(English Translation) FUBON INSURANCE CO., LTD. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS

Transcription

1 (English Translation) CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 AND 2013 AND Independent Auditors Report Thereon Address: No. 237, Sec. 1, Chien Kuo S. Road, Taipei, Taiwan Telephone:

2 TABLE OF CONTENTS Contents Page STATEMENT OF COMPLIANCE 1 INDEPENDENT AUDITORS REPORT 1 CONSOLIDATED BALANCE SHEETS 2-3 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 4 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 5 CONSOLIDATED STATEMENTS OF CASH FLOWS 6-7 NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION 8 2. APPROVAL DATE AND PROCEDURES OF THE CONSOLIDATED 8 FINANCIAL STATEMENTS 3. NEW STANDARDS AND INTERPRETATIONS 8~12 4. SIGNIFICANT ACCOUNTING POLICIES 12~36 5. MAJOR SOURCES OF ACCOUNTING ASSUMPTIONS, JUDGMENTS AND 36~39 ESTIMATION UNCERTAINTY 6. DETAIL OF MAJOR ACCOUNTS 40~ RELATED PARTY TRANSACTIONS 109~ ASSETS PLEDGED OR MORTGAGED SIGNIFICANT COMMITMENTS AND CONTINGENCIES SIGNIFICANT CATASTROPHE LOSSES SIGNIFICANT SUBSEQUENT EVENTS OTHERS 118~ NOTES TO DISCLOSURE EVENTS 128~ SEGMENT FINANCIAL INFORMATION DISCLOSURE 132~133

3 STATEMENT OF COMPLIANCE The enterprises which the Company should include in the consolidated financial statements of the Company in accordance with Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises are the same as the enterprises which the Company should include in the consolidated financial statements prepared in accordance with IAS 27 which is accepted by the Financial Supervisory Commissions. The required disclosure of the financial statements of affiliated enterprise is disclosed in the abovementioned consolidated financial statements and the Company does not prepare financial statements for affiliated enterprises separately. We hereby certify that the above is true and faithful. Fubon Insurance Co., Ltd. Gong Tian Xing March 18,

4 INDEPENDENT AUDITORS REPORT The Board of Directors Fubon Insurance Co., Ltd. We have audited the accompanying consolidated balance sheets of Fubon Insurance Co., Ltd. and its subsidiaries as of December 31, 2014 and 2013 (restated) and the related consolidated statements of comprehensive income, changes in consolidated equity and cash flows for the years ended December 31, 2014 and 2013 (restated). These consolidated financial reports are the responsibility of Fubon Insurance Co., Ltd. management. Our responsibility is to express an opinion on these consolidated financial reports based on our audits. We conducted our audits in accordance with the Regulations Governing Auditing and Certification of Consolidated Financial Statements of Financial Institutions by Certified Public Accountants and generally accepted auditing standards of the Republic of China. Those regulations and standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial reports are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial report presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial reports referred to above present fairly, in all material respects, the financial position of Fubon Insurance Co., Ltd. and its subsidiaries as of December 31, 2014 and 2013 (restated), and the results of its consolidated operations and cash flows for the years then ended, in conformity with Regulations Governing the Preparation of Financial reports by Insurance Companies. As mentioned in Note 4 in the consolidated financial reports, started from January 1, 2014, Fubon Insurance Co., Ltd. changed the subsequent measurement method from cost model to fair value model and retrospectively restated the consolidated financial reports for the year ended December 31, We have also audited the financial report which was prepared separately as of and for the years ended December 31, 2014 and 2013 of Fubon Insurance Co., Ltd. and expressed a modified unqualified opinion. KPMG Taipei, Taiwan, R.O.C. March 18, 2015 Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of consolidated operations and cash flows in accordance with IFRSs accepted by the Financial Supervisory Commission and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China. The auditors report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese language auditors report and consolidated financial statements, the Chinese version shall prevail

5 (English Translation) CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2014 AND 2013 AND JANUARY 1, 2013 (Expressed in Thousands of New Taiwan Dollars) (Restated) (Restated) December 31, 2014 December 31, 2013 January 1, 2013 Amount % Amount % Amount % ASSETS Cash and cash equivalents (Notes 4, 6(A), 7 and 8) $ 7,906, ,848, ,124, Receivables (Notes 4, 6(B), (C), (D), (H) and 7) 5,529, ,182, ,063,099 8 Financial assets measured at fair value through profit or loss 1,549, ,847-67,730 - (Notes 4, 6(I), (X) and (Y)) Available-for-sale financial assets (Notes 4, 6(I), (X), (Y) and 8) 36,343, ,389, ,983, Financial assets carried at cost (Notes 4, 6(I), (X) and (Y)) 193, , ,410 - Investment under the equity method - net (Notes 4, 6(I), (X) and (Y)) ,419 - Debts investment without active market (Notes 4 and 6(I)) 3,184, ,889, ,213,156 4 Investment property (Notes 4, 6(I) and (L)) 11,184, ,068, ,723, Re Assets (Notes 4, 6(E), (F), (G) and (O)) 12,800, ,143, ,420, Premises and Equipment (Notes 4 and 6(J)) 2,420, ,423, ,423,609 3 Intangible Assets (Notes 4 and 6(K)) 98, , ,480 - Defferd tax assets (Notes 4 and 6(Q)) 504, , ,159 1 Other assets 1,632, ,438, ,172,541 2 TOTAL ASSETS $ 83,348, ,324, ,056, The accompanying notes are an integral part of the financial statements

