company information january 12, 2012 · bank sinarmas focuses on corporate, commercial and consumer...

Company Information

January 12, 2012

BUSINESS1

Overview

We are a financial services conglomerate in Indonesia, providing a broad range of life and general insurance products, securities, banking, multifinance and other services to individual and institutional customers through our subsidiaries and joint ventures. We believe this broad range of products and services makes us one of the most diversified financial services groups in Indonesia. We provide products and services in the following five principal areas of business:

• Life insurance – Our life insurance business is conducted principally through our joint venture, PT Asuransi Jiwa Sinarmas MSIG (“Sinarmas MSIG Life”), formerly known as PT Asuransi Jiwa Sinarmas, in which we have a 50% ownership interest. Sinarmas MSIG Life is the second largest life insurance provider in Indonesia with a 12.4% market share measured by total gross premiums for the life insurance industry in Indonesia in 2010 as published by Bapepam-LK in its Indonesia Insurance 2010 Report. Sinarmas MSIG Life had premium income of Rp.9,805.9 billion (US$1.1 billion) for the nine months ended September 30, 2011 and premium income growth at a CAGR of 1,612.7% from 2007 to 2010. It has a strong multi-channel distribution network, with one head office, 57 representative offices, approximately 12,000 agents and bancassurance relationships with 43 banks, including Bank Sinarmas, as of September 30, 2011. As of September 30, 2011, Sinarmas MSIG Life had a solvency ratio of 1,002.8%. We also have a joint venture with PT Asuransi Jiwa Mega Life (“Mega Life”), in which we hold a non-controlling 50% stake. MegaLife is the third largest life insurance provider in Indonesia with a 9.0% market share measured by total gross premiums for the life insurance industry in Indonesia in 2010 as published by Bapepam-LK in its Indonesia Insurance 2010 Report.

• Non-life insurance – Our general, or “non-life”, insurance business is conducted primarily through our subsidiary, PT Asuransi Sinar Mas (“Asuransi Sinar Mas”). Asuransi Sinar Mas is the largest non-life insurance provider in Indonesia with 11.1% market share measured by total gross premiums for the non-life insurance industry in Indonesia in 2010 as published by Bapepam-LK in its Indonesia Insurance 2010 Report. Asuransi Sinar Mas had premium income of Rp.2,988.2 billion (US$338.7 million) for the nine months ended September 30, 2011 and premium income growth at a CAGR of 13.0% from 2007 to 2010. Its distribution channels comprise approximately 7,000 agents, 63 brokers, 77 finance companies, one head office and 92 branch offices and bancassurance relationships with approximately 44 banks, including Bank Sinarmas, as of September 30, 2011. As of September 30, 2011, Asuransi Sinar Mas had a solvency ratio of 304.2%.

• Banking – Our banking business is conducted through our subsidiary, PT Bank Sinarmas Tbk (“Bank Sinarmas”), which shares are listed on the Indonesian Stock Exchange, with market capitalization of Rp.2,451.3 billion (US$277.8 million) as of December 30, 2011. Bank Sinarmas focuses on corporate, commercial and consumer finance, including lending to small and medium size enterprises (“SMEs”) and micro businesses. As of September 30, 2011, Bank Sinarmas had a total of 139 offices, consisting of 56 branches, 72 sub-branches, one Sharia branch, nine cash outlets and one Sharia cash outlet with total assets of Rp.15,668.1 billion (US$1,775.8 million) and customer deposits of Rp.13,831 billion (US$1,567.6 million) as of such date. As of September 30, 2011, Bank Sinarmas had a capital adequacy ratio and core Tier 1 ratio of 14.2% and 15.0%, respectively.

1 Solely for the convenience of the reader, unless otherwise indicated, certain Rupiah amounts in this document have been translated to U.S. Dollar based on the middle exchange rate announced by Bank Indonesia as of September 30, 2011, which was Rp.8,823 = US$1.00.

• Securities – Our securities business is conducted through our subsidiary, PT Sinarmas Sekuritas (“Sinarmas Sekuritas”) and its subsidiary, PT Sinarmas Asset Management (“Sinarmas Manajemen”). Sinarmas Sekuritas is a mid-size securities firm offering a range of financial services including asset management, brokerage, investment banking and financial advisory services. With distribution capability of approximately 500 agents, one head office, 48 branch offices, an online trading platform and touch-tone phone and mobile phone trading, it had total assets of Rp.1,042.1 billion (US$118.1 million) as of September 30, 2011.

• Multifinance – Our multifinance business is conducted through our subsidiaries, PT Sinar Mas Multifinance (“Sinar Mas Multifinance”) and PT AB Sinar Mas Multifinance (“AB Multifinance”). Predominantly active in the new and used automobiles and motorcycles financing market and factoring, with distribution capability of one head office, 56 branches and 247 outlets as of September 30, 2011, Sinar Mas Multifinance had total assets of Rp.1,389.8 billion (US$157.5 million). AB Multifinance principally provides factoring and leasing services to our Group and the wider Sinar Mas Group.

We also operate a number of other non-core businesses, including a share administration business through Sinartama Gunita, a water treatment business through Wahana Tehno, automotive financing through a joint venture, Oto Multiartha and employment services through a joint venture, PT JobStreet Indonesia. Operating income from our non-core businesses collectively amounted to 0.0%, 0.4%, 0.2% and 0.0% of our total operating income for 2008, 2009 and 2010 and the nine months ended September 30, 2011. Total assets from our non-core businesses amounted to less than 1% of total assets for each of 2008, 2009, 2010 and the nine months ended September 30, 2011.

In 2008, 2009 and 2010, our operating income was Rp.8,035.4 billion, Rp.11,116.5 billion and Rp.14,049.7 billion (US$1,592.4 million), respectively, which included Rp.5,964.7 billion, Rp.8,210.7 billion and Rp.10,648.8 billion (US$1,206.9 million) from insurance underwriting income, Rp.722.0 billion, Rp.1,195.9 billion and Rp.1,247.1 billion (US$141.3 million) from investment income and Rp.625.4 billion, Rp.864.5 billion and Rp.1,052.4 billion (US$119.3 million) from interest income, respectively. For the nine months ended September 30, 2011, our operating income was Rp.14,584.9 billion, which included Rp.11,118.3 billion (US$1,260.1 million) from insurance underwriting income, Rp.912.0 billion (US$103.4 million) from investment income and Rp.1,106.3 billion (US$125.4 million) from interest income, respectively.

In the same periods, our net income from operations was Rp.349.2 billion, Rp.779.6 billion and Rp.1,367.6 billion (US$155.0 million), respectively, and our net income was Rp.290.9 billion, Rp.733.7 billion and Rp.1,227.8 billion (US$139.2 million), respectively. For the nine months ended September 30, 2011, our net income from operations was Rp.1,607.0 billion (US$182.1 million) and net income was Rp.1,517.2 billion (US$172.0 million).

As of December 31, 2010, we had total assets of Rp.27,845.0 billion (US$3,156.0 million), which included Rp.1,980.9 billion in cash and cash equivalents, Rp.8,044.5 billion (US$911.8 million) of short-term investments, Rp.7,032.3 billion (US$797.0 million) in funds from our unit link life insurance products and Rp.6,934.2 billion (US$785.9 million) in loans. As of September 30, 2011, we had total assets of Rp.42,980.2 billion, which included Rp.8,383.8 billion in cash and cash equivalents, Rp.15,091.9 billion of short-term investments, Rp.5,270.2 billion segregated funds from our unit link life insurance products and Rp.9,066.5 billion in loans.

We listed our shares on the Indonesian Stock Exchange on July 5, 1995. As of December 30, 2011, our market capitalization was approximately Rp.26,644.1 billion (US$3,019.8 million) based on the closing price of our shares.

Recent Developments

In July 2011, Mitsui Sumitomo Insurance Co., Ltd. (“MSIG”), part of the MS&AD Insurance Group, which is one of the 10 largest companies in the world, the global leading non-life insurer and the largest non-life insurer in Japan, acquired a 50% ownership interest in PT Asuransi Jiwa Sinarmas through a subscription of new shares for Rp.7.0 trillion (US$793.4 million). Following completion of the acquisition, PT Asuransi Jiwa Sinarmas changed its name to PT Asuransi Jiwa Sinarmas MSIG. Pursuant to the terms of a shareholders’ agreement, MSIG and the Company each has the right to nominate an equal number of individuals as members of the board of commissioners after completion of the acquisition and will actively participate in management and the business operations of Sinarmas MSIG Life.

Competitive strengths

We believe the following strengths have contributed to our success:

Integrated financial services conglomerate, offering a broad suite of products and services

We are one of the few financial conglomerates in Indonesia, providing, through our subsidiaries and affiliates, a broad range of financial products and services, including life and non-life insurance, banking, securities, asset management and multifinance. We believe we are uniquely positioned in the Indonesian market in terms of the scale and scope of our operations, our strong brand and the breadth of our product and service offerings. We also believe the diversification of our Group enables us to offer a comprehensive financial services product suite to our customers.

Comprehensive distribution platform that includes both physical and electronic touchpoints

The success of our business is dependent on a comprehensive distribution platform that includes both physical customer touchpoints, including branches, outlets, sales offices and agents as well as electronic and virtual channels, including direct and telemarketing, online and mobile platforms. As of September 30, 2011, the agency force for Sinarmas MSIG Life and Asuransi Sinar Mas consisted of approximately 19,000 agents in the aggregate.

As of September 30, 2011 Sinarmas MSIG Life had one head office and 57 branch offices and

approximately 12,000 agents, Asuransi Sinar Mas had 92 representative offices and approximately 7,000 agents and Bank Sinarmas had a total of 139 offices, consisting of 56 branches, 72 sub-branches, one Sharia branch, nine cash outlets and one Sharia cash outlet. Between 2008 and September 30, 2011, the agency force for Sinarmas MSIG Life increased from approximately 4,600 to approximately 12,000 agents and the agency force for Asuransi Sinar Mas increased from approximately 2,300 to approximately 7,000 agents. Inclusive of our securities and multifinance companies, the Group had a total of 641 customer touch points, including branches or offices of different subsidiaries which are co-located, serving its total customer base of over 3,800,000. Our physical distribution network is centered around the major metropolitan areas and is increasingly expanding into regional and rural areas. Apart from our physical presence, we also provide other electronic and virtual channels to increase accessibility for our customers and business partners. This includes an integrated IT platform in our non-life insurance subsidiary which automates front and back end processes for our customers and business partners, internet and phone banking services through Bank Sinarmas, and also a variety of internet and mobile trading services through Sinarmas Sekuritas. A comprehensive distribution network provides convenience for our existing customers and is a key foundation for the continued growth of our business.

Sizeable franchise in Indonesian life insurance market, enhanced by strategic alliance with MSIG to deliver global best practice in life insurance

Through our 50% ownership interests in both Sinarmas MSIG Life and Mega Life, Indonesia’s second and third largest life insurers with market share of 12.4% and 9.0%, respectively, measured by total gross premiums for the life insurance industry in Indonesia in 2010 as published by Bapepam-LK in its Indonesia Insurance 2010 Report according to the Life Insurance Business Performance 2010 Report published by the Indonesia Life Insurance Association (Assosiasi Asuransi Jiwa Indonesia) (“AAJI”), respectively, we are well-positioned to tap the early growth story of Indonesia’s life insurance sector. With total life insurance premiums at only 1.0% of its GDP, premium penetration in Indonesia remains substantially lower than that of other major developing countries such as China with total life premiums at 2.5% of its GDP and India with total life premiums at 4.4% of its GDP according to SwissRe’s Sigma Report year 2010. According to Business Monitor International, life insurance premiums in Indonesia are expected to experience an average annual growth rate of 24.6% between 2011 and 2015. MSIG, the core operating unit of MS&AD Insurance Group and Japan’s second largest property and casualty insurance company by premiums, has significant global reach and experience with operations in 40 countries and over 14,900 employees. In Asia, MSIG has also made strategic investments in existing local life insurance companies in Malaysia, China and Thailand. We believe MSIG brings numerous strengths to its partnership with us, including strengthening Sinarmas MSIG Life’s ability to diversify its product range to focus on regular premiums and unit link premiums, development of agency scale, training and productivity, risk management and technology. Following the completion of the strategic alliance on July 1, 2011, Sinarmas MSIG Life is well capitalized and positioned to leverage MSIG’s insurance capabilities to grow both the scale and profitability of our business in Indonesia.

Leading non-life insurer in Indonesia enjoying market share of 11.4% by gross written premiums in 2010

As Asuransi Sinar Mas is the leading non-life insurer in Indonesia based on gross premiums and enjoying market share of 11.1% by gross written premium according to the Non-life Insurance Business Performance 2010 Report published by the AAUI. We expect Asuransi Sinar Mas to benefit strongly from the potential growth of the Indonesian non-life insurance industry. When compared to other major developing countries such as China with total non-life premiums at 1.3% of its GDP and India with total non-life premiums at 0.7% of its GDP according to SwissRe’s Sigma Report year 2010, Indonesia remains relatively underpenetrated with total non-life insurance premiums at approximately 0.5% of GDP. According to Business Monitor International, non-life insurance premiums in Indonesia are expected to experience an average annual growth rate of 22.1% between 2011 and 2015. Asuransi Sinar Mas plans to maintain its leadership position and expand its market share through a combination of its (1) information technology system, (2) efficient claims management capabilities and (3) strong distribution network. Its information technology system has features which include a portal connecting the central system with business partners such as leasing companies, banks and brokers, enabling effective and efficient communication and service experience. Asuransi Sinar Mas’ growing distribution network consists of approximately 7,000 exclusive agents and 92 branch offices across Indonesia as at September 30, 2011. In addition, gross premium income has also achieved strong growth, with CAGR of 13.0% between 2007 and 2010.

Bank Sinarmas’ strong and profitable growth with strategically positioned network of 139 offices

Bank Sinarmas is a mid-sized bank in Indonesia with a high growth profile. The Bank leverages the

strong branding of the SMMA Group and targets growth in the SME and consumer segments. Its loan portfolio has grown at a CAGR of 28.1% between 2008 and 2010 and deposits at a CAGR of 36.4% over the same period.

Bank Sinarmas’ network of 139 offices is located strategically in metropolitan and regional areas of Indonesia, providing an effective channel for the distribution of other group products through the bank channel. While continuing to grow its business, Bank Sinarmas has maintained high credit standards resulting in consistently low non-performing loan ratios of 2.0%, 2.2%, 1.3% and 1.0% on the basis of gross non-performing loans as at December 31, 2008, 2009 and 2010 and September 30, 2011, respectively.

Strong cooperation among subsidiaries resulting in significant cross-selling and synergies across the Group

Our complementary insurance, banking, securities and multifinance businesses generate significant cross-selling opportunities and synergies across our Group operations. For the nine months ended September 30, 2011, no life or non-life insurance premiums were cross-sold by Group companies other than our insurance, banking, securities and multifinance subsidiaries. These include

• One-stop location for multiple product offerings. Many of our subsidiaries’ branches and outlets are located on a shared location. For example, in one building, it is common to see our bank branch on the ground floor, insurance office on the second floor, and investment advisory services on the top floor. This offers convenience for customers while allowing the various subsidiaries to cross-sell and refer customers within a “one-stop shop”.

• Marketing collaboration. Apart from cross-selling and customer referrals across the Group’s employees and agents, we launched the "one million partners campaign" aimed to recruit customers, entrepreneurs and business owners of retail stores and suppliers to be agents for our life and non-life insurance and banking products. By leveraging on their local relationships, we believe this “word-of-mouth” marketing strategy will significantly expand our customer reach.

• Bancassurance. Bank Sinarmas is the key bancassurance partner for our insurance subsidiaries, Sinarmas MSIG Life and Asuransi Sinarmas. This is an effective partnership driven by a long history of close collaboration between management and employees of the insurance and bank subsidiaries. Bank branch officers are provided with appropriate training and licensed to offer bancassurance products. Most of Sinarmas MSIG Life’s premiums are derived from this bancassurance relationship.

• Loan origination. Sinar Mas Multifinance plays a key role in originating loans for Bank Sinarmas. Approximately 20.0% of Bank Sinarmas’ loan book is channeled by Sinar Mas Multifinance. This channeling arrangement takes advantage of Bank Sinarmas’ competitive financing rate while leveraging on Sinar Mas Multifinance’s extensive customer and distribution reach.

Experienced management team with in-depth understanding of local markets

We have a management team of highly experienced individuals with in-depth industry and local knowledge, and extensive managerial experience in life insurance, non-life insurance, securities, banking and other financial services through the respective management teams of our life, non-life, banking, securities and multifinance subsidiaries. Our President Commissioner, Indra Widjaja, has served as Commissioner of the SMMA Group since 1982, and coordinates the investment and business strategies of the Group through weekly meetings with management of our principal subsidiaries. Our Commissioner, Howen Widjaja, began service as Director of the SMMA Group in 2009, and our two Independent Commissioners have served the SMMA Group since 2008. The team is focused on formulating innovative business initiatives and capturing business opportunities by drawing on its expertise in diverse areas. We believe our management team can develop and execute our business strategies effectively, while quickly responding to the rapid changes in our business environment.

Strategies

Our objectives are to achieve sustainable growth of our businesses and to create long-term shareholder value. To achieve these objectives, we intend to pursue the following strategies.

Enhance the productivity of our core distribution channels and expand our multi-channel distribution network

We believe there are significant opportunities to grow our business in all segments by continuing to enhance and expand our distribution channels and multi-channel distribution network to reach a broad range of customers. This includes increasing our presence within existing markets and expanding our geographic coverage to new areas in Indonesia. For instance, Bank Sinarmas intends to enhance its customer reach through an aggressive expansion of branches and other offices, growing its network from 110 as of December 31, 2010 to 242 as of December 31, 2011 and plans to further grow its network to approximately 515 offices by year end 2012. Likewise, Sinarmas MSIG Life, with the benefit of the experience of the global MS&AD Insurance Group, intends to significantly grow the scale and productivity of its agency force, further enhance its bancassurance platform and develop a corporate agency channel to target group insurance business. We also believe we can enhance the productivity of our multi-channel distribution network by continuing to focus on cross-selling and cross-marketing of our various financial services and products across business segments.

Implement our “One Million Partners” campaign

In early 2011, we launched a campaign entitled “One Million Partners” to recruit our customers, entrepreneurs and business owners of retail stores and suppliers to be our agents for our life and non-life insurance and banking products, with a view to develop relationships with them as “SMMA ambassadors”. As of September 30, 2011, the Group had more than 50,000 registrants for the program. We believe that this target market will provide significant opportunities to further grow our customer base across all business segments by leveraging their existing relationships to further expand our network and reach.

Expand the range of products and services available to customers

We believe that we are well-positioned to capitalize on the continued growth in the life and non-life insurance, securities, traditional and Islamic banking and financing, and multifinance sectors that is expected to result from Indonesia’s expanding middleclass and rising levels of household income. In each of our core business segments, we expect to continue to build up our product and service offerings, and in particular, increasing the diversification of our life insurance products in partnership with MSIG to focus on regular premium unit link products and protection riders. The financial, insurance, banking and non-bank products and services offered in Indonesia continue to evolve as the needs of customers change. We intend to be at the forefront of these developments by offering innovative and competitive products to our customers.

Increase our cross-selling and cross-marketing efforts among the various subsidiaries of the SMMA Group

Due to our large customer base and our integrated financial services model, cross-selling represents a significant opportunity to grow our business. We encourage consumers to take advantage of products and other services through product bundling and cross-marketing products and services. We facilitate this through our “one-stop shop” model, with co-location of banking, insurance and securities outlets at a single location. We will continue to utilize our insurance business as a springboard to cross-sell an increasingly broader suite of bundled products and services to individual and corporate customers. We also remain focused on developing closer synergies between our subsidiaries through staff training, knowledge sharing, bundled product offerings and collaborative marketing.

Build on our reputation as a trusted provider of comprehensive financial services solutions

Originally established in 1982 under the name PT Internas Arta Leasing Company, Sinar Mas has since grown to become one of the most widely recognized brand names in Indonesia. We believe our extensive nationwide distribution network reinforces this brand awareness. We will continue to build on our reputation as a trusted provider of comprehensive and competitive financial services solutions both through our branches and marketing campaigns. In this way we hope to attract a wider group of customers to our existing customer base.

Increase employee and agent productivity and competitiveness

Developing a strong sales and service culture at each of our subsidiaries under our Sinarmas brand is

key to our future success. We seek to attract and retain the most talented individuals in the industry and improve their skills, productivity and career development opportunities through advanced human resources management and training. We aim to build a system in which our management and employees can grow with us and share in our success, which we believe will result in increased employee productivity and competitiveness to meet our strategic goals. In 2010, SMMA and its subsidiaries held internal and external seminars and training programs for employees and management to further their skills and knowledge, enhance their sense of belonging to the Group and promote a strong and universal work ethic. The Management Development Program, an internal education and training course run by SMMA and particular subsidiaries in 2010, aimed at increasing the skills of those graduates and employees who had the most potential for development, based on assessment. In addition, Sinarmas MSIG Life intends to leverage MSIG’s global experience in agency training and development to enhance the productivity of the existing agency force. To promote agency force growth and enhance employee competency, Sinarmas MSIG Life has introduced the “Sinarmaslife Academy” to train and develop graduate professionals to become productive insurance agents and competent employees.

Invest in information technology systems and infrastructure to prepare our Group for future growth

We will continue to invest in information technology and infrastructure to prepare ourselves for future growth. We aim to leverage on our strong capital position to further enhance our IT system and automate our operational processes to achieve optimal efficiencies as well as enhance our ability to identify and manage risks.

For example, Asuransi Sinar Mas provides a “B2B” application which allows its business partners to connect with Asuransi Sinar Mas and assist Asuransi Sinar Mas in managing the process of issuing policies. To support Asuransi Sinar Mas’ service levels in handling a claim, it employs an “E-Claim” application which integrates Asuransi Sinar Mas with its customers, workshops and suppliers and an “E-Supplier” network solution which allows suppliers to join online tenders to procure and deliver spare parts for motor vehicles needed for a claim and deliver the spare part to the respective automobile repair workshop. Asuransi Sinar Mas also employs “E-Partner”, a web-based portal application which enables its agents to manage their portfolio, issue insurance policies, provide quotes and process the commission payments from any location and at any time, and provides an “E-Marketing” web-based portal to its marketing staff which enables them to upload market data into the central system at any time. For Bank Sinarmas, we plan to build on delivering our banking products to customers via Bank Sinarmas’ internet banking channel.

We will continue to develop and adopt advanced technological systems to achieve maximum operational efficiency in each of our areas of business, to improve our ability to identify and manage risks within our business, to improve profitability and maintain our reputation as a leading Indonesian provider of insurance and financial services in Indonesia.

Our Group Structure

The following diagram below shows our group structure as of December 31, 2011.

______________________

(1) As of December 31, 2011, we owned 56.48% of Bank Sinarmas directly and 3.52% indirectly through our 99.0% owned subsidiary, PT Shinta Utama.

The following table shows a breakdown of the net income and assets after elimination of SMMA and our principal subsidiaries including as a percentage of our total net income and total assets after elimination, respectively, as of September 30, 2011:

Our History

We began commercial operations in Indonesia in 1983 under the name PT Internas Artha Leasing Company, engaging in finance leasing, factoring and consumer financing and obtained approval from the Ministry of Finance to operate a multifinance company in 1990. Our insurance subsidiaries, Sinarmas MSIG Life (initially founded as PT Asuransi Jiwa Purnamala Internasional Indonesia) and Asuransi Sinar Mas were founded in 1984 and 1985. In 1988, our securities and asset management subsidiary, Sinarmas Sekuritas was established. In 1995 we listed our shares on the IDX and changed our name to PT Sinar Mas Multiartha Tbk. In

As of September 30, 2011

Net Income

As a % of Total

Net Income

Total Assets After Elimination

As a % of Total Assets After Elimination

Rp. US$ Rp. US$ (Rp. in billions, US$ in millions, except percentages) SMMA.......................................... 6.2 0.7 0.5 1,076.7 122.0 2.5Sinarmas MSIG Life .................... 882.0 100.0 63.8 20,425.9 2,315.1 47.5Asuransi Sinar Mas ...................... 367.5 41.6 26.5 3,022.0 342.5 7.0Bank Sinarmas.............................. 50.0 5.7 3.6 15,664.1 1,775.4 36.4Sinarmas Sekuritas ....................... 39.8 4.5 2.9 972.7 110.2 2.3Sinar Mas Multifinance................ 30.5 3.5 2.2 1,356.9 153.8 3.2Others ........................................... 6.5 0.7 0.5 461.9 52.4 1.1Total ............................................. 1,382.5 156.7 100.0 42,980.2 4,871.4 100.0

1996, the shareholders of the Company changed the Company’s main business activities to become a financial holding company for the Sinar Mas Group.

In 1996, we issued 663 million shares at an offer price of Rp.750 per share, and in the same year we established our consumer finance and leasing business, Sinar Mas Multifinance by acquiring 5,000 shares of PT Sinar Supra Finance, which was subsequently renamed Sinar Mas Multifinance. In 2003, we issued a further 2.1 billion shares at an offer price of Rp.100 per share. In the same year, we effected a reverse stock split, and added a second series of shares.

In 2005, we issued 991.3 million shares at an offer price of Rp.125 per share. In 2005, we also acquired the entire shareholding of Sinarmas MSIG Life. We also acquired the majority stake in our banking subsidiary, Bank Sinarmas, from PT Shinta Indonesia. In 2008, we completed a fourth rights issue of 964.5 million shares at an offer price of Rp.100 per share. We also injected capital into some of our subsidiaries, including Rp.120.0 billion into Sinar Mas Multifinance and Rp.25.0 billion into certain other subsidiaries during the nine months ended September 30, 2011. On December 7, 2011, SMMA injected capital of Rp.100.0 billion into Sinar Mas Multifinance for Sinar Mas Multifinance to expand its branches and outlets.

Bank Sinarmas’ initial public offering in 2010 at Rp.150 per share raised Rp.240 billion (US$27.2 million).

SMMA is principally the holding company of our subsidiaries and joint ventures. In addition, it also engages in limited investments in mutual funds and sales. As of September 30, 2011, SMMA had investments in mutual funds of Rp.612.1 billion (US$69.4 million).

Life Insurance – Sinarmas MSIG Life

Overview

We conduct our life insurance business primarily through our 50% stake in Sinarmas MSIG Life. MSIG also owns a 50% interest in Sinarmas MSIG Life through its share subscription in July 2011 for Rp.7.0 trillion (US$793.4 million). See “—Recent Developments”. Established in 1984, Sinarmas MSIG Life is the second largest life insurance provider in Indonesia with 12.5% market share by gross premiums for 2010 according to the Indonesia Life Insurance Association. Premium income grew at a CAGR of 29.7% from 2007 to 2010. Gross premiums for the nine months ended September 30, 2011 amounted to Rp.9,805.9 billion (US$1.1 billion). In addition, we also have a 50% ownership interest in Mega Life, a joint venture with the Para group (the “Para Group”). See “—Joint Venture Mega Life” below for more information.

Sinarmas MSIG Life offers individual and group life insurance products and Sharia products. It distributes its products principally through bancassurance. Its main bancassurance business is principally conducted with Bank Sinarmas, which accounted for 84.5% of gross premiums for the nine months ended September 30, 2011. Sinarmas MSIG Life also has relationships with a total of 43 banks, six of which are commercial banks and 37 of which are rural banks (Bank Perkreditan Rakyat), which are more limited in the amounts of lending and deposit taking, and whose relationship with Sinarmas MSIG Life mainly comprises the purchase of mortgage redemption and other credit protection insurance. Complimentary to its bancassurance distribution channel, Sinarmas MSIG Life also has an agency force of approximately 12,000 agents as of September 30, 2011. As of September 30, 2011, Sinarmas MSIG Life had 57 representative offices which provide direct marketing to corporates as well as administrative and sales support to agents. In addition, Sinarmas MSIG utilizes alternative distribution channels such as the internet. As of December 31, 2010 and September 30, 2011, Sinarmas MSIG Life’s solvency ratio was 469.03% and 1,002.8%, respectively. See “—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Adequacy”.

Business Initiatives

We intend to further develop our life insurance business and implement our overall strategy with respect to our life insurance operations by adopting the following business initiatives:

• Leverage on the expertise, successful business model and global reputation of MSIG, with a focus on enhancing product development, diversifying product mix and growing higher

margin regular premium and protection products across our key distribution channels. Moreover, various takaful, pension fund and family policies are also in our pipeline.

• Continue to develop and expand our distribution channels:

• Together with MSIG, we will be focusing on developing our agency channel through growing agent numbers and improving organizational structures. This is particularly important as a motivated and sophisticated sales force is the key to successful execution of our overall growth strategy.

• Growing our bancassurance channel, leveraging on Bank Sinarmas’ branch expansion plans as well as increasing our number of bank and non-bank distribution partners. Promote the sale of regular premium products and riders to our extensive bancassurance customer base.

• Developing additional channels, such as corporates, direct marketing and multinational corporation channel, for the longer term future to diversify our marketing efforts and extend our corporate customer base. Similar to the development of the agency channel, MSIG will provide the technical assistance and expertise on this front.

• Improve and enhance use of technology to achieve greater cost efficiencies while enhancing customer experience. We aim to implement customer relationship management systems and develop data mining processes, implement virtual offices in stages and have a paperless office by 2015.

• Continue to invest in training to improve the quality of our agents, marketing personnel and back office employees as we believe that there is significant untapped potential among our agents and employees. A secondee from MSIG will be lending his expertise to plan such training programs with four training centers being set up to support this initiative.

Our long term goal is to maintain and enhance Sinarmas MSIG Life’s position as a premier life insurance company in Indonesia and aim to be the largest life insurance company in Indonesia by gross premium, annualized premium equivalent and return on equity by 2015, strengthen policyholder trust, maximize the returns from funds available for investments and increase shareholders’ value with the aim of sustaining long-term profitability. Sinarmas MSIG Life intends to grow its market share by continuing to focus on product lines with higher growth potential such as micro-insurance, which, despite lower profit margins, appeal to and serve as points of entry into lower and middle-class market segments, particularly in east Indonesia, thereby diversifying and broadening our customer base. We plan to ensure that its increasing market share translates into underwriting profits by continuing to maintain and improve its claims and expenses ratios.

Products

Sinarmas MSIG Life offers individual and group insurance products. Its individual life insurance products generally fall into the following principal categories: unit link insurance, endowment insurance, traditional term insurance, whole life insurance and accident and health insurance. There are no participating products or annuities. Currently, Sinarmas MSIG Life’s only investment products are unit link and endowment products. Sinarmas MSIG Life’s whole life insurance products also offer certain investment components. Sinarmas MSIG Life’s unit link products are generally term insurance products. The insured pays the premium and receives the net asset value of the units, less fees such as commissions and administration fees. Sinarmas MSIG Life’s group insurance products generally fall into two categories: life, accident and health insurance and mortgage redemption insurance.

Gross premium income represent premiums received from policyholders based on short-term and long-term contracts and includes the full amount received under unit link and endowment policies whether or not later returned to policyholders upon surrender, redemption or maturity, as applicable.

The following table below sets out gross premium income for Sinarmas MSIG Life’s principal life insurance product categories for the periods indicated:

For the Year ended December 31,

For the Nine Months ended September 30,

2008 2009 2010 2010 2011 (Rp. in billions) Individual:

Combined endowment(1) ............... 4,298.1 3,401.6 573.0 480.1 4,619.5 Death term life .............................. 3.6 4.6 6.7 3.9 3.1 Whole life ..................................... 16.7 15.9 14.6 11.1 10.3 Personal accident .......................... 0.8 0.7 1.2 0.6 1.8 Health............................................ 1.1 1.6 2.2 1.6 2.2 Unit link(2) ..................................... 593.1 3,562.2 8,565.8 5,796.2 5,037.5

Sub total................................... 4,913.3 6,986.6 9,163.6 6,293.6 9,674.4

Group: Endowment ................................... - - - 0.0 - Death term life .............................. 57.6 51.3 63.2 45.0 71.2 Health............................................ 127.9 70.2 60.9 52.0 50.7 Personal accident .......................... 1.5 1.3 1.9 1.5 1.2 Unit link........................................ 7.0 0.1 - - 8.4

Sub total................................... 194.1 123.0 126.0 98.5 131.6 Total ................................................. 5,107.4 7,109.6 9,289.6 6,392.1 9,806.0 ______________________

(1) Combined endowment is an insurance providing life protection, as well as savings.

(2) Unit link includes investment-linked products.

For 2008, 2009 and 2010 and the nine months ended September 30, 2011, Sinarmas MSIG Life’s highest revenue generating products in terms of premiums income were unit link products, which contributed approximately 11.8%, 50.1%, 92.2% and 51.4%, of gross premium income, and endowment products, which comprised 84.2%, 49.9%, 6.2% and 47.1%, respectively, of gross premium income, respectively, followed by other products categories, which in the aggregate comprised approximately 2.5%, 1.0%, 0.8% and 1.4%, of gross premium income, respectively.

From 2008 through early 2011, Sinarmas MSIG Life encouraged existing policyholders in endowment products, such as its Power Save products, to reinvest into unit link policies, such as its Stable Link products, by offering more attractive potential investment returns on these products. This has been the driver of the decline in endowment and increase in unit link policies in the same periods. This strategy was adopted by the company to enhance capital efficiency of the business, given the lower capital requirement associated with unit link policies. Due to the higher solvency ratios following completion of the MSIG share subscription in Sinarmas MSIG Life, Sinarmas MSIG Life has been increasing its sales of its endowment products during the second half of 2011. Sales of endowment products have continued to increase, following a decision in November 2011 to focus sales of endowment products through bancassurance and sales of unit link products through its agency force.

Unit Link Products

Sinarmas MSIG Life offers a range of unit link investment products where the benefits value of the policy is linked to the value of underlying investments or fluctuations in the value of underlying investments. The investment risk associated with such products is borne by the policyholder. The policy terms offered vary, and can range in length of term or can be whole life, can be denominated in Rupiah or U.S. dollars and can be a single premium policy, for which the customer pays a single, substantial, initial payment, or regular premium policy, for which the customer makes periodic premium payments over the term of the policy. Insurance coverage, investment and administration services are provided for which the charges are deducted from the investment fund assets. Benefits payable will depend on the price of the units prevailing at the time of surrender, death or the maturity of the policy, subject to surrender charges for surrenders prior to maturity. Sinarmas MSIG Life’s investment-linked products are typically designed such that accident and health and other protection riders may be attached to the basic policy. Its unit link investments are predominantly single-premium products. Premiums are reflected in total investments and are paid as surrender benefits, subject to applicable surrender charges before maturity. Investments of fund assets are managed by Sinarmas MSIG Life and policyholders of its unit link products do not choose the specific investments funds in which their funds are invested.

Sinarmas MSIG Life’s best selling unit link product is its Stable Link insurance product. For the years ended December 31, 2008, 2009, and 2010 and for the nine months ended September 30, 2011, Sinarmas MSIG Life’s Stable Link products accounted for 7.0%, 47.4%, 89.8% and 49.6% of gross premiums, respectively. The Stable Link insurance product is a single premium investment-linked whole life product. The product is designed to offer a savings opportunity in a similar way to fixed deposit products normally offered by a bank, and can be denominated in Rupiah or U.S. dollars. It contains a death protection benefit of 125% of premiums paid and capped at Rp.25 million for Rupiah policies or US$2,500 for U.S. dollar policies. The policyholder selects an investment term of three, six, 12, 24 or 36 months, and a target investment return is set for each selected investment term, although the return is not guaranteed. The Stable Link assets and other unit link assets are invested and managed by Sinarmas MSIG Life in accordance with its investment policy and strategies. See “—Investments”. Under the Stable Link products, the policy will be credited with the actual investment return subject to a cap equal to the target investment return. If actual investment return exceeds target investment return, then for policies with investment terms greater than 12 months, 10% of the excess return over the target investment return will also be credited to the policyholder as a bonus. Target investment returns are adjusted by Sinarmas MSIG Life periodically in response to movements in market interest rates and returns on investments. At the end of the investment term or roll over date, the policyholder selects the next investment term, surrenders the policy or can choose to treat return of the remaining account value as a policy loan from MSIG Life for the remainder of the policy term to minimize the application of withholding tax and surrender charges which may apply. Under Indonesian regulations, policyholders are subject to 20% withholding tax on aggregate returns on policies which are surrendered within three years.

A surrender benefit equal to the “rolled over” amount is payable in the event of a policy being surrendered and a surrender benefit equal to the “rolled over” amount without interest is payable if the surrender occurs during the investment term. An additional surrender charge, subject to a cap of 20%, may be applied upon surrenders prior to maturity at the discretion of Sinarmas MSIG Life, which is designed to deter large-scale withdrawals in the event of market instability. Commission to distribution channels is payable at each roll over date.

Sinarmas MSIG Life also sells whole life unit link products, such as its Excel Link 80 Plus product and Cerdas / Excellent Link product. Excel Link 80 Plus is an investment-linked whole life product, which accepts both single premium and regular premiums and may be denominated in Rupiah or U.S. dollars, and allows the policyholder to select investments and provides life coverage equal to the sum insured plus account value in the event of death. Cerdas / Excellent Link is a regular premium investment-linked whole life product, which may be denominated in Rupiah or U.S. dollars, and allows the policyholder to select investments and provides life coverage equal to the sum insured plus account value in the event of death.

These products continue to be the major contributor to Sinarmas MSIG Life’s gross premium income. In 2008, 2009, 2010 and the nine months ended September 30, 2011, gross premiums from its unit link investment products accounted for 11.8%, 50.1%, 92.2% and 51.4% of its gross premiums and 10.3%, 48.7%, 90.8% and 50.3% of its new business premiums, respectively.

Endowment Products

Sinarmas MSIG Life offers a range of non-participating endowment products, where the insured is provided various guaranteed benefits if the insured survives specified maturity dates or periods stated in the policy, and which, upon the death of the insured within the coverage period, provide to the beneficiary designated by the insured guaranteed benefits in return for the periodic payment of premiums. If no death occurs during the insurance period, the insured receives the insurance payout. Sinarmas MSIG Life’s endowment products generally provide a policy term of four years, but may also be for three, five, eight or 10 years in duration, which can be renewed. Sinarmas MSIG Life offers over 100 endowment products, and payment by the insured can be in a single premium, or regular premiums in amounts linked to other insurance products. Specified coverage periods range from five to 10 years or end at specified ages. For regular premium products, premiums are typically at a level amount for the coverage period. Sinarmas MSIG Life’s endowment products are typically designed such that accident and health and other protection riders may be attached to the basic policy.

Sinarmas MSIG Life’s best selling endowment product is its Power Save insurance product. For the years ended December 31, 2008, 2009, and 2010 and for the nine months ended September 30, 2011, Sinarmas MSIG Life’s Power Save products accounted for 77.3%, 43.5%, 5.7% and 46.4% of gross premiums, respectively. The Power Save product is a four-year renewable single premium non-participating endowment product. As with its Stable Link product, the Power Save is designed to offer a savings opportunity in a similar way to fixed deposit products normally offered by a bank, with a guaranteed return in addition to an accidental death benefit equal to 100% of premiums, and can be denominated in Rupiah or U.S. dollars. At the inception of the policy, a policyholder can

select the fixed rate period of three, six, 12 or 36 months, and a guaranteed return is set for each selected period. Sinarmas MSIG Life evaluates and declares guaranteed return rates applicable to new policies periodically in response to movements in market interest rates and returns on investments. The investment allocation for the policy is determined by Sinarmas MSIG Life and primarily consists of units in equity, fixed income and mixed mutual funds, corporate fixed income securities and equities, and are managed by Sinarmas MSIG Life in accordance with its investment policy and strategies. See “—Investments”. At the end of the roll over date, the policyholder can reselect the next fixed rate period, surrender the policy or choose to treat return of the remaining account value as a policy loan from MSIG Life for the remainder of the policy term to minimize the application of withholding tax and surrender charges which may apply. In the case of surrender, a surrender benefit equal to the “rolled over” amount plus interest is payable in the event a policy is surrendered at the end of the investment term and a surrender benefit equal to the “rolled over” amount without interest is payable if the surrender occurs during the investment term. Commission to distribution channels is payable at each roll over date and no charge is taken from the policy.

In 2008, 2009, 2010 and the nine months ended September 30, 2011, gross premiums from Sinarmas MSIG Life’s endowment insurance products accounted for 84.2%, 47.9%, 6.2% and 47.1% of its gross premiums, respectively. The decline in gross premium income from endowment products in 2009 and 2010 was primarily due to surrenders of Sinarmas MSIG Life’s Power Save products in favor of its Stable Link products as policyholders migrated to Stable Link products.

Traditional Term Life and Whole Life Insurance

Sinarmas MSIG Life offers traditional non-participating term and whole life insurance products.

Non-participating term life insurance products provide a guaranteed benefit upon the death of the insured within a specified time period in return for periodic payment of fixed premiums. Specified coverage periods can be any length of term, depending on the product. Death benefits may be level or increase over the period or increasing. Premiums are typically at a level amount for the coverage period. Term life insurance products are sometimes referred to as pure protection products, in that there are normally little or no savings or investment elements. Unlike endowment products, term life insurance products expire without value at the end of the coverage period if the insured person is still alive.

Non-participating whole life insurance products provide a guaranteed benefit, pre-determined by the contract, upon the death of the insured, in return for period payment of fixed premiums over a predetermined period. Premium payments may be required for the length of the contract period, to a specified age or for a specified period, and are typically level throughout the period.

Sinarmas MSIG Life does not currently offer participating term life or participating whole life insurance products.

In 2008, 2009, 2010 and the nine months ended September 30, 2011, gross premiums from its non-participating term life and whole life insurance products accounted for 1.5%, 1.0%, 0.9% and 1.0% of its gross premiums, respectively.

Accident and Health Insurance

Sinarmas MSIG Life offers accident and health insurance products, which provide morbidity or sickness benefits and include health, disability, critical illness and accident cover. Accident and health insurance products are sold both as standalone policies and as riders that can be attached to its individual life insurance products, with most coverage sold as riders to its other insurance products. Health insurance is principally sold as group insurance but is also sold to individuals.

Its personal accident insurance products generally provide a guaranteed benefit in the event of death or disability of the insured party as a result of an accident during the policy period. The disability benefit Sinarmas MSIG Life pays to the insured party will vary according to the type of disability afflicted upon such insured party. Its health insurance products generally provide for a daily hospital allowance or reimbursement of actual hospital expenses incurred by the insured party.

In 2008, 2009, 2010 and the nine months ended September 30, 2011, gross premiums from its health and personal accident insurance products accounted for 2.6%, 1.0%, 0.7% and 0.6% of its gross premiums, respectively.

Group Health Insurance

Sinarmas MSIG Life’s group insurance products consist principally of its group health insurance products, which can sometimes include personal accident or critical illness as part of the package. Group insurance coverage is typically arranged by employers for employees of corporate entities. Customers are usually privately-owned companies, with a large number of employees. Sinarmas MSIG Life markets these products through its corporate channel operating in its offices as well as its agents. As of September 30, 2011, Sinarmas MSIG Life had approximately 197,539 policyholders and approximately 320,608 insured employees/members for its group insurance products.

In 2008, 2009, 2010 and the nine months ended September 30, 2011, gross premiums from its group insurance products accounted for 3.8%, 1.7%, 1.4% and 1.3% of its gross premiums, respectively and 52.0%, 27.3%, 60.1% and 70.3% of its new business premiums, respectively.

Mortgage Redemption Insurance (“MRI”) and Other Credit Protection Products

Sinarmas MSIG Life also offers mortgage redemption insurance and other credit protection products, which are single premium group products and are principally sold to banks and rural banks. MRI products are sold and written to commercial banks and rural banks, with mortgagees of the respective bank as the insured, and which provide credit protection in the event of an insured’s death. Sinarmas MSIG Life offers MRI and other credit protection products in Rupiah, U.S. dollar or Singapore dollars. The sum assured reduces every month according to a schedule assuming the financing installments are always paid. In 2008, 2009 and 2010 and the nine months ended September 30, 2011, MRI and other credit protection products accounted for 1.0%, 0.7%, 0.6% and 0.7% of its gross premiums, respectively.

Sharia Products

Sinarmas MSIG Life is also licensed for and offers Sharia insurance products consisting of unit link products where the underlying investments are in Sharia compliant investments. Sinarmas MSIG Life plans to spin off its Sharia division in 2013 as encouraged by the Ministry of Finance.

Distribution Channels

For the year ended December 31, 2010, bancassurance, agency, corporate sales through direct representatives and others accounted for 85.0%, 12.0%, 2.9% and 0.1% of gross premiums, respectively. For the nine months ended September 30, 2011, bancassurance, agency, corporate sales through direct representatives, and others accounted for 84.6%, 11.5%, 3.9% and 0.1% of total sales, respectively. The distribution network for its individual life insurance business primarily consists of, bancassurance through Bank Sinarmas and other domestic commercial banks, its agency network and alternative channels such as direct marketing, telemarketing and through the internet. Sinarmas MSIG Life distributes its group insurance products primarily through its corporate channel whose sales representatives are responsible for the particular corporate customers and through its agency network.

The following table sets forth gross premiums by type of distribution channel for the periods indicated.

For the Year ended December 31, For the Nine Months

ended September 30, 2008 2009 2010 2010 2011 (Rp. in billions) Agency:

Gross premium........................................ 938.7 1,101.7 1,110.9 828.2 1,126.3 Bancassurance:

Gross premium........................................ 3,885.0 5,776.7 7,889.6 5,346.1 8,302.0 Corporate channel:

Gross premium........................................ 274.9 221.3 267.4 211.8 381.2 Alternative distribution channels:

Gross premium........................................ 8.9 9.9 11.8 8.3 7.8 Total of gross premiums........................... 5,107.4 7,109.6 9,289.6 6,394.4 9,817.3

The following table sets forth gross premiums by geography for the periods indicated.

For the year ended December 31,

For the nine months ended September 30,

2008 2009 2010 2011 (Rp. in

billions) % of Total

(Rp. in billions)

% of Total

(Rp. in billions)

% of Total

(Rp. in billions)

% of Total

Java and Bali ............................................................. 4,818.2 94.03 6,974.8 98.0 9,185.7 99.0 10,700.0 96.3 Sumatera .................................................................... 163.7 3.19 49.1 0.7 8.9 0.1 162.9 1.5 Kalimantan ................................................................ 71.5 1.39 36.4 0.5 48.7 0.5 153.4 1.4 Salawesi..................................................................... 70 .6 1.38 55.7 0.8 39.7 0.4 92.0 0.8 Irian............................................................................ 0.0 0.0 0.0 0.0 - 0.0 0.0 0.0 Total .......................................................................... 5,053.40 100.0 7,116.00 100.0 9,282.9 100.0 11,108.3 100.0

Representative Offices

As of September 30, 2011, in addition to its headquarters in Jakarta, Sinarmas MSIG Life had 57 representative offices throughout Indonesia. Sinarmas MSIG Life’s representative offices mainly provide administrative and marketing support for its agents and business. Representative offices do not generate significant premium income from sales. Sinarmas MSIG Life representative office managers, who typically serve as agent team leaders, also provide supervision over the agency force. The number of agents a representative office manager oversees varies depending on the locale of the representative office.

Sinarmas MSIG Life plans to align its representative office network with Bank Sinarmas and intends to open an additional 23 representative offices in 2012, which representative offices will be co-located with new Bank Sinarmas branches.

Bancassurance

Sinarmas MSIG Life’s bancassurance arrangements constitute the core distribution channel for its life insurance products, including its Power Save, Simas Prima, Simas Power Link, Cerdas, Priority Link and Platimum Link insurance products. Sinarmas MSIG Life’s principal partner is Bank Sinarmas, with which it has a preferred bancassurance arrangement. As of September 30, 2011, Sinarmas MSIG Life also had bancassurance relationships with a total of 43 banks, six of which are commercial banks and 37 of which are rural banks (Bank Perkreditan Rakyat), whose relationships with Sinarmas MSIG Life mainly comprise the purchase of mortgage redemption and other credit protection insurance but who also can distribute Sinarmas MSIG Life’s bancassurance products. Pursuant to its bancassurance arrangements with Bank Sinarmas, Sinarmas MSIG Life’s customers can generally access bancassurance products through the bank representative offices. Sinarmas MSIG Life’s products are also marketed to Bank Sinarmas’ customers by Sinarmas MSIG Life employees who are recruited by, stationed at and under the supervision of, the Bank. As a result of recent changes to regulation which limit commissions paid by banks, these employees remain on Sinarmas MSIG Life’s payroll. Sinarmas MSIG Life’s products are also marketed by the Bank through direct mail and telemarketing in exchange for sales commissions that Sinarmas MSIG Life pays to the Bank. For the year ended December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, sales of its bancassurance products through the branches of Bank Sinarmas accounted for approximately 19.7%, 61.3%, 80.9% and 75.5% of the gross premiums generated through bancassurance arrangements. Sinarmas MSIG Life’s bancassurance products are generally single premium insurance products and primarily consist of unit link insurance products and short-term accident and health insurance. As of September 30, 2011, Sinarmas MSIG Life had over 45,000 customers through its bancassurance channel. For the years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, gross premiums from its bancassurance arrangements accounted for approximately 76.0%, 81.3%, 85.0% and 84.6% of the gross premiums, respectively and 75.1%, 80.2%, 83.7% and 83.6% of its new business premiums, respectively.

Bank Sinarmas’ bancassurance arrangements do not prohibit participating bank branches from selling the products of other insurance companies and, due to recent regulations regarding bancassurance, Bank Sinarmas is required to offer customers a choice of protection-based insurance products from at least three insurance companies. Sinarmas MSIG Life builds its bancassurance relationship with other commercial banks by cooperating to design or bundle bancassurance products.

Employees selling bancassurance at Bank Sinarmas are required, and employees from the other banks with whom Sinarmas MSIG Life has bancassurance relationships are encouraged, to attend training sessions. Sinarmas MSIG Life conducts through which these employees are trained on product features and sales techniques. Sinarmas MSIG Life also encourages bank staff to apply for insurance licenses. Bank Sinarmas staff can also access Sinarmas MSIG Life’s centralized underwriting information technology system through a web-based portal, which facilitates the electronic submission of policy applications and the issuance of insurance policies at Bank Sinarmas and its branches.

Sinarmas MSIG Life plans to underpin the growth of its bancassurance with Bank Sinarmas’ branch expansion plan as well as broadening the number of bank and non-bank distribution partners. Sinarmas MSIG Life expects to focus on increasing the sales of regular premium products to its large base of single premium bank customers and to expand the range of products sold by each bancassurance partner. Planned initiatives to promote increased regular premium sales include the recruitment and training of bancassurance coordinators in at least 50 Bank Sinarmas locations as well as the development of a new sales team.

Agents

Sinarmas MSIG Life’s agency force is an important distribution channel for its insurance products, including its Stable Link, Excel Link 80 Plus and Excel Link family insurance products. It consists of both individual insurance agents and agent teams. The individual insurance agents are not employees but instead enter into exclusive agency agreements with Sinarmas MSIG Life on an annual basis. As of September 30, 2011, Sinarmas MSIG Life had an agency force of approximately 12,000 agents who exclusively sell its life insurance products on a commission basis, most of whom are part-time.

As a result of an internal policy instituted beginning 2010 to retain all agents it hires, Sinarmas MSIG Life has not experienced any significant turnover in its agency force since 2010. For agent teams, Sinarmas MSIG Life typically subsidizes the team’s administrative costs such as printing costs. Commissions to agents are generally paid at the beginning of an insurance policy but are earned on a pro rata basis to the term of the insurance policies written. If a policy is surrendered prior to the end of the term, agents are required to pay back commission for any remaining time on the policy.

For the years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, gross premiums from its agency force accounted for approximately 18.4%, 15.3%, 11.8% and 11.3% of the gross premiums, respectively and 15.8%, 14.1%, 11.2% and 10.9% of its new business premiums, respectively.

Prior to officially becoming one of Sinarmas MSIG Life’s individual insurance agents, each intern agent must complete a three-day basic training consisting of courses in insurance business theories, consumer development and product distribution, among others. The individual insurance agents are also required to attend periodic training. Pursuant to new recent regulations, all life insurance agents must obtain a license from the Ministry of Finance. Sinarmas MSIG Life also provides training to agents who achieve their target to become certified financial planners.

Sinarmas MSIG Life’s agents are required to follow standard operating procedures and are monitored by representative office managers. Sinarmas MSIG Life also provides support to its individual insurance agents to increase their productivity through its operations centers, call center and internal information technology system.

Its sales agents prepare insurance proposals, manage the sales activities and synchronize with Sinarmas MSIG Life’s centralized database the latest information of its customers through a purpose-built sales support application running on handheld devices or laptops. Sinarmas MSIG Life also utilizes short messaging services to assist its sales agents in their marketing efforts.

Sinarmas MSIG Life plans to grow its agency force in a number of ways. For example, it plans to recruit agents is by targeting community groups such as churches, mosques, Buddhist temples and partnering with them to help recruit their members to serve as agents in return for target incentives and commissions. Sinarmas MSIG Life’s Student University program aims to recruit prospective agents directly from leading universities across Indonesia and to provide them with relevant work experience and agency training. Sinarmas MSIG Life also plans to expand its agency network by partnering with existing multi-level marketing companies to recruit their salespeople to work also as agents for Sinarmas MSIG Life. As part of our “One Million

Partners” campaign, Sinarmas MSIG Life has recruited over 4,900 as agents from the program since the launch of the campaign in early 2011.

In partnership with MSIG, Sinarmas MSIG Life will implement a number of initiatives designed to promote agency training, productivity and retention. This includes building training centers in Surabaya, Jakarta and Makassar, recruitment of new trainers and development of continuous development programs. Formalized processes will be established within the agency force to promote retention and productivity including a ‘Prestige Club’ for high performing agents and rewards for agents that meet designated sales targets.

Corporate Channel

Sinarmas MSIG Life uses its direct sales representatives primarily for corporate sales of its group insurance products, including its Ekamedicare and Ekawarsa products. The sales representatives are assigned to particular client worksites. For the years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, gross premiums from direct sales representations accounted for approximately 5.4%, 3.1%, 2.9% and 3.9% of its total gross premiums, respectively, and 3.5%, 2.2%, 2.3% and 3.4% of its new business premiums, respectively.

Sinarmas MSIG Life intends to grow its corporate channel business by focusing on a select group of health and savings products targeted towards employees. Sinarmas MSIG Life has identified target industries for the corporate channel and plans to also leverage its relationship with other companies in the broader Sinar Mas Group to offer corporate solutions. Sinarmas MSIG Life’s plans include setting up booths at PT Duta Pertiwi, Tbk., a real estate company and member of the Sinar Mas Group, and Eka Hospital to utilize their sales personnel to refer Sinarmas MSIG’s Life’s products.

Alternative Distribution Channels

Sinarmas MSIG Life also sells its insurance products through direct mailing, telemarketing, inquiries generated from advertisements handled by its call center, internet marketing and partnerships with retail stores, including its Smart Medicare, Personal Accident Sinarmaslife and Smart Kid insurance products. In 2010, Sinarmas MSIG Life launched its “Click for Life” website, through which it markets its products on the internet. An additional distribution channel for its life insurance products is through the cross-selling of its products through referrals from the in-house sales representatives and agents of other subsidiaries of the Group, including Asuransi Sinar Mas.

In 2011, Sinarmas MSIG Life launched its mall assurance program, through which Sinarmas MSIG Life partners with malls to place its sales representatives at malls to market its life, accident and health insurance products. Sinarmas MSIG Life also intends to distribute its products to multinational corporations through its strategic alliance with MSIG. This multinational channel will focus on group health insurance and pension funds specifically targeted at Japanese and Korean multinationals operating in Indonesia.

For the years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, gross premiums from its alternative distributions channels accounted for approximately 0.2%, 0.1%, 0.1% and 0.1% of its gross premiums, respectively, and 0.2%, 0.1%, 0.1% and 0.1% of its new business premiums, respectively.

Sinarmas MSIG Life will develop new channels in cooperation with MSIG. Sinarmas MSIG Life recently established the Multinational Corporate Division, which head is a representative from MSIG. It also created the channel development committee to set up new channel development initiatives. A director nominated by MSIG chairs the channel development committee.

Sharia branch

Sinarmas MSIG Life also offers Sharia products through its licensed Sharia branch in Jakarta.

Customers and Customer Service

As of December 31, 2010, Sinarmas MSIG Life’s life insurance customer base, one of the largest in Indonesia, consisted of over 204,400 individual life insurance consumers and approximately 278,621 corporate customers.

A majority of the gross premiums, policy fees and deposits recorded by Sinarmas MSIG Life’s insurance operations in 2010 from direct sale representatives and the nine months ended September 30, 2011, respectively, were attributable to its representative offices and sub-offices located in Java and Bali, and to a lesser extent, Sumatera and Kalimantan. As the Indonesian economy continues to grow, Sinarmas MSIG Life plans to focus on business development in these economically developed areas and devote more resources to monitor and expand into other markets with growth potential.

In addition, since 1997, Sinarmas MSIG Life has a customer service hotline accessible throughout Indonesia, the operation of which is currently centralized in its operations centers. Its customer service hotline handles customer inquiries, complaints and claims settlement.

Sinarmas MSIG Life’s internet website is also an important part of its customer service system. Through the website, its customers are able to learn about the various insurance products and services that Sinarmas MSIG Life offers. In addition, its customers are able to purchase some insurance policies online and handle various matters relating to their policies, such as inquiries, maintenance and claims settlement, on its website.

Sinarmas MSIG Life has a life benefits department, which is responsible for paying benefits and handling claims for survivor benefits.

Product Development

Sinarmas MSIG Life has a product development committee, comprising members from marketing, underwriting, actuary and legal and compliance, which is responsible for designing and pricing newly developed products. New products are typically initiated by the marketing professionals who share this information with the rest of the committee, and the products are consequently designed and priced under the guidance of the chief actuary and legal counsel. The product is then presented for review and approval to its Board of Directors and Board of Commissioners at the weekly meeting between Sinarmas MSIG Life and management. The Board of Directors and Board of Commissioners review the feasibility of each product and after they have signed off on the product, the newly developed product is then submitted to the Ministry of Finance, as the regulator for insurance products for reporting in accordance with Indonesian regulations, and also to Bank Indonesia in the case of products to be distributed through its bancassurance channel.

In order to ensure that Sinarmas MSIG Life’s new products are feasible and meet market demand, the product development committee surveys the relevant business departments, sales teams at its representative offices and its customers, and aims to design a product that meets the needs of the customer. Sinarmas MSIG Life also conducts profitability testing and risk assessment, and formulates corresponding risk management plans.

Sinarmas MSIG Life expects to work closely with MSIG for future product development, including the development of group health insurance and whole and term life products tailored to the needs of multinational corporations. A director nominated by MSIG chairs the product strategy committee.

As a result of the partnership with MSIG, Sinarmas MSIG Life recently set up eight Board committees, with four committees chaired by a director nominated by MSIG and four committees chaired by a director nominated by the Company.

Pricing

Sinarmas MSIG Life has a pricing committee, which includes the head actuary. The pricing committee reports to the Board of Directors as well as to the Ministry of Finance as required by regulations. Sinarmas MSIG Life prices its life insurance products primarily on the basis of assumptions with respect to mortality rates and also reinsurance tables. Furthermore, it also takes into account cost of insurance risk, the interest rate projected for the invested fund, the mortality for the term product, morbidity of health of the insured, the expense load, namely the expected administrative expenses, commission fees and other related costs such as promotions, incentives and discounts in economically difficult years, and the profit margins for a particular product.

Underwriting

Sinarmas MSIG Life has an underwriting department at its head office, which makes all underwriting decisions. No representative offices, sub-offices or sales outlets have the authority to underwrite any life insurance policies without the prior approval from the underwriting department.

Sinarmas MSIG Life’s insurance underwriting process involves an application and risk evaluation process that seeks to determine whether the risk related to a particular applicant, including both mortality risk and insurance fraud risk, is consistent with the amount of risk that it is willing and able to accept. During this process, Sinarmas MSIG Life considers the risk characteristics of the individual or individuals to be insured, including health condition, occupation and financial profile. In addition, Sinarmas MSIG Life may consult with its reinsurance personnel for the underwriting of major accident, life and health insurance policies.

Sinarmas MSIG Life establishes per policy underwriting limits for its underwriting department which specify the sum insured for each product. To ensure that policy limits are not exceeded, it has implemented a centralized underwriting information technology system that will not accept a policy for underwriting if the amount of the policy exceeds established underwriting limits. This system forwards such policies to the technical director of its underwriting department.

In order to be able to underwrite insurance policies, each member of its underwriting department has to attend periodic trainings and is encouraged to obtain LOMA, (Life Office Management Association) accreditation. In addition, its information technology platform provides support to its underwriting department to enhance the quality of its work. In particular, Sinarmas MSIG Life’s centralized database allows it to check the risk exposure of a life insurance customer in all of its representative offices. Moreover, its information technology platform allows Sinarmas MSIG Life to set limits for maximum underwriting and claims processing for its underwriting department.

Claims Settlement

Sinarmas MSIG Life’s insurance claims settlement is centrally handled by Sinarmas MSIG Life's claims department in its head office. The claims department is divided between individual claims, group health products and all other insurance products. For individual life insurance, the claims department will verify death certificates. For individual health and accident insurance, its claims examiners investigate and verify the accuracy of claims reported and records the investigative process in its uniform investigation management system and then determines the claims payment based on the outcome of the investigation. For group health insurance, MSIG outsources the claim settlement process. As of September 30, 2011, Sinarmas MSIG Life had five claim examiners. In order to ensure more effective control over its risk exposures, Sinarmas MSIG Life’s information technology system for claims settlement operations automatically forwards any claim that exceeds the authorization level of the handling staff to its claims department head, division head or authorized director.

Sinarmas MSIG Life has a claims committee which includes medical, actuary and legal professionals to review unusual cases. Sinarmas MSIG Life’s internal audit department will also be involved in any suspicious claims and will audit the claims department twice a year.

Sinarmas MSIG Life has agreements with certain hospitals that allow insured customers to seek medical treatment on a cashless basis up to a certain claims limit.

Actuarial Practices

Sinarmas MSIG Life’s actuarial team is primarily responsible for its calculation of reserves, as well as experience analysis. The actuarial department periodically evaluates the various reserves Sinarmas MSIG Life holds, in accordance with the relevant accounting principles and regulations, to help ensure its reserves, including policyholders’ reserves, claim reserves and unearned premium reserves, will meet future obligations. In respect of experience analysis, the actuarial department regularly conducts company experience studies in mortality, morbidity, surrender and expense, which serve as the basis for its assumption in setting prices, reserving and projection.

Its actuarial team makes its actuarial calculations based on the applicable method prescribed by Ministry of Finance regulations. Sinarmas MSIG Life also takes into account data provided by its reinsurers. There are two levels of actuaries in Indonesia: fellow and associate. As of September 30, 2011, Sinarmas MSIG Life’s actuarial team consisted of 21 members, comprising three actuarial fellows, three actuarial associates with domestic actuarial qualification and 16 additional actuarial staff.

Sinarmas MSIG Life’s actuarial team conducts periodic reviews of its reserves in accordance with Ministry of Finance regulations to ensure that its reserves, including policyholders’ reserves, claim reserves and unearned premium reserves will meet its future obligations. Ministry of Finance regulations also require that every three years an external actuary reviews the year end result of Sinarmas MSIG Life.

Reserves

Sinarmas MSIG Life maintains reserves to provide for its future benefit obligations under its insurance policies, and maintains its reserves in accordance with reserve requirements set forth by the Ministry of Finance. The principal types of reserves its maintains are reserves for liability for future policy benefits, estimated claims liability and unearned premiums.

For more information on Sinarmas MSIG Life’s reserves, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Asuransi Sinar Mas—Reserves and Deferred Premium Income” and Note 28 and Note 29 to our September 30, 2011 consolidated financial statements.

Solvency

Solvency risk is a measure of the risk that a company is unable to meet its risk based capital (“RBC”). In managing these risks, a company maintains its assets quality such that such assets can be categorized as admitted assets. A risk-based capital system is implemented as an important financial regulatory measurement for the domestic insurance industry. Sinarmas MSIG Life is required by the Ministry of Finance to maintain a minimum solvency ratio of 120% of the required RBC and is affected primarily by the solvency margins it is required to maintain, which is in turn affected by the volume and type of new insurance policies it sells, the composition of its in-force insurance policies and by regulations on the determination of statutory reserves.

The below table sets forth the solvency position of Sinarmas MSIG Life as of the dates indicated:

For the year ended December 31,

2008 2009 2010 2011 (Rp. in billions, except percentages) Admitted Assets..................................... 6,085.6 4,330.1 3,960.9 15,410.1 Liabilities (excluding subordinated loans) .....................................................

(5,453.3) (3,496.5) (2,669.3) (7,282.3)

Total Solvency Margin .......................... 632.3 833.6 1,291.6 8,127.8 Total Minimum Solvency Margin.......... 326.0 275.7 275.4 810.5 Excess of Solvency Margin ................... 306.3 557.9 1,016.2 7,317.3 Solvency Ratio (%)................................ 193.6% 302.3% 469.0% 1,002.8%

The improvement in Sinarmas MSIG Life’s solvency ratio in 2009 and 2010 was primarily a result of the shift in the number of endowment products to unit link products. The increase in Sinarmas MSIG Life’s solvency ratio in the nine months ended September 30, 2011 was primarily due to the share subscription of MSIG. See “—Products”.

Reinsurance

In order to control and diversify its overall exposure to potential future claims loss and expand its underwriting capacity, Sinarmas MSIG Life reinsures a portion of the risk that it assumes under its insurance policies in exchange for a portion of the premiums Sinarmas MSIG Life receives with respect to these policies. Sinarmas MSIG Life generally reinsures its risk exposures proportionally. Some of its reinsurance agreements are on an excess-of-loss basis, under which a reinsurer is responsible for the claimed loss in excess of a deductible amount, subject to an agreed-upon ceiling and others are on a shared loss basis. These reinsurance arrangements generally have maturities that match those of the underlying policies.

Sinarmas MSIG Life determines its risk retention amount and the portion of risk it reinsures based on its business development needs and the statutory risk retention requirements under Ministry of Finance regulations, which require insurance companies to reinsure high risk policies of up to a maximum of US$300,000.0 per location.

To reduce its reinsurance concentration risk, Sinarmas MSIG Life has established reinsurance programs with several domestic reinsurance companies, including PT Reasuransi Internasional Indonesia, and PT Maskapai Reasuransi Indonesia, PT Tugu Asuransi Indonesia, PT Reasuransi Nasional Indonesia and PT Reasuransi International Indonesia divisi Sharia, which in turn have relationships with international reinsurers. We also have relationship with international reinsurers including SCOR Global Life, Singapore and TOA Re, Japan. Sinarmas MSIG Life generally reinsures directly with international reinsurance only if its domestic reinsurance partners cannot provide required coverage. Its criteria for selecting reinsurers include financial strength, service, terms of coverage, claims settlement efficiency and price, among others. Its top life reinsurers in 2010 and the nine months ended September 30, 2011 were PT Reasuransi Internasional Indonesia, PT Maskapai Reasuransi Indonesia, Scorefi Global Life and PT Togoron Asuransi Indonesia in terms of ceded gross premiums. Sinarmas MSIG Life monitors the financial condition of its reinsurers on an ongoing basis and reviews its reinsurance arrangements periodically.

In 2010 and the nine months ended September 30, 2011, Sinarmas MSIG Life ceded Rp.6.2 billion and Rp.6.3 billion of the gross premiums to reinsurers, accounting for approximately 67% and 64%, respectively, of the total gross premiums. In 2010 and the nine months ended September 30, 2011, none of these reinsurers defaulted on, or was delinquent in, the payment of any life insurance-related reinsurance obligation to Sinarmas MSIG Life.

We do not expect any immediate changes to our reinsurance policy as a result of MSIG’s investment but this may change as Sinarmas MSIG Life seeks to write more regular premium policies.

Investments

The carrying value of Sinarmas MSIG Life’s total investment portfolio was Rp.15,059 billion (US$1,707 million) as of September 30, 2011, of which policyholder investments (excluding investments of its unit link assets (“Unit Link Investments”)) (“Policyholder Investments”), shareholder investments funded by paid-up capital (“Shareholder Investments” and together with Policyholder Investments, “Investments”) and Unit Link Investments represented 32.9%, 41.5% and 25.6% of its total investment portfolio, respectively.

Investment Framework and Management

Sinarmas MSIG Life has an investment management committee which has responsibility for setting and supervising the execution of its investment policy. It sets the overall asset allocation strategy, mid-to-long term investment strategy and risk limits. As of November 2011, the committee includes the President Director, CFO, technical director in charge of product development, underwriting and claims, its chief actuary, investment manager, the President Commissioner of SMMA and three representatives from MSIG. The committee meets weekly and conducts reviews of investment-related operations and monitors the regulatory restrictions, market opportunities for and returns on various types of investments. In addition, the committee is responsible for reviewing and approving projects that involve equity investments over Rp.200.0 billion and all other investments, including fixed income investments, regardless of amount.

Sinarmas MSIG Life has a four-person investment team which is responsible for the day-to-day implementation of its asset allocation and investment strategies and daily monitoring of investments. The activities of the investment team are led and supervised by its investment management officer who is responsible for and supervises the day-to-day operations and transactions entered into by the investment team.

Investment Policy and Internal Controls

Sinarmas MSIG Life invests the gross premiums received from its life insurance businesses, and manages these investments with the objective of meeting the liabilities associated with the insurance policies that it underwrites, as well as to generate a return for its business. Sinarmas MSIG Life also seeks to optimize the returns of its investment portfolio and at the same time limit its overall risk exposure to an acceptable level. It has adopted a specific investment policy which complies with applicable insurance regulations and implemented internal controls to help it achieve this objective. Its investment policy and internal controls, as well as the performance of its investment portfolio, are reviewed and amended to the extent appropriate on an ongoing basis. See also “—Risk Management”.

The principal objectives of its investment policy and internal controls include the following:

• matching investment assets against the liability characteristics of its insurance products, such as interest rate, duration and cash flow;

• limiting its investment portfolio’s exposure to interest rate, credit, liquidity and other risks to within specified aggregate limits;

• diversifying its investment portfolio to the extent permissible under the applicable Indonesian regulations; and

• maintaining strict limits on its investment exposure to any single company or a group of related companies.

Sinarmas MSIG Life strives to adhere to prudent and rigorous risk control in its investment management. Sinarmas MSIG Life has established investment management procedures, stipulating that investments above specified thresholds or specified investments must be approved by specifically authorized personnel or entities. In certain cases involving time sensitive opportunistic equity investments, the investment manager may seek approval for the investment with the President Director and another Director. Sinarmas MSIG Life has also established a series of policies and procedures relating to its investment risk management and internal control, as well as compliance review in connection with investment decisions. Sinarmas MSIG Life’s investment committee is responsible for risk identification, assessment, management and control, using both quantitative and qualitative measures, relating to risks such as market risk, credit risk, interest rate risk, foreign exchange risk, liquidity risk, operational risk and compliance risk within its asset management operations. Most of its investment-related controls, including maximum investment amount in a single equity security, investment category restrictions and delegation of authorities, are configured and embedded in its information technology systems. For additional information on its risk management, see “—Risk Management”.

Sinarmas MSIG Life’s investments are managed with the objective of ensuring compliance with Ministry of Finance regulations and to achieve its investment targets. Sinarmas MSIG Life’s investments consist of time deposits, mutual funds, stocks bonds, direct equity, properties, mortgages, and policy loans. Its fund allocation limits are set according to risk and return balance, operations of the business and market conditions, and provide, in accordance with Ministry of Finance regulations. Sinarmas MSIG Life’s investment policy limits its investments in any one investment as follows:

• time deposits in each bank can comprise no more than 20% of total investments and 2% of the net worth of the bank with which the time deposits are placed;

• mutual funds can comprise no more than 20% of total investments and 5% of each fund’s total investment assets;

• bonds in each issuer can comprise no more than 20% of total investments and 5% of each issuer’s investment assets;

• stocks which are issued by Indonesian legal entities can comprise no more than 20% of total investments in each issuer, and 5% of each issuer’s investment assets;

• direct placements of unlisted stocks can comprise no more than 10% of the total direct placement of investments;

• a mortgage can comprise no more than 20% of the total mortgage investments;

• a property with strata title can comprise no more than 20% of total property investments and

• policy loans can comprise no more than 80% of the policy’s cash value.

In addition, Ministry of Finance regulations require that investments in any one corporate group can comprise no more than 25% of total investments of the insurance company, except in the case of securities issued and guaranteed by the Government or Bank Indonesia. As of December 31, 2008, 2009, 2010 and September 30, 2011, Sinarmas MSIG Life’s largest investment in a corporate group comprised 0.0%, 0.0%, 0.0% and 0.0%, respectively, of total investments.

Sinarmas MSIG Life’s investment policy also prescribes limitations on investments in terms of asset class. Its investment policy prescribes minimum and maximum allocations, as well as benchmark allocations for each asset class.

