Sun life Grepa Financial, Inc.

Transcription

1 Sun life Grepa Financial, Inc. Financial Statements December 31, 2012 (With Comparative Figures for December 31, 2011) and Independent Auditors' Report SyCip Gorres Velayo & Co.

2 SyCip Gorres Velayo & Co Ayala Avenue 1226 Makati City Philippines Phone: (632) Fax: (632) BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015 SEC Accreditation No FR-3 (Group A), November 15, 2012, valid until November 16, 2015 INDEPENDENT AUDITORS REPORT The Stockholders and the Board of Directors Sun Life Grepa Financial, Inc. Report on the Financial Statements We have audited the accompanying financial statements of Sun Life Grepa Financial, Inc., which comprise the statement of financial position as at December 31, 2012, and the statement of income, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. A member firm of Ernst & Young Global Limited

3 - 2 - Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Sun Life Grepa Financial, Inc. as at December 31, 2012, and its financial performance and its cash flows for the year then ended in accordance with Philippine Financial Reporting Standards. Other Matter The financial statements of Sun Life Grepa Financial, Inc. as of and for the year ended December 31, 2011 were audited by other auditors whose report dated March 14, 2012 expressed an unqualified opinion on those statements. The report of the other auditors does not cover the restatement of the financial statements as of and for the year ended December 31, 2011 as discussed in Note 33 to the financial statements. Report on the Supplementary Information Required Under Revenue Regulations and Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information required under Revenue Regulations and in Notes 34 and 35 to the financial statements, respectively, is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Such information is the responsibility of the management of Sun Life Grepa Financial, Inc. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. SYCIP GORRES VELAYO & CO. Arnel F. De Jesus Partner CPA Certificate No SEC Accreditation No AR-2 (Group A), February 14, 2013, valid until February 13, 2016 Tax Identification No BIR Accreditation No , June 19, 2012, valid until June 18, 2015 PTR No , January 2, 2013, Makati City March 13, 2013

4 SUN LIFE GREPA FINANCIAL, INC. STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2012 (With Comparative Figures for December 31, 2011) (As restated) ASSETS Cash and Cash Equivalents (Notes 6 and 30) P=1,185,476,115 P=957,828,636 Insurance Receivables (Notes 7 and 30) 160,058, ,274,182 Financial Assets (Notes 8 and 30) Financial assets at fair value through profit or loss 432,682, ,080,665 Available-for-sale financial assets 12,623,870,734 11,806,491,073 Loans and receivables - net 1,151,667, ,340,286 Variable Unit-Linked Segregated Fund Assets (Note 18) 3,755,927,854 Investments in Subsidiaries (Notes 9 and 30) 1,581,080,300 1,581,080,300 Accrued Income (Notes 10 and 30) 323,483, ,740,403 Property and Equipment - net (Note 11) 63,787,703 75,779,891 Net Pension Asset (Note 27) 50,291,300 Other Assets (Note 12) 55,622,783 43,545,959 P=21,333,657,819 P=16,743,452,695 LIABILITIES AND EQUITY Liabilities Legal policy reserves (Notes 13 and 30) P=11,140,017,609 P=10,526,567,651 Variable unit-linked segregated fund liabilities (Note 18) 3,755,927,854 Policy and contract claims payable (Notes 14 and 30) 489,472, ,257,684 Policyholders dividends (Notes 15 and 30) 142,040, ,018,943 Premium deposit fund (Note 16 and 30) 632,660, ,725,635 Insurance payables (Notes 17 and 30) 350,232,469 86,212,598 Accounts payable and accrued expenses (Notes 19 and 30) 259,516, ,928,894 Net pension liability (Note 27) 897,300 Other liabilities 9,103,166 11,520,670 16,779,868,412 12,196,232,075 Equity Capital stock (Note 20) 350,000, ,000,000 Contributed surplus 1,093,545 1,093,545 Revaluation reserves (Notes 8 and 33) 1,684,305, ,842,876 Retained earnings (Note 21) 2,518,390,364 3,246,284,199 4,553,789,407 4,547,220,620 P=21,333,657,819 P=16,743,452,695 See accompanying Notes to Financial Statements.

