29th August 2006

Chairman and Members

Management Merger Steering Committee
Mayban Fortis Holdings Berhad

POST MERGER RISK ASSESSMENT RELATING TO HUMAN RESOURCES

ISSUES AS AT JULY 31, 2006

1 OBJECTIVES
To report Management Merger Steering Committee (“MMSC”) on the status of the Post
Merger Risk Management in relation to Human Resources issues

2 KEY SUMMARY RESULTS

2.1 Based on the Post Merger Risk review assessment, the people/human resources
issues has been highlighted in all the initiatives and is rated as high risk (red) by the
respective VC owner’s. This was due to disruption to ongoing business operations
and inability to maintain operational and business momentum that mainly contributed
by the lack of staff or resources issues resulted from the high number of resignation
cases reported during the merger integration exercise.

2.2 For the first eleven months of the merger period, 124 resignation cases or 5.9% of
the total number of staff were reported and based on the existing trend and analysis,
there is high possibility that the number will be further increased in the next few
months due the more and prolonged delay in resolving the uncertainty issues, annual
and/or pro-rate bonus payment in October 2006 and full-blown operations of all the
new takaful operators.

2.3 The highest number of staff resignation was from Commercial business unit with a
total of 53 cases. The resignation cases from this critical unit is expected to results in
negative impact to the business production i.e. switching of agency force and clients.

2.4 In addition, the outflow resulted to adverse perception from industry and reducing the
interest of outsider to join MFHB and this could be translated from inability to secure
and hire many high potential candidates; thereafter jeopardize our position to get
good people.

2.5 In view of the above, the Risk Management team had conducted this exercise to
identify and highlight the staff resignation issue to MMSC that is crucial and had
threatened the achievement of the overall merger objectives.

3 BACKGROUND/INTRODUCTION

3.1 With reference to the Post Merger risk scorecard relating to Human Resources
issues especially on staff resignation, the Risk Management team has taken the
opportunity to further review the resignation trend and impact to the enlarged Mayban
Fortis Group of Companies.

3.2 The review exercise was conducted based on the discussion and data provided by
Mayban Fortis Human Capital Department (HC). In addition, a series of interviews
and collaborative inquiries with the respective immediate supervisor (random basis)
of the resigned staff were also performed to further confirm and support the findings.
 3.3 The period of review on staff resignation for all the entities covers from September
2005 to July 2006 and were divided into four (4) main business unit category as
follows:
• Corporate resignation from CEO’s office of all operating entities
• Commercial resignation from sales and marketing units
• Operation resignation from operation/back office business unit
• Support resignation from support unit i.e. finance, legal, IT
compliance etc

3.4 In addition, this data are also segmented into 3 staff levels as follows:
• Management covers the managers and above staff grade
• Executive level covers all the executive staff grade
• Clerical covers non-executive staff grade

3.5 The scope of review covers the following areas in respect of staff resignation and
could be summarized as below:

• Overall analysis on the staff resignation – key findings

• Causes of resignation
• Implications and general impact
• Risk scenario and Potential resignation
• Conclusion and recommendation

4 KEY FINDINGS

Based on the staff resignation details, the following analytic data were observed:

4.1 Prior than the merger announcement, the combined total number of employee as at
August 2005 for every operating entities of the enlarged MFHB was recorded at 2086
as compared with 1991 (including 48 new recruitment) employees recorded in end of
July 2006. The decreased in the total number of employees were mainly contributed
by staff resignation and retirement cases that recorded at 124 and 13 respectively. In
addition, we noted that there were 4 termination and 2 death cases reported during
the eleven months of the merger period.

4.2 From 124 resignation cases or 5.9% of the total number of employees at the
enlarged MFHB Group with MNI, TN and MF reported at 2.5%, 1.9% and 1.5%
respectively as illustrated below;

Overall Resignation By Entities Percentage of staff resignation

Entities As at 31 July Total % resigned % of Staff Resignation by Entities

2006 workforce staff against
resigned staff @ Aug 05 total
no. % workforce
MF 32 26% 724 1.5% 31%
26%
(MFHB,MGAB, MF
MLAB & MTB) MNI
MNI 53 43% 780 2.5% TN
TN 39 31% 582 1.9%
TOTAL 124 100% 2,086 5.9% 43%
 Number and % of staff resignation for Mayban Fortis Group of Companies
from Sept 05 – July 06
Staff Level Corporate Commercial Operation Support TOTAL
no. % no. % no. % no. % no. %
Management 2 1.6% 12 9.7% 4 3.2% 9 7.3% 27 21.8%
Level
Executive Level 1 0.8% 31 25% 12 9.7% 34 27.4% 78 62.9%
Clerical Level 1 0.8% 10 8.1% 3 2.4% 5 4.0% 19 15.3%
TOTAL 4 3.2% 53 42.8 19 15.3% 48 38.7% 124 100.00%

4.3 The highest resigned staff were contributed by the commercial staff of 42.7% and
followed by 38.7% of support, 15.3% of operation and 3.2% of corporate staff. The
high percentage recorded from the commercial and/or front-line staff could potentially
impacting the top line revenue, as there are high possibility of them bringing together
their business portfolio and intermediaries.