In addition, Sinarmas MSIG Life’s investment policy also prescribes minimum and maximum allocations of investments and benchmark allocations for each asset class as follows:

• investment in fixed income securities is limited to a benchmark allocation of 20% in the aggregate, and may comprise (i) time deposits with a maximum allocation of 20% and benchmark allocation of 5% of invested assets; and (ii) corporate bonds with a maximum allocation of 50%, minimum allocation of 5%, and benchmark allocation of 10% of invested assets;

• investment in equities is limited to a maximum allocation of 50% and benchmark allocation of 20% of invested assets;

• investment in mutual funds is benchmarked at 50% of invested assets and may comprise (i) fixed income mutual funds with a maximum allocation of 80% and a benchmark allocation of 20% of invested assets; (ii) equity mutual funds, with a maximum allocation of 35% and a benchmark allocation of 10% of invested assets; and (iii) mixed mutual funds with a maximum allocation of 65% and a benchmark allocation of 10% of invested assets;

• investment in policy loans is limited to a maximum allocation of 20%, a minimum allocation of 1% and a benchmark allocation of 1% of invested assets;

• investment in mortgages is limited to a maximum allocation of 10% and a benchmark allocation of 4% invested assets; and

• investment in properties is limited to a maximum allocation of 10%, a minimum allocation of 1% and a benchmark allocation of 5% of invested assets.

As part of its portfolio management, Sinarmas MSIG Life’s investment team also observes certain criteria when analyzing and selecting equity securities for its investments, which include the following:

• Return on equity: the company should have a return on equity higher than its peers over the last four to five years;

• Market capitalization: the company should have a market capitalization of over Rp.10 trillion;

• Volume: the company should have a relatively stable trading volume for at least one year or more; and

• Liquidity: the company should have a daily trading average of Rp.10 billion or more.

In connection with the selection process, Sinarmas MSIG Life’s investment team performs technical and statistical analyses on the economy, sector, market indices and trends.

Investment Portfolio

Sinarmas MSIG Life manages its financial investments in three distinct categories: Unit Link Investments, Policyholder Investments and Shareholder Investments. Sinarmas MSIG Life also segregates funds from its Sharia products, which are managed and invested in accordance with Sharia principles and for which the investment scope is limited under such principles. With respect to its Unit Link Investments, the investment risk is borne by holders of Sinarmas MSIG Life’s unit link insurance products, although allocation of their policy values among investment options are managed by Sinarmas MSIG Life or external managers instructed by Sinarmas MSIG Life in accordance with parameters set for the product, such as the designation of 80% in fixed income and 20% in equities for our Stable Link products. Policyholder Investments and Shareholder Investments include financial investments other than Unit Link Investments. The investment risk in respect of Policyholder and Shareholder Investments is wholly borne by Sinarmas MSIG Life.

Policyholder and Shareholder Investments are generally segregated from one another. The management of the Policyholder and Shareholder Investments generally follow the same investment governance and process but not necessarily the same asset allocation.

Sinarmas MSIG Life had total assets of Rp.20,766.1 billion as of September 30, 2011 of which time deposits, mutual funds, equity securities and debt securities accounted for approximately 30.0%, 56.7%, 5.6% and 2.6%, respectively.

Sinarmas MSIG Life’s investment portfolios consist of three principal asset classes: (i) mutual funds, (ii) equity securities and (iii) fixed income securities. The following table sets forth the carrying value of each principal asset class in its investment portfolio as of the dates indicated. For financial reporting purposes, Sinarmas MSIG Life reports Policyholder Investments and Shareholder Investments as “Investments”.

As of September 30, 2011(1)

Investments %

Segregated Funds of Unit Link %

Segregated Funds of Sharia % Total

(Rp. in billions, except percentages) Time Deposits .......................... 6,123.7 40.6 105.6 2 8.6 8.9 6,237.9 Mutual Funds............................ 6,579.9 43.6 5,150.5 95.7 41.7 43.1 11,772.1 Equity Securities ...................... 1,131.7 7.5 33.6 0.6 7.8 8.0 1,173.1 Debt Securities ......................... 470.4 3.1 47.2 0.9 21.6 22.3 539.2 Mortgage Loans........................ 13.4 0.1 - - - - 13.4 Policy Loans ............................. 694.4 4.6 - - - - 694.4 Investment in Shares of Stock.. 46.3 0.3 - - - - 46.3 Investment Properties............... 0.1 - - - - - 0.1 Cash and Cash Equivalents ...... 33.9 0.2 46.7 0.8 17.1 17.7 97.7

Total ...................................... 15,093.8 100.0 5,383.6 100.0 96.8 100.0 20,574.2 ______________________

(1) Figures are provided from the financial statements of Sinarmas MSIG Life as of and for the years ended December 31, 2008, 2009 and 2010 and September 30, 2011, respectively.

As of December 31, 2010(1)

Investments %

(Rp. in billions, except percentages) Time Deposits .......................... 60.9 1.6 1,282.9 17.3 10.0 13.1 1,353.7 Mutual Funds............................ 1,683.0 44.4 5,929.4 79.8 40.4 52.8 7,652.9 Equity Securities ...................... 1,097.8 28.9 36.1 0.5 - - 1,133.8 Debt Securities ......................... 485.9 12.8 44.5 0.5 21.6 28.2 551.9 Mortgage Loans........................ 15.0 0.4 - - - - 15.0 Policy Loans ............................. 415.3 11 - - - - 415.3 Investment in Shares of Stock.. 0.3 - - - - - 0.3 Cash and Cash Equivalents ...... 34.4 0.9 139.7 1.9 4.6 6 178.6

Total ...................................... 3,792.4 100.0 7,432.5 100.0 76.6 100.0 11,301.6

Investments %

(Rp. in billions, except percentages) Time Deposits .......................... 224.8 5.3 309.3 8.9 7.0 19.4 541.0 Mutual Funds............................ 2,216.8 52.7 3,078.5 88.9 13.4 37.0 5,308.7 Equity Securities ...................... 721.9 17.2 26.5 0.8 - - 748.4 Debt Securities ......................... 583.8 13.9 37.0 1.1 13.0 35.9 633.8 Mortgage Loans........................ 18.3 0.4 - - - - 18.3 Policy Loans ............................. 424.7 10.1 - - - - 424.7 Investment in Shares of Stock.. 0.3 0.0 - - - - 0.3 Cash and Cash Equivalents ...... 17.5 0.4 11.1 0.3 2.8 7.7 57.3

Total ...................................... 4,208.0 100.0 3,462.4 100.0 36.1 100.0 7,732,.4

Investments %

(Rp. in billions, except percentages) Time Deposits .......................... 400.5 6.7 - - 0.5 2.4 401.0 Mutual Funds............................ 4,573.3 76.4 446.0 87.2 8.3 40.3 5,027.5 Equity Securities ...................... 44.1 0.7 12.7 2.5 - - 56.7 Debt Securities ......................... 260.5 4.4 32.0 6.3 9.6 46.6 302.1 Mortgage Loans........................ 21.5 0.4 - - - - 21.5 Policy Loans ............................. 534.9 8.9 - - - - 534.9 Investment in Shares of Stock.. 0.3 0.0 - - - - 0.3 Cash and Cash Equivalents ...... 151.6 2.5 20.9 4.0 2.2 10.7 174.7

Total ...................................... 5,986.6 100.0 511.6 100.0 20.5 100.0 6,518.7

Mutual Funds

Sinarmas MSIG Life’s mutual funds portfolio principally consists of equity, fixed income ad mixed investment mutual funds managed by other fund managers and RDPT funds through which Sinarmas MSIG Life directs investments. Securities invested by the RDPT funds are all held in custody with Bank Mega pursuant to custody agreements with each investment manager, which provide Sinarmas MSIG Life with the right to take back the securities in the event of any disagreement with the investment manager. Mutual funds constitute the largest asset class in its Unit Link Investments, representing 87.2%, 88.9%, 79.8% and 95.3% of the carrying value of total investments as of December 2008, 2009, 2010 and September 30, 2011, respectively. Mutual funds also constitute the largest asset class in its Investments, representing 76.4%, 52.7%, 44.4% and 57.2% of the carrying value of total investments as of December 2008, 2009, 2010 and September 30, 2011, respectively. As of December 31, 2008, 2009 and 2010 and September 30, 2011, approximately 0.0%, 35.9%, 9.0% and 94% of mutual fund investments were with RDPT funds. Although in 2008 there was a shift from internal managers to external managers, most of these external managers are managers of RDPT funds to which we continue to provide direction as to investments.

RDPT funds are limited participation mutual funds which can have one to 49 investors. The RDPT fund is managed by an investment manager pursuant to the terms of a collective investment agreement between the investment manager and custodian bank. RDPT are not required to mark-to-market their investments. Under Bapepam-LK regulations, RDPT funds are permitted to determine the fair value of their fixed income investments using an amortized acquisition price method so long as the debt securities are held until maturity. For equity investments, they are permitted to use any valuation method so long as such method is agreed with the investors in advance in the governing collective investment contract and such method is approved by the Ministry of Finance.

The table below shows a breakdown of Sinarmas MSIG Life’s mutual funds portfolio for its Investments for the periods indicated.

As of December 31, As of September 30, 2008 2009 2010 2010 2010 2011 2011

Rp. Rp. Rp. US$ Rp. Rp. US$ (Rp. in billions, US$ in millions) Mutual funds managed by third parties(1) .......................... 3,616.1 2,206.7 1,672.9 189.6 1,973.9 6,569.5 744.6 Mutual funds managed by related parties .......................... 957.2 10.0 10.1 1.1 10.4 10.4 1.2 Total ................................................................................... 4,573.3 2,216.7 1,683.0 190.8 1,984.3 6,579.9 745.8 ______________________

(1) Includes RDPT funds.

The table below shows a breakdown of Sinarmas MSIG Life’s mutual funds portfolio for its Segregated Funds of Unit link for the periods indicated.

Rp. Rp. Rp. US$ Rp. Rp. US$ (Rp. in billions, US$ in millions) Mutual funds managed by third parties(1) .......................... 142.9 2,231.1 5,876.1 666.0 5,204.4 5,118.0 580.1 Mutual funds managed by related parties .......................... 303.1 847.4 53.3 6.0 53.7 32.5 3.7 Total ................................................................................... 446.0 3,078.5 5,929.4 672.0 5,258.1 5,150.5 583.8 ______________________

The table below shows a breakdown of Sinarmas MSIG Life’s mutual funds portfolio for its Segregated Funds of Sharia for the periods indicated.

Rp. Rp. Rp. US$ Rp. Rp. US$ (Rp. in billions, US$ in millions) Mutual funds managed by third parties(1) .......................... 8.3 13.4 40.4 4.6 28.2 41.7 4.7 Mutual funds managed by related parties .......................... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total ................................................................................... 8.3 13.4 40.4 4.6 28.2 41.7 4.7 ______________________

Mutual funds managed by related parties are principally funds managed by Sinarmas Sekuritas.

The underlying investments of Sinarmas MSIG Life’ mutual funds portfolio consist of fixed income investments, both corporate and government bonds comprising both investment grade and non-investment grade securities, equity securities of both domestic and foreign issuers and cash and cash equivalents. The table below shows a breakdown of the underlying investments in the RDPT funds in which Sinarmas MSIG Life invested on an aggregate basis for the periods indicated.

Investments %

Segregated Funds of Unit

Link %

(Rp. in billions, except percentages) Fixed income(1):

Government bonds ......................... 29.5 0.5 153.4 3.4 0.0 0.0 182.9

Corporate bonds ............................. 3,096.2 51.4 2,660.1 58.7 7.2 17.2 5,763.5

Total................................................ 3,125.7 51.9 2,813.5 62.1 7.2 17.2 5,946.4

Equity(2):

Domestic......................................... 2,526.9 41.9 1,352.2 29.9 29.8 71.5 3,908.9

Foreign............................................ 47.9 0.8 0.0 0.0 0.0 0.0 47.9

Total................................................ 2,574.8 42.7 1,352.2 29.9 29.8 71.5 3,956.8

Cash and cash equivalents.............. 328.8 5.4 362.1 8.0 4.7 11.3 695.6

Total .................................................. 6,029.3 100.0 4,527.8 100.0 41.7 100.0 10,598.8

As of December 31, 2010

Investments %

Segregated Funds of Unit

Link %

(Rp. in billions, except percentages) Fixed income(1):

Government bonds ............... 18.8 1.2 173.8 3.9 0.0 0.0 192.6

Corporate bonds ................... 1,237.9 80.1 3,360.8 64.7 16.1 39.8 4,614.8

Total...................................... 1,256.7 81.3 3,534.6 68.1 16.1 39.9 4,807.4

Equity(2):

Domestic............................... 192.6 12.5 1,199.6 23.1 17.7 43.9 1,409.9

Foreign.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total...................................... 192.6 12.5 1.199.6 23.1 17.7 43.9 1,409.9

Cash and cash equivalents.... 95.8 6.2 457.1 8.3 6.6 16.3 559.5

Total ........................................ 1,545.1 100.0 5,191.3 100.0 40.4 100.0 6,776.8

Investments %

(Rp. in billions, except percentages) Fixed income(1): Government bonds ............... 151.8 6.8 24.7 0.8 0.0 0.0 176.5 Corporate bonds ................... 2,010.5 90.7 2,724.1 88.5 5.9 43.8 4,740.4 Total...................................... 2,161.3 97.5 2,748.8 89.3 5.9 43.8 4,916.9 Equity(2): Domestic............................... 8.2 0.4 267.1 8.7 6.6 49.7 281.9 Foreign.................................. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total...................................... 8.2 0.4 267.1 8.7 6.6 49.7 281.9 Cash and cash equivalents.... 46.3 2.1 62.7 2.0 0.9 6.6 109.9 Total ........................................ 2,216.7 100.0 3,078.5 100.0 13.4 100.0 5,308.7

Investments %

(Rp. in billions, except percentages) Fixed income(1): Government bonds ................................................. 1.4 0.0 7.1 1.6 0.0 0.0 8.5 Corporate bonds ..................................................... 4,540.7 99.3 268.5 60.2 6.0 72.6 4,815.2 Total........................................................................ 4,542.1 99.3 275.6 61.8 6.0 72.6 4,823.7 Equity(2): Domestic................................................................. 6.2 0.1 98.3 22.0 1.9 23.3 106.4 Foreign.................................................................... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total........................................................................ 6.2 0.1 98.3 22.0 1.9 23.3 106.4 Cash and cash equivalents....................................... 25.0 0.5 72.1 16.2 0.3 4.1 97.4 Total ........................................................................... 4,573.3 100.0 446.0 100.0 8.2 100.0 5,027.5 ______________________

(1) Amounts are calculated based on KSEI bond reference price as of the dates indicated.

(2) Amounts are calculated based on the share closing price as of the dates indicated.

As of December 31, 2008, 2009 and 2010 and September 30, 2011, 2.1%, 5.4%, 29.9% and 43.6%, respectively, of Sinarmas MSIG Life’s investments in the RDPT funds on an aggregate basis were in equity securities, all of which were in equities of companies in LQ-45, a capitalization-weighted stock market index of the 45 most heavily traded stocks on IDX. LQ-45 is a capitalization-weighted stock market index of the 45 most heavily traded stocks on IDX.

As of September 30, 2011, the five largest equity holdings of the RDPT funds in which Sinarmas MSIG Life invested on an aggregate basis were PT Bumi Resources Minerals Tbk, PT Perusahaan Gas Negara Tbk, PT Bank Mandiri (Persero) Tbk, PT Bank Rakyat Indonesia (Persero) Tbk, and PT Bank Danamon Indonesia Tbk, which accounted for 7.5%, 3.6%, 3.6%, 1.3% and 1.2%, respectively, of total investments in RPDT funds and 4.6%, 2.2%, 2.2%, 0.8% and 0.9%, respectively, of total investments as of such date. As of September 30, 2011, Rp.1,173.3 billion (US$133.0 million) or 19.9% of total investments in the RDPT funds on an aggregate basis comprised SMMA shares. The SMMA shares were held by two RDPT funds pursuant to securities repurchase agreements between the investment manager and other limited partner of the respective funds, who are entities directly or indirectly controlled by other members of the Widjaja family. On November

23, 2011, all such SMMA shares were repurchased by the limited partners at a predetermined price in accordance with the terms of the securities repurchase agreements.

As of September 30, 2011, the five largest fixed income holdings of the RDPT funds in which Sinarmas MSIG Life invested on an aggregate basis and their respective credit ratings by PT Pefindo Credit Rating Indonesia (“Pefindo”) were Sub Bank Permata II 2011 (“AA-”), Agung Podomoro Land IB 2011 (“A”), Apexindo Pratama Duta IIB 2009 (“A+”), Intraco Penta 2011 (“A”) and Sub Bank OCBC NISP III 2010 (“AA-“), which accounted for 4.2%, 1.9%, 1.7%, 1.7% and 1.5%, respectively, of total investments in RPDT funds and 2.4%, 1.1%, 1.0%, 1.0% and 1.0%, respectively, of total investments as of such date. As of September 30, 2011, Rp.329.9 billion (US$37.4 million) or 5.6% of total investments in RDPT funds comprised debt securities of related parties. Debt securities of related parties as a percentage of Sinarmas MSIG Life’s total investments in RDPT funds have historically fluctuated from period to period.

It is expected that RDPT funds will no longer be available as an investment vehicle after 2014 pursuant to changes to Ministry of Finance regulations.

Equity Securities

Sinarmas MSIG Life allocates a portion of its investments to direct investments in equity securities. Its direct equity investments are principally in public equities, and represented 0.8%, 17.2%, 29.2% and 7.5% of the carrying value of total Investments as of December 2008, 2009, 2010 and September 30, 2011, respectively. For Unit Link Investments, direct equity investments did not exceed 1.0% of total investments as of December 2008, 2009, 2010 or September 30, 2011. Sinarmas MSIG Life’s largest equity investment as of December 31, 2010 was PT Bumi Resources Tbk, which amounted to 59.0% of its total equity portfolio and 9.1% of total investments. The largest equity investment as of December 31, 2010 was PT Bank Negara Indonesia (Persaro) Tbk, which accounted for 30.0% of Sinarmas MSIG Life’s total equity portfolio. The largest equity investment as of September 30, 2011 was in PT Bank Negara Indonesia (Persaro) Tbk, which accounted for 35.1% of its total equity portfolio. Many of the direct equity investments of Sinarmas MSIG Life are from allocations arranged by Sekuritas Sinarmas.

Debt Securities

Sinarmas MSIG Life also holds a portfolio of government and corporate bonds from time to time, which comprised 4.0%, 14.0%, 13.0% and 3.1% of the carrying value of total investments as of December 2008, 2009, 2010 and September 30, 2011, respectively. Its corporate bond investments include both Rupiah and U.S. dollar-denominated bonds.

The table below shows a breakdown of Sinarmas MSIG Life’s fixed income investments in terms of maturity profile as of September 30, 2011:

Maturity by Period Total Less than 1

Year 1 to 3 Years 3 to 5 Years More than 5 Years

(Rp. in billions) Debt securities ......................................................... 6,799.1 1,903.3 582.8 762.3 3,550.7Corporate bonds ...................................................... 6,241.0 1,903.3 582.8 707.7 3,047.2 Government bonds .................................................. 558.1 0.0 0.0 54.6 503.5

Time Deposits and Cash and Cash Equivalents

Its time deposits with maturity of less than three months and cash and cash equivalents constituted 9.2%, 5.8%, 2.5% and 40.8% of the carrying value of total Investments as of December 2008, 2009, 2010 and September 30, 2011, respectively.

Policy Loans

When Power Save and Stable Link policyholders decide to surrender their policies, Sinarmas MSIG Life provides policyholders with the option of having Sinarmas MSIG Life pay out 20% of the account value as a partial withdrawal payment, with the remaining 80% to be treated as a policy loan to the policyholder. In such

cases, these policies are treated as in-force policies as of such date, and will remain as in force policies until at most one month after such date, after which Sinarmas MSIG Life will release the corresponding reserves held for these policies.

For the years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, policy loans constituted 8.2%, 5.5%, 3.6% and 4.6% of the carrying value of total investments, respectively, of which approximately 99% related to Power Save and Stable Link policies.

Time Deposits

Although historically time deposits have not been a significant investment for Sinarmas MSIG Life, for the nine months ended September 30, 2011 Rp.6,123.7 billion (US$694.1 million), or 40.6%, of investments were held in time deposits, consisting primarily of funds from MSIG’s capital contribution from its share subscription. All investments held in time deposits are held in time deposits with a maturity period of less than three months.

Risk Management

Risk Management Framework

Sinarmas MSIG Life’s risk management policy is devised and implemented by its risk management committee, comprising a representative from MSIG as the committee chairman, together with the CFO, technical director and another representative from MSIG. The risk management committee is responsible for assisting the Board of Commissioners in evaluating and assessing the effectiveness of the risk management policy implemented by Board of Directors. MSIG plans to take an active role in further developing and improving Sinarmas MSIG Life’s risk management standards and procedures which include implementing additional training programs for staff.

Management of Principal Risks

Sinarmas MSIG Life has certain risk exposures in the form of market risk, foreign exchange rate risk, credit risk, interest rate risk and liquidity risk. Management policy on financial risk is intended to minimize potential adverse and financial impacts that may arise from such risks. In this regard, management did not allow any speculative derivative transactions during 2010.

The following is a summary of Sinarmas MSIG Life’s policy and financial risk management objectives:

• Market Risk. Market risk is the risk of fluctuations in the value of financial instruments as a result of changes in market price and the possibility of financial loss caused by changes in financial instruments’ fair values due to fluctuations in key variables, including interest rates, equity market prices and foreign exchange rates. To manage this risk, management periodically reviews the performance of securities and its portfolio diversification examines the relevance of instruments it holds for its long-term strategic plan.

• Lapse Risk. Lapse risk refers to the possibility of actual lapse experience that diverges from the anticipated experience Sinarmas MSIG Life assumed when products were priced as well as financial loss due to early termination of policies or contracts where acquisition cost incurred may not be recoverable from future revenue. Most of Sinarmas MSIG Life’s products include surrender charges that entitle it to additional fees upon early termination by policyholders, thereby reducing exposure to lapse risk.

• Operational Risk. Sinarmas MSIG Life also faces operational risks, which may occur during its day to day operations. Such operation risks may include customer dissatisfaction, disruption of information technology systems, high turnover rate of administration staff, overpayment of customers’ claims and important documents destroyed by fire, among others. Sinarmas MSIG Life takes steps to manage its operational risks by implementing specific action plans to address these risks, including providing customer service trainings to staff and agents, continually getting feedback from customers, ensuring adequate back-up administration staff are available, coordinating with information technology team to perform

regular system maintenance and storing all documents in fireproof storage cabinets and storing documents online.

• Pricing and Underwriting Risk. Pricing and underwriting risk refers to the possibility of product related income being inadequate to support future obligations arising from a product. Sinarmas MSIG Life faces pricing and underwriting risk when it underwrites policies. Such pricing and underwriting risk may include underwriting policies that should have been rejected or incorrectly pricing the premium based on the risks faced. Sinarmas MSIG Life takes steps to manage its pricing and underwriting risks by adhering to its underwriting policy and implementing specific action plans to address these risks, including conducting periodic underwriting training to its staff and regularly updating its underwriting policy.

• Interest Rate Risk. Interest rate risk on cash flows involves the risk of fluctuation of future cash flows of a financial instrument due to changes in market interest rates. Sinarmas MSIG Life’s exposure to interest rate risk predominantly arises from its investments in fixed income debt securities as well as in fixed income mutual funds. Management manages its interest rate risk by monitoring the BI Rate and inflation rate and the influence of interest rates on its investment instruments.

• Foreign Exchange Rate Risk. Foreign exchange rate risk is the risk that the fair value or future cash flow of a financial instrument will fluctuate due to changes in foreign currency exchange rates. Sinarmas MSIG Life’s exposure to exchange rate fluctuation mainly derives from its investments and income from investments. To protect against this risk, management aims to maintain a balance of assets and liabilities, with a matching ratio of foreign currency assets to liabilities of at least 100% at any time.

• Product Design Risk. Sinarmas MSIG Life faces product design risks, which may occur when it launches or plan to launch new products. Project design risk refers to potential defects in the development of a particular insurance product. Such product design risks may include unfavorable market responses to its new products and its failure to meet product launch deadlines. Sinarmas MSIG Life’s product design process is overseen by its product development committee and all new products must be approved by its Board of Directors and Board of Commissioners as well as the Ministry of Finance. Sinarmas MSIG Life takes steps to manage its product design risks by closely monitoring specific action plans to address these risks, including conducting weekly products response checks to identify of market reactions to its new products.

• Liquidity Risk. Liquidity, or funding risk, may occur where Sinarmas MSIG Life could have difficulties obtaining cash to meet obligations, such as in the case of surrender spikes. This may arise when there is a mismatch of maturities of assets and liabilities. To mitigate this risk, the management team applies a cash management policy which includes projections of up to a certain point in time and monitors the maturity profile of financial assets and liabilities as well as cash flows.

• Credit Risk. Credit risk is the risk that a counterparty to a financial instrument may fail to meet its obligations and causes the other party to suffer financial loss. For Sinarmas MSIG Life, this risk will generally arise from reinsurance receivables, bank deposits and debt securities. The management team manages the risks associated with savings in banks by continuing to monitor the credibility and solvency of the banks and considers the bank's participation in the Deposit Insurance Agency (“LPS”).

• Legal and Regulatory Risk. Sinarmas MSIG Life also faces legal and regulatory risks, which may include changes in regulations governing its operations and fraud or unethical selling practices committed by its agents. Sinarmas MSIG Life takes steps to manage its legal and regulatory risks by implementing specific action plans to address these risks, including keeping abreast of all regulatory changes and maintaining good relationships with regulators, and providing adequate training to agents.

Project and underwriting risk and lapse risk are primarily assessed and monitored by Sinarmas MSIG

Life’s product development committee while market risk, foreign exchange rate risk, credit risk, interest rate risk and liquidity risk are primarily assessed and managed by Sinarmas MSIG Life’s investment committee. Its risk management committee is primarily responsible for assessing and monitoring operational and legal risks. We expect that the management of Sinarmas MSIG Life’s principal risks and the roles of the committees will change with MSIG’s participation.

Other Operations

In addition to its insurance products, Sinarmas MSIG Life also provides asset management services for pension funds through DPLK Sinarmas, Sinarmas MSIG Life’s subsidiary. As of September 30, 2011, Sinarmas MSIG Life managed the pension funds for 20 companies and approximately 71.1% of AUM were attributed to affiliates within the Sinar Mas Group. As of September 30, 2011, total AUM amounted to Rp.10.9 billion. For 2008, 2009, 2010 and the nine months ended September 30, 2011, management fees from this unit were Rp.0.2 billion, Rp.0.3 billion, Rp.0.2 billion and Rp.0.3 billion, respectively.

Joint Venture - Mega Life

Mega Life, established in 2003, is a 50-50 joint venture formed by SMMA Group with PT Mega Corpora, the financial services arm of Para Group, an Indonesian conglomerate. Para Group maintains active management control of the joint venture and SMMA holds its interest as a financial investment. Mega Life primarily distributes its products through Bank Mega branches, resulting in limited overlap between the business of Sinarmas MSIG Life and Mega Life. Sinarmas MSIG Life provides some assistance to Mega Life in the areas of product expertise, marketing and risk management to enhance the value of its investment in the joint venture.

Competition

Competition in the life insurance industry in Indonesia is based on many factors, including price, sales force strength and abilities, product design features, customer service, claims services, reputation, perceived financial strength and the experience of the insurance company in the line of insurance to be written. Sinarmas MSIG Life also competes with other insurance companies and financial institutions to attract and retain experienced personnel.

Sinarmas MSIG Life’s primary competitors are foreign-invested local life insurance and health insurance companies. Some of these companies may have greater financial, management and other resources, and may have longer and more extensive operating experience. In addition, some of its domestic competitors have benefited from more extensive distribution networks than Sinarmas MSIG Life. Sinarmas MSIG Life also faces competition from smaller insurance companies, which have been making efforts to expand their market shares and may develop strong positions in various regions in which Sinarmas MSIG Life operates. Sinarmas MSIG Life also faces potential competition in Indonesia from commercial banks, which may be able to invest in, or form alliances with, existing insurance companies to offer insurance products and services that compete against Sinarmas MSIG Life, or establish subsidiaries of their own to engage in insurance business directly.

We believe that Sinarmas MSIG Life’s partnership with MSIG, the core operating unit of MS&AD Insurance Group, Japan’s second largest property-insurance casualty insurance group by net premiums, will provide competitive benefits by allowing it to leverage MSIG’s international expertise. MSIG brings numerous strengths to its partnership with us, including strengthening Sinarmas MSIG Life’s insurance distribution capabilities through expansion of its productive agency force, providing training for staff and agents, enhancement of risk management and internal control systems and contribution to product innovation while expanding traditional life products and maintaining Sinarmas MSIG Life’s unit link business.

The presence of foreign insurance companies in the Indonesian market has continued to increase in recent years, and their business activities have continued to expand as the industry becomes more open to foreign competition. Although subject to a 40% foreign ownership limitation under Indonesian law, some new foreign entrants may be able to commence operations rapidly by forming alliances and joint ventures with other Indonesian insurance companies and by employing products and skills developed in their home markets. As of December 31, 2010, there were 45 licensed Indonesian life insurance companies. In addition, as of the same date, there were 17 foreign life insurance companies licensed to conduct insurance business in Indonesia through joint ventures and other arrangements with Indonesian companies. Sinarmas MSIG Life’s principal competitors consist of domestic providers and joint ventures between domestic and international financial institutions, including PT Prudential Life Assurance, PT Asuransi Jiwa Manulife Indonesia and PT AIA

Financial Indonesia. Sinarmas MSIG Life also faces competition from Allianz and AXA. Its market share in the Indonesian life insurance market, in terms of gross premiums, based on financial data published by Indonesia Life Insurance Association, was 12.9%, 12.2%, and 12.2% in 2008, 2009, 2010 and 15.3% for the nine months ended September 30, 2011, respectively.

Real Property

As of September 30, 2011, Sinarmas MSIG Life owned 23 offices comprising a total gross floor area of approximately 10,540.7 square meters with a net book value of Rp.69.8 billion, including its headquarters in Jakarta. As of September 30, 2011, Sinarmas MSIG Life also leased 22 properties comprising a total gross floor area of approximately 2,295 square meters, 4 of which are leased from related parties.

Intellectual Property

Sinarmas MSIG Life owns the trademark for a number of its products such as “ekalink family”, “EXCELLINK”, “ekamedicare”, “SEHAT”, “MAXI CARE” and “Click for Life”. Sinarmas MSIG Life is also in the process of obtaining trademark ownership of several other trademarks.

Employees

As of September 30, 2011, Sinarmas MSIG Life had approximately 907 employees. The table below sets forth the number of employees by function as of same date.

Function Number of Employees Management 7 Marketing 250 Operational 503 Underwriting Experts 2 Qualified Insurance Practitioners 145

Insurance

Sinarmas MSIG Life maintains insurance coverage for its vehicles and insurance coverage against earthquakes underwritten by Asuransi Sinar Mas. Sinarmas MSIG Life also carries insurance to cover against loss of monies or goods held in trust by Sinarmas MSIG Life due to fraud or misconduct of its employees. We believe that Sinarmas MSIG Life’s insurance coverage is similar in scope to those customary for life insurance businesses in Indonesia.

Legal Proceedings

From time to time Sinarmas MSIG Life may be involved in legal proceedings concerning matters that arise in the ordinary course of its business operations.

On December 27, 2011, Sinarmas MSIG Life received a preliminary tax assessment of Rp.280.7 billion (US$31.8 million) from the General Directorate of Taxation for the tax years ended December 31, 2007, 2008 and 2009. Rp.275.7 billion of the tax was assessed on the basis that, under the tax regulation on final tax expense adjustments, Sinarmas MSIG Life owed additional corporate tax primarily as a result of adjustments to after-tax investment income amounts that were taken from premium reserves and improperly treated by Sinarmas MSIG Life as non-deductible tax expenses. The remainder of the assessment comprised value added tax on management fees earned on managing unit link products funds and other miscellaneous tax items for the related periods. On January 3, 2012, Sinarmas MSIG Life responded to the preliminary assessment on the basis that the tax officer misapplied the tax regulations and has requested adjustments in the final assessment. Should the final assessment be unfavorable, Sinarmas MSIG Life expects to file an objection to the final assessment. If Sinarmas MSIG Life’s objection is unsuccessful, it will be required to pay the tax assessment plus 50% of the assessed amount in tax penalties under local tax regulations. In addition, pursuant to local tax regulations, Sinarmas MISIG Life will be required to make an advance payment of 50% of assessed amounts in order to file any appeal in the Indonesian tax court. Should Sinarmas MSIG Life file an appeal in the Indonesian tax court and obtain an adverse ruling, Sinarmas MSIG Life will be required to pay the tax assessment plus 100% of the assessed amount in tax penalties under the tax regulations. As of the date of this document, a final assessment by

the General Directorate of Taxation has not yet been issued. The preliminary tax assessment does not cover the tax years ended December 31, 2010 and 2011 and, should Sinarmas MSIG Life's appeal be unsuccessful, it is possible that the General Directorate of Taxation will issue a similar tax assessment for these tax years.

Other than as discussed above, we are not aware of any potential litigation, arbitration or administrative proceeding against Sinarmas MSIG Life which might materially affect its business, financial condition or results of operations.

Non-Life Insurance – Asuransi Sinar Mas

Overview

We conduct our non-life insurance business primarily through our subsidiary, Asuransi Sinar Mas in which we own 100.0% of the share capital. Asuransi Sinar Mas is the largest non-life insurance provider in Indonesia with 11.4% market share by gross premiums as of December 31, 2010, according to the General Insurance Association of Indonesia. Gross premium income grew at a CAGR of 13.0% from 2007 to 2010.

Established in Indonesia in 1985, Asuransi Sinar Mas offers a wide range of non-life insurance products and services, including fire and all allied perils property insurance, motor vehicle insurance, marine hull insurance, marine cargo insurance, bonding, engineering insurance personal accident, health insurance, casualty and other miscellaneous insurance. As of September 30, 2011, Asuransi Sinar Mas had a distribution network of approximately 7,000 agents, 63 brokers, 77 finance companies, one head office and 92 branch offices and one Sharia office. Asuransi Sinar Mas also has a subsidiary in Timor Leste and is a member of the Federation of Afro-Asian Insurers and Reinsurers (FAIR). It also participates in the Asia Catastrophe Pool, a club of insurance providers based in Asia, through which insurers agree to participate in a fund to provide financial support for catastrophe events in the region.

Total assets of Asuransi Sinar Mas increased from Rp.2,118.8 billion as of December 31, 2009 to Rp.2,766.5 billion as of December 31, 2010 and Rp.3,350.8 billion as of September 30, 2011. In 2010, Asuransi Sinar Mas had gross premiums of Rp.3,259.0 billion in 2010, increasing 13.5% from Rp.2,872.7 billion in 2009. Net underwriting income also grew 6.8% from Rp.190.4 billion in 2009 to Rp.203.3 billion in 2010. For the nine months ended September 30, 2011, Asuransi Sinar Mas had gross premiums of Rp.3.0 trillion, an increase of 22.2% from Rp.2.5 trillion for the nine months ended September 30, 2010. Net underwriting income grew 44.3% to Rp.236.4 billion for the nine months ended September 30, 2011 from Rp.163.8 billion for the nine months ended September 30, 2010.

Asuransi Sinar Mas distributes its products through various distribution channels, primarily through insurance brokers, as well as agents, direct sales, and through cooperation with Indonesian banks and the multifinance/leasing company. It also has relationships with 44 banks, including Bank Sinarmas, and 77 leasing or finance companies. Asuransi Sinar Mas intends to gradually extend its distribution channels through development of a telemarketing system and agency.

As of December 31, 2010 and September 30, 2011, Asuransi Sinar Mas’ solvency ratio was 337.8% and 304.2%, respectively. See “—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Management―Capital Adequacy”. In 2010, Asuransi Sinar Mas was assigned a financial strength rating of “AA+” (idn) Insurer Financial Strength (IFS) rating with stable outlook by Fitch Ratings based on its market positioning, management of catastrophe risk, liquid investment mix and risk-based capitalization, which was affirmed in 2011.

We intend to further develop our non-life insurance business and implement our overall strategy with respect to our non-life insurance operations by adopting the following business initiatives:

• aggressively expand our distribution capabilities through an increase in the number of branches, telemarketing centers, agents and new outlets such as travel agencies and hotels;

• focus on partnership and reach through our One Million Partners campaign and initiation of further collaboration with banks, leasing players and insurance intermediaries;

• continue to introduce innovative products that suit our customers’ needs. We have a proven track record of launching new products every year particularly in the motor and health sectors;

• commit to a prudent and effective claims management process. We will continue to develop our underwriting techniques to improve overall claims and leverage on our IT system to improve claims process and ensure effective claims management; and

• enhance efficiency by investing in IT and employee productivity training to maximize operational efficiency and improve service-level customer satisfaction.

Products

The main product lines of Asuransi Sinar Mas are fire, allied perils, motor vehicles, health, marine hull, marine cargo and engineering. Fire insurance products, which encompass all perils property insurance products, have been its highest performing product line, representing more than 40% of Asuransi Sinar Mas’ business based on total gross premiums for 2008, 2009, 2010 and the nine months ended September 30, 2011. Gross premium income represent premiums received from policyholders based on short-term and long-term contracts. For the nine months ended September 30, 2011, gross premiums generated from Group companies comprised 42.9% of total gross premiums. The three main business segments are fire and property insurance, which accounted for approximately half of Asuransi Sinar Mas’ gross premium income for the nine months ended September 30, 2011, motor vehicle insurance (cars and motorcycles), and health and medical insurance. The other products such as marine and engineering contributed less than 4.0% each to gross premium income for the nine months ended September 30, 2011. Asuransi Sinar Mas has a license for each product.

The table below sets out gross premium income for its principal insurance product categories for the periods indicated:

For the Year Ended December 31,

2008 2009 2010 2010 2011 (Rp. in billions)

Gross Premium Income: Fire ............................................................................................ 2,043.9 1,428.7 1,446.8 1,044.6 1,212.0 Motor Vehicles.......................................................................... 551.6 760.0 924.8 749.5 891.7 Health ........................................................................................ 250.5 245.0 466.1 284.9 474.2 Marine Cargo ............................................................................ 79.7 130.8 129.8 121.4 122.7 Marine Hull ............................................................................... 15.4 23.0 38.9 31.4 52.9 Engineering ............................................................................... 15.8 11.8 8.5 7.9 8.4 Miscellaneous............................................................................ 272.4 273.4 244.1 205.3 226.3 Total.......................................................................................... 3,229.3 2,872.7 3,259.0 2,445.0 2,988.2

Fire and Property Insurance

Asuransi Sinar Mas’ fire insurance product category encompasses a range of predominantly commercial and some residential property insurance products including fire insurance. Its fire insurance and other property insurance products is its largest non-life insurance product line in terms of gross premiums and accounted for approximately 63.3%, 49.7%, 44.4% and 40.6% of its gross premiums in 2008, 2009 and 2010 and the nine months ended September 30, 2011, respectively. Asuransi Sinar Mas offers both commercial and residential property insurance coverage. Asuransi Sinar Mas’ basic commercial property insurance policy covers loss of, or damage to, insured property caused by fire, explosion or lightening. Its basic commercial and residential property insurance coverage does not typically include typhoon and flood, tornado, hurricane or earthquake coverage, but these coverages are available as riders. Property eligible for commercial or residential property insurance includes buildings, furniture, fixtures, fittings, personal effects, tools and equipment.

Gross premiums for fire and other property insurance products declined in 2009 and 2010 as Asuransi Sinar Mas implemented more stringent underwriting requirements for such products beginning in 2009, based on risk exposure management and underwriting strategy.

Motor Vehicle Insurance

Asuransi Sinar Mas’ motor vehicle insurance products consist of insurance for protection against

physical damage, theft as well as third party liability. Indonesian law currently does not require compulsory automobile liability insurance or commercial motor vehicle insurance. Riders providing coverage for various types of risks, such as flood, earthquake and other acts of God risks are also available. Terms for its motor vehicle insurance are typically for three years. Although motor insurance in Indonesia is subject to a tariff system administered by the regulator, Asuransi Sinar Mas generally charges premiums lower than the maximum amount allowed under the tariff system. Under the tariff system, the rates insurance companies are able to charge are determined by a number of factors including the financial strength of the insurer and its historical track record of claims and expenses in the Indonesia market. Gross premiums from its motor vehicle insurance products accounted for approximately 17.1%, 26.5%, 28.4% and 29.8% of its gross premiums in 2008, 2009 and 2010 and the nine months ended September 30, 2011, respectively.

Health and Accident Insurance

Asuransi Sinar Mas offers a wide range of health insurance products including group and individual short-term health insurance products, which provide reimbursement of medical expenses subject to prescribed limits for both in-patient, including hospitalization and surgery, and out-patient services including consultations to the insured in connection with illness. Customers of the health insurance also have the option of adding dental, vision and other related coverage as riders to their policy to customize the policy. The sales of its health insurance products are principally to corporates, and for the year ended December 31, 2010, approximately 98.9% of its health insurance products sold were group health insurance products and 1.1% were individual health insurance products.

Asuransi Sinar Mas also offers a broad array of accident insurance products to both individuals and groups, which provide indemnity to the insured in connection with an accident up to policy levels, such as travel-related accident insurance. Accident coverage is typically provided as riders to its health insurance or motor vehicle insurance products. The terms of individual accident insurance coverage are typically short-term, ranging from a day to one year. Asuransi Sinar Mas also sells a number of group accident insurance to businesses.

Asuransi Sinar Mas has affiliations with hospitals nationwide as well as partnerships with hospitals in the Southeast Asia region, such as NUS and Johns Hopkins in Singapore.

Gross premiums from its health and accident insurance products accounted for approximately 7.8%, 8.5%, 14.3% and 15.8% of the gross premiums in 2008, 2009 and 2010 and the nine months ended September 30, 2011, respectively.

Marine Cargo

Marine cargo insurance covers goods transported by land or vessel. Asuransi Sinar Mas’ customers are primarily export and import companies and corporate groups that have a substantial need for logistics and transportation. Gross premiums from its marine cargo insurance products were accounted for approximately 2.5%, 4.6%, 4.0% and 4.1% of its gross premiums in 2008, 2009 and 2010 and the nine months ended September 30, 2011, respectively.

Marine Hull

Marine hull insurance covers risks of an insured vessel, including its hull, engines, equipment and riggings. The primary customers for marine hull insurance are corporations, including shipping companies in Indonesia. Gross premiums from its marine hull insurance products accounted for approximately 0.5%, 0.8%, 1.2% and 1.8% of its gross premiums in 2008, 2009 and 2010 and the nine months ended September 30, 2011, respectively.

Engineering Insurance

Engineering insurance covers the risks in relation to properties and liabilities in engineering projects. Engineering insurance products primarily consist of construction all risks insurance and related third-party liability insurance, and related third-party liability insurance, and various endorsements. Its customers for engineering insurance coverage are typically construction contractors and machinery manufacturers. Gross premiums from its engineering insurance products accounted for approximately 0.5%, 0.4%, 0.3% and 0.3% of its gross premiums in 2008, 2009 and 2010 and the nine months ended September 30, 2011, respectively.

Other Products

Innovative products is an important factor in delivering Asuransi Sinar Mas’ commitment to satisfy its customers and fulfill their insurance needs. Asuransi Sinar Mas also offers other property and casualty insurance products from time to time, and has launched some new products in the insurance industry, such as Simas Sepeda which covers both residential and commercial property, and covers all items within the house or buildings (i.e. provides contents insurance). In October 2011, Asuransi Sinar Mas launched its Sinarmas Mobil product, the first of its kind in Indonesia, which provides motor vehicle insurance coverage with full or partial refund of premiums paid if no claims are made within certain periods of the term of the policy. The policy lapses if a claim is made.

Asuransi Sinar Mas also offers financial guarantee insurance products in the form of performance bonds, cash payment bonds and payment bonds to mainly contractors and customers to procure supplies, for which Asuransi Sinar Mas will have a right of subrogation. These products are categorized as non-cash loans. As of September 30, 2011, Asuransi Sinar Mas had Rp.226.3 billion gross premiums from these products.

Gross premiums from its other products accounted for approximately 8.4%, 9.5%, 7.5% and 7.6% of its gross premiums in 2008, 2009 and 2010 and the nine months ended September 30, 2011, respectively.

Asia Catastrophe Pool

Asuransi Sinar Mas joined the Asia Catastrophe Pool, a supra-regional platform for catastrophe risk aggregation and management covering Asia Pacific, Australia and New Zealand, in 2009. The pool is managed by Asia Capital Re (ACR), Singapore. The pool involves participation in risk-sharing amongst Asian insurers and reinsurers, arranged through the Asia Catastrophe Pool Quota Share Retrocession Treaty, which covers catastrophe excess of loss business and natural catastrophe pro rata business written or renewed by the pool manager.

The agreement provides for a maximum underwriting limit per unit of US$500,000 (or equivalent in any other currency) in any one accumulation zone per country, per natural peril and per event and an annual aggregate loss limit per unit of US$1,000,000 (or equivalent in any other currency).

Asuransi Sinar Mas’ participation varies between three and 10 units. The premium net results after claims for Asuransi Sinar Mas’ participation since January 1, 2009 to October 20, 2011 is approximately US$239,735.4. Asuransi Sinar Mas’ participation excludes business emanating from Indonesia.

Distribution Network

Asuransi Sinar Mas distributes its non-life insurance products primarily through insurance brokers. It also sells its products through banks and other intermediaries with which it has relationships, as well as individual agents. In addition, it also sells certain insurance products directly to customers through its internet portal and a nationwide call center. Sales agents from Asuransi Sinar Mas will also refer inquiries on life insurance to life insurance agents of Sinarmas MSIG Life.

The following table shows gross premiums by type and distribution channel for the periods indicated:

2008 2009 2010 2010 2011 (Rp. in billions)

Gross Premium Income: Insurance Brokers ......................................................................................... 1,692.2 1,292.7 1,716.3 1,599.5 1,567.7 Other Intermediaries ..................................................................................... 1,362.2 1,245.6 1,314.3 689.3 1,242.8 Bancassurance............................................................................................... 75.1 76.0 83.4 65.1 75.4 Direct Sales ................................................................................................... 41.4 168.8 42.8 30.9 33.3 Agents ........................................................................................................... 58.4 89.6 102.1 60.1 68.8 Total.............................................................................................................. 3,229.3 2,872.7 3,259.0 2,444.9 2,988.0

Insurance Brokers

Asuransi Sinar Mas sells its non-life insurance products on a non-exclusive basis through insurance

brokers who generally represent the purchasers of insurance products. Asuransi Sinar Mas has arrangements with 63 insurance brokers. Asuransi Sinar Mas markets and sells most of its fire and other property insurance through insurance brokers. Gross premiums generated through insurance brokers accounted for approximately 52.7% and 52.5% of the gross premiums received by its non-life insurance operations in 2010 and for the nine months ended September 30, 2011, respectively.

Other Intermediaries

Asuransi Sinar Mas has relationships with a number of other intermediaries such as leasing companies, automobile dealerships, multifinance companies and insurance intermediaries which distribute Asuransi Sinar Mas’ products on a non-exclusive basis. Most of Asuransi Sinar Mas’ motor vehicle insurance products are sold through such intermediaries. Gross premiums generated through intermediaries accounted for approximately 40.3% and 41.6% of the gross premiums received by its non-life insurance operations in 2010 and for the nine months ended September 30, 2011, respectively.

Asuransi Sinar Mas’ marketing teams mainly function as relationship managers with the various intermediaries through which it markets and sells its products. As of Septmber 30, 2011, it had arrangements with 77 finance companies. Asuransi Sinar Mas has marketing teams to market motor vehicle insurance to leasing companies and car dealerships, who in turn will market the products.

Agents

The insurance agents that sell Asuransi Sinar Mas’ non-life insurance products include institutional insurance agents and individual insurance agents, which act on a non-exclusive basis. Insurance agents are compensated on a commission basis and also participate in a compensation scheme which provides referral incentives and profit-sharing if certain set targets are met. These insurance agents do not make underwriting decisions with respect to insurance products. As of September 30, 2011, Asuransi Sinar Mas had approximately 7,000 agents.

Asuransi Sinar Mas provides training to its agents. Each agent is required to attend basic training before starting work. Effective the beginning of 2011, all insurance agents are required to obtain agent licenses in order to sell insurance products. Asuransi Sinar Mas assists its agents by providing training and paying for the costs of the license exam. Its distribution channel management department also conducts periodic training programs to enhance the non-life insurance product knowledge of these sales agents.

Gross premiums generated through these insurance agents accounted for approximately 3.1% and 2.3% of its gross premiums in 2010 and for the nine months ended September 30, 2011, respectively.

Bancassurance

Asuransi Sinar Mas also sells its non-life insurance products through its relationship with national and regional banks. It has bancassurance arrangements with Bank Sinarmas and many other national and regional commercial banks in Indonesia for the distribution of its bancassurance products. Its products are marketed to the banks’ customers through their employees in exchange for sales commissions that Asuransi Sinar Mas pays to the bank. As of December 31, 2010, Asuransi Sinar Mas had bancassurance arrangements with 44 private and government-affiliated banks in over 25 cities across Indonesia. In 2010 and for the nine months ended September 30, 2011, gross premiums generated by its bancassurance arrangements accounted for approximately 2.6% and 2.5%, respectively, of the gross premiums received by its non-life insurance business.

Its bancassurance arrangements generally allow participating banks to sell the products of other insurance companies. However, Asuransi Sinar Mas has taken steps to encourage these entities to prioritize the sale of its insurance products over those of other insurance companies, including providing B2B computer software, entering into cooperation agreements and maintaining banking relationships with those banks.

Employees from participating banks are encouraged to attend training Asuransi Sinar Mas conducts through which these employees are trained on product features and sales techniques. Participating banks can also access Asuransi Sinar Mas’ centralized underwriting information technology system through a web-based portal, which facilitates the electronic submission of policy applications and the issuance of insurance policies at these banks and their branches.

Direct Sales

Asuransi Sinar Mas makes direct sales of its non-life insurance products primarily through its internet portal and nationwide call center. It also sells insurance products, primarily health products, to corporate customers through in-house employees.

Asuransi Sinar Mas call center provides a variety of services including policy inquiry, policy renewal, insurance claims processing, and insurance products marketing. The call center is available to serve its customers 24 hours a day, seven days a week. In 2010 and for the nine months ended September 30, 2011, gross premiums generated by its direct sales arrangements accounted for approximately 1.3% and 1.1%, respectively, of the gross premiums received by its non-life insurance business.

Cross-Selling

Asuransi Sinar Mas also receives referrals from employees and agents from other companies within the SMMA Group. For instance, Sinar MSIG Life’s agents will generally refer non-life insurance product inquiries they receive to Asuransi Sinar Mas’ agents to process or Bank Sinarmas or Sinarmas Sekuritas’ branches will generally refer customers to Asuransi Sinar Mas’ branches, which are typically located in the same building. In 2010 and for the nine months ended September 30, 2011, gross premiums generated by its cross-selling arrangements accounted for approximately 3.1% and 2.3%, respectively, of the gross premiums received by its non-life insurance business.

Customers

Most of its customers are located in Java. As of December 31, 2010, approximately 91.0% of the gross premiums received by its non-life insurance operations were attributable to customers located in Java.

The following table sets forth gross premiums by geography for the periods indicated.

For the Year Ended December 31, 2010

For the Nine Months ended September 30, 2011

Amount % of total Amount % of total (Rp. in billions, except percentages) Java............................................................ 2,936.8 90.1% 2,706.1 90.6%Bali ............................................................ 21.0 0.7% 24.5 0.8%Sumatera .................................................... 188.5 5.8% 150.2 5.0%Kalimantan................................................. 66.7 2.1% 63.1 2.1%Salawesi ..................................................... 41,8 1.3% 40.8 1.4%Irian ........................................................... 4,0 0.1% 3.5 0.1%Total .......................................................... 3,259.0 100.0% 2,988.2 100.0%

Pricing

Asuransi Sinar Mas has an underwriting committee comprising its President Director, Technical Director, Technical Financial Manager and Underwriting Manager, which determines benchmarking and general prices based on the benchmarks. It reviews and adjusts pricing based on review of competition, and benchmark based on claims experience, historical records and input from reinsurers regarding minimum pricing thresholds for them to provide reinsurance. The committee also discusses and determines reinsurance, such as in the case if treaties do not adequately cover the exposure.

Asuransi Sinar Mas prices its non-life insurance products primarily on the basis of expected losses, expenses and target margins. Pricing for its non-life insurance products is generally based upon the benchmarks set. Other than motor vehicle insurance, no set pricing is required by the government.

The pricing of its non-life insurance products that are sold to renewing policyholders is based on the same factors upon which pricing of the original products was based, as well as the claims history of the specific renewing policyholder. For certain products, if the renewing policyholder has not made any claims under the policy to be renewed, Asuransi Sinar Mas may offer a discount from the original premium paid by the renewing policyholder based on its internal discounting policy. For motor vehicle insurance, discounting is in accordance

with standards prescribed by the government. If a renewing policyholder has made a claim under the policy, Asuransi Sinar Mas may offer a lower or no discount from the original premium paid by the renewing policyholder, increase the deductible to be paid by the renewing policyholder in the event of a subsequent claim or decide not to renew the policy. Asuransi Sinar Mas also recently introduced its Sinar Mobil product, which refunds part or all of premium paid if no claims are made within the specified policy terms.

Underwriting

All underwriting decisions are made by the underwriting department. No branches, sub-branches or sales outlets have the authority to underwrite any non-life insurance policies without prior approval from the underwriting department.

Asuransi Sinar Mas’ underwriting committee establishes per policy underwriting limits which specifies the sum insured for each and conditions that need to be met for each product, which are reviewed by the underwriting committee annually or more frequently if competition dictates. To ensure that policy limits are not exceeded, Asuransi Sinar Mas has implemented a centralized underwriting information technology system that will not accept a policy for underwriting if the amount of the policy exceeds the limit of the underwriter that submitted the policy and forwards such policy application to the technical director of its underwriting department for review.

Asuransi Sinar Mas divides its underwriting into those policies entailing simple risks, which include policies for residential property insurance not to exceed Rp.5 billion, personal health, and motor insurance and those entailing complicated risks, which include residential property insurance above Rp.5 billion and commercial property insurance. For policies carrying simple risks, brokers may obtain automatic acceptance once information inputted into the centralized underwriting information technology system meets preset parameters. For policies involving complicated risks, policies must be approved by the underwriting department.

In order to be able to underwrite insurance policies, each member of its underwriting department has to attend periodic trainings and is encouraged to obtain local professional degree qualifications. In addition, its advanced information technology platform provides support to its underwriting department to ensure the quality of their work. Asuransi Sinar Mas’ advanced information technology platform also allows it to set limits for maximum underwriting and claims processing for its underwriting department. Asuransi Sinar Mas’ Audit and Compliance department also conduct random audits of its underwriting decisions.

Claims Management

Asuransi Sinar Mas manages its claims through a web-based claims portal which is accessible by service providers, including hospitals, medical providers and automobile repair shops, including auto repair shops that have partnered with Asuransi Sinar Mas, through which claims can be effectively processed and payments of claims can be made online. Asuransi Sinar Mas’ policy is to pay claims within one month of the claim application for its insurance policies.

As of September 30, 2011, Asuransi Sinar Mas has partnered with 407 repair shops nationwide, including five repair shops which are owned by SMMA. Claims made at these repair shops can be automatically processed through Asuransi Sinar Mas’ system without customers paying cash upfront and seeking reimbursement afterwards which they would normally be required to do at a non-affliated repair shop. As of September 30, 2011, approximately 59.7% of motor claims were processed through SMMA-owned shops or Asuransi Sinar Mas’ affiliated shops.

Reinsurance

Similar to other domestic insurers, Asuransi Sinar Mas relies significantly on reinsurers to manage its risks on large coverage amounts or for insurance coverage with certain risks, and ceded 55.2% and 51.6% of its gross premiums for 2010 and the nine months ended September 30, 2011, respectively, to reinsurers, the majority of which were in respect of its fire and other property insurance policies. Asuransi Sinar Mas has established long-standing relationships with reinsurers globally to effectively manage and reduce risk. It annually reviews the reinsurers on certain key criteria, including financial strength ratings, reputation and expertise. The major international reinsurers used by Asuransi Sinar Mas, and their financial strength ratings as of 2011, consist of Swiss Reinsurance Company Ltd (A+), Hannover Reinsurance Company (AA-), Munich Reinsurance Company (AA-), The Toa Reinsurance Company Ltd (A+), Best Reinsurance Company (A-) and

Taiping Reinsurance Company Ltd (A-). Asuransi Sinar Mas also works with domestic reinsurers, consisting of PT Tugu Reasuransi Indonesia, PT Maskapai Reasuransi Indonesia, PT Reasuransi Internasional Indonesia, PT Reasuransi Nasional Indonesia and LIG Insurance Indonesia, all of which are rated at least a “BBB” according to PT Pefindo Credit Rating Indonesia, as well as other international and domestic reinsurance supports.

Asuransi Sinar Mas seeks to manage its catastrophe exposure by keeping a reasonable retention relative to its capital base, and maintaining prudent reinsurance protection. In this regard, Asuransi Sinar Mas works with its brokers and principal reinsurers, Swiss Reinsurance Company Ltd. and Munich Reinsurance Company, to provide appropriate expertise and support, although they do not assist with pricing of Asuransi Sinar Mas’ products. Asuransi Sinar Mas also works with four domestic reinsurers for its catastrophe exposure, who accounted for less than 5% each of the total gross premium ceded to reinsurers for the nine months ended September 30, 2011. The company uses various modeling tools at the 99.8% confidence level (1-in-500-year catastrophe loss event) to determine reinsurance protection.

Reserves

Asuransi Sinar Mas maintains reserves to provide for the payment of claims arising from its insurance policies in accordance with reserve requirements set forth by the Ministry of Finance. For more information on Asuransi Sinar Mas’ reserves, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Asuransi Sinar Mas—Reserves and Deferred Premium Income” and Note 29 to our consolidated financial statements.

Solvency

Solvency risk is a measure of the risk that a company is unable to meet its risk based capital. In managing these risks, a company maintains its assets quality such that such assets can be categorized as admitted assets. A risk-based capital system is an important financial regulatory measurement for the domestic insurance industry. Asuransi Sinar Mas is required by the Ministry of Finance to a minimum solvency ratio of 120% of the required RBC Asuransi Sinar Mas is affected primarily by the solvency margins it is required to maintain, which is in turn affected by the volume and type of new insurance policies it sells, the composition of its in-force insurance policies and by regulations on the determination of statutory reserves. As of December 31, 2010 and September 30, 2011, Asuransi Sinar Mas had solvency ratios of 337.8% and 304.2%, respectively.

For more information on Asuransi Sinar Mas’ solvency ratios, see “Management’s Discussion and Analysis of Financial Condition and Results of operations―Capital Management―Capital Adequacy”.

Investments

The carrying value of Asuransi Sinar Mas’ total investment portfolio was Rp.2,622.3 billion as of September 30, 2011. Asuransi Sinar Mas invests premiums and other income generated from its insurance business with an objective of meeting the future liabilities associated with the insurance products that it underwrites, as well as to generate investments returns for its business.

Investment Management

Asuransi Sinar Mas has an investment management committee which is responsible for implementing and executing its investment policy and internal controls. It establishes the overall asset allocation strategy, mid-to-long term investment strategy and risk limits. The committee includes the head of the investment department, the chief financial officer and President Director of Asuransi Sinar Mas. The committee meets weekly and conducts reviews of investment-related operations and monitors the regulatory restrictions, market opportunities for, and returns on, various types of investments as well as market and counterparty risks.

Asuransi Sinar Mas also has an investment team which is responsible for the day-to-day implementation of its asset allocation and investment strategies. The activities of the investment team are led and supervised by its technical director. The investment team has discretion to decide on equity investment of up to Rp.5 billion. All equity investments above Rp.5 billion and all other investments, including fixed income investments, require the investment management committee’s approval.

Asuransi Sinar Mas strives to adhere to prudent risk control in its investment management and has established investment management procedures and guidelines on specified thresholds and specified

investments. Asuransi Sinar Mas has also established a series of policies and procedures relating to its investment risk management and internal control, as well as compliance review in connection with investment decisions. The compliance and risk management team of its asset management unit is responsible for risk identification, assessment, management and control, using both quantitative and qualitative measures, relating to risks such as counterparty risk, market risk, credit risk, interest rate risk, foreign exchange risk, liquidity risk, operational risk and compliance risk within its asset management operations and monitoring investments to ensure they are in line with risk management policies.

It performs post-transaction audits on the investments and notifies the Investment Committee of any breaches. Investment management procedure is set in accordance with the Ministry of Finance’s regulation. For additional information on its risk management, see “Risk Management—Insurance Risk Management”.

Investment Policy and Internal Controls

Asuransi Sinar Mas seeks to optimize the returns of its investment portfolio and at the same time limit its overall risk exposure to an acceptable level taking into consideration the following factors: liquidity, time horizon, applicable regulations and tax considerations. Asuransi Sinar Mas has adopted a specific investment policy which complies with applicable insurance regulations and implemented internal controls to achieve this objective. Its investment policy and internal controls, as well as the performance of its investment portfolio, are reviewed and amended by its investment committee to the extent appropriate on an ongoing basis. See also “—Risk Management”.

Asuransi Sinar Mas’ investments are managed with the objective of ensuring compliance with Ministry of Finance regulations and to achieve Asuransi Sinar Mas’ investment targets. Its investments consist of time deposits, mutual funds, stocks, bonds, direct equity, properties and mortgages. Its fund allocation limits of total portfolio are set according to risk and return balance, operations of the business and market conditions. Asuransi Sinar Mas is not prohibited from investing in any asset class. Asuransi Sinar Mas’ current investment policy, which is reviewed and adjusted periodically as necessary, prescribes the following guidelines on investments in a particular company:

• investments in the shares of any Indonesian legal entity may not exceed 20% of the value of the issuer;

• investments in the shares of any foreign issuer may not exceed 10% of total investments;

• investments in bonds of any Indonesian legal entity may not exceed 20% of the value of the issuer;

• investments in bonds of any foreign issuer may not exceed 10% of total investments;

• investment in any one mutual fund may not exceed 20% of mutual fund; and

• investment in any one building or real estate may not exceed 20% of total investments.

In addition, Asuransi Sinar Mas’ investment policy also prescribes the following guidelines on allocations of investments for each asset class:

• time deposits can comprise between 30% to 100% of total investments;

• mutual funds can comprise between 0% to 70% of total investments;

• bonds can comprise between 0% to 25% of total investments; and

• stocks can comprise between 0% and 35% of total investments.

If Asuransi Sinar Mas exceeds investments prescribed by regulations, any such “excess” amounts of investments are not counted as admitted assets for purposes of Asuransi Sinar Mas’ solvency ratio.

Asuransi Sinar Mas’ investment policy also provides limits on investment in a particular company. Its investment policy prescribes limits as to the maximum investment on equity for domestic and for foreign companies, and provides that no more than 20% (or 10% if a foreign issuer) of total investments may be invested in any one company, no more than 20% of total investments may be invested in mutual funds, buildings, real estate or bonds of domestic companies (10% if a foreign issuer) and other assets.

Investment Portfolio

Asuransi Sinar Mas aims for a conservative and liquid investment mix denominated mostly in Rupiah. Mutual fund investments comprise mainly fixed-income instruments. Equities targeted are blue-chip stocks listed on the IDX, with solid fundamentals and liquidity. For bond investments, the minimum credit quality is an “A” rating on the national scale. Bonds below this rating will be considered and approved on a case-by-case basis and will not count as admitted assets for purposes of calculating Asuransi Sinar Mas’ solvency ratio. Asuransi Sinar Mas had total investments of Rp.2,224.7 billion as of December 31, 2010. As of December 31, 2010, time deposits, mutual funds, marketable securities (equity and debt) accounted for approximately 22.3%, 51.8%, 24.3% and 96.3%, respectively, of its total investment assets.

The table below shows a breakdown of its investment portfolio for the periods indicated.

Rp. Rp. Rp. US$ Rp. Rp. US$ (Rp. in billions, US$ in millions) Investments in:

Time deposits............................................................... 206.3 334.3 476.6 54.0 584.8 670.9 76.0 Statutory deposits......................................................... - - 20.0 2.3 - - - Marketable securities ................................................... 129.8 40.8 522.1 59.2 392.8 892.9 101.2

Fixed income........................................................... 39.0 21.8 23.1 2.6 23.2 28.6 3.2 Equity ...................................................................... 90.8 19.0 499.0 56.8 369.6 864.3 98.0

Statutory marketable securities.................................... 9.6 16.9 19.2 2.2 19.3 26.0 3.0 Mutual funds................................................................ 751.7 1,090.6 1,152.5 130.6 1,051.1 978.1 110.9 Investments in shares of stocks(1) ................................ 17.7 19.9 22.3 2.5 21.4 39.7 4.5 Investment properties .................................................. 35.9 7.5 6.9 0.8 7.1 6.5 0.7 Mortgage loans ............................................................ 4.4 5.9 5.1 0.6 5.1 8.2 0.9

Total investments .................................................... 1,155.4 1,515.9 2,224.7 252.2 2,081.6 2,622.3 297.2 ______________________

(1) Investments in shares of stock refer to Asuransi Sinar Mas’ investments in its affiliates.

Mutual Funds

Its funds portfolio principally consists of mutual funds managed by other fund managers and also funds which Asuransi Sinar Mas manages, and mostly include fixed income mutual funds. Securities invested by the RDPT funds are all held in custody with Bank Mega pursuant to custody agreements with each investment manager, which provide Asuransi Sinar Mas with the right to take back the securities in the event of any disagreement with the investment manager. Mutual funds constitute the largest asset class in its investments, representing 65.1%, 71.9%, 51.8% and 37.3% of the carrying value of total investments as of December 2008, 2009, 2010 and September 30, 2011, respectively. As of December 31, 2008, 2009 and 2010 and September 30, 2011, 0.0% 20.5%, 38.3%, and 46.5% of mutual fund investments were with RDPT funds.

The table below shows a breakdown of its mutual funds portfolio for the periods indicated.

Rp. Rp. Rp. US$ Rp. Rp. US$ (Rp. in billions, US$ in millions) Mutual funds managed by third parties(1) .......................... 591.8 835.9 870.4 98.7 752.4 963.8 109.2 Mutual funds managed by related parties .......................... 159.8 254.7 282.1 32.0 298.7 14.3 1.6 Total investment in mutual funds....................................... 751.7 1,090.6 1,152.5 130.7 1,051.1 978.1 110.8 ______________________

As of December 31, 2010 and September 30, 2011 Asuransi Sinar Mas’ investments in mutual funds managed by third parties accounted for 75.5% and 98.5%, respectively, of its total investments in mutual funds.

Its investments in mutual funds managed by related parties, namely Sinarmas Sekuritas, accounted for 24.5% and 1.5% of its total investments in mutual funds as of December 31, 2010 and September 30, 2011, respectively. As of December 31, 2010, its two largest fund investments, in Si Dana Batavia Terbatas Optimal and Maestro Flexi II, represented 31.3% and 27.1% of its total investments in mutual funds, respectively. As of September 30, 2011, its two largest fund investments, in Maestro Flexi II and Si Dana Batavia Terbatas Optimal, represented 39.6% and 28.0% of its total investments in mutual funds, respectively.

The underlying investments of Asuransi Sinar Mas’ mutual funds portfolio consist of fixed income investments, both corporate and government bonds, equity securities of both domestic and foreign issuers and are both investment grade and non-investment grade securities. The table below shows a breakdown of the underlying investments in the RDPT funds in which Asuransi Sinar Mas invested on an aggregate basis for the periods indicated. Asuransi Sinar Mas did not invest in any RDPT funds in 2008.

As of December 31, As of September 30, 2008(1) 2009 2010 2010 2010 2011 2011

Rp. Rp. Rp. US$ Rp. Rp. US$ (Rp. in billions, US$ in millions) Fixed income: Government bonds .......................................................... - 141.4 165.6 18.8 160.3 162.4 18.4 Corporate bonds .............................................................. - 69.5 261.9 29.7 55.2 258.5 29.3 Bonds of related parties................................................... - - - - - - - Total................................................................................. - 210.9 427.5 48.5 215.5 420.9 47.7 Equity: Domestic.......................................................................... - 4.7 3.1 0.4 5.1 10.0 1.1 Foreign............................................................................. - - - - - - - Equity of related parties .................................................. - - - - - - - Total................................................................................. - 4.7 3.1 0.4 5.1 10.0 1.1 Cash and cash equivalents............................................... - 8.3 10.7 1.2 4.8 23.9 2.7 Total ................................................................................... - 223.9 441.3 50.1 225.4 454.8 51.5 ______________________

(1) Asuransi Sinar Mas did not invest in any RDPT funds in 2008.

The table below shows a breakdown of the underlying investments in the RDPT funds in which Asuransi Sinar Mas invested on an aggregate basis by industry for the periods indicated.

As of December 31, As of September 30, 2008(1) 2009 2010 2010 2010 2011 2011

Rp. Rp. Rp. US$ Rp. Rp. US$ (Rp. in billions, US$ in millions) Financial ............................................................................. - 193.3 81.8 9.3 203.9 358.0 40.6 Banking .............................................................................. - - 303.5 34.4 - - - Infrastructure ...................................................................... - 3.0 17.6 2.0 3.1 24.2 2.7 Property .............................................................................. - 14.6 24.6 2.8 10.5 29.4 3.3 Mining ................................................................................ - 4.7 2.3 0.3 - 13.9 1.6 Consumer............................................................................ - - 0.8 0.1 - 5.4 0.6 Other(2) ................................................................................ - 8.3 10.7 1.2 7.9 23.9 2.7

Total ................................................................................ - 223.9 441.3 50.1 225.4 454.8 51.5 ______________________

(2) Comprises investments in time deposits with banks.

The following tables show the breakdown of Asuransi Sinar Mas’ underlying government bond holdings in the RDPT funds in which Asuransi Sinar Mas invested on an aggregate basis, all of which were Indonesian government bonds, by credit rating for the periods indicated. 0.0%, 67.0%, 38.7% and 38.6% of our total fixed income holdings in the RDPT funds were rated ‘A’ or higher as of December 31, 2008, 2009 and 2010 and September 30, 2011, respectively. We use PT Pefindo Credit Rating Indonesia’s credit ratings.

As of December 31, As of September 30, 2008(1) 2009 2010 2011 Investments % Investments % Investments % Investments % (Rp. in billions, except percentages) Government bonds: AAA .............................. - - 141.4 100.0 165.6 100.0 162.4 100.0

Total ........................... -

162.4 100.0

______________________

The following table shows the breakdown of Asuransi Sinar Mas’ underlying corporate bond holdings in the RDPT funds in which Asuransi Sinar Mas invested on an aggregate basis by credit rating for the periods indicated. 78.7%, 79.5% and 53.7% of our total RDPT fixed income holdings were rated ‘A’ or higher as of December 31, 2009 and 2010 and September 30, 2011, respectively. We use PT Pefindo Credit Rating Indonesia’s ratings.

As of December 31, As of September 30, 2008(1) 2009 2010 2011 Investments % Investments % Investments % Investments % (Rp. in billions, except percentages) Corporate bonds: AAA .............................. - - - - - - - - AA+ ............................... - - - - 12.6 4.8 39.4 15.3 AA ................................. - - 3.2 4.6 9.0 3.4 41.1 15.9 AA- ................................ - - 51.5 74.1 73.1 27.9 38.3 14.8 A+.................................. - - - - - - 3.2 1.2 A .................................. - - - - 113.4 43.3 17.1 6.6 A- .................................. - - - - 28.7 11.0 104.5 40.4 BBB+............................. - - 3.4 4.8 14.1 5.4 2.1 0.8 BBB ............................... - - 11.4 16.5 10.9 4.2 12.8 5.0

Total ........................... - -

261.9 100.0

258.5 100.0

______________________

The RDPT funds in which Asuransi Sinar Mas invests also invest in equity securities. As of December 31, 2008, 2009 and 2010 and September 30, 2011, 0.0%, 2.1%, 0.7% and 2.2%, respectively, of investments of Asuransi Sinar Mas’ in the RDPT funds in which Sinarmas MSIG Life invested on an aggregate basis were in equity securities, all of which were in equities of LQ-45 companies.

As of September 30, 2011, the largest equity holding of the RDPT funds in which Asuransi Sinar Mas invested on an aggregate basis accounted for approximately 1.1% of investments in RPDT funds and 0.3% of total investments as of such date.

As of September 30, 2011, the five largest fixed income holdings of the RDPT funds in which Asuransi Sinar Mas invested on an aggregate basis and their respective credit ratings by PT Pefindo Credit Rating Indonesia were Indonesian government bond FR0034 (“AAA”), Indonesian government bond FR0036 (“AAA”), Subordinate CIMB Niaga Bank II 2010 (“AA”), Summit Oto Finance III C 2009 (“AA-”) and Subordinate BCA Finance 2010 (“AA”), which accounted for 12.4%, 12.8%, 6.6%, 4.1% and 2.3%, respectively, of investments in RPDT funds and 2.1%, 2.1%, 1.1%, 0.7% and 0.4%, respectively, of total investments as of such date.

Marketable Securities

Asuransi Sinar Mas allocates a portion of its investments to marketable securities, which include

equities and bonds. Asuransi Sinar Mas also holds a sizeable portfolio of government bonds and other government commercial paper (“statutory marketable securities”) as required pursuant to Ministry of Finance regulations to maintain a guarantee fund which is the higher of 20% of the required paid-up capital plus 1% of net premium and 0.25% of reassurance premium. Marketable securities and statutory marketable securities represented 11.2% and 0.8%, 2.7% and 1.1%, 23.5% and 0.9%, and 34.1% and 1.0% of the carrying value of its investments as of December 31, 2008, 2009 and 2010 and September 30, 2011, respectively.

