 Company RM 000 RM 000 Unquoted shares in Malaysia, at cost 1,957 1,957 * This is in respect of retranslation of the cost of the investment in Labuan Re at the rate of exchange prevailing at the reporting date. 165

62 18. Investments in associates (cont d) Details of the associates which are all incorporated in Malaysia are as follows: Name of associates Year end Principal activities Proportion of ownership interest and voting power % % Held by the Company: Motordata Research Consortium Sdn. Bhd. 31 December Development and provision of a centralised motor parts price database for the Malaysian insurance industry Held by Malaysian Re: Labuan Reinsurance (L) Ltd ( Labuan Re ) 31 December Underwriting of all classes of general reinsurance business The financial statements of the above associates are not co-terminous with those of the Group. For the purpose of applying the equity method of accounting, the audited financial statements of the associates for the year ended 31 December 2014 and management financial statements to the end of the accounting period of 31 March 2015 have been used. The summarised financial information of the associates are as follows: RM 000 RM 000 Assets and liabilities: Current assets 1,883,386 1,646,295 Non-current assets 55,508 50,273 Total assets 1,938,894 1,696,568 Current liabilities 336, ,223 Non-current liabilities 1,057, ,676 Total liabilities 1,393,926 1,221,899 Equity 544, ,669 Results: Revenue 892, ,621 Profit for the year 21,355 13,

63 19. Financial assets The following table summarises the carrying values of financial assets of the Group and the Company: Group Company RM 000 RM 000 RM 000 RM 000 At carrying value: Financial assets at FVTPL 137, , HTM investments 722, , AFS financial assets 2,530,716 2,303, Loans and receivables 1,917,938 1,783,211 37,071 26,927 5,308,944 4,944,309 37,121 26,977 Malaysian government securities 128, , Government investment issues 731, , Debt securities 2,051,056 1,934, Equity securities 293, , Unquoted shares 44,796 44, Institutional trust deposit - 24, Shariah approved unit trust funds 133, , Real estate investment trusts 7,836 6, Fixed and call deposits 611, ,957 20,282 16,925 Uncallable negotiable Islamic deposits - 18, Islamic investment accounts 1,169, ,288 7,879 1,579 Islamic repo placements - 136, Other loans and receivables 136, ,084 8,910 8,423 5,308,944 4,944,309 37,121 26,977 (a) Financial assets at FVTPL Group RM 000 RM 000 At fair value: Quoted shares in Malaysia 3,951 7,527 Warrants Shariah approved unit trust funds 133, , , ,

64 19. Financial assets (cont d) Group RM 000 RM 000 (b) HTM investments At amortised cost/cost: Malaysian government securities 78,734 78,936 Unquoted corporate debt securities 100,030 95,344 Government investment issues 543, , , ,597 At fair value: Malaysian government securities 77,817 75,558 Unquoted corporate debt securities 100,578 95,167 Government investment issues 537, , , ,862 (c) AFS financial assets Group Company RM 000 RM 000 RM 000 RM 000 At cost: Unquoted shares in Malaysia (i) 44,796 44, At fair value: Malaysian government securities 49,478 29, Unquoted corporate debt securities 1,951,026 1,839, Quoted shares in Malaysia 289, , Quoted shares outside Malaysia Warrants Real estate investment trusts 7,836 6, Government investment issues 188, , ,530,716 2,303,

65 19. Financial assets (cont d) Group Company RM 000 RM 000 RM 000 RM 000 (d) Loans and receivables At amortised cost/fair value: Fixed and call deposits with licensed: Commercial banks 190, ,491 8,373 15,464 Investment banks 421, ,466 11,909 1,461 Islamic investment accounts with licensed: Co-operative bank 28,939 28, Islamic banks 1,079, ,210 7,879 1,579 Investment banks 1, Development bank 58,907 91, Building society 256 9, Institutional trust deposit - 24, Uncallable negotiable Islamic deposits - 18, Islamic repo placements - 136, Secured staff loans 12,496 11,202 3,461 3,326 Amounts due from subsidiaries (ii) - - 4,111 3,406 Income due and accrued 44,523 40, Amount due from Insurance Pool accounts 26,290 35, Other receivables and deposits* 53,350 36,993 1,266 1,654 1,917,938 1,783,211 37,071 26,927 * Included in other receivables and deposits are monies recoverable from the Inland Revenue Board as detailed in Note 39. (i) The pertinent information of the investments in unquoted shares in Malaysia are as follows: Group RM 000 RM ,500,000 ordinary shares of RM1.00 each of Financial Park (Labuan) Sdn. Bhd. ( FPL ), representing an equity shareholding of 9%. 28,283 28,283 Less: Impairment loss (4,759) (4,759) 23,524 23,524-20,000,000 redeemable preference shares of RM1.00 each of FPL 20,569 20,569 44,093 44, ,000 ordinary shares of Malaysian Rating Corporation Berhad ( MARC ) of RM1.00 each, representing an equity shareholding of 4% Others ,796 44,796 (ii) These amounts are non-trade in nature, are unsecured, not subject to any interest/profit elements and repayable on demand. 169

66 20. Insurance/takaful contract liabilities Gross Reinsurance/ retakaful Net Gross Reinsurance/ retakaful Net RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 General reinsurance/takaful/retakaful funds (Note (a)) 2,184,154 (337,177) 1,846,977 2,145,644 (253,361) 1,892,283 Family takaful/retakaful funds (Note (b)) 1,921,784 (37,476) 1,884,308 1,824,043 (146,426) 1,677,617 Shareholder s funds (Note (c)) 53,340-53,340 42,576-42,576 Total 4,159,278 (374,653) 3,784,625 4,012,263 (399,787) 3,612,476 (a) General reinsurance/takaful/retakaful funds Claim liabilities (Note (i)) 1,799,017 (293,867) 1,505,150 1,748,911 (221,047) 1,527,864 Premium/contribution liabilities (Note (ii)) 385,137 (43,310) 341, ,733 (32,314) 364,419 2,184,154 (337,177) 1,846,977 2,145,644 (253,361) 1,892,283 (i) Claim liabilities At beginning of the year 1,748,911 (221,047) 1,527,864 1,671,998 (260,411) 1,411,587 Claims incurred in the current underwriting/accident year 278,715 (76,270) 202, ,345 (58,518) 225,827 Adjustment to claims incurred in prior underwriting/accident years due to changes in IBNR and PRAD (32,339) 23,092 (9,247) (1,349) 20,138 18,789 Movements in claims incurred in prior underwriting/accident years 776,126 (126,647) 649, ,517 (53,895) 566,622 Claims paid during the year (972,396) 107,005 (865,391) (826,600) 131,639 (694,961) At end of the year 1,799,017 (293,867) 1,505,150 1,748,911 (221,047) 1,527,864 (ii) Premium/contribution liabilities At beginning of the year 396,733 (32,314) 364, ,082 (32,240) 343,842 Premiums/contributions written in the year 1,614,319 (228,497) 1,385,822 1,633,307 (179,820) 1,453,487 Premiums/contributions earned during the year (1,625,915) 217,501 (1,408,414) (1,612,656) 179,746 (1,432,910) At end of the year 385,137 (43,310) 341, ,733 (32,314) 364,

67 20. Insurance/takaful contract liabilities (cont d) (b) Family takaful/retakaful funds Gross Reinsurance/ retakaful Net Gross Reinsurance/ retakaful Net RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Provision for claims reported by contract holders 70,619 (20,720) 49,899 37,148 (13,212) 23,936 Participants Account ( PA ) 1,540,257 (7,260) 1,532,997 1,488,985 (6,888) 1,482,097 Participants Special Account ( PSA ) 190,140 (9,496) 180, ,232 (126,326) 52,906 Net asset value attributable to unitholders 120, , , ,678 1,921,784 (37,476) 1,884,308 1,824,043 (146,426) 1,677,617 At beginning of the year 1,824,043 (146,426) 1,677,617 1,520,942 (95,325) 1,425,617 Net earned contributions 530,416 (39,205) 491, ,624 (40,375) 488,249 Net creation of units 23,539-23,539 19,337-19,337 Liabilities paid for death, maturities, surrenders, benefits and claims (268,285) 47,682 (220,603) (237,735) 19,717 (218,018) Net cancellation of units (24,231) - (24,231) (20,262) - (20,262) Benefits and claims experience variation 33,471 (7,508) 25,963 (4,547) (3,548) (8,095) Fees deducted (143,299) - (143,299) (153,368) - (153,368) Other revenue and expenses 2,782-2,782 12,757-12,757 Transfer to shareholder s fund (9,249) - (9,249) (11,741) - (11,741) (Decrease)/increase in reserve (47,403) 107,981 60, ,036 (26,895) 143,141 At end of the year 1,921,784 (37,476) 1,884,308 1,824,043 (146,426) 1,677, Gross/net Gross/net RM 000 RM 000 (c) Shareholder s funds At beginning of the year 42,576 23,939 General takaful and retakaful funds: - Wakalah fee received during the year 88,326 62,994 - Wakalah fee earned during the year (79,141) (62,567) - Movement in provision for expense deficiency (5,160) 3,172 Family takaful and retakaful funds: - Movement in provision for UER 6,739 15,038 At end of the year 53,340 42,

68 21. Insurance/takaful receivables Group RM 000 RM 000 Due contributions including agents balances 69, ,691 Amounts due from brokers and ceding companies 265, ,000 Less: Allowance for impairment (31,027) (24,080) 303, ,611 Offsetting insurance/takaful receivables and insurance/takaful payables Gross amounts of recognised insurance/takaful receivables 670, ,134 Less: Gross amounts of recognised insurance/takaful payables set off in the statement of financial position (335,742) (198,443) Net amounts of insurance/takaful receivables presented in the statement of financial position 334, ,691 Included in amounts due from brokers and ceding companies is an amount of RM764,512 (2014: RM275,000) due from an associate, Labuan Reinsurance (L) Ltd. The amount receivable is subject to settlement terms stipulated in the reinsurance contracts. 22. Non-current assets held for sale Group RM 000 RM 000 Freehold land and buildings: At beginning of the year 1,696 - Transfer from property, plant and equipment (Note 13) - 1,696 Less: Disposal (1,696) - At end of the year - 1,696 The disposals of non-current assets held for sale were completed during the financial year. 172

69 23. Participants funds Group RM 000 RM 000 Participants funds comprise the following: Accumulated surplus (Note (a)) 260, ,469 AFS reserves (Note (b)) 217 (26,903) Revaluation surplus (Note (c)) 26,050 23, , ,476 (a) Accumulated surplus At beginning of year 220, ,142 Net surplus of the general and family takaful funds 45,635 23,460 Hibah paid and payable to participants (5,645) (8,133) At end of the year 260, ,469 (b) AFS reserves At beginning of the year (26,903) 8,012 Net gain on fair value changes 34,032 (29,466) Realised gain transferred to income statement (4,399) (8,812) Deferred tax on fair value changes (2,513) 3,363 Net change in AFS reserves attributable to participants 27,120 (34,915) At end of the year 217 (26,903) (c) Revaluation surplus At beginning of the year 23,910 21,001 Recognised in other comprehensive income 2,326 3,162 Deferred tax on revaluation surplus (186) (253) Net change in revaluation surplus attributable to participants 2,140 2,909 At end of the year 26,050 23,

70 24. Borrowings Group Company RM 000 RM 000 RM 000 RM 000 Islamic revolving credit facility ( RC-i Facility ) 200, , , ,000 Sukuk Mudharabah Programme 120, , , , , , , ,000 The salient terms and conditions of the borrowings of the Group and the Company are as follows: (a) Islamic Revolving Credit Facility ( RC-i Facility ) On 10 December 2012, the Company obtained an Islamic revolving credit facility ( RC-i Facility ) from Standard Chartered Saadiq Berhad, amounting to RM200 million and denominated in Ringgit Malaysia. The RC-i Facility is unsecured and carries a floating profit rate that is reviewed quarterly. This floating profit rate credit facility has a tenure of 5 years from the date it was obtained and is repayable on 10 December The profit rates for the financial year ended 31 March 2015 range from 5.45% to 5.85% per annum (2014: 5.45% to 5.71% per annum). (b) Sukuk Mudharabah Programme On 10 December 2012, the Company issued RM120 million of Sukuk under the Sukuk Mudharabah Programme to MIDF Amanah Investment Bank Berhad. The issued Sukuk carries a fixed profit rate of 5.4% per annum with a tenure of 5 years and has a final redemption date on 10 December Insurance/takaful payables Group RM 000 RM 000 Due to brokers and retrocessionaires 108, ,310 Due to agents, retakaful operators and brokers 60,896 56, , ,865 Offsetting insurance/takaful receivables and insurance/takaful payables Gross amounts of recognised insurance/takaful payables 505, ,308 Less: Gross amounts of recognised insurance/takaful receivables set off in the statement of financial position (335,742) (198,443) Net amounts of insurance/takaful payables presented in the statement of financial position 169, ,865 Included in amounts due to brokers and retrocessionaires is an amount of RM6,321 (2014: RM9,000) due to an associate, Labuan Reinsurance (L) Ltd. The amount payable is subject to settlement terms stipulated in the reinsurance contracts. 174

71 26. Other payables Group Company RM 000 RM 000 RM 000 RM 000 Advance contributions - 4, Deposit contributions 36,895 30, Outstanding commissions 10,636 13, Provisions 44,906 37,142 6,267 5,932 Amount due to subsidiaries - - 1, Sundry payables and accruals 78,370 70,970 1,837 2, , ,393 9,203 8, Share capital Number of ordinary shares of RM1.00 each Amount RM 000 RM 000 Authorised 500, , , ,000 Issued and fully paid: At beginning and end of the year 213, , , , Dividends Recognised during the year: Amount Net dividend per share RM 000 RM 000 Sen Sen Dividend paid in respect of the financial year ended 31 March 2013: First and final dividend of 32% less 25% tax - 51, Dividend paid in respect of the financial year ended 31 March 2014: First and final single-tier dividend of 16.5% 35, ,156 51, The Directors do not recommend the payment of any dividend in respect of the current financial year. 175

72 29. Earnings per share The basic and diluted earnings per share ( EPS ) is calculated by dividing the net profit for the year by the number of ordinary shares in issue during the year. Group Company Net profit for the year (RM 000) 139, ,986 11,539 25,039 Number of ordinary shares in issue ( 000) 213, , , ,070 Basic and diluted EPS (sen) Operating lease arrangements (a) The Group as lessee The Group has entered into non-cancellable operating lease agreements for the use of office premises. This lease is for a period of 5 years and subject to review every 2 years. There are no restrictions placed upon the Group by entering into this lease. The future aggregate minimum lease payments under non-cancellable operating leases contracted for as at the reporting date but not recognised as liabilities, are as follows: Future minimum rental payments: Group Company RM 000 RM 000 RM 000 RM 000 Not later than 1 year 5,577 5,242 1,612 1,097 Later than 1 year and not later than 5 years 14,220 12,856 1,612 4,388 19,797 18,098 3,224 5,