6 (English Translation) CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2014 AND 2013 AND JANUARY 1, 2013 (Expressed in Thousands of New Taiwan Dollars) (Restated) (Restated) December 31, 2014 December 31, 2013 January 1, 2013 LIABILITIES AND EQUITY Amount % Amount % Amount % Liabiliteis Liabilities Payables (Notes 4, 6(B), (C), (G), (H), (M), (O) and 7) $ 6,504, ,586, ,626,013 9 Current income tax liabilities (Notes 4 and 6(Q)) 350, , ,238 1 Financial liabilities measured at fair value through profit or loss 373, ,168-10,991 - (Notes 4, 6(I), (X) and (Y)) Other financial liabilities (Notes 4 and 6(N)) , ,896 1 Insurance liabilities (Notes 4, 6(O), (T) and (U)) 44,929, ,586, ,266, Deferred tax liabilities (Notes 4 and 6(Q)) 728, , ,299 1 Other liabilities 517, , ,615 - Reserve for liabilities (Notes 4 and 6(M)) 1,405, ,058, ,000,465 1 Total Liabilities 54,809, ,359, ,717, Equity attributed to the parent company (Note 6(P)) Capital stock 3,178, ,178, ,178,396 4 Capital surplus 5,934, ,434, ,318, Retained earnings 14,376, ,270, ,676, Other equity 4,175, ,429, ,592,996 5 Total equity attributed to the parent company 27,664, ,313, ,767, Non-controlling interest 875, , ,720 1 Total Equity 28,539, ,965, ,338, TOTAL LIABILITIES AND EQUITY $ 83,348, ,324, ,056, The accompanying notes are an integral part of the financial statements

7 (English Translation) COMSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2014 and 2013 (Expressed in Thousands of New Taiwan Dollars) (Restated) For the year ended For the year ended Decemer 31, 2014 Decemer 31, 2013 Change Operating Revenues Amount % Amount % % Direct written premiums (Note 6 (T)) $ 32,718, ,448, Re premiums (Note 6 (T)) 1,487, ,240, Premiums revenues 34,205, ,688, Less : Re expenses (Note 6 (T)) 8,171, ,560, Net change in unearned premium reserve (Note 6 (O)) 1,381, , Retention of earned premiums 24,652, ,151, Re commission income (Note 6 (T)) 1,023, , Net income from investment Interest revenues (Note 6 (V)) 776, , Losses on financial assets and liabilities at fair value through profit or loss (Note 6 (V)) (233,535) (1) (183,032) (1) (28) Realized gains on available-for-sale financial assets 1,318, ,203, Realized gains on financial assets carried at cost 23,160-15, Realized gains on debt instruments without active market 51,825-74,211 - (30) Foreign exchange (losses) gains- investment 108,264-24, Gains on investment properties 453, ,137 3 (47) Reversal of impairment loss on investments) (Note 6 (V)) - - (84,845) Other operating revenue 58,177-36, Net Operating Revenues 28,233, ,699, Operating Costs Insurance payments (Note 6 (T)) 16,639, ,839, Less: Claims recovered from reinsurers (Note 6 (T)) 3,511, ,322, Retained payments 13,127, ,517, Net change in liability reserve (Note 6 (O)) Net change in claims reserve 1,599, ,203, Net change in liability reserve 4,137-4,273 - (3) Net change in special reserve (1,002,245) (3) (366,329) (1) (174) Net change in premiun deficiency reserve (9,569) - (78,534) - 88 Net change in liability adequacy reserve 34,627 - (31,970) Commission expenses (Note 6 (S) and (V)) 4,226, ,617, Other operating costs 117,161-97, Total Operating Costs 18,097, ,964, Operating Expenses Operating expenses 5,466, ,693, (4) Administrative expenses 1,528, , Staff training expenses 24,572-22,449-9 Total Operating Expenses 7,019, ,184, Operating income 3,116, ,551, Non-Operating Income Gains on disposal of premises and equipments (Note 6 (U)) 2,368-1, Reversal of impairment losses on non-financial assets (16,547) - 9,558 - (273) Miscellaneous income (94,692) - (77,527) - (22) Total Non-Operating Expenses (108,871) - (66,698) - Income before tax of continuing operating department 3,007, ,484, (14) Less: income tax expense (Note 6 (Q)) 587, , Current net income $ 2,420, ,911, (17) Other comprehensive income Difference of foreign exchange in translating financial statements of foreign operating units $ 69,935-24, Unrealized valuation gains on available-for-sale financial assets 847,064 3 (279,887) (1) (403) Actuarial gains (losses) on defined benefit plan (328,942) (1) (60,428) Less:Income tax related to the components of other comprehensive income (Note 6(Q)) 115,593 - (103,109) - (212) Other comprehensive income (net amount after tax) 472,464 2 (213,195) (1) (322) Total comprehensive income $ 2,892, ,698, Net income attributed to Parent company $ 2,816, ,244, (13) Non-controlling interest (396,234) (1) (332,844) (1) (19) $ 2,420, ,911, Total comprehensive income attributed to Parent company $ 3,288, ,030, Non-controlling interest (396,234) (1) (332,844) (1) (19) $ 2,892, ,698, Basic earnings per share (Note 6 (R)) Diluted earnings per share (Note 6 (R)) $ $ The accompanying notes are an integral part of the financial statements

