BDO Life Assurance Company, Inc. (Formerly Generali Pilipinas Life Assurance Company, Inc.)

Transcription

1 BDO Life Assurance Company, Inc. (Formerly Generali Pilipinas Life Assurance Company, Inc.) (A Wholly Owned Subsidiary of BDO Life Assurance Holdings Corp.) Financial Statements December 31, 2016 and 2015 and Independent Auditor s Report

2 SyCip Gorres Velayo & Co Ayala Avenue 1226 Makati City Philippines Tel: (632) Fax: (632) ey.com/ph BOA/PRC Reg. No. 0001, December 14, 2015, valid until December 31, 2018 SEC Accreditation No FR-4 (Group A), November 10, 2015, valid until November 9, 2018 INDEPENDENT AUDITOR S REPORT The Board of Directors and Stockholders BDO Life Assurance Company, Inc. Report on the Audit of the Financial Statements Opinion We have audited the financial statements of BDO Life Assurance Company, Inc. (formerly Generali Pilipinas Life Assurance Company, Inc.) (the Company), which comprise the statements of financial position as at December 31, 2016 and 2015, and the statements of income, statements of comprehensive income, statements of changes in equity and statements of cash flows for the years then ended December 31, 2016 and 2015, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2016 and 2015, and its financial performance and its cash flows for the years then ended in accordance with Philippine Financial Reporting Standards (PFRSs). Basis for Opinion We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics) together with the ethical requirements that are relevant to our audit of the financial statements in the Philippines, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with PFRSs, 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. In preparing the financial statements, management is responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company s financial reporting process. A member firm of Ernst & Young Global Limited

3 - 2 - Auditor s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with PSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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 Company s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. A member firm of Ernst & Young Global Limited

4 - 3 - Report on the Supplementary Information Required Under Revenue Regulations Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information required under Revenue Regulation No in Note 29 to the financial statements 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 BDO Life Assurance Company, 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. Bernalette L. Ramos Partner CPA Certificate No SEC Accreditation No AR-2 (Group A), June 16, 2016, valid until June 16, 2019 Tax Identification No BIR Accreditation No , May 12, 2015, valid until May 11, 2018 PTR No , January 3, 2017, Makati City March 23, 2017 A member firm of Ernst & Young Global Limited

5 BDO LIFE ASSURANCE COMPANY, INC. (Formerly Generali Pilipinas Life Assurance Company, Inc.) (A Wholly Owned Subsidiary of BDO Life Assurance Holdings Corp.) STATEMENTS OF FINANCIAL POSITION December 31 ASSETS Cash and Cash Equivalents (Notes 4, 25 and 26) P=3,055,012,089 P=2,586,586,939 Insurance Receivables - net (Notes 5,25 and 26) 172,200, ,623,703 Financial Assets (Notes 6 and 25) Financial assets at fair value through profit or loss 2,916,493, ,204,933 Available-for-sale financial assets 21,502,448,038 17,881,335,426 Held-to-maturity investments 82,838,448 83,058,697 Loans and receivables - net 334,277, ,949,937 Accrued Income (Notes 8 and 25) 190,119, ,377,431 Reinsurance Assets (Notes 9 and 25) 17,151, ,789,178 Property and Equipment - net (Note 10) 46,670,151 67,604,661 Intangible Assets - net (Note 11) 17,777,071 34,232,148 Pension Asset - net (Note 23) 9,444,867 20,483,983 Deferred Tax Assets - net (Note 24) 4,383,514 5,896,263 Other Assets (Notes 12 and 25) 10,323,316 25,965,986 P=28,359,140,059 P=22,720,109,285 LIABILITIES AND EQUITY Liabilities Insurance contract liabilities (Notes 13 and 25) P=20,548,375,697 P=15,801,798,967 Premium deposit fund (Note 25) 2,532,674,532 2,224,320,230 Insurance payables (Notes 14 and 25) 82,418, ,922,881 Trade and other liabilities (Notes 15 and 25) 662,403, ,997,476 23,825,872,071 18,997,039,554 Equity Capital stock (Note 16) 1,515,050,500 1,515,050,500 Contributed surplus 50,000,000 50,000,000 Contingency surplus 279,038, ,038,232 Revaluation reserve on available-for-sale financial assets (Note 16) (437,669,314) (180,327,528) Actuarial gain on defined benefit obligation (Note 23) (10,228,197) 9,130,541 Retained earnings 3,137,076,767 2,050,177,986 4,533,267,988 3,723,069,731 P=28,359,140,059 P=22,720,109,285 See accompanying Notes to Financial Statements.

