Introduction of Fubon Financial Holdings

Transcription

1 Introduction of Fubon Financial Holdings

2 Disclaimer This meeting may contain forward-looking statements with respect to the financial condition, results of operations and business of the company. These forward-looking statements represent the company s expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could cause actual results, performance or events to differ materially from those expressed. Certain statements, such as those that include the words potential, estimated, and similar expressions or variations on such expressions may be considered forward-looking statements. Financial numbers in this report may include preliminary unaudited numbers or management accounts. 1

3 Highlight of Fubon Financial Holdings Leading position across business lines in Taiwan Leading position across banking, securities, life and insurance business Top ranked profitability and assets size among listed financial holding companies in Taiwan Record of Consistent growth Experienced team with strong commitment to deliver growth Growth through successful acquisition with disciplined track record Early mover in Greater China The only Taiwan financial with meaningful banking presence across Taiwan, Hong Kong and China Capture opportunities in insurance and securities in Greater China Stable dividend record Track record in cash dividend payment Steady uptrend in ROE under a competitive market 2

4 Comprehensive financial service provider in Taiwan The most comprehensive financial service provider in Taiwan Fubon Financial Holdings (Established in 2001) Asset: NT$5.2tn Equity: NT$371bn Numbers of employee: 33, % 100% 100% 100% 80% 100% Fubon Insurance Fubon Life Taipei Fubon Bank Fubon Bank (HK) Fubon Bank (China) Fubon Securities Established in 1961 Top 1 premium over three decades First Taiwan P&C in mainland China post ECFA Established in 1993 Merger of ING Antai Life and Fubon Life in 2009 Leading market position in premium and investment Established Fubon Bank in 1992 Acquired Taipei Bank in 2002 Merged and renamed as Taipei Fubon Bank in 2005 Top 1 among private banks in Taipei metropolitan area First Taiwan FI acquired a HK-listed bank in 2003 First Taiwan FHC owns 19.99% stake in China bank, Xiamen Bank, since 2008 First Taiwan FHC owns a controlling stake in China bank since 2014 Established in in-1 merger in 2000 Top 3 in brokerage Note: (1) Consolidated assets and equity were as of 2014/9/30; Numbers of employees were as of 2014/11/30 (2) Subsidiaries under Fubon FHC also include Fubon SITE, Fubon Direct Marketing, Fubon VC, Fubon AMC, Fubon Futures and Fubon SICE etc. 3

5 Expansion Milestones Business expansion along with strategic M&A moves Fubon Securities 7-in-1 merger US$345mn US$2.4bn US$415mm US$33mm US$600mm US$1bn Fubon Securities acquaired six other domestic securities firms by shares swap; the most scalable merger in the history of securities industry in Taiwan. Acquired 100% of Taipei Bank in 2002 through a share swap First merger in Taiwan between private and government owned institution Strong distribution network in Taipei metropolitan area Acquired 75% of International Bank of Asia in 2004 First and only Taiwan FHC to operate a Hong Kong-based bank Privatization with 100% stake in June 2011 Acquired 19.99% of Xiamen City Commercial Bank in 2008 First and only Taiwan FHC to own a stake in a Chinese bank Acquired 100% of ING Antai Life (Taiwan) in 2009 Became the 2nd largest life insurer in Taiwan Acquired 80% of First Sino Bank in 2014 Controlling stake in a nationwide licensed bank in China 4

6 Experienced management team Daniel Tsai Chairman, Fubon Financial 34 years of industry experience Master of Comparative Law, Georgetown University Richard Tsai Vice Chairman, Fubon Financial 34 years of industry experience MBA, New York University Financial Holding Company P&C Insurance Life Insurance Vivien Hsu President, Fubon Funancial 37 years of industry experience Joined Fubon in 2013 MBA, University of New South Wales Victor Kung Chairman, Fubon Insurance 34 years of industry experience Joined Fubon in 2000 MBA, New York University / M.A. in Economics, New York University Oliver Cheng President, Fubon Life 42 years of industry experience Joined Fubon in 1973 BA of Law, National Taiwan University Taipei Fubon Bank Jerry Harn President, Taipei Fubon Bank 26 years of industry experience Joined Fubon in 2005 MBA, Ohio State University Fubon Securities Samuel Hsu Chairman, Fubon Securities 34 years of industry experience Joined Fubon in 2013 MBA, Chinese Culture University Seasoned senior management team with an average of over 30 years of experience in financial services industry 5

7 Corporate governance are widely recognized Independent board structure: 4 seats out of 13 board directors are independent directors. 7 board members are non-executive directors Corporate governance awards: Asia s Best Companies for Corporate Governance from Corporate Governance Asia, 2009~2014 Asian Corporate Director Recognition Awards to Chairman Tsai from Corporate Governance Asia, 2010~2014 Best CSR from Corporate Governance Asia, 2011~2014 The Asset Corporate Award: Platinum Award, 2011~2014 Gold Metal in Financial Industry, Taiwan Corporate Sustainability Report Award 2014 Top ten of Excellence in Corporate Social Responsibility from Common Wealth, 2014 Top Green Brand in Financial Sector Excellence Award from Business Next,