The table below sets forth a breakdown of Asuransi Sinar Mas’ investment in marketable securities as of the dates indicated.

As of December 31, As of September 30, 2008 2009 2010 2011 Rp. % Rp. % Rp. US$ % Rp. US$ %

(Rp. in billions, US$ in millions, except percentages) Marketable securities Fixed income: Government bonds .......... 10.0 7.7 1.1 2.7 1.2 0.1 0.2 1.1 0.1 0.1 Corporate bonds .............. 29.0 22.3 20.7 50.7 21.9 2.5 4.2 27.5 3.1 3.1 Bonds of related parties... - - - - - - - - - - Subtotal............................ 39.0 30.0 21.8 53.4 23.1 2.6 4.4 28.6 3.2 3.2 Equity: Domestic.......................... 90.8 70.0 19.0 46.6 499.0 56.6 95.6 864.3 98.0 96.8 Foreign............................. - - - - - - - - - - Equity of related parties .. - - - - - - - - - - Subtotal............................ 90.8 70.0 19.0 46.6 499.0 56.6 95.6 864.3 98.0 96.8 Total 129.8 100.0 40.8 100.0 522.1 59.2 100.0 892.9 101.2 100.0

As of December 31, 2009, Asuransi Sinar Mas held Rp.40.8 billion in marketable securities, of which Rp.38.8 billion (2.6%) was held in debt securities and Rp.19.1 billion (1.3%) was held in equity. As of December 31, 2010, Asuransi Sinar Mas held Rp.541.3 billion (US$61.3 million) in marketable securities, of which Rp.42.3 billion (US$4.8 million) (0.4%) was held in debt securities and Rp.499.0 billion (US$56.6 million) (92.2%) was held in equity. The gain in marketable securities reflected both increases in the value of the existing portfolio held as well as purchases of additional securities. As of September 30, 2011, Asuransi Sinar Mas held Rp.918.9 billion (US$104.1 million) in marketable securities, of which Rp.54.6 (US$6.2 million) (5.9%) in bonds and Rp.864.3 (US$98.0 million) (33.0%) in equity.

Investments in Affiliates

Asuransi Sinar Mas also invests a portion of its portfolio in shares of its affiliates for strategic purposes. Investments in Shares of Stock represented 1.5% and 1.3%, 1.0% and 1.5% of the carrying value of its investments as of December 31, 2008, 2009 and 2010 and September 30, 2011, respectively. For the years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, Asuransi Sinar Mas’ investment in shares consists principally of its investment in PT LIG Insurance, a joint venture company, of which it owns 30%, with LIG Insurance Co. Ltd. Korea, representing 90.3%, 80.9%, 76.5% and 86.8% of investment in shares of stock, respectively.

Time Deposits and Cash and Cash Equivalents

Its time deposits and cash and cash equivalents constituted 17.9%, 22.1%, 22.3% and 26.8% of the carrying value of total Investments as of December 2008, 2009, 2010 and September 30, 2011, respectively.

Risk Management

Risk Management Structure

Asuransi Sinar Mas’ risk management policy is devised and implemented by its risk management committee, comprising its President Director, Risk Management Director and heads of its various departments such as investment, marketing, legal, reinsurance, finance, information technology, underwriting and claims department. The committee is responsible for identifying potential risks that may impede Asuransi Sinar Mas’ objectives, establishing risk priority policies, establishing risk mitigation plan for any foreseeable risks, reviewing effectiveness of the risk management plan and coordinating mechanisms to gather relevant information and to effectively communicate risk management measures to all department. The risk management

committee meets bi-weekly, whereas the President Director and Risk Management Director meet weekly. Asuransi Sinar Mas has also implemented an enterprise risk management scheme whereas each department is required to record any identified risks on a daily basis to be reviewed by the risk management committees, and occasionally, the board of directors.

Risk Management Policy

As a company which bears risk transfer, Asuransi Sinar Mas applies risk management procedures, runs its operational activities prudently and considers various factors to minimize risk and prevent potential loss. Asuransi Sinar Mas considers the following to be its principal risk exposures:

Insurance risk. Asuransi Sinar Mas considers non-life insurance risk to be a combination of the following component risks: (i) inadequate or inappropriate product design; (ii) inappropriate underwriting or pricing of policies; and (iii) variability of claims experience. It manages its exposure to insurance risk in several ways. It has underwriting and actuarial personnel resources and have implemented underwriting and actuarial guidelines and practices. It has accumulated volume of experience and data which assists in the evaluation, pricing and underwriting of its products.

• Product design risk. Product design risk refers to potential defects in the development of a particular insurance product. Asuransi Sinar Mas’ product development process is overseen by its underwriting committee which provides direction on pricing guidelines, as well as a separate committee, the product development committee. It seeks to manage this risk by completing pre-launch reviews of a new product by underwriting, reinsurance, and claims departments. It monitors the performance of its new products and focus on managing each part of the actuarial control cycle to minimize risk in both in-force and new products.

• Pricing and underwriting risk. Pricing and underwriting risk refer to the possibility of product related income being inadequate to support future obligations arising from a product. Asuransi Sinar Mas seeks to manage pricing and underwriting risk by adhering to its underwriting guidelines, as well as monitoring and reviewing the pricing of its products. It maintains a team of professional underwriters who review and select risks that are consistent with the risk appetite and its underwriting strategy. In certain circumstances, such as when it enters new lines of business, product or markets and do not have sufficient experience data, it uses reinsurance to obtain product pricing expertise. The use of reinsurance subjects Asuransi Sinar Mas to the risk that our reinsurers become insolvent or fail to make any payment when due.

• Claims risk. Claims risk refers to the possibility that the frequency or severity of claims arising from insurance products exceed the levels assumed when the products were priced. Claims risk also includes risk related to the possibility of significant financial losses arising from a lack of diversification, either geographical or by product type, of the risk insured. Asuransi Sinar Mas seeks to mitigate claims risk by conducting regular experience studies, reviewing internal and external historical claim data and considering the impact of such information on reinsurance needs and product design and pricing. It also seeks to mitigate claims risk by adhering to its underwriting and claims management policies and procedures.

Financial risk. Financial risk in Asuransi Sinar Mas includes counterparty risk, credit risk, interest rate risk, foreign exchange rate risk, liquidity risk, investment risk and equity risk.

• Counterparty risk arising from fraud or misconduct. To manage counterparty risk arising from fraud or misconduct, Asuransi Sinar Mas screens investment managers before placing funds in mutual fund instruments. Asuransi Sinar Mas’ screening process considers factors such as whether the investment manager has good moral standing, a good track record and experience in its field. Asuransi Sinar Mas also makes routine verifications on its portfolios which are kept with a securities depositary that is provided by KSEI.

• Credit risk. Credit risk arises from the possibility of financial loss arising from default by borrowers and transactional counterparties and the decrease in value of financial instruments due to deterioration in credit quality. The key areas where Asuransi Sinar Mas is exposed to credit risk include repayment risk in respect of investments in debt securities, mortgage loans

and receivables (including insurance and reinsurance receivables). To manage this risk, Asuransi Sinar Mas acquires bonds with a minimum rating of ‘A-’on the national scale and performs fundamental analyses on the business prospects, management and financial performance of the bond and the issuing company.

• Interest rate risk. Asuransi Sinar Mas’ exposure to interest rate risk predominantly arises from investments in long-term fixed income debt securities, which are exposed to fluctuations in interest rates. To anticipate interest rate risk, Asuransi Sinar Mas adjusts its investment strategy in accordance with macroeconomic indicators. Asuransi Sinar Mas uses data from the Draft of State Revenue and Expenditure Budget (Rancangan Anggaran Pendapatan dan Belanja Negara) (“RAPBN”) as an indicator of future macroeconomic policy to manage interest rate risk and its impact on the investment portfolio.

• Foreign exchange risk. Exchange rate risk may occur as a result of changes in exchange rate between Indonesian Rupiah and other currencies. Asuransi Sinar Mas receives claim reimbursements from overseas reinsurance companies in foreign currencies and also makes overseas payments of reinsurance premiums in foreign currencies. Exchange rate fluctuations can therefore lead to a decrease in net income, and therefore Asuransi Sinar Mas routinely analyzes currency forecasts and market conditions.

• Liquidity risk. Liquidity risk may arise where Asuransi Sinar Mas does not have available funds for operational activities, payment of claims and reinsurance premiums, as well as other obligations when they become due. Payment of liabilities in a timely manner is an important factor to ensure that Asuransi Sinar Mas maintains its reputation. For liquidity risk management, Asuransi Sinar Mas' management monitors the required cash and cash equivalents required to fund the company’s liabilities and operations. The management team also carries out a cash flow projection and manages premium receivables.

• Investment risk. Investment risk is related to insurance premium fund placements in investment instruments and arises from the possibility of financial loss caused by changes in financial instruments' fair values or future cash flows due to fluctuations in market conditions. When carrying out investment risk management, Asuransi Sinar Mas is guided by, and must comply with the restrictions of, the Ministry of Finance regulations regarding the financial performance of insurance and reinsurance companies.

• Equity risk. Equity risk arises from changes in the market value of equity securities and equity held in mutual funds, often as a result of stock price fluctuations on a stock exchange. Equity risk is managed by placing investments in blue-chip stocks and diversifying stock holdings by sector. Asuransi Sinar Mas performs fundamental and technical analyses on its investments in stock.

• Operational risk. Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, personnel and systems or from external events. The primary tool to manage operational risk is Asuransi Sinar Mas’ enterprise risk management scheme, whereas each department is required to record any identified risks on a daily basis to be reviewed by the risk management committees, and occasionally, the board of directors. The objective of the enterprise risk management scheme is to identify, evaluate, measure and monitor operational risks.

Credit Rating

Measures of financial strength are an important factor affecting public confidence in its insurance products and, as a result, its competitiveness. One measure of its financial strength is its financial strength rating. In 2010, Asuransi Sinar Mas was assigned a financial strength rating of “AA+” ( (idn) Insurer Financial Strength (IFS) rating with stable outlook) by Fitch Ratings, which was affirmed in 2011.

Information Technology

Asuransi Sinar Mas’ information technology system provides integration of front end and back end

processes. Asuransi Sinar Mas provides its business partners, such as leasing companies, banks and brokers, with a “B2B” device which provides a web-based portal, connecting the central system with business partners. Asuransi Sinar Mas also provides its agents with access to its e-claims web-based portal, which enables them to issue insurance policies and quotes and process the commission payment on site at any time and to manage their insurance portfolios and its marketing staff with access to its e-marketing web-based portal, which enables them to upload market data into the central system at any time. In addition, Asuransi Sinar Mas has implemented an application which allows customers to purchase policies and make claims online. Asuransi Sinar Mas can also process claim requests and payments directly to service providers through its web-based portal. In addition, Asuransi Sinar Mas recently introduced a data-mining application by which management is able to obtain real-time data regarding information on policies and customers throughout its branch network.

Competition

Asuransi Sinar Mas faces competition in its non-life insurance business. Competition depends on the product line. Competition in the insurance industry is based on many factors, including price, sales force strength and abilities, product design features, customer service, claims services, reputation, perceived financial strength and the experience of the insurance company in the line of insurance to be written. Asuransi Sinar Mas also competes with other insurance companies and financial institutions to attract and retain experienced personnel.

Its primary competitors are domestic and foreign-invested property and casualty insurance companies. Some of these companies may have greater financial, management and other resources than Asuransi Sinar Mas does, and may have longer and more extensive operating experience than Asuransi Sinar Mas. Furthermore, these companies may be able to offer a broader range of products and services and may have a stronger capital base than that of Asuransi Sinar Mas. In addition, some of its domestic competitors have benefited from more extensive distribution networks than Asuransi Sinar Mas. Asuransi Sinar Mas also faces potential competition in Indonesia from commercial banks, which may be able to invest in, or form alliances with, existing insurance companies to offer insurance products and services that compete against Asuransi Sinar Mas, or establish subsidiaries of their own to engage in the insurance business directly. We believe that Asuransi Sinar Mas’ relationships with over 20 commercial banks, including Bank Sinarmas, provides it with a competitive edge by allowing it to leverage their distribution networks to offer its insurance products and services.

For motor vehicle insurance, our primary competitors are Asuransi Central Asia and Asuransi Jaya Proteksi.

The presence of foreign insurance companies in the Indonesian market has continued to increase in recent years, and their business activities have continued to expand as the industry becomes more open to foreign competition. Some new foreign entrants may be able to commence operations rapidly by forming alliances and joint ventures with other Indonesian insurance companies and by employing products and skills developed in their home markets, mostly for property insurance products.

We also face competition from life insurance companies with respect to our health insurance products, such as Aviva, Lippo, Allianz and Manulife. Asuransi Sinar Mas’ market share in the Indonesian property and casualty insurance market, in terms of gross premiums, based on financial data published by the General Insurance Association of Indonesia, was 12.0%, 10.0% and 11. 4% in 2008, 2009 and 2010, respectively.

Joint Venture - LIG Insurance

LIG Insurance is a general insurance company which was established in 1997 as a joint venture company with 70% ownership by LIG Insurance Co. Ltd. Korea and 30% by Asuransi Sinar Mas. For the year ended December 31, 2010, net profit amounted to Rp.3.2 billion and Rp.1.0 billion was attributable to Asuransi Sinar Mas. As of December 31, 2010, total assets of LIG Insurance was Rp.116.4 billion. In 2010, approximately 43.7% of the total premium received was attributable to sales of motor vehicle insurance products and about 37.2% was attributable to sales of fire and general casualty insurance products. In 2010, LIG Insurance generated approximately 55% of its sales through its agency force and 22% through its brokerage relationships.

LIG Insurance’s main business is the provision of various general insurance products such as fire and general casualty insurance, motor vehicle insurance, marine and cargo insurance, liability insurance and engineering insurance, mainly to Korean customers in Indonesia. LIG insurance maintains a panel of reinsurers

which includes Everest Reinsurance Company, LIG Insurance Co. Ltd. Korea, and Asia Capital Reinsurance Group Pte. Ltd. As of December 31, 2010, LIG Insurance operates five branches in Jakarta and its surrounding areas and employs 137 employees.

Real Property

As of September 30, 2011, Asuransi Sinar Mas owned 67 properties comprising a total gross floor area of approximately 40,284 square meters with a net book value of Rp.134,420 million, most of which it uses for its branches and outlets. As of September 30, 2011, Asuransi Sinar Mas also leased 14 properties comprising a total gross floor area of approximately 3,617 square meters, 14 of which are leased from related parties.

Asuransi Sinar Mas owns the trademark for its name as well as the trademarks for a number of its products, including “SIMAS MOBIL”, “SIMAS MEDICARE” and “SIMAS RUMAH”.

Employees

As of September 30, 2011, Asuransi Sinar Mas had approximately 1,777 employees. The table below sets forth the number of employees by function as of same date.

Function Number of Employees Management 5 Marketing 373 Operational 1,324 Underwriting Experts 25 Qualified Insurance Practitioners 50

Insurance

Asuransi Sinar Mas maintains property all risk insurance coverage for its real properties and insurance coverage against earthquakes underwritten by itself and which it cedes to reinsurers. We believe that Asuransi Sinar Mas’ insurance coverage is similar in scope to those customary for non-life insurance businesses in Indonesia.

Legal Proceedings

From time to time Asuransi Sinar Mas may be involved in legal proceedings concerning matters that arise in the ordinary course of its business operations. We are not aware of any potential litigation, arbitration or administrative proceeding against Asuransi Sinar Mas which might materially affect its business, financial condition or results of operations.

Banking – Bank Sinarmas

Overview

Bank Sinarmas, formerly known as PT Bank Shinta Indonesia and established in 1989, is a commercial bank with a focus on commercial and consumer finance, including lending to civil servants and small and medium size enterprises (“SMEs”) and micro businesses. As of September 30, 2011, Bank Sinarmas had a total of 139 offices, consisting of 56 branches, 72 sub-branches, one Sharia branch, nine cash outlets and one Sharia cash outlet, total assets of Rp.15,668.1 billion (US$1,775.8 million) and over 500,000 customer deposit accounts amounting to Rp.13,831.0 billion (US$1,567.6 million).

Initially focused on financing small, medium and micro entities, Bank Sinarmas has shifted its focus to corporate, commercial and consumer financing. It also offers a wide range of retail banking products such as car loans and short term loans. In addition, it provides financial management services, including money market transactions, foreign currency exchanges and spot transactions.

On the commercial side, Bank Sinarmas focuses on direct loans to micro banks, SMEs, and multifinance companies. Bank Sinarmas continues to concentrate its activities on developing its relationship with local and overseas correspondent banks and constructing and maintaining a required network among treasury, remittance and international banking. Bank Sinarmas also holds a foreign exchange license.

Bank Sinarmas cross-sells its banking products with SMMA’s insurance and multifinance products and services.

As of December 31, 2010 and September 30, 2011, Bank Sinarmas’ capital adequacy ratio was 14.1% and 14.2%, respectively, as calculated in accordance with Bank Indonesia regulations.

Bank Sinarmas listed its shares on the IDX on December 13, 2010. As of December 31, 2011, it had a market capitalization of Rp.2,451.3 billion (US$277.8 million). As of December 31, 2011, we directly held 56.48% of Bank Sinarmas.

In December 2011, Bank Sinarmas was assigned a financial rating strength rating of [idr]A- with a stable outlook by ICRA Indonesia.

We intend to further develop our banking business and implement our overall strategy with respect to our banking operations by adopting the following business initiatives:

• Enhance customer reach, deposit gathering and cross-selling capability through aggressive expansion of branches and development of its retail and commercial customer base. This forms the core of not only the bank’s strategy but also that of SMMA. As the distribution network of Bank Sinarmas grows, the other SMMA subsidiaries are also expected to leverage on this growth with increased number of “one-stop” locations and more branch officers to help sell their products, particularly life insurance. In addition, we aim to build out the Bank’s alternative distribution channels in the form of internet banking, call centers, mobile banking, ATMs and other channels.

• Broaden the bank’s SME customer base through strategic partnerships with local banks, rural cooperatives and multifinance companies. We believe that this segment offers significant untapped profit potential given the relatively lower level of competition, higher margins and reasonable credit costs.

• Grow the Bank’s fee based business by providing comprehensive products and services including remittance, supply chain financing, payroll and bill payment systems.

• Incorporate Bank Sinarmas’ risks management system to be in line with the Principles of Prudential Banking and Good Corporate Governance.

• Enhance the quality of its information technology and human resources with the aim of providing better services to customers.

As of September 30, 2011, Bank Sinarmas had 139 offices, consisting of 56 branches, 72 sub-branches, one Sharia branch, nine cash outlets and one Sharia cash outlet in 60 cities and in almost all provinces in Indonesia. Bank Sinarmas recently expanded its branch office network to get closer to customers, including SMEs. Bank Sinarmas focuses on the opening of new branch offices in areas with economic potential and growth opportunities. New office openings have driven growth in commercial and corporate loans and also growth in consumer loans in cooperation with multifinance companies and other business partners, representing Rp.2,500.3 billion (US$283.4 million) in new loans for the nine months ended September 30, 2011.

Lending

Bank Sinarmas offers loans to corporate, commercial and retail customers, including individual customers. Outstanding loans amounted to Rp.6,934 billion (US$785.9 million) as of December 31, 2010 and Rp.9,066.5 billion (US$1,027.6 million) as of September 30, 2011. As of September 30, 2011, Bank Sinarmas

had 235,800 lending accounts. Predominantly all of Bank Sinarmas’ loans are secured. For the years ended December 31, 2008, 2009, 2010 and September 30, 2011, approximately 2.3%, 1.4%, 3.2% and 5.9% of total loans, respectively, were unsecured, consisting principally of individual consumer loans.

The following table sets forth a breakdown of Bank Sinarmas’ loans by corporate, commercial and retail and individual customer borrowers.

As of December 31, As of September 30, 2008 2009 2010 2010 2011 (Rp. in billions) Corporate .......................................................... 183.2 714.6 1,101.2 1,070.8 1,806.4 Commercial and Retail ..................................... 38.3 56.3 1,298.1 1,320.8 1,369.6 Consumer.......................................................... 4,059.9 4,643.0 4,612.6 3,812.7 5,987.8 Total ................................................................. 4,281.4 5,413.9 7,011.8 6,204.3 9,163.7

As of September 30, 2011, the Bank had 12 corporate customers, more than 25,000 commercial and retail customers and more than 100,000 consumer customers.

Corporate Lending

Bank Sinarmas provides large corporate banking customers, which are corporate customers with Rp.50.0 billion or more in loans, with a range of financing products, including loan facilities such as working capital loans, investment loans and non-cash credit facilities such as bank guarantees and letters of credit. The maximum amount that it lends to corporate banking customers is generally Rp.200.0 billion for individual corporate customers and Rp.250.0 billion for corporate groups. As of September 30, 2011, Bank Sinarmas had 20 lending accounts with 12 corporate banking customers, including related parties. See “—Related Party Funding Arrangements”.

Bank Sinarmas provides Rupiah- and U.S. dollar-denominated loans with maturities of typically one to five years with the ability to roll the loan forward upon mutual agreement. These loans have fixed as well as variable rates. Most of Bank Sinarmas’ loans are bilateral loans in which it is the sole lender. However, it also provides syndicated Rupiah- and U.S. dollar working capital and investment loans. As of September 30, 2011, the Bank’s working capital loans to corporate banking customers represented 100.0% of its corporate banking loans and 20.0% of its total consolidated loan portfolio.

Bank Sinarmas has relationship managers and banking account managers to serve its private sector companies and conglomerates. It has also assigned dedicated account service managers to major institutional accounts.

Commercial and Retail Lending

Bank Sinarmas also has relationships with commercial and retail banking customers, which are customers with loans of less than Rp.50.0 billion. This group comprises mainly SMEs that do not qualify for the corporate category, small and micro enterprises and multifinance companies and individuals who are borrowing for working capital purposes. Bank Sinarmas services these customers through its branch networks.

Bank Sinarmas’ commercial and retail lending products include loans to co-operatives or members of co-operatives and loans to SMEs. As of September 30, 2011, Bank Sinarmas had aggregate loans outstanding to its commercial and retail banking customers of Rp.1,369.6 billion (US$155.2 million), representing 14.9% of its total loan portfolio. As of September 30, 2011, substantially all of its commercial and retail loans were secured by fixed assets, accounts receivables and inventory and its collateral coverage ratio for its secured commercial loans was at least 100.0% of the principal amounts of the relevant loans outstanding, based upon the most recent appraisal values. For loan amounts of Rp.5.0 billion or greater, Bank Sinarmas is required by applicable regulation to have an independent valuer appraise the collateral. Bank Sinarmas values the collateral securing its loan portfolio annually and requires borrowers to provide additional collateral if the value falls below the coverage amount.

Bank Sinarmas’ key financing products for its commercial and retail banking customers are working capital loans. Bank Sinarmas provides working capital loans generally to finance businesses, for working capital needs or to finance specific projects, including export credits. It primarily offers Rupiah- and U.S. dollar-denominated working capital loans with maturities of up to one year subject to renewal upon mutual agreement. Working capital loans generally bear interest at a floating rate. As of September 30, 2011, working capital loan accounts accounted for 96.8% of Bank Sinarmas’ loans to its commercial banking customers. It also provides investment loans, generally for capital expenditure, primarily in Rupiah and U.S. dollars.

Bank Sinarmas also extends loans to small and micro enterprises, which include salaried and wage-earning individuals seeking business loans of up to Rp.200.0 million. As of September 30, 2011, approximately 13.0% of the Bank’s total loan portfolio was to small and micro enterprises. The Bank also extends executing loans to multifinance companies, typically collateralized by accounts receivables. As of September 30, 2011, approximately Rp.701.0 billion were executing loans to multifinance companies.

Consumer Lending

Bank Sinarmas offers a full range of products and services for its individual consumers, including loan and deposit products, insurance and investment products, and debit cards. Bank Sinarmas’ consumer lending also includes consumer loans extended through channeling by multifinance companies and executing loans extended to multifinance companies. As of December 31, 2008, 2009 and 2010 and September 30, 2011, the Bank had Rp.1,570.2 billion, Rp.1,905.9 billion, Rp.2,332.3 billion (US$264.3 million) and Rp.2,885.5 billion (US$327.0 million) of channeling loans, respectively. It serves these customers through its branch network, dedicated mobile and in-branch sales teams, and electronic and telephonic channels. As of September 30, 2011, it had approximately 145,235 consumer accounts, including loans given to employees and cash collateral credits.

As of September 30, 2011, aggregate loans outstanding to the Bank’s individual consumers, excluding loans to employees, were Rp.5,976.4 billion (US$677.4 million), or 65% of its total loan portfolio. Bank Sinarmas has outstanding customer loans of Rp.5,589.0 billion of Rupiah-denominated loans and US$398.0 billion of U.S. dollar-denominated loans.

Bank Sinarmas offers multi-purpose consumer loans, which include loans to civil servants, to purchase assets (other than residential property) or for other needs such as retirement, education, and traveling purposes. For multi-purpose loans, its policy is to lend up to Rp.200.0 million based on the individual consumer’s payment ability, limited to 30.0% of their household income and provided that the consumer is not found ineligible after a required credit check is performed by the Bank through the debtor information system of Bank Indonesia. The Bank offers a repayment period of up to three years for its multipurpose loans. Bank Sinarmas also offers secured personal loans (other than to purchase residential property). Collateral coverage for these loans must be at least 125.0% of the principal amount of the loans outstanding. Loans for retired civil servants are up to eight years, loans for car or motorcycle purchases are granted for up to three years. Generally, loans to individual consumer are unsecured except for loans to retired civil servants, which are secured by the borrower’s pension fund distributions, and motorcycle and car loans, for which the Bank holds car or motorcycle title certificates. As of September 30, 2011, Rp.1,828.7 billion (US$207.3 million) of consumer loans, representing 20.0% of total loans, were originated and channeled to Bank Sinarmas from Sinar Mas Multifinance. See “—Multifinance—PT Sinar Mas Multifinance and PT AB Sinar Mas Multifinance—Products—Vehicle Loans”. As of September 30, 2011, Bank Sinarmas had umbrella agreements with 26 multifinance companies.

Bank Sinarmas also extends Sharia loans, such as Murabahah and Qardh. As of September 30, 2011, Sharia loans accounted for Rp.470.7 billion or 5.1% of total loans outstanding.

Related Party Funding Arrangements

Bank Sinarmas also provides pass through funding arrangements for related parties. Bank Sinarmas provides loans to related parties which are fully or partially cash collateralized by deposits placed with the Bank. Deposits are pledged towards the loans pursuant to deposit pledge agreements between the Bank and the related party or a member of the related party’s group and cannot be withdrawn until the loans are fully repaid. Unlike loans that are only partially collateralized and which count fully towards the Bank’s legal lending limit, loans that are fully cash collateralized do not count towards the Bank’s legal lending limit. Related parties with whom

the Bank has such funding arrangements include PT Sinar Wisata Lestari, PT Putra Alvita Pratama, Asuransi Sinarmas, PT Lontar Papyrus Pulp & Paper, PT Smart Telecom, Sinarmas MSIG Life, PT Maritim Sinar Utama and PT Dian Swastatika Sentosa. As of December 31, 2008, 2009 and 2010 and September 30, 2011, Rp.83.4 billion, Rp.741.9 billion, Rp.794.9 billion (US$90.1 million) and Rp.1,436.0 billion (US$162.8 million), respectively, or 1.9%, 13.9%, 11.4% and 15.8%, respectively, of Bank Sinarmas’ loan portfolio consisted of these cash collateralized funding arrangements. Bank Sinarmas typically earns a spread between 0.4% to 1.0% on these related party funding arrangements.

The table below sets forth Bank Sinarmas’ loans to related parties excluding fully cash collateralized related party loans as of the dates indicated.

Rp. Rp. Rp. US$ Rp. Rp. US$ (Rp. in billions, US$ in millions, except percentages) Related party loans (excluding fully cash collateralized

related party loans) .......................................................

2.4 0.5 38.0

4.3 172.1 5.3 0.6

Total related party loans..................................................... 83.4 741.9 794.9 90.1 858.3 1,436.0 162.7 Total loans .......................................................................... 4,281.5 5,413.9 7,011.8 794.7 6,204.5 9,163.7 1,038.6 Related party loans (excluding fully cash collateralized

related party loans) as a percentage of total relatedparty loans (%)...............................................................

2.9 0.,1 4.8

4.8 0.1 0.4 0.4

Related party loans (excluding fully cash collateralizedrelated party loans) as a percentage of total loans (%)..

0.1 0.0 0.5

0.5 2.8 0.1 0.1

Loan Portfolio

The following table sets forth Bank Sinarmas’ loans by geographic area as of the dates specified:

As of December 31, As of September 30,

2008 % of total 2009

% of total 2010

% of total 2011

% of total

(Rp. in billions, except percentages) (US$ in millions)

Sumatra..................................... 600.7 14.0 485.7 9.0 1,349.4 19.2 1,320.9 21.3 2,461.2 279.0 26.9Java........................................... 2,963.0 69.2 3,889.7 71.8 4,358.2 62.2 3,602. 58.1 5,065.1 574.1 55.3Kalimantan ............................... 135.6 3.2 130.8 2.4 205.2 2.9 224.9 3.6 362.5 41.1 4.0Sulawesi.................................... 293.6 6.9 451.6 8.3 540.6 7.7 525.2 8.5 619.7 70.2 6.8Maluku...................................... 123.1 2.9 238.5 4.4 327.3 4.7 315.2 5.1 354.6 40.2 3.9Bali ........................................... 56.1 1.3 54.1 1.0 83.1 1.2 76.0 1.2 77.7 8.8 0.8West Nusa Tenggara ................ 21.2 0.5 31.6 0.6 42.1 0.6 38.3 0.6 59.3 6.7 0.6East Nusa Tenggara.................. 33.4 0.8 51.3 0.9 33.5 0.9 27.0 0.4 50.2 5.7 0.5Papua ........................................ 54.0 1.3 80.5 1.5 72.4 1.5 75.1 1.2 113.4 12.9 1.2Total......................................... 4,281.5 100.0 5,413.9 100.0 7,011.8 100.0 6,204.5 100.0 9,163.7 1,038.6 100.0

Of total loans, 6.6%, 14.4%, 11.4% and 17.0% were in U.S. dollars and 93.4%, 85.6%, 88.6% and 83.0% were in Rupiah as of December 31, 2008, 2009 and 2010 and September 30, 2011.

The following table sets forth Bank Sinarmas’ loans in Rupiah and U.S. dollars by economic sector as of the date specified:

As of December 31, As of September 30, 2008 % of total 2009 % of total 2010 % of total 2010 % of total 2011 % of total (Rp. in billions, except percentages) Rupiah

Business service .................... 877.3 22.0 840.5 18.1 1,284.4 20.7 1,135.1 3.9 1,229.0 16.2Trading, restaurant and hotel. 322.9 8.1 330.9 7.1 519.5 8.4 461.3 8.6 1,284.8 16.9Construction .......................... 337.7 8.5 262.4 5.7 299.0 4.8 265.5 4.3 357.9 4.7Transportation, warehousing

and communication .........

80.7 2.0 237.4 5.1 298.6 4.8 265.2 4.9 308.4 4.1Manufacturing ....................... 512.7 12.8 705.4 15.2 218.1 3.5 193.7 3.6 246.1 3.2Social and public services ..... 38.6 1.0 35.0 0.8 206.4 3.3 183.2 21.1 233.2 3.1Mining ................................... 70.2 1.8 51.2 1.1 206.3 3.3 183.2 3.4 364.9 4.8Agriculture, hunting and

agriculture facilities .........

- - 39.7 0.9 58.6 0.9 20.0 0.4 40.3 0.5Electricity, gas and water ...... 40.5 1.0 62.1 1.3 22.5 0.4 52.0 1.0 83.7 1.1Others .................................... 1,77.2 43.0 2,070.7 44. 7 3,101.2 50.0 2.628.8 48.8 3,498.9 45.5 Subtotal................................. 3,997.8 100.0 4,635.3 100.0 6,214.7 100.0 5,387.9 100.0 7,607.4 100.0

U.S. Dollar Manufacturing ....................... 11.7 4.1 584.2 75.0 542.9 68.1 555.7 68.1 1,202.1 77.2Construction .......................... 23.6 8.3 32.9 4.3 109.0 13.7 111.6 13.6 99.3 6.4Mining ................................... 43.6 15.4 39.8 5.1 65.8 8.3 67.3 8.2 76.7 4.9Transportation, warehousing

and communication .........

- 0.0 - 0.0 24.5 3.1 25.0 3.1 14.7 1.0Business service .................... 99.5 35.1 36.0 4.6 16.3 2.0 16.7 2.1 57.9 3.7Trading, restaurant and hotel. 95.3 33.6 85.6 11.0 13.7 1.7 14.0 1.7 58.1 3.7Others .................................... 10.0 3.5 - 0.0 25.0 3.1 26.2 3.2 - 0.0Agriculture, hunting and

agriculture facilities ........

0.0 0.0 0.0 0.0 0.0 0.0 - 0.0 8.3 0.6Social and public services ..... 0.0 0.0 0.0 0.0 0.0 0.0 - 0.0 39.2 2.5Subtotal................................. 283.7 100.0 778.5 100.0 797.1 100.0 816.5 100.0 1,556.4 100.0

Total ........................................... 4,281.5 5,413.9 7,011.8 6,204.5 9,163.7Allowance for impairment

losses.....................................

(52.7) (90.9)(77.6)

(141.9)

(97.2)

Net .............................................. 4,228.8 5,323.0 6,934.2 6,062.6 9,066.5

The following table sets forth an analysis of Bank Sinarmas’ loan portfolio by remaining time to contractual maturity as of the dates indicated:

As of December 31, As of September 30, 2008 % of total 2009 % of total 2010 % of total 2010 % of total 2011 % of total (Rp. in billions, except percentages) Rupiah

1 year or less ......................... 997.2 24.9 1,156.1 24.9 1,440.8 23.2 1,145.8 21.3 1,869.4 24.5 More than 1 year until 2

years ................................

659.8 16.5 593.7 12.8 1,342.9 21.6 879.9

16.3 1,274.3 16.8

More than 2 years until 5 years ................................

1,585.0 39.7 2,044.7 44.1 2,257.6 36.3 2,633.7 48.9 3,074.8 40.4

More than 5 years.................. 755.8 18.9 840.9 18.2 1,173.3 18.9 728.6 13.5 1,388.8 18.3 Subtotal ................................. 3,997.8 100.0 4,635.4 100.0 6,214.7 100.0 5,388.0 100.0 7,607.4 100.0

U.S. Dollar

1 year or less ......................... 208.9 73.6 677.6 87.0 607.6 76.2 36.4 4.5 1,253.9 80.5 More than 1 year until 2

years ................................

26.7 9.4 7.7 1.0 24.9 3.1 575.0

70.4 27.4 1.8

More than 2 years until 5 years ................................

48.1 17.0 93.2 12.0 57.9 7.3 93.6 11.5 177.0 11.4

More than 5 years.................. - 0.0 - 0.0 106.7 13.4 111.5 13.6 98.1 6.3 Subtotal ................................. 283.7 100.0 778.5 100.0 797.1 100.0 816.5 100.0 1,556.4 100.0

Total........................................... 4,281.5 5,413.9 7,011.8 6,204.5 4.5 9,163.7 Allowance for impairment

losses ....................................

(52.7) (90.9) (77.6) (141.9) (97.0)

Net ............................................. 4,228.8 5,323.0 6,934.0 6,062.6 9,066.8

As of December 31, 2010 and September 30, 2011, Rp.3,075.5 billion (US$398.6 million), or 43.9%, and Rp.6,404.3 billion (US$725.9 million), or 69.9%, respectively, were fixed interest loans and Rp.3,936.2 billion (US$446.1 million), or 56.1%, and Rp.2,759.4 billion (US$312.8 million), or 30.1%, respectively, were variable interest loans.

As of December 31, 2010 and September 30, 2011, Rp.226.2 billion (US$25.6 million), or 3.2%, and Rp.540.7 billion (US$61.3 million), or 5.9%, respectively, were unsecured loans.

Credit Approval

Bank Sinarmas’ credit approval process involves the evaluation of an applicant’s assets, liabilities, cash flow and liquidity. Bank Sinarmas has 10 regional managers. For amounts below Rp.5.0 billion, the regional credit committee has discretion to approve the loan based on credit guidelines, and pricing will generally be based on the collateral provided and the length of relationship with the customer. For all amounts of Rp.5.0 billion or above, approvals are sent to the Bank’s head office for approval. As an additional check, the President Director has the right to review and reject any loans, but does not have the authority to approve loans as the President Director is not a member of the credit committee. Any loan amounts above Rp.5.0 billion are also required to be reviewed by Bank Sinarmas’ risk management and compliance departments.

Bank Sinarmas’ loans are collateralized by tangible and financial assets, including the asset being financed, except for certain loans to civil servants and other individual consumers multipurpose loans. Collateral may include land, building or machinery, inventory or receivables for a working capital loan. The Bank generally seeks to revalue fixed assets collateral annually as required by Bank Indonesia regulations, at which time it evaluates the legal documentation relating to its security interest. It typically values collateral based on its estimated fair market value, as well as liquidation value.

Other Services

In addition to loans, Bank Sinarmas also provides other financial services, including non-cash credit facilities, cash management services, debit cards, bill payment services and bancassurance and insurance products, in line with its long-term strategy to develop its wholesale transactional banking business. Bank Sinarmas also plans to launch a VISA credit card by the end of 2011, subject to the approval of Bank Indonesia.

Treasury

To prevent the occurrence of idle funds, Bank Sinarmas utilizes excess liquidity by placing funds in bonds, primarily government bonds, mutual funds and corporate bonds.

Non-Cash Credit Facilities

Bank Sinarmas provides its corporate banking customers with bank guarantees, letters of credit and foreign exchange facilities. As of September 30, 2011, it had extended guarantees, letters of credit and foreign exchange facilities to 78 of its corporate banking customers.

Cash Management Services

Bank Sinarmas provides treasury products for its retail customers, including telegraphic transfer and bank notes for foreign exchange transactions.

Debit Cards

Bank Sinarmas’ debit cards allow savings account customers to purchase goods from merchants in Indonesia through Prima Debit/Debit BCA Network and through the VISA network for local or international transactions and to make ATM cash withdrawals. As of September 30, 2011, it had issued more than 400,000 active debit cards (as compared to approximately 300,000 active cards as of December 31, 2010). Fee based income from debit cards was Rp.2.7 billion (US$0.3 million) and Rp.3.2 billion (US$0.4 million) in 2010 and the nine months ended September 30, 2011, respectively.

Bill Payment Services

At its branches, Bank Sinarmas offers its customers a utility bill payment service for electricity, telephone and mobile phone bills in addition to allowing them to make payments for their loans and premiums on insurance products. Customers may also review and pay their fixed line and mobile phone bills through the Bank’s ATMs.

Bancassurance

Bank Sinarmas provides bancassurance products in cooperation with Sinarmas MSIG Life which focus on investment and insurance needs through its distribution channels. It provides a distribution channel for Sinarmas MSIG Life and Asuransi Sinar Mas, as well as for third-party insurance companies, with respect to insurance products. Bank Indonesia regulations require banks in Indonesia to carry at least two insurance company products. Together with Sinarmas MSIG Life, Bank Sinarmas develops bancassurance products which combine savings and insurance protection. These products are offered either through partnership or co-branding with Sinarmas MSIG Life.

Others

Bank Sinarmas offers other services, including safe deposit boxes. Through a variety of distribution arrangements, it also distributes mutual funds offered by Sinarmas Sekuritas.

Funding

Funds are raised principally through conventional products, such as demand deposits, savings accounts and time deposits, which are offered to all customers. As of September 30, 2011, Bank Sinarmas’ funding products include Sinarmas Savings, Tabunganku, Simas Gold, Simas Valas, Sinarmas Saving Plan, time deposits, on call deposits and demand deposits. Time deposits remain the Bank’s predominant source of funding and, as such, Bank Sinarmas’ costs of fund is highly dependent upon the amount of funds raised through time deposits. As of September 30, 2011, Bank Sinarmas had 587,690 deposit accounts, of which 1,796 are Sinar Mas Group companies’ accounts. As of September 30, 2011, lower cost demand deposits and savings accounts constituted 25.2% of total deposits from customers. Its funding products for corporate banking customers primarily comprise deposit accounts and time deposits. As of September 30, 2011, the Bank had 36 corporate deposit accounts with 36 corporate depositors. As of September 30, 2011, Bank Sinarmas had total deposits from outstanding corporate customers of Rp.5,579.3 billion (US$632.3 million), representing 40.3% of its total deposits. The Bank currently does not engage in wholesale funding.

Deposits

The following tables set forth Bank Sinarmas’ deposits by type for its customers as of the dates indicated:

As of December 31, 2008 2009 2010

Demand Savings Time(1) Total % Demand Savings Time(1) Total % Demand Savings Time(1) Total % (Rp. in billions, except percentages) Related Parties ..................... 308.2 16.9 1,364.4 1,689.5 32.0 495.7 4.2 2,485.0 2,984.9 43.7 947.2 7.7 3,488.4 4,443.3 45.3Third Parties ........................ 461.9 577.2 2,546.6 3,585.8 68.0 602.0 966.1 2,279.2 3,847.5 56.3 920.5 1,363.8 3,091.6 5,375.9 54.7

Total .................................... 770.1 594.1 3,911.0 5,275.2 100.0 1,097.7 970.3 4,764.2 6,832.4 100.0 1,867.7 1,371.5 6,580.1 9,819.2 100.0

_____________________

(1) Time deposits are all short-term, maturing within one year.

As of September 30, 2010 2011 Demand Savings Time(1) Total % Demand Savings Time(1) Total %

(Rp. in billions, except percentages) Related Parties............... 788.4 5.1 3,763.6 4,557.1 50.4 448.6 6.6 5,023.2 5,478.3 39.6Third Parties.................. 893.1 1,237.9 2,346.1 4,477.1 49.6 1,106.4 1,922.6 5,323.7 8,352.7 60.4Total.............................. 1,681.5 1,243.0 6,109.7 9,034.2 100.0 1,555.0 1,929.1 10,346.9 13,831.0 100.0

______________________

(1) Time deposits are all short-term, maturing within one year.

As of December 31, 2008, 2009 and 2010 and September 30, 2011, 32.0%, 43.7%, 45.3% and 39.6% of the Bank’s deposits were from related parties.

Demand Deposits

Bank Sinarmas offers demand deposits with monthly interest payments. Such deposits are payable upon demand of the customer at any time. As of September 30, 2011, it had 9,836 demand deposit accounts with

an aggregate of Rp.1,555.0 billion (US$176.2 million) outstanding.

Bank Sinarmas offers demand deposit accounts denominated in Rupiah and a number of foreign currencies, including U.S. dollars, Euros, Japanese yen, Chinese renminbi, Singapore dollars and Australian dollars. Demand deposits bear interest at variable rates. As of September 30, 2011, demand deposits denominated in U.S. dollars accounted for Rp.582.4 billion (US$66.0 million) of total demand deposits (on a Rupiah basis). As of September 30, 2011, Bank Sinarmas’ Rupiah-denominated demand deposits from customers represented 62.5% of total demand deposits from customers, with foreign currency accounts, primarily in U.S. dollars, representing the balance. As of September 30, 2011, demand deposits denominated in U.S. dollars accounted for 35.0% of total demand deposits (on a Rupiah basis). In the nine months ended September 30, 2011, the average cost of funds for Rupiah-denominated demand deposits from customers was between 1.0% and 6.0% per annum and the average costs of funds for foreign currency denominated demand deposits was between 0.1% and 3.0% per annum.

As of December 31, 2010, demand deposits amounted to Rp.1,867.7 billion (US$211.7 million), representing a significant increase over demand deposits of Rp.1,097.7 billion as of December 31, 2009. The increase was primarily the result of Bank Sinarmas’ expansion through the opening of branch offices in several regions.

Time Deposits

Bank Sinarmas offers time deposits, which are deposits that typically may not be withdrawn prior to their stated maturities, at one, three, six and 12 month maturities. At maturity, the principal amount, together with accrued interest, is payable to the customer. Customers may also choose to have interest paid on a monthly basis. Typically, a penalty applies for early withdrawal of funds from time deposits prior to maturity. As of September 30, 2011, the Bank had 9,554 time deposit accounts with an aggregate balance of Rp.10,346.9 billion (US$1,172.7 million).

As of September 30, 2011, its Rupiah-denominated time deposits represented 79.8% of total time deposits, with the remaining amounts in a number of foreign currencies, including U.S. dollars, Australian dollars and Chinese renminbi. In the nine months ended September 30, 2011, the average cost of funds for Rupiah-denominated time deposits was between 6.3% and 10.0% per annum and the average costs of funds for foreign currency denominated time deposits was between 0.4% and 3.8% per annum.

Time deposits increased from Rp.4,764.3 billion as of December 31, 2009 to Rp.6,580.1 billion (US$745.8 million as of December 31, 2010, representing an increase of 38.1%, principally as a result of the development of Bank Sinarmas’ office network and higher interest rates when compared with demand deposits and savings accounts.

The following table sets forth a breakdown of Bank Sinarmas’ time deposits by date of maturity:

As of December 31, As of September 30, 2008 2009 2010 2011 (Rp. in billions) 1 month or less ............................................... 3,062.5 2,891.9 4,680.8 6,926.4From over 1 month to three months............... 485.3 997.7 1,071.2 1,329.7From over three months to six months .......... 142.0 345.3 169.9 534.4From over six months to 12 months .............. 221.2 529.4 658.2 1,556.3

Total ............................................................ 3,911.0 4,764.3 6,580.1 10,346.8

For time deposits from related parties and other corporate customers, Bank Sinarmas may offer special arrangements from time to time which permits early withdrawal from the time deposit prior to maturity without penalty but at a discounted rate. As of December 31, 2008, 2009 and 2010 and September 30, 2011, 34.9%, 52.2%, 53.0% and 48.5% of Bank Sinarmas’ time deposits, respectively, were from related parties.

Savings Deposits

Bank Sinarmas offers Rupiah-denominated savings deposits to its customers. As of September 30,

2011, it had 568,300 savings deposit accounts with an aggregate balance of Rp.1,929.1 billion (US$218.6 million). In the nine months ended September 30, 2011, the average cost of funds for savings deposits was between 0.3% and 6.5% per annum.

Savings deposits reached Rp.1,371.5 billion (US$155.4 million) as of December 31, 2010, representing an increase of 41.3% over savings deposits of Rp.970.4 billion as of December 31, 2009, principally attributable to Bank Sinarmas’ expansion through the opening of branch offices in several regions.

Sharia Funding

Bank Sinarmas established Sharia, or Islamic, banking in November 2009 to offer financing and funding products and services that comply with Islamic law. The Bank raises funds primarily through direct methods to offer Sharia-compliant demand, savings and time deposit accounts. The majority of the Bank’s Sharia customers are individuals with funding accounts.

As of September 30, 2011, Bank Sinarmas had total deposits (comprising demand, savings and time deposits) from Sharia customers of Rp.859.5 billion (US$97.4 million) representing 6.2% of its total deposits by value.

Distribution Channels

Bank Sinarmas’ extensive domestic network spans across Indonesia. As of September 30, 2011, Bank Sinarmas had 139 offices, consisting of 56 conventional branch offices, 72 sub-branch offices, nine cash outlets, one Sharia branch office and one Sharia cash outlet in 60 cities and in almost all provinces in Indonesia. Bank Sinarmas intends to open an additional 273 offices in 2012.

Branches and Sub-branches

Bank Sinarmas classifies its domestic branch network into branches, sub-branches, based on asset size, number of employees, size of total deposits and loans and the type of domestic and international services provided. The classification determines the type of financing and funding products and services offered and the lending limits of each branch and sub-branch. Branches provide financial services to customers in all segments, coordinate with direct sales teams to sell credit products and maintain customer relationships. Sub-branches currently take deposits and also provide transaction services and non-credit products, advise on financial products and encourage sales of credit and financial services through cross-selling. Services such as lending and bank guarantees are not provided at sub-branches. The domestic branches are organized into 10 geographic regions within Indonesia.

Cash Outlets

Bank Sinarmas’ cash outlets take deposits, handle customer service inquiries and permit customers to withdraw from their accounts. Bank Sinarmas has been rapidly expanding the number of cash outlets and plans to further increase the number of its cash outlets. The number of cash outlets has grown from three as of December 31, 2008 to nine as of September 30, 2011.

Sharia Branch

Bank Sinarmas’ Sharia branch in Jakarta provides a full range of Sharia products and services, and has dedicated relationship managers and customer service operators who are trained to advise on its Sharia products and services, including transaction services and non-credit products.

Bank Sinarmas’ ATM cardholders can use its ATMs to withdraw funds, make balance inquiries, make payments on certain utility and credit card bills, purchase airline tickets, reload prepaid mobile phones, register for electronic banking through phone banking and internet banking and transfer funds between Bank Sinarmas savings and current accounts (including to the account of another account holder). Additionally, the Bank has arrangements with third-party service providers to permit Bank Sinarmas ATM cardholders to pay various bills such as telephone, mobile phone, credit card, water and other bills using the ATMs of such third-party service providers. This is a particularly convenient service in Indonesia where bills are otherwise often paid in person.

ATM cardholders can also purchase prepaid vouchers for cellular phone service at Bank Sinarmas ATMs. Bank Sinarmas ATM cardholders can also undertake transactions through non-Bank Sinarmas ATM machines which are integrated with Plus, ALTO, PRIMA and ATM Bersama networks and with merchants integrated with VISA and Prima Debit.

As of September 30, 2011, the Bank’s network comprised approximately 228 ATMs, with more than 400,000 ATM cards in circulation. Bank Sinarmas has ATMs located at all of its branches and cash outlets, as well as in shopping centers, office buildings and residential areas.

Call Center and Phone Banking

Bank Sinarmas has established a phone banking call center. This is an automated telephone banking service which allows customers to carry out secure and convenient banking transactions over the phone. Phone banking allows customers to transfer funds and obtain information on account balances and recent transactions, reload prepaid mobile phones, pay utility, credit card and insurance bills, and access various information regarding its various products and services. With more than 30 call center staff, the phone banking call center services customers in all banking segments, including SMEs, retail and corporate customers.

Mobile Banking

Bank Sinarmas also provides customers access to their account balances on a real time basis through mobile banking in connection with SmartFren, a third party provider. Customers can check their balance or transfer funds, pay certain utility and credit card bills and reload prepaid mobile phones at any time from anywhere with mobile phone reception.

Internet Banking

Bank Sinarmas launched its internet banking services in 2007. Internet banking users can transfer funds between accounts, transfer funds to other domestic banks, make payments for certain utility bills, reload prepaid phone cards, monitor their transaction history and obtain information on interest rates, foreign exchange rates and various other banking products. As of September 30, 2011, the Bank’s internet banking services had 15,781 users. To ensure data security, Bank Sinarmas’ website is equipped with a multi-level security system and transactions are executed in a secure environment by using a dynamic identification number provided to the customer.

Description of Assets and Liabilities

Average Balance Sheet

The following tables set forth the average balances of Rupiah-denominated assets and liabilities of the Bank for each of the periods specified. For purposes of the following tables, the averages are calculated on the basis of monthly averages.

Nine Months ended September 30, 2010 2011 Average

Balance Interest Average

Rate Average

(Rp. in billions, except percentages) ASSETS

Interest-Earning Assets: Current account at BI............................................................... 295.7 0.0 0.0% 854.9 3.4 0.4%

SBI, FASBI, BI Time Deposit .................................................... 300.5 12.9 4.3% 1,370.4 64.8 4.7% Placements with other banks........................................................ 170.0 5.9 3.4% 278.1 12.1 4.3% Securities...................................................................................... 49.3 5.6 11.4% 79.5 8.0 10.0% Securities purchased under agreements to resell ......................... 15.9 1.2 7.4% 44.2 3.4 7.7% Loans............................................................................................ 5,008.0 554.7 11.1% 6,957.1 741.4 10.7% Government obligations............................................................... 593.8 44.1 7.4% 593.7 45.2 7.5%

Total Interest-Earning Assets................................................ 5,963.6 624.3 10.5% 8,718.6 874.9 10.0% LIABILITIES

Interest-Bearing Liabilities: Liabilities immediately payable Demand deposits.......................................................................... 970.7 21.3 2.2% 1,126.0 24.0 2.1% Saving deposits ............................................................................ 1,094.7 42.9 3.9% 1,580.7 60.6 3.8% Time deposits ............................................................................... 3,445.5 206.6 6.0% 5,892.6 391.1 6.6% Deposits On Call .......................................................................... 539.3 24.1 4.5% 967.7 46.4 4.8%

Securities sold under agreements to repurchase .......................... 80.6 1.3 1.6% 1.9 0.0 0.2% Placements from other banks....................................................... 92.7 4.7 5.0% 32.0 0.6 1.7%

Total Interest-Bearing Liabilities ......................................... 6,192.8 298.7 4.8% 9,099.0 522.1 5.7%

______________________

(1) SBI represents Certificates of Bank Indonesia. FASBI represents placements in the form of Bank Indonesia deposit facility.

Year ended December 31, 2008 2009 2010 Average

Rate Average Balance

Interest Average Rate

Average Balance

Interest-Earning Assets: Current account at BI .......................... 48.3 1.4 2.9% 254.8 0.0 0.0% 347.6 0.4 0.1% SBI, FASBI, BI Time Deposit ........... 166.2 10.9 6.6% 524.2 36.2 6.9% 370.6 21.31 5.7% Placements with other banks ............... 48.3 2.0 4.1% 216.5 6.9 3.2% 82.7 6.8 3.7% Securities ............................................. 364.8 3.2 0.9% 40.1 7.4 18.5% 53.9 7.9 14.6% Securities purchased under

agreements to resell........................

14.8 4.8 32.7% 23.6 1.1 4.5% 21.1 2.1 10.0%

Loans ................................................... 3,417.3 483.9 14.2% 3,855.7 611.6 15.9% 5,258.8 749.5 14.3% Government obligations ...................... 581.4 55.3 9.5% 592.6 55.7 9.4% 594.9 59.0 9.9%

Total Interest-Earning Assets ....... 4,641.1 561.5 12.1% 5,507.5 719.0 13.1% 6,829.6 84.7 12.4% LIABILITIES

Interest-Bearing Liabilities: Liabilities immediately payable Demand deposits ................................. 482.9 22.5 4.7% 720.6 26.0 3.6% 1,045.8 30.6 2.9% Saving deposits.................................... 365.1 25.9 7.1% 784.9 45.5 5.8% 833.5 59.5 5.3% Time deposits ...................................... 3,085.3 289.9 9.4% 2,994.9 301.5 10.1% 3,654.7 297.5 8.1% Deposits On Call ................................. 299.5 24.9 8.3% 647.6 46.2 7.1% 606.9 36.2 6.0% Securities sold under agreements to

repurchase....................................... 51.5 7.2 13.9% 40.6 1.3 3.2% 60.4 1.3 2.2% Placements from other banks .............. 162.0 16.8 10.4% 61.3 4.3 7.0% 90.5 4.2 4.6%

Total Interest-Bearing Liabilities . 4,446.3 382.8 8.7% 5,249.3 429.7 8.1% 6,588.9 429.3 6.5%

(1) SBI represents Certificates of Bank Indonesia. FASBI represents placements in the form of Bank Indonesia deposit facility.

The following tables set forth the Rupiah equivalent of average balances of foreign currency assets and liabilities for each of the periods specified. For purposes of the following tables, the averages are calculated on the basis of monthly averages.

Rate Average

(Rp. In billions, except percentages) ASSETS

Interest-Earning Assets: Current account at BI ................................................................... 172.8 0.0 0.0% 156.0 0.0 0.0% Placements with other banks........................................................ 633.5 1.9 0.3% 253.7 1.2 0.5% Securities...................................................................................... 129.9 7.1 5.5% 58.8 9.0 15.3% Securities purchased under agreements to resell ......................... 1.1 0.0 0.4% - - - Loans............................................................................................ 741.3 30.0 4.0% 907.5 42.7 4.7% Government obligations............................................................... 170.5 10.9 6.4% 182.9 10.6 5.8%

Interest-Bearing Liabilities: Liabilities immediately payable Demand deposits.......................................................................... 1,060.7 5.9 0.6% 1,081.9 2.9 0.3% Time deposits ............................................................................... 1,537.4 31.8 2.1% 1,293.8 26.3 2.0% Deposits On Call .......................................................................... 124.3 0.1 0.1% 245.0 0.3 0.1% Placements from other banks....................................................... 50.6 - 0.0% 14.5 0.0 0.1%

______________________

(1) SBI represents Certificates of Bank Indonesia. FASBI represents placements in the form of Bank Indoensia deposit facility.

Average Balance

Interest-Earning Assets: Current account at BI .......................... 41.9 0.0 0.0% 87.8 0.0 0.0% 167.7 0.0 0.0% Placements with other banks ............... 148.4 14.1 9.5% 132.1 0.8 0.6% 662.8 2.7 0.4% Securities ............................................. 138.7 6.7 4.8% 102.1 9.4 9.2% 119.5 8.9 7.4% Securities purchased under

3.3 0.0 0.7% 4.4 0.3 6.8% 0.8 0.0 0.4%

Loans ................................................... 211.9 14.1 6.7% 526.9 38.8 7.4% 766.4 42.8 5.6% Government obligations ...................... 65.3 4.7 7.2% 167.4 14.2 8.5% 172.4 14.6 8.5%

Total Interest-Earning Assets ....... 609.4 39.6 6.5% 1,020.5 63.5 6.2% 1,890.2 69.0 3.7% LIABILITIES

Interest-Bearing Liabilities: Liabilities immediately payable Demand deposits ................................. 289.8 4.5 1.6% 718.5 5.0 0.7% 1,069.3 7.9 0.7% Time deposits ...................................... 494.8 18.7 3.8% 887.9 26.1 2.9% 1,573.4 42.4 2.7% Deposits On Call ................................. 221.4 5.4 2.4% 111.7 0.7 0.6% 136.1 0.2 0.1% Placements from other banks .............. 8.5 0.1 0.6% - - 0.0% 37.9 - 0.0%

The following tables set forth the average balances of aggregated Rupiah-denominated and foreign currency assets and liabilities for each of the periods indicated. For purposes of the following tables, the averages are calculated on the basis of monthly averages.

Rate Average

(Rp. In billions, except percentages) ASSETS

Interest-Earning Assets: Current account at BI ................................................................... 295.7 0.0 0.0% 854.9 3.4 0.4% SBI, FASBI, BI Time Deposit .................................................... 300.5 12.9 4.3% 1,370.4 64.8 4.7% Placements with other banks........................................................ 803.5 7.8 1.0% 531.8 13.3 2.5% Securities...................................................................................... 179.2 12.7 7.1% 138.2 17.0 12.3% Securities purchased under agreements to resell ......................... 17.0 1.2 7.0% 44.2 3.4 7.7% Loans............................................................................................ 5,779.3 584.7 10.2% 7,864.7 784.1 10.0% Government obligations............................................................... 764.3 55.0 7.2% 782.6 55.8 7.1%

Interest-Bearing Liabilities: Liabilities immediately payable Demand deposits.......................................................................... 2,031.2 27.3 1.3% 2,204.9 26.9 1.2% Saving deposits ............................................................................ 1,094.7 42.9 3.9% 1,580.7 60.6 3.8% Time deposits ............................................................................... 4,960.8 238.4 4.8% 7,186.4 417.4 5.8% Deposits On Call .......................................................................... 663.5 24.2 3.6% 1,212.7 46.7 3.9% Securities sold under agreements to repurchase .......................... 80.6 1.3 1.6% 1.9 0.0 0.2% Placements from other banks....................................................... 143.3 4.7 3.2% 46.5 0.6 1.2%

______________________

Average Balance

Interest-Earning Assets: Current account at BI .......................... 48.3 1.4 2.9% 254.8 0.0 0.0% 347.6 0.4 0.1% SBI, FASBI, BI Time Deposit ........... 166.2 10.9 6.6% 524.2 36.2 6.9% 370.6 21.3 5.7% Placements with other banks ............... 196.7 16.1 8.2% 348.6 7.7 2.2% 845.5 9.5 1.1% Securities ............................................. 503.4 9.9 2.0% 142.2 16.8 11.8% 173.5 16.8 9.7% Securities purchased under

18.1 4.9 26.8% 28.0 1.4 4.8% 21.9 2.1 9.6%

Loans ................................................... 3,629.2 498.0 13.7% 4,382.3 650.5 14.8% 6,025.7 792.3 13.1% Government obligations ...................... 646.7 60.0 9.3% 760.0 69.9 9.2% 767.3 73.6 9.6%

Total Interest-Earning Assets ....... 5,208.6 601.1 11.5% 6,440.1 782.5 12.1% 8,552.1 916.0 10.7% LIABILITIES

Interest-Bearing Liabilities: Liabilities immediately payable Demand deposits ................................. 772.6 27.0 3.5% 1,439.1 31.0 2.2% 2,115.1 38.5 1.8% Saving deposits.................................... 365.1 25.9 7.1% 784.9 45.5 5.8% 1,133.5 59.5 5.3% Time deposits ...................................... 3,580.1 308.6 8.6% 3882.8 327.6 8.4% 5,225.1 339.9 6.5% Deposits On Call ................................. 520.9 30.2 5.8% 759.3 46.9 6.2% 743.0 36.4 4.9% Securities sold under agreements to

repurchase....................................... 51.5 7.2 13.9% 40.6 1.3 3.2% 60.4 1.3 2.2% Placements from other banks .............. 170.5 16.9 9.9% 61.3 4.3 7.0% 128.5 4.2 3.2%

______________________

The following table sets forth Bank Sinarmas’ return on assets and equity for the periods specified:

Year Ended December 31,

Nine Months Ended September 30,

2008 2009 2010 2010 2011 (Rp. in billions, except percentages) Net income ........................................................... 12.9 48.8 101.8 76.8 73.4 Average total assets.............................................. 5,766.5 7,050.3 9,634.1 9,054.8 13,450.1 Average shareholders’ equity............................... 343.4 494.5 741.5 611.6 1,084.2 Net income as a percentage of:

Average total assets........................................... 0.2% 0.7% 1.1% 0.8% 0.5% Average shareholders’ equity............................ 3.8% 9.9% 13.7% 12.6% 6.8%

Declared cash dividends....................................... - - - - - Dividends payout ratio ......................................... - - - - - Average shareholders’ equity as a percentage

of average total assets .................................... 6.0% 7.0% 8.0% 7.0% 8.0% Return on Assets................................................... 0.3% 0.9% 1.4% 1.4% 1.1% Return on Equity .................................................. 3.9% 8.5% 15.3% 15.3% 10.6%

The following tables set forth Bank Sinarmas’ balance sheet maturity profile as of the dates specified:

1 month or less

More than 1 month

until 3months

More than 3 month until 6 months

More than 1 year until 2 years

More than 2 years until 5 years

More than 5 years Total

(Rp in billions) Assets Cash ............................................. 579.5 - - - - - - 579.5 Demand deposits with Bank

Indonesia ................................. 1,362.2

- - - - - 1,362.2 Demand deposits with other

Banks ....................................... 69.0

- - - - - 69.0 Placements with other Banks ...... 412.1 - - - - - - 412.1 Securities – third parties .............. 1,436.3 407.2 828.0 55.4 85.0 251.1 375.3 3,438.3 Securities purchased under

agreements to resell ................. 40.3 - - - - - - 40.3 Loans – gross ............................... 2.8 1.4 89.5 3,041.8 1,306.8 3,264.5 1,492.7 9,199.5 Interest receivable........................ 56.2 - - - - - - 56.2 Other assets .................................. 21.0 - - - - - - 21.0 Total ............................................ 3,979.4 408.6 917.5 3,097.2 1,391.8 3,515.6 1,867.9 15,178.0 Liabilities Liabilities immediately payable .. 142.9 - - - - - - 142.9 Deposits ....................................... 10,410.5 1,329.7 534.4 1,556.3 - - - 13,831.0 Deposits from other Banks .......... 326.0 - - 2.1 - - - 328.1 Securities issued .......................... 0.9 - - - - - - 0.9 Accrued interest ........................... 36.5 - - - - 36.5 Other Liabilities ........................... 3.9 - - - - 3.9 Total ............................................ 10,920.7 1,329.7 534.4 1,558.4 - - - 14,343.3

1 month or less

More than 1 month

until 3months

More than 1 year until 2 years

More than 2 years until 5 years

More than 5 years Total

(Rp in billions) Assets Cash ............................................. 269.3 - - - - - - 269.3 Demand deposits with Bank

Indonesia ................................. 1,067.9

- - - - - 1,067.9 Demand deposits with other

Banks ....................................... 86.6

- - - - - 86.6 Placements with other Banks ...... 706.2 - - - - - - 706.2 Securities – third parties .............. 171.3 435.4 - - - 226.8 638.6 1,472.1 Securities purchased under

agreements to resell ................. 19.4 55.5 - - - - - 74.9 Loans – gross ............................... 4.9 7.4 77.7 1,967.1 1,374.1 2,326.6 1,285.8 7,043.6 Interest receivable........................ 47.4 - - - - - - 47.4 Other assets .................................. 19.5 - - - - - - 19.5 Total ............................................ 2,392.5 498.3 77.7 1,967.1 1,374.1 2,553.4 1,924.5 10,787.5 Liabilities Liabilities immediately payable .. 46.7 - 46.7 Deposits ....................................... 7,919.9 1,071.2 169.9 658.2 - - - 9,819.2 Deposits from other Banks .......... 303.9 - - - - - - 303.9 Securities issued .......................... 1.6 - - - - - - 1.6 Accrued interest ........................... 24.6 - - - - - - 24.6 Other Liabilities ........................... 2.8 - - - - - 2.8 Total ............................................ 8,299.4 1,071.2 169.9 658.2 - - - 10,198.7

The following table sets forth Bank Sinarmas’ interest carrying deposits with other banks broken down by currency as of the dates specified:

As of December 31,

As of September 30,

2008 2009 2010 2010 2011 (Rp. in billions, except percentages) Rupiah .................................................................. 1.9 102.8 104.2 9.0 203.4 Foreign currency:

U.S. dollar.......................................................... 191.9 241.1 671.3 642.9 269.9 Euro ................................................................... - 4.1 4.3 19.2 1.0 Pound sterling ................................................... 1.1 3.9 3.9 1.9 2.5 Hong Kong dollar.............................................. 0.0 0.6 0.5 0.3 0.7 Australia dollar .................................................. 1.1 6.6 0.5 0.9 0.1 Japanese Yen ..................................................... 0.3 1.6 0.2 0.0 3.9 China renminbi.................................................. - - - - 2.8 Singapore dollar ................................................ 1.1 3.9 7.9 6.4 6.7 Total foreign currency....................................... 195.5 261.8 688.6 671.6 287.6

Total ..................................................................... 197.3 364.6 792.8 680.6 491.0

The following tables set forth Bank Sinarmas’ loans, classified by collectability:

As of December 31, 2008 2009 2010 Amount % of

total Amount % of

total (Rp. in billions, except percentages) Rupiah

Related third parties..................................... 83.4 2.0 164.1 3.0 240.8 3.4 Third parties................................................. 3,914.3 91.3 4,471.3 82.6 5,973.9 85.2 Subtotal ........................................................ 3,997.7 93.3 4,635.4 85.6 6,214.7 88.6

Foreign currencies Related third parties..................................... - 0.0 577.8 10.7 554.1 7.9 Third parties................................................. 283.7 6.7 200.7 3.7 243.0 3.5 Subtotal ........................................................ 283.7 6.7 778.5 14.4 797.1 11.4

Total.................................................................. 4,281.5 100.0 5,413.9 100.0 7,011.8 100.0 Allowance for impairment losses..................... (52.7) (90.9) (77.6) Net .................................................................... 4,228.8 5,323.0 6,934.2

As of September 30, 2010 2011 Amount % of total Amount % of total (Rp. in billions, except percentages)

Rupiah

Related third parties...................................... 309.4 5.0 236.2 2.6 Third parties.................................................. 5,078.6 81.9 7,371.2 80.4 Subtotal ......................................................... 5,388.0 86.9 7,607.4 83.0

Foreign currencies Related third parties...................................... 548.9 8.8 1,199.8 13.1 Third parties.................................................. 267.6 4.3 356.5 3.9 Subtotal ......................................................... 816.5 13.1 1,556.3 17.0

Total................................................................... 6,204.5 100.0 9,163.7 100.0 Allowance for impairment losses...................... (141.9) (97.2) Net ..................................................................... 6,062.6 9,066.5

Non-Performing Loans

Non-performing loans (“NPLs”) are handled within each branch and then delegated to the Settlement Committee of Non-Performing Loans. The function of this committee is to verify the analysis of credit proposals of loan restructurings and to take necessary actions to resolve loan problems.

Analysis of NPLs by Industry Sector

The following table shows the industry classification of Bank Sinarmas’ NPLs as of the dates specified:

As of December 31, As of September 30, 2008 2009 2010 2010 2011 (Rp. in billions) Rupiah:

Agriculture, hunting and agriculture facilities ................... 0.5 - 12.5 12.6 0.5 Manufacturing .................................................................... 3.8 22.1 - 4.6 0.8 Construction ....................................................................... 16.6 31.9 22.3 15.6 21.8 Trading, restaurant and hotel.............................................. 2.0 0.4 4.3 5.0 4.8 Transportation, warehousing and communication............. - 52.1 12.5 14.5 12.5 Business services................................................................ 41.0 - 33.5 72.0 34.1 Social and public services .................................................. - - 0.1 - 0.1 Others ................................................................................. 0.9 6.3 3.1 3.0 12.5 Total domestic .................................................................... 64.8 112.8 88.3 127.3 87.1

Foreign currency: Mining ................................................................................ - - - - - Manufacture........................................................................ - 4.7 - 4.5 - Construction ....................................................................... 20.4 - - - - Total international .............................................................. 20.4 4.7 - 4.5 -

Total ........................................................................................ 85.3 117.5 88.3 131.8 87.1 Allowance for impairment losses ........................................... (11.6) (28.3) (10.2) (14.1) (6.0) Net ........................................................................................... 73.7 89.2 78.1 117.6 81.1

Provisions for Loan Losses

The following table sets forth the charges in allowance for possible losses on loans as of the dates specified:

As of December 31, As of September 30, 2008 2009 2010 2010 2011 (Rp. in billions) Balance at beginning of the year:

Individual............................................................................. - - 14.2 14.2 3.6 Collective............................................................................. 34.0 52.7 76.7 76.7 74.1

Adjustment on SFAS No. 55 Revised 2006 ............................ - - 4.3 4.3 - Recovery:

Individual............................................................................. - - - - 6.2 Collective............................................................................. - - - - -

Provision during the year: Individual............................................................................. - - 4.9 11.2 6.8 Collective............................................................................. 17.1 73.4 48.3 38.6 12.3

Accrual interest on impairment loans ...................................... - - (5.2) 0.0 0.0 Write-off................................................................................... 0.0 (16.0) (63.0) (5.3) (0.2) Exchange rate differences ........................................................ 1.6 (19.2) (2.6) 2.2 (5.5) Balance at end of year .............................................................. 52.8 90.9 77.6 141.9 97.3

Prior to January 1, 2010, minimum levels of loss allowances maintained by the Bank are based on classifications of non-productive assets and allowances for impairment losses on non-productive assets based on Bank Indonesia regulations. Beginning January 1, 2011, the Bank no longer applies the Bank Indonesia transitional provisions for collective impairment of loans and uses an “incurred loss” methodology for collective asset impairments.

The following table sets forth the movement of loans written-off as of the dates specified:

As of December 31, As of September 30, 2008 2009 2010 2010 2011 (Rp. in billions) Balance at beginning of period ................................................ 0.8 0.7 13.6 13.7 74.8 Mutation during the year:

Write-off................................................................................ - 16.0 63.0 5.3 0.2 Delete Notes .......................................................................... - (2.0) - - - Recovery ............................................................................... - - - - (6.2) Exchange rate difference....................................................... - (1.0) (1.8) (1.9) (1.2)

Balance at end of period .......................................................... 0.8 13.7 74.8 17.1 67.6

Capital Adequacy

Bank Sinarmas maintains capital adequacy ratios in accordance with the requirements of Bank Indonesia which follow the Basel II framework. The following table sets forth a breakdown of Bank Sinarmas’ capital adequacy as of the dates specified:

As of December 31, As of September 30, 2008 2009 2010 2010 2011 (Rp. in billions, except percentages) Capital Stock Component:

Core Capital................................................................... 462.0 597.6 912.1 660.7 1,272.9 Supplementary Capital .................................................. 44.3 51.1 62.0 64.3 72.2

Total Core and Supplementary Capital....................... 506.3 648.7 974.1 725.0 1,345.1

Risk Weighted Assets: Credit risk after considering specific risk ..................... 3,987.5 4,648.9 6,529.9 5,147.1 8,647.1 Market risk .................................................................... 15.2 38.0 54.3 8.6 73.2 Operational risk ............................................................. - - 322.3 322.2 749.0

Total Risk Weighted Assets for credit, market and operational risk .................................................................