6 BDO LIFE ASSURANCE COMPANY, INC. (Formerly Generali Pilipinas Life Assurance Company, Inc.) (A Wholly Owned Subsidiary of BDO Life Assurance Holdings Corp.) STATEMENTS OF INCOME Years Ended December 31 REVENUE Gross premiums on insurance contracts P=8,413,819,437 P=6,875,842,321 Reinsurers share of gross premiums on insurance contracts (363,014,802) (511,698,114) Net insurance premiums (Notes 17 and 25) 8,050,804,635 6,364,144,207 Investment income (Note 18) 791,771, ,674,975 Net realized gains on available-for-sale financial assets (Note 18) 377,057,531 76,402,473 Fair value gains on financial assets at fair value through profit or loss (Note 18) 17,338,132 Foreign exchange gain - net 31,111,748 Other income (Note 18) 53,802,332 24,544,529 1,271,081, ,621,977 9,321,885,863 7,220,766,184 BENEFITS, CLAIMS AND OPERATING EXPENSES Gross benefits and claims incurred on insurance contracts 1,719,962,240 1,948,471,214 Reinsurers share of benefits and claims incurred on insurance contracts (257,946,247) (422,937,430) Gross change in legal policy reserves 4,528,337,764 2,557,355,056 Reinsurers share of gross change in legal policy reserves (88,917,045) (6,303,664) Net insurance benefits and claims (Notes 19 and 25) 5,901,436,712 4,076,585,176 Commissions and service fees (Note 20) 556,430, ,867,802 General and administrative expenses (Note 21) 1,193,837,103 1,119,255,273 Fair value loss on financial assets at fair value through profit or loss (Note 18) 44,558,217 Foreign exchange loss - net 10,675,480 Provision for impairment losses on available-for-salefinancial assets (Note 16) 188,962,546 39,939,366 Insurance taxes and licenses 134,485, ,870,449 Interest expense (Note 22) 72,116,831 75,677,354 Operating expenses 2,145,831,760 1,910,843,941 8,047,268,472 5,987,429,117 INCOME BEFORE INCOME TAX 1,274,617,391 1,233,337,067 PROVISION FOR INCOME TAX (Note 24) 187,718, ,728,348 NET INCOME P=1,086,898,781 P=1,096,608,719 See accompanying Notes to Financial Statements.

7 BDO LIFE ASSURANCE COMPANY, INC. (Formerly Generali Pilipinas Life Assurance Company, Inc.) (A Wholly Owned Subsidiary of BDO Life Assurance Holdings Corp.) STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31 NET INCOME P=1,086,898,781 P=1,096,608,719 OTHER COMPREHENSIVE INCOME (LOSS) Items to be recycled to profit or loss Fair value loss on available-for-sale financial assets (Notes 6 and16) (69,246,801) (818,354,537) Transferred to profit and loss (Note 16) (188,094,985) (36,463,107) (257,341,786) (854,817,644) Items not to be recycled to profit or loss Actuarial loss on retirement plan (Note 23) (27,655,340) (20,343,677) Income tax effect 8,296,602 6,103,103 (19,358,738) (14,240,574) TOTAL COMPREHENSIVE INCOME P=810,198,257 P=227,550,501 See accompanying Notes to Financial Statements.

8 BDO LIFE ASSURANCE COMPANY, INC. (Formerly Generali Pilipinas Life Assurance Company, Inc.) (A Wholly Owned Subsidiary of BDO Life Assurance Holdings Corp.) STATEMENTS OF CHANGES IN EQUITY Capital Stock (Note 16) Contributed Surplus Contingency Surplus Other Comprehensive Income Actuarial Gain Revaluation (Loss) on Reserve on Defined Benefit Available-forsale Obligation - Financial net of tax Assets (Notes 2 and 23) (Note 16) Retained Earnings Total As of January 1, 2016 P=1,515,050,500 P=50,000,000 P=279,038,232 P=9,130,541 (P=180,327,528) P=2,050,177,986 P=3,723,069,731 Net income 1,086,898,781 1,086,898,781 Other comprehensive loss (19,358,738) (257,341,786) (276,700,524) Total comprehensive income (loss) (19,358,738) (257,341,786) 1,086,898, ,198,257 As of December 31, 2016 P=1,515,050,500 P=50,000,000 P=279,038,232 (P=10,228,197) (P=437,669,314) P=3,137,076,767 P=4,533,267,988 As of January 1, 2015 P=1,515,050,500 P=50,000,000 P=279,038,232 P=23,371,115 P=674,490,116 P=953,569,267 P=3,495,519,230 Net income 1,096,608,719 1,096,608,719 Other comprehensive loss (14,240,574) (854,817,644) (869,058,218) Total comprehensive income (loss) (14,240,574) (854,817,644) 1,096,608, ,550,501 As of December 31, 2015 P=1,515,050,500 P=50,000,000 P=279,038,232 P=9,130,541 (P=180,327,528) P=2,050,177,986 P=3,723,069,731 See accompanying Notes to Financial Statements.