5 SUN LIFE GREPA FINANCIAL, INC. STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2012 (With Comparative Figures for 2011) (As restated) REVENUE (Note 22) Gross premiums on insurance contracts P=2,249,291,523 P=3,100,365,231 Reinsurers share of gross premiums on insurance contracts (57,421,080) (40,659,464) Net insurance premiums 2,191,870,443 3,059,705,767 Investment income (Note 23 and 33) 972,848,936 1,086,623,751 Fee income (Note 24) 58,488, ,500 Foreign exchange gain - net 50,159,528 Other income 83,314,544 39,639,382 Investment and other income 1,114,651,994 1,176,796,161 Total revenue 3,306,522,437 4,236,501,928 BENEFITS AND EXPENSES (Note 25) Insurance benefits and claims incurred 1,035,387, ,396,687 Reinsurers share in insurance benefits and claims incurred (6,373,410) (12,600,400) Gross change in legal policy reserves 610,916,462 1,509,053,284 Reinsurers share of gross change in legal policy reserves 2,533,496 (233,381) Net insurance benefits and claims 1,642,464,119 2,452,616,190 Commissions and other direct expenses (Note 26) 696,322, ,742,590 General and administrative expenses (Note 26) 512,968, ,075,010 Insurance taxes 55,358, ,193,853 Interest expense 33,536,349 31,841,609 Foreign exchange loss - net 195,835,338 Expenses 1,494,020,502 1,400,853,062 Total benefits and expenses 3,136,484,621 3,853,469,252 INCOME BEFORE INCOME TAX 170,037, ,032,676 PROVISION FOR INCOME TAX (Note 28) 97,931,651 62,110,380 NET INCOME P=72,106,165 P=320,922,296 See accompanying Notes to Financial Statements.

6 SUN LIFE GREPA FINANCIAL, INC. STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2012 (With Comparative Figures for 2011) (As restated) NET INCOME (Note 33) P=72,106,165 P=320,922,296 OTHER COMPREHENSIVE INCOME Fair value gains on available-for-sale financial assets (Note 8 and 33) 836,031, ,322,444 Transfers to profit or loss (Note 8) (101,569,142) (43,122,156) Revaluation of held-to-maturity investments reclassified to available-for-sale financial assets 463,839, ,462, ,039,713 TOTAL COMPREHENSIVE INCOME P=806,568,787 P=962,962,009 See accompanying Notes to Financial Statements.

7 SUN LIFE GREPA FINANCIAL, INC. STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2012 (With Comparative Figures for 2011) Capital Stock (Note 20) Contributed Surplus Available-for-sale Financial Assets (Notes 8 and 33) Reserves Property and Equipment Retained Earnings (Notes 21 and 33) Total As at January 1, 2012 As previously reported P=350,000,000 P=1,093,545 P=873,369,196 P= P=3,259,561,860 P=4,484,024,601 Prior period adjustments (Note 33) 76,473,680 (13,277,661) 63,196,019 As restated 350,000,000 1,093, ,842,876 3,246,284,199 4,547,220,620 Net income 72,106,165 72,106,165 Other comprehensive income 734,462, ,462,622 Total comprehensive income 734,462,622 72,106, ,568,787 Cash dividends (800,000,000) (800,000,000) As at December 31, 2012 P=350,000,000 P=1,093,545 P=1,684,305,498 P= P=2,518,390,364 P=4,553,789,407 As at January 1, 2011 P=303,600,000 P=1,093,545 P=307,803,163 P=555,975,085 P=2,931,277,620 P=4,099,749,413 Net income, as restated 320,922, ,922,296 Other comprehensive income, as restated 642,039, ,039,713 Total comprehensive income, as restated 642,039, ,922, ,962,009 Cash dividends (753,600,000) (753,600,000) Stock dividends 46,400,000 (46,400,000) Increase in revaluation reserves due to appraisal 238,109, ,109,198 Decrease in revaluation reserves due to: Disposals (792,106,121) 792,106,121 Transfers (1,978,162) 1,978,162 As at December 31, 2011 P=350,000,000 P=1,093,545 P=949,842,876 P= P=3,246,284,199 P=4,547,220,620 See accompanying Notes to Financial Statements.