73 30. Operating lease arrangements (CONT D) (b) The Group as lessor The Group has entered into non-cancellable operating lease agreements on its portfolio of investment properties. These leases have remaining non-cancellable lease terms of between 5 and 10 years. All leases include a clause to enable upward revision of the rental charge on an annual basis based on prevailing market conditions and certain contracts include contingent rental arrangements computed based on sales achieved by tenants. The future minimum lease payments receivable under non-cancellable operating leases contracted for as at the reporting date but not recognised as receivables, are as follows: Future minimum rental receipts: Group RM 000 RM 000 Not later than 1 year 5,273 4,560 Later than 1 year and not later than 5 years 4,938 3,710 10,211 8, Commitments The commitments of the Group and of the Company as at the financial year end are as follows: Group Company RM 000 RM 000 RM 000 RM 000 Authorised and contracted for: - Property, plant and equipment 2,697 1, Intangible assets* 8,485 1,505 1, ,182 2,981 1, Authorised but not contracted for: - Property, plant and equipment Intangible assets* 4,409 18, ,733 18, * Relating to purchases and enhancement of the reinsurance and takaful subsidiaries computer systems. 177

74 32. Related party disclosures For the purposes of these financial statements, parties are considered to be related to the Group and the Company if the Group and the Company have the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Company either directly or indirectly. The key management personnel include all the Directors of the Group and the Company, and certain members of senior management of the Group and the Company. (a) The significant transactions with related parties are as follows: Group Company RM 000 RM 000 RM 000 RM 000 Income/(expenses): Transactions with subsidiaries: Management fees received ,868 31,072 Net dividend received ,000 81,000 Rental paid - - (1,623) (1,237) Transactions with takaful funds of a subsidiary: Takaful contributions paid - - (881) (821) Transactions with an associate, Labuan Reinsurance (L) Ltd: Net reinsurance inwards (229)

75 32. Related party disclosures (cont d) (a) The significant transactions with related parties are as follows: (cont d) The directors are of the opinion that all the transactions above have been entered into in the normal course of business and have been established on terms and conditions that are not materially different from those obtainable in transactions with unrelated parties. Outstanding balances arising from the transactions above as at the reporting date have been disclosed in Notes 21 and 25 of the financial statements as well as on the face of statements of financial position. (b) The key management personnel compensations are as follows: Group Company RM 000 RM 000 RM 000 RM 000 Non-executive directors: Fees 2,729 2, Meeting allowances Benefits-in-kind Executive directors: Salaries and bonus 3,805 3,854 1,648 1,485 Pension costs - EPF Social security costs Allowances Benefits-in-kind Others Director of a subsidiary: Salaries and bonus Pension costs - EPF Social security costs Other allowances Benefits-in-kind Other key management personnel s remuneration: Salaries and bonus 10,300 11,197 4,579 5,054 Pension costs - EPF 1,463 1, Social security costs Allowances Benefits-in-kind ,277 22,352 9,967 9,

76 33. Segment information Investment holding Reinsurance business Takaful operator Retakaful operator Adjustments and eliminations Consolidated Group RM 000 RM 000 RM 000 RM 000 RM 000 RM Results Net earned premiums/contributions - 1,213, ,640 51,516 (881) 1,947,331 Interest/profit income 1,164 83,614 94,466 5, ,589 Other revenue 94,884 44,119 31, (106,446) 65,020 Net claims - (744,156) (468,060) (57,755) - (1,269,971) Other expenses (i) (66,680) (397,581) (259,259) (17,690) 76,807 (664,403) Depreciation (441) (2,279) (5,577) (13) - (8,310) Amortisation (75) (495) (3,348) (32) - (3,950) Finance costs (18,123) (18,123) Share of results of associates (228) 4, ,157 Operating profit/(loss) before surplus attributable to takaful participants, zakat and taxation 10, ,663 73,441 (17,745) (30,520) 236,340 Surplus attributable to takaful participants - - (45,635) - - (45,635) Operating profit/(loss) before zakat and taxation 10, ,663 27,806 (17,745) (30,520) 190,705 Zakat - - (960) - - (960) Taxation 810 (43,930) (7,477) - - (50,597) Net profit/(loss) for the year 11, ,733 19,369 (17,745) (30,520) 139, Results Net earned premiums/contributions - 1,237, , ,900 (821) 1,983,438 Interest/profit income ,308 77,145 5, ,749 Other revenue 136,154 31,458 48,032 1,816 (144,306) 73,154 Net claims - (725,029) (472,574) (83,653) - (1,281,256) Other expenses (i) (66,865) (403,044) (247,517) (25,510) 72,596 (670,340) Depreciation (955) (4,022) (5,639) (110) - (10,726) Amortisation (552) (1,660) (971) (169) - (3,352) Finance costs (17,916) (17,916) Share of results of associates (438) 2, ,437 Operating profit/(loss) before surplus attributable to takaful participants, zakat and taxation 50, ,406 44,315 (1,219) (72,531) 238,188 Surplus attributable to takaful participants - - (23,460) - - (23,460) Operating profit/(loss) before zakat and taxation 50, ,406 20,855 (1,219) (72,531) 214,728 Zakat - - (400) - - (400) Taxation (25,616) (52,402) (4,324) - 24,000 (58,342) Net profit/(loss) for the year 24, ,004 16,131 (1,219) (48,531) 155,

77 33. Segment information (cont d) Investment holding Reinsurance business Takaful operator Retakaful operator Adjustments and eliminations Consolidated Group (cont d) RM 000 RM 000 RM 000 RM 000 RM 000 RM Assets Segment assets (i) 892,720 3,024,712 3,103, ,865 (849,161) 6,366,684 Investments in associates 1,957 75, , , ,677 3,100,370 3,103, ,865 (816,749) 6,476,711 Liabilities and Participants funds Segment liabilities Participants funds , ,726 Borrowings 320, ,000 Insurance and takaful contract liabilities - 1,739,442 2,276, ,980-4,159,278 Other liabilities 11, , ,514 19,695 (5,991) 361, ,285 1,858,172 2,781, ,675 (5,991) 5,127,237 Equities Segment equities (i) 563,392 1,242, ,452 32,190 (810,758) 1,349,474 Total liabilities, participants funds and equity 894,677 3,100,370 3,103, ,865 (816,749) 6,476, Assets Segment assets (i) 913,984 2,898,968 2,883, ,123 (870,084) 6,040,044 Investments in associates 1,957 75, ,438 96, ,941 2,974,626 2,883, ,123 (851,646) 6,136,097 Liabilities and Participants funds Segment liabilities Participants funds , ,476 Borrowings 320, ,000 Insurance and takaful contract liabilities - 1,718,028 2,151, ,203-4,012,263 Other liabilities 8, , ,206 23,568 1, , ,933 1,844,267 2,570, ,772 1,943 4,912,628 Equities Segment equities (i) 587,008 1,130, ,340 47,351 (853,589) 1,223,469 Total liabilities, participants funds and equity 915,941 2,974,626 2,883, ,123 (851,646) 6,136,097 (i) Included in segment assets is a Qard granted to the general and family retakaful funds by the shareholder s fund of the retakaful subsidiary, amounting to RM100.2 million (2014: RM96.3 million). Qard represents a loan to the general and family retakaful funds to make good any underwriting deficit experienced during a financial period. These balances, including the impairment losses recognised thereon amounting to RM88.1 million (2014: RM83.2 million), have been eliminated in full upon consolidation. 181

78 34. Risk management framework (a) Risk governance framework The Group s Risk Management Framework is designed to determine the level of risk acceptable to the Group relating to its core operations by setting the appropriate Board approved limits for adherence by management after taking into account the risk parameters, the nature, the size and the mix and complexity of business and operations. An enterprise risk management process is adopted to identify and evaluate key business risks that may affect the organisation and to establish and implement an appropriate system of internal controls to manage these risks while ensuring full and effective control over significant strategic, financial, organisational and compliance matters. The Risk Management Framework aims to serve as a guide for the effective management of risk throughout the Group. The Framework is intended to provide guidance to the Group in performing its risk management roles and responsibilities and ultimately aims to support the achievement of the Group s strategic and financial objectives. The key objectives of the risk management framework are to: (i) (ii) (iii) (iv) provide information on risk governance and accountabilities; provide guidance on a standard approach to managing risks; create a risk aware and compliance culture; and enhance professionalism and increase profitability and value for shareholders. In pursuit of the above objectives, it is the Group s policy to implement good governance, risk management and compliance principles and best practices, and to uphold high standards of business practices in all the activities undertaken by the Group. The Risk Management Governance structure is as follows: (i) (ii) (iii) (iv) (v) (vi) The Board had established a dedicated Board Committee known as the Risk Management Committee of the Board ( RMCB ) at MNRB Holdings Berhad level to oversee the implementation of an enterprise-wide risk management framework. This is also replicated at each of the subsidiary companies; The Board had established a dedicated Investment Committee at MNRB Holdings Berhad level to further oversee risk associated with investments and assets allocation. This is also replicated at each of the subsidiary companies; The Operational Risk Management Committee ( ORMC ) which comprises the President/Chief Executive Officer and senior management, implements the risk management processes, provides assurance to the Board that the processes have been carried out effectively and inculcates a risk management and compliance culture on an enterprise-wide basis; The Group Chief Risk Management and Compliance Officer ( GCRMCO ) and Group Risk Management and Compliance Division establish the infrastructure and facilitate the risk management and compliance process in the Company and across the subsidiaries through the adoption of the Group s risk management framework; At the operational level, the implementation of risk management and compliance process in the day to day operations of the Group is consistent with the risk management framework; and The Line Managers of each department within the Group are responsible for using the various components of the risk management framework as an integral part of the business processes and procedures. 182

79 34. Risk management framework (cont d) (b) Capital management objectives, policies and approach The Capital Management Plan ( CMP ) is designed and implemented at the subsidiary level to ensure an effective management of the subsidiaries capital. The CMP is expected to maximise the Group s value by optimising capital structure and enhancing capital efficiency. Under the CMP, the subsidiaries measure and monitor their respective capital position mainly via the Capital Adequacy Ratio ( CAR ). The CMP identifies certain trigger points of the CAR position and further describes a set of corrective action plans that will be implemented towards maintaining an adequate level of capital. It is intended that capital will be utilised more efficiently in a controlled manner so that the subsidiaries will be able to manage their capital position above the internal target. Capital management objectives The main objective of capital management is to monitor and maintain, at all times, an appropriate level of capital which is commensurate with the subsidiaries business operations and the resultant risk profile. The key objective of the CMP is to trigger appropriate action plans to be taken by the relevant Board and the management of the subsidiaries in the event of internal capital levels falling below the internal target requirement. This includes remedial actions that must be undertaken by the subsidiaries Board and management to improve the capital position. Capital management policies The key capital management policies are as follows: (i) (ii) Ensure the Group has adequate capital within a range that supports the stakeholders objectives; and Establish responsibility of the subsidiaries Board and management in developing an internal capital adequacy assessment process and setting capital targets that are commensurate with its business operations and the resultant risk profile and control environment. Approach to capital management The reinsurance, retakaful and takaful subsidiaries conduct stress tests on its CAR in compliance with BNM/RH/GL : Guideline on Stress Testing for Insurers and BNM/RH/GL : Guideline on Stress Testing for Takaful Operators. The impact of the adverse scenarios on the capital position of the subsidiaries is assessed quarterly focusing on short to medium term views. (c) Regulatory framework The reinsurance, retakaful and takaful subsidiaries are required to comply with the Financial Services Act ( FSA ) 2013 and IFSA 2013, respectively, which are administered by BNM. BNM is primarily interested in protecting the rights of policyholders and participants and monitoring the subsidiaries closely to ensure prudent management of its business operations. At the same time, BNM is also interested in ensuring that the subsidiaries actively manage the capital adequacy by taking into account the potential impact on the subsidiaries business strategies, risk profile and the overall resilience of the Company. In addition, the Company is required to comply with Bursa Malaysia Securities Berhad s ( Bursa ) Risk Management and Internal Control System, the Listing Requirements of Bursa, Guidelines issued by the Securities Commission and the Capital Markets and Services Act 2007 as a result of its status as a listed company on the Main Market of Bursa Malaysia Securities Berhad. 183

80 35. Underwriting risk (a) General reinsurance (i) Nature of risk The reinsurance subsidiary principally underwrites all classes of general reinsurance business. Risks under these contracts usually cover a twelve month duration other than some long term contracts which may cover up to 3 years or more. For general reinsurance, the most significant risks arise from adverse development of claims and catastrophic loss events. These risks vary significantly in relation to economic conditions and territories from which the risks are underwritten. The above risks are mitigated by diversification across a large portfolio of business to ensure a balanced mix and spread of business as required by underwriting policies. Diversification through the implementation of underwriting strategies and claim management policies reduces the volatility of risks and improves the overall portfolio experience, and also ensures that conservative estimates are secured on its insurance contract liabilities are adequate. The reinsurance subsidiary also manages its loss exposure through the use of retrocession programmes which are reviewed annually by the ORMC and RMCB, and subsequently approved by the Board. Prudent standards are applied in the assessment of the security of the Company s key retrocessionaires. To manage its underwriting risk, the reinsurance subsidiary also complies with relevant guidelines imposed by BNM in the underwriting of business. (ii) Concentration of risk by type of business The table below measures the concentration of contracts by liabilities exposure for the main classes of the business and by local and overseas risks as follows: 2015 Gross Retrocession Net RM 000 RM 000 RM 000 Fire 725,095 (70,780) 654,315 Motor 364,964 (14,607) 350,357 Marine 262,311 (52,448) 209,863 Miscellaneous 387,072 (58,842) 328,230 1,739,442 (196,677) 1,542,765 Local 1,187,892 (186,920) 1,000,972 Overseas 551,550 (9,757) 541,793 1,739,442 (196,677) 1,542, Fire 725,638 (19,954) 705,684 Motor 379,442 (35,930) 343,512 Marine 252,319 (56,767) 195,552 Miscellaneous 360,629 (37,564) 323,065 1,718,028 (150,215) 1,567, Local 1,129,808 (137,117) 992,691 Overseas 588,220 (13,098) 575,122 1,718,028 (150,215) 1,567,813