4.4 From the resignation listing, we noted that staff from executive level had contributed
the highest percentage of 62.9%, followed by management and clerical level at
21.8% and 15.3% respectively.

Overall Staff Resignation from Jan 05-July06

20
18 18
17
16
14 14
Number of Staff

13
12 12
11 11 11 11
10 10
9
8 8
7 7
6 6
5 5 5
4
3
2
0
Jul-05

Jul-06
Feb-05
Mar-05

Feb-06
Mar-06
May-05

May-06
Jan-05

Jun-05

Jan-06

Jun-06
Sep-05

Nov-05

Dec-05
Oct-05
Aug-05
Apr-05

Apr-06

Month

4.5 Based on the monthly staff resignation trend, the observation could be summarized
as follows;

• The total number of staff resignation for the period of January to August 2005 (8
months period) was 59 with an average of 7.4 cases per month; as compared with
the total of 124 resignation cases during the eleven months merger integration
period (September 2005 to July 2006) that could be translated as an average of
11.3 resignation cases per month.

• On the resignation cases by operating entities, prior than the merger

announcement, TN recorded 25 resignation cases or 3.15 cases per month, MNI at
22 or 2.75 cases and MF recorded as 12 cases or 1.5 staffs resignation per month.
 However, during the first eleven month of the merger period, MNI recorded the
highest number of staff resignation with 53 cases, an average of 4.9 cases per
month, followed by TN and MF that recorded 39 and 32 resignation cases with a
monthly average of 3.5 and 2.9 cases respectively.

• The highest number of resignation cases was recorded in April 2006 with 18 cases
and followed by May and June 2006 with 17 and 14 resignation cases respectively
and – could be possibly associated with bonus payment for MNI and TN staff in
April 2006. Based on this results and trend, without immediate and effective
corrective actions, we anticipated that the next wave of the resignation cases will
be happened in October and November 2006 – immediately after the payment of
bonus to MFHB staff.

5 MAJOR FACTOR THAT CONTRIBUTED TO STAFF RESIGNATION

Statistical findings and interview with selected superior of the resigned staffs
revealed that there were various factors that contributed to these issues and could be
divided as follows;

‰ The “Pull” factor

Better position and significant increase in remuneration package that been offered by
other organization had been cited as one of the key factor identified and should be
sub-divided as below;

5.1 Career opportunity at the four new Takaful operators

The uncertainty generated by a merger creates the perfect environment for
competitors especially the 4 new takaful operators to pinch our personnel. It was also
mentioned that there are high possibilities that many of our best people had already
been hunted and/or get calls for job interviews.

5.2 Expansion of Employee market

Vacancy and various positions with career advancement and better remuneration
package offered at other organization due to operational expansion had also been
cited as one of the pull factor for staff resignation.

‰ Combination of “Pull and Push” factor

This combination factor had contributed to the majority of the resignation cases.
Unresolved contentious and sensitive issues had been pointed out to be main reason
for staff leaving MFHB.

Our exercise revealed that the uncertainty issues had been identified as the major
reason and the details causes/reason arising from this issue could be briefly
described as follows:

5.3 Pending announcement of new organization structure

The delay in the announcement of the merger plan especially on the new company
structure was mentioned by the superior of the resigned staff as one of the main
reason for them leaving the company. Most concerned areas are on the availability
of their position/department in the new structure, chances of getting the same or at
least the equivalent position in the new structure.
5.4 Unresolved Syariah and Takaful branding issues
The Syariah issue has also mentioned as contributing to the resignation of TN staff.
The separation between Takaful and conventional business is crucial to them in
upholding their principle and believe.

5.5 Delay in finalization of staff remuneration and benefits package

The uncertainty of the remuneration and benefit package to be offered under the new
structure has also revealed as a reason to the staff resignation. Better or at least the
equivalent benefits packages, higher salaries that been offered by the competitors
are the added points to the uncertain benefit package issues.

