Table of Contents consolidated annual report. Message to Shareholders. Financial Highlights. Ambassador 4 Alfonso T.

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2 2016 consolidated annual report Table of Contents 3 Financial Highlights Ambassador 4 Alfonso T. 6 Yuchengco Message to Shareholders 10 Financial Review 15 Consolidated Assets 15 Insurance Risk Portfolio 16 Corporate Policies 18 Financial Reports 126 Board of Directors 136 Directory of Subsidiaries, Offices and Branches 138 Products and Services 139 Vision, Mission and Core Values the cover As Malayan Insurance nears its 9th decade of service to the Filipino insuring public, we celebrate the ideals that have made us the leader of the non-life insurance industry in the country. Under the stewardship of our beloved Chairman, Ambassador Alfonso T. Yuchengco, Malayan Insurance stood out in the industry as it put a premium on its relationship with each one of its clients. Because Ambassador Yuchengco made sure that the company never lost sight of its purpose to provide Filipinos with speedy settlement of just and valid claims Malayan Insurance has again and again set new standards of dependable service through the years. And in the decades to come, Malayan Insurance will strive to honor the Ambassador s legacy of integrity.

3 integrity. that s our policy. 3 mico equities, inc. and subsidiaries Financial Highlights in us dollars Premiums Earned Net Underwriting Income Investments and Other Income General Expenses Provision for Income Tax Net Income 2016 $ 84,533,103 28,883,738 6,081,143 25,861,150 1,070,305 8,033, $ 70,181,016 16,495,611 9,005,295 24,119, , ,295 At Year End Total Assets Stockholders Equity Unearned Premiums Reserve for Losses and Loss Expenses Investments $ 505,114, ,415,338 71,853, ,200, ,623,154 $ 563,300, ,090,659 59,322, ,445, ,911,550 in philippine pesos Premiums Earned Net Underwriting Income Investments and Other Income General Expenses Provision for Income Tax Net Income 2016 P4,207,128,022 1,437,514, ,652,401 1,287,083,577 53,267, ,815, P 3,306,789, ,240, ,693,695 1,136,470,660 35,477,062 29,603,982 At Year End Total Assets Stockholders Equity Unearned Premiums - gross Reserve for Losses and Loss Expenses-gross Investments P 25,114,271,682 9,964,650,601 3,572,557,550 7,169,632,374 9,527,503,225 P 26,508,937,581 9,839,806,422 2,791,730,630 8,444,726,016 9,878,437,562 Balance sheet Accounts P = US$ 1.00 conversion rates profit and loss accounts P = US$ 1.00

4 consolidated annual report Ambassador Alfonso T. Yuchengco (February 6, 1923 April 15, 2017) He was a man of honor. A distinguished diplomat, a successful businessman, a passionate philanthropist, an ardent educator, and a man of integrity. Ambassador Alfonso T. Yuchengco, through his numerous successes in business, foreign relations, and socio-civic organizations, made a significant imprint not only in the various sectors and businesses he handled throughout his life, but also in the lives of millions of Filipinos. Ambassador Yuchengco, fondly called AY by his friends and colleagues, lived an exemplary life, reflective of a true man of honor and a forward-thinking leader. He was the pivotal figure and founder of the Yuchengco Group of Companies (YGC), one of the country s biggest conglomerates with an impressive business portfolio. The conglomerate stands solid on four major flagship corporations that mirror AY s vision of putting up companies designed to help move the country forward. The RCBC Group stands at the helm of YGC. Alongside RCBC, one of the country s major universal banks, is RCBC Savings Bank -- the retail banking arm of RCBC. The group also includes RCBC Bankard, the bank s credit card servicing entity, RCBC Capital, RCBC Securities, and Rizal Microbank. Following the RCBC Group is Malayan Group of Insurance Companies led by Malayan Insurance Company, Inc. currently the leading non-life insurer in the country, Bankers Assurance Corporation (BAC), and First Nationwide Assurance Corporation (FNAC). The third pillar of YGC is Grepalife (Great Pacific Life Assurance Corp.); one of the pioneer life insurance companies in the country, now Sunlife Grepa Financial. Completing YGC s flagship companies is House of Investments (HI), the first investment house in the country. Being a passionate philanthropist, Alfonso T. Yuchengco also put up the AY Foundation, YGC s socio-civic arm whose vision is to help uplift Filipino lives through various CSR (corporate social responsibility) projects. Part of his mandate for every YGC member is to give 1% of their profits to the AY Foundation to sustain multiple humanitarian efforts. Alfonso T. Yuchengco s natural ability to weave success in all of his ventures was already evident in his earlier years. Born in February 6, 1923 to Don Enrique Yuchengco and Maria Tiaoqui, the young Alfonso showed immense interest in commerce by venturing into his own small business. As a teenage entrepreneur, he bought wholesale soap products from a soap factory owned by his father s friend and started a small buy-and-sell business that he ran independently and, later on, with the help of his other schoolmates. This early start proved the incontestable fact that the young Alfonso was born to lead and groomed to face every challenge with head held high, and with one thing in mind: success. After his father passed, Alfonso took on the mantle as head of the family business in It was then that he began to show his strong business acumen. He assumed management of China Insurance and Surety Co., owned and founded by his father Don Enrique Yuchengco. After being shuttered due to the ravages of World War II, China Insurance was rebuilt from the ground up. Alfonso was a

5 integrity. that s our policy. 5 firsthand witness of how Don Enrique s stewardship allowed China Insurance to honor war claims ex-gratia, though these were not within the scope of the conditions of the policy. Alfonso inherited from his father the firm belief that Filipinos needed an insurance company that they could count on for fair dealings and speedy settlement of just and valid claims. To support the social thrust to build a Malay race identity in the Philippines, the business was infused with fresh capital and became Malayan Insurance Company, Inc. Under the stewardship of AY, Malayan grew from a humble Binondo enterprise into a more thriving Malayan Group of Insurance Companies, the leading provider of nonlife insurance products and services in the Philippines. By this time, Alfonso T. Yuchengco had already become a beacon of innovative thinking, having been one of the first industrialists to delve into joint ventures with local and international corporations. Alfonso s ventures expanded with the birth of Grepalife (Great Pacific Life Assurance Corp.), one of the earlier top life insurance companies in the country in terms of assets and premium income. In 1959, he established HI (House of Investments) which delved into property management, construction, car dealership, and later on, education. This spurred the birth of ipeople which focuses on the academe, having Mapua Institute and its subsidiaries as members. Years after, RDB (Rizal Development Bank) was born and was renamed Rizal Commercial Banking Corporation (RCBC) when it became a commercial bank in To date, RCBC remains one of the major universal banks in the Philippines. Thanks to the Ambassador s trailblazing thinking, he also pioneered the introduction of Diner s Card in 1958, the first credit card in the country. The coming years saw the imminent success of Alfonso T. Yuchengco s dreams as YGC continued to grow into the iconic conglomerate it is known today. Going beyond the confines of his country, Alfonso T. Yuchengco also gained recognition in the international arena. He was Ambassador to China ( ) and Japan ( ), Presidential Special Envoy to Greater China, Japan and Korea (2001), and Philippine Permanent Representative to the United Nations ( ). After two years, he was appointed Presidential Adviser on Foreign Relations. His active role in business and foreign relations earned him international recognition, several honorary doctorate degrees from renowned universities, honorary professorships, and several Hall of Fame awards. Up to this day, Alfonso T. Yuchengco s name stands tall, mirroring what it means to be a true man of honor. A bigger feather on his cap though, is his remarkable way of touching the lives of others. Through his AY Foundation, he was able to mount numerous socio development-focused programs such as scholarships, medical missions, community service awards, child welfare assistance, and national discipline programs. AY Foundation was Ambassador Yuchengco s answer to his vision of uplifting the country, driven to pursue the road to greatness. Through the years, Alfonso T. Yuchengco has built his name with ideals that will never falter, no matter what kind of changes, challenges, and opportunities would come. Then and now, this is the legacy that Ambassador Alfonso T. Yuchengco will always be remembered for one that is founded on leadership, built with integrity, and anchored on service.

6 consolidated annual report Message to Shareholders For 86 years, Malayan Insurance continues to be defined by industry leadership and integrity in its commitment to provide security and peace of mind. Malayan embraces its heritage of honor and excellence as it aims to reach even greater heights. Helen Y. Dee Chairperson Understanding the performance of the Philippine non-life insurance industry and the Malayan Group of Insurance Companies in 2016 requires an exploration of the economic and socio-political landscape of the Philippines for the year. Overall, the Philippine non-life insurance industry displayed steady gains in net premiums written in The Philippine economy remained bullish in Gross domestic product (GDP) grew 6.9%, the fastest growth in the last three years. The country also posted the fastest GDP growths in the continent in 2016, outpacing China and Vietnam. This is due to a spike in investment and consumption, To our members of the board, officers, and employees our deepest gratitude. Malayan Insurance continues to stand today as the trusted frontrunner in the non-life insurance industry because of your loyalty and perseverance. and the reconstruction of publicprivate partnerships (PPP) in the infrastructure sector. The year was also defined by the general elections in May. The new administration has so far continued the economic policies that have established continued confidence in the business community and paved the way for achieving the highest investment growth in 2016, for the last twenty years. Meanwhile, the Philippine insurance industry posted a flat

7 integrity. that s our policy. 7 growth in 2016 with total income from premiums at P billion, a 0.29% year-on-year uptick from the same period in The modest lift for total insurance sector is attributed to declining premiums of life insurers, as the sector s total premiums slipped 3.04% to P billion in 2016 compared to P billion in By contrast, the steady growth of the Philippine non-life insurance sector offset these declines. Net income from premiums of non-life insurers soared to P41.6 billion in 2016, posting a 16.24% year-onyear surge from the P35.8 billion net premium income in This growth is due to a surge in net premium written across several non-life insurance companies operating in the Philippines, boosted by a notable increase in net premium written for health and accident businesses which include microinsurance and travel insurance. The surge in net premium income was also due to an expansion in the local motor business, which comprised a little over half of total premiums written in the non-life sector. MALAYAN INSURANCE AND SUBSIDIARIES Reflecting the robust standing of the Philippine business environment and growth in the non-life insurance sector, the Malayan Group posted a positive performance in 2016 that led to significant gains in the Group s bottom line. Gross Premiums Written (GPW) climbed to P9.311 billion in 2016, marking an 8% jump from 2015 GPW of about P8.611 billion. Retained premiums for 2016 also grew by 21%, to P4.498 billion from P3.718 billion in 2015, with premiums earned surging by 27% to P4.207 billion in 2016 from 2015 s P3.307 billion. Meanwhile, net underwriting income spiked to P1.402 billion during the year in review from about P759 million in 2015, posting an 85% jump year-onyear. Overall, Malayan closed 2016 with a net income of around P677 million, more than doubling (219%) its 2015 net income of P29.6 million. LOOKING AHEAD As Malayan Insurance enters the mid-point of its five-year growth strategy, the Group remains committed to increasing its business footprint and boosting its margins through the continued development of new and innovative services, distribution channels, and products. This is in line with the continued efforts of Malayan Insurance to be a customer-centric institution. Moving forward, we are confident that Malayan Insurance will soar to greater heights as we strive to provide Filipinos peace of mind and security, anchored in our commitment to service and integrity. Yvonne S. Yuchengco President

8 consolidated annual report Malayan closed 2016 with a net income of around P677 million, more than doubling (219%) its 2015 net income of P29.6 million. Stable ratings continued to be a hallmark for the Group in A.M. Best affirmed the financial strength rating of B++ (Good) and the issuer credit rating of bbb+ of Malayan Insurance. The outlook for both ratings is stable. Meanwhile, the Malayan Group continued to increase underwriting profitability, strategically raising retention from P100 million to P150 million per risk. As a result, underwriting capacity was scaled up from P1.2 billion to P2 billion per risk. Malayan Insurance also rolled out its Branch Rationalization Program in 2016 by establishing new sites in Quezon Avenue, Quezon City and Ortigas Center, Pasig City. Two other branches were re-located during the year. Malayan Insurance seeks to expand its presence with more sites in Malayan Insurance also continued to boost digital capabilities through several initiatives to remain at the forefront of the increasingly competitive market. Digital Business has been the fastest growing channel for the retail segment, while Digital services is making strides toward automating business processes and customer relationship management saw various business initiatives that Malayan Insurance will be nurturing towards profitable results. One such initiative was conducted in partnership with Rizal Commercial Banking Corporation (RCBC). Malayan stationed a MICO Desk at the RCBC Head Office to cater to various insurance requirements of the RCBC Corporate Banking Group (CBG). The endeavor aimed to nurture synergies with other members firms of the Yuchengco Group of Companies (YGC). Online, Malayan Insurance launched its second e-commerce initiative in With auto. malayan.com, clients are able to apply for, request a quote, and purchase motorcar insurance online in 10 minutes or less, eliminating the need for time-consuming face-to-face consultations. It also expanded its capabilities to provide the insurance needs of the growing tourism and travel business via the e-commerce platform. With these, the Group hopes to net and assist more clients while minimizing the time they need to expend in exploring and purchasing their insurance products. The platforms are unique within the local non-life insurance arena, as there are no current competitors in the country with similar initiatives. Malayan Insurance also made available, a new casualty insurance product, Cyber Insurance, which was approved by the Insurance Commission for the Philippine market in The new product offers security for vital company assets that are non-tangible such as data. In the event of a cyber-attack, it covers the company s losses associated in restoring data or computer system, and loss of profit due to reputational damage. Malayan Insurance also hosted fora for Cyber Insurance. To further promote another new product, Fine Arts Insurance, Malayan Insurance increased its involvement in the Philippine arts landscape. The company served as the official insurer of Art Fair Philippines 2016, and hosted discussions exploring protection and handling of art pieces. Malayan Insurance also made strides in streamlining its claims process in Merimen, the new Claims Management System being adopted by the company, enables web-based monitoring to enhance turnaround time, allow immediate application of control measures, as well as adjustment and evaluation of claims. Merimen also aids in extracting reports that serve as reference to underwriters in effectively rating risks. In sum, the Group will continue to expand business opportunities and foster sustainable profit growth by leveraging on partnerships, innovative technology, and strategic marketing. SOCIAL RESPONSIBILITY In the past year, the Group continued to participate in efforts to revitalize the local environment through tree planting and ocular inspections. This was

9 integrity. that s our policy. 9 TOTAL ASSETS MICO Equities, Inc. and Subsidiaries GROSS PREMIUMS WRITTEN MICO Equities, Inc. and Subsidiaries investment and other income MICO Equities, Inc. and Subsidiaries P424.31M P580.12M P8.6B P9.3B P26.51B P25.11B accomplished through the Earth Care project, an ongoing collaboration between member firms of the Yuchengco Group of Companies. The project aims to establish the YGC forest with 50,000 trees in Brgy. San Andres, Tanay, Rizal, by Malayan also partnered with Munich Re to provide free risk assessment services for the central warehouses of recipients of Global Fund. Global Fund is an international financing institution and multi-stakeholder partnership dedicated to accelerate the end of AIDS, tuberculosis, and malaria as epidemics. The services aimed to help Global Fund recipients, namely Pilipinas Shell Foundation Inc., Save the Children Philippines, and Philippine Business for Social Progress, protect and insure assets like health care and pharmaceutical products, and laboratory equipment. The Group also partnered with AY Foundation, the philanthropic arm of the Yuchengco Group of Companies. Malayan Insurance and AY Foundation provided medical and dental services in the community of Tayuman in Tondo, Manila. WORDS OF GRATITUDE 2016 was fruitful for Malayan Insurance, and we owe it to all the brokers, agents, and employees of the Group. Further, to our members of the board, officers, and employees our deepest gratitude. Malayan Insurance continues to stand today as the trusted frontrunner in the non-life insurance industry because of your loyalty and perseverance. Our beloved Ambassador Alfonso T. Yuchengco, who tirelessly served as Chairman of MICO Equities, Inc., and guided Malayan Insurance for over eight decades with the belief that the Filipino nation deserved only the best. He strengthened Malayan Insurance, making it a resilient market leader by offering the insuring public unsurpassed quality and dependability. Ambassador Yuchengco has left us a heritage of honor and excellence, and it is our duty to live up to this legacy. Moving forward, we are confident that Malayan Insurance will soar to greater heights as we strive to provide Filipinos peace of mind and security, anchored in our commitment to service and integrity. As we approach our ninth decade of serving the Philippine insuring public, there are reasons to be optimistic: a strong economy, dynamic equities market, and improving business growth due to new alliances in Asia. These may all provide opportunities for Malayan Insurance to offer financial certainty to our customers and stakeholders. Let Malayan cover you. Helen Y. Dee Chairperson Malayan Insurance Co., Inc. Yvonne S. Yuchengco President Malayan Insurance Co., Inc.

10 consolidated annual report Financial Review Having just celebrated its 86th founding anniversary in 2016, Malayan Insurance was again recognized and ranked by the Insurance Commission as the No. 1 among the non-life insurance companies. MALAYAN INSURANCE CO., INC. Determined to achieve the best and maintain its leadership in the insurance industry in 2016, Malayan Insurance realized another rewarding year, as the company performed progressively well in spite of the industry s having posted a flat growth during the year. Positive performance in 2016 was attributed to the unequivocal support and unrelenting efforts of all officers, employees, brokers and agents in strengthening and pursuing programs and strategies. Added to these successful outcomes was due to the very healthy company-client partnership, resulting to improved client trust and confidence, as well as product and service excellence satisfaction. Having just celebrated its 86th founding anniversary in 2016, Malayan Insurance was again recognized and ranked by the Insurance Commission as the No. 1 among the non-life insurance companies in terms of Gross Premiums Written (GPW), Net Income, and Net Premiums Written (NPW). This outstanding performance added another laurel to Malayan s prestigious achievements as a non-life industry leader in the Philippines. In 2016, Malayan realized Gross Premiums Written (GPW) in the amount of P 9.1 billion, compared to P 8.4 billion in 2015, presenting a growth of P 0.7 billion, or 8 percent (8%). Meanwhile, its Net Premiums Written (NPW) reached P 4.2 billion in 2016, as against P 3.4 billion in 2015, showing a gain of P 0.8 billion, or 23 percent (23%). Adding to the very encouraging performance of the company, Malayan registered in 2016 the amount of P570.3 million, composed of investments and other income, which when compared with the P561.3 million in 2015, represented an improvement of 2 percent (2%). For Malayan Insurance s Net Income, it went up to P700 million in 2016 from P205 million in 2015, garnering a very positive increase of P495 million, or 241 percent (241%). Direct business grew by 19% and achieved budget of 102%. Major lines like Fire, Motor, Miscellaneous Casualty and Marine also registered growth. The Net Underwriting Income of P1,227.2 million in 2016, compared to P680.6 million in 2015, was 80 percent (80%) or P546.6 million higher. The favorable result was due to a 23 percent (23%) growth in net premiums retained coupled with lower net unearned premium reserves and net acquisition cost. Going further, Malayan Insurance was able to garner Total Assets of P23.46 billion in 2016, lower by almost P1 billion or 3.8 percent (3.8%), from the P24.39 billion reported in The decrease in Total Assets in 2016 was attributed to the following: Financial Assets of P7.3 billion in 2016 from P7.4 billion the previous year and Reinsurance Assets of P7.4 billion during the year in review from P7.9 billion in Meanwhile, Stockholders Equity was recorded at P7.9 billion in 2015, compared to P8.0 billion in 2016, giving a difference of P0.1 billion, or 1.3 percent (1.3%).

11 integrity. that s our policy. 11 MICO Chairperson Helen Y. Dee (fourth from left) and Chief Operating Officer Paolo Y. Abaya (rightmost) with grand raffle winners at 2016 Agents Recognition Night. MICO President Yvonne S. Yuchengco (third from left) and MICO Chief Operating Officer Paolo Y. Abaya (rightmost) with Malayan agents.

12 consolidated annual report Another very important recognition given to Malayan Insurance was the distinction of being the Most Stable Non-life Insurer in the country an honor accorded to the company for many years by AM Best. MICO President Yvonne S. Yuchengco and MICO Chairperson Helen Y. Dee (third and fourth from left, respectively) with the Cyber Insurance Forum s key speakers. MICO President Yvonne S. Yuchengco and MICO Chief Operating Officer Paolo Y. Abaya cut the ribbon at the Malayan Insurance Ortigas Branch Opening. There were some factors in the political and economic environment that adversely affected Philippine business activities during the year in review; but still, Malayan s performance was not influenced much because of the determined and cooperative efforts of all units of the company to reach positive and very encouraging results. These efforts to overcome difficulties led to the successful implementation of Mitigation Strategies, based on the following: Insurance Risks, Investment Risks, Business Strategic Risk, and Operational Risk. For the Finance Division: positive moves were implemented, like improved cash flow coordination between investment and cash management, maximizing returns in investment funds, increased investment base, further implementing check writing facility for TMD, and streamlining of disbursement and documentation resulting in uniform procedures of processing for efficient financial transactions. In the Motorcar Department, there were three major projects completed in (1) The Compulsory Third Party Liability (CTPL) online issuance facility, (2) The motorcar System Interface with RCBC Savings Bank, and (3) The Online Electronic-Special Commission Rate (escra) and Request for Issuance (RFI) facilities that are now in use. Business Technology & Communications Department completed Internet Protocol/ Virtual Private Network (IP/ VPN) upgrades for all branches, establishing more security and secure connections. Simultaneous to the upgrades, IP Phones were also installed to eliminate distance charges. Likewise, the Integrated Contact System 2 was launched in which transactions can be closed by persons responsible such transactions include Request for Survey Risk Rating (SRR), Request for Accumulation Registration No. (ARN), PA Claims Verification, RTS mails Renewal Notices and Request for creation of Client Record.

13 integrity. that s our policy. 13 Malayan Insurance s Tokio Marine Division (TMD) maintained over P1 billion Gross Premiums Written (GPW) with a 2016 total production of over P1.1 billion, higher than the 2015 figure by 12%. Overall 2016 Net Income of the division was P115 million which was higher by 37% than the 2015 figure of P83.6 million. Likewise, TMD also conducted a Cyber Insurance and Business Continuity Management (BCM) Seminar for Japanese clients in The event was held at the RCBC Plaza and was attended by over 80 officers from Japanese companies. This seminar also gave the clients an overview of products to be launched in Earlier, Malayan Insurance has already complied with the P550 million minimum capital requirement mandated by RA 10607, known as the amended Insurance Code, which provides that new insurance companies, life and non-life, must have P1 billion in paid-up capital to set-up a company. Likewise, the revised Insurance Code mandates that existing insurers like Malayan Insurance, must have a net worth of P550 million by December 2016, P900 million by December 2019, and P1.3 billion in However, by 2016, Malayan reported a networth of P8.0 billion. Another development in 2016 was an ISO audit which was conducted on November 21, 2016, by Certification International. The audit was successfully completed with Malayan Insurance achieving Zero Non-conformity. This resulted in continued certification under ISO 9001:2008. Another very important recognition given to Malayan Insurance was the distinction of being the Most Stable Non-life Insurer in the country an honor accorded to the company for many years by AM Best. In 2016, AM Best again affirmed the rating of Malayan Insurance with (1) Financial Strength Rating: B++ (Good), (2) Insurer Credit Rating bbb+, and Outlook for both Stable. FIRST NATIONWIDE ASSURANCE CORPORATION (FNAC) First Nationwide Assurance Corporation (FNAC) was founded in 1965 to service the insurance needs and requirements of Filipino and Chinese individuals, communities and corporations in the Philippines. In 2011, it signed a Bancassurance agreement with the Rizal Commercial Banking Corporation (RCBC). With a renewed focus and a more aggressive, expansive marketing strategy, FNAC s undertakings displayed continuous improvement as evidenced by total Gross Premiums Written (GPW) of P201.8 million in 2016, as against P179.5 million in 2015, showing an increase of P22.3 million, or 12%. Comparing the company s production in the individual business lines, there were significant improvements as shown by GPW growth by line of insurance: Motorcar grew by 9%, Fire by 10%, and Personal Accident insurance by 27%. Meanwhile, Net Premiums Earned in 2016 increased by P45.5 million, or 37% which amounted to MICO Equities Chairman Ambassador Alfonso T. Yuchengco (center) with top Malayan officers at the Annual Board of Directors Meeting at the RCBC Plaza, Makati. FNAC rewards top bank referrors and sales representatives with a trip to Japan. P169.9 million versus P124.4 million in 2015; likewise Total Underwriting Income increased by P46.8 million, or 37% amounting to P174 million in 2016 versus P127 million in saw fewer incidences of major catastrophes occuring in the Philippines. This, along with a reversal of over reserved bond claims in the amount of P26.8 million resulted to an improvement by P25.7 million in claims and losses, or a decrease

14 consolidated annual report of 49%, compared to the same period in Net Underwriting Income increased by P68.9 million, or 131% to P121.6 million in 2016 from P52.58 million in Unfavorable swings in the financial markets in 2016 resulted in a decrease of dividend income from investments in stocks of P12.5 million, compared to P16.8 million in 2015, or a decrease of 26%. However, investment in bonds accounted for an improved interest income of P12 million in 2016 versus P11.6 million in Overall financial and investment income of P23.5 million decreased by 30%, compared to P33.7 million, reported in The company s excess income tax credits in 2015 and 2016 were applied against its income tax provision which decreased by 22% from P1.1 million in 2015 to P0.877 million in Total Assets of FNAC were recorded at P952 million in 2016, as against P1.2 billion in 2015; while its Stockholders Equity amounted to P611.2 million in 2016 versus P597.9 million in A member of the Malayan Group of Insurance Companies, FNAC s Net Income increased to P52.6 million in 2016 from P14.9 million in 2015, showing an improvement of 253%. Likewise as the official bancassurance partner of the RCBC Group, the company has actively diversified its product offerings to RCBC clients through the introduction of a Family Personal Accident package and other Personal Accident products. BANKERS ASSURANCE CORPORATION (BAC) On its 61st Year as a non-life insurance provider, Bankers Assurance Corporation (BAC) had something to celebrate with as it reached more than six decades of continuously serving the Filipino people and the nation. BAC is a member of Malayan Group of Insurance Companies, specializing in insurance products and services for the microinsurance market and for Overseas Filipino Workers (OFW). According to the Insurance Commission (IC), about 30% of the country s population is covered by microinsurance. Microinsurance helps to combat poverty as it protects the low income sector against the risk of losing their lives, properties and livelihood. With greater emphasis and focus on its microinsurance portfolio, the company realized a Net Income of P49.3 million in 2016 from P23.6 million in 2015, showing a difference of P25.6 million, or 108%. This impressive development was attributed to the outstanding and efficient handling of its personal accident portfolio, leading to better claims experience and improvements in its loss ratio by 24 percentage points. Likewise, BAC s retention ratio improved by 11 percentage points. BAC s Gross Premiums Written reached P78.1 million, compared to P83.1 million in 2015, showing a difference of P4.9 million, or (-6%); however, its Net Premiums Earned were recorded at P85.7 million in 2016, in comparison to its Net Premiums Earned of P74.5 million in 2015, an increase by P11.2 million, or 15%. As it strives to serve its unique markets, BAC is in partnership with other organizations to strengthen its sales and distribution network for the microinsurance and OFW markets. BAC microinsurance partnership BAC participates in the 2016 Microinsurance Month

15 integrity. that s our policy. 15 mico equities, inc. Consolidated Assets INVESTMENT PROPERTIES OTHER ASSETS 1% CASH & SHORT-TERM INVESTMENT REINSURANCE ASSETS 3% 7% 26% 39% 23% FINANCIAL ASSETS INSURANCE RECEIVABLES Insurance Risk Portfolio 1% 6% 5% 8% 20% 7% 52% FIRE MARINE PERSONAL ACCIDENT BONDS CASUALTY ENGINEERING MOTOR

16 consolidated annual report Corporate Policies The respective Boards of Directors of Malayan Insurance Company, Inc., Bankers Assurance Corporation, and The First Nationwide Assurance Corporation, have adopted corporate policies and practices that take into account the needs and interests of their stakeholders, and are committed to fully comply with all regulatory requirements and good corporate practices. Corporate Governance The Malayan Group of Insurance Companies is committed to maintaining a high standard of corporate governance by ensuring fairness and transparency in all its dealings, imbibing a strong work ethic, and being accountable for its actions to earn the trust and respect of its stakeholders. Customer Health and Safety Policy As a customer centric organization, our customers safety and health is a top priority. In so doing, we continually review and improve our business practices, systems and infrastructures taking into serious account the physical well-being of our customers and employees. Protection of Creditors Rights In line with the professional discipline adhered to by the Company, it is its policy to respect and uphold its creditors rights by regular compliance with laws, rules, regulations, and jurisprudence that apply to any or all contracts and agreements entered into by the Company. In particular, the Company likewise prepares and makes available for the perusal of its creditors, among others, honest financial statements audited in accordance with applicable financial reporting standards and other periodic reports compliant with applicable laws, rules, and regulations. Supplier Accreditation and Evaluation The Company believes that procurement should be made through suppliers who demonstrate adherence to all relevant laws and regulations, as well as applicable company policies. Thus, suppliers are required to undergo and pass the rigid and thorough accreditation requirements of the YGC Procurement Shared Services, an entity created to handle the procurement of goods and services for all YGC members. Community Interaction As a leading professional insurance company in the Philippines, the Company believes that it should act as a responsible corporate citizen wherever it conducts its business. As such, it shall regularly perform outreach activities for those less privileged in life and actively participate in various civic oriented programs. Training and Development The Company s Training and Development programs aim to develop the five core values of the YGC: Passion for Excellence, Professional Discipline, Loyalty, Sense of Urgency and Teamwork. In so doing, the Company is continually providing a well rounded training and learning program

17 integrity. that s our policy. 17 for the joint development of the technical and soft skills of all its officers and employees. It is likewise promoting a culture of mentoring and coaching to further enhance the capability and growth of its employees. Compensation Policy The Company commits to compensate its employees pursuant to the requirements of the law and their performance on the job. It aims to have a Compensation program that is at par with other players in the insurance industry. The Company recognizes pay differentials for different types of work and hence, pays within an established salary structure for the different job levels. Remuneration Policy The Company aims to deliver and maintain a remuneration structure that is in line with its culture, strategy and control environment. Board of Directors Remuneration of directors is commensurate with their contribution and the scope of their responsibilities. Executive directors do not receive any per diems for attendance in meetings of the Board of Directors, Board Committee meetings and Stockholders meetings. Non-executive directors are entitled to reasonable per diems for attendance in meetings of the Board of Directors, Board Committee meetings and Stockholders meetings. Related Party Transactions It is the Company s policy that related party transactions are conducted at arm s-length with any consideration paid or received by the Company or any of its related parties, in connection with any such transaction being on terms no less favorable to the Company than the terms available to any unconnected third party under the same or similar circumstances. As such, the Company shall adopt the arm s-length principle in pricing the products and services it avails and/or provides to its related parties. Furthermore, the Company shall maintain and preserve proper documentation in its adherence to the transfer pricing regulation for audit purposes. Enterprise Risk Management The Company shall sustain profitability through a balanced approach in accepting insurance risks, whilst ensuring stable and optimal investment returns for the portfolio. The Company shall have zero tolerance for fraud, violation of laws, regulations and licensing institutions, and business interruptions affecting client servicing. Policy On Open and Responsible Communications The Company is committed to doing business according to the highest ethical and legal standards pursuant to its Code of Ethics. Its officers and employees are required to practice honesty and integrity in fulfilling their duties and responsibilities, and comply with applicable laws and company policies, rules, and regulations in order that the Company s good name and interests may be safeguarded. For this purpose, it is important that open and purposive communications be promoted. Information that an officer or employee believes that acts have been committed by another in contravention of any law, rule and regulation, company policy, code of business conduct and ethics, or if such acts involve fraud, corruption, abuse of authority or mismanagement, should be disclosed in a responsible manner.

18 consolidated annual report mico Equities, INC. AND SUBSIDIARIES Statement of Management Responsibility for Financial Statement The management of MICO Equities, Inc. and Subsidiaries is responsible for the preparation and fair presentation of the consolidated financial statements for the years ended December 31, 2016 and 2015, including the additional components attached therein, in accordance with Philippine Financial Reporting Standards. This responsibility includes designing and implementing internal controls relevant to the preparation and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. The Board of Directors reviews and approved the consolidated financial statements and submits the same to the stockholders. SyCip, Gorres, Velayo & Co., the independent auditors, appointed by the stockholders has examined the consolidated financial statements of the company in accordance with Philippine Standards on Auditing, and in its report to the stockholders, has expressed its opinion on the fairness of presentation upon completion of such examination. Helen Y. Dee Chairperson yvonne s. yuchengco President frederick p. pineda Chief Financial Officer alegria r. castro Controller

19 integrity. that s our policy. 19 mico Equities, INC. AND SUBSIDIARIES Independent Auditor s Report The Stockholders and the Board of Directors MICO Equities, Inc. 5th Floor, Yuchengco Building 500 Quintin Paredes Street Binondo, Manila Opinion We have audited the consolidated financial statements of MICO Equities, Inc. and Subsidiaries (the Group), which comprise the consolidated statements of financial position as at December 31, 2016 and 2015, and the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2016 and 2015, and its consolidated financial performance and its consolidated 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 Consolidated Financial Statements section of our report. We are independent of the Group 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 consolidated 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. Other Information Management is responsible for the other information. The other information comprises the information included in the Annual Report for the year ended December 31, 2016, which is expected to be made available to us after that date. Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audits of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

20 consolidated annual report Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with PFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group 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 Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group s financial reporting process. Auditor s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated 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 consolidated 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 consolidated 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 Group 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 Group 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 consolidated 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 Group to cease to continue as a going concern.

21 integrity. that s our policy. 21 Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion. 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. This report is intended solely for the information and use of the stockholders, Board of Directors and management of MICO Equities, Inc. and Subsidiaries and is not intended to be and should not be used by anyone other than these specified parties. SYCIP GORRES VELAYO & CO. Michael C. Sabado Partner CPA Certificate No SEC Accreditation No AR-3 (Group A), March 16, 2017, valid until March 15, 2020 Tax Identification No BIR Accreditation No , February 27, 2015, valid until February 26, 2018 PTR No , January 3, 2017, Makati City March 29, 2017

22 consolidated annual report mico Equities, INC. AND SUBSIDIARIES Consolidated Statements of Financial Position December 31 ASSETS Cash and cash equivalents (Notes 4, 26, 27 and 28) P1,604,194,958 P3,027,861,479 Short-term investments (Notes 5, 26, 27 and 28) 51,557,423 97,920,122 Insurance receivables - net (Notes 6, 26 and 27) 5,868,257,959 4,402,846,367 Financial assets (Notes 7, 26, 27 and 28) Available-for-sale financial assets 8,037,186,520 8,481,145,970 Financial assets at fair value through profit or loss 299,725, ,823,087 Loans and receivables - net 1,509,871,270 1,435,802,214 Accrued income (Notes 8, 26, 27 and 28) 50,185,769 48,150,680 Deferred acquisition costs (Notes 9 and 26) 354,502, ,645,982 Reinsurance assets (Notes 10, 14 and 26) 6,527,690,039 7,531,743,784 Investment properties - net (Note 11) 27,032,204 27,099,092 Property and equipment - net (Notes 12 and 26) 261,744, ,244,673 Deferred tax assets (Note 24) 133,923, ,218,316 Other assets (Notes 13 and 26) 388,400, ,435,815 P25,114,271,782 P26,508,937,581 LIABILITIES AND EQUITY Liabilities Insurance contract liabilities (Notes 14 and 26) P10,742,189,924 P11,236,456,645 Insurance payables (Notes 15, 26 and 27) 1,892,789,146 2,811,343,294 Accounts payable, accrued expenses and other liabilities 2,079,251,886 2,244,961,163 (Notes 16, 26 and 27) Income tax payable 2,228, ,311 Deferred reinsurance commissions (Note 9) 167,199, ,337,030 Pension liability - net (Note 17) 265,962, ,757,715 P15,149,621,081 16,669,131,158 Equity (Note 29) Equity attributable to equity holders of the Parent Company Capital stock (Note 18) 600,000, ,000,000 Revaluation reserve on available-for-sale financial assets 2,188,311,839 2,676,799,864 (Note 7) Equity reserves (Notes 2 and 18) 1,024,629,880 1,024,629,880 Other revaluation reserve (Note 18) 23,466,647 23,466,647 Remeasurement loss in pension obligation (134,144,477) (132,999,453) Cumulative translation adjustments 141,264,821 87,054,667 Retained earnings (Note 18) 5,391,509,747 4,853,883,445 9,235,038,457 9,132,835,050 Non-controlling interests 729,612, ,971,373 9,964,650,701 9,839,806,423 P25,114,271,782 P26,508,937,581 See accompanying Notes to Consolidated Financial Statements.

23 integrity. that s our policy. 23 mico Equities, INC. AND SUBSIDIARIES Consolidated Statements of Income Years Ended December 31 INCOME Gross premiums earned P8,530,722,465 P9,305,715,027 Reinsurers share of gross premiums earned (4,323,594,264) (5,998,925,925) Net premiums earned (Notes 14 and 19) 4,207,128,201 3,306,789,102 Investment and other income - net (Note 20) 677,701, ,189,629 Commission income (Note 9) 401,114, ,788,803 Other income 1,078,815,750 1,144,978,432 Total income 5,285,943,951 4,451,767,534 BENEFITS, CLAIMS AND EXPENSES Gross insurance contract benefits and claims paid (Notes 14 and 21) 3,016,904,374 3,314,310,358 Reinsurers share of gross insurance contract benefits and claims paid (Notes 14 and 21) (1,355,988,001) (1,854,233,887) Gross change in insurance contract liabilities (Note 21) (1,275,093,641) (2,433,537,839) Reinsurers share of gross change in insurance contract liabilities (Note 21) 1,494,253,356 2,507,819,087 Net insurance contract benefits and claims 1,880,076,088 1,534,357,719 Commission expense (Note 9) 1,013,179,993 1,258,362,176 General and administrative expenses (Note 22) 1,287,083,577 1,136,470,659 Other underwriting expense (Note 9) 277,471, ,617,793 Investment and other expense (Note 20) 97,276, ,878,141 Other expenses 2,675,012,305 2,852,328,769 Total benefits, claims and other expenses 4,555,088,393 4,386,686,488 INCOME BEFORE INCOME TAX 730,855,558 65,081,046 PROVISION FOR INCOME TAX (Note 24) 53,267,994 35,477,063 NET INCOME (Note 25) P677,587,564 P29,603,983 Attributable to: Equity holders of the Parent Company P537,626,302 (P12,814,808) Non-controlling interests 139,961,262 42,418,791 P677,587,564 P29,603,983 See accompanying Notes to Consolidated Financial Statements.

24 consolidated annual report Mico equities, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income Years Ended December 31 NET INCOME P677,587,564 P29,603,983 OTHER COMPREHENSIVE INCOME Item that will be reclassified to profit or loss in subsequent periods: Net fair value changes on available-for-sale financial assets - net of tax effect (Note 7) (605,098,446) (1,576,414,792) Items that will not be reclassified to profit or loss in subsequent periods: Cumulative translation adjustment 54,210,154 41,748,684 Remeasurement loss on net pension obligation - net of tax effect (Note 10) (1,854,994) (10,374,123) TOTAL COMPREHENSIVE INCOME (LOSS) P124,844,278 (P1,515,436,248) Total comprehensive income (loss) attributable to: Equity holders of the Parent Company P102,203,407 (P1,235,063,243) Non-controlling interests 22,640,871 (280,373,005) P124,844,278 (P1,515,436,248) See accompanying Notes to Consolidated Financial Statements.

25 integrity. that s our policy. 25 mico equities, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Equity Capital Stock (Note 18) Revaluation Reserve on Availablefor-sale Financial Assets (Note 7) Equity Reserve (Note 18) Other Revaluation Reserve (Note 18) Remeasurement Loss in Pension Obligation Cumulative Translation Adjustments Retained Earnings Total Non-controlling Interests Total At January 1, 2016 P600,000,000 P2,676,799,864 P1,024,629,880 P23,466,647 (P132,999,453) P87,054,667 P4,853,883,445 P9,132,835,050 P706,971,373 P9,839,806,423 Net income 537,626, ,626, ,961, ,587,564 Other comprehensive income (loss) (488,488,025) (1,145,024) 54,210,154 (435,422,895) (117,320,391) (552,743,286) Total comprehensive income (loss) (488,488,025) (1,145,024) 54,210, ,626, ,203,407 22,640, ,844,278 At December 31, 2016 P600,000,000 P2,188,311,839 P1,024,629,880 P23,466,647 (P134,144,477) P141,264,821 P5,391,509,747 P9,235,038,457 P729,612,244 P9,964,650,701 At January 1, 2015 P600,000,000 P3,934,294,948 P1,024,629,880 P23,466,647 (P126,497,418) P45,305,983 P4,866,698,253 P10,367,898,293 P987,344,378 P11,355,242,671 Net income (12,814,808) (12,814,808) 42,418,791 29,603,983 Other comprehensive income (loss) (1,257,495,084) (6,502,035) 41,748,684 (1,222,248,435) (322,791,796) (1,545,040,231) Total comprehensive income (1,257,495,084) (6,502,035) 41,748,684 (12,814,808) (1,235,063,243) (280,373,005) (1,515,436,249) At December 31, 2015 P600,000,000 P2,676,799,864 P1,024,629,880 P23,466,647 (P132,999,453) P87,054,667 P4,853,883,445 P9,132,835,050 P706,971,373 P9,839,806,423 See accompanying Notes to Consolidated Financial Statements.