4,002.7 4,686.9 6,906.5 5,477.9 9,469.3

Core Capital Ratio............................................................ 10.4% 11.9% 14.0% 12.1% 15.0% Capital Adequacy Ratio:

With credit risk ............................................................ 12.7% 14.0% 14.9% 14.1% 15.6% With credit and market risk ......................................... 12.7% 13.8% 14.8% 14.1% 15.4% With credit and operational risk .................................. n/a n/a 14.2% 13.3% 14.3% With credit, operational and market risk ..................... n/a n/a 14.1% 13.2% 14.2%

Required minimum capital adequacy ratio ...................... 8.0% 8.0% 8.0% 8.0% 8.0%

Reserves

In addition to interest income on credit extended and customer deposits, Bank Sinarmas also maintains a higher level of minimum reserve requirements than that required by Bank Indonesia in anticipation of the withdrawal of deposits by customers in large numbers.

The role of information technology is important to the Bank’s business. Bank Sinarmas invests in the development of information technology to provide and support all of its business requirements and focuses on work effectiveness, efficiency improvement and customer orientation.

Risk Management

Credit Risk

Credit risk is the risk that a debtor, counterparty or other party will fail to fulfill its obligations as they fall due. Credit risk may arise from a variety of activities such as funding, investment and trade finance. Credit risk can be managed by an independent opinion or risk mitigation review with respect to credit exposure of a significant amount, credit-related products or credit activities which have a high inherent risk. Risk mitigation review is designed to manage individual credit risk in the Bank. The process involves review of compliance and legal aspects, early warning signals, quality of credit analysis, loan documentation and

covenants, and portfolio management. The Bank measures and monitors the risk of each debtor as an individual, its economic sector and its overall credit portfolio by employing the “four-eyes” principle.

The objectives of credit risk management include:

(1) identification and determination of the credit risks inherent in banking operations;

(2) dealing with credit risk in banking activities;

(3) increasing the balance between sound credit expansion and prudent credit management so as to avoid a decrease in the quality of the Bank’s loans or the number of non-performing loans;

(4) optimization of the capital allocated to credit risk by ensuring that credit is extended in accordance with sound credit extension principles; and

(5) ensuring that any deviation from policies, procedures and limits have been appropriate.

For the purpose of implementing credit risk management practices, Bank Sinarmas has prepared a variety of credit risk parameters, policies and procedures which are capable of ensuring that credit portfolios are properly managed. As of August 2010, the bank adopted the three-pillar assessment of credit asset quality to help rating analysis of debtors with respect to any credit facility proposal of Rp.1.0 billion or more. The three-pillar assessment involves analysis of the debtor’s business prospects, financial performance and capacity to pay. Business prospects include potential for business growth, market condition, position compared to its competitors, quality of management and employee issues, support from the debtor’s group or affiliates and the debtor’s maintenance of standard of living. Financial performance includes the debtor’s profitability, capital structure, cash flow and sensitivity to market risk. Capacity to pay the loan includes accuracy of payment of principal and interest, availability and accuracy of the debtor’s financial information, fulfillment of loan documentation, compliance with loan contracts, the debtor’s drawdown of loans in compliance with the purpose of the loans and the debtor’s source of payment.

Market Risk

This risk may occur due to the variables of the portfolios owned by the Bank, such as interest rates and exchange rates. The bank’s investments include securities, foreign exchange and placements with other financial institutions.

Market risk is managed within an overall risk limit, such as hedging. All commercial activities relating to foreign exchange, the money market and securities are monitored on a daily basis and reviewed through the mark-to-market method according to specified limits and in accordance with Bank of Indonesia regulations.

Interest rate risk is calculated according to the position of financial instruments recorded in the trading book as being exposed to interest rate risk. The risk comprises both specific risks (employing Interest Rate Rating in Banking Book method) and general risk. Interest Rate Rating in Banking Book method aids Bank to specify for both of Risk Sensitivity of Assets and Risk Sensitivity of Liabilities, and then identifies mismatches in their maturity basis for fixed interest rate. Mismatches for the floating interest rate will be found based on adjustment of their next interest rate period. The Bank sets saving interest rates on the basis of the results of monitoring the fluctuations in Deposit Insurance Corporation interest rates and by reviewing saving account interest rates that have set by other comparable banks. Credit interest rates are set by adding certain margins such as risk premium and strategic management adjustment to Bank Sinarmas’ cost of funds.

Exchange rate risk is managed according to the limits of net open positions regulated by Bank Indonesia, whereby the Bank is required to manage and maintain its net open position not higher than 20.0% of equity every 30 minutes between the opening and closing times of Bank Sinarmas’ treasury system.

Liquidity Risk

Liquidity risk is the risk that Bank Sinarmas fails to make payments for its obligations which fall due and may arise from the Bank's activities in the funding, treasury and investment and credit instrument areas.

This risk is managed by the Bank’s policy, supervisory and limitation frameworks to ensure that there is minimum funding concentration as well as diversified sources and terms of funding. The Bank proactively manages its core funds base, being those funds which are assumed to be stable, and ensures that the existing liquidity limits are complied with.

In liquidity risk management, Bank Sinarmas takes into account such liquidity factors as pricing and gapping of sources of funds and credit, analysis of capital and current asset adequacy, including securities investments.

Operational and Information Technology Risk

Operational and information technology risk is the risk of a malfunction of existing internal processes, frauds, human error, system failure, weak handling of customer complaints and other external problems that have the potential to produce operational risk. Operational risk is managed through the adoption of policy, processes and procedures undertaken by working units through the identification, assessment, monitoring and minimization of existing operational risk.

In addition, independent second opinions are solicited which may take the form of risk mitigation review with respect to, among other things, the creation of standard operating procedures. New products and activities are assessed to ensure that any related operational risks can be identified and continually managed.

Legal Risk

Legal risk is the risk of uncertainties arising from applicable or changing regulations, uncertainties in the law arising from lawsuits, lack of legislative support or weak contracts. The Bank’s Corporate Legal Department ensures that all legal risks are monitored and properly managed. Given that legal risk may arise from each business and operational activity of the Bank, there is continual management and mitigation of this risk.

Reputation Risk

Reputational risk is the risk that the failure to adopt business practices, non-compliance with applicable laws and regulations, and adverse publicity relating to the Bank’s operations will lead to negative perceptions of Bank Sinarmas. This could result in a decrease in the Bank’s number of customers and income, and require an increase in public relations costs to recover customer, partner and regulator trust.

All employees of Bank Sinarmas are responsible for this risk type, and it can be measured from customer complaint reports which are handled by the Customer Care Unit. The Customer Care Unit receives and deals with customer complaints relating to Bank Sinarmas’ products and services, whereas the Corporate Secretary carries out a variety of public relations activities to create positive publicity regarding Bank Sinarmas.

Strategic Risk

This risk relates to the potential loss arising from erroneous strategic business decisions, inaccurate business strategies or the Bank’s inability to respond to business opportunities and changes in the external environment.

To manage its strategic risk, Bank Sinarmas takes steps which include:

(1) gathering strategic information and market monitoring;

(2) preparation of business plans according to Bank Sinarmas’ vision and mission and taking into account its abilities and business prospects;

(3) communicating Bank Sinarmas’ business plans to its officers and employees at each organizational level for proper implementation so that its goals can be achieved; and

(4) collective and comprehensive decision-making processes by supervisory and executive committees.

Compliance Risk

This risk may arise if Bank Sinarmas fails to comply with or fulfill the requirements under applicable laws and regulations. In order to manage this risk, the Bank adopts strict monitoring and internal control systems to ensure that business processes run smoothly in accordance with regulations. The Bank identifies any potential breach of business activity procedures that may incur the risk of interrupting the Bank's finances and reputation. In addition, good corporate governance practices are effective tools to ensure and monitor compliance with both internal and external regulations. See “—Corporate Governance”.

Risk Management Certification

In order to improve human resources in risk management, Bank Sinarmas encourages its Executives and Officers to join and pass the Risk Management Certification Tests conducted by the Risk Management Certification Agency.

Risk Profiles

Risk profiles are self-assessed quarterly reports submitted to Bank Indonesia. All types of risk factors are assessed with an emphasis on the risks inherent in each of Bank Sinarmas’ activities.

In accordance with Bank Indonesia Regulation No. 11/25/PBI of 2009, dated July 1, 2009, regarding Amendments to Bank Indonesia Regulation No. No. 5/8/PBI of 2003 regarding the Adoption of Risk management by Commercial Banks, with effect from July 1, 2010, risks are no longer classified into three categories (1 - low, 2 – moderate, and 3 - high) but five (1 - low, 2 - low to moderate, 3 - moderate, 4 - moderate to high and 5 - high). Based on the assessment as of December 31, 2010, Bank Sinarmas’ overall risk was assessed as being low and stable in comparison with the overall risk assessment of the previous period.

Risk Management Practices

The effective and comprehensive adoption of risk management practices is an essential element of Bank Sinarmas’ business activities, and benefits the Bank and its stakeholders by creating shareholder value, as well as assisting Bank Sinarmas’ management and decision-making system. Bank Sinarmas’ risk management framework provides for accurate measurement of the Bank's performance, its assessment of risks inherent in its instruments and business activities, and continuation of a strong risk management infrastructure to help strengthen its competitiveness.

Bank Sinarmas has adopted a risk management strategy which adheres to the principles of prudence with clear accountability. Risk frameworks and processes have been established in anticipation of a variety of internal and external risks. The strategy covers active supervision by management, adoption of policy and procedures, establishment of risk limits, risk identification, measurement and monitoring processes, and application of information, risk control and internal control systems.

Bank Sinarmas assesses credit, market, liquidity and operational risks of each activity, with awareness of other risks inherent in non-operational activities such as legal, reputation, strategic and compliance risks.

Risk Management Organization

In order to identify, measure, monitor and control risks which may arise from the Bank’s commercial activities, the Bank established a risk management organization that ensures that risk management processes are in place in all areas of Bank Sinarmas’ activities and existing business lines.

Risk Management Working Unit

The Risk Management Working Unit operates independently of risk taking units such as the treasury and investments, credit, funding, accounting and internal control working units.

The Risk Management Working Unit is managed by the Directorate of Risk Management. Given the growth by Bank Sinarmas of risk management scope, as of 2010 this unit has increased the number of its personnel dealing with risk management.

This unit’s duties and responsibilities include:

(1) monitoring the implementation of the risk management strategy recommended by the Risk Management Committee and approved by the Board of Directors;

(2) further monitoring of the overall risk exposure level by type of risk and functional activity;

(3) periodic review of risk management processes;

(4) preparation and presentation of quarterly risk profile reports to Bank Indonesia; and

(5) recommending the maximum amount or highest degree of risk exposure which Bank Sinarmas can retain.

For the purposes of active supervision and monitoring of risk management by the Risk Management Working Unit, the Risk Management Committee and the Risk Monitoring Committee have been established at the Executive Officer, Director and Commissioner level.

Risk Management Committee

This committee adopts an effective risk management framework and ensures risk supervision through risk tolerance, limits and management strategy. The Risk Management Committee is led by the Risk Management Director and its key role is to set risk management policy, strategy and guidelines, improve the application of risk management procedures based on results of its regular evaluation of the performance of risk management procedures, justification of issues related to any irregularities in the business, developing risk management culture at all levels of the organization, and ensuring that risk management has been implemented independently.

Risk Monitoring Committee

This committee implements the duties and responsibilities of the Board of Commissioners and evaluates the consistency and adequacy of the risk management policy and its implementation and works in conjunction with the Risk Management Committee and the Risk Management Working Unit.

Assets and Liabilities Committee

Bank Sinarmas also has an Asset and Liability Committee (“ALCO”) which formulates strategies for the management of asset and liabilities and recommends to management the interest rates for funding and placement of funds in order to improve Bank Sinarmas’ competitiveness. The duties of Bank Sinarmas’ ALCO include policy- making and approval, forming strategy and preparation of interest rate risk guidelines, liquidity policy, setting guidelines for and approval of funding, preparation of general measurement methods for the bank relating to market risks (covering interest rates, exchange rates and securities valuations), liquidity risk, setting of the overall limit of each currency for market risk and liquidity risk management purposes, monitoring, approval and refusal of excess limits and the occurrence of excess limits in accordance with the risk management policy in place. ALCO is chaired by the President Director and comprises other Directors, head of risk management, members of the credit committee and heads of various operational departments and meets on a monthly basis to review macro and micro economic circumstances and other factors which affect Bank Sinarmas’ interest rate policy.

Corporate Governance

In addition to Bank Sinarmas’ risk management policies and activities, it has the following programs and units.

Audit Committee

Our Audit Committee was formed with the aim of assisting the Board of Commissioners in performing its supervisory duties and functions with respect to matters relating to financial information, internal control systems, internal and external audit effectiveness, risk management effectiveness and compliance with the

applicable laws and regulations.

The committee’s duties, authority and responsibility include, but are not limited to, the monitoring and assessment of audit plans and implementation and further monitoring of audit findings for the purpose of evaluating internal control adequacy, including that of the financial reporting process.

In order to carry out its duties, the Audit Committee monitors and evaluates:

(1) the performance of duties by the Internal Audit Working Unit;

(2) consistency of audit implementation by public accountants with the applicable audit standards;

(3) consistency of financial statements with the applicable audit standards; and

(4) follow up by Board of Directors on the findings of the Internal Audit Working Unit, public accountants and results of Bank Indonesia supervision so as to offer recommendations to Board of Commissioners.

The committee holds meetings on a periodic basis to evaluate the performance of the Internal Audit Working Unit and follow up by Board of Directors on the results of internal and external auditors so as to offer recommendations to Board of Commissioners. In 2010, the committee held three meetings to discuss the Audit implementation and work of the Internal Audit Working Unit (“SKAI”).

Internal Control System

For efficient and effective management purposes, the Bank has established an Internal Control System (“ICS”) to serve as the basis of sound and secure operations.

As control is a function of management, the ICS is responsible for assisting management in ensuring that internal controls are adequate and run in a proper manner.

Bank Indonesia Regulation No. 5/8/PBI/2003, dated May 19, 2003 regarding the Adoption of Risk Management by Commercial Banks and Bank Indonesia has issued Circular No. 5/22/DPNP, dated September 29, 2003, regarding the Standard Guidelines for ICS at Commercial Banks require every commercial bank to prepare ICS Guidelines which cover:

(1) management oversight and control culture;

(2) risk recognition and assessment;

(3) control activities and segregation of duties;

(4) accounting system, information and communication; and

(5) monitoring activities and correcting deficiencies.

The Bank’s ICS was adopted by its Board of Commissioners and Board of Directors through Order No. 002/0001.095, dated December 15, 2004 regarding ICS Guidelines. These guidelines serve as a reference for all Bank levels for the performance of daily operational activities.

Internal Audit Working Unit

In the performance of monitoring activities, the Internal Audit Working Unit carries out several activities which include:

(1) performing regular audits on branches/work units focusing on the risk exposure level at each branch/work unit. The audit includes all aspects and activities of the branches/work units (including operational, loan and human resources aspects) and audit results are submitted to all members of the Board of Directors and Audit Committee;

(2) reviewing each standard operating procedure that will be adopted by Bank Sinarmas;

(3) making recommendations for the efficient and effective achievement of bank objectives through proposed policies, systems and procedures to ensure proper internal controls; and

(4) identification, evaluation and implementation of risk management procedures.

In addition, SKAI has branch auditors in several branches which function as daily auditors as well as consultants for those branches. Branch auditors are always independent from any operational work unit or branch activities.

External Audit

In accordance with Bank Sinarmas’ Articles of Association, its Board of Commissioners is required to recommend public accountants to perform the audit of Bank Sinarmas’ books. The accountants must hold a license issued by the Department of Finance and be registered with Bapepam-LK.

The accountants conduct general audits so as to arrive at opinions on the reasonableness of Bank Sinarmas’ financial statements and determine that they are presented in accordance with Indonesian PSAK.

The Bank at all times ensures the adequacy of procedures and policies in place so as to comply with applicable laws and regulations. Its policies and procedures are subject to periodic reviews and assessments by the relevant units. The Bank has set risk limits through parameters and/or indicators of risk monitoring and measurement.

Risk exposure is monitored on a comprehensive basis by type of risk (credit risk, market risk, liquidity risk, operational risk, law risk, reputational risk, strategic risk and compliance risk) and by functional activity. In addition, data and information management are subjected to continual improvement to help enhance risk measurement and monitoring processes.

Verification and review are conducted periodically and continually with respect to dealing with any material weaknesses and determining follow up measures to be undertaken to remedy any inconsistencies.

This unit is independent of risk-taking units such as the treasury, investment, credit, funding and accounting units, and the Internal Audit Working Unit.

The Risk Management Working Unit falls under the Directorate of Risk Management. As Bank Sinarmas has expanded the scope of risk management, as of 2010 this unit has increased the number of staff dealing with risk management.

Compliance Working Unit

The Compliance Working Unit was formed as part of Bank Sinarmas’ corporate governance strategy and to fulfill Bank Indonesia regulations. It is responsible for ensuring Bank Sinarmas’ compliance with any and all the applicable Bank Indonesia and other regulations and upholding prudential principles with respect to the bank’s core business, lending. This unit also monitors Bank Sinarmas’ obligation to submit regular reports to Bank Indonesia and the PPATK and designs internal policies for the Director of Compliance to ensure that management policies are consistent with applicable laws and regulations. In addition, this unit ensures the Bank’s compliance with all the agreements made by and between Bank Sinarmas and Bank Indonesia and other competent authorities. The unit’s main function is to ensure consistency with any and all the provisions of the applicable laws and regulations, fulfillment of commitments to the competent authorities, implementation of reasonable business activities, that is, lending and provision of products and services, compliance of each unit’s operational activities and implementation of AML and TPF principles.

In order to perform its compliance function, the Compliance Working Unit is responsible for ensuring that Bank Sinarmas follows the fundamentals of compliance function performance.

In order to avoid conflicts of interest, Bank Sinarmas established a special work unit or appointed independent officials. The Compliance Work Unit has initiatives, among others, to develop the monitoring process through a transaction identification system carried out by Walk in Consumer (“WIC”) for suspicious

transactions and cash transactions of large amounts.

In order to improve understanding of the implementation of AML and TPF principles, the unit at all times communicates and socializes with all business units through face-to-face encounters and the compliance portal. As part of the supplementary media to accelerate understanding, pocket practical guides for KYC principles are distributed.

In order to apply good corporate governance in accordance with prevailing regulations, Bank Sinarmas appointed Salis Teguh Hartono as Compliance and Legal Director.

Under Bank Indonesia Regulation No. 13/2/PBI/2011, dated January 12, 2011, regarding the Performance by Commercial Banks of the Compliance Function, the Director of Compliance is responsible for:

(1) strategy formulation so as to encourage the creation of a bank compliance culture;

(2) proposing of compliance policies and principles for adoption by the Board of Directors;

(3) determination of compliance systems and procedures for adoption in the preparation of bank internal rules and guidelines;

(4) ensuring that all Bank Sinarmas’ policies, rules, systems, procedures and business activities follow the applicable Bank Indonesia and other regulations and laws, including those concerning the Sharia principles for Islamic commercial banks and business units;

(5) mitigation of bank compliance risk;

(6) ensuring that any policy and/or decision made by Bank Sinarmas’ Board of Directors follows the applicable Bank Indonesia and other regulations and laws; and

(7) performing other duties relating to compliance.

In his duties and responsibilities, the Compliance and Legal Director is supported by the Compliance Unit and UKPN.

Implementation of the Anti-Money Laundering and Terrorism Funding Prevention Program

In order to implement Bank Indonesia Regulation No. 11/28/PBI/2009, dated July 1, 2009 regarding the Implementation by Commercial Banks of the Anti-Money Laundering (“AML”) and Terrorism Funding Prevention (“TFP”) Program, Bank Sinarmas has adopted the following measures:

(1) requiring provision of complete customer particulars;

(2) careful examination of any customer candidate intending to open a bank account;

(3) monitoring the financial profiles of customers, including the transactions consummated by walk-in customers; and

(4) developing an information technology system for the monitoring of customers’ unusual or suspicious financial transactions.

The policy and risk management procedures relating to AML and TFP principles form part of the Bank’s overall policy and procedures and are incorporated into elements such as supervision by bank management, delegation of authority, separation of duties and responsibility, internal control system and employee training.

Branch office heads, operations heads and supervisors are fully responsible for the implementation of the AML and TFP program in their respective branch offices.

For effectiveness purposes, the adoption by Bank Sinarmas of AML and TFP principles is monitored

by a section-head level special working unit under the Know your Consumer Working Unit (“UKPN”) at the head office. The UKPN is responsible to the head in charge of operations under the Compliance Division, acting in his capacity as the Special Officer designated by the Board of Directors and under the Bank Indonesia regulation regarding the responsibility mechanism of Special Officers directly under Director of Compliance.

In addition, the Bank has developed and adopted an adequate information system for the identification, analysis, monitoring and furnishing of reports on money laundering transactions made by customers to the competent authorities.

The reports made to the Financial Transaction Reporting and Analytical Centre (“PPATK”) are as follows:

(1) if according to the monitoring of a branch office or a report on a customer cash transaction of equal or greater than Rp.500.0 million a customer makes a cumulative cash transaction with Bank Sinarmas of Rp.500.0 million or greater on a single day, the branch office makes a cash transaction report (“CTR”) to the head office’s UKPN. Upon examination by the UKPN and approval by the Director of Compliance, the report will be forwarded to the PPATK; and

(2) Suspicious Transaction Reports (“STR”) are made on the basis of reports made by the officer in charge of AML and TFP activities at a branch office and the results of monitoring and analysis by the UKPN. If upon repeat analysis a conclusion is made that there is a suspicious transaction, the UKPN will seek the consent of the Director of Compliance for the direct forwarding of the report to the PPATK.

The adoption of AML and TFP principles is at all times subject to the internal audit division, Bank Indonesia and the PPATK. The Bank continually makes improvements to its consumer identification files so as to increase the accuracy and completeness of customer particulars and make these consistent with Bank Indonesia regulations and international standards.

Competition

Bank Sinarmas’ primary competitors across all its principal businesses are other large and mid-size domestic banks as well as foreign banks operating in Indonesia. Bank Sinarmas also faces indirect competition from a variety of other types of financial services companies, such as multifinance and securities companies, savings cooperatives, leasing and factoring companies and venture capital companies, as well as from certain Government-owned or affiliated entities that provide industrial development funding and export/import lending and services. Additionally, our investment banking, insurance and Sharia banking businesses also face competition from companies that specialize in those industries.

Bank Sinarmas’ broad product offering and extensive branch network allow it to compete effectively with other mid-size banks. As the development and reform of the Indonesian financial sector continues, Bank Sinarmas expects to face increasing competition from financial institutions that may offer a wider array of banking services and products or have larger lending limits or stronger balance sheets. In addition, domestic competitors have formed, and can be expected to continue to form, strategic alliances with foreign banks with significantly greater financial, management and other resources.

Bank Sinarmas competes principally on pricing (for both loans and deposits), by monitoring relationships and on its ability to provide specific solutions to its customers’ needs. Its principal competitors are its peer banks, such as Bank Artha Graha Internasional Tbk, Bank ICBC Indonesia, Bank Economi, Bank Victoria, Bank Mutiara Tbk and Bank Mayapada. Bank Sinarmas’ key competitors in consumer finance are Adira Finance, WOM Finance and Astra Sedaya.

Real Property

As of September 30, 2011, Bank Sinarmas owned 48 properties comprising a total gross floor area of approximately 8,042 square meters with a net book value of Rp.65,252.6 million (US$7.4 million), most of which it uses for its branches, sub-branches and cash outlets. As of September 30, 2011, Bank Sinarmas also leased 91 properties comprising a total gross floor area of approximately 19,000 square meters, 84 of which are leased from related parties.

Bank Sinarmas is in the process of obtaining the trademark for the name of the Bank. It does not have any other intellectual properties.

Employees

As of September 30, 2011, Bank Sinarmas had a total of approximately 3,014 employees and 697 contract workers. In accordance with Bank Indonesia regulations, Bank Sinarmas has allocated at least 5.0% of its employee expenses to training. In 2010 and the nine months ended September 30, 2011, approximately 5.5% and 7.0%, respectively, of the Bank’s employee expenditures were allocated to training. Bank Sinarmas' education and training center, established in 2005, offers training programs for its employees. Operational staff are trained through on-line programs which focus on the skills for their respective areas. Operational staff are required to participate in at least 40 hours of basic training per year. For supervisors and officers, Bank Sinarmas also provides management training programs.

Insurance

Bank Sinarmas maintains insurance coverage for its vehicles and insurance coverage against earthquakes underwritten by Asuransi Sinar Mas. We believe that Bank Sinarmas’ insurance coverage is similar in scope to those customary for banking businesses in Indonesia.

Legal Proceedings

From time to time Bank Sinarmas may be involved in legal proceedings concerning matters that arise in the ordinary course of its business operations. We are not aware of any potential litigation, arbitration or administrative proceedings against Bank Sinarmas which might materially affect its business, financial condition or results of operations.

Securities – Sinarmas Sekuritas

Overview

We conduct our securities business primarily through our subsidiary, Sinarmas Sekuritas, which holds a license from Bapepam-LK as a stockbroker, investment manager and underwriter. Sinarmas Sekuritas has a full service securities business, offering a wide range of services such as trading and brokerage, investment banking and financial advisory services and offers asset management services through its subsidiary, Sinarmas Manajemen. Sinarmas Sekuritas also engages in proprietary trading.

Sinarmas Sekuritas provides debt and equity brokerage and trading services to individual investors. The investment banking division of Sinarmas Sekuritas provides corporate finance advisory and underwriting services and assists corporate consumers in raising funds in the capital markets through public offerings and private placements.

Sinarmas Manajemen provides asset management and investment advisory and management services to institutional, corporate and individual clients, which include pension funds, insurance companies and other financial institutions and high net-worth individuals. Its asset management division manages mutual funds and invests and manages a certain portion of Sinarmas Sekuritas’ equity on a proprietary basis. As of September 30, 2011, Sinarmas Manajemen managed various types of mutual funds, including equity funds, fixed income funds, mixed funds, Sharia funds and money market funds with total AUM of Rp.5,045.4 billion (US$571.8 billion).

Sinarmas Sekuritas’ operations benefit from synergies and cross-selling activities with SMMA’s other subsidiaries, in particular Bank Sinarmas. For example, Sinarmas Sekuritas complements Bank Sinarmas’ corporate banking activities by offering mutual funds products to Bank Sinarmas’ customers. Sinarmas Sekuritas also supports Bank Sinarmas’ retail banking activities through retail brokerage and asset management services provided to retail customers. Sinarmas Sekuritas has also opened a number of its branches in selected Bank Sinarmas branch offices in Jakarta and other major cities to provide asset management and retail brokerage services.

As of September 30, 2011, Sinarmas Sekuritas had one head office and 48 branch offices in several cities in Indonesia, all of which provide asset management services and 24 branch offices of which also provide brokerage services, including five branches in Jakarta. Through this branch network, Sinarmas Sekuritas has established relationships with approximately 500 institutional and individual agents who market its products.

As of December 31, 2010 and September 30, 2011, Sinarmas Sekuritas had Rp.1,221.1 billion (US$138.4 million) and Rp.1,042.0 billion (US$118.1 million), respectively, in assets and had executed Rp.627.0 billion (US$71.1 million) and Rp.458.5 billion (US$51.9 million), respectively, in equity trades. Sinarmas Sekuritas also has an extensive distribution network, and according to Investor Magazine August 2011, has one of the highest risk-weighted adjusted capital of Indonesian investment banks. For 2010 and the nine months ended September 30, 2011, Sinarmas Sekuritas had underwritten Rp.1,095.0 billion (US$124.1 million) and Rp.1,325.3 billion (US$150.2 million) in bond and equity offerings, respectively. All services offered through Sinarmas Sekuritas generated Rp.85.5 billion (US$9.7 million) in revenues in the nine months ended September 30, 2011. For the year ended December 31, 2010, Sinarmas Sekuritas recorded a net profit of Rp.238.9 billion (US$27.1 million) and had total assets amounting to Rp.1,221.1 billion (US$138.4 million) as of that date. For the nine months ended September 30, 2011, Sinarmas Sekuritas recorded a net profit of Rp.53.9 billion (US$6.1 million) and as of September 30, 2011 had total assets amounting to Rp.1,042.0 billion (US$118.1 million).

In October 2004, Sinarmas Sekuritas, together with Sinar Mas Multifinance, established PT Sinarmas Futures which engages in foreign exchange, gold and commodity trading.

We intend to further develop our securities and asset management business by focusing on the following key business initiatives:

(1) expand distribution of retail products using its existing network and growing as Bank Sinarmas grows its branch network;

(2) enhance Sinarmas Sekuritas’ technological capability to better support its online trading platform to expand its customer base;

(3) increase retail client acquisitions through market education programs by establishing a “Capital Market Corner” in a select number of universities across Indonesia; and

(4) focus on marketing to employees of the larger Sinar Mas Group, in particular in collaboration with Bank Sinarmas.

Products and Services

Sinarmas Sekuritas’ core business consists of proprietary trading, mutual fund management, retail brokerage and underwriting. The following table shows a breakdown of Sinarmas Sekuritas’ consolidated revenue breakdown by source for the periods indicated.

For the Nine Months Ended September 30,

2008 2009 2010 2010 2010 2011 2011 Rp. Rp. Rp. US$ Rp. Rp. US$ (Rp. in billions, US$ in millions) Revenue sources:

Brokerage commissions income ......................................... 23.6 26.0 30.7 3.4 22.2 33.6 3.8Underwriting fee and selling fees ....................................... 67.8 4.4 28.4 3.2 27.8 5.9 0.7Investment management income ........................................ 34.3 26.4 45.3 5.1 31.7 51.6 5.8Commissions from Commodity exchange transactions ..... 0.0 0.9 1.2 0.1 1.0 0.2 0.0Fixed income transaction fees............................................. 0.2 1.1 1.2 0.1 1.1 0.2 0.0Dividends ............................................................................ 5.3 2.7 5.6 0.6 5.3 8.6 1.0Gain (loss) on sale of equity securities ............................... 42.9 68.9 51.2 5.8 43.6 141.4 16.0Unrealized gain (loss) on fair value of marketable

securities ......................................................................... (72.6) 102.8 101.7 11.5 9.5 (156.1) (17.7)Total Revenues.......................................................................... 101.5 232.2 265.3 29.8 142.2 85.4 9.6

Proprietary Trading

Sinarmas Sekuritas generates a substantial a portion of revenue from its proprietary trading activities. Sinarmas Sekuritas invests and manages its equity on a proprietary basis, and as of December 31, 2008, 2009 and 2010 and September 30, 2011, such investments accounted for approximately 33.4%, 23.7%, 11.4% and 6.2%, respectively, of its total AUM and 3.1%, 2.6%, 1.6% and 0.7%, respectively, of SMMA’s total assets. Its proprietary trading includes investments in both equity and debt with a focus on high quality liquid stocks namely, the 45 largest stocks traded on IDX in terms of market capitalization. The investment strategies for its proprietary trading, such as the composition of funds, sectors to hold and holding limits for certain categories of stock, are determined by its investment committee, which meets once a month. All the stocks held in its proprietary trading portfolio are LQ-45 stocks, which are selected for inclusion in the stock composite based on liquidity, market capitalization and transaction volume. As of September 30, 2011, Sinarmas Sekuritas had a team of five traders, three of whom make trading decisions. For the years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, Sinarmas Sekuritas derived 42.3%, 29.5%, 19.4% and 165.5% of its revenue from proprietary trading activities. For the years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, unrealized gain (loss) on the fair value of its marketable securities represented (71.1)%, 44.1%, 38.3% and (182.7)% of total revenues, respectively.

Asset Management

Sinarmas Sekuritas, through its subsidiary, Sinarmas Manajemen, provides asset management services to its customers from which it generates investment management fees. As of December 31, 2008, 2009 and 2010 and September 30, 2011, Sinarmas Sekuritas had AUM of Rp.1,424.4 billion, Rp.2,148.4 billion, Rp.3,891.2 billion (US$441.0 million) and Rp.5,045.4 billion (US$571.8 million), respectively, of which Rp.86.8 billion, Rp.115.8 billion, Rp.26.9 billion (US$3.0 million) and Rp.40.9 billion (US$4.6 million) comprised assets from Sinar Mas Group companies other than the SMMA Group. Its funds include both open-end and closed-end funds, and are predominantly fixed-income funds. As of September 30, 2011, Sinarmas Sekuritas had 13 funds, including six fixed income funds, three money market funds, two hybrid funds (which invest in both fixed income and equity) and one protected fund which provides protection against price movements as its investments comprise bonds that are held to maturity. As of the same date, 81.7% of AUM were held in fixed income funds, 10.0% of AUM were held in hybrid funds, 3.7% of AUM were held in money market funds and 3.5% of AUM were held in equity funds, with the remainder held in the protected fund or exchange traded fund.

Sinarmas Sekuritas typically charges a front-end fee at the time of initial purchase for equity funds and a management fee for all funds at month end. Front-end fees average 0.3% to 1.0% for equity funds, and there is no front-end fee for the purchase of domestic fixed-income funds. Front-end fees are discounted for large purchases of equity funds, typically made by institutional investors, and average 0.3% to 0.5%. Management fees average 1.0% to 2.5% for equity funds and approximately 1.0% to 1.8% per annum for fixed-income funds. They also typically charge a redemption fee if unit owners resell their units within one year. Sinarmas Sekuritas focuses mainly on retail investors, including high net worth individuals, who formed approximately 89% of its customer base based on AUM as of September 30, 2011. Other customers include insurance companies and pension funds. As of September 30, 2011, Sinarmas Sekuritas serviced over 7,000 customers of its asset management business through 48 branches across Indonesia. For the years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, investment management income represented 33.8%, 11.3%, 17.1% and 60.4% of total revenues, respectively.

Brokerage

Sinarmas Sekuritas provides brokerage services to corporate and retail customers for their trading of equities and fixed income securities. Sinarmas Sekuritas generates brokerage commissions from executing and clearing the buy and sell orders of its clients. For the years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, brokerage commissions represented 23.3%, 11.2%, 11.6% and 39.4% of total revenues, respectively. From 2006 to 2010, the value of total transactions performed has grown at a CAGR of 74.8%. As of September 30, 2011, Sinarmas Sekuritas managed approximately 10,000 accounts.

Sinarmas Sekuritas intends to complement its network of branches with alternative trading platforms such as its online trading platform and touch-tone phone and mobile phone trading which covers all major mobile platforms including Blackberry, Android, iPhone and iPad. As of September 30, 2011, Sinarmas Sekuritas had over 3,500 online trading accounts registered and for the nine months ended September 30, 2011, over 7.9% of total retail customer trading volume derived from trades executed through its alternative trading

platforms. As its system continues to improve, Sinarmas Sekuritas expects the contribution of its online trading to significantly increase, along with the number of its customers.

Underwriting, Advisory and Financing

Sinarmas Sekuritas provides underwriting services to customers for both equity and debt. It underwrites corporate bonds, initial public offerings, secondary offerings as well as rights issues. It underwrote Rp.1,095.0 billion (US$124.1 million) and Rp.1,325.3 billion (US$150.2 million) of initial public offerings of securities in 2010 and the nine months ended September 30, 2011, respectively, including the initial public offerings of Indostrait and Bank Sinarmas in 2010. In 2010, it underwrote nine initial public offerings in total. It also conducts private placements, provides advisory services for merger and acquisitions and provides project financing and pre-initial public offering financing. It earns underwriting commissions, advisory fees and interest income and from time to time receives share allocations. For the years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, underwriting fees and selling fees represented 66.9%, 1.9%, 10.7% and 6.9% of total revenues, respectively.

Distribution

As of September 30, 2011, Sinarmas Sekuritas had 48 branch offices in several cities in Indonesia, all of which provide asset management services, and 24 of which also provide brokerage services, including five branches in Jakarta. Its branches function as its points of sale, where most of its services, aside from investment banking services, are offered. Sinarmas Sekuritas has approximately 500 individual agents located throughout its branches. Its agents mostly sell asset management products of Sinarmas Sekuritas and, to a lesser extent, other securities products of Sinarmas Sekuritas. Its agents sell its products on an exclusive basis, as Sinarmas Sekuritas does not share its agents with other subsidiaries of the Company. Additionally, Bank Sinarmas also acts as Sinarmas Sekuritas’ institutional agent, allowing it to market its products on Bank Sinarmas’ premises.

Net Adjusted Working Capital

Net adjusted working capital is a measure of liquidity which includes cash and cash equivalents and marketable securities. Bapepam-LK requires securities companies operating in Indonesia to meet a minimum net adjusted working capital of Rp.25.2 billion. As of September 30, 2011 Sinarmas Sekuritas had a net adjusted working capital of Rp.549.9 billion. Sinarmas Sekuritas is required to report its net adjusted working capital amount to Bapepam-LK and IDX on a daily basis.

The following table shows Sinarmas Sekuritas’ net adjusted working capital as of the dates indicated.

Rp. Rp. Rp. US$ Rp. Rp. US$ (Rp. in billions, US$ in millions) Net Working Capital:

Total Current Assets......................................................... 347.5 588.3 1,142.8 129.5 1,261.7 901.0 102.1 Total Liabilities ................................................................ 74.6 142.3 466.2 52.8 707.4 304.8 34.5

Working Capital ................................................................. 272.9 446.0 676.6 76.7 554.2 596.2 67.6 Adjustment:

Related Parties.................................................................. - - 6.3 0.7 7.5 0.4 0.1 Adjusted Gross Working Capital ....................................... 272.9 446.0 670.4 76.0 546.7 595.8 67.5 Risk Adjustment:

Equity in shares in recorded in BEI................................ 8.3 29.5 62.7 7.1 50.1 45.8 5.2 Other in shares in recorded in Bapepam-LK.................. 22.1 39.1 64.4 7.3 55.4

Adjusted Net Working Capital........................................... 242.5 377.3 543.3 61.6 441.2 549.9 62.3 Adjusted Net Working Capital Compulsory...................... 25.2 25.2 25.2 2.9 25.2 25.2 2.8 Amounts in excess of Net Adjusted Working Capital....... 217.3 352.2 518.1 58.7 416.0 524.7 59.4

Risk Management

Risk Management Structure

Sinarmas Sekuritas’ risk management policy is determined and implemented by its investment committee. Its investment committee comprises its President Director, its investment department head, two internal investment managers, the President Commissioner of SMMA and the investment manager for Asuransi Sinar Mas. The committee meets once a month and supervises the entire investment activities of Sinarmas Sekuritas, including asset management and proprietary trading. The committee decides on Sinarmas Sekuritas’ investment strategies and policies, determines its risk management guidelines, including trading limits for its brokerage customers, decides on institutions in which to invest its mutual fund units and selects which project financing projects to take on. Its investment committee, with assistance from its research department, adjusts such policies and strategies depending on prevailing market conditions. Sinarmas Sekuritas implements trading limits for its brokerage customers through a remote trading application which automatically imposes pre-set trading limits for each customer based on the amount of assets pledged by the respective customer. Sinarmas Sekuritas must also comply with other limitation prescribed by Bapepam-LK.

Risk Management Policy

Sinarmas Sekuritas identifies its risks as follows:

(1) Personnel Risks. Personnel risks includes risks relating to its employees’ conduct, such as misuse of authorities, unauthorized access to confidential data, unintended human errors and poor customer service.

(2) System Risks. System risks include risks relating to its information technology system, such as hardware and software failures, database crashes, network failures and virus/hacker attacks.

(3) Credit Risks. Credit risks include risks relating to credit exposures to customers, such as provision of trading limits which are excessive, insufficient assets pledged by customers and inaccurate customer data. It is also exposed to credit risk relating to credit exposures in connection with project and pre-initial public offering financings.

(4) Infrastructure/Safety Risks. Infrastructure/safety risks include risks relating to Sinarmas Sekuritas’ infrastructure and premises, such as natural disasters and inadequate telephone lines and working space.

(5) Investment/Trading Risks. Investment/trading risks include risks relating to trading or investment activities such as corporate risk, equity risk, foreign exchange risk, interest risk and liquidity risk.

(6) Payment Risks. Payment risks include risks relating to payment matters such as double payments, wrong transfers, late payments, and other problems experienced by banks in executing payment requests.

(7) Legal Risks. Legal risks include risks relating to compliance with prevailing regulations and ability to meet contractual obligations.

(8) Underwriting Risks. Underwriting risk includes the risk that an underwriter overestimates demand for an underwritten issue. To mitigate this risk, Sinarmas Sekuritas’ corporate finance team cooperates with its research and marketing teams to explore target markets before entering into any mandate with an issuer. Underwriting risk also includes the risk that market conditions change suddenly. To mitigate this risk, the corporate finance team will work with the issuer to revisit and renegotiate valuation as necessary.

Margin Lending

Sinarmas Sekuritas’ internal margin loan approval standards are based on set margin loan limits in connection with applicable Bapepam-LK regulations. When margin loan thresholds are reached, Sinarmas Sekuritas will automatically cease further lending.

Sinarmas Sekuritas monitors its balance sheet risk and exposure to margin lending daily. According to IDX regulations, Sinarmas Sekuritas may extend margin lending in the aggregate of not more than ten times of its net adjusted working capital and the maximum margin borrowing amount by an account holder may not result in the balance of short positions exceeding 15% of its net adjusted working capital. As of December 31, 2010 and September 30, 2011, the outstanding margin borrowing amounts were Rp.40.2 billion (US$4.6 million) and Rp.99.2 billion (US$11.2 million), respectively.

Underwriting

In order to limit balance sheet risk or exposure to underwriting, Sinarmas Sekuritas has adopted approval procedures for potential underwriting mandates. Such procedures include the review by an underwriting review committee and the approval of the President Director for any potential underwriting involving a commitment in excess of US$1.0 million. Sinarmas Sekuritas limits the amount of capital that it invests in the equity of any particular issuer in connection with an underwriting to the lower of US$50.0 million and its risk managed capital in accordance with Bapepam-LK regulations. As of September 30, 2011, the aggregate value of securities underwritten by Sinarmas Sekuritas that it continued to hold in its own account did not exceed 10.0% of its total assets or its risk managed capital.

Proprietary Transactions

Sinarmas Sekuritas monitors its proprietary trading positions weekly, and follows the following guidelines:

(1) the combined investment position for any individual company, including stocks, depositary receipts, convertible bonds and other types of bonds may not exceed 100.0% of Sinarmas Sekuritas’ shareholders’ equity in the prior month; and

(2) the investment position for each individual stock may not exceed 25.0% of i ts total exposure.

In addition, Sinarmas Sekuritas’ investment committee imposes limits on investment positions for different types of investments. The investment committee meets every month to assess investment positions and market risks and makes adjustments to trading positions in accordance with market conditions and set targets. Sinarmas Sekuritas has also established a stop-loss mechanism, consisting of different stop-loss thresholds for different types of investments. When a loss on investment reaches a certain threshold, the stop-loss mechanism is executed to control risk unless overridden by the investment committee.

Competition

Competition in the securities industry in Indonesia has been and is likely to remain intense. Its competition is based on a number of factors, including price, products and services, transaction execution capabilities, reputation, experience and knowledge of its staff and geographic scope.

Sinarmas Sekuritas competes primarily with well-established investment banks, asset management companies and brokerage houses in Indonesia. In its investment banking business, its principal competitors are domestic and regional investment banks, including CIMB, Bahana Securities and PT Danareksa Sekuritas. Its main competitors in the asset management business include Bank Panin, Bank Mandiri, Schroder Investment Management, BNP Paribas and Manulife Asset Management. In its retail brokerage business, its competitors include Indo Premier and E-trading.

Real Property

As of September 30, 2011, Sinarmas Sekuritas owned eight properties comprising a total gross floor area of approximately 9,000.2 square meters with a net book value of Rp.52.7 billion (US$6.0 million). As of September 30, 2011, Sinarmas Sekuritas also leased 28 properties comprising a total gross floor area of approximately 3,818.8 square meters, all of which are leased from other subsidiaries in the Group.

Sinarmas Sekuritas does not own any intellectual property rights.

Employees

As of September 30, 2011, Sinarmas Sekuritas had approximately 412 employees.

Insurance

Sinarmas Sekuritas maintains insurance coverage for its vehicles, insurance coverage against fire and group health insurance underwritten by Asuransi Sinar Mas. We believe that Sinarmas Sekuritas’ insurance coverage is customary for securities businesses in Indonesia.

Legal Proceedings

From time to time Sinarmas Sekuritas may be involved in legal proceedings concerning matters that arise in the ordinary course of its business operations. We are not aware of any potential litigation, arbitration or administrative proceedings against Sinarmas Sekuritas which might materially affect its business, financial condition, or results of operations.

Multifinance - Sinar Mas Multifinance and AB Multifinance

Our multifinance business is conducted principally through our 100.0% owned subsidiaries, Sinar Mas Multifinance and AB Multifinance. Our multifinance business comprises retail consumer financing, with a focus on financing vehicle purchases, refinancing loans, leasing capital goods and heavy equipment, principally to Sinar Mas Group companies, and factoring.

We intend to further develop our multifinance business and implement our overall strategy with respect to our consumer financing operations by focusing on the following business initiatives:

(1) cross-sell within the Sinar Mas Group businesses and focus on the retail market;

(2) expand into the under-penetrated motorcycle market, which we believe has high growth prospects outside of Java; and

(3) optimize internet-based and real-time technology to enhance operational efficiency.

Sinar Mas Multifinance

Overview

Sinar Mas Multifinance, established in 1985, is primarily engaged in consumer financing with a focus on new and used car and motorcycle financing and refinancing loans. As of September 30, 2011, approximately 95% of its revenue was derived from financing for the purchase of new and used cars and motorcycles and multipurpose financing, or refinancing loans, secured by new and used cars or motorcycles. In January 2010, Sinar Mas Multifinance entered the motorcycle financing and refinancing market. As of September 30, 2011, loans for the purchase of motorcycles and multipurpose loans secured by used motorcycles comprised approximately 8.1% of total loans originated and generated 37.1% of Sinar Mas Multifinance’s net income for the nine months ended September 30, 2011. It expects motorcycle financing and refinancing to represent an increasing proportion of the loans it originates, which currently generate a higher profit margin as compared to new and used car financings.

As of September 30, 2011, Sinar Mas Multifinance had one head office, 56 branches and 247 outlets for its consumer financing business. Each branch typically manages approximately six to nine outlets within a radius of 10 to 15 kilometers. Its branches also provide back-office operations for its outlets, such as accounting and finance, custody of titles and administrative support. Each branch also serves as a point of sale for origination of both car and motorcycle financing, while its outlets only serve as a point of sales for motorcycle financing. As of September 30, 2011, Sinar Mas Multifinance employed approximately 5,849 employees as compared to 1,115 employees in 2010, a significant increase largely due to its entry into the new and used motorcycle market and the increase in the number of its outlets. In the first nine months of 2011, Sinar Mas Multifinance opened 12 new branches in Sukabumi, Palu, Cilacap, Tuban, Sumedang, Salatiga, Muara Bungo, Gorontalo, Batam, Banjarmasin, Dumai and Kendari, and 50 outlets to provide motorcycle financing.

As of December 31, 2010 and September 30, 2011, consumer financing income from Sinar Mas Multifinance’s operations amounted to Rp.169.5 billion (US$19.2 million) and Rp.165.0 billion (US$18.7 million), respectively. As of December 31, 2010 and September 30, 2011, Sinar Mas Multifinance had total assets of Rp.904.8 billion (US$102.6 million) and Rp.1,389.8 billion (US$157.5 million), respectively.

Lending

Sinar Mas Multifinance offers two types of financing to customers: consumer financing for the purchase of new and used cars and motorcycles (“financing loans”), and multipurpose loans to customers, which are secured by title to the customer’s car or motorcycle (“refinancing loans”).

Sinar Mas Multifinance offers customers financing loans and refinancing loans, typically no greater than Rp.100.0 million or 80.0% of the appraised value of the car or motorcycle being purchased or securing the loan, whichever is lower, at a fixed interest rate for a term of one to three years, with principal and interest payable on a monthly basis. Customers are charged an administrative fee. Loans are extended for up to three years in the case of a car purchase or refinancing loan secured by a car, and up to two years in the case of a motorcycle purchase or refinancing loan secured by a motorcycle, with car financing loans and refinancing loans averaging 24 months in length and motorcycle financing loans and refinancing loans averaging 15 months in length. Sinar Mas Multifinance holds the title to the car or motorcycle until the borrowing is repaid in full. Customers are also required to have motor vehicle insurance for the car or motorcycle. As of September 30, 2011, all of Sinar Mas Multifinance’s car and motorcycle financing loans and refinancing loans were secured, with a collateral coverage ratio of at least 80.0% based upon the most recent appraisal values.

Channeling and Direct Loans

Sinar Mas Multifinance originates financing and refinancing loans through its branches and outlets. All of the refinancing loans Sinar Mas Multifinance originates are channeled to commercial banks in Indonesia, primarily Bank Sinarmas, with whom Sinar Mas Multifinance has channeling arrangements and has entered into channeling credit transfer agreements for facilities ranging from Rp.300.0 billion to Rp.750.0 billion. The banks in turn provide the loans directly to the customers and record the loans in their respective loan portfolio. Sinar Mas Multifinance channels substantially all of its refinancing loans to banks with whom it has arrangements. For 2010 and the nine months ended September 30, 2011, Sinar Mas Multifinance channeled Rp.1,598.2 billion (US$181.1 million), or 100.0%, and Rp.2,125.7 billion (US$240.9 million), or 100.0%, of its refinancing loans, respectively, all of which were channeled to Bank Sinarmas. By channeling these loans to Bank Sinarmas and other banks with whom it has such channeling arrangements, Sinar Mas Multifinance is able to benefit from banks’ competitive funding costs and the banks in turn are able to capitalize on Sinar Mas Multifinance’s

origination network. Sinar Mas Multifinance typically administers all financing and refinancing loans it originates, including the loans it channels to banks.

In certain cases, a bank with whom Sinar Mas Multifinance has a channeling arrangement will reject a loan originated by Sinar Mas Multifinance after a required credit check is performed by the bank through the debtor information system of Bank Indonesia and the borrower is found to be ineligible for a loan. In such instance, Sinar Mas Multifinance will retain the loan in its account and attempt to channel another loan to the bank which meets with the bank’s requirements.

Sinar Mas Multifinance originates and extends all of its financing loans directly to customers and records such loans in its loan portfolio. In such cases, Sinar Mas Multifinance pays the seller or dealers directly for the new and used car or motorcycle, holds the title certificate, and earns the margin between the interest rate charged to it under its facilities and the interest rate carried on the financing loan. For 2010 and the nine months ended September 30, 2011, Sinar Mas Multifinance held Rp.374.8 billion (US$42.5 million) and Rp.579.7 billion (US$65.7 million), respectively, of financing loans in its portfolio.

Sinar Mas Multifinance also participates to a limited extent in joint financing loans with participating commercial banks, typically with 90.0% of the financing provided by the bank and 10.0% of the financing provided by Sinar Mas Multifinance. For 2010 and the nine months ended September 30, 2011, Sinar Mas Multifinance no longer had loans from joint financing.

Sinar Mas Multifinance funds its lending through short-term (generally under one year) revolving loan facilities from both local state-owned and private banks, including Bank BNI, Bank CIMB Niaga, Bank Panin, Bank Victoria and Bank Capital, for its working capital. As of December 31, 2010 and September 30, 2011, it had total outstanding amounts under its loan facilities of Rp.473.7 billion (US$53.7 million) and Rp.791.2 billion (US$89.7 million), including a Rp.5.0 billion overdraft facility from Bank Sinarmas, respectively. As of December 31, 2010 and September 30, 2011, Sinar Mas Multifinance had total net loans to customers outstanding in the amount of Rp.374.5 billion (US$42.4 million) and Rp.578.4 billion (US$65.6 million), respectively.

The following table sets forth a breakdown of Sinar Mas Multifinance’s loan portfolio by loans channeled, direct loans and joint financing loans for the periods indicated.

2008 % of total 2009

% of total 2010

% of total 2011

% of total

(Rp. in billions, except percentages)

(US$ in millions)

Loans channeled: Financings .......................... - - - - - - - - - - - Refinancings....................... 418.2 51.0 500.1 58.0 1,399.0 75.0 1,134.4 72.0 1,907.3 216.2 70.6 Total.................................... 418.2 51.0 500.1 58.0 1,399.0 75.0 1,134.4 72.0 1,907.3 216.2 71.0Direct loans: Financings .......................... 327.2 40.0 351.5 40.0 474.3 25.0 445.7 28.0 793.0 89.9 29.4 Refinancings....................... - - - - - - - - - - - Total.................................... 327.2 40.0 351.5 40.0 474.3 25.0 445.7 28.0 793.0 89.9 29.4Joint financing loans.............. 74.8 9.0 14.7 2.0 - - 1.2 - - -Total....................................... 820.2 100.0 866.3 100.0 1,873.3 100.0 1,581.3 100.0 2,700.3 306.1 100.0

Leasing and Factoring

Sinar Mas Multifinance also purchases capital goods and heavy equipment, such as machinery and transportation equipment and leases them to other members of the SMMA Group and the larger Sinar Mas Group. In addition, Sinar Mas Multifinance engages in factoring activities for suppliers and vendors of the SMMA Group and the larger Sinar Mas Group. Leasing income accounted for 8.3% and 5.5% of Sinar Mas Multifinance’s revenue for 2010 and the nine months ended September 30, 2011, respectively. Factoring income accounted for 2.8% and 5.9% of Sinar Mas Multifinance’s revenue for 2010 and the nine months ended September 30, 2011, respectively.

Approval Process

Each Sinar Mas Multifinance outlet has an outlet head, who in turn reports to a marketing manager. Each marketing manager supervises two or three outlets within a radius of five kilometers. Each loan application received through the outlets must be approved by the outlet head and the marketing manager supervising the respective outlet, who together are authorized to approve loan applications of up to Rp.10.0 million for motorcycle financing and refinancing loans. For car financing and refinancing loans, each loan application must be approved by the branch manager and the operation head, who together are authorized to approve loan applications of up to Rp.150.0 million. For any amounts above these limits, the application must be approved by the regional head who oversees the branches.

Prior to approval of any loan application, financial and other information provided by potential customers on the application form is verified by a surveyor who visits the potential customer’s residence and/or conducts interviews. Customers are also required to produce their vehicles for inspection and valuation by the head of the respective branch or outlet based on vehicle pricing lists periodically provided to Sinar Mas Multifinance from Asuransi Sinar Mas.

For leasing and factoring, Sinar Mas Multifinance generally approves the supplier or vendor based on the recommendation of the Group member for which it engages in the leasing or factoring, and will also evaluate the supplier or vendor’s credit history and length of relationship with the Group.

Collection and Delinquency

For loans channeled to Bank Sinarmas, as well as direct loans it makes, Sinar Mas Multifinance requires customers to open a bank account with Bank Sinarmas and make their monthly payments through this account. If a customer fails to make a monthly payment, Sinar Mas Multifinance sends a notice to the customer before sending its collection staff to collect payment. If its collection staff is unsuccessful, it may also engage collection agencies to collect outstanding amounts. Sinar Mas Multifinance’s policy is to initiate repossession of cars and motorcycles securing its loans on the 12th day after payment becomes overdue. Sinar Mas Multifinance’s policy is to write-off a car financing loan or refinancing loan on the 121st day after payment becomes overdue and a motorcycle financing loan or refinancing loan on the 91st day after payment becomes overdue.

Sinar Mas Multifinance records loans in its loan portfolio on a cash basis, and when a loan is overdue, the loan is immediately recorded as a non-performing loan in its account. As of December 31, 2010 and September 30, 2011, Sinar Mas Multifinance’s delinquency rate for car financing and refinancing loans was 0.8% and 1.0%, respectively, and its delinquency rate for motorcycle financing and refinancing loans was 1.1% and 3.4%, respectively.

AB Multifinance

AB Multifinance was established in 1995 and engages primarily in leasing and factoring activities. Almost all of AB Multifinance’s customers are members of the SMMA Group or the larger Sinar Mas Group. AB Multifinance leases capital goods and heavy machinery to members of the SMMA Group and the Sinar Mas Group after purchasing the goods or machinery required by the SMMA Group or Sinar Mas Group member. In accordance with prevailing government regulation governing leasing activities, all leases are for durations of over three years. AB Multifinance also engages in factoring activities for suppliers and vendors of the SMMA Group and the Sinar Mas Group. Suppliers and vendors which hold account receivables from members of the SMMA Group and the Sinar Mas Group may sell the account receivable to AB Multifinance at a discount. AB Multifinance collects the account receivable from the respective SMMA Group or Sinar Mas Group member and deducts an amount from the amount to be paid to the supplier or vendor. During 2010 and the nine months ended September 30, 2011, AB Multifinance did not experience any material delinquencies by Group or Sinar Mas Group companies. Most of the factoring projects engaged in by AB Multifinance have a time frame of six months. As of December 31, 2010 and September 30, 2011, AB Multifinance had total factoring income of Rp.22.3 billion (US$2.5 million) and Rp.17.1 billion (US$1.9 million), respectively, and total leasing income of Rp.21.4 billion (US$2.4 million) and Rp.15.8 billion (US$1.8 million), respectively.

AB Multifinance has entered into working capital facility agreements with various banks. See “Sinar Mas Multifinance and AB Multifinance Working Capital Facility Agreements”. These banking facilities are used to fund AB Multifinance’s working capital which it uses to purchase and lease heavy equipment and other assets. As of September 30, 2011, AB Multifinance had total indebtedness of Rp.95.0 billion (US$10.8 million).

For 2010 and the nine months ended September 30, 2011, AB Multifinance had total assets of Rp.167.2 billion (US$19.0 million) and Rp.229.3 billion (US$26.0 million), respectively.

Risk Management

In selecting which loan applications to approve, Sinar Mas Multifinance applies certain risk management procedures. As a financing company, it is vulnerable to employees’ misconduct and negligence in performing their duties such as the negligence of its surveyors in conducting the required site checks or interviews, which increases its exposure to potential non-performing loans. As such, it requires its sales function and surveying function to be performed by separate and independent teams.

AB Multifinance’s management is fully committed to implementing risk management and ensuring it comprehensively effects risk management policies, procedures and methods so that AB Multifinance can carry out its business activities while minimizing risk to an acceptable level and simultaneously maintaining profitability. AB Multifinance has a credit risk policy which requires that credit applications are dealt prudently and that the credit is surveyed and analyzed and submitted for approval by the Audit Committee.

Regulation

Both Sinar Mas Multifinance and AB Multifinance are regulated by the Ministry of Finance and are required to obtain a license from the Ministry of Finance in order to operate a multifinance business. Each is subject to a minimum gearing ratio requirement, which requires it to limit its outstanding loans to less than 10 times its equity and subordinated loans (less any amounts of participation interests). For 2010 and September 30, 2011, Sinar Mas Multifinance had equity of Rp.396.0 billion (US$44.9 million) and Rp.546.5 billion (US$61.9 million) and a gearing ratio of 1.2% and 1.4%, respectively. For 2010 and September 30, 2011, AB Multifinance had equity of Rp.115.7 billion (US$13.1 million) and Rp.128.8 billion (US$14.6 million) and a gearing ratio of 0.4% and 0.8%, respectively.

Both Sinar Mas Multifinance and AB Multifinance report monthly to the Ministry of Finance on bad debts. There is currently no requirement for multifinance companies to maintain bad debts at a certain level. Sinar Mas Multifinance is not subject to any regulations regarding the calculation of, or provision for, its non-performing loans in its loan portfolio.

Competition

Although there are approximately 400 companies registered with the Ministry of Finance to conduct a multifinance business, the main competitors for Sinar Mas Multifinance are Adira Dinamika Multifinance, Astra Multifinance, and BFI Finance. AB Multifinance does not compete directly with third parties since its focus is on the serving the SMMA Group and the wider Sinar Mas Group.

Sinar Mas Multifinance maintains a centralized database system at its head office. All outlets and branches are linked to this database, allowing all loan applications to be sent on a real time basis to the centralized database system at the head office.

AB Multifinance maintains a centralized database system at its head office.

Real Property

As of September 30, 2011, Sinar Mas Multifinance owned 62 properties comprising a total gross floor area of approximately 32,457 square meters with a net book value of Rp.161 billion (US$18.2 million), (most of which it uses for its branches and outlets). As of September 30, 2011, Sinar Mas Multifinance also leased 237 properties comprising a total gross floor area of approximately 8,295 square meters, 23 of which are leased from related parties.

As of September 30, 2011, AB Multifinance owned one property comprising a total gross floor area of approximately 542 square meters with a net book value of Rp.3.9 billion (US$0.4 million). As of September 30, 2011, AB Multifinance also leased one property comprising a total gross floor area of approximately 166 square meters, which is leased from a related party.

Sinar Mas Multifinance is in the process of obtaining its certificate of ownership for the intellectual property rights in its products, including “SiFiNo”. AB Multifinance does not own any intellectual property rights.

Employees

As of September 30, 2011, Sinar Mas Multifinance and AB Multifinance had approximately 5,860 and 10 employees, respectively.

Insurance

Sinar Mas Multifinance maintains fire and property all risk insurance coverage for its real properties underwritten by Asuransi Sinar Mas. AB Multifinance maintains insurance coverage for its vehicles underwritten by Asuransi Sinar Mas. We believe that Sinar Mas Multifinance and AB Multifinance’s insurance coverage are similar in scope to other multifinance businesses in Indonesia.

Legal Proceedings

From time to time Sinar Mas Multifinance and AB Multifinance may be involved in legal proceedings concerning matters that arise in the ordinary course of their business operations. We are not aware of any potential litigation, arbitration or administrative proceedings against Sinar Mas Multifinance or AB Multifinance which might materially affect their respective business, financial condition, or results of operations.

Other Operations

Security Administration – PT Sinartama Gunita

Sinartama Gunita is a security administration bureau that received business permit from Bapepam-LK under Number Kep-082/PM/1991 on September 30, 1991. It manages the administration of shares for public companies listed on the IDX. As of September 30, 2011, Sinartama Gunita provided shares administration services to 76 public companies.

Water Treatment—PT Wahana Tehno

Wahana Tehno is a joint venture 35.2% owned by us, 50.0% owned by NIHON TRIM Co. Ltd Japan and 14.8% owned by PT Sejahtera Puramas. Its initial business is the trading of machines that treat raw water (i.e., tap water and groundwater) but packaging drinking water became the main focus of its business in 2006. Its packaged drinking water is sold under the brand “pristine” and in 330 milliliter, 600 milliliter and 1,500 milliliter and 19 liter bottles. Wahana Tehno is supported by four distributors located in Jakarta, Bogor, Depok, Tangerang and Bekasi (Jabodetabek). Wahana Tehno distributes its products through its own distribution network and also in cooperation with outlets such as grocery stores and hotels in Indonesia.

Automotive Financing—PT Oto Multiartha

Oto Multiartha is an independent automotive finance company established in 1994 through a joint venture company 16.1% owned by us, 83.6% owned by Sumitomo Corporation, Japan, and 0.3% owned by PT Summit Auto Group. Oto Multiartha’s main business is consumer financing for the purchase of new and used cars. It operates one head office and 56 branches in major cities such as Java, Bali, Lombok, Sumatera, Kalimantan and Sulawesi. In order to provide the best service to its customers, Oto Multiartha has collaborated with prominent retail banks such as Bank Central Asia, Bank Mandiri, Bank BRI, Bank Sinarmas, Bank Internasional Indonesia, Bank Danamon, Bank CIMB Niaga, Bank Bukopin and PT Pos Indonesia to provide Payment Points. In July 2011, PT Pefindo Credit Rating Indonesia raised the credit rating of Oto Multiartha to “AA”.

Money Changer—PT Simas Money Changer

Simas Money Changer, previously known as PT Shinta Forex, is effectively 100% owned by us and

engages in the business of money changing for various foreign currencies and derives income from the spread between buy and sell prices. As of September 30, 2011, it had 1 money changer outlet and served 20 customers.

Employment Services—JobStreet Indonesia

JobStreet Indonesia is a joint venture, 40.0% owned by us and 60.0% owned by JobStreet Corporation Berhad, Malaysia, engaged in the field of providing employment services (jasa tenaga kerja) through worker sites (situs tenaga kerja) in Indonesia. As of December 31, 2010, more than 950,000 active job seekers have registered at the website JobStreet.com, and JobStreet Indonesia had more than 13,500 multinational and domestic clients.

Insurance of the Group

We do not maintain any insurance coverage at the holding company level or on a Group basis.

Intellectual Property of the Group

Trademarks for names of entities are registered by our respective subsidiaries to the extent they are registered. The Sinar Mas name and logo are not owned by the Company or any of its subsidiaries, although we use the logo based on informal arrangements with the wider Sinar Mas Group. The Company does not own any other intellectual property rights.

Real Property of the Group

As of September 30, 2011, SMMA owned one property comprising a total gross floor area of approximately 17,950 square meters with a net book value of Rp.68.3 billion (US$7.7 million). As of September 30, 2011, SMMA also leased one property comprising a total gross floor area of approximately 19,750 square meters, which is leased from a related party.

Employees of the Group

The table below sets out the number of employees (excluding contract workers), by holding company and key subsidiaries, as of the dates below:

As of December 31, As of September 30, 2008 2009 2010 2011

SMMA........................................................... 20 8 10 5 Sinarmas MSIG Life...................................... 862 707 714 762 Asuransi Sinar Mas........................................ 1,234 1,262 1,588 1,777 Sinarmas Sekuritas......................................... 310 344 388 412 Bank Sinarmas............................................... 1,691 2,041 2,460 3,012 Sinar Mas Multifinance ................................. 258 277 2,578 5,849 Others ............................................................ 103 145 157 173

Total .............................................................. 4,198 4,817 7,895 11,996

We have short-term employee benefits in the form of wages, salaries and social security (Jamsostek) contributions and bonuses, post-employment benefits and unfunded defined-benefit plans which are determined based on years of service and salaries of the employees at the time of receiving their pension.

We determine post-employment benefits in accordance with Indonesian law. We do not fund post-employment benefits. We also annually budget for technical and non-technical training for the development of our employees, such as the Management Development Program which was held by the Company and certain subsidiaries in 2010, to improve the skills of employees with the most development potential.

Legal Proceedings of the Group

From time to time we may be involved in legal proceedings concerning matters that arise in the ordinary course of our business operations. We are not aware of any existing or potential litigation, arbitration or administrative proceedings, which could have a material adverse effect on our business, financial condition,

results of operations or prospects.

Sinarmas MSIG Life Joint Venture

Prior to July 1, 2011, the Company owned 99.99% of the shares in Sinarmas MSIG Life, formerly known as PT Asuransi Jiwa Sinarmas, and PT Shinta Utama owned 0.01% of Sinarmas MSIG Life. On July 1, 2011, PT Shinta Utama transferred its shares of Sinarmas MSIG Life to the Company and Sinarmas MSIG Life issued MSIG 52,500 shares, representing 50.0% of the enlarged share capital. MSIG subscribed for, and paid in full, the subscription price of Rp.7.0 trillion.

The business of Sinarmas MSIG Life is to engage exclusively in the business of conventional and Sharia life insurance services and products.

Board of Commissioners. The board of commissioners is to act as a supervisory body for Sinarmas MSIG Life. The Company has the right to nominate and appoint the president commissioner. Each shareholder has the right to nominate an equal number of individuals as members of the board of commissioners. In addition, the shareholders are to jointly appoint one independent commissioner. Commissioners are appointed for terms of two years and are eligible for re-election immediately following the expiry of their previous term. A commissioner can only be removed by the shareholder that nominated the commissioner. The board of commissioners meet weekly unless a meeting is otherwise called or requested by a commissioner. A quorum exists if more than 50% of the commissioners are present and resolutions require an affirmative vote of more than three commissioners present or represented at a meeting.

Board of Directors. The board of directors is responsible for the overall management and operations of Sinarmas MSIG Life, subject to its articles of association and prevailing laws. The existing president, Ms. Ivena Widjaja, is to continue to act in her role as president director until a professional president director has been appointed by the shareholders. Further, each shareholder is to nominate one candidate to be elected a vice president director, for a total of two vice president directors. The remaining members of the board of directors are to be professional individuals nominated based on professional reputation and ability, and are not to represent either shareholder. Directors are appointed for terms of two years and are eligible for re-election immediately following the expiry of their previous term. Each shareholder has the right to remove any director, except the vice president directors. Under the prevailing Insurance Law, the Board of Directors of Sinarmas MSIG Life cannot comprise 50.0% or more foreign nationals.

Board Committees. Sinarmas MSIG Life will form eight board committees to provide input to the board of directors or board of commissioners, as applicable. The board of directors and/or board of commissioners, as applicable, are to supervise the duties and responsibilities of the committees. The committees may comprise members of the board of directors or other persons appointed by the board of directors. Each vice president director chairs four board committees. The vice president director nominated by the Company is to chair the (i) compliance and good corporate governance committee, (ii) information technology and steering committee, (iii) investment committee and (iv) nomination and remuneration committee. The vice president director nominated by MSIG is to chair the (i) risk management committee, (ii) audit committee, (iii) product development committee and (iv) distribution channel management committee.

Dividends. Sinarmas MSIG Life will distribute profits on the basis of prudent financial management principles, following consideration by the shareholders in a general meeting of shareholders, Subject to capital adequacy and solvency margins, unless otherwise agreed by the Company and MSIG, Sinarmas MSIG Life expects to distribute 30% of its annual profits as dividends to the shareholders.

Business Plan. The board of directors will formulate an annual business plan, which is based on a rolling five-year business plan. The annual business plan will be submitted to the shareholders for their input and adoption.

Other. The parties will not compete with Sinarmas MSIG Life in Indonesia. The parties have also agreed to various transfer provisions in respect of the shares in Sinarmas MSIG Life. It is intended that Sinarmas MSIG Life will conduct a public offering on the IDX or other internationally recognized stock exchange on May 1, 2016, or on any period as may be agreed by the Company and MSIG and subject to market condition.

Mega Life Joint Venture

Although there is no written joint venture agreement between us and PT Mega Corpora with respect to Mega Life, certain terms governing the rights and obligations of the parties with respect to Mega Life are set out in its articles of association, which provide the following:

Business

The business of Mega Life is to engage exclusively in the business of conventional and Sharia principle-based life insurance services and products. It does so by engaging in life, health and personal accident insurance, Sharia governed insurance, and annuities and pension fund management, as governed by the prevailing law.

Management

Board of Commissioners. The board of commissioners acts as a supervisory body for Mega Life in accordance with its articles of association. The parties agree, as set out in Mega Life’s article of association, that the shareholders, through the general meeting of shareholders, have the right to appoint and remove members of the board of commissioners. Commissioners are appointed for terms of five years and can be removed at any time. The board of commissioners meet when called or requested by a commissioner or by a written request of shareholders whose aggregate ownership comprises of at least 10% of total shares outstanding. A quorum exists if at least 50% of the commissioners are present and resolutions require an affirmative vote of more than 50% of the commissioners present or represented at a meeting.

Board of Directors. The board of directors is responsible for the overall management and operations of Mega Life, subject to its articles of association and prevailing laws. The parties agree, as set out in Mega Life’s article of association, that the shareholders, through the general meeting of shareholders, have the right to appoint and remove members of the board of directors. Directors are appointed for terms of five years and can be removed at any time.

The president director can represent the board of directors and act for and on behalf of Mega Life. If the president director is not available, any director may act on the president director’s behalf and represent the board of directors and act for and on behalf of Mega Life. Approval from the board of commissioners is required in order to lend or borrow money on behalf of Mega Life, establish new businesses or enter into joint ventures, buy and relinquish ownership of fixed assets or subsidiaries and to hypothecate Mega Life’s movable assets. Approval from the general meeting of shareholders is required in order to bind Mega Life as a guarantor of any obligations.

The board of directors meet when called or requested by a commissioner or by a written request of shareholders whose aggregate ownership comprises of at least 10% of total shares outstanding. A quorum exists if at least 50% of the directors are present and resolutions require an affirmative vote of more than 50% of the directors present or represented at a meeting.

Dividends

Mega Life is required to distribute profits following consideration by the shareholders in a general meeting of shareholders. It can also make interim dividend distributions before the end of the current financial year by observing the prevailing regulations governing limited liability companies.

Issuance and Transfer of Shares

The Company and PT Mega Corpora each hold a 50.0% interest in Mega Life. The issuance of new shares is required to be conducted in accordance with Indonesian law and the mechanisms set out in Mega Life’s articles of association. Share issuances have to be approved by the general meeting of shareholders. Shareholders whose names are recorded in the register are entitled to pre-emptive rights to acquire the shares to be issued, in the amount proportional to their share ownership. Shareholders intending to sell their shares must first make a written offer to other shareholders, detailing the price and conditions for the sale. Such share transfers must then be approved by the general meeting of shareholders.

Sinar Mas Multifinance and AB Multifinance Working Capital Facility Agreements

Sinar Mas Multifinance has entered into working capital facility agreements with various banks, including a loan facility from Bank BNI of up to Rp.292.3 billion, a loan facility from Bank Panin of up to Rp.249.0 billion, a loan facility from Bank Capital of up to Rp.100.0 billion, a loan facility from Bank Victoria of up to Rp.100.0 billion and a loan facility from CIMB Bank of up to Rp.50.0 billion.

Sinar Mas Multifinance funds its lending through short term (generally under one year) revolving loan facilities for its working capital. As of September 30, 2011, Sinar Mas Multifinance had total outstanding indebtedness of approximately Rp.791.2 billion (US$89.7 million).