8 Leading market position across major business Banking Market ranking Market share/amount Loan Syndication (1) 1 9.2% FX derivative % Life insurance Market ranking Market share FYP through bancassurance % FYP through broker % Mortgage loan (1) 2 5.1% First year premium % Monthly per card spending (2) 2 NT$8,102 Total premium % FYP through tied agents % Securities P&C Market ranking Market share Market ranking Market share/amount IPO amount % Direct written premium % Brokerage per branch 2 0.1% Personal line % Emerging stock trading % Commercial line % Brokerage 3 5.7% Average premium per employee 1 NT$11.7mn Note: (1) Ranking among private banks; (2) Ranking among top ten card issuers; per active card basis; (3) All data as of 2014 except mortgage data as of November

9 Integrated FHC model with extensive product offering, distribution network and customer base Powerful multi-channel enables cross-selling Taipei Bank Bank Fubon Life Fubon Insurance Fubon Securities 127 branches 16,681 sales agents 30,712 agents 57 securities service centers 616 ATMs 328 agency offices 845 Wealth Management advisors 45 bancassurance partners 72 agency offices 1,016 brokers e-platform: Fubon.com, Fubon e01 online brokerage, 518fb online P&C policy application/payment system Customer base of 10 million nearly half of Taiwan population (million people) Note: Bank Life P&C Securities Overlap FHC branches of Taipei Fubon Bank, 25 branches of Fubon Bank (Hong Kong) and 14 branches of Fubon Bank (China) 2. As of 2014/12/31 8

10 Overseas expansion Beijing Tianjin Liaoning Company name Taipei Fubon Bank Service network 5 branches : HK, LA, Hanoi, Binh Duong, Ho Chi Minh City Jiangsu Shanghai Bank Fubob Bank (HK) Xiamen Bank 22 branches, 3 securities services centers and 1 personal loan center 48 branches & sub-branches: Xiamen, Fujian, Chong Qing Chong Qing Fujian Fubon Bank (China) 14 branches & sub-branches: Shanghai, Suzhou, Tianjin, Shenzhen Taiwan Hong Kong Guangdong Fubon Insurance (China) 25 offices: Xiamen, Fujian, Chong Qing, Dalian Fubon Insurance - Vietnam subsidiary 6 offices: Hanoi, Binh Duong, Da Nang, Dong Nai, Hai Phong Thailand Vietnam Philippines Insurance Fubon Insurance Broker (Philippines) 1 office: Manila Fubon Insurance Broker (Thailand) 1 office: Bangkok Fubon Life - Vietnam subsidiary 2 offices: Hanoi, Ho Chi Minh City Indonesia Fubon Securities HK subsidiary Securities Founder Fubon fund management Beijing Note: Rep offices in Malaysia, Indonesia and China from subsidiaries under Fubon FHC. 9

11 Net profit contributions by subsidiaries Net profits by major subsidiaries Profit contribution from major subsidiaries NT$bn NT$bn Fubon Securities, 1.4, 2% Fubon Bank (HK), 2.3, 4% Fuobn P&C, 2.8, 5% Others, 0.2, 0% Taipei Fubon Bank, 18.0, 30% Fubon Life, 35.5, 59% Fubon FHC Taipei Fubon Bank Fubon Life Fuobn P&C Fubon Fubon Securities Bank (HK) Note: 2013 data is on pro forma basis to reflect fair value method for investment property evaluation data are unaudited. Note: Fubon Bank (China) contributed 2.4% net profits to the Company on the basis of 80% shareholding. 10

12 Outperformance among peers Net Income in 2014 (unaudited) 60,192 49,800 40,547 30,199 NT$mn 16,538 14,076 13,191 12,968 10,850 10,501 10,374 7,794 2,441 1,733 1,570 Fubon Cathay Chinatrust Mega Yuanta First Hua Nan SinoPac China E. Sun Taiwan Shin Kong Jih Sun Waterland Taishin Development Cooperative 5.88 Earnings per share in 2014 (unaudited) NT$/per share Fubon Cathay Chinatrust Mega Yuanta E. Sun First SinoPac Hua Nan Taiwan Cooperative Jih Sun China Shin KongWaterland Taishin Development 11

13 Persistency in outperformance Earnings per share NT$ Fubon Mega Taishin Cathay CTBC Fubon Mega CTBC Taishin Cathay Fubon CTBC Mega Taishin Cathay Fubon Mega CTBC Cathay Taishin Fubon Cathay Mega Taishin CTBC 0.1 Fubon Cathay CTBC Mega Taishin Note: Based on top 5 FHCs of average EPS during 2009 to data are preliminary basis. 12