26 consolidated annual report mico equities, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended December 31 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P730,809,558 P65,081,046 Adjustments for: Provisions for impairment loss - net of reversals (Notes 6 and 22) 101,423,885 48,156,274 Depreciation and amortization (Note 22) 74,428,746 72,434,626 Impairment loss on AFS financial assets (Notes 7 and 20) 71,977, ,803,834 Interest expense on reinsurance funds held (Note 20) 8,078,629 5,751,046 Amortization of bond premium 5,190,649 (3,648,303) Fair value gain on financial assets at fair value through profit or loss (Note 20) (3,738,946) (6,335,957) Foreign exchange adjustments (87,539,553) (132,450,575) Dividend income (Note 20) (185,630,437) (228,962,611) Interest income (Note 20) (246,338,681) (222,523,887) Loss (gain) on sale of (Note 20): Financial assets at fair value through profit or loss 755,892 1,830,676 Investment property (434,556) Long term commercial (411,420) Property and equipment (926,530) (191,308) Real estate properties for sale (5,270,196) Available-for-sale financial assets (63,239,864) (68,419,476) Operating income (loss) before working capital changes 399,615,077 (226,909,171) Decrease (increase) in: Insurance receivables (1,516,635,119) 941,221,021 Loans and receivables (25,535,269) 227,549,005 Accrued rent income 119,938 (524,149) Deferred acquisition costs (51,856,043) 51,529,065 Reinsurance assets 1,004,053,745 3,614,529,424 Other assets 39,003,684 6,943,796 Increase (decrease) in: Accounts payable, accrued expenses and other liabilities (165,709,277) 128,780,219 Pension liability 22,060,137 3,627,195 Insurance payables (918,554,148) (25,614,674) Deferred reinsurance commissions 33,862,167 (54,481,180) Insurance contract liabilities (494,266,721) (3,128,472,496) Net cash generated by (used in) operations (1,673,841,829) 1,538,178,055 Income tax paid (50,020,523) (35,483,116) Interest paid on reinsurance funds held (Note 20) (8,078,629) (5,751,046) Net cash provided by (used in) operating activities (1,731,940,981) 1,496,943,893 (Forward)

27 integrity. that s our policy. 27 Years Ended December 31 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale or maturities of: Available-for-sale financial assets (Note 7) P1,428,272,096 P1,343,365,637 Financial assets at fair value through profit or loss (Note 7) 245,557,526 63,599,228 Long-term commercial papers (Note 7) 172,219, ,076,464 Short-term investments 53,013,863 70,227,245 Real estate properties for sale 15,302,191 Property and equipment (Note 12) 765, ,308 Investment properties (Note 11) 434,556 Interest received 246,465, ,232,466 Dividends received 183,348, ,986,966 Acquisitions of: Available-for-sale financial assets (Note 7) (1,469,745,519) (1,366,438,452) Long-term commercial papers (Note 7) (243,341,420) (106,404,204) Financial assets at fair value through profit or loss (Note 7) (259,953,900) (77,636,612) Property and equipment (Note 12) (32,699,750) (70,615,201) Short-term investments (6,651,164) (97,920,122) Net cash provided by investing activities 332,552, ,099,279 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (24,277,618) 25,222,960 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,423,666,521) 1,913,266,132 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (Note 4) 3,027,861,479 1,114,595,347 CASH AND CASH EQUIVALENTS AT END OF YEAR P1,604,194,958 P3,027,861,479 See accompanying Notes to Consolidated Financial Statements.

28 consolidated annual report Mico equities, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. Corporate Information MICO Equities, Inc. (the Parent Company) is a domestic corporation which was incorporated on June 28, 1972 and duly registered with the Philippine Securities and Exchange Commission (SEC) on January 29, 1973 to invest in nonlife insurance companies. On August 1, 2007, the Parent Company, as amended, started to acquire, own, mortgage, exchange, sell, deal in real properties; provided that the corporation shall not engage in the business of being a broker/dealer in securities a Government Securities Eligible Dealer (GSED), an investment company/mutual fund company. The Parent Company s ultimate parent is Pan Malayan Management and Investment Corporation (PMMIC) with registered office address at 48th Floor, Yuchengco Tower, RCBC Plaza, 6819 Ayala Avenue, Makati City. The consolidated financial statements comprise the financial statements of the Parent Company and the following wholly and majority-owned subsidiaries: Place of Percentage of Ownership Incorporation Malayan Insurance Co., Inc. (MICO) and Subsidiaries: Philippines 80.0% 80.0% Bankers Assurance Corporation (BAC) Philippines The First Nationwide Assurance Corporation (FNAC) Philippines Malayan International Insurance Corporation, Limited (MIIC) and Subsidiaries: Bahamas Malayan Insurance Company (H.K.) Limited Hong Kong Asia-PAC Reinsurance Company, Limited British Virgin Islands FNAC Philippines Malayan Securities Corporation (MSC) Philippines MICO and Subsidiaries is engaged in nonlife insurance business dealing with all kinds of insurance such as fire, marine, bond, motor car, personal accident, miscellaneous casualty and engineering, except life insurance. MIIC and Subsidiaries and Asia-PAC Reinsurance Company, Limited are engaged in the reinsurance of nonlife insurance business. FNAC is % owned by MICO Equities, Inc. (MEI). FNAC was incorporated in the Philippines to engage in nonlife insurance business dealing with all kinds of insurance such as fire, marine, motor car, personal accident, miscellaneous casualty and bonds, except life insurance, and to act as agent of other insurance or surety companies in any of the branches of insurance, including life insurance. MSC is incorporated to invest in equity and debt securities. The accompanying consolidated financial statements of MICO Equities, Inc. and Subsidiaries (the Group) were approved and authorized for issue by the Board of Directors (BOD) on June 30, Summary of Significant Accounting Policies Basis of Preparation The accompanying consolidated financial statements of the Group have been prepared on a historical cost basis, except for available-for-sale (AFS) financial assets which have been measured at fair value. The accompanying consolidated financial statements are presented in Philippine Peso (Php, P), which is also the Parent Company s functional currency. For presentation purposes, other currencies are translated to the Parent Company s functional currency, except as indicated, all amounts are rounded off to the nearest peso. The consolidated financial statements are not intended for filing to the Securities and Exchange Commission and other regulatory bodies.

29 integrity. that s our policy. 29 Statement of Compliance The accompanying consolidated financial statements of the Group have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). The Group has subsidiaries namely: Malayan Insurance Company Inc. (MICO), Malayan Securities Corporation (MSEC), Asia-Pac Reinsurance Company, Limited (ASPAC), Bankers Assurance Corporation (BAC), the First Nationwide Assurance Corporation (FNAC) and Malayan International Insurance Corporation, Limited (MIIC) (see Note 1). The Parent Company s ultimate parent (PMMIC) also prepares a consolidated financial statements in accordance with PFRS, which is being filed at 2004A, East Tower, PSE Centre, Exchange Road, Ortigas Center, Pasig City. It may also be obtained from (PMMIC) with registered office address at 48th Floor, Yuchengco Tower, RCBC Plaza, 6819 Ayala Avenue, Makati City. Basis of Consolidation The consolidated financial statements comprise the financial statements of the Group as at and for the years ended December 31, 2016 and Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting policies. All intra-group balances, transactions, unrealized gains and losses resulting from intra-group transactions and dividends are eliminated in full. Non-controlling interests (NCIs) pertain to the equity in a subsidiary not attributable, directly or indirectly to the Parent Company. Any equity instruments issued by a subsidiary that are not owned by the Parent Company are NCIs. NCIs represent the portion of profit or loss and net assets in subsidiaries not wholly-owned and are presented separately in the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of financial position, separately from the Parent Company s equity. Losses within a subsidiary are attributed to the NCI even if that results in a deficit balance. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. Any difference between the amount by which the NCIs are adjusted and the fair value of the consideration paid or received is recognized directly in equity as Equity reserve and attributed to the owners of the Parent Company. If the Parent Company loses control over a subsidiary it: Derecognizes the assets (including goodwill) and liabilities of the subsidiary Derecognizes the carrying amount of any non-controlling interest Derecognizes the cumulative translation differences recorded in equity Recognizes the fair value of the consideration received Recognizes the fair value of any investment retained Recognizes any surplus or deficit in profit or loss Reclassifies the parent s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate. Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year, except that the Group has adopted the following new accounting pronouncements starting January 1, Adoption of these pronouncements did not have any significant impact on the Group s financial position or performance unless otherwise indicated. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. Effective in 2016 Amendments to PFRS 10, PFRS 12 and Philippine Accounting Standards (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 Standards Issued but not yet Effective There are new PFRS, amendments, annual improvements and interpretations to existing standards that are effective for periods subsequent to 2016 and these will be adopted on their effectivity dates in accordance with the transition provisions. Except as otherwise stated, these amendments and improvements to PFRS and new standard are not expected to have any significant impact on the Group s financial statements.

30 consolidated annual report 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 12, Income Taxes, Recognition of Deferred Tax Assets for Unrealized Losses 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 Group. Circular Letter , Valuation Standards for Non-life Insurance Policy Reserves The circular prescribes the new valuation methodology for the non-life insurance companies. Non-life insurance companies will be changing the basis of valuation of their non-life insurance reserves. In addition to the unearned premium reserves, the concept of unexpired risk reserves is also included in the calculation of the premium liability. The incurred but not reported (IBNR) reserves will now be computed using actuarial projection techniques such as but not limited to the chain ladder method, expected loss ratio method and Bornheutter-Ferguson method. A margin for adverse deviation is estimated based on standard projection techniques or combination of such techniques, such as but not limited to the Mack Method, Bootstrapping Method, Stochastic Chain Ladder Method to bring the actuarial estimate of the Policy Liabilities at the 75th percentile level of sufficiency. Discount rates to be used shall be current riskfree rates. The rates shall exactly match the duration of the policy and the currency of the cash flows and shall be prescribed by the Insurance Commission. The Group will adopt the new valuation standard on the required effective date. Effective beginning on or after January 1, 2018 Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-based Payment Transactions 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 PFRS 15, Revenue from Contracts with Customers 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 Group is assessing the potential effect of the amendments on its financial statements. 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 application of the forthcoming insurance contracts standard on 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 Group is assessing which approach it will use and the potential impact of the chosen approach 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 Group s financial assets and impairment methodology for financial assets, but will have no impact on the classification and measurement of the Group s financial liabilities. The adoption will also have an effect on the Group s application of hedge accounting and on the amount of its credit losses. Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, with PFRS 4 allow entities to choose either the overlay approach or the deferral approach in adopting PFRS 9.

31 integrity. that s our policy. 31 The Group is currently assessing the impact of adopting this standard. 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 Group 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 Product Classification Insurance contracts are those contracts where the Group (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 Group 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. 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 has expired. Use of Estimates, Assumptions and Judgments The preparation of the consolidated financial statements necessitates the use of estimates, assumptions and judgments. These estimates and assumptions affect the reported amounts of assets and 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 estimates and judgments, refer to Note 3. Fair Value Measurement The Group measures financial instrument at fair value at each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible to the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

32 consolidated annual report 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 placements and are subject to an insignificant risk of changes in value. Short-term Investments These are placements in time deposits and other money market instruments with original maturities of more than three months but less than one year which are not restricted as to use. Insurance Receivables Premium receivables are recognized on policy inception dates and measured on initial recognition at the fair value of the consideration receivable for the period of coverage. 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 statements of income. Financial Instruments Date of recognition The Group recognizes a financial asset or a financial liability in the consolidated statements of financial position when it 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 All financial assets and liabilities are recognized initially at fair value. Except for financial assets and liabilities measured at fair value through profit or loss (FVPL), the initial measurement of financial instruments includes transaction costs. The Group classifies its financial assets in the following categories: Available-for-sale (AFS) financial assets, financial assets at fair value through profit or loss (FVPL) and loans and receivables. The Group classifies its financial liabilities as 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 investments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date. 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. 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, option pricing models, and other relevant valuation models. Day 1 difference Where the transaction price in a non-active market is different from the fair value based on other observable current market transactions on the same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and fair value (a Day 1 difference) in the statements of income unless it qualifies for recognition as some other type of asset or liability. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognized in the statements of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the Day 1 profit amount. AFS financial assets AFS investments are those which are designated as such or do not qualify to be classified as designated at FVPL, Held-to- Maturity (HTM) 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 investments 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 the statements of income. Interest earned on holding AFS investments are reported as interest income using the effective interest rate. Dividends earned on holding AFS investments are recognized in the profit or loss when the right to receive the payment has been established. The unrealized gains and losses arising from the fair valuation of AFS investments are reported as Revaluation reserve on available-for-sale financial assets in the equity section of the statements of financial position. The losses arising from impairment of such investments are recognized in the statements of income. When the security is disposed of, the cumulative gain or loss previously recognized in equity is recognized as realized gains or losses in the statements of income. Where the Group holds more than one investment in the same security, the cost is determined using the weighted average method. When the fair value of AFS investments 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.

33 integrity. that s our policy. 33 Loans and receivables Loans and receivables are 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 or FVPL. This accounting policy relates to the statements of financial position captions: (a) Cash and Cash Equivalents, (b) Insurance Receivables, (c) Loans and receivables and (d) Accrued Income. After initial measurement, the loans and receivables are subsequently measured at amortized cost using the effective interest 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 in the investment and other income account in the statements of income. The losses arising from impairment of such loans and receivables are recognized in the statements of income. Other financial liabilities Issued financial instruments or their components, which are not designated as at FVPL are classified as other financial liabilities where the substance of the contractual arrangement results in the Group 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. The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument a whole amount separately determined as the fair value of the liability component on the date of issue. After initial measurement, other financial liabilities are subsequently measured at amortized cost using the effective interest 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 effective interest rate. Any effects of restatement of foreign currency-denominated liabilities are recognized in the statements of income. This accounting policy applies primarily to the statements of financial position that captions: (a) Insurance payables and (b) Accounts Payable and Accrued Expenses and Other Liabilities that meet the above definition (other than liabilities covered by other accounting standards, such as retirement benefit liability and income tax payable). Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the statements 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 Group assesses that it has a currently enforceable right to 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 Group and all of the counterparties. Impairment of Financial Assets The Group assesses at each end of the reporting period whether there is objective evidence that a financial asset or a 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 (or events) 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 borrower or a group of borrowers 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 measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Loans and receivables For loans and receivables, the Group first assesses whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for 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. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows. The present value of the estimated future cash flows is discounted at the financial asset s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of loss is charged against profit or loss. If, in a subsequent period, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

34 consolidated annual report The present value of the estimated future cash flows is discounted at the financial asset s original effective interest rate. Time value is generally not considered when the effect of discounting is not material. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate, adjusted for the original credit risk premium. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of credit risk characteristics such as past-due status and term. AFS financial assets carried at fair value In case of equity investments, impairment indicators would include a significant or prolonged decline in the fair value of the investments below its 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 financial asset previously recognized in the statements of income is removed from equity and recognized in the statements of income. Impairment losses on equity investments are not reversed through the statements of income. Increases in fair value after impairment are recognized directly in equity. In case of debt instruments, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring the impairment loss and is recorded as part of interest income in the statements of income. If subsequently, the fair value of a debt instrument increased and the increase can be objectively related to an event occurring after the impairment loss was recognized in the statements of income, the impairment loss is reversed through the statements of income. AFS financial assets carried at cost If there is an objective evidence that an impairment loss 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 has been incurred, 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. Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the statements 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 Group assesses that it has a currently enforceable right to 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 Group and all of the counterparties. Derecognition of Financial Assets and Liabilities Financial asset A financial asset (or where applicable a part of financial asset or a part of a group of financial asset) is derecognized when: a. the right to receive cash flows from the asset have expired; b. the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement or; c. the Group has transferred its right to receive cash flows from the asset and either has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the Group has transferred its right to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Financial liability A financial liability is derecognized when the obligation under the liability has expired, or is discharged or cancelled. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statements of income. Reinsurance The Group cedes insurance risk in the normal course of business. Reinsurance assets represent balances due from reinsurance companies for its share on the unpaid losses incurred by the Group. Recoverable amounts are estimated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contract. Reinsurance recoverable on paid losses are included as part of Insurance receivables.

35 integrity. that s our policy. 35 Reinsurance assets are reviewed for impairment at each end of the reporting period or more frequently when an indication of impairment arises during the reporting year. Impairment occurs when objective evidence exists that the Group may not recover outstanding amounts under the terms of the contract and when the impact on the amounts that the Group will receive from the reinsurer can be measured reliably. The impairment loss is recorded in the statements of income. Ceded reinsurance arrangements do not relieve the Group from its obligations to policy holders. The Group also assumes reinsurance risk in the normal course of business for insurance contracts. Premiums and claims on assumed reinsurance are recognized in profit or loss as income and expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business. Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the associated reinsurance contract. Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance. Reinsurance assets or liabilities are derecognized when the contractual rights are extinguished or expired or when the contract is transferred to another party. When the Group enters into a proportional treaty reinsurance agreement for ceding out its insurance business, the Group initially recognizes a liability at transaction price. Subsequent to initial recognition, the portion of the amount initially recognized as a liability, which is presented as Insurance payables in the liabilities section of the statements of financial position, will be withheld and recognized as Funds held for reinsurers and included as part of the Insurance payables in the liabilities section of the statements of financial position. The amount withheld is generally released after a year. Funds held by ceding companies are accounted for in the same manner. Deferred Acquisition Costs (DAC) Commission and other acquisition costs incurred during the financial period that vary with and are related to securing new insurance contracts and or renewing existing insurance contracts, but which relates to subsequent financial periods, are deferred to the extent that they are recoverable out of future revenue margins. All other acquisition costs are recognized as expense when incurred. Subsequent to initial recognition, these costs are amortized on a straight-line basis using the 24th method over the life of the contract except for the marine cargo where commissions for the last two months of the year are recognized as expense the following year. Amortization is charged against the statements of income. The unamortized acquisition costs are shown as DAC in the assets section of the statements of financial position. An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. The carrying value is written down to the recoverable amount. The impairment loss is charged against the statements of income. DAC is also considered in the liability adequacy test for each reporting period. Property and Equipment Property and equipment, except for land, are stated at cost, net of accumulated depreciation and amortization and any impairment in value. Land is stated at cost less any impairment losses. The initial cost of property and equipment comprises its purchase price, including nonrefundable taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Subsequent costs are included in the asset s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statements of income during the financial period in which they are incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the properties as follows: Years Building and improvements 40 Building equipment 5 Office furniture, fixtures and equipment 5 Transportation equipment 5 Leasehold improvements are amortized over the term of the lease or estimated useful life of 5 years, whichever is shorter. The estimated useful lives and depreciation and amortization method are reviewed periodically to ensure that the period and method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment. When property and equipment are retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization and accumulated provision for impairment losses, if any, are removed from the accounts. Any gain or loss arising on derecognition of the assets, which is calculated as the difference between the net disposal proceeds and the carrying amount of the asset, is included in the consolidated statements of income in the year the asset is derecognized.

36 consolidated annual report Creditable Withholding Taxes (CWTs) Creditable withholding pertains to the indirect tax paid by the Group that is withheld by its counterparty for the payment of its expenses and other purchases. These CWTs are initially recorded at cost as an asset under Other assets account. At each end of the tax reporting deadline, these CWTs may either be offset against future tax income payable or be claimed as a refund from the taxation authorities at the option of the Group. If these CWTs are claimed as a refund, these will be recorded as a receivable under Loans and receivables account. At each end of the reporting period, an assessment for impairment is performed as to the recoverability of these CWTs. Computer Software Costs associated with the acquisition of computer software are capitalized only if the asset can be reliably measured, will generate future economic benefits, and there is an ability to use or sell the asset. Computer software is carried at cost less accumulated amortization. Computer software cost is amortized over the expected useful life of the asset, but not to exceed five (5) years. All computer software components are amortized over five (5) years. Amortization commences when the asset is available for use or when it is in the location and condition necessary for it to be capable of operating in the manner intended by the Group. Impairment of Nonfinancial Assets The Group assesses at each end of the reporting period whether there is an indication that investment properties, property and equipment and computer software may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset s recoverable amount. An asset s recoverable amount is the higher of an asset s or cash-generating unit s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An assessment is made at each end of the reporting period as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss unless the asset is carried at revalued amount, in which case, the reversal is treated as a revaluation increase. After such reversal the depreciation charge is adjusted in future periods to allocate the asset s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Value-added Tax (VAT) The input value added tax pertains to the 12% indirect tax paid by the Group in the course of the Group s trade or business on local purchase of goods or services. Output VAT pertains to the 12% tax due on the sale of insurance policies and other goods or services by the Group. If at the end of any taxable month, the output VAT exceeds the input VAT, the outstanding balance is included under Accounts payable and accrued expenses account. If the input VAT exceeds the output VAT, the excess shall be carried over to the succeeding months and included under Other assets account. Real Estate Properties for Sale Real estate properties for sale are measured at the lower of cost and net realizable value (NRV). NRV is the estimated selling price in the ordinary course of business, based on market prices at the reporting date, less estimated costs of completion and the estimated costs to sell. The cost of inventory recognized in profit or loss on disposal is determined with reference to the specific costs incurred on the property. Insurance Contract Liabilities Provision for Unearned Premiums The proportion of written premiums, gross of commissions payable to intermediaries, attributable to subsequent periods or to risks that have not yet expired is deferred as provision for unearned premiums. Premiums from short-duration insurance contracts are recognized as revenue over the period of the contracts using the 24th method except for the marine cargo where premiums for the last two months are considered earned the following year. The portion of the premiums written that relate to the unexpired periods of the policies at end of the reporting period are accounted for as Provision for unearned premiums as part of Insurance contract liabilities and presented in the liabilities section of the consolidated statements of financial position. The change in the provision for unearned premiums is taken to profit or loss in order that revenue is recognized over the period of risk. Further provisions are made to cover claims under unexpired insurance contracts which may exceed the unearned premiums and the premiums due in respect of these contracts. Claims Provision and Incurred But Not Reported (IBNR) Losses These liabilities are based on the estimated ultimate cost of all claims incurred but not settled at the end of the reporting period together with related claims handling costs and reduction for the expected value of salvage and other recoveries.

37 integrity. that s our policy. 37 Delays can be experienced in the notification and settlement of certain types of claims, therefore the ultimate cost of which cannot be known with certainty at the end of the reporting period. The liability is not discounted for the time value of money and includes provision for IBNR losses. The liability is derecognized when the contract is discharged, cancelled or has expired. Liability Adequacy Test At each end of the reporting period, liability adequacy tests are performed, to ensure the adequacy of insurance contract liabilities, net of related DAC assets. In performing the test, current best estimates of future cash flows, claims handling and policy administration expenses are used. Changes in expected claims that have occurred, but which have not been settled, are reflected by adjusting the liability for claims and future benefits. Any inadequacy is immediately charged to the consolidated statements of income by establishing an unexpired risk provision for losses arising from the liability adequacy tests. The provision for unearned premiums is increased to the extent that the future claims and expenses in respect of current insurance contracts exceed future premiums plus the current provision for unearned premiums. Insurance Payables Insurance payables are recognized when due and measured on initial recognition at the fair value of the consideration received less attributable transaction cost. Subsequent to initial recognition, they are measured at amortized cost using the effective interest rate method. Insurance payables are derecognized when the obligation under the liability is settled, cancelled or expired. Pension Cost The net defined benefit liability or asset is the aggregate of the present value of the defined benefit obligation at the end of the reporting period reduced by the fair value of plan assets (if any), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. The cost of providing benefits under the defined benefit plans is actuarially determined using the projected unit credit method. Defined benefit costs comprise the following: Service cost Net interest on the net defined benefit liability or asset Remeasurements of net defined benefit liability or asset Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognized when plan amendment or curtailment occurs. These amounts are calculated periodically by independent qualified actuaries. Net interest on the net defined benefit liability or asset is the change during the period in the net defined benefit liability or asset that arises from the passage of time which is determined by applying the discount rate based on government bonds to the net defined benefit liability or asset. Net interest on the net defined benefit liability or asset is recognized as expense or income in profit or loss. Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately in other comprehensive income in the period in which they arise. Remeasurements are not reclassified to profit or loss in subsequent periods. Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance policies. Plan assets are not available to the creditors of the Group, nor can they be paid directly to the Group. Fair value of plan assets is based on market price information. When no market price is available, the fair value of plan assets is estimated by discounting expected future cash flows using a discount rate that reflects both the risk associated with the plan assets and the maturity or expected disposal date of those assets (or, if they have no maturity, the expected period until the settlement of the related obligations). If the fair value of the plan assets is higher than the present value of the defined benefit obligation, the measurement of the resulting defined benefit asset is limited to the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. The Group s right to be reimbursed of some or all of the expenditure required to settle a defined benefit obligation is recognized as a separate asset at fair value when and only when reimbursement is virtually certain. Equity Capital stock is recognized as issued when the stock is paid for or subscribed under a binding subscription agreement and is measured at par value. Capital in excess of par value includes any premiums received in excess of par value on the issuance of capital stock. Contributed surplus represents the original contribution of the stockholders of the Parent Company, in addition to the paid-in capital stock, in order to comply with the pre-licensing requirements as provided under the Insurance Code (the Code). Contingency surplus pertains to capital infusion of shareholders in order to comply with Margin of Solvency (MOS) deficiency as a result of the examination made by the Insurance Commission (IC).

38 consolidated annual report Other revaluation reserve pertains to the appraisal increment on building relating to the Parent Company s previously held interest in Tokio Marine Malayan Insurance Co., Inc. (TMMIC) at the time of the business combination. The balance of the other revaluation reserve will be transferred to retained earnings when the building is disposed or derecognized. Retained earnings include all the accumulated earnings of the Group, net of dividends declared. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: Premiums Revenue Gross insurance written premiums comprise the total premiums receivable for the whole period of cover provided by contracts entered into during the accounting period and are recognized on the date on which the policy incepts. Premiums include any adjustments arising in the accounting period for premiums receivable in respect of business written in prior periods. Premiums from short-duration insurance contracts are recognized as revenue over the period of the contracts using the 24th method except for the marine cargo where premiums for the last two months are considered earned the following year. The portion of the premiums written that relate to the unexpired periods of the policies at end of the reporting period are accounted for as Provision for unearned premiums as part of Insurance contract liabilities and presented in the liabilities section of the consolidated statements of financial position. The related reinsurance premiums ceded that pertains to the unexpired periods at end of the reporting period are accounted for as Deferred reinsurance premiums and shown as part of reinsurance assets in the consolidated statements of financial position. The net changes in these accounts between each end of reporting periods are recognized in profit or loss. Reinsurance Commissions Commissions earned from short-duration insurance contracts are recognized as revenue over the period of the contracts using the 24th method except for the marine cargo where the deferred reinsurance commissions for the last two months of the year are considered earned the following year. The portion of the commissions that relate to the unexpired periods of the policies at end of the reporting period are accounted for as deferred reinsurance commissions and presented in the Liabilities section of the consolidated statements of financial position. Dividend income Dividend income is recognized when the shareholders right to receive the payment is established. Interest income For all financial instruments measured at amortized cost and interest-bearing financial instruments, interest income is recorded at the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options), includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses. The adjusted carrying amount is calculated based on the original effective interest rate. The change in carrying amount is recorded as interest income. Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the original effective interest rate applied to the new carrying amount. Rental income Rental income from investment properties are recognized on a straight-line basis over the term of the lease. Other income Income from other sources is recognized when earned. Expense Recognition Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decrease in equity, other than those relating to distribution to equity participants. Benefits and Claims Benefits and claims consists of benefits and claims paid to policyholders, which includes changes in the valuation of Insurance contract liabilities, except for changes in the provision for unearned premiums which are recorded in insurance revenue. It further includes internal and external claims handling costs that are directly related to the processing and settlement of claims. Amounts receivable in respect of salvage and subrogation are also considered. General insurance claims are recorded on the basis of notifications received. Commission Expense Commissions are recognized as expense over the period of the contracts using the 24th method. The portion of the commissions that relates to the unexpired periods of the policies at the end of the reporting period is accounted for as Deferred acquisition cost in the assets section of the consolidated statements of financial position. Other underwriting expense Other underwriting expense pertains to the costs incurred by the Group prior to the issuance of policies to its policyholders. These costs include expenses for technical inspections, actuarial reviews and other work that is deemed necessary to determine whether or not to accept the risks to be written. These costs are recognized as expense as they are incurred.

39 integrity. that s our policy. 39 Expenses General and administrative expense and other investment expense, except for lease agreements, are recognized as expense as they are incurred. Interest expense Interest expense is charged against operations as they are incurred. Leases The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies: a. There is a change in contractual terms, other than a renewal or extension of the arrangement; b. A renewal option is exercised or extension granted, unless that term of the renewal or extension was initially included in the lease term; c. There is a change in the determination of whether fulfillment is dependent on a specified asset or; d. There is a substantial change to the asset. Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios a, c or d above, and at the date of renewal or extension period for scenario (b). Group as a lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. Lease payments received are recognized as an income in the consolidated statements of income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as the rental income. Group as a lessee Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Fixed lease payments are recognized as an expense in the consolidated statements of income on a straight-line basis. Foreign Currency-denominated Transaction and Translation The functional and presentation currency of the Group is the Philippine Peso (P). Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange ruling at the end of the reporting period. 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. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was determined. 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 other comprehensive income. The functional currency of the Group s subsidiary, MIIC and Subsidiaries and Asia-PAC Reinsurance Company, Limited are United States Dollar. As at reporting date, the assets and liabilities of foreign subsidiaries are translated into the presentation currency of the Parent Company (the Philippine Peso) at the closing rate as at the reporting date, and the consolidated statements of income accounts are translated at monthly weighted average exchange rate. The exchange differences arising on the translation are taken directly to a separate component of equity under Cumulative translation adjustment account. Upon disposal of a foreign subsidiary, the deferred cumulative amount recognized in other comprehensive income relating to that particular foreign operation is recognized in the consolidated statements of income. Provisions and Contingencies Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss, net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pretax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense. Contingent liabilities are not recognized in the consolidated financial statements but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized but are disclosed in the consolidated financial statements when an inflow of economic benefits is probable.

40 consolidated annual report Income Tax Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the end of the reporting period. Deferred tax Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, including asset revaluations. Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits from the excess of minimum corporate income tax (MCIT) over the regular income tax, and unused net operating loss carryover (NOLCO), to the extent that it is probable that sufficient taxable profit will be available against which the deductible temporary differences and carryforward of unused tax credits from MCIT and unused NOLCO can be utilized. Deferred tax, however, is not recognized on temporary differences that arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss. The carrying amount of deferred tax assets is reviewed at each end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each end of the reporting period and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the end of the reporting period. Movements in the deferred tax assets and liabilities arising from changes in tax rates are charged against or credited to income for the period. Current tax and deferred tax relating to items recognized as other comprehensive income is also recognized in the consolidated statements of other comprehensive income. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and deferred taxes related to the same taxable entity and the same taxation authority. Events after End of the Reporting Period Any post year-end events that provide additional information about the Group s position at the end of the reporting period (adjusting event) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events, if any, are disclosed in the consolidated financial statements when material. 3. Significant Accounting Judgments and Estimates The preparation of the accompanying consolidated financial statements in accordance with PFRS requires the Group to make judgments and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management s evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ from such estimates. Judgments In the process of applying the Group s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the consolidated financial statements: Product classification The significance of insurance risk is dependent on both the probability of an insured event and the magnitude of its potential effect. As a general guideline, the Group defines significant insurance risk as the possibility of having to pay benefits on the occurrence of an insured event that are at least 5% more than the benefits payable if the insured event did not occur. The Group has determined that the insurance policies it issues have significant insurance risks and therefore meet the definition of insurance contracts and should be accounted for as such. Functional Currency Based on the economic substance of the underlying circumstances relevant to the Group, the functional currency of the Group has been determined to be the Philippine Peso. The Philippine Peso is the currency of the primary economic environment in which the Group operates. It is the currency that mainly influences the revenue and costs of the Group operations. Operating lease commitments - Group as lessee The Group entered into various property leases with various lessors. The Group determined that the lessors retain all the significant risks and rewards of ownership of the leased properties thus accounts for them as operating leases.

41 integrity. that s our policy. 41 Management s Use of Estimates The key assumptions concerning the future and other key sources of estimation uncertainty at each reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Fair values of financial assets The Group carries certain financial assets at fair value, which requires extensive use of accounting estimates and judgments. Fair value determinations for financial assets are based generally on listed or quoted market prices. If prices are not readily determinable or if liquidating positions is reasonably expected to affect market prices, fair value is based on either internal valuation models or management s estimate of amounts that could be realized under current market conditions, assuming an orderly liquidation over a reasonable period of time. While significant components of fair value were determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates, volatility rates), the amount of changes in fair value of these financial assets and liabilities would affect the statement of other comprehensive income. The carrying value of AFS financial assets is P8, million and P8, million as of December 31, 2016 and 2015, respectively (see Note 7). Valuation of insurance contract liabilities Estimates have to be made both for the expected ultimate cost of claims reported and for the expected ultimate cost of claims IBNR at the end of reporting period. It can take a significant period of time before the ultimate claims cost can be established with certainty. The primary technique adopted by management in estimating the cost of notified and claims IBNR, is that of using past claims settlement trends to predict future claims settlement trends. At each reporting date, prior year claims estimates are assessed for adequacy and changes made are charged to provision. Insurance contract liabilities are not discounted for the time value of money. As of December 31, 2016 and 2015, the carrying values of provision for claims reported and IBNR amounted to P7, million and P8, million, respectively (see Note 14). Estimation of allowance for impairment losses The Group maintains allowance for impairment losses at a level considered adequate to provide for potential uncollectible receivables. The level of this allowance is evaluated by management on the basis of factors that affect the collectability of the accounts. These factors include, but are not limited to, age of balances, financial status of counterparties, and legal opinion on recoverability in case of legal disputes. The Group reviews the age and status of receivables, and identifies accounts that are to be provided with allowance on a regular basis. The amount and timing of recorded expenses for any period would differ if the Group made different judgments or utilized different estimates. An increase in allowance for impairment losses would increase recorded expenses and decrease the related asset accounts. The carrying value of insurance receivables, net of impairment losses amounted to P5, million and P4, million as of December 31, 2016 and 2015, respectively. The related allowance for impairment losses amounted to P million and P million as of December 31, 2016 and 2015 respectively (see Note 6). As of December 31, 2016 and 2015, the carrying value of loans and receivables amounted to P1, million and P1, million, respectively. As of December 31, 2016 and 2015, the related allowance for impairment losses amounted to P26.75 million and P3.75 million (see Note 7). Impairment of AFS equity financial assets The Group determines that AFS equity financial assets are impaired when there has been a significant or prolonged decline in the fair value below its cost. The determination of what is significant or prolonged requires judgment. The Group treats significant generally as 20% or more and prolonged as continuous decline for a period of six (6) months or more. In making this judgment, the Group evaluates among other factors, the normal volatility in share price for quoted securities. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. As of December 31, 2016 and 2015, the carrying value of the Group s AFS equity financial assets amounted to P5, million and P5, million, respectively (see Note 7). Impairment loss recognized on Group s AFS equity financial assets amounted to P71.62 million and P million in 2016 and 2015, respectively (see Note 7). Recognition of deferred tax assets Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable income will be available against which these can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized. These assets are periodically reviewed for realization. Periodic reviews cover the nature and amount of deferred income and expense items, expected timing when assets will be used or liabilities will be required to be reported, reliability of historical profitability of businesses expected to provide future earnings and tax planning strategies which can be utilized to increase the likelihood that tax assets will be realized. See Note 24 for the related balances.

42 consolidated annual report Estimating pension obligation and other retirement benefits The determination of pension obligation and cost of pension is dependent on the selection of certain assumptions used in calculating such amounts. Those assumptions include, among others, discount rates and salary increase rates. Due to the long-term nature of this plan, such estimates are subject to significant uncertainty. The assumed discount rates were determined using the market yields on Philippine government bonds with terms consistent with the expected employee benefit payout as of the reporting date. In accordance with PAS 19, actual results that differ from the Group s assumptions are recognized immediately in other comprehensive income in the period in which they arise. While the Group believes that the assumptions are reasonable and appropriate, significant differences in the actual experience or significant changes in the assumptions may materially affect the pension obligations. As of December 31, 2016 and 2015, the carrying value of net pension obligation amounted to P million and P million, respectively (see Note 17). Contingencies The Group is currently involved in various legal proceedings. The estimate of probable costs for the resolution of these claims has been developed in consultation with the legal counsels and based upon analysis of potential results. The Group does not believe that these proceedings will have a material adverse effect on the Group s consolidated financial position. 4. Cash and Cash Equivalents This account consists of: Petty cash fund P637,560 P696,794 Cash in banks: Commercial banks and trust company (Note 28) 726,299,103 1,768,559,635 Thrift banks, rural banks and cooperatives 3,658,262 4,191,339 Short-term deposits (Note 28) 873,600,033 1,254,413,711 P1,604,194,958 P3,027,861,479 Cash in banks earns annual interest at the respective bank rates. Short-term deposits are placed for varying periods of up to three (3) months depending on the immediate cash requirements of the Group. The range of annual interest rates of the short-term deposits follows: Philippine Peso 0.25% to 2.25% 0.25% to 2.13% US Dollar 0.09% to 1.35% 0.09% to 1.35% As of December 31, 2016 and 2015, time deposits amounting to P44.87 million and P42.50 million, respectively, are held in the name of the Insurance Authority account of MIIC and Subsidiaries imposed by the Hong Kong Insurance Authority (HKIA) pursuant to Hong Kong Insurance Companies Ordinance (Cap. 41). These deposits shall be kept free from any liens, charges encumbrances, equities, or third party rights and cannot be released without the permission of the HKIA and that the account could only be operated by the designated authorized officers of the HKIA. 5. Short-term Investments This account consists of time deposits with maturity of more than three months but less than one year from dates of placement and earns interest with annual rates ranging from 0.25% to 3.25% and 0.50% to 4.25% in 2016 and 2015, respectively. Interest earned on short-term investments amounted to P1.17 million and P0.01 million in 2016 and 2015, respectively (see Note 20).