In addition, issues relating to personal limitation and preferences had also been
cited amongst the pull/factor factor such as;

5.6 Head Office relocation and Branch rationalization exercise

The announcement of the merger integration plans and strategy, which includes the
centralization of Mayban Fortis operations at Dataran Maybank; and possible
relocation of branch staffs to Head Office or other towns due to branch rationalization
had also stated as contributing to the resignation issue due to resistance to changes
ie relocated or transferred. Based on the data provided by Human Capital
Department, since September 2005 the total number of branch staffs that had
resigned at MNI & TN are recorded at 12 & 15 respectively.

5.7 Drastic and unanticipated changes

High expectation in terms of business growth and timeline has also pointed out to
staff leaving the company especially from commercial and/or front-line unit. It was
also cited that higher expectation in terms of production target and allocated without
proper and unclear direction relating to overall business plan, strategy,
implementation and coordination had worsen the issues.

‰ The “Push” factor

Under this category, issues relating to winner & loser perception and adaptability
aspects had been mentioned as the real push factor that contributed to their decision.
Amongst the issues are as follows;

5.8 Culture clash and sense of loss relating to work culture, values, management styles,
norms and standards

5.9 Staff demoralized due to allocation of merger appreciation bonus for selected
management and executive only

5.10 Delay in integration and unresolved system issues that very critical to majority of the
staff

5.11 Anticipated changes in organization structure and job titles which is very sensitive
issues and staff may interpret changes as loss of status
6 IMPLICATIONS & GENERAL IMPACT

Based on the review exercise, the major implications and impact on staff resignation
could be highlighted as below;

6.1 Disruption to ongoing operations due to;

ƒ Delay in staff replacement
ƒ Lack of succession planning
ƒ Operating in silo and lack of multi-tasking resources
ƒ Restriction on staff inter-department transfer - Memorandum by HR

6.2 Inability to maintain existing operational and business momentum that may give
direct impact to service standard and potential medium term impact to business
revenue

6.3 Domino effect that may jeopardize the achievement of overall merger objectives

7 RISK SCENARIO ON POTENTIAL RESIGNATION CASES

The following scenarios had been identified as the potential contributor and to be the
next wave on the staff resignation issues:

7.1 The more and prolonged delay in resolving the uncertainty issues that will increase
the possibility for staff resignation, i.e. uncertainty about separation between takaful
and conventional business

7.2 Annual and pro-rate bonus payment to all staff in October 2006

7.3 Full-blown operations of all the new takaful operators

8 CONCLUSION AND RECOMMENDATION

The staff resignation issues have such a great impact on operations, take up so
much of the business budget and momentum, and present so many pitfalls that
cannot be ignored or deferred by management. In order to eliminate staff anxiety and
ensure such negative scenario could be improved, we would like the management to
consider the below recommendations;

7.1 To expedite the process of finalization and formalization of the organization structure,
branding and remuneration package to staff. The more delay to resolve this issues, in
the worst case could lead to drastic increase of staff resignation and possible
sabotage by employees.

7.2 To formalize the HR process that includes guarantee to rehire/absorb at the same or
equal salary level of all staff of the merging entities. In addition, no staff would be
terminated until the completion of the merger exercise and this will further
guaranteed job security for all staff and must be clearly communicated to all staff.

7.3 To develop a constant and effective communication between management and staff
is vital to improve transparency and making clear on any controversial issues and
perceptions during the merger integration period. Managing staff perception is
crucial.
7.4 To remain flexible and responsive when encountering any unexpected and/or
complex obstacles that potentially affected the initial expectation and timeline,
management need to also acknowledge delays, push employees to meet targets but
watch employee morale and to revise or reschedule targets whenever necessary.

7.5 To establish a special committee to ensure that this critical issue is to be reviewed
and resolved in a timely manner. Amongst others, management should also consider
having an avenue and/or forum for potential leaver to raise their concern as well as
ensuring that all exit interviews are conducted by the Human Capital Department for
all resignation cases.

7.6 To expedite in finalizing and tabling the result of the Employee Culture Survey
conducted by Human Capital to MMSC and incorporate the Risk Management
findings as a cross-reference to formulate and implement the mitigation plan and
objectives.

7.7 Nevertheless, retaining key employees and easing the transition by harmonizing the
remuneration and benefits is more economic than expending the time and effort to
hire replacements – Retaining is cheaper than rehiring and/or retraining.

7.8 In view of the above and as basis to move forward, the Risk Management team in
collaboration with PMO had proposed that subsequent to this report that highlighted
the existing staff resignation issues, the formulation and implementation of post
merger risk management exercise in relation to People and Human Capital issues
should be driven by Human Capital Department to ensure that ALL risks that
threatened the achievement of the merger objectives is managed and mitigated
accordingly.

Prepared by, Recommended by,

ABD RAZAK SULAIMAN RAZIN MURAT

Head, Operational Risk Management Head, Risk Management
Mayban Fortis Group Mayban Fortis Group