14 Dividend & ROE Cash dividend NT$ ROE 16.2% 13.5% 6.3% 9.8% 9.9% 6.8% 5.3% 8.8% 7.0% 11.3% 9.3% 10.8% 10.1% M14 13

15 9M2014 Interim Results Fubon Financial Holdings

16 Disclaimer This meeting may contain forward-looking statements with respect to the financial condition, results of operations and business of the company. These forward-looking statements represent the company s expectations or beliefs concerning future events and involve known and unknown risks and uncertainty that could cause actual results, performance or events to differ materially from those expressed. Certain statements, such as those that include the words potential, estimated, and similar expressions or variations on such expressions may be considered forward-looking statements. Financial numbers in this report may include preliminary unaudited numbers or management accounts. 15

17 Agenda Performance highlights of Fubon Financial Holdings Performance review by subsidiary Taipei Fubon Bank Fubon Life Fubon Insurance Fubon Securities Fubon Bank (China) 16

18 Fubon Financial Holdings: Operation highlights Net profits NT$53.6 billion in 9M14, increase of 78% yoy Taipei Fubon Bank Revenue growth across all revenue lines Strong fee growth from wealth management business Fubon Life FYPE growth outperformed market as regular-paid contribution increase Strong investment performance from recurring and capital gains Fubon Insurance Top market position in Taiwan Outperformed underwriting results Fubon Securities Growth in market share from various business lines 17

19 Fubon Financial Holdings: Profitability Net profits NT$bn +78% * * 3.2 9M13 9M14 Earning per share (EPS) NT$ % * * M13 9M Note: (1) * Fubon adopted fair value method for investment property evaluation since September M13 and 2013 data are on pro forma basis. (2) Disposal gains of Fubon Multimedia Technology of NT$8bn and NT$0.8bn are recognized in 2011 and 2012 respectively. (3) Data in are T-IFRS basis, and data in 2011 are ROC GAAP basis. 18

20 Fubon Financial Holdings: Net profits by subsidiary Net profits by major subsidiaries Profit contribution from major subsidiaries NT$bn M13 9M14 NT$bn Fuobn P&C, 2.4, 5% Fubon Securities, 1.2, 2% Others, 2.1, 4% Taipei Fubon Bank, 16.6, 31% Fubon FHC Taipei Fubon Bank Fubon Life Fuobn P&C Fubon Securities Fubon Life, 31.3, 58% Note: 9M13 data is on pro forma basis to reflect fair value method for investment property evaluation. The impact to 9M13 net profits of Fubon FHC, Taipei Fubon Bank, Fubon Life, Fubon P&C, Fubon Securities is NT$3,234m, NT$26m, NT$3,269m, NT$198m and NT$12m, respectively. Note: Fubon Bank (China) contributed 2% net profits to the Company on the basis of 80% shareholding. 19

21 Fubon Financial Holdings: Asset and net worth Total assets NT$bn 4, % 5, ,623 4,106 * 4, * M13 9M14 Net worth NT$bn % * * M13 9M Note: * 9M13 and 2013 data are on pro forma basis to reflect fair value method for investment property evaluation. 20

22 Fubon Financial Holdings: ROA & ROE ROA 0.94% 1.46% 0.04% 0.87% 0.75% 0.88% * 0.13% * 0.10% 9M13 9M14 ROE % * 0.57% 20.05% 0.87% 13.54% 10.71% 11.54% * 1.04% 9M13 9M Note: * 9M13 and 2013 data are on pro forma basis to reflect fair value method for investment property evaluation. 21

23 Impact of investment property evaluation Impact to net worth and net income NT$m Net worth (2014/9/30) Net income (as of September 2014) Before After Difference Before After Difference Fubon FHC* 343, ,074 27,322 51,786 53,582 1,796 Taipei Fubon Bank 147, ,009 1,034 16,537 16, Fubon Life 168, ,537 23,870 29,803 31,253 1,450 Fubon Insurance 20,682 26,235 5,553 2,272 2, Fubon Securities 30,714 31, ,254 1,246 (8) Impact to ROA, ROE and BVPS as of September 2014 ROE ROA BVPS Before After Difference Before After Difference Before After Difference Fubon FHC* 20.92% 20.05% -0.87% 1.42% 1.46% 0.04% Taipei Fubon Bank 15.68% 15.61% -0.07% 1.14% 1.15% 0.01% Fubon Life 25.11% 22.98% -2.13% 1.57% 1.64% 0.07% Fubon Insurance 13.91% 11.59% -2.32% 4.11% 3.97% -0.14% Fubon Securities 5.50% 5.40% -0.10% 2.70% 2.67% -0.03% Note: * Inclusive of inter-company adjustments. 22

24 Agenda Performance highlights of Fubon Financial Holdings Performance review by subsidiary Taipei Fubon Bank Fubon Life Fubon Insurance Fubon Securities Fubon Bank (China) 23