43 integrity. that s our policy Insurance Receivables - net This account consists of: Due from policyholders, agents and brokers P4,454,472,949 P3,929,754,286 Due from ceding companies: Facultative 105,641, ,696,332 Treaty 789,405, ,689,338 Funds held by ceding companies - treaty 380,698, ,596,495 Premium and loss reserve 62,180,826 50,470,297 Reinsurance recoverable on paid losses: Facultative 279,389, ,181,972 Treaty 43,694,796 43,694,796 6,115,482,640 4,589,083,516 Less allowance for impairment losses 247,224, ,237,149 P5,868,257,959 P4,402,846,367 Due from policyholders, agents and brokers arise from unpaid premiums from policy holders and intermediaries. Due from ceding companies are premiums receivable for assumed business from other insurance and reinsurance companies. The amount of funds held by ceding companies is a percentage of the premiums, as stipulated in the treaty contracts. The reinsurance recoverable on paid losses is the amount recoverable from the reinsurers and retrocessionaires in respect of claims already paid by the Group. The following table shows aging information of insurance receivables: December 31, 2016 < 30 days 30 > 60 days 60 > 90 days 90 > 120 days > 120 days Total Due from policyholders, agents and brokers P686,833,755 P507,527,640 P809,678,468 P352,715,804 P2,097,717,282 P4,454,472,949 Due from ceding companies: Facultative 55,318,529 5,248,363 7,325,349 12,885,311 24,863, ,641,092 Treaty 98,541, ,500,479 10,525,463 87,440, ,397, ,405,577 Funds held by ceding companies - treaty 42,404, ,936 3,574, ,148, ,698,237 Premium and loss reserve 8,087,356 6,566,471 8,893,814 38,633,185 62,180,826 Reinsurance recoverable on paid losses: Facultative 59,663,407 44,507,938 7,847,398 3,087, ,283, ,389,164 Treaty 43,694,796 43,694,796 Total P950,849,447 P752,921,827 P838,951,248 P465,022,838 P3,107,737,280 P6,115,482,640 December 31, 2015 < 30 days 30 > 60 days 60 > 90 days 90 > 120 days > 120 days Total Due from policyholders, agents and brokers P596,832,921 P364,651,381 P352,972,730 P374,655,677 P2,240,641,577 P3,929,754,286 Due from ceding companies: Facultative 48,301,543 4,114,327 1,742,183 7,463,792 41,074, ,696,332 Treaty 113,209, ,563 20,199,433 78,950,554 22,082, ,689,338 Funds held by ceding companies - treaty 106, ,453 20,102,754 3,559,185 78,201, ,596,495 Premium and loss reserve 3,847,767 5,512,326 3,467,146 37,643,058 50,470,297 Reinsurance recoverable on paid losses: Facultative 5,333,765 3,524,990 25,310,107 1,137,680 89,875, ,181,972 Treaty 43,694,796 43,694,796 Total P767,631,647 P373,164,714 P425,839,533 P469,234,034 P2,553,213,588 P4,589,083,516 The rollforward of allowance for impairment losses as of December 31, 2016 and 2015 follows: 2016 Due from Policyholders, Agents and Brokers Due from Ceding Companies - Facultative Due from Ceding Companies - Treaty Funds Held by Ceding Companies Reinsurance Recoverable on Paid Losses - Facultative Balance at beginning of year P163,928,018 P14,557,184 P341,002 P1,380,777 P6,030,168 P186,237,149 Impairment loss (Note 22) 77,106,074 14,825,478 91,931,552 Reversal of impairment loss (13,685,248) (1,140,230) (14,825,478) Written-off (16,118,542) (16,118,542) Balance at end of year P224,915,550 P871,936 P15,166,480 P1,380,777 P4,889,938 P247,224,681 Individually impaired P P871,936 P1,026,517 P P3,321,788 P5,220,241 Collectively impaired 224,915,550 14,139,963 1,380,777 1,568, ,004,440 Total P224,915,550 P871,936 P15,166,480 P1,380,777 P4,889,938 P247,224,681 Total

44 consolidated annual report Due from Policyholders, Agents and Brokers Due from Ceding Companies - Facultative Due from Ceding Companies - Treaty 2015 Funds Held by Ceding Companies Reinsurance Recoverable on Paid Losses - Facultative Balance at beginning of year P128,053,678 P8,755,855 P3,361,426 P1,380,777 P8,811,073 P150,362,809 Impairment loss (Note 22) 48,156,274 48,156,274 Reversals of impairment loss (3,020,424) 5,801,329 (2,780,905) Written-off (9,261,510) (3,020,424) (12,281,934) Balance at end of year P163,928,018 P14,557,184 P341,002 P1,380,777 P6,030,168 P186,237,149 Individually impaired P7,991,154 P14,557,184 P341,002 P1,380,777 P P24,270,117 Collectively impaired 155,936,864 6,030, ,967,032 Total P163,928,018 P14,557,184 P341,002 P1,380,777 P6,030,168 P186,237,149 Total 7. Financial Assets The Group s financial assets, categorized based on subsequent measurement, follow: AFS financial assets P8,037,186,520 P8,481,145,970 Financial assets at FVPL 299,725, ,823,087 Loans and receivables - net 1,509,871,270 1,435,802,214 P9,846,783,623 P10,194,771,271 The assets included in each of the categories above are detailed below. a) AFS financial assets Quoted securities - at fair value Listed equity securities (Note 28): Common shares P4,818,765,147 P5,557,937,941 Preferred shares 40,792,440 42,122,933 Government debt securities: Local currency 458,251, ,272,427 Foreign currency 11,405,527 11,004,349 Private debt securities (Note 28) 2,284,181,639 1,853,667,522 7,613,396,132 8,090,005,172 Non-quoted securities - at cost Unlisted equity securities: Common shares 269,945, ,855,923 Preferred shares 17,540 17, ,963, ,873,463 Funds 153,827, ,267,335 P8,037,186,520 P8,481,145,970 In accordance with the provisions of the Insurance Code, government securities amounting to P million and P million are deposited with the Insurance Commission (IC) as security for the benefit of policyholders and creditors of the Group as of December 31, 2016 and 2015, respectively. As of December 31, 2016 and 2015, the Group has certain investments in debt securities with embedded call option feature which allows the issuers to redeem, on specified dates, the securities at face amount. Based on the Group s assessment, the embedded call options identified are clearly and closely related to the host contracts and therefore do not require bifurcation. As of December 31, 2016 and 2015, impairment loss recognized on AFS investments amounted to P71.62 million and P million in 2016 and 2015, respectively. The impairment losses are presented in the consolidated statement of income. The carrying values of AFS financial assets have been determined as follows: Balance at beginning of year P8,481,145,970 P10,090,468,471 Acquisitions 1,469,745,519 1,366,438,452 Unrealized foreign currency exchange gain 109,196,242 99,312,480 Fair value changes (610,216,250) (1,731,635,947) Disposals and maturities (1,428,272,096) (1,343,365,637) Amortization of premium (5,190,649) (3,648,303) Foreign exchange adjustment 20,777,784 3,576,454 Balance at end of year P8,037,186,520 P8,481,145,970

45 integrity. that s our policy. 45 As of December 31, 2016 and 2015, the revaluation reserve on AFS financial assets amounted to P3, million and P4, million, respectively. The rollforward analysis of the revaluation reserve on AFS financial assets follow: Balance at beginning of year P2,384,759,556 P3,961,174,348 Fair value loss charged against equity (321,791,538) (1,760,769,589) Impairment loss (Note 20) 71,977, ,804,548 Realized gain transferred to profit or loss (63,239,864) (68,419,476) Tax effect of net fair value losses (gains) (Note 24) 669,835 15,418,519 Foreign exchange adjustment (673,916) (5,448,794) P2,071,701,418 P2,384,759,556 Attributable to: Equity holders of the Parent Company P2,188,311,839 P2,676,799,864 Non-controlling interests (116,610,421) (292,040,308) P2,071,701,418 P2,384,759,556 b) Financial assets at FVPL This account consists of foreign currency-denominated securities with details as follows: Held for trading Equity securities: Listed P101,384,499 P185,892,789 Designated as at FVPL on initial recognition Private debt securities 198,341,334 91,930,298 P299,725,833 P277,823,087 The fair value gain on financial assets at FVPL recognized in the consolidated statements of income amounted to P2.98 million and P4.51 million in 2016 and 2015, respectively (see Note 20). The carrying values of financial assets at FVPL have been determined as follows: Balances at beginning of year P277,823,087 P258,938,012 Acquisitions 259,953,900 77,636,612 Fair value gain (Note 20) 2,983,054 4,505,282 Disposals and maturities (245,557,516) (63,599,218) Foreign exchange adjustment 4,523, ,399 Balance at end of year P299,725,833 P277,823,087 c) Loans and receivables - net This account consists of: Long-term commercial papers (Note 28) P1,190,590,872 P1,119,468,505 Creditable withholding tax 261,234, ,152,400 Accounts receivable 58,867, ,677,158 Notes receivable (Note 28) 18,284,167 17,018,394 Claims recoverable 6,408,374 6,408,374 Dividend Receivable 401, ,700 Security fund 832, ,294 Cash advances 8,081,250 1,536,619,131 1,439,550,075 Less allowance for impairment losses 26,747,861 3,747,861 P1,509,871,270 P1,435,802,214 Long-term commercial papers pertain to the Group s investments in unquoted private debt securities and corporate notes with terms of 2 to 15 years and bear annual interest rates ranging from 3.00% to 9.33% in 2016 and from 3.25% to 9.33% in The Group provides for the 50% of the cost of the car and motor plans extended to its managers and officers as part of their benefits. The employee s share is recorded as Notes receivable which is collected through salary deductions for a period of five (5) years with annual interest rates of 8.00% for car loans and 8.50% for motor loans.

46 consolidated annual report As of December 31, 2016 and 2015, accounts receivable, notes receivable and creditable withholding taxes with an aggregate carrying value of P26.75 million and P3.75 million, respectively, were specifically determined as impaired and were fully provided with allowance. The Group recognized additional allowance of P23.00 million in Creditable withholding tax pertain to the CWTs claimed as refund from the Bureau of Internal Revenue. The Group also granted advances to its related parties, House of Investments (HI) and First Malayan Leasing Corporation (FMLC), by way of receipt of promissory notes from these related parties (see Note 28). Movements in allowance for impairment losses for the years ended December 31, 2016 and 2015 are shown below: At January 1 P3,747,861 P3,747,861 Impairment loss recognized in profit or loss 23,000,000 At December 31 P26,747,861 P3,747, Accrued Income This account consists of: Accrued interest income on (Note 28): AFS financial assets P29,903,494 P29,984,872 Long-term commercial papers 10,775,225 10,960,026 Cash and cash equivalents 338, ,905 Security fund 145, ,873 Funds held by ceding companies - treaty 354,351 62,494 Accrued dividend income 6,027,744 3,745,751 Accrued rent income 2,640,821 2,760,759 P50,185,769 P48,150, Deferred Acquisition Costs - net The details of deferred acquisition costs net of deferred reinsurance commissions follow: Deferred acquisition costs Balance at beginning of year P302,645,982 P354,175,047 Cost deferred during the year 1,065,036,036 1,206,833,111 Amortized during the year (1,013,179,993) (1,258,362,176) Balance at end of year 354,502, ,645,982 Deferred reinsurance commissions Balance at beginning of year 133,337, ,818,210 Income deferred during the year 434,976, ,307,623 Amortized during the year (401,114,613) (458,788,803) Balance at end of year 167,199, ,337,030 P187,302,828 P169,308, Reinsurance Assets This account consists of: Reinsurance recoverable on unpaid losses (Note 14) P5,095,972,369 P6,590,225,725 Deferred reinsurance premiums (Note 14) 1,431,717, ,518,059 P6,527,690,039 P7,531,743,784 Reinsurance recoverable on unpaid losses represents balances due from reinsurance companies. Recoverable amounts are estimated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contract. The related reinsurance premiums ceded that pertain to the unexpired periods at end of the reporting period are accounted for as deferred reinsurance premiums.

47 integrity. that s our policy Investment Properties - net The rollforward analysis of this account follows: 2016 Land Buildings Total Cost At beginning and end of year P25,700,011 P12,691,827 P38,391,838 Accumulated depreciation and amortization At beginning of year 11,292,746 11,292,746 Depreciation and amortization (Note 22) 66,888 66,888 At end of year 11,359,634 11,359,634 Net book value P25,700,011 P1,332,193 P27,032, Land Buildings Total Cost At beginning of year P25,700,011 P12,691,827 P38,391,838 Accumulated depreciation and amortization At beginning of year 11,221,858 11,221,858 Depreciation and amortization (Note 22) 70,888 70,888 At end of year 11,292,746 11,292,746 Net book value P25,700,011 P1,399,081 P27,099,092 Rental income from investment properties recognized in the consolidated statements of income amounted to P25.59 million and P25.66 million in 2016 and 2015, respectively (see Note 20). Direct operating expenses arising from investment properties amounted to P0.52 million in 2016 P0.07 million in 2015 (see Note 23). Buildings have fair values amounting to P5.14 million as of December 31, 2016 and 2015, respectively. Parcels of land with book value of P25.70 million have fair value amounting to P79.50 million as of December 31, 2016 and The fair values of the investment properties were determined by independent professionally qualified appraisers. The fair value of the land and buildings were arrived at using the Market Data Approach. In this approach, the value of the land and buildings are based on sales and listings of comparable property registered within the vicinity. The technique of this approach requires the establishment of comparable property by reducing reasonable comparative sales and listings to a common denominator. This is done by adjusting the differences between the subject property and those actual sales and listings regarded as comparable. The properties used as basis of comparison are situated within the immediate vicinity of the subject property. 12. Property and Equipment - net The rollforward analysis of this account as of December 31, 2016 and 2015 follows: Building, Building Equipment and Improvements Office Furniture, Fixtures and Equipment 2016 Transportation Equipment Leasehold Improvements Land Total Cost At beginning of year P1,013,187 P225,732,187 P552,493,032 P108,122,415 P72,138,102 P959,498,923 Additions 6,174,834 4,725,687 15,504,117 6,295,112 32,699,750 Disposals (294,032) (1,606,523) (11,987,415) (13,887,970) Foreign exchange adjustment 2,052 2,052 At end of year 1,013, ,612, ,614, ,639,117 78,433, ,312,755 Accumulated depreciation and amortization At beginning of year 89,651, ,972,670 66,178,911 51,290, ,093,588 Depreciation and amortization (Note 22) 14,276,504 33,437,047 17,689,717 8,958,590 74,361,858 Disposals (959) (1,604,782) (11,280,912) (12,886,653) Foreign exchange adjustment (98) (98) At end of year 103,926, ,804,837 72,587,716 60,249, ,568,695 Net book value P1,013,187 P127,686,315 P75,809,411 P39,051,401 P18,183,746 P261,744,060

48 consolidated annual report Building, Building Equipment and Improvements Office Furniture, Fixtures and Equipment 2015 Transportation Equipment Leasehold Improvements Land Total Cost At beginning of year P1,013,187 P214,926,035 P510,635,109 P95,899,312 P68,388,726 P890,862,369 Additions 10,806,152 42,160,892 13,898,782 3,749,375 70,615,201 Disposals (338,046) (3,136,162) (3,474,208) Foreign exchange adjustment 3,330 3,330 At end of year 1,013, ,732, ,461, ,661,932 72,138, ,006,692 Accumulated depreciation and amortization At beginning of year 80,369, ,187,396 56,030,515 44,285, ,872,330 Depreciation and amortization (Note 22) 9,281,947 43,091,378 12,984,738 7,005,641 72,363,704 Disposals (338,041) (3,136,162) (3,474,203) Foreign exchange adjustment At end of year 89,651, ,940,920 65,879,091 51,290, ,762,018 Net book value P1,013,187 P136,081,058 P104,520,365 P40,782,841 P20,847,223 P303,244,673 There are no property and equipment items pledged or used as collateral to secure the liabilities of the Group. 13. Other Assets This account consists of: Creditable withholding taxes P228,382,082 P276,610,861 Real estate properties for sale - at cost 86,051,770 82,436,978 Prepayments 24,407,903 23,286,589 Refundable deposits 14,975,047 14,146,192 Forms and supplies inventory 2,985,675 8,519,561 Miscellaneous assets 31,597,659 32,435,634 P388,400,136 P437,435,815 Creditable withholding tax pertains to the Group s tax withheld at source by its customers and is creditable against the income tax liability of the Group. Real estate properties for sale consist of investments in Malayan Plaza condominium units and memorial lots. As of December 31, 2016 and 2015, amounts of the real estate properties for sale are as follows: Malayan Plaza condominium units P80,484,270 P75,921,978 Memorial lots 4,687,500 6,515,000 P85,171,770 P82,436,978 Cost of real estate properties disposed in 2016 and 2015 amounted to P10.03 million and P7.94 million, respectively. Prepayments mainly comprise of renewal fee for the licenses of the Group s agents, group life insurance payments, billboard ads fee, fees for consulting agreements and other licenses owned by the Group. It also contains advance rentals for office rent and other membership renewal fees. Refundable deposits comprises of security deposits as part of the Group s contract of lease. Miscellaneous assets are composed of constructions in progress that have not yet reached 90% of completion. This will be classified to PPE once the remaining percentage to complete is only 10%. 14. Insurance Contract Liabilities and Reinsurance Assets Short-term insurance contract liabilities and reinsurers share of liabilities may be analyzed as follows: Insurance Contract Liabilities Reinsurers Share of Liabilities (see Note 10) Net Insurance Contract Liabilities Reinsurers Share of Liabilities (see Note 10) Provision for claims reported and loss adjustment P6,921,315,705 P5,036,930,713 P1,884,384,992 P8,262,297,422 P6,552,241,057 P1,710,056,365 Provision for IBNR losses 248,316,669 59,041, ,275, ,428,593 37,984, ,443,926 Total claims reported and IBNR 7,169,632,374 5,095,972,368 2,073,660,006 8,444,726,015 6,590,225,724 1,854,500,291 Provision for unearned premiums 3,572,557,550 1,431,717,671 2,140,839,879 2,791,730, ,518,060 1,850,212,570 Total insurance contract liabilities P10,742,189,924 P6,527,690,039 P4,214,499,885 P11,236,456,645 P7,531,743,784 P3,704,712,861 Net

49 integrity. that s our policy. 49 Provisions for claims reported by policyholders and claims IBNR may be analyzed as follows: Insurance Contract Liabilities Reinsurers Share of Liabilities (see Note 10) Net Insurance Contract Liabilities Reinsurers Share of Liabilities (see Note 10) Balance at beginning of year P8,444,726,015 P6,590,225,724 P1,854,500,291 P10,878,263,854 P9,098,044,812 P1,780,219,044 Claims incurred during the year 1,686,431,255 (138,265,355) 1,824,696, ,772,519 (653,585,199) 1,534,357,718 Increase in IBNR 55,379,478 55,379,478 Total claims reported and claims IBNR 10,186,536,748 6,451,960,369 3,734,576,379 11,759,036,373 8,444,459,613 3,314,576,761 Claims paid during the year (Note 21) (3,016,904,374) (1,355,988,001) (1,660,916,373) (3,314,310,358) (1,854,233,887) (1,460,076,471) Balance at end of year P7,169,632,374 P5,095,972,368 P2,073,660,006 P8,444,726,015 P6,590,225,72 6 P1,854,500,291 Provision for unearned premiums may be analyzed as follows: Insurance Contract Liabilities Reinsurers Share of Liabilities (see Note 10) Net Insurance Contract Liabilities Reinsurers Share of Liabilities (see Note 10) Balance at beginning of year P2,791,730,630 P941,518,060 P1,850,212,570 P3,486,665,287 P2,048,228,397 P1,438,436,890 New policies written during the year (Note 19) 9,311,549,385 4,813,793,875 4,497,755,510 8,610,780,370 4,892,215,588 3,718,564,782 Premiums earned during the year (Note 19) (8,530,722,465) (4,323,594,264) (4,207,128,201) (9,305,715,027) (5,998,925,925) (3,306,789,102) Balance at end of year P3,572,557,550 P1,431,717,671 P2,140,839,879 P2,791,730,630 P941,518,060 P1,850,212,570 Net Net 15. Insurance Payables This account consists of: Due to reinsurers P1,478,286,686 P2,322,403,825 Funds held for reinsurers 414,502, ,939,469 P1,892,789,146 P2,811,343,294 The rollforward analysis of insurance payables follows: Due to Reinsurers Funds held for reinsurers Total At January 1, 2015 P2,293,390,994 P543,566,974 P2,836,957,968 Arising during the year 648,612, ,561, ,173,616 Paid during the year (619,599,575) (275,188,715) (894,788,290) At December 31, ,322,403, ,939,469 2,811,343,294 Arising during the year 3,006,566, ,227,016 3,656,793,413 Paid during the year (3,850,683,536) (724,664,025) (4,575,347,561) At December 31, 2016 P1,478,286,686 P414,502,460 P1,892,789, Accounts Payable, Accrued Expenses and Other Liabilities This account consists of: Accounts payable P603,650,444 P817,732,625 Commissions payable 582,287, ,121,241 Deferred output value-added tax (VAT) 389,143, ,289,349 Accrued expenses 158,587, ,792,810 Accrued taxes 97,928, ,391,119 Documentary stamp taxes payable 80,941,567 83,403,434 Surety deposits 67,702,501 96,748,100 Output VAT 40,076,286 50,181,098 Deposits payable 4,397,378 5,138,748 Dividends Payable 12,279,385 Others 54,536,137 42,883,254 P2,079,251,886 P2,244,961,163 All accounts payable and accrued expenses are due within one year. Accounts payable pertain to unpaid purchases of goods and services from suppliers. Commissions payable are unpaid commissions on the Group s direct business, payable to agents and brokers which are due upon collection of the related premiums receivables. Accrued expenses pertain to accrual of monthly expenditures of the Group. This includes expenses for utilities, allocated common expenses for the use of Y Tower 1 and 2 and other expenses that are necessary to carry out the operations of the Group. Accrued taxes include tax withheld, fringe benefit tax, local government tax, fire service tax and premiums tax.

50 consolidated annual report 17. Pension The Group has a defined benefit plan, covering substantially all of its employees, which requires contribution to be made to administered funds. The plan is administered by a local bank as trustee. The Group s trustee bank is RCBC. The transactions of the fund are being approved by the President of the Group. The following tables summarize the components of net pension benefit expense recognized in the consolidated statements of income and the funded status and amounts recognized in the consolidated statements of financial position for the retirement plan. The net pension benefit expense recognized in the consolidated statements of income, under employee benefits (see Note 22), follows: Current service cost P48,413,070 P49,938,022 Interest cost 12,607,495 9,622,594 Net benefit expense P61,020,565 P59,560,616 Actual return on plan assets P7,863,182 (P32,907,342) The remeasurement effects recognized in the consolidated statements of comprehensive income follows: Actuarial loss P5,333,173 P37,111,638 Return on assets (excluding amount included in net interest cost) 1,367,537 (51,931,814) Tax effect (2,010,213) 4,446,053 Total amount recognized in OCI P4,690,497 (P10,374,123) The net pension obligation of the Group follows: Present value of pension benefit obligation P527,208,108 P489,725,428 Fair value of plan assets (261,245,232) (246,967,713) P265,962,876 P242,757,715 The reconciliation of the present value of the pension benefit obligation follows: Balance at beginning of year P489,725,428 P501,259,343 Current service cost 48,313,070 49,938,022 Interest cost 25,434,932 23,507,760 Actuarial loss (2,002,109) (28,823,313) Benefits paid (34,263,213) (56,156,384) P527,208,108 P489,725,428 The reconciliation of the fair value of the plan assets follows: Balance at beginning of year P246,967,713 P296,471,317 Interest income 12,827,437 13,885,166 Contributions by employer 40,365,251 40,112,236 Actuarial gain (4,651,956) (47,344,622) Benefits paid (34,263,213) (56,156,384) Balance at end of year P261,245,232 P246,967,713 The distribution of the plan assets as of December 31, 2016 and 2015 follows: Cash P55,614,347 P38,040,550 Receivables 5,746,939 5,895,864 Investments in: Equity securities 91,846,215 87,864,916 Government securities 40,864,874 46,332,249 Other securities and debt instruments 68,529,507 69,233, ,601, ,367,062 Less accrued trust fees and other payables 1,356, ,349 P261,245,232 P246,967,713

51 integrity. that s our policy. 51 The following presents the transactions of the Group s retirement fund with related parties: Category Balance Balance Terms Conditions Other related parties RCBC Savings deposits P21,825 P21,969 Interest rate at 0.25% to 4.50% p.a Time deposits 4,000,356 Interest rates at 0% to 3.25%: terms of Corporate bonds 13,380,668 2,692, to 5.5 years Common stocks 8,995,350 8,689,626 Unsecured; no impairment Unsecured; no impairment Unsecured; no impairment Unsecured; no impairment HI Common stocks 2,181,428 2,165,706 Unsecured; no impairment The principal actuarial assumptions used in determining plan assets and obligations are as follows: Salary increase rate 5.00% 5.00% to 5.07% Discount rate 5.19% 5.00% to 5.20% The overall expected return on plan assets is determined based on the market expectations prevailing as of December 31, 2016 and 2015 applicable to the period over which the obligation is to be settled. The Group expects to contribute P76.58 million to the retirement fund in Sensitivities The sensitivity analysis below has been determined based on reasonably possible changes of each significant assumption on the defined benefit obligation as of the end of the reporting period, assuming all other assumptions were held constant: 2016 Change in variables Impact on present value of defined benefit obligation Increase (Decrease) Percentage change Discount rate +0.5% (13,955,008) -2.65% 0.5% 16,339, % Salary increase rate +1.0% 33,886, % 1.0% (24,984,572) -4.74% 2015 Change in variables Impact on present value of defined benefit obligation Increase (Decrease) Percentage change Discount rate +0.5% (P399,700,690) -2.63% 0.5% 421,191, % Salary increase rate +1.0% P435,840, % 1.0% (392,626,914) -4.89% The average future working years of service is 20 to 27 years. The maturity analysis of the undiscounted benefit payments as of December 31, 2016 based on normal retirements (retirement age of 60 only) is as follows: Year of Retirement Total Benefit 1 year and less P9,901,911 More than 1 year to 5 years 86,805,874 More than 5 year to 10 years 301,498,724 More than 10 to 15 years 484,427,530 More than 15 to 20 years 622,724,048 More than 20 years 3,752,679,783

52 consolidated annual report 18. Cash Dividends and Other Revaluation Reserve The Group s capital stock consists of: Shares Amount Authorized: Common stock P100 par value 10,000,000 P1,000,000,000 Issued and outstanding: At beginning of year 6,000,000 P600,000,000 At end of the year 6,000,000 P600,000,000 Retained Earnings Retained earnings include the accumulated equity in undistributed net earnings of consolidated subsidiaries amounting to P6, million and P4, million, respectively, as of December 31, 2016 and 2015 which are not available for dividend declaration by the Parent Company. Other Revaluation Reserve On April 10, 2008, MICO s BOD and stockholders approved the articles of merger and plan of merger between TMMIC and MICO. TMMIC is a joint venture company owned by MICO and Tokio Marine Asia Pte., Ltd. (Tokio Marine). On July 2, 2008, the SEC approved the articles and plan of merger. The effects of the merger were reckoned from January 1, The merger was accounted for as a business combination in accordance with PFRS 3. TMMIC and MICO became a single corporation, with MICO as the surviving corporation. TMMIC ceased to exist and its legal personality was terminated. As at the date of acquisition, the identifiable assets and liabilities of TMMIC have been measured at fair value resulting in a difference of P46,933,294 against its carrying values. The difference between the carrying value and fair value pertains mainly to the increase in the appraised value of the building. MICO recorded the appraisal increase amounting to P23,466,647 pertaining to its previously held interest as Other revaluation reserve in the equity section of the consolidated statement of financial position. Equity Reserve On November 7, 2014, the Parent Company sold to Tokyo Marine Asia 737,660 shares or 8.7% shares for P1, million that resulted to a gain of P1, million. Since the change in ownership of the Parent Company over Malayan Insurance Company, Inc. is without loss of control, the gain of P1, million was recognized as equity reserve in Equity. 19. Net Premiums Earned Gross premiums earned and reinsurers share of gross premiums earned consist of the following: Gross premiums on insurance contracts (see Note 14) P9,311,549,385 P8,610,780,370 Gross change in provision for unearned premiums (780,826,920) 694,934,657 Gross premiums earned (see Note 14) 8,530,722,465 9,305,715,027 Reinsurers share of gross premiums on insurance contracts (see Note 14) 4,813,793,875 4,892,215,586 Reinsurers share of gross change in provision for unearned premiums (490,199,611) 1,106,710,339 Reinsurers share of gross premiums earned on insurance contacts (see Note 14) 4,323,594,264 5,998,925,925 Net premiums earned P4,207,128,20 1 P3,306,789, Investment and Other Income and Investment and Other Expense Investment and other income This account consists of: Dividend income (Note 28) P185,630,437 P228,962,611 Interest income (Note 28): AFS financial assets 145,350, ,322,278 Long-term commercial papers 62,777,086 59,384,608 Cash and cash equivalents 24,481,480 30,039,469 Long-term Investments 2,551,633 Notes receivables 9,434,719 2,437,308 Funds held by ceding companies 642, ,230 Short-term investments (Note 5) 1,172,512 57,366 Others 2,479, ,995 (Forward)

53 integrity. that s our policy. 53 Gain (loss) on sale of: AFS financial assets (Note 7) 63,239,864 68,419,476 Real estate for sale 5,270, ,556 Financial assets at FVPL (755,892) (1,830,676) Property and equipment (Note 12) 926, ,308 Long term commercial papers 411,420 Rental income (Notes 11 and 28) 25,587,485 25,657,859 Foreign currency exchange gains 132,896, ,759,198 Fair value gains on financial assets at FVPL (Note 7) 2,983,054 4,505,282 Others 15,172,619 5,566,128 P677,701,137 P686,189,629 Investment and other expense This account consists of the following: Impairment loss on AFS (Note 7) P71,977,345 P242,804,548 Investment expense 17,220,782 13,322,547 Interest expense on reinsurance funds held 8,078,629 5,751,046 P97,276,756 P261,878,141 As of December 31, 2016 and 2015, unrealized foreign exchange gain amounted to P million and P million, respectively. 21. Insurance Contract Benefits and Claims Paid Gross insurance contract benefits and claims paid consist of: Gross insurance contract benefits and claims paid: Direct insurance P2,340,016,345 P2,755,082,588 Assumed reinsurance 676,888, ,227,770 Total gross insurance contract benefits and claims paid (see Note 14) P3,016,904,374 P3,314,310,358 Reinsurers share of gross insurance contract benefits and claims paid consist of: Reinsurers share of insurance contract benefits and claims paid: Direct insurance (P1,123,170,509) (P1,787,176,395) Assumed reinsurance (232,817,492) (67,057,492) Total reinsurers share of gross insurance contract benefits and claims paid (see Note 14) (P1,355,988,001) (P1,854,233,887) Gross change in insurance contract liabilities consist of: Change in provision for claims reported: Direct insurance (P5,563,685) (P484,163,487) Assumed reinsurance (1,324,909,434) (1,949,374,352) Change in provision for IBNR 55,379,478 Total gross change in insurance contract liabilities (see Note 14) (P1,275,093,641) (P2,433,537,839) Reinsurers shares of gross change in insurance contract liabilities consist of: Reinsurers share of gross insurance contract liabilities: Direct insurance P422,227,875 P630,468,617 Assumed reinsurance 1,072,025,481 1,877,350,470 Total reinsurers share of gross change in insurance contract liabilities (see Note 14) P1,494,253,356 P2,507,819,087

54 consolidated annual report 22. General and Administrative Expenses This account consists of: Salaries, wages and allowances (Note 28) P653,537,093 P591,330,106 Provisions for impairment loss - net of reversals (Note 6) 101,423,885 48,156,274 Depreciation and amortization (Notes 11, 12 and 13) 74,428,769 72,434,592 70,712,886 65,852,280 Rent, light and water (Notes 23 and 28) Professional fees 63,153,900 67,305,996 Advertising and promotions 57,856,685 55,046,045 Transportation and travel 48,098,496 46,073,346 Postage, telephone and cable 44,233,430 42,180,212 Printing and office supplies 38,620,775 31,332,734 Entertainment, amusement and recreation 30,635,139 32,771,455 Repairs and maintenance 23,425,431 19,734,491 Taxes, licenses and fees 21,887,607 11,922,441 Business development 8,962,608 7,667,432 Donations and contributions 7,871,700 7,162,379 Membership and association dues 4,178,131 3,276,892 Insurance 2,205,493 1,504,910 Management fees 1,847,973 1,842,455 Others 34,003,576 30,876,619 P1,287,083,577 P1,136,470, Leases Operating leases - Group as lessor The Group entered into various lease agreements for its office spaces. These leases generally have terms of one year, renewable every year. Operating leases - Group as lessee The Group entered into various property leases with various lessors for office space of its head office and local and provincial branches. These leases generally have terms of one year, renewable every year. 24. Income Tax The provision for income tax consists of: Final P28,256,784 P25,859,737 Current 25,857,020 13,892,081 Deferred (845,810) (4,274,755) P53,267,994 P35,477,063 The Group s net deferred tax assets (liabilities) consist of: Deferred tax assets: Excess of provision for unearned premiums per books over tax basis P125,013,262 P Excess of deferred reinsurance premiums per tax over books basis 107,462,300 Allowance for impairment losses 72,168,584 45,033,273 Deferred reinsurance commissions 50,120,012 43,514,591 Provision for IBNR losses 34,933,108 33,570,027 Unamortized past service costs 13,202,066 18,218,261 Pension obligation 12,412,607 7,161,609 NOLCO 6,586,589 6,586,589 Accrual for short-term benefits 4,192,766 4,192,766 MCIT 1,006, , ,635, ,028,747 Deferred tax asset through equity: Pension obligation 64,294,950 64,421,834 (Forward)

55 integrity. that s our policy. 55 Deferred tax liabilities: Excess of deferred reinsurance premiums per books over tax basis (65,639,707) Excess of provision for unearned premiums per tax over books basis (621,750) (26,206,366) Unrealized foreign exchange gains (48,357,664) (46,357,496) Deferred acquisition costs (106,311,249) (93,936,559) (220,930,370) (166,500,421) Deferred tax liability through equity: Net unrealized gain on AFS financial assets (29,076,546) (28,731,844) P133,923,586 P135,218,316 As of December 31, 2016 and 2015, the Group did not recognize the deferred tax assets on the following deductible temporary differences, carryforward of unused tax credits from excess of MCIT over RCIT, and unused NOLCO: NOLCO P570,445,572 P1,084,729,350 Accrued expenses 94,749, ,433,463 Allowance for doubtful accounts 36,566,869 43,030,373 Pension obligation 30,718,306 MCIT 47,894,199 29,630,880 Provision for short-term employee benefits 6,063,179 5,690,730 Unamortized past service cost 2,691,876 3,434,036 The related tax benefits will be recognized only as reassessment demonstrates that they are realizable. Realization is entirely dependent upon future taxable income. As of December 31, 2016, details of NOLCO and MCIT, which are available for offset against future taxable income and future income tax liability, respectively, follows: Inception Year NOLCO Tax Effect of NOLCO MCIT Expiration Year 2016 P59,100,170 P17,730,052 P25,857, ,818,180 26,045,454 11,740, ,482, ,259,964 10,600, P592,400,869 P163,035,470 P48,198,404 The following are the movements in NOLCO: Balance at beginning of year P1,106,233,905 P1,294,691,327 Addition 59,100, ,993,596 Expiration (201,763,781) (292,451,018) Applied (371,169,425) Balance at end of year P592,400,869 P1,106,233,905 The following are the movements in MCIT: Balance at beginning of year P29,630,880 P24,934,810 Addition 25,857,020 11,588,875 Expiration (7,289,496) (6,892,805) Balance at end of year P48,198,404 P29,630,880 The reconciliation of provision for income tax computed at the statutory corporate income tax rate to provision for income tax shown in the consolidated statements of income follows: At statutory income tax rate P413,167,158 P10,341,237 Adjustments for: Change in unrecognized deferred tax assets (75,629,831) 38,920,660 Nondeductible expenses 23,804,123 75,110,048 Provision for impairment losses 2,499,255 Expired MCIT 151,604 Nontaxable income (207,907,791) (7,402,289) Gain on sale of AFS financial assets (19,070,125) (14,844,138) Interest income exempt or already subjected to final tax (28,473,239) (25,386,610) NOLCO 15,482,629 Dividend income (52,622,301) (59,395,333) P53,267,994 P35,477,063

56 consolidated annual report 25. Reconciliation of Net Income under PFRS to Statutory Net Income The reconciliation of net income under PFRS to statutory net income of the Group follows: Net income under PFRS P677,587,564 P29,603,982 Adjustments: Difference in change in provision for unearned premiums - net (68,788,834) 52,839,326 Deferred acquisition costs - net (26,301,534) (3,756,727) Tax effect of adjustments 26,754,615 (14,449,995) Others 4,137,183 9,282 P613,388,994 P64,245, Insurance and Financial Risk Management Insurance Risk The principal risk the Group faces under insurance contracts is that the actual claims and benefit payments or the timing thereof, differ from expectations. This is influenced by the frequency of claims, severity of claims, actual benefits paid and subsequent development of claims. Therefore, the objective of the Group is to ensure that sufficient reserves are available to cover these liabilities. The above risk exposure is mitigated by diversification across a large portfolio of insurance contracts and geographical areas. The variability of risks is also improved by careful selection and implementation of underwriting strategy guidelines, as well as the use of reinsurance arrangements. The Group purchases reinsurance as part of its risks mitigation program. Reinsurance ceded is placed on both a proportional and non-proportional basis with retention limits varying by product line and territory. The majority of proportional reinsurance is quota-share reinsurance which is taken out to reduce the overall exposure of the Group to certain classes of business. Nonproportional reinsurance is primarily excess-of-loss reinsurance designed to mitigate the Group s net exposure to catastrophe losses. Retention limits for the excess-of-loss reinsurance vary by product line and territory. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contracts. Although the Group has reinsurance arrangements, it is not relieved of its direct obligations to its policyholders and thus a credit exposure exists with respect to ceded insurance, to the extent that any reinsurer is unable to meet its obligations assumed under such reinsurance agreements. The Group s placement of reinsurance is diversified such that it is neither dependent on a single reinsurer nor are the operations of the Group substantially dependent upon any single reinsurance contract. The Group principally issues the following types of general insurance contracts: fire, motorcar, personal accident, marine, engineering, bonds and miscellaneous casualty. The most significant risks arise from climate changes and natural disasters. These risks do not vary significantly in relation to the location of the risk insured by the Group, type of risk insured and by industry. To further reduce the risk exposure, the Group requires strict claim review policies to assess all new and ongoing claims, regular detailed review of claims handling procedures and frequent investigation of possible fraudulent claims. The Group further enforces a policy of actively managing and prompt pursuing of claims, in order to reduce its exposure to unpredictable future developments that can negatively impact the Group. The Group also has limited its exposure level by imposing maximum claim amounts on certain contracts as well as the use of reinsurance arrangements in order to limit exposure to catastrophic events. The purpose of these underwriting and reinsurance strategies is to limit exposure to catastrophes to a predetermined maximum amount based on the Group s risk appetite as decided by management. The tables below set out the concentration of the claims liabilities by type of contract (see Note 14) Gross Reinsurers Share Net Fire P4,716,180,041 P3,573,383,462 P1,142,796,579 Miscellaneous casualty 794,003, ,610, ,393,184 Bonds 305,893, ,696, ,197,153 Engineering 548,459, ,761, ,698,130 Marine cargo 359,938, ,508,054 26,430,147 Motor 403,558,295 2,283, ,275,238 Others 41,598, ,957 40,869,575 P7,169,632,374 P5,095,972,368 P2,073,660,006

57 integrity. that s our policy Gross Reinsurers Share Net Fire P6,002,104,388 P5,294,750,563 P707,353,825 Miscellaneous casualty 231,547, ,041,289 86,506,340 Bonds 552,303, ,134, ,168,708 Engineering 681,018, ,478, ,539,486 Marine cargo 420,993, ,086,261 56,907,534 Motor 498,730,680 7,268, ,462,569 Others 58,027,920 (533,909) 58,561,829 P8,444,726,015 P6,590,225,724 P1,854,500,291 The tables below set out the geographical concentration of the Group s claims liabilities based on the countries where the insurance business is written Gross Reinsurers Share Net Philippines P7,169,632,374 P5,095,972,368 P2,073,660,006 Greece P7,169,632,374 P5,095,972,368 P2,073,660, Gross Reinsurers Share Net Philippines P8,362,851,336 P6,590,225,724 P1,772,625,612 Greece 81,874,679 81,874,679 P8,444,726,015 P6,590,225,724 P1,854,500,291 Key Assumptions The principal assumption underlying the liability estimates is the Group s future claims development will follow a similar pattern to past claims development experience. This includes assumptions in respect of average claim costs, claims handling costs, claims inflation factors and claim numbers for each accident year. Additional qualitative judgments are used to assess the extent to which past trends may not apply in the future, for example once-off occurrence, changes in market factors such as public attitude to claiming, economic conditions, as well as internal factors such as portfolio mix, policy conditions and claims handling procedures. Judgment is further used to assess the extent to which external factors such as judicial decisions and government legislation affect the estimates. Other key assumptions include variations in interest, delays in settlement and changes in foreign currency rates. Sensitivities The insurance claims provision is sensitive to the above key assumptions. Because of delays that arise between occurrence of a claim and its subsequent notification and eventual settlement, the outstanding claim provisions are not known with certainty at the reporting dates. The table below shows the impact of changes in certain important assumptions in general insurance business while other assumptions remain unchanged. The correlation of assumptions will have a significant effect in determining the claims but to demonstrate the impact due to changes in assumptions, assumptions had to be changed on individual basis. Impact on Gross Insurance Contract Liabilities Increase (Decrease) 2016 Impact on Net Insurance Contract Liabilities Increase (Decrease) Impact on Income Before Income Tax Increase (Decrease) Change in Assumptions % Average claim costs +5% P128,070,280 P73,766,833 (P73,766,833) Average number of claims +5% 112,637,013 64,880,788 (64,880,788) Change in Assumptions % Impact on Gross Insurance Contract Liabilities Increase (Decrease) 2015 Impact on Net Insurance Contract Liabilities Increase (Decrease) Impact on Income Before Income Tax Increase (Decrease) Average claim costs +5% P93,836,713 P60,285,847 (P60,285,847) Average number of claims +5% 87,512,782 56,223,008 (56,223,008)

58 consolidated annual report Claims Development Table The following tables reflect the cumulative incurred claims, including both claims notified and IBNR for each successive accident year at each reporting dates, together with cumulative payments to date. The Group aims to maintain strong reserves in respect of its insurance business in order to protect against adverse future claims experience and developments. As claims develop and the ultimate cost of claims becomes more certain, adverse claims experiences are eliminated which results in the release of reserves from earlier accident years. In order to maintain strong reserves, the Group transfers much of this release to current accident year reserves when the development of claims is less mature and there is much greater uncertainty attaching to the ultimate cost of claims. The risks vary significantly in relation to the location of the risk insured by the Group, type of risks insured and in respect of commercial and business interruption insurance by industry.

