lonpac insurance bhd · 2018-11-07 · • the brandlaureate - tun dr. mahathir mohamad man of the...

Lonpac Insurance Bhd (Company No. 307414-T) (Incorporated in Malaysia)

Financial statements for the year ended 31 December 2016 together with Directors’ and Auditors’ reports

Lonpac Insurance Bhd (Company No. 307414-T) (Incorporated in Malaysia) Contents Page Directors’ report 1 - 39 Statement of financial position 40 Statement of profit or loss 41 Statement of profit or loss and other comprehensive income 42 Statement of changes in equity 43 - 44 Statement of cash flow 45 - 46 Notes to the financial statements 47 - 135 Statement by Directors 136 Statutory declaration 137 Auditors’ report 138 - 140

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Lonpac Insurance Bhd (Company No. 307414-T) (Incorporated in Malaysia) Directors’ report for the year ended 31 December 2016 The Directors have pleasure in submitting their report together with the audited financial statements of the Company for the financial year ended 31 December 2016. Principal activity The Company is engaged principally in the underwriting of all classes of general insurance business. There has been no significant change in the nature of this principal activity during the financial year. Results RM’000 Profit for the year attributable to owner of the Company 256,998 Reserves and provisions There were no material transfers to or from reserves and provisions during the financial year under review except as disclosed in the financial statements. Dividends Since the end of the previous financial year, the Company paid: i) a second interim single tier dividend of 50.00 sen per ordinary share totaling

RM100,000,000 in respect of the financial year ended 31 December 2015 on 4 February 2016; and

ii) a first interim single tier dividend of 30.00 sen per ordinary share totaling

RM60,000,000 in respect of the financial year ended 31 December 2016 on 19 July 2016.

The second interim single tier dividend recommended by the Directors in respect of the year ended 31 December 2016 is 55.00 sen per ordinary share totaling RM110,000,000. The Directors do not recommend any final dividend to be paid for the financial year under review.

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Company No. 307414-T Directors of the Company Directors who served since the date of the last report are: Tan Sri Dato’ Sri Dr. Teh Hong Piow Tee Choon Yeow Lee Chin Guan

Tan Kok Guan Quah Poh Keat Chan Kwai Hoe

Dato’ Haji Abdul Aziz bin Dato’ Dr. Omar (retired on 28 January 2016) Directors’ interests in shares As the Company is a wholly-owned subsidiary of another corporation, the interests in the shares of the holding company of all the Directors, who are also Directors of the holding company, are shown in the Directors’ report of the holding company. Directors’ benefits Since the end of the previous financial year, no Director of the Company has received nor become entitled to receive any benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by Directors as shown in the financial statements or the fixed salaries of full time employees of the Company or of related corporations as disclosed in Note 25 to the financial statements) by reason of a contract made by the Company or a related corporation with the Director or with a firm of which the Director is a member, or with a company in which the Director has a substantial financial interest, other than a Director who has significant financial interests in companies which traded with the Company in the ordinary course of business as disclosed in Note 31 to the financial statements. There were no arrangements during and at the end of the financial year which had the object of enabling Directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. Issue of shares and debentures There were no changes in the authorised, issued and paid-up capital of the Company during the financial year. There were no debentures issued during the financial year. Options granted over unissued shares No options were granted to any person to take up unissued shares of the Company during the financial year.

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Company No. 307414-T Board of Directors Name and designation (i.e. independent, non-independent non-executive, executive, chairman) of each director Name Designation Tan Sri Dato’ Sri Dr. Teh Hong Piow Non-Independent Non-Executive Chairman Mr Tee Choon Yeow Non-Independent Non-Executive Director Mr Lee Chin Guan Independent Non-Executive Director Mr Tan Kok Guan Executive Director Mr Quah Poh Keat Non-Independent Non-Executive Director Ms Chan Kwai Hoe Independent Non-Executive Director The Directors do not have any direct interest in the shares of the Company. Pursuant to Schedule 3 of Financial Services Act 2013, the aggregate interest in shares held by Directors in Lonpac, are as follows :- Name Aggregate Interest in Shares Tan Sri Dato’ Sri Dr. Teh Hong Piow 44.19% Mr Tee Choon Yeow 0.29% Mr Lee Chin Guan 0.68% Mr Tan Kok Guan 0.16% Mr Quah Poh Keat - Ms Chan Kwai Hoe - External Professional Commitments According to Bank Negara Malaysia’s (“BNM”) Policy Document on Corporate Governance and Lonpac’s Board Charter, Directors must not have competing time commitment that impair their ability to discharge their duties effectively. To ensure that, each Director must not hold more than 5 directorships in listed issuers. While there is no restriction on directorships in non-listed issuers, Directors should avoid over commitment in multiple directorships which may affect their performance in carry out their role as Directors of the Company. Name Directorship in listed issuer Tan Sri Dato’ Sri Dr. Teh Hong Piow 2 Mr Tee Choon Yeow 1 Mr Lee Chin Guan 1 Mr Tan Kok Guan 1 Mr Quah Poh Keat 3 Ms Chan Kwai Hoe 1

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Company No. 307414-T Board of Directors (continued) The following are the Chairman and members of each board committee

1. Audit Committee

Mr Lee Chin Guan Chairman

Independent Non-Executive Director

Mr Tee Choon Yeow Member Non-Independent Non-Executive Director

Mr Quah Poh Keat Member Non-Independent Non-Executive Director

Ms Chan Kwai Hoe Member Independent Non-Executive Director

2. Nominating Committee





Mr Tan Kok Guan

Member Executive Director


3. Remuneration Committee





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Company No. 307414-T Board of Directors (continued)

4. Risk Management and Compliance Committee






The following are the number of meetings convened by the board and each board committee: Type of Meeting No. of Meeting convened in year 2016 1. Board of Directors 14 2. Audit Committee 9 3. Nominating Committee 8 4. Remuneration Committee 3 5. Risk Management and

Compliance Committee 7

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Company No. 307414-T Board of Directors (continued) The following is the attendance of each Director at board and board committee meetings during the financial year: 1. Board of Directors’ Meeting

Name Designation Attendance Tan Sri Dato’ Sri Dr. Teh Hong Piow

Non-Independent Non-Executive Chairman

13/14

Mr Tee Choon Yeow Non-Independent Non-Executive Director

14/14

Mr Lee Chin Guan Independent Non-Executive Director

14/14

Mr Tan Kok Guan Executive Director

14/14

Mr Quah Poh Keat Non-Independent Non-Executive Director

14/14

Ms Chan Kwai Hoe Independent Non-Executive Director 14/14 2. Audit Committee Meeting

Name Designation Attendance Mr Lee Chin Guan Chairman


9/9


9/9


9/9


9/9

3. Remuneration Committee



3/3


3/3


3/3

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Company No. 307414-T Board of Directors (continued) 4. Nominating Committee



8/8


8/8


8/8

Mr Tan Kok Guan

Member Executive Director

8/8


8/8

5. Risk Management and Compliance Committee



7/7


7/7


7/7


7/7

The maximum tenure of an Independent Non-Executive Director (INED) shall be upon him having served 9 years from the date of his first appointment as Director or upon the expiry of his prevailing term of appointment as Director as approved by BNM, whichever is the later date. Upon reaching such maximum tenure, the INED shall, subject to the approval of BNM for his re-appointment as Director, remain as a Director but shall be re-designated as Non- Independent Non-Executive Director.

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Company No. 307414-T Board of Directors (continued) Profile of Directors The following are the profile of the Directors of the Company: TAN SRI DATO’ SRI DR. TEH HONG PIOW NON-INDEPENDENT NON-EXECUTIVE CHAIRMAN Tan Sri Dato’ Sri Dr. Teh Hong Piow, aged 86, male, was appointed to the Board of the Company on 3 May 1999 and has served as Chairman of the Company since then. He is also a Non-Independent Non-Executive Director and Chairman of Lonpac Insurance Bhd’s holding company, LPI Capital Bhd, a public company listed on the Main Market of Bursa Malaysia Securities Berhad. Tan Sri Dato’ Sri Dr. Teh is a banker by profession. He began his banking career in 1950 and has 67 years’ experience in the banking and finance industry. He founded Public Bank Bhd in 1965 at the age of 35. Tan Sri Dato’ Sri Dr. Teh had won both domestic and international acclaim for his outstanding achievements as a banker and the Chief Executive Officer of a leading financial services group. Awards and accolades that he had received include :- • Asia’s Commercial Banker of the Year 1991 • The ASEAN Businessman of the Year 1994 • Malaysia’s Business Achiever of the Year 1997 • Malaysia’s CEO of the Year 1998 • Best CEO in Malaysia 2004 • The Most PR Savvy CEO 2004 • The Asian Banker Leadership Achievement Award 2005 for Malaysia • Award for Outstanding Contribution to the Development of Financial Services in Asia

2006 • Lifetime Achievement Award 2006 • Award for Lifetime Achievement in Corporate Excellence, Dedication and Industry 2006 • Asia’s Banker of High Distinction Award 2006 • The BrandLaureate Brand Personality Award 2007 • ASEAN Most Astute Banker Award 2007

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Company No. 307414-T Board of Directors (continued) Profile of Directors (continued) TAN SRI DATO’ SRI DR. TEH HONG PIOW (continued) NON-INDEPENDENT NON-EXECUTIVE CHAIRMAN (continued) • Lifetime Entrepreneurship Achievement Award 2007 • The Pila Recognition Award 2007 • Asian Banker Par Excellence Award 2008 • Best CEO in Malaysia 2009 • Asia’s Banking Grandmaster 2010 • Asian Corporate Director Recognition Award 2010 for Malaysia • Value Creator: Malaysia’s Outstanding CEO 2010 • The BrandLaureate - Tun Dr. Mahathir Mohamad Man of the Year Award 2010 – 2011 • Best CEO (Investor Relations) 2011 for Malaysia • Asian Corporate Director Recognition Award 2011 for Malaysia • The BrandLaureate Premier Brand Icon Leadership Award 2011 • Best CEO (Investor Relations) 2012 for Malaysia • Asian Corporate Director Recognition Award 2012 for Malaysia • Best CEO (Investor Relations) 2013 for Malaysia • Asian Corporate Director Recognition Award 2013 for Malaysia • BrandLaureate Banker of the Year Award 2012 – 2013 • Best CEO (Investor Relations) 2014 for Malaysia • Asian Corporate Director Recognition Award 2014 for Malaysia • Banker Extraordinaire 2015 • Global Chinese Entrepreneur Lifetime Achievement Award 2015 • BrandLaureate "Icon of Icons - The King of Banking" • Asia’s Best CEO (Investor Relations) 2015 for Malaysia

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Company No. 307414-T Board of Directors (continued) Profile of Directors (continued) TAN SRI DATO’ SRI DR. TEH HONG PIOW (continued) NON-INDEPENDENT NON-EXECUTIVE CHAIRMAN (continued) • William "Bill" Seidman Lifetime Leadership Achievement in Financial Service Industry

Award 2015 • Asian Corporate Director Recognition Award 2015 for Malaysia • Asia’s Best CEO (Investor Relations) 2016 for Malaysia Tan Sri Dato’ Sri Dr. Teh was awarded the Medal ‘For the Course of Vietnamese Banking’ by the State Bank of Vietnam in 2002 for his contributions to the Vietnamese banking industry over the past years. Tan Sri Dato’ Sri Dr. Teh was conferred the Recognition Award 2007 by the National Bank of Cambodia in appreciation of his excellent achievement and significant contribution to the banking industry in Cambodia. Tan Sri Dato’ Sri Dr. Teh was conferred the Royal Order of Monisaraphon, Commander by The Royal Government of The Kingdom of Cambodia in 2016, in recognition of his outstanding leadership and immense social economic contributions towards the progress and development of Cambodia over the last 24 years. He is the first Malaysian banker ever to receive the Royal Order. In recognition of his contributions to society and the economy, he was conferred the Doctor of Laws (Honorary) from University of Malaya in 1989. Tan Sri Dato’ Sri Dr. Teh had served in various capacities in public service bodies in Malaysia; he was a member of the Malaysian Business Council from 1991 to 1993; a member of the National Trust Fund from 1988 to 2001; a founder member of the Advisory Business Council since 2003; and a member of the IPRM Accreditation Privy Council. He is an Emeritus Fellow of the Malaysian Institute of Management and is a Fellow of the Asian Institute of Chartered Bankers; the Chartered Institute of Bankers, United Kingdom; the Institute of Administrative Management, United Kingdom; and the Governance Institute of Australia. He is the Chairman of Public Bank Bhd, a public company listed on the Main Market of Bursa Malaysia Securities Berhad. His directorships in other companies are as Chairman of Public Investment Bank Bhd, Public Mutual Bhd, Public Islamic Bank Bhd, Public Financial Holdings Ltd, Public Bank (Hong Kong) Ltd and Cambodian Public Bank Plc, and several other subsidiaries of Public Bank Bhd. Tan Sri Dato’ Sri Dr. Teh attended 13 Board Meetings which were held during the financial year ended 31 December 2016.

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Company No. 307414-T Board of Directors (continued) Profile of Directors (continued) MR. TEE CHOON YEOW NON-INDEPENDENT NON-EXECUTIVE DIRECTOR Mr. Tee Choon Yeow, aged 64, male, was appointed to the Board of the Company on 3 May 1999. He was the Chief Executive Officer of the Company until his retirement in 2008. He served as a Non-Independent Non-Executive Director of the Company thereafter. He is also an Independent Non-Executive Director and Co-Chairman of Lonpac Insurance Bhd’s holding company, LPI Capital Bhd, a public company listed on the Main Market of Bursa Malaysia Securities Berhad. Presently, Mr. Tee serves as a member of the Audit, Nominating, Remuneration and Risk Management & Compliance Committees of the Company. Mr. Tee holds a Bachelor’s Degree in Commerce from the University of Canterbury, New Zealand. He joined the Company as an Accountant in 1980. He is a Chartered Accountant of the Institute of Chartered Accountants, New Zealand and the Malaysian Institute of Accountants and a Fellow of the CPA Australia. He is an Independent Non-Executive Director of Matang Berhad. Mr. Tee attended all the 14 Board Meetings which were held during the financial year ended 31 December 2016. MR. LEE CHIN GUAN INDEPENDENT NON-EXECUTIVE DIRECTOR Mr. Lee Chin Guan, aged 58, male, was re-appointed to the Board of the Company on 8 October 2015. He last served as Independent Non-Executive Director of the Company from 22 May 1995 to 9 October 2007. He is also an Independent Non-Executive Director of Lonpac Insurance Bhd’s holding company, LPI Capital Bhd, a public company listed on the Main Market of Bursa Malaysia Securities Berhad. Presently, Mr. Lee serves as Chairman of the Audit, Nominating, Remuneration and Risk Management & Compliance Committees of the Company. Mr. Lee qualified as a Barrister-at-Law from the Middle Temple, United Kingdom in 1982. He also holds a Bachelor’s Degree in Science (Hons.) from the University of Manchester Institute of Science & Technology, England and Degrees in Law from Cambridge University, Oxford University and Chicago-Kent College of Law. His directorships in other companies are as Director of Public Financial Holdings Ltd, Public Bank (Hong Kong) Ltd and Public Finance Ltd. Mr. Lee attended all the 14 Board Meetings which were held during the financial year ended 31 December 2016.

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Company No. 307414-T Board of Directors (continued) Profile of Directors (continued) MR. TAN KOK GUAN EXECUTIVE DIRECTOR Mr. Tan Kok Guan, aged 60, male, was appointed to the Board of the Company on 3 May 1999. He was the Chief Executive Officer (CEO) of the Company since 2008 until he was appointed as CEO/ Executive Director to the holding company, LPI Capital Bhd, a public company listed on the Main Market of Bursa Malaysia Securities Berhad, on 8 July 2013. Thereafter, Mr. Tan was appointed as Executive Director of the Company on 10 January 2014. Presently, Mr. Tan serves as a member of the Nominating Committee of the Company. Mr. Tan holds a Bachelor’s Degree with Honours in Science from the University of London, United Kingdom and a Master’s Degree in Business Administration from the University of Hawaii. He is also a Chartered Insurer of the Chartered Insurance Institute in London and an Associate of the Malaysian Insurance Institute in Kuala Lumpur. Mr. Tan attended all the 14 Board Meetings which were held during the financial year ended 31 December 2016. MR. QUAH POH KEAT NON-INDEPENDENT NON-EXECUTIVE DIRECTOR Mr. Quah Poh Keat, aged 64, male, was appointed to the Board of the Company on 2 January 2009. He is also an Independent Non-Executive Director of Lonpac Insurance Bhd’s holding company, LPI Capital Bhd, a public company listed on the Main Market of Bursa Malaysia Securities Berhad. Presently, Mr. Quah serves as a member of the Audit, Nominating, Remuneration and Risk Management & Compliance Committees of the Company. He is a Fellow of the Malaysian Institute of Taxation and the Association of Chartered Certified Accountants; and a Member of the Malaysian Institute of Accountants, the Malaysian Institute of Certified Public Accountants and the Chartered Institute of Management Accountants. Mr. Quah was a partner of KPMG since October 1982 and was appointed Senior Partner (also known as Managing Partner in other practices) in October 2000 until 30 September 2007. He retired from the firm on 31 December 2007. Mr. Quah is experienced in auditing, tax and insolvency practices and has worked in Malaysia and the United Kingdom; his field of expertise includes restructuring, demergers and privatisation.

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Company No. 307414-T Board of Directors (continued) Profile of Directors (continued) MR. QUAH POH KEAT (continued) NON-INDEPENDENT NON-EXECUTIVE DIRECTOR (continued) His directorships in other companies are as Director of Public Mutual Bhd, Public Financial Holdings Ltd, Public Bank (Hong Kong) Ltd, Cambodian Public Bank Plc, Campu Lonpac Insurance Plc and Campu Securities Plc, and other subsidiaries of Public Bank Bhd. His directorships in other public companies listed on the Main Market of Bursa Malaysia Securities Berhad include Kuala Lumpur Kepong Berhad and Paramount Corporation Berhad. Mr. Quah attended all the 14 Board Meetings which were held during the financial year ended 31 December 2016. MS. CHAN KWAI HOE INDEPENDENT NON-EXECUTIVE DIRECTOR Ms. Chan Kwai Hoe, aged 60, female, was appointed to the Board of the Company on 1 July 2015. She is also an Independent Non-Executive Director of Lonpac Insurance Bhd’s holding company, LPI Capital Bhd, a public company listed on the Main Market of Bursa Malaysia Securities Berhad. Presently, Ms. Chan serves as a member of the Audit, Nominating and Risk Management & Compliance Committees of the Company. Ms. Chan holds a Bachelors Degree in Analytical Economics, University of Malaya (Honours). Ms. Chan has gained extensive experience during her tenure with Bank Negara Malaysia (BNM). She has been involved in operations and policy formulation relating to the insurance industry, as well as in supervision, having overseen the financial health and proper market conduct of a select group of insurers, brokers and adjusters. She was also in charge of the Learning, Knowledge and Customer Relationship Management of 13 departments of BNM, and managed a project to put in place the Financial Services Act 2013 and Islamic Financial Services Act 2013. She retired from BNM in May 2012 and acted as Advisor to the Chief Executive Officer of Perbadanan Insurans Deposit Malaysia, mainly on issues relating to FIDE (Financial Institutions Directors’ Education Programme) Forum until March 2013. Ms. Chan attended all the 14 Board Meetings which were held during the financial year ended 31 December 2016.