25 Taipei Fubon Bank: Revenue Revenue growth across all revenue lines Strong net fee income growth from wealth management business Revenue composition of Taipei Fubon Bank NT$bn Fubon Bank (China) Treasury & others 33.6 Net fee income Net interest income M13 9M Note: Consolidated basis; Fubon Bank (China) accounted starting from Jan. 7 th,

26 Taipei Fubon Bank: Credit composition Slower loan growth mainly due to government repayment Loan growth excluding government loans was 6.8%, or 9.1% including A/R Loans and A/R by type NT$bn 1, ,197.5 YoY +4.0% (Loans and A/R) YoY +1.8% (Loans) Credit card revolving YoY -4.2% Other consumer loans YoY -6.6% Mortgage loan YoY +5.5% Forfaiting & factoring YoY +64.4% Corporate loan YoY +9.0% Note: Data are stand-alone basis in page Sep-13 Sep-14 Government loan YoY -23.4% 25

27 Taipei Fubon Bank: Corporate loan FX loans contribution gradually increase Corporate loan growth (yoy) by currency FX loan as % of corporate loans FX NTD 23.8% 24.2% 27.1% 21.1% 39.3% 39.3% 39.2% 39.9% 16.6% 6.6% 3.9% 5.7% 10.3% 8.8% 37.4% 3Q13 4Q13 1Q14 2Q14 3Q14 3Q13 4Q13 1Q14 2Q14 3Q14 Note: Average balance 26

28 Taipei Fubon Bank: Interest yield and margin NIM and loan-to-deposit spread NIM Loan-to-deposit spread 1.34% 1.27% 1.04% 1.10% 1.34% 1.33% 1.33% 0.99% 1.01% 1.05% 9M13 9M14 Loan yield and deposit yield Loan rate Deposit rate 2.04% 2.06% 1.98% 2.06% 2.04% 0.71% 0.79% 0.64% 0.73% 0.71% 9M13 9M14 Note: Loan rate calculation inclusive of credit card revolving

29 Taipei Fubon Bank: Deposit and LDR Deposit mix in NTD NTD loan-to-deposit ratio (LDR) and NIM NT$bn 1, % 46.7% 48.9% 53.3% Time Demand 89.2% 91.0% Sep-13 Sep-14 Sep-13 Sep-14 NIM 1.02% 1.02% Deposit mix in foreign currency Foreign currency LDR and NIM NT$bn % 61.6% Time Demand 70.7% 63.5% 46.6% 38.4% Sep-13 Sep-14 NIM Sep-13 Sep % 1.30% Note: Ending balance 28

30 Taipei Fubon Bank: Fee and wealth management revenue Fee growth 31.5% yoy alone with the growth momentum in wealth management business Sources of fee income NT$m 6,269 8,249 4,526 6,408 9M13 9M Total fee income Wealth management Credit card Sydication loan Wealth management revenue NT$m 1,798 1,778 1, ,162 2,256 1, , , ,290 DCI,SI,SN and others Mutual funds Custodian and trust Insurance commission 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Note: Fee income including Taipei Fubon Bank standalone and Taipei Fubon Bank Life Insurance Agency. Other income related to wealth management revenue are inclusive in the second chart. 29

31 Taipei Fubon Bank: Loan book quality NPL ratio Coverage ratio 0.20% % 0.11% 589.5% Sep-13 Sep-14 Sep-13 Sep-14 NPL ratio by business Provision 0.6% 0.4% 0.2% Corporate loan Mortgage loan Loans to TPC NT$1.1bn classified as NPL 0.30% NT$3.7bn one-off provision to achieve 1% general provision ratio 3,639 50% provision for TPC loans (80% as of October), netting off by other loans recovery NT$m 0.02% 0.0% Sep-11 Mar-13 Sep-14 9M M14 30

32 Agenda Performance highlights of Fubon Financial Holdings Performance review by subsidiary Taipei Fubon Bank Fubon Life Fubon Insurance Fubon Securities Fubon Bank (China) 31

33 Fubon Life: Total premium Growth in FYP and renewal premium led to total premium growth of 9% in 9M14 NT$bn FYP Renewal premium M13 9M

34 Fubon Life: First year premium (FYP) FYP increased 7% yoy in 9M14 Contribution from regular-paid traditional life increase FYP composition NT$bn 9M13 % 9M14 % YoY Traditional life: Regular-paid % % 77.7% Traditional life: Single-paid % % 27.1% Interest-sensitive annuity % % -85.0% Investment-linked % % 58.1% Health, accidents and others % % 7.0% Total % % 7.0% 33

35 Fubon Life: First year premium equivalent (FYPE) 20.1% growth in FYPE exceeds industry average growth of 12.9% Growth from regular-paid saving products and higher margin products Traditional life: Regular-paid NT$bn Traditional life: Single-paid Investment-linked 68.6 Interest-sensitive annuity Health, accidents and others % 66.5% 63.9% 63.1% 58.3% 19.7% 20.9% 2.1% 9.9% 2.6% 1.2% 9.8% 8.8% 9M13 9M % 25.2% 20.1% 1.8% 1.0% 0.8% 4.3% 2.7% 10.3% 8.2% 8.2% 9.5%

