BIMB Integrated Annual Report 2019

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.17 Expense reserves The expense reserves is reported as a liability in Shareholder’s Fund. (i) General Takaful Fund The expense reserve for mudharabah certificates is calculated based on best estimate of the provision for unexpired expense risk (“UER”) and the provision of risk margin for adverse deviation (“PRAD”). The expense reserve for wakalah certificates refers to the higher of aggregate of the Unearned Wakalah Fee (“UWF”) for all lines of business or best estimate of the provision for UER and the PRAD at total fund level. (ii) Family Takaful Fund Expense reserves consists the followings: (a) Expense liabilities The expense reserves for the Family Takaful business are estimated assuming that the block of in-force contracts are to be maintained on a ‘going concern’ basis. Under a ‘going concern’ scenario, the contracts so valued are taken as a particular sub-block of contracts and the cash flows are valued to the point the last certificate goes off the books. The maintenance expenses related to such contracts include the cost of functions that would normally be associated with operation of the business on a ‘going concern’ basis. The method used to value expense liabilities shall be consistent with the method used to value takaful liabilities of the corresponding family takaful certificate (for example, for a long-term ordinary takaful certificate, the valuation method for expense liabilities should also be long-term in nature). (b) Deficiency Reserve for Skim Anuiti Takaful KWSP In addition to the expense liabilities above, an additional requirement is also complied as stipulated below: If Participant Investment Fund (PIF) is expected to be insufficient to meet future annuity certain benefit and/or future life annuity tabarru’, another provision shall be set aside that is in line with requirement of the valuation guideline. Upon PIF insufficiency, the Shareholders’ Fund shall honour the annuity certain benefit payment to participants as well as the tabarru’ to Participant Risk Fund (“PRF”). 2.18 Product classification The Family Takaful Fund and General Takaful Fund consist of certificate contracts that transfer takaful risk. Takaful contracts are those contracts that transfer significant takaful risk. A takaful contract is a contract under which the fund has accepted significant takaful risk from another party (the certificate holders) by agreeing to compensate the participants if a specified uncertain future event (the takaful event) adversely affects the participants. As a general guideline, to determine whether a contract has significant takaful risk, benefits paid are compared with benefits payable if the takaful event did not occur. Investment contracts are those contracts that do not transfer significant insurance risk. There are no contracts that are classified as investment contracts in the Family and General Takaful Funds. Once a contract has been classified as a takaful contract, it remains a takaful contract for the remainder of its life-time, even if the takaful risk reduces significantly during this period, unless all rights and obligations are extinguished or expired. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019 (CONTINUED) 204 Integrated Annual Report 2019 Group Overview Sustaining The Group Management Discussion & Analysis Group Governance