Deposits from Customers continued

PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2014 AND 2013 Expressed in millions of Rupiah, unless otherwise stated Appendix 542 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

z. Insurance Contract continued

Liability for future policy benefits The liabilities for future policy benefits represent the present value of estimated future policy benefits to be paid to policyholders or their heirs less present value of estimated future premiums to be received from the policyholders and recognised consistently with the recognition of premium income. The liabilities for future policy benefits are determined and computed based on certain formula by the Subsidiary’s actuary or registered independent actuary. The Subsidiaries calculate the liability for future policy benefits using Gross Premium Reserve method that reflect the present value of estimated payments throughout the guaranteed benefits including all the embedded options available, the estimated present value of all handling costs incurred and also considering the future premium receipt. Increase decrease in liabilities for future policy benefits is recognised in the current year’s consolidated statement of comprehensive income. Liability to unit-linked policyholders classified as insurance liability. The liability to unit-linked policyholders is recognised at the time the funds received are converted into units, net of related expenses and will increase or decrease in accordance with effective net asset value. Funds received from customers for non-sharia unit-linked products are reported as gross premiums in the consolidated statements of comprehensive income. Liabilities to unit-linked policyholders are recognised in the consolidated statement of financial position computed based on unearned premium reserves using daily method from the cost of insurance to cover mortality risk plus reserves for the accumulated invested fund of unit-linked policyholders. Any interest, gain or loss due to increases or decreases in market value of investments are recorded as income or expense, with a corresponding recognition of increase or decrease in liability to unit-linked policyholders in the statements of income and liability to unit-linked policyholders in the statement of financial position. Funds received from customers for sharia unit-linked products is recognized as liabilities to unit- linked policyholders in the statement of financial position for the amount received net of the portion reprensenting the Company’s fees in managing the unit-linked product revenue. Unexpired Risk Reserve URR A liability for contractual benefits that are expected to be incurred in the future is recorded when the premiums are recognised. The liability is determined as the sum of the expected discounted value of the benefit payments and the future administration expenses that are directly related to the insurance contract, less the expected discounted value of the theoretical premiums that would be required to meet the benefits and administration expenses based on the valuation assumptions used the valuation premiums. The liability is based on assumptions as to mortality, persistency, maintenance expense and investment income that are established at the time the contract is issued. A margin for adverse deviations is included in the assumptions.