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Company No. 307414-T Board of Directors (continued) Profile of Directors (continued) None of the Directors has: • Any family relationship with any Director and/ or major shareholder of Lonpac

Insurance Bhd. • Any conflict of interest in any business arrangement involving Lonpac Insurance Bhd. • Any convictions for any offences within the past 5 years other than traffic offences. • Any public sanction or penalty imposed by the relevant regulatory bodies during the

financial year. All the Directors are Malaysians. Trainings attended The following are the trainings attended by the Directors :-

• Talk on "Analytics: Get Paralysed If You Don't Analyse" by Professor Ujwal Kayande of Melbourne Business School

• CG Breakfast Series for Directors: "Improving Board Risk Oversight Effectiveness"

• CG Breakfast Series for Directors: "Future of Auditor Reporting − The Game Changer for Boardroom"

• Independent Directors Programme: "The Essence of Independence" • Sustainability Engagement Series for Directors/ Chief Executive Officers • Audit Committee Institute Breakfast Roundtable 2016 • FIDE FORUM Dialogue with Deputy Governor on the Corporate Governance

Concept Paper • CG Breakfast Series with Directors: "The Strategy, the Leadership, the

Stakeholders and the Board" • Advocacy Sessions on Management Discussion & Analysis for Chief Executive

Officers and Chief Financial Officers of Listed Issuers • CG Breakfast Series with Directors: "The Cybersecurity Threat and How Board

Should Mitigate the Risks" • Briefing on Directors Register Implementation • Launch of the Directors Register • Implementation of FIDE FORUM’s Directors Register • 3rd Distinguished Board Leadership Series – "Effective Board Evaluation" • FIDE FORUM's Directors Register: "Identify the Right Board Talent" • Kuala Lumpur Kepong Bhd Managers’ Conference 2016

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Company No. 307414-T Trainings attended (continued)

• Malaysian Insurance Institute Directors' Training • FIDE Core Programme (Module A − Insurance) • FIDE Core Programme (Module B − Insurance) • Fin Tech: Business Opportunity or Disruptor by Markus Gnirck and Veiverne Yuen • CEOs' Industry Networking Cocktail • 28th East Asian Insurance Congress ("EAIC'") 2017 • Malaysian Insurance Summit • "Technology-based Innovation that Counts" by Steven Lewis, Patrick Menard and

Shankar Kanabiran, Ernst & Young • "Strategy to Leverage Technology for Business Solutions" by Arun Biswas, Sushil

Anand, Vincent Kasten and David Batrouney (IBM) • MFRS and Regulatory Requirement Updates

Board and Board Committees The Company has complied with all the prescriptive requirements of, and adopts management practices that are consistent with the principles prescribed under the Policy Document on Corporate Governance issued by Bank Negara Malaysia. Responsibilities of the Board and Board Committees

(A) The duties and responsibilities of the Board are as follows:-

The Board has the overall responsibility for promoting the sustainable growth and financial soundness of the Company, and for ensuring reasonable standards of fair dealing, without undue influence from any party. This includes a consideration of the long-term implications of the Board’s decisions on the Company and its customers, officers and the general public. In fulfilling this role, the Board must:- (i) Approve the risk appetite, business plans and other initiatives which would,

singularly or cumulatively, have a material impact on the Company’s risk profile; (ii) Oversee the selection, performance, remuneration and succession plans of the

CEO, control function heads and other members of senior management, such that the Board is satisfied with the collective competence of senior management to effectively lead the operations of the Company;

(iii) Oversee the implementation of the Company’s governance framework and internal

control framework, and periodically review whether these remain appropriate in the light of material changes to the size, nature and complexity of the Company’s operations;

(iv) Promote, together with senior management, a sound corporate culture within the

Company which reinforces ethical, prudent and professional behaviour;

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Company No. 307414-T Responsibilities of the Board and Board Committees (continued)

(v) Promote sustainability through appropriate environmental, social and governance considerations in the Company’s business strategies;

(vi) Oversee and approve the recovery and resolution as well as business continuity

plans for the Company to restore its financial strength, and maintain or preserve critical operations and critical services when it comes under stress; and

(vii) Promote timely and effective communication between the Company and BNM on

matters affecting or that may affect the safety and soundness of the Company.

(A) The duties and responsibilities of the Committees are as follows:- Audit Committee The duties and responsibilities of the Audit Committee (“AC”) are as follows:- 1. Internal Audit

Governance (i) The AC should :-

(a) ensure that the Internal Audit Department (“IAD”) is distinct and has the appropriate status within the overall organisational structure for the IAD to effectively accomplish its objectives.

(b) ensure the effective organisation of the IAD in respect of the

professionalism, capacity and competency of the internal audit personnel. (c) review and approve the audit scope, procedures and frequency. (d) ensure that reporting relationships of the internal audit staff do not impede

the exercise of independent judgment by the internal auditors. In particular, internal audit reports should not be subject to the clearance of the chief executive officer or any executive director.

(e) ensure no restrictions are placed on access by the internal auditors to any

of the Company’s records, assets, personnel or processes, which are relevant to the conduct of the audits.

(f) ensure appropriateness of the risk assessment methodology employed by

the internal audit function to determine the frequency and scope of audits, having regard to the nature, size and complexity of the Company’s operations.

(g) ensure compliance with internal audit standards.

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(h) ensure coordination between internal and external auditors.

(ii) The AC members should review key audit reports and ensure that senior

management is taking the necessary corrective action in a timely manner to address control weaknesses, non-compliance with laws, regulatory requirements, policies and other problems identified by the internal audit and other control functions.

(iii) The AC should note any significant disagreements between the chief internal

auditor and the rest of the senior management team, irrespective of whether these have been resolved, in order to identify any impact the disagreements may have on the audit process or findings.

(iv) The AC should establish a mechanism to assess the performance and

effectiveness of the internal audit function. (v) The AC should ensure on an ongoing basis that the IAD has adequate and

competent resources, given the size and complexity of the Company’s operations. Hence, the AC should :-

(a) approve the appointment, remuneration, performance evaluation, removal

and redeployment of the Chief Internal Auditor (“CIA”) and senior officers of the internal audit function.

(b) be informed on any resignation of the internal audit staff and reasons

therefore, and provide resigning staff with an opportunity to submit reasons for their resignations.

(vi) The AC should ensure that internal audit staff receive necessary training to

perform audit work. In this respect, there should be a programme of continuing education and training to enable the internal auditors to keep abreast of business trends and latest developments at both the institutional and industry levels, as well as to enhance technical skills required to effectively support the internal audit function.

2. External Audit Appointment of External Auditor

(i) The AC is responsible for making recommendations to the Board on the

appointment, removal and remuneration of the external auditor. (ii) The AC should :-

(a) review and assess various relationships between the external auditor and

the Company or any other entity that may impair or appear to impair the external auditors’ judgment or independence in respect of the Company (including affiliations resulting from the Company’s employment of former employees of the external auditor in senior positions within the Company).

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(b) review and assess fees paid to the external auditor, considering the

following :- • the economic importance of the Company (in terms of total fees

paid) to the external auditor. • fees paid for non-audit services as a proportion of total fees. • whether an effective, comprehensive and complete audit could be

reasonably conducted for the audit fee paid. The fees should not impair or appear to impair the external auditor’s judgment or independence in respect to the Company.

(c) investigate reasons for any request made by management to dismiss the external auditor, or any resignation by the external auditor. The results of the investigation should be disclosed to the full Board together with the AC’s recommendations on the proposed actions to be taken. The decisions of the Board in relation to the AC’s recommendations should be documented in the Board minutes, with a copy of the relevant minutes extended to BNM.

Provision of Non-Audit Services by the External Auditor (i) In monitoring and assessing the independence of the Company’s external

auditor, any provision of non-audit services by the Company’s external auditor should be approved by the AC before the commencement of the service, or whenever there is a significant change in the level of services provided.

(ii) The AC must ensure that the provision of non-audit services to the Company

would not impair the external auditor’s independent judgment in carrying out the financial audit of the Company’s financial statements. In addition, the following services should not be outsourced to the external auditor:

(a) any services relating to the determination of an amount to be recorded in

the financial statements of the Company or work normally undertaken by the appointed actuary (including appraisal or valuation services).

(b) financial information systems design and implementation (c) business process evaluations or reviews that extend to the Company’s

internal controls or financial systems. (iii) The AC’s decisions with respect to the provision of non-audit services should

be documented in a statement, which outlines whether or not it believes the level of provision of non-audit services by the external auditor is compatible with maintaining auditor independence (together with supporting reasons).

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Audit Plan, Findings and Recommendations

(i) The AC should review with the external auditors, the :-

(a) audit plan prior to the commencement of the annual audit. (b) financial statements (before being presented to the Board), including:

• whether the auditors’ report contained any qualifications, which must be properly discussed and acted upon to address the cause of the auditors’ concerns.

• significant changes and adjustments in the presentation of financial statements.

• major changes in accounting policies and principles. • alternative accounting treatments discussed with management and

the ramifications of the alternatives. • compliance with relevant laws and accounting standards. • material fluctuations in the statements. • significant variations in audit scope. • significant commitments or contingent liabilities. • validity of going concern assumptions.

(c) audit reports, including obligatory reports to BNM. (d) any significant disagreements between the external auditor and

management irrespective of whether they have been resolved. (e) any other findings, issues or reservations faced by the external auditor

arising from interim and financial audits.

(ii) The AC should maintain regular, timely, open and honest communication with the external auditor, and requiring the external auditor to report to the AC on significant matters.

(iii) The AC should ensure that senior management is taking necessary corrective

actions in a timely manner to address external audit findings and recommendations.

(iv) The AC should monitor and assess the effectiveness of the external audit,

including by meeting with the external auditor without the presence of senior management at least annually.

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3. Risk Management and Internal Control

(i) To review the adequacy and effectiveness of risk management and internal control systems instituted within the Company.

(ii) To review third-party opinions on the design and effectiveness of the

Company’s internal control framework. 4. Business Continuity Management

(i) Pursuant to the Guidelines on Business Continuity Management (“BCM”) issued by BNM, the AC should review the following :-

(a) The written assessment prepared by IAD on the observation of the

Business Continuity Plan and Disaster Recovery Plan testings. (b) The audit report prepared by the IAD on an annual basis on the level of

commitment to BCM and overall preparedness against the Company’s BCM policies and regulatory requirements.

(ii) Pursuant to Guidelines on Business Continuity Management, an executive

summary of the audit report on BCM which includes comments from the AC, should be submitted to BNM, after being presented to the AC.

5. Other Responsibilities

(i) The AC should also :-

(a) review the accuracy and adequacy of the Directors’ report, corporate governance disclosures, financial reports and preliminary announcements in relation to the preparation of financial statements.

(b) review and update the Board on any related party transactions and

conflicts of interest situations that may arise within the Company including any transaction, procedure or conduct that raises questions of management integrity.

(c) ensure that the Company to publish its accounts after the laying of its

accounts at its annual general meeting. (d) ensure that the Company’s accounts are prepared in a timely and accurate

manner for regulatory, management and general reporting purposes, with regular reviews carried out on the adequacy of provisions made.

(e) ensure that supervisory issues raised BNM are resolved in a timely

manner. (ii) The AC should support the Board in ensuring that there is a reliable and

transparent financial reporting process within the financial institution. (iii) The AC should also be responsible for any other functions as may be

determined by the Board.

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Nominating Committee The duties and responsibilities of the Nominating Committee are:- (i) To establish the minimum requirements on the skills, knowledge, expertise,

experience, qualifications and other core competencies of a Director and of the Chief Executive Officer.

(ii) To oversee the overall composition of the Board and Board Committees in terms

of the appropriate size, required mix of skills, experience and core competencies, and adequacy of balance between Executive Directors, Non-Executive Directors and Independent Directors through annual review.

(iii) To assess and recommend the nominees for directorship, the directors to fill Board

Committees, as well as nominees for the position of Chief Executive Officer and Company Secretary.

(iv) To establish a mechanism for the formal assessment on the effectiveness of the

Board and Board Committees as a whole, the contribution by each director to the effectiveness of the Board, the contribution of the Board’s various committees and the performance of the Chief Executive Officer and Company Secretary.

(v) To assess the Directors, Chief Executive Officer, Company Secretary and Other

Key Responsible Persons on an annual basis to ensure that they:-

(a) fulfill fit and proper criteria as stated in the Company’s Policy and Procedures on Fit and Proper for Key Responsible Persons and Company Secretary (Policy and Procedures on Fit and Proper);

(b) are not disqualified under Section 59 of Financial Services Act 2013 (not

required for Company Secretary); (c) comply with the fit and proper requirements as may be specified by Bank

Negara Malaysia (BNM) under Section 60 of Financial Services Act 2013; (d) is not disqualified under Section 139C of Companies Act 1965 (for Company

Secretary only); and (e) comply with the statutory and regulatory requirements.

(vi) To review the succession plans for the approval of the Board to promote Board renewal and address the vacancies.

22


Nominating Committee (continued) (vii) To ensure that all directors undergo appropriate induction programmes and receive

continuous training. (viii) To oversee appointment, succession planning and performance evaluation of Chief

Executive Officer, Company Secretary and Other Key Responsible Persons, and recommend to the Board for approval.

(ix) To recommend to the Board on removal of a Director/Chief Executive Officer/Company Secretary/Other Key Responsible Person if he is ineffective, errant or negligent in discharging his responsibilities.

(x) To carry out assessment on the Independent Directors to determine whether a director is independent pursuant to the guidelines issued by BNM.

(xi) To assess the Directors at least annually, and as and when the Board becomes

aware of information that may materially compromise the Director’s fitness and propriety, or any circumstance that suggests that the Director is ineffective, errant or otherwise unsuited to carry out his responsibilities.

Remuneration Committee (i) To oversee and recommend to the Board the manner of design and operation of the

remuneration system for Directors, Chief Executive Officer, Company Secretary and Other Key Responsible Persons.

(ii) To review and deliberate on the remunerations for Directors, Chief Executive

Officer, Company Secretary and Other Key Responsible Persons to commensurate with their performance and contributions to the Company, and recommend to the Board for approval.

23


Risk Management and Compliance Committee Risk Management (i) To review and recommend risk management strategies, policies and risk tolerance/

appetite for the Board of Directors (Board)’s approval. (ii) To assist the Board to review and assess the adequacy of risk management policies

and framework for identifying, measuring, monitoring and controlling risks as well as the extent to which these are operating effectively, including :-

(a) To ensure adequate infrastructure, resources and systems are in place for an

effective risk management, including ensuring that the staff responsible for implementing risk management systems perform those duties independently of the Company’s risk taking activities;

(b) To review the management’s periodic reports on risk exposure, risk portfolio

composition and risk management activities; (c) To review and assess the risk capital profiles to ensure adequacy of capital

available in the insurance and shareholders’ funds to support the capital requirement as specified by the relevant authorities;

(d) To assist the Board in reviewing the Company’s capital management

framework and ensuring that senior management discharges its responsibilities for the development and effective implementation of the Internal Capital Adequacy Assessment Process (ICAAP)/ Own Risk & Solvency Assessment (ORSA); and

(e) To assist the Board to ensure that the investment of insurance funds is in

accordance with the Company’s approved investment and risk management policy.

(iii) To review the outsourcing risk management programme and policies for the

Board’s approval and to assist the Board to oversee its implementation, including:-

(a) To review the management’s evaluation on the materiality of all existing and prospective outsourcing arrangements, based on the framework approved by the Board;

(b) To ensure that the approved outsourcing policies and procedures are

implemented appropriately; (c) To review the management’s periodic review on the outsourcing policies and

procedures implemented to ensure their continued effectiveness in managing outsourcing risks; and

24


Risk Management and Compliance Committee (continued) Risk Management (continued)

(d) To ensure that management communicates to the RMCC information

pertaining to material outsourcing risks in a timely manner.

(iv) To assist the Board to oversee the overall stress testing programme, including:-

(a) To approve policies and key components of the stress testing; (b) To ensure that the stress testing approaches and modeling techniques are

appropriate and commensurate with the Company’s risk profile; and (c) To ensure that adequate governance and internal controls are in place for the

management of stress testing models. Compliance To assist the Board to review the Compliance Policy and oversee its implementation, including:- (i) To recommend the establishment of the compliance function and the position of the

Chief Compliance Officer (CCO) for the Board’s approval and ensure that the CCO and compliance function are provided with appropriate standing, authority and independence;

(ii) To ensure that all compliance issues are resolved effectively and expeditiously; (iii) To evaluate at least annually, the effectiveness of the overall management of

compliance risk; (iv) To recommend to the Board on the sharing of compliance function responsibilities

between compliance and other functions, if any; and (v) To engage with the CCO on a regular basis to discuss issues faced by the

compliance function and ensure that the CCO is supported with sufficient resources to perform his duties effectively.

Risk Management and Compliance (i) To review reports related to risk management and compliance and recommend for

Board’s approval for submission to the relevant regulatory authorities, where applicable; and

(ii) To perform any other functions in relation to risk management and compliance as may be agreed to by the RMCC and the Board.

25

Company No. 307414-T Remuneration policy The Remuneration Policy for the employees of the Company enables the furtherance of the Company’s vision and missions. Remuneration to the employees of the Company shall reward and be used to align individual performances with the Company’s short and long term goals. Employee remunerations shall be supported by a robust performance management system underpinned by the fundamentals of sound risk management, ethics and corporate responsibility. Components within a remuneration structure may consist of mandatory elements with the flexibility for combinations of fixed and variable components to ensure effective alignment to the Company’s objectives and relevance to the industry in which it operates. In line with its core values, the Company’s remuneration policy rests on these five (5) key principles :- Business Focused Remunerations shall be relevant and be aligned towards the achievement of the Company’s business results. There must be no conflict of interests. Remunerations should drive employees’ diligence, dedication and competency level towards successful implementation of the Company’s goals and strategies. Prudent The remuneration structure and quantum must reinforce the importance of sustainability, encourage ethical behaviours and sound risk management, as opposed to short-term view on remuneration without consideration of consequences. Informed The performance assessor must have adequate quantitative and qualitative measurements of performance before any recommendation on remuneration is made. The assessments upon which remunerations are recommended must be practicable, measureable and objective. Fair Total remuneration packages must take into account of market environment factors including the dynamics and scale of the Company’s business, its financial position and the market condition, in addition to individual merits. There must be no discrimination, biased treatment or any form of exploitation. Proper, fair and logical justification must ensue. Transparent There must be clear and timely communication of remuneration linked to the specified job requirements. Employees should understand the expectations set out and seek for clarification where necessary.

26

Company No. 307414-T Scope of remuneration policy The remuneration policy applies to all levels and segments of employees within the Company including the senior management, business development, technical, control and support employees. Reward components

Fixed Remuneration Salary A base-level fixed monthly cash remuneration to reflect the level of individual responsibility, the level of skill, competency and experience, the dynamics of our business and the Company’s competitiveness within the industry.

• Salaries are normally reviewed annually.

• Salary levels and total remuneration of key

responsible persons are considered by the Remuneration Committee.

• Salary increases for all employees are considered by the senior management, ranged from 2.3% to 15.8% based on employee performance scoring in 2016.

• Where there is exceptional sustained contribution resulting in significant increase in responsibility and promotion, salary increases ranged from 15% to 25%, depending on the level of responsibility.

Benefits Support provisions in the form of cash or in-kind to facilitate business operations to reflect the scale of our business and its competitiveness within the industry.

• The benefits reflect, to a certain extent, the

industry norm.

• Benefits schemes are structured to vary according to job level, nature of work and give basic assistance to employees at various stages in their life.

• Taxable value of the benefits may fluctuate depending on the latest tax ruling and individual employees’ financial positions.

Variable Remuneration Performance Bonus A variable level of lump sum cash remuneration to reflect employee performance based on the achievement of business plan and its strategies.

• Based on performance relative to financial and

non-financial measures and targets reflected in the Company’s business plan.

• Average bonuses given based on level of achievement to business plan in year 2016.

27

Company No. 307414-T Remuneration framework Remuneration structure Remunerations are rewards for performances and behaviours expected of employees by the Company that are relevant and effective to the progress of its business. In order to gauge these performances and behaviours for proper remuneration purposes, a vigorous performance management system is in place to assess the employees. The system incorporates key performance indicators aligned to the Company’s short and long term goals, checks for sound risk management, ethics and accountability. Although performance assessment of an individual employee is a matter between the employee and his/her immediate supervisor, the process is guided by performance management and remuneration policies, consulted with HR and moderated by the senior management, with the exception of unionised employees of our Singapore branch office as they are subjected to the collective agreement. At the end of each performance year, business results and individual with team performances against scorecard objectives form the basis of remuneration decisions. Every remuneration recommendation is prepared, approved and recorded appropriately. Where statutory requirements apply, remunerations are submitted accordingly. Key Areas Affecting Employee Remuneration

Marketing Employees

Production Employees

Support Employees

Control Employees

Key Performance Areas Profitability √ √ √ - Productivity √ √ √ - Growth √ √ √ - Resilience √ √ √ √ Compliance √ √ √ √ Competencies People Skills √ √ √ √ Conceptual Skills √ √ √ √ Technical Skills √ √ √ √

28

Company No. 307414-T Remuneration structure (continued) Different permutations of weightages are applied onto these key areas for different categories of employees of various functions and ranks. The weightages are assigned by percentage in accordance to the level of relevancy and each category of employees’ impact on the Company’s performance. During assessment, employees are scored on how well they fare in each critical performance areas and their competency level specific to and as required in the role they undertake. Employees in control functions are not assessed on the Company’s key performance areas such as profitability, productivity and growth. The roles of enterprise risk management, compliance and internal audit departments are not linked to the results of the business activities to ensure their remuneration is determined independent of the business activities they supervise. Their variable remuneration component is set on the basis of the achievement of non-commercial objectives relevant to their positions. Components within the remuneration structure consist of mandatory elements with the flexibility on the mix of fixed and variable components. Nevertheless, the remuneration structure must remain practical and simple to understand. The structure is continuously monitored to ensure alignment to the Company’s objectives, local employment market and industry in which the Company operates. Existingly, the Company’s existing remuneration structure comprise of three (3) basic reward components, namely salary (fixed), benefit and compensation (fixed) and performance bonus (variable). For the time being, stock options or share purchasing programmes are not applicable at the Company. Salary All employees in the Company receive a fixed salary, consisting of a base salary paid monthly according to position and function. The salary level is evaluated on an annual basis with no secured or contractual increase. Increment rates are granted based on performance scoring and position levels. These rates are predetermined and revised as and when necessary to reflect the performance of the Company. Entry level salary base for school leavers, diploma and degree holders are predetermined and reviewed as and when necessary for competitive positioning. Base salaries for experienced candidates are guided by the Company’s internal salary scale whilst taking into account the employment market condition within the industry.