59 integrity. that s our policy. 59 Accident year Gross insurance contract liabilities in and prior year Total Accident year P7,033,157,544 P4,850,917,503 P2,154,031,020 P3,454,804,095 P4,559,381,129 P2,481,332,474 P2,087,604,406 P6,774,695,936 P7,297,154,943 P5,058,735,902 P2,203,352,628 P2,850,767,986 P2,850,767,986 One year later 7,211,482,104 6,805,336,003 2,702,868,685 3,081,954,264 4,064,463,972 2,385,646,855 2,386,441,297 7,042,141,775 10,308,590,312 4,160,961,088 2,545,668,939 2,545,668,939 Two years later 7,270,837,804 6,141,362,933 3,309,288,417 3,045,807,229 4,123,594,783 2,339,681,943 2,326,813,122 6,693,869,146 8,874,859,679 4,008,464,899 4,008,464,899 Three years later 7,280,263,333 6,211,822,149 3,238,220,388 3,054,340,566 4,002,725,582 2,474,843,004 2,322,438,981 6,589,601,532 8,467,648,590 8,467,648,590 Four years later 7,321,310,337 6,109,296,498 3,218,225,235 3,050,278,500 4,001,655,258 2,479,660,277 2,254,254,005 6,426,932,320 6,426,932,320 Five years later 7,204,204,826 6,119,695,906 3,236,696,940 3,037,930,350 3,812,404,790 2,514,701,798 2,247,348,888 2,247,348,888 Six years later 7,194,462,945 6,115,761,614 3,238,968,330 3,053,080,403 3,947,972,883 2,478,284,460 2,478,284,460 Seven years later 7,151,552,079 6,115,339,530 3,254,408,887 3,053,560,931 3,631,585,263 3,631,585,263 Eight years later 7,138,741,362 6,133,959,028 2,990,363,153 2,900,134,363 2,900,134,363 Nine years later 7,240,416,167 6,181,864,423 2,997,535,795 2,997,535,795 Ten years later 7,135,129,062 6,183,198,077 6,183,198,077 Eleven years later 7,065,195,532 7,065,195,532 Current estimate of cumulative claims 7,065,195,532 6,183,198,077 2,997,535,795 2,900,134,363 3,631,585,263 2,478,284,460 2,247,348,888 6,426,932,320 8,467,648,590 4,008,464,899 2,545,668,939 2,850,767,986 51,802,765,111 Cumulative payments to date 6,652,566,994 6,122,954,749 2,975,501,565 2,742,098,937 3,413,929,048 2,434,234,710 2,203,786,439 6,263,454,331 4,302,371,140 2,699,051,781 1,849,790,078 1,228,375,590 42,888,115,362 Liability recognized 412,628,538 60,243,328 22,034, ,035, ,656,215 44,049,750 43,562, ,477,988 4,165,277,449 1,309,413, ,878,861 1,622,392,396 8,914,649,749 Net insurance contract liabilities in 2016 Accident year 2005 and prior year Total Accident year P3,085,614,472 P1,242,378,749 P1,431,258,014 P1,952,183,387 P1,125,272,584 P1,497,315,141 P1,497,678,245 P2,372,647,549 P1,246,526,903 P1,869,057,717 P1,869,256,562 P785,701,737 P785,701,737 One year later 3,226,427,209 1,567,045,893 1,424,541,612 1,920,769,319 1,152,619,674 1,565,185,256 1,808,794,492 2,372,390,100 1,014,734,608 1,315,582,396 2,010,552,947 2,010,552,947 Two years later 3,254,192,237 1,616,864,780 1,941,147,712 1,976,729,680 1,216,041,807 1,548,687,275 1,782,379,520 2,194,731,375 1,149,627,092 1,207,686,156 1,207,686,156 Three years later 3,278,762,812 1,626,293,386 1,902,396,647 1,944,578,887 1,202,979,855 1,679,611,040 1,780,384,110 2,196,529,542 2,331,553,441 2,331,553,441 Four years later 3,271,630,637 1,622,788,908 1,882,845,857 1,946,399,063 1,336,793,703 1,682,578,800 1,720,250,374 2,181,640,549 2,181,640,549 Five years later 3,042,764,568 1,636,820,607 1,878,433,994 1,932,031, ,754,249 1,716,093,862 1,713,620,107 1,713,620,107 Six years later 2,754,576,468 1,635,768,393 1,880,626,407 1,931,450, ,362,979 1,697,667,862 1,697,667,862 Seven years later 2,728,578,301 1,635,768,284 1,895,791,162 1,956,350, ,645, ,645,082 Eight years later 2,712,894,478 1,654,188,012 1,890,037,610 1,905,410,402 1,905,410,402 Nine years later 2,716,353,491 1,677,716,322 1,897,003,215 1,897,003,215 Ten years later 2,707,603,838 1,674,059,822 1,674,059,822 Eleven years later 2,694,530,492 2,694,530,492 Current estimate of cumulative claims 2,694,530,492 1,674,059,822 1,897,003,215 1,905,410, ,645,082 1,697,667,862 1,713,620,107 2,181,640,549 2,331,553,441 1,207,686,156 2,010,552, ,701,737 20,363,071,811 Cumulative payments to date 2,534,810,897 1,651,334,654 1,886,925,145 1,889,959, ,600,969 1,675,302,192 1,705,767,374 2,118,108,590 1,094,033, ,550,623 1,954,833, ,831,532 18,341,058,425 Liability recognized P159,719,595 P22,725,168 P10,078,070 P15,450,590 P12,044,113 P22,365,670 P7,852,733 P63,531,959 P1,237,519,946 P297,135,533 P55,719,806 P117,870,205 P2,022,013,386

60 consolidated annual report Financial Risk The Group is exposed to financial risk through its financial assets and financial liabilities. In particular, the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance contracts. The most important components of this financial risk are credit risk, liquidity risk and market risk. Credit Risk Credit risk is a risk due to uncertainty in a counterparty s (also called an obligor) ability to meet its obligation. Prior to extending credit, the Group manages its credit risk by assessing credit quality of its counterparty. The Group has a credit policy group that reviews all information about the counterparty which may include its statement of financial position, statements of income and other market information. The nature of the obligation is likewise considered. Based on this analysis, the credit analyst assigns the counterparty a credit rating to determine whether or not credit may be provided. Credit risk limit is also used to manage credit exposure which specifies exposure credit limit for each intermediary depending on the size of its portfolio and its ability to meet its obligation based on past experience. The table below shows the maximum exposure to credit risk for the components of the consolidated statement of financial position, net of impairment loss. AFS financial assets: Equity securities: Listed equity securities P4,859,557,587 P5,600,060,874 Unlisted equity securities 269,963, ,873,463 Debt securities: Private debt securities 2,284,181,639 1,853,667,523 Government debt securities: Local currency 458,251, ,272,427 Foreign currency 11,405,527 11,004,349 Funds 153,827, ,267,335 FVPL financial assets: Debt securities: Private debt securities 198,341,334 91,930,298 Equity securities: Listed equity securities 101,384, ,892,788 Investment funds Loans and receivables: Cash and cash equivalents 1,603,557,399 3,027,164,685 Short-term investments 51,557,423 97,920,122 Insurance receivables: Due from policyholders, agents and brokers 4,229,557,399 3,765,826,268 Due from ceding companies: Treaty 789,405, ,689,338 Facultative 105,641, ,696,332 Funds held by ceding companies 380,698, ,596,495 Premium and loss reserve 62,180,826 50,470,297 Reinsurance recoverable on paid losses: Facultative 279,389, ,181,972 Treaty 43,694,795 43,694,796 Loans and receivables: Long-term commercial papers 1,190,590,872 1,119,468,505 Creditable withholding tax 261,234, ,152,400 Accounts receivable 58,867, ,677,159 Notes receivable 18,284,167 17,018,394 Cash advances 8,081,250 Claims recoverable 6,408,374 6,408,374 Dividend Receivable 401,700 Security fund 342,294 Accrued income: Accrued interest income: AFS financial assets 29,903,494 29,984,872 Long-term commercial papers 10,775,225 10,960, , ,873 Security fund Funds held by ceding companies 354,351 62,494 Cash and cash equivalents 338, ,905 Accrued rent income 2,640,821 2,760,759 Accrued dividend income 6,027,744 3,745,751 P17,468,164,839 P17,796,910,118

61 integrity. that s our policy. 61 The following tables provide information regarding the credit risk exposure of the Group by classifying the financial assets according to the Group s credit ratings of the counter parties Neither past due nor impaired Past due but Individually High Grade Medium Grade not impaired Impaired Total AFS financial assets: Equity securities: Listed equity securities P4,782,293,668 P27,073,385 P P50,190,534 P4,859,557,587 Unlisted equity securities 269,963, ,963,185 Debt securities: Private debt securities 753,501,433 1,530,680,206 2,284,181,639 Government debt securities: Local currency 458,251, ,251,379 Foreign currency 11,405,527 11,405,527 Funds 144,178,831 5,259,786 4,388, ,827,203 FVPL financial assets: Debt securities: Private debt securities 198,341, ,341,334 Equity securities: Listed equity securities 101,384, ,384,499 Loans and receivables: Cash and cash equivalents 1,603,557,399 1,603,557,399 Short-term investments 51,557,423 51,557,423 Insurance receivables: Due from policyholders, agents, and brokers 2,145,614,454 1,364,307, ,136,696 9,498,932 4,229,557,399 Due from ceding companies: Facultative 105,641, ,641,092 Treaty 102,904, ,495, ,005, ,405,577 Funds held by ceding companies 278,470,226 36,918,663 64,968, , ,698,235 Premium and loss reserve 62,180,826 62,180,826 Reinsurance recoverable on paid losses: Facultative 6,385, ,213, ,790, ,389,164 Treaty 43,694,795 43,694,795 Accrued income: Accrued interest: AFS financial assets 29,903,494 29,903,494 Long-term commercial papers 10,775,225 10,775,225 Notes receivable Security fund 145, ,853 Funds held by ceding companies 354, ,351 Short term investments Cash and cash equivalents 338, ,281 Financial assets at FVPL Bonds Accrued rent income 2,640,821 2,640,821 Accrued dividend income 6,027,744 6,027,744 Accrued management fee Loans and receivables: Long-term commercial papers 1,170,590,872 20,000,000 1,190,590,872 Creditable withholding tax 261,234, ,234,149 Accounts receivable 58,475, ,431 58,867,244 Notes receivable 18,284,167 18,284,167 Cash advances Claims recoverable 6,408,374 6,408,374 Security fund 832, ,721 P12,115,648,957 P3,776,028,237 P1,512,901,311 P64,419,054 P17,468,997, Neither past due nor impaired Past due but Individually High Grade Medium Grade not impaired Impaired Total AFS financial assets: Equity securities: Listed equity securities P5,357,603,675 P74,222,044 P P228,642,050 P5,660,467,769 Unlisted equity securities 99,883,561 70,989, ,873,463 Debt securities: Private debt securities 452,818,874 1,400,848,649 1,853,667,523 Government debt securities: Local currency 625,272, ,272,427 Foreign currency 11,004,349 11,004,349 Funds 215,350,646 4,916, ,267,335 FVPL financial assets: Debt securities: Private debt securities 91,930,298 91,930,298 Equity securities: Listed equity securities 185,892, ,892,788 Investment Funds Loans and receivables: Cash and cash equivalents 3,027,182,897 3,027,182,897 Short-term investments 97,920,122 97,920,122 Insurance receivables: Due from policyholders, agents, and brokers 718,325, ,503,639 2,615,933,523 7,991,154 3,929,754,286 Due from ceding companies: Facultative 35,519,921 18,638,133 33,981,094 14,557, ,696,332 Treaty 16,179, ,859, , ,379,955 Funds held by ceding companies (17,955,228) 68, ,102,821 1,380, ,596,495 Premium and loss reserve 50,470,297 50,470,297 Reinsurance recoverable on paid losses: Facultative 884,557 33,407,439 90,889, ,181,972 Treaty 43,694,796 43,694,796 (Forward)

62 consolidated annual report 2015 Neither past due nor impaired Past due but Individually High Grade Medium Grade not impaired Impaired Total Accrued income: Accrued interest: AFS financial assets 29,984,872 29,984,872 Long-term commercial papers 10,960,026 10,960,026 Notes receivable Security fund 442, ,905 Funds held by ceding companies 193, ,873 Cash and cash equivalents 62,494 62,494 Financial assets at FVPL Bonds 3,745,751 3,745,751 Accrued rent income 2,760,759 2,760,759 Accrued dividend income Accrued management fee Loans and receivables: Long-term commercial papers 201,214, ,253,612 1,119,468,505 Creditable withholding tax 144,152, ,152,400 Accounts receivable 69,653,268 74,023, ,677,158 Notes receivable 15,278,894 42,249 1,697,251 17,018,394 Cash advances 8,081,250 8,081,250 Claims recoverable 6,408,374 6,408,374 Dividend receivable 401, ,700 Security fund 342, ,294 P11,227,839,869 P3,460,737,457 P3,080,767,115 P254,609,418 P18,023,953,859 The credit rating is based on the following: a) Cash and cash equivalents, short-term investments and related accrued income High grade pertains to those deposited, placed or invested in foreign and local banks belonging to the top banks in the Philippines in terms of resources and profitability, while medium grade pertains to those deposited, placed or invested in thrift banks and rural banks in the Philippines. b) Insurance receivables, loans and receivables, accrued rent income and dividend income For insurance receivables and loans and receivables except Due from ceding companies, Funds held by ceding companies, and Long-term commercial papers, the Group uses a credit rating concept based on the borrowers and counterparties overall creditworthiness. High grade is given to borrowers and counterparties who possess strong to very strong capacity to meet its obligations. Medium grade is given to borrowers and counterparties who possess above average capacity to meet its obligations. These counterparties are somewhat susceptible to adverse changes in business and economic conditions. For Due from ceding companies and Funds held by ceding companies from local sources, the Group uses a credit rating concept based on the debt-to-equity ratios of the borrowers and counterparties. High grade is given to borrowers and counterparties with debt-to-equity ratio of less than or equal to 2:1, while medium grade is given to borrowers and counterparties with debt-to-equity ratio of more than 2:1. For Due from ceding companies and Funds held by ceding companies from foreign sources, the Group uses Standard & Poor s (S&P) and A.M. Best s credit rating of insurance companies. High grade pertains to insurance companies rated by S&P and A.M. Best as higher than BB+, which means that the insurance company has good to strong financial security characteristics, but may be affected by adverse business conditions. Medium grade pertains to insurance companies that are ungraded and rated by S&P and A.M. Best as lower than BB+, which means that the insurance company has marginal financial security characteristics. Positive attributes exist, but adverse business conditions could lead to insufficient ability to meet financial commitments. c) Equity securities Listed equity securities are classified as high grade. Unlisted equity securities are classified as medium grade. d) Debt securities, long-term commercial papers, and related accrued income These are based on the credit ratings by the international rating agency, Standard & Poors (S&P), and by Philippine Ratings Services Corporation (Philratings), the only domestic credit rating services in the Philippines accredited by Bangko Sentral ng Pilipinas (BSP) and SEC, in cases where an S&P rating is not available. High grade pertains to investments rated by S&P as BBB- and higher, which means that the counterparties have extremely strong to adequate capacity of paying interest and repaying principal, as well as Investments in Securities issued by the Philippine Government. Medium grade pertains to investments rated as Baa and higher by Philratings, as well as investments rated by S&P as BB+ to B- (except Philippine Government Securities). The Group s holdings under this category are rated either BB- by S&P (due to sovereign credit rating ceiling) or Aaa by Philratings which is defined by Philratings to mean that the obligor s capacity to meet its financial commitment on the obligation is extremely strong. e) Insurance receivables Receivables from related entities are considered as high grade. Liquidity Risk Liquidity or funding risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from either the inability to sell financial assets quickly at their fair values; or counterparty failing on repayment of a contractual obligation; or insurance liability falling due for payment earlier than expected; or inability to generate cash inflows as anticipated.

63 integrity. that s our policy. 63 An institution may suffer from a liquidity problem when its credit rating falls. The Group is also exposed to liquidity risk if markets on which it depends on are subject to loss of liquidity. The major liquidity risk faced by the Group is the potential daily calls on its available cash resources in respect of claims from insurance contracts. The Group manages liquidity through a management team which determines liquidity risk for the Group by identifying events that would trigger liquidity problems, providing contingency plans, identifying potential sources of funds and monitoring compliance of liquidity risk policy. The tables below analyze financial assets and financial liabilities of the Group into their relevant maturity groups based on the remaining period at the reporting date to their contractual maturities or expected repayment dates Up to a year* 1-3 years More than 3 years No term Total Cash and cash equivalents P1,604,194,958 P P P P1,604,194,958 Short-term investments 51,557,423 51,557,423 Insurance receivables 6,115,482,640 6,115,482,640 AFS financial assets 3,901,049, ,134,793 1,926,341,674 1,862,660,345 8,037,186,520 Financial assets at FVPL 299,725, ,725,833 Loans and receivables 1,417,195,982 26,010,728 86,256,275 7,156,146 1,536,619,131 Accrued income 50,185,769 50,185,769 Reinsurance recoverable on unpaid losses 5,095,972,369 5,095,972,369 Total financial assets P18,235,638,849 P373,145,521 P2,012,597,949 P2,169,542,324 P22,790,924,643 Insurance contract liabilities P10,742,189,924 P P P P10,742,189,924 Insurance payables 1,892,745,551 43,595 1,892,789,146 Accounts payable, accrued expenses and other liabilities 2,079,251,886 2,079,251,886 Total financial liabilities P14,714,187,361 P43,595 P P P14,714,230,956 *Up to a year are all commitments which are either due within one year or are payable in demand Up to a year* 1-3 years More than 3 years No term Total Cash and cash equivalents P3,027,861,479 P P P P3,027,861,479 Short-term investments 97,920,122 97,920,122 Insurance receivables 4,589,083,516 4,589,083,516 AFS financial assets 4,428,722, ,799,025 1,475,649,693 2,017,974,940 8,481,145,970 Financial assets at FVPL 277,823, ,823,087 Loans and receivables 1,290,333,525 51,971,993 90,000,000 7,244,558 1,439,550,076 Accrued income 48,150,680 48,150,680 Reinsurance recoverable on unpaid losses 6,229,468, ,756,908 6,590,225,775 Total financial assets P19,711,540,501 P971,527,926 P1,565,649,693 P2,303,042,585 P24,551,760,705 Insurance contract liabilities P11,236,456,645 P P P P11,236,456,645 Insurance payables 2,811,299,699 43,595 2,811,343,294 Accounts payable, accrued expenses and other liabilities 2,244,961,163 1,643,276,437 Total financial liabilities P16,292,717,507 P43,595 P P P16,292,761,102 *Up to a year are all commitments which are either due within one year or are payable in demand. In 2016 and 2015, certain insurance receivables, AFS securities and loans and receivables have been provided with allowance for impairment. It is unusual for the Group primarily transacting insurance business to predict the requirements of funding with absolute certainty as theory of probability is applied on insurance contracts to ascertain the likely provision and the time period when such liabilities will require settlement. The amounts and maturities in respect of insurance liabilities are thus based on management s best estimate based on past experience. Market Risk Market risk is the risk of change in fair value of financial instruments from fluctuations in foreign exchange rates (currency risk), market interest rates (interest rate risk) and market prices (price risk), whether such change in price is caused by factors specific to the individual instrument or its issuer or factors affecting all instruments traded in the market. Market risk is the risk to an institution s financial condition from volatility in the price movements of the assets contained in a portfolio. Market risk represents what the Group would lose from price volatilities. Market risk can be measured as the potential gain or loss in a position or portfolio that is associated with a price movement of a given probability over a specified time horizon. The Group manages market risk by evenly distributing capital among investment instruments, sectors and geographical areas.

64 consolidated annual report The Group structures levels of market risk it accepts through a sound market risk policy based on specific guidelines set by an Investment Committee. This policy constitutes certain limits on exposure of investments mostly with top-rated banks, which are selected on the basis of the bank s credit ratings, capitalization and quality servicing being rendered to the Group. Also, the said policy includes diversification benchmarks of investment portfolio to different investment types duly approved by the IC, asset allocation and portfolio limit structure. Moreover, control of relevant market risks can be addressed through compliance reporting of market risk exposures, regular monitoring and review of the Group s investment performance and upcoming investment opportunities for pertinence and changing environment. a) Currency Risk The Group s principal transactions are carried out in Philippine Peso and its exposure to foreign exchange risk arises primarily with respect to U.S. Dollar and Euro. In addition, the Parent Company enters into non-deliverable forward contracts to hedge its exposure on foreign currency exchange risks. The tables below summarize the Group s exposure to foreign currency exchange rate risks by categorizing assets and liabilities by major currencies Philippine Peso U.S. Dollar Euro Others Total AFS financial assets: Equity securities: Listed equity securities P4,503,439,297 P253,658,514 P39,868,419 P62,591,356 P4,859,557,586 Unlisted equity securities 122,178, ,784, ,963,185 Private debt securities 2,284,181,639 2,284,181,639 Government debt securities 458,251,379 11,405, ,656,906 Funds 23,734, ,679,306 2,413, ,827,203 Financial assets at FVPL Debt securities: Private debt securities 198,341, ,341,334 Equity securities: Listed equity securities 101,384, ,384,499 Loans and receivables: Cash and cash equivalents 1,355,670, ,524,674 1,604,194,958 Short-term investments 6,689,747 44,867,676 51,557,423 Insurance receivables - net 4,506,962,494 1,322,749,293 38,546,171 5,868,257,959 Accrued income 49,851, ,616 50,185,769 Loans and receivables 1,502,750,570 7,120,700 1,509,871,270 Total assets P12,529,528,092 P4,748,032,523 P42,281,589 P101,137,527 P17,420,979,731 Accounts payable, accrued expenses and other liabilities P1,824,814,047 P252,984,743 P P1,453,097 P2,079,251,887 Insurance payables 1,738,240, ,548,753 1,892,789,114 Total liabilities P3,563,054,408 P407,533,496 P P1,453,097 P3,972,041, Philippine Peso U.S. Dollar Euro Others Total AFS financial assets: Equity securities: Listed equity securities P5,124,076,538 P344,091,549 P64,818,927 P67,073,860 P5,600,060,874 Unlisted equity securities 113,758,435 57,115, ,873,463 Private debt securities 1,853,667,523 1,853,667,523 Government debt securities 625,272,427 11,004, ,276,776 Funds 50,346, ,172,191 11,748, ,267,335 Financial assets at FVPL Debt securities: Private debt securities 91,930,298 91,930,298 Equity securities: Listed equity securities 185,892, ,892,788 Loans and receivables: Cash and cash equivalents 2,518,197, ,202,723 27,063,358 9,398,395 3,027,861,479 Short-term investments 42,569,373 55,350,749 97,920,122 Insurance receivables - net 2,426,085,799 1,923,132,567 53,628,000 4,402,846,366 Accrued income 26,568,605 21,536,665 45,410 48,150,680 Loans and receivables 1,428,557,656 7,244,558 1,435,802,214 Total assets P12,355,432,740 P5,182,340,988 P91,927,695 P141,848,495 P17,771,549,918 Accounts payable, accrued expenses and other liabilities P2,764,210,343 P108,067,073 P4,900,466 P2,877,177,882 Insurance payables 833,970, ,328,515 1,579,298,921 Total liabilities P3,598,180,749 P853,395,588 P4,900,466 P4,456,476,803 The following table demonstrates the sensitivity to a reasonably possible change in the US Dollar, euro and other currency exchange rates, with all other variables held constant, of the Group s profit before tax (due to changes in the foreign exchange rate). Impact on income before tax Increase (Decrease) Currency Change in rate US Dollar + 5% P138,978,772 P136,481,622-5% (138,978,772) (136,481,622) Euro + 5% 1,185,803 1,960,666-5% (1,185,803) (1,960,666) Others + 5% 1,164,677 (159,463) - 5% (1,164,677) 159,463

65 integrity. that s our policy. 65 b) Interest Rate Risk Interest rate risk is the risk that the value/future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group s fixed rate investments in particular are exposed to such risk. The Group s market risk policy requires it to manage interest rate risk by maintaining appropriate mix of fixed and variable rate instruments. The policy also requires it to manage the maturities of interest bearing financial assets. The following table sets out the Group s financial assets exposed to interest rate risk by maturity: 2016 Interest Rate Within one year 1-3 years More than 3 years Total Cash and cash equivalents 0.25% % P1,603,557,396 P P P1,603,557,396 Short-term investments 0.63% % 51,557,423 51,557,423 Notes receivable 8% - 8.5% 8,550,541 3,085,009 6,648,617 18,284,167 Long-term commercial papers 1.125% - 9% 1,123,060,872 67,530,000 1,190,590,872 Security fund 4.76% 832, ,721 Financial debt assets at FVPL 1.25% % 198,341, ,341,334 AFS debt financial assets 5.13% % 387,596, ,596,335 1,822,511,644 2,607,704,314 Total interest-bearing financial assets P3,175,155,288 P400,681,344 2,095,031,595 P5,670,868, Interest Rate Within one year 1-3 years More than 3 years Total Cash and cash equivalents 0.25% % P3,027,164,689 P P P3,027,164,689 Short-term investments 0.63% % 97,920,122 97,920,122 Notes receivable 8% - 8.5% 15,787,779 1,230,615 17,018,394 Long-term commercial papers 1.125% - 9% 1,066,468,505 8,000,000 45,000,000 1,119,468,505 Security fund 4.76% 342, ,294 Financial debt assets at FVPL 1.25% % 91,930,298 91,930,298 AFS debt financial assets 5.13% % 287,015, ,231,218 1,691,697,992 2,489,944,298 Total interest-bearing financial assets P4,494,698,477 P519,231,218 P1,829,858,905 P6,843,788,600 The following table demonstrates the sensitivity to a reasonably possible change in interest rates on the AFS debt securities, with all other variables held constant, of the Group s equity: Impact on equity Increase (decrease) Currency Change in basis points Philippine Peso P63,046,181 P66,470,671 U.S. Dollar ,152 2,969,561 Philippine Peso (P53,899,696) (P54,611,218) U.S. Dollar (51,391,249) (41,434,939) c) Equity Price Risk The Group s price risk exposure at year-end relates to financial assets and liabilities whose values will fluctuate as a result of changes in market prices, principally, AFS equity financial assets. Such financial assets are subject to price risk due to changes in market values of instruments arising either from factors specific to individual instruments or their issuers or factors affecting all instruments traded in the market. The Group s market risk policy requires it to manage such risks by setting and monitoring objectives and constraints on investments; diversification plan; limits on investment in each country, sector and market; and careful and planned use of derivative instruments. The price risk on investments securities is also actively managed through the use of derivative financial instruments to mitigate the risk of adverse market movements. The following table shows the equity impact of reasonably possible change of Philippine Stock Exchange index (PSEi), Morgan Stanley Capital International (MSCI) Euro, Dow Jones Euro Stoxx 50 (SX5E Index) and Hang Seng index (HIS Index): Impact on equity Increase (decrease) Change in equity prices PSEi SX5E Index DJ Stoxx HIS Index (11%-15%) P461,782,386 P P27,794,184 P -(11%-15%) (461,782,386) (27,794,184) (11%-15%) P514,595,947 P P20,276,023 P -(11%-15%) (514,595,947) (20,276,023)

66 consolidated annual report 27. Financial Assets and Liabilities The table below presents a comparison by category of carrying amounts and estimated fair values of all the Group s financial instruments. Fair Value Carrying Value Fair Value Carrying Value AFS financial assets: Listed equity securities: Common shares P4,818,765,147 P4,818,765,147 P5,557,937,941 P5,557,937,941 Preferred shares 40,792,440 40,792,440 42,122,933 42,122,933 Unlisted equity securities: Common shares 269,945, ,945, ,855, ,855,923 Preferred shares 17,540 17,540 17,540 17,540 Private debt securities 2,284,181,639 2,284,181,639 1,853,667,523 1,853,667,523 Government debt securities: Local currency 458,251, ,251, ,272, ,272,427 Foreign currency 11,405,527 11,405,527 11,004,349 11,004,349 Funds 153,827, ,827, ,267, ,267,335 Financial assets at FVPL: Debt securities: Private debt securities 198,341, ,341,334 91,930,298 91,930,298 Equity securities: Listed equity securities 101,384, ,384, ,892, ,892,788 Cash and cash equivalents 1,604,194,959 1,604,194,959 3,027,861,479 3,027,861,479 Short-term cash investments 51,557,423 51,557,423 97,920,122 97,920,122 Insurance receivables: Due from policyholders, agents and brokers 4,454,472,949 4,454,472,949 3,929,754,286 3,929,754,286 Due from ceding companies: Facultative 105,641, ,641, ,696, ,696,332 Treaty 789,405, ,405, ,689, ,689,338 Premium and loss reserve 62,180,826 62,180,826 50,470,297 46,488,050 Reinsurance recoverable on paid losses: Facultative 279,389, ,389, ,181, ,181,972 Treaty 43,694,795 43,694,795 43,694,796 43,694,796 Funds held by ceding companies 380,698, ,698, ,596, ,596,495 Accrued income: AFS financial assets 29,903,494 29,903,494 29,984,872 29,984,872 Long-term commercial papers 10,775,225 10,775,225 10,960,026 10,960,026 Notes receivable Security fund 145, , , ,873 Funds held by ceding companies 354, ,351 62,494 62,494 Cash and cash equivalents 338, , , ,905 Financial assets at FVPL Bonds Accrued dividend income 6,027,744 6,027,744 3,745,751 3,745,751 Accrued rent income 2,640,821 2,640,821 2,760,759 2,760,759 Accrued management income Loans and receivables: Long-term commercial papers 1,190,590,872 1,190,590,872 1,119,468,505 1,119,468,505 Creditable withholding tax 261,234, ,234, ,152, ,152,400 Account receivable 58,867,244 58,867, ,677, ,677,158 Notes receivable 18,284,167 18,284,167 17,018,394 17,018,394 Cash advances 8,081,250 8,081,250 Claims receivable 6,408,374 6,408,374 6,408,374 6,408,374 Dividend Receivable 401, , , ,700 Security fund 832, , , ,294 Total financial assets 17,694,952,274 17,694,952,274 P17,961,534,930 P17,957,552,682 Other financial liabilities Insurance payables Due to reinsurers and ceding companies P1,478,286,686 P1,478,286,686 P2,322,403,815 P2,322,403,815 Funds held for reinsurers 414,502, ,502, ,939, ,939,439 Accounts payable, accrued expenses and other liabilities: Accounts payable 603,650, ,650, ,732, ,732,625 Commissions payable 582,287, ,287, ,121, ,121,241 Accrued expenses 158,587, ,587, ,792, ,792,810 Surety deposits 67,702,501 67,702,501 96,748,100 96,748,100 Others 54,536,137 54,536,137 42,883,254 42,883,254 Total financial liabilities P3,359,553,082 P3,359,553,082 P4,434,621,284 P4,434,621,284

67 integrity. that s our policy. 67 Fair values of financial assets are estimated as follows: Cash and cash equivalents, short-term investments - the fair value approximates the carrying amounts at initial recognition due to their short term nature. Debt securities - the fair values are based on quoted market prices. Quoted equity securities - the fair values are generally based on quoted market prices. Unquoted equity securities - these are carried at cost less allowance for impairment losses because fair value cannot be measured reliably due to lack of reliable estimates of future cash flows and discount rates necessary to calculate the fair value. There is no active market for the equity securities. The Group intends to dispose the securities through selling to a willing buyer in arms length transactions. Insurance receivables, accrued income, short-term loans and receivables (including notes receivable, long-term investments and security fund), insurance payables, accounts payable and accrued expenses - the fair values approximate the carrying amounts due to the short-term nature of the transactions. Long-term commercial papers - fair values are based on present value of future cash flows discounted using risk-free rates that ranged from 2.43% to 3.08% and 1.08% to 1.29% in 2014 and 2013, respectively. Fair Value Hierarchy The following table provides the fair value measurement hierarchy of the Group s assets and liabilities: December 31, 2016 Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Total Assets measured at fair value: AFS financial assets Listed equity securities: Common shares P4,818,765,147 P P P4,818,765,147 Preferred shares 40,792,440 40,792,440 Private debt securities 2,284,181,639 2,284,181,639 Government debt securities: Local currency 458,251, ,251,379 Foreign currency 11,405,527 11,405,527 Funds 153,827, ,827,203 Financial assets at FVPL: Debt securities: Private debt securities 198,341, ,341,334 Equity securities: Listed equity securities 101,384, ,384,499 P8,066,949,168 P P P8,066,949,168 Assets for which fair values are disclosed: Loans and receivables Long-term commercial papers 1,190,590,872 1,190,590,872 Notes Receivables 18,284,167 18,284,167 1,208,875,039 1,208,875,039 P8,066,949,168 P1,208,875,039 P P9,275,824,207 December 31, 2015 Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Total Assets measured at fair value: AFS financial assets Listed equity securities: Common shares P5,557,937,941 P P P5,557,937,941 Preferred shares 42,122,933 42,122,933 Private debt securities 1,853,667,523 1,853,667,523 Government debt securities: Local currency 625,272, ,272,427 Foreign currency 11,004,349 11,004,349 Funds 220,267, ,267,335 (Forward)

68 consolidated annual report Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Total Financial assets at FVPL: Debt securities: Private debt securities 91,930,298 91,930,298 Equity securities: Listed equity securities 185,892, ,892,788 P8,588,095,594 P P P8,588,095,594 Assets for which fair values are disclosed: Loans and receivables Long-term commercial papers P P1,119,468,505 P P1,119,468,505 Notes Receivables 17,018,394 17,018,394 1,136,486,899 1,136,486,899 P8,588,095,594 P1,136,486,899 P P9,724,582,493 The Group uses the following hierarchy for determining and disclosing the fair values of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques which uses inputs which have a significant effect on the recorded fair value that are not based on observable market data During the reporting period ended December 31, 2016 and 2015, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. 28. Related Party Transactions Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Outstanding balances as of year-end are unsecured and to be settled in cash. There have been no guarantees provided or received for any related party receivables or payables. In 2015 and 2014, the Group has not recorded any impairment of receivables relating to amounts owed by related parties. This assessment is undertaken each financial year by examining the financial position of the related party and the market in which the related party operates. Significant transactions with related parties include: Category Outstanding Amount / Receivable Amount / Volume (Payable) Volume Outstanding Receivable (Payable) Terms Conditions Other related parties Y Realty Corporation Rent expense P17,468,122 P16,460,917 P16,454,632 P15,617,530 RCBC Bankard Shared expenses 7,922,200 7,922,200 7,373,215 7,373,215 Non-interest bearing; on demand Non-interest bearing; on demand Unsecured; no impairment Unsecured; no impairment HI Investment in AFS Equity securities 32,966,451 99,292, ,665,243 Dividend income 181, ,350 Unsecured; no impairment Unsecured; no impairment (Forward)

69 integrity. that s our policy. 69 Category Outstanding Amount / Receivable Amount / Volume (Payable) Volume Outstanding Receivable (Payable) Terms Conditions RCBC Cash in bank 923,336, ,656,643 1,166,819,512 1,206,729,124 Short-term deposits Investment in AFS Long-term commercial papers Interest and dividend income 123,496, ,582,421 51,793,899 51,805, ,411, ,389, ,000, ,000,000 Cash in bank 25,069,765 23,183,206 3,494,445 83,394 Short-term deposits 2,011 2,011 6,943 6,943 Interest rate at 0.25% to 4.50% p.a. 2 to 35-day term, Interest at 0.50% % p.a. Maturing in 2019 and 2027; Interest rate at 5.25% to 7.00% Interest at 0.25% % p.a. 2 to 35-day term, Interest at 0.50% % p.a. Stocks 32,721,363 27,267,803 22,226,603 Private Debt Securities Long-term Commercial papers 15,993,015 6,991,253 25,999,878 6,640,068 7,050, ,056 6,406,250 6,406,250 Unsecured; no impairment Unsecured; no impairment Unsecured; no impairment Unsecured; no impairment Unsecured; no impairment Unsecured; impaired The outstanding receivables and payables are to be settled in cash. MEI, RCBC, HI, FLMC and ipeople are subsidiaries of PMMIC, the holding company of the flagship institutions of the Yuchengco Group of Companies. Lex Services, Inc., Y Realty, Inc. and Go! Travel Insurance Agency are related to the Yuchengco Group of Companies. Key management personnel of the Group include senior management. The summary of compensation of key management personnel is as follows: Short-term employee benefits P7.05 million P15.41 million Long-term employee benefits million million P90.84 million P78.04 million 29. Capital Management Governance Framework The primary objective of the Group s risk and financial management framework is to protect the Group from events that hinder the sustainable achievement of the Group s performance objectives, including failure to exploit opportunities. The Group recognizes the importance of having efficient and effective risk management systems in place. Regulatory Framework Regulators are interested in protecting the rights of the policyholders and maintain close vigil to ensure that the Group is satisfactorily managing affairs for their benefit. At the same time, the regulators are also interested in ensuring that the Group maintains appropriate solvency position to meet liabilities arising from claims and that the risk levels are at acceptable levels. The operations of the Group are subject to the regulatory requirements of the IC. Such regulations not only prescribe approval and monitoring of activities but also impose certain restrictive provisions (e.g., margin of solvency to minimize the risk of default and insolvency on the part of the insurance companies to meet the unforeseen liabilities as these arise, fixed capitalization requirements, risk-based capital requirements).

70 consolidated annual report As mandated by the IC, most of the additional capital infusions are invested in government securities. Capital Management Framework The Group has established the following capital management objectives, policies and approach to managing the risks that affect its capital position. The capital management objectives are: a) to maintain the required level of stability of the Group thereby providing a degree of security to policyholders; b) to allocate capital efficiently and support the development of business by ensuring that returns on capital employed meet the requirements of its capital providers and of its shareholders; c) to retain financial flexibility by maintaining strong liquidity and access to a range of capital markets; d) to align the profile of assets and liabilities taking account of risks inherent in the business; e) to maintain financial strength to support new business growth and to satisfy the requirements of the policyholders, regulators and stakeholders; and f) to maintain strong credit ratings and healthy capital ratios in order to support the Group s business objectives and maximize shareholders value. The operations of the Group are also subject to regulatory requirements within the jurisdictions where it operates. Such regulations not only prescribe approval and monitoring of activities, but also impose certain restrictive provisions (e.g. capital adequacy) to minimize the risk of default and insolvency on the part of the insurance companies to meet unforeseen liabilities as these arise. The Group has met all of these requirements throughout the financial year. The Group s capital management policy for its insurance and non-insurance business is to hold sufficient capital to cover the statutory requirements based on the IC directives, including any additional amounts required by the regulator. The Group seeks to optimize the structure and sources of capital to ensure that it consistently maximizes returns to the shareholders and policyholders. The Group s approach to managing capital involves managing assets, liabilities and risks in a coordinated way, assessing shortfalls between reported and required capital levels (by each regulated entity) on a regular basis and taking appropriate actions to influence the capital position of the Group in the light of changes in economic conditions and risk characteristics. An important aspect of the Group s overall capital management process is the setting of target risk adjusted rates of return which are aligned to performance objectives and ensure that the Group is focused on the creation of value for shareholders. Fixed Capitalization Requirements On August 15, 2013, the President of the Philippines approved Republic Act No to be known as the New Insurance Code which provides the new capitalization requirements for all existing insurance companies based on net worth on a staggered basis starting June 30, 2013 up to December 31, The following presents the amount of required net worth and the schedule of compliance per New Insurance Code: Networth Compliance Date P250,000,000 June 30, ,000,000 December 31, ,000,000 December 31, ,300,000,000 December 31, 2022 On January 13, 2015, the IC issued the Circular Letter (CL) No A which provides for the clarification of minimum capital requirements under Sections 194, 197, 200 and 289 of the New Insurance Code. The said circular supersedes the Department Order Nos and and CL Nos and Unimpaired capital requirement Insurance Memorandum Circular (IMC) provided that for purposes of determining compliance with the law, rules and regulations requiring that the paid-up capital should remain intact and unimpaired at all times, the statement of financial position should show that the net worth or equity is at least equal to the actual paid-up capital. New regulatory framework Pursuant to the powers vested in the Insurance Commissioner by Sections 189, 200, 437 and 438 of Republic Act (RA) No , otherwise known as the Insurance Code, as amended, the following regulatory requirements and actions for the new regulatory framework are hereby adopted and promulgated: Circular Letter No , Financial Reporting Framework under Section 189 of the Amended Insurance Code (Republic Act No ), prescribes the new financial reporting framework (FRF) that will be used for the statutory quarterly and annual reporting. This also includes rules and regulations concerning Titles III and IV of Chapter III of the Amended Insurance Code and all other accounts not discussed in the Amended Insurance Code but are used in accounting of insurance and reinsurance companies. Circular Letter , Valuation Standards for Non-life Insurance Policy Reserves, prescribes the new valuation methodology

71 integrity. that s our policy. 71 for the non-life insurance companies. This circular letter superseded Circular Letter No Non-life insurance companies will be changing the basis of valuation of their non-life insurance reserves. In addition to the unearned premium reserves, the concept of unexpired risk reserves is also included in the calculation of the premium liability. The incurred but not reported (IBNR) reserves will now be computed using actuarial projection techniques such as but not limited to the chain ladder method, expected loss ratio method and Bornheutter-Ferguson method. A margin for adverse deviation is estimated based on standard projection techniques or combination of such techniques, such as but not limited to the Mack Method, Bootstrapping Method, Stochastic Chain Ladder Method to bring the actuarial estimate of the Policy Liabilities at the 75th percentile level of sufficiency. Discount rates to be used shall be current risk-free rates. The rates shall exactly match the duration of the policy and the currency of the cash flows and shall be prescribed by the Insurance Commission. Circular Letter No , Amended Risk-Based Capital (RBC2) Framework, prescribes that all insurance companies must satisfy the minimum statutory RBC ratio of 100% and not fail the Trend Test as stated under Section 3 of this Circular. The RBC ratio of an insurance company shall be equal to the Total Available Capital (TAC) divided by the RBC requirement. Implementation requirements and transition accounting Circular Letter No , Implementation Requirements for Financial Reporting, Valuation Standards for Insurance Policy Reserves and Amended Risk-based Capital Framework. The new regulatory requirements under circular letters , and as discussed in the three (3) preceding circular letters shall take effect beginning January 1, Circular Letter No , Regulatory Requirements and Actions for the New Regulatory Framework. The cumulative prior year impact of the changes arising from the adoption of the New Financial Reporting Framework, including the revaluation of the reserves for Claims and Premiums Liabilities computed based on the new valuation standards for non-life insurance policy reserves as provided under CL No , shall be recognized in Retained Earnings - Transition Adjustments account. All changes in valuation shall be measured net of any tax effect. 30. Contingencies The Group operates in the insurance industry and has various contingent liabilities arising in the ordinary conduct of business, which are either pending decision by the courts or being contested, the outcome of which are not presently determinable. In the opinion of management and its legal counsel, the eventual liability under these lawsuits or claims, if any, will not have a material or adverse effect on the Group s consolidated financial position and results of operations.