8 SUN LIFE GREPA FINANCIAL, INC. STATEMENT OF CASH FLOWS DECEMBER 31, 2012 (With Comparative Figures as of December 31, 2011) (As restated) CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=170,037,816 P=383,032,676 Adjustments for: Changes in legal policy reserves (Note 13) 613,449,958 1,508,819,903 Amortization of bond premium (Note 8) 105,350,356 53,254,219 Unrealized foreign exchange loss (gain) - net 74,761,080 (6,188,423) Provision for impairment loss (Note 26) 36,043,569 Depreciation (Note 11) 24,658,298 37,363,356 Loss (gain) on sale of property and equipment (354,675) 11,462,118 Fair value gains on financial assets at fair value through profit or loss (Note 8) (3,882,633) (2,700,268) Gain on sale of available-for-sale financial assets (108,582,249) (43,122,156) Dividend income (Note 23) (157,117,712) (405,649,226) Interest income (Note 23) (703,266,342) (615,193,120) Operating income before changes in working capital 51,097, ,079,079 Changes in operating assets and liabilities: Decrease (increase) in: Insurance receivables (20,784,367) (8,148,992) Loans and receivables (196,357,753) (360,511,609) Other assets (12,076,824) 2,762,363 Increase (decrease) in: Policy and contract claims payable 78,215,095 44,300,630 Policyholders dividends 22,021,476 13,832,413 Premium deposit fund (148,065,216) (24,683,124) Insurance payables 264,019, ,193,544 Accounts payable and accrued expenses (412,497) (33,573,228) Net pension liability 51,188,600 (42,108,900) Other liabilities (2,417,504) (22,067,849) Net cash flows generated from operations 86,428, ,074,327 Income tax paid (97,931,651) (62,110,380) Net cash provided by (used in) operating activities (11,503,304) 529,963,947 CASH FLOWS FROM INVESTING ACTIVITIES Interest received 826,053, ,981,949 Dividend received 35,587, ,822,064 Acquisitions of: Financial assets at fair value through profit or loss (Note 8) (524,918,129) Available-for-sale financial assets (Note 8) (979,266,389) (6,716,677,524) Held-to-maturity investments (Note 8) (690,633,881) Property and equipment (Note 11) (15,719,478) (28,133,501) (Forward)

9 (As restated) Proceeds from sale/maturities of: Available-for-sale financial assets (Note 8) P=817,807,056 P=4,719,980,762 Financial assets at fair value through profit or loss (Note 8) 351,280, ,254 Held-to-maturity investments (Note 8) 13,165,500 Property and equipment 3,408, ,904,788 Investment properties 39,400,301 Investments in subsidiaries 521,100,000 Net cash flows provided by (used in) investing activities 1,039,150,783 (1,449,604,417) CASH FLOWS FROM A FINANCING ACTIVITY Dividends paid to stockholders (Note 21) (800,000,000) (753,600,000) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 227,647,479 (1,673,240,470) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 957,828,636 2,631,069,106 CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 6) P=1,185,476,115 P=957,828,636 See accompanying Notes to Financial Statements.