8 Capital (English Translation) CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2014 AND 2013 (Expressed in Thousands of New Taiwan Dollars) Equity attributed to the parent company Retained Earnings Difference of foreign exchange in translating financial statements of foreign Unrealized valuation gains on availablefor-sale Capital Stock Capital Surplus Legal Reserve Special Reserve Unassigned retained earnings operating units financial assets Equity attributed to the parent company Non-controlling interest Total equity Balance, January 1, 2013 $ 3,178,396 8,318,907 3,162,216 1,691,908 1,787,128 (18,590) 3,611,586 21,731, ,720 22,303,271 Retrospective adjustment - 5,035,631 5,035,631-5,035,631 Balance, January 1, 2013 (restated) 3,178,396 8,318,907 3,162,216 1,691,908 6,822,759 (18,590) 3,611,586 26,767, ,720 27,338,902 Net income for the year ended December 31, 2013 (restated) ,244, ,244,088 (332,844) 2,911,244 Other comprehensive income for the year ended December 31, (50,155) 19,929 (182,969) (213,195) - (213,195) Total comprehensive income for the year ended December 31, 2013 (restated) ,193,933 19,929 (182,969) 3,030,893 (332,844) 2,698,049 Earnings appropriation and distribution - Legal reserve ,496 - (599,496) Special reserve ,155 (927,155) Cash dividend of ordinary shares (1,600,307) - - (1,600,307) - (1,600,307) Adjustment due to capital increase of subsidiaries - 115, , ,501 Changes in non-controlling interest , ,956 Balance, December 31, 2013 (restated) 3,178,396 8,434,408 3,761,712 2,619,063 6,889,734 1,339 3,428,617 28,313, ,832 28,965,101 Special reserve per Gin Guan Bao Tsai No order ,452,290 (5,452,290) Balance, January 1, ,178,396 8,434,408 3,761,712 8,071,353 1,437,444 1,339 3,428,617 28,313, ,832 28,965,101 Net income for the year ended December 31, ,816, ,816,268 (396,234) 2,420,034 Other comprehensive income for the year ended December 31, (273,022) 58, , , ,464 Total comprehensive income for the year ended December 31, ,543,246 58, ,440 3,288,732 (396,234) 2,892,498 Earnings appropriation and distribution Special reserve ,118,238 (1,118,238) Cash dividend of ordinary shares (1,437,444) - - (1,437,444) - (1,437,444) Cash dividend from capital surplus - (2,500,000) (2,500,000) - (2,500,000) Changes in non-controlling interest , ,505 Balance, December 31, 2014 $ 3,178,396 5,934,408 3,761,712 9,189,591 1,425,008 59,385 4,116,057 27,664, ,103 28,539,660 Other equity The accompanying notes are an integral part of the financial statements

9 (English Translation) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2014 and 2013 (Expressed in Thousands of New Taiwan Dollars) Fro the year ended December 31, (restated) Cash flows from operating activities Net income before tax $ 3,007,316 3,484,937 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Accounts that do not affect cash flow Depreciation 170, ,785 Amortization 72,867 63,857 Provision for bad debts expenses 32,254 2,605 Net gains on available-for-sale financial assets (432,538) (342,969) Net gains on debt instruments without active market (87,945) (464) Interest expenses 11,035 7,085 Net changes in various liabilities 4,343,337 1,319,288 Gains on disposal and retirement of premises and equipments (2,392) (1,271) Losses gains on disposal and retirement of investment properties 24 (15,660) Impairment losses on financial assets - 84,845 Loss on unrealized foreign exchange 46, ,504 Gains on fair value adjustment of investment properties (102,640) (474,869) Amortization of premium and discount on available-for-sale financial assets (573,392) 141,100 Other (273,022) (47,736) Total adjustments to reconcile profit 3,204,027 1,054,100 Changes in operating assets/liabilities: Net changes in operating assets: (Increase) decrease in notes receivable (28,871) 210,034 (Increase) decrease in premium receivable (306,518) 121,775 (Increase) decrease in other receivables (42,907) 545,717 (Increase) decrease in re contract assets (2,657,260) 1,277,288 Increase in other assets (249,226) (264,118) Net changes of operating liabilities: Increase (decrease) in claims payable 13,429 (9,884) Increase in commission payable 107,932 68,089 Increase (decrease) in proceeds due to reinsurers and ceding companies 692,178 (826,515) Decrease in other payable (579,082) (1,042,247) (Decrease) increase in financial liabilities at fair value through profit or loss (1,302,499) 183,060 Increase in provision for employee benefit liabilities 13,166 22,261 Increase in other liabilities 80, ,562 Cash inflow from operating activities 1,952,676 5,078,059 Interest paid (11,047) (6,791) Income tax paid (23,992) (23,954) Net cash flows provided by operating activities 1,917,637 5,047,

