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10 DIRECTORS REPORT DIRECTORS REPORT The directors present their report to the shareholder together with the audited financial statements of the Company for the financial year ended 31 December The directors of the Company in office at the date of this report are as follows: Eric Sanderson Mack Eng Lip Chian Stephen Barry Crouch Daniel Andrew Albert Vanderkemp ARRANGEMENTS TO ENABLE DIRECTORS TO ACQUIRE SHARES AND DEBENTURES DIRECTORS CONTRACTUAL BENEFITS Since the end of the previous financial year, no director has received or become entitled to receive a benefit by 18 reason of a contract made by the Company or a related corporation with the director or with a firm of which DIRECTORS 19 he is a member or with a company in which he has a substantial financial interest, except that certain directors receive remuneration as a result of their employment with related corporations. DIRECTORS REPORT SHARE OPTIONS There were no options granted during the financial year to subscribe for unissued shares of the Company. No shares have been issued during the financial year by virtue of the exercise of options to take up unissued shares of the Company. DIRECTORS REPORT Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose object was to enable the directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. DIRECTORS INTERESTS IN SHARES OR DEBENTURES According to the register of directors shareholdings, none of the directors holding office at the end of the financial year had any interest in the shares in, or debentures of, the Company or its related corporations, except as follows: There were no unissued shares of the Company under option at the end of the financial year. INDEPENDENT AUDITOR The independent auditor, PricewaterhouseCoopers LLP, has expressed its willingness to accept re-appointment. On behalf of the directors Holdings registered in the name of director or nominee At At ACE Limited, ultimate holding corporation Restricted stock award 1 Mack Eng Lip Chian 1,841 1,610 Stephen Barry Crouch 8,170 8,170 Daniel Andrew Albert Vanderkemp 4,150 3,027 Mack Eng Lip Chian Director Daniel Andrew Albert Vanderkemp Director Restricted stock options 1 Mack Eng Lip Chian 2,603 1,967 Stephen Barry Crouch 10,583 8,247 Daniel Andrew Albert Vanderkemp 5,273 3, April 2012 Common shares at par value CH33.74 each Mack Eng Lip Chian Stephen Barry Crouch Daniel Andrew Albert Vanderkemp 3,802 1, This refers to restricted stock award and stock options granted by ACE Limited (incorporated in Switzerland) under the Group s 2004 Long-Term Incentive Plans.

11 STATEMENT BY DIRECTORS INDEPENDENT AUDITOR S REPORT In the opinion of the directors, INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF ACE INSURANCE LIMITED (a) the financial statements as set out on pages 22 to 66 are drawn up so as to give a true and fair view of Report on the Financial Statements 20 the state of affairs of the Company as at 31 December 2011 and of the results of the business, changes 21 in equity and cash flows of the Company for the financial year then ended; and We have audited the accompanying financial statements of ACE Insurance Limited set out on pages 22 to 66, which comprise the balance sheet as at 31 December 2011, the statement of comprehensive income, (b) at the date of this statement, there are reasonable grounds to believe that the Company will be able to the statement of changes in equity and the statement of cash flows for the financial year then ended, and a pay its debts as and when they fall due. summary of significant accounting policies and other explanatory information. STATEMENT BY DIRECTORS On behalf of the directors Management s Responsibility for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act (the Act ) and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, that transactions are properly authorized and that they are recorded as necessary to permit the preparation of true and fair profit and loss accounts and balance sheets and to maintain accountability of assets. INDEPENDENT AUDITOR S REPORT Mack Eng Lip Chian Director Daniel Andrew Albert Vanderkemp Director Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 27 April 2012 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity s preparation of financial statements that give a true and fair view 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 entity s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Company as at 31 December 2011, and the results, changes in equity and cash flows of the Company for the financial year ended on that date. Report on Other Legal and Regulatory Requirements In our opinion, the accounting and other records required by the Act to be kept by the Company have been properly kept in accordance with the provisions of the Act. PricewaterhouseCoopers LLP Public Accountants and Certified Public Accountants Singapore, 27 April 2012