AB Multifinance has also entered into working capital facility agreements with two banks, which include a revolving loan facility from ICBC Bank of up to Rp.69.1 billion and a loan facility from Bank Victoria of up to Rp.26.1.

These banking facilities are used to fund AB Multifinance’s working capital and to purchase heavy equipments for its leasing business. As of September 30, 2011, AB Multifinance had a total outstanding indebtedness of approximately Rp.95.1 billion (US$10.8 million).

Interest

The principal amounts outstanding under the working capital facilities bear interest either at a fixed rate or at a floating rate calculated by reference to JIBOR. Fixed and floating interest rates are subject to adjustment from time to time in the lenders’ discretion. Interest payments are generally payable monthly and must be made on each payment date as provided in the particular facility agreement.

Covenants and undertakings

Under the working capital facilities, Sinar Mas Multifinance and AB Multifinance have agreed, among other things, to:

(a) use the proceeds from the borrowings as designated;

(b) comply with the payment obligations;

(c) maintain SMMA’s ownership interest of Sinar Mas Multifinance and AB Multifinance at 51.0% or higher;

(d) refrain from making dividend payments, limit dividend payments to less than 50.0% of net profit, or seek lenders’ consent before making any dividend payments;

(e) maintain a minimum level of certain ratios of debt to equity, bad debt and security coverage;

(f) maintain adequate insurance coverage for their assets;

(g) refrain from changing their articles of association or the composition of their shareholders and their board of director’s without obtaining consent from lenders;

(h) provide financial information or access to financial information to the lenders;

(i) seek lenders’ consent before incurring additional debt, except when done in the ordinary course of business;

(j) seek written consent from the lenders on assignment of their obligations to a third party;

(k) seek written consent from lenders before pledging their assets or agreeing to guarantee third party’s obligations, except in the ordinary course of business;

(l) refrain from providing loans to or paying back loans of any affiliates, except when done in the ordinary course of business;

(m) notify the lenders of important events which may significantly affect their ability to make repayment under the facility agreements; and

(n) seek written consent from the lenders on mergers, consolidations, acquisition, major investments, disposal of any substantial assets and other similar events that would have a material impact on their capability to repay the relevant loans.

Events of default

The working capital facilities contain certain customary events of default, including, among other things, non-payment, misrepresentation, insolvency, breaches of the terms of the facility agreements, cross-default, and any events or circumstances that result in a material adverse change in the business, ownership or financial condition of Sinar Mas Multifinance or AB Multifinance, as applicable. The lenders are entitled to terminate their respective agreements and/or demand immediate repayment of all or part of their loans and any accrued interest upon the occurrence of an event of default.

Security

Various account receivables of Sinar Mas Multifinance and AB Multifinance have been provided as collateral.

Build, Operate and Transfer Agreement between SMMA and Asuransi Sinar Mas

On June 5, 2007, SMMA entered into a Build, Operate and Transfer Agreement with Asuransi Sinar Mas. Pursuant to the terms of the agreement, SMMA has agreed to build an office building on land owned by Asuransi Sinar Mas in Jakarta. Pursuant to the terms of the agreement, Asuransi Sinar Mas remains the owner of the building and SMMA is given the rights to manage and operate the office building for a 99-year period, including the right to lease out spaces in the building and to receive rent from third party tenants and Asuransi Sinar Mas for their occupancy. At the end of the 99-year period, SMMA will transfer its rights to the building to Asuransi Sinar Mas.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview of the Group

General Information

We are a financial services conglomerate in Indonesia, providing a broad range of life and non-life insurance products, securities, banking, multifinance and other services to individual and institutional customers through our subsidiaries and joint ventures. We believe this broad range of products and services makes us one of the most diversified financial services groups in Indonesia. We provide products and services in the following five principal areas of business:

• Life insurance – Our life insurance business is conducted principally through our joint venture, PT Asuransi Jiwa Sinarmas MSIG, formerly known as PT Asuransi Jiwa Sinarmas, in which we have a 50% ownership interest. Sinarmas MSIG Life is the second largest life insurance provider in Indonesia with a 12.4% market share measured by total gross premiums for the life insurance industry in Indonesia in 2010 as published by Bapepam-LK in its Indonesia Insurance 2010 Report.

• Non-life insurance – Our non-life insurance business is conducted primarily through our subsidiary, PT Asuransi Sinar Mas. Asuransi Sinar Mas is the largest non-life insurance provider in Indonesia with a 11.1% market share by measured by total gross premiums for the non-life insurance industry in Indonesia in 2010 as published by Bapepam-LK in its Indonesia Insurance 2010 Report.

• Banking – Our banking business is conducted through our subsidiary, Bank Sinarmas, which shares are listed on the Indonesian Stock Exchange, with a market capitalization of Rp.2,426.5 billion (US$275.0 million) as of December 30, 2011. Bank Sinarmas focuses on corporate, commercial and consumer finance, including lending to SMEs and micro businesses.

• Securities – Our securities business is conducted through our subsidiary, Sinarmas Sekuritas and its subsidiary, Sinarmas Manajemen. Sinarmas Sekuritas is a mid-size securities firm offering a wide range of financial services including asset management, brokerage, investment banking and financial advisory services.

• Multifinance – Our multifinance business is conducted through our subsidiaries, Sinar Mas Multifinance, which is predominantly active in the new and used automobiles and motorcycles financing market and factoring and AB Multifinance, which provides leasing and factoring services to Group and Sinar Mas Group Companies.

We also operate a number of other non-core businesses, including a share administration business through Sinartama Gunita, a water treatment business through Wahana Tehno, automotive financing through a joint venture, Oto Multiartha and employment services through a joint venture, JobStreet Indonesia.

For financial reporting purposes, our business segment results are presented in our consolidated financial statements under seven main segments: (1) parent company, (2) insurance underwriting comprising premium income and investment income, which comprises results of Sinarmas MSIG Life and Asuransi Sinar Mas, (3) consumer financing, finance lease and factoring, which represents results of AB Multifinance and Sinar Mas Multifinance, (4) stock brokerage, underwriting and investment management, which represents the results of Sinarmas Sekuritas and its subsidiary, (5) banking, which represents the results of Bank Sinarmas, (6) share administration fees, generated by Sinarmatra Gunita and (7) development, trading and other services. Selected consolidated financial data of our Group and the relative contributions of each of our business segments as of and for the nine months ended September 30, 2011 appear below under “—Segment Information”.

Basis of Presentation

General

Our audited consolidated financial statements as of and for the years ended December 31, 2008, 2009 and 2010, as audited by Moore Stephens, and our unaudited interim consolidated financial statements as of and for the nine months ended September 30, 2010 and September 30, 2011 are presented in Rupiah, our functional currency, and have been prepared in accordance with Indonesian PSAK. Financial information relating to our life insurance subsidiary, Sinarmas MSIG Life, and our non-life subsidiary, Asuransi Sinar Mas, have been derived from each of their financial statements as of and for the years ended December 31, 2008, 2009 and 2010, as audited by Anwar and Rekan, and each of their unaudited interim financial statements as of and for the nine months ended September 30, 2010 and September 30, 2011. Financial information relating to our banking subsidiary, Bank Sinarmas, has been derived from its audited financial statements as of and for the years ended December 31, 2008, 2009 and 2010 and audited interim financial statements as of and for the nine months ended September 30, 2010 and September 30, 2011, as audited by Moore Stephens. Each of these financial statements are presented in Rupiah, their functional currency, and have been prepared in accordance with Indonesian PSAK, which differ in significant respects from U.S. GAAP and IFRS.

Impact of the Sale of a 50% Ownership Interest in Sinarmas MSIG Life

Prior to July 1, 2011, we effectively owned 100% of Sinarmas MSIG Life, which accounted for 75.8%, 75.5% and 76.6% of our total revenue in 2008, 2009 and 2010, respectively. In July 2011, Mitsui Sumitomo Insurance Co. Ltd completed its acquisition of a 50% ownership interest of Sinarmas MSIG Life for a total consideration of Rp.7.0 trillion (US$793.4 million). Because we continue to control Sinarmas MSIG Life through a majority of the board of directors and board of commissioners of Sinarmas MSIG Life, we continued to fully consolidate the financial statements of Sinarmas MSIG Life in our consolidated financial statements as of and for the nine months ended September 30, 2011, but made the relevant deduction relating to minority interest to reflect MSIG’s 50.0% ownership interest in Sinarmas MSIG Life from July 1, 2011. As a result, our consolidated financial statements for the nine months ended September 30, 2011 are not directly comparable with our consolidated financial statements for the nine months ended September 30, 2010 or prior periods and our full year 2011 consolidated financial statements will not be directly comparable with our full year 2010 consolidated financial statements.

Going forward, for so long as we continue to control Sinarmas MSIG Life through a majority of the board of directors and board of commissioners of Sinarmas MSIG Life, we will fully consolidate the future financial statements of Sinarmas MSIG Life in our future consolidated financial statements, but make the relevant deduction relating to minority interest to reflect MSIG’s 50.0% ownership interest. The full impact of the reduction of our ownership in Sinarmas MSIG Life will only be recognized in our consolidated financial statements for the financial year commencing January 1, 2012.

Pursuant to the terms of our shareholders’ agreement with MSIG, each of the Company and MSIG has the right to appoint an equal number of individuals as members of the board of commissioners and board of directors.

Accordingly, to the extent we cease to control Sinarmas MSIG Life through a majority of the board of directors and board of commissioners of Sinarmas MSIG Life in the future, or we otherwise determine that we no longer control it, we may be required to treat our 50.0% ownership interest in Sinarmas MSIG Life as an interest in a joint venture, rather than a subsidiary, to reflect the nature of control. Accordingly, we would be required to account for an ownership interest in Sinarmas MSIG Life on a proportionate consolidation basis by taking 50.0%, corresponding to the percentage of equity that we own or control, of each of the assets, liabilities, revenues and expenses of Sinarmas MSIG Life and combining these with the assets, liabilities, revenues and expenses of the Company on a line-by-line basis after elimination of intra-group transactions. To the extent we are required to apply proportionate consolidation in respect of our interest in Sinarmas MSIG Life, this would have a material affect on our consolidated statement of financial position, statement of comprehensive income, income statement and cash flows and would make such future consolidated financial statements not directly comparable with our historical consolidated financial statements. For a description of our shareholders’ agreement with MSIG, See—“Material Agreements”.

Mega Life

We account for our ownership interest in Mega Life on the equity method by taking 50.0%, corresponding to the percentage of equity that we own, of the net income of Mega Life, which is recorded in “Equity in net income of the associates – net” in our consolidated statement of comprehensive income.

Factors Affecting Our Financial Condition and Results of Operations

Profitability

The profitability of our insurance business depends principally on our ability to price and manage risk on insurance products, our ability to attract and retain customers, our ability to manage expense and our ability to maximize risk-adjusted investment returns. Specific drivers of our profitability include:

• Our ability to design and distribute insurance products and services that meet market needs and are delivered on a timely basis;

• Our ability to price insurance products at levels that enable us to earn a margin over the costs of providing benefits and the expenses of both acquiring customers and administering those products. The adequacy of our product pricing is, in turn, primarily a function of:

• Our underwriting experience;

• The adequacy of our methodology for underwriting insurance policies and establishing reserves for the future; and

• The extent to which our actual expenses and investment performance meet our assumptions;

• Changes in our product mix, particularly for our insurance products, such as migration of policyholders between our endowment insurance products and unit link insurance products which impacts profitability where guaranteed returns on endowment policies differ from target returns on unit link products and also among our non-life insurance products, see “—Product Mix”;

• Our persistency experience, which affects our ability to recover the cost of acquiring new business over the duration of the contracts;

• Our ability to actively manage our investment portfolio to earn an acceptable return while managing, liquidity, credit, equity and duration risk in our asset and policy portfolios through asset and liability management;

• Our management of risk exposures, including exposure to catastrophic and other losses, on our non-life products, and

• Our ability to control expenses in order to maintain the target margins for our insurance products.

The profitability of our banking business is affected by a number of factors which influence the business environment in which it operates as well as factors specific to the bank. Key drivers of our profitability include:

• The strength of the Indonesian economy which will drive appetite for investment and consumer spending and influence our ability to grow our loan portfolio. In addition economic conditions will influence the ability of customers to repay loans and impact the Bank’s credit quality;

• The level of interest rates in Indonesia, which will generally impact the Bank’s interest rate spread;

• The level of competition in the banking sector in Indonesia from domestic and foreign participants including with respect to loan and deposit pricing;

• Our ability to price loans and manage the credit risks of our loan portfolio;

• Our ability to develop cost effective and liquid sources of funding; and

• Our ability to effectively manage our cost base.

Our results of operations and financial conditions have been and will continue to be affected by additional factors and developments, some of which are outside of our control, including the following:

Economic Conditions and Demographic Fundamentals in Indonesia

Our performance is dependent on the general economic developments, household savings rates, demographic profiles and life and non-life insurance penetration rates, principally in Indonesia, which will affect the demand for our products and services across business segments and the returns from our investment activities. The overall operating environment affects the quality of our Group’s loan and investment portfolios, and hence the amount of allowances we set aside. In addition, our expenses are dependent on our growth and expansion plans in Indonesia, and impacted by cost and wage pressures in the markets in which we operate.

Indonesia has been undergoing rapid economic change as it continues its recovery and development following the severe economic shocks it suffered during the Asian financial crisis that began in mid-1997. In recent years, Indonesia has experienced significant economic growth, with real GDP growth of 5.5%, 6.3%, 6.0%, 4.6% and 6.1% in 2006, 2007, 2008, 2009 and 2010, respectively and 6.5% in the first three quarters of 2011 according to Bank Indonesia and the Ministry of Finance. With the exception of 2008 when inflation was 11.11%, inflation in recent periods have been at moderate levels with consumer price index increases of 6.6%, 6.6%, 11.1%, 2.8% and 7.0% in 2006, 2007, 2008, 2009 and 2010, respectively, as compared to the immediately prior year. On November 10, 2011, Bank Indonesia lowered the BI Rate by 50 basis points to 6.00%, shortly after it had lowered the BI Rate from 6.75 to 6.50% on October 11, 2011. Earlier in the year, on February 4, 2011 Bank Indonesia had increased the BI Rate from 6.50% to 6.75%.

On December 15, 2011, Fitch upgraded Indonesia’s long-term foreign-currency sovereign credit and debt ratings to BBB- from BB+, the highest level since the Asian financial crisis. Fitch stated that the ratings upgrade reflected Indonesia’s strong and resilient economic growth, low and declining public-debt ratios, strengthened external liquidity and a prudent overall macro policy framework. Fitch also stated that the outlook on the rating is stable.

Demographically, Indonesia had a population of approximately 238 million in 2010 and is the fourth most populous country in the world, after China, India and the United States. The population is primarily concentrated in Java (estimated at approximately 137 million in 2010), and Jakarta, the capital, was estimated to have a population of approximately ten million in 2010. Indonesia’s population grew at a rate of 2.0% per annum during the 1980s and 1.5% during the 1990s. The growth rate further decreased to 1.4% per annum during the period from 2000 to 2010. Concurrent achievements in health care lowered the infant mortality rate and extended average life expectancy. The government estimates that, in 2010, approximately 28.9% of the population was under 15 years of age and approximately 46.0% was under 25 years of age.

Like many financial institutions worldwide, we were adversely affected by the global financial crisis during 2008 and 2009. The economic downturn resulted in slower growth in our gross premium income, investment income and interest income in 2008 as compared to the previous year. We also recorded unrealized loss on decrease in fair value of securities in 2008 compared with an unrealized gain on increase in fair value of securities in 2009.

Financial markets substantially recovered in the second half of 2009, primarily as a result of a globally coordinated central bank intervention and a concerted stimulus package. We achieved higher gross premium income from our insurance operations and an increase in interest income from loan growth in the manufacturing and the transportation, warehousing and communication sectors. We also recorded a gain from our investment in units of mutual funds and unrealized gain on increase in fair value of securities in 2009, resulting in a significant increase in our net income to Rp.700.1 billion in 2009 from Rp.263.6 billion in 2008.

In 2010, Indonesia and the rest of Asia experienced a robust economic recovery underpinned by the region’s strong economic fundamentals and a sharp rebound in domestic and external demand. This recovery took place despite the lingering economic uncertainties in the United States and concerns over the levels of sovereign debt in the peripheral Eurozone countries. We achieved higher gross premium income, broad-based loan growth resulting in higher interest income and an increase in unrealized gain in fair value of securities in 2010, resulting in a 74.2% increase in our net income to Rp.1,277.8 billion (US$144.8 million) in 2010 from Rp.733.7 billion in 2009.

Economic conditions remained generally favorable in Indonesia in the nine months ended September 30, 2011. However, the regional environment in Asia has been dampened by a few key events internationally, particularly in more recent months. In Europe, the sovereign debt crisis in Greece, Italy and other peripheral Eurozone countries that emerged in late 2009 has intensified despite concerted actions and aid from other European Union countries, leading to fears of contagion and turmoil in financial markets.

This was exacerbated by the S&P downgrade of the long-term credit rating of the United States from “AAA” to “AA+” with a negative outlook on August 5, 2011, which caused further loss of investor confidence and increased volatility in financial markets. This market volatility affected the value of our investment portfolio, but we do not believe it had a material effect on product sales or interest rates for the nine months ended September 30, 2011. See also “―Fluctuations in Financial Markets” below. In the nine months ended September 30, 2011, we achieved higher gross premium income from our insurance operations, in part from new customers, and an increase in interest income from our banking operations. However, we recorded lower gains from investments in units of mutual funds and we also recorded a net unrealized loss on decrease in fair value of securities in the nine months ended September 30, 2011. Our net income grew 116.7% to 1,517.2 billion (US$172.0 million) in the nine months ended September 30, 2011, from Rp.700.2 billion in the nine months ended September 30, 2010.

Changes in Product Mix

The pricing and profit margins of our products vary by type of product. A change in the product mix and source of premium income will expose the company to changes in its product structure and may result in fluctuations in gross written premium income and investment income in future periods as a result of existing customers shifting to different products. Our results of operations are therefore affected by changes in our product mix.

With respect to life insurance products, Sinarmas MSIG Life’s two principal products have been its PowerSave endowment product and its Stable Link unit link product, which together accounted for more than 95% of total gross premiums for each of the years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011. Shifts in the proportion between the two products have affected Sinarmas MSIG Life’s results of operations over the same periods.

Profitability on Sinarmas MSIG Life’s products depends in significant part on the returns set for each product, such as the guaranteed return on endowment products and the target investment returns on unit link products and additional bonus above the target investment returns in the case of certain contracts over one year. Endowment products have historically provided higher profit margins than our unit link products as, unlike with endowment policies, under the terms of unit link policies the company may be required to share part of the profit above the targeted return with policyholders. Sinarmas MSIG Life adjusts the guaranteed return on its PowerSave product and the targeted return on its Stable Link product to encourage existing and new customers to invest or migrate their existing policies among the products. The investment terms of Sinarmas MSIG Life’s products are for periods of between three to 36 months, and target investment returns are adjusted by Sinarmas MSIG Life periodically.

Changes in life insurance product mix in 2008 through 2010 has been driven in significant part by capital considerations, as unit link products entail lower capital requirements than endowment products. From 2008 through early 2011, Sinarmas MSIG Life encouraged existing policyholders in endowment products, such as its Power Save products, to reinvest into unit link policies, such as its Stable Link products, by offering more attractive potential investment returns on these products, which has been the driver of the decline in endowment and increase in unit link policies in the same periods. This strategy was adopted by the company to enhance capital efficiency of the business, given the lower capital requirement associated with unit link policies. Due to the higher solvency ratios following completion of the MSIG share subscription in Sinarmas MSIG Life, Sinarmas MSIG Life has been increasing its sales of its endowment products during the second half of 2011.

Changes in our life insurance products have recently also been driven in part by managing competition between distribution channels. Beginning in November 2011, Sinarmas MSIG Life has begun to focus sales of endowment products through bancassurance and sales of unit link products through its agency force to avoid cannibalization between its agency force sales and bancassurance sales.

In the nine months ended September 30, 2011, approximately 47.1% of our life insurance premium income was attributable to endowment products, compared to 6.1% in 2010. In addition, most of the policies sold by Sinarmas MSIG Life have historically been single premium products. Following the investment by MSIG in Sinarmas MSIG Life, we expect that Sinarmas MSIG Life will expand its product mix, with an increasing proportion of regular premium products.

For non-life products, Asuransi Sinar Mas cedes more of certain product premium income to reinsurers, depending upon, among other factors, price competition, profitability, claims experience and availability of reinsurance to manage its risks and market risks. See “—Profitability”, “—Claims Experience”, “—State of the Reinsurance Market”, “Fluctuations in Market Interest Rates and Credit Risk” and “—Equity Market Risk”. Asuransi Sinar Mas has typically retained insurance risk on its health and motor vehicle policies and ceded proportionately more of its fire and property, marine hull and marine cargo insurance risks.

Fluctuations in Market Interest Rates and Credit Risk

The results of our insurance and banking operations depend, in part, on our level of net interest income and our effective management of the impact of changing interest rates and varying assets and liability maturities.

The BI Rate has historically experienced volatility. The following table shows the BI Rate as of the dates indicated:

March 31 June 30 September 30 December 31 2008 ................................................. 8.00 8.50 9.25 9.25 2009 ................................................. 7.75 7.00 6.50 6.50 2010 ................................................. 6.50 6.50 6.50 6.50 2011 ................................................. 6.75 6.75 6.75 6.0

The results of our insurance business are affected by fluctuations in market interest rates as a substantial proportion of our assets are held in fixed income securities. Changes in interest rates affect the market value and the investment yield of our investment portfolio backing shareholders’ equity and policyholder funds. Our holdings of debt securities also exposes us to corporate, sovereign and other credit risk. We and our subsidiaries invest in a significant amount of Indonesian government and corporate bonds, primarily in the financial and banking sectors, through both the direct holdings and the mutual funds our life and non-life insurance subsidiaries invest their capital and the premiums they receive. As a result, we have significant credit exposure to the corporate bond markets and any delay or default in the payment or interest or principal by these corporates, or any downgrades in the rating of such bonds, or event that affects the financial sector in particular, may have a material adverse effect on our financial condition, liquidity and results of operations.

Interest rate risk also arises from our life insurance and investment contracts, which carry a guaranteed policyholder return, such as Sinarmas MSIG Life’s endowment products. These contracts carry the risk that the interest income from financial assets backing the liabilities is insufficient to fund the guaranteed return to our policyholders. A large proportion of our guaranteed life insurance obligations have a shorter duration than that of our interest-bearing assets. A rising interest rate environment tends to increase our interest rate spread. Surrenders and withdrawals of existing life insurance policies may also increase as policyholders seek to buy products with perceived higher return. These surrenders and withdrawals may result in cash payments to policyholders required the sale of invested assets at a time when the prices of those assets are adversely affected by the increase in market interest rates, potentially resulting in realized investment losses. These cash payments would result in a decrease in total invested assets and a decrease in net income. Conversely, a decline in interest rates could in result in an increase in our interest rate spreads. Declining yields, however, would reduce the investment income on assets backing shareholders’ equity.

For unit link products sold by Sinarmas MSIG Life, assets are managed on a fair value basis, with fixed income investments valued using an amortized acquisition price method so long as the debt securities are held until maturity and equity investments valued based on a historical share price method. As a result, returns could remain relatively stable despite volatility in interest rates, equity markets and credit exposure.

However, because the net asset value in which we invest the insurance premiums may not reflect the fair market value of such investments for any given time, and may not reflect a decrease in value should there be a sudden drop in underlying asset prices due to a rise in interest rates, this may in turn result in Sinarmas MSIG Life’s overpaying policyholders due to such valuation mismatch. This may also result in inadequate reserves in the case of significant surrenders in response to any such declining asset prices as the fair value of units of mutual funds upon redemption may not necessarily reflect their fair market value in the case of surrenders of policies prior to the maturity of the underlying fixed income holdings. This may also expose us to reputational risk as a result of allegations of mis-selling for claims by our unit link policyholders who receive less returns than anticipated based on the expected net asset value. Sinarmas MSIG Life may, at its discretion, apply a surrender charge of up to 20% in the event of surrenders, which mitigates this exposure.

The results of our banking operations are dependent to a large extent on net interest income and its results are materially affected by factors affecting net interest margins, particularly lending and deposits rates in Indonesia. Changes in market interest rates, changes in relationships between short-term and long-term market interest rates or changes in the relationships between different interest rate indices may affect the interest rate charged on interest-earning assets differently from the interest rate paid on interest-bearing liabilities.

Our yields and costs from our banking and non-bank lending operations are functions of our lending and deposit rates, interbank rates, yields on government and other debt securities, and costs of term debts and other borrowings, which are generally linked to the interest rate environment.

In addition, lending and deposit rates are significantly influenced by competition in the markets in which we operate. Our loans are generally priced either on a fixed rate or floating rate basis. Loans priced at a floating rate refer to those priced at reference lending rates plus or minus a spread, depending on the type and preference of the borrower. Reference lending rates may be benchmarked with external reference rates or our own established reference rate (e.g. cost of funds, board rate and prime rate).

Fluctuations in market interest rates or deterioration in credit quality may also affect the market value of other financial assets, such as time deposits, placement with banks and debt securities. We may be required to record losses that would negatively impact our financial results due to the decline in prices. In addition, market volatility can discourage investor confidence in the capital markets and a significant number of clients may choose to liquidate their investment positions and refrain from investing, revenues from our insurance, brokerage and asset management businesses would be adversely affected. In addition, short-term investments, including debt securities, units of mutual funds, shares and warrants and segregated fund net assets comprising units of mutual funds and publicly traded shares are recorded at fair value, and subsequent changes in fair value are recognized directly in the consolidated statement of income. Accordingly, changes in value of our investments as a result of volatility in interest rates or deterioration of credit quality could result in significant unrealized losses or sharp declines in realized returns, which would have a material adverse effect on our results of operations and financial condition.

Equity Market Risk

Fluctuations in equity markets may affect our investment returns and sales of many of our unit link and life insurance products as well as the market value of equity and equity-linked products held by our Group. Fluctuating equity market prices could affect the value of our financial assets, and we may be required to record realized or unrealized losses that would negatively impact our financial results due to the decline in equity prices. In addition, volatile equity prices can discourage investor confidence in the capital markets and a significant number of clients may choose to liquidate their investment positions and refrain from investing in equities until equity price fluctuations ease.

Insurance. Fluctuations in equity markets affect the investment returns and sales of many of our investment-linked insurance products. Our life and non-life insurance businesses have significant exposure to equity markets, with equity securities invested by our non-life business representing 33.0% of its total investments as of September 30, 2011 and equity securities invested by our life insurance business representing 5.7% of its total investments and 43.3% of its investments in units of mutual funds, respectively, as of

September 30, 2011. Sales of investment-linked life insurance products typically decrease in periods of protracted and steep declines in equity markets and increase in periods of rising equity markets. Policy loans, surrenders and withdrawals may increase at times of declining equity markets. In addition, lower investment returns for our unit link products would reduce the income the company earns from unit link policies. After 2014 with the phasing out of the LDPT funds, the Company expects direct equity investments will comprise a greater percentage of investments of Sinarmas MSIG Life and Asuransi Sinar Mas.

Other businesses. Sinarmas Sekuritas engages in the trading of equity securities, both on a proprietary basis and for its clients. Accordingly, it could incur substantial losses from its equity investments as a result of changes in market condition such as sharp declines in market values of equity securities and the failure of issuers and counterparties to perform their obligations can result in illiquid markets. Lower investment returns on equity holdings would also reduce the asset management and other fees earned by Sinarmas Sekuritas and its subsidiary.

Investment in RDPT Funds

Most of the investments of insurance premiums and Sinarmas MSIG Life’s own investment and some of the investments of Asuransi Sinar Mas are in RDPT funds. Under Bapepam-LK regulations, RDPT funds are not required to mark-to-market their investments. They are permitted to determine the fair value of their fixed income investments using an amortized acquisition price method so long as the debt securities are held until maturity. For equity investments, RDPT funds are permitted to use any valuation method so long as such method is agreed with the fund participants in advance in the governing collective investment contract and such method is approved by the Ministry of Finance. The equity RDPT funds and mixed debt and equity RDPT funds in which Sinarmas MSIG Life and Asuransi Sinar Mas invest determine the fair value of their equity investments using a historical share price method and the fixed income RDPT funds and mixed debt and equity RDPT funds value their fixed income holdings by amortizing the acquisition price of the debt securities.

As a result, the net asset value of the RDPT funds in which Sinarmas MSIG Life and Asuransi Sinar Mas invest insurance premiums may not reflect the fair market value of such investments at any given time, and may not reflect a decrease in value should there be a sudden drop in underlying asset prices. To the extent that there is a time lag or timing difference between when Sinarmas MSIG Life pays out on a unit link insurance product based on the then applicable net asset value of the related segregated asset investments in RDPT funds, and the re-adjustment of the net asset value of the RDPT funds to give effect to the decline in prices of the underlying investments held within such RDPT funds, this may result in Sinarmas MSIG Life’s overpaying unit link policyholders due to such valuation mismatch. This may also result in inadequate reserves in the case of significant surrenders in response to any such declining asset prices as the fair value of units of mutual funds upon redemption may not necessarily reflect their fair market value in the case of surrenders of policies prior to the maturity of the underlying holdings. This may also expose it to claims of mis-selling for claims by our unit link policyholders who receive less returns than anticipated based on the expected net asset value, which in turn may harm our reputation and subject us to additional legal and regulatory risks.

Moreover, we expect that RDPT funds through which our life insurance business, and to a lesser extent, our non-life insurance business, invests premiums may not be available as an investment vehicle for our insurance businesses as a result of future changes to Ministry of Finance regulations. This would require us to phase out the use of RDPT funds and invest investment assets either directly or through other vehicles that would require us to mark-to-market our investments. We may not be able to find comparable investments or investment vehicles which provide similar flexibility, or returns. We may also experience greater fluctuations in the value of our investment portfolio following the phase-out of RDPT funds as a result of mark-to-market accounting. We may also be subject to more tax if we invest in bonds directly.

Any of the above may have a significant impact on our results of operations.

Claims Experience

The reported financial results of our life and non-life insurance businesses are affected by our claims experience, which may vary from the assumptions we made when we designed and priced our insurance products and when we calculate our insurance contract liabilities. Claims experience varies over time and from one type of product to another, and may be impacted by specific events and changes in macroeconomic conditions, population demographics, mortality, morbidity and other factors. Our claims experience is also

affected by surrenders, withdrawals and redemptions. Claims experience may also be affected by catastrophic events, such as earthquakes, which can result in a sharp increase in claims costs.

State of the Reinsurance Market

Our life and non-life businesses reinsure a proportion of the risk they underwrite to reduce their risk exposure, to protect their capital resources and maintain stability in their operations. The proportion of risks they reinsure varies by product line. The reinsurance market is cyclical, with periodic fluctuations in underwriting capacity in the market affecting the price at which reinsurance can be obtained. Underwriting capacity and rates in the reinsurance market, which are determined largely by underwriting conditions in the international market, may not necessarily move in tandem with those in the domestic Indonesian direct market. Scarcity of underwriting capacity in the reinsurance market leading to increases in reinsurance rates could raise the cost of reinsurance to Asuransi Sinar Mas and potentially decrease its underwriting profit. Asuransi Sinar Mas also engages in reinsurance to a limited extent through its participation in the Asia Catastrophe Pool and with related parties and may itself be affected by factors affecting the reinsurance market generally.

Regulatory Environment

We expect that our financial condition and operating results may be significantly affected by regulatory trends in both the banking and insurance industries and the regulatory oversight of the financial services sector, including banking, non-bank lending, insurance, securities and others, as described under “Supervision and Regulation”. These regulators have broad authority over our business, including our capital and solvency requirements, where we are authorized to operate, the fees and commissions that we charge on certain products, such as bancassurance, our ability to enter into certain new lines of business, expand our operations, offer new products, enter into distribution arrangements and declare dividends. Our efforts to comply with changes in regulations may lead to increased operating and administrative expenses, or reduced operating revenue, as well as higher capital costs. In addition, pursuant to Indonesian laws, regulations and rules, we are restricted to a specified range of investment activities. These restrictions may limit our ability to diversify investment risks and improve returns on our investment portfolio, thereby affecting our results of operations as well as liquidity, capital adequacy and solvency positions.

Competition

We face competition in all of our business lines. We compete on the basis of a number of factors, including price, products and services, innovation, transaction execution capability, reputation, perceived financial strength, experience and knowledge of our staff, employee and agency compensation and geographic scope. Competition may negatively affect our business, results of operations and future business prospects by reducing our market share, decreasing our margins and spreads, increasing our policy acquisition costs and operating expenses, and reducing the growth of our customer base.

Foreign Exchange Rates

We face foreign exchange risk arising from the conversion of foreign currencies from our operations, principally our insurance and banking businesses, to our reporting currency, the Rupiah. Our exposure to foreign currency rate risk is mitigated as assets and liabilities in the foreign currency are typically matched. A portion of insurance premiums and bank deposits are received U.S. dollars. We typically invest in assets denominated in U.S. dollars to match our U.S. dollar insurance and banking liabilities. To the extent that we are unable to adequately match our investment assets in the same currency, we may be required to exchange Rupiah to cover any net open foreign currency positions. If the Rupiah depreciates significantly at any time when we have a significant net open position in foreign currencies, such depreciation could cause us to suffer losses.

Critical Accounting Policies

The following accounting policies are those that we believe are or will be the most critical to a full understanding and evaluation of the reported and future consolidated financial results of the Company, as well as of Sinarmas MSIG Life, Asuransi Sinar Mas and Bank Sinarmas because they involve estimates of matters that are inherently uncertain.

As SMMA is principally a holding company and almost all of our operations and businesses are conducted through our subsidiaries, our critical accounting policies are largely determined with respect to each of our principal operating subsidiaries. However, a number of these policies apply across all segments, including determination of fair value, financial assets at fair value through profit or loss, held to maturity assets, available for sale financial assets, allowance for impairment of financial instruments and non-financial assets, as described below.

Determination of Fair Value

The fair value of financial instruments traded in active markets at the statements of financial position date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. This includes debt securities held for trading purposes, and equity securities traded on a public exchange.

For all units of mutual funds, including units of mutual funds recorded under segregated funds net assets - unit link, fair value is determined based on the net asset value of the fund, rather then the quoted market prices of the securities held by the mutual fund.

Financial Assets Not Quoted in Active Market

Effective January 1, 2010, we classify financial assets by evaluating, among others, whether the asset is quoted or not in an active market. Included in the evaluation on whether a financial asset is quoted in an active market is the determination on whether quoted prices are readily and regularly available, and whether those prices represent actual and regularly occurring market transactions on an arm’s length basis.

For all other financial instruments not listed in an active market, except investment in unquoted equity securities, the fair value is determined by using appropriate valuation techniques, including net present value, comparison to similar instruments for which market observable prices exist, options pricing models and other relevant valuation models. In the absence of a reliable basis for determining fair value, investments in unquoted equity securities are carried at cost net of impairment.

Financial Assets at Fair Value Through Profit or Loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit and loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets may be designated at initial recognition at fair value through profit and loss if the following criteria are met:

• the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the financial assets or recognizing gains or losses on them on a different basis; or

• the assets are part of a group of financial assets, financial liabilities or both which are managed and their performance evaluated on a fair value basis, in accordance with documented risk management or investment strategy; or

• the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

Changes in fair value are recognized directly in the consolidated statements of comprehensive income. This category includes:

• short-term investments—securities, which includes bonds, units of mutual funds, shares and warrants which are traded on the Indonesia Stock Exchange;

• segregated funds net assets - unit link, including units of mutual fund and shares that are traded on the Indonesia Stock Exchange, and

• segregated funds net assets—Sharia, including units of mutual funds.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in active market. These assets are not entered into with the intention of immediate or short-term resale. This category includes cash, demand deposits with Bank Indonesia and other banks, placements with other banks, securities in the form of bills receivable, securities purchased under agreements to resell, loans, interest income to be received as well as other assets in the form of security deposits, bills relating to ATM and money transfers and others.

Loans and receivables are initially recognized at fair value plus attributable transaction costs, and are subsequently measured at amortized cost using the effective interest rate method, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate. The amortization is included as part of interest income in the consolidated statements of financial position. The losses arising from impairment are recognized in the consolidated statements of comprehensive income.

Held to Maturity Assets

Held to maturity investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities for which we have the positive intention and ability to hold to maturity and may be sold in response to liquidity requirements or changes in market conditions. This category includes short term investments—securities (Bank Indonesia Intervention, credit linked note, Republic of Indonesia loans, bonds, export bill receivables), segregated funds net assets - unit link (bonds), and segregated funds net assets—Sharia (Sharia bonds).

When we sell or reclassify other than an insignificant amount of held to maturity investments before maturity, the entire category would be tainted and reclassified as available for sale financial assets.

Held to maturity assets are initially recognized at fair value plus attributable transaction costs, and are subsequently measured at amortized cost using the effective interest method, less impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is included as part of interest income in the consolidated statement of income. Gains and losses are recognized in the consolidated statement of income when the held to maturity investments are derecognized and impaired, as well as through the amortization process using the effective interest method.

Available for Sale Financial Assets

The available for sale category of financial assets is used where the relevant investments are not managed on a fair value basis, or which are designated as such. They are purchased and held indefinitely and may be sold in response to liquidity requirements or changes in market conditions. This category includes short term investment in bonds, Republic of Indonesia loans, shares that are traded on Indonesia Stock Exchange, and certain investments in shares.

Available for sale assets are initially recognized at fair value plus attributable transaction costs and subsequently measured at fair value. The effective yield component of available for sale debt securities, as well as the impact of translation on foreign currency-denominated available for sale debt securities, is reported in the consolidated statement of income. The unrealized gains and losses arising from the fair valuation of available for sale financial assets are excluded from the consolidated statement of income and are reported as net unrealized gains and losses on available for sale financial assets in the equity section of the consolidated balance sheet and in the consolidated statement of changes in equity.

In the absence of a reliable basis for determining the fair value, certain investments in shares of stock are carried at cost.

Allowance for Impairment of Financial Instruments

Allowance for impairment losses of financial instruments is maintained at a level considered adequate to provide for potentially uncollectible receivables. Effective January 1, 2010, we assess specifically at each balance sheet date whether there is objective evidence that a financial asset is impaired (uncollectible). The level of allowance is based on past collection experience and other factors that may affect collectability such as the probability of insolvency or significant financial difficulties of the debtor or significant delay in payments. This accounting policy applies to our life and non-life insurance subsidiaries, and our banking, multifinance and securities subsidiaries.

When there is objective evidence of impairment, the amount and timing of collection is estimated based on historical loss experience. Provisions are made for accounts specifically identified to be impaired. Accounts are written off when management believes that the financial asset cannot be collected or realized after exhausting all efforts and courses of action. An evaluation of the financial instrument, designed to identify potential charges to the allowance, is performed on a continuous basis throughout the year. The amount and timing of recorded provision for impairment losses for any period would therefore differ based on the judgments or estimates made.

For further information, see Note 2 to the consolidated financial statements.

Impairment of Non-Financial Assets

An assessment by management of non-financial asset value is made at each statement of financial position date to determine whether there is any indication of impairment of any asset and possible write-down to its recoverable amount whenever events or changes in circumstances indicate that the asset value is impaired. An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. An asset’s recoverable amount is computed as the higher of the asset’s value in use and its net selling price. On the other hand, a reversal of an impairment loss is recognized whenever there is an indication that the asset is not impaired anymore. The amount of impairment loss, or reversal of impairment loss, is charged to, credited in, as the case may be, the current year’s operations. This accounting policy applies to our life and non-life insurance subsidiaries, and our banking, multifinance and securities subsidiaries. However, allowance for impairment losses of non-financial assets are owned by subsidiaries engaged in banking and multifinance in the form of nonproductive assets, consisting of foreclosed properties, abandoned properties, the administrative accounts and suspense accounts and is determined in accordance with Bank Indonesia requirements.

Sinarmas MSIG Life

Segregated Funds Net Assets and Segregated Funds Contract Liabilities - Unit Link: Treatment Under Current Accounting Standards

Unit link is an investment and self-protection insurance product of Sinarmas MSIG Life, wherein the policyholders have the opportunity to manage their funds together with other investors to maximize the benefit from the amount invested. Sinarmas MSIG Life issues a contract where the amount of benefit is directly linked to the market value of the investments held in the unit link holders’ fund. Although the underlying investments are registered in the name of Sinarmas MSIG Life and the unit link holders have no direct access to the specific assets, the contractual arrangements are such that the unit link holders bear the risks and rewards of the funds investment performance. For more detailed information on Sinarmas MSIG Life’s unit link insurance products, see “Business—Life Insurance—Sinarmas MSIG Life—Products”.

Funds received from unit link holders are recognized as “premium” in the statement of income. “Surrender or redemption” on unit link products are recognized in the statement of income as expenses under claims and benefits while changes in the “segregated funds contracts liabilities of unit link” are also recognized as expenses in the statement of income.

Unit link holders’ funds are invested in time deposits, bonds, mutual funds and shares. Such investments are stated at fair value, except for time deposits which are stated at nominal value and for certain bonds held to maturity which are stated at amortized cost using the effective interest method less impairment. Fair value of units of mutual funds is based on the net asset value of the fund, rather then the quoted market prices of the securities held by the mutual fund. The value of segregated funds is recorded as assets in our consolidated statement of financial position. Payable to unit link holders is recorded as a liability in our consolidated statement of financial position and will be increased or decreased in accordance with the placement or withdrawal of unit link holders’ funds and the current net asset value of the related investment.

Income from unit link transactions generated by Sinarmas MSIG Life is presented in its financial statements as “Investment income” and in the Company’s consolidated statements of income as “Other income”.

Segregated Funds Net Assets and Segregated Funds Contract Liabilities - Unit Link: Treatment under PSAK 62 effective January 1, 2012.

Effective January 1, 2012, PSAK 62 “Insurance Contracts” will apply. As part of the first-time adoption of PSAK 62, Sinarmas MSIG Life will be required to conduct a product classification review to assess whether an insurance contract contains significant insurance risk, and whether the contract contains embedded derivatives, deposit components or discretionary participation features. If a contract is assessed as an insurance contract, funds received from policyholders will be recognized as premium income. If the contract does not transfer significant insurance risk, it will be accounted for as an investment contract under PSAK 55, and the receipt of funds relating to financial assets or financial liabilities will result in the creation of a liability for the value of the remittance rather than a credit to the statement of income. Investment management fees collected from the servicing of investment contracts are recognized as revenue over the period in which the services are performed.

For more detailed information see “—Recent Accounting Pronouncements” below.

Reserves

Sinarmas MSIG Life maintains reserves to provide for its future benefit obligations under its insurance policies, and maintains its reserves in accordance with reserve requirements set forth by the Ministry of Finance. The principal types of reserves it maintains are reserves for liability for future policy benefits, which is recorded in our consolidated balance sheet as a liability under “Liability for Future Policy Benefits”, and estimated claims liability and unearned premiums, which are recorded in our consolidated balance sheet as a liability under “Unearned Premiums and Estimation of Own Retention Claims”.

Liability for future policy benefits. Reserves for liability for future policy benefits represent the amount set aside to provide the benefits promised to policyholders under the terms of Sinarmas MSIG Life’s insurance policies in force, which are actuarially determined in house. Sinarmas MSIG Life calculates liability for future policy benefit expenses using actuarial calculations of its chief actuary which are based on certain assumptions

regarding mortality, actuarial interest and method of reserve computation depending on the type of product. Sinarmas MSIG Life reviews its estimates for future policy benefit obligations monthly, and in accordance with Ministry of Finance regulations, engages an independent actuary to review its reserves every three years.

Estimated claims liability. Sinarmas MSIG Life maintains reserves for estimated claims liability with respect to its term life and health and accident insurance policies, which represent amounts set aside to provide the outstanding and incurred claims, both reported and unreported, arising from such insurance policies in force during the accounting period and which are calculated in accordance with guidelines set by the Ministry of Finance.

Unearned premiums. Sinarmas MSIG Life maintains unearned premium reserves, representing the portion of net premium relating to unexpired periods of coverage beyond the current period. Unearned premium reserves are calculated on a proportionate basis over the term of the related policy coverage in accordance with guidelines set by the Ministry of Finance, which require at a minimum unearned premium reserves of 40% of its net premiums for policies with a term of one year or less.

For more information on Sinarmas MSIG Life’s reserves, see Note 28 to the Company’s consolidated financial statements and Note 14 to Sinarmas MSIG Life’s financial statements as of and for the nine months ended September 30, 2011.

Asuransi Sinar Mas

Reserves and Deferred Premium Income

Asuransi Sinar Mas maintains reserves to provide for the payment of claims arising from its insurance policies in accordance with reserve requirements set forth by the Ministry of Finance. The principal types of reserves it maintains are reserves for estimated own retention claims and unearned premiums, which are recorded in our consolidated balance sheet as a liability under “Unearned Premiums and Estimation of Own Retention Claims”.

Estimated own retention claims. Asuransi Sinar Mas maintains loss reserves for estimated claims liability, including for claims in process as of the balance sheet date and claims incurred but not reported (“IBNR”). Asuransi Sinar Mas establishes its loss reserves for estimated own retention claims on its products based on assumptions that are formulated with reference to historical loss experience and adjusting for future trends. Reserves for estimated claims liability are computed using an average 5-year historical loss ratio. Actual cost of loss and lost adjustment expenses experience may deviate from these assumptions and, as a result, Asuransi Sinar Mas cannot determine precisely the amounts which it will ultimately pay to settle liabilities on its products when it sets it reserves. Asuransi Sinar Mas reviews its estimated own retention claims monthly and its IBNR claims quarterly and revises these reserves as additional information becomes available and actual claims are reported. The increase or decrease in estimated own retention claims represents the difference between the estimated own retention claims balance for the current and prior year, which is recorded in the consolidated statements of income under “Insurance Underwriting Expenses”.

Unearned premiums. Asuransi Sinar Mas maintains unearned premium reserves, representing the portion of the premium from each policy which has not been recognized as revenue since the period covered extends beyond the end of the current period of the accounting year. Unearned premium reserves are calculated on a proportionate basis over the first year of the term of the related policy coverage in accordance with guidelines set by the Ministry of Finance, which require unearned premium reserves of 40.0% of net own retention premiums on an aggregate basis for policies with a term of more than one month and 10.0% of net own retention premiums on an aggregate basis for policies with a term of less than one month. The increase or decrease in unearned premiums represents the difference between the unearned premiums balance for the current and prior year, which is recorded in the consolidated statements of income under “Insurance Underwriting Income”.

Deferred premium income. For insurance policies with coverage periods of more than one year, Asuransi Sinar Mas records the portion of premium received at issuance that relates to periods other than the current accounting year as deferred premium in its stand-alone financial statements. This is recorded as a liability under “Premiums Received in Advance” in our consolidated balance sheet. In subsequent accounting periods, deferred premium amounts corresponding to coverage periods in such accounting years are reclassified

and recognized as gross premium income, and reflected in our consolidated statements of comprehensive income as insurance underwriting income for such periods.

For more information on Asuransi Sinar Mas’ reserves, see Note 29 to our consolidated financial statements and Notes 13 and 14 to Asuransi Sinar Mas’ consolidated financial statements.

Recognition of Underwriting Income and Expenses

Underwriting Income. Premiums on insurance and reinsurance contracts are recognized as revenue over the policy contract period in proportion to the insurance coverage provided. Premiums from co-insurance are recognized as income based on the subsidiary’s proportionate share in the premium. Premium due to the reinsurance company is recognized as reinsurance premium during the period of reinsurance contract in proportion to the insurance coverage received. Unearned premiums for life and non-life insurance products are calculated in aggregate using a certain percentage in accordance with applicable regulations. As discussed above under “—Critical Accounting Policies—Reserves and Deferred Premium Income,” the increase or decrease in unearned premiums represents the difference between the balances of unearned premiums in the current year and the prior year, and is charged to or credited in the consolidated income statement of the current year.

For insurance policies with coverage periods of more than one year, Asuransi Sinar Mas records the portion of premium received at issuance that relates to periods other than the current accounting year as deferred premium in its stand-alone financial statements or “Premiums Received in Advance” in our consolidated balance sheet. In subsequent accounting periods, deferred premium amounts corresponding to coverage periods in such accounting years are reclassified and recognized as gross premium income, and reflected in our consolidated statements of comprehensive income as insurance underwriting income for such periods.

Part of the total accepted risk is reinsured by other insurance and reinsurance companies. The amount of premium paid or part of premium for prospective reinsurance transactions is recognized as reinsurance premiums within the reinsurance contract period, in proportion to the insurance coverage provided. Payments or obligations for retrospective reinsurance transactions are recognized as a reinsurance receivable in an amount equivalent to the recorded liability in connection with the reinsurance contract.

Underwriting Expenses. Claims and benefits consist of settled claims, claims in process, including claims incurred but not yet reported, and claims settlement expenses. Claims are recognized as expense when the obligation to settle the claims are incurred. Parts of claims recovered from reinsurers are recorded and recognized as deduction from claims expenses in the same period when claims expenses are recognized. Subrogation rights are recognized as deduction from claims expenses when realized.

As discussed above under “—Reserves and Deferred Premium Income,” the changes in estimated own retention claims are recognized in the consolidated income statement at the time of change. The increase or decrease in estimated own retention claims represents the difference between the estimated own retention claims for the current year and the prior year. Commissions due to insurance brokers, agents and other insurance companies in connection with the insurance coverage are recorded as commission expense, whereas commissions obtained from reinsurance transactions are recorded as a deduction from commission expense, and are recognized in the consolidated statement of income when incurred. If commission income is more than the total commission expense, the difference is presented as commission income in the consolidated income statement of the current year.

Bank Sinarmas

Allowance for impairment losses and estimated losses on commitments and contingencies

Quality assessment and allowance impairment losses carried out on productive assets and nonproductive assets. Productive assets consist of demand deposits with other banks, placements with other banks, securities, securities purchased under agreements to resell, loans, acceptance receivables, commitments and contingencies reflected in the administrative accounts who have credit risk and productive assets derived from activities of sharia, in accordance with Bank Indonesia regulations. Non-productive assets comprise non-financial assets consisting of repossessed (foreclosed assets) and fixed assets that are not used in operation, inter-office accounts and suspense accounts in accordance with Bank Indonesia regulations. Starting January 1, 2010, the Company has applied PSAK 50 for the accounting for impairment. Implementation of the Transitional Provisions of Bank Indonesia for the Impairment Collective of Loans On December 8, 2009, Bank Indonesia

issued a Circular Letter, 11/33/DPNP, which regulates the estimation of collective impairment of loans with limited experience of specific losses. For banks that do not have sufficient historical loss data to determine the amount of impairment on loans on a collective basis in accordance with the requirements under PSAK 55 (Revised 2006) and PAPI (2008), the formation of allowance for impairment losses to use the applicable Bank Indonesia provisions concerning “Asset Quality Rating for Commercial Banks”.

Prior to January 1, 2010, determining the quality of assets and allowance for impairment losses was based on Bank Indonesia Regulation, 7/2/PBI/2005 dated January 20, 2005 and Circular Letter of Bank Indonesia, 7/3/DPNP dated 31 January 2005 on “Asset Quality Rating for Commercial Banks”, and Bank Indonesia Regulation No. 11/2/PBI/2009, dated January 29, 2009. The company still refers to these rules for calculating allowance for impairment losses after January 1, 2010 according to the application of the transitional provisions outlined above.

Allowance for impairment losses on productive assets

Allowance for impairment losses on productive assets is based on review of the quality of productive assets, commitments and contingencies in accordance with Bank Indonesia regulation, which classifies these productive assets into five (5) categories, with the percentage of allowance for impairment losses as follows:

Classification Percentage of Allowance for Impairment Losses

Current Minimum 1%

Special mention Minimum 5%

Substandard Minimum 15%

Doubtful Minimum 50%

Loss 100%

Percentages are applied to the outstanding balances of the productive assets, less the collateral value in accordance with Bank Indonesia regulations, except for earning assets and commitments and contingencies classified as current where the rates are applied directly to the outstanding balance of earning assets and commitments and contingencies. Bank Indonesia Certificates (SBI), placements with Bank Indonesia (BI Intervention) and Government bonds are not subject to allowance for impairment losses.

Estimated losses on commitment and contingencies (except acceptances) are presented under “Estimated losses on commitment and contingencies” in the consolidated financial statements.

Productive assets are written-off against allowance for impairment losses of productive assets when management believes that productive assets should be written-off where the debtor is unable to pay and for recovery is difficult. Recoveries of productive assets that have been written off are recorded as an addition to “allowance for impairment losses of productive asset” account when received. If the amount received is more than the principal amount, the excess is recognized as interest income.

Allowance for impairment losses on non-productive assets

Allowance for impairment losses on non-productive assets is determined in accordance with Bank Indonesia regulation regarding “Assessment of Quality Asset of Commercial Banks”.

We establish an allowance for impairment losses of non-productive assets based on the evaluation of the quality of each non-productive assets in accordance with the provisions of Bank Indonesia, which classifies the non-productive assets in four (4) categories based on the length of the asset is owned by us with the amount percentage of allowance for impairment losses as follows:

Category Percentage of Allowance for impairment losses

Current Minimum 1%

Substandard Minimum 15%

Doubtful Minimum 50%

Loss 100%

Interest income and expenses

Prior to January 1, 2010

Prior to January 1, 2010, interest income and expense was recognized on an accrual basis. Interest income on loans or other earning assets that were classified as non-performing were recognized only to the extent that the interest was received in cash. Cash receipts from loans that were classified as doubtful or loss were first applied to the loan principal. The excess of cash receipts over the loan principal was recognized as interest income in the statement of income. Interest receivable on non-performing assets was recorded in contingent receivables in the commitment and contingency statement in the notes to the consolidated financial statements.

After January 1, 2010

Interest income and expense for all interest-bearing financial instruments are currently recognized within “interest income” and “interest expense” in the consolidated statement of income using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability.

When calculating the effective interest rate, we estimate future cash flows based on the contractual terms of the financial instrument; however, we do not consider future credit losses. The calculation includes all fees, commissions and other fees received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Once a financial asset has been written down as a result of an impairment loss, interest income is recognized on the unimpaired portion of the asset using the same rate of interest that was used to discount the future cash flows for the purpose of measuring the impairment loss.

Recent Accounting Pronouncements

There are various new or revised financial reporting standards and interpretations that became effective from January 1, 2011 or will become effective from January 1, 2012. See Note 64 to our consolidated financial statements for further details. We are still evaluating the effects of these revised reporting standards and interpretations. For those pronouncements effective from January 1, 2012, we do not expect the application of these standards and interpretations, except PSAK 62, to have any material impact on our consolidated financial statements.

Pronouncements effective from January 1, 2012 include the adoption of PSAK 60 and PSAK 62. PSAK 60, “Financial Instruments: Disclosures” requires expanded disclosure that enable readers to evaluate the significance of the Company and its subsidiaries’ financial instruments and the nature and extent of risks arising from those financial instruments. Adoption of this standard effective January 1, 2012 will result in the inclusion of additional disclosures in the Company’s consolidated financial statements such as market risk sensitivity analysis, contractual maturity of financial liabilities, credit quality of financial assets that are neither past due nor impaired and aging analysis of financial assets that are past due but not impaired.

PSAK 62 will require Sinarmas MSIG Life to conduct a product classification review to assess whether an insurance contract contains significant insurance risk, and whether the contract contains embedded derivatives, deposit components or discretionary participation features. Insurance risk is significant if, and only if, an insured event could cause an insurer to pay significant additional benefits in excess of those that would be payable if no insured event occurred, except in circumstances where there is no commercial substance (i.e., have no discernible effect on the economics of the transaction). If significant additional benefits would be payable in

circumstances where there is commercial substance, the condition may be met even if the insured event is extremely unlikely or even if the expected present value of contingent cash flows is a small proportion of the expected present value of the remaining contractual cash flows.

If a contract is assessed as an insurance contract, funds received from policyholders will be recognized as premium income, as currently recorded. If the contract does not transfer significant insurance risk, it will be accounted for as an investment contract under PSAK 55 if it meets the definition of financial instrument, unless it contains a discretionary participation feature. If the contract is treated as an investment contract, then the receipt of funds relating to financial assets or financial liabilities will result in the creation of a liability for the value of the remittance rather than a credit to the statement of income. Investment management fees collected from the servicing of investment contracts are recognized as revenue over the period in which the services are performed.

PSAK 62 requires extensive disclosures to allow the users of the financial statements to understand the measurement bases adopted, the materiality of the reported amounts arising from insurance contracts and the factors that affect the uncertainty of amount and timing of the cash flows arising from insurance and reinsurance contracts. This includes information that will assist in the understanding of the amounts arising from insurance contracts, including assumptions that have the great effect on measurement of assets, liabilities, income and expense, the effect of changes in assumptions and reconciliations of changes in insurance liabilities, reinsurance assets and if any, related deferred acquisition costs. It also requires disclosure that will assist in the evaluation of the nature and extent of risks arising from insurance contracts, including information about sensitivity to insurance risk, concentrations of insurance risk and actual claims compared with previous estimates, as well as information about credit risk, liquidity risk and market risk that PSAK 60 would require if the insurance contracts were within the scope of PSAK 60.

Adoption of PSAK 62 may result in the recharacterization of some of Sinarmas MSIG Life’s policies from insurance contracts to investment contracts. This in turn could have a material affect on premium income recorded in Sinarmas MSIG Life’s financial statements, which would have a significant effect on SMMA’s consolidated revenues. In addition, PSAK 62 will require inclusion of enhanced disclosure on the insurance contracts in Sinarmas MSIG Life’s financial statements, as described above.

As of the date of this document, the timing of the impact of PSAK 60 and PSAK 62 on the Company remains uncertain as implementation of these standards depend significantly on whether and when the Ministry of Finance will issue guidance relating to how the standards are to be applied to insurance companies.

For more detailed information see Note 33 to Sinarmas MSIG Life’s financial statements for the nine months ended September 30, 2011 and Note 34 to Asuransi Sinar Mas’ financial statements for the nine months ended September 30, 2011.

For other pronouncements effective from January 1, 2012, we do not expect the application of these standards to have a material impact on our consolidated financial statements.

Principal Income Statement Components – Consolidated Financial Statements of SMMA

Our operating income and expense is derived from the following key business segments:

• life insurance;

• non-life insurance;

• banking;

• securities;

• multifinance;

• sales and investment income from the Company; and

• income and expenses generated from other non core businesses.

Operating Income

Our principal sources of operating income include insurance underwriting income, gain from investments in units of mutual funds, interest income, gain on foreign exchange—net, gain on sale of short-term investments, unrealized gain on increase in fair value of securities, consumer financing income, administration fee and commissions, stock brokerage and underwriting income and other operating income.

Insurance Underwriting Income

Insurance underwriting income comprises gross premiums from unit link, endowment and other insurance products from our life and non-life insurance business, net of reinsurance premiums and change in unearned premiums.

Interest Income

Our principal interest-earning assets consist of loans, securities and time deposits, and to a lesser extent, placements with other banks, securities purchased under agreements to resell and mortgage receivables. Interest income is determined by:

• the amount of interest-earning assets;

• the interest rate of such interest-earning assets; and

• the general level of market interest rates.

Interest income is generated principally from loans extended by our banking subsidiary and securities and other instruments, including time deposits and bonds held by our banking, life and non-life insurance and securities subsidiaries, and also includes bond amortization on bonds held to maturity.

Gain from Investments in Units of Mutual Funds

Gain from investments in units of mutual funds comprises the net realized gain or loss on investments in units of mutual funds and net unrealized gain or loss on the investments in units of mutual funds held principally by our life and non-life insurance subsidiaries, our securities subsidiary, our banking subsidiary and the Company. Gain from investments in units of mutual funds includes both units held as investments and units held as segregated assets in respect of unit link products sold by Sinarmas MSIG Life.

Gain on Sale of Short-Term Investments - Net

Gain on sale of short-term investments-net reflects the sale of short-term investments, including equity shares and bonds principally held by our life and non-life insurance subsidiaries, and, to a lesser extent, our banking and securities subsidiaries. Gain on sale of short-term investments-net excludes any gains or losses realized on the sale of units of mutual funds, which is recorded in the line item “Gain on sale of mutual funds”, but includes gains or losses realized on the sale of securities held as investments and as segregated assets in respect of unit link products sold by Sinarmas MSIG Life.

Administration Fee and Commissions

Administration fee and commissions comprise primarily fees and commissions generated by our multifinance and banking subsidiaries.

Consumer Financing Income

Consumer financing income principally relates to consumer loans made by our multifinance subsidiaries.

Sales consists of sale of foreign currency by Simas Money Changer and sale of other goods by the Company, such as office supplies and mobile phone vouchers, which sales are undertaken for tax planning purposes, and certain other non-core trading and services subsidiaries.

Investment Management Income

Investment management income comprises income generated by Sinarmas Sekuritas and its subsidiaries in respect of AUM.

Stock Brokerage and Underwriting Income

Stock brokerage and underwriting income consists principally of fee income that Sinarmas Sekuritas charges customers from their securities trading activities and from underwriting activities that it undertakes.

Unrealized Gain on Increase in Fair Value of Securities

Unrealized gain on increase in fair value of securities reflects the unrealized gain on increases in the fair value of securities, excluding units of mutual funds, net of unrealized losses, held by our life and non-life insurance, banking and securities businesses. Unrealized gain on increase in fair value of securities excludes any unrealized gain attributable to units of mutual funds, which is recorded in the line item “Gain on sale of mutual funds”, but includes unrealized gain on other securities held as investments and held as segregated funds for unit link policyholders. Unrealized loss on decrease in fair value of securities, net of unrealized gains, is recorded as an operating expense item.

Gain on Foreign Exchange—Net

Gain on foreign exchange—net comprises realized and unrealized gross foreign exchange gains net of realized and unrealized gross foreign exchange losses, primarily in relation to adjustments to monetary assets and liabilities denominated in foreign currencies on each balance sheet date by the Company and our subsidiaries. Net loss on foreign exchange is recorded as an operating expense item “Loss on Foreign Exchange—Net”.

Other Income

We also derive operating income from various other activities such as sales income from the sale of foreign currencies, factoring income, equity in the net income of associated companies—net, finance lease income, gain on sale of investment, dividend income, investment income of subsidiaries and others.

Operating Expenses

Our operating expenses comprise principally insurance underwriting expenses, interest expense, salaries and employee benefits, general and administrative expenses, depreciation and amortization, loss on foreign exchange—net, cost of goods sold and other operating expenses.

Insurance Underwriting Expenses

Insurance underwriting expenses comprise cash items of gross claims payable under life and non-life insurance policies issued by our insurance subsidiaries, net of reinsurance claims, net commissions and other insurance underwriting expenses and non-cash items of change in liability for future policy benefits, changes in estimated and retention claims and change in segregated fund contract liabilities - unit link.

Interest Expense

Our principal interest-bearing liabilities consist of time deposits, loans received, savings deposits, current accounts, deposits and deposits from other banks. Interest expense is principally incurred by our banking subsidiary through its funding sources, principally customer deposits and accounts, as well as our multifinance and securities subsidiaries of the Company.

Salaries and Employee Benefits

Salaries and employee benefits comprise salaries and other costs and directors’ emoluments.

General and Administrative Expenses

General and administrative expenses comprise principally general expenses such as electricity, water and telephone expenses, marketing and advertising expenses, rental, office supplies, administration expenses, professional fees and defined-benefit post employment expense—net.

Unrealized Loss on Decrease in Fair Value of Securities

Unrealized loss on decrease in fair value of securities reflects the unrealized loss on decreases in the fair value of securities, excluding units of mutual funds, net of realized gains, held by our life and non-life insurance, banking and securities subsidiaries. For years where there is a net unrealized gain on increase in fair value of securities, it is recorded as an operating income item, as described above.

Cost of Goods Sold

Cost of goods sold principally relates to the sales of foreign currency by PT Simas Money Changer and sales of office supplies and mobile phone vouchers by the Company.

Depreciation and Amortization

Depreciation and amortization comprise principally depreciation and amortization expenses relating to our investment properties, our property and equipment, property under build, operate and transfer agreements and assets for lease.

Provision for Possible Losses on Earning Assets and Non-Earning Assets

Provision for possible losses on earning assets and non-earning assets comprise allowances for impairment on losses on productive and non-productive assets of Bank Sinarmas. Prior to January 1, 2010, minimum levels of loss allowances maintained by the Bank are based on classifications of non-productive assets and allowances for impairment losses on non-productive assets based on Bank Indonesia regulations. Beginning January 1, 2011, the Bank no longer applies the Bank Indonesia transitional provisions for collective impairment of loans and uses an “incurred loss” methodology for collective asset impairments. See “—Critical Accounting Policies—Bank Sinarmas”.

Loss on Foreign Exchange—Net

Loss on foreign exchange—net comprises realized and unrealized gross foreign exchange losses net of realized and unrealized gross foreign exchange gains, primarily in relation to adjustments to monetary assets and liabilities denominated in foreign currencies on each balance sheet date by the Company and our subsidiaries. Net gain on foreign exchange is recorded as an operating income item “Gain on foreign exchange—net”.

Other Expenses

We also incur operating expenses in respect of provision for doubtful accounts, investment management expenses, stock brokerage and underwriting expenses, other financial charges, Mudharabah for participants and other operating expenses.

Comprehensive Income attributable to Equity Holders of Parent and Non-controlling Interests

Non-controlling interest represents the non-controlling stockholders’ proportionate share in the net income and equity of the subsidiaries which are not wholly owned, which is presented based on the percentage of ownership of the non-controlling stockholders in the subsidiaries. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance. For 2008, 2009 and 2010, this principally represented minority interests in Bank Sinarmas. For the nine months ended September 30, 2011, non-controlling interests also include MSIG’s 50% ownership interest in Sinarmas MSIG Life.

Consolidated Results of Operations of SMMA

We currently conduct almost all of our operations through our subsidiaries. As a result, substantially all of our operating revenues, operating costs and net income are attributable to the operations of our subsidiaries.

The following table provides a breakdown of our principal consolidated income statement components, including each principal component as a percentage of our total operating income, for the periods indicated. You should read this table together with our consolidated financial statements, including the notes thereto.

Year Ended December 31, Nine Months Ended September 30, 2008 2009 2010 2010 2011 (Rp.) % (Rp.) % (Rp.) (US$) % (Rp.) % (Rp.) (US$)

(Rp. in billions, US$ in millions, except percentages)

Operating Income: Insurance underwriting income...................................... 5,964.7 74.2 8,210.7 73.9 10,648.8 1,207.0 75.8 7,397.9 76.2 11,118.3 1,260.1Interest income ............................................................... 625.4 7.8 864.5 7.8 1,052.4 119.3 7.5 739.2 7.6 1,106.3 125.4Gain from investments in units of mutual funds ............ 722.0 9.0 1,195.9 10.8 1,247.1 141.3 8.9 951.7 9.8 912.0 103.4Gain on sale of short-term investments – net ................. 53.2 0.7 51.6 0.5 313.6 35.5 2.2 128.4 1.3 732.6 83.0Administration fee and commissions ............................. 100.1 1.2 108.8 1.0 83.4 9.5 0.6 107.2 1.1 169.1 19.2Consumer financing income........................................... 84.1 1.0 120.0 1.1 169.8 19.3 1.2 87.0 0.9 165.1 18.7Sales................................................................................ 37.3 0.5 154.5 1.4 47.2 5.4 0.3 20.2 0.2 85.1 9.6Investment management income.................................... 34.3 0.4 26.3 0.2 45.3 5.1 0.3 31.7 0.3 51.6 5.8Stock brokerage and underwriting income..................... 91.7 1.1 31.6 0.3 60.3 6.8 0.4 51.1 0.5 39.7 4.5Factoring income............................................................ 28.9 0.4 46.0 0.4 29.3 3.3 0.2 12.6 0.1 34.3 3.9Finance lease income...................................................... 12.9 0.2 23.4 0.2 27.8 3.2 0.2 17.5 0.2 18.5 2.1Equity in net income of the associated companies – net - - 41.9 0.3 28.4 3.2 0.2 23.1 0.2 5.3 0.6Shares administration fee ............................................... 3.3 0.0 2.0 0.0 3.2 0.4 0.0 2.3 0.0 2.0 0.2Unrealized gain on increase in fair value of securities .. - - 189.9 1.7 184.9 21.0 1.3 54.2 0.6 - -

Gain on sale of investment ............................................. - - - - 12.7 1.4 0.1 12.7 0.1 - -Gain on foreign exchange – net...................................... 223.2 2.8 - - - - - - - - -Other income .................................................................. 54.3 0.7 49.4 0.4 95.5 10.8 0.7 77.7 0.9 145.0 16.4

Total Operating Income.................................................. 8,035.4100.0

11,116.5 100.0 14,049.7 1,592.4 100.0 9,714.5 100.0 14,584.9 1,653.1 Operating Expenses: Insurance underwriting expenses ................................... 6,381.3 79.4 8,758.8 78.8 11,136.2 1,262.2 79.3 7,823.7 80.5 11,189.8 1,268.3Interest expense .............................................................. 450.4 5.6 496.7 4.5 537.8 61.0 3.8 380.1 3.9 636.6 72.2Salaries and employee benefits ...................................... 221.0 2.8 250.7 2.3 335.8 38.1 2.4 257.2 2.6 382.6 43.4General and administrative expenses ............................. 239.3 3.0 262.2 2.4 327.1 37.1 2.3 221.9 2.3 297.1 33.7Unrealized loss on decrease in fair value of securities .. 175.9 2.2 - - - - - - - 146.5 16.6Cost of goods sold .......................................................... 37.1 0.5 154.1 1.4 47.2 5.3 0.3 20.3 0.2 85.1 9.6Depreciation and amortization ....................................... 59.8 0.7 72.2 0.6 78.8 8.9 0.6 56.0 0.6 81.9 9.3Provisions for possible losses on earning and non-

earning assets ............................................................ 10.6 0.1 64.5 0.6 44.9 5.1 0.3 50.3 0.5 20.1 2.3Loss on foreign exchange—net...................................... - - 193.5 1.7 53.3 6.0 0.4 57.9 0.6 12.6 1.4Provision of doubtful accounts....................................... 10.0 0.1 8.6 0.1 16.6 1.8 0.1 10.9 0.1 12.0 1.4Investment management expenses ................................. 6.8 0.1 3.7 0.0 8.2 0.9 0.1 5.2 0.1 11.5 1.3Stock brokerage and underwriting expenses.................. 37.2 0.5 2.5 0.0 10.7 1.2 0.1 7.2 0.1 2.6 0.3Other financial charges................................................... 2.0 0.0 1.5 0.0 3.5 0.4 0.0 0.7 0.0 0.7 0.1Mudharabah for participants .......................................... 0.3 0.0 0.3 0.0 0.2 0.0 0.0 (0.2) 0.0 (0.0) (0.0)Equity in net loss of the associated companies – net ..... 5.7 0.1 - - - - - - - - -Other expenses ............................................................... 48.8 0.6 67.6 0.6 81.8 9.3 0.6 57.6 0.6 98.8 11.2Total Operating Expenses .............................................. 7,686.2 95.7 10,336.9 93.0 12,682.1 1,437.4 90.3 8,948.8 92.1 12,977.9 1,470.9 Income Before Tax ....................................................... 349.2 4.3 779.6 7.0 1,367.6 155.0 9.7 765.7 7.9 1,607.0 182.1 Tax Expense (Benefit): Current............................................................................ 34.6 0.4 48.1 0.4 68.0 7.7 0.5 47.2 0.5 83.0 9.4Deferred.......................................................................... 23.7 0.3 (2.2) 0.0 21.8 2.5 0.2 18.3 0.2 6.8 0.8Total................................................................................ 58.3 0.7 45.9 0.4 89.8 10.2 0.7 65.4 0.7 89.8 10.2 Net Income ....................................................................

290.9 3.6 733.7 6.6 1,277.8 144.8 9.0 700.2 7.2 1,517.2 172.0 Other Comprehensive Income (Expense): Unrealized gain (loss) on change in fair value of

available for sale securities of subsidiaries............... (81.4) - 47.2 - 135.7 15.4 - 6.0 - (253.7) (28.8)Translation adjustment of a subsidiary........................... - - - - - - - - - (0.0) (0.0)Realized loss on dilution of ownership interest in

subsidiaries................................................................ - - - - (2.7) (0.3) - (2.7) - - -Gain (loss) on change in ownership interest in

subsidiaries and associates........................................ - - 1.0 - (0.6) (0.1) - (0.6) - 38.5 4.4Total Comprehensive Income (Loss) ........................... (81.4) - 48.2 - 132.4 15.0 - 2.7 - (215.2) (24.4)Total Comprehensive Income ......................................

209.5 - 781.9 - 1,410.2 160.0 - 702.9 - 1,302.0 147.6

Income attributable to:

Equity holders of the Parent Company ............... 263.6 - 700.1 - 1,277.8 144.8 - 700.2 - 1,382.5 156.7Non-controlling interests..................................... 27.3 - 33.6 - - - - (0.0) - 134.7 15.3

290.9 - 733.7 - 1,277.8 144.8 - 700.2 - 1,517.2 172.0

Comprehensive income attributable to:

Equity holders of the Parent Company ............... 182.6 - 747.8 - 1,445.2 163.8 - 702.9 - 3,963.7 449.2Non-controlling interests..................................... 26.9 - 34.1 - (35.0) (4.0) - (0.0) - (2,661.7) (301.7)

209.5 - 781.9 - 1,410.2 159.9 - 702.9 - 1,302.0 147.6

Operating Income

Insurance Underwriting Income

The following table sets forth our insurance underwriting income for the periods indicated.