72 consolidated annual report MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES Statement of Management Responsibility for Financial Statement The management of Malayan Insurance Co., Inc. and Subsidiaries is responsible for the preparation and fair presentation of the consolidated financial statements for the years ended December 31, 2016 and 2015, including the additional components attached therein, in accordance with Philippine Financial Reporting Standards. This responsibility includes designing and implementing internal controls relevant to the preparation and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. The Board of Directors reviews and approved the consolidated financial statements and submits the same to the stockholders. SyCip, Gorres, Velayo & Co., the independent auditors, appointed by the stockholders has examined the consolidated financial statements of the company in accordance with Philippine Standard on Auditing, and in its report to the stockholders, has expressed its opinion on the fairness of presentation upon completion of such examination. Helen Y. Dee Chairperson yvonne s. yuchengco President frederick p. pineda Chief Financial Officer alegria r. castro Controller

73 integrity. that s our policy. 73 MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES Independent Auditor s Report The Board of Directors and Stockholders Malayan Insurance Co., Inc. Opinion We have audited the consolidated financial statements of Malayan Insurance Co., Inc. and Subsidiaries (the Group), which comprise the consolidated statements of financial position as at December 31, 2016 and 2015, and the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2016 and 2015, and its consolidated financial performance and its consolidated 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 Consolidated Financial Statements section of our report. We are independent of the Group 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 consolidated 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. Other Information Management is responsible for the other information. The other information comprises the information included in the Annual Report for the year ended December 31, 2016, which is expected to be made available to us after that date. Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audits of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

74 consolidated annual report Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with PFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group 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 Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group s financial reporting process. Auditor s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated 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 consolidated 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 consolidated 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 Group 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 Group 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 consolidated 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 Group to cease to continue as a going concern.

75 integrity. that s our policy. 75 Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion. 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. SYCIP GORRES VELAYO & CO. Michael C. Sabado Partner CPA Certificate No SEC Accreditation No AR-3 (Group A), March 16, 2017, valid until March 15, 2020 Tax Identification No BIR Accreditation No , February 27, 2015, valid until February 26, 2018 PTR No , January 3, 2017, Makati City March 29, 2017

76 consolidated annual report MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES Consolidated Statements of Financial Position December 31 ASSETS Cash and cash equivalents (Notes 4, 26, 27 and 28) P1,300,385,712 P2,714,551,186 Short-term investments (Notes 5, 26, 27 and 28) 6,689,747 55,416,330 Insurance receivables - net (Notes 6, 26, 27 and 28) 5,830,006,086 4,390,112,108 Financial assets (Notes 7, 26, 27 and 28) Available-for-sale financial assets 6,953,509,727 7,406,887,661 Loans and receivables net 1,484,858,051 1,347,323,803 Accrued income (Notes 8, 26, 27 and 28) 50,184,675 48,150,680 Deferred acquisition costs (Note 9) 354,469, ,468,237 Reinsurance assets (Notes 10, 14, and 26) 7,249,270,342 8,176,119,199 Investment properties - net (Note 11) 27,032,204 27,099,092 Property and equipment - net (Note 12) 260,374, ,205,754 Deferred tax assets - net (Note 24) 138,136, ,218,316 Other assets - net (Notes 13 and 26) 374,077, ,840,041 P24,028,994,528 P25,341,392,407 LIABILITIES AND EQUITY Liabilities Insurance contract liabilities (Notes 14 and 26) P11,347,592,521 P11,722,615,022 Insurance payables (Notes 15, 26 and 27) 1,923,206,659 2,852,283,413 Accounts payable, accrued expenses and other liabilities 2,056,248,672 2,227,785,715 (Notes 16, 26 and 27) Income tax payable 2,228, ,311 Deferred reinsurance commissions (Note 9) 167,165, ,971,422 Pension liability - net (Note 17) 255,176, ,595,231 15,751,617,722 17,183,526,114 Equity Equity attributable to equity holders of the Parent Company (Note 26) Capital stock - =100 par value Preferred shares Authorized and unissued - 5,000 shares Common shares Authorized - 10,000,000 shares Issued and outstanding - 8,452, ,292, ,292,500 Capital in excess of par value 780,882, ,882,008 Contributed surplus 50,000 50,000 Contingency surplus Revaluation reserve on available-for-sale financial assets 4,485,618 4,485,618 2,059,982,236 2,643,034,341 (Note 7) Other revaluation reserve (Note 18) 23,466,647 23,466,647 Remeasurement loss on net pension obligation (153,394,525) (149,845,175) Retained earnings (Note 18) 4,439,839,986 3,739,635,753 8,000,604,470 7,887,001,692 Non-controlling interests (Note 2) 276,772, ,864,601 8,277,376,806 8,157,866,293 P24,028,994,528 P25,341,392,407 See accompanying Notes to Consolidated Financial Statements.

77 integrity. that s our policy. 77 MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES Consolidated Statements of Income Years Ended December 31 INCOME Gross premiums earned P8,530,599,336 P8,851,305,522 Reinsurers share of gross premiums earned (4,367,162,743) (5,598,289,507) Net premiums earned (Notes 14 and 19) 4,163,436,593 3,253,016,015 Investment and other income (Note 20) 633,216, ,964,265 Commission income (Note 9) 411,465, ,935,110 Other income 1,044,682,216 1,106,899,375 Total income 5,208,118,809 4,359,915,390 BENEFITS, CLAIMS AND EXPENSES Gross insurance contract benefits and claims paid (Notes 14 and 21) 3,014,001,101 3,482,859,099 Reinsurers share of gross insurance contract benefits and claims paid (Notes 14 and 21) (1,377,676,089) (2,051,782,883) Gross change in insurance contract liabilities (Note 21) (1,155,316,978) (2,222,830,613) Reinsurers share of gross change in insurance contract liabilities (Note 21) 1,403,898,782 2,302,511,889 Net insurance contract benefits and claims 1,884,906,816 1,510,757,492 Commission expense (Note 9) 1,011,760,858 1,256,262,688 Other underwriting expenses 276,083, ,135,424 General and administrative expenses (Note 22) 1,209,861,397 1,060,021,751 Investment and other expense (Note 20) 40,579,009 85,068,989 Interest expense on reinsurance funds held 8,238,472 5,907,637 Other expenses 2,546,523,359 2,602,396,489 Total benefits, claims and other expenses 4,431,430,175 4,113,153,981 INCOME BEFORE INCOME TAX 776,688, ,761,409 PROVISION FOR INCOME TAX (Note 24) 52,736,964 34,667,455 NET INCOME (Note 25) P723,951,670 P212,093,954 Attributable to: Equity holders of the Parent Company P700,204,233 P205,337,324 Non-controlling interests 23,747,437 6,756,630 P723,951,670 P212,093,954 See accompanying Notes to Consolidated Financial Statements.

78 consolidated annual report MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income Years Ended December 31 NET INCOME P723,951,799 P212,093,954 OTHER COMPREHENSIVE INCOME (LOSS) Item that will be reclassified to profit or loss in subsequent periods: Net change on fair values of available-for-sale financial assets - net of tax effect (Note 7) (601,168,460) (1,594,598,540) Item that will not be reclassified to profit or loss in subsequent periods: Remeasurement loss on pension obligation - net of tax effect (3,272,695) (19,010,100) TOTAL COMPREHENSIVE INCOME (LOSS) P119,510,644 (P1,401,514,686) Attributable to: Equity holders of the Parent Company P113,523,224 (P1,344,560,654) Non-controlling interests 5,987,420 (56,954,032) P119,510,644 (P1,401,514,686) See accompanying Notes to Consolidated Financial Statements.

79 integrity. that s our policy. 79 MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES Consolidated Statements of Changes in Equity Capital Stock Capital in Excess of Par Value Contributed Surplus Contingency Surplus Revaluation Reserve on Availablefor-Sale Financial Assets (Note 7) Other Revaluation Reserve (Note 18) Remeasurement Loss on Pension Obligation Retained Earnings (Note 18) Total Non-controlling Interests Total At January 1, 2016 P845,292,500 P780,882,008 P50,000 P4,485,618 P2,643,034,341 P23,466,647 (P149,845,175) P3,739,635,753 P7,887,001,692 P270,864,601 P8,157,866,293 Net income 700,204, ,204,233 23,747, ,951,670 Other comprehensive loss (583,052,105) (3,549,350) (586,601,455) (17,839,702) (604,441,157) Total comprehensive income (loss) (583,052,105) (3,549,350) 700,204, ,602,778 5,907, ,510,513 At December 31, 2016 P845,292,500 P780,882,008 P50,000 P4,485,618 P2,059,982,236 P23,466,647 (P153,394,525) P4,439,839,986 P8,000,604,470 P276,772,336 P8,277,376,806 At January 1, 2015 P845,292,500 P780,882,008 P50,000 P4,485,618 P4,173,571,879 P23,466,647 (P130,484,735) P3,534,298,429 P9,231,562,346 P327,818,633 P9,559,380,979 Net income 205,337, ,337,324 6,756, ,093,954 Other comprehensive loss (1,530,537,538) (19,360,440) (1,549,897,978) (63,710,662) (1,613,608,640) Total comprehensive income (loss) (1,530,537,538) (19,360,440) 205,337,324 (1,344,560,654) (56,954,032) (1,401,514,686) At December 31, 2015 P845,292,500 P780,882,008 P50,000 P4,485,618 P2,643,034,341 P23,466,647 (P149,845,175) P3,739,635,753 P7,887,001,692 P270,864,601 P8,157,866,293 See accompanying Notes to Consolidated Financial Statements.

80 consolidated annual report MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended December 31 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P776,688,634 P246,761,409 Adjustments for: Dividend income (Note 20) (172,141,715) (211,476,522) Interest income (Note 20) (221,790,259) (201,832,376) Unrealized foreign currency exchange loss - net (137,363,645) (154,538,536) Interest expense on reinsurance funds held 8,238,343 5,907,637 Impairment loss on AFS financial assets (Notes 7 and 20) 23,358,227 71,746,444 Depreciation and amortization (Note 22) 74,035,362 72,406,685 Gain on sale of (Note 20): Available-for-sale financial assets (64,764,985) (62,179,168) Real estate properties for sale (5,270,196) (434,556) Property and equipment (926,530) (191,308) Operating income (loss) before working capital changes 280,063,236 (233,830,291) Decrease (increase) in: Loans and receivables (15,323,454) 223,240,740 Insurance receivables (1,440,252,718) 996,814,158 Accrued rent income (5,070,711) 5,820,079 Deferred acquisition costs (40,001,221) 35,910,848 Reinsurance assets 926,848,857 2,951,057,494 Other assets 38,730, ,872 Increase (decrease) in: Insurance contract liabilities (375,022,501) (2,469,400,139) Insurance payables (929,076,754) (11,639,822) Deferred reinsurance commissions 22,193,916 (39,048,366) Pension liability 16,031,899 21,516,347 Accounts payable, accrued expenses and other liabilities (171,537,043) 188,892,756 Net cash from (used in) operations (1,692,415,597) 1,669,895,676 Income tax paid (53,032,617) (38,948,264) Interest paid on reinsurance funds held (8,238,343) (5,907,637) Net cash provided by (used in) operating activities (1,753,686,558) 1,625,039,775 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale or maturities of: Available-for-sale financial assets (Note 7) 1,292,042,945 1,286,015,053 Long-term commercial papers (Note 7) 121,130, ,076,464 Short-term investments 55,416,330 29,884,215 Real estate properties for sale 15,302,191 8,371,878 Property and equipment (Note 12) 1,926, ,313 (Forward)

81 integrity. that s our policy. 81 Years Ended December 31 Dividends received P169,859,722 P208,752,071 Interest received 232,299, ,302,904 Acquisitions of: Available-for-sale financial assets (Note 7) (1,295,090,955) (1,267,537,350) Long-term commercial papers (Note 7) (243,341,420) (106,404,204) Property and equipment (Note 12) (32,137,179) (70,610,637) Short-term investments (6,689,747) (55,416,330) Net cash provided by investing activities 310,718, ,625,377 CASH FLOWS FROM FINANCING ACTIVITY Dividends paid (Note 18) (9,060,000) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 28,802,796 25,222,960 NET INCREASE IN (DECREASE) CASH AND CASH EQUIVALENTS (1,414,165,474) 2,051,828,112 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (Note 4) 2,714,551, ,723,074 CASH AND CASH EQUIVALENTS AT END OF YEAR P1,300,385,712 P2,714,551,186 See accompanying Notes to Consolidated Financial Statements.

82 consolidated annual report MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. Corporate Information Malayan Insurance Co., Inc. (the Parent Company) is a domestic corporation, which was registered with the Philippine Securities and Exchange Commission (SEC) on February 16, The Parent Company is engaged in the nonlife insurance business dealing with all kinds of insurance such as fire, marine, bond, motor car, personal accident, miscellaneous casualty, and engineering, except life insurance. On June 5, 1998, the SEC approved the Amended Articles of Incorporation extending the Parent Company s existence to another 50 years from February 16, The consolidated financial statements comprise the financial statements of the Parent Company and the following wholly and majority-owned subsidiaries: Place of Percentage of Ownership Incorporation Bankers Assurance Corporation (BAC) Philippines The First Nationwide Assurance Corporation (FNAC) Philippines BAC was incorporated in the Philippines to engage in nonlife insurance business dealing with all kinds of insurance such as fire, marine, motorcar, personal accident, miscellaneous casualty, engineering and bonds, except life insurance. BAC was incorporated on September 6, On August 12, 2004, the Board of Directors (BOD) and stockholders approved the amendment of the Articles of Incorporation extending the corporate term for another 50 years from September 6, 2005, which was approved by the Philippine Securities and Exchange Commission (SEC) on October 13, FNAC is % owned by the Parent Company (MICO) and % owned by MICO Equities, Inc. (MEI). FNAC was incorporated in the Philippines to engage in nonlife insurance business dealing with all kinds of insurance such as fire, marine, motor car, personal accident, miscellaneous casualty and bonds, except life insurance, and to act as agent of other insurance or surety companies in any of the branches of insurance, including life insurance. FNAC was incorporated and registered with the Philippine Securities and Exchange Commission (SEC) on June 11, On July 31, 2012, SEC approved the Amended Articles of Incorporation of FNAC whereby the period during which FNAC is to exist is fifty (50) years from and after June 11, The Parent Company s parent is MICO Equities, Inc. (MEI) with registered office address at 4th Floor, Yuchengco Tower I, 500 Quintin Paredes Street, Binondo, Manila. MEI s ultimate parent is Pan Malayan Management and Investment Corporation (PMMIC) with registered office address at 48th Floor, Yuchengco Tower, RCBC Plaza, 6819 Ayala Avenue, Makati City. The accompanying consolidated financial statements of Malayan Insurance Co., Inc. and Subsidiaries (the Group) were approved and authorized for issue by the Board of Directors (BOD) on March 29, Summary of Significant Accounting Policies Basis of Preparation The accompanying consolidated financial statements of the Group have been prepared on a historical cost basis, except for available-for-sale (AFS) financial assets which have been measured at fair value. The consolidated financial statements are measured in Philippine Peso (=), which is also the Group s functional and presentation currency. All values are rounded off to the nearest Philippine Peso values, unless otherwise indicated. Statement of Compliance The accompanying consolidated financial statements of the Group have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).

83 integrity. that s our policy. 83 Basis of Consolidation The consolidated financial statements comprise the financial statements of the Group as at and for the years ended December 31, 2016 and Control is achieved when the Group is exposed, or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); exposure, or rights, to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect its returns. When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: the contractual arrangement with the other vote holders of the investee; rights arising from other contractual arrangements; and the Group s voting rights and potential voting rights. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting policies. All intra-group balances, transactions, unrealized gains and losses resulting from intra-group transactions and dividends are eliminated in full. Non-controlling interests (NCIs) pertain to the equity in a subsidiary not attributable, directly or indirectly to the Parent Company. Any equity instruments issued by a subsidiary that are not owned by the Parent Company are NCIs. NCIs represent the portion of profit or loss and net assets in subsidiaries not wholly-owned and are presented separately in the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of financial position, from the Parent Company s equity. As of December 31, 2016 and 2015, the summarized financial information attributable to non-controlling interests for significant subsidiaries follows: Total assets P431,240,230 P524,940,809 Total liabilities 154,537, ,076,208 Net assets P276,772,336 P270,864,601 Total income P89,498,935 P72,947,214 Total benefits, claims and expenses 65,274,487 65,679,846 Income before income tax 24,224,448 7,267,368 Provision for income tax 397, ,738 Net income P23,827,122 P6,756,630 If the Parent Company loses control over a subsidiary it: Derecognizes the assets (including goodwill) and liabilities of the subsidiary Derecognizes the carrying amount of any non-controlling interest Derecognizes the cumulative translation differences recorded in equity Recognizes the fair value of the consideration received Recognizes the fair value of any investment retained Recognizes any surplus or deficit in profit or loss Reclassifies the parent s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate. Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year, except that the Group has adopted the following new accounting pronouncements starting January 1, Adoption of these pronouncements did not have any significant impact on the Group s financial position or performance unless otherwise indicated. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. Effective in 2016 Amendments to PFRS 10, PFRS 12 and Philippine Accounting Standards (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

84 consolidated annual report 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 Standards Issued but not yet Effective There are new PFRS, amendments, annual improvements and interpretations to existing standards that are effective for periods subsequent to 2016 and these will be adopted on their effectivity dates in accordance with the transition provisions. Except as otherwise stated, these amendments and improvements to PFRS and new standard are not expected to have any significant impact on the Group s financial statements. 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 Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for Unrealized Losses Circular Letter , Valuation Standards for Non-life Insurance Policy Reserves The circular prescribes the new valuation methodology for the non-life insurance companies. Non-life insurance companies will be changing the basis of valuation of their non-life insurance reserves. In addition to the unearned premium reserves, the concept of unexpired risk reserves is also included in the calculation of the premium liability. The incurred but not reported (IBNR) reserves will now be computed using actuarial projection techniques such as but not limited to the chain ladder method, expected loss ratio method and Bornheutter-Ferguson method. A margin for adverse deviation is estimated based on standard projection techniques or combination of such techniques, such as but not limited to the Mack Method, Bootstrapping Method, Stochastic Chain Ladder Method to bring the actuarial estimate of the Policy Liabilities at the 75th percentile level of sufficiency. Discount rates to be used shall be current risk-free rates. The rates shall exactly match the duration of the policy and the currency of the cash flows and shall be prescribed by the Insurance Commission. The Group will adopt the new valuation standard on the required effective date. Effective beginning on or after January 1, 2018 Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-based Payment Transactions 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 PFRS 15, Revenue from Contracts with Customers 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 application of the forthcoming insurance contracts standard on 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 Group is assessing which approach it will use and the potential impact of the chosen approach 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 Group s financial assets and impairment methodology for financial assets, but will have no impact on the classification and measurement of the Group s financial liabilities. The adoption will also have an effect on the Group s application of hedge accounting and on the amount of its credit losses. The Group is currently assessing the impact of adopting this standard.

85 integrity. that s our policy. 85 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 Group 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 Product Classification Insurance contracts are those contracts where the Group (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 Group 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. 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 has expired. 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 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 estimates and judgments, refer to Note 3. Fair Value Measurement The Group measures financial instrument at fair value at each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. 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 placements and are subject to an insignificant risk of changes in value.

86 consolidated annual report Insurance Receivables Premium receivables are recognized on policy inception dates and measured on initial recognition at the fair value of the consideration receivable for the period of coverage. 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 statement of income. Financial Instruments Date of recognition The Group recognizes a financial asset or a financial liability in the statement of financial position when it 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 All financial assets and liabilities are recognized initially at fair value. Except for financial assets and liabilities measured at fair value through profit or loss (FVPL), the initial measurement of financial instruments includes transaction costs. The Group classifies its financial assets in the following categories: Available-for-sale (AFS) financial assets and loans and receivables. The Group classifies its financial liabilities as 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 investments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date. 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. 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, option pricing models, and other relevant valuation models. Day 1 difference Where the transaction price in a non-active market is different from the fair value based on other observable current market transactions on the same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and fair value (a Day 1 difference) in the statement of income unless it qualifies for recognition as some other type of asset or liability. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognized in the statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the Day 1 profit amount. AFS financial assets AFS investments are those which are designated as such or do not qualify to be classified as designated at FVPL, Held-to- Maturity (HTM) 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 investments 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 the statement of income. Interest earned on holding AFS investments are reported as interest income using the effective interest rate. Dividends earned on holding AFS investments are recognized in the profit or loss when the right to receive the payment has been established. The unrealized gains and losses arising from the fair valuation of AFS investments are reported as Revaluation reserve on available-for-sale financial assets in the equity section of the statement of financial position. The losses arising from impairment of such investments are recognized in the statement of income. When the security is disposed of, the cumulative gain or loss previously recognized in equity is recognized as realized gains or losses in the statement of income. Where the Group holds more than one investment in the same security, the cost is determined using the weighted average method. When the fair value of AFS investments 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. Loans and receivables Loans and receivables are 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 or FVPL. This accounting policy relates to the statement of financial position captions: (a) Cash and Cash Equivalents, (b) Short-term investments, (c) Insurance Receivables, (d) Loans and receivables and (e) Accrued Income. After initial measurement, the loans and receivables are subsequently measured at amortized cost using the effective interest method, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on

87 integrity. that s our policy. 87 acquisition and fees that are an integral part of the effective interest rate. The amortization is included in the investment and other income account in the statement of income. The losses arising from impairment of such loans and receivables are recognized in the statement of income. Other financial liabilities Issued financial instruments or their components, which are not designated as at FVPL are classified as other financial liabilities where the substance of the contractual arrangement results in the Group 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. The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument a whole amount separately determined as the fair value of the liability component on the date of issue. After initial measurement, other financial liabilities are subsequently measured at amortized cost using the effective interest 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 effective interest rate. Any effects of restatement of foreign currency-denominated liabilities are recognized in the statement of income. This accounting policy applies primarily to insurance contract liabilities, 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 retirement benefit liability and income tax payable). Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount 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 Group assesses that it has a currently enforceable right to 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 Group and all of the counterparties. Impairment of Financial Assets The Group assesses at each end of the reporting period whether there is objective evidence that a financial asset or a 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 (or events) 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 borrower or a group of borrowers 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 measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial Assets carried at amortized cost For financial assets carried at amortized cost (e.g., loans and receivables, HTM investments), the Group first assesses whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for 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. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows. The present value of the estimated future cash flows is discounted at the financial asset s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of loss is charged against profit or loss. If, in a subsequent period, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. The present value of the estimated future cash flows is discounted at the financial asset s original effective interest rate. Time value is generally not considered when the effect of discounting is not material. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate, adjusted for the original credit risk premium. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of credit risk characteristics such as past-due status and term.

88 consolidated annual report AFS financial assets carried at fair value In case of equity investments, impairment indicators would include a significant or prolonged decline in the fair value of the investments below its 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 financial asset previously recognized in the statement of income is removed from equity and recognized in the statement of income. Impairment losses on equity investments are not reversed through the statement of income. Increases in fair value after impairment are recognized directly in equity. In case of debt instruments, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring the impairment loss and is recorded as part of interest income in the statement of income. If subsequently, the fair value of a debt instrument increased and the increase can be objectively related to an event occurring after the impairment loss was recognized in the statement of income, the impairment loss is reversed through the statement of income. AFS financial assets carried at cost If there is an objective evidence that an impairment loss 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 has been incurred, 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. Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount 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 Group assesses that it has a currently enforceable right to 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 Group and all of the counterparties. Derecognition of Financial Assets and Liabilities Financial asset A financial asset (or where applicable a part of financial asset or a part of a group of financial asset) is derecognized when: a. the right to receive cash flows from the asset have expired; b. the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement or; c. the Group has transferred its right to receive cash flows from the asset and either has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the Group has transferred its right to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Financial liability A financial liability is derecognized when the obligation under the liability has expired, or is discharged or cancelled. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income. Reinsurance The Group cedes insurance risk in the normal course of business. Reinsurance assets represent balances due from reinsurance companies for its share on the unpaid losses incurred by the Group. Recoverable amounts are estimated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contract. Reinsurance recoverable on paid losses are included as part of Insurance receivables. Reinsurance assets are reviewed for impairment at each end of the reporting period or more frequently when an indication of impairment arises during the reporting year. Impairment occurs when objective evidence exists that the Group may not recover outstanding amounts under the terms of the contract and when the impact on the amounts that the Group will receive from the reinsurer can be measured reliably. The impairment loss is recorded in the statement of income. Ceded reinsurance arrangements do not relieve the Group from its obligations to policy holders. The Group also assumes reinsurance risk in the normal course of business for insurance contracts. Premiums and claims on assumed reinsurance are recognized in profit or loss as income and expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business. Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the associated reinsurance contract.

89 integrity. that s our policy. 89 Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance. Reinsurance assets or liabilities are derecognized when the contractual rights are extinguished or expired or when the contract is transferred to another party. When the Group enters into a proportional treaty reinsurance agreement for ceding out its insurance business, the Group initially recognizes a liability at transaction price. Subsequent to initial recognition, the portion of the amount initially recognized as a liability, which is presented as Insurance payables in the liabilities section of the statement of financial position, will be withheld and recognized as Funds held for reinsurers and included as part of the Insurance payables in the liabilities section of the statement of financial position. The amount withheld is generally released after a year. Funds held by ceding companies are accounted for in the same manner. Deferred Acquisition Costs (DAC) Commission and other acquisition costs incurred during the financial period that vary with and are related to securing new insurance contracts and or renewing existing insurance contracts, but which relates to subsequent financial periods, are deferred to the extent that they are recoverable out of future revenue margins. All other acquisition costs are recognized as expense when incurred. Subsequent to initial recognition, these costs are amortized on a straight-line basis using the 24th method over the life of the contract except for the marine cargo where commissions for the last two months of the year are recognized as expense the following year. Amortization is charged against the statement of income. The unamortized acquisition costs are shown as DAC in the assets section of the statement of financial position. An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. The carrying value is written down to the recoverable amount. The impairment loss is charged against the statement of income. DAC is also considered in the liability adequacy test for each reporting period. Property and Equipment Property and equipment, except for land, are stated at cost, net of accumulated depreciation and amortization and any impairment in value. Land is stated at cost less any impairment losses. The initial cost of property and equipment comprises its purchase price, including nonrefundable taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Subsequent costs are included in the asset s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of income during the financial period in which they are incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the properties as follows: Years Building and improvements 40 Building equipment 5 Office furniture, fixtures and equipment 5 Transportation equipment 5 Leasehold improvements are amortized over the term of the lease or estimated useful life of 5 years, whichever is shorter. The estimated useful lives and depreciation and amortization method are reviewed periodically to ensure that the period and method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment. When property and equipment are retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization and accumulated provision for impairment losses, if any, are removed from the accounts. Any gain or loss arising on derecognition of the assets, which is calculated as the difference between the net disposal proceeds and the carrying amount of the asset, is included in the consolidated statement of income in the year the asset is derecognized. Creditable Withholding Taxes (CWTs) Creditable withholding pertains to the indirect tax paid by the Group that is withheld by its counterparty for the payment of its expenses and other purchases. These CWTs are initially recorded at cost as an asset under Other assets account. At each end of the tax reporting deadline, these CWTs may either be offset against future tax income payable or be claimed as a refund from the taxation authorities at the option of the Group. If these CWTs are claimed as a refund, these will be recorded as a receivable under Loans and receivables account. At each end of the reporting period, an assessment for impairment is performed as to the recoverability of these CWTs. Computer Software Costs associated with the acquisition of computer software are capitalized only if the asset can be reliably measured, will generate future economic benefits, and there is an ability to use or sell the asset.

90 consolidated annual report Computer software is carried at cost less accumulated amortization. Computer software cost is amortized over the expected useful life of the asset, but not to exceed five (5) years. All computer software components are amortized over five (5) years. Amortization commences when the asset is available for use or when it is in the location and condition necessary for it to be capable of operating in the manner intended by the Group. Impairment of Nonfinancial Assets The Group assesses at each end of the reporting period whether there is an indication that investment properties, property and equipment and computer software may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset s recoverable amount. An asset s recoverable amount is the higher of an asset s or cash-generating unit s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An assessment is made at each end of the reporting period as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss unless the asset is carried at revalued amount, in which case, the reversal is treated as a revaluation increase. After such reversal the depreciation charge is adjusted in future periods to allocate the asset s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Value-added Tax (VAT) The input value added tax pertains to the 12% indirect tax paid by the Group in the course of the Group s trade or business on local purchase of goods or services. Output VAT pertains to the 12% tax due on the sale of insurance policies and other goods or services by the Group. If at the end of any taxable month, the output VAT exceeds the input VAT, the outstanding balance is included under Accounts payable and accrued expenses account. If the input VAT exceeds the output VAT, the excess shall be carried over to the succeeding months and included under Other assets account. Real Estate Properties for Sale Real estate properties for sale are measured at the lower of cost and net realizable value (NRV). NRV is the estimated selling price in the ordinary course of business, based on market prices at the reporting date, less estimated costs of completion and the estimated costs to sell. The cost of inventory recognized in profit or loss on disposal is determined with reference to the specific costs incurred on the property. Insurance Contract Liabilities Provision for Unearned Premiums The proportion of written premiums, gross of commissions payable to intermediaries, attributable to subsequent periods or to risks that have not yet expired is deferred as provision for unearned premiums. Premiums from short-duration insurance contracts are recognized as revenue over the period of the contracts using the 24th method except for the marine cargo where premiums for the last two months are considered earned the following year. The portion of the premiums written that relate to the unexpired periods of the policies at end of the reporting period are accounted for as Provision for unearned premiums as part of Insurance contract liabilities and presented in the liabilities section of the consolidated statement of financial position. The change in the provision for unearned premiums is taken to profit or loss in order that revenue is recognized over the period of risk. Further provisions are made to cover claims under unexpired insurance contracts which may exceed the unearned premiums and the premiums due in respect of these contracts. Claims Provision and Incurred But Not Reported (IBNR) Losses These liabilities are based on the estimated ultimate cost of all claims incurred but not settled at the end of the reporting period together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of certain types of claims, therefore the ultimate cost of which cannot be known with certainty at the end of the reporting period. The liability is not discounted for the time value of money and includes provision for IBNR losses. The liability is derecognized when the contract is discharged, cancelled or has expired. Insurance Payables Insurance payables are recognized when due and measured on initial recognition at the fair value of the consideration received less attributable transaction cost. Subsequent to initial recognition, they are measured at amortized cost using the effective interest rate method. Insurance payables are derecognized when the obligation under the liability is settled, cancelled or expired.

91 integrity. that s our policy. 91 Pension Cost The net defined benefit liability or asset is the aggregate of the present value of the defined benefit obligation at the end of the reporting period reduced by the fair value of plan assets (if any), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. The cost of providing benefits under the defined benefit plans is actuarially determined using the projected unit credit method. Defined benefit costs comprise the following: Service cost Net interest on the net defined benefit liability or asset Remeasurements of net defined benefit liability or asset Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognized when plan amendment or curtailment occurs. These amounts are calculated periodically by independent qualified actuaries. Net interest on the net defined benefit liability or asset is the change during the period in the net defined benefit liability or asset that arises from the passage of time which is determined by applying the discount rate based on government bonds to the net defined benefit liability or asset. Net interest on the net defined benefit liability or asset is recognized as expense or income in profit or loss. Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately in other comprehensive income in the period in which they arise. Remeasurements are not reclassified to profit or loss in subsequent periods. Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance policies. Plan assets are not available to the creditors of the Group, nor can they be paid directly to the Group. Fair value of plan assets is based on market price information. When no market price is available, the fair value of plan assets is estimated by discounting expected future cash flows using a discount rate that reflects both the risk associated with the plan assets and the maturity or expected disposal date of those assets (or, if they have no maturity, the expected period until the settlement of the related obligations). If the fair value of the plan assets is higher than the present value of the defined benefit obligation, the measurement of the resulting defined benefit asset is limited to the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. The Group s right to be reimbursed of some or all of the expenditure required to settle a defined benefit obligation is recognized as a separate asset at fair value when and only when reimbursement is virtually certain. Equity Capital stock is recognized as issued when the stock is paid for or subscribed under a binding subscription agreement and is measured at par value. Capital in excess of par value includes any premiums received in excess of par value on the issuance of capital stock. Contributed surplus and contingency surplus represents contribution of the stockholders of the Parent Company, in addition to the paid-in capital stock, in order to comply with the pre-licensing requirements as provided under the Insurance Code (the Code). Other revaluation reserve pertains to the appraisal increment on building relating to the Parent Company s previously held interest in Tokio Marine Malayan Insurance Co., Inc. (TMMIC) at the time of the business combination. The balance of the other revaluation reserve will be transferred to retained earnings when the building is disposed or derecognized. Retained earnings include all the accumulated earnings of the Group, net of dividends declared. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: Premiums Revenue Gross insurance written premiums comprise the total premiums receivable for the whole period of cover provided by contracts entered into during the accounting period and are recognized on the date on which the policy incepts. Premiums include any adjustments arising in the accounting period for premiums receivable in respect of business written in prior periods. Premiums from short-duration insurance contracts are recognized as revenue over the period of the contracts using the 24th method except for the marine cargo where premiums for the last two months are considered earned the following year. The portion of the premiums written that relate to the unexpired periods of the policies at end of the reporting period are accounted for as Provision for unearned premiums as part of Insurance contract liabilities and presented in the liabilities section of the consolidated statements of financial position. The related reinsurance premiums ceded that pertains to the unexpired periods at end of the reporting period are accounted for as Deferred reinsurance premiums and shown as part of reinsurance assets in the consolidated statements of financial position. The net changes in these accounts between each end of reporting periods are recognized in profit or loss.

92 consolidated annual report Reinsurance Commissions Commissions earned from short-duration insurance contracts are recognized as revenue over the period of the contracts using the 24th method except for the marine cargo where the deferred reinsurance commissions for the last two months of the year are considered earned the following year. The portion of the commissions that relate to the unexpired periods of the policies at end of the reporting period are accounted for as deferred reinsurance commissions and presented in the Liabilities section of the consolidated statement of financial position. Dividend income Dividend income is recognized when the shareholders right to receive the payment is established. Interest income For all financial instruments measured at amortized cost and interest-bearing financial instruments, interest income is recorded at the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options), includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses. The adjusted carrying amount is calculated based on the original effective interest rate. The change in carrying amount is recorded as interest income. Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the original effective interest rate applied to the new carrying amount. Rental income Rental income from investment properties are recognized on a straight-line basis over the term of the lease. Management fees Management fees are recognized as income when services are rendered. Other income Income from other sources is recognized when earned. Expense Recognition Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decrease in equity, other than those relating to distribution to equity participants. Benefits and Claims Benefits and claims consists of benefits and claims paid to policyholders, which includes changes in the valuation of Insurance contract liabilities, except for changes in the provision for unearned premiums which are recorded in insurance revenue. It further includes internal and external claims handling costs that are directly related to the processing and settlement of claims. Amounts receivable in respect of salvage and subrogation are also considered. General insurance claims are recorded on the basis of notifications received. Commission Expense Commissions are recognized as expense over the period of the contracts using the 24th method. The portion of the commissions that relates to the unexpired periods of the policies at the end of the reporting period is accounted for as Deferred acquisition cost in the assets section of the consolidated statement of financial position. Other underwriting expense Other underwriting expense pertains to the costs incurred by the Group prior to the issuance of policies to its policyholders. These costs include expenses for technical inspections, actuarial reviews and other work that is deemed necessary to determine whether or not to accept the risks to be written. These costs are recognized as expense as they are incurred. Expenses General and administrative expense and other investment expense, except for lease agreements, are recognized as expense as they are incurred. Interest expense Interest expense is charged against operations as they are incurred. Leases The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies: a. There is a change in contractual terms, other than a renewal or extension of the arrangement; b. A renewal option is exercised or extension granted, unless that term of the renewal or extension was initially included in the lease term; c. There is a change in the determination of whether fulfillment is dependent on a specified asset or; d. There is a substantial change to the asset.

93 integrity. that s our policy. 93 Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios a, c or d above, and at the date of renewal or extension period for scenario (b). Group as a lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. Lease payments received are recognized as an income in the consolidated statement of income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as the rental income. Group as a lessee Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Fixed lease payments are recognized as an expense in the consolidated statement of income on a straight-line basis. Foreign Exchange Transactions The functional and presentation currency of the Group is the Philippine Peso (P). Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange ruling at the end of the reporting period. 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. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was determined. 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 other comprehensive income. Provisions and Contingencies Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss, net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense. Contingent liabilities are not recognized in the consolidated financial statements but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized but are disclosed in the consolidated financial statements when an inflow of economic benefits is probable. Income Tax Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the end of the reporting period. Deferred tax Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, including asset revaluations. Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits from the excess of minimum corporate income tax (MCIT) over the regular income tax, and unused net operating loss carryover (NOLCO), to the extent that it is probable that sufficient taxable profit will be available against which the deductible temporary differences and carryforward of unused tax credits from MCIT and unused NOLCO can be utilized. Deferred tax, however, is not recognized on temporary differences that arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss. The carrying amount of deferred tax assets is reviewed at each end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each end of the reporting period and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the end of the reporting period. Movements in the deferred tax assets and liabilities arising from changes in tax rates are charged against or credited to income for the period. Current tax and deferred tax relating to items recognized as other comprehensive income is also recognized in the consolidated statement of other comprehensive income. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and deferred taxes related to the same taxable entity and the same taxation authority.

94 consolidated annual report Events after End of the Reporting Period Any post year-end events that provide additional information about the Group s position at the end of the reporting period (adjusting event) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events, if any, are disclosed in the consolidated financial statements when material. 2. Significant Accounting Judgments and Estimates The preparation of the accompanying consolidated financial statements in accordance with PFRS requires the Group to make judgments and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management s evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ from such estimates. Judgments In the process of applying the Group s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the consolidated financial statements: Product classification The significance of insurance risk is dependent on both the probability of an insured event and the magnitude of its potential effect. As a general guideline, the Group defines significant insurance risk as the possibility of having to pay benefits on the occurrence of an insured event that are at least 5% more than the benefits payable if the insured event did not occur. The Group has determined that the insurance policies it issues have significant insurance risks and therefore meet the definition of insurance contracts and should be accounted for as such. Functional Currency Based on the economic substance of the underlying circumstances relevant to the Group, the functional currency of the Group has been determined to be the Philippine Peso. The Philippine Peso is the currency of the primary economic environment in which the Group operates. It is the currency that mainly influences the revenue and costs of the Group operations. Operating lease commitments - Group Company as lessor The Group entered into commercial property leases on its investment properties. The Group determined that it retains all the significant risks and rewards of ownership of the property, thus accounts for them as operating lease. Operating lease commitments - Group as lessee The Group entered into various property leases with various lessors. The Group determined that the lessors retain all the significant risks and rewards of ownership of the leased properties thus accounts for them as operating leases. Distinction between investment properties and owner-occupied properties The Group determines whether a property qualifies as investment property. In making this judgment, the Group considers whether the property generates cash flows largely independent of the other assets held by an entity. Owner-occupied properties generate cash flows that are attributable not only to property but also to the other assets used in the production or supply process. When properties comprise a portion that is held to earn rentals or for capital appreciation and another portion is held for use in the production or supply of goods or services or for administrative purpose, and these portions cannot be sold separately, the property is accounted for as investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. Judgment is applied in determining whether ancillary services are so significant that a property does not qualify as investment property. The Group considers each property separately in making this judgment. Management s Use of Estimates The key assumptions concerning the future and other key sources of estimation uncertainty at each reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Fair values of financial assets The Group carries certain financial assets at fair value, which requires extensive use of accounting estimates and judgments. Fair value determinations for financial assets are based generally on listed or quoted market prices. If prices are not readily determinable or if liquidating positions is reasonably expected to affect market prices, fair value is based on either internal valuation models or management s estimate of amounts that could be realized under current market conditions, assuming an orderly liquidation over a reasonable period of time. While significant components of fair value were determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates, volatility rates), the amount of changes in fair value of these financial assets and liabilities would affect the statement of other comprehensive income. The carrying value of AFS financial assets is P6, million and P7, million as of December 31, 2016 and 2015, respectively (Note 7).

