OPERATING PHILOSOPHY ETHICAL PRACTICES. Code of Conduct - Annual Certification Program. The AIA Code of Conduct

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1 OPERATING PHILOSOPHY The AIA Code of Conduct Honesty and integrity are the cornerstones of the AIA business. AIA serves millions of customers across the most dynamic growth region in the world and is known and admired for its unwavering commitment to these values. This reputation and the trust it inspires is critical to the success of the organization. Dedication and commitment to high standards have helped build the organization in the past and for the present. It can only maintain that reputation into the future when each employee strives harder to do what is right and by being prepared to take their personal responsibilities in observing the highest standards of integrity and conduct at all times. This is what the AIA Code of Conduct is about. It sets out AIA s and its member companies commitment to the Operating Philosophy of Doing the Right Thing, in the Right Way, with the Right people and the results will come. This establishes the unique culture of AIA across all 18 markets within the Asia Pacific region that includes Philam Life. The AIA Code of Conduct sets out the ethical guidelines for conducting business which is the same code that Philam Life observes. This serves as guide in managing the company s compliance, ethics, and risk issues. The standards set forth in the Code also applies to the business partners including agents, contractors, subcontractors, suppliers, distribution partners, and those who act on behalf of AIA and Philam Life. Thus, the corporation, its directors, senior management and employees are mandated and required to comply with the policies. The Compliance Department is tasked to implement these policies and monitor compliance therewith. Like AIA, Philam Life has always believed in the power of diverse, talented people to create value and deliver on customer and shareholder expectations. Thus, it competes vigorously to create new opportunities for its customers and for itself. However, competitive advantages are sought only through legal and ethical business practices. With the products, services and responsible business practices, Philam Life strives to improve the quality of life of every Filipino. Promoting compliance with local laws and local regulatory requirements that apply to the business is at the foundation of Philam Life s good corporate citizenship. Code of Conduct - Annual Certification Program To ensure that all Philam Life employees are aware of the provisions of the Code, an annual certification program is conducted whereby all employees confirm their knowledge and understanding about the rules and guidelines written in the Code. New Employees Orientation Program (NEOP) At the same time, it is company policy that all new hires attend the New Employees Orientation Program (NEOP) wherein Company and all other relevant compliance policies are discussed. This program is offered on a monthly basis and is conducted either by Compliance or Training Dept. ETHICAL PRACTICES Treating Customers Fairly The Treating Customers Fairly policy demands that customers should be treated fairly at all times and that products, services, and advice must be appropriate to meet customer needs. Marketing, advertising and sales related materials and services must always be truthful and accurate and misrepresenting or attempting to mislead or deceive customers by use of unsupported or fictitious claims about Philam Life products or those of its competitors is not acceptable. Philam Life should provide high standards of service and should respond promptly and fairly to customer feedback. Philam Life adopts a structured framework in handling complaints related to market misconduct. The Customer Complaints Handling Process ensures that all customer complaints and grievances are immediately addressed. The process defines the step-by-step approach in addressing and handling complaints as a result of any of its sales personnel s misconduct. There is a Compliance Disciplinary Committee that evaluates all complaints and determines whether a sales personnel has committed any wrongdoing. Any sales personnel found guilty of any market conduct related offense is subjected to appropriate sanctions. Misconduct includes, but is not limited to, misrepresentation of product features, mis-selling, policy replacement, misappropriation of client monies, and any other infringement of the Market Conduct Guidelines. 27 CORPORATE GOVERNANCE

2 CORPORATE GOVERNANCE Customer Privacy & Data Security Customers expect Philam Life to carefully handle and safeguard the business and personal information that they share in the conduct of the business. Philam Life must never compromise a customer s trust by disclosing private information other than to those with a legitimate business need to know. Employees who handle customer information are responsible for knowing and complying with applicable information privacy and information security laws. In all cases, appropriate physical, administrative and technical safeguards for personal information and business data must be maintained. All employees are encouraged to be especially vigilant in following the laws, regulations and policies when transferring personal information and business data across country borders. To ensure customer privacy and data security, Philam Life observes AIA s Data Privacy Compliance Guidelines. The guidelines outline the company s statement of values and provides guidance to employees on how personal data should be collected, used, stored, transferred and disposed of any of the members of Philam Life. The guidelines also clarifies the roles and responsibilities of each and every employee, and the relevant standards and procedural controls expected to secure personal data in accordance with the policy objectives. The CEO is responsible for the implementation of the data privacy policy and guidelines, through its appointed Data Privacy Officer. This includes ensuring that all employees within the business unit are aware of their obligations stated in the policy and guidelines and that they comply with the standards when managing personal data collected in their business entity. The Business Conduct Orientation Program for new employees includes a module on Data Privacy Policy that is discussed lengthily to ensure that all employees understand their obligations under the local Data Privacy law and AIA/ Philam Life s Data Privacy policy. Conflict of Interest An employee s position in Philam Life must not be used for inappropriate personal gain or advantage. Any situation that creates, or even appears to create, a conflict of interest between personal interests and the interests of the company must be appropriately managed. 