2008 2009 2010 2010 2010 2011 2011 Rp. Rp. Rp. US$ Rp. Rp. US$

(Rp. in billions, US$ in millions) Gross premiums:

Total life insurance........................................................... 5,107.4 7,109.6 9,289.6 1,052.9 6,392.0 9,805.9 1,111.4 Elimination ....................................................................... 17.4 22.6 24.6 2.8 21.4 6.6 0.8

Total life insurance after elimination .......................... 5,124.8 7,132.2 9,314.2 1,055.7 6,413.4 9,812.5 1,112.2 Non-life insurance ............................................................ 3,229.3 2,872.7 3,258.9 369.4 2,445.0 2,988.2 338.7

Total gross premiums .................................................. 8,354.1 10,004.9 12,573.1 1,425.1 8,858.4 12,800.7 1,450.9

Reinsurance premiums: Life insurance................................................................... (7.6) (8.0) (6.2) (0.7) (6.0) (5.8) (0.7) Non-life insurance ............................................................ (2,297.8) 1,762.5 (1,798.7) (203.9) (1,383.2) (1,541.9) (174.8)

Total reinsurance premiums ........................................ (2,305.4) (1,770.5) (1,804.9) (204.6) (1,389.2) (1,547.7) (175.5)

Increase on unearned premiums: Life insurance................................................................... 24.0 14.3 (0.0) 0.1 (1.9) 1.3 (0.1) Non-life insurance ............................................................ (108.1) (38.0) (119.0) (13.5) (69.4) (136.0) (15.5)

Total increase on unearned premiums......................... (84.1) (23.7) (119.0) (13.5) (71.3) (134.7) (15.4)

Total insurance underwriting income............................ 5,964.7 8,210.7 10,649.2 1,207.0 7,397.9 11,118.3 1,260.8

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our total insurance underwriting income increased 50.3% to Rp.11,118.3 billion (US$1,260.1 million) in the nine months ended September 30, 2011 from Rp.7,397.9 billion in the nine months ended September 30, 2010, principally as a result of an increase in life and non-life gross premiums. Gross premiums increased 44.5% to Rp.12,800.7 billion (US$1,450.9 million) in the nine months ended September 30, 2011 from Rp.8,858.4 billion in the nine months ended September 30, 2010, principally as a result of continued growth in gross premium income generated by our life insurance business, and to a lesser extent, our non-life insurance business. Growth in gross premium income generated by our life insurance business was due in significant part to the increase in gross premium income from endowment policies attributable principally to a shift by existing unit link policyholders from their existing unit link policies to new endowment policies. For more details on the change in premium income of our life and non-life insurance businesses, see “—Results of Operations of Sinarmas MSIG Life—Revenues—Premium Income” and “—Results of Operations of Asuransi Sinar Mas—Underwriting Income”, respectively.

2010 Compared to 2009. Our total insurance underwriting income increased 29.7% to Rp.10,649.2 billion (US$1,20.7.0 million) in 2010 from Rp.8,210.7 billion in 2009, principally as a result of an increase in gross premiums, which were partially offset by an increase in unearned premiums. Gross premiums increased 25.7% to Rp.12,573.1 billion (US$1,425.0 million) in 2010 from Rp.10,004.9 billion in 2009, principally as a result of increases in gross premium income for our life insurance business and, to a lesser extent, an increase in gross premium income for our non-life insurance business. Growth in gross premium income generated by our life insurance business was due in significant part to the increase in gross premium income from endowment policies attributable principally to a shift by existing unit link policyholders from their existing unit link policies to new endowment policies. For more details on the change in premium income of our life and non-life insurance businesses, see “—Results of Operations of Sinarmas MSIG Life—Revenues—Premium Income” and “—Results of Operations of Asuransi Sinar Mas—Underwriting Income”, respectively.

2009 Compared to 2008. Our total insurance underwriting income increased 37.7% to Rp.8,210.7 billion in 2009 from Rp.5,964.7 billion in 2008, principally as a result of an increase in gross premiums, a decrease in reinsurance premiums and a decrease in unearned premiums. Gross premiums increased 19.8% to Rp.10,004.9 billion in 2009 from Rp.8,354.1 billion in 2008, principally as a result of increases in gross premium income generated by our life insurance business. For more details on the change in premium income of

our life and non-life insurance businesses, see “—Results of Operations of Sinarmas MSIG Life—Revenues—Premium Income” and “—Results of Operations of Asuransi Sinar Mas—Underwriting Income”, respectively.

Interest Income

The following table shows interest income for the Company and key subsidiaries for the periods indicated:

2008 2009 2010 2010 2010 2011 2011 Rp. Rp. Rp. US$ Rp. Rp. US$

(Rp. in billions, US$ in millions) Sinarmas MSIG Life .......................................................... 43.4 125.6 128.9 14.6 85.2 184.2 20.9 Asuransi Sinar Mas ............................................................ 19.0 17.6 21.0 2.4 13.8 30.2 3.4 Sinarmas Sekuritas ............................................................. 9.1 8.8 8.6 1.0 5.6 6.2 0.7 Bank Sinarmas.................................................................... 554.9 731.2 907.5 102.9 644.6 902.8 102.3 Others ................................................................................. 0.4 0.7 0.8 0.1 0.3 0.1 0.0

Total Before Elimination............................................. 626.8 883.9 1,066.8 120.9 749.5 1,123.5 127.3 Elimination............................................................... (1.4) (19.4) (14.4) (1.6) (10.3) (17.2) (1.9)

Total Interest Income .................................................. 625.4 864.5 1,052.4 119.4 739.2 1,106.3 125.4

For a more detailed discussion on changes on interest income attributable to Bank Sinarmas, Sinarmas MSIG Life and Asuransi Sinar Mas, see their respective results of operation discussion below.

The following table sets forth our interest income by asset type for the periods indicated.

2008 2009 2010 2010 2010 2011 2011 Rp. Rp. Rp. US$ Rp. Rp. US$

(Rp. in billions, US$ in millions) Loans .................................................................................. 453.1 599.3 784.2 88.8 555.1 748.4 84.9 Securities ............................................................................ 100.0 190.0 192.2 21.8 136.1 179.0 20.3 Time deposits ..................................................................... 50.5 61.4 64.5 7.3 40.8 164.5 18.6 Placement with other banks ............................................... 10.7 7.5 4.8 0.5 3.7 8.9 1.0 Securities purchased under agreements to sell .................. 4.9 1.3 2.2 0.2 1.2 3.5 0.4 Mortgaged receivables ....................................................... 2.7 2.8 2.6 0.3 1.9 1.6 0.2 Others ................................................................................. 3.5 2.2 1.9 0.2 0.5 0.4 0.0 Total interest income........................................................ 625.4 864.5 1,052.4 118.3 739.2 1,106.3 125.4

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our total interest income increased 49.7% to Rp.1,106.3 billion (US$125.4 million) in the nine months ended September 30, 2011 from Rp.739.2 billion in the nine months ended September 30, 2010, principally as a result of an increase in interest income earned by Bank Sinarmas, and to a lesser extent, interest income earned by Sinarmas MSIG Life. Interest income attributable to Bank Sinarmas accounted for 67.6%, or Rp.748.4 billion (US$84.8 million) of the interest income in the nine months ended September 30, 2011, compared to 75.1%, or Rp.555.1 billion in the nine months ended September 30, 2010. Sinarmas MSIG Life was the second largest contributor to interest income, accounting for 16.7%, or Rp.184.2 billion (US$20.9 million) in the nine months ended September 30, 2011, compared to 11.5%, or Rp.85.2 billion in the nine months ended September 30, 2010.

By type of asset, the growth in interest income was manly attributable to an increase in interest income from loans, and, to a lesser extent, securities, time deposits and placements with banks.

Interest income from loans increased 34.8% to Rp.748.4 billion (US$84.5 million) in the nine months ended September 30, 2011 from Rp.555.1 billion in the nine months ended September 30, 2010, principally as a result of an increase in the average volume of total loans outstanding which grew 36.8% to Rp.7,864.7 billion (US$839.0 million) in the nine months ended September 30, 2011, from Rp.5,749.3 billion in the nine months ended September 30, 2010. This growth was primarily attributable to an increase in the average volume of Rupiah-denominated loans made by Bank Sinarmas, which rose 47.7% to Rp.9,163.7 billion (US$1,038.6

million) in the nine months ended September 30, 2011 from Rp.6,204.5 billion in the nine months ended September 30, 2010, while average interest rates on Bank Sinarmas’ Rupiah loans remained relatively flat.

Interest income from securities increased 31.5% to Rp.179.0 billion (US$20.3 million) in the nine months ended September 30, 2011 from Rp.136.1 billion in the nine months ended September 30, 2010, principally as a result of an increase in interest income earned by Sinarmas MSIG Life on securities held as investments, mainly reflecting an increase in the volume of fixed income securities held in its investment portfolio in line with the growth in premium income, and to a lesser extent, interest income from Asuransi Sinar Mas and Sinarmas Sekuritas on their securities held as investments.

Interest income from time deposits increased 303.2% to Rp.164.5 billion (US$18.6 million) in the nine months ended September 30, 2011 from Rp.40.8 billion in the nine months ended September 30, 2010, principally as a result of an increase in the amount of time deposits held by Sinarmas MSIG Life, pending use of funds contributed by MSIG as a result of its investment in Sinarmas MSIG Life. Interest income from other assets, including placements with banks, securities under repurchase agreements and mortgage receivables, also increased slightly.

2010 Compared to 2009. Our total interest income increased 21.7% to Rp.1,052.4 billion (US$119.3 million) in 2010 from Rp.864.5 billion in 2009, largely due to an increase in interest income earned by Bank Sinarmas, and to a lesser extent, interest income earned by Sinarmas MSIG Life, Asuransi Sinar Mas and Sinarmas Sekuritas. Interest income attributable to Bank Sinarmas accounted for 24.1%, or Rp.907.5 billion (US$100.9 million) of the interest income in 2010, compared to 31.8%, or Rp.731.2 billion in 2009. Sinarmas MSIG Life was the second largest contributor to interest income, accounting for 12.2%, or Rp.128.9 billion (US$14.6 million) in 2010, compared to 14.5% or Rp.125.6 billion in 2009.

By type of asset, the growth in interest income was primarily due to an increase in interest income from loans and to a lesser extent, time deposits, partially offset by a decrease in interest income from placements with banks and securities under repurchase agreements. Interest income from securities remained flat.

Interest income from loans increased 30.9% to Rp.784.2 billion (US$88.9 million) in 2010 from Rp.599.3 billion in 2009, principally as a result of a 34.1% increase in total average Rupiah-denominated loans outstanding, made by Bank Sinarmas, which increased to Rp.6,214.7 billion (US$704.4 million) in 2010 from Rp.4,635.4 billion in 2009 even as the average interest rate on Rupiah-denominated loans declined over the same period to 14.3% from 15.9%, respectively.

Interest income from securities remained relatively constant at Rp.192.2 billion (US$21.8 million) in 2010 compared to Rp.190.0 billion in 2009. The value of securities increased to Rp.7,304.7 billion (US$827.9 million) as of December 31, 2010 from Rp.6,086.3 billion as of December 31, 2009, but this was offset by lower interest rates earned on the securities portfolios in 2010 as a result of market conditions. Interest income earned on securities was principally generated by Sinarmas MSIG Life on its securities held as short-term investments, and to a lesser extent, interest income generated from the securities held by Asuransi Sinar Mas and Sinarmas Sekuritas.

Interest income from time deposits increased 5.0% to Rp.64.5 billion (US$7.3 million) in 2010 from Rp.61.4 billion in 2009, principally as a result of higher interest income earned on time deposits held by Sinarmas MSIG Life and Asuransi Sinar Mas, reflecting growth in the amount of time deposits held in their investment portfolios, partially offset by lower interest rates earned due to market conditions. Interest income from other assets, including placements with banks, securities under repurchase agreements and mortgage receivables, decreased slightly as a result of a shift in asset allocation to higher interest-earning assets, such as securities and loans.

2009 Compared to 2008. Our total interest income increased 38.2% to Rp.864.5 billion in 2009 from Rp.625.4 billion in 2008 mainly due to an increase in interest income earned by Bank Sinarmas, and to a lesser extent, interest income earned by Sinarmas MSIG Life. Interest income attributable to Bank Sinarmas accounted for 31.8%, or Rp.7,31.2 billion in 2009, compared to 65.6%, or Rp.554.9 billion in 2008. Sinarmas MSIG Life was the second largest contributor to interest income, accounting for 14.5%, or Rp.125.6 billion in 2009, compared to 6.9%, or Rp.43.4 billion in 2008.

By type of asset, the growth in interest income was principally as a result of an increase in interest income from loans, securities and time deposits, partially offset by a decrease in interest income from placements with other banks.

Interest income from loans increased 32.3% to Rp.599.3 billion in 2009 from Rp.453.1 billion in 2008, principally as a result of an increase in both average Rupiah-denominated loans and U.S. dollar-denominated loans made by Bank Sinarmas, to Rp.4,635.4 billion in 2009 from Rp.3,967.7 billion in 2008, as well as higher average rates of interest earned on Rupiah-denominated loans and U.S. dollar-denominated loans in 2009.

Interest income from securities increased 90.0% to Rp.190.0 billion in 2009 from Rp.100.0 billion in 2008 largely due to an increase in interest income earned by Sinarmas MSIG Life on securities held as investments, reflecting an increase in the volume of securities held in its investment portfolio, and to a lesser extent, interest income earned on securities held by Asuransi Sinar Mas and Sinarmas Sekuritas. Interest rates on securities increased in 2009, as compared to 2008, which was partially offset by a small decrease in the value of securities held to Rp.6,086.3 billion as of December 31, 2009 from Rp.6,721.6 billion as of December 31, 2008.

Interest income from time deposits increased 21.6% to Rp.61.4 billion in 2009 from Rp.50.5 billion in 2008, principally as a result of higher interest income earned on time deposits held by Sinarmas MSIG Life and Asuransi Sinar Mas. Interest income from other assets, including placements with banks, securities under repurchase agreements and mortgage receivables, decreased slightly mainly as a result of lower interest rates earned on such assets.

Gain from Investments in Units of Mutual Funds

Gains from investments in unit of mutual funds comprise both net realized gain or loss on investments in unit of mutual funds and net unrealized gain or loss on investment in mutual funds. The following table sets forth the breakdown of net realized gain (loss) and net unrealized gain (loss) for the Company and its subsidiaries for the periods indicated.

For the Nine Months Ended September 30, 2010 2011 Net

realized gain (loss)

Net unrealized gain (loss)

Net realized

gain (loss)

(Rp. in billions, US$ in millions) Rp. Rp. Rp. US$ Rp. US$

SMMA............................................................ (4.5) 5.9 (22.7) (2.6) 37.3 4.2 Sinarmas MSIG Life:

Investments.................................................. 132.2 86.4 100.6 11.4 108.8 12.3 Segregated Funds Of Unit Link .................. 212.5 353.0 488.5 55.4 67.0 7.6 Segregated Funds of Sharia......................... 0.6 2.4 0.5 0.1 (1.2) (0.1) Total............................................................. 345.3 441.8 589.6 66.9 174.6 19.8

Asuransi Sinar Mas ........................................ 58.6 77.0 22.0 2.5 109.7 12.4 Sinarmas Sekuritas......................................... - 26.5 (1.4) (0.2) 0.9 0.1 Total ............................................................... 399.4 551.2 587.5 66.6 322.5 36.5

2008 2009 2010

Net realized

gain (loss)

Net realized

gain (loss)

Net realized

gain (loss)

(Rp. in billions, US$ in millions) Rp. Rp. Rp. Rp. Rp. US$ Rp. US$

SMMA.............................................. (7.6) 8.5 (12.6) 16.0

(16.4)

(1.9) 18.2 2.1 Sinarmas MSIG Life:

Investments.................................... 464.2 278.5 1,098.3 (385.9) 216.6 24.6 64.9 7.4 Segregated Funds Of Unit Link .... (7.3) (65.9) 84.4 225.9 222.4 25.2 519.6 58.9 Segregated Funds of Sharia........... (0.1) (2.4) 0.1 3.3 1.2 0.1 2.8 0.3 Total............................................... 456.8 210.2 1,182.8 (156.7) 440.2 49.9 587.3 66.6

Asuransi Sinar Mas .......................... 60.5 0.4 128.5 15.9

131.1 14.9 51.6

5.9 Sinarmas Sekuritas........................... 9.8 (17.6) 9.4 11.3 - - 33.7 3.8 Total ................................................. 519.5 201.5 1,308.1 (113.5) 554.9 62.9 690.8 78.4

For more details on the realized and unrealized investment gains and losses attributable to our insurance businesses, see “—Results of Operations of Sinarmas MSIG Life—Revenues—Investment Income” and “—Results of Operations of Asuransi Sinar Mas—Investment Income”.

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our gain from investments in units of mutual funds decreased 4.2% to Rp.912.0 billion (US$103.4 million) in the nine months ended September 30, 2011 from Rp.951.7 billion in the nine months ended September 30, 2010, principally as a result of lower net investment gains on mutual funds held by Sinarmas MSIG Life and Asuransi Sinar Mas, as well as a loss of Rp.0.5 billion on investments in units of mutual funds held by Sinarmas Sekuritas and its subsidiary, compared to a gain on units of mutual funds held by Sinarmas Sekuritas and its subsidiary of Rp.26.5 billion in the nine months ended September 30, 2010. This was partially offset by an increase in gain on units of mutual funds held by the Company, which increased to Rp.13.2 billion (US$1.5 million) in the nine months ended September 30, 2011 from Rp.1.4 billion in the nine months ended September 30, 2010.

Gains from investments in units of mutual funds held by Sinarmas MSIG Life accounted for 83.8%, or Rp.764.2 billion (US$86.6 million) of the gain in the nine months ended September 30, 2011, compared to 82.7%, or Rp.787.1 billion in the nine months ended September 30, 2010. Slightly lower net gain from investments in units of mutual funds held by Sinarmas MSIG Life was mainly attributable to lower unrealized gains on units in mutual funds, which decreased 60.5% to Rp.174.6 billion (US$19.8 million), partially offset by higher realized gains on units of mutual funds held in segregated funds of unit link in the nine months ended September 30, 2011.

Sinarmas MSIG Life recorded lower unrealized gains on segregated funds of unit link as a result of a reversal of unrealized gains booked in respect of units of mutual funds held as segregated funds gains, partially offset by a corresponding increase in realized gains on units of mutual funds, which rose 70.7% to Rp.589.6 billion (US$66.9 million) and improved realized returns on investments held in segregated funds of unit link in the nine months ended September 30, 2011, from Rp.345.3 billion in the nine months ended September 30, 2010. This was consistent with an increase in policy surrenders from unit link policies to endowment policies. See “—Principal Income Statement Components of Sinarmas MSIG Life—Revenues—Investment Income” and “—Results of Operations of Sinarmas MSIG Life—Revenues—Investment Income—Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010—Investment Income”. As of September 30, 2011, Sinarmas MSIG Life’s investments in units of mutual funds amounted to Rp.6,579.9 billion (US$745.8) million, compared to Rp.1,984.3 billion (US$224.9 million) as of September 30, 2010.

2010 Compared to 2009. Our gain from investments in units of mutual funds increased 4.3% to Rp.1,247.1 billion (US$141.3 million) in 2010 from Rp.1,195.9 billion in 2009, principally as a result of an increase in unrealized gains on mutual fund held by Sinarmas MSIG Life, Asuransi Sinar Mas, and Sinarmas Sekuritas and its subsidiary, as well as units in mutual funds held by the Company as market conditions continued to improve. Our consolidated investment levels in units of mutual funds decreased to Rp.3,128.0 billion (US$354.5 million) in 2010 from Rp. 3,486.3 billion in 2009.

Gains from investments in units of mutual funds in 2010 was principally attributable to Sinarmas MSIG Life, which accounted for 82.4%, or Rp.1,027.5 billion (US$116.5 million) of the gain in 2010, compared to 85.8%, or Rp.1,026.1 billion in 2009. Net realized gains decreased significantly to Rp.440.2 billion (US$49.9 million) in 2010 from Rp.1,182.9 billion in 2009, principally due to a decrease in realized gains on units of mutual funds held as investments, reflecting the reduced investment portfolio as a result of a shift from endowment policies to unit link policies, described above under “―Underwriting income”. This was partially offset by higher realized and unrealized net gains on segregated funds of unit link, which was attributable to the increase in segregated assets attributable to unit link policies in 2010 and improved economic conditions resulting in a significant increase in unrealized investment returns. As of December 31, 2010, Sinarmas MSIG Life’s investments in units of mutual funds amounted to Rp.1,683.0 billion (US$190.8 million), compared to Rp.2,216.8 billion as of December 31, 2009.

2009 Compared to 2008. Our gain from investments in units of mutual funds increased 65.6% to Rp.1,195.9 billion in 2009 from Rp.722.0 billion in 2008, principally as a result of gains on mutual fund investments held by Sinarmas MSIG Life, Asuransi Sinar Mas, and Sinarmas Sekuritas and its subsidiary, as well as units in mutual funds held by the Company, as markets began to recover in the second half of 2009. Our consolidated investment levels in units of mutual funds decreased 55.2% to Rp.1,925 billion as of December 31, 2009 from Rp.3,486.3 billion as of December 31, 2008.

Gains from investments in units of mutual funds was principally attributable to Sinarmas MSIG Life, which accounted for 85.8%, or Rp.1,026.1 billion of the gain in 2009, compared to 92.4%, or Rp.667.0 billion in 2008. Net realized gains increased significantly in 2009, to Rp.1,182.9 billion in 2009 from Rp.456.8 billion in 2008 principally as a result of an increase in realized gains on investments held by Sinarmas MSIG Life as it shifted its product focus from endowment to unit link policies, as well as an increase in investments in segregated funds of unit link. Sinarmas MSIG Life recorded a net unrealized loss on units of mutual funds in 2009 compared to a gain of Rp.210.2 billion in 2008, mainly as a result of net unrealized losses on its units of mutual funds held as investments in 2009 due to adverse market conditions. As of December 31, 2009, Sinarmas MSIG Life’s investments in units of mutual funds amounted to Rp.2,216.8 billion as of December 31, 2009, compared to Rp.4,573.3 billion as of December 31, 2008.

Gain on Sale of Short-Term Investments—Net

The following table sets forth the breakdown of gain on sale of short-term investments – net for the Company and its subsidiaries for the periods indicated.

2008 2009 2010 2010 2011 (Rp. in billions, US$ in millions) Rp. Rp. Rp. US$ Rp. Rp. US$

SMMA............................................... - - - - - - - Sinarmas MSIG Life:

Investments ..................................... 30.6 20.9 191.2 21.7 175.1 544.8 61.7 Segregated Funds Of Unit Link ..... 2.9 0.1 3.1 0.3 215.5 488.5 55.4 Segregated Funds of Sharia............ - - 0.1 - 0.7 0.5 0.0 Total ................................................ 33.5 21.1 (194.4) (22.0) (391.3) (1,038.8) (117.1)

Asuransi Sinar Mas ........................... (23.5) (38.9) 58.1 (6.6) (35.8) 139.1 (15.5) Bank Sinarmas................................... (0.6) 0.5 (9.9) (1.1) (1.3) 2.7 (0.3) Sinarmas Sekuritas ............................ 43.0 68.9 51.2 (5.8) (43.6) 141.4 (16.0) Total .................................................. 53.2 51.6 313.6 35.5 128.4 734.6 83.0

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our gain on sale of short-term investments—net increased 470.6% to Rp.732.6 billion (US$83.0 million) in the nine months ended September 30, 2011 from Rp.128.4 billion in the nine months ended September 30, 2010, principally as a result of higher realized gains on the sale of short-term investments held by Sinarmas MSIG Life and Sinarmas Sekuritas, and, to a lesser extent, gains realized on the sale of investments held by Bank Sinarmas and Asuransi Sinar Mas. Sinarmas MSIG Life realized a gain on the sale of short-term investments of Rp.451.4 billion (US$51.2 million) in the nine months ended September 30, 2011, compared to Rp.46.0 billion in the nine months ended September 30, 2010, as it sold investments in order to make a distribution to SMMA prior to the effective date of the MSIG’s share subscription. Sinarmas Sekuritas also realized a gain on the sale of short-term investments of Rp.141.4 billion (US$16.0 million) in the nine months ended September 30, 2011,

compared to Rp.43.6 billion in the nine months ended September 30, 2010, mainly reflecting improved proprietary trading results.

2010 Compared to 2009. Our gain on sale of short-term investments—net increased 507.8% to Rp.313.6 billion (US$35.5 million) in 2010 from Rp.51.6 billion in 2009, principally as a result of higher realized gains on the sale of short-term investments held by Sinarmas MSIG Life and Asuransi Sinar Mas, and, to a lesser extent, higher gains realized on the sale of investments held by Bank Sinarmas as a result of improved market conditions in 2010, partially offset by lower gains generated by Sinarmas Sekuritas. Sinarmas MSIG Life realized a gain on the sale of short-term investments of Rp.194.4 billion (US$22.0 million) in 2010, compared to a gain of Rp.21.1 billion in 2009. This was largely attributable to the sale of investments in order to reallocate the proceeds to RDPT funds, which have a more favorable tax treatment. Asuransi Sinarmas realized a gain of Rp.58.1 billion (US$6.5 million) in 2010, compared to a loss of Rp.38.9 billion in 2009. However, Sinarmas Sekuritas realized a lower gain on the sale of short-term investments of Rp.51.2 billion (US$5.7 million) in 2010, compared to Rp.68.9 billion in 2009, as a result of its proprietary trading activities.

2009 Compared to 2008. Our gain on sale of short-term investments—net decreased 3.1% to Rp.51.6 billion in 2009 from Rp.53.2 billion in 2008, principally as a result of the effects of the global financial crisis and the impact on debt and equity markets on the investment portfolios of Sinarmas MSIG Life and Asuransi Sinar Mas, as well as Sinarmas Sekuritas. This decrease reflected lower gains on the sale of short-term investments held by Sinarmas MSIG Life, and a loss on the sale of short-term investments held by Asuransi Sinar Mas. Sinarmas MSIG Life realized a gain on the sale of short-term investments of Rp.21.1 billion in 2009, compared to a gain of Rp.33.5 billion in 2008 and Asuransi Sinarmas realized a loss on the sale of short-term investments of Rp.38.9 billion in 2009, compared to a loss of Rp.23.5 billion in 2009, as a result of continued poor economic conditions in the first half of 2009. This was partially offset by a higher gain on the sale of short-term investments realized by Sinarmas Sekuritas, which increased to Rp.68.9 billion in 2009 from Rp.43.0 billion in 2008 as a result of its proprietary trading activities.

Administrative Fee and Commissions

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Administrative fee and commissions increased 57.7% to Rp.169.0 billion (US$19.2 million) in the nine months ended September 30, 2011 from Rp.107.2 billion in the nine months ended September 30, 2010, principally as a result of an increase in administrative fees and commissions earned by Sinar Mas Multifinance and Bank Sinarmas in respect of consumer refinancing loans channeled to banks, which continued to experience growth as a result of the expansion of the distribution network of Sinar Mas Multifinance.

2010 Compared to 2009. Administrative fee and commissions decreased 23.3% to Rp.83.4 billion (US$9.5 million) in 2010 from Rp.108.8 billion in 2009, principally as a result of a decrease in administrative fee and commissions earned by Bank Sinarmas due to a decrease in fees earned primarily as a result of providing free banking services as part of a marketing campaign for new offices, partially offset by an increase in administrative fee and commissions earned by Sinar Mas Multifinance in line with the continued growth of its consumer refinancing loans channeled to banks, on which Sinar Mas Multifinance earns a fee.

2009 Compared to 2008. Administrative fee and commissions increased 8.7% to Rp.108.8 billion in 2009 from Rp.100.1 billion in 2008, principally as a result of an increase in administrative fee and commissions earned by Bank Sinarmas, mainly due to an increase in fees earned as a result of more credit facilities extended by Bank Sinarmas in 2009 and commissions from bancassurance products, and to a lesser extent, an increase in administrative fee and commissions earned by Sinar Mas Multifinance or consumer refinancing loans channeled to banks, on which Sinar Mas Multifinance earns a fee.

Consumer Financing Income

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Consumer financing income increased 89.8% to Rp.165.1 billion (US$18.7 million) in the nine months ended September 30, 2011 from Rp.87.0 billion (US$9.8 million) in the nine months ended September 30, 2010, as a result of an increase in financing income generated by Sinar Mas Multifinance through an increase in financing loans for the purchase of used vehicles it originated and made direct to customers, partially offset by a slight decrease in interest rates. The continued growth in its consumer finance business is largely attributable to the expansion of its distribution network.

2010 Compared to 2009. Consumer financing income increased 41.5% to Rp.169.8 billion (US$19.2 million) in 2010 from Rp.120.0 billion in 2009, principally as a result of an increase in financing income generated by Sinar Mas Multifinance, reflecting growth in its consumer finance business primarily driven by its entry into the motorcycle financing business. Sinar Mas Multifinance increased the amount of vehicle financing loans extended to customers through its rapidly growing distribution network.

2009 Compared to 2008. Consumer financing income increased 42.7% to Rp.120.0 billion in 2009 from Rp.84.1 billion in 2008, principally as a result of an increase in financing income generated by Sinar Mas Multifinance, attributable largely to the improvement of the general economy.

Stock Brokerage and Underwriting Income

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our stock brokerage and underwriting income decreased 22.9% to Rp.39.7 billion (US$4.5 million) in the nine months ended September 30, 2011 from Rp.51.5 billion in the nine months ended September 30, 2010, principally as a result of increased underwriting income by Sinarmas Sekuritas.

2010 Compared to 2009. Our stock brokerage and underwriting income increased 91.4% to Rp.60.3 billion (US$6.8 million) in 2010 from Rp.31.5 billion in 2009, principally as a result of an increase in brokerage fees and underwriting fees and commissions generated by Sinarmas Sekuritas and its subsidiary, as market conditions improved in 2010.

2009 Compared to 2008. Our stock brokerage and underwriting income decreased 65.6% to Rp.31.5 billion in 2009 from Rp.91.7 billion in 2008, reflecting lower fees and commissions earned by Sinarmas Sekuritas and its subsidiary as a result of reduced market activity during the financial crisis.

Unrealized Gain (Loss) on Increase (Decrease) in Fair Value of Securities

The following table sets forth the breakdown of unrealized gain on increase in fair value of securities for the Company and its subsidiaries for the periods indicated.

2008 2009 2010 2010 2011 (Rp. in billions, US$ in millions) Rp. Rp. Rp. US$ Rp. Rp. US$

SMMA................................................ - - - - - - -

Sinarmas MSIG Life: Investments...................................... (63.4) 63.9 63.5 7.2 28.1 7.2 0.8 Segregated Funds Of Unit Link ...... (25.2) 19.3 17.0 1.9 15.8 (0.9) (0.1) Segregated Funds of Sharia............. - 0.3 - - - (0.1) - Total................................................. (88.6) 83.5 80.5 9.1 43.9 6.2 0.7

Asuransi Sinar Mas ............................ (14.4) 2.5 2.1 0.2 - - - Bank Sinarmas ................................... (0.4) 0.5 0.5 0.1 (0.1) 1.4 0.2 Sinarmas Sekuritas............................. (72.8) 102.9 101.8 11.5 9.5 (156.1) (17.7) Total................................................... (175.9) 189.9 184.9 21.0 54.2 (148.6) (16.8)

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. We recorded an unrealized net loss on decrease in fair value of securities of Rp.146.6 billion (US$16.6 million) in the nine months ended September 30, 2011, compared with an unrealized net gain on increase in fair value of securities of Rp.54.2 billion in the nine months ended September 30, 2010. The net loss in the nine months ended September 30, 2011 was attributable to Asuransi Sinar Mas, partially offset by slightly higher net unrealized gains on the increase in fair value of securities held by Sinarmas MSIG Life and Bank Sinarmas. The unrealized net gain on increase in fair value of securities in the nine months ended September 30, 2010 reflected net unrealized gains on the fair value of securities held by Sinarmas MSIG Life, Asuransi Sinar Mas and Bank Sinarmas as market conditions stabilized and improved.

2010 Compared to 2009. Our net unrealized gain on increase in fair value of securities decreased slightly to Rp.184.9 billion (US$21.0 million) in 2010 from Rp.189.9 billion in 2009, principally as a result of market conditions and the performance of investments held by Sinarmas MSIG Life and Asuransi Sinar Mas.

2009 Compared to 2008. We recorded a net unrealized gain on increase in fair value of securities of Rp.189.9 billion in 2009, compared with a net unrealized loss on decrease in fair value of securities of Rp.175.9 billion in 2008. The net unrealized gain on increase in fair value of securities in 2009 was mainly due to net unrealized gains of Sinarmas Sekuritas and Sinarmas MSIG Life in respect of their investments, and to a lesser extent, net unrealized gains of Asuransi Sinar Mas and Bank Sinarmas. The net loss in 2008 was principally attributable to Sinarmas MSIG Life and Sinarmas Sekuritas, and to a lesser extent, Asuransi Sinarmas and Bank Sinarmas, as a result of a deterioration in market conditions in the latter half of 2008, which negatively affected the securities held in their investment portfolios.

Gain on Foreign Exchange-Net

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. We recorded a loss on foreign exchange – net in the nine months ended September 30, 2011 and 2010. See “—Operating Expenses—Loss on Foreign Exchange—Net” below for a discussion.

2010 Compared to 2009. We recorded a loss on foreign exchange—net in 2009 and 2010. See “—Operating Expenses—Loss on Foreign Exchange—Net” below for a discussion.

2009 Compared to 2008. We recorded a loss on foreign exchange—net in 2009 compared with a gain on foreign exchange—net in 2008 of Rp.223.2 billion. See “—Operating Expenses—Loss on Foreign Exchange—Net” below for a discussion of our loss on foreign exchange—net in 2009.

Other Income

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our operating income increased 72.8% to Rp.341.8 billion (US$38.7 million) in the nine months ended September 30, 2011 from Rp.197.8 billion in the nine months ended September 30, 2010. This was principally as a result of an increase in sales attributable to the Company, which increased Rp.64.9 billion (US$7.4 million) in the nine months ended September 30, 2011, compared to Rp.20.2 billion in the nine months ended September 30, 2010, due to higher sales of mobile phone vouchers sold by the Company, higher investment management income attributable to Sinar Mas Sekuritas and its subsidiary, and an increase in factoring income generated by AB Multifinance.

2010 Compared to 2009. Our other income decreased 22.3% to Rp.252.5 billion (US$28.6 million) in 2010 from Rp.324.9 billion in 2009, principally as a result of a Rp.107.2 billion decrease in sales income attributable to our money changer subsidiary and office supplies sold by the Company and a Rp.16.7 billion decrease in factoring income, partially offset by a Rp.21.7 billion increase in dividend income, a Rp.18.9 billion increase in investment management income and a gain on sale of investment in 2010 of Rp.12.7 billion.

2009 Compared to 2008. Our other income increased 106.8% to Rp.324.9 billion in 2009 from Rp.157.1 billion in 2008, principally as a result of a Rp.117.2 billion increase in sales income attributable to our money changer subsidiary and office supplies sold by the Company, a Rp.17.2 billion increase in factoring income and the accrual in 2009 of equity in net income of the subsidiaries and associated companies—net of Rp.41.9 billion, partially offset by a Rp.12.6 billion increase in dividend income.

Operating Expenses

Insurance Underwriting Expenses

The following table sets forth our insurance underwriting expenses for the periods indicated.

Year Ended December 31, Nine Months Ended September

30, 2008 2009 2010 2010 2010 2011 2011 Rp. Rp. Rp. US$ Rp. Rp. US$ (Rp. in billions, US$ in millions) Gross claims:

Life insurance................................................................... 4,959.1 6,754.2 7,137.2 808.9 4,990.1 7,917.3 897.4 Non-life insurance ............................................................ 572.9 963.8 862.8 97.8 612.1 730.6 82.8

Total gross claims ........................................................ 5,532.0 7,718.0 8,000.0 906.7 5,602.2 8,647.9 980.2

Reinsurance claims: Life insurance................................................................... (0.8) (3.0) (0.5) (0.1) 1.2 0.0 - Non-life insurance ............................................................ (93.7) (360.8) (93.3) (10.6) (88.3) (16.5) (1.9)

Total reinsurance claims.............................................. (94.5) (363.8) (93.8) (10.7) (87.1) (16.5) (1.9)

Increase (decrease) in liability for future policybenefits: Life insurance................................................................... 445.3 (1,746.6) (891.7) (101.1) (796.6) 4,088.2 463.4 Non-life insurance ............................................................ 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total increase (decrease) in liability for future policybenefits ...................................................................... 445.3 (1,746.6) (891.7) (101.1) (796.6) 4,088.2 463.4

Increase (decrease) in segregated funds contractliabilities - unit link........................................................ 241.3 2,843.6 3,688.9 418.1 2,756.9 (1,951.6) (221.2)

Commission—net: Life insurance................................................................... 41.4 27.6 39.5 4.5 14.5 35.2 4.0 Non-life insurance ............................................................ 175.6 259.4 312.0 35.4 237.8 283.6 32.1

Total commission—net................................................ 217.0 287.0 351.5 39.9 252.3 318.8 36.1

Increase in estimated own retention claims................... 9.5 14.0 60.3 6.8 73.3 72.9 8.3 Increase in segregated funds contract liabilities—

Sharia .............................................................................. 7.3 4.9 17.8 2.0 13.2 15.7 1.8 Amortization of deferred acquisition costs.................... 21.0 - - - - - - Other underwriting expenses.......................................... 2.4 1.7 3.2 0.3 9.6 14.4 1.6

Total insurance underwriting expenses ......................... 6,381.3 8,758.8 11,136.2 1,262.1 7,823.7 11,189.8 1,268.3

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our total insurance underwriting expenses increased 43.0% to Rp.11,189.8 billion (US$1,268.3 million) in the nine months ended September 30, 2011 from Rp.7,823.7 billion in the nine months ended September 30, 2010. This was principally as a result of an increase in gross claims in our life insurance business and, to a lesser extent, our non-life insurance business, and an increase in the non-cash item of liability for future policy benefits for our life insurance business, compared to a decrease in the non-cash item of liability for future policy benefits in our life insurance business in the same period in 2010, and to a lesser extent, an increase in commissions expenses –net for both our life and non-life insurance businesses. These increases were partially offset by a decrease in the non-cash item of segregated funds contract liabilities - unit link for our life insurance business, compared to an increase in the same period in 2010. The increase in the non-cash item of estimated own retention claims remained relatively constant. For a more detailed discussion of our underwriting expenses for Sinarmas MSIG Life and Asuransi Sinar Mas, see “—Results of Operations of Sinarmas MSIG Life” and “—Results of Operations of Asuransi Sinar Mas” below.

2010 Compared to 2009. Our total insurance underwriting expenses increased 27.1% to Rp.11,136.2 billion (US$1,262.2 million) in 2010 from Rp.8,758.8 billion in 2009, principally as a result of an increase in gross claims for our life insurance business, an increase in the non-cash item of segregated funds contract liabilities - unit link of our life insurance business and an increase in commissions expenses—net for both our life and non-life insurance businesses. These higher underwriting expense items were partially offset by a decrease in gross claims and reinsurance claims by our non-life insurance business and a decrease in the non-cash item of liability for future policy benefits recorded by our life insurance business. For a more detailed discussion of our underwriting expenses for Sinarmas MSIG Life and Asuransi Sinar Mas, see “—Results of Operations of Sinarmas MSIG Life” and “—Results of Operations of Asuransi Sinar Mas” below.

2009 Compared to 2008. Our total insurance underwriting expenses increased 37.3% to Rp.8,758.8 billion in 2009 from Rp.6,381.3 billion in 2008, principally as a result of an increase in gross claims for both our life and non-life insurance business, an increase in the non-cash item of segregated funds contract liabilities - unit link for our life insurance business, and an increase in commissions—net for our non-life insurance business, partially offset by an increase in reinsurance claims for our non-life insurance business and a decrease in the non-cash item of liability for future policy benefits. For a more detailed discussion of our underwriting expenses for Sinarmas MSIG Life and Asuransi Sinar Mas, see “—Results of Operations of Sinarmas MSIG Life” and “—Results of Operations of Asuransi Sinar Mas” below.

Interest Expense

The following table sets forth our interest expense for the Company and our key subsidiaries for the periods indicated.

2008 2009 2010 2010 2010 2011 2011 Rp. Rp. Rp. US$ Rp. Rp. US$

(Rp. in billions, US$ in millions) Bank Sinarmas.................................................................... 425.8 470.4 497.7 56.4 350.8 572.1 64.8 Sinar Mas Multifinance...................................................... 25.3 43.8 50.8 5.8 36.8 55.7 6.3 AB Multifinance................................................................. 0.4 2.5 4.8 0.2 3.2 7.0 0.8 Others ................................................................................. 0.7 0.0 0.1 0.0 0.1 20.5 2.3

Total Before Elimination............................................. 452.2 516.7 553.4 62.4 390.9 655.3 74.2 Elimination............................................................... (1.8) (20.0) (15.6) (1.8) (10.8) (18.6) (2.1)

Total Interest Expense................................................. 450.4 496.7 537.8 60.6 380.1 636.6 72.1

The following table sets forth our interest expense by type of liability for the periods indicated.

2008 2009 2010 2010 2010 2011 2011 Rp. Rp. Rp. US$ Rp. Rp. US$

(Rp. in billions, US$ in millions) Time deposits ..................................................................... 338.8 355.0 361.8 41.0 252.2 446.9 50.6 Loans received.................................................................... 26.4 46.3 55.4 6.3 40.0 83.0 9.4 Savings deposits ................................................................. 25.9 45.5 59.5 6.7 42.9 60.6 6.9 Current account .................................................................. 26.8 30.5 37.3 4.2 26.8 25.4 2.9 Deposits and deposits from other banks ............................ 16.9 4.3 4.2 0.5 4.7 0.7 0.1 Premium on government guarantee ................................... 10.0 13.8 17.9 2.0 12.1 19.9 2.3 Securities sold under repurchase agreement ...................... - - - - 1.3 - - Others ................................................................................. 7.2 1.3 1.7 0.2 0.1 0.1 0.0 Total interest expense ...................................................... 450.4 496.7 537.8 60.9 380.1 636.6 72.2

For a more detailed discussion of changes in interest expense attributable to Bank Sinarmas see “―Results of Operations of Bank Sinarmas” below.

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our total interest expense increased 67.5% to Rp.636.6 billion (US$72.2 million) in the nine months ended September 30, 2011 from Rp.380.1 billion in the nine months ended September 30, 2010, principally as a result of an increase in interest expense incurred by Bank Sinarmas, and to a lesser extent, interest income incurred by Sinar Mas Multifinance and AB Multifinance. Interest expense attributable to Bank Sinarmas accounted for 89.9%, or Rp.572.1 billion (US$64.8 million) of the interest income in the nine months ended September 30, 2011, compared to 92.3%, or Rp.350.8 billion in the nine months ended September 30, 2010. This was principally attributable to an increase in the average volume of customer Rupiah time and savings deposits in 2010. Interest expense incurred by Sinar Mas Multifinance was due to financing loans outstanding.

By type of liability, interest expense was mainly attributable to an increase interest expense of time and savings deposits of Bank Sinarmas, as well as loans received by Sinar Mas Multifinance.

Interest expense on time deposits increased 77.2% to Rp.446.9 billion (US$50.6 million) in the nine months ended September 30, 2011 from Rp.252.2 billion in the nine months ended September 30, 2010,

principally as a result of a significant increase in the average amount of customer Rupiah-denominated time deposits held by Bank Sinarmas in the nine months ended September 30, 2011 compared to the same period in 2010, as well as higher average interest rates on customer deposits, based on the monthly average, in the nine months ended September 30, 2011.

Interest expense on loans received increased 107.5% to Rp.83.0 billion (US$9.4 million) in the nine months ended September 30, 2011 from Rp.40.0 billion in the nine months ended September 30, 2010, principally as a result of an increase in loans drawn down by Sinar Mas Multifinance. These loans outstanding comprise a loan facility from Bank BNI of Rp.350 billion, of which Rp.293 billion was drawn down, a loan facility from Bank Panin of Rp.250 billion, which was drawn down in full, a loan facility from Bank Capital of Rp.100 billion, which as drawn down in full, a loan facility from Bank Victoria of Rp.100 billion, which was drawn down in full and a loan facility from CIMB Bank of Rp.50 billion, also drawn down in full by Sinar Mas Multifinance.

Interest expense on savings deposits increased 41.3% to Rp.60.6 billion (US$6.9 million) in the nine months ended September 30, 2011 from Rp.42.9 billion in the nine months ended September 30, 2010, principally as a result of a significant increase in the average volume of Rupiah-denominated savings deposit accounts placed with Bank Sinarmas, although average interest rates, based on monthly averages, remained relatively constant.

Interest expense on current account decreased 5.2% to Rp.25.4 billion (US$2.9 million) in the nine months ended September 30, 2011 from Rp.26.8 billion in the nine months ended September 30, 2010, principally as a result of a decline in average interest rates, based on monthly averages, on U.S. dollar-denominated demand deposits, partially offset by an increase in the average volume of both Rupiah and foreign currency-denominated demand deposits placed by customers with Bank Sinarmas. Average interest rates on Rupiah-denominated demand deposits, based on monthly averages, remained constant between periods.

Interest expense on deposits and deposits from other banks fell 85.1% to Rp.0.7 billion (US$0.1 million) in the nine months ended September 30, 2011 from Rp.4.7 billion in the nine months ended September 30, 2010, principally because Bank Sinarmas did not take any new placements with other banks in the nine months ended September 30, 2011.

Premiums on government guarantee increased 64.5% to Rp.19.9 billion (US$2.3 million) in the nine months ended September 30, 2011 from Rp.12.1 billion in the nine months ended September 30, 2010, principally reflecting an increase in premiums on guarantees paid by Bank Sinarmas in relation to guarantees of private bank obligations in line with the increase in deposits placed with Bank Sinarmas.

2010 Compared to 2009. Our total interest expense increased 8.3% to Rp.537.8 billion (US$61.0 million) in 2010 from Rp.496.7 billion in 2009, principally as a result of increases in interest expense on time deposits, loans, savings deposits and current account and an increase in premiums on government guarantee.

Interest expense on time deposits increased 1.9% to Rp.361.8 billion (US$41.0 million) in 2010 from Rp.355.0 billion in 2009, principally as a result of an increase in the average volume of both Rupiah and foreign currency-denominated time deposits placed by customers with Bank Sinarmas, partially offset by lower average interest rates paid on Rupiah and foreign currency-denominated time deposits.

Interest expense on loans received increased 19.7% to Rp.55.4 billion (US$6.3 million) in 2010 from Rp.46.3 billion in 2009, principally as a result of an increase in loans drawn down by Sinar Mas Multifinance to fund its motorcycle financing.

Interest expense on savings deposits increased 30.8% to Rp.59.5 billion (US$6.7 million) in 2010 from Rp.45.5 billion in 2009, principally as a result of an increase in the average volume of Rupiah-denominated savings deposits placed with Bank Sinarmas in 2010, partially offset by lower average interest rates on Rupiah-denominated savings deposits, which fell to 5.3% in 2010 from 5.8% in 2009.

Interest expense on current account increased 22.3% to Rp.37.3 billion (US$4.2 million) in 2010 from Rp.30.5 billion in 2009, principally as a result of an increase in average volume of both Rupiah and foreign currency-denominated demand deposits placed by customers with Bank Sinarmas in 2010, partially offset by lower average interest rates paid on Rupiah-denominated current accounts, which fell to 2.9% in 2010 from 3.6% in 2009. Average rates on foreign currency-denominated demand deposits remained relatively stable.

Interest expense on deposits and deposits from other banks remained relatively stable at Rp.4.2 billion (US$0.5 million) in 2010 compared to Rp.4.3 billion in 2009.

Premiums on government guarantee increased 29.7% to Rp.17.9 billion (US$2.0 million) in 2010 from Rp.13.8 billion in 2009, reflecting an increase in premiums on guarantees paid by Bank Sinarmas in relation to guarantees of private bank obligations in line with the increase in deposits placed with Bank Sinarmas.

2009 Compared to 2008. Our total interest expense increased 10.3% to Rp.496.7 billion in 2009 from Rp.450.4 billion in 2008, principally as a result of increases in interest expense incurred by Bank Sinarmas on customer time and savings deposits accounts, and to a lesser extent interest expense incurred by Sinar Mas Multifinance in respect of loans outstanding.

By type of asset, the increase in interest expense was principally attributable to an increase in the average volume of interest-bearing loans, savings deposits and current accounts outstanding in 2009, partially offset by lower interest rates due to the economic conditions during this period.

Interest expense on time deposits increased 5.3% to Rp.355.0 billion in 2009 from Rp.337.2 billion in 2008, principally as a result of an increase in average interest rates, based on monthly averages, on Rupiah-denominated time deposits to 10.1% in 2009 from 9.4% in 2008 and an increase in the average volume of foreign currency-denominated time deposits, partially offset by a slight decrease in the average volume of Rupiah-denominated time deposits and decrease in average interest rates of foreign currency-denominated time deposits, based on monthly averages, on foreign currency-denominated time deposits to 2.9% in 2009 from 3.8% in 2008.

Interest expense on loans received increased 75.4% to Rp.46.3 billion in 2009 from Rp.26.4 billion in 2008, principally as a result of an increase in loans drawdown by Sinar Mas Multifinance to fund its consumer financing loans for vehicle purchases.

Interest on savings deposits increased 75.7% to Rp.45.5 billion in 2009 from Rp.25.9 billion in 2008, principally as a result of an increase in the average volume of Rupiah-denominated savings deposits placed with Bank Sinarmas, partially offset by lower average interest rates, based on monthly averages, paid on Rupiah-denominated savings deposits to 5.8% in 2009 from 7.1% in 2008.

Interest on current account increased 13.8% to Rp.30.5 billion in 2009 from Rp.26.8 billion in 2008, principally as a result of an increase in both Rupiah and foreign currency-denominated current accounts placed with Bank Sinarmas, partially offset by lower average interest rates paid on Rupiah and foreign currency-denominated current accounts to 3.6% in 2009 from 4.7% in 2008.

Interest on deposits and deposits from other banks decreased 74.6% to Rp.4.3 billion in 2009 from Rp.16.9 billion in 2008, principally as a result of a decrease in both average volume and average interest rates paid on Rupiah placements with other banks.

Premiums on government guarantee increased 38.0% to Rp.13.8 billion in 2009 from Rp.10.0 billion in 2008, reflecting an increase in premiums on guarantees paid by Bank Sinarmas in relation to guarantees of private bank obligations following an increase in deposits placed with Bank Sinarmas.

Salaries and Employee Benefits

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our salaries and employee benefits increased 48.7% to Rp.382.6 billion (US$43.4 million) in the nine months ended September 30, 2011 from Rp.257.2 billion in the nine months ended September 30, 2010, principally as a result of an increase in headcount at our subsidiaries and, to a lesser extent, salary increases.

2010 Compared to 2009. Our salaries and employee benefits increased 33.9% to Rp.335.7 billion (US$38.0 million) in 2010 from Rp.250.7 billion in 2009, principally as a result of an increase in employee expenses at Asuransi Sinar Mas, Bank Sinarmas and Sinar Mas Multifinance, mainly due to an increase in headcount at these subsidiaries as they expanded their distribution networks and, to a lesser extent, salary increases.

2009 Compared to 2008. Our salaries and employee benefits increased 13.4% to Rp.250.7 billion in 2009 from Rp.221.0 billion in 2008, principally as a result of an increase in employee expenses at Bank Sinarmas, largely due to headcount increases as it expanded its branch network.

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our general and administrative expenses increased 33.9% to Rp.297.1 billion (US$33.7 million) in the nine months ended September 30, 2011 from Rp.221.9 billion in the nine months ended September 30, 2010, principally as a result of higher general expenses, an increase in utility expenses, higher marketing and advertising expenses and higher rental expenses, consistent with the growth in the distribution networks of key subsidiaries including Sinar Mas Multifinance, Asuransi Sinar Mas and Sinarmas MSIG Life.

2010 Compared to 2009. Our general and administrative expenses increased 24.8% to Rp.327.1 billion (US$37.1 million) in 2010 from Rp.262.2 billion in 2009, principally as a result of increases in general expenses, electricity, water and telephone expenses, marketing and advertising expenses, rental expenses, office supplies expenses and defined-benefit post employment expense—net.

2009 Compared to 2008. Our general and administrative expenses increased 9.6% to Rp.262.2 billion in 2009 from Rp.239.3 billion in 2008, principally as a result of general expenses, electricity, water and telephone expenses, marketing and advertising expenses, rental expenses, office supplies expenses and defined-benefit post employment expense—net, partially offset by a decrease in marketing and advertising expenses.

Depreciation and Amortization

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our depreciation and amortization expenses increased 46.4% to Rp.82.0 billion (US$9.3 million) in the nine months ended September 30, 2011 from Rp.56.0 billion in the nine months ended September 30, 2010.

2010 Compared to 2009. Our depreciation and amortization expenses increased 9.1% to Rp.78.8 billion (US$8.9 million) in 2010 from Rp.72.2 billion in 2009 due to acquisition of new fixed assets of Bank Sinarmas, Sinar Mas Multifinance and Asuransi Sinar Mas as they expanded their distribution network.

2009 Compared to 2008. Our depreciation and amortization expenses increased 20.7% to Rp.72.2 billion in 2009 from Rp.59.8 billion in 2008 due to acquisition of new fixed assets of Bank Sinarmas and Asuransi Sinar Mas as they expanded their distribution network.

Loss on Foreign Exchange—Net

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our loss on foreign exchange—net decreased 78.3% to Rp.12.6 billion (US$1.4 million) in the nine months ended September 30, 2011 from Rp.58.0 billion in the nine months ended September 30, 2010. The loss on foreign exchange-net was principally attributable to net foreign exchange losses incurred by Sinarmas MSIG Life, but the lower level of loss reflected the further appreciation of the Rupiah.

2010 Compared to 2009. Our loss on foreign exchange—net decreased 72.5% to Rp.53.3 billion (US$6.0 million) in 2010 from Rp.193.5 billion in 2009. Loss on foreign exchange-net was principally attributable to Sinarmas MSIG Life, accounting for 90.4% and 87.9% of the loss in 2009 and 2010, respectively, and reflected the appreciation of the Rupiah in 2010. For more details, see “—Results of Operations of Sinarmas MSIG Life” below.

2009 Compared to 2008. We recorded a loss on foreign exchange—net of Rp.193.5 billion in 2009 compared with a gain on foreign exchange—net in 2008, principally due to foreign exchange gains and losses incurred by Sinarmas MSIG Life, and reflecting the depreciation of the Rupiah in 2009 as a result of the financial crisis. See “—Operating Income—Gain on Foreign Exchange—Net” above for a discussion of our gain on foreign exchange—net in 2008.

Cost of Goods Sold

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our cost of goods sold increased 319.2% to Rp.85.1 billion (US$9.7 million) in the nine months ended September 30, 2011 from Rp.20.3 billion in the nine months ended September 30, 2010, principally as a result of increased sales by PT Sinarmas Money Changer and the Company.

2010 Compared to 2009. Our cost of goods sold decreased 69.4% to Rp.47.2 billion (US$5.3 million) in 2010 from Rp.154.1 billion in 2009, principally as a result of lower sales by PT Sinarmas Money Changer, partially offset by higher sales of office supplies by the Company.

2009 Compared to 2008. Our cost of goods sold increased significantly to Rp.154.1 billion in 2009 from Rp.37.2 billion in 2008, principally as a result of higher sales by PT Sinarmas Money Changer and office supplies sold by the Company.

Unrealized loss on decrease in fair value of securities

In the nine months ended September 30, 2011, we recorded a net unrealized loss on decrease in fair value of securities in the amount of Rp.146.6 billion (US$16.6 million), which was mainly attributable to unrealized losses in respect of equity securities held by Sinarmas Sekuritas, as a result of the deterioration in financial markets, partially offset by small net unrealized gains on increase in fair value of securities held by Sinarmas MSIG Life and Bank Sinarmas.

Other Expense

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our other expense increased 71.4% to Rp.145.6 billion (US$16.5 million) in the nine months ended September 30, 2011 from Rp.131.7 billion in the nine months ended September 30, 2010, principally as a result of an increase in other miscellaneous operating expenses, slightly higher provision for doubtful accounts and higher investment management expenses incurred by Sinarmas Sekuritas, partially offset by a Rp.30.2 billion (US$3.4 million) decrease in provisions for possible losses on earning and non-earning assets held by Bank Sinarmas due to the improved economic climate in the nine months ended September 30, 2011 and lower stock brokerage and underwriting expenses incurred by Sinarmas Sekuritas.

2010 Compared to 2009. Our other expense increased 11.6% to Rp.165.9 billion (US$18.8 million) in 2010 from Rp.148.6 billion in 2009, principally as a result of a Rp.8.0 billion increase in provision for doubtful accounts, a Rp.8.2 billion increase in stock brokerage and underwriting expenses, a Rp.5.8 billion increase in training expenses, a Rp.4.5 billion increase in investment management expenses and a Rp.4.0 billion increase in repairs and maintenance, partially offset by a Rp.19.6 billion decrease in provision for possible losses on earning and non-earning assets as Bank Sinarmas recorded lower provisions on loans as the economy recovered.

2009 Compared to 2008. Our other expense decreased 22.4% to Rp.148.6 billion in 2009 from Rp.121.4 billion in 2008, principally as a result of a Rp.175.9 billion unrealized loss on decrease in fair value of securities that we recorded in 2008, primarily because of rapidly deteriorating economic conditions in the fourth quarter of 2008, partially offset by a Rp.53.9 billion increase in provision for possible losses on earning and non-earning assets, primarily because of higher provisions on loans by Bank Sinarmas as a result of the deteriorating economic conditions.

Income from Operations Before Tax—Net

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. As a result of the above, our income from operations before tax—net increased 109.9% to Rp.1,607.0 billion (US$182.1 million) in the nine months ended September 30, 2011 from Rp.765.7 billion in the nine months ended September 30, 2010.

2010 Compared to 2009. As a result of the above, our income from operations—net increased 75.4% to Rp.1,367.6 billion (US$155.0 million) in 2010 from Rp.779.6 billion in 2009.

2009 Compared to 2008. As a result of the above, our income from operations—net increased

123.3% to Rp.779.6 billion in 2009 from Rp.349.2 billion in 2008.

Tax Expense (Benefit)

The following table sets forth a breakdown of our tax expense (benefit) for the periods indicated.

2008 2009 2010 2010 2010 2011 2011 Rp. Rp. Rp. US$ Rp. Rp. US$

(Rp. in billions, US$ in millions) Current................................................................................ 34.6 48.1 68.0 7.7 47.2 83.0 9.4 Deferred.............................................................................. 23.7 (2.3) 21.8 2.5 18.2 6.8 0.8 Total tax expense (benefit)................................................. 58.3 45.9 89.8 10.2 65.4 89.8 10.2

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our tax expense (benefit) increased 37.3% to Rp.89.8 billion (US$10.2 million) in the nine months ended September 30, 2011 from Rp.65.4 billion in the nine months ended September 30, 2010, principally as a result of an increase in current tax expense attributable to the increase in income from operations.

2010 Compared to 2009. Our tax expense increased 95.6% to Rp.89.8 billion (US$10.2 million) in 2010 from Rp.45.9 billion in 2009, principally as a result of a Rp.19.9 billion (US$2.3 million) increase in our current tax expense in 2010 and a Rp.21.8 billion (US$2.5 million) deferred tax expense in 2010 compared with a deferred tax benefit of Rp.2.3 billion in 2009. The increase reflects higher income from operations, partially offset by a lower statutory tax rate in 2010 of 25%, compared to 28% in 2009.

2009 Compared to 2008. Our tax expense decreased 21.4% to Rp.45.8 billion in 2009 from Rp.58.3 billion in 2008, principally as a result of a deferred tax benefit of Rp.2.3 billion in 2009 compared with a deferred tax expense of Rp.23.7 billion in 2008, partially offset by a Rp.13.5 billion increase in current tax expense in 2009. The statutory tax rate fell to 28% in 2009 from 30% in 2008.

Net Income

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. As a result of the above, our net income increased 116.7% to Rp.1,517.2 billion (US$172.0 million) in the nine months ended September 30, 2011 from Rp.700.2 billion in the nine months ended September 30, 2010.

2010 Compared to 2009. As a result of the above, our net income increased 74.2% to Rp.1,277.8 billion (US$144.8 million) in 2010 from Rp.733.7 billion in 2009.

2009 Compared to 2008. As a result of the above, our net income increased significantly to Rp.733.7 billion in 2009 from Rp.290.9 billion in 2008.

Other Comprehensive Income (Loss)

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. We recorded a loss in other comprehensive income (loss) of Rp.215.2 billion (US$24.4 million) in the nine months ended September 30, 2011, mainly as a result of a net unrealized loss on change in fair value of available for sale securities of subsidiaries which was partially offset by a gain on change in ownership interest in subsidiaries and associates of Rp.38.6 billion (US$4.4 million). In the nine months ended September 30, 2010, we recorded other comprehensive income of Rp.2.7 billion, mainly attributable to a small unrealized gain on change in fair value of available for sale securities of subsidiaries of Rp.6 billion.

2010 Compared to 2009. We recorded an increase in other comprehensive income (loss) in 2010 to Rp.132.4 billion (US$15.0 million) from Rp.48.2 billion in 2009, mainly due to higher net unrealized gain on change in fair value of available for sale securities of subsidiaries.

2009 Compared to 2008. We recorded an increase in other comprehensive income (loss) in 2009 to Rp.48.2 billion from a loss of Rp.81.4 billion in 2008, principally because we recorded a net unrealized loss on change in fair value of available for sale securities of subsidiaries in 2008.

Total Comprehensive Income

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. For the reasons discussed above, we recorded a 85.2% increase in total comprehensive income to Rp.1,302.0 billion (US$147.6 million) in the nine months ended September 30, 2011 from Rp.702.9 billion in the nine months ended September 30, 2010.

2010 Compared to 2009. For the reasons discussed above, we recorded a 80.4% increase in total comprehensive income to Rp.1,410.2 billion (US$159.8 million) in 2010 from Rp.781.9 billion in 2009.

2009 Compared to 2008. For the reasons discussed above, we recorded a 273.2% increase in total comprehensive income to Rp.781.9 billion in 2009 from Rp.209.5 billion in 2009.

Comprehensive Income Attributable to Equity Holders of Parent and Non-Controlling Interests

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. In the nine months ended September 30, 2011, comprehensive income attributable to equity holders of the amount amounted to Rp.3,963.7 billion (US$449.2 million) and comprehensive loss attributable to non-controlling interests amounted to Rp.2,661.7 billion (US$301.7 million). This principally reflects the proportionate share of the subscription by MSIG in Asuransi MSIG Life, and its 50% ownership interest in Asuransi MSIG Life. We did not record any non-controlling interests in the nine months ended September 30, 2010.

2010 Compared to 2009. For the reasons discussed above, we recorded a 80.3% increase in total comprehensive income to Rp.1,410.2 billion (US$159.8 million) in 2010 from Rp.781.9 billion in 2009.

2009 Compared to 2008. For the reasons discussed above, we recorded a 273.2% increase in total comprehensive income to Rp.781.9 billion in 2009 from Rp.209.5 billion in 2009.

2009 Compared to 2008. Our minority interest in net income of the subsidiaries increased 26.8% to Rp.34.1 billion in 2009 from Rp.26.9 billion in 2008.

Segment Information

Business Segments

The following tables show a breakdown of total operating income, total operating expense and net income by business segment from our consolidated financial statements, and as a percentage of each total before elimination.

Year Ended December 31, Nine Months Ended September 30, 2008 2009 2010 2010 2011

(Rp. in billions) %

(Rp. inbillions) %

(Rp. inbillions)

(US$ inmillions) %

(Rp. in billions) %

(Rp. inbillions)

(US$ inmillions) %

Operating Income: Parent company........................... 266.5 3.3 707.9 6.0 1,290.2 146.2 8.4 709.4 6.8 1,394.9 158.1 8.6Insurance underwriting ............... 6,988.2 84.0 9,595.3 81.1 12,315.0 1,395.8 80.4 8,564.0 82.1 12,904.3 1,462.6 80.5Consumer financing, finance

lease and factoring.................. 182.1 2.2 233.5 2.0 301.2 39.1 2.0 190.2 1.8 331.1 37.5 2.1Share administration fee ............. 4.1 0.0 3.2 0.0 4.5 0.5 0.1 3.2 0.0 3.1 0.4 0.0Stock brokerage, underwriting

and investment management.. 177.8 2.1 267.4 2.2 327.9 37.2 2.1 192.3 1.8 270.2 30.6 1.7Banking ....................................... 647.8 7.8 849.5 7.2 991.6 112.4 6.5 725.3 7.0 1,003.5 113.7 6.3Development, trading and

service..................................... 52.6 0.6 176.6 1.5 78.3 8.9 0.5 41.5 0.4 126.9 14.4 0.8Total before elimination.............. 8,319.1 100.0 11,833.4 100.0 15,308.7 1,735.1 100.0 10,425.9 100.0 16,034.0 1,817.3 100.0Elimination.................................. (283.7) (3.4) 716.9) (6.1) (1,259.0) (142.7) (8.2) (711.5) (6.8) (1,449.1) (164.2) (9.0)

Total after elimination............ 8,035.4 96.6 11,116.5 93.9 14,049.7 1,592.4 91.8 9,714.4 93.2 14,584.9 1,653.1 91.9

(Rp. in billions) %

(Rp. inbillions) %

(Rp. inbillions)

(US$ inmillions) %

(Rp. in billions) %

(Rp. inbillions)

(US$ inmillions) %

Operating Expenses: Parent company........................... 2.8 0.0 7.7 0.1 12.4 1.4 0.1 9.2 0.1 12.4 1.4 0.1 Insurance underwriting ............... 6,731.0 87.4 9,223.8 88.7 11,456.0 1,298.4 90.2 8,097.9 90.1 11,506.1 1,304.1 88.2 Consumer financing, finance

lease and factoring.................. 117.8 1.5 146.4 1.4 232.2 26.3 1.8 161.4 1.8 272.2 30.9 2.1 Share administration fee ............. 2.0 0.0 2.0 0.0 2.5 0.3 0.0 1.6 0.0 1.9 0.2 0.0 Stock brokerage, underwriting

and investment management.. 164.8 2.2 66.1 0.6 75.8 8.6 0.6 56.2 0.6 216.3 24.5 1.7 Banking ....................................... 628.2 8.2 778.8 7.5 850.6 96.4 6.7 628.9 7.0 901.9 102.2 6.8 Development, trading and

service..................................... 50.6 0.7 169.8 1.6 67.6 7.7 0.6 34.5 0.4 139.9 15.9 1.1 Total before elimination.............. 7,697.2 100.0 10,394.6 100.0 12,697.1 1,439.1 100.0 8,989.7 100.0 13,050.7 1,479.2 100.0 Elimination.................................. (11.0) (0.1) (57.8) (0.6) (15.0) (1.7) (0.1) (40.9) (0.5) (72.8) (8.3) (0.6)

(Rp. in billions) %

(Rp. inbillions) %

(Rp. inbillions)

(US$ inmillions) %

(Rp. in billions) %

(Rp. inbillions)

(US$ inmillions) %

Net Income: Parent company........................... 263.6 46.8 700.1 50.3 1,277.8 144.8 50.7 700.2 51.1 1,382.5 156.7 47.8Insurance underwriting ............... 239.7 42.5 376.3 27.0 840.9 95.3 33.3 441.4 32.2 1,366.2 154.8 47.2Consumer financing, finance

and investment management.. 1.1 0.2 197.9 14.2 238.8 27.1 9.5 124.5 9.1 39.8 4.5 1.4Banking ....................................... 12.8 2.3 48.8 3.5 101.8 11.5 4.0 76.8 5.6 73.4 8.3 2.5Development, trading and

service..................................... 2.0 0.3 6.7 0.5 10.7 1.2 0.4 7.0 0.5 (13.1) (1.5) (0.6 ) Total before elimination.............. 563.7 100.0 1,393.0 100.0 2,521.7 285.7 100.0 1,370.8 100.0 2,893.5 327.8 100.0Elimination.................................. (272.8) (48.4) (659.1) (47.3) (1,243.9) (141.0) (49.3) (670.6) (48.9) (1,376.3) (156.0) (47.6)

Total after elimination............ 290.9 51.6 733.9 52.7 1,277.8 144.7 50.7 700.2 51.1 1,517.2 171.8 52.4

The following tables show a breakdown of total assets and liabilities by business segment, and as a percentage of each total before elimination.

As of December 31, As of September 30, 2008 2009 2010 2010 2011

(Rp. in billions) %

(Rp. inbillions) %

(Rp. inbillions)

(US$ inmillions) %

(Rp. in billions) %

(Rp. inbillions)

(US$ inmillions) %

Total Assets: Parent company........................... 2,673.1 14.5 3,613.1 15.5 5,077.2 575.5 15.3 700.2 51.1 8,996.9 1,019.7 17.5Insurance underwriting ............... 8,377.3 45.4 9,959.6 42.7 14,212.4 1,610.8 42.9 441.4 32.2 24,116.7 2,733.4 46.6Consumer financing, finance

lease and factoring.................. 769.0 4.2 839.1 3.6 1,072.0 121.5 3.2 19.5 1.4 1,612.0 182.7 3.1Share administration fee ............. 15.6 0.1 16.3 0.1 18.4 2.0 0.1 1.4 0.1 19.4 2.2 0.0Stock brokerage, underwriting

and investment management.. 389.3 2.1 659.2 2.8 1,220.6 138.3 3.7 124.5 9.1 1,037.7 117.6 2.0Banking ....................................... 6,064.6 32.9 8,036.0 34.5 11,232.2 1,273.1 33.9 76.8 5.6 15,668.1 1,775.8 30.3Development, trading and

service..................................... 148.7 0.8 177.2 0.8 294.7 33.4 0.9 7.0 0.5 269.4 30.5 0.5Total before elimination.............. 18,437.5 100.0 23,300.5 100.0 33,127.5 3,754.6 100.0 1,370.8 100.0 51,720.2 5,861.9 100.0Elimination.................................. (2,900.3) (15.7) (3,600.2) (15.5) (5,282.5) (598.7) (15.9) (670.6) (48.9) (8,740.4) (990.6) (16.9)

Total after elimination............ 15,537.2 84.3 19,700.3 84.5 27,845.0 3,155.9 84.1 700.2 51.1 42,979.8 4,871.3 83.1

As of December 31, As of September 30, 2008 2009 2010 2010 2011

(Rp. in billions) %

(Rp. inbillions) %

(Rp. inbillions)

(US$ inmillions) %

(Rp. in billions) %

(Rp. inbillions)

(US$ inmillions) %

Total Liabilities: Parent company........................... 19.1 0.1 15.7 0.1 14.1 1.6 0.1 14.6 0.1 17.1 1.9 0.1Insurance underwriting ............... 7,100.2 53.3 8,264.0 50.5 11,541.6 1,308.2 50.1 10,623.6 49.2 14,100.1 1,598.2 47.3Consumer financing, finance

and investment management.. 71.1 0.5 143.2 0.9 465.7 52.8 2.0 820.8 3.8 243.0 27.5 0.8Banking ....................................... 5,647.0 42.4 7,464.6 45.6 10,320.7 1,169.7 44.8 9,425.5 43.7 14,411.2 1,633.4 48.4Development, trading and

service..................................... 66.0 0.6 65.2 0.4 152.8 17.3 0.7 147.8 0.7 72.8 8.3 0.3Total before elimination.............. 13,313.1 100.0 16,370.1 100.0 23,056.6 2,613.2 100.0 21,572.3 100.0 29,782.2 3,375.6 100.0Elimination.................................. (543.0) (4.1) (267.3) (1.6) (472.5) (52.6) (2.0) (798.7) (3.7) (792.3) (89.8) (2.7)

See Note 59 to our consolidated financial statements for further details of our business segments.

Geographic Segments

We also classify our business activities using geographical segments based on location in Indonesia. The following table shows a breakdown of operating income by geographic segment.

(Rp. in billions) %

(Rp. inbillions) %

(Rp. inbillions)

(US$ inmillions) %

(Rp. in billions) %

(Rp. inbillions)

(US$ inmillions) %

Operating Income: Java and Bali ............................... 5,714.0 92.0 8,089.2 95.5 10,596.2 1,201.0 96.4 7,232.8 95.0 10,966.2 1,242.9 95.9Sumatera...................................... 292.2 4.7 208.2 2.5 203.2 23.0 1.8 206.3 2.7 202.4 22.9 1.8Kalimantan .................................. 110.8 1.8 86.0 1.0 108.8 12.3 1.0 95.3 1.3 161.8 18.3 1.4Sulawesi ...................................... 91.2 1.5 86.3 1.0 83.3 9.4 0.8 73.6 1.0 103.0 11.7 0.9Irian ............................................. 3.2 0.1 3.0 0.0 3.4 0.4 0.0 2.6 0.0 3.0 0.3 0.0Total before elimination.............. 6,211.4 100.0 8,472.6 100.0 10,994.9 1,246.1 100.0 7,610.6 100.0 11,436.4 1,296.1 100.0Elimination.................................. (8.5) (0.1) (12.7) (0.1) (10.4) (1.2) (0.1) (10.5) (0.1) (6.8) (0.8) (0.1)

See Note 59 of the notes to our consolidated financial statements for further details of our geographic segments.