95 integrity. that s our policy. 95 Valuation of insurance contract liabilities Estimates have to be made both for the expected ultimate cost of claims reported and for the expected ultimate cost of claims IBNR at the end of reporting period. It can take a significant period of time before the ultimate claims cost can be established with certainty. The primary technique adopted by management in estimating the cost of notified and claims IBNR, is that of using past claims settlement trends to predict future claims settlement trends. At each reporting date, prior year claims estimates are assessed for adequacy and changes made are charged to provision. Insurance contract liabilities are not discounted for the time value of money. As of December 31, 2016 and 2015, the carrying values of provision for claims reported and IBNR amounted to P7, million and P8, million, respectively (Note 14). Estimation of allowance for impairment losses The Group maintains allowance for impairment losses at a level considered adequate to provide for potential uncollectible receivables. The level of this allowance is evaluated by management on the basis of factors that affect the collectability of the accounts. These factors include, but are not limited to, age of balances, financial status of counterparties, and legal opinion on recoverability in case of legal disputes. The Group reviews the age and status of receivables, and identifies accounts that are to be provided with allowance on a regular basis. The amount and timing of recorded expenses for any period would differ if the Group made different judgments or utilized different estimates. An increase in allowance for impairment losses would increase recorded expenses and decrease the related asset accounts. The carrying value of insurance receivables, net of impairment losses amounted to P5, million and P4, million as of December 31, 2016 and 2015, respectively. The related allowance for impairment losses amounted to P million and P million as of December 31, 2016 and 2015 respectively (Note 6). As of December 31, 2016 and 2015, the carrying value of loans and receivables amounted to P1, million and P1, million, respectively. As of December 31, 2016 and 2015, the related allowance for impairment losses amounted to P26.75 million and P3.75 million, respectively (Note 7). Impairment of AFS equity financial assets The Group determines that AFS equity financial assets are impaired when there has been a significant or prolonged decline in the fair value below its cost. The determination of what is significant or prolonged requires judgment. The Group treats significant generally as 20% or more and prolonged as continuous decline for a period of six (6) months or more. In making this judgment, the Group evaluates among other factors, the normal volatility in share price for quoted securities. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. As of December 31, 2016 and 2015, the carrying value of the Group s AFS equity financial assets amounted to P4, million and P4, million, respectively (Note 7). Impairment loss recognized on Group s AFS equity financial assets amounted to P23.36 million and P71.75 million in 2016 and 2015, respectively (Note 7). Recognition of deferred tax assets Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable income will be available against which these can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized. These assets are periodically reviewed for realization. Periodic reviews cover the nature and amount of deferred income and expense items, expected timing when assets will be used or liabilities will be required to be reported, reliability of historical profitability of businesses expected to provide future earnings and tax planning strategies which can be utilized to increase the likelihood that tax assets will be realized. Note 24 for the related balances. Estimating pension obligation and other retirement benefits The determination of pension obligation and cost of pension is dependent on the selection of certain assumptions used in calculating such amounts. Those assumptions include, among others, discount rates and salary increase rates. Due to the long-term nature of this plan, such estimates are subject to significant uncertainty. The assumed discount rates were determined using the market yields on Philippine government bonds with terms consistent with the expected employee benefit payout as of the reporting date. In accordance with PAS 19, actual results that differ from the Group s assumptions are recognized immediately in other comprehensive income in the period in which they arise. While the Group believes that the assumptions are reasonable and appropriate, significant differences in the actual experience or significant changes in the assumptions may materially affect the pension obligations. As of December 31, 2016 and 2015, the carrying value of pension obligation amounted to P million and P million, respectively (Note 17).

96 consolidated annual report Contingencies The Group is currently involved in various legal proceedings. The estimate of probable costs for the resolution of these claims has been developed in consultation with the legal counsels and based upon analysis of potential results. The Group does not believe that these proceedings will have a material adverse effect on the Group s financial position. 4. Cash and Cash Equivalents This account consists of: Cash on hand: Petty cash fund P590,318 P650,582 Special funds 28,000 28,000 Cash in banks: Commercial banks and trust company (Note 28) 492,655,865 1,554,450,384 Thrift banks, rural banks and cooperatives 3,658,262 4,191,339 Short-term deposits (Note 28) 803,453,267 1,155,230,881 P1,300,385,712 P2,714,551,186 Cash in banks earn interest at the respective bank rates. Short-term deposits are placed for varying periods of up to three (3) months depending on the immediate cash requirements of the Group. The range of interest rates of the short-term deposits follows: Philippine Peso 0.25% to 2.25% 0.25% to 2.13% US Dollar 0.625% to 1.5% 0.02% to 0.88% 5. Short-term Investments This account consists of time deposits with maturity of more than three months but less than one year from dates of placement and earns interest with annual rates ranging from 0.25% to 3.25% and 0.50% to 4.25% in 2016 and 2015, respectively. Interest earned on short-term investments amounted to P1.17 million and P0.01 million in 2016 and 2015, respectively (Note 20). 6. Insurance Receivables - net This account consists of: Due from policyholders, agents and brokers P4,454,472,949 P3,929,754,286 Due from ceding companies: Treaty (Note 28) 816,411, ,521,891 Facultative 105,641, ,696,332 Funds held by ceding companies - treaty (Note 28) 377,620, ,499,980 Reinsurance recoverable on paid losses: Facultative 279,389, ,181,972 Treaty 43,694,795 43,694,796 6,077,230,767 4,576,349,257 Less allowance for impairment losses 247,224, ,237,149 P5,830,006,086 P4,390,112,108 Due from policyholders, agents and brokers arise from unpaid premiums from policy holders and intermediaries. Due from ceding companies are premiums receivable for assumed business from other insurance and reinsurance companies. The amount of funds held by ceding companies is a percentage of the premiums, as stipulated in the treaty contracts. The reinsurance recoverable on paid losses pertains to amounts recoverable from the reinsurers in respect of claims already paid by the Group.

97 integrity. that s our policy. 97 The following table shows aging information of insurance receivables: December 31, 2016 Less than 30 days 30 to 60 days 61 to 90 days 91 to 120 days More than 120 days Total Due from policyholders, agents and brokers P686,833,755 P507,527,640 P809,678,468 P352,715,804 P2,097,717,282 P4,454,472,949 Due from ceding companies: Treaty 90,856, ,783,320 10,525,463 85,702, ,543, ,411,800 Facultative 55,318,529 5,248,363 7,325,349 12,885,311 24,863, ,641,092 Funds held by ceding companies - treaty 42,404, ,936 3,559, ,085, ,620,967 Reinsurance recoverable on paid losses: Facultative 59,663,407 44,507,938 7,847,398 3,087, ,283, ,389,164 Treaty ,694,795 43,694,795 P935,076,721 P672,638,197 P838,936,431 P454,390,962 P3,176,188,456 P6,077,230,767 December 31, 2015 Less than 30 days 30 to 60 days 61 to 90 days 91 to 120 days More than 120 days Total Due from policyholders, agents and brokers P596,832,921 P364,651,381 P352,972,730 P374,655,677 P2,240,641,577 P3,929,754,286 Due from ceding companies: Treaty 3,197, ,563 10,397,823 3,677, ,001, ,521,891 Facultative 48,301,543 4,114,327 1,742,183 7,463,792 41,074, ,696,332 Funds held by ceding companies - treaty 84, ,453 19,901,290 3,559, ,328, ,499,980 Reinsurance recoverable on paid losses: Facultative 5,333,765 3,524,990 25,310,107 1,137,680 89,875, ,181,972 Treaty ,694,796 43,694,796 P653,750,024 P373,164,714 P410,324,133 P390,493,947 P2,748,616,439 P4,576,349,257 The allowance for impairment loss on insurance receivables has been determined as follows: Due from Policyholders, Agents and Brokers Due from Ceding Companies - Treaty Due from Ceding Companies - Facultative 2016 Funds Held by Ceding Companies Reinsurance Recoverable on Paid Losses - Facultative Balance at beginning of year P163,928,018 P341,002 P14,557,184 P1,380,777 P6,030,168 P186,237,149 Impairment loss (Note 22) 77,106,074 14,825, ,931,552 Reversal of impairment loss (Note 22) - - (13,685,248) - (1,140,230) (14,825,478) Written-off (16,118,542) (16,118,542) Balance at end of year P224,915,550 P15,166,480 P871,936 P1,380,77 P4,889,938 P247,224,681 Individually impaired P- P1,026,517 P871,936 P- P3,321,788 P5,220,241 Collectively impaired 224,915,550 14,139,963 - P1,380,777 1,568, ,004,440 Total P224,915,550 P15,166,480 P871,936 P1,380,777 P4,889,938 P247,224,681 Total Due from Policyholders, Agents and Brokers Due from Ceding Companies - Treaty Due from Ceding Companies - Facultative 2015 Funds Held by Ceding Companies Reinsurance Recoverable on Paid Losses - Facultative Balance at beginning of year P128,053,678 P3,361,426 P8,755,855 P1,380,777 P8,811,073 P150,362,809 Impairment loss (Note 22) 48,156,274-5,801, ,957,603 Reversal of impairment loss (Note 22) (3,020,424) (2,780,905) (5,801,329) Written-off (9,261,510) (3,020,424) (12,281,934) Balance at end of year P163,928,018 P341,002 P14,557,184 P1,380,777 P6,030,168 P186,237,149 Individually impaired P7,991,154 P341,002 P14,557,184 P1,380,777 P- P24,270,117 Collectively impaired 155,936, ,030, ,967,032 Total P163,928,018 P341,002 P14,557,184 P1,380,777 P6,030,168 P186,237,149 Total

98 consolidated annual report 7. Financial Assets The Group s financial assets, categorized based on subsequent measurement, follow: AFS financial assets P6,953,509,727 P7,406,887,661 Loans and receivables - net 1,484,858,051 1,347,323,803 P8,438,367,778 P8,754,211,464 The assets included in each of the categories above are detailed below. a) AFS financial assets Quoted securities - at fair value Listed equity securities (Note 28): Common shares P4,086,672,158 P4,778,985,387 Preferred shares 40,792,440 42,122,933 Government debt securities: Local currency 458,251, ,272,427 Foreign currency 11,405,527 11,004,349 Private debt securities (Note 28) 2,080,674,994 1,616,169,209 Total 6,677,796,498 7,073,554,305 Non-quoted securities - at cost Unlisted equity securities: Common shares 121,868, ,048,481 Preferred shares 17,540 17, ,886, ,066,021 Funds 153,827, ,267,335 P6,953,509,727 P7,406,887,661 In accordance with the provisions of the Insurance Code (the Code), government securities amounting to P million and P million are deposited with the Insurance Commission (IC) as security for the benefit of policyholders and creditors of the Group as of December 31, 2016 and 2015, respectively. As of December 31, 2016 and 2015, the Group has certain investments in debt securities with embedded call option feature which allows the issuers to redeem, on specified dates, the securities at face amount. Based on the Group s assessment, the embedded call options identified are clearly and closely related to the host contracts and therefore do not require bifurcation. For the year ended December 31, 2016 and 2015, impairment loss recognized on AFS investments amounted to P23.36 million and P71.75 million, respectively (Note 20). The carrying values of AFS financial assets have been determined as follows: Balance at beginning of year P7,406,887,661 P8,949,285,522 Acquisitions 1,295,090,955 1,267,537,350 Unrealized foreign currency exchange gain 109,196,242 99,312,480 Fair value changes (560,431,537) (1,619,584,335) Disposals and maturities (1,292,042,945) (1,286,015,053) Amortization of premium (5,190,649) (3,648,303) Balance at end of year P6,953,509,727 P7,406,887,661 As of December 31, 2016 and 2015, the revaluation reserve on AFS financial assets amounted to P2, million and P2, million, respectively. The rollforward analysis of the revaluation reserve on AFS financial assets follow: Balance at beginning of year P2,770,406,752 P4,365,005,292 Fair value loss credited to equity (560,431,537) (1,619,584,335) Impairment loss (Note 20) 23,358,227 71,746,444 Realized gain transferred to profit or loss (Note 20) (64,764,985) (62,179,168) Tax effect of net fair value gain (Note 24) 669,835 15,418,519 P2,169,238,292 P2,770,406,752 Attributable to: Equity holders of the Parent Company P2,059,982,236 P2,643,034,341 Non-controlling interests 109,256, ,372,411 P2,059,982,235 P2,770,406,752

99 integrity. that s our policy. 99 b) Loans and receivables - net This account consists of: Long-term commercial papers (Note 28) P1,190,590,872 P1,069,468,505 Creditable withholding tax 261,234, ,152,400 Accounts receivable 35,029, ,100,269 Notes receivable 16,717,658 15,787,779 Claims recoverable 6,408,374 6,408,374 Security fund 832, ,294 Cash advances 792, ,578 Due from related parties (Note 28) 45,465 1,511,605,912 1,351,071,664 Less allowance for impairment losses 26,747,861 3,747,861 P1,484,858,051 P1,347,323,803 Long-term commercial papers pertain to the Group s investments in unquoted private debt securities and corporate notes with terms of 2 to 15 years and bear annual interest rates ranging from 3.00% to 9.33% in 2016 and from 3.25% to 9.33% in The Group has not recognized any impairment losses on these debt securities for the years ended December 31, 2016 and Creditable withholding taxes pertain to the CWTs claimed as refund from the Bureau of Internal Revenue (BIR). Accounts receivables pertain to advances on utilities, commission and for the employees hospitalization. Notes receivable pertains to amounts due from its managers and officers as part of car plan benefits. The employee s share is recorded as notes receivable which is collected through salary deductions. The notes receivable is payable within five (5) years with annual interest rate of 8.00%. The allowance for impairment losses on loans and receivable had been determined as follows: 2016 Accounts Receivable Notes Receivable Creditable Withholding Tax Total Balance at beginning of the year P2,050,610 P1,697,251 P P3,747,861 Addition 23,000,000 23,000,000 P2,050,610 P1,697,251 P23,000,000 P26,747,861 Individually impaired P2,050,610 P1,697,251 P3,747,861 Collectively impaired P23,000,000 23,000,000 Total P2,050,610 P1,697,251 P23,000,000 P26,747, Accounts Notes Receivable Receivable Total Balance at end of the year P2,050,610 P1,697,251 P3,747,861 Individually impaired P2,050,610 P1,697,251 P1,697,251 Collectively impaired 2,050,610 Total P2,050,610 P1,697,251 P3,747,861 As of December 31, 2016 and 2015, accounts receivable, notes receivable and creditable withholding taxes with an aggregate carrying value of P26.75 million and P3.75 million, respectively, were specifically determined as impaired and were fully provided with allowance. 8. Accrued Income This account consists of: Accrued interest income on (Note 28): AFS financial assets P29,903,494 P29,984,872 Long-term commercial papers 10,775,225 10,960,026 Cash and cash equivalents 337, ,905 Funds held by ceding companies - treaty 354,351 62,494 Security fund 145, ,873 Accrued dividend income 6,027,744 3,745,751 Accrued rent income 2,640,821 2,760,759 P50,184,675 P48,150,680

100 consolidated annual report 9. Deferred Acquisition Costs - net The details of deferred acquisition costs net of deferred reinsurance commissions follow: Deferred acquisition costs Balance at beginning of year P314,468,237 P350,379,085 Cost deferred during the year (Note 28) 1,051,762,079 1,220,351,840 Amortized during the year (1,011,760,858) (1,256,262,688) Balance at end of year 354,469, ,468,237 Deferred reinsurance commissions Balance at beginning of year 144,971, ,019,788 Income deferred during the year (Note 28) 433,659, ,886,744 Amortized during the year (411,465,299) (467,935,110) Balance at end of year 167,165, ,971,422 P187,248,324 P169,496, Reinsurance Assets This account consists of: Reinsurance recoverable on unpaid losses (Note 14) P5,243,885,418 P6,647,784,199 Deferred reinsurance premiums (Note 14) 2,005,384,924 1,528,335,000 P7,249,270,342 P8,176,119, Investment Properties - net The rollforward analysis of this account follows: 2016 Land Buildings Total Cost At beginning and end of year P25,700,011 P12,691,826 P38,391,837 Accumulated depreciation and amortization At beginning of year 11,292,745 11,292,745 Depreciation (Note 22) 66,888 66,888 At end of year 11,359,633 11,359,633 Net book value P25,700,011 P1,332,193 P27,032, Land Buildings Total Cost At beginning and end of year P25,700,011 P12,691,826 P38,391,837 Accumulated depreciation and amortization At beginning of year 11,221,857 11,221,857 Depreciation (Note 22) 70,888 70,888 At end of year 11,292,745 11,292,745 Net book value P25,700,011 P1,399,081 P27,099,092 Rental income from investment properties recognized in the consolidated statements of income amounted to P25.59 million and P25.66 million in 2016 and 2015, respectively (Note 20). Direct operating expenses arising from investment properties amounted to P0.52 million in 2016 and P0.07 million Buildings have fair values amounting to P5.14 million as of December 31, 2016 and 2015, respectively. Parcels of land with book value of P25.70 million have fair value amounting to P79.50 million as of December 31, 2016 and 2015, respectively. The fair values of the investment properties were determined by independent professionally qualified appraisers. The fair value of the land and buildings were arrived at using the Market Data Approach. In this approach, the value of the land and buildings are based on sales and listings of comparable property registered within the vicinity. The technique of this approach requires the establishment of comparable property by reducing reasonable comparative sales and listings to a common denominator. This is done by adjusting the differences between the subject property and those actual sales and listings regarded as comparable. The properties used as basis of comparison are situated within the immediate vicinity of the subject property.

101 integrity. that s our policy. 101 Depreciation expense pertaining to investment properties amounted to P0.07 million in 2016 and 2015 (Note 22). 12. Property and Equipment - net The rollforward analysis of this account as of December 31, 2016 and 2015 follows: Land Building, Building Equipment and Improvements Office Furniture, Fixtures and Equipment 2016 Transportation Equipment Leasehold Improvements Cost At beginning of year P1,013,187 P225,732,187 P551,823,886 P106,661,932 P72,138,102 P957,369,294 Additions 6,174,834 4,725,687 14,941,546 6,295,112 32,137,179 Disposals (294,032) (1,603,341) (11,987,415) (13,884,788) At end of year 1,013, ,612, ,946, ,616,063 78,433, ,621,685 Accumulated depreciation and amortization At beginning of year 89,651, ,342,442 65,879,091 51,290, ,163,540 Depreciation and amortization (Note 22) 14,276,504 33,413,529 17,319,851 8,958,590 73,968,474 Disposals (959) (1,603,290) (11,280,912) (12,885,161) At end of year 103,926, ,152,681 71,918,030 60,249, ,246,853 Net book value P1,013,187 P127,686,315 P75,793,551 P37,698,033 P18,183,746 P260,374,832 Total Building, Building Equipment and Improvements Office Furniture, Fixtures and Equipment 2015 Transportation Equipment Leasehold Improvements Land Total Cost At beginning of year P1,013,187 P214,926,035 P509,969,228 P95,899,312 P68,388,726 P890,196,488 Additions 10,806,152 42,156,327 13,898,782 3,749,376 70,610,637 Disposal (301,669) (3,136,162) (3,437,831) At end of year 1,013, ,732, ,823, ,661,932 72,138, ,369,294 Accumulated depreciation and amortization At beginning of year 80,369, ,580,635 56,030,515 44,285, ,265,569 Depreciation and amortization (Note 22) 9,281,947 43,063,471 12,984,738 7,005,641 72,335,797 Disposals (301,664) (3,136,162) (3,437,826) At end of year 89,651, ,342,442 65,879,091 51,290, ,163,540 Net book value P1,013,187 P136,081,058 P104,481,444 P40,782,841 P20,847,224 P303,205,754 Depreciation and amortization expense charged against operations amounted to P73.97 million and P72.34 million in 2016 and 2015, respectively (Note 22). There are no fully depreciated assets that are still in use. There are no property and equipment items pledged or used as collateral to secure the liabilities of the Group. 13. Other Assets - net This account consists of: Creditable withholding taxes P214,424,091 P263,625,269 Real estate properties for sale - at cost 86,051,770 82,436,978 Prepayments 24,158,259 23,023,524 Refundable deposits 14,975,047 14,146,192 Forms and supplies inventory 2,985,675 8,519,561 Others 31,482,307 31,088,517 P374,077,149 P422,840,041 Creditable withholding tax pertains to the Group s tax withheld at source by its customers.

102 consolidated annual report Real estate properties for sale consist of investments in Malayan Plaza condominium units and memorial lots. As of December 31, 2016 and 2015, amounts of the real estate properties for sale follow: Malayan Plaza condominium units P80,484,270 P75,921,978 Memorial lots 4,687,500 6,515,000 P85,171,770 P82,436,978 Cost of real estate properties disposed in 2016 and 2015 amounted to P10.03 million and P7.94 million, respectively. 14. Insurance Contract Liabilities and Reinsurance Assets Short-term insurance contract liabilities and reinsurers share of liabilities may be analyzed as follows: Insurance Contract Liabilities Reinsurers Share of Liabilities (Note 10) Net Insurance Contract Liabilities Reinsurers Share of Liabilities (Note 10) Provision for claims reported and loss adjustment P7,024,882,323 P5,243,885,418 P1,780,996,905 P8,235,578,778 P6,647,784,199 P1,587,794,579 Provision for IBNR losses 179,185, ,185, ,805, ,805,857 Total claims reported and IBNR 7,204,067,658 5,243,885,418 1,960,182,240 8,359,384,635 6,647,784,199 1,711,600,436 Provision for unearned premiums 4,143,524,863 2,005,384,924 2,138,139,939 3,363,230,387 1,528,335,000 1,834,895,387 Total insurance contract liabilities P11,347,592,521 PP7,249,270,342 P4,098,322,179 P11,722,615,022 P8,176,119,199 P3,546,495,823 Net Provisions for claims reported by policyholders and claims IBNR may be analyzed as follows: Insurance Contract Liabilities Reinsurers Share of Liabilities (Note 10) Net Insurance Contract Liabilities Reinsurers Share of Liabilities (Note 10) Balance at beginning of year P8,359,384,635 P6,647,784,199 P1,711,600,436 P10,582,215,248 P8,950,296,088 P1,631,919,160 Claims incurred during the year 1,803,304,646 (26,222,692) 1,829,527,338 1,260,028,486 (250,729,006) 1,510,757,492 Increase in IBNR 55,379,478 55,379,478 Total claims reported and claims IBNR 10,218,068,759 6,621,561,507 3,596,507,252 11,842,243,734 8,699,567,082 3,142,676,652 Claims paid during the year (Note 21) (3,014,001,101) (1,377,676,089) (1,636,325,012) (3,482,859,099) (2,051,782,883) (1,431,076,216) Balance at end of year P7,204,067,658 P5,243,885,418 P1,960,182,240 P8,359,384,635 P6,647,784,199 P1,711,600,436 Net Provision for unearned premiums may be analyzed as follows: Insurance Contract Liabilities Reinsurers Reinsurers Share of Insurance Share of Liabilities Contract Liabilities (Note 10) Net Liabilities (Note 10) Balance at beginning of year P3,362,697,938 P1,527,802,551 P1,834,895,387 P3,609,799,913 P2,176,880,605 P1,432,919,308 New policies written during the year (Note 19) 9,311,426,256 4,844,745,116 4,466,681,145 8,604,735,996 4,949,743,902 3,654,992,094 Premiums earned during the year (Note 19) (8,530,599,336) (4,367,162,743) (4,163,436,593) (8,851,305,522) (5,598,289,507) (3,253,016,015) Balance at end of year P4,144,057,307 P2,005,917,373 P2,138,139,939 P3,363,230,387 P1,528,335,000 P1,834,895,387 Net

103 integrity. that s our policy Insurance Payables This account consists of: Due to reinsurers (Note 28) P1,514,961,809 P2,318,934,580 Funds held for reinsurers (Note 28) 408,244, ,348,833 P1,923,206,659 P2,852,283,413 Terms and Conditions Due to reinsurers are unsecured, interest-free and are normally settled in cash within one (1) year. The rollforward analysis of insurance payables follows: Due to Funds held reinsurers for reinsurers Total At January 1, 2015 P2,274,764,364 P589,158,871 P2,863,923,235 Arising during the year 703,359, ,509, ,869,485 Paid during the year (659,189,429) (274,319,878) (933,509,307) At December 31, ,318,934, ,348,833 2,852,283,413 Arising during the year 3,123,332, ,660,687 3,771,993,419 Paid during the year (3,927,305,503) (773,764,670) (4,701,070,173) At December 31, 2016 P1,514,961,809 P408,244,850 P1,923,206, Accounts Payable, Accrued Expenses and Other Liabilities This account consists of: Accounts payable P592,648,400 P824,506,549 Commissions payable 582,287, ,121,241 Deferred output value-added tax (VAT) 389,143, ,289,349 Accrued expenses 150,278, ,974,122 Accrued taxes 96,123, ,534,046 Documentary stamp taxes payable 80,941,567 83,403,434 Surety deposits 67,702,501 96,748,100 Output VAT 40,161,563 50,181,098 Deposits payable 4,397,378 5,138,748 Others 52,563,809 40,889,028 P2,056,248,672 P2,227,785,715 Accounts payable pertain to unpaid purchases of goods and services from suppliers. Commissions payable are unpaid commissions on the Group s direct business, payable to agents and brokers which are due upon collection of the related premiums receivables. Accrued expenses pertain to accrual of monthly expenditures of the Group. This includes expenses for utilities and other expenses that are necessary to carry out the operations of the Group. Accrued taxes include tax withheld, fringe benefit tax, local government tax, fire service tax and premiums tax. Surety deposits pertain to cash advances received from bonds policy contracts. Others consists mainly of unpaid leave conversion of employees, survey and service fees. 17. Pension The Group has a defined benefit plan, covering substantially all of its employees, which requires contribution to be made to administered funds. The plan is administered by a local bank as trustee. The Group s trustee bank is RCBC. The transactions of the fund are being approved by the President of the Parent Company. The following tables summarize the components of net pension benefit expense recognized in the consolidated statements of income and the funded status and amounts recognized in the consolidated statements of financial position for the retirement plan.

104 consolidated annual report The net pension benefit expense recognized in the consolidated statements of income, under employee benefits (Note 22), follows: Current service cost P43,136,176 P42,833,204 Net interest cost 12,235,046 8,795,378 Net benefit expense P55,371,222 P51,628,582 Actual return on plan assets P6,611,786 (P26,029,612) The remeasurement effects recognized in the consolidated statements of comprehensive income follows: Actuarial loss (gain) P1,665,532 (P9,483,887) Return on assets (excluding amount included in net interest cost) 3,009,747 36,641,173 Tax effect (1,402,584) (8,147,186) Total amount recognized in OCI P3,272,695 P19,010,100 The net pension obligation recognized in the consolidated statements of financial position follows: Present value of pension benefit obligation P459,524,045 P426,916,673 Fair value of plan assets (204,347,565) (191,321,442) P255,176,480 P235,595,231 The reconciliation of the present value of the pension benefit obligation follows: Balance at beginning of year P426,916,673 P400,763,989 Current service cost 43,036,176 42,833,204 Interest cost 22,168,877 18,854,825 Actuarial loss recognized in OCI 1,665,532 (9,483,887) Benefits paid (34,263,213) (26,051,458) P459,524,045 P426,916,673 The reconciliation of the fair value of the plan assets follows: Balance at beginning of year P191,321,442 P213,842,390 Interest income 9,933,831 10,059,447 Contributions by employer 40,365,251 30,112,236 Actuarial gain (loss) (3,009,746) (36,641,173) Benefits paid (34,263,213) (26,051,458) Balance at end of year P204,347,565 P191,321,442 The Group expects to contribute P69.26 million to the retirement fund in The distribution of the plan assets as of December 31, 2015 and 2014 follows: Cash P55,614,347 P38,040,550 Receivables 5,542,203 5,692,096 Investments: Equity securities 74,325,826 69,845,292 Government securities 1,787,251 8,820,238 Other securities and debt instruments 68,283,057 69,233, ,552, ,631,659 Less accrued trust fees and other payables 1,205, ,217 P204,347,565 P191,321,442 The following presents the transactions of the Group s retirement fund with related parties: Category Balance Balance Terms Conditions Other related parties Savings deposits - RCBC P21,825 P21,969 Non-interest bearing; on demand Unsecured; no impairment Time deposits - RCBC 4,000,356 Unsecured; no impairment Common stocks - RCBC 8,995,350 8,689,626 Unsecured: no impairment

105 integrity. that s our policy. 105 Category Balance Balance Terms Conditions Common stocks - HI P2,181,428 P2,165,706 Unsecured: no impairment Corporate bonds - RCBC 13,380,668 2,692,433 Interest rates at 0% to 3.25%: terms of 3.5 to 5.5 years Unsecured; no impairment The principal actuarial assumptions used in determining plan assets and obligations are as follows: Salary increase rate 5.00% 5.00%-5.07% Discount rate 5.19% 5.00%-5.20% Sensitivities The sensitivity analysis below has been determined based on reasonably possible changes of each significant assumption on the defined benefit obligation as of the end of the reporting period, assuming all other assumptions were held constant: 2016 Change in variables Impact on present value of defined benefit obligation Increase (Decrease) Percentage change Discount rate +0.50% (12,625,773) -2.75% -0.50% 14,656, % Salary increase rate +1.00% 30,402, % -1.00% (22,510,494) -4.90% 2015 Change in variables Impact on present value of defined benefit obligation Increase (Decrease) Percentage change Discount rate +0.50% (P399,700,690) -2.63% -0.50% 421,191, % Salary increase rate +1.00% P435,840, % -1.00% (392,626,914) -4.89% The average duration of defined benefit obligation is 20 to 27 years. The maturity analysis of the undiscounted benefit payments as of December 31, 2016 based on normal retirements (retirement age of 60 only) is as follows: Year of Retirement Total Benefit 1 year and less P9,901,911 More than 1 year to 5 years 86,805,874 More than 5 year to 10 years 252,421,452 More than 10 year to 15 years 423,941,220 More than 15 year to 20 years 506,645,149 More than 20 years 3,418,099, Other Revaluation Reserve Other Revaluation Reserve On April 10, 2008, the Parent Company s BOD and stockholders approved the articles of merger and plan of merger between TMMIC and the Parent Company. TMMIC is a joint venture company owned by the Parent Company and Tokio Marine Asia Pte., Ltd. (Tokio Marine). On July 2, 2008, the SEC approved the articles and plan of merger. The effects of the merger were reckoned from January 1, The merger was accounted for as a business combination in accordance with PFRS 3. TMMIC and the Parent Company became a single corporation, with the Parent Company as the surviving corporation. TMMIC ceased to exist and its legal personality was terminated. As at the date of acquisition, the identifiable assets and liabilities of TMMIC have been measured at fair value resulting in a difference of P46.93 million against its carrying values. The difference between the carrying value and fair value pertains mainly to the increase in the appraised value of the building. The Parent Company recorded the appraisal increase amounting to P23.47 million pertaining to its previously held interest as Other revaluation reserve in the equity section of the consolidated statement of financial position. The Parent Company is subject to the regulatory requirements of the Insurance Commission such as Fixed Capitalization Requirements and Risk-based Capital Requirements (Note 26).

106 consolidated annual report 19. Net Premiums Earned Gross premiums earned and reinsurers share of gross premiums earned consists of the following: Gross premiums written Direct P8,121,214,406 P6,844,691,389 Assumed (Note 28) 1,190,211,850 1,760,044,607 Total gross premiums on insurance contracts (Note 14) 9,311,426,256 8,604,735,996 Gross change in provision for unearned premiums (780,826,920) 246,569,526 Gross premiums earned (Note 14) 8,530,599,336 8,851,305,522 Reinsurers share of gross premiums written Direct insurance 4,319,361,435 3,901,464,610 Assumed reinsurance (Note 28) 525,383,681 1,048,279,292 Total reinsurers share of gross premiums on insurance contracts (Note 14) 4,844,745,116 4,949,743,902 Reinsurers share of gross change in provision for unearned premiums (477,582,373) 648,545,605 Reinsurers share of gross premiums earned on insurance contacts (Note 14) 4,367,162,743 5,598,289,507 Net premiums earned P4,163,436,593 P3,253,016, Investment and Other Income and Investment and Other Expense Investment and other income This account consists of: Dividend income (Note 28) P172,141,715 P211,476,522 Interest income (Note 28): AFS financial assets 120,813, ,267,162 Long-term commercial papers 62,777,086 59,384,608 Cash and cash equivalents 24,459,930 16,011,407 Notes receivables 9,434,719 2,357,126 Funds held by ceding companies 652, ,712 Short-term investments (Note 5) 1,172,512 57,366 Others 2,479, , ,790, ,832,376 Gain on sale of: AFS financial assets (Note 7) 64,764,985 62,179,168 Real estate for sale 5,270, ,556 Property and equipment (Note 12) 926, ,308 70,961,711 62,805,032 Rental income (Note 11) 25,587,485 25,657,859 Foreign currency exchange gains - net 132,847, ,621,284 Others 9,888,375 5,571,192 P633,216,917 P638,964,265 Investment and other expense This account consists of the following: Investment expense P17,067,785 P13,296,195 Broker s fee 152,997 26,350 Impairment loss on financial assets (Note 7) 23,358,227 71,746,444 P40,579,009 P85,068,989 As of December 31, 2016 and 2015, the foreign exchange gain from non-deliverable foreign exchange forward contracts entered into by the Parent Company to hedge its exposure on foreign currency risk amounted to P82.90 million and P31.90 million, respectively. In 2016 and 2015, the weighted average rate of exchange rate on these forward currency contracts are P47.89 and P44.53, respectively. As of December 31, 2016 and 2015, the Parent Company s unrealized foreign exchange gain amounted to P million and P million, respectively.

107 integrity. that s our policy Insurance Contract Benefits and Claims Paid Gross insurance contract benefits and claims paid consist of: Gross insurance contract benefits and claims paid: Direct insurance P2,340,016,346 P2,755,082,589 Assumed reinsurance 673,984, ,776,510 Total gross insurance contract benefits and claims paid (Note 14) P3,014,001,101 P3,482,859,099 Reinsurers share of gross insurance contract benefits and claims paid consist of: Reinsurers share of insurance contract benefits and claims paid: Direct insurance P1,123,170,509 P1,787,176,395 Assumed reinsurance 254,505, ,606,488 Total reinsurers share of gross insurance contract benefits and claims paid (Note 14) P1,377,676,089 P2,051,782,883 Gross change in insurance contract liabilities consist of: Change in provision for claims reported: Direct insurance (P5,563,685) (P484,163,487) Assumed reinsurance (1,205,132,771) (1,738,667,126) Change in provision for IBNR 55,379,478 Total gross change in insurance contract liabilities (Note 14) (P1,155,316,978) (P2,222,830,613) Reinsurers shares of gross change in insurance contract liabilities consist of: Reinsurers share of gross insurance contract liabilities: Direct insurance (P422,227,875) (P630,468,617) Assumed reinsurance (981,670,907) (1,672,043,272) Total reinsurers share of gross change in insurance contract liabilities (Note 14) (P1,403,898,782) (P2,302,511,889) 22. General and Administrative Expenses This account consists of: Salaries, wages and allowances (Note 28) P467,919,097 P420,576,355 Employee benefits (Note 17) 118,576, ,021,615 Provisions for impairment loss - net of reversals (Notes 6 and 7) 101,423,885 48,156,274 Depreciation and amortization (Notes 11, 12 and 13) 74,035,362 72,406,685 Rent, light and water (Notes 23 and 28) 72,128,239 65,457,101 Advertising and promotions 57,856,685 55,046,045 Professional fees 57,039,878 61,097,722 Transportation and travel 48,068,178 45,735,385 Postage, telephone and cable 44,179,167 42,144,701 Printing and office supplies 38,620,775 31,332,734 Entertainment, amusement and recreation 30,635,139 32,771,455 Repairs and maintenance 23,425,431 19,734,491 Taxes, licenses and fees 18,707,311 8,898,504 Business development 8,962,608 7,667,432 Donations and contributions 7,871,700 7,162,379 Management fees (Note 28) 7,500,000 7,500,000 Bank charges 5,501,714 5,680,252 Membership and association dues 4,178,131 3,276,892 Insurance 2,205,493 1,504,910 Others 21,025,609 18,850,819 P1,209,861,397 P1,060,021,751

108 consolidated annual report 23. Leases Operating leases - Group as lessor The Group entered into various lease agreements for its office spaces. These leases generally have terms of one year, renewable every year. Operating leases - Group as lessee The Group entered into various property leases with various lessors for office space of its head office and local and provincial branches. These leases generally have terms of one year, renewable every year. 24. Income Tax The provision for income tax consists of: Final P27,878,355 P25,201,734 Current 25,704,419 13,740,476 Deferred (845,810) (4,274,755) P52,736,964 P34,667,455 The Group s net deferred tax assets consist of: Deferred tax assets: Excess of provision for unearned premiums per books over tax basis P125,013,262 P1,867,478 Excess of deferred reinsurance premiums per books over tax basis 107,462,300 Allowance for impairment losses 72,168,584 45,033,273 Deferred reinsurance commissions 50,120,012 43,514,591 Provision for IBNR losses 34,933,108 33,570,027 Unamortized past service costs 13,202,066 18,218,261 Pension obligation 12,412,607 5,492,655 NOLCO 6,586,589 6,586,589 Accrual for short-term benefits 4,192,766 4,192,766 MCIT 1,006, , ,635, ,227,271 Deferred tax liabilities: Deferred reinsurance premiums (65,639,707) Deferred acquisition costs (106,311,249) (93,936,559) Excess of provision for unearned premiums (621,750) (28,073,844) per tax over books basis Unrealized foreign exchange gains - net (48,357,664) (46,357,496) (220,930,370) (168,367,899) Deferred tax asset through equity: Remeasurement loss on defined benefit obligation P67,493,372 P66,090,788 Deferred tax liability through equity: Net unrealized gain on AFS financial assets (28,062,009) (28,731,844) P138,136,545 P135,218,316 Movements in net deferred tax assets comprise of: At beginning of the year P135,218,316 P107,377,857 Amounts credited to (charged against statements of income 1,138,085 4,274,755 Amount credited to (charged against) statements of comprehensive income 1,780,144 23,565,704 At end of the year P138,136,545 P135,218,316

109 integrity. that s our policy. 109 As of December 31, 2016 and 2015, the Group did not recognize the deferred income tax assets on the following deductible temporary differences, carryforward of unused tax credits from excess of MCIT over RCIT and unused NOLCO: NOLCO P287,092,653 P797,365,024 Accrued expenses 94,749, ,433,463 Allowance for doubtful accounts 36,566,869 43,030,373 Pension obligation 30,718,306 MCIT 47,894,199 29,341,549 The related tax benefits will be recognized only as reassessment demonstrates that they are realizable. Realization is entirely dependent upon future taxable income. As of December 31, 2016, details of the NOLCO and MCIT, which is available for offset against future taxable income and future income tax liability, respectively, follows: Inception Year NOLCO Tax Effect of NOLCO MCIT Expiration Year 2016 P P P25,704, ,101,232 8,730,370 11,588, ,946,718 83,984,015 10,600, P309,047,950 P92,714,385 P47,894,199 The following are the movements in NOLCO: Balance at beginning of year P818,869,579 P1,013,410,778 Addition 46,276,648 Expiration (138,652,204) (240,817,847) Application (371,169,425) Balance at end of year P309,047,950 P818,869,579 The following are the movements in MCIT: Balance at beginning of year P29,630,880 P24,934,810 Addition 25,704,419 11,588,875 Expiration (7,441,100) (6,892,805) Balance at end of year P47,894,199 P29,630,880 The reconciliation of provision for income tax computed at the statutory corporate income tax rate to benefit from income tax shown in the consolidated statements of income follows: At statutory income tax rate P233,006,590 P74,028,423 Adjustments for: Nondeductible expenses 9,724,507 23,966,722 Change in unrecognized deferred tax assets (93,392,020) 37,228,833 Dividend income (49,371,429) (59,395,333) Interest income exempt or already subjected to final tax (28,160,598) (25,057,608) Nontaxable income (24,577,204) (3,758,699) Gain on sale of AFS financial assets (19,070,125) (14,844,138) Provision for Impairment Losses - 2,499,255 P28,159,721 P34,667, Reconciliation of Net Income under PFRS to Statutory Net Income The reconciliation of net income under PFRS to statutory net income of the Group follows: Net income under PFRS P723,951,670 P212,093,954 Adjustments: Difference in change in provision for unearned premiums - net (68,788,834) 52,839,326 Deferred acquisition costs - net (26,301,534) (3,756,727) Others 4,137,183 9,282 Tax effect of adjustments 26,754,615 (14,449,995) P659,753,100 P246,735,840

110 consolidated annual report 26. Management of Capital, Insurance and Financial Risks Governance Framework The primary objective of the Group s risk and financial management framework is to protect the Group from events that hinder the sustainable achievement of the Group s performance objectives, including failure to exploit opportunities. The Group recognizes the importance of having efficient and effective risk management systems in place. Regulatory Framework Regulators are interested in protecting the rights of the policyholders and maintain close vigil to ensure that the Group is satisfactorily managing affairs for their benefit. At the same time, the regulators are also interested in ensuring that the Group maintains appropriate solvency position to meet liabilities arising from claims and that the risk levels are at acceptable levels. Capital Management and Regulatory Requirements The Group maintains a certain level of capital to ensure sufficient solvency margins and to adequately protect the policyholders. The level of capital maintained is usually higher than the minimum capital requirements set by the regulators and the amount computed under the Risk-based Capital (RBC) Model. The Insurance Commission s (IC) capital requirements are fixed capitalization requirements, RBC requirements and unimpaired capital requirement. The operations of the Group are subject to the regulatory requirements of the IC. Such regulations not only prescribe approval and monitoring of activities but also impose certain restrictive provisions (e.g., margin of solvency to minimize the risk of default and insolvency on the part of the insurance companies to meet the unforeseen liabilities as these arise, fixed capitalization requirements, RBC requirements). No changes were made to its capital base, objectives, policies and processes from the previous year. Minimum Statutory Networth On August 15, 2013, the President of the Philippines approved Republic Act No known as the New Insurance Code which provides for the new capitalization requirements for all existing insurance companies based on net worth on a staggered basis starting June 30, 2013 up to December 31, The following presents the amount of required net worth and the schedule of compliance per New Insurance Code: Networth Compliance Date P250,000,000 June 30, ,000,000 December 31, ,000,000 December 31, ,300,000,000 December 31, 2022 On January 13, 2015, the IC issued Circular Letter (CL) No A which provides for the clarification of minimum capital requirements under Sections 194, 197, 200 and 289 of the New Insurance Code. The said circular supersedes the Department Order Nos and and CL Nos and As of December 31, 2016, the Parent Company s estimated statutory net worth amounted to P5, million and as of December 31, 2015 after the verification of the Insurance Commission is P3, million. As of December 31, 2016 and 2015, the BAC s estimated statutory net worth amounted to P million and P million, respectively. As of December 31, 2016 and 2015, the FNAC s estimated statutory net worth amounted to P million and P million, respectively. Unimpaired capital requirement IC CL No A says that all domestic life and non-life insurance companies duly licensed by the Insurance Commission must have a networth of at least two hundred and fifty million pesos (P250,000,000) by December 31, 2013 and the minimum networth of these companies shall remain unimpaired at all times. As of December 31, 2016 and 2015, the Parent Company, BAC and FNAC have complied with the unimpaired capital requirement. Risk-based Capital Requirements IMC No provides for the RBC framework for the non-life insurance industry to establish the required amounts of capital to be maintained by the companies in relation to their investment and insurance risks. Every non-life insurance company is annually required to maintain a minimum RBC ratio of 100% and not fail the trend test. Failure to meet the minimum RBC ratio shall subject the insurance company to the corresponding regulatory intervention which has been defined at various levels. The RBC ratio shall be calculated as net worth divided by the RBC requirement. Net worth shall include the Parent Company s paid-up capital, contributed and contingency surplus and unassigned surplus. Revaluation and fluctuation reserve accounts shall form part of net worth only to the extent authorized by the IC.