10 SUN LIFE GREPA FINANCIAL, INC. NOTES TO FINANCIAL STATEMENTS 1. Corporate Information Sun Life Grepa Financial, Inc. (the Company), formerly known as Grepalife Financial, Inc., was incorporated and registered with the Securities and Exchange Commission (SEC) in 1954 and renewed its corporate existence in The Company was formed to undertake life insurance business, including accident and health insurance; to write insurance contracts providing for all risks, hazards, guarantees and contingencies to which life, accident or health insurance is applicable; to grant endowment and annuities; to issue insurance policies providing for participation or nonparticipation of profits; to reinsure all or part of the risks underwritten by the Company; to undertake all kinds of reinsurance to the extent allowed by the law; and to act as agent or general agent of another insurance company. The Company is a subsidiary of GPL Holdings, Inc. (GPLHI), a corporation which is majority owned by the Company s ultimate parent, Pan Malayan Management and Investment Corporation (PMMIC). Both GPLHI and PMMIC are registered companies in the Philippines with offices located at 6th Floor, Grepalife Building, 221 Senator Gil J. Puyat Avenue, Makati City and 48th Floor, Yuchengco Tower, RCBC Plaza, 6819 Ayala Avenue, Makati City, respectively. On February 17, 2011, GPLHI, the Company s immediate parent entered into an agreement with Sun Life Financial Philippine Holding Company, Inc. (SLFPHI) to sell forty-nine percent (49%) of its interest in the Company, and was renamed Sun Life Grepa Financial, Inc. at the completion of the purchase on October 24, Accordingly, as of December 31, 2011, the Company is 51%-owned by GPLHI and 49%-owned by SLFPHI. The registered office address of the Company is 6th Floor, Grepalife Building, 221 Senator Gil J. Puyat Avenue, Makati City. The accompanying financial statements of the Company were approved and authorized for issue by the Board of Directors (BOD) on March 13, Basis of Preparation The financial statements of the Company have been prepared on a historical cost basis, except for available-for-sale (AFS) financial assets and financial assets at fair value through profit or loss (FVPL), which have been measured at fair value. The financial statements are presented in Philippine Peso (P=), which is the Company s functional currency. All amounts are rounded off to the nearest peso amount, unless otherwise indicated. The Company has made use of the exemption from consolidation under Philippine Accounting Standard (PAS) 27, Separate and Consolidated Financial Statements. These financial statements are the separate financial statements of the Company. The financial statements of the Company and its subsidiaries are included in the consolidated financial statements of Pan Malayan Management and Investment Corporation, which are in accordance with Philippine Financial Reporting Standards (PFRS). The registered office address of Pan Malayan Management and Investment Corporation is 48th Floor, Yuchengco Tower, RCBC Plaza, 6819 Ayala Avenue, Makati City, where the consolidated financial statements can be obtained.

11 - 2 - Statement of Compliance The accompanying financial statements have been prepared for submission with the Bureau of Internal Revenue and the Philippine Securities and Exchange Commission (SEC) in compliance with PFRS. 3. Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of the following amended PFRS, which became effective on January 1, Amendments to PFRS 7, Financial Instruments: Disclosures - Transfers of Financial Assets The amendments require additional disclosures about financial assets that have been transferred but not derecognized to enhance the understanding of the relationship between those assets that have not been derecognized and their associated liabilities. In addition, the amendments require disclosures about continuing involvement in derecognized assets to enable users of financial statements to evaluate the nature of, and risks associated with, the entity s continuing involvement in those derecognized assets. The Company has no assets with these characteristics, thus, the amendments did not affect disclosures nor have any impact on the Company s financial position or performance. Amendment to PAS 12, Income Taxes - Deferred Tax: Recovery of Underlying Assets This amendment to PAS 12 clarifies the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that the carrying amount of investment property measured using the fair value model in PAS 40, Investment Property, will be recovered through sale and, accordingly, requires that any related deferred tax should be measured on a sale basis. The presumption is rebutted if the investment property is depreciable and it is held within a business model whose objective is to consume substantially all of the economic benefits in the investment property over time ( use basis), rather than through sale. Furthermore, the amendment introduces the requirement that deferred tax on non-depreciable assets measured using the revaluation model in PAS 16, Property, Plant and Equipment, always be measured on a sale basis of the asset. The amendment did not have an impact on the Company s financial position or performance since it has no investment property and non-depreciable assets measured using the fair value model and revaluation model, respectively. Future Changes in Accounting Policies The Company will adopt the following new and amended standards and interpretations enumerated below when these become effective. Except as otherwise indicated, the Company does not expect the adoption of these new and amended PFRS and Philippine Interpretations to have significant impact on the Company financial statements. Effective 2013 Amendments to PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set off in accordance with PAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set-off in