10 (English Translation) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2014 and 2013 (Expressed in Thousands of New Taiwan Dollars) Fro the year ended December 31, (restated) Cash flows from investing activities: Purchase of available-for-sale financial assets $ (11,819,502) (9,631,170) Disposal of available-for-sale financial assets 11,500,499 8,022,902 Purchase of debts investment without active market (499,328) (894,003) Disposal of debts investment without active market 518,135 1,087,638 Purchase of financial asset at cost (40) - Purchase of premises and equipments (179,060) (147,128) Disposal of premises and equipments 3,146 2,646 Purchase of intangible assets (43,612) (49,809) Purchase of investment property - (3,890) Proceeds from disposal of investment property - 152,489 Proceeds from the capital reduction of investees 28,998 20,247 Net cash used in investing activities (490,764) (1,440,078) Cash flows from financing activities: Decrease in notes and bonds issued under repurchase agreement (105,000) (823,896) Distribution of cash dividend (1,437,444) (1,600,307) Capital increase of subsidiaries - 115,501 Changes in non-controlling interest (consolidated financial statements) 619, ,956 Cash dividend from capital surplus (2,500,000) - Net cash used in financing activities (3,422,939) (1,895,746) Effect on cash and cash equivalent from foreign exchange fluctuation 54,141 12,595 (Decrease) increase in cash and cash equivalents (1,941,925) 1,724,085 Cash and cash equivalents, beginning of the period 9,848,109 8,124,024 Cash and cash equivalents, end of the period $ 7,906,184 9,848,109 The accompanying notes are an integral part of the financial statements

11 NOTES TO CONSOLIDATED FINANCIAL REPORTS DECEMBER 31, 2014 AND 2013 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED) 1. ORGANIZATION Fubon Insurance Co., Ltd. (the old Fubon) was founded on April 17, 1961 and primarily engaged in the business of property and casualty. The enactment of the Financial Holding Company Act in Taiwan in 2001 provided an opportunity to establish Fubon Group as the holding entity of the main financial services company that had been operating under the Fubon brand. Therefore, a new Fubon Insurance (the Company) was established on December 19, Substantially, all assets and liabilities and related operations of the Old Fubon were transferred to the New Fubon. The Old Fubon was renamed as Fubon Financial Holding Co., Ltd. As of December 31, 2014, the composition of the financial quarterly report includes the Group (hereafter the Group ) as well as the equity of the associates. The primary operating business is property. 2. APPROVAL DATE AND PROCEDURES OF THE CONSOLIDATED FINANCIAL STATEMENTS These consolidated financial reports were approved and announced by the board of directors on March 18, NEW STANDARDS AND INTERPRETATIONS (A) The effect on non-application of 2013 International Financial Reporting Standards as accepted by the Financial Supervisory Commissions. In accordance with Chin-Kuan-Chen-Shen-Zhi No which was issued by Financial Supervisory Commissions (the FSC ) on April 3, 2014, listed companies at stock exchange market, over-the-counter market and emerging stock market should adopt the 2013 version of IFRSs, which are accepted by FSC, from the year 2015 when compiling financial reports. The announcement excludes the application of IFRS 9 Financial Instruments. The newly issued and revised accounting standards and interpretations are as follows. Effective date Newly issued, Revised accounting standards and interpretations per IASB Amendment to IFRS 1-Amended by Limited Exemption from Capital Comparative July 1, 2010 IFRS 7 Disclosures for First-time Adopters Amendment to IFRS 1-Amended by Severe Hyperin1flation and Removal of Fixed July 1, 2011 Dates for First-time Adopters Amendment to IFRS 1-Amended by Government Loans January 1, 2013 Amendment to IFRS 7-Amended by Disclosures Offsetting Financial Assets and January 1, 2013 Financial Liabilities IFRS 10 Consolidated Financial Statements January 1, 2013 (Effective for investment entities on January 1, 2014) - 8 -

