Liability for Future Policy Benefits and Liability to Unit-Linked Holders

PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 31 DECEMBER 2010, 2009 AND 2008 Expressed in millions of Rupiah, unless otherwise stated Appendix 543 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued ac. Interest Income and Expense continued ii Sharia continued Income from murabahah transaction, which payment is made on installment or deferred, is recognised proportionally, in accordance with generally accepted banking practice Bank Indonesia Letter No. 101260DPbS dated 15 October 2008 and Bank Indonesia Letter No. 9634DPbS dated 20 April 2007. Considering the risk on murabahah receivables, the Subsidiary adopts the following policy in recognising income from murabahah: 1. Murabahah with a deferred payment term of one year or above one year where the risk of cash collection on receivables andor management fee are relatively low risk, the income is recognised using effective method annuity over the contract period. 2. Murabahah with a deffered payment term above than one year, where the risk of cash collection receivables andor management fee and the collection receivable are relatively high risk, the income is recognised using proportionally method over the contract period. Subsidiary determine level of the risk based on internal requirement. Subsidiary will stop the amortisation of deferred income during the financing period when the loan is categorised as non performing. Istishna income is recognised using percentage of completion method or at the end of contract. Ijarah income is recognised proportionally over the contract period. Musyarakah profit sharing income for passive partner is recognised based on an agreed portion in accordance with the financing contract. Mudharabah profit sharing income is recognised in a period where the right of revenue sharing is due based on agreed portion. It is not allowable to recognise the income based on projection. ad. Premium income recognition, Claims and benefits expenses and Unearned premium income Subsidiary’s premium received from short duration insurance contracts is recognised as income over the period of risk coverage in proportion to the amounts of insurance protection provided. Subsidiary’s premiums from long duration contracts are recognised as income when the policy is due. Premiums received before the due date of the respective policies are reported as other liabilities in the consolidated balance sheet. Subsidiary’s claims and benefits consist of settled claims, claims that are still in process of completion and estimated of claims incurred but not yet reported IBNR. Claims and benefits are recognised as expenses when the liabilities to cover claims are incurred. Claim recoveries from reinsurance companies are recognised and recorded as deduction from claims expenses consistent in the same period with the claim expenses recognition. Total claims in process, including claims incurred but not yet reported, are stated at estimated amounts determined based on the actuarial technical insurance calculations. Changes in estimated claims liabilities as a result of further evaluation and the difference between estimated claims and paid claims are recognised as addition to or deduction from expenses in the period the changes occurred.