12 - 3 - accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period: a) The gross amounts of those recognized financial assets and recognized financial liabilities; b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the net amounts presented in the statement of financial position; c) The net amounts presented in the statement of financial position; d) The amounts subject to an enforceable master netting arrangement or similar agreement that are not otherwise included in (b) above, including: i. Amounts related to recognized financial instruments that do not meet some or all of the offsetting criteria in PAS 32; and ii. Amounts related to financial collateral (including cash collateral); and e) The net amount after deducting the amounts in (d) from the amounts in (c) above. The amendments affect disclosures of financial instruments only and have no impact on the Company s financial position or performance. PFRS 10, Consolidated Financial Statements PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements, that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC 12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27. The standard will not have a significant impact on its financial position and performance since the Company assessed that there will be no change in the entities it controls. PFRS 11, Joint Arrangements PFRS 11 replaces PAS 31, Interests in Joint Ventures, and SIC 13, Jointly Controlled Entities - Non-Monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly controlled entities using proportionate consolidation. Instead, jointly controlled entities that meet the definition of a joint venture must be accounted for using the equity method. The application of this new standard will not impact the financial position or performance because the Company has no interest in a joint venture. PFRS 12, Disclosure of Interest in Other Entities PFRS 12 includes all of the disclosures related to consolidated financial statements that were previously in PAS 27, as well as all the disclosures that were previously included in PAS 31 and PAS 28, Investments in Associates. These disclosures relate to an entity s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. The adoption of this standard will not have a significant impact on its financial position or performance since the Company assessed that there will be no significant changes in the disclosures required by PAS 27, 28, and 31. PFRS 13, Fair Value Measurement PFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted.

13 - 4 - This standard should be applied prospectively as of the beginning of the annual period in which it is initially applied. Its disclosure requirements need not be applied in comparative information provided for periods before initial application of PFRS 13. The amendments affect disclosures only and have no impact on the Company s financial position or performance. Amendments to PAS 1, Financial Statement Presentation, Presentation of Items of Other Comprehensive Income (OCI) The amendments to PAS 1 change the grouping of items presented in OCI. Items that can be reclassified (or recycled ) to profit or loss at a future point in time (for example, upon derecognition or settlement) will be presented separately from items that will never be recycled. The amendments will be applied retrospectively and will result to the modification of the presentation of items of OCI. Amendment to PAS 19, Employee Benefits Amendments to PAS 19 range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and rewording. The revised standard also requires new disclosures such as, among others, a sensitivity analysis for each significant actuarial assumption, information on asset-liability matching strategies, duration of the defined benefit obligation, and disaggregation of plan assets by nature and risk. Once effective, the Company has to apply the amendments retroactively to the earliest period presented. The Company reviewed its existing employee benefits and determined that the amended standard has significant impact on its accounting for retirement benefits. The Company obtained the services of an external actuary to compute the impact to the financial statements upon adoption of the standard. The effects are detailed below: December 31, 2012 January 1, 2012 Statement of Financial Position Increase (decrease) in: Net pension liability P=41,711,400 P=101,722,600 Other comprehensive income 23,583,300 65,411,200 Retained earnings 36,244,000 (183,900) Statements of Comprehensive Income 2012 Increase (decrease) in: Pension expense (P=36,427,900) Profit for the year 36,427,900 Other comprehensive income 23,583,300 PAS 27 (Revised), Separate Financial Statements As a consequence of the issuance of the new PFRS 10, Consolidated Financial Statements, and PFRS 12, Disclosure of Interests in Other Entities, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in the separate financial statements. The adoption of the amended PAS 27 will not have a significant impact on the separate financial statements of the Company since the Company s accounting policy is already consistent with the revised PAS 27.