28 Conflicts of interest (whether potential or actual conflicts) must be reported. There is a system being used for the reporting. Managers are expected to take appropriate steps to prevent, identify and appropriately manage conflicts of interest of those they supervise. All AIA and Philam Life employees are prohibited from taking for themselves, or directing to a third party, a business opportunity that is discovered through the use of company corporate property information. Philam Life employees are prohibited from using corporate property, information or position for personal gain. Employees are asked to declare if they have any personal relationships within the group. Immediate family members, members of the household and individuals with whom an employee has a close personal relationship within the group must never improperly influence business decisions. When determining whether a personal relationship might lead to a conflict of interest, the following questions can serve as guide: Does one of us have influence over the other at work? Does one of us supervise or report to the other? Could an outsider view the situation as a conflict of interest? Sourcing Policy The company adheres to a Sourcing Policy, which includes sourcing and expense policies, as well as the new procurement system, Ariba. A regular supplier summit was also held as a form of sourcing engagement to remind accredited suppliers on proper rules of engagement with Philam Life including the governance in the selection process, AIA Code of Ethics, and AIA Code for suppliers. Supplier Selection Supplier Selection provides that suppliers and vendors should be selected on the basis of performance and merit in accordance with a fair and transparent process. Requirements for suppliers and vendors to follow the standards in the Code must be included in the vendor management program. Fair Dealing Following AIA s model, Philam Life seeks competitive advantages only through legal and ethical business practices. Every employee must conduct business in a fair manner with customers, service providers,

3 suppliers and competitors. Disparaging competitors or their products and services is discouraged. Improperly taking advantage of anyone through manipulation, concealment, abuse of privileged information, intentional misrepresentation of facts or any other unfair practice is not and will not be tolerated at Philam Life much more in the AIA Group. Social and Environmental Responsibilities Under Social and Environmental Responsibilities, the Corporation and its employees are encouraged to make a positive contribution to the social, economic and environmental development of the communities in which it operates. The Corporation and its employees volunteer time and funds to programs that promote health, financial literacy, education and other community needs. AIA and Philam Life are committed to reduce the impact of its operations on the environment and raise awareness about sustainability by taking part in activities that highlight these issues. Creditor s Rights It is the policy of Philam Life to uphold creditor s rights by honoring its contractual obligations with all its creditors and counterparties, in accordance with the provisions of their contracts and the law. In the conduct of its business dealings with third parties, Philam Life undertakes to honor all its commitments, stipulations and conditions set forth in their binding agreements. CORPORATE CITIZENSHIP Communicating with Regulators & Other Governmental Officials Inquiries from regulators outside the normal course of Philam Life s regulatory relationships, must be reported immediately to the Compliance Officer or a designated Legal Counsel before a response is made. Financial reporting related inquiries may be responded to by authorised comptrollers. Responses to regulators must contain complete, factual and accurate information. During a regulatory inspection or examination, documents must never be concealed, destroyed or altered, nor must lies or misleading statements be made to regulators. Requests from auditors are subject to the same standards. Anti-Money Laundering and Counter Terrorist Financing Money Laundering is the process by which criminals conceal the nature or source of their illegal funds and disguise them to make them appear legitimate. It is not limited to drug money or banking transactions but may involve sophisticated schemes in every sector of the financial services industry from commercial and investment banking to insurance which is our core business. Pursuant to Section 18 of Republic Act (RA) No. 9160, also known as the Anti-Money Laundering Act of 2001, as amended by RA No. 9194, RA No , RA No and RA No all covered institutions which include insurance companies supervised or regulated by the Insurance Commission are mandated to formulate their respective money laundering prevention program in accordance with the said law including, but not limited to, information dissemination on money laundering activities and its prevention, detection and reporting, and the training of responsible officers and personnel of covered institutions. As a member company of AIA, Philam Life adopts the AIA Anti-Money Laundering and Counter Terrorist Financing Program and incorporates it as part of the local program. As a matter of policy, Philam Life shall foil any attempt by anyone to use the Company or its affiliates for money laundering purposes. This Anti-Money Laundering