81 35. Underwriting risk (cont d) (a) General reinsurance (cont d) (iii) Reserving risk The reinsurance subsidiary s claim liabilities, and consequently some of the inputs used in determining its premium liabilities, are based upon claims experience, existing knowledge of the events, the terms and conditions of relevant policies and interpretation of circumstances. Upon notification of a claim by its cedants, the reinsurance subsidiary sets aside reserves to meet the expected ultimate loss arising from this claim. These claim reserves are updated periodically for further developments via advice from cedants. At each reporting date, the reinsurance subsidiary performs a test on the adequacy of its liabilities via the services of an independent qualified external actuary engaged for the purpose of ensuring that claim and premium liabilities are objectively assessed and adequately provided for. Any such deficiency is recognised in the income statement. (iv) Impact on liabilities, profit and equity Key assumptions Liabilities are determined based upon claims experience, existing knowledge of events, the terms and conditions of the relevant contracts and interpretation of circumstances. Particularly relevant are past experiences with similar cases, historical claims development trends, legislative changes, judicial decisions and economic conditions. The inherent uncertainties in estimating liabilities arises from a variety of factors such as the range and quality of data available, underlying assumptions made and random volatility of future experience. Sensitivity analysis As a general reinsurer, the insurance contract liabilities of the reinsurance subsidiary are sensitive to various key factors which are both internal and external. External factors to which the reinsurance subsidiary is sensitive to include: (i) (ii) (iii) (iv) Claims practices of ceding companies; Frequency and severity of claims incurred by cedants; Changes in premium rates in insurance and reinsurance markets; and Legislative and regulatory changes. The sensitivity analysis was applied to the ultimate loss ratio of the Company by increasing the said ratio of the most recent underwriting year by 5%. The table below shows the impact on the Company s gross and net claim liabilities, profit before tax and equity should the ultimate loss ratio be increased by 5%: 2015 Impact on gross Impact on net Impact on profit Impact liabilities liabilities before tax on equity* RM 000 RM 000 RM 000 RM 000 Fire 16,187 16,186 16,186 13,553 Marine 5,230 4,593 4,593 4,060 Motor 7,031 6,961 6,961 5,295 Miscellaneous 8,525 8,532 8,532 6,893 36,973 36,272 36,272 29,

82 35. Underwriting risk (cont d) (a) General reinsurance (cont d) (iv) Impact on liabilities, profit and equity (cont d) Sensitivity analysis (cont d) Impact on gross Impact on net Impact on profit Impact liabilities liabilities before tax on equity* RM 000 RM 000 RM 000 RM Fire 17,403 17,400 17,400 14,433 Marine 5,507 4,534 4,534 3,913 Motor 7,195 7,195 7,195 5,477 Miscellaneous 9,571 9,566 9,566 7,644 39,676 38,695 38,695 31,467 * The impact on equity reflects the after tax impact. This analysis assumes that other factors relevant, but not significant, to the valuation of claim liabilities remain constant. (v) Claims development table The following tables show the estimate of cumulative ultimate incurred claims, including both claims provisions and IBNR for each successive underwriting year at each financial year end, along with cumulative claim payments to-date. In setting provisions for claims, the reinsurance subsidiary relies on advice by its cedants and exercises discretion where the claim may develop more adversely than advised. An estimate will be made in the absence of a reported figure or in the event the loss is still preliminary and has not been fully assessed. The estimates of the ultimate incurred claims are subject to a great deal of uncertainty in the early stages as claims are still being intimated and developed, particularly so for large and catastrophic claims. These uncertainties reduce over time as the claims develop and progress towards the ultimate cost. Beginning 1 April 2009, the methodology used in the valuation of general reinsurance liabilities was changed. This change involved a more granular segregation of the business of the Company into specific portfolios with the intention of achieving greater accuracy in the estimation process. Accordingly, data pertaining to the gross general reinsurance liabilities prior to financial year ended 31 March 2009 was not available and hence only developments in gross general reinsurance liabilities for financial year ended 31 March 2009 onwards are disclosed. The following tables have excluded the impact of specific large losses and other claims that management believes are not relevant for purposes of establishing claims development trends. 186

83 35. Underwriting risk (cont d) (a) General reinsurance (cont d) (v) Claims development table (cont d) Gross general reinsurance contract liabilities for 2015: Underwriting year Before Sub Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At the end of underwriting year - 418, , , , , , ,348 One year later 408, , , , , , ,746 - Two years later 448, , , , , , Three years later 464, , , , , Four years later 457, , , , Five years later 555, , , Six years later 544, , Seven years later 538, Current estimate of booked ultimate claims incurred (a) 538, , , , , , , ,353 At the end of underwriting year 53,719 63,614 92,548 81,664 72,602 45,707 65,738 50,329 One year later 224, , , , , , ,662 - Two years later 333, , , , , , Three years later 379, , , , , Four years later 403, , , , Five years later 517, , , Six years later 521, , Seven years later 526, Cumulative payments to-date (b) 526, , , , , , ,662 50,329 Expected claim liabilities (a) - (b) 29,927 12,003 24,438 31,183 48,821 74, , , , ,802 Other portfolios 396,779 Best estimate of claim liabilities 1,365,581 Claim handling expenses 7,385 Fund PRAD at 75% confidence interval 109,805 Gross general reinsurance claim liabilities 1,482,

84 35. Underwriting risk (cont d) (a) General reinsurance (cont d) (v) Claims development table (cont d) Net general reinsurance contract liabilities for 2015: Underwriting year Before Sub Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At the end of underwriting year 317, , , , , , , ,728 One year later 418, , , , , , ,426 - Two years later 439, , , , , , Three years later 441, , , , , Four years later 437, , , , Five years later 519, , , Six years later 515, , Seven years later 514, Current estimate of booked ultimate claims incurred (a) 513, , , , , , , ,589 At the end of underwriting year 52,635 62,609 91,038 70,948 72,009 45,218 65,738 50,328 One year later 219, , , , , , ,537 - Two years later 324, , , , , , Three years later 368, , , , , Four years later 390, , , , Five years later 497, , , Six years later 501, , Seven years later 506, Cumulative payments to-date (b) 506, , , , , , ,537 50,328 Expected claim liabilities (a) - (b) 24,990 7,842 20,576 24,146 47,444 71, , , , ,423 Other portfolios 306,713 Best estimate of claim liabilities 1,219,136 Claim handling expenses 7,385 Fund PRAD at 75% confidence interval 97,673 Less: Retrocession recoveries (32,351) Net general reinsurance claim liabilities 1,291,

85 35. Underwriting risk (cont d) (a) General reinsurance (cont d) (v) Claims development table (cont d) Gross general reinsurance contract liabilities for 2014: Underwriting year Before Sub Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At the end of underwriting year , , , , , ,406 One year later - 408, , , , , ,522 - Two years later 403, , , , , , Three years later 417, , , , , Four years later 399, , , , Five years later 395, , , Six years later 438, , Seven years later 434, Current estimate of booked ultimate claims incurred (a) 434, , , , , , , ,425 At the end of underwriting year 42,356 53,719 63,614 92,548 81,664 72,602 45,707 65,738 One year later 217, , , , , , ,956 - Two years later 294, , , , , , Three years later 335, , , , , Four years later 355, , , , Five years later 369, , , Six years later 420, , Seven years later 423, Cumulative payments to-date (b) 423, , , , , , ,956 65,738 Expected claim liabilities (a) - (b) 28,586 11,107 22,363 41,446 56,560 94, , , , ,082 Other portfolios 356,386 Best estimate of claim liabilities 1,344,468 Claim handling expenses 3,235 Fund PRAD at 75% confidence interval 101,365 Gross general reinsurance claim liabilities 1,449,

86 35. Underwriting risk (cont d) (a) General reinsurance (cont d) (v) Claims development table (cont d) Net general reinsurance contract liabilities for 2014: Underwriting year Before Sub Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At the end of underwriting year 305, , , , , , , ,648 One year later 328, , , , , , ,620 - Two years later 366, , , , , , Three years later 371, , , , , Four years later 350, , , , Five years later 344, , , Six years later 384, , Seven years later 381, Current estimate of booked ultimate claims incurred (a) 381, , , , , , , ,402 At the end of underwriting year 40,581 52,635 62,609 91,038 70,948 72,009 45,218 65,738 One year later 194, , , , , , ,122 - Two years later 257, , , , , , Three years later 288, , , , , Four years later 307, , , , Five years later 320, , , Six years later 369, , Seven years later 371, Cumulative payments to-date (b) 371, , , , , , ,122 65,738 Expected claim liabilities (a) - (b) 22,853 9,443 13,381 30,720 40,695 74, , , , ,312 Other portfolios 330,354 Best estimate of claim liabilities 1,228,666 Claim handling expenses 3,235 Fund PRAD at 75% confidence interval 89,394 Less: Retrocession recoveries (17,106) Net general reinsurance claim liabilities 1,304,

87 35. Underwriting risk (cont d) (b) General takaful fund (i) Nature of risk The takaful subsidiary principally issues the following types of general takaful contract: motor, household and commercial fire, business interruption, personal accident, and other miscellaneous commercial contracts. Risks under these contracts usually cover a twelvemonth duration other than long term fire which may be extended up to thirty years or more and Contractors All Risks and Erection All Risks which may be extended up to five years including maintenance period. For general takaful contracts, the most significant risks arise from accident frequency and severity of the accident. These risks vary significantly in relation to the location of risk, type of risk covered and industry. The above risks are mitigated by diversification across a large portfolio of business and careful selection of risks. The variability of risks is designed to improve the portfolio experience by implementation of underwriting strategies and claim management policies which attempt to minimise losses. The takaful subsidiary also manages its loss exposure by the use of retakaful arrangements. The retakaful treaty arrangements are reviewed annually by the RMCB and approved by the Board. Stress Testing ( ST ) is performed on a quarterly basis and submitted to BNM on a half-yearly basis. The purpose of the ST is to test the solvency of the general takaful fund under the various scenarios according to regulatory guidelines, simulating drastic changes in major parameters such as new business volume and investment environment. (ii) Reserving risk The general takaful fund s claim liabilities, and consequently some of the inputs used in determining its contribution liabilities, are based upon claims experience, existing knowledge of the events, the terms and conditions of relevant certificates and interpretation of circumstances. Upon notification of a claim, the takaful subsidiary sets aside case and technical reserves to meet the expected ultimate loss arising from this claim. These claim reserves are updated periodically for further developments. At each reporting date, the takaful subsidiary performs a valuation of liabilities that is certified by the Signing Actuary for the purpose of ensuring that claim and contribution liabilities are objectively assessed and adequately provided for. Any deficiency is recognised in the income statement. 191

88 35. Underwriting risk (cont d) (b) General takaful fund (cont d) (iii) Concentration of risk by type of contracts The table below sets out the concentration of takaful contracts liabilities by classes of business: 2015 Gross Retakaful Net RM 000 RM 000 RM 000 Fire 70,651 (20,093) 50,558 Motor 204,383 (78,217) 126,166 Marine, Aviation & Transit 358 (174) 184 Miscellaneous 60,788 (13,149) 47, ,180 (111,633) 224, Fire 65,488 (13,476) 52,012 Motor 200,857 (55,696) 145,161 Marine, Aviation & Transit 445 (224) 221 Miscellaneous 53,762 (10,893) 42, ,552 (80,289) 240,263 All business of the general takaful fund is derived in Malaysia; accordingly, disclosure of concentration risk by geographical region is not relevant to the general takaful fund. (iv) Impact on liabilities, profit and equity Key assumptions The principal assumption underlying the estimation of liabilities is that the takaful subsidiary s future claims development will follow a pattern similar to the historical trend experience. Additional qualitative judgements are used to assess the extent to which past trends may not apply in the future, for example, isolated occurrence, changes in market factors such as public attitude to claims notification and reporting, economic conditions, as well as internal factors such as portfolio mix, policy conditions and claims handling procedures. Judgement is further used to assess the extent to which external factors, such as judicial decisions and government legislation affect the estimates. Other key circumstances affecting the reliability of assumptions include delays in settlement. 192

89 35. Underwriting risk (cont d) (b) General takaful fund (cont d) (iv) Impact on liabilities, profit and equity (cont d) Sensitivity analysis The general takaful claim liabilities are sensitive to the key assumptions shown below. It has not been possible to quantify the sensitivity of certain assumptions such as legislative changes or uncertainty in the estimation process. The analysis below is performed on possible movements in key assumptions with all other assumptions held constant, showing the impact on gross and net liabilities, surplus before tax and general takaful fund. The correlation of assumptions will have a significant effect in determining the ultimate claim liabilities, however, to demonstrate the impact due to changes in assumptions, only individual factor is changed, while other assumptions are held constant. It should be noted that movements in these assumptions are non-linear. The sensitivity analysis has been performed for the main classes of business which are Motor Act and Motor Others. Motor Act is stressed using changes in claim severity; while Motor Others is tested by considering a stressed ultimate loss ratio level Change in assumption of ultimate claims Impact on gross liabilities Impact on net liabilities Impact on surplus before tax Impact on general takaful fund* ratio RM 000 RM 000 RM 000 RM 000 Motor Act Average Severity +10% 20,157 15,798 (15,798) (11,849) Motor Others Expected Loss Ratio +10% 28,406 15,301 (15,301) (11,476) 2014 Motor Act Average Severity +10% 21,236 17,696 (17,696) (13,272) Motor Others Expected Loss Ratio +10% 38,323 21,603 (21,603) (16,202) * The impact on general takaful fund reflects the after tax impact. The method used in performing the sensitivity analysis is consistent with the prior year. (v) Claims development table The following tables show the estimate of cumulative incurred claims, including both claims reported and IBNR (including IBNER) for each successive accident year at each reporting date, together with cumulative payments to-date. In setting provisions for claims, the takaful subsidiary gives consideration to the probability and magnitude of future experience at best estimate level with a degree of caution in setting reserves when there is considerable uncertainty. In general, the uncertainty associated with the ultimate claims experience for an accident year is greatest when the claim is at an early stage of development; hence the provision for risk margin for adverse deviation is relatively higher than the provision for claims at a later development period. As the claims develop and the ultimate cost of claims becomes more certain, the relative level of margin maintained should decrease. 193

90 35. Underwriting risk (cont d) (b) General takaful fund (cont d) (iv) Claims development table (cont d) Gross general takaful contract liabilities for 2015: Accident year Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At the end of accident year 50, , , , , , , ,570 One year later 51,290 93, , , , , ,098 - Two years later 51,483 89, , , ,409 97, Three years later 51,708 86, , , , Four years later 50,301 82, , , Five years later 50,507 80, , Six years later 50,166 80, Seven years later 50, Current estimate of cumulative claims incurred 50,035 80, , , ,201 97, , ,570 At the end of accident year 17,599 29,070 43,215 48,128 49,128 41,750 52,986 72,444 One year later 34,059 64,212 83,077 95,317 88,890 70,150 89,882 - Two years later 39,159 72, , , ,834 81, Three years later 44,893 77, , , , Four years later 47,722 78, , , Five years later 49,488 79, , Six years later 49,775 79, Seven years later 49, Cumulative payments to-date 49,967 79, , , ,031 81,392 89,882 72,444 Gross general takaful contract liabilities: Best Estimate of Claims Liabilities (incl. Allocated Loss Adjustment Expenses ALAE ) ,427 4,858 12,170 15,930 35, , ,158 Fund PRAD at 75% 24,181 Total 210,