111 integrity. that s our policy. 111 The Parent Company s RBC ratio as of December 31, 2016 and 2015 is 179% and 110% respectively. The final amount of the Parent Company s 2016 RBC ratio can be determined only after the accounts of the Company have been examined by the IC. The Parent Company s 2015 RBC ratio was determined final during the examination made by the IC. The RBC ratio of BAC and FNAC as of December 31, 2016 and 2015 is 465% and 196%, and 428% and 235%, respectively. The final amount of the BAC s and FNAC s 2016 and 2015 RBC ratio can be determined only after the accounts of the Company have been examined by the IC. Solvency Requirements Under the revised Insurance Code (RA 10607), a non-life insurance company doing business in the Philippines shall at all times maintain the minimum paid-up capital, and net worth requirements as prescribed by the Commissioner. Such solvency requirements shall be based on internationally accepted solvency frameworks and accepted only after due consultation with the insurance industry association. The Excess Solvency shall be the excess of the value of its admitted assets (as defined under the same Code), over the amount of its liabilities and the required minimum capital/net worth. If an insurance company failed to meet the minimum required capital, the Insurance Commission is authorized to suspend or revoke all certificates of authority granted to such companies, its officers and agents, and no new business shall be done by and for such company until its authority is restored by the Insurance Commission. The final amount of the networth as of December 31, 2016 and 2015 can be determined only after the accounts of the Parent Company have been examined by the Insurance Commission, specifically as to admitted and non-admitted assets as defined under the Code. New regulatory framework Pursuant to the powers vested in the Insurance Commissioner by Sections 189, 200, 437 and 438 of Republic Act (RA) No , otherwise known as the Insurance Code, as amended, the following regulatory requirements and actions for the new regulatory framework are hereby adopted and promulgated: Circular Letter No , Financial Reporting Framework under Section 189 of the Amended Insurance Code (Republic Act No ), prescribes the new financial reporting framework (FRF) that will be used for the statutory quarterly and annual reporting. This also includes rules and regulations concerning Titles III and IV of Chapter III of the Amended Insurance Code and all other accounts not discussed in the Amended Insurance Code but are used in accounting of insurance and reinsurance companies. Circular Letter , Valuation Standards for Non-life Insurance Policy Reserves, prescribes the new valuation methodology for the non-life insurance companies. This circular letter superseded Circular Letter No Non-life insurance companies will be changing the basis of valuation of their non-life insurance reserves. In addition to the unearned premium reserves, the concept of unexpired risk reserves is also included in the calculation of the premium liability. The incurred but not reported (IBNR) reserves will now be computed using actuarial projection techniques such as but not limited to the chain ladder method, expected loss ratio method and Bornheutter-Ferguson method. A margin for adverse deviation is estimated based on standard projection techniques or combination of such techniques, such as but not limited to the Mack Method, Bootstrapping Method, Stochastic Chain Ladder Method to bring the actuarial estimate of the Policy Liabilities at the 75th percentile level of sufficiency. Discount rates to be used shall be current risk-free rates. The rates shall exactly match the duration of the policy and the currency of the cash flows and shall be prescribed by the Insurance Commission. Circular Letter No , Amended Risk-Based Capital (RBC2) Framework, prescribes that all insurance companies must satisfy the minimum statutory RBC ratio of 100% and not fail the Trend Test as stated under Section 3 of this Circular. The RBC ratio of an insurance company shall be equal to the Total Available Capital (TAC) divided by the RBC requirement. Implementation requirements and transition accounting Circular Letter No , Implementation Requirements for Financial Reporting, Valuation Standards for Insurance Policy Reserves and Amended Risk-based Capital Framework. The new regulatory requirements under circular letters , and as discussed in the three (3) preceding circular letters shall take effect beginning January 1, Circular Letter No , Regulatory Requirements and Actions for the New Regulatory Framework. The cumulative prior year impact of the changes arising from the adoption of the New Financial Reporting Framework, including the revaluation of the reserves for Claims and Premiums Liabilities computed based on the new valuation standards for non-life insurance policy reserves as provided under CL No , shall be recognized in Retained Earnings - Transition Adjustments account. All changes in valuation shall be measured net of any tax effect. Insurance Risk The principal risk the Group faces under insurance contracts is that the actual claims and benefit payments or the timing thereof, differ from expectations. This is influenced by the frequency of claims, severity of claims, actual benefits paid and subsequent development of claims. Therefore, the objective of the Group is to ensure that sufficient reserves are available to cover these liabilities.

112 consolidated annual report The above risk exposure is mitigated by diversification across a large portfolio of insurance contracts and geographical areas. The variability of risks is also improved by careful selection and implementation of underwriting strategy guidelines, as well as the use of reinsurance arrangements. The Group purchases reinsurance as part of its risks mitigation program. Reinsurance ceded is placed on both a proportional and non-proportional basis with retention limits varying by product line and territory. The majority of proportional reinsurance is quota-share reinsurance which is taken out to reduce the overall exposure of the Group to certain classes of business. Nonproportional reinsurance is primarily excess-of-loss reinsurance designed to mitigate the Group s net exposure to catastrophe losses. Retention limits for the excess-of-loss reinsurance vary by product line and territory. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contracts. Although the Group has reinsurance arrangements, it is not relieved of its direct obligations to its policyholders and thus a credit exposure exists with respect to ceded insurance, to the extent that any reinsurer is unable to meet its obligations assumed under such reinsurance agreements. The Group s placement of reinsurance is diversified such that it is neither dependent on a single reinsurer nor are the operations of the Group substantially dependent upon any single reinsurance contract. The Group principally issues the following types of general insurance contracts: fire, motorcar, personal accident, marine, engineering, bonds and miscellaneous casualty. The most significant risks arise from climate changes and natural disasters. These risks do not vary significantly in relation to the location of the risk insured by the Group, type of risk insured and by industry. To further reduce the risk exposure, the Group requires strict claim review policies to assess all new and ongoing claims, regular detailed review of claims handling procedures and frequent investigation of possible fraudulent claims. The Group further enforces a policy of actively managing and prompt pursuing of claims, in order to reduce its exposure to unpredictable future developments that can negatively impact the Group. The Group also has limited its exposure level by imposing maximum claim amounts on certain contracts as well as the use of reinsurance arrangements in order to limit exposure to catastrophic events. The purpose of these underwriting and reinsurance strategies is to limit exposure to catastrophes to a predetermined maximum amount based on the Group s risk appetite as decided by management. The tables below set out the concentration of the claims liabilities by type of contract (Note 14) Gross Reinsurers Share Net Fire P4,791,933,640 P3,726,890,659 P1,065,042,981 Miscellaneous casualty 760,567, ,018, ,548,194 Bonds 305,893, ,696, ,197,153 Engineering 548,459, ,761, ,698,130 Marine 352,056, ,505,767 18,550,969 Motor 403,558,295 2,283, ,275,238 Others 41,598, ,956 40,869,575 P7,204,067,658 P5,243,885,418 P1,960,182, Gross Reinsurers Share Net Fire P5,953,501,102 P5,353,748,414 P599,752,688 Marine 203,602, ,624,359 59,977,960 Miscellaneous casualty 552,303, ,134, ,168,708 Motor 681,018, ,478, ,539,486 Engineering 412,201, ,063,813 48,137,197 Bonds 498,730,680 7,268, ,462,569 Others 58,027,921 (533,907) 58,561,828 P8,359,384,635 P6,647,784,199 P1,711,600,436 The tables below set out the geographical concentration of the Group s claims liabilities based on the countries where the insurance business is written Gross Reinsurers Share Net Philippines P7,373,979,327 P5,413,797,087 P1,960,182,240 Greece P7,373,979,327 P5,413,797,087 P1,960,182,240

113 integrity. that s our policy Gross Reinsurers Share Net Philippines P8,277,509,956 P6,647,784,199 P1,629,725,757 Greece 81,874,679 81,874,679 P8,359,384,635 P6,647,784,199 P1,711,600,436 Key Assumptions The principal assumption underlying the liability estimates is the Group s future claims development will follow a similar pattern to past claims development experience. This includes assumptions in respect of average claim costs, claims handling costs, claims inflation factors and claim numbers for each accident year. Additional qualitative judgments are used to assess the extent to which past trends may not apply in the future, for example once-off occurrence, changes in market factors such as public attitude to claiming, economic conditions, as well as internal factors such as portfolio mix, policy conditions and claims handling procedures. Judgment is further used to assess the extent to which external factors such as judicial decisions and government legislation affect the estimates. Other key assumptions include variations in interest, delays in settlement and changes in foreign currency rates. Sensitivities The insurance claims provision is sensitive to the above key assumptions. Because of delays that arise between occurrence of a claim and its subsequent notification and eventual settlement, the outstanding claim provisions are not known with certainty at the reporting dates. The table below shows the impact of changes in certain important assumptions in general insurance business while other assumptions remain unchanged. The correlation of assumptions will have a significant effect in determining the claims but to demonstrate the impact due to changes in assumptions, assumptions had to be changed on individual basis. Change in Assumptions % Impact on Gross Insurance Contract Liabilities Increase (Decrease) 2016 Impact on Net Insurance Contract Liabilities Increase (Decrease) Impact on Income Before Income Tax Increase (Decrease) Average claim costs +5% P128,070,280 P73,766,833 (P73,766,833) Average number of claims +5% 112,637,013 64,880,788 (64,880,788) Change in Assumptions % Impact on Gross Insurance Contract Liabilities Increase (Decrease) 2015 Impact on Net Insurance Contract Liabilities Increase (Decrease) Impact on Income Before Income Tax Increase (Decrease) Average claim costs +5% P93,836,713 P60,285,847 (P60,285,847) Average number of claims +5% 87,512,782 56,223,008 (56,223,008) Claims Development Table The following tables reflect the cumulative incurred claims, including both claims notified and IBNR for each successive accident year at each reporting dates, together with cumulative payments to date. The Group aims to maintain strong reserves in respect of its insurance business in order to protect against adverse future claims experience and developments. As claims develop and the ultimate cost of claims becomes more certain, adverse claims experiences are eliminated which results in the release of reserves from earlier accident years. In order to maintain strong reserves, the Group transfers much of this release to current accident year reserves when the development of claims is less mature and there is much greater uncertainty attaching to the ultimate cost of claims. The risks vary significantly in relation to the location of the risk insured by the Group, type of risks insured and in respect of commercial and business interruption insurance by industry.

114 consolidated annual report Accident year Gross insurance contract liabilities in and prior year Total Accident year P7,033,157,544 P4,850,917,503 P2,154,031,020 P3,454,804,095 P4,559,381,129 P2,481,332,474 P2,087,604,406 P3,565,060,591 P5,651,920,684 P3,873,612,957 P2,267,136,620 P2,780,044,618 P2,780,044,618 One year later 7,211,482,104 6,805,336,003 2,702,868,685 3,081,954,264 4,064,463,972 2,385,646,855 2,386,441,297 3,823,993,982 8,119,570,411 3,861,870,223 2,525,577,848-2,525,577,848 Two years later 7,270,837,804 6,141,362,933 3,309,288,417 3,045,807,229 4,123,594,783 2,339,681,943 2,326,813,122 3,475,560,926 7,516,449,014 3,725,489, ,725,489,025 Three years later 7,280,263,333 6,211,822,149 3,238,220,388 3,054,340,566 4,002,725,582 2,474,843,004 2,322,438,981 3,363,783,806 7,180,698, ,180,698,346 Four years later 7,321,310,337 6,109,296,498 3,218,225,235 3,050,278,500 4,001,655,258 2,479,660,277 2,254,254,005 3,232,749, ,232,749,314 Five years later 7,204,204,826 6,119,695,906 3,236,696,940 3,037,930,350 3,812,404,790 2,514,701,798 2,247,348, ,247,348,888 Six years later 7,194,462,945 6,115,761,614 3,238,968,330 3,053,080,403 3,947,972,883 2,478,284, ,478,284,460 Seven years later 7,151,552,079 6,115,339,530 3,254,408,887 3,053,560,931 3,631,585, ,631,585,263 Eight years later 7,138,741,362 6,133,959,028 2,990,363,153 2,900,134, ,900,134,363 Nine years later 7,133,328,869 6,181,864,423 2,997,535, ,997,535,795 Ten years later 7,135,129,061 6,183,198, ,183,198,077 Eleven years later 7,065,195, ,065,195,532 Current estimate of cumulative claims Cumulative payments to date 7,065,195,532 6,183,198,077 2,997,535,795 2,900,134,363 3,631,585,263 2,478,284,460 2,247,348,888 3,232,749,314 7,180,698,346 3,725,489,025 2,525,577,848 2,780,044,618 46,947,841,529 6,652,566,994 6,122,954,749 2,975,501,565 2,742,098,937 3,413,929,048 2,434,234,710 2,203,786,439 3,139,943,869 4,205,996,872 2,693,778,190 1,835,432,166 1,189,226,094 39,609,449,634 Liability recognized P412,628,538 P60,243,328 P22,034,230 P158,035,426 P217,656,215 P44,049,750 P43,562,449 P92,805,445 P2,974,701,474 P1,031,710,835 P690,145,682 P1,590,818,524 P7,338,391,895 Accident year Net insurance contract liabilities in and prior year Total Accident year P3,085,614,472 P1,242,378,749 P1,431,258,014 P1,952,183,387 P1,125,272,584 P1,497,315,141 P1,497,678,245 P1,373,011,829 P1,210,526,474 P1,845,879,726 P1,841,113,552 P770,852,848 P770,852,848 One year later 3,226,427,209 1,567,045,893 1,424,541,612 1,920,769,319 1,152,619,674 1,565,185,256 1,808,794,492 1,363,946, ,820,751 1,303,446,092 1,990,498,940-1,990,498,940 Two years later 3,254,192,237 1,616,864,780 1,941,147,712 1,976,729,680 1,216,041,807 1,548,687,275 1,782,379,520 1,186,126,961 1,075,740,727 1,196,416, ,196,416,415 Three years later 3,278,762,812 1,626,293,386 1,902,396,647 1,944,578,887 1,202,979,855 1,679,611,040 1,780,384,110 1,175,424,062 2,264,155, ,264,155,850 Four years later 3,271,630,637 1,622,788,908 1,882,845,857 1,946,399,063 1,336,793,703 1,682,578,800 1,720,250,374 1,164,570, ,164,570,511 Five years later 3,042,764,568 1,636,820,607 1,878,433,994 1,932,031, ,754,249 1,716,093,862 1,713,620, ,713,620,107 Six years later 2,754,576,468 1,635,768,393 1,880,626,407 1,931,450, ,362,979 1,697,667, ,697,667,862 Seven years later 2,728,578,301 1,635,768,284 1,895,791,162 1,956,350, ,645, ,645,082 Eight years later 2,712,894,478 1,654,188,012 1,890,037,610 1,905,410, ,905,410,402 Nine years later 2,705,636,441 1,677,716,322 1,897,003, ,897,003,215 Ten years later 2,707,603,838 1,674,059, ,674,059,822 Eleven years later 2,694,530, ,694,530,492 Current estimate of cumulative claims Cumulative payments to date 2,694,530,492 1,674,059,822 1,897,003,215 1,905,410, ,645,082 1,697,667,862 1,713,620,107 1,164,570,511 2,264,155,850 1,196,416,415 1,990,498, ,852,848 19,232,431,546 2,534,810,897 1,651,334,654 1,886,925,145 1,889,959, ,600,969 1,675,302,192 1,705,767,374 1,154,213,058 1,059,524, ,277,032 1,940,512, ,330,036 17,321,557,738 Liability recognized P159,719,595 P22,725,168 P10,078,070 P15,450,590 P12,044,113 P22,365,670 P7,852,733 P10,357,453 P1,204,631,594 P291,139,383 P49,986,627 P104,522,812 P1,910,873,808

115 integrity. that s our policy. 115 Financial Risk The Group is exposed to financial risk through its financial assets and financial liabilities. In particular, the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance contracts. The most important components of this financial risk are credit risk, liquidity risk and market risk. Credit Risk Credit risk is a risk due to uncertainty in a counterparty s (also called an obligor) ability to meet its obligation. Prior to extending credit, the Group manages its credit risk by assessing credit quality of its counterparty. The Group has a credit policy group that reviews all information about the counterparty which may include its statement of financial position, statements of income and other market information. The nature of the obligation is likewise considered. Based on this analysis, the credit analyst assigns the counterparty a credit rating to determine whether or not credit may be provided. Credit risk limit is also used to manage credit exposure which specifies exposure credit limit for each intermediary depending on the size of its portfolio and its ability to meet its obligation based on past experience. The table below shows the maximum exposure to credit risk for the components of the consolidated statement of financial position, net of impairment loss. AFS financial assets: Quoted securities: Listed equity securities Common shares P3,726,457,289 P4,778,985,387 Preferred shares 34,742,440 42,122,933 Government debt securities: Local currency 458,251, ,272,427 Foreign currency 11,405,527 11,004,349 Private debt securities 2,080,674,994 1,616,169,209 Funds 142,473, ,267,335 Non-quoted securities: Unlisted equity securities 115,886, ,066,021 Loans and receivables: Cash and cash equivalents 1,299,767,394 2,713,872,604 Short-term investments 6,689,747 55,416,330 Insurance receivables: Due from policyholders, agents and brokers 4,229,557,399 3,765,826,268 Due from ceding companies: Treaty 801,245, ,180,889 Facultative 104,769,156 88,139,148 Funds held by ceding companies 376,240, ,119,203 Reinsurance recoverable on paid losses: Facultative 274,499, ,151,804 Treaty 43,694,795 43,694,796 Loans and receivables: Long-term commercial papers 1,190,590,872 1,069,468,505 Notes receivable 16,118,284 14,090,528 Creditable withholding tax 261,234, ,152,400 Claims recoverable 6,408,374 6,408,374 Accounts receivable 35,029, ,049,659 Miscellaneous Receivable Cash advances 792, ,578 Security fund 832, ,294 Due from related parties 45,465 Accrued income: Accrued interest income: AFS financial assets 29,903,494 29,984,872 Long-term commercial papers 10,775,225 10,960,026 Notes receivable Cash and cash equivalents 337, ,905 Funds held by ceding companies 354,351 62,494 Security fund 145, ,873 Accrued rent income 2,640,821 2,760,759 Accrued dividend income 6,027,744 3,745,751 P15,267,545,540 P15,961,763,186

116 consolidated annual report The following tables provide information regarding the credit risk exposure of the Group by classifying the financial assets according to the Group s credit ratings of the counter parties Neither past due nor impaired Past due but Individually High Grade Medium Grade not impaired Impaired Total AFS financial assets: Quoted securities: Listed equity securities Common shares P3,676,266,755 P P P50,190,534 P3,726,457,289 Preferred shares 34,742,440 34,742,440 Government debt securities: Local currency 458,251, ,251,379 Foreign currency 11,405,527 11,405,527 Private debt securities 753,501,433 1,327,173,561 2,080,674,994 Funds 132,825,073 5,259,786 4,388, ,473,445 Non-quoted securities: Unlisted equity securities Common shares 115,868, ,868,486 Preferred shares 17,540 17,540 Loans and receivables: Cash and cash equivalents 1,299,767,394 1,299,767,394 Short-term investments 6,689,747 6,689,747 Insurance receivables: Due from policyholders, agents, and brokers 2,369,586,520 1,364,307, ,136,696 9,498,932 4,453,529,465 Due from ceding companies: Treaty 36,319,862 Facultative 97,947, ,495, ,005, ,448,505 Funds held by ceding companies 36,319,862 36,918,663 64,968, , ,547,871 Reinsurance recoverable on paid losses: Facultative 6,385,151 =106,213,430 =166,790,583 = =279,389,164 Treaty 43,694,795 43,694,795 Accrued income: Accrued interest: AFS financial assets 33,025,166 33,025,166 Long-term commercial papers 7,653,553 7,653,553 Cash and cash equivalents 337, ,187 Funds held by ceding companies 354, ,351 Security fund 311, ,761 Short term investments 182, ,520 Accrued rent income 2,674,113 2,674,113 Accrued dividend income 5,646,024 5,646,024 Loans and receivables: Long-term commercial papers 1,170,590,872 20,000,000 1,190,590,872 Creditable withholding tax 261,234, ,234,149 Notes receivable 14,529,501 14,529,501 Claims recoverable 6,408, ,906 6,899,280 Accounts receivable 32,587, ,431 32,979,239 Due from related parties Cash advances 792, ,289 Security fund 832, ,374 1,432,095 P10,482,863,674 P3,123,619,855 P1,839,378,374 P66,399,205 P15,512,261, Neither past due nor impaired Past due but Individually High Grade Medium Grade not impaired Impaired Total AFS financial assets: Quoted securities: Listed equity securities Common shares P4,610,750,232 P P P228,642,050 P4,839,392,282 Preferred shares 42,122,933 42,122,933

117 integrity. that s our policy Neither past due nor impaired Past due but Individually High Grade Medium Grade not impaired Impaired Total Government debt securities: Local currency P625,272,427 P P P P625,272,427 Foreign currency 11,004,349 11,004,349 Private debt securities 452,818,874 1,163,350,335 1,616,169,209 Funds 215,350,646 4,916, ,267,335 Non-quoted securities: Unlisted equity securities Common shares 99,866,021 13,182, ,048,481 Preferred shares 17,540 17,540 Cash and cash equivalents 2,713,872,604 2,713,872,604 Short-term investments 55,416,330 55,416,330 Insurance receivables: Due from policyholders, agents, and brokers 718,325, ,503,639 2,615,933,523 7,991,154 3,929,754,286 Due from ceding companies: Treaty 13,011, ,859, , ,212,508 Facultative 35,519,921 18,638,133 33,981,094 14,557, ,696,332 Funds held by ceding companies 22,948,257 68, ,102,821 1,380, ,499,980 Reinsurance recoverable on paid losses: Facultative 884,557 33,407,439 90,889, ,181,972 Treaty 43,694,796 43,694,796 Accrued income: Accrued interest: AFS financial assets 29,984,872 29,984,872 Long-term commercial papers 10,960,026 10,960,026 Notes receivable Cash and cash equivalents 442, ,905 Funds held by ceding 62,494 62,494 companies Security fund 193, ,873 Short-term investments Accrued rent income 2,760,759 2,760,759 Accrued dividend income 3,745,751 3,745,751 Loans and receivables: Long-term commercial papers 151,214, ,253,612 1,069,468,505 Creditable withholding tax 144,152, ,152,400 Notes receivable 14,048,279 42,249 1,697,251 15,787,779 Claims recoverable 6,408,374 6,408,374 Accounts receivable 38,025,769 74,023, ,049,659 Due from related parties 3,629,034 3,629,034 Cash advances 768, ,996 Security fund 342, ,294 P10,067,424,108 P2,813,386,571 P3,080,767,115 P254,609,418 P16,216,381,085 The credit rating is based on the following: a) Cash and cash equivalents, short-term investments and related accrued income High grade pertains to those deposited, placed or invested in foreign and local banks belonging to the top banks in the Philippines in terms of resources and profitability, while medium grade pertains to those deposited, placed or invested in thrift banks and rural banks in the Philippines. b) Insurance receivables, loans and receivables, accrued rent income and dividend income For insurance receivables and loans and receivables except Due from ceding companies, Funds held by ceding companies, and Long-term commercial papers, the Group uses a credit rating concept based on the borrowers and counterparties overall creditworthiness. High grade is given to borrowers and counterparties who possess strong to very strong capacity to meet its obligations. Medium grade is given to borrowers and counterparties who possess above average capacity to meet its obligations. These counterparties are somewhat susceptible to adverse changes in business and economic conditions. For Due from ceding companies and Funds held by ceding companies from local sources, the Group uses a credit rating concept based on the debt-to-equity ratios of the borrowers and counterparties. High grade is given to borrowers and counterparties with debt-to-equity ratio of less than or equal to 2:1, while medium grade is given to borrowers and counterparties with debt-to-equity ratio of more than 2:1.

118 consolidated annual report For Due from ceding companies and Funds held by ceding companies from foreign sources, the Group uses Standard & Poor s (S&P) and A.M. Best s credit rating of insurance companies. High grade pertains to insurance companies rated by S&P and A.M. Best as higher than BB+, which means that the insurance company has good to strong financial security characteristics, but may be affected by adverse business conditions. Medium grade pertains to insurance companies that are ungraded and rated by S&P and A.M. Best as lower than BB+, which means that the insurance company has marginal financial security characteristics. Positive attributes exist, but adverse business conditions could lead to insufficient ability to meet financial commitments. c) Equity securities Listed equity securities are classified as high grade. Unlisted equity securities are classified as medium grade. d) Debt securities, long-term commercial papers, and related accrued income These are based on the credit ratings by the international rating agency, Standard & Poors (S&P), and by Philippine Ratings Services Corporation (Philratings), the only domestic credit rating services in the Philippines accredited by Bangko Sentral ng Pilipinas (BSP) and SEC, in cases where an S&P rating is not available. High grade pertains to investments rated by S&P as BBB- and higher, which means that the counterparties have extremely strong to adequate capacity of paying interest and repaying principal, as well as Investments in Securities issued by the Philippine Government. Medium grade pertains to investments rated as Baa and higher by Philratings, as well as investments rated by S&P as BB+ to B- (except Philippine Government Securities). The Group s holdings under this category are rated either BB- by S&P (due to sovereign credit rating ceiling) or Aaa by Philratings which is defined by Philratings to mean that the obligor s capacity to meet its financial commitment on the obligation is extremely strong. e) Notes receivables Receivables from related entities are considered as high grade. Liquidity Risk Liquidity or funding risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from either the inability to sell financial assets quickly at their fair values; or counterparty failing on repayment of a contractual obligation; or insurance liability falling due for payment earlier than expected; or inability to generate cash inflows as anticipated. An institution may suffer from a liquidity problem when its credit rating falls. The Group is also exposed to liquidity risk if markets on which it depends on are subject to loss of liquidity. The major liquidity risk faced by the Group is the potential daily calls on its available cash resources in respect of claims from insurance contracts. The Group manages liquidity through a management team which determines liquidity risk for the Group by identifying events that would trigger liquidity problems, providing contingency plans, identifying potential sources of funds and monitoring compliance of liquidity risk policy. The tables below analyze financial assets and financial liabilities of the Group into their relevant maturity groups based on the remaining period at the reporting date to their contractual maturities or expected repayment dates Up to a year* 1-3 years More than 3 years No term Total Cash and cash equivalents P1,300,309,612 P P P P1,300,309,612 Short-term investments 6,689,747 6,689,747 Insurance receivables 6,068,461,317 6,068,461,317 AFS financial assets 3,901,028, ,134,793 1,926,341, ,004,802 6,953,509,727 Loans and receivables 1,418,041,158 6,673,659 86,256,275 35,446 1,511,006,538 Accrued income 50,184,675 50,184,675 Reinsurance recoverable on unpaid losses 5,487,232,755 5,487,232,755 Total financial assets P18,231,947,722 P353,808,452 P2,012,597,949 P779,040,248 P21,377,394,371 Insurance contract liabilities P11,251,635,440 P P P P11,251,635,440 Insurance payables 1,922,124,301 43,595 1,922,167,896 Accounts payable, accrued expenses and other liabilities 1,397,894,042 1,397,894,042 Total financial liabilities P14,571,653,783 P43,595 P P P14,571,697,378 *Up to a year are all commitments which are either due within one year or are payable on demand.

119 integrity. that s our policy Up to a year* 1-3 years More than 3 years No term Total Cash and cash equivalents P2,714,551,186 P P P P2,714,551,186 Short-term investments 55,416,330 55,416,330 Insurance receivables 4,576,349,257 4,576,349,257 AFS financial assets 4,428,722, ,799,025 1,475,649, ,716,631 7,406,887,661 Loans and receivables 1,298,081,183 13,020,481 40,000,000 1,351,101,664 Accrued income 48,150,680 48,150,680 Reinsurance recoverable on unpaid losses 6,287,027, ,756,908 6,647,784,199 Total financial assets P19,408,298,239 P932,576,414 P1,515,649,693 P943,716,631 P22,800,240,977 Insurance contract liabilities P7,935,384,054 P21,900,581 P402,100,000 P P8,359,384,635 Insurance payables 2,852,239,818 43,595 2,852,283,413 Accounts payable, accrued expenses and other liabilities 1,620,239,040 1,620,239,040 Total financial liabilities P12,407,862,912 P21,944,176 P402,100,000 P P12,831,907,088 *Up to a year are all commitments which are either due within one year or are payable on demand. In 2016 and 2015, certain insurance receivables, AFS securities and loans and receivables have been provided with allowance for impairment. It is unusual for the Group primarily transacting insurance business to predict the requirements of funding with absolute certainty as theory of probability is applied on insurance contracts to ascertain the likely provision and the time period when such liabilities will require settlement. The amounts and maturities in respect of insurance liabilities are thus based on management s best estimate based on past experience. Market Risk Market risk is the risk of change in fair value of financial instruments from fluctuations in foreign exchange rates (currency risk), market interest rates (interest rate risk) and market prices (price risk), whether such change in price is caused by factors specific to the individual instrument or its issuer or factors affecting all instruments traded in the market. Market risk is the risk to an institution s financial condition from volatility in the price movements of the assets contained in a portfolio. Market risk represents what the Group would lose from price volatilities. Market risk can be measured as the potential gain or loss in a position or portfolio that is associated with a price movement of a given probability over a specified time horizon. The Group manages market risk by evenly distributing capital among investment instruments, sectors and geographical areas. The Group structures levels of market risk it accepts through a sound market risk policy based on specific guidelines set by an Investment Committee. This policy constitutes certain limits on exposure of investments mostly with top-rated banks, which are selected on the basis of the bank s credit ratings, capitalization and quality servicing being rendered to the Group. Also, the said policy includes diversification benchmarks of investment portfolio to different investment types duly approved by the IC, asset allocation and portfolio limit structure. Moreover, control of relevant market risks can be addressed through compliance reporting of market risk exposures, regular monitoring and review of the Group s investment performance and upcoming investment opportunities for pertinence and changing environment. a) Currency Risk The Group s principal transactions are carried out in Philippine Peso and its exposure to foreign exchange risk arises primarily with respect to U.S. Dollar and Euro. In addition, the Parent Company enters into non-deliverable forward contracts to hedge its exposure on foreign currency exchange risks. The tables below summarize the Group s exposure to foreign currency exchange rate risks by categorizing assets and liabilities by major currencies Philippine Peso U.S. Dollar Euro Others Total AFS financial assets: Equity securities: Listed equity securities P3,500,158,135 P226,585,129 P39,868,419 P62,591,356 P3,829,203,039 Unlisted equity securities 115,886, ,886,026 Private debt securities 2,080,674,969 2,080,674,969 Government debt securities 458,251,379 11,405, ,656,906 Funds 23,734, ,325,548 2,413, ,473,445

120 consolidated annual report 2016 Philippine Peso U.S. Dollar Euro Others Total Loans and receivables: Cash and cash equivalents P1,300,285,401 P P P P1,300,285,401 Short-term investments 6,689,747 6,689,747 Insurance receivables - net 4,607,312,542 1,091,661,124 38,546,171 5,737,519,837 Loans and receivables 1,583,458,595 1,583,458,595 Accrued income 49,850, ,616 50,184,675 Total assets P11,645,626,611 P3,526,986,913 P42,281,589 P101,137,527 P15,316,032,640 Other financial liabilities Accounts payable, accrued expenses and other liabilities P1,400,507,121 P P P P1,400,507,121 Insurance payables 1,674,071, ,625,890 1,453,097 1,924,150,142 Total liabilities P3,074,578,276 P248,625,890 P P1,453,097 P3,324,657, Philippine Peso U.S. Dollar Euro Others Total AFS financial assets: Equity securities: Listed equity securities P4,419,346,028 P269,869,505 P64,818,927 P67,073,860 P4,821,108,320 Unlisted equity securities 113,066, ,066,021 Private debt securities 1,616,169,209 1,616,169,209 Government debt securities 624,272,427 11,004, ,276,776 Funds 50,346, ,172,191 11,748, ,267,335 Loans and receivables: Cash and cash equivalents 2,441,736, ,352,896 27,063,358 9,398,395 2,714,551,186 Short-term investments 42,569,373 12,846,957 55,416,330 Insurance receivables - net 3,219,187,451 1,117,296,657 53,628,000 4,390,112,108 Loans and receivables 1,347,323,803 1,347,323,803 Accrued income 26,568,605 21,536,665 45,410 48,150,680 Total assets P12,284,417,149 P3,443,248,429 P91,927,695 P141,848,495 P15,961,441,768 Other financial liabilities Accounts payable, accrued expenses and other P1,620,239,040 P P P P1,620,239,040 liabilities Insurance payables 2,743,603, ,779,531 4,900,466 2,852,283,413 Total liabilities P4,363,842,456 P103,779,531 P P4,900,466 P4,472,522,453 The following table demonstrates the sensitivity to a reasonably possible change in the US Dollar, euro and other currency exchange rates, with all other variables held constant, of the Group s profit before tax (due to changes in the foreign exchange rate). Impact on income before tax Increase (Decrease) Currency Change in rate US Dollar + 5% P138,978,772 P136,481,622-5% (138,978,772) (136,481,622) Euro + 5% 1,185,803 1,960,666-5% (1,185,803) (1,960,666) Others + 5% 1,164, ,536-5% (1,164,677) (289,536) b) Interest Rate Risk Interest rate risk is the risk that the value/future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group s fixed rate investments in particular are exposed to such risk. The Group s market risk policy requires it to manage interest rate risk by maintaining appropriate mix of fixed and variable rate instruments. The policy also requires it to manage the maturities of interest bearing financial assets.

121 integrity. that s our policy. 121 The following table sets out the Group s financial assets exposed to interest rate risk by maturity: 2016 Interest Rate Within one year 1-3 years More than 3 years Total Cash and cash equivalents 0.25% to 1.4% P1,300,361,501 P P P1,300,361,501 Short-term investments 0.63% % 6,689,747 6,689,747 Notes receivable 8% to 8.5% 5,893,752 3,085,009 6,648,617 15,627,378 Long-term commercial papers 1.125% - 9% 1,113,060,872 10,000,000 67,530,000 1,190,590,872 Security fund 4.76% 701, ,937 AFS debt financial assets 1.25% % 3,918,713, ,596,335 1,822,511,644 6,128,820,996 Total interest-bearing financial assets P6,345,420,826 P400,681,344 P1,896,690,261 P8,642,792, Interest Rate Within one year 1-3 years More than 3 years Total Cash and cash equivalents 0.25% -1.4% P2,713,872,604 P P P2,713,872,604 Short-term investments 0.63%-7.5% 55,416,330 55,416,330 Notes receivable 8%-8.5% 15,787,779 15,787,779 Long-term commercial papers 1.125%-9% 1,016,468,505 8,000,000 45,000,000 1,069,468,505 Security fund 4.76% 342, ,294 AFS debt financial assets 1.25%-12.38% 287,015, ,231,218 1,454,199,678 2,252,445,985 Total interest-bearing financial assets P4,088,902,601 P519,231,218 P1,499,199,678 P6,107,333,497 The following table demonstrates the sensitivity to a reasonably possible change in interest rates on the AFS debt securities, with all other variables held constant, of the Group s equity: Impact on equity Change in Increase (decrease) basis points Currency Philippine Peso P63,046,181 P66,470,671 U.S. Dollar ,152 2,969,561 Euro Philippine Peso (53,899,696) (54,611,218) U.S. Dollar (51,391,249) (41,434,939) Euro c) Equity Price Risk The Group s price risk exposure at year-end relates to financial assets and liabilities whose values will fluctuate as a result of changes in market prices, principally, AFS equity financial assets. Such financial assets are subject to price risk due to changes in market values of instruments arising either from factors specific to individual instruments or their issuers or factors affecting all instruments traded in the market. The Group s market risk policy requires it to manage such risks by setting and monitoring objectives and constraints on investments; diversification plan; limits on investment in each country, sector and market; and careful and planned use of derivative instruments. The price risk on investments securities is also actively managed through the use of derivative financial instruments to mitigate the risk of adverse market movements. The following table shows the equity impact of reasonably possible change of Philippine Stock Exchange index (PSEi), Morgan Stanley Capital International (MSCI) Euro and Dow Jones Euro Stoxx 50 (SX5E Index): Impact on equity Change in Increase (decrease) equity prices PSEi MSCI Euro % P402,624,731 P27,794,184-15% (402,624,731) (27,794,184) % P474,009,832 P20,276,023-15% (474,009,832) (20,276,023)

122 consolidated annual report 27. Financial Assets and Liabilities The table below presents a comparison by category of carrying amounts and estimated fair values of all the Group s financial instruments. Carrying Value Fair Value Carrying Value Fair Value AFS financial assets: Quoted securities: Listed equity securities Common shares P4,086,672,158 P4,086,672,158 P4,778,985,387 P4,778,985,387 Preferred shares 40,792,440 40,792,440 42,122,933 42,122,933 Government debt securities: Local currency 458,251, ,251, ,272, ,272,427 Foreign currency 11,405,527 11,405,527 11,004,349 11,004,349 Private debt securities 2,080,674,994 2,080,674,994 1,616,169,209 1,616,169,209 Funds 153,827, ,827, ,267, ,267,335 Non-quoted securities: Unlisted equity securities Common shares 121,868, ,868, ,048, ,048,481 Preferred shares 17,540 17,540 17,540 17,540 Loans and receivables: Cash and cash equivalents 1,300,385,712 1,300,385,712 2,714,551,186 2,714,551,186 Short-term investments 6,689,747 6,689,747 55,416,330 55,416,330 Insurance receivables: Due from policyholders, agents 4,229,557,399 4,229,557,399 3,765,826,268 3,765,826,268 and brokers Due from ceding companies: Treaty 802,188, ,188, ,180, ,180,889 Facultative 104,769, ,769,156 88,139,148 88,139,148 Funds held by ceding companies Reinsurance recoverable on paid 376,240, ,240, ,119, ,119,203 losses: Facultative 274,499, ,499, ,878, ,878,804 Treaty 43,694,795 43,694,795 43,694,796 43,694,796 Loans and receivables: Long-term commercial papers 1,190,590,872 1,190,590,872 1,069,468,505 1,069,468,505 Creditable withholding tax 261,234, ,234, ,152, ,152,400 Accounts receivable 34,638,418 34,638, ,049, ,049,659 Notes receivable 16,118,284 16,118,284 14,090,528 14,090,528 Claims recoverable 6,799,805 6,799,805 6,408,374 6,408,374 Due from related parties 45,465 45,465 Cash advances 792, , , ,578 Security fund 832, , , ,294 Accrued income: Accrued interest income: AFS financial assets 29,903,494 29,903,494 29,984,872 29,984,872 Long-term commercial papers 10,775,225 10,775,225 10,960,026 10,960,026 Notes receivable Cash and cash equivalents 337, , , ,905 Funds held by ceding companies 354, ,351 62,494 62,494 Security fund 145, , , ,873 Accrued rent income 2,640,821 2,640,821 2,760,759 2,760,759 Accrued dividend income 6,027,744 6,027,744 3,745,751 3,745,751 Total financial assets P15,652,725,968 P15,652,725,968 P15,962,168,768 P15,962,168,768 Other financial liabilities Insurance payables Due to reinsurers and ceding companies P1,515,905,292 P1,515,905,292 P2,318,934,580 P2,318,934,580 Funds held for reinsurers 408,244, ,244, ,348, ,348,833 Accounts payable and accrued expenses and other liabilities: Accounts payable 592,648, ,648, ,506, ,506,549 Commissions payable 582,287, ,287, ,121, ,121,241 Accrued expenses 105,358, ,358, ,972, ,972,122 Surety deposits 66,777,586 66,777,586 96,748,100 96,748,100 Others 46,791,305 46,791,305 40,889,028 40,889,028 Total financial liabilities P3,318,013,382 P3,318,013,382 P4,472,520,453 P4,472,520,453