12 Effective date Newly issued, Revised accounting standards and interpretations Amendment to IFRS 7-Amended by Disclosure-Transfers of Financial Assets per IASB July 1, 2011 IFRS 11 Joint Agreements January 1, 2013 IFRS 12 Disclosure of Interests in Other Entities January 1, 2013 IFRS 13 Fair Value Measurement January 1, 2013 Amendment to IAS 1-Amended by Presentation of Items of Other Comprehensive Income July 1, 2012 Amendment to IAS 12-Amended by Deferred Tax: Recovery of Underlying January 1, 2012 Assets Amendment to IAS 19-Superseded by Employee Benefits January 1, 2013 Amendment to IAS 27-Reissued as Separate Financial Statements January 1, 2013 Amendment to IAS 32-Amended by Offsetting Financial Assets and Financial Liabilities January 1, 2014 IFRIC20 Stripping Costs in the Production Phase of a Surface Mine January 1, 2013 Except for the following listed items, the adoption of the 2013 version IFRSs by the Group would have no significant impact on consolidated financial statements. (a) IAS 19 Employee Benefits The standard primarily amended and determined that net interest on the net defined benefit liability or asset, determined using the discount rate at the beginning of the period and the previous method before the amendment which applied interest costs and plan asset expected returns is replaced. The Group is no longer able to elect to use corridor method or recognize actuarial gains or losses in profit or loss and the standard specified that the actuarial gains and losses should be recognized in other comprehensive income. Prior service cost is recognized in profit or loss and is no longer amortized as expense per straight line method during the vesting period. In addition, an entity can no longer recognize termination benefit at the earlier of the dates to withdraw the offer of those benefits or when the entity recognizes costs for a restructuring under IAS 37 Provisions, Contingent Liabilities and Contingent Assets which involves the payment of termination benefits. This is not only to recognize termination benefits as liabilities and expenses when the termination event is committed. Furthermore, the disclosure requirement of defined benefit plan is increased. The Group is continuously evaluating the influence on financial status and business outcome which resulted from the adoption of the abovementioned standards and interpretation. Relevant influence will be disclosed when the assessment is complete. (b) IAS 1 Presentation of Financial Statements The standard amended the presentation of other comprehensive income. The other comprehensive income section is required to present line items which are classified by their nature, and grouped between those items that will or will not be reclassified to profit and loss in subsequent periods. The amendment also regulated that line items should be presented in pre-tax amount and relevant tax amount should be disclosed separately per the aforementioned categorization. The Group is going to modify the presentation of other comprehensive income in conformity with the amendments. The items which are not going to be categorized in profit or loss are actuarial gains or losses on defined benefit - 9 -

13 plan and actuarial gains or losses on associates and joint ventures under Equity Method. The items which are likely to be categorized in profit or loss are foreign exchange difference from translation of financial statements of foreign operations, unrealized gains or losses on available-for-sale financial assets and other comprehensive income of associates and joint ventures under Equity Method (excluding actuarial gains or losses on defined benefit plan). (c) IFRS 12 Disclosure of Interests in Other Entities The standard integrates and requires a wide range of disclosures about an entity s interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The Group will increase the disclosure of consolidated and non-consolidated entities in conformity with the standard. (d) IFRS 13 Fair Value Measurement The standard defines fair value, provides a single IFRS framework for measuring fair value and requires disclosures about fair value measurement. The Group has evaluated evaluated the criterion, which has no significant influence on the Group s financial condition and operation. Additionally, it will increase the disclosure regarding the fair value measurement in order to conform to the standard. (B) The effect on newly issued International Financial Reporting Standards not yet accepted by the FSC. Listed as below are the accounting standards and interpretations newly issued and revised by IASB but not yet included in the 2013 IFRSs as accepted by FSC. Effective date Newly issued, Revised accounting standards and interpretations per IASB IFRS 9 Financial Instruments January 1, 2018 Amendment to IFRS 10 and IAS 28 Sales or contributions of assets between an January 1, 2016 investor and its associate/joint venture Amendment to IFRS 10, IFRS 12 and IAS 28 Investment entities: Applying the January 1, 2016 consolidation exception Amendment to IFRS 11 Amended by Acquisition of an Interest in a Joint Operation January 1, 2016 IFRS 14 Regulatory Deferral Accounts January 1, 2016 IFRS 15 Revenue from Contracts with Customers January 1, 2017 IAS 1 Disclosure initiative January 1, 2016 Amendments to IAS 16 and IAS 38 Amended by Clarification of Acceptable January 1, 2016 Methods of Depreciation and Amortization Amendments to IAS 16 and IAS 41 Amended by Bearer Plant January 1, 2016 Amendment to IAS 19 Amended by Defined Benefit Plans: Employee Contributions July 1, 2014 Amendment to IAS 27 Equity Method in Separate Financial Statements January 1, 2016 Amendment to IAS 36 Amended by Recoverable Amount Disclosures for January 1, 2014 Non-Financial Assets Amendment to IAS 39 Amended by Novations of Derivatives and Continuing of January 1, 2014 Hedge Accounting IFRIC 21 Levies January 1,

