aia.com.sg Your Participating Fund Update for 2012

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1 aia.com.sg Your Participating Fund Update for 2012

2 In this commentary you will find key information on the performance of the AIA Participating Fund ( Par Fund ) plus the bonuses and dividends allocated to participating policies for the accounting period ending 31 December 2012; our asset allocation strategy and achieved investment returns; and our view on the future outlook for bonuses and dividends. We hope that this update will give you a better understanding of the factors that impact bonuses and dividends for your participating policies. As the real life company, AIA Singapore is committed to managing our policyholders investments prudently over the long term. We aim to ensure the security and solvency of the Par Fund and seek to maximise returns on the Par Fund s investments to provide stable benefits to policyholders and shareholders. Review of 2012 As at 31 December 2012 the Par Fund held total assets at market value amounting to approximately 16.4 billion. The assets are represented by our Singapore Dollar (), US Dollar (U) and Australian Dollar (A$) plans. Key Statistics of the Par Fund at a glance (as at 31 December 2012) Total amount of benefits paid in 2012 Market Value of Total Assets as at 31 December 2012 Value of Bonuses and Dividends declared 941 million 16,351 million 441 million Fixed Income Holdings as % of Total Assets 72.6% Equities Holdings as % of Total Assets 17.3% Net Investment Return Plans 9.8% Net Investment Return U Plans 16.1% Net Investment Return A$ Plans 12.2% Asset Allocation as at 31 December 2012 How the AIA Par Fund assets are invested: Fixed income securities represent the largest component at 72.6% while equities represent 17.3% and real estate 3.4%. Loans and other assets represent approximately 6.7%.

3 72.6% Fixed Income* 17.3% Equities 3.4% Real Estate 1.8% Loans 4.9% Other Assets * Includes Preference Shares Existing participating plans are denominated in one of three currencies:, U or A$. AIA adopts a different asset allocation strategy for different policy types. The overall asset allocation by currency type is shown below. How Par Fund assets are allocated by currency type: participating plans: 71.5% fixed income, 7.2% loans and others and 21.3% equities, mutual funds, direct investments and real estate (see also Group 1, 2, 3 descriptions). U participating plans: 86.2% fixed income, 13.8% in equities and mutual funds. A$ participating plans: 100% fixed income. How Singapore Dollar Par Fund assets are allocated by plan type: Singapore dollar () plans fall into 3 groups. Generally, equities and real estate offer the potential for higher returns, but with higher risk and volatility. Each group of plans offers a different level of exposure to these asset classes. You can find out which group your participating plan belongs to by referring to the table below. Group 1 Plans launched since June 2007 with 25%-35% asset allocation to equities and real estate. Group 2 Plans with high terminal bonus rates and 20%-30% asset allocation to equities and real estate. Group 3 All other plans with 10%-20% asset allocation to equities and real estate. AIA Life Plus AIA Smart Growth AIA Guaranteed 10 for Life AIA Guaranteed 15 for Life AIA Growth Special AIA Gen3 AIA Smart Rewards 21 AIA Smart Rewards 25 AIA Guaranteed Protect 15 for Life AIA Guaranteed Protect 20 for Life AIA Prime Life offered in AIA EAS 2-year and 3-year limited pay savings at age 60 offered in