91 35. Underwriting risk (cont d) (b) General takaful fund (cont d) (iv) Claims development table (cont d) Net general takaful contract liabilities for 2015: Accident year Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At the end of accident year 47,452 83, , , ,773 77,046 89, ,072 One year later 47,361 81, , , ,239 74,561 80,459 - Two years later 47,903 78, , , ,387 66, Three years later 47,484 76, , , , Four years later 45,894 72, , , Five years later 45,091 71, , Six years later 44,591 70, Seven years later 44, Current estimate of cumulative claims incurred 44,410 70, , , ,481 66,794 80, ,072 At the end of accident year 16,968 27,670 40,682 44,669 46,245 29,182 35,402 45,182 One year later 32,665 56,446 79,471 88,779 81,802 49,605 58,337 - Two years later 37,569 64,216 94, ,862 96,453 55, Three years later 41,845 69,165 99, , , Four years later 43,721 69, , , Five years later 44,519 70, , Six years later 44,223 70, Seven years later 44, Cumulative payments to-date 44,353 70, , , ,801 55,605 58,337 45,182 Net general takaful contract liabilities: Best Estimate of Claims Liabilities (incl. ALAE) ,028 4,236 10,680 11,189 22,122 58, ,551 Fund PRAD at 75% 15,659 Total 136,

92 35. Underwriting risk (cont d) (b) General takaful fund (cont d) (iv) Claims development table (cont d) Gross general takaful contract liabilities for 2014: Accident year Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At the end of accident year 36,388 50, , , , , , ,258 One year later 36,179 51,290 93, , , , ,221 - Two years later 35,120 51,483 89, , , , Three years later 33,672 51,708 86, , , Four years later 33,695 50,301 82, , Five years later 32,743 50,507 80, Six years later 32,433 50, Seven years later 32, Current estimate of cumulative claims incurred 32,212 50,166 80, , , , , ,258 At the end of accident year 13,366 17,599 29,070 43,215 48,128 49,128 41,750 52,987 One year later 25,083 34,059 64,212 83,077 95,317 88,890 70,150 - Two years later 27,784 39,159 72, , , , Three years later 30,245 44,893 77, , , Four years later 31,292 47,722 78, , Five years later 31,975 49,488 79, Six years later 32,280 49, Seven years later 32, Cumulative payments to-date 32,163 49,775 79, , , ,834 70,150 52,987 Gross general takaful contract liabilities: Best Estimate of Claims Liabilities (incl. Allocated Loss Adjustment Expenses ALAE ) ,381 14,557 10,057 25,575 36,071 88, ,352 Fund PRAD at 75% 25,167 Total 201,

93 35. Underwriting risk (cont d) (b) General takaful fund (cont d) (iv) Claims development table (cont d) Net general takaful contract liabilities for 2014: Accident year Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At the end of accident year 33,895 47,452 83, , , ,773 77,046 89,101 One year later 34,140 47,361 81, , , ,239 74,561 - Two years later 33,195 47,903 78, , , , Three years later 31,470 47,484 76, , , Four years later 31,341 45,894 72, , Five years later 30,328 45,091 71, Six years later 29,987 44, Seven years later 29, Current estimate of cumulative claims incurred 29,777 44,591 71, , , ,387 74,561 89,101 At the end of accident year 11,984 16,968 27,670 40,682 44,669 46,245 29,182 35,402 One year later 23,420 32,665 56,446 79,471 88,779 81,802 49,605 - Two years later 26,016 37,569 64,216 94, ,862 96, Three years later 28,197 41,845 69,165 99, , Four years later 29,089 43,721 69, , Five years later 29,631 44,519 70, Six years later 29,847 44, Seven years later 29, Cumulative payments to-date 29,730 44,223 70, , ,008 96,453 49,605 35,402 Net general takaful contract liabilities: Best Estimate of Claims Liabilities (incl. ALAE) ,196 13,661 8,597 22,934 24,956 53, ,458 Fund PRAD at 75% 22,136 Total 147,

94 35. Underwriting risk (cont d) (c) Family takaful fund (i) Nature of risk The takaful subsidiary principally issues the following types of family takaful certificate: Ordinary Takaful Plans, Mortgage Takaful Plans, Group Takaful Plans and Investment-linked Takaful Plans. Family takaful underwriting risk exists from the anti-selection and adequacy of tabarru to meet future claims arising from family takaful certificates. The risks arise when actual claims experience is different from the assumptions used in setting the prices for products and establishing the technical provisions and liabilities for claims. Sources of risk include certificate lapses and certificate claims such as mortality and morbidity and experience. The takaful subsidiary utilises retakaful arrangement to manage the mortality and morbidity risks. Retakaful structures are set based on the type of risks to be recovered. The takaful subsidiary reviews the actual experience of mortality, morbidity, lapses and surrenders, as well as expenses to ensure that appropriate policies, guidelines and limits put in place to manage these risks remain adequate and effective. The family takaful funds are participating in nature. In the event of volatile investment climate and/or unusual claims experience, the investment profit and surplus distribution to the participants may be reduced. For investment-linked funds, the risk exposure for the participant s risk fund is limited only to the underwriting aspect as all investment risks are borne by the participants. Stress Testing ( ST ) is performed on a quarterly basis and submitted to BNM on a half-yearly basis. The purpose of the ST is to test the solvency of the family takaful fund under the various scenarios according to regulatory guidelines, simulating drastic changes in major parameters such as new business volume, investment environment, mortality/morbidity patterns and lapse rates. (ii) Concentration of risk by type of contracts The table below shows the concentration of actuarial liabilities by type of contract: Gross Retakaful Net RM 000 RM 000 RM Family takaful plans 708,684 (4,221) 704,463 Investment-linked takaful plans 21,880 (5,275) 16,605 Mortgage takaful plans 649, ,960 Group credit takaful plans 219, ,846 Others 101, ,257 1,701,627 (9,496) 1,692,

95 35. Underwriting risk (cont d) (c) Family takaful fund (cont d) (ii) Concentration of risk by type of contracts (cont d) Gross Retakaful Net RM 000 RM 000 RM Family takaful plans 735,055 (10,424) 724,631 Investment-linked takaful plans 23,624 (1,299) 22,325 Mortgage takaful plans 501,924 (101,812) 400,112 Group credit takaful plans 284,220 (12,791) 271,429 Others 89,511-89,511 1,634,334 (126,326) 1,508,008 All business of the family takaful fund is derived from participants in Malaysia; accordingly, disclosure of concentration risk by geographical region is not relevant to the family takaful fund. (iii) Key assumptions Material judgement is required in determining the liabilities of the family takaful fund and in the selection of assumptions. Assumptions used are based on past experience, current internal data, external market indices and benchmarks which reflect current observable market prices and other published information. Assumptions and prudent estimates are determined at the date of valuation and no credit is taken for possible beneficial effects of voluntary withdrawals. Assumptions are further evaluated on a continuous basis in order to ensure realistic and reasonable valuations. The key assumptions to which the estimation of liabilities is particularly sensitive are as follows: Mortality and morbidity rates Assumptions are based on mortality rates as set out in the Actuarial Certificate submitted to BNM. They reflect the historical local experience and are adjusted, when appropriate, to reflect the participants own experience. Assumptions are differentiated by gender, occupational class and product group. An increase in rates will lead to a larger number of claims (as claims could occur sooner than anticipated), which will reduce the surplus from the Risk Fund and subsequently reduce profits for the shareholders in terms of lower surplus administration charge income. To the extent that mortality/morbidity is worse than that priced for, profitability of shareholder s fund may be affected and may in a worst case scenario, lead to possible Risk Fund deficit. This is mitigated with adequate retakaful arrangement as well as contract design (in some circumstances) that builds in repricing mechanisms. Discount rates Family takaful liabilities of credit-related products (Mortgage Reducing Term Takaful ( MRTT ) and Group Credit Takaful ( GCT )) are determined as the sum of the discounted value of the expected benefits less the discounted value of the expected tabarru (risk charge) that would be required to meet these future cash outflows. The valuation of liabilities will be discounted to valuation date using the government investment issues zero coupon spot yields which are obtained from the Bond Pricing Agency Malaysia rates as prescribed in the valuation guidelines. A decrease in the discount rate will increase the value of the family takaful liabilities and therefore reduce profits for the shareholders in terms of lower surplus administration charge income. 199

96 35. Underwriting risk (cont d) (c) Family takaful fund (cont d) (iii) Key assumptions (cont d) The assumptions that have significant effects on the financial position and financial performance of the family takaful fund are listed below: Type of business Mortality and morbidity rates Discount rates Discount rates Credit related (MRTT and GCT) Base mortality 1, adjusted for retakaful rates 2 4% 4% Others Base mortality 1 N/A N/A 1 These rates are obtained from the various industry mortality and morbidity experience tables that were used to determine the contribution rates. 2 Retakaful rates are derived from the fund s retakaful arrangements with respect to the MRTT and GCT business. (iv) Sensitivity analysis The analysis below is performed for reasonably possible movements in key assumptions with all other assumptions held constant, showing the impact on gross and net liabilities, surplus before tax and family takaful fund. The correlations of assumptions will have a significant effect in determining the ultimate family takaful liabilities but to demonstrate the impact due to changes in assumptions, assumptions are changed on an individual basis. It should be noted that movements in these assumptions are non-linear. Sensitivity information will also vary according to the current economic assumptions Change in assumptions Impact on gross liabilities Impact on net liabilities Impact on profit before tax Impact on family takaful fund* % RM 000 RM 000 RM 000 RM 000 Mortality/morbidity + 10% 87,579 82,703 (82,703) (82,703) Discount rates + 1% (21,906) (12,413) 12,413 12, Mortality/morbidity + 10% 43,773 3,979 (3,979) (3,979) Discount rates + 1% (7,640) (1,144) 1,144 1,144 * The impact on the family takaful fund reflects the after tax impact which is presumed to be nil as the family takaful fund is taxed only on investment income. The method used in performing the sensitivity analysis is consistent with the prior year. 200

97 35. Underwriting risk (cont d) (d) General retakaful fund During the financial year ended 31 March 2015, the Management has decided to undergo a consolidation exercise and to review its business portfolio. This would include temporarily not writing and renewing the general business, as well as cleaning up the outstanding contributions and claims balances. This decision was taken with a view to further strengthen the retakaful subsidiary s capital position. (i) Nature of risk For general retakaful, the most significant risks arise from adverse development of the loss ratios and catastrophic loss events. These risks vary significantly in relation to economic conditions and territories from which the risk originates. The retakaful subsidiary also manages the general retakaful fund s loss exposure via the use of retrotakaful arrangements. The retrotakaful arrangements are reviewed annually by the RMCB and approved by the Board. Stress testing is performed on a quarterly basis and submitted to BNM twice a year. The purpose of the stress testing is to test the solvency of the general retakaful fund under various scenarios. These scenarios are based on regulatory guidelines and simulate drastic changes in major parameters such as new business volume, claims experience and investment environment. (ii) Reserving risk The general retakaful fund s claim liabilities, and consequently some of the inputs used in determining its contribution liabilities, are based upon claims experience, existing knowledge of the events, the terms and conditions of relevant certificates and interpretation of circumstances. Upon notification of a claim, the retakaful subsidiary sets aside case and technical reserves to meet the expected ultimate loss arising from this claim. These claim reserves are updated periodically for further developments. At each reporting date, the retakaful subsidiary performs a test on the adequacy of its liabilities via the services of an independent qualified external actuary engaged for the purpose of ensuring that claim and premium liabilities are objectively assessed and adequately provided for. Any such deficiency is recognised in the income statement. (iii) Concentration of takaful contract liabilities The table below sets out the concentration of takaful contract liabilities by class of business and by local and overseas: 2015 Gross Retakaful Net RM 000 RM 000 RM 000 Fire 40,193 (8,820) 31,373 Motor 25,813 (1) 25,812 Marine, Aviation & Transit 5, ,570 Miscellaneous 37,036 (20,127) 16, ,532 (28,868) 79,664 Local 75,855 (28,737) 47,118 Overseas 32,677 (131) 32, ,532 (28,868) 79,

98 35. Underwriting risk (cont d) (d) General retakaful fund (cont d) (iii) Concentration of takaful contract liabilities (cont d) Gross Retakaful Net RM 000 RM 000 RM Fire 49,801 (7,555) 42,246 Motor 20,879 (3) 20,876 Marine, Aviation & Transit 4,286 (89) 4,197 Miscellaneous 32,098 (15,211) 16, ,064 (22,858) 84,206 Local 83,553 (22,369) 61,184 Overseas 23,511 (489) 23, ,064 (22,858) 84,206 (iv) Impact on liabilities, profit and equity Key assumptions Additional qualitative judgements are used to assess the extent to which past trends may not apply in the future, for example, isolated occurrences, changes in market factors such as public attitude to claims notification and reporting, economic conditions, as well as internal factors, such as portfolio mix, policy conditions and claims handling procedures. Judgement is further used to assess the extent to which external factors, such as judicial decisions and government legislation affect the estimates. Other key circumstances affecting the reliability of assumptions include variation in profit rates and delays in settlement. 202

99 35. Underwriting risk (cont d) (d) General retakaful fund (cont d) (iv) Impact on liabilities, profit and equity (cont d) Sensitivity analysis The general retakaful fund s claim liabilities are sensitive to changes in the loss ratio especially in the event of large or catastrophic claims. However, as the business is still relatively new, the amount of information available to conduct a sensitivity analysis is limited. The sensitivity analysis was applied to the ultimate loss ratio of the general retakaful fund by increasing the said ratio by 5%. The ultimate loss ratios of Fire and Marine, Aviation & Transit classes of business for the most recent underwriting year and the ultimate loss ratios of Motor and Miscellaneous classes of business for all underwriting years were increased by 5%. The table below shows the impact on the general retakaful fund s gross and net claim liabilities, surplus before tax and general retakaful fund should the ultimate loss ratio be increased by 5%: 2015 Impact on gross liabilities Impact on net liabilities Impact on surplus before tax Impact on general retakaful fund* RM 000 RM 000 RM 000 RM 000 Fire Motor 1,678 1,678 1,678 1,678 Marine, Aviation & Transit Miscellaneous 2,756 2,577 2,577 2,577 5,255 5,040 5,040 5, Fire 2,457 2,167 2,167 2,167 Motor 1,479 1,479 1,479 1,479 Marine, Aviation & Transit Miscellaneous 2,742 2,698 2,698 2,698 7,009 6,670 6,670 6,670 * The impact on the general retakaful fund reflects the after tax impact which is presumed to be nil based on the current tax position of the fund. This analysis assumes all other parameters are held constant. 203

