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EXIM BANK MALAYSIA
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NOTES TO THE FINANCIAL STATEMENTS

3. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENT (cont’d)

(c) Uncertainty in accounting estimates for liabilities of insurance business (Note 43)
The key significant areas of estimation uncertainty and critical judgements in measuring insurance contract/takaful
certificate liabilities include:
- Estimates of future cash flows
In estimating the future cash flows, the Group and Bank incorporates, in an unbiased way, all reasonable and supportable
information that is available without undue cost or effort at the reporting date. This information includes both internal
and external historical data about claims and other experiences, updated to reflect current expectations of future events.

The estimates of future cash flows reflect the the Group and Bank’s view of current conditions at the reporting date and
current expectations of future events that might affect those cash flows.
The estimates of future cash flows reflect the the Group and Bank’s view of current conditions at the reporting date and
current expectations of future events that might affect those cash flows.
- Risk adjustments for non-financial risk

Risk adjustments for non-financial risk are determined to reflect the compensation that the Group and Bank would
require for bearing non-financial risk and its degree of risk aversion. The Group and Bank applies a confidence level
technique to determine the risk adjustments for non-financial risk of both its insurance contacts/takaful certificates
and reinsurance contracts.
Under a confidence level technique, the Group estimates the probability distribution of the expected value of the future
cash flows at each reporting date and calculates the risk adjustment for non-financial risk as the excess of the value at
risk at the target confidence level over the expected present value of the future cash flows allowing for the associated
risks over all future years. The target confidence level is 75th percentile, in line with the regulatory requirement of BNM
under the Risk Based Capital Framework for insurers/takaful operators.

- Contractual service margin
The CSM is a component of the assets or liabilities for the group of insurance contract/takaful certificates that
represents the unearned profit that the Group will recognise as it provides services in the future. An amount of the CSM
for a group of insurance/takaful contracts/certificates is recognised in profit or loss as insurance/takaful revenue in
each period to reflect the services provided under the group of insurance/takaful contracts/certificates in that period.
The amount is determined by:
- Identifying the coverage units in the group;
- Allocating the CSM at the end of the period (before recognising any amounts in profit or loss to reflect the services
provided in the period) equally to each coverage unit provided in the current period and expected to be provided in the
future years; and
- Recognising in profit or loss the amount allocated to coverage units provided in the period.
Generally, insurance/takaful liabilities are determined based upon previous claims experience, existing knowledge of
events, the terms and conditions of the relevant policies and interpretation of circumstances. Particularly relevant is past
experience with similar cases, historical claims development trends, legislative changes, judicial decisions and economic
conditions. It is certain that actual future premiums/contribution and claims amount will not exactly develop as projected
and may vary from the projections.