29

Company No. 307414-T Remuneration structure (continued) Benefits The main purpose of compensation and benefits is to ease employees’ burdens as they work for the Company. They are also used as strategic tools for retention. Key and senior level positions are offered benefits and compensations which are competitive in order to ensure continuous high performance and retention of technical know-how and skills. The Company’s benefits programme is dynamic, reviewed as and when the need arises due to the Company’s changing internal and external environment in order to keep to its objectives and core values. Performance Bonus The Company uses variable cash remuneration in the form of performance bonuses to incentivise and reward high and sustainable performances. The Company does not award guaranteed bonuses. The bonuses granted for the year reflect performances relative to the financial and non-financial measures and targets set in the business plan and the status of the Company’s financial position. The amount allocated each year for the aggregate bonus pool ranges between 5% and 6% of the Company’s profit before tax. Risk Alignment Risk and compliance with risk procedures are critical key elements in the assessment of employees, in particular management level employees and material risk takers. The Company, through internal audits, carry out regular reviews to assess instances of non-compliance with risk procedures and expected behaviours. Non-compliance cases are reported as audit findings. Depending on the severity, the audit findings would impact employees’ audit ratings which would be considered in the scoring of employee performances that determine remuneration levels. In 2016, there were no specific long term cash incentives or deferred variable cash remuneration offered to employees. It is necessary to note however, that although the existing reward components used by the Company are theoretically generalised as short term incentives; these components had contributed to some extent, to the retention of its employees. The Company’s attrition rate remains well below 10%. The Company does not have any clawback arrangements with the employees. To mitigate risks, the Company subscribes to prudent remuneration practices.

30

Company No. 307414-T Remuneration structure (continued) Limits • The Company consistently ensures that the total remuneration does not undermine or

endanger its capital base nor limit its ability to strengthen its capital adequacy ratio, solvency margin or equity capital. The increase in total salary each year may only grow in tandem with the Company’s annual growth of profit before tax. For the last 3 years, the increase in total salary did not exceed the growth rate of the Company’s profit before tax. The aggregate bonus pool each year did not exceed 6% of the profit before tax in the last 3 years.

• Remuneration costs are carefully considered through annual budgeting of remuneration increases and the incorporation of incentive structure and the provision for its increases in the budgeting process, capital and business planning. The budgeted remuneration cost is also guided by the rate of increased cost in the preceding year and the proportion of budgeted workforce increase for the year concerned.

• The Company applies appropriate balance between fixed and performance based

components. Alignment of Interests • Strongly committed to the principle of sustainability, the Company’s emphasis on top

line growth (gross written premium) is always balanced with its bottom line growth (net profits) expectations. Sales achieved and growth are rated primarily for its profitability before taking into account the quantity or volume factor.

• Achievement of key performance areas are quantified based on team efforts and overall

department, branch or unit performance. • Individual capabilities are assessed in accordance to their sustainable contribution to the

Company, customer satisfaction, observance of the Company’s core values besides considering the effective contribution of their professional qualifications and technical know-how.

• Key performance areas are not only emphasised in performance measurements, they are

ingrained into processes and procedures performed by all employees throughout the year.

31

Company No. 307414-T Remuneration structure (continued) Governance

• The probability and timing of remuneration payments commensurate with the assessment on the Company’s risk, capital and liquidity position. The aggregate bonus pool is made up of bonus accrued throughout the year, approved by the Board of Directors based on recommendation of the Remuneration Committee.

• Control procedure is in place to ensure that payment of fixed and variable remunerations are conducted in accordance with internal requirements and applicable regulations. Prudent remuneration practices are consistently maintained, any changes or revision to the practices are approved by senior management staff. The resolutions are documented and subjected to independent review by the internal audit, at least once in every two (2) years.

At this point in time, the Company is satisfied with the existing remuneration structure and its sustainability impact on its existing employees and the Company’s financial position. However, the Company perceives the remuneration structure as a strategic and dynamic tool for the enhancement of future performances and would rigorously cogitate on other reward components to stimulate effective performances. Underperformance If performance criteria are not met, the Company would considerably reduce the fixed and variable remuneration or in some cases, would not grant bonus or increase in salary. The Company does not award severance payments. In 2016, there were no materially negative financial performances where an employee’s behaviour or misconduct has resulted in substantial losses for the Company. Material Risk Takers Material risk takers as defined by Bank Negara Malaysia in their policy document on Corporate Governance are employees who may or may not be a member of the senior management and :- • can materially commit or control significant amounts of the Company’s resources or

whose actions are likely to have a significant impact on its risk profile; or • is among the most highly remunerated officers in the Company. As defined above, the Company’s material risk takers comprise of employees undertaking the following roles : 1. Chief Executive Officer

2. Chief Operating Officer

3. Chief Executive of Singapore Branch

4. Head of Underwriting

5. Head of Business Development

32

Company No. 307414-T Remuneration structure (continued) Material Risk Takers (continued) Table A

Total Value of Remuneration

Awards for the financial year

Unrestricted

Deferred

No. of Staff Total Outstanding

Fixed Remuneration • Cash-based RM2,581,677 - nil - - nil - • Shares and share-linked

instruments - nil - - nil - - nil -

• Others - nil - - nil - - nil - Variable Remuneration ~ 700 • Cash-based RM1,503,939 - nil - - nil - • Shares and share-linked

instruments - nil - - nil - - nil -

• Others - nil - - nil - - nil - Total

Staff’s Exposure to Ex-Post Implicit and Explicit Adjustments due to Deferred and Retained Remuneration

Total Value of Remuneration Awards for the financial year

Deferred Remuneration Outstanding Retained

Exposure to Ex-Post Explicit

Adjustments

Exposure to Ex-Post Implicit

Adjustments

Exposure to Ex-Post Explicit

Adjustments

Exposure to Ex-Post Implicit

Adjustments Fixed Remuneration • Cash-based - nil - - nil - - nil - - nil - • Shares and share-linked

instruments - nil - - nil - - nil - - nil -

• Others - nil - - nil - - nil - - nil - Variable Remuneration • Cash-based - nil - - nil - - nil - - nil - • Shares and share-linked

instruments - nil - - nil - - nil - - nil -

• Others - nil - - nil - - nil - - nil - Total

Total Amount of Reduction during financial year due to Ex-Post Explicit Adjustments

Nil

Total Amount of Reduction during financial year due to Ex-Post Implicit Adjustments

Nil

33

Company No. 307414-T Key risk management and internal control processes The key processes that have been established in reviewing the adequacy and effectiveness of the risk management and internal control system include the following: Risk Management Governance and Framework

• The Risk Management and Compliance Committee (“RMCC”) was established by the

Board with the responsibility to oversee the overall risk management processes by identifying principal business risks and ensuring appropriate implementation of systems to manage these risks.

• The Enterprise Risk Management (“ERM”) Department identifies and communicates to the RMCC on critical risks (present and potential) in terms of likelihood of exposures and impact on the Company’s business and the management action plans to manage these risks on a continuing basis. Various heads of business unit departments, who are specialised and experienced in their respective business processes remain available to give advice to the ERM Department on the key risks relevant to their respective operations. The Internal Audit Department (“IAD”) and Compliance Department also provide their advice to the ERM Department pertaining to controls and compliance concerns on various risk factors and implementation of risks mitigation measures. The ERM Department actively identifies, assesses and monitors the Company’s key business risks.

• A Risk Report was compiled to define a set of risk appetite and risk tolerance approved by the Board. The Risk Report was established not only for the purpose of complying with the Guidelines on Internal Capital Adequacy Assessment Process (“ICAAP”) for Insurers issued by Bank Negara Malaysia (“BNM”), but also for ERM of the Company.

Internal Audit Function • The Internal Audit function is in place to assist the Audit Committee of the Company to

discharge its functions effectively. The IAD monitors compliance with policies and procedures and the effectiveness of the internal control systems and highlights significant findings in respect of any non-compliance. Audits are carried out on Head Office departments and branches, the frequency of which is determined by the level of risk assessed, to provide an independent and objective report on operational and management activities of these Head Office departments and branches. The findings of the internal audits are tabled at the Audit Committee meetings for deliberation and the Audit Committee’s expectation on the corrective measures will be communicated to the respective head of departments and branches. The annual Internal Audit Plan is reviewed and approved by the Audit Committee.

• The Audit Committee of the Company reviews any internal control issues identified by

the IAD, the external auditors, regulatory authorities and Management, and evaluate the adequacy and effectiveness of the risk management and internal control systems. The Audit Committee also reviews the internal audit functions and quality of internal audits. The minutes of the Audit Committee meetings are tabled to the Board.

34

Company No. 307414-T Key risk management and internal control processes (continued) Other Key Elements of Risk Management and Internal Control • There is an organisational structure with formally defined lines of responsibility and

delegation of authority to ensure proper identification of accountabilities and segregation of duties.

• Operating policies and procedures, which incorporate regulatory and internal requirements, are prescribed in the form of circulars to line management in all departments and updated as and when there are changes.

• There are operational authority limits imposed on Chief Executive Officer and Management within the Company in respect of day-to-day operations, covering underwriting on accepting risks, claims settlement, investments, acquisition and disposal of assets.

• The treaty programme ensures that there is a proper spread of reinsurers. The securities of treaty reinsurers are reviewed on an annual basis by the Reinsurance Security Committee (“RSC”) and the RMCC.

• The Management submits annually a business plan and budget with 6 year projections for approval by the Board. The Board reviews monthly management accounts, which are measured against budgets and the previous year’s results to gauge performance.

• Stress tests are performed semi-annually on the Company’s financial position which commensurate with its risk profile and the business environment. The stress tests are used as a risk management tool to identify potential threats to the Company’s financial health due to exceptional but plausible adverse events and to determine the Company’s Individual Target Capital Level. The results in the stress test report are deliberated at the RMCC meetings and thereafter recommended to the Board for approval, before submission to BNM or the Monetary Authority of Singapore for the Singapore branch.

• The IAD reviews the stress test policy to provide an independent assessment in ensuring the quality and effectiveness of the stress test policy as required by BNM. The internal audit report on the review of the stress test policy is presented at the Audit Committee meeting.

• Management meetings chaired by the Chief Executive Officer are conducted monthly to

review financial performance, business development and to deliberate on management and corporate issues.

35

Company No. 307414-T Key risk management and internal control processes (continued)

• A Data Management and Management Information System (“MIS”) Framework was

formulated and approved by the Board in accordance with the Guidelines on Data Management and MIS Framework issued by BNM. The maintenance of adequate data quality is carried out and internal controls, either in the systems or manually performed will be incorporated to further improve the data quality. All heads of departments determine the materiality level for critical and non-critical data for data accuracy assessment purpose. The assessment of data accuracy is carried out on a half yearly basis and the assessment report will be tabled at the RMCC and Board meetings.

• The Investment Committee is responsible for formulating policies, strategies as well as reviewing matters relating to the investment in shares and private debt securities.

• The Information Technology Steering Committee is chaired by the Chief Executive Officer. The committee is responsible for establishing effective computerisation plans, authorising information technology related expenditure above predefined limits and monitoring the progress of approved projects.

• Internal control requirements are embedded in computerised systems as well.

• The Systems and Methods Committee is chaired by the Chief Executive Officer to oversee the control and efficiency of processes.

• The Credit Control Committee is chaired by the Chief Executive Officer and represented by the Chief Operating Officer, Heads of the Business Development Departments and Accounts & Finance Department. Monthly meeting is conducted with the objective of maximising the conversion of accounts receivables into cash flow and minimising impaired debts written off.

• The Business Resumption Continuity Plan (“BRCP”) Committee is chaired by the Chief

Executive Officer. The committee is responsible for preparing a BRCP to ensure that the Company suffers minimum interruption to its systems, processes and operations in the event of any disasters.

• A BRCP manual was formulated to ascertain that the Company suffers no material

interruptions to its systems, processes and operations, or material damages to its assets upon the occurrence of any disastrous events. A separate BRCP manual was formulated for the Singapore branch. The BRCP plan for both Malaysian and Singapore operations are tested annually. The BRCP testings are observed by the IAD to provide an independent evaluation of the testing preparation and to highlight any deficiencies noted during the testings. A written assessment report on the BRCP testing is prepared by the IAD for the Audit Committee’s review. The Internal Audit Department reviews the Post-Test Analysis Reports prepared by the Company and submits their assessment report to BNM as required under the Guidelines on Business Continuity Management (Revised) (“BCM”).

36

Company No. 307414-T Key risk management and internal control processes (continued) • On an annual basis, the IAD reviews the level of commitment to BCM and overall

preparedness with reference to Lonpac’s BCM policies and regulatory requirements. Gaps identified will be documented in the audit report to the Audit Committee together with the action plans for further improvement by the respective business functions. An executive summary of the audit report, which includes comments from the Audit Committee, will be submitted to BNM as required under the Guidelines on BCM.

• The Business Process Management Steering Committee is chaired by the Chief Executive Officer. The committee’s responsibilities are:

1. to leverage on emerging technology to develop a flexible, agile and robust business

model to prepare for future changes and eventual market liberalisation;

2. to streamline business processes for improved visibility and efficiency in workflow processes/operations; and

3. to ensure the provision of speedy, quality and consistent services.

• Motor Detariffication Working Committee and Fire Detariffication Working Committee are established to prepare the Company for the forthcoming phased liberalisation of Motor and Fire Tariffs in Malaysia.

• Training and development programmes are conducted to enhance staff competencies and maintain a risk control conscious culture.

• Training sessions for agents are conducted to enhance their competencies and technical

knowledge for better risk management in developing agency networking. • There are proper guidelines within the Company for hiring and termination of staff.

Annual performance appraisals are in place to ensure that the staff are competent in carrying out their duties and responsibilities.

37

Company No. 307414-T Provision for insurance liabilities Before the statement of profit or loss, statement of profit or loss and other comprehensive income and statement of financial position of the Company were made out, the Directors took reasonable steps to ascertain that there was adequate provisions for its insurance liabilities in accordance with the valuation methods specified in Part D of the Risk-Based Capital (RBC) Framework for Insurers. Impaired debts Before the statement of profit or loss, statement of profit or loss and other comprehensive income and statement of financial position of the Company were made out, the Directors took reasonable steps to ascertain that action had been taken in relation to the writing off of impaired debts and the making of impairment allowance for impaired debts and satisfied themselves that all known impaired debts had been written off and that adequate impairment allowance had been made for impaired debts. At the date of this report, the Directors are not aware of any circumstances that would render the amount written off for impaired debts or the amount of the impairment allowance for impaired debts in the financial statements of the Company inadequate to any substantial extent. Current assets Before the statement of profit or loss, statement of profit or loss and other comprehensive income and statement of financial position of the Company were made out, the Directors took reasonable steps to ensure that any current assets, other than debts, which were unlikely to be realised in the ordinary course of business, at their value as shown in the accounting records of the Company, have been written down to an amount which they might be expected to realise. At the date of this report, the Directors are not aware of any circumstances which would render the values attributed to the current assets in the financial statements of the Company misleading. Valuation methods At the date of this report, the Directors are not aware of any circumstances which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Company misleading or inappropriate.

38

Company No. 307414-T Contingent and other liabilities At the date of this report, there does not exist: i) any charge on the assets of the Company which has arisen since the end of the

financial year and which secures the liabilities of any other person, or ii) any contingent liability in respect of the Company which has arisen since the end of

the financial year. 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, in the opinion of the Directors, will or may substantially affect the ability of the Company to meet its obligations as and when they fall due. For the purpose of this paragraph, contingent liability or other liabilities do not include liabilities arising from contracts of insurance underwritten in the ordinary course of business of the Company. Change of circumstances At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements of the Company, which would render any amount stated in the financial statements misleading. Items of an unusual nature The results of the operations of the Company for the financial year were not, in the opinion of the Directors, substantially affected by any item, transaction or event of a material and unusual nature. There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors, to affect substantially the results of the operations of the Company for the year in which this report is made.

39

Company No. 307414-T Auditors The auditors, KPMG PLT (converted from a conventional partnership, KPMG, on 27 December 2016), have indicated their willingness to accept re-appointment. Signed on behalf of the Board in accordance with a resolution of the Directors: Signed ………………………………………………………… Tee Choon Yeow Signed ………………………………………………………… Tan Kok Guan Kuala Lumpur, Date: 6 February 2017

40

Lonpac Insurance Bhd (Company No. 307414-T) (Incorporated in Malaysia) Statement of financial position as at 31 December 2016 Note 2016 2015 RM’000 RM’000 Assets Plant and equipment 3 12,485 13,752 Investment properties 4 27,900 28,886 Other investments 276,093 323,826 - Available-for-sale financial assets 5(a) 42,890 40,026 - Held-to-maturity financial assets 5(b) 233,203 283,800 Reinsurance assets 6 685,035 733,311 Loans and receivables, excluding insurance receivables

7(a)

1,115,680

341,843

Insurance receivables 7(b) 150,728 135,053 Deferred acquisition costs 8 30,451 33,540 Cash and cash equivalents 9 241,943 897,818 Total assets 2,540,315 2,508,029 Equity and liabilities Share capital 10 200,000 200,000 Reserves 520,748 420,217 Total equity 720,748 620,217 Insurance contract liabilities 12 1,609,458 1,654,018 Deferred tax liabilities 13 3,173 2,732 Insurance payables 14 79,804 95,678 Other payables 15 104,507 115,439 Tax payables 22,625 19,945 Total liabilities 1,819,567 1,887,812 Total equity and liabilities 2,540,315 2,508,029 The notes on pages 47 to 135 form an integral part of the financial statements.

41

Lonpac Insurance Bhd (Company No. 307414-T) (Incorporated in Malaysia) Statement of profit or loss for the year ended 31 December 2016 Note 2016 2015 RM’000 RM’000 Operating revenue 16 1,342,626 1,250,314 Gross written premiums 17 1,278,339 1,250,799 Change in unearned premiums provision 17 11,682 (45,434) Gross earned premiums 17 1,290,021 1,205,365 Gross written premiums ceded to reinsurers 17 (506,668) (507,618) Change in unearned premiums provision 17 (16,056) 9,197 Premiums ceded to reinsurers 17 (522,724) (498,421) Net earned premiums 17 767,297 706,944 Investment income 18 52,605 44,949 Realised gains and losses 19 (74) 1 Fair value gains and losses 20 (2,266) - Commission income 21 108,918 101,219 Other operating income 22 8,002 5,875 Other income 167,185 152,044 Gross claims paid (533,068) (574,493) Claims ceded to reinsurers 236,822 330,594 Gross change in contract liabilities 35,204 (106,085) Change in contract liabilities ceded to reinsurers (33,110) 60,094 Net claims incurred 23 (294,152) (289,890) Commission expense 21 (147,037) (135,284) Management expenses 24 (156,544) (147,069) Other expenses (303,581) (282,353) Profit before tax 336,749 286,745 Tax expense 26 (79,751) (71,254) Profit for the year 256,998 215,491 Profit attributable to: Owner of the Company 256,998 215,491 Earnings per ordinary share (sen) Basic 27 128 108 The notes on pages 47 to 135 form an integral part of the financial statements.

