BIMB Integrated Annual Report 2017

CORPORATE GOVERNANCE OVERVIEW STATEMENT ii. Provision for outstanding claims – family and general takaful contract liabilities The provision for outstanding claims is made of cost of claims (together with related expenses) and Incurred But Not Reported Claims (“ IBNR ”) at the end of the reporting period by the appointed actuary. A liability for outstanding claims is recognized when a claimable event occurs and Takaful Malaysia is notified. An explicit provision for IBNR is set up to cover delays in claims reporting. However, the ultimate cost of these claims cannot be known with certainty at reporting date. The IBNR is calculated using a range of standard actuarial claim projection techniques based on empirical data and current assumptions with a margin for adverse deviation to ensure the overall level of sufficiency at a 75% confidence level is secured. For family takaful business, the IBNR is calculated using the Chain Ladder and Expected Loss Ratio methods, the same methods used in prior years. During the year, the appointed actuary has revised the Loss Development Factors (“ LDF ”) downward to align the factors with latest actual experience. The appointed actuary will continue to closely monitor the LDF assumptions and will consider adopting a more realistic approach when the experience becomes more credible. The Management of Takaful Malaysia and the appointed actuary have reviewed the treatment for case reserves amount in the calculation of IBNR for family takaful products in 2017. The actuary will highlight and update the Board on any significant change to the assumptions used on a quarterly basis. For general takaful business, the provision for IBNR was estimated using the Chain Ladder, Bornhuetter-Ferguson and Expected Loss Ratio methods. The AEC of Takaful Malaysia acknowledged the methodologies and assumptions used and are satisfied that they are reasonable and in line with the requirements of Risk-Based Capital Framework for Takaful Operators and the Guidelines on Valuation Basis for Liabilities of Family and General Businesses issued by BNM. Internal Audit • Reviewed the effectiveness of the internal audit functions which are outsourced to Bank Islam which include: ~ Reviewed and approved the internal audit plan, procedures and frequency; ~ Reviewed internal audit reports for BHB and its wholly owned subsidiaries issued by the Internal Auditors on the effectiveness and adequacy of governance, risk management, operational and compliance process; and ~ Reviewed key audit reports and ensure appropriate necessary corrective actions have been taken by the Management in a timely manner to address control weaknesses, policies and other problems identified by the Internal Auditors and other control functions. • Assessed the performance of the Internal Auditors, determine and recommend the audit fee for the year under review. External Audit • Reviewed the audit plan of the Company for the year (inclusive of audit approach and scope of work) with the External Auditors prior to the commencement of the annual audit. The External Auditors briefed the AEC on their audit plan pertaining to the statutory audit of the Company, highlighting areas of audit emphasis, key regulatory developments, involvement of Internal Auditors and other experts; • Reviewed the results of the annual audit, the External Auditor’s Report and the Management Representation Letter together with the Management’s corrective action to address the findings of the External Auditors; • Met with the External Auditors without the presence of the Management to discuss issues and concerns if any, arising from the statutory audit and other matters the External Auditors may wish to highlight, amongst others the level of assistance provided by the Company’s employees to the External Auditors, and any difficulties encounter in the course of the audit work, including any restriction on the scope of activities or access to required information; 120 BIMB HOLDINGS BERHAD Integrated Annual Report 2017