36 Fubon Life: Sales channel Size of agency force and FYP contribution growth Regular-paid FYP from bancassurance grow 2.8 times yoy FYP by channel FYP breakdown in bancassurance channel NT$bn Other Bancassurance: through Taipei Fubon bank Bancassurance: through external banks Tied agents NT$bn Regular-paid traditional Single-paid traditional & interest sensitive annuity M13 9M14 Number of agency force ,800 16, M13 9M14 Sep-13 Sep-14 35

37 Fubon Life: Composition of investment income Investment income mainly come from recurring revenue Outperformance in realized gains from fixed income and equity investment NT$bn 9M13 9M14 YoY Recurring investment income % Realized gains from fixed income investment % Realized gains from equity investment % FX and others % Investment property fair value movement * % Investment income % Total investment assets % Note: * 9M13 data is on pro forma basis to reflect fair value method for investment property evaluation. 36

38 Fubon Life: Investment portfolio Investment assets grew 15.8% yoy Portfolio toward overseas fixed income and equity investment Investment in OTC listed international bond reached 2.1% 2013/9/ /9/30 (NT$bn) Deposit and cash equivalent % % Domestic fixed income % % Overseas fixed income % 1, % Domestic equity % % Overseas equity % % Mortgage loans % % Policy loans % % Real estate % % Total Investments 2, % 2, % Domestic 1, % 1, % Overseas % 1, % 37

39 Fubon Life: Overseas fixed income portfolio Overseas fixed income by asset type Overseas fixed income by region 5.8% 4.7% 22.5% 24.1% 41.3% 43.8% Others Corporate credit Financial bond Government bond 53.3% 51.0% Asia & Other North America Europe 42.4% 45.4% 10.4% Sep % Sep % 24.8% Sep-13 Sep-14 38

40 Fubon Life: Hedging composition 1H Hedging cost & FX gain/loss 1H13 1H14 67 bps 72 bps M M14 1H Recurring return FX gain/loss CS cost FX gain/loss & net provision of FX reserve CS cost FX position Naked USD, 9.9% Other currencies, 2.4% Equities/ mutual funds, 11.9% 3.87% 3.97% % 3.62% Before hedge After hedge Fully hedge, 75.8% 9M13 9M14 39

41 Fubon Life: Investment spread continue to improve Positive investment spread widened Positive spread between recurring return and breakeven point (net underwriting cost) widened Investment spread Recurring return and breakeven point Cost of liabilities Investment return Breakeven point Recurring return 5.02% 4.57% 0.07% 4.01% * 0.22% 3.05% 3.89% 3.64% 3.62% 2.90% Sep-13 Sep-14 Sep-13 Sep-14 Note: * 9M13 data is pro forma basis to reflect fair value method for investment property evaluation Breakeven point = (Profit before tax Investment income) / Average investment assets 40

42 Fubon Life: Capital position NT$bn Movement of unrealized gains Unrealized gains under shareholder equity NT$bn Realized gains 12.0 Equity dividend 19.4 Mark to market 31.0 Jun-14 Sep-14 Net worth of Fubon Life NT$bn * * Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Note: * Sep-13 and Dec-13 data are pro forma basis to reflect fair value method for investment property evaluation 41

43 Agenda Performance highlights of Fubon Financial Holdings Performance review by subsidiary Taipei Fubon Bank Fubon Life Fubon Insurance Fubon Securities Fubon Bank (China) 42

44 Fubon Insurance: Operating snapshot Top 1 position in premium market share Outstanding underwriting performance Direct written premium by product NT$bn Others Health/Injury Engineering Marine Net combined ratio Net claim ratio Net expense ratio 87.2% 87.9% 34.7% 34.4% Fire Auto 52.5% 53.5% 9M13 Note: Standalone basis 9M14 9M13 9M14 Note: Exclusive of auto compulsory due to the claims are reimbursed. 43

45 Agenda Performance highlights of Fubon Financial Holdings Performance review by subsidiary Taipei Fubon Bank Fubon Life Fubon Insurance Fubon Securities Fubon Bank (China) 44

46 Fubon Securities: Financial highlights Market share and business ranking uplift across business lines Top 1 ranking in Taiwan IPO market Market share & ranking 9M14 Ranking 9M13 Ranking Brokerage 5.81% #3 5.48% #3 Brokerage per branch 0.10% #2 0.09% #3 Emerging stock trading 18.94% # % #2 SPO amount 7.37% #4 5.68% #5 IPO amount 29.29% # % #3 Operating revenue Net profits NT$m 4,642 1,246 4,232 1,142 9M13 9M14 9M13 9M14 45