42

Lonpac Insurance Bhd (Company No. 307414-T) (Incorporated in Malaysia) Statement of profit or loss and other comprehensive income for the year ended 31 December 2016

Note 2016 2015 RM’000 RM’000 Profit for the year 256,998 215,491 Other comprehensive income Items that are or may be reclassified subsequently to profit or loss

Foreign currency translation differences for foreign operation

1,336

11,955

Fair value of available-for-sale financial assets - Gain/(Loss) arising during the year 1,736 (599) - Reclassification adjustment for gain included in profit or loss

893

-

2,629 (599) 3,965 11,356 Tax effect on net (gain)/loss on fair value of available-for-sale financial assets

26 (432)

394

Total other comprehensive income for the year net of tax

3,533

11,750

Total comprehensive income for the year attributable to owner of the Company

260,531

227,241

The notes on pages 47 to 135 form an integral part of the financial statements.

43

Lonpac Insurance Bhd (Company No. 307414-T) (Incorporated in Malaysia) Statement of changes in equity for the year ended 31 December 2016 ----------- Non-distributable ----------- Distributable

Note

Share capital

Foreign currency

translation reserve

Fair value

reserve

Retained earnings

Total equity

RM’000 RM’000 RM’000 RM’000 RM’000 At 1 January 2015 200,000 7,158 22,512 303,306 532,976 Foreign currency translation differences for foreign operation

-

11,955

-

-

11,955

Fair value of available-for-sale financial assets - Loss arising during the year - - (205) - (205) Total other comprehensive income/(loss) for the year - 11,955 (205) - 11,750 Profit for the year - - - 215,491 215,491 Total comprehensive income/(loss) for the year - 11,955 (205) 215,491 227,241 Distribution to owner of the Company - Dividends to owner of the Company 28 - - - (140,000) (140,000) Total transaction with owner of the Company - - - (140,000) (140,000) At 31 December 2015 200,000 19,113 22,307 378,797 620,217 Note 10 Note 11.1 Note 11.2 Note 11.3

44

Company No. 307414-T

Statement of changes in equity for the year ended 31 December 2016 (continued) ----------- Non-distributable ----------- Distributable

Note

Share capital

Foreign currency

translation reserve

Fair value

reserve

Retained earnings

Total equity

RM’000 RM’000 RM’000 RM’000 RM’000 At 1 January 2016 200,000 19,113 22,307 378,797 620,217 Foreign currency translation differences for foreign operation

-

1,336

-

-

1,336

Fair value of available-for-sale financial assets - Gain arising during the year - - 1,437 - 1,437 - Reclassification adjustments for gains included in

profit or loss - - 760 - 760

Total other comprehensive income for the year - 1,336 2,197 - 3,533 Profit for the year - - - 256,998 256,998 Total comprehensive income for the year - 1,336 2,197 256,998 260,531 Distribution to owner of the Company - Dividends to owner of the Company 28 - - - (160,000) (160,000) Total transaction with owner of the Company - - - (160,000) (160,000) At 31 December 2016 200,000 20,449 24,504 475,795 720,748 Note 10 Note 11.1 Note 11.2 Note 11.3 The notes on pages 47 to 135 form an integral part of the financial statements.

45

Lonpac Insurance Bhd (Company No. 307414-T) (Incorporated in Malaysia) Statement of cash flow for the year ended 31 December 2016 2016 2015 RM’000 RM’000 Operating Activities Profit before tax 336,749 286,745 Investment income (52,605) (44,949) Realised losses/(gains) recorded in profit or loss 74 (1) Fair value losses recorded in profit or loss 2,266 - Purchase of available-for-sale financial assets (1,026) (128) Purchase of held-to-maturity financial assets (13,137) (64,873) Maturity of held-to-maturity financial assets 63,875 75,000 Non-cash items: Depreciation of plant and equipment 3,509 3,918 Unrealised foreign exchange gain (585) (1,395) Changes in working capital: Increase in loans and receivables (772,851) (17,594) Decrease/(Increase) in reinsurance assets 49,166 (69,292) Increase in insurance receivables (15,500) (16,636) Decrease/(Increase) in deferred acquisition costs 3,096 (1,755) (Decrease)/Increase in insurance contract liabilities (46,886) 151,519 (Decrease)/Increase in insurance payables (15,899) 5,040 (Decrease)/Increase in other payables (11,246) 7,838 Cash (used in)/generated from operating activities (471,000) 313,437 Dividend income received 5,902 3,234 Interest income received 45,826 40,426 Rental income on investment property received 858 806 Income tax paid (77,074) (64,365) Net cash flows (used in)/generated from operating

activities (495,488) 293,538

46

Company No. 307414-T Statement of cash flow for the year ended 31 December 2016 (continued) 2016 2015 RM’000 RM’000 Investing Activities Proceeds from disposal of plant and equipment - 1 Purchase of plant and equipment (2,225) (9,075) Net cash flows used in investing activities (2,225) (9,074) Financing Activities Dividend paid to holding company (160,000) (140,000) Net cash flows used in financing activities (160,000) (140,000) Net (decrease)/increase in cash and cash equivalents (657,713) 144,464 Cash and cash equivalents at beginning of year 897,818 741,087 Effect of movement in exchange rates 1,838 12,267 Cash and cash equivalents at end of year (Note 9) 241,943 897,818 The notes on pages 47 to 135 form an integral part of the financial statements.

47

Lonpac Insurance Bhd (Company No. 307414-T) (Incorporated in Malaysia) Notes to the financial statements Lonpac Insurance Bhd is a public limited liability company, incorporated and domiciled in Malaysia. The addresses of its principal place of business and registered office are as follows: Principal place of business LG, 6th, 7th, 21st - 26th Floor Bangunan Public Bank 6, Jalan Sultan Sulaiman 50000 Kuala Lumpur Registered office 6th Floor, Bangunan Public Bank 6, Jalan Sultan Sulaiman 50000 Kuala Lumpur The Company is principally engaged in the underwriting of all classes of general insurance. There has been no significant change in the nature of this principal activity during the financial year. The Company is a wholly-owned subsidiary of LPI Capital Bhd, a company incorporated in Malaysia, listed on the Main Market of Bursa Malaysia Securities Berhad and produces consolidated financial statements for public use that comply with Malaysian Financial Reporting Standards (“MFRS”) and International Financial Reporting Standards. The financial statements were authorised for issue by the Board of Directors on 6 February 2017. 1. Basis of preparation

(a) Statement of compliance The financial statements of the Company have been prepared in accordance with Malaysian Financial Reporting Standards (“MFRS”), International Financial Reporting Standards and the requirements of the Companies Act, 1965 and the Financial Services Act 2013 in Malaysia. The following are accounting standards, amendments and interpretations that have been issued by the Malaysian Accounting Standards Board (“MASB”) but have not been adopted by the Company:

48

Company No. 307414-T 1. Basis of preparation (continued)

(a) Statement of compliance (continued)

MFRSs, Interpretations and amendments effective for annual periods beginning on or after 1 January 2017

• Amendments to MFRS 107, Statement of Cash Flows – Disclosure Initiative • Amendments to MFRS 112, Income Taxes – Recognition of Deferred Tax

Assets for Unrealised Losses • Amendments to MFRS 12, Disclosure of Interests in Other Entities (Annual

Improvements 2014-2016 Cycle)


• MFRS 9, Financial Instruments (2014) • MFRS 15, Revenue from Contracts with Customers • MFRS 15, Revenue from Contracts with Customers - Clarifications to MFRS

15, Revenue from Contracts with Customers • Amendments to MFRS 2, Share-based Payments – Classification and

Measurement of Share-based Payment Transactions • Amendments to MFRS 4, Insurance Contracts – Applying MFRS 9 Financial

Instruments with MFRS 4 , Insurance Contracts • Amendments to MFRS 1, First-time Adoption of Malaysian Financial

Reporting Standards (Annual Improvements 2014-2016 Cycle) • Amendments to MFRS 128, Investments in Associates and Joint Ventures

(Annual Improvements 2014-2016 Cycle) • Amendments to MFRS 140, Investment Properties – Transfers of Investment

Property • IC Interpretation 22, Foreign Currency Transactions and Advance

Consideration


• MFRS 16, Leases MFRSs, Interpretations and amendments effective for a date yet to be confirmed

• Amendments to MFRS 10, Consolidated Financial Statements and MFRS 128, Investments in Associates and Joint Ventures – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

49


(a) Statement of compliance (continued)

The Company plans to apply the abovementioned accounting standards, amendments and interpretations: • from the annual period beginning on 1 January 2017 for those amendments

that are effective for annual periods beginning on or after 1 January 2017 except for MFRS 12 and Amendments to MFRS 2 which is not applicable to the Company.

• from the annual period beginning on 1 January 2018 for those accounting standards that are effective for annual periods beginning on or after 1 January 2018 except for Amendments to MFRS 2 which is not applicable to the Company and MFRS 9 which the Company is eligible for temporary exemption that permits, but does not require, the insurer to apply MFRS 139 Financial Instruments: Recognition and Measurement rather than MFRS 9 for annual periods beginning before 1 January 2021.

• from the annual period beginning on 1 January 2019 for the accounting standard that is effective for annual periods beginning on or after 1 January 2019.

The initial application of the abovementioned standards, amendments and interpretations are not expected to have any material impacts to the financial statements of the Company except as mentioned below: MFRS 9, Financial Instruments

MFRS 9 replaces the guidance in MFRS 139, Financial Instruments: Recognition and Measurement on the classification and measurement of financial assets. Upon adoption of MFRS 9, financial assets will be measured at either fair value or amortised cost. It is expected that the Company’s investments in unquoted shares will be measured at fair value through other comprehensive income. The adoption of MFRS 9 will result in a change in accounting policy. The Company is currently assessing the financial impact of adopting MFRS 9. MFRS 15, Revenue from Contracts with Customers

MFRS 15 replaces the guidance in MFRS 111, Construction Contracts, MFRS 118, Revenue, IC Interpretation 13, Customer Loyalty Programmes, IC Interpretation 15, Agreements for Construction of Real Estate, IC Interpretation 18, Transfers of Assets from Customers and IC Interpretation 131, Revenue – Barter Transactions Involving Advertising Services. Upon adoption of MFRS 15, it is expected that the timing of revenue recognition might be different as compared with the current practices.

50


(a) Statement of compliance (continued) The adoption of MFRS 15 will result in a change of accounting policy. The Company is currently assessing the financial impact of adopting MFRS 15.

(b) Basis of measurement

The financial statements of the Company have been prepared on the historical cost basis except as disclosed in the financial statements.

(c) Functional and presentation currency These financial statements are presented in Ringgit Malaysia (“RM”), which is the Company’s functional currency. All financial information is presented in RM and has been rounded to the nearest thousand, unless otherwise stated.

(d) Use of estimates and judgements The preparation of financial statements in conformity with MFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. There are no significant areas of estimation uncertainty and critical judgements in applying accounting policies that have a significant effect on the amounts recognised in the financial statements other than those disclosed in the following notes: Note 2(c)(i) - Investment properties Note 2(d) - Financial instruments Note 2(j) and (k) - Claims and premium liabilities

51

Company No. 307414-T 2. Significant accounting policies

The accounting policies set out below have been applied consistently to the periods presented in these financial statements, unless otherwise stated. (a) Foreign currency

(i) Foreign currency transactions Transactions in foreign currencies are translated to the functional currency of the Company at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the end of the reporting period are retranslated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies are not retranslated at the end of the reporting date except for those that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in the profit or loss, except for differences arising on the retranslation of available-for-sale equity investment, which are recognised in other comprehensive income.

(ii) Operation denominated in functional currencies other than Ringgit Malaysia Financial statements of Singapore Branch The assets and liabilities of operations denominated in functional currencies other than RM, are translated to RM at exchange rates at the end of the reporting period. The income and expenses of foreign operations are translated to RM at exchange rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive income and accumulated in the foreign currency translation reserve (“FCTR”) in equity. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the FCTR related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.

52

Company No. 307414-T 2. Significant accounting policies (continued)

(b) Plant and equipment (i) Recognition and measurement

Items of plant and equipment, except for capital work-in-progress, are measured at cost less accumulated depreciation and any accumulated impairment losses. Capital work-in-progress is measured at cost. Cost includes expenditures that are directly attributable to the acquisition of the asset and any other costs directly attributable to bringing the asset to working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. For qualifying assets, borrowing costs are capitalised in accordance with the accounting policy on borrowing costs. Cost also may include transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of plant and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When significant parts of an item of plant and equipment have different useful lives, they are accounted for as separate items (major components) of plant and equipment. The gain or loss on disposal of an item of plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the plant and equipment and is recognised net within “realised gains and losses” in the profit or loss.

(ii) Subsequent costs The cost of replacing a component of an item of plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced component is derecognised to profit or loss. The costs of the day-to-day servicing of plant and equipment are recognised in the profit or loss as incurred.

(iii) Depreciation Depreciation is based on the cost of an asset, or other amount substituted for cost, less its residual value. Significant component of individual assets are assessed, and if a component has a useful life that is different from the remainder of that asset, then that component is depreciated separately.

53


(b) Plant and equipment (continued)

(iii) Depreciation (continued) Depreciation is recognised in the profit or loss on a straight-line basis over the estimated useful lives of each component of an item of plant and equipment from the date they are available for use. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Capital work-in-progress are not depreciated until the assets are ready for their intended use. The estimated useful lives for the current and comparative periods are as follows: • Office equipment 4 years • Furniture and fittings 4 years • Renovation 5 years • Computers 4 years • Motor vehicles 5 years Depreciation method, useful lives and residual values are reviewed at the end of the reporting period, and adjusted as appropriate.

(c) Investment properties (i) Investment properties carried at fair value

Investment properties are properties which are owned or held under a leasehold interest to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of services or for administrative purposes. Investment properties are measured initially at cost and subsequently at fair value with any change therein recognised in the profit or loss for the period in which they arise. Cost includes expenditure that is directly attributable to the acquisition of the investment property. An investment property is derecognised on its disposal, or when it is permanently withdrawn from use and no future economic benefit are expected from its disposal. The difference between the net disposal proceeds and the carrying amount is recognised in profit or loss in the period in which the item is derecognised.

54


(c) Investment properties (continued)

(ii) Reclassifications to/from investment properties carried at fair value When an item of plant and equipment is transferred to investment properties following a change in its use, any difference arising at the date of transfer between the carrying amount of the item immediately prior to transfer and its fair value is recognised directly in equity as a revaluation of plant and equipment. However, if a fair value gain reverses a previous impairment loss, the gain is recognised in the profit or loss. Upon disposal of an investment property, any surplus previously recorded in equity is transferred to retained earnings; the transfer is not made through the profit or loss. When the use of a property changes such that it is reclassified as plant and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting.

(d) Financial instruments

(i) Initial recognition and measurement A financial asset or a financial liability is recognised in the statement of financial position when, and only when, the Company becomes a party to the contractual provisions of the instrument. A financial instrument is recognised initially, at its fair value plus, in the case of a financial instrument not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial instrument. An embedded derivative is recognised separately from the host contract and accounted for as a derivative if, and only if, it is not closely related to the economic characteristics and risks of the host contract and the host contract is not categorised at fair value through profit or loss. The host contract, in the event an embedded derivative is recognised separately, is accounted for in accordance with policy applicable to the nature of the host contract.

55


(d) Financial instruments (continued)

(ii) Financial instrument categories and subsequent measurement The Company categorises and measures financial instruments as follows: Financial assets (a) Financial assets at fair value through profit or loss

Fair value through profit or loss category comprises financial assets that are held for trading, including derivatives (except for a financial guarantee contract or a designated and effective hedging instrument) or financial assets that are specifically designated into this category upon initial recognition. Derivatives that are linked to and must be settled by delivery of unquoted equity instruments whose fair values cannot be reliably measured are measured at cost. Other financial assets categorised as fair value through profit or loss are subsequently measured at their fair values with the gain or loss recognised in profit or loss.

(b) Held-to-maturity investments Held-to-maturity investments category comprises debt instruments that are quoted in an active market and the Company has the positive intention and ability to hold them to maturity. Financial assets categorised as held-to-maturity investments are subsequently measured at amortised cost using the effective interest method.

(c) Loans and receivables, excluding insurance receivables Loans and receivables category comprises debt instruments that are not quoted in an active market (including fixed deposits with financial institutions). Financial assets categorised as loans and receivables are subsequently measured at amortised cost using the effective interest method.

56


(d) Financial instruments (continued) (ii) Financial instrument categories and subsequent measurement

(continued)

(d) Available-for-sale financial assets Available-for-sale category comprises investment in equity and debt securities instruments that are not held for trading. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. Other financial assets categorised as available-for-sale are subsequently measured at their fair values with the gain or loss recognised in other comprehensive income, except for impairment losses, foreign exchange gains and losses arising from monetary items and gains and losses of hedged items attributable to hedge risks of fair value hedges which are recognised in the profit or loss. On derecognition, the cumulative gain or loss recognised in other comprehensive income is reclassified from equity into profit or loss. Interest calculated for a debt instrument using the effective interest method is recognised in profit or loss.

(e) Insurance receivables Insurance receivables are recognised when due and measured on initial recognition at the fair value of the consideration received or receivable. Subsequent to initial recognition, insurance receivables are measured at amortised cost, using the effective interest method. Insurance receivables are derecognised when the derecognition criteria for financial assets, as described in Note 2(d)(v), have been met.

All financial assets, except for those measured at fair value through profit or loss, are subject to review for impairment (see Note 2(e)(i) and (ii)). Financial liabilities All financial liabilities are initially measured at fair value and subsequently measured at amortised cost other than those categorised as fair value through profit or loss. Fair value through profit or loss category comprises financial liabilities that are derivatives (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument) or financial liabilities that are specifically designated into this category upon initial recognition.

57


(d) Financial instruments (continued)

(ii) Financial instrument categories and subsequent measurement (continued) Financial liabilities (continued) Derivatives that are linked to and must be settled by delivery of equity instruments that do not have a quoted price in an active market for identical instruments whose fair values cannot be reliably measured are measured at cost. Other financial liabilities categorised as fair value through profit or loss are subsequently measured at their fair values with the gain or loss recognised in profit or loss.

(iii) Financial guarantee contracts A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Fair value arising from financial guarantee contracts are classified as deferred income and is amortised to profit or loss using a straight-line method over the contractual period or, when there is no specified contractual period, recognised in profit or loss upon discharge of the guarantee. When settlement of a financial guarantee contract becomes probable, an estimate of the obligation is made. If the carrying value of the financial guarantee contract is lower than the obligation, the carrying value is adjusted to the obligation amount and accounted for as a provision.

(iv) Regular way purchase or sale of financial assets A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned. A regular way purchase or sale of financial assets is recognised and derecognised, as applicable, using trade date accounting. Trade date accounting refers to: (a) the recognition of an asset to be received and the liability to pay for it

on the trade date; and (b) derecognition of an asset that is sold, recognition of any gain or loss

on disposal and the recognition of a receivable from the buyer for payment on the trade date.

58


(d) Financial instruments (continued) (v) Derecognition

A financial asset or part of it is derecognised when, and only when the contractual rights to the cash flows from the financial asset expire or the financial asset is transferred to another party without retaining control or substantially all risks and rewards of the asset. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in equity is recognised in the profit or loss. A financial liability or a part of it is derecognised when, and only when, the obligation specified in the contract is discharged or cancelled or expires. On derecognition of a financial liability, the difference between the carrying amount of the financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in the profit or loss.

(e) Impairment (i) Financial assets, excluding insurance receivables

All financial assets (except for financial assets categorised as fair value through profit or loss) are assessed at each reporting date whether there is any objective evidence of impairment as a result of one or more events having an impact on the estimated future cash flows of the asset. Losses expected as a result of future events, no matter how likely, are not recognised. For an investment in an equity instrument, a significant or prolonged decline in the fair value below its cost is an objective evidence of impairment. If any such objective evidence exists, then the impairment loss of the financial asset is estimated. An impairment loss in respect of loans and receivables (excluding insurance receivables where the policy is set out in Note 2(e)(ii) below) and held-to-maturity investments is recognised in profit or loss and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account.