Program, together with the Company s Guidelines, establishes the governing principles and business standards to protect Philam Life and its business operations from becoming an unwitting tool of money launderers. The company s management, officers and staff must remain vigilant in the fight against money laundering and financing of terrorism and shall collectively oppose any effort to violate or flaunt the Anti-Money Laundering Act of 2001, as well as its implementing rules and regulations. Throughout the world, AIA and its subsidiaries like Philam Life are firmly committed to complying with all applicable anti-money laundering laws, covered and suspicious transactions reporting and identification requirements. These include taking affirmative steps, within the confines of applicable laws, to prevent, detect and report money laundering activities to appropriate authorities. Anti-Corruption & Bribery & Gifts and Entertainment The Policy is applied alongside the AIA Code of Conduct. It provides guidance on giving and accepting gifts and entertainment. The Anti-Corruption Guidelines specifies the roles, responsibilities and procedural controls for transactions involving government officials. All relevant laws countering bribery and corruption must be upheld. 29 CORPORATE GOVERNANCE

4 CORPORATE GOVERNANCE If local laws and regulations require higher compliance standards vis-a-vis the guidelines of the AIA Code of Conduct, then Philam Life must meet the higher standards. The local CEO is responsible for the implementation of this policy and guidelines including ensuring that all employees within his business unit are aware of their obligations stated in the Policy and Guidelines and comply with the standards. Compliance is responsible for maintaining the Policy and Guidelines, providing second line oversight and monitoring of effective implementation. The Anti-Corruption & Bribery Policy basically prohibits all employees, agents, or independent contractors from providing bribes or other benefits to another person in order to obtain or retain business or unfair advantage in any business interaction involving AIA and Philam Life, its customers and employees. The company is not allowed to use improper means to influence another person s business judgment. All employees and officers are required to comply with the guidelines. Any employee who has knowledge of or in good faith suspects a violation of any of these laws, regulations or policies must report them promptly to the Compliance Officer assigned in the business unit or otherwise as set out in the Speak Up program. Prevention of Insider Trading & Price Sensitive Information The AIA Group takes its obligations as a listed entity seriously and is committed to ensuring the highest standards of market conduct and fair dealing. The Hong Kong Securities and Futures Ordinance (SFO) prohibits market misconduct, including insider trading. Breaches of market misconduct laws are serious offences that attract heavy civil and criminal penalties. Since Philam Life is a member of the AIA Group, it also adopts the same policy and follows the same guidelines. The Prevention of Insider Trading and Market Misconduct Policy aims to build a robust system to prevent market misconduct including insider trading. It sets out standards and controls to ensure compliance with the regulatory requirements. Lastly, the existence of this policy should prevent employees and directors from engaging in speculative trading in AIA Group Securities. The policy applies to all employees and directors of AIA Group Limited and each of its subsidiaries ( AIA Group ) just like Philam Life. 30 This policy defines the duty of each employee to safeguard material information from improper use. Under the policy, it is illegal to trade securities while in possession of a material non-public information and pass a material non-public information to anyone who may trade securities based on it or give others recommendations to buy or sell securities. CONNECTED TRANSACTIONS POLICY Philam Life has adopted the Connected Transactions Compliance Policy of AIA, which basically sets forth the protocol in ensuring compliance with the requirements and approval process for connected transactions. The Policy, among others, defines what is considered a connected transaction, who are the connected persons, the approval and disclosure requirements, and the reporting obligations. Under the Policy, all transactions relating to acquisitions or disposals of interests in a company, share subscription, options, joint ventures and financial assistance transactions shall be reported to AIA for consideration as connected party transactions notwithstanding the counterparty. THE WHISTLEBLOW PROGRAM Philam Life does business with integrity and follows the highest ethical principles. Any employee (or anyone else) may raise concerns of misconduct or wrongdoing within AIA and Philam Life that can allow investigation to fix any problems. This Policy guides all employees on how to raise ethical concerns and managers on how they should respond when this happens. The Whistleblow Policy applies to all employees of the AIA Group including Philam Life. Whistleblower refers to someone (an AIA employee, business partner, agent, consultant, vendor, customer or other party) who informs AIA or Philam Life of suspected illegal or improper ways of doing business involving violation of laws, regulations, AIA or BPI Philam policies, and other unethical actions that might negatively impact AIA s and Philam Life s reputation. Employees who are aware of possible wrongdoing within AIA and Philam Life have a responsibility to disclose that information to management. Reports are taken seriously and investigated confidentially. Employees or other individuals will not suffer retaliation for reporting suspected wrongdoing in good faith. An AIA Ethics line was developed to support the program. It is an independently managed website and hotline (telephone) service, receiving reports in local language, 24 hours a day, and 7 days a week. AIA and Philam Life can communicate with anonymous whistleblowers using this website via a secure platform.