14 Except for the statement below, the adoption of the abovementioned newly issued, revised accounting standards and interpretations is not going to result in significant changes of the Company s accounting policies. (a) IFRS 9 Financial Instruments (1) The Recognition and measurement of financial assets In terms of financial assets, all the subsequent measurement of the financial assets defined in IAS 39 Financial Instruments: Recognition and Measurement is at amortized cost or fair value. If the Group possesses the financial instruments for the purpose of collecting contract cash flows, and the Group uses the contract cash flows to pay for the principle at maturity and the interest yielded from the principle, the financial instruments are measured at amortized cost. Other financial assets which do not meet the aforementioned conditions are measured at fair value. The Group can, on initial recognition, elect to measure equity investments which are not held for trading at fair value through other comprehensive income and to recognize dividend income in profit or loss and to recognize other relevant gains and losses in other comprehensive income. (2) The Recognition and measurement of financial liabilities In terms of financial liabilities, the major difference of categorization and measurement after adopting the standards and interpretations is the subsequent measurement of financial liabilities designated as at fair value through profit or loss. The fair value variation of the financial liabilities which can be attributed to the variation of the liabilities credit risk is recognized in other comprehensive income. The recognized amount will not be reclassified to profit or loss in subsequent periods and the remaining fair value variation is recognized in profit or loss. If the abovementioned accounting procedures regarding financial liabilities designated as at fair value triggers or enhances inappropriate distribution between earnings and other comprehensive income, the gains or losses of the liability is recognized in profit or loss. (3) Hedge Accounting The major change in IFRS 9 in terms of hedge accounting is to modify the conditions to apply hedge accounting in order to make the financial statements applying hedge accounting reflect the actual risk management activities which companies conduct. Compare to IAS 39, the major amendment includes (1) increase trade patterns applicable to hedge accounting, such as loosening the terms for non-financial risk applying hedge accounting; (2) Modify the recognition method of profit or loss of hedging derivative financial instruments to mitigate the variation of profit or loss; and (3) Regarding hedging effectiveness, to replace the actual effectiveness test with the economical relationship between the hedging instruments and the hedged items

15 (b) Amended to IAS 36-Amended by Recoverable Amount for Non-Financial Assets When IASB published IFRS 13 Fair Value Measurement, it modified the disclosure requirement of IAS 36 Impairment of Assets in the mean time, and this resulted in the increase of the Group s disclosure of the recoverable amount of assets or cash generating units in every reporting period. This modification of IAS 36 is to clarify that the Group only needs to disclose the recoverable amount in the period of recognizing or reversing impairment losses. In addition, if the recoverable amount is calculated by the present value deducted by the disposition cost, the Group should also disclose the discount rate applied. The Group is continuously evaluating the influence on financial position and performance which resulted from the adoption of the abovementioned standards and interpretations. Relevant influence will be disclosed when the assessment is completed. 4. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies presented in the consolidated financial statements are summarized as follows. Unless otherwise indicated, the significant accounting policies have been applied consistently to all periods presented in these consolidated financial statements. (A) Statement of compliance These consolidated financial statements were prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Insurance Companies (hereinafter referred to as the Regulations) and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations and SIC Interpretations accepted by the FSC (hereinafter referred to as the IFRS accepted by the FSC). (B) Basis of preparation The consolidated financial reports comprise consolidated balance sheets, consolidated statements of comprehensive income, consolidated statements of changes in equity, consolidated statements of cash flows and relevant notes. The consolidated financial statements have been prepared on a historical cost basis except for the financial instruments measured at fair value through profit or losses (including derivative financial instruments) and investment properties are measured at fair value. The functional currency of each Group entities is determined based on the primary economic environment in which the entities operate. The Group consolidated financial statements are presented in New Taiwan Dollar, which is the Company s functional currency. All financial information presented in New Taiwan Dollar has been rounded to the nearest thousand