9 BDO LIFE ASSURANCE COMPANY, INC. (Formerly Generali Pilipinas Life Assurance Company, Inc.) (A Wholly Owned Subsidiary of BDO Life Assurance Holdings Corp.) STATEMENTS OF CASH FLOWS Years Ended December 31 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=1,274,617,391 P=1,233,337,067 Adjustments for: Interest expense (Note 22) 72,116,831 75,677,354 Depreciation and amortization (Notes 10, 11 and 21) 55,500,722 56,818,831 Amortization of premium on AFS financial assets (Note 6) 60,520,548 47,940,695 Provision for impairment loss on AFS financial assets (Notes 6 and 16) 188,962,546 39,939,366 Fair value loss (gain) on financial assets at fair value through profit or loss (Notes 6 and 18) (17,338,132) 44,558,217 Gain on sale of property and equipment (Notes 18) (250,000) Dividend income (Note 18) (80,891,863) (64,236,341) Foreign exchange gain on financial assets (Note 6) (341,429,521) (318,753,656) Interest income (Note 18) (710,879,622) (691,438,634) Gain on sale of available-for-sale financial assets (Note 18) (377,057,531) (76,402,473) Operating loss before working capital changes 124,121, ,190,426 Changes in operating assets and liabilities: Decrease (increase) in: Insurance receivables 204,422,745 (60,558,388) Loans and receivables (57,327,848) 7,372,191 Reinsurance assets 210,638,162 22,653,161 Pension asset - net 11,039,116 16,788,054 Other assets (2,203,319) (3,646,431) Increase (decrease) in: Insurance contract liabilities 4,746,576,730 2,895,139,263 Premium deposit fund 236,237, ,976,408 Insurance payables (366,504,308) 54,677,184 Trade and other liabilities 140,405,793 26,164,723 Net cash generated from operations 5,247,405,911 3,791,756,591 Interest received 705,290, ,989,591 Dividends received 81,739,270 63,616,896 Proceeds from sale/maturity: Financial assets at fair value through profit or loss (Note 6) 6,437,845, ,869,981 Available-for-sale financial assets (Note 6) 14,472,632,900 8,770,506,111 Held-to-maturity investments (Note 6) 25,000,000 Acquisitions of: Financial assets at fair value through profit or loss (Note 6) (8,366,106,376) (1,380,077,512) Available-for-sale financial assets (Note 6) (17,904,281,735) (13,093,877,907) Held-to-maturity investments (Note 6) (25,270,946) Income taxes paid (187,718,610) (136,728,348) Net cash provided by (used in) operating activities 486,536,285 (652,944,597) (Forward)

10 - 2 - Years Ended December 31 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of property and equipment (Note 10) P=1,088,060 P=250,006 Acquisitions of: Property and equipment (Note 10) (12,139,339) (17,533,609) Intangible assets (Note 11) (7,059,856) (9,539,742) Net cash used in investing activities (18,111,135) (26,823,345) NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 468,425,150 (679,767,942) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,586,586,939 3,266,354,881 CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 4) P=3,055,012,089 P=2,586,586,939 See accompanying Notes to Financial Statements.