Principal Income Statement Components of Sinarmas MSIG Life

Revenues

Sinarmas MSIG Life’s principal sources of revenues comprise premium income and investment income.

Premium Income

Gross premium income is generated principally from unit link and combined endowment insurance, and to a lesser extent, whole life, death term life, health and personal accident insurance. Premium income comprises both new business premiums and existing or renewal business premiums. New business premiums comprise the sum of first year premiums on new business, before reinsurance ceded, written during the period. As most of Sinarmas MSIG Life’s policies are single premium policies, new business premiums include premiums on new policies taken by existing customers irrespective of whether as a result of surrender or maturity of their existing policy. Premium income also gives effect to reinsurance premium and the decrease or increase in unearned premiums, which are not material.

All amounts received in relation to Sinarmas MSIG Life’s unit link insurance products are reflected as premium income.

Premium income for Sinarmas MSIG Life is recorded as “Insurance Underwriting Income” in the Company’s consolidated financial statements.

Investment Income

Investment income comprises net realized gain on investment in trading securities, net unrealized gain or loss on the increase or decrease in fair value of investments in trading securities, as well as interest income from bonds, time deposits, mortgage loans and policy loans, bond amortization and dividends. It also includes the net gain or loss on foreign exchange in respect of investments held. Investments in trading securities comprise investments held by Sinarmas MSIG Life and investments held as segregated assets of unit link policies.

Net realized gain or loss on investment in trading securities comprises gains or losses realized upon the disposition of securities in the period.

Net unrealized gain or loss on the increase or decrease in fair value of investments in trading securities comprises (1) unrealized gain or loss recorded to reflect the increase or decrease in fair value of units of mutual funds and equity and debt securities held through profit and loss in the period as Sinarmas MSIG Life records and maintains such investments at cost and (2) the reversal for accounting purposes of unrealized gain or loss recorded in a prior period attributable to gain or loss realized in the current period on such financial instruments.

In the Company’s consolidated financial statements, net realized and unrealized gain or loss attributable to units of mutual funds of Sinarmas MSIG Life, including units of mutual funds held as segregated assets of unit link policies, are recorded as “Gain from Investment in Units of Mutual Funds”. Net realized gain or loss on investment in other trading securities, such as bonds and shares, of Sinarmas MSIG Life are recorded as “Gain on Sale of Short-Term Investments”, and net unrealized gain or loss on increase or decrease in fair value of investments in such other trading securities are recorded as “Unrealized Gain on Increase in Fair Value of Securities—Net” or “Unrealized Loss on Decrease in Fair Value of Securities—Net”. The interest component of investment income of Sinarmas MSIG Life is recorded as “Interest Income” in the Company’s consolidated financial statements and dividends earned on investments by Sinarmas MSIG are recorded as “Other Income” in the Company’s consolidated financial statements.

Other Income

Other income comprises gain on foreign exchange—net in respect of non-investment assets and liabilities, including U.S. dollar claims expenses and accounts receivable, interest income from current accounts, gain on sale of fixed assets and other.

Operating Expenses

Sinarmas MSIG Life’s operating expenses comprise principally claims and benefits attributable to insurance, increase in payables to unit link’s policyholders and Sharia’s policyholders, general and administrative expenses, acquisition expenses, marketing expenses, reinsurance claims and increase or decrease in liability for future policy benefits and estimated claims liability—net, which relates to guaranteed benefits payable to endowment policyholders.

Claims and Benefits Expenses

Claims and benefits expenses comprise surrender and redemption of policies, maturity and periodical claims on all insurance products, and claims payable in respect of conventional health and death policies. Claims and benefit expenses are recorded as gross claims under “Insurance Underwriting Expenses” in the Company’s consolidated financial statements.

Increase or Decrease in Payables to Unit Link Policyholders

Increase or decrease in amounts payable to unit link policyholders is a non-cash item and represents the difference in reserves for payables to unit link policyholders between the beginning of the period and the end of the period. Amounts payable will increase or decrease following the placement or withdrawal of unit link holders’ funds and the change in current net asset value of the related investments. Increase or decrease in

payable to unit link policyholders is recorded under “Insurance Underwriting Expenses” in the Company’s consolidated financial statements.

General and administrative expenses comprise principally general expenses such as salaries and allowances, defined benefit post-employment expenses, professional fees, depreciation of fixed assets electricity, water and telephone expenses and other expenses.

Acquisition Expenses

Acquisition expenses consist of commissions payable to agents in respect of insurance contracts or renewals. Acquisition expenses are recorded as commissions—net under “Insurance Underwriting Expenses” in the Company’s consolidated financial statements.

Marketing Expenses

Marketing expenses consist of expenses not directly related to an insurance policy, including advertising and promotion, conferences and meetings and other similar marketing expenses.

Increase or Decrease in Liability for Future Policy Benefits

Increase or decrease in liability for future policy benefits is a non-cash item and is recorded under “Insurance Underwriting Expenses” in the Company’s consolidated financial statements.

Results of Operations of Sinarmas MSIG Life

The following table provides a breakdown of Sinarmas MSIG Life’s principal income statement components, including each principal component as a percentage of its total revenues, for the periods indicated. You should read this table together with Sinarmas MSIG Life’s financial statements, including the notes thereto.

(Rp. in billions) %

(Rp. inbillions) %

(Rp. inbillions)

(US$ inmillions) %

(Rp. in billions) %

(Rp. inbillions)

(US$ inmillions) %

Revenues: Premium income:

Premium(1) .............................. 5,107.4 85.1 7,109.6 86.6 9,289.6 1,033.2 86.9 6,392.1 87.3 9,805.9 1,111.4 87.4Reinsurance premium ............ (7.6) (0.1) (8.0) (0.1) (6.2) (0.7) (0.1) (6.0) (0.1) (5.8) (0.71) (0.1) Decrease (increase) in

unearned premium............. 24.0 0.4 14.3 0.2 (0.4) (0.0) (0.0) (2.0) (0.0) 1.3 0.1 0.0 Total premium income—

net ................................. 5,123.9 85.4 7,115.9 86.7 9,282.9 1,032.5 86.9 6,384.1 87.2 9,801.4 1,110.8 87.3Investment income:

Investment income ................. 657.0 10.9 1,256.2 15.3 1,442.0 163.4 13.5 978.0 13.4 1,416.1 160.5 12.6Gain (loss) on foreign

exchange—net ................... 212.2 3.5 (180.3) (2.2) (50.0) (5.6) (0.5) (56.7) (0.8) (24.5) (2.8) (0.2) Total investment

income—net ................. 869.2 14.5 1,075.9 13.1 1,392.1 154.8 13.0 921.3 12.6 1,391.6 157.7 12.4Other income—net...................... 7.5 0.1 13.3 0.2 11.5 1.3 0.1 13.2 0.2 32.4 3.7 0.3

Total revenues ........................ 6,000.6 100.0 8,205.1 100.0 10,686.5 1,188.6 100.0 7,318.6 100.0 11,225.4 1,272.3 100.0 Expenses: Claims and benefits..................... 4,959.1 82.6 6,754.2 82.3 7,137.2 793.8 66.8 4,990.1 68.2 7,917.4 897.4 70.5Increase in payables to unit

link’s policyholders................ 241.3 4.0 2,843.6 34.7 3,688.9 410.3 34.5 2,756.9 37.7 (1,951.6) (221.2) (17.4) General and administrative ......... 99.9 1.7 100.0 1.2 120.5 13.4 1.1 81.8 1.1 95.1 10.8 0.8Acquisition .................................. 63.8 1.1 28.0 0.3 40.3 4.5 0.4 23.1 0.3 48.9 5.6 0.4Increase in payable to Sharia’s

policyholders .......................... 7.3 0.1 4.9 0.1 17.8 2.0 0.2 13.2 0.2 15.7 1.8 0.1Marketing .................................... 9.5 0.2 7.9 0.1 11.8 1.3 0.1 4.4 0.1 17.4 1.8 0.2Reinsurance claims ..................... (0.8) (0.0) (3.0) (0.0) (0.5) (0.1) (0.0) 1.2 0.0 - (0.0) (0.0) Increase (decrease) in liability

for future policy benefits and estimated claims liability—net ........................................... 451.1 7.5 (1,750.8) (21.3) (885.6) (98.5) (8.3) (788.1) (10.8) 4,085.5 463.0 36.4Total expenses........................ 5,831.3 97.2 7,984.8 97.3 10,130.5 1,126.7 94.8 7,082.5 96.8 10,228.4 1,159.3 91.1

Income before deferred income tax benefit (expense) .............. 169.3 2.8 220.2 2.7 556.0 61.8 5.2 236.1 3.2 997.0 113.0 8.9

Deferred income tax benefit (expense) ................................ (5.3) (0.1) 12.2 0.1 (13.5) (1.5) (0.1) (16.8) (0.2) 1.7 0.2 0.0

Net Income.................................. 164.0 2.7 232.4 2.8 542.5 60.3 5.1 219.3 3.0 998.8 113.2 8.9

______________________

(1) Premium income comprises both new business premiums and existing or renewal business premiums. New business premiums comprise the sum of first year premiums on new business, before reinsurance ceded, written during the period. Premiums from unit link policies comprise the entire amount recorded under the policy.

Revenues

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Sinarmas MSIG Life’s total revenues increased 53.4% to Rp.11,225.4 billion (US$1,272.3 million) in the nine months ended September 30, 2011 from Rp.7,318.6 billion in the nine months ended September 30, 2010, primarily attributable to an increase in premium and investment income.

2010 Compared to 2009. Sinarmas MSIG Life’s total revenues increased 30.2% to Rp.10,686.5 billion (US$1,211.2 million) in 2010 from Rp.8,205.1 billion in 2009, primarily attributable to an increase in premium and investment income.

2009 Compared to 2008. Sinarmas MSIG Life’s total revenues increased 36.7% to Rp.8,205.1 billion in 2009 from Rp.6,000.6 billion in 2008, primarily attributable to an increase in premium and investment income.

Premium Income

The following table provides a breakdown of Sinarmas MSIG Life’s premium income for the periods indicated.

2008 2009 2010 2010 2010 2011 2011 Rp. Rp. Rp. US$ Rp. Rp. US$

(Rp. in billions, US$ in millions)

Premium income:

Premium: Individual:

Unit link.......................................................................... 593.1 3,562.2 8,565.8 952.7 5,796.2 5,037.5 571.0 Combined endowment ................................................... 4,298.1 3,401.6 573.0 63.7 480.1 4,619.5 523.6 Whole life ....................................................................... 16.7 15.9 14.6 1.6 11.1 10.3 1.2 Death term life................................................................ 3.6 4.6 6.7 0.8 4.0 3.1 0.4 Health ............................................................................. 1.1 1.7 2.2 0.3 1.6 2.2 0.3 Personal accident............................................................ 0.8 0.7 1.2 0.1 0.6 1.8 0.2

Total individual premium.......................................... 4,913.4 6,986.6 9,163.6 1,019.1 6,293.6 9,674.3 1,096.7 Group:

Death term life................................................................ 57.6 51.3 63.2 7.1 45.0 71.2 8.0 Health ............................................................................. 128.0 70.2 60.9 6.8 52.0 50.7 5.7 Personal accident............................................................ 1.5 1.3 1.9 0.2 1.5 1.2 0.1 Endowment..................................................................... – – 0.0 0.0 0.0 0.0 0.0 Unit link.......................................................................... 7.0 0.1 – – 0.0 8.4 0.9

Total group premium................................................. 194.1 123.0 126.0 14.0 98.5 131.5 14.7 Total premium..................................................................... 5,107.4 7,109.6 9,289.6 1,033.2 6,293.1 9,805.9 1,111.4

Reinsurance premium ........................................................... (7.6) (8.0) (6.2) (0.7) (6.0) (5.8) (0.7) Decrease (increase) in unearned premium.......................... 24.0 14.3 (0.4) (0.1) (2.0) (1.3) (0.1) Total premium income—net ................................................. 5,123.9 7,115.9 9,282.9 1,032.5 6,384.1 9,801.4 1,110.6

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Sinarmas MSIG Life’s total premium income—net increased 53.5% to Rp.9,801.4 billion (US$1,110.9 million) in the nine months ended September 30, 2011 from Rp.6,384.1 billion in the nine months ended September 30, 2010. This growth was driven by a significant increase in gross premium income from combined endowment policies written, which rose 862.2% to Rp.4,619.5 billion (US$523.6 million) in the nine months ended September 30, 2011, from Rp.480.1 billion in the nine months ended September 30, 2010, partially offset by a small decrease in unit link policy premiums. The premium growth for endowment policies is attributable

principally to a shift by existing unit link policyholders from their existing unit link policies to new endowment policies offering a higher guaranteed return, and to a lesser extent, an increase in endowment policies sold to new customers. This reflected a strategic focus by Sinarmas MSIG Life to target a more balanced allocation between its endowment policies and unit link policies by permitting the growth of its endowment policy premiums, as a result of completion of the MSIG share subscription in Sinarmas MSIG Life, which enhanced its capital and solvency ratios. Sinarmas MSIG Life recorded increases in gross premiums through most of its distribution channels, with the largest increases attributable to bancassurance, which increased 55.3% to Rp.8,302.0 billion (US$941.1 million) in the nine months ended September 30, 2011 from Rp.5,346.1 billion in the nine months ended September 30, 2010, consistent with the growth of endowment gross premiums in the same period as endowment policies accounted for most of the policies sold through bancassurance, which increased 36% to Rp.1,126.3 billion (US$127.6 million) in the nine months ended September 30, 2011 from Rp.828.2 billion in the nine months ended September 30, 2010. For the nine months ended September 30, 2011, bancassurance accounted for 84.6% of total sales.

Reinsurance premium as a percentage of gross premiums amounted to 0.06% in the nine months ended September 30, 2011, compared to 0.09% in the nine months ended September 30, 2010.

2010 Compared to 2009. Sinarmas MSIG Life’s total premium income—net increased 30.5% to Rp.9,282.9 billion (US$1,033.2 million) in 2010 from Rp.7,115.9 billion in 2009. The increase in premium income was principally driven by increases in gross premium income from individual unit link insurance policies, partially offset by a reduction in gross premium income from combined endowment policies. Gross premium income from new business rose 31.6% to Rp.9,046.6 billion (US$1,025.3 million) in 2010 from Rp.6,872.7 billion in 2009, while gross premium income from existing business remained relatively stable at Rp.243.0 billion (US$27.5 million) in 2010 and Rp.236.8 billion in 2009. As most of the policies written by Sinarmas MSIG Life are single premium policies, new business includes both new customers and existing customers who take out a new insurance policy. The increase in premium income from individual unit link policies was attributable principally to a migration of existing endowment customers to unit link policies and, to a lesser extent, the growth in the customer base, resulting in an overall increase in gross premiums. The shift in 2010 in gross premium income from endowment products to unit link was largely due to customer surrenders of Sinarmas MSIG Life’s endowment products in favor of its unit link product as Sinarmas MSIG Life offered higher target investment returns for its unit link products as part of its policy mix strategy to shift from endowment products to unit link products. By distribution channel, gross premium income attributable to bancassurance increased to Rp.7,889.6 billion (US$894.2 million), or 36.6% in 2010 from Rp.5,776.8 billion in 2009. Gross premiums attributable to other distribution channels remained relatively flat.

Reinsurance premium as a percentage of gross premiums remained relatively stable at 0.1% in 2009 and 2010.

2009 Compared to 2008. Sinarmas MSIG Life’s total premium income—net increased 38.9% to Rp.7,115.9 billion in 2009 from Rp.5,123.9 billion in 2008, primarily attributable to an increase in our gross premiums. Sinarmas MSIG Life’s gross premiums increased 39.2% to Rp.7,109.6 billion in 2009 from Rp.5,107.4 billion in 2008, principally attributable to a 42.4% increase in gross premium income from new business to Rp.6,872.8 billion in 2009 from Rp.4,826.8 billion in 2008, while existing business decreased slightly to Rp.236.8 billion in 2009 from Rp.280.6 billion in 2008 as a result of the introduction of Sinarmas MSIG Life’s Stable Link unit link insurance product. New business was driven by a Rp.2,969.1 billion increase in premiums from individual unit link insurance policies, partially offset by a Rp.896.5 billion decrease in premiums from individual combined endowment insurance policies and a Rp.57.7 billion decrease in group health insurance policies. Gross premium income from individual unit link insurance policies increased as Sinarmas MSIG Life continued to attract new customers through bancassurance and agency channels and migration of existing endowment policyholders to unit link policies, which offered higher target returns. By distribution channel, the main contributors to growth were bancassurance, which increased 48.7% to Rp.5,776.7 billion in 2009 from Rp.3,885.0 billion in 2008, and agent sales, which increased 17.4% to Rp.1,101.7 billion in 2009 from Rp.938.7 billion in 2008, in line with the overall growth in the agency force. The decrease in group health insurance policies was principally because of a shift in repricing strategy which increased premiums on group health insurance policies, resulting in increased surrenders and lower premium volume but an increase in profitability from group health insurance policies.

Reinsurance premium as a percentage of gross premiums remained constant at 0.1% in 2008 and 2009.

Investment Income

The following table sets forth Sinarmas MSIG Life’s investment income for the periods indicated.

2008 2009 2010 2010 2010 2011 2011 Rp. Rp. Rp. US$ Rp. Rp. US$

Interest on: Bonds............................................................................... 11.8 63.2 60.8 6.9 48.2 33.7 3.8 Time deposits .................................................................. 26.0 57.7 46.1 5.2 28.7 144.7 16.4 Mortgage Loans............................................................... 2.4 2.5 2.3 0.3 1.7 1.3 0.1 Policy Loans .................................................................... 3.3 2.2 1.9 0.2 0.5 0.4 0.0

Net realized gain on investment in trading securities: Investments:(1)

Units in mutual funds ...................................................... 464.2 1,098.3 210.0 23.8 132.2 93.5 10.6 Equity securities .............................................................. 21.7 16.4 174.7 19.8 26.4 451.3 51.2 Debt securities ................................................................. 8.9 23.0 16.5 1.9 16.5 - -

Subtotal ......................................................................... 494.8 1,137.8 401.2 45.5 175.1 544.8 61.7 Segregated funds of unit link:

Units in mutual funds ...................................................... (7.3) 84.4 222.4 25.2 212.5 488.5 55.4 Equity securities .............................................................. 0.7 - - - - - - Debt securities ................................................................. 2.2 0.1 3.1 0.4 3.0 - -

Subtotal ......................................................................... (4.4) 84.6 225.5 25.6 215.5 488.5 55.4 Segregated Funds of Sharia: Subtotal ......................................................................... (0.1) 0.1 1.3 0.1 0.7 0.5 0.0 Total .................................................................................. 490.3 1,222.4 627.9 69.8 391.3 1,033.8 117.2 Net unrealized gain (loss) on increase (decrease) in fair

value of investment in trading securities:

Investments:(1) Units in mutual funds ...................................................... 278.5 (385.9) 64.9 7.4 86.4 108.8 12.3 Equity securities .............................................................. (67.3) 34.9 67.6 7.7 24.5 7.2 0.8 Debt securities ................................................................. 4.3 4.4 (4.2) (0.5) 3.6 - -

Subtotal ........................................................................ 215.5 (346.7) 128.4 14.6 114.5 116.0 13.1 Segregated funds of unit link: 0.0 0.0

Units in mutual funds ...................................................... (65.9) 225.9 519.6 58.9 353.1 67.0 7.6 Equity securities .............................................................. (8.7) 13.7 9.5 1.1 9.0 (3.6) (0.4) Debt securities ................................................................. (16.9) 5.6 7.5 0.9 6.7 2.7 0.3

Subtotal ....................................................................... (91.5) 245.2 536.6 60.8 368.8 66.1 7.5 Segregated funds of Sharia: Subtotal ....................................................................... (2.4) 3.3 2.8 2.4 2.4 (1.3) (0.1) Total .................................................................................. 157.8 (98.2) 667.8 74.3 485.7 180.8 20.5 Bond amortization................................................................ (36.2) 43.5 17.9 2.0 6.1 5.6 0.6 Dividend............................................................................... 2.7 1.0 13.9 1.5 13.8 12.3 1.4 Mutual fund.......................................................................... 0.0 0.0 6.6 0.7 0.0 7.1 0.8 Investment expense .............................................................. (1.0) (1.0) (3.1) (0.3) 1.9 (2.1) (0.2) Investment written-off expense............................................ – (18.5) – – – – –

Gain (loss) on foreign exchange—net ...................................... 212.2 (180.3) (50.0) (5.6) (56.7) (24.5) (2.8) Total investment income—net .............................................. 869.2 1,075.9 1,392.1 154.8 921.3 1,393.0 157.9

______________________

(1) Comprises policyholder investments (excluding investments of its unit link assets) and shareholder investments funded by paid-up capital.

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Sinarmas MSIG Life’s total investment income—net increased 51.0% to Rp.1,391.6 billion (US$157.7 million) in the nine months ended September 30, 2011 from Rp.921.3 billion in the nine months ended September 30, 2010, primarily attributable to an increase in investment income and a decrease in loss on foreign exchange—net.

Investment income. Sinarmas MSIG Life’s investment income increased 51.3% to Rp.1,391.6 billion (US$157.7 million) in the nine months ended September 30, 2011 from Rp.921.3 billion in the nine months ended September 30, 2010. This increase was primarily attributable a net realized gain on investment in trading securities of Rp.1,033.8 billion (US$117.2 million) in the nine months ended September 30, 2011, compared to a net realized gain on investment in trading securities of Rp.391.3 billion in the nine months ended September 30, 2010. The net realized gain in the nine months ended September 30, 2011 was principally attributable to a Rp.451.3 billion (US$51.2 million) realized gain on sale of equity securities in order to make a distribution to SMMA prior to the effective date of MSIG’s share subscription on July 1, 2011. The increase in net realized gain was also attributable to a lesser extent to a Rp.488.5 billion (US$55.4 million) realized gain from the sale of units of mutual

funds with respect to segregated funds of unit link primarily to fund redemptions of unit link policies by policyholders migrating to Sinarmas MSIG Life’s endowment policies and interest income from time deposits as a result of increases in amounts placed in time deposits due to the capital contribution from MSIG from its share subscription.

The increase in net realized gain on investment in trading securities in the nine months ended September 30, 2011 was partially offset by a decrease in net unrealized gain on increase in fair value of investment in trading securities to Rp.180.8 billion (US$20.5 million) in the nine months ended September 30, 2011 from Rp.485.7 billion in the nine months ended September 30, 2010, primarily attributable to the decrease in net unrealized gain on units of mutual funds with respect to segregated funds of unit link to Rp.67.0 billion (US$7.6 million) in the nine months ended September 30, 2011 from Rp.353.0 billion in the nine months ended September 30, 2010 due to the reversal of unrealized gains recorded on the units of mutual funds in the prior period attributable to gains realized in the current period for accounting purposes, and to a lesser extent, the decrease in net unrealized loss on equity securities with respect to policyholder (excluding investments of unit link assets) and shareholder investments to Rp.7.2 billion (US$0.8 million) in the nine months ended September 30, 2011 from Rp.24.5 billion in the nine months ended September 30, 2010 due to the reversal of unrealized gains recorded in the prior period attributable to realized gains in the current period for accounting purposes. The amount of the reversal was small compared to the realized gain from sale of equity securities as the reversal was partially offset by unrealized gains on outstanding positions and new placements of securities.

Loss on foreign exchange—net. Sinarmas MSIG Life’s loss on foreign exchange—net decreased 56.8% to Rp.24.5 billion (US$2.8 million) in the nine months ended September 30, 2011 from Rp.56.7 billion in the nine months ended September 30, 2010, principally as a result of a decrease in foreign exchange rate yield on U.S. dollar-denominated investments for the nine months ended September 30, 2011 as compared with the foreign exchange rate yield on U.S. dollar-denominated investments for the nine months ended September 30, 2011 due to the strengthening of the Rupiah against the U.S. dollar.

2010 Compared to 2009. Sinarmas MSIG Life’s total investment income—net increased 29.4% to Rp.1,392.1 billion (US$157.8 million) in 2010 from Rp.1,075.9 billion in 2009, primarily attributable to an increase in investment income and a decrease in loss on foreign exchange—net.

Investment income. Sinarmas MSIG Life’s investment income increased 14.8% to Rp.1,442.0 billion (US$163.4 million) in 2010 from Rp.1,256.2 billion in 2009. This increase in investment income was primarily attributable to a net unrealized gain on increase in fair value of investment in trading securities of Rp.667.8 billion (US$74.5 million) in 2010, compared to a net unrealized loss on decrease in fair value of investment in trading securities of Rp.98.2 billion in 2009. The net unrealized gain in 2010 was principally attributable to significantly higher investment levels in 2010 in respect of segregated assets - unit link, mostly in units of mutual funds, in line with the increase in unit link policies principally due to the migration of policyholders from endowment policies. In 2009, Sinarmas MSIG Life recorded net unrealized loss on decrease in fair value of securities, principally due to the reversal of unrealized gains recorded in the prior year to reflect gains realized in the current year for accounting purposes, partially offset by unrealized gains recorded to reflect fair value through profit and loss of new mutual fund units purchased. Investments principally comprised units of mutual funds which amounted to Rp.7,652.9 billion in 2010, compared to Rp.5,308.7 billion as of December 31, 2009, of which 77% and 58% was attributable to segregated assets - unit link.

This was partially offset by a decrease in the net realized gain on investment in trading securities to Rp.627.9 billion (US$71.2 million) in 2010 from Rp.1,203.9 billion in 2009, principally because Sinarmas MSIG Life realized a smaller amount of securities in 2010.

Loss on foreign exchange—net. Sinarmas MSIG Life’s loss on foreign exchange—net decreased 72.3% to Rp.50.0 billion (US$5.7 million) in 2010 from Rp.180.3 billion in 2009, principally as a result of a decrease in foreign exchange rate yield on U.S. dollar denominated investments for the year ended December 31, 2010 as compared with the foreign exchange rate yield on U.S. dollar denominated investments due to the strengthening of the Rupiah against the U.S. dollar.

2009 Compared to 2008. Sinarmas MSIG Life’s total investment income—net increased 23.8% to Rp.1,075.9 billion in 2009 from Rp.869.2 billion in 2008, primarily attributable to an increase in investment

income, partially offset by a loss on foreign exchange—net in 2009, compared to a gain on foreign exchange—net in 2008.

Investment income. Sinarmas MSIG Life’s investment income increased 91.2% to Rp.1,256.2 billion in 2009 from Rp.657.0 billion in 2008. This increase was primarily attributable to an increase in net realized gain on investment in trading securities to Rp.1,203.9 billion in 2009 from Rp.490.3 billion in 2008, principally because of a significant increase in net realized gains on units of mutual funds, principally as a result of the liquidation of investments in conventional mutual funds managed by related parties and other investments with respect to both policyholder (excluding investments of its unit link assets) and shareholder investments and segregated assets - unit link and re-investment of such funds in newly created RDPT funds beginning 2009 as encouraged by the Ministry of Finance at the time to improve corporate governance and to avoid instability due to market volatility. This was partially offset by a net unrealized loss on decrease in fair value of investment trading securities of Rp.98.2 billion, compared to a net unrealized gain on increase in fair value of investment in trading securities of Rp.157.8 billion in 2008, principally due to the reversal of unrealized gains recorded in the prior year to reflect gains realized in the current year for accounting purposes. As of December 31, 2009, Sinarmas MSIG Life’s investments in units of mutual funds amounted to Rp.5,308.7 billion as of December 31, 2009, compared to Rp.5,027.5 billion as of December 31, 2008, of which 58% and 8.9% was attributable to segregated assets - unit link.

Loss on foreign exchange—net. Sinarmas MSIG Life’s recorded a loss on foreign exchange—net of Rp.180.3 billion in 2009, compared to a gain on foreign exchange—net of Rp.212.2 billion in 2008. The loss on foreign exchange—net in 2009 was principally as a result of a decrease in foreign exchange rate yield on U.S. dollar-denominated investments for the year ended December 31, 2010 as compared with the foreign exchange rate yield on U.S. dollar-denominated investments due to the strengthening of the Rupiah against the U.S. dollar in 2009, compared to the weakening of the Rupiah against the U.S. dollar in 2008 due to shift of increased amounts into current accounts to meet higher working capital needs.

Other Income

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Sinarmas MSIG Life’s other income—net increased 145.5% to Rp.32.4 billion (US$3.7 million) in the nine months ended September 30, 2011 from Rp.13.2 billion in the nine months ended September 30, 2010, primarily attributable to interest income from current accounts related to an increase in cash position in current accounts for working capital.

2010 Compared to 2009. Sinarmas MSIG Life’s other income—net decreased 13.2% to Rp.11.5 billion (US$1.3 million) in 2010 from Rp.13.3 billion in 2009, primarily attributable to a Rp.2.3 billion decrease on gain on foreign exchange—net, due to the strengthening of the Rupiah against the U.S. dollar with respect to non-investment assets and liabilities such as U.S. dollar claims payable (excluding reserves) and accounts receivables, and a Rp.1.0 billion decrease in gain on sale of fixed assets, partially offset by a Rp.0.9 billion decrease in other receivables written-off and a Rp.0.5 billion increase in interest income from current accounts.

2009 Compared to 2008. Sinarmas MSIG Life’s other income—net increased 77.3% to Rp.13.3 billion in 2009 from Rp.7.5 billion in 2008, primarily attributable to a Rp.5.0 billion increase in gain on foreign exchange—net, a Rp.1.4 billion increase in interest income from current accounts due to a shift of assets into current accounts in anticipation of possible increased claims and redemption expenses due to adverse global financial conditions and a Rp.1.5 billion increase in gain on sale of company vehicles as a result of Sinarmas MSIG Life’s adoption of a car pooling policy, partially offset by a Rp.1.0 billion increase in other receivables write-off with respect to uncollectible group insurance premiums.

Expenses

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Sinarmas MSIG Life’s total expenses increased 44.4% to Rp.10,228.4 billion (US$1,159.3 million) in the nine months ended September 30, 2011 from Rp.7,082.5 billion in the nine months ended September 30, 2010, primarily attributable to increases in claims and benefit expenses and increase in liability for future policy benefits and estimated claims liability - net in respect of endowment policies, partially offset by a decrease in liability for future policy benefits and estimated claims liability - net in respect of unit link policies.

2010 Compared to 2009. Sinarmas MSIG Life’s total expenses increased 26.9% to Rp.10,130.5 billion (US$1,148.2 million) in 2010 from Rp.7,984.8 billion in 2009, primarily attributable to increases in claims and benefits expenses and payables to unit link policyholders, partially offset by a decrease in liability for future policy benefits and estimated claims liability - net in respect of endowment policies.

2009 Compared to 2008. Sinarmas MSIG Life’s total expenses increased 36.9% to Rp.7,984.8 billion in 2009 from Rp.5,831.3 billion in 2008, primarily attributable to increases in claims and benefits expenses and payables to unit link’s policyholders. This was partially offset by a decrease in liability for future policy benefits and estimated claims liability—net in 2009, compared to an increase in liability for future policy benefits and estimated claims liability—net in 2008 in respect of endowment polices.

Claims and Benefits

The following table sets forth Sinarmas MSIG Life’s claims and benefits expenses for the periods indicated.

2008 2009 2010 2010 2010 2011 2011 Rp. Rp. Rp. US$ Rp. Rp. US$

Surrender and redemption........................................................ 2,885.8 4,552.5 6,431.1 728.9 4,393.3 7,286.7 825.9 Maturity and periodical claim.................................................. 1,902.2 2,095.5 636.0 72.1 545.0 568.6 64.5 Health ....................................................................................... 141.9 69.3 35.1 3.9 26.1 26.9 3.1 Death ........................................................................................ 27.1 36.9 34.9 3.9 25.7 34.6 3.9 Refund premium ...................................................................... 2.3 0.0 0.1 0.0 0.0 0.6 0.1 Total claims and benefits....................................................... 4,959.1 6,754.2 7,137.2 808.9 4,990.1 7,917.4 897.5

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Sinarmas MSIG Life’s claims and benefits expenses increased 58.7% to Rp.7,917.4 billion (US$897.5 million) in the nine months ended September 30, 2011 from Rp.4,990.1 billion in the nine months ended September 30, 2010, principally as a result of redemption of unit link policies.

Surrender and redemption. Sinarmas MSIG Life’s surrender and redemption expenses increased 65.8 % to Rp.7,286.7 billion (US$825.9 million) in the nine months ended September 30, 2011 from Rp.4,393.3 billion in the nine months ended September 30, 2010, principally because of an increase in surrender and redemption claims in respect of unit link policies, as customers shifted to endowment policies, which offered higher guaranteed returns, in line with Sinarmas MSIG Life’s strategy to increase the proportionate amount of endowment products as a percentage of premium income, following the increase in its capital and solvency ratios in 2011.

Maturity and periodical claim. Sinarmas MSIG Life’s maturity and periodic claim expenses increased slightly by 4.3% to Rp.568.6 billion (US$64.4 million) in the nine months ended September 30, 2011 from Rp.545.0 billion in the nine months ended September 30, 2010, principally because of an increase in periodical claims on endowment policies which came due in the nine months ended September 30, 2011.

2010 Compared to 2009. Sinarmas MSIG Life’s claims and benefits expenses increased 5.7% to Rp.7,137.2 billion (US$808.9 million) in 2010 from Rp.6,754.2 billion in 2009, principally as a result of an increase in surrender and redemption expenses, partially offset by a decrease in maturity and periodic claim expenses.

Surrender and redemption. Sinarmas MSIG Life’s surrender and redemption expenses increased 41.3% to Rp.6,431.1 billion (US$728.9 million) in 2010 from Rp.4,552.5 billion in 2009, principally due to customers migrating to unit link products to take advantage of higher target investment returns on an offer by Sinarmas MSIG Life.

Maturity and periodical claim. Sinarmas MSIG Life’s maturity and periodic claim expenses decreased 69.6% to Rp.636.0 billion (US$72.1 million) in 2010 from Rp.2,095.5 billion in 2009, principally because of decrease in endowment policies and other conventional insurance policies.

2009 Compared to 2008. Sinarmas MSIG Life’s claims and benefits expenses increased 36.2% to Rp.6,754.2 billion in 2009 from Rp.4,959.1 billion in 2008, principally as a result of increases in surrender and redemption expenses and maturity and periodic claim expenses.

Surrender and redemption. Sinarmas MSIG Life’s surrender and redemption expenses increased 57.8% to Rp.4,552.5 billion in 2009 from Rp.2,885.8 billion in 2008, principally because of endowment policyholders migrating to unit link products.

Maturity and periodical claim. Sinarmas MSIG Life’s maturity and periodic claim expenses increased 10.2% to Rp.2,095.5 billion in 2009 from Rp.1,902.2 billion in 2008, principally because of increase in periodical claims on endowment policies which came due in 2009.

Increase in Payables to Unit Link’s Policyholders

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Sinarmas MSIG Life’s increase in payables to unit link’s policyholders decreased 170.8% to Rp.(1,951.6) billion (US$(221.2) million) in the nine months ended September 30, 2011 from Rp.2,756.9 billion in the nine months ended September 30, 2010, principally because of a decrease in the amount of unit link policies written as customers migrated to endowment polices which offered higher guaranteed returns. Segregated assets - unit link decreased to Rp.5,386.1 billion (US$610.5 million) in the nine months ended September 30, 2011 from Rp.6,211.2 billion in the nine months ended September 30, 2010.

2010 Compared to 2009. Sinarmas MSIG Life’s increase in payables to unit link’s policyholders increased 29.7% to Rp.3,688.9 billion (US$418.1 million) in 2010 from Rp.2,843.6 billion in 2009, principally because of an increase in the sale of unit link insurance products. Segregated assets - unit link increased to Rp.7,434.8 billion (US$842.7 million) in 2010 from Rp.3,464.6 billion in 2009.

2009 Compared to 2008. Sinarmas MSIG Life’s increase in payables to unit link’s policyholders increased significantly to Rp.2,843.6 billion in 2009 from Rp.241.3 billion in 2008, in line with the increase in the sale of unit link insurance products by Sinarmas MSIG Life. Segregated assets - unit link increased to Rp.3,464.6 billion (US$392.7 million) in 2009 from Rp.513.8 billion in 2008.

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Sinarmas MSIG Life’s general and administrative expenses increased 16.3% to Rp.95.1 billion (US$10.8 million) in the nine months ended September 30, 2011 from Rp.81.8 billion in the nine months ended September 30, 2010, primarily attributable to increase in salaries and allowances, principally reflecting increased costs for bancassurance at Bank Sinarmas, following a change in regulation.

2010 Compared to 2009. Sinarmas MSIG Life’s general and administrative expenses increased 20.5% to Rp.120.5 billion (US$13.7 million) in 2010 from Rp.100.0 billion in 2009, primarily attributable to a Rp.12.5 billion increase in defined-benefit post employment expense—net and, to a lesser extent, a Rp.2.4 billion increase in salaries and allowances, a Rp.2.1 billion increase in professional fees and a Rp.1.5 billion increase in depreciation of vehicles used by Bank Sinarmas employees selling Sinarmas MSIG Life bancassurance products.

2009 Compared to 2008. Sinarmas MSIG Life’s general and administrative expenses remained relatively stable, increasing slightly to Rp.100.0 billion in 2009 from Rp.99.9 billion in 2008.

Acquisition Expenses

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Sinarmas MSIG Life’s acquisition expenses increased 111.5% to Rp.48.9 billion (US$5.5 million) in the nine months ended September 30, 2011 from Rp.23.1 billion in the nine months ended September 30, 2010, primarily attributable to increase in commissions corresponding to increase in sales.

2010 Compared to 2009. Sinarmas MSIG Life’s acquisition expenses increased 43.8% to Rp.40.3 billion (US$4.6 million) in 2010 from Rp.28.0 billion in 2009, primarily attributable to a Rp.12.5 billion increase in commissions corresponding to increase in sales.

2009 Compared to 2008. Sinarmas MSIG Life’s acquisition expenses decreased 56.0% to Rp.28.0 billion in 2009 from Rp.63.8 billion in 2008, primarily attributable to a Rp.14.3 billion decrease in commissions due to amortization of the last deferred acquisition cost in 2008. The decrease in acquisition was also attributable to deferred acquisition costs, which were nil in 2009, compared to Rp.21.0 billion in 2008.

Increase in Payables to Sharia’s Policyholders

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Sinarmas MSIG Life’s increase in payable to Sharia’s policyholders increased 19.6% to Rp.15.7 billion (US$1.8 million) in the nine months ended September 30, 2011 from Rp.13.2 billion in the nine months ended September 30, 2010, principally as a result of increase in premium income.

2010 Compared to 2009. Sinarmas MSIG Life’s increase in payable to Sharia’s policyholders increased significantly to Rp.17.8 billion (US$2.0 million) in 2010 from Rp.4.9 billion in 2009, principally as a result of an increase in premium income attributable to Sharia policies written.

2009 Compared to 2008. Sinarmas MSIG Life’s increase in payable to Sharia’s policyholders decreased 32.9% to Rp.4.9 billion in 2009 from Rp.7.3 billion in 2008, principally as a result of decrease in premium income in 2009 compared with 2008.

Marketing Expenses

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Sinarmas MSIG Life’s marketing expenses increased 295.5% to Rp.17.4 billion (US$2.0 million) in the nine months ended September 30, 2011 from Rp.4.4 billion in the nine months ended September 30, 2010, principally as a result of an increase in advertising expenses.

2010 Compared to 2009. Sinarmas MSIG Life’s marketing expenses increased 50.0% to Rp.11.8 billion (US$1.3 million) in 2010 from Rp.7.9 billion in 2009, principally as a result of Rp.1.9 billion increase in advertising and promotion expenses and a Rp.1.9 billion increase in contest expenses, as Sinarmas MSIG Life expanded its distribution channels.

2009 Compared to 2008. Sinarmas MSIG Life’s marketing expenses decreased 17.1% to Rp.7.9 billion in 2009 from Rp.9.5 billion in 2008, principally as a result of a Rp.0.6 billion decrease in conference and meeting expenses and a Rp.3.1 billion decrease in contest expenses, partially offset by a Rp.2.7 billion increase in advertisement expenses.

Reinsurance Claims

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Sinarmas MSIG Life’s reinsurance claims decreased 100.0% to nil in the nine months ended September 30, 2011 from Rp.1.2 billion in the nine months ended September 30, 2010, principally because of a decrease in policies reinsured.

2010 Compared to 2009. Sinarmas MSIG Life’s reinsurance claims decreased 84.9% to Rp.0.5 billion (US$0.1 million) in 2010 from Rp.3.0 billion in 2009, principally because of a decrease in policies reinsured.

2009 Compared to 2008. Sinarmas MSIG Life’s reinsurance claims increased 260.7% to Rp.3.0 billion in 2009 from Rp.0.8 billion in 2008, principally because of an increase in policies reinsured.

Decrease in Liability for Future Policy Benefits and Estimated Claims—Net

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Sinarmas MSIG Life recorded an increase in liability for future policy benefits of Rp.4,085.5 billion (US$463.1 million) in the nine months ended September 30, 2011, compared to a decrease in liability for future policy benefits of Rp.788.1 billion recorded in the nine months ended September 30, 2010 representing a 618.4% increase. This was principally due to a significant increase in liability for future combined endowment policy benefits, in line with the Sinarmas MSIG Life’s strategic focus to increase endowment policies written, both from new customers and existing customers moving from unit link policies to endowment policies.

2010 Compared to 2009. Sinarmas MSIG Life’s decrease in liability for future policy benefits and estimated claims—net decreased 49.4% to Rp.885.6 billion (US$100.4 million) in 2010 from Rp.1,750.8 billion in 2009, principally as a result of a Rp.942.3 billion decrease in liabilities for individual combined endowment policy benefits, as customers migrated to unit link products.

2009 Compared to 2008. Sinarmas MSIG Life recorded a decrease in liability for future policy benefits and estimated claims—net of Rp.1,750.8 billion in 2009, compared to an increase in liability for future policy benefits and estimated claims—net of Rp. 451.1 billion in 2008, principally as a result of a Rp.1,749.5 billion decrease in liabilities for individual combined endowment policy benefits, as customers migrated to unit link products.

Income Before Deferred Income Tax Benefit (Expense)

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. As a result of the above, Sinarmas MSIG Life’s income before deferred income tax benefit (expense) increased 322.2% to Rp.997.0 billion (US$113.0 million) in the nine months ended September 30, 2011 from Rp.236.1 billion in the nine months ended September 30, 2010.

2010 Compared to 2009. As a result of the above, Sinarmas MSIG Life’s income before deferred income tax benefit increased 152.5% to Rp.556.0 billion (US$63.0 million) in 2010 from Rp.220.2 billion in 2009.

2009 Compared to 2008. As a result of the above, Sinarmas MSIG Life’s income before deferred income tax benefit increased 30.1% to Rp.220.2 billion in 2009 from Rp.169.3 billion in 2008.

Deferred Income Tax Benefit (Expense)

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Sinarmas MSIG Life recorded a deferred income tax benefit of Rp.1.7 billion (US$0.2 million) in the nine months ended September 30, 2011, compared to a deferred income tax expense of Rp.16.8 billion in the nine months ended September 30, 2010.

2010 Compared to 2009. Sinarmas MSIG Life’s deferred income tax expense was Rp.13.5 billion (US$1.5 million), compared to a deferred income tax benefit of 12.2 billion in 2009.

2009 Compared to 2008. Sinarmas MSIG Life recorded a deferred income tax benefit of Rp.12.2 billion in 2009, compared to a deferred income tax expense of Rp.5.3 billion in 2009.

Net Income

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. As a result of the above, Sinarmas MSIG Life’s net income increased 355.4% to Rp.998.8 billion (US$113.2 million) in the nine months ended September 30, 2011 from Rp.219.3 billion in the nine months ended September 30, 2010.

2010 Compared to 2009. As a result of the above, Sinarmas MSIG Life’s net income increased 133.4% to Rp.542.5 billion (US$61.5 million) in 2010 from Rp.232.4 billion in 2009.

2009 Compared to 2008. As a result of the above, Sinarmas MSIG Life’s net income increased 41.7% to Rp.232.4 billion in 2009 from Rp.164.0 billion in 2008.

Principal Income Statement Components of Asuransi Sinar Mas

Underwriting Income

Premiums Earned - Net

Gross premiums comprise premiums received from policyholders based on short-term and long-term contracts and are generated principally from Asuransi Sinar Mas’ fire and property, motor vehicles and health

and personal accident insurance products, and to a lesser extent, its marine hull, marine cargo, engineering and other insurance products. Premiums earned - net gives effect to reinsurance premiums paid and the decrease or increase in unearned premiums.

Reinsurance premiums comprise premiums due to reinsurance companies for reinsurance coverage. For proportionate reinsurance coverage, reinsurance premiums are recognized during the period of the reinsurance contract in proportion to the insurance coverage received, and for excess-of-loss reinsurance coverage, reinsurance premium represents premiums for reinsurance coverage above the net retention level. For proportionate reinsurance coverage, reinsurance premium amounts for interim periods do not reflect adjustments from proportionate reinsurance which are usually made at the end of the year and therefore interim results may differ from results for the entire year.

Unearned premiums representing the portion of the premium which has not been recognized as revenue since the period covered extend beyond the end of the current period of the accounting year, and are calculated in aggregate using a certain percentage in accordance with applicable regulations. See “Business―Non-Life Insurance―Asuransi Sinar Mas―Reserves―Unearned Premiums” for further information. The increase or decrease in unearned premiums represents the difference between the unearned premiums balance for the current and prior year.

Premiums earned - net is recorded in the Company’s consolidated statements of income under “Insurance Underwriting Income”.

Underwriting Expenses

Total Claim Expenses - Net

Gross claims comprise claims payable in respect of Asuransi Sinar Mas’ insurance policies. Total claim expenses - net gives effect to reinsurance claims and increases or decreases in estimated own retention claims.

Reinsurance claims comprise claims under insurance coverage which have been ceded to the reinsurers and are calculated as a percentage of gross claims in proportion to amounts reinsured.

Estimated own retention claims are loss provisions for estimated claims liability and are computed based on estimated loss for claims Asuransi Sinar Mas retains which at balance sheet date are still in process, including claims incurred but not reported. See “Business―Non-Life Insurance―Asuransi Sinar Mas―Reserves―Estimated own retention claims” for further information. The increase or decrease in estimated own retention claims represents the difference between the estimated own retention claims balance for the current and prior year.

Total claim expenses - net is recorded in the Company’s consolidated statements of income under “Insurance Underwriting Expenses”.

Commissions Expense - Net

Commissions expense - net comprises commissions due to insurance brokers, agents, banks and other insurance companies in connection with insurance coverage, net of commissions received from reinsurers in reinsurance transactions. Commissions expense - net is recorded in the Company’s consolidated statements of income under “Insurance Underwriting Expenses”.

Investment Income

Investment income - net principally comprises the gain on mutual funds, the net gain (loss) on sale of marketable securities, net unrealized gain from change in fair value of marketable securities, interest income, dividend income, the net gain or loss on foreign exchange of investment, rental income from affiliates for the lease of office space and investment in shares of an associated company, LIG. Interest income comprises interest derived from time deposits, bonds and notes and mortgage loans. Gain on mutual funds comprises the net realized and unrealized gains in the investments in units of mutual funds held by Asuransi Sinar Mas. Gain (loss) on sale of marketable securities comprises gains or losses on marketable securities which include equities and bonds. Gain (loss) on foreign exchange comprises realized and unrealized foreign exchange gains and

realized and unrealized foreign exchange losses, primarily in relation to adjustments to assets and liabilities denominated in foreign currencies on the balance sheet date by Asuransi Sinar Mas

In the Company’s consolidated statement of income, net realized and unrealized gain or loss on mutual funds of Asuransi Sinar Mas are recorded under “Gain from Investment in Units of Mutual Funds”. Net realized gain or loss on sale of marketable securities of Asuransi Sinar Mas are recorded under “Gain on Sale of Short-Term Investments”, and net unrealized gain or loss from change in fair value of marketable securities - net are recorded under “Unrealized Gain on Increase in Fair Value of Securities - Net” or “Unrealized Loss on Decrease in Fair Value of Securities - Net”. The interest component of investment income of Asuransi Sinar Mas is recorded under “Interest Income” in the Company’s consolidated statement of income and dividends earned on investments by Asuransi Sinar Mas are recorded under “Other Income” in the Company’s consolidated statement of income.

Operating Expenses

Operating expenses principally comprise employee expenses, general and administrative expenses, depreciation, rental expenses, training and education, repair and maintenance and provision for doubtful accounts.

Employee Expenses

Employee expenses include salaries and wages, provisions for post-employment benefits, holidays and other entitlements and is recorded in the Group’s consolidated statement of comprehensive income under “Salaries and employee benefits”.

General and administrative expenses include expenses for communication, utilities, business travel, fuel, which is recorded in the Group’s consolidated statement of comprehensive income under “General and administrative expenses” and “Others”.

Depreciation

Depreciation includes depreciation costs relating to Asuransi Sinar Mas’ property and equipment, which is recorded in the Group’s consolidated statement of comprehensive income under “Depreciation expense”.

Rental Expenses

Rental expenses include expenses incurred by Asuransi Sinar Mas for rental of office space, computer equipment and leases of company vehicles.

Training and Education Expenses

Training and education expenses are primarily incurred for training for Asuransi Sinar Mas’ agents, professional insurance certification training, coursework and workshops, training for marketing officers and training for operational officers.

Repair and Maintenance Expenses

Repair and maintenance expenses are primarily incurred for repair and maintenance of company vehicles provided to directors, managers and head office marketing personnel.

Provision for doubtful accounts

Provision for doubtful accounts refer to impairment loss recognized on premiums and reinsurance receivables and recorded in the Group’s consolidated statement of comprehensive income under “Provision for doubtful accounts”.

Results of Operations of Asuransi Sinar Mas

The following table provides a breakdown of Asuransi Sinar Mas’ principal income statement components, including each principal component as a percentage of its net income, for the periods indicated. You should read this table together with Asuransi Sinar Mas’ financial statements, including the notes thereto.

Rp. Rp. Rp. US$ Rp. Rp. US$ Underwriting Income:

Gross premiums ..................................................................... 3,229.3 2,872.7 3,259.0 369.4 2,445.0 2,988.2 338. 7Reinsurance premiums ............................................................ (2,297.8) (1,762.5) (1,798.7) (203.9) (1,383.2) (1,541.9) (174.8)Decrease (increase) in unearned premiums ............................ (108.1) (38.0) (119.0) (13.5) (69.4) (136.0) (15.4)

Total Premiums Earned - Net....................................................... 823.4 1,072.3 1,341.3 152.0 992.4 1,310.3 148.5 Underwriting Expenses:

Gross claims ............................................................................ (572.9) (963.8) (862.8) (97.8) (612.1) (730.6) (82.8)Reinsurance claims.................................................................. 93.7 360.8 93.4 10.6 88.3 16.5 1.9Increase in estimated own retention claims ............................

(3.7) (18.2) (54.3) (6.2) (64.8) (75.6) (8.6)Total Claim Expenses - Net ......................................................... (482.8) (621.3) (823.7) (93.4) (588.6) (789.7) (89.5)Commissions Expense - Net ........................................................ (175.6) (259.4) (312.0) (35.4) (237.8) (283.5) (32.1)Other Underwriting Expenses ...................................................... (1.5) (1.1) (2.3) (0.3) (2.1) (0.7) (0.1)Total Underwriting Expenses....................................................... (660.0) (881.9) (1,138.0) (129.0) (828.6) (1,073.9) (121.7)

Underwriting Income - Net........................................................ 163.4 190.4 203.3 23.0 163.8 236.4 26.8 Investment Income - Net............................................................ 52.5 106.9 264.5 30.0 186.2 318.7 36.1 Profit Sharing to Participants ................................................... (0.3) (0.2) (0.2) (0.0) 0.2 - - Tabarru Fund ............................................................................. - - (0.04) (0.0) - - - Operating Expenses.................................................................... (134.0) (155.5) (174.5) (19.8) (127.4) (161.7) (18.3)Income from Operations............................................................ 81.6 141.6 293.0 33.2 223.8 393.4 44.6Other Income - Net....................................................................... 7.1 8.9 10.1 1.1 7.1 7.7 0.9Income before Tithe ................................................................... 88.7 150.5 303.1 34.4 - - -

Tithe ........................................................................................ (0.02) (0.05) (0.1) (0.0) - - -Income before Income Tax Benefit (Expense)

88.7 150.4 303.0 34.3 229.9 401.1 45.5Income Tax Benefit (Expense):

Current..................................................................................... (12.2) - (0.5) (0.1) (3.2) (28.2) (3.2)Benefit ..................................................................................... - - - - - - -Deferred................................................................................... - (7.4 ) (4.0) (0.5) (4.7) (5.5) (0.6)

Total Income Tax Benefit Expenses) - Net (12.2) (7.4) (4.5) (0.5) (7.9) (33.7) (3.8) Income Before Proforma Adjustment arising from

Restructuring Transactions Among Entities Under Common Control.......................... 76.5 - - - - - -

Income Before Minority Interest in Net Profit of Consolidated Subsidiary.............. - 143.0 298.5 33.8 222.0 367.4 41.6

Minority Interest in Net Profit of Consolidated Subsidiary - - (0.0) (0.0) - 0.0 0.0 Net Income .............................................. 76.5 143.0 298.5 33.8 222.0 367.4 41.6

Underwriting Income

The following table sets forth the breakdown of Asuransi Sinar Mas’ gross premium income and total premiums earned - net for the periods indicated.

2008 2009 2010 2010 2010 2011 2011 Rp. Rp. Rp. US$ Rp. Rp. US$

Gross Premiums: Fire and property......................................................................................... 2,043.9 1,428.8 1,446.8 164.0 1,044.6 1,212.0 137.4 Motor Vehicles............................................................................................ 551.6 760.0 924.8 104.8 749.5 891.7 101.1 Health.......................................................................................................... 250.5 245.0 466.1 52.8 284.9 474.2 53.7 Marine Cargo .............................................................................................. 79.7 130.8 129.8 14.7 121.4 122.7 13.9 Marine Hull ................................................................................................. 15.4 23.0 38.9 4.4 31.4 52.9 6.0 Engineering ................................................................................................. 15.8 11.8 8.5 1.0 7.9 8.4 1.0 Miscellaneous ............................................................................................. 272.4 273.4 244.1 27.7 205.3 226.3 26.0

Total Gross Premiums........................................................................... 3,229.3 2,872.7 3,259.0 369.4 2,445.0 2,988.2 338. 7 Reinsurance Premiums:

Fire and property......................................................................................... (1,933.7) (1,317.2) (1,374.2) (155.8) (989.9) (1,137.7) (128.9) Motor Vehicles............................................................................................ (36.3) (71.7) (72.0) (8.2) (74.3) (61.1) (6.9) Health.......................................................................................................... (16.6) (6.7) (6.1) (0.7) (5.6) (14.3) (1.6) Marine Cargo .............................................................................................. (60.9) (112.1) (115.4) (13.1) (112.2) (100.9) (11.4) Marine Hull ................................................................................................. (10.1) (17.0) (31.0) (3.5) (25.8) (42.9) (4.9) Engineering ................................................................................................. (11.3) (8.7) (6.0) (0.7) (5.1) (6.6) (0.7) Miscellaneous ............................................................................................. (228.9) (229.2) (194.0) (22.0) (170.1) (178.5) (20.2)

Total Reinsurance Premiums ................................................................ (2,297.8) (1,762.5) (1,798.7) (203.9) (1,383.2) (1,541.9) (174.8) Decrease (Increase) in Unearned Premiums:

Fire and property......................................................................................... (24.6) (4.9) 13.6 1.5 4.6 (7.2) (0.8) Motor Vehicles............................................................................................ (47.7) (35.2) (45.9) (5.2) (24.5) (51.7) (5.9) Health.......................................................................................................... (22.9) 1.8 (84.7) (9.6) (47.9) (69.5) (7.9) Marine Cargo .............................................................................................. (6.4) 0.2 1.4 0.2 0.7 (2.2) (0.2) Marine Hull ................................................................................................. (2.0) (0.3) (1.1) (0.1) (1.6) (1.7) (0.2) Engineering ................................................................................................. (0.0) 0.3 0.1 0.0 (0.4) 0.4 0.0 Miscellaneous ............................................................................................. (4.5) 0.2 (2.4) (0.3) (0.3) (4.1) (0.4)

Total Decrease (Increase) in Unearned Premiums................................ (108.1) (38.0) (119.0) (13.5) (69.4) (136.0) (15.4) Premiums Earned - Net:

Fire and property......................................................................................... 85.6 106.6 86.1 9.8 59.2 67.1 7.6 Motor Vehicles............................................................................................ 467.6 653.2 807.0 91.5 650.7 778.9 88.3 Health.......................................................................................................... 211.0 240.2 375.2 42.5 231.4 390.4 44.2 Marine Cargo .............................................................................................. 12.5 18.9 15.8 1.8 9.9 19.6 2.2 Marine Hull ................................................................................................. 3.4 5.6 6.8 0.8 4.0 8.4 1.0 Engineering ................................................................................................. 4.4 3.4 2.6 0.3 2.3 2.2 0.2 Miscellaneous ............................................................................................. 39.0 44.4 47.7 5.4 34.9 43.7 5.0

Total Premiums Earned - Net................................................................... 823.4 1,072.3 1,341.3 152.0 992.4 1,310.3 148.5

Total Premiums Earned - Net

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Asuransi Sinar Mas’ total premiums earned - net increased 32.0% to Rp.1,310.3 billion (US$148.5 million) in the nine months ended September 30, 2011 from Rp.992.4 billion in the nine months ended September 30, 2010, primarily attributable to an increase in gross premium income, which was partially offset by an increase in reinsurance premiums and an increase in unearned premiums for the period.

Gross Premiums. Asuransi Sinar Mas’ gross premiums increased 22.2% to Rp.2,988.2 billion (US$338.7 million) in the nine months ended September 30, 2011 from Rp.2,445.0 billion in the nine months ended September 30, 2010 as a result of increases in gross premium income across all product categories, particularly fire and property, motor vehicles and health insurance, reflecting the continued expansion of Asuransi Sinar Mas’ customer base, principally in Java. Premiums attributable to new business accounted for approximately.27.5%, 92.4% and 10.0% of the total gross premiums for each of fire and property, motor vehicles and health insurance categories, respectively, in the nine months ended September 30, 2011.

Reinsurance premiums. Asuransi Sinar Mas’ reinsurance premiums increased 11.5% to Rp.1,541.9 billion (US$174.8 million) in the nine months ended September 30, 2011 from Rp.1,383.2 billion in the nine months ended September 30, 2010 principally as Asuransi Sinar Mas ceded more fire and property insurance policies to reinsurers due to more prudent underwriting and assessment of policies. Reinsurance premiums for fire and property insurance policies as a percentage of gross premiums for fire and property insurance policies increased to 93.9% in the nine months ended September 30, 2011 from 94.8% in the nine months ended September 30, 2010.

However, total reinsurance premiums as a percentage of gross premiums decreased slightly to 51.6% in the nine months ended September 30, 2011 from 56.6% in the nine months ended September 30, 2010 as a significant portion of new policies written in 2011 were health and motor vehicle policies and Asuransi typically retains insurance risk on most of its health and motor vehicle policies.

As adjustments for proportionate reinsurance are typically made at the end of the year, reinsurance premiums for the nine months period do not reflect adjustments to proportionate reinsurance for the period.

Decrease (increase) in unearned premiums. Asuransi Sinar Mas’ unearned premiums increased 96.0% to Rp.136.0 billion (US$15.4 million) in the nine months ended September 30, 2011 from Rp.69.4 billion in the nine months ended September 30, 2010, due to increases in unearned premium reserves corresponding to increases in gross premiums.

2010 Compared to 2009. Asuransi Sinar Mas’ total premiums earned - net increased 25.1% to Rp.1,341.3 billion (US$152.0 million) in 2010 from Rp.1,072.3 billion in 2009, primarily attributable to an increase in gross premium income which was partially offset by an increase in unearned premiums.

Gross Premiums. Asuransi Sinar Mas’ gross premiums increased 13.5% to Rp.3,259.0 billion (US$369.4 million) in 2010 from Rp.2,872.7 billion in 2009. In 2010, Asuransi Sinar Mas experienced growth in gross premium income across all products, except for a small decline in engineering, with the main drivers of growth being from increases in motor vehicle and health insurance as a result of more policies written. The largest contributor to gross premium income, fire and property insurance, increased 1.3% to Rp.1,446.8 billion (US$164.0 million) in 2010, with approximately 5.8% comprising new fire and property premiums, from Rp.1,428.7 billion in 2009.

Reinsurance premiums. Asuransi Sinar Mas’ reinsurance premiums increased slightly by 2.1% to Rp.1,798.7 billion (US$203.9 million) in 2010 from Rp.1,762.5 billion in 2009, as Asuransi Sinar Mas ceded more fire and property and marine hull insurance policies to reinsurers. However, total reinsurance premiums as a percentage of total gross premiums decreased to 55.2% in 2010 from 61.4% in 2009 as most of the new policies written in 2010 were health and motor vehicle policies and Asuransi Sinar Mas typically retains insurance risk on its health and motor vehicle policies.

Decrease (increase) in unearned premiums. Asuransi Sinar Mas’ unearned premiums increased 213.5% to Rp.119.0 billion (US$13.5 million) in 2010 from Rp.38.0 billion in 2009. The significant increase in unearned premiums was principally due to an increase in unearned premiums for health insurance products, which increased Rp.84.7 billion in 2010 as compared to a decrease of Rp.1.8 billion in 2009 corresponding to the overall increase in health gross premiums, which was partially offset by a decrease in unearned premiums for its fire and property insurance.

2009 Compared to 2008. Asuransi Sinar Mas’ total premiums earned - net increased 30.2% to Rp.1,072.3 billion in 2009 from Rp.823.4 billion in 2008 although gross premiums declined, as a result of reinsurance premiums and unearned premiums decreasing at a greater rate than the decrease in gross premiums.

Gross Premiums. Asuransi Sinar Mas’ gross premiums decreased 11.0% to Rp.2,872.7 billion in 2009 from Rp.3,229.3 billion in 2008, principally attributable to a significant decrease in gross premiums from fire and property insurance products as Asuransi Sinar Mas implemented more stringent underwriting requirements for such products in 2009, based on its past claims experience and price competition.

Reinsurance premiums. Asuransi Sinar Mas’ reinsurance premiums decreased 23.3% to Rp.1,762.5 billion in 2009 from Rp.2,297.8 billion in 2008, principally as Asuransi Sinar Mas ceded less fire and property insurance policies to reinsurers in line with the decrease in gross premiums from fire and property insurance in the same period. Total reinsurance premiums as a percentage of total gross premiums decreased to 61.4% in 2009 from 71.2% in 2008 principally as most of the new policies written in 2009 were motor vehicle policies and Asuransi Sinar Mas typically retains insurance risk in respect of its health and motor vehicle policies.

Decrease (increase) in unearned premiums. Asuransi Sinar Mas’ unearned premiums decreased 64.9% to Rp.38.0 billion in 2009 from Rp.108.1 billion in 2008, principally attributable to significant

decreases in unearned premiums across all insurance products, particularly fire and property and health products corresponding to decreases in gross premiums in the same period.

Underwriting Expenses

The following table sets forth the breakdown of Asuransi Sinar Mas’ gross claims and total claim expenses - net for the periods indicated.

2008 2009 2010 2010 2010 2011 2011 Rp. Rp. Rp. US$ Rp. Rp. US$

Gross Claims: Fire and property.............................................................. 109.4 355.3 103.8 11.8 94.0 28.1 3.2 Motor Vehicles................................................................. 279.1 385.6 470.4 53.3 339.7 377.8 42.8 Health............................................................................... 149.8 152.4 267.5 30.3 164.8 305.8 34.7 Engineering ...................................................................... 5.4 6.2 5.3 0.6 4.7 2.3 0.3 Marine Cargo ................................................................... 4.9 14.8 5.9 0.7 4.9 4.6 0.5 Marine Hull ...................................................................... 2.0 3.1 7.7 0.9 7.3 4.0 0.5 Miscellaneous .................................................................. 22.3 46.4 2.2 0.2 (3.3) 7.9 0.9

Total Gross Claims .................................................... 572.9 963.8 862.8 97.8 612.1 730.6 82.8 Reinsurance Claims:

Fire and property.............................................................. (82.8) (327.8) (80.3) (9.1) (76.6) (10.7) (1.2) Motor Vehicles................................................................. (0.2) 0.1 (0.1) (0.1) (0.1) (0.0) (0.0) Health............................................................................... (1.6) (1.1) (1.4) (0.2) (1.0) (1.3) (0.2) Engineering ...................................................................... (2.5) (4.3) (4.1) (0.5) (3.9) (2.2) (0.2) Marine Cargo ................................................................... (1.7) (9.7) (0.9) (0.1) (0.6) (0.4) (0.0) Marine Hull ...................................................................... - (1.4) (4.2) (0.5) (4.4) (1.3) (0.2) Miscellaneous .................................................................. (5.0) (16.4) (2.4) (0.3) (1.7) (0.5) (0.1)

Total Reinsurance Claims .......................................... (93.7) (360.8) (93.4) (10.6) (88.3) (16.5) (1.9) Increase (Decrease) in Estimated Own Retention

Claims:

Fire and property.............................................................. (4.5) 7.7 11.9 1.3 7.6 11.4 1.4 Motor Vehicles................................................................. 0.7 19.5 10.6 1.2 36.5 51.1 5.8 Health............................................................................... 9.4 (13.6) 28.1 3.2 20.0 7.4 0.8 Engineering ...................................................................... (0.5) 0.1 0.4 0.0 0.0 0.3 0.0 Marine Cargo ................................................................... 3.5 0.2 (1.4) (0.2) (2.8) (1.1) (0.1) Marine Hull ...................................................................... 0.8 1.6 2.5 0.3 1.1 4.4 0.5 Miscellaneous .................................................................. (5.6) 2.7 2.2 0.2 2.4 2.1 0.2

Total Increase (Decrease) in Estimated OwnRetention Claims........................................................

3,705.6

54.3 6.2 64.8 75.6 8.6

Claim Expenses - Net:

Fire and property.............................................................. 22.1 35.2 35.4 4.0 25.1 28.8 3.3 Motor Vehicles................................................................. 279.6 405.2 480.9 54.5 376.1 428.9 48.6 Health............................................................................... 157.6 137.7 294.3 33.4 183.8 311.8 35.3 Engineering ...................................................................... 2.4 2.0 1.6 0.2 0.9 0.5 0.3 Marine Cargo ................................................................... 6.7 5.3 3.6 0.4 1.4 3.1 0.3 Marine Hull ...................................................................... 2.8 3.3 6.0 0.7 4.0 7.1 0.8 Miscellaneous .................................................................. 11.8 32.6 1.9 0.2 (2.7) 9.5 1.1 Total Claim Expenses - Net ............................................. 482.8 621.3 823.7 93.3 588.6 789.7 89.5

Total Claim Expenses - Net

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Asuransi Sinar Mas’ total claim expenses - net increased 34.1% to Rp.789.7 billion (US$89.5 million) in the nine months ended September 30, 2011 from Rp.588.6 billion in the nine months ended September 30, 2010 as a result of increases in gross claims, decreases in reinsurance claims and increases in estimated own retention claims.

Gross Claims. Asuransi Sinar Mas’ gross claims increased 19.3% to Rp.730.6 billion (US$82.8 million) in the nine months ended September 30, 2011 from Rp.612.1 billion in the nine months ended September 30, 2010, principally as a result of an increase in claims frequency for its health insurance and motor vehicle insurance policies, partially offset by a decrease in claims for fire and property products as a result of its more prudent assessment and underwriting of such policies.

Reinsurance Claims. Asuransi Sinar Mas’ reinsurance claims decreased 81.4% to Rp.16.5 billion (US$1.9 million) in the nine months ended September 30, 2011 from Rp.88.3 billion in the nine months ended September 30, 2010, principally due to a significant decrease in fire and property reinsurance claims which decreased 86.0% from Rp.76.6 billion for the nine months ended September 30, 2010 to Rp.10.7 billion (US$1.2 million) for the nine months ended September 30, 2011, and to a lesser extent, decreases in marine hull and engineering reinsurance claims, due to the decrease in claims frequency for the two types of policies.

Increase in Estimated Own Retention Claims. Asuransi Sinar Mas’ increase in estimated own retention claims increased 16.7% to Rp.75.6 billion (US$8.6 million) in the nine months ended September 30, 2011 from Rp.64.8 billion in the nine months ended September 30, 2010, principally as a result of an increase in estimated own retention claims for motor vehicles insurance products in line with the increase in new gross motor vehicle policies written, partially offset by a decrease in estimated own retention claims for health insurance policies as Asuransi Sinar Mas made less provisions for estimated own retention claims for health policies based on lower claims frequency for health insurance policies in the prior period.

2010 Compared to 2009. Asuransi Sinar Mas’ total claim expenses - net increased 32.6% to Rp.823.7 billion (US$93.4 million) in 2010 from Rp.621.3 billion in 2009, primarily attributable to a larger decrease in reinsurance claims than the decrease in gross claims, and to increases in estimated own retention claims.

Gross Claims. Asuransi Sinar Mas’ gross claims decreased 10.5% to Rp.862.8 billion (US$97.8 million) in 2010 from Rp.963.8 billion in 2009 principally due to lower claims paid in respect of fire and property insurance, partially offset by higher claims on motor vehicle and health insurance policies due to the corresponding increase in new motor vehicle and health insurance policies written.

Reinsurance Claims. Asuransi Sinar Mas’ reinsurance claims decreased 74.1% to Rp.93.4 billion (US$10.6 million) in 2010 from Rp.360.8 billion in 2009, principally as a result of decrease in fire and property insurance policies written, which in turn resulted in lower reinsurance claims payable by reinsurers.

Increase in Estimated Own Retention Claims. Asuransi Sinar Mas’ increase in estimated own retention claims increased 198.1% to Rp.54.3 billion (US$6.2 million) in 2010 from Rp.18.2 billion in 2009, principally as a result of an increase in estimated own retention claims for health and fire and property insurance products due to the increase in claims frequency for these policies in the period. This increase was partially offset by a decrease in estimated own retention claims for motor vehicle insurance policies as a result of the implementation of the new e-claim claim system which reduced the number of fraudulent motor vehicle insurance claims and consequently provisions for such claims.

2009 Compared to 2008. Asuransi Sinar Mas’ total claim expenses - net increased 28.7% to Rp.621.3 billion (US$70.4 million) in 2009 from Rp.482.8 billion in 2008 as a result of increases in gross claims and increases in estimated own retention claims, partially offset by increases in reinsurance claims.

Gross Claims. Asuransi Sinar Mas’ gross claims increased 68.3% to Rp.963.8 billion in 2009 from Rp.572.9 billion in 2008 as a result of increases in gross claims across all its products, particularly its fire and property insurance products, mainly as a result of a large claim of approximately Rp.290.0 billion from one corporate account.

Reinsurance Claims. Asuransi Sinar Mas’ reinsurance claims increased 284.9% to Rp.360.8 billion in 2009 from Rp.93.7 billion in 2008, principally because of the increase in claims under fire and property insurance policies, a significant proportion of which had been ceded to reinsurers.

Increase in Estimated Own Retention Claims. Asuransi Sinar Mas’ increase in estimated own retention claims increased 391.7% to Rp.18.2 billion in 2009 from Rp.3.7 billion in 2008, principally as a result of an increase in estimated own retention claims of motor vehicle products due to growth in motor vehicle policies written. This increase was partially offset by a decrease in estimated own retention claims for health insurance policies corresponding to the decrease in health insurance policies written as certain health insurance products were discontinued because they were not profitable.

Commissions Expenses - Net

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Asuransi Sinar Mas’ commissions expenses - net increased 19.2% to Rp.283.5 billion (US$32.1 million) in the nine months ended September 30, 2011 from Rp.237.8 billion in the nine months ended September 30, 2010, as a result of increases in commission expenses in line with increases in insurance policies written. The increases were principally attributable to increases in commission expenses - net with respect to motor vehicle products and marine cargo insurance products. The increase in gross commission expenses for motor vehicle products and marine cargo insurance products was partially offset by increases in reinsurance commission paid for such

products as more fire insurance and marine cargo policies were ceded to reinsurers in the nine months ended September 30, 2011.

2010 Compared to 2009. Asuransi Sinar Mas’ commissions expenses - net increased 20.2% to Rp.312.0 billion (US$35.4 million) in 2010 from Rp.259.4 billion in 2009, principally due to an increase in commission expenses attributable to motor vehicles insurance policies in line with the increase in motor vehicle policies written, partially offset by a decrease in commissions expenses for fire and property insurance and marine cargo insurance policies. The decrease in commission expenses - net with respect to fire and property and marine cargo insurance products was primarily due to a decrease in reinsurance commission income received from fire and property and marine cargo reinsurers as a result of discounts provided for a good claims record in the previous underwriting year.