59


(e) Impairment (continued)

(i) Financial assets, excluding insurance receivables (continued) An impairment loss in respect of available-for-sale financial assets is recognised in the profit or loss and is measured as the difference between the asset’s acquisition cost (net of any principal repayment and amortisation) and the asset’s current fair value, less any impairment loss previously recognised. Where a decline in the fair value of an available-for-sale financial asset has been recognised in other comprehensive income, the cumulative loss in other comprehensive income is reclassified from equity to profit or loss. An impairment loss in respect of unquoted equity instrument that is carried at cost is recognised in profit or loss and is measured as the difference between the financial asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed, to the extent that the asset’s carrying amount does not exceed what the carrying amount would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in the profit or loss.

(ii) Insurance receivables Insurance receivables are assessed at each reporting date whether there is any objective evidence of impairment as a result of one or more events having an impact on the estimated future cash flows of the asset. Losses expected as a result of future events, no matter how likely, are not recognised. An objective evidence of impairment is deemed to exist where the principal or interest or both for insurance receivables is past due for more than 90 days or 3 months for those individually assessed, as prescribed in the Guidelines on Financial Reporting for Insurers issued by Bank Negara Malaysia.

60


(e) Impairment (continued)

(ii) Insurance receivables (continued) An impairment loss in respect of insurance receivables is recognised in profit or loss and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. If, in a subsequent period, the fair value of insurance receivables increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed, to the extent that the asset’s carrying amount does not exceed what the carrying amount would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in the profit or loss.

(iii) Other assets The carrying amounts of other assets (except for deferred tax asset and investment properties that is measured at fair value) 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 group of cash-generating unit. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to group of 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 of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.

61


(e) Impairment (continued) (iii) Other assets (continued)

Impairment losses are recognised in the profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (groups of cash-generating 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 loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount since the last impairment loss was recognised. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Reversals of impairment losses are credited to profit or loss in the financial year in which the reversals are recognised.

(f) Cash and cash equivalents and placements with financial institutions Cash and cash equivalents consist of cash in hand, balances and deposits with banks and highly liquid investments which have an insignificant risk of changes in fair value with original maturities of three months or less, and are used by the Company in the management of their short-term commitments.

(g) Product classification The Company issues contracts that transfer insurance risk. Insurance contracts are those contracts that transfer significant insurance risk. An insurance contract is a contract under which the Company (the insurer) has accepted significant insurance risk from another party (the policyholders) by agreeing to compensate the policyholders if a specified uncertain future event (the insured event) adversely affects the policyholders. As a general guideline, the Company determines whether it has significant insurance risk, by comparing benefits paid with benefits payable if the insured event did not occur. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its life-time, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expired.

62


(h) Reinsurance The Company cedes insurance risk in the normal course of business. Reinsurance assets represent amounts recoverable from reinsurance companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer’s policies and are in accordance with the related reinsurance contracts. Ceded reinsurance arrangements do not relieve the Company from its obligations to policyholders. Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance. Reinsurance assets are reviewed for impairment at each reporting date or more frequently when an indication of impairment arises during the reporting period. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the Company may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measurable impact on the amounts that the Company will receive from the reinsurer. The impairment loss is recorded in profit or loss. Gains or losses on buying reinsurance, if any, are recognised in profit or loss immediately at the date of purchase and are not amortised. The Company also assumes reinsurance risk in the normal course of business when applicable. Premiums and claims on assumed reinsurance are recognised as revenue or expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business. Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the related reinsurance contract. Reinsurance assets or liabilities are derecognised when the contractual rights are extinguished or expired or when the contract is transferred to another party. Reinsurance contracts that do not transfer significant insurance risk are accounted for directly through the statement of financial position. These are deposit assets or financial liabilities that are recognised based on the consideration paid or received less any explicit identified premiums or fees to be retained by the reinsured. Investment income on these contracts is accounted for using the effective yield method when accrued.

63


(i) Commission and agency expenses Gross commission and agency expenses, which are costs directly incurred in securing premium on insurance policies, and income derived from reinsurers in the course of ceding of premiums to reinsurers, are charged to profit or loss in the period in which they are incurred or deferred where appropriate as set out in Note 2(j).

(j) General insurance underwriting results The general insurance underwriting results, are determined for each class of business after taking into account inter alia reinsurances, commissions, unearned premium reserves and claims incurred. Premium income Premium is recognised in a financial period in respect of risks assumed during that particular financial period except for inward treaty reinsurance premiums which are recognised on the basis of periodic advices/accounts received from ceding insurers. Insurance contract liabilities These liabilities comprise provision for unearned premiums and provision for outstanding claims. Provision for unearned premiums Provision for unearned premiums is the higher of the aggregate of the Unearned Premium Reserves (“UPR”) for all lines of business and the best estimate value of the Unexpired Risk Reserves (“URR”) at the required risk margin for adverse deviation. Unearned Premium Reserves The UPR represents premiums received for risks that have not yet expired. Generally, the reserve is released over the term of the contract and is recognised as premium income. In determining the UPR at end of the reporting period, the method that most accurately reflects the actual unearned premium is used and is as follows:

64


(j) General insurance underwriting results (continued) Annual policies (i) 25% method for marine cargo, aviation cargo and transit business. (ii) 1/24th method for all other classes of Malaysian general policies and

overseas inward business. The UPR calculation is adjusted for additional UPR in respect of premiums ceded to overseas reinsurers as required under the guidelines issued by Bank Negara Malaysia. Non annual policies Premiums are apportioned evenly over the period the policy is on risk. Unexpired Risk Reserves At each reporting date, the Company reviews its unexpired risks and a liability adequacy test is performed to determine whether there is any overall excess of expected claims and deferred acquisition costs over unearned premiums. This calculation uses current estimates of future contractual cash flows (taking into consideration current loss ratios) after taking account of the investment return expected to arise on assets relating to the relevant general insurance technical provisions. If these estimates show that the carrying amount of the unearned premiums less related deferred acquisition costs is inadequate, the deficiency is recognised in profit or loss by setting up a provision for liability adequacy. Provision for outstanding claims Outstanding claims provision are based on the estimated ultimate cost of all claims incurred but not settled at the end of the reporting period, whether reported or not, together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of certain types of claims, therefore, the ultimate cost of these claims cannot be known with certainty at the end of the reporting period. The liability is calculated at the reporting date by an independent actuarial firm using projection techniques as set out in Note 2(k) that included a regulatory risk margin for adverse deviation (“PRAD”). The liability is not discounted for the time value of money. No provision for equalisation or catastrophe reserves is recognised. The liabilities are derecognised when the contract expires, is discharged or is cancelled.

65


(j) General insurance underwriting results (continued) Acquisition costs and deferred acquisition costs (“DAC”) The gross cost of acquiring and renewing insurance policies net of income derived from ceding reinsurance premiums is recognised as incurred and properly allocated to the periods in which it is probable they give rise to income. Acquisition costs or ceding income which are not recoverable, or not payable in the event of a termination of the policy to which they relate, are not deferred but are recognised in the period in which they occur. Such costs are deferred to the extent that these are recoverable out of future premiums. All other acquisition costs are recognised as an expense when incurred. Subsequent to initial recognition, these costs are amortised/allocated to the periods according to the original policies which give rise to income. Amortisation is recognised in profit or loss. An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. When the recoverable amount is less than the carrying value, an impairment loss is recognised in profit or loss. DAC is also considered in the liability adequacy test for each accounting period. DAC is derecognised when the related contracts are either settled or disposed of.

(k) Valuation of general insurance contract liabilities For general insurance contracts, estimates have to be made for both the expected ultimate cost of claims reported at the end of the reporting period and for the expected ultimate cost of claims incurred but not yet reported at the end of the reporting period (IBNR). It can take a significant period of time before the ultimate claims costs can be established with certainty and for some type of policies, IBNR claims form the majority of the statement of financial position liability. The ultimate cost of outstanding claims is estimated by using a range of standard actuarial claims projection techniques, such as Chain Ladder and Bornheutter-Ferguson methods.

66


(k) Valuation of general insurance contract liabilities (continued) The main assumption underlying these techniques is that the Company’s past claims development experience can be used to project future claims development and hence, ultimate claims costs. As such, these methods extrapolate the development of paid and incurred losses, average costs per claim and claim numbers based on the observed development of earlier years and expected loss ratios. Historical claims development is mainly analysed by accident years, but can also be further analysed by geographical areas, as well as by significant business lines and claims type. Large claims are usually separately addressed, either by being reserved at the face value of loss adjustor estimates or separately projected in order to reflect their future development. In most cases, no explicit assumptions are made regarding future rates of claims inflation or loss ratios. Instead, the assumptions used are those implicit in the historic claims development data on which the projections are based. Additional qualitative judgement is used to assess the extent to which past trends may not apply in future (for example, to reflect one-off occurrences, changes in external or market factors such as public attitudes to claiming, economic conditions, levels of claims inflation, judicial decisions and legislation, as well as internal factors such as portfolio mix, policy features and claims handling procedures) in order to arrive at the estimated ultimate cost of claims that present the likely outcome from the range of possible outcomes, taking account of all the uncertainties involved.

(l) Income tax Tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in the profit or loss except to the extent that it relates to items recognised directly in equity or other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income for the year, using tax rates enacted or substantially enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous financial years.

67


(l) Income tax (continued) Deferred tax is recognised using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities in the statement of financial position and their tax bases. Deferred tax is not recognised for the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary difference can be utilised. Deferred tax assets are reviewed at the end of each reporting period and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(m) Other income recognition (i) Interest income

Interest income from securities with fixed or determinable payment and fixed maturity are recognised using the effective interest rate method. Interest income on loans are recognised on an accrual basis except where a loan is considered non-performing i.e. where repayments are in arrears for more than six (6) months, in which case recognition of such interest is suspended. Subsequent to suspension, interest income is recognised on the receipt basis until all arrears have been paid.

(ii) Rental income Rental income is recognised on an accrual basis except where default in payment of rent has already occurred and rent due remains outstanding for over six (6) months, in which case recognition of rental income is suspended. Subsequent to suspension, rental income is recognised on the receipt basis until all arrears have been paid.

68


(m) Other income recognition (continued) (iii) Dividend income

Dividend income is recognised in profit or loss on the date that the Company’s right to receive payment is established, which in case of quoted securities is the ex-dividend date.

(n) Employee benefits (i) Short-term employee benefits

Short-term employee benefit obligations in respect of salaries, annual bonuses, paid annual leave and sick leave are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

(ii) State plans The Company’s contributions to the statutory pension funds are charged to the profit or loss in the financial year to which they relate. Once the contributions have been paid, the Company has no further payment obligations.

(o) Operating lease Leases, where the Company does not assume substantially all the risks and rewards of ownership are classified as operating leases and, except for property interest held under operating lease, the leased assets are not recognised on the statement of financial position. Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense, over the term of the lease. Contingent rentals are charged to profit or loss in the reporting period in which they are incurred.

69


(p) Equity instruments Instruments classified as equity are measured at cost on initial recognition and are not remeasured subsequently. (i) Issue expenses

Costs directly attributable to the issue of instruments classified as equity are recognised as a deduction from equity.

(ii) Ordinary shares Ordinary shares are classified as equity.

(q) Earnings per share (“EPS”) The Company presents basic EPS data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to owner of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own share held. No diluted EPS is disclosed in these financial statements as there are no dilutive potential ordinary shares.

(r) Fair value measurements Fair value of an asset or a liability, except for share-based payment and lease transactions, is determined as 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 measurement assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market or in the absence of a principal market, in the most advantageous market. For non-financial asset, the fair value measurement 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.

70


(r) Fair value measurements (continued) When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. Fair value are categorised into different levels in a fair value hierarchy based on the input used in the valuation technique as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or

liabilities that the Company can assess at the measurement date. Level 2: inputs other than quoted prices included within Level 1 that are

observable for the asset or liability, either directly or indirectly. Level 3: unobservable inputs for the asset or liability. The Company recognises transfers between levels of the fair value hierarchy as of the date of the event or change in circumstances that caused the transfers.

71

Company No. 307414-T 3. Plant and equipment

Office

equipment

Furniture and

fittings

Renovation

Computers

Motor

vehicles

Capital work-in- progress

Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Cost At 1 January 2015 1,360 6,413 7,388 30,462 3,181 93 48,897 Additions 55 195 55 1,546 - 7,224 9,075 Disposals - - - (459) - - (459) Written off (20) (28) - (24) - - (72) Transfer to plant and equipment - - 217 - - (217) - Effect of movement in exchange rates 18 59 160 208 47 - 492 At 31 December 2015/1 January 2016 1,413 6,639 7,820 31,733 3,228 7,100 57,933 Additions 143 32 15 647 1,030 358 2,225 Disposals - - - (63) - - (63) Written off (5) (4) - (3) - - (12) Transfer to plant and equipment - - - 80 - (80) - Effect of movement in exchange rates 1 6 16 24 4 - 51 At 31 December 2016 1,552 6,673 7,851 32,418 4,262 7,378 60,134

72

Company No. 307414-T 3. Plant and equipment (continued)

Office

equipment

Furniture and

fittings

Renovation

Computers

Motor

vehicles

Capital work-in- progress

Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Accumulated depreciation At 1 January 2015 1,018 5,774 6,764 24,206 2,744 - 40,506 Depreciation for the year 132 343 269 2,830 344 - 3,918 Disposals - - - (459) - - (459) Written off (20) (28) - (24) - - (72) Effect of movement in exchange rates 17 39 160 49 23 - 288 At 31 December 2015/1 January 2016 1,147 6,128 7,193 26,602 3,111 - 44,181 Depreciation for the year 133 279 241 2,707 149 - 3,509 Disposals - - - (63) - - (63) Written off (5) (4) - (3) - - (12) Effect of movement in exchange rates 1 4 16 10 3 - 34 At 31 December 2016 1,276 6,407 7,450 29,253 3,263 - 47,649 Carrying amount At 1 January 2015 342 639 624 6,256 437 93 8,391 At 31 December 2015/1 January 2016 266 511 627 5,131 117 7,100 13,752 At 31 December 2016 276 266 401 3,165 999 7,378 12,485

73

Company No. 307414-T 3. Plant and equipment (continued)

Included in plant and equipment are the following fully depreciated assets which are still in use: 2016 2015 RM’000 RM’000 At cost: Office equipment 951 934 Furniture and fittings 5,906 5,235 Renovation 6,707 6,525 Computers 25,260 20,271 Motor vehicles 2,879 2,504

4. Investment properties Note 2016 2015 RM’000 RM’000 At 1 January 28,886 25,205 Change in fair value recognised in profit or loss 20 (1,364) - Effect of movement in exchange rates 378 3,681 At 31 December 27,900 28,886 Investment properties comprise commercial properties that are leased to third parties. Each of the leases consists of an average lease term of 3 years. Subsequent renewals are negotiated with the lessee and average renewal periods are 2 years. No contingent rents are charged. Investment properties are valued as at 19 December 2016 by Asian Appraisal Company Pte. Ltd., a firm of independent professional valuers that has appropriate recognised professional qualifications and recent experience in the location and category of the properties being valued. The fair values are based on open market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The following are recognised in the profit or loss in respect of investment properties: 2016 2015 RM’000 RM’000 Rental income 858 806 Direct operating expenses (92) (71)

74

Company No. 307414-T 4. Investment properties (continued)

Fair value information Fair value of investment properties are categorised as follows: Level 1 Level 2 Total RM’000 RM’000 RM’000 2016 Buildings - 27,900 27,900 2015 Buildings - 28,886 28,886 Policy on transfer between levels The fair value of an asset to be transferred between levels is determined as of the date of the event or change in circumstances that caused the transfer. Level 1 fair value Level 1 fair value is derived from quoted price (unadjusted) in active markets for identical investment properties that the entity can access at the measurement date. Level 2 fair value Level 2 fair value is estimated using inputs other than quoted prices included within Level 1 that are observable for the investment property, either directly or indirectly. Level 2 fair values of buildings have been generally derived using the sales comparison approach. Sales price of comparable properties in close proximity are adjusted for differences in key attributes such as property size. The most significant input into this valuation approach is price per square foot of comparable properties. Transfer between Level 1 and 2 fair values There is no transfer between Level 1 and 2 fair values during the financial year.

75

Company No. 307414-T 5. Other investments

(a) Available-for-sale (“AFS”) financial assets

2016 2015 RM’000 RM’000 At fair value Unit trust Quoted in Malaysia 5,859 5,925 Real estate investment trusts (REITS) Quoted in Malaysia 928 - Equity securities in corporations Quoted in Malaysia 32,385 30,486 Quoted outside Malaysia 3,483 3,380 Unquoted in Malaysia 235 235 36,103 34,101 Total AFS financial assets 42,890 40,026 Included in the Company’s investments in equity securities of corporations quoted in Malaysia are investments in ordinary shares of Public Bank Berhad, a company in which a Director has substantial financial interest, with a carrying value of RM30,333,000 (2015: RM28,487,000).

(b) Held-to-maturity (“HTM”) financial assets 2016 2015 Carrying

value Fair

value Carrying

value Fair

value RM’000 RM’000 RM’000 RM’000 At amortised cost Malaysian Government Securities 19,494 19,515 39,549 39,915 Malaysian Government Guaranteed Loans 30,076 30,206 30,096 30,088 Singapore Government Securities - - 1,533 1,562 Corporate bonds and sukuk

- Unquoted in Malaysia 174,989 177,012 204,874 207,651 - Unquoted outside Malaysia 8,644 8,541 7,748 7,681

Total HTM financial assets 233,203 235,274 283,800 286,897

76

Company No. 307414-T 5. Other investments (continued)

(b) Held-to-maturity (“HTM”) financial assets (continued) Included in the Company’s investments in unquoted Corporate bonds and sukuk are investments in bonds issued by Public Bank Berhad, a company in which a Director has substantial financial interest, with a carrying value of RM55,000,000 (2015: RM55,000,000).

(c) Estimation of fair values The fair values of quoted securities and unit trusts are their last quoted bid prices at the end of the reporting period. The fair values for Malaysian Government Securities, Malaysian Government Guaranteed Loans and Singapore Government Securities are their indicative mid market prices quoted by the regulatory agencies at the end of the reporting period. The estimated fair values of unquoted Corporate bonds and sukuk are based on the average indicative mid market prices obtained from two independent licensed financial institutions. The fair value of the unquoted equity security in corporations was determined to approximate the carrying amount as this is immaterial in the context of the financial statements. The following other investments that mature after 12 months: 2016 2015 RM’000 RM’000 Held-to-maturity financial assets 163,707 219,991

77

Company No. 307414-T 5. Other investments (continued)

(d) Carrying values of other investments

AFS HTM Total RM’000 RM’000 RM’000 At 1 January 2015 39,524 292,955 332,479 Addition/Dividend 128 64,873 65,001 Maturity - (75,000) (75,000) Fair value loss recorded in: Other comprehensive income (599) - (599) Amortisation - (180) (180) Accretion - 663 663 Effect of movement in exchange rates 973 489 1,462 At 31 December 2015/1 January 2016 40,026 283,800 323,826 Addition/Dividend 1,026 13,137 14,163 Maturity - (63,875) (63,875) Fair value gain recorded in: Other comprehensive income 1,736 - 1,736 Amortisation - (151) (151) Accretion - 170 170 Effect of movement in exchange rates 102 122 224 At 31 December 2016 42,890 233,203 276,093

6. Reinsurance assets

Note 2016 2015 RM’000 RM’000 Reinsurance of insurance contracts Claims liabilities 12 477,378 509,902 Premium liabilities 12 207,657 223,409 685,035 733,311

78

Company No. 307414-T 7(a). Loans and receivables, excluding insurance receivables

2016 2015 RM’000 RM’000 Staff loans Receivable within twelve months 3,559 4,314 Receivable after twelve months 34,859 39,900 38,418 44,214 Fixed and call deposits with licensed financial institutions with maturity more than three months

Licensed banks in Malaysia 842,953 147,013 Banks outside Malaysia 143,837 57,537 986,790 204,550 Other receivables Due from Malaysian Motor Insurance Pool 62,721 73,859 Allowance for impairment (1,052) (1,037) 61,669 72,822

Other receivables, deposits and prepayments 8,427 12,637 Income due and accrued 20,376 7,620 90,472 93,079 Total loans and receivables 1,115,680 341,843 Included in the fixed and call deposits are RM73,982,000 (2015: RM80,613,000) held as cash collateral for guarantees issued on behalf of policyholders (Note 15). The following loans and receivables mature after 12 months: 2016 2015 RM’000 RM’000 Loans and receivables 47,466 53,330 Estimation of fair values The fair values of the staff loans were determined to approximate the carrying amounts as these are immaterial in the context of the financial statements. The carrying amounts of the fixed and call deposits approximate their fair values.