47 Agenda Performance highlights of Fubon Financial Holdings Performance review by subsidiary Taipei Fubon Bank Fubon Life Fubon Insurance Fubon Securities Fubon Bank (China) 46

48 Fubon Bank (China): Key balance sheet items Loans Deposits RMB$m 40,200 38,920 31,278 28,506 Sep-13 Sep-14 Sep-13 Sep-14 Assets Net worth 4,433 56,620 3,228 44,268 Sep-13 Sep-14 Sep-13 Sep-14 47

49 Fubon Bank (China): Financial highlight Asset quality and NIM improvement qoq Net Profits NIM RMB$m % 1.74% 1.86% Sep-13 Sep-14 Sep-13 Jun-14 Sep-14 ROAA & ROAE NPL ratio & Coverage ratio 18.29% ROAA ROAE NPL 1.48% Coverage ratio 1.25% 0.83% 11.70% 476.2% 0.37% 154.8% 0.94% 264.7% Sep-13 Sep-14 Sep-13 Jun-14 Sep-14 Note: ROAA and ROAE are annualized basis 48

50 2013 Embedded Value of Fubon Life

51 Value Creation Summary NT$bn Inforce Value Creation New Sales Value Creation Appraisal Value (20 year NB) Value per FHC share Items YoY Diff Impact Net Worth (Book Value) % Adjusted Net Worth % 32.7 VIF (before CoC) % 54.8 Cost of Capital (CoC) (58.4) (68.0) -16.5% -9.6 VIF (After CoC) % 45.1 Embedded Value % 77.9 FYP % FYPE % APE % VNB % 0.1 VNB margin (VNB/FYP) 12.7% 15.0% 17.7% 2.2% VNB margin (VNB/FYPE) 46.2% 58.8% 27.1% 12.5% VNB margin (VNB/APE) 44.2% 58.4% 32.0% 14.2% Multiplier % 0.0 Appraisal Value % 78.7 Outstanding shares (FHC) % 0.7 Embedded Value % 6.0 Appraisal Value %

52 Movement Analysis: Adjusted Net Worth NT$bn (0.2) (38.5) (15.2) Statutory Net 31, 2012 IFRS adj Un-realized capital gain Earning Statutory Net 31, 2013 Special Reserve (FX and RE Appraisal) Adjust Market Value of (AFS) Fixed Income Asset to Book Value Goodwill Adjusted Net 31, 2013 % of change + 0.8% -23.3% % -10.8% Adjust.% + 1.0% -10.3% -0.1% -9.4% Figures may not add up due to rounding 51

53 Movement Analysis: Value of In-Force (before CoC) NT$bn (16.9) VIF (before CoC) Existing business - transfer to net worth Required return on existing business Model & Data Change Eco. Assumption Change Non-eco. Assumption Change 2013 VNB(before CoC) 2013 VIF(before CoC) % of change -9.6% % + 2.0% + 5.1% + 1.0% % % Note: 1. The equivalent return of EV2012 reporting for in-force is 4.45% and increases to 4.51% considering rolling over effect. 2. The equivalent return of EV2013 reporting for in-force is 4.57% VNB (after CoC) is 31.8 billion 2013 RDR: 10.5% for VNB and 11% for VIF to reflect higher risk of legacy block in in-force portfolio and shareholders require higher rate of return 52

54 Movement Analysis: Value of New Business NT$bn (7.6) VNB Sales Volume Product Mix Econ. Change Non-Econ. Change 2013 VNB % of change -24.0% + 7.9% % + 3.8% + 0.3% VNB/APE 44.2% 0.0% + 4.6% + 7.3% + 2.2% 58.4% Note: 1. The equivalent return of EV2012 reporting for NB is 4.41% and changes to 4.23% considering rolling over effect and reflecting 2013 sales portfolio. 2. The equivalent return of EV2013 reporting for NB is 4.50% Risk Discount Rate: 10.5% for VNB 53

55 Economic Assumption Year 2012 Year 2013 Investment return VIF NTD Traditional Policies: Year 2013 to Year 2051 at 3.88%~5.32%(2052+) USD Policies : Year 2013 to Year 2017 at 5.16%~5.18%(2018+) V1NB NTD Traditional Policies : Year 2013 to Year 2051 at 3.39%~5.32%(2052+) USD Policies : Year 2013 to Year 2020 at 4.83%~5.18%(2021+) ISA Average retained spread for the Interest sensitive business is around 100bps. VIF NTD Traditional Policies : Year 2014 to Year 2051 at 3.94%~5.32%(2052+) USD Policies : Year 2014 to Year 2036 at 5.16%~5.94%(2037+) V1NB NTD Traditional Policies : Year 2014 to Year 2048 at 3.74%~5.32%(2049+) USD Policies : Year 2014 to Year 2032 at 5.14%~5.94%(2033+) ISA Average retained spread for the Interest sensitive business is around 100bps. Risk Discount Rate 11% for VIF; 10.5% for V1NB 11% for VIF; 10.5% for V1NB Equivalent Return YC (10 year) Initial / ultimate VIF : 4.45% (rolling over to 2013: 4.51%) V1NB: 4.41% (rolling over to 2013: 4.23%) TWD: 1.29% / 3.50% USD : 1.84% / 5.25% VIF: 4.57% V1NB: 4.50 % TWD: 1.72% / 3.50% USD : 3.09% / 5.25% Note: The FX reserve mechanism stipulated from 2012, its respective cost is reflected in the derivation of portfolio return. 54