2009 Compared to 2008. Asuransi Sinar Mas’ commissions expenses - net increased 47.7% to Rp.259.4 billion (US$29.4 million) in 2009 from Rp.175.6 billion in 2008, principally due to an increase in commission expenses - net with respect to motor vehicle policies, which increased to Rp.178.8 in 2009 from Rp.93.3 in 2008 and, to a lesser extent, an increase in commission expenses - net with respect to health insurance policies, partially offset by decreases in commission expenses - net with respect to its fire and marine hull insurance products. The decrease in commission expenses - net for fire insurance products was attributable to an increase in commissions paid by reinsurers as a result of discounts provided for a good claims record in the previous underwriting year . The decrease in commission expenses - net for marine hull products was attributable to an increase in commissions paid by reinsurers as a result of discounts provided to marine hull reinsurers for a good claims record in the previous underwriting year.

Investment Income

The following table sets forth Asuransi Sinar Mas’ investment income for the periods indicated.

2008 2009 2010 2010 2010 2011 2011 Rp. Rp. Rp. US$ Rp. Rp. US$

Investment Income - Net: Gain on mutual funds........................................................... 55.4 144.4 182.7 20.7 135.6 132.7 15.0 Gain (loss) on foreign exchange .......................................... 14.1 (20.4) (7.7) (0.9) (8.8) (1.0) (0.1)Gain (loss) on sale of marketable securities ........................ (25.1) (36.5) 58.1 6.6 35.8 136.6 15.5 Fixed Income........................................................................ (18.7) (0.8) - - - - -

Equity .............................................................................. (6.4) (35.7) 58.1 6.6 35.8 136.6 15.5 Dividends income............................................................ 9.6 1.1 7.2 0.8 7.1 15.3 1.7

Interest income: 0 Time deposits .................................................................. 8.4 15.3 18.9 2.1 12.4 26.5 3.0 Bonds and promissory notes ........................................... 1.8 1.9 1.9 0.2 1.2 3.0 0.3 Mortgage loans................................................................ 0.3 0.3 0.3 0.0 0.3 0.3 0.0

Rental income....................................................................... 0.3 0.3 0.2 0.0 0.1 0.1 0.0 Unrealized gain from increase in value of marketable

securities - net..................................................................

1.6 2.5 2.1 0.2 2.5 2.4 0.3

Net income from associated company ................................. 0.5 0.1 1.0 0.1 - 2.4 0.3 Loss from decrease in value of bonds.................................. (14.4) (2.2) - - - - - Income from investment portfolio of participants fund

administrator

- 0.4 0.1

Total.......................................................................................... 52.5 106.9 264.5 30.0 186.2 318.7 36.1

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Asuransi Sinar Mas’ total investment income - net increased 71.2% to Rp.318.7 billion (US$36.1 million) in the nine months ended September 30, 2011 from Rp.186.2 billion in the nine months ended September 30, 2010, primarily attributable to a 281.7% gain on the sale of marketable securities to Rp.136.6 billion (US$15.5 million) in the nine months ended September 30, 2011 from Rp.35.8 billion in the nine months ended September 30, 2010 and a 2.1% gain on mutual funds to Rp.132.7 billion (US$15.0 million) in the nine months ended September 30, 2011 from Rp.135.6 billion in the nine months ended September 30, 2010. The gain on mutual funds and gain on the sale of marketable securities was principally attributable to both the increase in investments in mutual fund units, corresponding to the growth in premium income, and larger capital gains on the sale of marketable securities.

2010 Compared to 2009. Asuransi Sinar Mas’ total investment income - net increased 147.4% to Rp.264.5 billion (US$30.0 million) in 2010 from Rp.106.9 billion in 2009, primarily attributable to a 26.5% gain on mutual funds to Rp.182.7 billion (US$20.7 million) in 2010 from Rp.144.4 billion in 2009 and a 258.9% gain on the sale of marketable securities to Rp.58.1 billion (US$6.6 million) in 2010 from a loss of Rp.36.5 billion in 2009, partially offset by a slight decrease in unrealized gain from increase in value of marketable securities - net and rental income. The gain on the sale on mutual funds and gain on the sale of marketable securities was principally attributable to increases in investments in mutual fund units, and an increase in the volume of units of mutual funds sold, and larger capital gains on sale of marketable securities.

2009 Compared to 2008. Asuransi Sinar Mas’ total investment income - net increased 103.8% to Rp.106.9 billion in 2009 from Rp.52.5 billion in 2008, primarily attributable to a 160.6% gain on mutual funds to Rp.144.4 billion in 2009 from Rp.55.4 billion in 2008 attributable to an increase in the volume of mutual fund units invested and sold, partially offset by a loss on the sale of marketable securities and loss on foreign exchange of investment and decrease in dividends income. The loss on foreign exchange of investment was as a result of the weakening of the Rupiah against the US dollar and the loss on sale of marketable securities was due to a loss incurred in respect of an equity portfolio held with a stockbroker who fraudulently appropriated the portfolio. Dividend income decreased due to decreased average holding periods of equity investments.

Operating Expenses

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Asuransi Sinar Mas’ operating expenses increased 26.9% to Rp.161.7 billion (US$18.3 million) in the nine months ended September 30, 2011 from Rp.127.4 billion in the nine months ended September 30, 2010, primarily attributable to an increase in employee expenses in relation to expansion of its branches and increased headcount to 1,777 as of September 30, 2011 from 1,588 as of September 30, 2010 and annual salary adjustments increases for inflation, and to a lesser extent, increases in general and administrative expenses and training and education.

2010 Compared to 2009. Asuransi Sinar Mas’ operating expenses increased 12.2% to Rp.174.5 billion (US$19.8 million) in 2010 from Rp.155.5 billion in 2009, primarily attributable to an increase in employee expenses as a result of the expansion of its branch distribution network. This contributed to increased headcount, which rose to 1,588 employees as of December 31, 2010 from 1,262 employees as of December 31, 2009 and annual salary increases. Provision for doubtful accounts also increased as a result of the implementation of PSAK No. 55 beginning January 1, 2010, which requires impairment based on objective evidence. See “—Critical Accounting Policies—SMMA—Allowance for Impairment of Financial Instruments”.

2009 Compared to 2008. Asuransi Sinar Mas’ operating expenses increased 16.0% to Rp.155.5 billion in 2009 from Rp.134.0 billion in 2008, primarily attributable to an increase in employee expenses and general and administrative expenses primarily as a result of expansion of its branches and to a lesser extent, increases in headcount, which increased to 1,262 employees as of December 31, 2009 from 1,234 employees as of December 31, 2008 and also an increase in rental expenses due to a reclassification of land and buildings from property investments to fixed assets in 2009.

Income from Operations

As a result of the foregoing, Asuransi Sinar Mas’ income from operations increased 76.5% to Rp.393.4 billion (US$44.6 million) in the nine months ended September 30, 2011 from Rp.222.8 billion in the nine months ended September 30, 2010. Asuransi Sinar Mas’ income from operations increased 106.9% to Rp.293.0 billion (US$33.2 million) in 2010 from Rp.141.6 billion in 2009, which was a 73.5% increase on income from operations of Rp.81.6 billion in 2008.

Net Income

Our net income increased 65.5% to Rp.367.5 billion (US$41.7 million) in the nine months ended September 30, 2011, from Rp.222.0 billion in the nine months ended September 30, 2010. In 2010, Asuransi Sinar Mas’ net income increased 108.7% to Rp.298.5 billion (US$33.8 million), compared to Rp.143.0 billion in 2009, which was a 87.0% increase from Rp.76.5 billion in 2008.

Principal Income Statement Components of Bank Sinarmas

Interest Income and Profit Sharing

Interest income and profit sharing of Bank Sinarmas comprises interest income generated principally from Bank Sinarmas’ loans and securities portfolios. Bank Sinarmas’ securities portfolio comprises securities held for trading, available for sale securities and securities held to maturity. By type of instrument, the securities portfolio includes Government bonds (including Bank Indonesia Certificates), corporate bonds, credit-linked notes, subordinated notes and units of mutual funds. Bank Sinarmas also receives income from placements with other banks and Bank Indonesia, securities purchased under agreements to resell and its Sharia banking products. Interest income derived by Bank Sinarmas from demand deposits placed with other banks are recorded in the Company’s consolidated statement of comprehensive income under “Other income”. Interest income derived by Bank Sinarmas from fees it charges on credit facilities are recorded in the Company’s consolidated statement of comprehensive income under “Administration fees and commissions”. All other interest income derived by Bank Sinarmas, including income derived from current accounts, placement in other banks, marketable securities and Government bonds, are recorded in the Company’s consolidated statement of comprehensive income under “Interest income”.

Interest Expense and Profit Sharing

Interest expense and profit sharing of Bank Sinarmas principally comprises interest paid or accrued on deposits from its customers and other banks and securities sold under agreement to repurchase, and premiums paid to the Government for guarantee on its obligations and its Sharia products. Interest expense attributable to Bank Sinarmas is recorded in the Company’s consolidated statement of comprehensive income under “Interest expense” after intercompany eliminations.

Other Operating Revenues

Other operating revenues principally comprise fees and commissions other than from loans, net gain on increase in fair value of trading securities, net gain on foreign exchange and reversal of estimated losses on commitments and contingencies.

Fees and commissions other than from loans

Fees and commissions other than from loans comprise fees for trade finance, such as letters of credit, fees for managing customer accounts such as monthly service fees and charges for failing to maintain minimum balances, money transfer fees, bank remittance guarantee fees, and other miscellaneous charges, commissions for bancassurance and other revenue associated with services provided. Fees and commissions other than loans of Bank Sinarmas are recorded in the Company’s consolidated statement of comprehensive income under “Administration fees and commissions” after intercompany eliminations.

Net gain on increase in fair value of trading securities

Net gain on increase in fair value of trading securities relate to both realized gains, net of losses, from the sale of Bank Sinarmas’ trading of securities and unrealized gains, net of losses, on the increase or decrease in fair value of its securities held in the trading portfolio, with fair value determined by marking to market its trading securities. Realized gains, net of losses, is recorded in the Company’s consolidated statement of comprehensive income under “Gain on sale of short-term investments – net” and unrealized gains, net of unrealized losses, is recorded in the Company’s consolidated statement of comprehensive income under “Unrealized gain on increase in fair value of securities”.

Net gain on foreign exchange

Net gain on foreign exchange refers to realized and unrealized foreign exchange gains and losses on spot and forward translation and translations of foreign exchange positions and is recorded in the Company’s consolidated statement of comprehensive income under “Gain on foreign exchange – net” or “Loss on foreign exchange – net,” as the case may be.

Reversal of estimated losses on commitments and contingencies

Reversal of estimated losses on commitments and contingencies refer to reversals of estimated losses on commitments and contingencies such as irrevocable letters of credit, bank guarantees and unused loan facilities based on Bank Indonesia regulations. Reversal of estimated losses on commitments and contingencies is netted against impairment losses on financial assets and recorded in the Company’s consolidated statement of comprehensive income under “Provision for possible losses on earning assets and non-earning assets”.

Other Operating Expenses

Other operating expenses principally comprise general and administrative expenses, personnel expenses, impairment losses on financial assets and depreciation. Other operating expenses also include provision for possible losses on non-earning assets, estimated losses on commitments and contingencies and other.

General and administrative expenses

General and administrative expenses include expenses for communication, repair and maintenance, building rent, stationery and printing, vehicle and transportation expenses, training and development and business promotion expenses. General and administrative expenses of Bank Sinarmas are recorded in the Company’s consolidated statement of comprehensive income under “General and administrative services” and “Others”.

Personnel expenses

Personnel expenses include salaries and wages, provisions for post-employment benefits, holidays and other entitlements. Personal expenses of Bank Sinarmas are recorded in the Company’s consolidated statement of comprehensive income under “Salaries and employee benefits”.

Impairment losses on financial assets

Impairment losses on financial assets refer to impairment loss recognized on loans, marketable securities and other financial assets. Impairment losses on financial assets is netted against reversal of estimated losses on commitments and contingencies and recorded in the Company’s consolidated statement of comprehensive income under “Provision for possible losses on earning assets and non-earning assets”.

Depreciation

Depreciation includes depreciation costs relating to Bank Sinarmas’ property, equipment inventory and vehicles. Depreciation of Bank Sinarmas is recorded in the Company’s consolidated statement of comprehensive income under “Depreciation expense”.

Results of Operations – Bank Sinarmas

The following table provides a breakdown of Bank Sinarmas’ income statement, including each component as a percentage of its net income for the periods indicated. You should read this table together with Bank Sinarmas’ financial statements, including the notes thereto.

Year Ended December 31, Nine Months Ended September 30, 2008 2009 2010 2010 2011 2011 (Rp.) (Rp.) (Rp.) (US$) (Rp.) (Rp.) (US$)

Operating Revenue and Expenses: Interest Revenues and Profit Sharing ............................... 601.0 782.4 916.1 103.8 674.3 941.8 106.7 Interest Expense and Profit Sharing ................................. 425.7 470.4 497.6 56.4 350.8 572.1 64.8

Interest Revenues - Net 175.3 312.0 418.5 47.4 323.5 369.7 41.9 Other Operating Revenues: Fees and commissions other than loans....................... 35.8 55.4 61.6 6.9 47.4 50.8 5.7 Gain on foreign exchange – net 9.2 10.0 2.4 0.3 1.6 7.7 0.9 Gain on sale of trading securities - net......................... 0.6 1.1 9.9 1.1 1.3 2.7 0.3 Gain on increase in fair value of trading securities -

net t................................................................................ - 0.5 0.5 0.1 - 1.4 0.2Reversal of estimated losses on commitments and

contingencies ........................................................... 2.5 - 3.2 0.3 - - -Reversal of allowance for impairment losses of non-

productive assets ..................................................... - 0.2 - - - - -Other income................................................................ 1.4 0.5 3.4 0.4 0.7 0.5 0.1

Total Operating Revenues ................................................ 224.8 379.7 499.5 56.6 374.5 432.8 49.1 Other Operating Expenses:

General and administrative expenses........................... 118.3 148.3 180.7 20.1 128.7 178.9 20.3 Personnel expenses....................................................... 59.5 72.5 103.9 11.6 80.1 111.5 12.6 Depreciation – premises and equipment ...................... 13.6 18.8 22.1 2.5 16.3 20.3 2.3

Impairment losses on financial assets .......................... 13.1 60.5 48.1 5.3 49.9 19.2 2.2Estimated losses on commitments and contingencies . - 4.3 - - 0.4 0.6 0.1Provision for possible losses on non-earning assets .... - - 0.0 0.0 - 0.3 0.0

Loss on decrease in fair value of trading securities - net......................................................................... 0.4 - - - 0.0 - -

Other expenses ............................................................. 0.3 4.5 3.7 0.4 2.6 0.3 0.0Total Operating Expenses................................................. 205.2 308.9 358.5 39.9 278.0 331.1 37.5 Income Before Tax.......................................................... 19.6 70.8 141.0 16.7 96.5 101.7 11.5 Tax Expense:

Current.......................................................................... - 19.3 35.0 3.9 23.2 25.5 2.9Deferred........................................................................ 6.8 2.7 4.1 0.5 (3.6) 2.7 0.3

Net Income ....................................................................... 12.8 48.8 101.8 11.3 76.8 73.4 8.3

Net Interest Revenues and Net Interest Margin

The following table sets forth the principal components of interest income and profit sharing and interest expense and profit sharing of Bank Sinarmas for the periods indicated.

2008 2009 2010 2010 2010 2011 2011 Rp. Rp. Rp. US$ Rp. Rp. US$

Loans .................................................................................................. 497.9 650.5 792.3 88.5 584.7 784.1 88.9 Securities ............................................................................................ 80.8 123.0 111.7 12.4 80.5 137.6 15.6 Placement with other banks................................................................ 16.1 7.6 9.5 1.1 7.8 13.2 1.5 Securities purchased/sold under agreements to resell/repurchase ..... 4.8 1.3 2.2 0.2 1.2 3.6 0.4 Demand deposits with other banks .................................................... 1.4 0.0 0.4 0.0 - 3.4 0.3 Total interest revenues and profit sharing..................................... 601.0 782.4 916.1 103.8 674.3 541.8 106.7 Time deposits ..................................................................................... 338.8 374.5 376.2 42.6 262.5 464.1 52.6 Savings deposits ................................................................................. 25.9 45.5 59.5 6.7 42.9 60.6 6.9 Deposits from other banks.................................................................. 16.8 4.3 4.2 0.5 4.7 0.7 0.1 Demand deposits(3) ............................................................................. 27.0 31.0 38.5 4.4 27.3 26.9 3.0 Securities ............................................................................................ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Securities sold under agreements to repurchase................................. 7.2 1.3 1.3 0.1 1.3 0.0 0.0 Premium on Government guarantee................................................... 10.0 13.8 17.9 2.0 12.1 18.9 2.3 Total interest expense and profit sharing ...................................... 425.7 470.4 497.6 56.4 350.8 572.1 64.8 Interest Revenues -Net ..................................................................... 175.3 312.0 418.5 46.5 323.5 369.7 41.9 Net interest margin(1) .......................................................................... 3.4 % 4.8 % 4.9 % 4.9 % 5.3 % 4.3 % 4.3 %Average interest earning assets(2) ....................................................... 5,208.6 6,440.1 8,552.1 969.3 8,109.4 11,586.8 1,313.2 ______________________

(1) Net interest revenues and profit sharing as a percentage of average interest earning assets. Computation of the net interest margin for the nine months ended September 30, 2010 and 2011 is on an annualized basis.

(2) Calculated on the basis of monthly averages.

(3) Demand deposits are classified as ‘Current Account” in the Company’s consolidated financial statements.

Volume and Rate Analysis

The following table sets forth certain information regarding changes in interest income and interest expense of the Bank for the periods indicated. For each category of interest earning assets and interest bearing assets, information is provided on changes attributable to: (1) changes in volume (changes in average outstanding balances multiplied by the prior period’s average interest rate) and (2) changes in interest rate (changes in average interest rate times the average outstanding balances at end of the period). Net changes attributable to changes in both volume and interest rate has been allocated proportionately to the changes in volume and the changes in interest rate.

Year ended December 31, Nine months ended

September 30,

2009 over 2008 2010 over 2009 2011 over 2010

Increase/(decrease) due to changes in

Net change

Volume Rate Volume Rate Volume Rate (Rp. in billions) ASSETS Interest-Earning Assets: Current account at BI ...................................................... 5.9 (7.3) (1.4) 0.0 0.4 0.4 0.0 3.4 3.4

SBI(1), FASBI(2), BI Time Deposit.............................. 23.6 1.7 25.3 (10.6) (3.8) (14.9) 45.9 6.0 51.9 Placements with other banks ...................................... 12.9 (20.8) (8.4) 11.0 (14.4) 1.8 (0.6) 8.1 5.5 Securities..................................................................... (7.1) 14.0 6.9 3.7 (3.5) (0.1) (2.9) 7.3 4.3 Securities purchased under agreements to resell........ 2.7 (6.2) (3.5) (0.3) 1.0 0.7 1.9 0.3 2.2 Loans........................................................................... 108.3 49.1 152.4 243.0 (76.6) 141.9 215.1 (15.7) 199.4 Government obligations ............................................. 10.5 (0.6) 9.9 0.7 (3.4) 3.7 1.3 (0.5) 0.8 Total Interest-Earning Assets.................................. 154.3 30.1 162.7 248.3 (114.8) 133.1 258.7 8.8 264.2

LIABILITIES Interest-Bearing Liabilities:

Demand deposits(3)...................................................... 23.3 (19.4) 4.0 14.6 (7.1) 7.5 2.9 (2.8) (0.4) Saving accounts .......................................................... 29.7 (10.1) 19.6 20.2 (6.2) 14.0 19.0 (1.3) 17.7 Time deposits.............................................................. 26.1 (7.0) 19.1 111.3 (100.9) 12.3 105.4 73.5 179.0 Deposits On Call......................................................... 13.8 2.8 16.6 (1.0) (9.5) (10.5) 20.0 2.5 22.5 Securities sold under agreements to repurchase......... (1.5) (4.4) (5.9) 0.6 (0.6) 0.0 (1.3) 0.0 (1.3) Placements from other banks...................................... (10.6) (1.8) (12.6) 4.7 (4.8) (0.1) (3.1) (0.9) (4.1) Total Interest-Bearing Liabilities............................ 80.6 (39.8) 40.8 152.4 (129.1) 23.2 142.4 71.0 215.0

______________________

(1) Represents Certificates of Bank Indonesia.

(2) Represents placements in the form of Bank Indonesia deposit facility.

(3) Demand deposits are classified as “Current Account” in the Company’s consolidated financial statements.

For details on Bank Sinarmas’ average balances and average rates on interest-earning assets and liabilities, see “Business—Banking—Bank Sinarmas”.

Interest Income and Profit Sharing

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Bank Sinarmas’ interest income and profit sharing increased 39.7% to Rp.941.8 billion (US$106.7 million) in the nine months ended September 30, 2011 from Rp.674.3 billion in the nine months ended September 30, 2010, principally as a result of increases in interest income from loans to customers.

Interest income from Rupiah and U.S. dollar-denominated loans to customers increased 34.1% to Rp.784.1 billion (US$88.9 million) in the nine months ended September 30, 2011 from Rp.584.7 billion in the nine months ended September 30, 2010, primarily as a result of an increase in the average volume of loans outstanding made by Bank Sinarmas, based on monthly averages, which rose 38.9% to Rp.7,864.7 billion (US$891.4 million) in the nine months ended September 30, 2011, from Rp.5,749.3 billion in the nine months ended September 30, 2010. This growth was principally attributable to an increase in the average volume of Rupiah-denominated loans, which increased 38.9% to Rp.6,957.1 billion (US$788.5 million) in the nine months ended September 30, 2011 from Rp.5,008.0 billion in the nine months ended September 30, 2010, while average interest rates on Bank Sinarmas’ Rupiah-denominated loans, based on monthly averages, remained relatively flat at 10.7% in the nine months ended September 30, 2011, compared to 11.1% in the nine months ended September 30, 2010. The average volume of U.S. dollar-denominated loans also increased 22.4% to the U.S. dollar equivalent of Rp.907.5 billion (US$102.8 million) in the nine months ended September 30, 2011 from the U.S. dollar equivalent of Rp.741.3 billion in the nine months ended September 30, 2010. The average rate on U.S. dollar-denominated loans also increased to 4.7% from 4.0%. The increase in average loans outstanding made by Bank Sinarmas was attributable to an increase in its consumer loans and corporate loans in the nine

months ended September 30, 2011, compared to the same period in 2010, principally reflecting an increase in loans to customers in its core markets of Java and Sumatra and also to an increase in loans to related parties. Loans to related parties increased 67.3% to Rp.1,436.0 billion (US$162.8 million) as of September 30, 2011 from Rp.858.3 billion as of September 30, 2010. Most of these loans are fully cash collateralized. See “Business—Banking—Bank Sinarmas—Lending—Related Party Funding Arrangements” and “Related Party Transactions—Loans Provided to Related Parties”.

The increase in interest income and profit sharing was also attributable to a lesser extent to an increase in interest income from securities, which increased 70.9% to Rp.137.6 billion (US$15.6 million) in the nine months ended September 30, 2011 from Rp.80.5 billion in the nine months ended September 30, 2010, driven mainly by higher average yields earned on such securities, based on monthly averages, which increased to 12.6% in the nine months ended September 30, 2011 from 7.2% in the nine months ended September 30, 2010, partially offset by lower average balances held in the securities portfolio.

2010 Compared to 2009. Bank Sinarmas’ interest income and profit sharing increased 17.1% to Rp.916.1 billion (US$103.8 million) in 2010 from Rp.782.4 billion in 2009, principally as a result of an increase in interest income from loans to customers, partially offset by a decrease in interest income from securities.

Interest income from loans to customers increased 21.8% to Rp.792.3 billion (US$89.8 million) in 2010 from Rp.650.5 billion in 2009, principally as a result of an increase in the average volume of total loans outstanding, which increased 37.0% to Rp.6,025.7 billion (US$662.9 million) in 2010 from Rp.4,382.3 billion in 2009, partially offset by lower average rates, based on monthly averages, earned on loans. This increase was mainly attributable to a 36.4% increase in total average Rupiah-denominated loans outstanding, made by Bank Sinarmas, which increased to Rp.5,258.8 billion (US$596.0 million) in 2010 from Rp.3,855.7 billion in 2009 and 31.3% increase in total average U.S. dollar-denominated loans outstanding, which increased to Rp.766.4 (US$86.9 million) in 2010 from Rp.526.9 billion in 2009. This growth reflected the continued growth in its customer base, principally corporate, commercial and retail customers, reflecting growth in working capital facilities to small businesses and loans extended to multifinance companies, as well as an increase in interest rates on loans made by Bank Sinarmas. Average interest rates on Rupiah-denominated loans, based on the monthly averages during the year, decreased to 14.7% in 2010 from 15.8% in 2009 and average interest rates on U.S. dollar-denominated loans decreased to 5.6% in 2010 from 7.4% in 2009. Loans to related parties also contributed to the growth in volume of loans, which increased 7.1% to Rp.794.9 billion (US$90.1 million) as of December 31, 2010 from Rp.741.9 billion as of December 31, 2009.

Interest from securities decreased 9.2% from Rp.123.0 billion in 2009 to Rp.111.7 billion (US$12.7 million) in 2010 as a result of lower average yields earned on both Rupiah and U.S. dollar-denominated securities for the period, partially offset by a higher total average Rupiah and U.S. dollar balances held in the securities portfolio in the nine months ended September 30, 2011 as compared to the same period in 2010.

2009 Compared to 2008. Bank Sinarmas’ interest income and profit sharing increased 30.2% to Rp.782.4 billion in 2009 from Rp.601.0 billion in 2008, principally as a result of an increase in interest income from loans to customers, and to a lesser extent, an increase in interest income from securities, placements with other banks and the introduction of securities purchased under agreements to resell.

Interest income from loans to customers increased 30.6% to Rp.650.5 billion in 2009 from Rp.497.9 billion in 2008, principally as a result of an increase in average Rupiah and U.S. dollar-denominated loans outstanding made by Bank Sinarmas, based on monthly averages. The average balance of Rupiah-denominated loans increased to Rp.3,855.7 billion in 2009 from Rp.3,417.3 billion in 2008 and the average balance of U.S. dollar-denominated loans increased to the U.S. dollar equivalent of Rp.626.6 billion in 2009 from the U.S. dollar equivalent of Rp.211.9 billion in 2008. Loans to related parties contributed to this growth in volume of loans, which increased to Rp.741.9 billion as of December 31, 2009 from Rp.83.4 billion as of December 31, 2008. The increase was also due to higher average interest rates earned on Rupiah-denominated loans and U.S. dollar-denominated loans in 2009. Average interest rates on Rupiah-denominated loans, based on the monthly averages, increased to 15.8% in 2009 from 14.2% in 2008 while average interest rates on U.S. dollar-denominated loans, based on monthly averages, increased to 7.4% in 2009 from 6.7% in 2008.

Interest income from securities increased 52.2% to Rp.123.0 billion in 2009 from Rp.80.8 billion in 2008, driven principally by higher average rates, based on monthly averages, earned on securities, which increased significantly to 11.8% in 2009 from 2.0% in 2008, partially offset by a drop in the average balance of the securities portfolio to Rp.142.2 billion in 2009 from Rp.503.4 billion in 2008.

Interest Expense and Profit Sharing

The following table sets forth Bank Sinarmas’ interest expense and profit sharing by type of liability for the periods indicated.

2008 2009 2010 2010 2010 2011 2011 Rp. Rp. Rp. US$ Rp. Rp. US$

Time deposits .................................................................................. 338.8 374.5 376.2 42.6 262.5 464.1 52.6 Savings deposits .............................................................................. 25.9 45.5 59.5 6.7 42.9 60.6 6.9 Deposits from other banks............................................................... 16.9 4.3 4.2 0.5 4.7 0.7 0.1 Demand deposits ............................................................................. 27.0 31.0 38.5 4.4 27.3 26.9 3.0 Securities ......................................................................................... - - - - 0.0 - - Securities sold under agreements to repurchase.............................. 7.2 1.3 1.3 0.1 1.3 0.0 0.0 Premium on Government guarantee................................................ 10.0 13.8 17.9 2.0 12.1 19.9 2.3 Total interest expense and profit sharing ................................... 425.8 497.7 497.6 56.4 350.8 572.1 64.8

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Bank Sinarmas’ interest expense increased 63.1% to Rp.572.1 billion (US$64.8 million) in the nine months ended September 30, 2011 from Rp.350.8 billion in the nine months ended September 30, 2010, principally attributable to an increase in the average volume of customer Rupiah time and savings deposits. Average rates paid on Rupiah-denominated time deposits increased, while average rates on Rupiah-denominated current and savings accounts remained relatively flat in the nine months ended September 30, 2011, compared to the same period in 2010. Average rates paid on foreign currency-denominated deposits decreased slightly in the nine months ended September 30, 2011, compared to the same period in 2010.

Time deposits. Interest expense on time deposits increased 76.7% to Rp.464.1 billion (US$52.6 million) in the nine months ended September 30, 2011 from Rp.262.5 billion in the nine months ended September 30, 2010, principally as a result of a significant increase in the average amount of customer Rupiah-denominated time deposits held by Bank Sinarmas in the nine months ended September 30, 2011 compared to the same period in 2010, as well as an increase in average interest rates on Rupiah-denominated time deposits, based on the monthly average, increased to 6.6% from 6.0%, respectively. The average volume of foreign currency-denominated time deposits decreased to the U.S. dollar equivalent of Rp.1,293.8 billion (US$146.6 million) in the nine months ended September 30, 2011 from Rp.1,537.4 billion in the nine months ended September 30, 2010, while average rates, based on monthly averages, of foreign currency-denominated time deposits remained relatively flat at 2.0% and 2.1%, respectively. The significant increase in interest expense in Rupiah-denominated time deposits reflected increased marketing and promotional gift offers by Bank Sinarmas to attract time deposit customers. Bank Sinarmas grew both related and third party time deposits, which increased to Rp.5,023.2 billion (US$569.3 million) and Rp.5,323.7 billion (US$603.4 million), respectively, as of September 30, 2011, from Rp.3,763.6 billion and Rp.2,346.1 billion, respectively, as of September 30, 2010.

Savings deposits. Interest expense on savings deposits increased 41.3% to Rp.60.6 billion (US$6.9 million) in the nine months ended September 30, 2011 from Rp.42.9 billion in the nine months ended September 30, 2010, principally as a result of an increase in the average volume of third party Rupiah-denominated savings deposit accounts placed with Bank Sinarmas, while average interest rates, based on monthly averages, on Rupiah-denominated savings deposits, remained relatively constant.

Demand deposits. Interest expense on demand deposits decreased 1.5% to Rp.26.9 billion (US$3.0 million) in the nine months ended September 30, 2011 from Rp.27.3 billion in the nine months ended September 30, 2010, principally as a result of a decrease in foreign currency-denominated average rates, based on monthly averages, while Rupiah-denominated current account average rates remained flat. This was partially offset by slightly higher average balances of current accounts, which was Rp.2,207.9 billion (US$250.2 million) in the nine months ended September 30, 2011 from Rp.2,013.2 billion in the nine months ended September 30, 2010.

Deposits from other banks. Interest expense on deposits from other banks fell 85.1% to Rp.0.6 billion (US$0.1 million) in the nine months ended September 30, 2011 from Rp.4.7 billion in the nine months

ended September 30, 2010, principally because Bank Sinarmas did not take any new placements with other banks in the nine months ended September 30, 2011.

Premium on Government guarantee. Premium on Government guarantee increased 64.5% to Rp.19.9 billion (US$2.3 million) in the nine months ended September 30, 2011 from Rp.12.1 billion in the nine months ended September 30, 2010, principally reflecting an increase in premiums on guarantees paid by Bank Sinarmas in relation to guarantees of private bank obligations in line with the increase in deposits placed with Bank Sinarmas.

2010 Compared to 2009. Bank Sinarmas’ total interest expense increased 5.8% to Rp.497.6 billion (US$56.4 million) in 2010 from Rp.470.4 billion in 2009, principally as a result of increases in interest expense on savings deposits and demand deposits and an increase in premiums on Government guarantee.

Time deposits. Interest expense on time deposits increased only slightly by 0.5% to Rp.376.2 billion (US$42.6 million) in 2010 from Rp.374.5 billion in 2009. The average volume of both Rupiah and foreign currency-denominated time deposits placed by customers with Bank Sinarmas, based on a monthly average, increased to Rp.5,968.1 billion (US$676.4 million) in 2010 from Rp.4,642.2 billion in 2009, mostly offset by lower average interest rates, based on monthly averages, which fell to 6.5% in 2010 from 8.4% in 2009.

Savings deposits. Interest expense on savings deposits increased 30.8% to Rp.59.5 billion (US$6.7 million) in 2010 from Rp.45.5 billion in 2009, principally as a result of an increase in the average volume of Rupiah-denominated savings deposits placed with Bank Sinarmas in 2010, partially offset by lower average interest rates paid on Rupiah-denominated savings deposits in 2010 compared with 2009, which fell to 5.3% in 2010 from 5.8% in 2009.

Demand deposits. Interest expense on demand deposits increased 24.2% to Rp.38.5 billion (US$4.3 million) in 2010 from Rp.31.0 billion in 2009, principally as a result of an increase in average Rupiah and foreign currency-denominated demand deposits placed with Bank Sinarmas in 2010 while average rates on foreign currency-denominated demand deposits remained relatively constant at 0.7% and average rates on Rupiah-denominated deposits decreased to 2.9% in 2010 from 3.6% in 2009.

Deposits from other banks. Interest expense on deposits from other banks remained relatively constant at Rp.4.2 billion (US$0.5 million) in 2010 compared to Rp.4.3 billion in 2009.

Premium on Government guarantee. Premiums on government guarantee increased 29.7% to Rp.17.9 billion (US$2.0 million) in 2010 from Rp.13.8 billion in 2009, reflecting an increase in premiums on guarantees paid by Bank Sinarmas in relation to guarantees of private bank obligations in line with the increase in deposits placed with Bank Sinarmas.

2009 Compared to 2008. Total interest expense increased 10.5% to Rp.470.4 billion in 2009 from Rp.425.8 billion in 2008, principally as a result of increases in interest expense incurred by Bank Sinarmas on customer time and savings deposits accounts, partially offset by lower average interest rates paid to customers due to the economic conditions during this period.

Time deposits. Interest expense on time deposits increased 10.5% to Rp.374.5 billion in 2009 from Rp.338.8 billion in 2008, principally as a result of an increase in the average volume of foreign currency-denominated time deposits placed by customers in Bank Sinarmas in 2009 and higher average interest rates, based on a monthly average, paid on Rupiah-denominated time deposits, which increased to 10.1% in 2009 from 9.4% in 2008. These increases were partially offset by a decrease in the average volume of Rupiah-denominated time deposits outstanding and lower average rates paid in foreign currency-denominated time deposits, which decreased to 2.9% in 2009 from 3.8% in 2008.

Savings deposits. Interest expense on savings deposits increased 75.7% to Rp.45.5 billion in 2009 from Rp.25.9 billion in 2008, principally as a result of an increase in the volume of Rupiah-denominated savings deposits placed with Bank Sinarmas in 2009, partially offset by lower average interest rates paid on Rupiah-denominated savings deposits, which fell to 5.8% in 2009 from 7.1% in 2008.

Demand deposits. Interest expense on demand deposits increased 14.8% to Rp.31.0 billion in 2009 from Rp.27.0 billion in 2008, principally as a result of an increase in volume of both Rupiah and

foreign currency-denominated demand deposits placed with Bank Sinarmas, partially offset by lower average interest rates paid on both Rupiah and foreign currency-denominated demand deposits.

Deposits from other banks. Interest expense on deposits from other banks decreased 74.6% to Rp.4.3 billion in 2009 from Rp.16.9 billion in 2008, principally because Bank Sinarmas accepted fewer placements of deposits from other banks during the height of the global financial crisis.

Premium on Government guarantee. Premiums on government guarantee increased 38.0% to Rp.13.8 billion in 2009 from Rp.10.0 billion in 2008, reflecting an increase in premiums on guarantees paid by Bank Sinarmas in relation to guarantees of private bank obligations following an increase in deposits placed with Bank Sinarmas.

See also “Volume and Rate Analysis” above for further details of changes in Bank Sinarmas’ interest expense by changes in volume and rate.

Interest Revenue - Net

As a result of the foregoing, Bank Sinarmas’ interest revenue - net increased 14.3% to Rp.369.7 billion (US$41.9 million) in the nine months ended September 30, 2011 from Rp.323.5 billion in the nine months ended September 30, 2010. Bank Sinarmas’ interest revenue - net increased 34.1% to Rp.418.5 billion (US$47.4 million) in 2010 from Rp.312.0 billion in 2009, which was a 78.0% increase from interest revenue - net of Rp.175.3 billion in 2008.

Net Interest Margin

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Bank Sinarmas’ net interest margin increased to 4.3% in the nine months ended September 30, 2011 from 5.3% in the nine months ended September 30, 2010, reflecting slightly lower cost funding in respect of customer deposits.

2010 Compared to 2009. Bank Sinarmas’ net interest margin increased to 4.9% in 2010 from 4.8% in 2009, reflecting the ability of the Bank to reduce its cost of funding.

2009 Compared to 2008. Bank Sinarmas’ net interest margin increased to 4.8% in 2009 from 3.4% in 2008, largely reflecting higher net interest income.

Other Operating Expenses - Net

Other Operating Revenues

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Bank Sinarmas’ other operating revenues increased 23.3% to Rp.63.1 billion (US$7.2 million) in the nine months ended September 30, 2011 from Rp.51.1 billion in the nine months ended September 30, 2010, principally as a result of an increase in fees and commissions as a result of increased fees and commissions earned on trade finance and remittance guarantee fees, driven principally by growth in the Bank’s commercial and corporate customer base, an increase in net gain on increase in fair value of trading securities and an increase in net gain on foreign exchange as a result of the strengthening of the Rupiah against the U.S. dollar. The increase in fees and commissions was partially offset by lower bancassurance commissions due to the implementation of a new regulation which requires banks to disclose commissions paid to them on bancassurance products.

2010 Compared to 2009. Bank Sinarmas’ other operating revenues increased 19.7% to Rp.81.0 billion (US$9.2 million) in 2010 from Rp.67.7 billion in 2009, principally as a result of an increase in fees and commissions related principally to higher bancassurance sales, as the volume of insurance products sold through the Bank increased, and an increase in net gain on increase in fair value of trading securities, reflecting significantly higher realized gains on the sale of securities, which increased Rp.9.9 billion (US$1.1 million) in 2010 from Rp.1.1 billion in 2009, as a result of the Bank increasing the volume of securities sold to reallocate funds to the loan portfolio, as well as improved market conditions. The increase in other operating revenues was partially offset by a decrease in net gain on foreign exchange as a result of the depreciation of the Rupiah against the U.S. dollar.

2009 Compared to 2008. Bank Sinarmas’ other operating revenues increased 36.5% to Rp.67.7 billion in 2009 from Rp.49.6 billion in 2008, principally as a result of an increase in fees and commissions related to strong bancassurance sales, on office openings and other service fees, an increase in net gain on increase in fair value of trading securities, reflecting higher realized and unrealized gains on the increase in fair value of securities, principally as a result of improving market conditions in 2009 and an increase in net gain on foreign exchange as a result of the strengthening of the Rupiah against the U.S. dollar.

Other Operating Expenses

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Bank Sinarmas’ other operating expenses increased 19.1% to Rp.331.1 billion (US$37.5 million) in the nine months ended September 30, 2011 from Rp.278.0 billion in the nine months ended September 30, 2010, principally attributable to increases in general and administrative expenses and personnel expenses as a result of increased headcount and salary increments, as well as higher training and education expenses, communication expenses and promotional expenses, as the Bank grew its branch network. The number of staff increased from 2,335 as of September 30, 2010 to 3,014 as of September 30, 2011. The increase was partially offset by a decrease in impairment losses on financial assets as a result of improvement in the quality of Bank Sinarmas’ loan portfolio.

2010 Compared to 2009. Bank Sinarmas’ other operating expenses increased 16.1% to Rp.358.5 billion (US$40.6 million) in 2010 from Rp.308.9 billion in 2009. General and administrative expenses increased principally due to increased training and education expenses, printing and stationary costs, communication expenses and vehicle and transportation expense, consistent with growth in the branch network, and higher personnel expenses increased principally as a result of increased headcount, salary increments, and higher incentive compensation and sales commissions. The number of staff increased to 2,460 as of December 31, 2010 from 2,041 as of December 31, 2009. The increase was partially offset by a decrease in impairment losses on financial assets as the quality of the loan portfolio continued to improve.

2009 Compared to 2008. Bank Sinarmas’ other operating expenses increased 50.5% to Rp.308.9 billion in 2009 from Rp.205.2 billion in 2008, largely reflecting the growth in the branch network. General and administrative expenses increased due to increased training and education expenses, maintenance costs, printing and stationary costs, communication expenses and vehicle and transportation costs, and personnel expenses increased principally due to an increase in headcount and annual salary increments. The number of staff at Bank Sinarmas increased to 2,041 as of December 31, 2009 from 1,691 as of December 31, 2008. The Bank also recorded an increase in impairment losses on financial assets in 2009, reflecting the negative impact of the global financial crisis on the loan portfolio.

Other Operating Expenses – Net

As a result of the foregoing, Bank Sinarmas’ net other operating expenses increased 22.5% to Rp.268.1 billion (US$30.4 million) in the nine months ended September 30, 2011 from Rp.226.9 billion in the nine months ended September 30, 2010. Bank Sinarmas’ net other operating expenses increased 15.0% to Rp.277.5 billion (US$31.5 million) in 2010 from Rp.241.2 billion in 2009, which was a 55.0% increase from net operating expenses of Rp.155.6 billion in 2008.

Income from Operations

As a result of the foregoing, Bank Sinarmas’ income from operations increased 5.4% to Rp.101.7 billion (US$11.5 million) in the nine months ended September 30, 2011 from Rp.96.5 billion in the nine months ended September 30, 2010. Bank Sinarmas’ income from operations increased 99.1% to Rp.140.9 billion (US$16.0 million) in 2010 from Rp.70.8 billion in 2009, which was a 260.5% increase from income before operations of Rp.19.6 billion in 2008.

Net Income

For the reasons described above, Bank Sinarmas’ net income decreased 4.5% to Rp.73.4 billion (US$8.3 million) in the nine months ended September 30, 2011, from Rp.76.8 billion in the nine months ended September 30, 2010. In 2010, Bank Sinarmas’ net income increased 108.7% to Rp.101.8 billion (US$11.5 million), compared to Rp.48.8 billion in 2009, which was a 279.5% increase from Rp.12.9 billion in 2008.

Total Consolidated Shareholders’ Equity

As of September 30, 2011, total shareholders’ equity of the Company, comprising equity attributable to the equity holders of the Company and equity attributable to non-controlling interests in the net assets of our subsidiaries, was Rp.13,990.5 billion (US$1,585.7 million), an increase of 165.9% from total shareholders’ equity of the Company of Rp.5,261.0 billion (US$596.3 million) as of December 31, 2010. The increase in total shareholders’ equity of the Company as of September 30, 2011 was principally the result of the increase in net income and the share subscription of a 50% ownership interest in Sinarmas MSIG Life. As of September 30, 2011, total equity attributable to non-controlling interests in the net assets of our subsidiaries was Rp.4,842.3 billion (US$548.8 million), compared to Rp.200.4 billion (US$22.7 million) as of December 31, 2010. The increase in total equity attributable to non-controlling interests as of September 30, 2011 was principally the result inclusion of MSIG’s interest following its share subscription in Sinarmas MSIG Life. Total shareholders’ equity of the Company was Rp.5,261.0 billion (US$596.3 million) as of December 31, 2010, which was a 40.6% increase from total shareholders’ equity of the Company of Rp.3,597.5 billion as of December 31, 2009. The increase in total shareholders’ equity of the Company in 2010 was mainly attributable to an increase in retained earnings. Total shareholders’ equity of the Company increased 30.0% as of December 31, 2009 from total shareholders’ equity of the Company of Rp.2,767.1 billion as of December 31, 2008, mainly due to an increase in retained earnings as well as an increase in capital stock as a result of the exercise of outstanding warrants.

Liquidity and Capital Resources

Our liquidity and capital resources are managed at the subsidiary level and not on a consolidated basis. In managing liquidity, our subsidiaries monitor and maintain a level of cash and cash equivalents deemed adequate to finance their operations and to mitigate the effects of fluctuations in cash flows. Our subsidiaries also regularly evaluate projected and actual cash flows, including loan maturity profiles, and assesses conditions in the financial markets for opportunities to obtain optimal funding sources.

We are principally a holding company and we do not conduct significant business operations at the Company level. At the holding company level, our primary sources of funding are cash from limited operating activities, gains and returns on investments, dividends from our subsidiaries and associated companies and issuances of equity. Accordingly, we depend on dividends and other distributions and payments from our subsidiaries and associated companies for our cash flow. Furthermore, the payment of dividends and other distributions and payments from our subsidiaries and associated companies is regulated by applicable insurance, banking, securities, foreign exchange and tax laws, rules and regulations.

The Company has raised capital through right issues and issues of warrants in the past, including in June 2003 and June 2005. In June 2008, the Company undertook another rights issue, issuing 966,427,608 Series B shares with a par value of Rp.100 per share at an issue price of Rp.100 per share, with 1,449,641,412 free Series IV warrants attached to such shares. Each Series IV Warrant is exercisable into one Series B Share. The Series IV warrants are exercisable into shares from January 6, 2009 to July 9, 2013 at an exercise price of Rp.500 per share. The Company received proceeds from the rights issue amounting to Rp.96.5 billion. As of September 30, 2011, 1,020,635,101 Series IV warrants remained unexercised, of which 98.97% were held directly or indirectly by our Controlling Shareholder. As of December 1, 2011, 1,020,261,214 Series IV warrants remained unexercised, of which 98.97% were held, directly or indirectly by our Controlling Shareholder.

At the Company level, our cash inflows and existing cash balances are used to make investments or acquire shares in our subsidiaries and associated companies, and to pay dividends that may be declared and payable to our shareholders. In 2009, we acquired 16.66% of the shares in Sinarmas MSIG Life from PT Sinarindo Gerbangmas and PT Sinar Mas Tunggal (both related parties) for Rp.8.7 billion, and we made capital injections of Rp.100.0 billion in Bank Sinarmas and Rp.22.0 billion in other subsidiaries and associated companies. For the nine months ended September 30, 2011, we made a Rp.100.0 billion capital injection in Sinar Mas Multifinance and Rp.25.0 billion in other subsidiaries and associated companies.

Insurance

The principal source of funds generated by our insurance operations are written premiums, policy fees, investment income, net of costs, and proceeds from the sale or maturity of investments. The major use of our insurance funds are:

• to provide life insurance policy benefits, settle surrenders and withdrawals, pay short-term accident and health claims and provide for profit-sharing for participating policyholders;

• to pay fire and property insurance claims and related expenses; and

• to fund investments in new products and processes and to fund other operating costs.

We generate a significant cash flow from our insurance operations as a result of most premiums and policy fees being received in advance of the time when policy benefits or claim payments are required. Our positive operating cash flows, along with that portion of our investment assets that are held in cash and liquid securities, have historically met the liquidity requirements of our insurance operations, as evidenced by the growth of our investment portfolio.

In the insurance industry, liquidity generally refers to the ability of an insurance company to generate adequate amounts of cash from its normal operations, including its investments, in order to meet its financial commitments, which are principally obligations under its insurance policies. Our life insurance business may face liquidity pressure in the form of unexpected cash demands that could arise from an increase in the level of policyholders surrendering policies. In addition, Sinarmas MSIG Life’s ability to sell investments in a sizeable volume without significantly affecting the market prices of our investments may be limited. Sinarmas MSIG Life monitors and manages the level of surrenders in order to minimize such liquidity risk, including through the application of a discretionary charge of up to 20% in the case of its Stable Linked policy. For more information, see “Business –Life Insurance – Sinarmas MSIG Life—Risk Management”.

The liquidity of our non-life insurance operations is affected by the frequency and severity of losses under our non-life insurance policies, as well as by the persistency of non-life insurance products. Asuransi Sinar Mas may face liquidity pressure in the form of unexpected cash demands that could arise from an increase in the level of claims. It monitors and the level of claims and utilizes reinsurance in order to minimize such liquidity risk. Future catastrophic events, the timing and effect of which are inherently unpredictable may create increased liquidity requirements for our non-life operations. For liquidity risk management, Asuransi Sinar Mas management monitors the required cash and cash equivalents required to fund the company’s liabilities and operations. The management team also carries out a cash flow projection and manages premium receivables. For more information, see “Business –Non-Life Insurance – Asuransi Sinar Mas—Risk Management”.

The liquidity requirements of our insurance operations are met on both a short-term and long-term basis by insurance premiums, net investment income and cash received on the sale or maturity of investments. Highly liquid, high quality Government bonds and other liquid investment grade securities are held, which can be liquidated to meet cash needs. As of September 30, 2011, the cash and cash equivalents of Sinarmas MSIG Life were Rp.33.9 billion (US$3.8 million). As of September 30, 2011, Sinarmas MSIG Life’s investments in fixed income securities had a fair value of Rp.579.6 billion (US$65.7 million). As of September 30, 2011, the cash and cash equivalents of Asuransi Sinar Mas were Rp.30.6 billion (US$3.5 million). As of September 30, 2011, Asuransi Sinar Mas’ investments in fixed income securities had a fair value of Rp.28.6 billion (US$3.2 million). In addition, our insurance subsidiaries have back-up funding available through the Company and its other subsidiaries.

Banking

In relation to our banking business segment, Bank Sinarmas maintains its liquidity by keeping a level of liquid assets in such amounts that is considered sufficient based on anticipated withdrawal of deposits to be made by customers, and controlling any excess of matured liabilities over matured assets of each period. In addition, a branch cash limit is also set to enable the branch to meet its short-term obligations in the form of withdrawal of third party funds and to avoid idle cash.

Bank Sinarmas’ principal source of funding is deposits from customers and deposits from other banks, and, to a lesser extent, securities sold under repurchase agreements and securities issued, which includes subordinated debt, commercial paper, structured notes and equity. The principal use of funds by Bank Sinarmas comprises, the advance of loans to customers, liquid reserve deposits placed with Bank Indonesia (which

generally exceed the minimum requirements of Bank Indonesia) in order to manage significant withdrawals of deposits by its customers, placing deposits with other banks, payment of interest expense on deposits and borrowings, and the payment of operational expenses.

Bank Sinarmas seeks to generate liquidity by offering competitive interest rates on its deposit accounts and other marketing promotions to attract further deposits, borrowing from the inter-bank market or through borrowings or by selling securities in its securities portfolio. Where it has excess liquidity, it may revise downward interest rates on deposits to lower deposit levels, place deposits with other banks and seek to pursue lending opportunities.

In December 2010, Bank Sinarmas undertook an initial public offering of its shares and issued 1.6 billion new shares at an offering price of Rp.150 per share, attached with 1,920 million Series I warrants in a ratio of six new Series I warrants for every five new shares purchased. The Series I warrants entitle the holder to purchase one new share in Bank Sinarmas at an exercise price of Rp.150 per share from June 13, 2011 to December 31, 2015. Immediately following the initial public offering, our equity interest in Bank Sinarmas decreased to 70.43%.

Cash Flows

The following table sets out a condensed consolidated statement of our cash flows for the periods indicated.

Year Ended December 31, Nine Months Ended September

30, 2008 2009(1) 2010(1) 2010(1) 2010 2011 2011

Rp. Rp. Rp. US$ Rp. Rp. US$ (Rp. in billions, US$ in millions) Cash flows from operating activities:

Operating cash flows before changes in operating assetsand liabilities.................................................................. 535.0 704.2 2,819.4 319.5 2,099.8 2,699.2 305.9

Changes in operating assets and liabilities ...................... (289.8) 614.6 (1,935.0) (219.3) (535.3) (2,690.0) (304.9) Income tax paid ................................................................ (29.2) (41.6) (64.9) (7.2) (45.0) (59.3) (6.7)

Net cash provided by operating activities ................... 216.0 1,277.2 819.5 93.0 1,519.5 (50.1) (5.7) Net cash used in investing activities .................................. (242.1) (221.1) (324.7) (36.8) (266.5) (324.4) (36.8) Net cash provided by financing activities.......................... 269.2 195.8 364.1 41.2 113.2 7,644.8 866.5 Net increase in cash and cash equivalents ......................... 243.1 1,251.9 858.9 97.3 1,366.2 7,270.3 824.0 Cash and cash equivalents at end of period ....................... 935.7 2,033.1 2,858.4 323.9 3,323.2 10,114.1 1,146.3 ______________________

(1) Effective January 1, 2010, for the purpose of the consolidated statement of cash flows, cash and cash equivalents include cash, demand deposits with Bank Indonesia, demand deposits with other banks, and placement with other banks with original maturity of three months or less from the acquisition date. Prior to January 1, 2010, for the purpose of the consolidated statement of cash flows, cash and cash equivalents include cash, demand deposits with Bank Indonesia, and demand deposit with other banks with no restriction. These changes were due to the withdrawal of PSAK 31 “Accounting for Banks” in 2010 which was applied by Bank Sinarmas. Accordingly, for comparative purposes, the consolidated statement of cash flows for the year ended December 31, 2009 has been restated. See Note 62 of our 2010 consolidated financial statements for details of the adjustments between the original cash flows and the restated cash flows.

Cash Flow from Operating Activities

Our principal sources of consolidated cash flow from operating activities include our insurance underwriting income received and expenses paid, interest income received and interest paid, income received from financing activities, stock brokerage, underwriting and investment management income received and expenses paid, net gains or loss on foreign exchange, other operating income received, operating expenses paid and changes in operating assets and liabilities. Operating assets include short-term investments, segregated funds net assets - unit link, loans, consumer financing receivables, factoring receivables and other assets and operating liabilities include deposits and deposits from other banks, securities sold under agreements to repurchase, premiums received in advance, securities agent payable and other liabilities.

In the nine months ended September 30, 2011, we generated operating cash flows before changes in operating assets and liabilities of Rp.2,699.2 billion (US$305.9 million) and changes in operating assets and liabilities of negative Rp.2,690.0 billion (US$304.9 million). Cash flows from operating activities consisted principally of Rp.11,366.1 billion (US$1,288.2 million) of insurance underwriting income received and Rp.1,060.3 billion (US$120.2 million) of interest income received, offset by Rp. 9,009.0 billion (US$1,021.1 million) in insurance underwriting expenses paid and Rp. 2,690.0 billion (US$304.9 million) in net change in operating assets and liabilities. Changes in operating assets and liabilities were principally a result of Rp.1,762.1 billion (US$199.7 million) decrease in segregated funds net assets - unit link, a Rp.2,145.9 billion (US$243.2 million) increase in loans and a Rp.5.1 billion (US$0.6 million) increase securities sold under agreements to repurchase, partially offset by a Rp.3,800.9 billion (US$430.8 million) increase in deposits and deposit from other banks and a Rp.1,762.0 billion (US$199.7 million) decrease in segregated funds net assets - unit link. As a result, we recorded net cash used in operating activities of Rp.50.1 billion (US$5.7 million).

In 2010, we generated operating cash flows before changes in operating assets and liabilities of Rp.2,819.4 billion (US$319.6 million) and changes in operating assets and liabilities of negative Rp.1,935.0 billion (US$219.3 million). Cash flows from operating activities consisted principally of Rp.10,652.1 billion (US$1,207.3 million) of insurance underwriting income received and Rp.1,037.2 billion (US$117.6 million) of interest income received, partially offset by Rp.8,145.1 billion (US$923.2 million) in insurance underwriting expenses paid and Rp.1,935.0 billion (US$219.3 million) in net change in operating assets and liabilities. Changes in operating assets and liabilities were principally a result of a Rp.810.4 billion (US$91.9 million) increase in short-term investments, a Rp.2,913.4 billion (US$330.2 million) increase in deposits and deposits from other banks, a Rp.1,660.9 billion (US$188.2 million) increase in loans, partially offset by a Rp.2,913.4 billion (US$330.2 million) decrease in increase in deposits and deposit from other banks, a Rp.810.4 billion

(US$91.8 million) decrease in short-term investments. As a result, we recorded net cash provided by operating activities of Rp.819.5 billion (US$92.8 million).

In 2009, we generated operating cash flows before changes in operating assets and liabilities of Rp.704.2 billion and changes in operating assets and liabilities of Rp.614.6 billion. Cash flows from operating activities consisted principally of Rp.8,218.6 billion of insurance underwriting income received, Rp.853.3 billion of interest income received and Rp.614.6 billion in net changes in operating assets and liabilities, partially offset by Rp.7,577.1 billion in insurance underwriting expenses paid. Changes in operating assets and liabilities were principally a result of a Rp.2,369.2 billion decrease in short-term investments and a Rp.1,831.6 billion increase in deposits and deposit from other banks, partially offset by a Rp.2,641.4 billion increase in segregated funds net assets - unit link and a Rp.1,162.4 billion increase in loans. As a result, we recorded net cash provided by operating activities of Rp.1,277.2 billion.

In 2008, we generated operating cash flows before changes in operating assets and liabilities of Rp.535.0 billion and changes in operating assets and liabilities of negative Rp.289.8 billion. Cash flows from operating activities consisted principally of Rp.5,931.9 billion of insurance underwriting income received and Rp.607.0 billion of interest income received, partially offset by Rp. 5,671.4 billion in insurance underwriting expenses paid and Rp.289.8 billion in net change in operating assets and liabilities. Changes in operating assets and liabilities were principally a result of a Rp.1,200.6 billion increase in loans and a Rp.516.1 billion decrease in security agent payable, partially offset by a Rp.1,217.2 billion decrease in short-term investments. As a result, we recorded net cash provided by operating activities of Rp.215.9 billion.

Cash Flow from Investing Activities

Cash flows used in investing activities principally comprises cash used to acquire property and equipment and cash used to acquire investment shares in our associated companies, and cash flows from investing activities principally comprises proceeds from sale of investment and proceeds from sale of property and equipment. In the nine months ended September 30, 2011, cash flows used in investing activities of Rp.324.4 billion (US$36.8 million) were primarily for acquisitions of property and equipment and acquisitions of investment in shares.

In 2010, cash flows used in investing activities of Rp.324.7 billion (US$36.8 million) were primarily for acquisitions of property and equipment and acquisitions of investment in shares.

In 2009, cash flows used in investing activities of Rp.221.1 billion were primarily for acquisitions of property and equipment and additions to property under build, operate and transfer.

In 2008, cash flows used in investing activities of Rp.242.1 billion were primarily for acquisitions of property and equipment and additions to property under build, operate and transfer.

Cash Flow from Financing Activities

Cash provided by financing activities include proceeds from issuance of shares by our subsidiaries to external parties, proceeds from additional issuances of capital stock from conversion of warrants and proceeds from loans received. Cash used in financing activities include payments of interest on loans payable. In the nine months ended September 30, 2011, our cash flows from financing activities of Rp.7,644.9 billion (US$866.5 million) were principally from proceeds from issuance of shares by Sinarmas MSIG Life in relation to the investment of MSIG into Sinarmas MSIG Life in the amount of Rp.7.0 trillion (US$793.4 million).

In 2010, our cash flows from financing activities of Rp.364.1 billion (US$41.3 million) were principally from proceeds from issuance of shares by Bank Sinarmas and proceeds from loans received by Sinar Mas Multifinance from various financial institutions.

In 2009, our cash flows from financing activities of Rp.195.8 billion were principally from proceeds from additional issuances of capital stock from conversion of our Series IV warrants.

In 2008, our cash flows from financing activities of Rp.269.2 billion were principally from proceeds from additional issuances of capital stock from conversion of our Series IV warrants.

Commitments and Capital Expenditures

Contractual Commitments

The Group has various contractual obligations under which it is obligated to make future payments. The following table summarizes the Group’s contractual obligations, other than liabilities for insurance policies, as of September 30, 2011.

Payments Due by Period Total Less than 1

Year 1 to 2 Years 2 to 5 Years More than 5

Years (Rp. in billions) Description of Contractual Obligations:(1) Bank borrowings(2) .................................................. 886.9 875.4 7.8 3.7 0.0Securities sold under agreements to repurchase(3) .. 37.2 37.2 - - -Capital lease obligations ......................................... - - - - -Operating lease obligations..................................... - - - - -Other long-term liabilities ....................................... 357.8 357.8 - - -Total......................................................................... 1,281.9 1,270.4 7.8 3.7 0.0______________________

(1) Provisions for liability for future policy benefits, unearned premiums and estimated own retention claims have been excluded due to significant uncertainties in actual future cash flows.

(2) Comprises amounts under various facility agreements for working capital entered into by Sinar Mas Multifinance and AB Multifinance.

(3) Comprises amounts of securities sold under agreements to repurchase by Sinarmas Sekuritas.

Indebtedness

We do not have any indebtedness outstanding at the holding company level. Our subsidiaries have obtained bank loans from time to time. Our total outstanding consolidated current and non-current indebtedness amounted to Rp.302.8 billion as of December 31, 2008, Rp.348.9 billion as of December 31, 2009, Rp.512.3 billion (US$58.1 million) as of December 31, 2010 and Rp.886.4 billion (US$100.5 million) as of September 30, 2011, which was principally attributable to loans incurred by Sinar Mas Multifinance.

Commitments and Contingent Liabilities

Bank Sinarmas also has commitments and contingent liabilities arising from unused loan commitments granted to customers and agreements to provide letters of credit to customers. These commitments can either be made for a fixed period, or have no specific maturity but are cancellable by us subject to notice requirements. Our contingent liabilities consist of past due interest revenues and bank guarantees issued. These commitments and contingent liabilities amounted to Rp.131.9 billion (US$14.9 million) and Rp.330.3 billion (US$37.4 million), respectively, as of September 30, 2011, Rp.152.5 billion (US$17.3 million) and Rp.305.2 billion (US$34.6 million), respectively, as of December 31, 2010, and Rp.460.9 billion and Rp.269.5 billion, respectively, as of December 31, 2009 and Rp.77.2 billion and Rp.168.7 billion, respectively, as of December 31, 2008. See Note 59 and Note 55 of the notes to our consolidated financial statements for further details.

Off-Balance Sheet Arrangements

As of September 30, 2011, other than commitments and contingent liabilities of Bank Sinarmas disclosed in our consolidated financial statements, we did not have any other off-balance sheet arrangements.

Capital Expenditures

For the year ended December 31, 2010 and the nine months ended September 30, 2011, we incurred capital expenditures of Rp.216.4 billion (US$24.5 million) and Rp.311.9 billion (US$35.3 million) consisting of Rp.173.5 billion (US$19.7 million) and Rp.289.6 billion (US$32.8 million) for property, plant and equipment, which mainly comprise expenditure on expanding our banking, life insurance, non-life insurance and multifinance branches and outlets.

We expect to incur planned capital expenditures of approximately Rp.1,265.9 billion in 2012, which mainly comprises expenditure on expanding our banking, life insurance, non-life insurance and multifinance

branches and outlets. We anticipate that the funds needed for such capital expenditures will come from capital contributions. The following table sets forth planned capital expenditures of each of SMMA and our key subsidiaries for the periods indicated:

(Rp. in

billions)

Property, plant and equipment:(1)

SMMA ............................... - Sinarmas MSIG Life.......... 29.0 Asuransi Sinar Mas............ 20.0 Sekuritas Sinarmas............. 12.0 Bank Sinarmas ................... 590.0(2) Sinar Mas Multifinance ..... 278.8

Others(3) .............................. 336.1 Total.................................. 1,265.9 ______________________

(1) Includes both amounts to purchase and amounts to lease land.

(2) Capital expenditures of Bank Sinarmas may be upsized to up to Rp.500 billion.

(3) Includes both amounts to purchase and amounts to lease land.

Our capital expenditure plans are subject to changes based upon the execution of the business plans of our key subsidiaries, the progress of our capital projects, our financial performance, market conditions, our outlook for future business conditions and relevant governmental approvals needed.

Capital Management

Capital Adequacy

Certain of our subsidiaries are required by Indonesian regulations to maintain various capital adequacy and solvency ratios or margins. The table below shows the composition of our capital adequacy and solvency ratios or margins at the relevant subsidiary. These ratios and margins are determined in accordance with the requirements of Bank Indonesia, in the case of our banking subsidiary, and the Ministry of Finance, in the case of our insurance subsidiaries.

Rp. Rp. Rp. US$ Rp. Rp. US$ (Rp. in billions, US$ in millions, except percentages) Sinarmas MSIG Life Solvency Margin:

Admitted assets ................................................................ 6,085.6 4,330.1 3,960.9 448.9 4,023.4 15,410.1 1,746.6 Liabilities (except subordinated loans) ............................ (5,453.3) (3,496.5) (2,669.3) (302.5) (3,016.5) (7,282.3) (825.4) Total solvency margin...................................................... 632.3 833.6 1,291.6 146.4 1,006.9 8,127.8 921.2

Total minimum solvency margin ....................................... (326.0) (275.8) (275.4) (31.2) (290.7) (810.5) (91.9) Excess of solvency margin................................................. 306.3 557.9 1,016.2 115.2 716.2 7,317.3 829.3 Solvency ratio margin attained .......................................... 193.9% 302.3% 469.0% 469.0% 346.4% 1,002.8% 1,002.8%

The improvement in Sinarmas MSIG Life’s solvency ratio in 2009 and 2010 was primarily a result of the shift in the amount of endowment products with guaranteed returns, to unit link products, which reduced benefit liabilities payable. The increase in Sinarmas MSIG Life’s solvency ratio in the nine months ended September 30, 2011 was primarily due to the share subscription of MSIG. See “Business—Life Insurance – Sinarmas MSIG Life—Products”.

Rp. Rp. Rp. US$ Rp. Rp. US$ (Rp. in billions, US$ in millions, except percentages) Asuransi Sinar Mas Solvency Margin:

Admitted assets ................................................................ 1,692.8 2,054.9 2,765.6 313.5 2,564.4 3,279.4 371.7 Liabilities (except subordinated loans) ............................ (1,127.6) (1,336.7) (1,600.5) (181.4) (1,575.2) (1,945.7) (220.5) Total solvency margin...................................................... 565.2 718.2 1,165.1 132.1 989.2 1,333.7 151.2

Total minimum solvency margin ....................................... (243.9) (275.5) (344.9) (39.2) (319.2) (438.4) (49.7) Excess of solvency margin................................................. 321.3 442.7 820.2 93.0 670.0 895.3 101.5 Solvency ratio margin attained .......................................... 231.7% 260.7% 337.8% 337.8% 309.88% 304.2% 304.2%

The improvement in Asuransi Sinar Mas’ solvency ratio margin in 2009 and 2010 was primarily a result of an increase in admitted assets due to a shift in asset allocation to increase the proportion of assets that qualify as admitted assets, such as more highly rated bonds. The slight decrease in Asuransi Sinar Mas’ solvency ratio margin as of September 30, 2011 was compared to September 30, 2010 as a result of a shift of investments into more equities in the nine months ended September 30, 2011, which increased deducting factors even though admitted assets increased in the same period.

Rp. Rp. Rp. US$ Rp. Rp. US$ (Rp. in billions, US$ in millions, except percentages) Bank Sinarmas Capital Stock Component:

Core Capital (A): Paid-up capital ............................................................. 425.0 525.0 728.1 82.5 568.1 907.9 103.0 Additional paid-in capital ............................................ - - 75.3 8.5 - 165.2 18.7 General reserve ............................................................ 2.0 2.5 3.0 0.3 3.0 3.5 0.3 Unappropriated retained earnings after tax(1) .............. 28.6 45.7 54.8 6.2 51.2 159.6 18.1 Net income after tax during the year (50%)(1) ............. 6.4 24.4 50.9 5.8 38.4 36.7 4.2

Total core capital..................................................... 462.0 597.6 912.1 103.4 660.7 1,272.9 144.3 Supplementary Capital (B):

Allowance for possible losses on earning assets(general reserve), maximum of 1.25% of riskweighted assets.......................................................... 44.3 51.1 62.0 7.0 64.3 72.2 8.2

Total core and supplementary capital (A + B)................. 506.3 648.7 974.1 110.4 725.0 1,345.1 152.5

Risk Weighted Assets: Credit risk after considering specific risk ........................ 3,987.5 4,648.9 6,529.9 740.1 5,147.1 8,647.1 980.1 Market risk ....................................................................... 15.2 38.0 54.4 6.2 8.6 73.2 8.3 Operational risk ................................................................ - - 322.3 36.5 322.3 749.0 84.9

Total risk weighted assets for credit, market andoperational risk.......................................................... 4,002.7 4,686.9 6,906.5 782.8 5,477.9 9,469.3 1,073.3

Capital Adequacy Ratio (“CAR”): CAR with credit risk ........................................................ 12.7% 14.0% 14.9% 14.9% 14.1% 15.6% 15.6%CAR with credit and market risk ..................................... 12.6% 13.8% 14.8% 14.8% 14.1% 15.4% 15.4%CAR with credit and operational risk .............................. n.a.% n.a.% 14.2% 14.2% 13.3% 14.3% 14.3%CAR with credit, operational and market risk ................. n.a.% n.a.% 14.1% 14.1% 13.2% 14.2% 14.2%

Minimum Capital Adequacy Ratio 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%

______________________

(1) Excludes deferred taxes.

Quantitative and Qualitative Disclosure about Market Risk

Market risk is the exposure created by potential changes in market prices and rates. We are exposed to market risk arising principally through the operations of subsidiaries, which hold financial investments. Some of the significant market risks our Group faces include interest rate risk, foreign exchange risk, liquidity risk and market price risk. Market risk is monitored and managed by our subsidiaries, and not at a holding company level.

Interest Rate Risk

Interest rate risk is the potential loss arising from movements in market interest rates as opposed to the position or transaction of the Company and its subsidiaries. Our exposure to interest rate risk predominantly arises in our insurance and securities businesses, from investments in long-term fixed income debt securities, and in our banking business, from loans to customers and funding from deposits that Bank Sinarmas receives from customers, all of which are exposed to fluctuations in interest rates.

Interest rate risk also arises from our insurance contracts with guaranteed terms, which carry the risk that interest income and capital redemptions from the financial assets backing the liabilities is insufficient to fund the guaranteed benefits payable as interest rates rise and fall. For other insurance products such as our unit link products, interest rate risk is significantly reduced due to the non-guaranteed nature of additional policyholder benefits.

A sustained period of lower interest rates would generally reduce the investment yield of our investment portfolio over time as higher yielding investments mature or are redeemed and the proceeds therefrom are reinvested in new investments with lower yields, affecting our profitability. Conversely, if interest rates were to increase, surrenders and withdrawals of insurance policies may increase as policyholders seek other investments with higher perceived returns, and may result in cash outflows requiring our life insurance business to sell investment assets at a time when the prices of those assets are adversely affected by the increase in market interest rates, which may result in realized investment losses. In addition, market interest rates and other determinants of the relative attractiveness of our products as compared to other financial products may also affect our insurance premium income.

We manage our interest rate risk by generally investing in fixed income assets and mutual funds with fixed income investments in the same currencies as those of our liabilities, as well as investing in financial instruments with tenors that broadly match the duration of our liabilities. In addition we also monitor closely and adjust the guaranteed or targeted returns on our insurance products on an ongoing basis to account for any decline in interest rates.

See Note 60 and Note 61 of the notes to our September 30, 2011 consolidated financial statements and 2010 consolidated financial statements for a table showing our balance sheet exposures to interest rate risk as of September 30, 2011 and December 31, 2010, respectively.

Foreign Currency Risk

Foreign currency risk is the risk that the carrying value or future cash flows of a financial instrument will fluctuate due to changes in currency exchange rates of the Rupiah against foreign currencies. Our subsidiaries manage this risk by generally investing in assets denominated in currencies that match their liabilities at a ratio of 100%, as required by applicable regulations.

In relation to our banking business, the policy in managing exchange rate risk is based on a Bank Indonesia regulation regarding limits on net open positions. Bank Indonesia sets a limit on net open positions on all foreign currencies at a maximum of 20% of capital. The management of net open position is centralized and under the responsibility of Bank Sinarmas’ Treasury division, which combines the daily net open position of all branches. For managing Bank Sinarmas’ trading book position, Bank Sinarmas applies policies and limits to minimize the potential losses arising from trading book and hedges its foreign exchange exposure through the use of derivative instruments such as forward and spot contracts.

In relation to our insurance businesses, foreign exchange rate risk arises with assets and liabilities denominated in non-functional currencies. Sinarmas MSIG Life and Asuransi Sinar Mas generally invest in assets denominated in U.S. dollar to match their U.S. dollar liabilities to avoid currency mismatches.

See Note 60 and Note 61 of the notes to our September 30, 2011 consolidated financial statements and 2010 consolidated financial statements for a table showing our consolidated monetary assets and liabilities as of September 30, 2011 and December 31, 2010, respectively.

Equity Market Price Risk

Market price risk is the risk of fluctuations in the value of financial instruments as a result of changes in market price. Investments as of December 31, 2010 and September 30, 2011 accounted for 54.4% and 47.6%, respectively, of our total assets. These investments are classified as trading securities and securities available for sale, which will affect our results of operations and shareholders’ equity if there are any changes in the market price of these securities.

For yield enhancement purposes, our insurance and securities businesses invest in equities. Investment in equity securities and in mutual funds which invest in equity securities expose us to changes in stock prices. To manage this risk, our subsidiaries set and comply with set investment limits and guidelines and monitor closely the movements in stock prices.

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