BIMB Integrated Annual Report 2017

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.12 Bills and acceptances payable Bills and acceptances payable represents the Group’s own bills and acceptances rediscounted and outstanding in the market. 2.13 Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost. 2.14 General Takaful Fund The General Takaful Fund is maintained in accordance with the Islamic Financial Services Act, 2013. Included in General Takaful Fund are funds arising from: • General Takaful; and • General retakaful funds The General Takaful underwriting results are determined for each class of takaful business after taking into account retakaful, unearned contributions, claims incurred and administrative fees. Unearned contribution reserves The Unearned Contribution Reserves (“UCR”) represent the portion of the net contributions of takaful certificates written that relate to the unexpired periods of the certificates at the end of the financial year. In determining the UCR at the end of the reporting period, the method that most accurately reflects the actual unearned contributions is used, as follows: (a) 1/365 th method for all General Takaful business (b) 1/8 th method for all classes of General Treaty Inward Retakaful business Provision for outstanding claims A liability for outstanding claims is recognised in respect of direct takaful business. The amount of outstanding claims is the best estimate of the expenditure required together with related expenses less recoveries, if any, to settle the present obligation at the end of the reporting period. Any difference between the current estimated cost and subsequent settlement is dealt with in the takaful statement of comprehensive income of the Group and of the Company in the year in which the settlement takes place. Provision is also made for the cost of claims (together with related expenses) and Incurred But Not Reported Claims (“IBNR”) at the end of the reporting period, using a mathematical method of estimation by a qualified external actuary where historical claims experience are used to project future claims. The provision includes a risk margin for adverse deviation. As with all projections, there are elements of uncertainty and the projected claims may be different from actual. These uncertainties arise from changes in underlying risk, changes in spread of risks, claims settlement pattern as well as uncertainties in the projection model and underlying assumptions. Expense reserves The expense reserve for mudharabah certificates is calculated based on best estimate of the provision for unexpired expense risk (“UER”) and the provision of risk margin for adverse deviation (“PRAD”). The expense reserve for wakalah certificates refers to the higher of aggregate of the Unearned Wakalah Fee (“UWF”) for all lines of business or best estimate of the provision for UER and the PRAD at total fund level. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 186 BIMB HOLDINGS BERHAD Integrated Annual Report 2017