79

Company No. 307414-T 7(b). Insurance receivables

Note 2016 2015 RM’000 RM’000 Due premiums including agents, brokers and co-insurers balances

120,785

119,791

Due from reinsurers and cedants 37,583 18,543 158,368 138,334 Allowance for impairment 34.4 (7,640) (3,281) 150,728 135,053

8. Deferred acquisition costs Note 2016 2015 RM’000 RM’000 Gross of reinsurance At 1 January 75,485 66,837 Movement during the year 21 789 7,657 Effect of movement in exchange rates 106 991 At 31 December 76,380 75,485 Reinsurance At 1 January (41,945) (35,043) Movement during the year 21 (3,885) (5,902) Effect of movement in exchange rates (99) (1,000) At 31 December (45,929) (41,945) Net of reinsurance At 1 January 33,540 31,794 Movement during the year (3,096) 1,755 Effect of movement in exchange rates 7 (9) At 31 December 30,451 33,540

80

Company No. 307414-T 9. Cash and cash equivalents

2016 2015 RM’000 RM’000 Cash and bank balances 28,236 24,655 Fixed and call deposits with licensed financial institutions with maturity less than three months

Licensed banks in Malaysia 213,707 649,653 Banks outside Malaysia - 97,621 Liquid investments - 125,889 241,943 897,818

The carrying amounts approximate their fair values due to the relatively short-term nature of these financial instruments. Included in the fixed and call deposits are RM1,310,000 (2015: RM4,612,000) held as cash collateral for guarantees issued on behalf of policyholders (Note 15). The Directors regard the highly liquid investments as cash and cash equivalents in view of its high liquidity and insignificant risk of changes in value.

10. Share capital 2016 2015

Amount Number

of share

Amount Number

of shares RM’000 ‘000 RM’000 ‘000 Ordinary shares of RM1.00 each Authorised At 1 January/31 December 500,000 500,000 500,000 500,000 Issued and fully paid At 1 January/31 December 200,000 200,000 200,000 200,000 Ordinary shares The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company.

81

Company No. 307414-T 11. Reserves

The reserves as shown in the statement of changes in equity are as follows:- 11.1 Foreign currency translation reserve

The foreign currency translation reserve is in respect of exchange differences arising from the translation of the financial statement of Singapore Branch.

11.2 Fair value reserve The fair value reserve comprises the cumulative net change in the fair value of the available-for-sale financial assets until the investments are derecognised or impaired.

11.3 Retained earnings The Company may distribute single tier exempt dividend to its shareholders out of its retained earnings. Pursuant to Section 51(1) of the FSA, the Company is required to obtain Bank Negara Malaysia’s written approval prior to declaring or paying any dividend with effect from financial year beginning 1 January 2014. Pursuant to the RBC Framework for Insurers, the Company shall not pay dividends if its Capital Adequacy Ratio position is less than its internal target capital level or if the payment of dividend would impair its Capital Adequacy Ratio position to below its internal target.

82

Company No. 307414-T 12. Insurance contract liabilities

2016 2015 Gross Reinsurance Net Gross Reinsurance Net RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 General insurance 1,609,458 (685,035) 924,423 1,654,018 (733,311) 920,707 The general insurance contract liabilities and its movements are further analysed as follows: 2016 2015 Note Gross Reinsurance Net Gross Reinsurance Net RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Provision for claims reported by policyholders 718,060 (382,525) 335,535 742,733 (413,153) 329,580 Provision for IBNR 215,584 (94,853) 120,731 224,439 (96,749) 127,690 Provision for outstanding claims 12.1 933,644 (477,378) 456,266 967,172 (509,902) 457,270 Provision for unearned premiums 12.3 675,814 (207,657) 468,157 686,846 (223,409) 463,437 1,609,458 (685,035) 924,423 1,654,018 (733,311) 920,707 Note 6 Note 6

83

Company No. 307414-T 12. Insurance contract liabilities (continued)

12.1 Provision for outstanding claims 2016 2015 Note Gross Reinsurance Net Gross Reinsurance Net RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 At 1 January 967,172 (509,902) 457,270 845,359 (443,658) 401,701 Claims incurred for the current accident year (direct and facultative)

540,472

(213,029)

327,443

517,973

(221,352)

296,621

Adjustment to claims incurred in prior accident years (direct and facultative)

(36,468)

3,558

(32,910)

133,756

(156,503)

(22,747)

Claims incurred during the year (treaty inwards claims)

(5,145)

-

(5,145)

10,202

-

10,202

Movement in PRAD of claims liabilities at 75% confidence level

(2,363)

6,406

4,043

17,332

(14,630)

2,702

Movement in claims handling expenses 1,368 - 1,368 1,315 - 1,315 Claims paid during the year 23 (533,068) 236,822 (296,246) (574,493) 330,594 (243,899) Impairment loss 34.4 - (647) (647) - 1,797 1,797 Effect of movement in exchange rates 1,676 (586) 1,090 15,728 (6,150) 9,578 At 31 December 12.2 933,644 (477,378) 456,266 967,172 (509,902) 457,270

84

Company No. 307414-T 12. Insurance contract liabilities (continued)

12.2 Provision for outstanding claims by business 2016 2015 Note Motor Non-Motor Total Motor Non-Motor Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Gross claims 33 336,553 597,091 933,644 344,048 623,124 967,172 Reinsurance (57,443) (419,935) (477,378) (59,135) (450,767) (509,902) Net claims 33 279,110 177,156 456,266 284,913 172,357 457,270 12.3 Provision for unearned premiums 2016 2015 Gross Reinsurance Net Gross Reinsurance Net RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 At 1 January 686,846 (223,409) 463,437 634,733 (210,898) 423,835 Premiums written during the year 1,278,339 (506,668) 771,671 1,250,799 (507,618) 743,181 Premiums earned during the year (1,290,021) 522,724 (767,297) (1,205,365) 498,421 (706,944) Effect of movement in exchange rates 650 (304) 346 6,679 (3,314) 3,365 At 31 December 675,814 (207,657) 468,157 686,846 (223,409) 463,437

85

Company No. 307414-T 13. Deferred tax liabilities

Recognised deferred tax liabilities Recognised deferred tax liabilities are attributable to the following: 2016 2015 RM’000 RM’000 Available-for-sale financial assets 3,173 2,732 Movement in temporary differences during the financial year Note 2016 2015 RM’000 RM’000 At 1 January 2,732 3,042 Movement during the year 26 432 (394) Effect of movement in exchange rates 9 84 At 31 December 3,173 2,732

14. Insurance payables

2016 2015 RM’000 RM’000 Due to reinsurers and cedants 57,559 64,853 Due to agents, brokers, co-insurers and insured 22,245 30,825 79,804 95,678 The carrying amounts disclosed above approximate their fair values at the end of the reporting period.

86

Company No. 307414-T 15. Other payables

Note 2016 2015 RM’000 RM’000 Cash collateral deposit received from policyholders

7(a),9

79,340

89,790

Deposit premiums 1,464 1,174 Other payables 8,330 9,355 Accrued expenses 15,373 15,120 104,507 115,439 The carrying amounts disclosed above approximate their fair values at the end of the reporting period.

16. Operating revenue 2016 2015 RM’000 RM’000 Gross earned premiums 1,290,021 1,205,365 Dividend income 5,902 3,234 Interest income (net of amortisation of premiums and accretion of discounts)

45,845

40,909

Rental of premises 858 806 1,342,626 1,250,314

87

Company No. 307414-T 17. Underwriting results of insurance fund

Fire

Motor Marine, Aviation

& Transit

Miscellaneous

Total 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Gross written premiums 521,159 494,334 295,015 307,701 95,857 100,056 366,308 348,708 1,278,339 1,250,799 Change in unearned premiums provision

(19,612)

(30,613)

21,510

(19,686)

2,700

2,486

7,084

2,379

11,682

(45,434)

Gross earned premiums 501,547 463,721 316,525 288,015 98,557 102,542 373,392 351,087 1,290,021 1,205,365 Gross written premiums ceded to reinsurers

(185,084)

(175,232)

(52,459)

(61,744)

(78,523)

(85,092)

(190,602)

(185,550)

(506,668)

(507,618)

Change in unearned premiums provision

5,990

4,829

(8,346)

9,106

(2,259)

(3,383)

(11,441)

(1,355)

(16,056)

9,197

Premiums ceded to reinsurers (179,094) (170,403) (60,805) (52,638) (80,782) (88,475) (202,043) (186,905) (522,724) (498,421) Net earned premiums 322,453 293,318 255,720 235,377 17,775 14,067 171,349 164,182 767,297 706,944

88

Company No. 307414-T 17. Underwriting results of insurance fund (continued)

Fire

Motor

Marine, Aviation & Transit

Miscellaneous

Total

2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Net claims incurred (62,549) (42,868) (164,986) (180,663) (7,325) (3,094) (59,292) (63,265) (294,152) (289,890) Commission income 44,761 41,532 11,311 10,068 5,455 5,816 47,391 43,803 108,918 101,219 Commission expense (60,836) (55,881) (31,347) (29,362) (4,536) (4,004) (50,318) (46,037) (147,037) (135,284) Net commission (16,075) (14,349) (20,036) (19,294) 919 1,812 (2,927) (2,234) (38,119) (34,065) Total out-go (78,624) (57,217) (185,022) (199,957) (6,406) (1,282) (62,219) (65,499) (332,271) (323,955) Underwriting surplus before management expenses

243,829

236,101

70,698

35,420

11,369 12,785

109,130

98,683

435,026

382,989

Management expenses (156,533) (146,734) Underwriting surplus after management expenses

278,493

236,255

Net claims incurred ratio of the insurance fund (%) 19.4 14.6 64.5 76.8 41.2 22.0 34.6 38.5 38.3 41.0

89

Company No. 307414-T 18. Investment income

2016 2015 RM’000 RM’000 Available-for-sale financial assets Dividend income Equity securities quoted in Malaysia 1,032 1,039 Equity securities quoted outside Malaysia 137 127 Unquoted equity securities in Malaysia 71 71 Unit trust 269 284 Held-to-maturity financial assets Interest/profit income Malaysian Government Securities 1,308 1,587 Malaysian Government Guaranteed Loans 1,296 1,100 Singapore Government Securities 39 57 Corporate bonds and sukuk 9,820 10,370 Amortisation of premiums, net of accretion of discounts 19 483 Rental of properties received from third parties 858 806 Loans and receivables and cash and cash equivalents Dividend income Liquid investments 4,393 1,713 Interest/profit income 33,363 27,312 52,605 44,949

19. Realised gains and losses

2016 2015 RM’000 RM’000 Realised (losses)/gains for: Plant and equipment - 1 Cash and cash equivalents - Liquid investments (74) - (74) 1

90

Company No. 307414-T 20. Fair value gains and losses

Note 2016 2015 RM’000 RM’000 Investment properties 4 (1,364) - Available-for-sale financial assets Equity securities in corporations Quoted in Malaysia (902) - (2,266) -

21. Commission income/(expense)

Note 2016 2015 RM’000 RM’000 Commission income Commission income 112,803 107,121 Movement in deferred acquisition costs 8 (3,885) (5,902) 108,918 101,219 Commission expense Commission expense (147,826) (142,941) Movement in deferred acquisition costs 8 789 7,657 (147,037) (135,284)

22. Other operating income

2016 2015 RM’000 RM’000 Interest on staff car loans 187 252 Interest on staff housing loans 846 849 Interest on bank balance 3 - Sundry income 6,966 4,774 8,002 5,875

23. Net claims incurred

2016 2015 RM’000 RM’000 Gross claims paid less salvage 533,068 574,493 Claims ceded to reinsurers (236,822) (330,594) Net claims paid 296,246 243,899

91

Company No. 307414-T 23. Net claims incurred (continued)

2016 2015 RM’000 RM’000 Gross change in claims liabilities: At 31 December 933,644 967,172 At 1 January (967,172) (845,359) Effect of movement in exchange rates (1,676) (15,728) (35,204) 106,085 Change in contract liabilities ceded to reinsurers: At 31 December (477,378) (509,902) At 1 January 509,902 443,658 Effect of movement in exchange rates 586 6,150 33,110 (60,094) 294,152 289,890

24. Management expenses Note 2016 2015 RM’000 RM’000 Personnel expenses (including key management personnel)

- Directors’ Fees 1,212 974 - Directors’ remuneration 324 318 - Wages, salaries and others 83,862 75,137 - Contributions to Employees’ Provident Fund 10,234 9,029 95,632 85,458 Auditors’ remuneration Auditors of the Company - Statutory audit 302 300 - Other Services 99 90 Affiliates of auditors of the Company - Statutory audit 383 369 Allowance for impairment loss on insurance receivables

4,339

2,235

Allowance for impairment loss on other receivables 15 991 Depreciation 3 3,509 3,918 Rental expense on office premises 6,307 5,975 Realised foreign exchange (gain) / loss (61) 1,498 Unrealised foreign exchange gain (585) (1,395) Other expenses 46,604 47,630 Total management expenses 156,544 147,069

92

Company No. 307414-T 25. Key management personnel compensation

The total remuneration (including benefits-in-kind) of the Chief Executive Officer and Directors are as follows:

Fees

Salary

Bonus

EPF

Other

Benefits-in-kind

Total

2016 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Chief Executive Officer

- Looi Kong Meng - 588 469 127 - 27 1,211 Executive Director

- Tan Kok Guan 150 - - - 23 16 189 Non-Executive Directors

- Tan Sri Dato’ Sri Dr. Teh Hong Piow 370 - - - 13 23 406 - Tee Choon Yeow 230 - - - 71 - 301 - Dato’ Haji Abdul Aziz bin Dato’ Dr. Omar (retired on 28 January 2016)

12

-

-

-

4

-

16

- Quah Poh Keat 150 - - - 71 - 221 - Chan Kwai Hoe 150 - - - 71 - 221 - Lee Chin Guan 150 - - - 71 - 221

Total Directors’ Remuneration (including benefits-in-kind) 1,212 - - - 324 39 1,575 Total Chief Executive Officer and Directors’ Remuneration (including benefits-in-kind) 1,212 588 469 127 324 66 2,786

93

Company No. 307414-T 25. Key management personnel compensation (continued)

Fees

Salary

Bonus

EPF

Other

Benefits-in-kind

Total

2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Chief Executive Officer

- Looi Kong Meng - 528 398 111 - 27 1,064 Executive Director

- Tan Kok Guan 135 - - - 22 31 188 Non-Executive Directors

- Tan Sri Dato’ Sri Dr. Teh Hong Piow 335 - - - 13 24 372 - Tan Sri Datuk Seri Utama Thong Yaw Hong (demised on 28 May 2015)

-

-

-

-

25

-

25

- Tee Choon Yeow 135 - - - 70 - 205 - Dato’ Haji Abdul Aziz bin Dato’ Dr. Omar 135 - - - 70 - 205 - Quah Poh Keat 135 - - - 70 - 205 - Chan Kwai Hoe 67 - - - 34 - 101 - Lee Chin Guan 32 - - - 14 - 46

Total Directors’ Remuneration (including benefits-in-kind) 974 - - - 318 55 1,347 Total Chief Executive Officer and Directors’ Remuneration (including benefits-in-kind) 974 528 398 111 318 82 2,411

94

Company No. 307414-T 26. Tax expense

Note 2016 2015 RM’000 RM’000 Recognised in profit or loss Current tax expense Malaysian - current 81,500 72,010 - prior years (1,592) (995) Overseas - current - 239 - prior years (157) - Total income tax expense 79,751 71,254 Reconciliation of tax expense Profit for the year 256,998 215,491 Tax expense 79,751 71,254 Profit before taxation 336,749 286,745 Income tax using Malaysian tax rate of 24% (2015: 25%) 80,820 71,686 Effect of lower tax rates for offshore business and business outside Malaysia

(1,824)

(911)

Non-deductible expenses 2,197 2,736 Tax exempt income (2,091) (614) Other items 2,398 (648) 81,500 72,249 Over provision in prior years (1,749) (995) Tax expense 79,751 71,254 Recognised in equity Available-for-sale financial assets - Deferred tax 13 (432) 394

27. Earnings per ordinary share

Basic earnings per ordinary share The calculation of basic earnings per ordinary share is based on the profit attributable to owner of the Company of RM256,998,000 (2015: RM215,491,000) and the weighted average number of ordinary shares outstanding during the year of 200,000,000 (2015: 200,000,000).

95

Company No. 307414-T 28. Dividends

Dividends recognised in the current year by the Company as appropriation of profits are as follows: Sen

per share (net of tax)

Total amount RM’000

Date of payment

2016 Second interim 2015 ordinary 50.00 100,000 4 February 2016 First interim 2016 ordinary 30.00 60,000 19 July 2016 160,000 2015 Final 2014 ordinary 45.00 90,000 5 February 2015 First interim 2015 ordinary 25.00 50,000 8 July 2015 140,000 The second interim single tier dividend recommended by the Directors in respect of the year ended 31 December 2016 is 55.00 sen per ordinary share totaling RM110,000,000. The second interim dividend will be recognised in subsequent financial period.

29. Operating lease commitments

Leases as lessee At 31 December 2016, the Singapore Branch has commitments for future minimum lease payments under non-cancellable operating lease as follows: 2016 2015 RM’000 RM’000 Less than one year 2,570 2,384 Between one and five years 10,136 1,289 12,706 3,673

96

Company No. 307414-T 29. Operating lease commitments (continued)

Leases as lessor The Singapore Branch leases out its investment properties (see Note 4). The future minimum lease receivables under non-cancellable leases are as follows: 2016 2015 RM’000 RM’000 Less than one year 685 771 Between one and five years 607 37 1,292 808

30. Capital and other commitments

2016 2015 RM’000 RM’000 Capital expenditure commitments Plant and equipment Contracted but not provided for 7,251 7,489

31. Significant related party disclosures

For the purpose of these financial statements, parties are considered to be related to the Company if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial or operational decisions, or vice versa, or where the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. The related parties of the Company are:

(i) Holding company

The holding company is LPI Capital Bhd, a corporation incorporated in Malaysia.

(ii) Key management personnel Key management personnel include the Company’s Executive and Non-Executive Directors and are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Company either directly or indirectly. Executive and Non-Executive Directors compensation is disclosed in Note 25.

(iii) Companies in which a Director has substantial financial interest These are entities in which significant voting power in such entities resides directly or indirectly, with a Director of the Company.

97

Company No. 307414-T 31. Significant related party disclosures (continued)

(a) The significant related party transactions of the Company, other than key

management personnel compensation, are as follows:

Holding company

Companies in which a Director has substantial

financial interest 2016 2015 2016 2015 RM’000 RM’000 RM’000 RM’000 Income earned: Premium income - - 31,071 29,533 Dividend income - - 2,036 2,046 Fixed deposits income - - 4,101 2,938 Corporate bonds and sukuk income

-

-

2,949

2,769

- - 40,157 37,286 Expenditure incurred: Rental paid - - (2,882) (2,855) Insurance commission - - (42,392) (41,542) Stock broking commission - - (3) - - - (45,277) (44,397) Other transaction: Purchase of corporate bonds and sukuk

-

-

(5,000)

-

(b) The significant outstanding balances of the Company with its related parties as at 31 December are as follows:

Companies in which a

Director has substantial financial interest

2016 2015 RM’000 RM’000 Balances with related parties: Placements in fixed and call deposits 128,602 124,618 Bank balances 13,628 7,224 Corporate bonds and sukuk 55,000 55,000 197,230 186,842

98

Company No. 307414-T 32. Risk Management Framework

The Board, with the assistance of the Management, has set out the overall approach of the Company’s risk management activities. The major areas of risk that the activities of the Company are exposed to are financial risks, strategy risks, insurance risks, operational risks and legal and compliance risks. The risk management infrastructure of the Company sets out clear accountabilities and responsibilities for the risk management process which underlines the principal risk management and control responsibilities.