11 BDO LIFE ASSURANCE COMPANY, INC. (Formerly Generali Pilipinas Life Assurance Company, Inc.) (A Wholly Owned Subsidiary of BDO Life Assurance Holdings Corp.) NOTES TO FINANCIAL STATEMENTS 1. Corporate Information BDO Life Assurance Company, Inc., formerly Generali Pilipinas Life Assurance Company, Inc, (the Company), was incorporated in the Philippines and registered with the Philippine Securities and Exchange Commission (SEC) on July 9, 1999 to carry on the business of life insurance. It received its Certificate of Authority from the Insurance Commission (IC) on September 8, 1999 and commenced its commercial operations on January 1, The Company is a wholly-owned subsidiary of BDO Life Assurance Holdings Corporation (BLAHC), formerly Generali Pilipinas Holding Company, Inc. (GPHCI), a holding company incorporated and domiciled in the Philippines. Prior to June 30, 2016, BLAHC was owned 60% by Generali Asia N.V. (Generali), a company incorporated in Netherlands, 38% by BDO Universal Bank (BDO), a local universal bank listed in the Philippines and the remaining 2% by BDO Capital & Investment Corporation, a wholly-owned subsidiary of BDO. On June 8, 2015, the shareholders of BLAHC, namely, BDO, BDO Capital & Investment Corporation and Generali, entered into a Share Purchase Agreement (SPA). The SPA effectively terminated the Joint Venture Agreement entered into by and among Assicurazioni Generali S.p.A., Jerneh Asia Berhad, BDO and Vantage Equities, Inc. on March 26, Under the said SPA, Generali agreed to sell to BDO, and BDO agreed to purchase from Generali, the shares owned by Generali in GPHCI in accordance with the terms and conditions contained in the SPA. As a result thereof, BDO acquired full ownership of GPHC, the corporation that wholly owns Generali Pilipinas Life Assurance Company, Inc. (GPLAC). Further, GPHC sold its shares in Generali Pilipinas Insurance Company, Inc. (GPIC) to Generali, likewise subject to the terms and conditions of the SPA. On January 9, 2016, the Board of Directors (BOD) approved the change in the name of the Company from Generali Pilipinas Life Assurance Co., Inc. to BDO Life Assurance Company, Inc. On June 30, 2016, BDO completed the full acquisition of BLAHC, and GPHCI was renamed BDO Life Assurance Holdings Corp. (BLAHC). On the same date, the SEC approved the change in the name of the Company. The registered office address of the Company, which is also its principal place of business, is BDO Corporate Center, 7899 Makati Avenue, Makati City, Phils. The accompanying financial statements were approved and authorized for issue by the Company s Board of Directors (BOD) on March 23, Assumption Reinsurance Agreement Information On June 30, 2016, the Company executed an Assumption Reinsurance Agreement (also known as ARA or the Agreement ) with Generali Life Assurance Philippines, Inc. (formerly known as Generali Pilipinas Insurance Co., Inc., hereinafter, referred to as GLAPI ), now likewise a life insurance corporation duly organized and existing under and by virtue of Philippine laws, with address at 10th Floor, Petron Mega Plaza, 358 Sen. Gil J. Puyat Ave., Makati City.

12 - 2 - In the Agreement, the Company agreed to cede and assign, and GLAPI agreed to assume, effective June 30, 2016, all in-force group life insurance policies and other contracts stipulated therein (except BDO Mortgage Redemption Insurance), as well as all risks, obligations, liabilities, and claims net of reinsurance relating to or that may arise under the said insurance contracts, the other contracts and the other Assets so as to constitute GLAPI as insurer of the insurance contracts in place of the Company. Furthermore, the Company agreed to sell, assign, cede, transfer and convey without recourse to GLAPI all of the Company s rights, title, and interest in and to the insurance contracts and assets likewise stipulated therein, including premiums due from policyholders, thereunder, free and clear of any and all liens, attachments, legal charges, equitable interests and encumbrances. On June 30, 2016, the Company received a cash consideration amounting to P=25.4 million for the assignment of the existing group policies to GLAPI. This was reported as part of Other Income in the Statement of Comprehensive Income. The accompanying schedule of the accounts covered under the Agreement was approved and authorized for issue by the Company and GLAPI on September 19, ASSETS Insurance receivables - net P=281,159,301 Loans and receivables - net 92,219,936 Reinsurance assets 311,943, ,322,950 LIABILITIES Insurance contract liabilities (Note 6) 424,830,872 Insurance payables (Note 7) 419,025,474 Trade and other liabilities (Note 8) 36,663, ,519,889 NET LIABILITIES P=195,196, Summary of Significant Accounting Policies 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 and all values are rounded to the nearest Philippine Peso unit, unless otherwise indicated. Statement of Compliance The financial statements of the Company have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).