14 - 5 - PAS 28 (Revised), Investments in Associates and Joint Ventures As a consequence of the issuance of the new PFRS 11, Joint Arrangements, and PFRS 12, Disclosure of Interests in Other Entities, PAS 28 has been renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The amendment has no impact on the Company s financial position or performance since it has no investment in associate or joint ventures. Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine This interpretation applies to waste removal costs ( stripping costs ) that are incurred in surface mining activity during the production phase of the mine ( production stripping costs ). If the benefit from the stripping activity will be realized in the current period, an entity is required to account for the stripping activity costs as part of the cost of inventory. When the benefit is the improved access to ore, the entity should recognize these costs as a noncurrent asset, only if certain criteria are met ( stripping activity asset ). The stripping activity asset is accounted for as an addition to, or as an enhancement of, an existing asset. After initial recognition, the stripping activity asset is carried at its cost or revalued amount less depreciation or amortization and less impairment losses, in the same way as the existing asset of which it is a part. The interpretation will not have any impact on the Company s financial position or performance since the Company is not involved in mining activities. Annual Improvements to PFRSs ( cycle) The Annual Improvements to PFRSs ( cycle) contain non-urgent but necessary amendments to PFRSs. The amendments are effective for annual periods beginning on or after January 1, 2013 and are applied retrospectively. Earlier application is permitted. PFRS 1, First-time Adoption of PFRS - Borrowing Costs The amendment clarifies that, upon adoption of PFRS, an entity that capitalized borrowing costs in accordance with its previous generally accepted accounting principles, may carry forward, without any adjustment, the amount previously capitalized in its opening statement of financial position at the date of transition. Subsequent to the adoption of PFRS, borrowing costs are recognized in accordance with PAS 23, Borrowing Costs. The amendment does not apply to the Company as it is not a first-time adopter of PFRS. PAS 1, Presentation of Financial Statements - Clarification of the requirements for comparative information The amendments clarify the requirements for comparative information that are disclosed voluntarily and those that are mandatory due to retrospective application of an accounting policy, or retrospective restatement or reclassification of items in the financial statements. An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The additional comparative period does not need to contain a complete set of financial statements. On the other hand, supporting notes for the third balance sheet (mandatory when there is a retrospective application of an accounting policy, or retrospective restatement or reclassification of items in the financial statements) are not required. The amendments affect disclosures only and have no impact on the Company s financial position or performance.

15 - 6 - PAS 16, Property, Plant and Equipment - Classification of servicing equipment The amendment clarifies that spare parts, stand-by equipment and servicing equipment should be recognized as property, plant and equipment when they meet the definition of property, plant and equipment and should be recognized as inventory, if otherwise. The amendment will not have impact on the Company s financial position or performance since the Company has no servicing equipment. PAS 32, Financial Instruments: Presentation - Tax effect of distribution to holders of equity instruments The amendment clarifies that income taxes relating to distributions to equity holders and to transaction costs of an equity transaction are accounted for in accordance with PAS 12, Income Taxes. The Company expects that this amendment will not have any impact on its financial position or performance because the Company has not entered into any transaction involving instruments to the equity holders. PAS 34, Interim Financial Reporting - Interim financial reporting and segment information for total assets and liabilities The amendment clarifies that the total assets and liabilities for a particular reportable segment need to be disclosed only when the amounts are regularly provided to the chief operating decision maker and there has been a material change from the amount disclosed in the entity s previous annual financial statements for that reportable segment. The amendment does not apply to the Company since it is not required to issue interim financial statements nor any segment information. Effective 2014 Amendments to PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities The amendments clarify the meaning of currently has a legally enforceable right to set-off and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The amendments affect presentation of financial instruments only and have no impact on the Company s financial position or performance. Effective 2015 PFRS 9, Financial Instruments PFRS 9, as issued, reflects the first phase on the replacement of PAS 39 and applies to the classification and measurement of financial assets and liabilities as defined in PAS 39, Financial Instruments: Recognition and Measurement. Work on impairment of financial instruments and hedge accounting is still ongoing, with a view to replacing PAS 39 in its entirety. PFRS 9 requires all financial assets to be measured at fair value at initial recognition. A debt financial asset may, if the fair value option (FVO) is not invoked, be subsequently measured at amortized cost if it is held within a business model that has the objective to hold the assets to collect the contractual cash flows and its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal outstanding. All other debt instruments are subsequently measured at fair value through profit or loss. All equity financial assets are measured at fair value either through other comprehensive income (OCI) or profit or loss. Equity financial assets held for trading must be measured at fair value through profit or loss. For FVO liabilities, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in OCI.

