Investments in Shares Financial Statements AR

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2012 AND 2011 Expressed in millions of Rupiah, unless otherwise stated Appendix 540 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

z. Insurance Contract continued

The Subsidiary unbundles the deposit component of unit-linked contract when required by SFAS 62 when both the following conditions are met: - The Subsidiary can measure separately the “deposit” component including any embedded surrender option, i.e. without taking into account the “insurance” component; - The Subsidiary’s accounting policies do not otherwise require to recognise all obligations and rights arising from the “deposit” component. No such condition currently exists within the Subsidiary. In accordance with SFAS 62, the Subsidiary continues to use the accounting principles previously applied by the Subsidiary related to unit-linked contracts. Liability adequacy tests Liability adequacy testing is performed at reporting date for contract individually or group of products determined in accordance with the Subsidiary’s manner of acquiring, servicing and measuring the profitability of its insurance contracts. For life insurance, the liabilities to policyholder in particular the liabilities for future claim is tested to determine whether they are sufficient to cover all related future cash out flow include all benefit guaranteed and guaranteed embedded additional benefit, non guaranteed participation benefit feature if any, all the expense for policies issuance and maintaining the policies, as well as reflecting the future cash inflow, i.e. premium receipt in the future. The liabilities are calculated based on discounted cash flow basis for all related cash flow i.e. both of cash outflow and cash inflow as mentioned above using a set of best estimate actuarial assumptions which is set by the Subsidiary’s appointed actuary, include discount rate assumptions, mortalitymorbidity assumptions, lapse assumptions, expense assumptions and inflation assumptions. Reinsurance The Subsidiary reinsures a portion of its risk with reinsurance companies. The amount of premium paid or portion of premium from prospective reinsurance transactions is recognised over the reinsurance contract in proportion with the protection received. Reinsurance assets include balances expected to be recovered from reinsurance companies for ceded liability for future policy benefits, ceded estimated claim liabilities and ceded unearned premiums. Amounts recoverable from reinsurers are estimated in a manner consistent with the liability associated with the reinsured policy. If a reinsurance asset is impaired, the Subsidiary reduces the carrying amount accordingly and recognises that impairment loss in the statement of income. A reinsurance asset is impaired if there is objective evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that the Subsidiary may not receive all amounts due to it under the terms of the contract, and the impact on the amounts that the Subsidiary will receive from the reinsurer can be reliably measured. Liability to unit-linked policyholders 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.