13 - 3 - Changes in Accounting Policies and Disclosures The accounting policies adopted are consistent with those of the previous financial year except for the adoption of the following amendments and improvements to PFRS, which became effective on or after January 1, The adoption of the amendments and improvements to PFRS did not have an impact on the financial statements. Amendments to PFRS 10, PFRS 12 and PAS 28, Investment Entities: Applying the Consolidation Exception Amendments to PFRS 11, Accounting for Acquisitions of Interests in Joint Operations PFRS 14, Regulatory Deferral Accounts Amendments to PAS 1, Disclosure Initiative Amendments to PAS 16 and PAS 38, Clarification of Acceptable Methods of Depreciation and Amortization Amendments to PAS 16 and PAS 41, Agriculture: Bearer Plants Amendments to PAS 27, Equity Method in Separate Financial Statements Annual Improvements to PFRSs Cycle Amendment to PFRS 5, Changes in Methods of Disposal Amendment to PFRS 7, Servicing Contracts Amendment to PFRS 7, Applicability of the Amendments to PFRS 7 to Condensed Interim Financial Statements Amendment to PAS 19, Discount Rate: Regional Market Issue Amendment to PAS 34, Disclosure of Information Elsewhere in the Interim Financial Report Future Changes in Accounting Policies Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, the Company does not expect that the future adoption of the said pronouncements to have a significant impact on its financial statements. The Company intends to adopt the following pronouncements when they become effective. Effective beginning on or after January 1, 2017 Amendment to PFRS 12, Clarification of the Scope of the Standard (Part of Annual Improvements to PFRSs Cycle) Amendments to PAS 7, Statement of Cash Flows, Disclosure Initiative The amendments to PAS 7 require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). On initial application of the amendments, entities are not required to provide comparative information for preceding periods. Early application of the amendments is permitted. Application of amendments will result in additional disclosures in the 2017 financial statements of the Company.

14 - 4 - Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for Unrealized Losses The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount. Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognized in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact. Early application of the amendments is permitted. The Company is assessing the potential effect of the amendments on its financial statements. Effective beginning on or after January 1, 2018 Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Sharebased Payment Transactions Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, with PFRS 4 The amendments address concerns arising from implementing PFRS 9, the new financial instruments standard before implementing the forthcoming insurance contracts standard. They allow entities to choose between the overlay approach and the deferral approach to deal with the transitional challenges. The overlay approach gives all entities that issue insurance contracts the option to recognize in other comprehensive income, rather than profit or loss, the volatility that could arise when PFRS 9 is applied before the new insurance contracts standard is issued. On the other hand, the deferral approach gives entities whose activities are predominantly connected with insurance an optional temporary exemption from applying PFRS 9 until the earlier of application of the forthcoming insurance contracts standard or January 1, The overlay approach and the deferral approach will only be available to an entity if it has not previously applied PFRS 9. The Company is assessing which approach it will use and the potential impact of the chosen approach in its financial statements. PFRS 15, Revenue from Contracts with Customers PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. Under PFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in PFRS 15 provide a more structured approach to measuring and recognizing revenue.

15 - 5 - The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under PFRSs. Either a full or modified retrospective application is required for annual periods beginning on or after January 1, The Company is assessing the potential effect of PFRS 15 on its financial statements. PFRS 9, Financial Instruments PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, Financial Instruments: Recognition and Measurement, and all previous versions of PFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. PFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Retrospective application is required, but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The adoption of PFRS 9 will have an effect on the classification and measurement of the Company s financial assets and impairment methodology for financial assets, but will have no impact on the classification and measurement of the Company s financial liabilities. The adoption will also have an effect on the Company s application of hedge accounting and on the amount of its credit losses. The Company is currently assessing the impact of adopting this standard. The Company is assessing the potential effect of the amendments on its financial statements. Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of Annual Improvements to PFRSs Cycle) Amendments to PAS 40, Investment Property, Transfers of Investment Property Philippine Interpretation IFRIC-22, Foreign Currency Transactions and Advance Consideration The interpretation clarifies that in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognizes the nonmonetary asset or nonmonetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. The interpretation may be applied on a fully retrospective basis. Entities may apply the interpretation prospectively to all assets, expenses and income in its scope that are initially recognized on or after the beginning of the reporting period in which the entity first applies the interpretation or the beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the interpretation. The Company is assessing the potential effect of IFRIC 22 on its financial statements.