16 - 7 - The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change in respect of the liability s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. All other PAS 39 classification and measurement requirements for financial liabilities have been carried forward into PFRS 9, including the embedded derivative separation rules and the criteria for using the FVO. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Company s financial assets, but will potentially have no impact on the classification and measurement of financial liabilities. Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11 or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. The Security and Exchange Commission (SEC) and the Financial Reporting Standards Council (FRSC) have deferred the effectivity of this interpretation until the final Revenue standard is issued by the International Accounting Standards Board (IASB) and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed. Adoption of the interpretation when it becomes effective will not have any impact on the financial statements of the Company since the Company is not engaged in construction of real estate directly or through subcontractors. 4. Summary of Significant Accounting Policies Product Classification Insurance contracts are defined as those contracts under which the Company (the insurer) accepts significant insurance risk from another party (the policyholders) by agreeing to compensate the policyholders if a specified uncertain future event (the insured event) adversely affects the policyholder. As a general guideline, the Company defines significant insurance risk, by comparing benefits paid with benefits payable if the insured event did not occur. Insurance contracts can also transfer financial risk. Investment contracts are those contracts that transfer significant financial risk and no significant insurance risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of price or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. Investment contracts can, however, be reclassified as insurance contracts after inception if the insurance risk becomes significant.

17 - 8 - Insurance contracts are classified with and without a Discretionary Participation Feature (DPF). DPF is a contractual right to receive, as a supplement to guaranteed benefits, additional benefits that are: likely to be a significant portion of the total contractual benefits; whose amount or timing is contractually at the discretion of the issuer; and that are contractually based on the - performance of a specified pool of contracts or a specified type of contract, - realised and or unrealised investment returns on a specified pool of assets held by the issuer or - the profit or loss of the Company, fund or other entity that issues the contract. For financial options and guarantees which are not closely related to the host insurance contract, bifurcation is required to measure these embedded financial derivatives separately at fair value through profit or loss. Bifurcation is not required if the embedded derivative is itself an insurance contract or when the host insurance contract itself is measured as financial assets or liabilities at FVPL. As such, the Company does not separately measure options to surrender insurance contracts for a fixed amount (or an amount based on a fixed amount and an interest rate). Likewise, the embedded derivative in unit-linked insurance contracts linking the payments on the contract to units of an internal investment fund meets the definition of an insurance contract and is not therefore accounted for separately from the host insurance contract. Cash and Cash Equivalents Cash include cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three (3) months or less from the date of placement and that are subject to an insignificant risk of changes in value. Insurance Receivables Insurance receivables are recognized when due and measured on initial recognition at the fair value of the consideration received or receivable. Subsequent to initial recognition, insurance receivables are measured at amortized cost, using the effective interest rate (EIR). The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in profit or loss. Insurance receivables are derecognized when derecognition criteria of financial assets have been met. Financial Instruments Date of recognition Financial instruments are recognized in the statement of financial position when the Company becomes a party to the contractual provisions of the instrument. Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on the trade date. Initial recognition of financial instruments Financial instruments are recognized initially at fair value. Except for financial instruments at FVPL, the initial measurement of financial assets includes transaction costs. The Company classifies its financial instruments in the following categories: financial assets at FVPL, AFS financial assets, held-to-maturity (HTM) investments, loans and receivables and other financial liabilities. The classification depends on the purpose for which the investments were acquired and whether they are quoted in an active market. Management determines the classification of its

18 - 9 - investments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date. As of December 31, 2012 and 2011, the Company has no financial assets classified as HTM investments. Initial recognition of financial liabilities All financial liabilities are recognized initially at fair value. Except for financial liabilities at FVPL, the initial measurement of the financial liabilities includes transaction costs. Reclassification of financial assets A financial asset is reclassified out of the FVPL category when the following conditions are met: the financial asset is no longer held for the purpose of selling or repurchasing it in the near term; and there is a rare circumstance. A financial asset that is reclassified out of the FVPL category is reclassified at its fair value on the date of reclassification. Any gain or loss already recognized in profit or loss is not reversed. The fair value of the financial asset on the date of reclassification becomes its new cost or amortized cost, as applicable. Day1 profit or loss Where the transaction price in a non-active market is different from the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a Day 1 profit or loss) in profit or loss unless it qualifies for recognition as some other type of asset. In cases where an unobservable data is used, the difference between the transaction price and model value is only recognized in the statement of comprehensive income when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the Day 1 profit or loss amount. Financial assets or financial liabilities at FVPL This category consists of financial assets or financial liabilities that are held for trading or designated by management as financial assets or financial liabilities at FVPL on initial recognition. Derivative instruments, except those covered by hedge accounting relationships, are classified under this category. Financial assets and financial liabilities at FVPL are recorded in the statement of financial position at fair value, with changes in the fair value recorded in profit or loss, included under the net fair value gains or losses account. Interest earned or incurred is recorded in investment income or interest expense, respectively, while dividend income is recorded when the right of the payment has been established under the investment income account. Financial assets or financial liabilities are classified as held-for-trading if they are entered into for the purpose of short-term profit taking. The Company classified its investments in government debt securities as financial assets at FVPL held for trading.