56 Economic Assumption: VIF Portfolio Return 55

57 Economic Assumption: V1NB Portfolio Return 56

58 Economic Assumption: Discount Rate Fubon Life 2012/12/ /12/31 Risk Free Rate 1.29%~3.5% 1.72%~3.5% Equity plus Country Risk Premium 7.00% 6.50% Beta Calculated RDR 9.7%~11.9% 9.5%~11.3% RDR used in the valuation VIF:11% VNB:10.5% VIF:11% VNB:10.5% RDR: According to CAPM (Capital Asset Pricing Model); RDR = Risk Free Rate + Beta * Equity and Country Premium. RDR used for 2013 VIF calculation is 11% and 10.5% for 2013 V1NB calculation. 57

59 Cost of Capital Cost of Capital projection Project future cost of capital is based on future capital requirement maintaining regulatory minimum RBC level of 200% considering following factors: 1) K factor:0.50 from 2013 in line with current RBC regulation; 2) Add 10% C3 risk capital of previous year for all traditional products every year (excludes investment-linked product); 3) Reflect current business operation and future strategy. Risk-based capital (RBC) regulation changes & adjustments in 2013: 1) Modification of concentration risk calculation basis by dividing total overseas investment into six subgroups. 2) Re-classification of C1s by including equity-type funds 3) Revision of extension period calculation basis of naked real estate for risk capital calculation. 58

60 Sensitivity Summary: Portfolio Return NT$bn VIF (before CoC) VIF -17.5% 17.5% -26.6% 26.6% (40.2) 40.2 (43.1) 43.1 Return % Base Return % EV Return % Base Return % VNB -14.6% 14.6% -13.6% 13.6% (43.1) Return % Base Return % (4.3) Return % Base Return % Note: ANW will not be affected by portfolio return 59

61 Sensitivity Summary: Risk Discount Rate NT$bn VIF (before CoC) VIF 8.2% -6.9% 14.3% -12.0% (15.8) 23.1 (19.4) RDR - 1% Base RDR + 1% EV RDR - 1% Base RDR + 1% VNB 7.8% -6.6% 13.9% -11.8% (19.4) (3.8) RDR - 1% Base RDR + 1% RDR - 1% Base RDR + 1% Note: ANW will not be affected by RDR 60

62 2013 Summary: Track record of Fubon Life s Value Creation NT$bn Value of New Business VNB as % of FYP CAGR: 22% (2.7x) % 8.7% CAGR: 16% (2.1x) 12.6% 8.0% 12.7% 15.0% 11.8 EV2008 EV2009 EV2010 EV2011 EV2012 EV2013 Value of In-force EV2008 EV2009 EV2010 EV2011 EV2012 EV2013 Embedded Value CAGR: 33% (4.2x) CAGR: 31% (3.8x) EV2008 EV2009 EV2010 EV2011 EV2012 EV2013 EV2008 EV2009 EV2010 EV2011 EV2012 EV

63 Investment Return: Assumption vs. Actual Assumption Actual EV2009 EV2010 EV2011 EV2012 EV

64 Independent Review by Deloitte Actuarial The Engagement Deloitte Actuarial Deloitte Actuarial and Insurance Solutions (Hong Kong) Limited ( Deloitte Actuarial ) were retained by Fubon Life to perform an independent review of the Embedded Value (EV) as at 31 December 2013 and the Value of One Year s New Business (V1NB) written over the period of 1 January 2013 to 31 December Scope of Deloitte Actuarial s Involvement Review and opine on the reasonableness of the EV and V1NB as calculated by the Company; Review of the reasonableness of the assumptions used in the calculations, taking into consideration both the Company s recent experience and the experience of the Taiwanese life insurance market; Review, at a high-level, model changes to the actuarial projection model since the previous valuation date; Review of the Company s projection approach of the Cost of Capital; Review of the data put through the model compared to the policy data on the Company s policy administration systems to judge the extent to which the business has been valued in the financial model and to identify the portion (if any) omitted and how that was valued; Review of the approach used to determine the Adjusted Net Worth ( ANW ), in particular, the adjustments made in deriving the ANW, and any other adjustments made outside of the actuarial projection model; Review of the Company's analysis of change in the Value of In-Force Business ( VIF ) between 31 December 2012 and 31 December