16 - 6 - Effective beginning on or after January 1, 2019 PFRS 16, Leases Under the new standard, lessees will no longer classify their leases as either operating or finance leases in accordance with PAS 17, Leases. Rather, lessees will apply the single-asset model. Under this model, lessees will recognize the assets and related liabilities for most leases on their balance sheets, and subsequently, will depreciate the lease assets and recognize interest on the lease liabilities in their profit or loss. Leases with a term of 12 months or less or for which the underlying asset is of low value are exempted from these requirements. The accounting by lessors is substantially unchanged as the new standard carries forward the principles of lessor accounting under PAS 17. Lessors, however, will be required to disclose more information in their financial statements, particularly on the risk exposure to residual value. Entities may early adopt PFRS 16 but only if they have also adopted PFRS 15. When adopting PFRS 16, an entity is permitted to use either a full retrospective or a modified retrospective approach, with options to use certain transition reliefs. The Company is currently assessing the impact of adopting PFRS 16. Deferred effectivity Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Use of Estimates, Assumptions and Judgments The preparation of the financial statements necessitates the use of estimates, assumptions and judgments. These estimates and assumptions affect the reported amounts of assets and liabilities and contingent liabilities at the end of the reporting period as well as affecting the reported income and expenses for the year. Although the estimates are based on management s best knowledge and judgment of current facts as at the end of the reporting period, the actual outcome may differ from these estimates, possibly significantly. For further information on critical accounting estimates and judgments, refer to Note 3. Foreign Currency Translation Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated using the functional currency rate of exchange ruling at the reporting date. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction and are not subsequently restated. All foreign exchange differences are taken to profit or loss, except where it relates to equity securities where gains or losses are recognized directly in OCI, the gain or loss is then recognized net of the exchange component in OCI. Product Classification Insurance contracts are those contracts when the Company (the insurer) has accepted 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 policyholders. As a general guideline, the Company determines whether it has significant insurance risk, by comparing benefits paid with benefits payable if the insured event did not occur. Insurance contracts can also transfer financial risk.

17 - 7 - 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 insurance risk becomes significant. Insurance contracts are further classified as being either with or without discretionary participation feature (DPF). DPF is a contractual right to receive, as a supplement to guaranteed benefits, additional benefits that are (a) likely to be a significant portion of the total contractual benefits, (b) whose amount or timing is contractually at the discretion of the issuer, and (c) that are contractually based on the performance of a specified pool of contracts or a specified type of contract, (ii) realized and/or unrealized investment returns on a specified pool of assets held by the issuer, or (iii) the profit or loss of the Company, fund or other entity that issues the contract. Investment contracts are those contracts that transfer significant financial risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate, security price, commodity price, foreign currency exchange rate, index of price or rates, a 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. Cash and Cash Equivalents Cash includes 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 months or less from dates of placement and that are subject to an insignificant risk of change in value and are free of any encumbrances. 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 method. 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 following the derecognition criteria of financial assets. 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 Financial instruments are recognized initially at fair value. Except for financial instruments at FVPL, the initial measurement of financial assets includes transaction costs. Financial assets are classified as in four categories: financial asset at FVPL, loans and receivables, held-to-maturity (HTM) investments and AFS financial assets. 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 investments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date. As of December 31, 2016 and 2015, the Company did not have financial liabilities at FVPL.

18 - 8 - Day 1 profit or loss Where the transaction price in a non-active market is different to 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 use is made of data which is not observable, the difference between the transaction price and model value is only recognized in profit or loss 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 at FVPL on initial recognition. The financial assets designated as at FVPL pertains to variable unit-linked investments. Financial assets or financial liabilities designated by management as at FVPL are designated as such on initial recognition when any of 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; The assets or liabilities are part of a group of financial assets, financial liabilities, or both, which are managed and whose performance are evaluated on a fair value basis, in accordance with a documented risk management strategy; or The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear that it would not be separated with little or no analysis. The investments in equity, government securities, and other debt securities of the internal investment funds set up by the Company underlying the unit-linked insurance contracts are designated as financial assets at FVPL in accordance with the funds investment strategy. AFS financial assets AFS financial assets are those which are designated as such or do not qualify to be classified 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. 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 profit or loss. Interest earned on holding AFS financial assets is reported as interest income using the effective interest method. Dividends earned on holding AFS financial assets are recognized in profit or loss under Investment income account when the right to receive payment has been established. The unrealized gains and losses arising from the fair valuation of AFS financial assets are reported as Revaluation reserve on AFS financial assets in OCI. The losses arising from impairment of such investments are recognized as Provision for impairment losses account in profit or loss. When a security is disposed of, the cumulative gain or loss previously recognized in OCI is reported as Gain on sale of AFS financial assets in profit or loss.