123 integrity. that s our policy. 123 Fair values of financial assets are estimated as follows: Cash and cash equivalents, short-term investments - the fair value approximates the carrying amounts at initial recognition due to their short term nature. Debt securities - the fair values are based on quoted market prices. Quoted equity securities - the fair values are generally based on quoted market prices. Unquoted equity securities - these are carried at cost less allowance for impairment losses because fair value cannot be measured reliably due to lack of reliable estimates of future cash flows and discount rates necessary to calculate the fair value. There is no active market for the equity securities. The entity intends to dispose the securities through selling to a willing buyer in an arms-length transactions. Insurance receivables, accrued income, short-term loans and receivables (including notes receivable, long-term investments and security fund), insurance payables, accounts payable and accrued expenses - the fair values approximate the carrying amounts due to the short-term nature of the transactions. Long-term loans and receivables - the fair value long-term loans and receivables is estimated using discounted cash flow technique that makes use of PDEX rates in 2016 and Fair value hierarchy The following table provides the fair value measurement hierarchy of the Group s assets and liabilities: December 31, 2016 Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Total Assets measured at fair value: AFS financial assets Listed equity securities: Common shares P4,086,672,158 P P P4,086,672,158 Preferred shares 40,792,440 40,792,440 Government debt securities: Local currency 458,251, ,251,379 Foreign currency 11,405,527 11,405,527 Private debt securities 2,080,674,994 2,080,674,994 Funds 142,473,445 11,353, ,827,203 6,820,269,943 11,353,758 6,831,623,701 Assets for which fair values are disclosed: Loans and receivables - net Notes receivables 13,549,720 13,549,720 Long-term commercial papers 1,170,590,872 20,000,000 1,190,590,872 Investment properties 27,032,204 27,032,204 1,184,140,592 47,032,204 1,211,172,796 P6,820,269,943 P1,195,494,350 P47,032,204 P8,062,796,497 December 31, 2015 Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Total Assets measured at fair value: AFS financial assets Listed equity securities: Common shares P4,778,985,387 P P P4,778,985,387 Preferred shares 42,122,933 42,122,933 Government debt securities: Local currency 625,272, ,272,427 Foreign currency 11,004,349 11,004,349 Private debt securities 1,616,169,209 1,616,169,209 Funds 196,163,500 24,103, ,267,334 7,269,717,805 24,103,834 7,293,821,639 Assets for which fair values are disclosed: Loans and receivables - net Notes receivables 12,966,599 12,966,599 Long-term commercial papers 1,069,468,505 1,069,468,505 Investment properties 27,099,092 27,099,092 1,082,435,104 27,099,092 1,109,534,196 P7,269,717,805 P1,106,538,938 P27,099,092 P8,403,355,835

124 consolidated annual report The Group uses the following hierarchy for determining and disclosing the fair values of financial instruments by valuation technique: Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: Techniques which uses inputs which have a significant effect on the recorded fair value that are not based on observable market data During the reporting period ended December 31, 2016 and 2015, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. 28. Related Party Transactions Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Outstanding balances as of year-end are unsecured and to be settled in cash. There have been no guarantees provided or received for any related party receivables or payables. In 2016 and 2015, the Group has not recorded any impairment of receivables relating to amounts owed by related parties. This assessment is undertaken each financial year by examining the financial position of the related party and the market in which the related party operates. Significant transactions with related parties include: Amount/ Volume Outstanding Receivable (Payable) Amount/ Volume Category Parent MEI Management expense P7,500,000 P P7,500,000 P Outstanding Receivable (Payable) Terms Conditions Non-interest bearing; on demand Non-interest bearing; on demand Accounts payable 7,446,358 (7,466,358) Other related parties a. MIIC & Sub. Reinsurers share on gross Non-interest premiums 146,929,031 (273,970,765) 284,151,038 (1,003,190,739) bearing; on demand Unsecured Non-interest Unsecured; Commission income 14,167,561 6,936,463 11,857,476 6,860,410 bearing; on demand no impairment Non-interest Unsecured; Other receivables 45,465 45,465 bearing; on demand no impairment b. Y Realty Corporation Non-interest Unsecured; Rent expense 17,468,122 16,460,917 16,454,632 15,617,530 bearing; on demand no impairment c. RCBC Bankard Credit card premium collection Non-interest Unsecured; facility 7,922,200 7,922,200 7,373,215 7,373,215 bearing; on demand no impairment d. HI Investment in AFS Unsecured; Equity securities 17,481,951 99,292, ,637,488 no impairment Dividend income 648, ,006 e. RCBC Cash in bank 946,731, ,445,257 1,180,530,586 1,191,330,247 Short-term deposits 124,486, ,582,421 52,783,870 62,605,444 Investment in AFS Debt securities 28,468, ,482, ,904, ,576,496 Interest rate at 0.25% to.50% p.a. 4 to 30-day term, Interest at 0.25% % p.a. Maturing in 2017; Interest rate at 5.25% to 9.88% Stocks 271,565,809 1,463,441,740 1,367,237,296 1,514,184,549 Maturing in 2027; Interest rate at 3.25% Long-term commercial papers 55,411, ,433, ,000, ,000,000 to 7.00% Funds 15,136,951 15,136,951 15,136,951 Non-interest bearing; Interest and dividend income Cash in bank 24,453,323 23,416, , ,989 Short-term deposits 2,011 2,011 6,943 6,943 Unsecured; no impairment Unsecured; no impairment Unsecured; no impairment Unsecured; no impairment Unsecured; no impairment Unsecured; no impairment Interest at 0.25% % p.a. Interest at 0.25% -3.00% p.a. Unsecured; no impairment

125 integrity. that s our policy. 125 f. PIAA Category Amount/ Volume Outstanding Receivable (Payable) Amount/ Volume Outstanding Receivable (Payable) Terms Conditions Investment in AFS: Interest at 5.25% - Unsecured; Debt securities P44,547,857 P7,077,331 P27,496,749 P6,640, % p.a. no impairment Stocks 29,346,300 24,455,251 22,226,603 Unsecured; impaired Long-term commercial papers 7,312, ,806 6,931,250 6,931,250 Referral fee 18,540,945 (3,300,088) 9,300,934 Rent income 1,943, ,908 1,850, ,007 g. House of Investments AFS in equity securities 88,335,402 18,335,402 Dividend income 922,328 Rent income 1,943, ,908 1,850, ,007 The outstanding receivables and payables are to be settled in cash. Interest at 3.25% % p.a. Non-interest bearing, on demand Non-interest bearing; on demand Non-interest bearing; on demand Non-interest bearing; on demand Non-interest bearing; on demand Unsecured; no impairment Unsecured Unsecured; no impairment Unsecured; no impairment Unsecured; no impairment Unsecured; no impairment The Group and MIIC are subsidiaries of MICO Equities, Inc. (MEI). MEI, RCBC, HI, RLFC and ipeople are subsidiaries of PMMIC, the holding company of the Yuchengco Group of Companies. Terms and Conditions of transactions with related parties Outstanding balances at year end are unsecured and settlement occurs in cash. Some bear interest at annual rates ranging from 0.25% to 9.88%. There have been no guarantees provided or received for any related party payables or receivables. The Group has not recognized any impairment losses on amounts due from related parties for the years ended December 31, 2016 and This assessment is undertaken each financial year through review of the financial position of the related party and the market in which the related party operates. Key management personnel of the Group include senior management. The total short-term employee benefit of the Group s key management personnel amounted to P6.01 million and P15.41 million in 2016 and 2015, respectively. As of December 31, 2016 and 2015, the total long-term employee benefits of the Parent Company s key management personnel amounted to P60.89 million and P41.39 million, respectively. 29. Contingencies The Group operates in the insurance industry and has various contingent liabilities arising in the ordinary conduct of business, which are either pending decision by the courts or being contested, the outcome of which are not presently determinable. In the opinion of management and its legal counsel, the eventual liability under these lawsuits or claims, if any, will not have a material or adverse effect on the Group s financial position and results of operations. The information usually required by PAS 37, Provisions, Contingent Liabilities and Contingent Assets, is not disclosed on the grounds that it can be expected to prejudice the outcome of pending litigations. 30. Notes to Consolidated Statements of Cash Flows The Group s noncash activities include: a. Changes in fair value of available-for-sale financial assets, gross of tax effect, amounted to P1, million b. In pension liability, the remeasurement effects recognized in OCI, gross of tax effect amounting P27.16 million

126 consolidated annual report mico equities, inc. Board of Directors Ambassador Alfonso T. Yuchengco Chairman (until April 15, 2017) Yvonne S. Yuchengco President Helen Y. Dee Director Teodoro D. Regala Director Alfonso S. Yuchengco, Jr. Director

127 integrity. that s our policy. 127 malayan insurance company, inc. Board of Directors Ambassador Alfonso T. Yuchengco Director (until April 15, 2017) Helen Y. Dee Chairperson Yvonne S. Yuchengco President Jose Paolo Y. Abaya Director Michele Marie Y. Dee Director

128 consolidated annual report malayan insurance company, inc. Board of Directors Takayuki Shimomura Director Arthur Lee Director Armando M. Medina Independent Director Teodoro D. Regala Director Renato C. Valencia Independent Director Cesar E.A. Virata Director Executive Committee: Helen Y. Dee, Yvonne S. Yuchengco, Renato S. Valencia, Armando M. Medina, Arthur Lee Remuneration and Nomination Committee: Michele Marie Y. Dee, Renato C. Valencia, Teodoro D. Regala Audit Committee: Renato C. Valencia, Armando M. Medina Risk Management Committee: Renato C. Valencia, Armando M. Medina

129 integrity. that s our policy. 129 bankers assurance corporation Board of Directors Antonio M. Rubin Chairman Joselito C. Bantayan President Herminia S. Jacinto Independent Director Edmundo L. Bunyi Independent Director Alma P. Peñalosa Director Frederick Pineda Director Jose Martin A. Morente Director Remuneration and Nomination Committee: Edmundo L. Bunyi, Antonio M. Rubin, Alma P. Peñalosa Audit Committee: Herminia S. Jacinto, Edmundo L. Bunyi

130 consolidated annual report the first nationwide assurance corporation Board of Directors Yvonne S. Yuchengco Chairperson Antonio M. Rubin President Antonio G. Puyat Independent Director Michele Marie Y. Dee Director Annabelle S. Yuchengco Director Edmundo L. Bunyi Independent Director Remuneration and Nomination Committee: Edmundo L. Bunyi, Michele Marie Y. Dee, Antonio M. Rubin Audit Committee: Antonio G. Puyat, Edmundo L. Bunyi

131 integrity. that s our policy. 131 Directors Profiles ALFONSO T. YUCHENGCO Age: 94 Academic Qualification: Bachelor of Science in Commerce, Masters in Business Administration Experience: Rizal Commercial Banking Corporation, Honorary Chairman/Director House of Investments, Inc., Member of the Board of Directors EEI Corporation, Chairman of the Board of Trustees SunLife Grepa Financial Inc., Member of the Board of Directors Corporate Governance Institute of the Philippines, Chairman of the Advisory Board Trainings in Insurance and Other Related Fields: Corporate Governance 2015 Corporate Governance and Risk Management Corporate Governance Initiatives/ Trends in Regulatory Framework Updates on Anti-Money Laundering Act of 2001 (AMLA), as amended Basel III and Financial Regulatory Reform Evaluating Risks in Project Finance Transactions Corporate Governance HELEN Y. DEE Age: 72 Academic Qualification: Bachelor of Science in Commerce, Masters in Business Administration Experience: Philippine Long Distance Telephone Company, Director Hydee Management and Resource Corporation, Chairman/ President Moira Management, Inc., President Tameena Resources, Inc., Chairman & CEO Landev Corporation, Chairman Mapua Board of Trustees, Member House of Investments, Chairperson HI Eisai Pharmaceuticals, Inc., Chairman Manila Memorial Park Cemetery, Inc., Chairman Petro Energy Resources, Inc., Director Seafront Resources, Inc., Director Mapua Information Technology Center, Inc., Chairman Malayan Insurance Co., Inc., Director MICO Equities, Inc., Director YGC Corporate Services, Inc., President Pan Malayan Management and Investment Corp., Director Pan Malayan Management and Investment Corp., Vice Chairman Rizal Commercial Banking Corporation, Board Member Rizal Commercial Banking Corporation, Chairman Honda Cars Philippines, Inc., Director Isuzu Philippines, Inc., Director EEI Corporation, Board Member Luis Miguel Foods, Director AY Holdings, Inc., Director RCBC Realty Corporation, Director Pan Malayan Realty Corporation, Chairperson Pan Malayan Express, Director RCBC Savings Bank, Chairperson Honda Cars Kalookan, Director RCBC Forex Brokers Corporation, Director Financial Brokers Insurance Agency, Inc., Chairperson/President GPL Holdings, President La Funeraria Paz Sucat, Inc., Chairperson Mijo Holdings, Inc., Chairman/President Trainings in Insurance and Other Related Fields: Corporate Governance: Enhancement Session in the Philippine Competition Act and Philippine Competition Commission Corporate Governance: What to expect from the SEC Corporate Governance Trends and Current Topics in Developed Economies and their Application in the Philippines and Other ASEAN Countries Corporate Governance Evaluating Risks in Project Finance Transactions Basel III and Financial Regulatory Reform Updates on the Anti- Money Laundering Act of 2001 SEC Corporate Governance Initiatives/Trends in the Regulatory Framework Corporate Governance Course Corporate Governance Orientation Course Management Development Programme Course in Corporate Financial Management Reinsurance Seminar Specialized Course in Reinsurance Conference Series on Business and Financial Management International Advanced Management Louis Allen Professional Management Seminar The College of Insurance Third Lecture Course on General Insurance YVONNE S. YUCHENGCO Age: 62 Academic Qualification: A.B. Interdisciplinary Studies Experience: Malayan Insurance Company, Inc., President, Chief Executive Officer, and Director MICO Equities, Inc., President and Director RCBC Capital Corporation, Chairperson and Director Philippine Integrated Advertising Agency, Inc., President and Director AY Foundation, Inc., Member, Board of Trustees Trainings in Insurance and Other Related Fields: Agents Training Congress Lloyd s Meet the Market Event Munich Re Innovation Round 6th Annual YGC Quality Forum Finance Sector Roundtable and Dialogue with APEC Finance Officials and Ministers on the Cebu Action Plan (CAP) Tokio Marine Asia 2015 Top Management Conference 2015 ASEAN Corporate Governance Score Card (ACGC) Orientation for Insurance Companies Customer Service Forum Creating Advantage Through Governance RCBC/RCBC Savings Seminar on BBB Cover Critical Analysis Executive Session on Directions for Malayan Insurance Continuing Education Seminar: SEC Corporate Governance Initiatives/Trends in Regulatory Framework CAT XL & Corporate Fire Path to Profitability Munich Re Regional CEO Forum ADB 45th Annual Conference BOAO Conference 22nd Fair Conference MAP International CEO Conference IIP Leadership Training Workshop Pre- Leadership Training ADB Policy & Technical Training on Implementing Disaster Risk Management Assessment Program ING Annual Conference Enneagram Seminar 10th Marketing Driving Strategies by Mr. Josiah Go 7th Philippine Non-Life Insurance Summit BOAO Forum for Asia Annual Conference 2010 RCBC Wealth Management Enterprising Families vs. Family Enterprises 2009 Mid- Year Business Economics Briefing Ploughing Through Peaks Through

132 consolidated annual report Recoveries & Relapses IIS Annual Seminars FM Global Conference BEC Mid-Year Business Economic Briefing Private Sector Issues & Initiatives Francis Kong s 7th Achievers & Leaders Seminars Marketing Seminars by Ned Roberto 3rd Amb. Alfonso Yuchengco Conference - Ensuring Economic Security in the Countryside Opportunity Seeking Workshop by Josiah Go Savvy Executive Workshop by Vincent Loh Insurance Directors Summit IIAP Corporate Governance JOSE PAOLO Y. ABAYA Age: 44 Academic Qualification: B.B.A.- Business Management Experience: Malayan Insurance Company, Inc., Chief Operating Officer and Director Malayan International Insurance Corp. Ltd., President and Director Asia Pac Reinsurance Ltd., Director Malayan Insurance Company (Hong Kong) Ltd., Director AY Foundation, Inc., Director Hexagon Lounge, President Trainings in Insurance and Other Related Fields: Claims Conference Enterprise Risk Management Workshop Training with Tokio Marine Asia and Willis Brokers Underwriting & Reinsurance Training Cargo Underwriting Training Introduction to Fire Insurance Corporate Governance Orientation Introduction to Reinsurance Basic Non Life Training TEODORO D. REGALA Age: 83 Academic Qualification: Bachelor of Science in Jurisprudence, Bachelor of Laws Experience: Rizal Commercial Banking Corporation, Director Angara, Abello, Concepcion, Regala & Cruz Law Offices, Founding Partner AGC Flat Glass, Philippines, Inc., Corporate Secretary Safeway Philtech, Inc., Director Malayan Insurance Company, Inc., Director OEP Philippines, Inc., Director and Corporate Secretary Trainings in Insurance and Other Related Fields: SEC Corporate Governance Initiatives/Trends in Regulatory Framework Updates on the Anti-Money Laundering Act of 2001 Basel III and Financial Regulatory Reform Evaluating Risks in Project Finance Transactions Corporate Governance Seminar MICHELE MARIE Y. DEE Age: 49 Academic Qualification: B.A. International Business Experience: Malayan Insurance Company, Inc., Director First Nationwide Assurance Corporation, Director AY Foundation, Inc., Executive Vice President Sandee Unlimited, Inc., President MICO Equities, Inc., Treasurer Luis Miguel Foods, Inc., Chairperson and President Yuchengco Museum, Treasurer Philippine Integrated Advertising Agency, Treasurer Trainings in Insurance and Other Related Fields: Corporate Governance Achieving Business Excellence Program Corporate Governance RENATO C. VALENCIA Age: 75 Academic Qualification: Bachelor of Science in General Engineering, Master of Business Management, Philippine Military Academy Experience: Malayan Insurance Company, Inc., Director Metropolitan Bank and Trust Company, Director House of Investments, Inc., Director Vulcan and Industrial and Mining Corporation, Independent Director i-people, Inc., Chairman and Independent Director Anglo Philippine Holdings Corporation, Independent Director EEI Corporation, Independent Director Philippine Veterans Bank, Director and Board Adviser Trainings in Insurance and Other Related Fields: Corporate Governance for Bank Directors Smart Card Alliance Payments Summit Corporate Governance and Transparency in the Context of the Global Economics Crisis Anti- Money Laundering Operational Risk Management 2013 Risk Management Brief Seminar on Cyber Crime Prevention Data and Privacy Act: Impact to Corporation Anti-Money Laundering Risk Rating System and Amendments to BSP Circular 706 and AMLA Law RA Distinguished Corporate Governance Speaker Seminar Series Corporate Governance Seminar ARMANDO M. MEDINA Age: 67 Academic Qualification: A.B. Economics & B.S.C. Accounting Experience: Rizal Commercial Banking Corporation, Independent Director RCBC Savings Bank, Independent Director RCBC Capital Corporation, Independent Director Malayan Insurance Company, Inc., Independent Director Malayan Colleges, Inc., Independent Trustee Trainings in Insurance and Other Related Fields: Trust Operations Credit Management Production Dynamics Treasury Management Eurodollar/Foreign Exchange Markets Eurodollar/Foreign Exchange Management Systems Management Information at your Fingertips: Making Executive Information Work for You RCBC Top Management Workshop Corporate Governance & Risk Management Options & Financial Derivatives Auditing Derivatives Basel III Eurozone Crisis Corporate Governance Initiatives/ Trends in Regulatory Framework Updates on Anti-Money Laundering Act of 2001 (AMLA) Basel III & Financial Regulatory Reform Evaluating Risk in Project Finance Transactions Corporate Governance

133 integrity. that s our policy. 133 CESAR E. A. VIRATA Age: 86 Academic Qualification: B.S. in Business Administration, B.S. in Mechanical Engineering, MBA in Industrial Management Experience: Rizal Commercial Banking Corporation, Corporate Vice Chairman and Director RCBC Savings Bank, Inc., Director RCBC Realty Corporation, Director RCBC Forex Brokers Corporation, Chairman RCBC Land, Inc., President RCBC International Finance, Ltd. (Hongkong), Director Pacific Fund, Inc., Chairman Bankard, Inc., Chairman Malayan Colleges, Inc., Trustee YGC Corporate Services, Inc., Director AY Foundation, Inc., Trustee Yuchengco Center, Inc., Trustee Yuchengco Museum, Trustee Great Life Financial Assurance Corporation, Director Luisita Industrial Park, Corporation, Director Niyog Property Holdings, Inc., Director Trainings in Insurance and Other Related Fields: Money & Banking Public Finance Central Banking Financial Accounting Business Finance Cost Accounting Money & Banking SEC Corporate Governance Initiatives/Trends in Regulatory Framework Updates on the Anti-Money Laundering Act of 2001 (AMLA), as Amended Basel III & Financial Regulatory Reform Evaluating Risks in Project Finance Transactions TAKAYUKI SHIMOMURA Age: 45 Academic Qualification: Bachelor of Laws Experience: Tokio Marine Asia Pte. Ltd., Assistant Vice President Tokio Marine Holdings Co. Inc., Manager PT Asuransi Tokio Marine, Technical Advisor Tokio Marine & Nichido Fire Insurance Co., Ltd., Deputy Manager ARTHUR LEE Age: 57 Academic Qualification: B.A. Economics and Juris Doctor Experience: Tokio Marine Life Holdings, Inc., Executive Officer Tokio Marine Asia Pte. Ltd., Chief Executive Asia General Holdings Limited, Managing Director Trainings in Insurance and Other Related Fields: Financial Institutions Directors Education Program (Malaysia) ANTONIO M. RUBIN Age: 66 Academic Qualification: B.S. in Mechanical Engineering, Masters in Business Administration Experience: Malayan Insurance Company, Inc., Executive Vice President Bankers Assurance Corporation, Chairman The First Nationwide Assurance Corporation, President Trainings in Insurance and Other Related Fields: Fire Underwriting Nature of Insurance Contracts, Proposals and Policy Form Reinstatement Insurance Practicum on Preparation of Policies Practicum on Fire Inspection Miscellaneous Casualty, Marine Kind of Marine Insurance Coverage and its Nature Underwriting Practice Homeowners Comprehensive Insurance Policy Lecture on Money Securities and Payroll Robbery Lecture on Livestock Policy and Fidelity Guaranty Policy Golfer s Policy DDD Policy & Plate Glass Insurance Classes of Motorcar Insurance Tariff Basses for Classification Practicum on the Computation of Premiums Practicum on the Accepting of Risks, Limits of Coverage for Accessories Nature and Scope of Reinsurance Preparation of Facultative RI Agreements & Establish RI Reciprocity Computation of RI Premiums Practicum on Dealing of Bonds Premiums Indemnity Agreements ASEAN Corporate Governance Scorecard (ACG) Orientation of Insurance Companies FREDERICK T. PINEDA Age: 38 Academic Qualification: Bachelor of Science in Accountancy Experience: GlaxoSmithKline, Shared Services Migration Director SyCip Gorres Velayo and Co., Senior Director Trainings in Insurance and Other Related Fields: 3rd CFO Innovation Philippines Forum RBC2 and Reserving Workshop 2nd ASEAN Fixed Income Summit 2nd CFO Innovation Philippines Forum RBC 101 Impacts and Lessons from other countries ASEAN Corporate Governance Scorecard (ACGS) Workshop Various External and Internal Audit Related Workshops JOSELITO C. BANTAYAN Age: 60 Academic Qualification: B.S.C. Economics Experience: Malayan Insurance Company, Inc., Senior Vice President Bankers Assurance Corporation, Director and President Philippine Insurers and Reinsurers Association, Trustee Trainings in Insurance and Other Related Fields: 11th Singapore International Reinsurance Conference 24th Fair Conference 26th East Asian Insurance Congress 27th East Asian Insurance Congress 51st Fair Executive Committee and Board Meeting th International Microinsurance Conference th International Microinsurance Conference 9th Singapore International Reinsurance Conference Aon Benfield APAC Advanced Reinsurance Forum Asia CEO Forum Corporate Governance Seminar Income Statement Analysis Workshop Munich Re s NatCat Reporting Tool Presentation OECD International Network on Financial Management PPP at Asia CEO Forum 29th Korean Re Reinsurance Management Seminar 6th Philippine Non-life Insurance Summit 7th Philippine Non-life Insurance Summit Workshop on Advanced Loss of Profits Insurance

134 consolidated annual report ALMA P. PEÑALOSA Age: 77 Academic Qualification: Bachelor of Laws Experience: Malayan Insurance Company, Inc., Consultant Malayan Insurance Company, Inc., Executive Vice President Tokio Marine Malayan Insurance Co., Inc., President and Director National Reinsurance, Director Malayan Zurich Insurance Company, Chairperson Trainings in Insurance and Other Related Fields: Risk Management for Esso Asian Refineries Risk Management Esso Worldwide Loss Control Seminar Engineering Insurance Insurance Accounting Marketing Aspect of Insurance Advance Courses on Insurance Corporate Governance HERMINIA S. JACINTO Age: 77 Academic Qualification: B.S. Commerce Experience: Bankers Assurance Corporation, Independent Director Insurance Institute for Asia and the Pacific, President Association of Insurers and Reinsurers of Developing Countries, Secretary General Generali Cos., Independent Director Universal Malayan Reinsurance Corporation, President Trainings in Insurance and Other Related Fields: Reinsurance Course Corporate Governance EDMUNDO L. BUNYI Age: 74 Academic Qualification: Bachelor of Arts, Political Science Experience: Malayan Insurance Company, Inc., Vice President Bankers Assurance Corporation, Independent Director First Nationwide Assurance Corporation, Independent Director Trainings in Insurance and Other Related Fields: Fundamentals of Life Insurance Advanced Life Insurance Non-Life Insurance Corporate Governance JOSE MARTIN A. MORENTE Age: 51 Academic Qualification: AB Economics, Bachelor of Laws Experience: Malayan Insurance Company, Inc., First Vice President, Head of Legal Department and Asst. Corporate Secretary Bankers Assurance Corporation, Director First Nationwide Assurance Corporation, Asst. Corporate Secretary Trainings in Insurance and Other Related Fields: Reinsurance Seminar Corporate Governance ASEAN Corporate Governance Non-Life Training Annabelle S. Yuchengco Age: 67 Academic Qualification: B.S. Commerce Experience: Pan Malayan Express, Inc., Chairperson, Director and President Enrique T. Yuchengco, Inc., President First Nationwide Assurance Corporation, Director Pan Malayan Realty Corporation, Director Trans Swedish Shipping, Inc., Director AY Foundation, Inc., Treasurer and Trustee Principal Business Marketing Co., Inc., Director and President Trainings in Insurance and Other Related Fields: Seminar on Corporate Governance Antonio G. Puyat Age: 79 Academic Qualification: B.S. Business Administration Experience: First Nationwide Assurance Corporation, Independent Director Worldwide Cemetery and Crematory Management Corp., President Group Developer Inc., Director Makati Commercial Estates Association Inc., Treasurer and Director Philippine Band of Mercy, Director Trainings in Insurance and Other Related Fields: General Agency Corporate Governance ALFONSO S. YUCHENGCO, JR. Age: 64 Academic Qualification: Business- Economics Experience: MICO Equities, Inc., Director AY Foundation, Trustee Water Dragon, Inc., Chairman and President Y Realty Corporation, President and Director Shayamala Corporation, President and Director ET Yuchengco, Inc., Director Pan Malayan Realty Corporation, Vice President and Director Pan Malayan Management & Investment Corporation, Vice Chairman and Director IMI, Inc., Chairman and President Yuchengco Museum, Vice Chairman and Director Trainings in Insurance and Other Related Fields: Corporate Governance

135 integrity. that s our policy. 135 List of Principal Officers mico equities, inc. Alfonso T. Yuchengco Chairman Yvonne S. Yuchengco President Michele Marie Y. Dee Treasurer Samuel V. Torres Corporate Secretary Jose Martin A. Morente Assistant Corporate Secretary malayan insurance company, inc. Helen Y. Dee Chairperson Yvonne S. Yuchengco President Jose Paolo Y. Abaya Chief Operating Officer Antonio M. Rubin Executive Vice President Joselito C. Bantayan Senior Vice President Cecille V. Huidem Senior Vice President Daisuke Fujii Senior Vice President Isauro U. Cotoco Jr. Second Vice President Maria Beatriz A. Adversalo Second Vice President Rogelio M. Noche, Jr. Second Vice President Kazunori Tsuji Second Vice President Frederick T. Pineda First Vice President/Treasurer Naoki Yamada First Vice President Jose Martin A. Morente First Vice President/ Asst. Corporate Secretary Alegria R. Castro Vice President II Katsuki Takarada Vice President Joanne S.P. Dela Cruz Vice President Martin D. Yuchioco Vice President Marissa H. Dela Cruz Vice President Arlene Q. Calimag Vice President Winifredo B. Aningat Vice President Samuel V. Torres Corporate Secretary BANKERS ASSURANCE CORPORATION Antonio M. Rubin Chairman Joselito C. Bantayan President Frederick T. Pineda Treasurer Samuel V. Torres Corporate Secretary Jose Martin A. Morente Assistant Corporate Secretary THE FIRST NATIONWIDE ASSURANCE CORPORATION Yvonne S. Yuchengco Chairperson Antonio M. Rubin President Frederick T. Pineda Treasurer Samuel V. Torres Corporate Secretary Jose Martin A. Morente Assistant Corporate Secretary

136 consolidated annual report Directory of Subsidiaries, Offices and Branches MALAYAN INSURANCE COMPANY, INC. Yuchengco Tower I 500 Quintin Paredes Street 1006 Binondo, Manila P. O. Box Manila Tel. No. : (632) / Fax No. : (632) Customer Service Hotline : (632) Websites : MalayanInsurancePH malayan@malayan.com BANKERS ASSURANCE CORPORATION 6th Floor, Rm. 604 Doña Felisa Syjuco Building Remedios Street corner Taft Avenue Malate, Manila Tel. Nos. : (632) / Telefax No. : (632) Website : bac@bankersassurance.com.ph The FIRST NATIONWIDE ASSURANCE CORPORATION 4th Floor, Yuchengco Tower II L.P. Leviste Street corner Gallardo Street Salcedo Village, 1227 Makati City Tel. Nos. : (632) local 3633, 3644, 3655, 3666 Fax No. : (632) Website : info_cd@fnac.com.ph FOREIGN SUBSIDIARIES MALAYAN INTERNATIONAL INSURANCE CORP. LTD. (HK BRANCH) Unit A, 18th Floor, Li Dong Building 9 Li Yuen Street East, Central, Hong Kong Tel. Nos. : (852) / (852) Fax No. : (852) pjsantos@biznetvigator.com MALAYAN INSURANCE COMPANY (HONG KONG) LTD. Unit A, 18th Floor, Li Dong Building 9 Li Yuen Street East, Central, Hong Kong Tel. Nos. : (852) / (852) Fax No. : (852) pjsantos@biznetvigator.com METRO MANILA SALES OffICES ALABANG 2nd Floor, RCBC Building Tierra Nueva Subd., Zapote Road Alabang Muntinlupa Tel. Nos. : (632) / / Telefax No. : (632) CUBAO 8th Floor, Room 8006, Aurora Tower Araneta Center, Cubao, Quezon City Tel. Nos. : (632) / / / Telefax No. : (632) CUBAO (Extension Office) Ground Floor, Philamlife Building General Malvar Avenue, Cubao, Quezon City Tel. No. : (632) Fax No. : (632) MAKATI 5th Floor & Mezzanine Floor Yuchengco Tower II L.P. Leviste Street cor. Gallardo Street Salcedo Village, 1227 Makati City Tel. Nos. : (632) / / Fax No. : (632) to 15 MARIKINA Unit 18/19, Marikina East Centre Building 83 Gil Fernando Ave., San Roque Marikina City Tel. Nos. : (632) / Telefax No. : (632) Ortigas (Satellite Office) Upper Ground Floor 02 City & Land Mega Plaza Building ADB Avenue cor. Garnet Road Ortigas Center Barangay San Antonio, Pasig City Tel. Nos. : (632) / QUEZON AVENUE (Satellite Office) Ground Floor, 1184-C Ben-Lor Building Quezon Avenue, Quezon City Tel. Nos. : (632) loc REGIONAL OffICES ONE LUZON 10th Floor, Yuchengco Tower I 500 Quintin Paredes Street 1006 Binondo, Manila Tel. No. : (632) Fax No. : (632) VISAYAS & MINDANAO 2nd Floor, Great Pacific Life Building Fuente Osmeña, Rotonda, 6000 Cebu City Tel. Nos. : (032) / / (632) local 8392 Fax No. : (032) PROVINCIAL OffICES LUZON BAGUIO CITY 3rd Floor, RCBC Building Session Road, 2600 Baguio City Tel. Nos. : (074) / Fax No. : (074) BALIWAG (Bulacan) 321 2nd Floor, J & U Building Benigno S. Aquino Avenue Baliwag, Bulacan Telefax No. : (044) CABANATUAN CITY 3rd Floor, RCBC Savings Bank Building Maharlika Highway cor. Paco Roman Street 3100 Cabanatuan City Tel. No. : (044) Telefax No. : (044) Calamba (Laguna) Ground Floor, RCBC Building National Highway cor. Dolor Street Barangay 1 Crossing, Calamba, Laguna Tel. Nos. : (049) (632) local 8397 Telefax No. : (049) CAVITE (Imus) Ground Floor Units B, C, & D Alivia Commercial Complex 4120 E. Aguinaldo Highway, Anabu 1-F Imus City, Cavite 4103 Tel. Nos. : (046) (632) local 8224 Telefax No. : (046)

137 integrity. that s our policy. 137 DAGUPAN CITY 2nd Floor, RCBC Building A.B. Fernandez Avenue 2400 Dagupan City Tel. Nos. : (075) (632) local 8203 Telefax No. : (075) ISABELA 2nd Floor, STP II Building Roxas Street, District II Cauayan City, Isabela Tel. No. : (078) Telefax No. : (078) LAOAG CITY 2nd Floor, LC Square Building J.P. Rizal St., Laoag City Ilocos Norte 2900 Tel. Nos. : (077) / (077) / (632) local 8223 Telefax No. : (077) LA UNION CJArch Building (PBCom Bank) Quezon Avenue, San Fernando City La Union Tel. No. : (072) Telefax No. : (072) LEGAZPI CITY 2nd Floor, Metrobase Building Landco Business Park, Bitano Legazpi, 4500 Tel. No. : (052) Telefax No. : (052) LIPA CITY Ground Floor, Unit 17 K-POINTE Commercial Center Ayala Highway, Lipa City Tel. Nos. : (043) / (632) local 8390 Telefax No. : (043) NAGA CITY Ground Floor, RL Building Panganiban Drive, Naga City Telefax No. : (054) / (632) local 8394 OLONGAPO (Subic) Ground Floor, Building 789 Subic International Hotel, Sta Rita Road Subic Bay Freeport Zone, Olongapo Tel. Nos. : (047) / Telefax No. : (047) PAMPANGA 2nd Floor, HIZ-SAN Building McArthur Highway, Brgy. Dolores San Fernando City, Pampanga Tel. No. : (045) Telefax No. : (045) SAN PABLO (Laguna) Maharlika Highway, Brgy. San Rafael San Pablo City 4000 Laguna Tel. Nos. : (049) / (632) local 8206 Fax No. : (049) TARLAC 2nd Floor, Rm. 205 Jaral Building Corners Juan Luna Street and McArthur Highway Tarlac City, Tarlac Telefax No. : (045) TUGUEGARAO CITY 2nd Floor, RCBC Building Gomez Street cor. Bonifacio Street Tuguegarao City Telefax Nos. : (078) (632) local 8395 VISAYAS AREA BACOLOD CITY 2nd Floor, Malayan House Building Lacson corner 3rd Street 6100 Bacolod City Tel. Nos. : (034) / Telefax Nos. : (034) (632) local 8388 CEBU CITY 2nd Floor, Grepalife Building Fuente Osmeña Rotonda, 6000 Cebu City Tel. Nos. : (032) / / (632) local 8391 Fax No. : (032) DUMAGUETE CITY 2nd Floor, RCBC Savings Bldg. Real St. Corner San Juan St. Dumaguete City, Negros Oriental Tel/Fax No. : (035) ILOILO CITY 2nd Floor, RCBC Building J. M. Basa Street cor. Arsenal Street 5000 Iloilo City Tel. Nos. : (033) / (632) local 8387 Fax No. : (033) PALAWAN 2nd Floor, RCBC Building Rizal Avenue corner Junction I Puerto Princesa City, 5300 Palawan Telefax No. : (048) TAGBILARAN Door # 4, 2nd Floor, RCBC Building CPG Avenue, Tagbilaran City, Bohol Telefax No. : (038) MINDANAO AREA CAGAYAN DE ORO Ground Floor, Malayan House Velez corner Nacalaban Streets 9000 Cagayan De Oro Tel. No. : (088) Telefax Nos. : (088) / (632) local 8386 DAVAO CITY Ground Floor, Malayan House Km. 6, J.P. Laurel Lanang 8000 Davao City Tel. Nos. : (082) / / / (632) local 8396 Fax No. : (082) DAVAO CITY (Satellite Office) Ground Floor, RCBC Building, Palma Gil cor. C. M. Recto Street, Davao City Tel. No. : (082) Telefax No. : (082) GENERAL SANTOS 2nd Floor, RCBC Savings Building Pioneer Avenue 9500 General Santos City Tel. Nos. : (083) / (632) local 8389 Telefax No. : (083) TAGUM (Davao Del Norte) Ground Floor RCBC Building Pioneer Avenue cor. Quirante Street Tagum, Davao Del Norte Tel. No. : (084) Telefax No. : (084) ZAMBOANGA CITY Ground Floor, YPC Building Veterans Avenue, 7000 Zamboanga City Tel. Nos. : (062) (632) local 8208 Telefax No. : (062)

138 consolidated annual report Products and Services AVIATION - Aircraft Hull and Spares/ Hull War - Third Party/ Passenger Legal Liability - Crew Personal Accident - Aviation Liability ENGINEERING - Contractor s All Risk - Erection All Risk - Electronic Equipment - Machinery Breakdown - Civil Engineering Completed Risk - Boiler Pressure Vessel - Special Risk/ Equipment Floater - Deterioration of Stock following Machinery Breakdown FIRE - Commercial All Risk - Fire and Lightning, including Allied Perils - Industrial All Risk - Business Protect - Home Protect Plus - MyBiz - MyHome - Sabotage and Terrorism MARINE - Marine Cargo - Project Cargo - Marine Hull - Yacht and Pleasurecraft - Ship Repairers Liability - Terminal Operators Liability - Builders Risk - Protection and Indemnity - Warehouse Liability - Fine Arts, Jewellery & Specie (FAJS) - Jeweller s Block - Stock Throughput (STP ) CASUALTY AND FINANCIAL LINES - Bankers Blanket Bond/ Computer Crime - Burglary & Housebreaking - Comprehensive General Liability - Comprehensive Dishonesty Disappearance and Destruction - Cyber Insurance - Employers Liability - Excess Auto Liability - Event Liability - Event Cancellation - Errors & Omissions (for Insurance Brokers) - Fidelity Guarantee - Foresight Directors & Officers Liability Insurance - Med Protect (Medical Malpractice Insurance) - Money in Transit - Money, Securities & Payroll - Product s Liability - Professional Liability (for Contractors, Design Professionals and Consultants, Educators, Lawyers, BPO s and other miscellaneous professions) - Comprehensive Personal Liability - Golfers Comprehensive Insurance - Comprehensive Cardholders Protection Insurance ATM Card Protect Credit Protect Plus - Purchase Protection Insurance - Plate Glass Insurance - Hole in One (Tournament only) MOTORCAR - Dealership Programs Honda Insurance Isuzu Insurance Toyota Insure - MyCar - Motomax - Standard Motorcar Insurance Private Vehicle Commercial Vehicle Motorcyle Land Transportation Operators PERSONAL ACCIDENT - Bayan Asenso Microinsurance Products - Credit Protect/ Unemployment - Daily Hospitalization Income Benefit - Diplomax - Family Protect - Income Protect - I4U Greeting Cards - MyFamily - MyLifestyle - MyWellness - Pampamilya Insurance Plan - Pinoy Assist Compulsory OFW Insurance - Rajah Personal Accident Insurance - Student Personal Accident Insurance - TIP Domestic - TIP Global - Todo Asenso - Travelmaster - Travel Sure - Vessel Personal Accident BONDS - Administrator s Bond - Attachment Bond - Attachment Bond (to Lift) - Bidder s Bond - BOI Omnibus Bond - Broker s Bond - Contract Growers Bond - Dealership Bond - Execution Pending Appeal Bond - Fidelity Bond - Firearm Bond - Forestry Bond (Internal Revenue) - Forestry Bond (Bureau of Forestry) - Guaranty Bond (Maintenance Warranty) - Guardians Bond - Haulers Bond - Heirs Bond - Immigration Bond - Indemnity Bond (3rd Party Sheriffs) - Injunction Bond (Plaintiff) - Injunction Bond (to Lift) - Manufacturer s Official Bond - Miller s Bond - Payment Bond - Performance Bond - Replevin Bond - Supersedeas Bond - Surety Bond Downpayment - Surety Bond General - Warehouse Bond for Rice Bonded

139 integrity. that s our policy. 139 our vision Malayan equals Non-life Insurance. our core values our mission Malayan guarantees to provide its policyholders the best non-life insurance protection, and fair and prompt settlement of valid claims at all times. PASSION FOR EXCELLENCE Striving to be great and not just good; continuously improving results. SENSE OF URGENCY Doing things fast; taking the initiative to respond to the needs of various stakeholders. PROFESSIONAL DISCIPLINE With strong working ethics; deserving of others trust and respect; using company resources prudently; acting with fairness and objectivity; being accountable for one s actions. TEAMWORK Actively tapping areas of synergy; communicating and collaborating towards shared goals. LOYALTY A good corporate citizen; pursuing corporate interests as one s own; speaking well of the company and taking pride in its achievements. mal ayan quality policy We, the management and staff of Malayan Insurance, a non-life insurance company commit to: M eet customers need and exceed their expectations, I ncrease employees productivity and provide opportunity for their growth, C ontinually review and improve systems and relationships with suppliers; meet regulatory requirements, and; O bjectively make decisions based on accurate and timely information.

140 consolidated annual report Yuchengco Tower 500 Quintin Paredes St. Binondo, Manila