65 Risk Adjusted Discount Rates Fubon Life calculated the EV and V1NB at Risk Adjusted Discount Rates ( RDR ) of 11.0% and 10.5% respectively. RFR based on current government bond yield RFR based on Company s longterm view Equivalent RFR for New Business Equivalent RFR for In-Force Business Risk Free Rate ( RFR ) 1.72% 3.50% 2.66% 2.78% Equity and Country Risk Premium 6.50% 6.50% 6.50% 6.50% Beta Calculated Risk Discount Rate 9.52% 11.30% 10.46% 10.58% Risk Discount Rate used in the Valuation for VIF Risk Discount Rate used in the Valuation for V1NB 11.00% 10.50% Reference RDR based on Capital Asset Pricing Model (CAPM): RDR = RFR + Beta * Equity and Country Risk Premium 64

66 Comments on the Risk Adjusted Discount Rates Deloitte Actuarial Deloitte Actuarial independently derived a range of RDRs using the CAPM approach: The low end of the RDR is developed based on the current yield on 10-year Taiwan government bonds. The high end of the RDR is developed based on the Company s view of the 10-year Taiwan government bond in the future. The equivalent RFR is the RFR equivalent to using a set of graded-up RFR from 1.72% to 3.50% that derives the same VIF and V1NB. The Equity and Country Risk Premium was developed based on the Country Default Spreads and Risk Premiums research published by New York University. The Beta of 1.2 was set using a risk profiling approach which considers risks related to the product range, distribution diversification/vulnerability, regulatory intervention and investments. Note that this beta value is consistent with that used in previous valuations. The RDR assumption applied by Fubon Life in the valuation lies within the range of RDR that we derived. In particular, we feel comfortable with different RDRs being used for the valuation of the in-force and new business, given the specific market conditions in Taiwan: it is well-known that the legacy business has a much riskier profile than the current new business, and hence it is reasonable for shareholders to be expecting a higher rate of return for the higher risk level. We feel that Fubon Life has taken a good approach in splitting up the RDR assumption for the two distinctively different blocks of business. 65

67 Comments on Investment Return (1) Deloitte Actuarial A set of rising investment return assumption has been used in this valuation which is considered reasonable for the present market conditions. Fubon Life s derivation of the investment return assumption is featured by the following: Derivation methodology is consistent with that applied in previous valuations; The methodology involves: For VIF, the investment return assumption was derived from a combination of the investment return generated by the run-off of the existing asset portfolio and of that from future purchases of new assets; For V1NB, the new business is not supported by returns on existing assets and the investment return was derived from future purchases of new assets; New assets are purchased at the prevailing new money rates, which are set to equal to the expected future risk free rates plus a risk margin for each asset type; Future risk free rates are set starting off with the actual yield curves as at the valuation date and are assumed to rise to a long-term level over a 10-year period. For New Taiwan Dollar and US Dollar respectively, the initial risk free rates are 1.72% and 3.09% and a long-term risk free rate of 3.50% and 5.25% is assumed. Different assumptions were derived for different types of business, which were assumed to have a different long-term asset allocation. For some business lines, the investment return assumption derived in the above-mentioned manner was capped at a certain level for conservative reasons. 66

68 Comments on Investment Return (2) Deloitte Actuarial It is in Deloitte Actuarial s view that: Methodology Fubon Life s derivation methodology for the investment return assumption is reasonable and consistent with the way that the ANW is calculated; Economic Assumptions The expected long-term risk-free rate for New Taiwan Dollar yield and US Dollar yield are maintained at 3.5% and 5.25% respectively. We note that taking a view on the future capital market is not uncommon under the traditional Embedded Value methodology. On a macro-economic level the arguments put forward for rising interest rates are plausible, and we note that the expected future rise in yields is spread out over a reasonably long period of 10 years. Readers should be aware that capital market conditions are subject to the impact of many forces. Yields and prices of financial instruments can move dramatically in a short period of time. As a result, it is difficult to predict the interest rate level in the future with great certainty. Readers should refer to the sensitivity tests to develop a broader understanding of the impact of the investment return assumption on the assessment of the economic value of Fubon Life. Overall, the economic assumptions appear to be reasonable. 67

69 Comments on EV and V1NB Results Deloitte Actuarial Deloitte Actuarial have reviewed the Embedded Value and Value of One Year s New Business results at a high-level under the generally accepted method for calculating traditional embedded values in Taiwan: Review of the changes in the VIF relative to the assumption changes and model changes from 2012 to 2013; Review of the changes in the new business profit margin relative to that in 2012 based on information on changes in sales mix, sales volume and valuation assumptions; Review of the sensitivities relative to the base case results. The Embedded Value and Value of One Year s New Business results appear to be reasonable within the above context. Deloitte Actuarial s detailed opinion can be found in their opinion letter. 68

70 Comments on Non-Economic Assumptions Deloitte Actuarial Non-Economic Assumptions The non-economic assumptions reflect Fubon Life s best estimate of future operating experience, and are appropriately supported by the company s historical operating experience. 69

71 Thank you