19 - 9 - 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, less any allowance for impairment loss. The Company s AFS financial assets consist of government securities, equity securities, and private debt instruments as of December 31, 2016 and 2015 (see Note 6). HTM investments HTM investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities for which management has the positive intention and ability to hold to maturity. These investments are initially recognized at cost, being the fair value of the consideration paid for the acquisition of the investment. All transaction costs directly attributable to the acquisition are also included in the cost of HTM investments. After initial measurement, these financial assets are subsequently measured at amortized cost using the effective interest rate, less impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is included under Investment income in the profit or loss. Gains and losses are recognized in profit or loss when the HTM investments are derecognized or impaired, as well as through the amortization process. The losses arising from impairment of such investments, if any, are recognized in profit or loss as Provision for impairment losses under General and administrative expenses in the profit or loss. The effects of restatement of foreign currencydenominated HTM investments are recognized in profit or loss. Where the Company sells other than an insignificant amount of HTM investments, the entire category would be tainted and reclassified as AFS financial assets and will be carried at fair value. Loans and receivables Loans and receivables are non-derivative 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-fortrading, nor designated as AFS or at FVPL. After initial measurement, the loans and receivables are subsequently measured at amortized cost using the effective interest rate method, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is included under Investment income - Interest income in profit or loss. The losses arising from impairment of such loans and receivables, if any, are recognized in Provision for impairment losses account in profit or loss. Loans and receivables together with the associated allowance are written-off when there is no realistic prospect of future recovery and all collateral, if any, has been realized or has been transferred to the Company. If a write-off is later recovered, the recovery is recognized in the profit or loss. This accounting policy relates to the statement of financial position captions: (a) Cash and cash equivalents, (b) Insurance receivables, (c) Loans and receivables, (d) Accrued income and (e) Refundable lease and other deposits included under Other assets.

20 Other financial liabilities Issued financial liabilities or their components, which are not designated as financial liabilities at FVPL are classified as other financial 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 satisfy 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. This includes investment contracts which mainly transfer financial risk and has no or insignificant insurance risk. After initial measurement, other financial liabilities are subsequently measured at amortized cost using the effective interest rate. Amortized cost is calculated by taking into account any discount or premium on the issue and fees that are an integral part of the effective interest rate. Any effects of restatement of foreign currency-denominated liabilities are recognized in profit or loss. This accounting policy applies primarily to the following: (a) Premium deposit fund, (b) Insurance contract liabilities, (c) Insurance payables and (d) Trade and other liabilities that meet the above definition (other than liabilities covered by other accounting standards, such as pension liability and income tax payable). Classification of Financial Instruments Between Debt and Equity A financial instrument is classified as debt if it has a contractual obligation to: deliver cash or another financial asset to another entity, or exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Company. If the Company does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability. Financial instruments are classified as liability or equity in accordance with the substance of the contractual agreement. Interests, dividends, gains and losses relating to a financial instrument or a component that is a financial liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity, net of any related income tax benefits. 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. The Company assesses that it has a currently enforceable right of offset if the right is not contingent on a future event, and is legally enforceable in the normal course of business, event of default, and event of insolvency or bankruptcy of the Company and all of the counterparties. Impairment of Financial Assets The Company assesses at each reporting date whether a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of

21 debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. AFS financial assets carried at fair value For AFS financial assets, the Company assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity instruments classified as AFS financial assets, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Significant is to be evaluated against the original cost of the investment and prolonged against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the profit or loss - is removed from OCI and recognized in the profit or loss. Impairment losses on equity investments are not reversed through the profit or loss; increases in their fair value after impairment are recognized directly in OCI. In the case of debt instruments classified as AFS, impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the profit or loss. Future interest income continues to be accrued based on the reduced carrying amount of the asset and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of interest and other income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the profit or loss, the impairment loss shall be reversed, with the amount of reversal recognized in the profit or loss. AFS financial assets carried at cost If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such unquoted equity instrument, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Loans and receivables For loans and receivables carried at amortized cost, the Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment for impairment.