16 (C) Basis of consolidation (a) Principle of preparation of the consolidated financial statements The Group has prepared consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies and International Accounting Standards endorsed by the FSC. Under consolidated financial statements, it combines like items of assets, liabilities, equity, income and expenses and offsets the carrying amount of the parent's investment in each subsidiary and the parent's portion of equity of each subsidiary. The Group has prepared its financial reports with same reporting dates. A subsidiary is an enterprise controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unless there is evidence indicating that the assets transferred is impaired, the unrealized loss from intra-group transaction are eliminated. The Group has adopted same accounting policies for like transactions and events in similar circumstances in the preparation of the consolidated financial statements. If the accounting policies adopted by its subsidiaries are different from those adopted by the Group, the Group has properly modified former accounting policies to ensure the consistency of all financial reports (b) List of subsidiaries in the consolidated financial statements Name of Business Shareholding investor Name of subsidiary Type December 31, 2014 December 31, 2013 The Company Fubon (Vietnam) Co., Ltd (Note 1) Insurance 100% 100% The Company Fubon P&C Insurance Co., Ltd (Note 2) Insurance 40% 40% The Company Fubon Insurance Broker (Thailand) Co., Ltd Insurance 48.97% 48.97% (Note 3) broker The Company Fubon Insurance Broker (Philippines) Co., Ltd (Note 4) Insurance broker 99.99% 99.99% Note 1: The Company participated the capital increase of the subsidiary Fubon (Vietnam) Co., Ltd which amounted to VND200,000,000,000 under the resolution of the board of directors on June 30, It is approved and registered by the Financial Supervisory Commission per Gin Guan Bao Chan No letter on August 5, 2014 and the base date is set on August 22, Note 2: The Company and Fubon Life Insurance Company jointly funded the investee. The registered paid in capital is RMB 400,000,000 and the base date of the capital increase is set on August 16, Xiamen Port Holding Group funded all the capital increase which amounted to RMB 100,000,000. The Company and Fubon Life Insurance Company s share holding drop to 40%, respectively. The Company possesses the management power and deemed the investee as a subsidiary. The Company participated the capital increase of the subsidiary Fubon P&C Insurance Co., Ltd which amounted to RMB 80,000,000 under the resolution of the board of directors on April 30, In addition, the competent authority approved that the Company is allowed to invest another RMB 50,000,000 in Fubon P&C Insurance Co., Ltd. per Jing Shen (2) Zhi No letter. The Base date of the capital increase is set on September 24, 2014 Note 3: The establishment of Fubon Insurance Broker (Thailand) Co., Ltd. was funded by the Company, Friedmann Pacific Investment Holdings Ltd., and Mr. Wu, Ming Kai. The paid in capital amounted to 4 million Thai Baht. On the base date of the capital increase, which was November 5, 2013, the Company subscribed shares which amounted to 1,940,000 Thai Baht and Friedman Pacific Investment Holdings Ltd. Subscribed shares which amounted to 60,000 Thai Baht. The capital increase was a total of 2,000,000 Thai Baht, and after the capital increase, the Company increased its share holding of Fubon Insurance Broker (Thailand) Co., Ltd. from the original 24.96% to 48.97%, and the Company is in de facto control. Therefore, Fubon Insurance Broker (Thailand) Co., Ltd. is deemed as a subsidiary

17 Note 4: The company, under the consent of the Financial Supervisory Commission, established the subsidiary Fubon Insurance Broker (Philippines) Co., Ltd. As of March 31, 2013, the prepaid investment amounted to $14,259 and the establishment and operating license was acquired on April 11, The registered paid in capital is PHP 20,000,000 and the primary business is brokerage. (D) Foreign currency (a) Foreign currency transaction The Group translates all foreign currency items, which recorded initially at the rate of exchange at the trade day, into its functional currency. Monetary assets and liabilities are translated at the closing rate at the date of the balance sheet. Exchange differences, which arise when monetary items are translated at rates different from those initially recognized, are reported in profit or loss in the period. Non-monetary assets and liabilities measured at fair value are reported at the rate of exchange at the date of fair value determined. Non-monetary items measured at historical cost are translated at the rate of exchange at the trade day. Exchange differences arising when they are translated at rates difference from those initially recognized, except those from Non-monetary available-for-sale financial assets, financial liabilities designated as hedge of a net investment in a foreign operation, or qualifies cash flow hedges are recognized in other comprehensive income, are recognized in profit or loss. (b) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the Group s functional currency in New Taiwan Dollars at exchange rates at the reporting date. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to the Group s functional currency at average rate. Foreign currency differences are recognized in other comprehensive income. However, if the foreign operation is a non-wholly owned subsidiary, then the relevant proportion of the translation difference is allocated to non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of any part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interest. When the Group disposes of only part of investment in an associate of joint venture that includes a foreign operation while retaining significant or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss

18 When the settlement of a monetary item receivable from or payable to a foreign operation is neither planed nor likely in the foreseeable future, foreign currency gains and losses arising from such items are considered to form part of a net investment in the foreign operation and are recognized in other comprehensive income, and presented in the translation reserve in equity. (E) Principle of classifying assets and liabilities as current and non-current Due to the specific business feature of business, the operating cycle is more difficult to establish, and therefore assets and liabilities are not classified as current or non-current. Nonetheless, the items are classified per their properties and are arranged per their liquidity. (F) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value (including time deposits that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value). (G) Investment in associates Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Investments in associates are accounted for using Equity Method and are recognized initially at cost. The cost of the investment includes transaction costs. The carrying amount of the investment in associates includes goodwill which is arising from the acquisition less any accumulated impairment losses. The consolidated financial statements include the Group s share of the profit or loss and other comprehensive income of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group s share of losses exceeds its interest in associates, the carrying amount of the investment, including any interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. When the Group disposes associates and lose the significant influence over the associates, any remaining investments are measured at the fair value. The difference between the fair value of remaining investments in associates plus the proceeds from disposing associates and the carrying amount of remaining investment in associates when the Group loses its significant influence is recognized in profit or loss. The amount related to associates and recognized in other comprehensive income is reclassified as profit or loss from equity. (H) Financial assets and financial liabilities Financial assets and liabilities, including derivative instruments, are recognized in the condensed consolidated balance sheet and measured according to its classification under IFRS