5 The following misconduct including unethical or unlawful acts can be reported through this AIA Ethics line. Fraud, misappropriation, theft, bribery or corruption, giving or receiving inappropriate gifts or kickbacks; Harassment, bullying or assault, discrimination, conflicts of interest, or abuse of authority; Fake or falsification of signatures, customer accounts, information or business performance reports; Creating inappropriate funds or cash floats (slush funds) with travel agents, fake vendor bids etc. Signs of retaliation against a whistleblower or suspected whistleblower including subtle acts such as exclusion from meetings or events which may impact long term career or advancement. Anyone trying to interfere with the confidentiality of a whistleblower report, identifying or giving away the identity of a whistleblower, or encouraging or tolerating such actions. Reporting concerns or suspicions may be made by multiple means provided in the AIA Code of Conduct. The report may also be made by using the AIA Group Ethics and Compliance Hotline (PLDT) or (Globe) Compliance Disciplinary Framework and Guidelines Under this Framework & Guidelines (the Framework ), Heads of Departments have the power to impose disciplinary sanctions to any employee who has been found, after due process, to have breached or violated any of the company s compliance policies. The Framework seeks to ensure that all decisions regarding employee misconduct or violation shall undergo a due diligence review, fair hearing, with representation if they so choose and with penalties that are proportionate. In the event of a serious or material breach, criminal misconduct or where it is reasonably believed that the safety or welfare of employees or the Company is put at risk by the continuing presence of an employee or employees against whom allegations have been brought, such employee or employees will be suspended immediately without prejudice. Heads of Departments shall closely coordinate with Compliance, Legal and/or Human Resources whenever necessary. For breaches identified by Compliance, Compliance shall escalate the matter to the Heads of Departments for further action. Market Conduct Guidelines Philam Life envisions itself as having one of the highest sales standards in the life insurance industry in Philippines. All sales personnel are expected to conduct their business with the highest level of professionalism and personal integrity. Philam Life will not tolerate anything less. The Market Conduct Guidelines is used as a guide by all sales personnel in the conduct of their business and aid in the determination of what would be deemed proper conduct and behaviour. It shall apply equally and consistently to the conduct of Life business practices and all financial products. Any breach of the Market Conduct Guidelines may result in the imposition of a penalty upon the offender in question. Compliance with these guidelines does not ensure a continued contractual relationship with Philam Life. Philam Life reserves the right at all times to terminate the employment contract of any sales personnel in accordance with the terms of the contract entered into between Philam Life and the sales personnel. ENTERPRISE RISK MANAGEMENT Philam Life s risk function recognizes that effective risk management maximizes the value of its business to its shareholders. For policyholders it is the security from knowing that we will always be there for them. For regulators sound risk management is vital to the stability of the financial system. For investors it is a means of protecting and enhancing the long-term value of their investment. Philam Life s Enterprise Risk Management (ERM) pursues initiatives to become widely recognized among risk professionals and among top organizations in the financial sector by Reinforcing institutionalized practices like mobilizing Risk Champions, ERM has started to build Ka-Risk-Ma (Kaagapay sa Risk Management) in 4Q2015, which aims to get ERM closer to the business. ERM also aims to enhance risk awareness campaigns to expand its reach in the organization and its affiliates. The Risk Management Framework (RMF) provides the structure for identifying, quantifying and mitigating risk across the Group. An effective RMF is the key to avoiding significant financial and reputational damage that arises from inadequate or ineffective control of the risks in the business. Philam Life s RMF is built around two committees, the Operational Risk Management Committee (ORMC) and the Financial Risk Management Committee (FRMC), supporting its business. 31 CORPORATE GOVERNANCE