Processes Parties responsible Approval of risk management policies, risk appetite and risk tolerance

Board of Directors Risk Management and Compliance Committee (“RMCC”)

Implementation of enterprise risk management, independent review and compliance

Dedicated Department Enterprise Risk Management (“ERM”) Department Independent Risk Management and Control Unit • Internal Audit Department (“IAD”) • Compliance Department

Implementation, development and giving feedback of risk management policies

Individual Units • Business Development Division • Underwriting Division • Health and Accident Department • Claims Department • Information Technology Department • Accounts & Finance Department • Human Resource Department • Reinsurance Department • Actuarial Department • Pricing Department

99

Company No. 307414-T 32. Risk Management Framework (continued)

The formalised risk management framework of the Company is as follows: • The Board of Directors is responsible for the Company’s risk appetite/risk

tolerance, capital management framework and risk management policies. • A RMCC was established by the Board with the responsibility to oversee the

overall risks which includes inter-alia reviewing and approving risk management processes, reviewing risk exposure and portfolio composition, and ensuring that infrastructure, resources and systems are put in place for risk management activities.

• The RMCC is supported by the ERM Department, which was established with the

responsibility to identify and communicate to the RMCC on critical risks (present and potential) in terms of likelihood exposures and impact on the Company’s business and the management action plans to manage these risks on a continuing basis.

• The independent risk management and control functions under the IAD provide

support to the ERM Department and ensure that the risk policies are implemented and complied with.

• The Individual Units are responsible for identifying, mitigating and managing risks

within their lines of business and ensuring that their day-to-day business activities are carried out in accordance with the established risk policies, procedures and limits.

• The role of the Audit Committee, supported by the IAD is to provide an

independent assessment of the adequacy and reliability of the risk management processes and system of internal controls and compliance with risk policies, laws and regulatory guidelines.

• The risk management policies are subject to periodical reviews to ensure that they

remain relevant and effective in managing the associated risks due to changes in the market place and regulatory environments.

100


Capital Management Plan The Company has put in place a Capital Management Plan (“CMP”) in compliance with the Guidelines on Internal Capital Adequacy Assessment Processes (“ICAAP”) issued by BNM. Under the ICAAP Guidelines, there are six (6) key elements tabulated as below: • Board and Senior Management Oversight • Comprehensive Risk Assessment • Individual Target Capital Level (“ITCL”) • Stress Testing • Sound Capital Management • Monitoring, Reporting and Review of ICAAP

The CMP sets out thresholds that act as triggers for actions. The corrective actions for each threshold are stated and take into account how adverse scenarios are likely to affect the Company’s risk management activities. The intensity of corrective actions increases with the extent of which threshold level is breached. This ensures that an appropriate level of capital is maintained at all times. The objective of the CMP is to optimise the efficient and effective use of resources and capital in order to maximise the return on equity and provide an appropriate level of capital to protect the policyholders. The management of the Company’s capital is guided by the CMP which is driven by the Company’s business strategies and takes into account the business and regulatory environment in which the Company operates in. Stress Testing The Company recognises the importance of stress testing as a risk management tool to identify potential threats due to exceptional but adverse plausible events. The Board and Management also view stress testing as an effective risk management tool and have embedded stress testing as part of the Company’s management culture. The stress testing process has been designed to suit business environment and risk profile, and commensurates with the nature, complexity and sophistication of its business activities. Challenging scenarios are incorporated into the stress testing exercise and will be continuously reviewed with the changing business environment. The stress testing process helps determine the extent by which capital may be eroded from exceptional but adverse plausible events. The Board and Management participate actively in providing feedback and participating in the discussion on the methodology, assumptions and results of each stress testing exercise.

101


Stress Testing (continued) The Company’s stress testing process complies with the Guidelines of Stress Testing for Insurers issued by BNM. The stress testing for the Singapore business complies with the Insurance (Actuaries) Regulations 2013 as prescribed by the Monetary Authority of Singapore.

33. Insurance risk

The Company underwrites various general insurance contracts, which are mostly on an annual coverage and annual premium basis, with the exception of short-term policies, such as Marine Cargo which covers the duration in which the cargo is being transported. Some of the policies are guaranteed renewable, such as the Medical products which are subject to a triennial review. The Company also underwrites some non-annual policies with coverage period more than one year, e.g. Mortgage Reducing Personal Accident, Contractor’s All Risk and Engineering, Bonds and Workmen Compensation. The majority of the insurance businesses written by the Company are Fire and Motor. Other major lines of business include Offshore Oil Related, Contractor’s All Risk and Engineering, Medical Expenses, Liabilities, and other miscellaneous classes. Insurance risk is the risk of financial losses arising from higher than expected claims amount and the inadequacy of insurance liabilities reserves. By underwriting insurance contracts, the Company takes on insurance risk by indemnifying the policyholders against adverse effects arising from the occurrence of specified uncertain future events. The principal risk the Company faces under insurance contracts is that the actual claims and benefits payments differ from expectations; the risks arise from the fluctuations in timing, frequency and severity of claims; as well as the adequacy of premiums and reserves. The Company is also exposed to risks arising from climate changes, natural disasters and terrorism activities. For longer tail claims that take some years to settle, there is also inflation risk. The Company’s objectives of managing insurance risks are to enhance the long-term financial performance of the business to achieve sustainable growth in profitability, strong asset quality and to continually optimise shareholders’ value. The Company seeks to write those risks that it understands and that provide a reasonable opportunity to earn an acceptable profit. The Company’s underwriting strategy is intended to ensure that the risks underwritten are well diversified across a large portfolio of insurance contracts and geographical areas. The variability of risks is managed by the selection and implementation of underwriting strategic guidelines, which are designed to ensure that risks are diversified in terms of type of risk and level of insured benefits.

102

Company No. 307414-T 33. Insurance risk (continued)

The Company adopts the following measures to manage the insurance risks: • The Company adopts an underwriting policy that aims to take advantage of its

competitive strengths while avoiding risks with disruptive volatility to ensure underwriting profitability. Acceptance of risk is guided by a set of underwriting guidelines with set limits on underwriting capacity, and authority to individuals based on their specific expertise.

• The Company has in place a claims management and control system to pay claims

and control claim overpayment or fraud. The Company has claim review policies to assess new and ongoing claims. Reviews of claims handling procedures and investigation of possible fraudulent claims are conducted to reduce the risk exposure of the Company. The Company also enforces a policy of actively managing and promptly pursuing claims, in order to reduce its exposure to unpredictable future developments that may impact the business in a negative manner.

• The Company purchases reinsurance as part of its risks mitigation programme. The objectives for purchasing reinsurance are to provide market-leading capacity for Company’s customers while protecting the statement of financial position and optimising the Company’s capital efficiency. Reinsurance is ceded on both proportional and non-proportional basis. The Company’s placement of reinsurance is well diversified such that it is neither dependent on a single reinsurer nor are the operations of the Company substantially dependent upon any single reinsurance contract.

The table below sets out the concentration of the Company’s general insurance business by type of product based on gross and net written premiums. 2016 2015 Gross Reinsurance Net Gross Reinsurance Net RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Motor 295,015 (52,459) 242,556 307,701 (61,744) 245,957 Fire 521,159 (185,084) 336,075 494,334 (175,232) 319,102 Marine, Aviation and Transit

95,857

(78,523)

17,334

100,056

(85,092)

14,964

Miscellaneous 366,308 (190,602) 175,706 348,708 (185,550) 163,158

1,278,339 (506,668) 771,671 1,250,799 (507,618) 743,181

103


The table below sets out the concentration of the Company’s insurance contract liabilities by type of product. 2016 2015 Gross Reinsurance Net Gross Reinsurance Net RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Motor 497,887 (82,641) 415,246 526,667 (92,607) 434,060 Fire 478,302 (224,551) 253,751 458,512 (230,819) 227,693 Marine, Aviation and Transit

107,374

(90,639)

16,735

114,623

(100,592)

14,031

Miscellaneous 525,895 (287,204) 238,691 554,216 (309,293) 244,923

1,609,458 (685,035) 924,423 1,654,018 (733,311) 920,707 Key assumptions The principal assumption underlying the estimation of liabilities is that the Company’s future claims development will follow a similar pattern to past claims development experience. This includes assumptions in respect of average claims costs, claims handling cost and claims numbers for each accident year. Additional qualitative judgments are used to assess the extent to which past trends may not apply in the future, for example, isolated occurrence, changes in the market and economic conditions, as well as internal factors, such as portfolio mix, policy conditions and claims handling procedures. Judgment is further used to assess the extent to which external factors may affect the estimates. The recommended claims and premium liability provisions did not explicitly allow for discounting and inflation adjustment. Implicit inflation has been allowed for future claims to the extent evident in past claims development. Discounting is unlikely to result in any material impact due to the short tail nature of most classes coupled with the low prevailing interest rate environment. The Company has based its risk margin for adverse deviation for the provisions for unexpired risks and insurance claims at a 75% level of sufficiency, according to the requirement set by Bank Negara Malaysia under the RBC Framework. Sensitivities The actuary re-runs his valuation models on various bases. An analysis of sensitivity around various scenarios provides an indication of the adequacy of the Company’s estimation process in respect of its insurance contracts. The information in the table below demonstrates the sensitivity of the insurance contract liabilities estimates to a defined movement in key assumptions of the estimation process.

104


Sensitivities (continued) The sensitivity analysis is performed across key assumptions with all other assumptions held constant, showing the impact on gross and net liabilities, profit before tax and equity. The correlation of assumptions may have a significant effect in determining the ultimate claims liabilities, but to demonstrate the impact due to changes in assumptions, assumptions had to be changed on an individual basis.

Change in assumptions

Impact on gross liabilities

Impact on net

liabilities

Impact on profit

before tax

Impact on

equity* RM’000 RM’000 RM’000 RM’000 2016 Average claim cost +10% 86,829 41,282 (41,282) (31,374) Average number of claims

+10%

64,822

38,916

(38,916)

(29,576)

Average claim settlement period

Increased by 6 months

21,443

10,049

(10,049)

(7,637)

2015 Average claim cost +10% 91,254 39,675 (39,675) (29,756) Average number of claims

+10%

61,869

34,909

(34,909)

(26,182)

Average claim settlement period

Increased by 6 months

22,536

9,798

(9,798)

(7,349)

* Impact on equity reflects adjustments for tax, when applicable. Claims development table The following tables show the Company’s estimate of cumulative incurred claims for its Motor and Non-motor business, including both claims notified and IBNR for each successive accident year at the end of each reporting period, together with cumulative payments to date. The cumulative claims estimates and cumulative payments for Singapore are translated to RM at the rate of exchange that applied at the end of the financial year. While the information in the tables provides a historical perspective on the adequacy of the unpaid claims estimate established in previous years, users of these financial statements are cautioned against extrapolating any redundancies or deficiencies of the past on current unpaid claim balances. The management of the Company believes that the estimate of total claims outstanding as of 31 December 2016 is adequate. However, due to the inherent uncertainties in the future development of claims, it cannot be fully assured that such balances will ultimately prove to be adequate.

105


Gross general insurance contract liabilities for 2016: Motor 2009

and prior

2010

2011

2012

2013

2014

2015

2016

Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Accident year At end of accident year 135,500 143,820 166,189 180,721 171,288 174,581 215,556 227,212 - One year later 135,629 145,637 173,793 180,720 167,276 171,442 205,004 - - Two years later 136,514 146,810 170,491 181,085 165,398 168,537 - - - Three years later 136,345 147,528 171,503 180,033 162,055 - - - - Four years later 136,476 146,517 173,696 178,776 - - - - - Five years later 135,949 149,277 175,087 - - - - - - Six years later 137,087 148,505 - - - - - - - Seven years later 138,408 - - - - - - - - Current estimate of cumulative claims incurred

138,408

148,505

175,087

178,776

162,055

168,537

205,004

227,212

1,403,584

At end of accident year 59,500 64,122 71,483 78,768 75,232 72,600 83,456 95,466 - One year later 106,482 111,305 128,920 136,360 123,360 121,197 145,287 - - Two years later 122,128 127,941 148,748 154,502 139,892 141,315 - - - Three years later 127,710 136,044 156,275 163,654 147,941 - - - - Four years later 131,460 138,212 162,227 168,614 - - - - - Five years later 133,415 141,568 168,721 - - - - - - Six years later 135,423 146,060 - - - - - - - Seven years later 135,788 - - - - - - - - Cumulative payments to-date 135,788 146,060 168,721 168,614 147,941 141,315 145,287 95,466 1,149,192

106


Gross general insurance contract liabilities for 2016 (continued): Motor Note 2009

and prior

2010

2011

2012

2013

2014

2015

2016

Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Gross general insurance outstanding liabilities (direct and facultative)

2,620

2,445

6,366

10,162

14,114

27,222

59,717

131,746

254,392

Gross general insurance outstanding liabilities (treaty inward)

625

Gross general insurance outstanding

liabilities (MMIP)

43,298

Best estimate of claims liabilities 298,315 Claims handling expenses 5,641 Fund PRAD at 75% confidence level

32,597

2 Gross provision for outstanding claims

12.2

336,553

107


Gross general insurance contract liabilities for 2015: Motor 2008

and prior

2009

2010

2011

2012

2013

2014

2015

Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Accident year At end of accident year 131,234 135,500 143,820 166,189 180,721 171,288 174,581 215,556 - One year later 137,227 135,629 145,637 173,793 180,720 167,276 171,442 - - Two years later 144,018 136,514 146,810 170,491 181,085 165,398 - - - Three years later 148,286 136,345 147,528 171,503 180,033 - - - - Four years later 149,481 136,476 146,517 173,696 - - - - - Five years later 150,724 135,949 149,277 - - - - - - Six years later 151,580 137,087 - - - - - - - Seven years later 159,880 - - - - - - - - Current estimate of cumulative claims incurred

159,880

137,087

149,277

173,696

180,033

165,398

171,442

215,556

1,352,369

At end of accident year 47,336 59,500 64,122 71,483 78,768 75,232 72,600 83,456 - One year later 105,723 106,482 111,305 128,920 136,360 123,360 121,197 - - Two years later 127,178 122,128 127,941 148,748 154,502 139,892 - - - Three years later 138,019 127,710 136,044 156,275 163,654 - - - - Four years later 144,422 131,460 138,212 162,227 - - - - - Five years later 147,491 133,415 141,568 - - - - - - Six years later 149,991 135,423 - - - - - - - Seven years later

156,907 - - - - - - - -

Cumulative payments to-date 156,907 135,423 141,568 162,227 163,654 139,892 121,197 83,456 1,104,324

108


Gross general insurance contract liabilities for 2015 (continued):

Motor

Note

2008 and prior

2009

2010

2011

2012

2013

2014

2015

Total

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Gross general insurance outstanding liabilities (direct and facultative)

2,973

1,664

7,709

11,469

16,379

25,506

50,245

132,100

248,045


2,785

Gross general insurance outstanding liabilities (MMIP)

59,025


29,324


12.2

344,048

109


Gross general insurance contract liabilities for 2016:

Non-motor

2009 and prior

2010

2011

2012

2013

2014

2015

2016

Total

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Accident year At end of accident year 166,225 195,931 270,712 229,089 324,501 279,158 299,458 315,598 - One year later 172,749 193,299 231,204 242,716 349,282 293,128 349,137 - - Two years later 163,982 213,052 216,872 227,616 336,316 274,247 - - - Three years later 163,143 208,531 207,912 248,330 303,759 - - - - Four years later 159,347 200,615 210,111 243,350 - - - - - Five years later 160,167 204,869 205,635 - - - - - - Six years later 173,789 203,698 - - - - - - - Seven years later 178,148 - - - - - - - - Current estimate of cumulative claims incurred

178,148

203,698

205,635

243,350

303,759

274,247

349,137

315,598

2,073,572


110



Non-motor

Note

2009 and prior

2010

2011

2012

2013

2014

2015

2016

Total


5,726

24,588

9,776

32,796

66,773

55,569

120,434

205,189

520,851


3,708


67,276


12.2

597,091

111


Gross general insurance contract liabilities for 2015:

Non-motor

2008 and prior

2009

2010

2011

2012

2013

2014

2015

Total


125,057

173,789

204,869

210,111

248,330

336,316

293,128

299,458

1,891,058


112



Non-motor

Note

2008 and prior

2009

2010

2011

2012

2013

2014

2015

Total


5,901

2,434

35,217

17,154

41,025

112,870

100,716

225,631

540,948


4,806


72,771


12.2

623,124

113


Net general insurance contract liabilities for 2016:

Motor

2009 and prior

2010

2011

2012

2013

2014

2015

2016

Total


118,876

123,476

144,911

153,889

137,617

138,031

165,112

182,729

1,164,641

At end of accident year 52,702 56,433 61,958 68,411 64,520 60,592 68,167 78,680 - One year later 93,184 97,130 111,054 117,950 104,998 100,425 118,175 - - Two years later 106,187 110,787 127,915 133,400 118,897 116,298 - - - Three years later 110,991 116,995 134,142 141,014 125,744 - - - - Four years later 113,764 118,952 138,178 145,191 - - - - - Five years later 115,244 121,208 139,354 - - - - - - Six years later 116,449 121,634 - - - - - - - Seven years later 116,678 - - - - - - - - Cumulative payments to-date 116,678 121,634 139,354 145,191 125,744 116,298 118,175 78,680 961,754

114


Net general insurance contract liabilities for 2016 (continued):

Motor

Note

2009 and prior

2010

2011

2012

2013

2014

2015

2016

Total

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Net general insurance outstanding liabilities (direct and facultative)

2,198

1,842

5,557

8,698

11,873

21,733

46,937

104,049

202,887

Net general insurance outstanding liabilities (additional provision)

455

Net general insurance outstanding liabilities (treaty inward)

625

Net general insurance outstanding liabilities (MMIP)

43,298


26,204

Net provision for outstanding claims

12.2

279,110

115



Motor

2008 and prior

2009

2010

2011

2012

2013

2014

2015

Total


143,574

117,916

124,113

145,679

154,177

139,198

140,217

173,556

1,138,430


116


Net general insurance contract liabilities for 2015 (continued):

Motor

Note

2008 and prior

2009

2010

2011

2012

2013

2014

2015

Total

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Net general insurance outstanding liabilities (direct and facultative)

2,634

1,467

2,905

7,501

13,163

20,301

39,792

105,389

193,152


1,797


2,785

Net general insurance outstanding liabilities (MMIP)

59,025


23,285

2 Net provision for outstanding claims

12.2

284,913

117



Non-motor

2009 and prior

2010

2011

2012

2013

2014

2015

2016

Total


79,192

76,043

87,523

98,215

110,137

120,020

124,584

144,666

840,380


118


Net general insurance contract liabilities for 2016 (continued): Non-motor

Note 2009

and prior

2010

2011

2012

2013

2014

2015

2016

Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Net general insurance outstanding liabilities (direct and facultative)

2,117

854

2,952

6,756

9,387

13,936

28,048

82,801

146,851


5,716


3,708


15,625


12.2

177,156

119



Non-motor

2008 and prior

2009

2010

2011

2012

2013

2014

2015

Total


63,984

77,623

76,585

89,364

101,359

115,963

124,617

123,258

772,753


120


Net general insurance contract liabilities for 2015 (continued): Non-motor

Note 2008

and prior

2009

2010

2011

2012

2013

2014

2015

Total RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Net general insurance outstanding liabilities (direct and facultative)

2,993

1,131

1,898

5,661

11,348

17,721

28,209

74,571

143,532


5,000


4,806


14,420


12.2

172,357

121

Company No. 307414-T 34. Financial instruments

34.1 Categories of financial instruments

The table below provides an analysis of financial instruments categorised as follows: (a) Loans and receivables (“L&R”); (b) Available-for-sale financial assets (“AFS”); (c) Held-to-maturity financial assets (“HTM”); and (d) Other financial liabilities measured at amortised cost (“FL”). Carrying

amount L&R/ (FL)

AFS

HTM

2016 RM’000 RM’000 RM’000 RM’000 Financial assets Other investments 276,093 - 42,890 233,203 Reinsurance assets 382,525 382,525 - - Loans and receivables, excluding insurance receivables 1,115,680 1,115,680 - - Insurance receivables 150,728 150,728 - - Cash and cash equivalents 241,943 241,943 - - 2,166,969 1,890,876 42,890 233,203 Financial liabilities Provision for outstanding claims (718,060) (718,060) - - Insurance payables (79,804) (79,804) - - Other payables (104,507) (104,507) - - (902,371) (902,371) - - 2015 Financial assets Other investments 323,826 - 40,026 283,800 Reinsurance assets 413,153 413,153 - - Loans and receivables, excluding insurance receivables 341,843 341,843 - - Insurance receivables 135,053 135,053 - - Cash and cash equivalents 897,818 897,818 - - 2,111,693 1,787,867 40,026 283,800 Financial liabilities Provision for outstanding claims (742,733) (742,733) - - Insurance payables (95,678) (95,678) - - Other payables (115,439) (115,439) - - (953,850) (953,850) - -

122

Company No. 307414-T 34. Financial instruments (continued)

34.2 Net gains and losses arising from financial instruments

2016 2015 RM’000 RM’000 Net gains/(losses) arising on: Available-for-sale financial assets - recognised in other comprehensive income 1,736 (599) - reclassified from equity to profit or loss 893 - - recognised in profit or loss 616 1,521 3,245 922 Held-to-maturity financial assets 12,482 13,597 Loans and receivables 35,010 26,797 50,737 41,316

34.3 Financial risk management The Company is exposed to a variety of financial risks that includes credit risk, liquidity risk, market risk (currency risk, interest rate risk, price risk) and operational risk. The Company’s overall financial risk management objective is to ensure that the Company creates value for its shareholders whilst minimising potential exposure to adverse effects on its financial performance and positions. The Company is guided by risk management policies which set out the overall business strategies and the general risk management philosophy. The Company has established internal processes to monitor the risks on an ongoing basis. The policies and measures taken by the Company to manage these risks are as set out below.

