BIMB Integrated Annual Report 2017

45. FINANCIAL RISK MANAGEMENT POLICIES (CONTINUED) 45.4 Market risk (continued) (b) Takaful (continued) (ii) Other price risk Equity price risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from profit yield risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer or factors affecting similar financial instruments traded in the market. Takaful’s equity price risk exposure relates to financial assets whose values will fluctuate as a result of changes in market prices (excluding those investment securities held for the account of unit-linked business). Takaful’s price risk policy requires it to manage such risks by setting and monitoring objectives and constraints on investments, diversification plans, limits on investments in each country, sector, market and issuer, having regard also to such limits stipulated by BNM. Takaful and its subsidiaries comply with BNM stipulated limits during the financial year and has no significant concentration of price risk. Equity price risk sensitivity analysis The analysis below is performed for reasonably possible movements in key variables with all other variables held constant, showing the impact on OCI/Equity for Takaful Operator, and showing the impact on operating surplus/ participants’ fund for Investment-linked Fund, and participants’ fund for Family Takaful Fund and General Takaful Fund accordingly. The correlation of variables will have a significant effect in determining the ultimate impact on price risk, but to demonstrate the impact due to changes in variables, variables had to be changed on individual basis. It should be noted that movements in these variables are non-linear. IMPACT ON IMPACT ON IMPACT ON CHANGE IN PROFIT IMPACT ON OPERATING PARTICIPANTS’ VARIABLES BEFORE TAX EQUITY* SURPLUS FUND RM’000 RM’000 RM’000 RM’000 2017 Market price +15% (41) 8,299 10,153 56,120 Market price -15% 41 (8,299) (10,153) (56,120) 2016 Market price +15% 7 10,736 9,487 76,670 Market price -15% (7) (10,736) (9,487) (76,670) * Impact on equity reflects adjustments for tax, when applicable. (iii) Foreign exchange risk Takaful Malaysia’s primary transactions are carried out in Ringgit Malaysia (“RM”) and its exposure to foreign exchange risk arises principally with respect to Indonesia Rupiah (“Rp”) and US Dollar (“USD”). As Takaful Malaysia’s business is conducted primarily in Malaysia, the Takaful Malaysia Group and its subsidiaries’ financial assets are also primarily maintained in Malaysia as required under the Islamic Financial Services Act 2013, and hence, primarily denominated in the same currency (the local RM) as its takaful and investment contract liabilities. Accordingly, the main foreign exchange risk from recognised assets and liabilities arises from transactions other than those in which takaful and investment contract liabilities are expected to be settled. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 271 Overview Value Creation Accountability Financial Statements Sustainability Performance Data Shareholders Information 21 st AGM Information Management Discussion & Analysis a s