36 37

MALAYSIAN LIFE INSURANCE REVIEW

The Life Insurance Division posted a slight drop of 1.43% in its total premium income to RM1.38 billion (2006: RM1.40 billion), largely from actions takes to contain sales of Fixed Deposit Endowment plan (“FDE”), mainly to limit the exposure to this type of business in terms of risk of asset and liability mismatching and low profi t margin. For replacement, MAA switched its focus to investment-linked plans which do not impose investment risk to the company and with lower capital charges. As a result, MAA enjoyed a growth of 26.77% in investment-linked plans new business premium during the year.

MAA’s extensive network of branches countrywide (46 branches with agency offi ces and 7 servicing branches), the sizeable agency force that underpin its distribution capacity and brand awareness have contributed to the sustainable premium income for the company.

In 2007, the Life Insurance Division recorded a loss before tax of RM21.48 million from a profi t of RM21.96 million in 2006. The loss was due mainly to higher cash bonus payment, increase in the surrender of investment-linked plans with the policyholders realizing the investment gains to take advantage of higher unit pricing, coupled with additional allowance made for non-performing loans and impairment loss for several downgraded corporate debt securities for defaulted coupon and/or principal payments during the year under review.

Notwithstanding the loss, the overall Life Insurance Fund Surplus, remains healthy and expanded further with a cumulative surplus carried forward of RM495.49 million as at 31 December 2007 (2006: RM482.88 million).

Moving forward, MAA will continue to focus on revenue growth through product innovation and distribution creation. The Division has noted the public’s changing demand trend towards investment-linked plans. It expects this trend to continue in the future, and is currently planning even more exciting investment-linked plans to meet this ever-increasing demand of the customers, and at the same time remains competitive. Equally important is MAA’s primary emphasis to elevate the level of professionalism and knowledge of its agents to improve sales productivity rather than growing the sales force. Towards this end, MAA will continue with its comprehensive training programmes, including leadership development through the Chartered Insurance Agency Manager to its life insurance agents, to improve professionalism, productivity and business retention of the agency force. In addition, MAA will also embark on setting up new distribution channels via worksite marketing, corporate clients and brokers division to enable the Life Division to reach out, cross sell and up sell to corporate and enterprises.

MALAYSIAN GENERAL INSURANCE REVIEW

The General Insurance Division recorded a marginal drop of 2.90% in gross written premium to RM401.13 million (2006: RM413.10 million).

Business Operations Review

PROSPECTS

INDUSTRY REVIEWS

ACKNOWEDGEMENT AND APPRECIATION

38 39

Motor vehicle and motor cycle business premiums have decreased by 9.53% to RM175.78 million (2006: RM194.30 million) and 11.09% to RM37.52 million (2006: RM42.20 million) respectively, whilst non-motor premiums increased by 6.35% to RM187.82 million (2006: RM176.60 million).

Since 2005, the portfolio share of motor business has continued on a decreasing trend from 57.25% of total gross premium in 2006 to 53.17% in 2007, while non-motor portfolio share has been increasing from 42.75% in 2006 to 46.82% in 2007. The shift in the portfolio mix of motor and non-motor business is in line with the actions taken by the Division to rebalance its motor and non-motor portfolio with focus on profi table classes – mainly fi re, marine cargo, foreign workers, contractors’ all risks and engineering. For the motor business in particular, the Division has been progressively moving away from non-profi table third party and ‘Act’ only cover (compulsory motor insurance required by the Act) policies across the private car and commercial vehicle categories.

During the year under review, the claim ratio increased to 75.39% (2006: 71.83%). The increase was due mainly to the management’s decision to further increase the confi dence level of incurred but not reported claim reserve (IBNR) from 65% in 2006 to 75% in 2007, a gradual step-up increase undertaken since 2006 in anticipation of Bank Negara Malaysia’s proposal to implement RBC Framework in 2009. In addition, the higher claims was also due from motor business which has continuously been affected by third party bodily injury claims and increased theft rates. Notwithstanding the higher claims experience, the Division has recorded a decrease of 16.50% in management expenses with a saving of RM13.61 million, mainly from reduction in staff costs.

The lower management expenses coupled with higher investment gains has enabled the General Insurance Division to turnaround from a loss before tax of RM6.33 million in 2006 to a profi t of RM15.05 million during the year under review.

With customers’ needs our main priority, while maintaining the existing privileges and benefi ts to customers, in the likes of MotorClub Breakdown Assistance service nationwide, Accident Assistance Scheme, free etching and sandblasting for motor vehicles, the Division has recently expanded its customer services to include provision of windscreen repair services at 32 service centres nationwide, making it the fi rst in the industry to promote such services. All repair centres will provide a one-stop service to our motor policyholders and the repairs have a life-time warranty.