19 In accordance with International Accounting Standards 39 Financial instruments ( IAS 39 ) as endorsed by FSC, financial assets are classified into the following categories: financial assets measured at fair value through profit or loss, available-for-sale financial assets, hedging derivative financial assets, financial assets carried at cost, debt investments in non-active market, held-to-maturity financial assets, other financial assets, and loans and receivables. Financial liabilities are classified into financial liabilities measured at fair value through profit or loss, hedging derivative financial liabilities, and financial liabilities measured at amortized cost. The trading of financial assets is recorded on trading date. (a) Financial assets (1) Financial assets measured at fair value through profit or loss A financial asset is classified in this category if acquired principally for the purpose of selling or repurchasing in the short term, for which there is a recent pattern of short-term profit taking, or as derivative financial instruments. This category comprises financial assets classified as held-for-trading and designated as at fair value through profit or loss on initial recognition. Financial assets are classified as held-for-trading under one of the following situations: A. Assets acquired primarily for the purpose of selling in the short term; B. A portion of identified financial instruments at initial recognition and for which there is a pattern of short-term profit taking; or C. Derivative financial instruments (excluding financial guarantee contracts and those designated effective hedging instruments). The Group designates financial assets, other than ones classified as held-for-trading, as at fair value through profit or loss at initial recognition under one of the following situations: A. Designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; B. Performance of the financial asset is evaluated on a fair value basis; or C. Hybrid instrument contains one or more embedded derivatives

20 Financial assets in this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, which take into account any dividend and interest income, are recognized in profit or loss. Financial assets at fair value through profit or loss are measured at fair value and changes therein, which take into account any dividend and interest income, are recognized in profit or loss. Financial assets measured at fair value through profit or loss and designated as such at the time of initial recognition are classified as financial assets measured at fair value through profit or loss in the condensed consolidated balance sheet. Changes in fair value are recognized in profit of loss as gain or loss on financial assets and liabilities measured at fair value through profit or loss. (2) Held-to-maturity financial assets Financial assets which the Group have the positive intent and ability to hold to maturity are classified as held-to-maturity financial assets. After initially acquired, these assets are measured at amortized cost using the effective interest rate method less impairment losses. The effective interest method is a method of calculating the amortized cost of the financial instrument and of allocating the interest income over the relevant period. An effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial instrument. The calculation includes all transaction costs and fees and points paid or received that are an integral part of the effective interest rate. A sale or reclassification of a more than insignificant amount of held-to-maturity investments would result in the reclassification of all held-to-maturity investments as available-for-sale, and would prevent the Group from classifying financial assets as held-to-maturity for the current and the following two financial reporting years. (3) Available-for-sale financial assets Available-for-sale financial assets are any non-derivative financial assets designated on initial recognition as available-for-sale or any other instruments that are not classified as loans and receivables, held-to-maturity investments, or financial assets measured at fair value through profit or loss. Available-for-sale financial assets are recognized initially at fair value plus any directly attributable transaction cost. Subsequent to initial recognition, they are measured at fair value and changes therein, other than foreign currency differences on available-for-sale debt instruments, interest income calculated using the effective interest method, and dividend income, are recognized in other comprehensive income. When impairment loss of available-for-sale financial assets is recognized or derecognized, the gain or loss accumulated in the fair value reverse in equity is reclassified to profit or loss

21 Dividend income is recognized in profit or loss on the date that an entity s right to receive payment is established. Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment loss at the end of each reporting period and are recognized in a separate line item as financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets cannot be reliably measured, the financial assets are remeasured at fair value. The difference between carrying amount and fair value is recognized in profit or loss or other comprehensive income on financial assets. (4) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables comprise initial originated and non-initial originated. Initial originated assets indicate that the Group directly provide money, merchandise or service to debtors. Non-initial originated assets are other than initial originated loans and receivables. Loans and receivables are initially recognized at fair value plus incremental direct transaction costs, services fees, and discount or premium, and subsequently measured at their amortized cost using the effective interest method. When the discounted effect is insignificant, loans and receivables can be measured at original cost. The non-accrual loans arising from transferred loans are recognized as loans, and other non-accrual loans are recognized as other financial assets. (5) Other financial assets A. debt investments without active market Debt investments without active market are debt investments with fixed or determinable payments that are not quoted in an active market. At initial recognition, debt instruments without active market quote are recognized at fair value plus any directly attributable transaction costs. Disposal gain or loss is recognized in profit or loss upon derecognition. Subsequent to initial recognition, theses debt investments without active market are measured at amortized cost using the effective interest rate method