12 STATEMENT OF COMPREHENSIVE INCOME BALANCE SHEET As at 31 December 2011 Notes Notes 22 Insurance premium revenue 138,124, ,199,762 ASSETS 23 Insurance premium ceded to reinsurers (99,311,137) (103,924,806) STATEMENT OF COMPREHENSIVE INCOME Net insurance premium revenue 3 38,813,157 38,274,956 Fee income from insurance contracts 30,258,457 30,024,862 Investment income - Net 4 1,910,043 2,267,229 Other operating income 5 108, ,616 Income 71,090,595 70,765,663 Insurance claims and loss adjustment expenses (30,497,445) (46,352,013) Insurance claims and loss adjustment expenses recovered from reinsurers 18,038,090 37,472,046 Net insurance claims 6 (12,459,355) (8,879,967) Current assets Cash and cash equivalents 14 27,842,765 20,986,197 Financial assets, available-for-sale 11 75,774,385 70,164,039 Insurance receivables and other receivables 12 50,631,679 50,400,882 Reinsurance assets 13 86,084,435 89,537, ,333, ,088,412 Non-current assets Property, plant and equipment ,812 1,054,350 Reinsurance assets 13 34,538,830 39,633,748 35,130,642 40,688,098 BALANCE SHEET Expenses for acquisition of insurance contracts (27,621,198) (27,657,492) Expenses for asset management services received (208,917) (332,440) Operating expenses: - Employee benefits 7 (15,089,153) (13,721,106) - Depreciation expense 10 (519,246) (755,765) - Other operating expenses 8 (8,175,862) (11,274,660) (23,784,261) (25,751,531) Expenses (64,073,731) (62,621,430) Profit before income tax 7,016,864 8,144,233 Income tax expense 9(a) (1,157,058) (1,451,999) Net profit 5,859,806 6,692,234 Total assets 275,463, ,776,510 LIABILITIES Current liabilities Insurance liabilities ,672, ,376,903 Insurance payables and other payables 15 40,668,608 38,378,939 Current income tax liabilities 9(b) 2,177,978 2,087, ,519, ,842,899 Non-current liabilities Insurance liabilities 13 49,764,874 53,725,586 Deferred income tax liabilities , ,700 50,184,904 53,969,286 Other comprehensive income: Net fair value gains on financial assets, available-for-sale 1,162,662 1,019,352 Impairment charge for available-for-sale financial assets transferred to profit or loss 10, ,594 Income tax expense relating to other comprehensive income (237,984) (94,151) Other comprehensive income, net of tax ,511 1,310,795 Total comprehensive income 6,795,317 8,003,029 Total liabilities 219,704, ,812,185 NET ASSETS 55,759,642 48,964,325 EQUITY Share capital 17 35,000,000 35,000,000 Fair value reserve 18 2,004,523 1,069,012 Retained profits 18,755,119 12,895,313 Total equity 55,759,642 48,964,325 The accompanying notes form an integral part of these financial statements. The accompanying notes form an integral part of these financial statements.

13 STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASH FLOWS Notes Share Fair value Retained Total capital reserve profits equity Total comprehensive income 1,310,795 6,692,234 8,003,029 Notes 24 Cash flows from operating activities Net profit 5,859,806 6,692,234 Beginning of financial year 35,000,000 1,069,012 12,895,313 48,964,325 Adjustments for: Income tax expense 1,157,058 1,451,999 Total comprehensive income 935,511 5,859,806 6,795,317 Depreciation expense 519, ,765 End of financial year 35,000,000 2,004,523 18,755,119 55,759,642 Gain on disposal of property, plant and equipment (5,444) Net gain on sale of available-for-sale financial assets (3,849) (336,392) Unrealized foreign exchange loss, net 6, , Interest income (1,857,191) (2,048,847) Beginning of financial year 35,000,000 (241,783) 19,179,079 53,937,296 Dividend income (59,836) (119,671) Impairment charge on available-for-sale financial assets 10, ,594 STATEMENT OF CHANGES IN EQUITY Operating cash flow before working capital changes 5,632,763 7,225,742 STATEMENT OF CASH FLOWS Dividends paid 19 (12,976,000) (12,976,000) End of financial year 35,000,000 1,069,012 12,895,313 48,964,325 Change in working capital: Insurance receivables and other receivables (304,040) (199,969) Insurance payables and other payables 2,289,671 1,010,266 Net insurance liabilities 2,882,936 (5,102,435) Cash generated from operations 10,501,330 2,933,604 Net income tax paid 9(b) (1,127,791) (1,515,353) Net cash provided by operating activities 9,373,539 1,418,251 Cash flows from investing activities Purchases of property, plant and equipment (56,708) (94,279) Proceeds from disposal of property, plant and equipment 8,411 Purchases of investments (77,094,395) (76,141,711) Proceeds from sale of investments 72,568,996 87,731,424 Interest received 2,005,300 2,394,198 Dividends received 59, ,671 Net cash (used in)/generated from investing activities (2,516,971) 14,017,714 Cash flows from financing activities Dividends paid to shareholder of the Company (12,976,000) Net cash used in financing activities (12,976,000) Net increase in cash and cash equivalents held 6,856,568 2,459,965 Cash and cash equivalents at beginning of financial year 14 20,986,197 18,526,232 Cash and cash equivalents at end of financial year 14 27,842,765 20,986,197 The accompanying notes form an integral part of these financial statements. The accompanying notes form an integral part of these financial statements.