100 35. Underwriting risk (cont d) (d) General retakaful fund (cont d) (v) Claims development table The following tables show the estimate of cumulative ultimate incurred claims, including both claims provisions and IBNR for each successive underwriting year at each financial year end, along with cumulative claim payments to-date. In setting provisions for claims, the Company relies on advice by the cedants and exercises discretion where the claim may develop more adversely than advised. An estimate will be made in the absence of a reported figure or in the event the loss is still preliminary and has not been fully assessed. The estimates of the ultimate incurred claims are subject to a great deal of uncertainty in the early stages as claims are still being intimated and developed, particularly so for large and catastrophic claims. These uncertainties reduce over time as the claims develop and progress towards the ultimate cost. Gross general retakaful claim liabilities for 2015: Underwriting year Sub Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At the end of underwriting year ,284 15,171 42,843 19,642 One year later ,915 33,682 56,646 32,126 - Two years later ,520 35,220 36,964 57, Three years later - 17,641 18,780 41,994 42, Four years later 9,441 18,864 19,282 47, Five years later 11,149 28,583 19, Six years later 8,983 30, Seven years later 8, Current estimate of booked ultimate claims incurred (a) 8,826 30,340 19,138 47,140 42,508 56,615 30,265 14,283 At the end of underwriting year (3,196) (8,238) (392) (3,293) 1,506 2, One year later 7,045 4,950 8,483 13,468 11,500 14,017 11,191 - Two years later 8,036 14,171 12,669 25,419 21,355 23, Three years later 6,005 16,391 14,145 30,745 27, Four years later 6,186 20,578 14,923 39, Five years later 8,030 24,807 16, Six years later 8,220 27, Seven years later 8, Cumulative payments to-date (b) 8,360 27,548 16,528 39,120 27,968 23,897 11, Expected claim liabilities (a) - (b) 466 2,792 2,610 8,020 14,540 32,718 19,074 14,148 94,368 Other portfolios 981 Best estimate of claim liabilities 95,349 Fund PRAD at 75% confidence interval 10,558 Gross general retakaful claim liabilities 105,

101 35. Underwriting risk (cont d) (d) General retakaful fund (cont d) (v) Claims development table (cont d) Net general retakaful claim liabilities for 2015: Underwriting year Sub Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At the end of underwriting year ,284 15,171 38,790 19,642 One year later ,915 33,682 55,371 32,126 - Two years later ,520 35,220 36,935 57, Three years later - 17,641 18,780 41,994 42, Four years later 9,441 18,864 19,282 47, Five years later 11,149 28,583 19, Six years later 8,983 30, Seven years later 8, Current estimate of booked ultimate claims incurred (a) 8,826 30,319 19,121 47,113 42,450 56,241 29,643 14,142 At the end of underwriting year (3,196) (8,238) (392) (3,293) 1,506 2, One year later 7,045 4,950 8,483 13,468 11,500 14,017 11,191 - Two years later 8,036 14,171 12,669 25,419 21,355 23, Three years later 6,005 16,391 14,145 30,745 27, Four years later 6,186 20,578 14,923 39, Five years later 8,030 24,807 16, Six years later 8,220 27, Seven years later 8, Cumulative payments to-date (b) 8,360 27,548 16,528 39,120 27,968 23,897 11, Expected claim liabilities (a) - (b) 466 2,771 2,593 7,993 14,482 32,344 18,452 14,006 93,107 Other portfolios 870 Best estimate of claim liabilities 93,977 Fund PRAD at 75% confidence interval 8,025 Less: Retrotakaful recoveries (24,906) Net general retakaful claim liabilities 77,

102 35. Underwriting risk (cont d) (d) General retakaful fund (cont d) (v) Claims development table (cont d) Gross general retakaful claim liabilities for 2014: Underwriting year Sub Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At the end of underwriting year ,284 15,171 42,843 One year later ,915 33,682 56,646 - Two years later ,520 35,220 36, Three years later - 17,641 18,780 41, Four years later 9,441 18,864 19, Five years later 11,149 28, Six years later 8, Seven years later Current estimate of booked ultimate claims incurred (a) 8,985 28,567 19,245 41,878 36,594 51,860 16,275 At the end of underwriting year (3,196) (8,238) (392) (3,293) 1,506 2, One year later 7,045 4,950 8,346 13,468 11,500 14,017 - Two years later 8,036 14,171 12,669 25,419 21, Three years later 6,005 16,391 14,145 30, Four years later 6,186 20,578 14, Five years later 8,030 24, Six years later 8, Seven years later Cumulative payments to-date (b) 8,220 24,807 14,923 30,745 21,355 14, Expected claim liabilities (a) - (b) 765 3,760 4,322 11,133 15,239 37,843 15,599 88,661 Other portfolios 456 Best estimate of claim liabilities 89,117 Fund PRAD at 75% confidence interval 9,207 Gross general retakaful claim liabilities 98,

103 35. Underwriting risk (cont d) (d) General retakaful fund (cont d) (v) Claims development table (cont d) Net general retakaful claim liabilities for 2014: Underwriting year Sub Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 At the end of underwriting year ,284 15,171 38,790 One year later ,915 33,682 55,371 - Two years later ,520 35,220 36, Three years later - 17,641 18,780 41, Four years later 9,441 18,864 19, Five years later 11,149 28, Six years later 8, Seven years later Current estimate of booked ultimate claims incurred (a) 8,985 28,567 19,245 41,877 36,574 51,062 15,982 At the end of underwriting year (3,196) (8,238) (392) (3,293) 1,506 2, One year later 7,045 4,950 8,346 13,468 11,500 14,017 - Two years later 8,036 14,171 12,669 25,419 21, Three years later 6,005 16,391 14,145 30, Four years later 6,186 20,578 14, Five years later 8,030 24, Six years later 8, Seven years later Cumulative payments to-date (b) 8,220 24,807 14,923 30,745 21,355 14, Expected claim liabilities (a) - (b) 765 3,760 4,322 11,132 15,219 37,045 15,306 87,549 Other portfolios 449 Best estimate of claim liabilities 87,998 Fund PRAD at 75% confidence interval 7,350 Less: Retrotakaful recoveries (19,268) Net general retakaful claim liabilities 76,

104 35. Underwriting risk (cont d) (e) Family retakaful fund During the financial year ended 31 March 2015, the Management has decided to undergo a consolidation exercise and to review its business portfolio. This would include temporarily not writing and renewing the family business, as well as cleaning up the outstanding contributions and claims balances. This decision was taken with a view to further strengthen the retakaful subsidiary s capital position. (i) Nature of risk The retakaful subsidiary principally underwrites the following types of family retakaful business: Individual Family Retakaful Plans, Group Family Retakaful Plans, Individual Medical Retakaful Plans and Retakaful Individual Facultative. Family retakaful underwriting risk relates to the pricing and loss ratios arising from family retakaful products. The risks arise when actual claims experience is different from the assumptions used in setting the yearly renewable term fees for retakaful products. Deviations in actual claims experience compared to the assumptions used may be due to deviations in actual mortality and morbidity experience. The retakaful subsidiary utilises retrotakaful to manage mortality and morbidity risks. The retakaful subsidiary reviews the actual experience of mortality and morbidity to ensure that appropriate policies, guidelines and limits put in place to manage these risks remain adequate and appropriate. Stress testing is performed on a quarterly basis and submitted to BNM on a half-yearly basis. The purpose of the stress testing is to test the solvency of the family retakaful fund under various scenarios. These scenarios are based on regulatory guidelines and simulate drastic changes in major parameters such as new business volume, investment environment and mortality/morbidity patterns. (ii) Concentration of takaful contract liabilities The table below sets out the concentration of retakaful contract liabilities by local and overseas treaties: 2015 Gross Retakaful Net RM 000 RM 000 RM 000 Local 26,706 (6,647) 20,059 Overseas 2,064 (613) 1,451 28,770 (7,260) 21, Local 32,417 (6,269) 26,148 Overseas 1,466 (619) ,883 (6,888) 26,995 Business of the family retakaful fund is derived from Malaysian and overseas risks. Liabilities of the family retakaful fund are mainly spread within Malaysia, Brunei and Indonesia. 208

105 35. Underwriting risk (cont d) (e) Family retakaful fund (cont d) (iii) Impact on liabilities, profit and equity Key assumptions Material judgement is required in determining the liabilities and in the choice of assumptions. Assumptions in use are based on past experience, current internal data, external market indices and benchmarks which reflect current observable market prices and other published information. Assumptions and prudent estimates are determined at the date of valuation and no credit is taken for possible beneficial effects of voluntary withdrawals. Assumptions are further evaluated on a continuous basis in order to ensure realistic and reasonable valuations. The estimation of liabilities is particularly sensitive to the assumption of loss ratios due to the nature of the pricing of family retakaful products which are based on yearly renewable terms. Sensitivity analysis The family retakaful fund s claim liabilities are sensitive to changes in loss ratios. However, as the business is still relatively new, the amount of information available to conduct a sensitivity analysis is limited. Due to limited information, the sensitivity analysis was applied to the ultimate loss ratio of the family retakaful fund by increasing the said ratio by 20%. The table below shows the impact on the family retakaful fund s gross and net liabilities, surplus before tax and family retakaful fund should the ultimate loss ratio be increased by 20%: 2015 Change in assumptions Impact on gross liabilities Impact on net liabilities Impact on surplus before tax Impact on family retakaful fund* % RM 000 RM 000 RM 000 RM 000 Loss ratio -20% (18,145) (18,145) (18,145) (18,145) Loss ratio +20% 29,889 29,889 29,889 29, Loss ratio -20% (20,248) (20,248) (20,248) (20,248) Loss ratio +20% 34,695 34,695 34,695 34,695 * The impact on the family retakaful fund reflects the after tax impact which is presumed to be nil based on the current tax position of the fund. The method used in performing the sensitivity analysis is consistent with the prior year. 209

106 36. Financial risk Transactions in financial instruments may result in the Group and the Company assuming financial risks. These include credit risk, liquidity risk and market risk. This note presents information about the Group s and the Company s exposure to each of the above risks and the Group s and the Company s objectives, policies and processes for measuring and managing such risks. The following tables summarise the financial assets and financial liabilities of the Group and the Company, and their carrying value and fair values, which are considered by management in monitoring and managing of its financial risks. Group Carrying value Fair value Carrying value Fair value RM 000 RM 000 RM 000 RM 000 Financial and insurance assets Financial assets at FVTPL (Note 19) 137, , , ,478 HTM investments (Note 19) 722, , , ,862 AFS financial assets (Note 19) 2,530,716 2,530,716 2,303,023 2,303,023 Loans and receivables* (Note 19) 1,917,938 1,917,938 1,783,211 1,783,211 Reinsurance/retakaful assets 374, , , ,787 Insurance/takaful receivables* 303, , , ,611 Cash and bank balances 82,702 82,702 36,644 36,644 6,070,217 6,064,097 5,750,351 5,731,616 Financial and insurance liabilities Borrowings 320, , , ,798 Insurance/takaful contract liabilities 4,159,278 4,159,278 4,012,263 4,012,263 Insurance/takaful payables* 169, , , ,865 Other payables and provisions* 170, , , ,393 4,819,509 4,818,146 4,659,521 4,659,319 Company Financial and insurance assets AFS financial assets (Note 19) Loans and receivables* (Note 19) 37,071 37,071 26,927 26,927 Cash and bank balances 2,877 2,877 2,904 2,904 39,998 39,998 29,881 29,881 Financial and insurance liabilities Borrowings 320, , , ,798 Other payables and provisions* 9,203 9,203 8,933 8, , , , ,731 * The carrying values of these loans and receivables, insurance receivables, insurance payables and other payables and provisions approximate their fair values due to their short term nature. 210

107 36. Financial risk (cont d) (a) Credit Risk Credit risk is the risk of financial loss resulting from the failure of counterparties to reinsurance, takaful, retakaful and investment transactions to meet their contractual obligations. Credit risk includes the following major elements: (i) (ii) (iii) An investment credit risk which is the risk of financial loss arising from a change in the value of an investment due to a rating downgrade, default, or widening of credit spreads. Changes in credit spreads are largely driven by the different economic cycles and operating cycles while the less liquid securities tend to be priced at a wider spread. The liquidity of the securities is directly determined by its bid-to-ask spread; A derivative counterparty risk which is the risk of financial loss arising from a derivative counterparty s default, or the deterioration of the derivative counterparty s financial position. As at the reporting date, the Group does not transact in derivatives and is not exposed to this risk; and Reinsurance/retakaful counterparty risk which is the risk of financial loss arising from a default by the retrocessionaire/retakaful operator, or the deterioration of the solvency position of the retrocessionaire/retakaful operator. The Group is exposed to investment credit risk on its investment portfolio, primarily from investments in corporate bonds. A creditworthiness assessment for new and existing investments is undertaken by the Group in accordance with the Investment Policy as approved by the Investment Committee. In addition, the credit ratings of the bond portfolio are regularly monitored and any downgrade in credit ratings will be evaluated to determine the required actions. As at the reporting date, the Group s bond portfolio has no material exposure below investment grade. The Group is exposed to reinsurance/retakaful counterparty risks of three different types: (i) (ii) (iii) as a result of recoveries owing from the retrocessionaire/retakaful operators for claims; from amounts due from ceding companies; and as a result of reserves held by the reinsurers and/or retakaful operators which would have to be met by the reinsurance and/or retakaful subsidiaries in the event of default. Management of credit risk In order to manage and mitigate credit risk, the following policies and procedures were set in place: (i) (ii) (iii) (iv) Investment policies prescribe the minimum credit rating for bonds that may be held. In addition, the policies are further aimed at investing in a diverse portfolio of bonds in order to reduce the potential impact that may arise from individual companies defaulting; Counterparty limits are set for investments and cash deposits to ensure that there is no concentration of credit risk; The Group s investment portfolio is managed to ensure diversification and focuses on high quality investment grade fixed income securities and equity with good fundamentals. For the financial year ended 31 March 2015, the credit rating of the Group s fixed income portfolio was dominated by securities rated AAA as determined by Rating Agency Malaysia ( RAM ) and/or Malaysian Rating Corporation Berhad ( MARC ); and To mitigate reinsurance/retakaful counterparty risk, the Group will give due consideration to the credit quality of the reinsurer/retakaful operator. To facilitate this process, a list of acceptable reinsurers/retakaful operators based on their rating is maintained within the Group. The Group regularly reviews the financial security of its reinsurers/retakaful operators. 211

108 36. Financial risk (cont d) (a) Credit Risk (cont d) Unearned premium and contribution reserves and reserves for unearned wakalah fees have been excluded from the analysis as they are not contractual obligations. The table below provides information regarding the credit risk exposures of the Group by classifying assets according to the credit ratings of counterparties. Credit exposure by credit rating for 2015: Group Government guaranteed AAA to BBB BB to C Not subject to credit risk Not rated Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Financial assets at FVTPL Quoted shares in Malaysia ,951-3,951 Warrants Shariah approved unit trust funds , ,955 HTM investments Malaysian government securities 78, ,734 Unquoted corporate debt securities 99, ,030 Government investment issues 543, ,592 AFS financial assets Unquoted shares in Malaysia ,796-44,796 Malaysian government securities 49, ,478 Unquoted corporate debt securities 478,750 1,472, ,951,026 Quoted shares in Malaysia , ,064 Warrants Real estate investment trusts ,836-7,836 Government investment issues 188, ,375 Loans and receivables Fixed and call deposits with licensed: Commercial banks - 190, ,482 Investment banks , ,