6 CORPORATE GOVERNANCE The purpose of the ORMC is to provide oversight of the Non-financial Risks Management activities within Philam Life and to ensure Operational Risk Policies are in place. Non-financial Risk includes risks related to operational risk and strategic risk. ERM embraces the new Risk Control and Assessment process and drives its implementation. As of 1Q2016, risk owners are more involved in tracking their risk profiles and presenting them to the ORMC. With this, Philam Life ERM is signifying its commitment to a forward-looking and robust risk reporting. The FRMC provides oversight of asset and liability management and the management of Financial Risk in Philam Life. The FRMC also provides oversight of product pricing policies and guidelines and ensures that product risk management policies and programs are implemented appropriately and consistently. The FRMC ensures that appropriate Financial Risk policies are in place. The FRMC establishes priorities and coordinates across the Financial Risk management activities, monitors exposures, develops guidelines for reporting financial risks, Key Risk Indicators ( KRIs ) and status of action plans for addressing risk deficiencies. In addition, the FRMC monitors emerging and catastrophic risks that may impact on Philam Life s financial position. The ORMC and FRMC report to the Philam Group RMC (Group RMC) which adopts a strategic view of enterprise-wide risk management where the focus is on setting high level risk principle and culture, balancing risks pertinent to the Philam Group, and coordinating the cumulative effect of interaction of all risk management functions. Group RMC is represented by senior management of Philam Life and its affiliates, providing a forum for risk management issues. Further, the Philam Life Board Risk Committee (BRC) is responsible for determining the Risk Appetite, the Risk Management Statement, and the Risk Management Framework, and providing advice and assistance to the Board of Directors for the review and recommendation of these matters. Likewise, the BRC also approved the company s Risk Measurement Systems and Metrics. Risk Landscape Philam Life maintains detailed risk taxonomy to ensure all risks are identified and systematically managed. The principal risks are summarized below: Financial Risk Financial risk is the potential loss resulting from adverse movements in financial markets, changes 32 in the financial condition of counterparties and in market liquidity to buy and sell investments. Financial risk is subdivided into credit risk, market risk (which includes interest rate, credit spread, equity price, property price and foreign exchange rate risk), liquidity risk, and insurance Risk. Insurance risk is the potential loss resulting from mortality, morbidity, persistency, longevity and adverse expense experience. Philam Life manages its exposure to financial risk within tolerances agreed by the Financial Risk Management Committee (FRMC). Risk metrics are used to identify exposure to each of the major financial risks. First Line management of financial risk is primarily conducted by the Finance, Actuarial, and Investment functions with oversight provided by the financial risk team in all major business units. Philam Life also manages financial risk by periodically running specific scenario modelling exercises to gauge the potential impact of macroeconomic events on financial strength and profitability. Operational risk Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, personnel and systems or from external events. Operational risk is broken down into a common classification which is used across Philam Life. Operational risk is overseen through 13 defined risk areas or Key Operational Risks (KORs). The 13 KORs are Business Interruption risk, Distribution risk, Finance and Actuarial Process risk, Fraud and Financial Crimes risk, Information Security risk, Information Technology risk, Investment Process risk, Legal and Regulatory risk, Operations Process risk, People risk, Products Management risk, Project risk, and Third Party risk. Each KOR is measured using Key Risk Indicators (KRIs), with a first line owner for respective KORs. The Operational Risk Management Committee (ORMC) reviews these risks regularly The ORMC also reviews new activities where there is deemed to be the potential for material operational risk. The Risk and Control Assessment (RCA) process is used to identify and assess the impact of operational risks. The RCA is an exercise whereby management considers possible or actual risk events, ascribes likelihood of occurrence and potential severity, and then agrees mitigation strategies to reduce these risks. These strategies are then monitored and the exercise repeated, with the results stored in an operational risk database.