19 Designated financial assets or financial liabilities at FVPL Financial assets or financial liabilities classified in this category are designated by management on initial recognition when the following criteria are met: The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them on a different basis; or The assets and liabilities 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 a 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. As of December 31, 2012 and 2011, the Company s financial assets designated at FVPL include investments in government and corporate debt securities. This financial asset is managed and their performances are evaluated on a fair value basis, in accordance with its investment strategy. AFS financial assets AFS financial assets are those which are designated as such or do not qualify to be designated as financial assets at FVPL, HTM investments or loans and receivables. They are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions. They include government debt securities and equity securities. After initial measurement, AFS financial assets are subsequently measured at fair value. The effective yield component of AFS debt securities, as well as the impact of restatement on foreign currency-denominated AFS debt securities, is reported in earnings. Interest earned on holding AFS financial assets are reported as interest income using the EIR method. Dividends earned on holding AFS financial assets are recognized in profit or loss as investment income when the right to receive the payment has been established. The unrealized gains and losses arising from the fair valuation of AFS financial assets are reported as Reserve for fluctuation on AFS financial assets in other comprehensive income and in the equity section of the statement of financial position. The losses arising from impairment of such investments are recognized as provisions on impairment losses in profit or loss. When the security is disposed of, the cumulative gain or loss previously recognized in other comprehensive income is recognized as Fair value gains (loss) in profit or loss. Loans and receivables Loans and receivables are nonderivative financial assets with fixed or determinable payments and fixed maturities that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as financial assets held for trading, designated as AFS financial assets or financial assets at FVPL. This accounting policy relates to the statement of financial position captions: (a) Cash and cash equivalents, (b) Insurance receivables, which arise primarily from premiums due and uncollected and ceding companies and reinsurers; (c) Loans and receivables, and (d) Accrued income. After initial measurement, the loans and receivables are subsequently measured at amortized cost using the EIR method, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the EIR. The amortization is included in the Interest income under the Investment income account in profit or loss. The losses arising from impairment of such loans and receivables are recognized in Provision for impairment losses under General and administrative expense.

20 When the fair value of AFS financial assets cannot be measured reliably because of lack of reliable estimates of future cash flows and discount rates necessary to calculate the fair value of unquoted equity instruments, these investments are carried at cost, net of any impairment in value. The Company classified its investments in government debt securities, equity securities and other debt securities as AFS financial assets. Other financial liabilities at amortised cost Issued financial instruments or their components that are not designated as financial liabilities at FVPL are classified as other liabilities, where the substance of the contractual arrangement results in the Company having an obligation either to deliver cash or another financial asset to the holder, or to settle the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. The components of issued financial instruments that contain both asset or liability and equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the asset or liability component on the date of issue. After initial measurement, other financial liabilities are subsequently measured at amortized cost using the EIR method. Amortized cost is calculated by taking into account any discount or premium on the issue and fees that are an integral part of the EIR. Any effects of restatement of foreign currency-denominated liabilities are recognized in profit or loss. This accounting policy applies primarily to the Company s premium deposit fund, insurance payables, accounts payable and accrued expenses and other liabilities that meet the above definition (other than liabilities covered by other accounting standards, such as pension liability and income tax payable). Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. Determination of fair value The fair value for financial instruments traded in active markets at the reporting 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. For units in unit trusts and mutual funds, fair value is determined by reference to the net asset value per unit. When current bid and ask prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist and other relevant valuation models.