109 36. Financial risk (cont d) (a) Credit Risk (cont d) Credit exposure by credit rating for 2015: (cont d) Group (cont d) Government guaranteed AAA to BBB BB to C Not subject to credit risk Not rated Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Loans and receivables (cont d) Islamic investment accounts with licensed: Co-operative bank - 28, ,939 Islamic banks - 489, , ,036 1,079,194 Investment banks - 1, ,996 Development bank - 43, ,595 58,907 Building society Secured staff loans ,496 12,496 Income due and accrued ,523 44,523 Amount due from Insurance Pool accounts ,290 26,290 Other receivables and deposits ,350 53,350 Reinsurance/retakaful assets - 199, , ,343 Insurance/takaful receivables - 74, , ,918 Cash and bank balances - 79, ,373 82,702 1,439,208 3,000, , ,992 6,026,907 Company AFS financial assets Unquoted shares in Malaysia Loans and receivables Fixed and call deposits with licensed: Commercial banks - 8, ,373 Investment banks , ,909 Islamic investment accounts with licensed Islamic banks - 7, ,879 Secured staff loans ,461 3,461 Amounts due from subsidiaries - 2, ,137 4,111 Income due and accrued Other receivables and deposits ,266 1,266 Cash and bank balances - 2, , , ,936 39,

110 36. Financial risk (cont d) (a) Credit Risk (cont d) Credit exposure by credit rating for 2014: Government guaranteed AAA to BBB BB to C Not subject to credit risk Not rated Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Group Financial assets at FVTPL Quoted shares in Malaysia ,527-7,527 Warrants Shariah approved unit trust funds , ,889 HTM investments Malaysian government securities 78, ,936 Unquoted corporate debt securities 95, ,344 Government investment issues 544, ,317 AFS financial assets Unquoted shares in Malaysia ,796-44,796 Malaysian government securities 29, ,281 Unquoted corporate debt securities 438,733 1,394, ,115 1,839,470 Quoted shares in Malaysia , ,485 Quoted shares outside Malaysia Warrants Real estate investment trusts ,821-6,821 Government investment issues 180, ,698 Loans and receivables Fixed and call deposits with licensed: Commercial banks - 310, ,491 Investment banks - 421, ,

111 36. Financial risk (cont d) (a) Credit Risk (cont d) Credit exposure by credit rating for 2014: (cont d) Group (cont d) Government guaranteed AAA to BBB BB to C Not subject to credit risk Not rated Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Loans and receivables (cont d) Islamic investment accounts with licensed: Co-operative bank - 28, ,824 Islamic banks - 510, , ,210 Development bank - 71, ,437 91,043 Building society - 9, ,211 Institutional trust deposit ,855 24,855 Uncallable negotiable Islamic deposits - 18, ,743 Islamic repo placements - 98, , ,284 Secured staff loans ,202 11,202 Income due and accrued ,623 40,623 Amount due from Insurance Pool accounts ,266 35,266 Other receivables and deposits ,393 36,993 Reinsurance/retakaful assets - 240,746 1, , ,473 Insurance/takaful receivables - 56, , ,611 Cash and bank balances - 31, ,320 36,644 1,367,054 3,192,687 1, , ,556 5,718,037 Company AFS financial assets Unquoted shares in Malaysia Loans and receivables Fixed and call deposits with licensed: Commercial banks - 15, ,464 Investment banks - 1, ,461 Islamic investment accounts with licensed Islamic banks - 1, ,579 Secured staff loans ,326 3,326 Amounts due from subsidiaries - 2, ,247 3,406 Income due and accrued Other receivables and deposits ,654 1,654 Cash and bank balances - 2, ,904-23, ,264 29,

112 36. Financial risk (cont d) (a) Credit Risk (cont d) Movement of allowance for impairment losses on receivables Group Individually impaired Collectively impaired Total RM 000 RM 000 RM At beginning of the year 16,722 7,358 24,080 (Reversal of impairment losses)/impairment losses for the year (91) 7,038 6,947 At end of the year 16,631 14,396 31, At beginning of the year 19,142 7,513 26,655 Reversal of impairment losses for the year (2,420) (155) (2,575) At end of the year 16,722 7,358 24,080 Liquidity risk is the risk that the Group will not have sufficient cash resources available to meet its payment obligations without incurring material additional costs. As part of its liquidity management strategy, the Group has in place a framework capable of measuring and reporting on: (i) (ii) (iii) (iv) daily cash flows; minimum liquidity holdings; the composition and market values of company s investment portfolios, including liquid holdings; and the holding of liquid assets in the respective reinsurance, takaful and retakaful funds. In order to manage the liquidity of the reinsurance/takaful/retakaful funds, the investment mandate requires that a certain proportion of the fund is maintained as liquid assets. Accordingly, the Group is required to maintain a minimum holding of low risk assets between 10% and 15% and no maximum limit on its placements in fixed and call deposits. Maturity Profiles The table below summarises the maturity profile of the financial assets and liabilities of the Group based on remaining undiscounted contractual obligations, including interest payable and receivable. For insurance and takaful contract liabilities and reinsurance and retakaful assets, maturity profiles are determined based on estimated timing of net cash outflows from the recognised insurance/takaful liabilities. Unearned premium and contribution reserves and reserves for unearned wakalah fees have been excluded from the analysis as they are not contractual obligations. 216

113 36. Financial risk (cont d) (b) Liquidity Risk (cont d) Maturity profiles for 2015 Carrying Up to 1-5 Over No maturity value 1 year years 5 years date Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Group Financial assets at FVTPL Quoted shares in Malaysia 3, ,951 3,951 Warrants Shariah approved unit trust funds 133, , ,955 HTM investments Malaysian government securities 78,734 3,276 13, , ,896 Unquoted corporate debt securities 100,030 23,188 68,031 25, ,744 Government investment issues 543,592 21, , , ,378 AFS financial assets Unquoted shares in Malaysia 44, ,796 44,796 Malaysian government securities 49,478 1,674 42,608 9,944-54,226 Unquoted corporate debt securities 1,951, , ,052 1,368,624-2,565,573 Quoted shares in Malaysia 289, , ,064 Warrants Real estate investment trusts 7, ,837 7,837 Government investment issues 188,375 13,078 61, , ,662 Loans and receivables Fixed and call deposits with licensed: Commercial banks 190, , ,971 Investment banks 421, ,629 6, ,211 Islamic investment accounts with licensed: Co-operative bank 28,939 28, ,967 Islamic banks 1,079, , ,632 1,084,438 Investment banks 1,996 1, ,997 Development bank 58,907 59, ,059 Building society Secured staff loans 12,496 6,976 5, ,496 Income due and accrued 44,523 44, ,523 Amount due from Insurance Pool accounts 26,290 26, ,290 Other receivables and deposits 53,350 53, ,350 Reinsurance/retakaful assets 331, , ,388 40,333 13, ,343 Insurance/takaful receivables 303, , ,918 Cash and bank balances 82,702 82, ,702 Total financial and insurance assets 6,026,907 2,459,066 1,448,433 2,244, ,766 6,939,

114 36. Financial risk (cont d) (b) Liquidity Risk (cont d) Maturity profiles for 2015 (cont d) Carrying Up to 1-5 Over No maturity value 1 year years 5 years date Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Group (cont d) Loans and receivables (cont d) Borrowings (320,000) (19,480) (342,335) - - (361,815) Insurance/takaful contract liabilities (3,720,801) (765,847) (1,008,010) (1,826,581) (120,363) (3,720,801) Insurance/takaful payables (169,424) (169,424) (169,424) Other payables (170,807) (170,807) (170,807) Total financial and insurance liabilities (4,381,032) (1,125,558) (1,350,345) (1,826,581) (120,363) (4,422,847) Company AFS financial assets Unquoted shares in Malaysia Loans and receivables Fixed and call deposits with licensed: Commercial banks 8,373 8, ,409 Investment banks 11,909 11, ,970 Islamic investment accounts with licensed Islamic banks 7,879 7, ,944 Secured staff loans 3,461 3, ,461 Amounts due from subsidiaries 4,111 4, ,111 Income due and accrued Other receivables and deposits 1,266 1, ,266 Cash and bank balances 2,877 2, ,877 Total financial assets 39,998 40, ,160 Borrowings (320,000) (19,480) (342,335) - - (361,815) Other payables (9,203) (9,203) (9,203) Total financial liabilities (329,203) (28,683) (342,335) - - (371,018) 218

115 36. Financial risk (cont d) (b) Liquidity Risk (cont d) Maturity profiles for 2014 Carrying Up to 1-5 Over No maturity value 1 year years 5 years date Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Group Financial assets at FVTPL Quoted shares in Malaysia 7, ,527 7,527 Warrants Shariah approved unit trust funds 131, , ,889 HTM investments Malaysian government securities 78,936 3,276 13, , ,374 Unquoted corporate debt securities 95,344 3,994 91,199 26, ,609 Government investment issues 544,317 21, , , ,900 AFS financial assets Unquoted shares in Malaysia 44, ,796 44,796 Malaysian government securities 29,281 1,011 22,180 10,145-33,336 Unquoted corporate debt securities 1,839, , ,968 1,402,094-2,511,236 Quoted shares in Malaysia 201, , ,485 Quoted shares outside Malaysia Warrants Real estate investment trusts 6, ,821 6,821 Government investment issues 180,698 7,748 56, , ,059 Loans and receivables Fixed and call deposits with licensed: Commercial banks 310, , ,862 Investment banks 421, , ,307 Islamic investment accounts with licensed: Co-operative bank 28,824 28, ,908 Islamic banks 618, , ,837 Development bank 91,043 91, ,907 Building society 9,211 9, ,311 Institutional trust deposit 24,855 24, ,855 Uncallable negotiable Islamic deposits 18,743 18, ,846 Islamic repo placements 136, , ,414 Secured staff loans 11,202 11, ,202 Income due and accrued 40,623 40, ,623 Amount due from Insurance Pool accounts 35,266 35, ,266 Other receivables and deposits 36,993 36, ,

116 36. Financial risk (cont d) (b) Liquidity Risk (cont d) Maturity profiles for 2014 (cont d) Carrying Up to 1-5 Over No maturity value 1 year years 5 years date Total RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Group (cont d) Loans and receivables (cont d) Reinsurance/retakaful assets 367, , , ,920 24, ,473 Insurance/takaful receivables 369, , ,611 Cash and bank balances 36,644 36, ,644 Total financial and insurance assets 5,718,037 2,506,081 1,410,045 2,404, ,427 6,737,625 Borrowings (320,000) (17,900) (361,815) - - (379,715) Insurance/takaful contract liabilities (3,572,954) (746,267) (895,347) (1,664,149) (267,191) (3,572,954) Insurance/takaful payables (169,865) (169,865) (169,865) Other payables (157,393) (157,393) (157,393) Total financial and insurance liabilities (4,220,212) (1,091,425) (1,257,162) (1,664,149) (267,191) (4,279,927) Company AFS financial assets Unquoted shares in Malaysia Loans and receivables Fixed and call deposits with licensed: Commercial banks 15,464 15, ,464 Investment banks 1,461 1, ,461 Islamic investment accounts with licensed Islamic banks 1,579 1, ,579 Secured staff loans 3,326 3, ,326 Amounts due from subsidiaries 3,406 3, ,406 Income due and accrued Other receivables and deposits 1,654 1, ,654 Cash and bank balances 2,904 2, ,904 Total financial assets 29,881 29, ,881 Borrowings (320,000) (17,900) (361,815) - - (379,715) Other payables (8,933) (8,933) (8,933) Total financial liabilities (328,933) (26,833) (361,815) - - (388,648) 220

117 36. Financial risk (cont d) (c) Market Risk Market risk is the risk of loss arising from a change in the values of, or the income from, assets. A risk of loss also arises from volatility in asset prices, interest/profit rates, or exchange rates. Market risk includes the following elements: (i) (ii) (iii) Equity price risk which is the risk of fluctuations in the fair value or future cash flows of a financial instrument arising from stock market dynamics impacting equity prices; Foreign exchange risk which is the risk of fluctuations in the fair value or future cash flows of a financial instrument arising from a movement of or volatility in exchange rates; and Interest/profit rate risk which is the risk of fluctuations in the fair value or future cash flows of a financial instrument arising from variability in interest/profit rates. Equity price risk Equity price risk is the risk that the fair value of a financial instrument fluctuates because of changes in market prices (other than those arising from interest rate/profit yield risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer or factors affecting similar financial instruments traded in the market. The Group s equity risk exposures relates to financial assets and financial liabilities whose values will fluctuate as a result of changes in market prices. The Group s price risk policy requires it to manage such risks by setting and monitoring objectives and constraints on investments, diversification plans, limits on investments in each sector, market and issuer, having regard also to such limits as stipulated by BNM for its reinsurance, takaful and retakaful subsidiaries. The Group complied with such limits as stipulated by BNM during the financial year and has no significant concentration of price risk. The analysis below is performed for reasonably possible movements in key variables with all other variables held constant, showing the impact on profit before tax and equity (inclusive of the impact on other comprehensive income). The correlation of variables have a significant effect in determining the ultimate impact on price risk, but to demonstrate the impact due to changes in variables, changes in variables are considered individually. It should be noted that movements in these variables are non-linear. The equities under the investment-linked fund were excluded from the sensitivity analysis as the risks associated with the fluctuations in market prices of the equities are borne by the unitholders. 221

118 36. Financial risk (cont d) (c) Market Risk (cont d) Sensitivity analysis Changes in market indices Impact on profit before tax RM 000 Impact on equity* RM Group Price + 5% ,647 Price - 5% (1,273) (12,647) 2014 Group Price + 5% 380 9,285 Price - 5% (1,423) (9,285) 222 * The impact on equity reflects the after tax impact. Management is of the opinion that the Company is not subject to significant equity price risk and, hence, a sensitivity analysis has not been performed. Foreign exchange risk/currency risk Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to volatility in foreign exchange rates. The Group s business is conducted primarily in Malaysia and the Group s functional and presentation currency is Malaysian Ringgit. As the growth of business outside Malaysia increases, the Group s main foreign exchange risk arises primarily from recognised assets and liabilities resulting from reinsurance and retakaful transactions of the reinsurance and retakaful subsidiaries. These balances are expected to be settled and realised on net basis within 12 months; accordingly, the impact arising from sensitivity in foreign exchange rates is deemed to be manageable. Interest/profit rate risk The Group is exposed to interest/profit rate risk as follows: (i) fair values of fixed interest/profit-bearing assets would move inversely to changes in interest/profit rates; and (ii) future cash flows of variable interest/profit-bearing assets would move in direct proportion to changes in rates. The earnings of the Group are affected by changes in market interest/profit rates due to the impact such changes have on interest/profit income from cash and cash equivalents, including investments in fixed/islamic deposits. The fixed income portfolio is inversely related to profit rates and, hence, it is the source of portfolio volatility. The Group manages its interest/profit rate risk by matching, where possible, the duration and profile of assets and liabilities to minimise the impact of mismatches between the value of assets and liabilities from interest/profit rate movements. The nature of the Group s exposure to interest/profit rate risk and its objectives, policies and processes for managing interest/profit rate risk have not changed significantly from the previous financial year.