34.4 Credit risk Credit risk is the risk of financial loss resulting from the failure of a customer, an intermediary or counterparty to settle its financial and contractual obligations to the Company as and when they fall due. The Company’s primary exposure to credit risk arises through its investment in fixed income securities, receivables arising from sales of insurance policies, and obligations of reinsurers through reinsurance contracts.

123


34.4 Credit risk (continued) The Company has put in place credit policy and investments guidelines as a part of its overall credit risk management framework. The Company manages individual exposures as well as concentration of credit risks. At end of the reporting period, there were no significant concentration of credit risks, other than investments in Corporate bonds and sukuk issued by five issuers amounted to RM139,977,000 (2015: RM124,977,000) and bank balances and deposits placed with five banks amounted to RM586,255,000 (2015: RM481,712,000). Evaluation of an issuer’s credit risk is undertaken by the Investment Unit of the Accounts and Finance Department. The Company uses the ratings assigned by external rating agencies to assess issuer’s credit risk. Monitoring of credit and concentration risk is carried out by the Accounts and Finance Department which reports to the Investment Committee and is supported by the Enterprise Risk Management Department. Cash and deposits are generally placed with banks and financial institutions licensed under the Financial Services Act 2013 and Islamic Financial Services Act 2013 which are regulated by Bank Negara Malaysia. Receivables arising from insurance and reinsurance contracts are monitored by the Credit Control Committee and Credit Control Unit of the Accounts and Finance Department to ensure adherence to the Company’s credit policy. As part of the overall risk management strategy, the Company cedes insurance risk through proportional and non-proportional treaties and facultative arrangement. The Company monitors the credit quality and financial conditions of its reinsurers on an ongoing basis and review its reinsurance arrangements periodically. The Company typically cedes business to reinsurers that have a good credit rating and concentration of risk is avoided by adhering to policy guidelines in respect of counterparties’ limit that are set each year by the Board of Directors. When selecting its reinsurers, the Company considers their relative financial security. The security of the reinsurer is assessed based on public rating information and annual reports. The Company’s credit risk exposure to insurance receivable arises from business with its appointed agents, brokers and other intermediaries. The risk arises where these parties collect premiums from customers to be paid to the Company. The Company has policies to monitor credit risk from these receivables with a focus on day-to-day monitoring of the outstanding position by the credit control staff. The Company also has guidelines to evaluate intermediaries before their appointment as well as setting credit terms to these appointees.

124


34.4 Credit risk (continued) Credit exposure by credit quality The table below provides information regarding the credit risk exposure of the Company by classifying assets according to the Company’s credit ratings of counterparties.

Neither past due nor

impaired

Investment

Grade

Non-rated

Past due but not

impaired

Total 2016 RM’000 RM’000 RM’000 RM’000 Other investments: Held-to-maturity financial assets 233,203 - - 233,203 Reinsurance assets 332,321 50,204 - 382,525 Loans and receivables, excluding insurance receivables

819,790

295,890

-

1,115,680

Insurance receivables 26,535 108,866 15,327 150,728 Cash and cash equivalents 232,565 9,378 - 241,943 1,644,414 464,338 15,327 2,124,079 2015 Other investments: Held-to-maturity financial assets 281,504 2,296 - 283,800 Reinsurance assets 357,557 55,596 - 413,153 Loans and receivables, excluding insurance receivables

194,550

147,293

-

341,843

Insurance receivables 11,192 99,310 24,551 135,053 Cash and cash equivalents 701,398 196,420 - 897,818 1,546,201 500,915 24,551 2,071,667

125


34.4 Credit risk (continued) The table below provides information regarding the credit risk exposure of the Company by classifying assets according to the reputable rating agencies’ credit ratings of counterparties. AAA is the highest possible rating. AAA AA A BBB Non-rated Total 2016 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Other investments: Held-to-maturity financial assets 54,570 153,633 25,000 - - 233,203 Reinsurance assets - 101,336 230,814 171 50,204 382,525 Loans and receivables, excluding insurance receivables 226,760 274,350 235,680 83,000 295,890 1,115,680 Insurance receivables - 8,315 18,217 3 124,193 150,728 Cash and cash equivalents 139,764 37,374 31,427 24,000 9,378 241,943 421,094 575,008 541,138 107,174 479,665 2,124,079 2015 Other investments: Held-to-maturity financial assets 91,060 175,445 14,999 - 2,296 283,800 Reinsurance assets - 99,156 258,016 385 55,596 413,153 Loans and receivables, excluding insurance receivables 60,250 85,203 49,097 - 147,293 341,843 Insurance receivables - 1,525 9,657 10 123,861 135,053 Cash and cash equivalents 261,197 153,076 212,125 75,000 196,420 897,818 412,507 514,405 543,894 75,395 525,466 2,071,667

126


34.4 Credit risk (continued) Age analysis of financial assets past due but not impaired A financial asset is deemed past due when the counterparty has failed to make payment when the outstanding amount is contractually due. <30

days 31 - 60 Days

61 - 90 days

91 - 180 days

>180 days

Total

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 2016 Insurance receivables

7,677

3,981

944

1,535

1,190

15,327

2015 Insurance receivables

8,069

5,523

6,240

2,380

2,339

24,551

Impaired financial assets At 31 December 2016, there was an impairment loss of RM4,321,000 (2015: RM2,310,000) for insurance receivables recognised during the financial year relating to amount due from Best Re (L) Ltd. The Company records impairment allowance for insurance receivables and other receivables in separate allowance for impairment loss accounts. A reconciliation of the allowance for impairment losses for insurance receivables and other receivables is as follows: Insurance

Receivables Other

Receivables 2016 2015 2016 2015 RM’000 RM’000 RM’000 RM’000 At 1 January 3,281 971 1,037 - Charge for the year 4,339 2,235 15 991 Effect of movement in exchange rates

20

75

-

-

Effect of withdrawal of member from Malaysian Motor

Insurance Pool

-

-

-

46 At 31 December 7,640 3,281 1,052 1,037 Included in the reinsurance assets is an amount of RM6,172,000 (2015: RM6,797,000) of impairment loss due from Best Re (L) Ltd.

127


34.5 Liquidity risk Liquidity risk is the risk that the Company may not have sufficient liquid financial resources to meet its obligations when they fall due, or would have to incur excessive costs to do so. In respect of catastrophic events, there is also a liquidity risk associated with the timing differences between gross cash outflows and expected reinsurance recoveries. The Company’s policy is to maintain adequate liquidity to meet its liquidity needs under normal and stressed conditions. The following policies and procedures are in place to mitigate the Company’s exposure to liquidity risk: • A Company-wide liquidity risk management policy setting out the

assessment and determination of what constitutes liquidity risk for the Company is established. Compliance with the policy is monitored and reported monthly and exposures and breaches are reported to the Company’s Risk Management and Compliance Committee (“RMCC”) as soon as possible. The Company’s Investment Committee is the primary party responsible for liquidity management based on guidelines approved by the Board.

• There are guidelines on asset allocations, portfolio limit structures and

maturity profiles of assets, in order to ensure sufficient funding is available to meet insurance and investment contract obligations. As part of its liquidity management, the Company maintains sufficient level of cash and cash equivalents to meet expected and to a lesser extent unexpected outflows.

• Setting up contingency funding plans which specify minimum proportions of

funds to meet emergency calls as well as specifying events that would trigger such plans. The Company’s contingency funding plans include arranging credit line with banks and funding from the shareholders.

• The Company’s treaty reinsurance contract contains a “cash call” clause

permitting the Company to make cash call on claims and receive immediate payment for a large loss without waiting for usual periodic payment procedures to occur.

128


34.5 Liquidity risk (continued) Maturity profiles The table below summarises the maturity profile of the financial liabilities of the Company based on remaining undiscounted contractual obligations, including interest/profit payable. For insurance contract liabilities, maturity profiles are determined based on estimated timing of net cash outflows from recognised insurance liabilities. Carrying

value Up to a year*

1 - 3 years

3 - 5 years

5 - 15 years

Total

RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 2016 Provision for outstanding claims 718,060 452,325 220,942 38,458 6,335 718,060 Insurance payables 79,804 79,804 - - - 79,804 Other payables 104,507 80,326 22,084 2,021 76 104,507 Total liabilities 902,371 612,455 243,026 40,479 6,411 902,371 2015 Provision for outstanding claims 742,733 465,206 212,124 52,200 13,203 742,733 Insurance payables 95,678 95,678 - - - 95,678 Other payables 115,439 82,893 29,447 3,099 - 115,439 Total liabilities 953,850 643,777 241,571 55,299 13,203 953,850 * expected utilisation or settlement is within 12 months from the reporting date.

129


34.6 Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprised three types of exposures: foreign exchange rates (currency risk), market interest rates (interest rates/profit yield risk) and market prices (price risk). The key features of the Company’s market risk management practices and policies are as follows: • A Company-wide market-risk policy setting out the evaluation and

determination of what constitutes market risk for the Company is put in place. Compliance with the policy is monitored and reported monthly to the Investment Committee.

• The Company has policies and limits to manage market risk. The market risk

is managed through portfolio diversification and changes in asset allocation. The Company’s policies on asset allocation, portfolio limit structure and diversification benchmark have been set in line with the Company’s risk management policy after taking cognisance of the regulatory requirements in respect of maintenance of assets and solvency.

34.7 Currency risk

Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company’s primary transactions are carried out in RM and its exposure to foreign exchange risk arises principally with respect to Singapore Dollar (SGD) and US Dollar (USD). The Company faces foreign currency risk, primarily because of its operations in Singapore (Branch) and some of its cash and deposits are held in USD. Consequently, the Company is exposed to risks that the exchange rate of its functional currency (RM) relative to other foreign currencies may change in a manner that has an effect on the value of that portion of the Company’s assets or liabilities denominated in currencies other than RM. Foreign exchange transaction risk impacting the Company’s profit or loss arises both from external investing activities and intra-company operating activities. Currency risk relating to investing and operating activities in the normal course of business are generally not hedged.

130


34.7 Currency risk (continued) The Company’s exposure to foreign currency (a currency which is other than the functional currency of the Company and its Singapore Branch) risk, based on carrying amounts as at the end of the reporting periods was: Malaysian

Ringgit US

Dollar

Total RM’000 RM’000 RM’000 2016 Malaysian operation Cash and cash equivalents - 4,419 4,419 Singapore operation Available-for-sale financial assets 26,149 - 26,149 Cash and cash equivalents 1,724 - 1,724 27,873 - 27,873 2015 Malaysian operation Cash and cash equivalents - 1,091 1,091 Singapore operation Available-for-sale financial assets 24,558 - 24,558 Cash and cash equivalents - - - 24,558 - 24,558 The Company’s exposure to currency risk is immaterial in the context of the financial statements and hence, sensitivity analysis is not presented.

131


34.8 Interest rate/profit yield risk Interest rate risk is the risk that the value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates/profit yield. The Company is exposed to interest rate risk primarily through its investments in fixed income securities and deposits placements. Interest rate risk is managed by the Company on an ongoing basis. The Company has no significant concentration of interest rate/profit yield risk. The impact on profit before tax at +/- 25 basis points change in the interest rate, with all other variables held constant, is insignificant to the Company given that it has minimal floating rate financial instruments. Most of the Company’s fixed income securities and deposit placements are short-term in nature and are intended to be held to maturity. Hence, the sensitivity analysis is not presented.

34.9 Price risk Equity price risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate/profit yield risk or currency risk), regardless whether those changes are caused by factors specific to the individual financial instruments or its issuer or factors affecting similar financial instruments traded in the market. The Company’s equity price risk exposure relates to financial assets and financial liabilities whose values will fluctuate as a result of changes in market prices. The Company is exposed to equity price risk arising from investments held by the Company and classified in the statement of financial position as available-for-sale financial assets that comprises quoted equities and unit trusts. The analysis below is performed for reasonably possible movements in equity price with all other variables held constant, showing the impact of statements of profit or loss and other comprehensive income and changes in equity (due to changes in fair value of available-for-sale financial assets).

2016 2015

Change in variables

Impact on profit

before tax

Impact on

equity*

Impact on profit

before tax

Impact on

equity* RM’000 RM’000 RM’000 RM’000 Market price +10% - 2,726 - 2,574 Market price -10% - (2,726) - (2,574)

* Impact on equity reflects adjustments for tax, when applicable.

132


34.9 Price risk (continued) The method used for deriving sensitivity information and significant variables did not change from the previous period.

34.10 Operational risks Operational risk is the risk of loss arising from inadequate or failed internal processes, people, systems or unexpected external events. When controls fail to perform, operational risks can cause damage to reputation, have legal or regulatory implications or can lead to financial loss. The Company cannot expect to eliminate all operational risks but mitigates them by establishing a control framework and by monitoring and responding to potential risks. Controls include segregation of duties, access controls, authorisation, reconciliation procedures, staff training and evaluation procedures, including the use of Internal Audit. Business risk, such as changes in environment, technology and the industry are monitored through the Company’s strategic planning and budgeting process. The Company’s risk taking units (Business Development/Technical/Support Divisions) are primarily responsible for the management of day-to-day operational risks inherent in their respective business and functional areas. They are responsible for putting in place and maintaining their respective operational manuals and ensuring that activities undertaken by them comply with the Company’s operational risk management framework and oversight by the Enterprise Risk Management Department, Risk Management and Compliance Committee and the Board.

34.11 Fair value information The carrying amounts of cash and cash equivalents, short-term receivables and payables and short-term borrowings reasonably approximate their fair values due to the relatively short-term nature of these financial instruments. It was not practicable to estimate the fair value of the Company’s investment in unquoted shares due to the lack of comparable quoted prices in an active market and the fair value cannot be reliably measured.

133


34.11 Fair value information (continued) The table below analyses financial instruments carried at fair value and those not carried at fair value for which fair value is disclosed, together with their fair values and carrying amounts shown in the statement of financial position. Fair value of financial instruments

carried at fair value Fair value of financial instruments

not carried at fair value Total

fair value Carrying amount

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total 2016 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Financial assets Available-for-sale financial assets

- Unit trust 5,859 - - 5,859 - - - - 5,859 5,859 - Real estate investment trusts (REITS) 928 - - 928 - - - - 928 928 - Quoted shares 35,868 - - 35,868 - - - - 35,868 35,868 Held-to-maturity financial assets

- Malaysian Government Securities

-

-

-

-

-

19,515

-

19,515

19,515

19,494

- Malaysian Government Guaranteed Loans

-

-

-

-

-

30,206

-

30,206

30,206

30,076

- Corporate bonds and sukuk - - - - - 185,553 - 185,553 185,553 183,633 42,655 - - 42,655 - 235,274 - 235,274 277,929 275,858

134


34. Financial instruments (continued)

34.11 Fair value information (continued)

Fair value of financial instruments carried at fair value

Fair value of financial instruments not carried at fair value

Total fair value

Carrying amount

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total 2015 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 RM’000 Financial assets Available-for-sale financial assets

- Unit trust 5,925 - - 5,925 - - - - 5,925 5,925 - Quoted shares 33,866 - - 33,866 - - - - 33,866 33,866 Held-to-maturity financial assets

- Malaysian Government Securities

-

-

-

-

-

39,915

-

39,915

39,915

39,549

- Malaysian Government Guaranteed Loans

-

-

-

-

-

30,088

-

30,088

30,088

30,096

- Singapore Government Securities

-

-

-

-

-

1,562

-

1,562

1,562

1,533

- Corporate bonds and sukuk - - - - - 215,332 - 215,332 215,332 212,622 39,791 - - 39,791 - 286,897 - 286,897 326,688 323,591

135


34.11 Fair value information (continued) Transfers between Level 1 and Level 2 fair values There has been no transfer between Level 1 and 2 fair values during the financial year (2015: no transfer in either directions).

35. Regulatory capital requirements

The Company’s capital management policy is to optimise the efficient and effective use of resources to maximise the return on equity and provide an appropriate level of capital to protect policyholders and meet regulatory requirements. The Company is required to comply with the regulatory capital requirement prescribed in the RBC Framework which is imposed by the Ministry of Finance. Under the RBC Framework guidelines issued by Bank Negara Malaysia, insurance companies are required to satisfy a minimum capital adequacy ratio of 130%. As at year end, the Company has a capital adequacy ratio in excess of the minimum requirement. The capital structure of the Company as at 31 December 2016, as prescribed under the RBC Framework is provided below: 2016 2015 RM’000 RM’000 Eligible Tier 1 Capital Share capital (paid-up) 200,000 200,000 Retained earnings 475,795 378,797 675,795 578,797 Tier 2 Capital Eligible reserves 44,953 41,420 Total capital available 720,748 620,217

136

Lonpac Insurance Bhd (Company No. 307414-T) (Incorporated in Malaysia) Statement by Directors pursuant to Section 169(15) of the Companies Act, 1965

In the opinion of the Directors, the financial statements set out on pages 40 to 135 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 Company as at 31 December 2016

and of its financial performance and cash flows for the year then ended.

Signed on behalf of the Board in accordance with a resolution of the Directors: Signed ………………………………………………………… Tee Choon Yeow Director Signed ………………………………………………………… Tan Kok Guan Director Kuala Lumpur, Date: 6 February 2017

137

Lonpac Insurance Bhd (Company No. 307414-T) (Incorporated in Malaysia) Statutory Declaration pursuant to Section 169(16) of the Companies Act, 1965

I, Tan Kok Guan, the Director primarily responsible for the financial management of

Lonpac Insurance Bhd, do solemnly and sincerely declare that the financial statements set out

on pages 40 to 135 are, to the best of my knowledge and belief, correct and I make this

solemn declaration conscientiously believing the same to be true, and by virtue of the

provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by the abovenamed Tan Kok Guan, 560404-07-5363, in

Kuala Lumpur on 6 February 2017.

Signed

……………………………… Tan Kok Guan Before me:

138

Independent auditors’ report to the member of Lonpac Insurance Bhd (Company No. 307414-T) (Incorporated in Malaysia) Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Lonpac Insurance Bhd, which comprise the statement of financial position as at 31 December 2016, and the statement of profit or loss, statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 40 to 135. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Company as at 31 December 2016, and of its financial performance and its 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. Basis for Opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence and Other Ethical Responsibilities We are independent of the Company in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. Information Other than the Financial Statements and Auditors’ Report Thereon The Directors of the Company are responsible for the other information. The other information comprises the information included in the Directors’ Report but does not include the financial statements of the Company and our auditors’ report thereon. Our opinion on the financial statements of the Company does not cover the other information and we do not express any form of assurance conclusion thereon.

139


In connection with our audit of the financial statements of the Company, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Company or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Statements The Directors of the Company are responsible for the preparation of financial statements of the Company that 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 of the Company that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Company, the Directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements of the Company as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements of the

Company, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

140


• Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by the Directors. • Conclude on the appropriateness of the Directors’ use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements of the Company or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements of

the Company, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Report on Other Legal and Regulatory Requirements In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report that in our opinion, the accounting and other records and the registers required by the Act to be kept by the Company have been properly kept in accordance with the provisions of the Act. Other Matters This report is made solely to the member of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. KPMG PLT Loh Kam Hian (LLP0010081-LCA & AF 0758) Approval Number: 02941/09/2018 J Chartered Accountants Chartered Accountant Petaling Jaya, Selangor Date: 6 February 2017

lonpac insurance bhd · 2018-11-07 · • the brandlaureate - tun dr. mahathir mohamad man of the...

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