Malaysia Guidelines on Financial Reporting for Insurers – An Overview and Summary of Requirements

• By: Staff Editor
• Date: May 27, 2013

• Financial reporting standards approved by the Malaysian Accounting Standards Board (MASB) are considered to be the accounting standards approved by the Bank Negara Malaysia (BNM).
• Insurers should ensure that financial statements are prepared in accordance with the financial reporting standards approved by MASB subject to any accounting requirements specified in these Guidelines.
• The board of directors should ensure that the financial statements are drawn up so as to give a true and fair view of the state of affairs and of the results of the insurer.
• Insurers should comply with any prescribed specific accounting requirement and should disclose a statement to that effect in the financial statements.

• For the financial statements and financial reports the presentation currency should be in Ringgit Malaysia.
• Insurers should inform the BNM, in writing and at least 3 months in advance, of the intention to implement a change in accounting policy.
• Insurers should report on the assets and liabilities of the life insurance fund separately from the other assets and liabilities of the insurers.
• Life insurance contract liabilities with discretionary participating features should be presented as a liability in the insurers’ statement of financial position.
• Investment-linked contracts should be reported as insurance contracts.
• For life insurers, acquisition costs shall be accounted for as and when they are incurred and these costs shall not be deferred.
• Insurers should comply with the requirements of a liability adequacy test, if the valuation methods used are in accordance the Risk-Based Capital Framework for Insurers.
• Objective evidence of impairment should exist where the principal for interest/profit or loans/receivables is past due for more than 90 days or 3 months.

• A financial instrument should be classified as financial asset or financial liability at fair value through profit or loss if the financial instrument is either classified as held for trading, or upon initial recognition it is designated as at fair value through profit or loss (thereafter referred as ‘fair value option’).
• The fair value option for financial instruments should be applied in agreement with both applicable financial reporting standards and the insurer’s risk management and controls framework.
• The use of the fair value option should be understood, managed, monitored and reported to the board and senior management in an effective and transparent manner.
• The insurer should notify the BNM of its decision to apply fair value option to the financial instruments at least one month prior to execution.
• The use of the fair value option should be supported by a sound governance structure, risk management systems and related risk management policies and procedures
• The fair value option should not be applied to instruments where reliable estimates of fair values cannot be made or where the valuation methodology has proven to be unreliable.
• Insurers should also establish procedures for approving the use of the fair value option for new items, products or transactions, as well as the related controls.
• Financial assets and liabilities designated at fair value under the fair value option should be captured in the insurer’s risk measurement systems.
• Insurers should ensure sufficient documentation to support the use of the fair value option.
• Insurers should assign specific responsibility for the determination of fair values used in the financial statements to persons outside the risk-taking functions.
• The models used to value financial assets and liabilities designated at fair value under the fair value option should be validated at regular intervals by a qualified function independent of risk-taking activities
• The use of the fair value option should be monitored by a function that is independent of the risk-taking activities within the insurer.
• Where fair value is a critical component of financial performance, insurers should establish a process for the review and reporting to senior management on profit or loss and the resulting impact on the overall financial condition at sufficiently frequent intervals during the financial reporting cycles.
• The appropriateness of an insurer’s use of the fair value option should undergo periodic review by internal audit and any deficiencies identified should be promptly addressed.
• The Bank may require insurers to submit supplemental information to assess the impact of the use of fair value option on risk, earnings and capital adequacy.

• Insurers who choose the fair value model for the measurement of investment properties should comply with the fair value guidance provided in the applicable financial reporting standards.
• For life insurers, the amount of surplus arising from fair value gains on investment properties of the life fund which may be distributed to policyholders should be limited to the lower of 30% of the aggregate fair value gains (net of fair value losses) or 10% of the aggregate fair value of the investment properties.
• Insurers should maintain appropriate information supporting the valuations for the BNM’s review as and when required.

• Insurers should comply with the following key principles on disclosure of information
  • Information should be timely and up-to-date
  • The scope and content of information disclosed and the level of disaggregation and detail should be sufficient to provide comprehensive, meaningful and relevant information
  • Adequate disclosures should be provided on areas of uncertainty
  • Disclosures should allow comparisons over time and between insurers.
• The explanatory notes to be disclosed in the annual financial statements of insurers should include the following information on - analysis of the statement of financial position and statement of comprehensive income by funds; insurance contract liabilities; investments; reinsurance assets; insurance receivables/payables; impairment provisions; total capital available; gross and net earned premium; gross and net benefits and claims; investment income; fees and commission income; management expenses; CEO and Directors’ remuneration; and commitments and contingencies.
• The explanatory notes to be disclosed in the interim financial reports of insurers shouldl include the following information on - analysis of the statement of financial position and statement of comprehensive income by funds; insurance contract liabilities; investments; reinsurance assets; total capital available; and commitments and contingencies.

• Insurers should publish the annual financial statements within 14 days after the laying of the accounts at the annual general meeting, in at least two local daily newspapers.
• The two approved local daily newspapers, one of which shall be in the national language and the other in English, are - Berita Harian or Utusan Malaysia; and The New Straits Times or The Star.
• Insurers can publish an abridged format of the annual audited financial statements in the newspapers only if, the full text of the annual audited financial statements is made available on the respective insurer’s website.
• The abridged format of the financial statements to be published in the newspapers should at least consist of the following: a statement of financial position; a statement of comprehensive income; a statement of changes in equity; a statement of cash flows; Auditors’ Report; and explanatory notes on analysis of the statement of financial position and statement of comprehensive income by funds; insurance contract liabilities; investments; total capital available; and commitments and contingencies.
• Insurers should exhibit the abridged format of the financial statements at every office of the insurer.

• Insurers should disclose interim financial reports’ (both the insurer’s and consolidated financial reports) prepared on a half-yearly basis.
• The interim financial reports should be disclosed on the insurer’s website no later than 8 weeks after the close of the interim reporting period.

Read the Malaysia Guidelines on Financial Reporting for Insurers in full here.