PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2016 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued z. Insurance contract continued
Once a contract has been classified as an insurance contract, no reclassification is subsequently performed unless the terms of the agreement are later amended. All insurance products issued by
the subsidiary has significant insurance risk.
The Subsidiary unbundles the deposit component of unit-link contract as required by SFAS No. 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.
The Subsidiary does not separate the deposit component because only one of the above condition is met.
Liability adequacy test Liability adequacy testing is performed at reporting date for contract individually or group of products
determined in accordance with the Subsidiary’s method 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 guaranteed
benefit and guaranteed additional benefit, non-guaranteed participation benefit feature if any, all expenses for policies issuance and maintainance, as well as reflecting the future cash inflow, i.e.
future premium receipt. The liabilities are calculated based on discounted cash flow basis for all related cash flows i.e. both of cash outflows and cash inflows as mentioned above using a set of
most recent best estimate assumptions set by the Subsidiary’s appointed actuary, included discount rate assumptions, mortalitymorbidity assumptions, lapse assumptions, expense assumptions and
inflation assumptions as well as margin for adverse deviation assumptions. Subsidiary operates in life insurance use Gross Premium Reserve with best estimate and margin for adverse deviation
therefore liability adequacy test is not required. For loss insurance, Subsidiary performs liability adequacy testing on the reporting date by using
present value of future cash flow based on insurance contracts. If the testing shows a deficiency between insurance liabilities carrying amount deducted with
deferred acquisition cost for loss insurance and estimation of future cash flows, the deficiency will be charged in the consolidated statement of profit or loss and other comprehensive income.
Reinsurance The Subsidiaries reinsure 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. Recovery amount from reinsurers are estimated in a manner consistent with the liability associated with the reinsured policy.
Subsidiaries present separately reinsurance asset as asset of the insurance liability.
PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2016 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated
65
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued z. Insurance contract continued
Reinsurance continued If a reinsurance asset is impaired, the Subsidiaries deducted the carrying amount accordingly and
recognises that impairment loss in the consolidated statement of profit or loss and other comprehensive 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 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 profit or loss and other comprehensive income.
Liability to unit-link policyholders classified as insurance liability.
The liability to unit-link 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-link products are reported as gross premium
income in the consolidated statements of profit or loss and other comprehensive income. Liabilities to unit-link policyholders are recognised in the consolidated statement of financial position computed
based on unearned premium reserves using daily method from insurance cost of mortality risk plus reserves for the accumulated invested fund of unit-link 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-
link policyholders in the statements of profit or loss and other comprehensive income and liability to unit-link policyholders in the consolidated statement of financial position.
Funds received from customers for sharia unit-link products is recognised as liabilities to unit-link policyholders in the consolidated statement of financial position for the amount received net of the
portion representing the Subsidiary fees in managing the unit-link product income.