119 36. Financial risk (cont d) (c) Market Risk (cont d) Interest/profit rate risk (cont d) Sensitivity analysis A change of 25 basis points ( bp ) in interest/profit rates at the reporting date would have increased/(decreased) the value of the portfolio of fixed-income investment by the amounts shown below. Changes in variable Impact on equity* RM Group Interest/profit rates +25 bp (30,714) Interest/profit rates -25 bp 21, Group Interest/profit rates +25 bp (26,420) Interest/profit rates -25 bp 26,420 * The impact on equity reflects the after tax impact. 37. Other risks (a) Property Risk Property risk is the risk associated with the Group s investment in property or real estate for own occupancy, investment or rental purpose. The Operational Risk of the Group s Property is detailed in operational manuals that describe the responsibilities in relation to management of the properties to maintain quality and satisfied tenants. The financial risk arising from a delinquent or loss of tenants are managed at the outset through careful selection of properties with high tenancy including tenants with long term tenancies and a continuous maintenance and upgrade of facilities. The Group has no significant exposure to property risk. (b) Operational Risk Operational risk is the risk of loss arising from process and system failure, human error, specific loss events or external events. When controls fail to perform, operational risks can cause damage to the reputation of the Group, have legal or regulatory implications or can lead to financial loss. The Group cannot expect to eliminate all operational risks, but by initiating a rigorous control framework and by monitoring and responding to potential risks, the Group is able to minimise risks to an acceptable level. Controls include effective segregation of duties, effective access controls, authorisation and reconciliation procedures, continuous staff education and appropriate assessment processes, including the use of internal audit. 223

120 37. Other risks (cont d) (c) Shariah Risk Shariah risk is defined as potential Shariah non-compliance that contributes to adverse reputation, financial losses and opportunity costs resulting from ineffective governance, incompetent employees and improper transactional and operational execution. The Group mitigates such risk by initiating, monitoring and responding to a robust Shariah control framework which includes the establishment of a Shariah Committee, Shariah Department and/or Shariah Compliance Officer for monitoring and oversight purposes. The framework is guided by the Shariah Governance Framework issued by BNM which is designed to meet the following objectives: (i) (ii) (iii) sets out the expectations of BNM on the Group s Shariah governance structures, processes and arrangements to ensure that all its operations and business activities are in accordance with Shariah; provides a comprehensive guidance to the Board, Shariah Committee and management of the Group in discharging its duties in matters relating to Shariah; and outlines the functions relating to Shariah review, Shariah Audit, Shariah Risk management and Shariah research. (d) Compliance Risk Compliance risk is the risk arising from violations of, or non conformance with, business principles, internal policies and procedures, related laws and rules and regulations governing the Group s products, services and activities. Consequently, the exposure to this risk can damage the Group s reputation, lead to legal or regulatory sanctions and/or financial loss. The Group has established a Compliance Division at the Group and subsidiary level to oversee and monitor all compliance aspects in observing regulatory requirements. In this respect, it has developed internal policies and procedures to ensure compliance with all applicable laws and guidelines issued by the regulatory authorities. 224

121 38. Insurance, takaful and retakaful funds (i) Consolidated income statement by fund for the year ended 31 March 2015 General reinsurance and shareholders fund General takaful fund Family takaful fund General retakaful fund Family retakaful fund Eliminations and adjustments Consolidated RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Gross earned premiums/ contributions 1,323, , ,955 34,267 35,711 (23,984) 2,191,597 Premiums/contributions ceded to reinsurers/retakaful operators (110,236) (96,352) (39,205) (10,913) (7,549) 19,989 (244,266) Net earned premiums/ contributions 1,213, , ,750 23,354 28,162 (3,995) 1,947,331 Investment income 167,126 12,712 81,851 3, (66,543) 199,507 Net realised gains 2, , ,733 Net fair value gains/(losses) 4,668 (761) (9,557) (171) (18) - (5,839) Fee and commission income 315,953 26, (307,699) 35,737 Other operating revenue 9, (688) 10,471 Other revenue 500,259 40,329 78,362 4,156 1,433 (374,930) 249,609 Gross claims and benefit paid (809,894) (130,098) (243,079) (39,934) (43,301) 25,625 (1,240,681) Claims ceded to reinsurers/ retakaful operators 53,392 48,788 57,121 12,356 8,655 (25,625) 154,687 Gross change in contract liabilities (33,703) (8,820) (102,854) (7,583) 5,113 - (147,847) Change in contract liabilities ceded to reinsurers/retakaful operators 46,049 20,204 (109,322) 6, (36,130) Net claims and benefits (744,156) (69,926) (398,134) (28,594) (29,161) - (1,269,971) 225

122 38. Insurance, takaful and retakaful funds (Cont d) (i) Consolidated income statement by fund (cont d) for the year ended 31 March 2015 (cont d) General reinsurance and shareholders fund General takaful fund Family takaful fund General retakaful fund Family retakaful fund Eliminations and adjustments Consolidated RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Fee and commission expense (431,092) (103,942) (152,548) (9,096) (4,376) 265,655 (435,399) Management expenses (246,679) (3,439) (8,609) ,172 (209,555) Finance costs (18,123) (18,123) Other operating expenses (35,782) - (7,621) (405) - 36,128 (7,680) Changes in expense liabilities (10,764) (10,764) Tax borne by participants - (8,508) (4,757) (13,265) Other expenses (742,440) (115,889) (173,535) (9,501) (4,376) 350,955 (694,786) Share of results of associates ,157 4,157 Operating profit/(loss) before surplus attributable to takaful participants, zakat and taxation 226,719 26,518 21,443 (10,585) (3,942) (23,813) 236,340 Surplus attributable to takaful participants - (26,518) (21,443) - - 2,326 (45,635) Operating profit/(loss) before zakat and taxation 226, (10,585) (3,942) (21,487) 190,705 Zakat (960) (960) Taxation (50,597) (50,597) Net profit/(loss) for the year attributable to equity holders of the Parent 175, (10,585) (3,942) (21,487) 139,

123 38. Insurance, takaful and retakaful funds (Cont d) (i) Consolidated income statement by fund (cont d) for the year ended 31 March 2014 General reinsurance and shareholders fund General takaful fund Family takaful fund General retakaful fund Family retakaful fund Eliminations and adjustments Consolidated RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Gross earned premiums/ contributions 1,334, , ,961 68,876 53,071 (30,725) 2,182,962 Premiums/contributions ceded to reinsurers/retakaful operators (97,053) (68,259) (40,375) (14,433) (6,614) 27,210 (199,524) Net earned premiums/ contributions 1,237, , ,586 54,443 46,457 (3,515) 1,983,438 Investment income 203,709 11,035 66,420 3, (110,601) 174,235 Net realised gains 5,257 1,559 13, ,056 Net fair value gains/(losses) ,119 (95) - (920) 3,796 Fee and commission income 296,874 15, ,158 2 (288,742) 24,574 Other operating revenue 12,697 2,506 (1,585) (1,520) 12,242 Other revenue 519,202 30,308 82,959 4, (401,783) 235,903 Gross claims and benefit paid (685,322) (108,745) (185,325) (32,533) (52,410) - (1,064,335) Claims ceded to reinsurers/ retakaful operators 97,925 31,679 14,767 2,035 4, ,356 Gross change in contract liabilities (64,351) (3,904) (286,923) (8,658) (16,178) - (380,014) Change in contract liabilities ceded to reinsurers/retakaful operators (73,281) 16,183 49,694 17,735 1,406-11,737 Net claims and benefits (725,029) (64,787) (407,787) (21,421) (62,232) - (1,281,256) 227

124 38. Insurance, takaful and retakaful funds (Cont d) (i) Consolidated income statement by fund (cont d) for the year ended 31 March 2014 (cont d) General reinsurance and shareholders fund General takaful fund Family takaful fund General retakaful fund Family retakaful fund Eliminations and adjustments Consolidated RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Fee and commission expense (436,966) (73,632) (165,109) (23,111) (6,135) 253,729 (451,224) Management expenses (233,465) (2,290) (7,157) ,501 (195,411) Finance costs (17,916) (17,916) Other operating expenses (86,458) (425) - (622) (9) 82,360 (5,154) Changes in expense liabilities (18,637) (18,637) Tax borne by participants - (7,172) (6,894) (13,992) Other expenses (793,442) (83,519) (179,160) (23,733) (6,144) 383,664 (702,334) Share of results of associates ,437 2,437 Operating profit/(loss) before surplus attributable to takaful participants, zakat and taxation 238,251 22,949 3,598 13,947 (21,360) (19,197) 238,188 Surplus attributable to takaful participants - (22,949) (3,598) - - 3,087 (23,460) Operating profit/(loss) before zakat and taxation 238, ,947 (21,360) (16,110) 214,728 Zakat (400) (400) Taxation (82,342) ,000 (58,342) Net profit/(loss) for the year attributable to equity holders of the Parent 155, ,947 (21,360) 7, ,

125 38. Insurance, takaful and retakaful funds (cont d) (ii) Consolidated statement of financial position by fund as at 31 March 2015 General reinsurance and shareholders fund General takaful fund Family takaful fund General retakaful fund Family retakaful fund Eliminations and adjustments Consolidated RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Assets Property, plant and equipment 130, , ,495 Investment properties 7, , (106,922) 7,100 Intangible assets 14, ,632 Deferred tax assets 7, ,554 11,484 Investments in subsidiaries 843, (843,705) - Investments in associates 77, , ,567 Financial assets: Financial assets at FVTPL , ,934 HTM investments 281,578 71, ,163 19,211 12, ,356 AFS financial assets 1,532, ,158 1,084,084 30,075 18,661 (307,865) 2,530,716 LAR 1,131,858 73, ,808 38,710 3, ,032 1,917,938 Reinsurance/retakaful assets 196, ,633 30,216 28,868 7, ,653 Insurance/takaful receivables 218,963 29,296 44,233 14,825 2,642 (6,041) 303,918 Tax recoverable 24, ,216 Cash and bank balances 16,044 24,116 42, ,702 Total assets 4,484, ,650 2,251, ,134 44,795 (921,073) 6,476,711 Liabilities and Participants funds Participants funds - 55, ,291 3,173 - (4,078) 286,726 Borrowings 320, ,000 Insurance/takaful contract liabilities 1,792, ,180 1,903, ,532 28,770 (10,000) 4,159,278 Insurance/takaful payables 105,713 21,797 32,131 10,273 5,551 (6,041) 169,424 Other payables 84,021 66,919 81,750 10,156 10,465 (82,504) 170,807 Deferred tax liabilities 1, , ,682 7,676 Provision for taxation 8,461 3, ,455 Provision for zakat Total liabilities and participants funds 2,313, ,650 2,251, ,134 44,795 (98,941) 5,127,237 Equity Share capital 1,126, (913,500) 213,070 Reserves 1,045, ,368 1,136,404 Total equity attributable to equity holders of the Parent 2,171, (822,132) 1,349,474 Total liabilities, participants funds and equity 4,484, ,650 2,251, ,134 44,795 (921,073) 6,476,

126 38. Insurance, takaful and retakaful funds (cont d) (ii) Consolidated statement of financial position by fund (cont d) as at 31 March 2014 General reinsurance and shareholders fund General takaful fund Family takaful fund General retakaful fund Family retakaful fund Eliminations and adjustments Consolidated RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 RM 000 Assets Property, plant and equipment 130, , ,936 Investment properties 6, , (106,922) 6,900 Intangible assets 14, ,519 Deferred tax assets 21,846 1, ,180 Investments in subsidiaries 872, (872,032) - Investments in associates 77, ,438 96,053 Financial assets: Financial assets at FVTPL 1,841 1, , ,478 HTM investments 290,927 72, ,336 19,243 4, ,597 AFS financial assets 1,213,832 93, ,347 31,250 6,253-2,303,023 LAR 1,342, , ,568 54,640 19,850 (135,703) 1,783,211 Reinsurance/retakaful assets 150,214 80, ,538 22,858 6, ,787 Insurance/takaful receivables 228,906 32,274 88,964 16,121 3, ,611 Tax recoverable 5, ,462 Cash and bank balances 15,911 7,551 13, ,644 Non-current assets held for sale 1, ,696 Total assets 4,374, ,972 2,112, ,977 40,427 (988,333) 6,136,097 Liabilities and Participants funds Participants funds - 33, ,344 13,415 - (14,133) 217,476 Borrowings 320, ,000 Insurance/takaful contract liabilities 1,760, ,552 1,800, ,064 33,883 (10,000) 4,012,263 Insurance/takaful payables 102,005 16,580 28,417 16,319 6, ,865 Other payables 83,689 79,183 98,987 8,179 - (112,645) 157,393 Deferred tax liabilities 6, ,682 8,298 Provision for taxation 24,737 1, ,965 Provision for zakat Total liabilities and participants funds 2,297, ,972 2,112, ,977 40,427 (135,096) 4,912, Equity Share capital 1,124, (911,500) 213,070 Reserves 952, ,263 1,010,399 Total equity attributable to equity holders of the Parent 2,076, (853,237) 1,223,469 Total liabilities, participants funds and equity 4,374, ,972 2,112, ,977 40,427 (988,333) 6,136,097