MALAYSIAN TAKAFUL INSURANCE REVIEW

MAA Takaful commenced operations in July 2007. No contribution was made by the takaful insurance business for the year under review as the business is still at infancy stage with only six (6) months of operations.

For the fi rst six (6) months of operations, the Family Takaful registered gross contribution of RM25.75 million, mainly from investment-linked products, whilst the General Takaful recorded gross contribution of RM0.85 million, mainly from fi re and other non-motor classes of business.

During this initial period, MAA Takaful has re-examined its systems, internal processes and products offering to ensure that our clients derive maximum benefi ts in terms of effi cient services and superior products. At the same time, extensive training programmes aimed at providing professionalism and

Business Operations Review (continued)

38 39

productivity, were rolled out to agents for thorough understanding of the takaful industry and the products. As at end December 2007, a total of 26,745 agents have signed up with MAA Takaful.

The Group believes MAA Takaful will be able to ride on the 25% annual growth of the Malaysian takaful industry in the last fi ve (5) years, to achieve desired results in the next three years.

MALAYSIAN UNIT TRUST REVIEW

In 2007, the Malaysian unit trust industry registered a double digit growth with total Net Asset Value (“NAV”) of funds under management in expanded by 39.12% to RM169.41 billion (2006: RM121.77 billion).

MAAKL Mutual Bhd (“MAAKL”) launched 6 new funds during the year with a total initial approved fund size of 3.9 billion units, namely MAAKL Equity Index Fund, MAAKL-CM Flexi Fund, MAAKL Asia-Pacifi c REIT Fund, MAAKL-HDBS Flexi Fund and two shariah funds, namely MAAKL Al-Ma’mun and MAAKL-CM Shariah Flexi Fund, bringing the total funds under management to twenty one (21).

During the year, MAAKL added RM493.00 million to its total assets under management, raising further the total NAV of unit trust funds under management of MAAKL as at end December 2007 to RM1.41 billion (2006: RM920.01 million). With this growth of 53.59% in NAV, the company for the fourth consecutive year has outperformed the industry growth of 39.12% in 2007.

Riding on the above industry growth in the funds under management over the last few years, MAAKL has registered an impressive profi t record in 2007 with profi t before tax of RM3.02 million, an increase of more than three fold compared to a profi t of RM0.87 million in 2006. The Group expects MAAKL to continue with its positive contribution trend in the years ahead, in line with the progressive growth of the unit trust industry.

As at end December 2007, the agency force of MAAKL stood at 1,083 agents (2006: 1,015 agents). In its continuing efforts on agency training, MAAKL has over the years rolled out leading edge investment planning software, namely MAAKL Planners, MAAKL Home Offi ce and MY MAAKL Suite, that enable the unit trust fi nancial advisers to help offer a higher level of service and professionalism to clients to plan, manage and the investments of unit trust holders.

Towards this end, we are proud to announce that at The Edge-Lipper Malaysian Fund Awards 2008 held in February 2008, MAAKL Progress Fund has clinched the best-performing fund for Equity Malaysia Small and Mid-Caps award.

Also, in March 2008, MAAKL became the fi rst Asian company to win an award for its MAAKL Home Offi ce under Microsoft’s Windows in Financial Services Developer Awards in New York.

Business Operations Review (continued)

TAKAFUL

UNIT TRUST

INTERNATIONAL OPERATIONS

40 41

INTERNATIONAL OPERATIONS REVIEW

MAA International Assurance Ltd (“MAAIA”), the Labuan based offshore insurance and investment arm of the Group, recorded a higher gross premium income of RM76.57 million (2006: RM64.53 million). However, the company recorded a loss before tax of RM3.24 million (2006: loss of RM1.59 million) due mainly to increase in incurred but not reported claim reserve for the ceded general reinsurance business.

For the third consecutive year, both the general insurance business in Indonesia and the Philippines contributed positively to the results of the Group, whilst the life insurance business in Indonesia also registered profi t for the second year, albeit a lower amount.

However, the Group’s unit trust business in the Philippines has not been performing as expected. The unit trust industry in the Philippines has predominately been monopolized by banks and other established players that have built their capital base. With the limited resources, the Group has not been successful in establishing its footage in the unit trust sector. Towards this end, the Group will re-assess the viability of its unit trust business in the Philippines in 2008.

In 2007, the Group’s associated company, Columbus Capital Pty Ltd (“CCAU”) ventured into second year of operations. CCAU’s principal business activities are retail mortgage lending and loan securitization in Australia. CCAU packaged mortgage loans but does not take on the credit risk as the loans are insured by S&P (AA rated insurers). No contribution was made by CCAU to the Group during the year. CCAU’s operations have been affected by the chain effect of subprime mortgage loan crisis in the US, nevertheless the Group will closely monitor the performance of the company in 2008.

Business Operations Review (continued)