Page 116 - EXIM-BANK-AR20

114 EXIM BANK MALAYSIA
Annual Report 2020

NOTES TO THE FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.)
2.4 Summary of significant accounting policies (cont’d.)

(m) Insurance Contract/Takaful Certificate Liabilities
These liabilities comprise premium/contribution liabilities and claims liabilities.
(i) Premium/Contribution liabilities

For the purpose of disclosure in the financial statements, premium/contribution liabilities are classified as
deferred income.

Provision for premium/contribution liabilities is the higher of the aggregate of the Unearned Premium/
Contribution Reserves (“UPR”/”UCR”) for all lines of business and the best estimate value of the Unexpired
Risk Reserves (“URR”), and a liability adequacy test with a provision of risk margin for adverse deviation.

Unearned premium/contribution reserves
UPR/UCR represents the portion of the premiums of insurance policies written that relate to the unexpired
periods of policies at the end of the financial year. In determining the UPR/UCR as at the reporting date, the
method that most accurately reflects the actual unearned premium is used as follows:

– all classes of business, except treaty, using time apportionment basis over the period of the risks, after
deducting commissions, not exceeding limits specified by Bank Negara Malaysia (“BNM”), that relate to
the unexpired periods of policies at the end of the financial year; and

– all classes of treaty business with a deduction of commission; at the following bases:
(i) 1/8th method for quarterly statement

(ii) 1/24th method for monthly statement
UPR/UCR at the reporting date for both short-term policies and medium and long term policies are recognised
over the period of risk on a straight-line basis.

The movement in premium/contribution liabilities is released over the term of the policies and is recognised in
underwriting results as premium/contribution income.

Unexpired risk reserves
URR is the prospective estimate of the expected future payments arising from future events insured under
policies in force as at the valuation date and also includes allowance for the insurer’s expenses, including
overheads and cost of reinsurance/retakaful, expected to be incurred during the unexpired period in administering
these policies and settling the relevant claims, and expected future premium/contribution refunds. At each
reporting date, the Group and the Bank review the unexpired risk and a liability adequacy test is performed by
an independent actuarial firm.
(ii) Claims liabilities

Claims liabilities are recognised when a claimable event occurs and/or the Group and the Bank are notified. The
amount of 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
less 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 reporting period.