4 Performance 2012 proved to be a rewarding year for investors of most asset classes. While volatility had remained present, tail risks were reduced by a number of central bank policy measures such as the Long Term Refinancing Operation and the purchase of euro zone bonds by the European Central Bank and the QE3 program undertaken by the US Federal Reserve. These actions provided liquidity to global financial markets, underpinning investor confidence. Equities rallied strongly with many markets recording doubledigit returns. All Asian markets registered positive returns and have broadly outperformed the US market and other major European markets. Thailand and Philippines remained the star markets and the main laggards were North Asian markets like Korea and Taiwan. The significantly improved risk appetite was also evident in the bond markets. While US treasuries and other top-rated government bonds continued to rise, non-government bonds performed much better with the non-investment grade or high yield bonds outperforming the high grade bonds. Against this backdrop, overall the Par Fund achieved an investment return of 9.9% in The investment returns achieved over the past 3 years are as shown in the following table: Product Group Group 1 Group 2 Group 3 Overall U A$ Historical Investment Returns % 7.8% 6.9% 7.2% 12.8% 5.6% % 1.6% 3.0% 2.5% 9.0% 12.0% % 10.9% 9.2% 9.8% 16.1% 12.2% Long-term Projected Investment Rate of Return 5.25% 5.00% 4.75% % 6.25% Note: There is a tranche of single premium endowment plan, AIA Endowment Select, launched in May 2012 with a targeted 10% - 20% asset allocation to equities. Its annualised investment return is 3.7% and its long-term projected investment rate of return is 3.62%. These figures are derived from net investment income, divided by the average market value of the total assets. Net investment income includes amongst others, rental income from land and buildings, less expenses. Past performance is not necessarily indicative of future performance. The top 5 fixed income and equity holdings of the AIA Par Fund as at 31 December 2012 are as follows: Top 5 Fixed Income Exposures Singapore Government Securities Temasek Holdings Singapore Power Group DBS Group Holdings Ltd United Overseas Bank Ltd Issuer Rating (Moody's/S&P) Aaa/AAA Aaa/AAA Aa3/AA- Aa1/AA- Aa1/AA-

5 Top 5 Equity Holdings Other areas of performance Mortality experience remained stable. Policy terminations due to voluntary surrenders were similar to last year s experience while expenses were lower than in We do not expect major fluctuations in these factors that will significantly affect future bonuses. Benefits paid The total amount of benefits paid to policyholders from the Par Fund amounted to 941 million in 2012, which was broadly in line with the 1 billion paid in Million Maturity Benefits and Coupons paid 621 Value of Death and Total & Permanent Disability claims paid Surrenders 111 Cash Bonuses 162 Annuities 3 Total amount of benefits paid in Bonuses and dividends % of Total Equities Starhill Global REIT 4.80% Mapletree Commercial Trust 3.66% DBS Group Holdings Ltd 3.55% Ascendas Real Estate Investment Trust 2.87% Singtel 2.76% The total value of Par Fund bonuses and dividends declared as at 31 December 2012 was 441 million. The annual bonus and dividend rates for participating policies will be maintained this year. More information on the bonus and dividend rates for the previous three years will be included in your anniversary statement. Bonuses or dividends allocated to your policy for the accounting period ending 31 December 2012 were recommended, in writing, by the Appointed Actuary and approved by AIA Singapore s Board of Directors. Once declared, annual bonuses and dividends will be credited to your plan at the policy anniversary. 44

6 Outlook In 2013, the investment climate is conducive for equities. Valuation is reasonable and liquidity conditions remain supportive at a time when cyclical conditions are improving with signs of recovery in the US housing market, stabilizing exports to Europe and end of destocking in China. However, what may derail the positive trend are the unresolved US fiscal cliff, lingering issues in the euro zone and return of inflationary pressure. Stability for our Policyholders Bonus and dividend declarations in the future depend largely on the investment returns we will achieve in the future. Future investment returns cannot be guaranteed and for that reason, neither can future bonuses and dividends. AIA tries to provide stable returns over the life of your participating policy, and so we adopt a concept known as smoothing. Simply put, we try to spread profits and losses over the life of your plan. For example, if the Par Fund performance is particularly good in one year, we may hold back a portion of the earnings so that we can maintain bonuses in years when the Par Fund does not perform so well. If the future outlook of Par Fund performance continues to be unfavourable, it may be necessary to reduce the estimates of future bonuses accordingly. Overall, our aim is for the long-term cost of smoothing to be broadly neutral across generations of policyholders. Note: This commentary is intended for your general information only and does not have regard to your specific investment objectives, financial situation and particular needs of any persons. Any opinions, predictions, forecasts or forward-looking statements made are not necessarily indicative of future or likely performance. All figures quoted are rounded off in millions. The above information is accurate as at 31 December AIA Singapore Private Limited (Reg. No R) 1 Robinson Road, AIA Tower, Singapore Monday - Friday: 8.45am pm AIA Customer Care Hotline: aia.com.sg