127 39. Significant events The Company, in the previous financial year, had made disclosures on the notices of assessment and notices of additional assessment (i.e. Form J and Form JA) for the years of assessment 2006, 2007, 2008 and 2009, issued by the Inland Revenue Board ( IRB ) to its wholly owned subsidiary Takaful IKHLAS Berhad ( Takaful IKHLAS ), disallowing Family business commission expenses as deductions against the earning of wakalah fee income. The additional tax payable by Takaful IKHLAS under the said notices was RM48,982,970. In addition, the IRB had also imposed a penalty of RM22,042,336 as the tax returns by Takaful IKHLAS for those years were regarded as incorrect. Takaful IKHLAS received a confirmation from the Ministry of Finance ( MOF ) subsequently, granting an exemption of tax on the wakalah fee income of the shareholder s fund received from the family takaful fund for the years of assessment 2004 to With MOF s above exemption, the total instalment payments made to date to the IRB which amounted to RM18,239,672 would be receivable from the IRB. This amount has been reduced following the set off made against the tax payable for the previous year of assessment amounting to RM7,323,348. Takaful IKHLAS is currently pursuing the recovery of the remaining balance from the IRB through the Special Commissioners of Income Tax. In addition to the amount receivable from IRB of RM10,916,324, the Takaful IKHLAS had revised the tax computations for years of assessment 2010 to 2014 based on the letter from MOF. This had resulted in tax recoverable of RM12,200,831 from the IRB which had been recognised in the current financial year. Takaful IKHLAS is pursuing this matter with the IRB. 40. Fair values of assets MFRS 7 Financial Instruments: Disclosures ( MFRS 7 ) requires the classification of financial instruments measured at fair value according to a hierarchy that reflects the significance of inputs used in making the measurements, in particular, whether the inputs used are observable or unobservable. MFRS 13 Fair Value Measurement requires similar disclosure requirements as MFRS 7, but extended these requirements to include all assets and liabilities measured and/or disclosed at fair value. The following levels of hierarchy are used for determining and disclosing the fair value of the Group and of the Company s assets: Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 - Inputs that are based on observable market data, either directly or indirectly Level 3 - Inputs that are not based on observable market data The fair values of the Group and Company s assets are determined as follows: (i) (ii) (iii) (iv) (v) The carrying amounts of financial assets and financial liabilities, such as loans and receivables, insurance/takaful receivables, cash and bank balances, insurance/takaful payables and other payables, are reasonable approximation of their fair values due to the relatively short term maturity of these balances; The fair values of quoted equities are based on quoted market prices as at the reporting date; The fair values of Malaysian government securities, government investment issues and unquoted corporate debt securities are based on indicative market prices from the Bond Pricing Agency of Malaysia ( BPAM ); The fair values of investments in mutual funds, unit trust funds and real estate investment trusts are valued based on the net asset values of the underlying funds as at the reporting date; and Freehold land and buildings and investment property have been revalued based on valuations performed by an accredited independent valuer having an appropriate recognised professional qualification. The valuations are based on the income method. In arriving at the fair value of the assets, the valuer had also taken into consideration the future developments in terms of infrastructure in the vicinity of the properties. 231

128 40. Fair values of assets (cont d) Description of significant unobservable inputs: Valuation technique Significant unobservable inputs Range 2015 Property, plant and equipment Office building Income approach Yield 6.0% to 6.25% Rental per square foot RM4.50 Investment properties Shoplots Income approach Rental per square metre RM Property, plant and equipment Office building Income approach Yield 6.0% to 6.5% Rental per square foot RM4.50 Investment properties Shoplots Income approach Rental per square metre RM2.00 AFS financial assets Unquoted corporate debt securities Income approach Estimated haircut based on projected performance 45% A significant increase or decrease in the unobservable inputs used in the valuation would result in a correspondingly higher or lower fair value. There have been no transfers between Level 1 and Level 2 during the financial year. 232

129 40. Fair values of assets (cont d) As at the reporting date, the Group and the Company held the following assets that are measured and/or disclosed at fair value under Levels 1, 2 and 3 of the fair value hierarchy: Level 1 Level 2 Level 3 Total Group RM 000 RM 000 RM 000 RM Assets measured at fair value: (a) Property, plant and equipment Freehold land ,000 34,000 Buildings , , , ,943 (b) Investment property - - 7,100 7,100 (c) Financial assets at FVTPL Quoted shares in Malaysia 3, ,951 Warrants Shariah approved unit trust funds 133, , , ,934 (d) AFS financial assets Malaysian government securities - 49,478-49,478 Unquoted corporate debt securities - 1,951,026-1,951,026 Quoted shares in Malaysia 289, ,064 Quoted shares outside Malaysia Warrants Real estate investment trusts 7, ,836 Government investment issues - 188, , ,041 2,188,879-2,485,920 Assets for which fair values are disclosed: HTM investments Malaysian government securities - 77,817-77,817 Unquoted corporate debt securities - 100, ,578 Government investment issues - 537, , , ,

130 40. Fair values of assets (cont d) Level 1 Level 2 Level 3 Total Group (cont d) RM 000 RM 000 RM 000 RM Assets measured at fair value: (a) Property, plant and equipment Freehold land ,260 32,260 Buildings , , , ,565 (b) Investment property - - 6,900 6,900 (c) Financial assets at FVTPL Quoted shares in Malaysia 7, ,527 Warrants Shariah approved unit trust funds 131, , , ,478 (d) AFS financial assets Malaysian government securities - 29,281-29,281 Unquoted corporate debt securities - 1,833,355 6,115 1,839,470 Quoted shares in Malaysia 201, ,485 Quoted shares outside Malaysia Warrants Real estate investment trusts 6, ,821 Government investment issues - 180, , ,778 2,043,334 6,115 2,258,

131 40. Fair values of assets (cont d) Level 1 Level 2 Level 3 Total Group (cont d) RM 000 RM 000 RM 000 RM Assets for which fair values are disclosed: HTM investments Malaysian government securities - 75,558-75,558 Unquoted corporate debt securities - 95,167-95,167 Government investment issues - 529, , , ,862 Reconciliation of Level 3 fair value hierarchy Group RM 000 RM 000 AFS financial assets At beginning of year 6,115 - Unquoted corporate debt securities transferred from Level 2-6,115 Reversal of impairment loss 4,990 - Fair value gain Unquoted corporate debt securities transferred to Level 2 (11,874) - At end of year - 6,

132 41. Supplementary information - breakdown of retained profits into realised and unrealised profits or losses The breakdown of the retained profits of the Group and of the Company as at 31 March 2015 into realised and unrealised profits or losses is presented in accordance with the directives issued by Bursa Malaysia Securities Berhad dated 25 March 2010 and 20 December 2010 and prepared in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants. Group Company RM 000 RM 000 RM 000 RM 000 Realised and unrealised profits of the Company and its subsidiaries: - Realised 997, , , ,385 - Unrealised 4,913 11,450-1,502 1,002, , , ,887 Share of accumulated losses from associated companies (3,456) (3,923) , , , ,887 Less: Consolidation adjustments (31,962) (35,544) - - Total retained profits 966, , , ,

133 ANALYSIS OF SHAREHOLDINGS AS AT 28 JULY 2015 SHARE CAPITAL Authorised Capital Issued and Fully Paid-up Capital : RM500,000,000 ordinary shares : 213,069,500 ordinary shares of RM1.00 each No. of shareholders : 5,652 Class of Shares Voting Rights : RM1.00 ordinary shares : 1 vote per ordinary share ANALYSIS BY SIZE OF SHAREHOLDINGS Share Capital Size of Shareholdings No. of Holders Shareholders Percentage of Percentage of Shareholders No. of Shares Share Capital (%) (%) Less than , ,000 1, ,618, ,001 10,000 2, ,075, , , ,445, ,001 to less than 5% of issued shares ,125, % and above of issued shares ,802, Total 5, ,069, LIST OF SUBSTANTIAL SHAREHOLDERS (5% AND ABOVE) AS AT 28 JULY 2015 No. Name of Substantial Shareholders Shareholdings Percentage (%) 1 AMANAHRAYA TRUSTEES BERHAD <SKIM AMANAH SAHAM BUMIPUTERA> 98,617, PERMODALAN NASIONAL BERHAD 27,185, LIST OF THIRTY (30) LARGEST SHAREHOLDERS AS AT 28 JULY 2015 No. Name of Shareholders No. of Shares Percentage (%) 1 AMANAHRAYA TRUSTEES BERHAD <SKIM AMANAH SAHAM BUMIPUTERA> 98,617, PERMODALAN NASIONAL BERHAD 27,185, AMANAHRAYA TRUSTEES BERHAD <AMANAH SAHAM MALAYSIA> 2,300,

134 ANALYSIS OF SHAREHOLDINGS (CONT D) AS AT 28 JULY 2015 LIST OF THIRTY (30) LARGEST SHAREHOLDERS AS AT 28 JULY 2015 (CONT D) No. Name of Shareholders No. of Shares Percentage (%) 4 JOHAN ENTERPRISE SDN. BHD. 2,230, CITIGROUP NOMINEES (ASING) SDN BHD <CBNY FOR DIMENSIONAL EMERGING MARKETS VALUE FUND> 6 ALLIANCEGROUP NOMINEES (TEMPATAN) SDN BHD <PLEDGED SECURITIES ACCOUNT FOR SHANMUGAM A/L THOPPALAN ( )> 7 HSBC NOMINEES (TEMPATAN) SDN BHD <HSBC (M) TRUSTEE BHD FOR AMB ETHICAL TRUST FUND (4256)> 8 MAYBANK NOMINEES (ASING) SDN BHD <EXEMPT AN FOR DBS BANK LIMITED (CLIENT A/C)> 9 HONG LEONG ASSURANCE BERHAD <AS BENEFICIAL OWNER (S HOLDERS NPAR)> 1,702, ,694, ,556, ,545, ,191, NEOH CHOO EE & COMPANY, SDN. BERHAD 1,080, CITIGROUP NOMINEES (ASING) SDN BHD <CBNY FOR EMERGING MARKET CORE EQUITY PORTFOLIO DFA INVESTMENT DIMENSIONS GROUP INC> 12 HSBC NOMINEES (TEMPATAN) SDN BHD <HSBC (M) TRUSTEE BHD FOR PERTUBUHAN KESELAMATAN SOSIAL (UOB AMM )> 13 HSBC NOMINEES (ASING) SDN BHD <EXEMPT AN FOR THE BANK OF NEW YORK MELLON (MELLON ACCT)> 14 CIMB GROUP NOMINEES (TEMPATAN) SDN BHD <CIMB COMMERCE TRUSTEE BERHAD-AMB SMALLCAP TRUST FUND> 15 PUBLIC NOMINEES (TEMPATAN) SDN BHD <PLEDGED SECURITIES ACCOUNT FOR LIM HOCK FATT (E-SS2)> 16 CITIGROUP NOMINEES (ASING) SDN BHD <CBNY FOR DFA EMERGING MARKETS SMALL CAP SERIES> 958, , , , , , THONG SU-F NG 644, HSBC NOMINEES (ASING) SDN BHD <TNTC FOR LSV EMERGING MARKETS SMALL CAP EQUITY FUND, LP> 19 ALLIANCEGROUP NOMINEES (TEMPATAN) SDN BHD <PLEDGED SECURITIES ACCOUNT FOR CHONG YIEW ON ( )> 20 AFFIN HWANG NOMINEES (TEMPATAN) SDN. BHD. <UOB KAY HIAN PTE LTD FOR RAJ KUMAR A/L R GOPAL PILLAI (MARGIN)> 21 HLB NOMINEES (TEMPATAN) SDN BHD <PLEDGED SECURITIES ACCOUNT FOR GOH CHU YONG> 629, , , , NAHOORAMMAH A/P SITHAMPARAM PILLAY 580,

135 ANALYSIS OF SHAREHOLDINGS (CONT D) AS AT 28 JULY 2015 LIST OF THIRTY (30) LARGEST SHAREHOLDERS AS AT 28 JULY 2015 (CONT D) No. Name of Shareholders No. of Shares Percentage (%) 23 CHUA HIN BEE 550, HONG LEONG ASSURANCE BERHAD <AS BENEFICIAL OWNER (LIFE PAR)> 550, LEE KOK HAI 521, GAN GAN HONG LEONG 513, MAYBANK NOMINEES (TEMPATAN) SDN BHD <PLEDGED SECURITIES ACCOUNT FOR NG CHEE SIONG> 468, LEONG SOO LEONG CHOON YIN 451, HA SAU KIN 426, MENG HIN HOLDINGS SDN BHD 409, Total 151,958, MNRB HOLDINGS BERHAD INFORMATION ON DIRECTORS SHAREHOLDINGS AS AT 28 JULY 2015 No. Name of Directors Shareholdings Percentage (%) 1 Sharkawi Alis Mohd Din Merican P. Raveenderen 10, Dato Syed Ariff Fadzillah Syed Awalluddin Yusoff Yaacob Megat Dziauddin Megat Mahmud Paisol Ahmad Hijah Arifakh Othman - - CATEGORY OF SHAREHOLDERS AS AT 28 JULY 2015 Type of Ownership Shareholders Percentage (%) Shareholdings Percentage (%) Government Agencies Individual 4, ,645, Companies ,986, Nominees Company ,437, Grand Total 5, ,069,

136 LIST OF PROPERTIES 31 MARCH 2015 Address Date of Acquisition Date of Revaluation Description of Properties Tenure/Existing Use/Age of Buildings Land Area (sq.ft.) Build-Up Area (sq.ft.) Net Book Value as at 31/3/2015 (RM) Investment Properties No. 15, Jalan Sri Hartamas 7 Taman Sri Hartamas Kuala Lumpur 14 July March unit of 4 storey shophouse Freehold/rented out/31 years 1,600/6,150 3,500,000 No. 17, Jalan Sri Hartamas 7 Taman Sri Hartamas Kuala Lumpur 14 July March unit of 4 storey shophouse Freehold/rented out/31 years 1,600/6,150 3,600,000 Total Investment Properties 7,100,000 Self Occupied Properties Ikhlas Point, Tower 11 Avenue 5, Bangsar South No. 8, Jln Kerinchi Kuala Lumpur 22 December March unit of 11 storey intermediate office building Leasehold/ office premise/ rented out/ 7 years strata 37,562,000 Ikhlas Point, Tower 11A Avenue 5, Bangsar South No. 8, Jln Kerinchi Kuala Lumpur 19 November March unit of 10 storey corner office building Leasehold/ office premise/ occupied/ 7 years strata 66,560,000 No. 17, Lorong Dungun Damansara Heights Kuala Lumpur 17 February March unit of 12 storey building with 2 storey basement car park Freehold/ office premise/ rented out/ 20 years 61,300/ 366, ,300,000 Lot 528, Section 6 Kuching Town Land District No. 11C, Jalan Kulas Kuching, Sarawak 7 September March Storey intermediate terraced shophouse Leasehold/ office premise/ occupied/5 years Not applicable/ 1,200 1,800,000 Manchester Tower Apartment 2406, Dubai Marina Dubai, UAE 28 July March unit of apartment Freehold/ occupied by staff/ 7 years Not applicable/ 1,011 1,408,000 Apt. 507 Marina Diamond 5 Dubai Marina Dubai, UAE 29 July March unit of apartment Freehold/ occupied by staff/ 7 years Not applicable/ 1,084 1,555,000 Yansoon 4, Apartment 204 Burj Khalifa, Dubai Downtown, UAE 30 September March unit of apartment Freehold/ occupied by staff/ 5 years Not applicable/ 1,475 1,758,000 Pejabat Wilayah Kelantan PT 483, Jalan Jambatan Sultan Yahya KB waterfront, Seksyen Kota Bahru, Kelantan 31 January March storey shophouse Leasehold/ office premise/ occupied/2 years Not applicable/ 4,680 1,000,000 Total Self Occupied Properties 226,943,