14 These notes form an integral part of and should be read in conjunction with the accompanying financial statements. ACE Insurance Limited (the Company ) is incorporated and domiciled in Singapore. The address of its registered office is 600 North Bridge Road #04-02, Parkview Square, Singapore The Company is licensed under the Insurance Act, Chapter 142 as a direct general insurer. The principal activity of the Company consists of underwriting of general insurance including reinsurance of all classes of risks. 2. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation The financial statements have been prepared in accordance with Singapore Financial Reporting Standards ( FRS ). The financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below. 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (c) Property, plant and equipment GENERAL INFORMATION 27 All property, plant and equipment are initially recognized at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses (Note 2(d)). The cost of an item of property, plant and equipment initially recognized includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. The projected cost of dismantlement, removal or restoration is recognized as part of the cost of property, plant and equipment if such obligation is incurred as a consequence of acquiring or using the asset. Depreciation is calculated using the straight line basis to allocate their depreciable amounts over their estimated useful lives as follows: Leasehold improvements 20% 33 % Office equipment 20% Furniture and fittings 20% Computer equipment 20% Motor vehicles 33 % The preparation of these financial statements in conformity with FRS requires management to exercise its judgement in the process of applying the Company s accounting policies. It also requires the use of certain critical accounting estimates and assumptions. The area involving a higher degree of judgement or complexity, or area where estimates and assumptions are significant to the financial statements is the estimation of ultimate liability arising from claims made under insurance contracts, disclosed in Note 13. Interpretations and amendments to published standards effective in 2011 On 1 January 2011, the Company adopted the new or amended FRS and Interpretations to FRS ( INT FRS ) that are mandatory for application from that date. Changes to the Company s accounting policies have been made as required, in accordance with the transitional provisions in the respective FRS and INT FRS. The adoption of these new or amended FRS and INT FRS did not result in substantial changes to the Company s accounting policies and had no material effect on the amounts reported for the current or prior financial years. (d) The residual values, estimated useful lives and depreciation method of property, plant and equipment are reviewed, and adjusted as appropriate, at each balance sheet date. The effects of any revision are recognized in profit or loss when the changes arise. Subsequent expenditure relating to property, plant and equipment that has already been recognized is added to the carrying amount of the asset only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be reliably measured. All other repairs and maintenance expenses are recognized in profit or loss when incurred. On disposal of an item of property, plant and equipment, the difference between the disposal proceeds and its carrying amount is recognized in profit or loss. Impairment of non-financial assets Property, plant and equipment are tested for impairment whenever there is any objective evidence or indication that these assets may be impaired. (b) Revenue recognition Premium on insurance contracts are recognized as written, at the time of inception of the policies. Gross written premium is shown before movement in unearned premium provision and deduction of commission and are net of taxes or duties levied on premium. Fee income from insurance contracts relates to income earned in acquiring new and/or renewing existing reinsurance contracts and certain insurance contracts and is recognized as revenue over the period in which the related services are performed. Dividend income from investments is recognized when the right to receive payment is established. Interest income is recognized using the effective interest method. For the purpose of impairment testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value in use) is determined on an individual asset basis unless the asset does not generate cash inflows that are largely independent of those from other assets. If this is the case, the recoverable amount is determined for the cash-generating unit (CGU) to which the asset belongs. If the recoverable amount of the asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. The difference between the carrying amount and the recoverable amount is recognized as an impairment loss in profit or loss. An impairment loss of an asset is reversed if, and 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. The carrying amount of this asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of any accumulated depreciation) had no impairment loss been recognized for the asset in prior years. A reversal of impairment loss for an asset is recognized in profit or loss.

15 2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (e) Financial assets (e) Financial assets (continued) (i) Classification (iv) Subsequent measurement (continued) (ii) The Company classifies its financial assets in the following categories: loans and receivables and available-for-sale. The classification depends on the nature of the asset and the purpose for which the assets were acquired. Management determines the classification of its financial assets at initial recognition. (1) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are presented as current assets, except for those expected to be realized later than 12 months after the balance sheet date which are presented as non-current assets. Receivables arising from insurance contracts and other receivables are classified in this category. Insurance receivables comprise of amounts due from insured, agents, brokers and reinsurers. (2) Financial assets, available-for-sale Financial assets, available-for-sale, are non-derivatives that are either designated in this category or not classified in any of the other categories. They are presented as current assets unless the investment matures or management intends to dispose of the assets within 12 months after the balance sheet date. Recognition and derecognition Purchases and sales of investments are recognized on trade-date the date on which the Company commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. On disposal of a financial asset, the difference between the carrying amount and the sale proceeds is recognized in profit or loss. Any amount in the fair value reserve relating to that asset is reclassified to profit or loss. (v) Changes in the fair value of available-for-sale debt securities (i.e. monetary items) denominated in foreign currencies are analyzed into currency translation differences on the amortized cost of the securities and other changes; the currency translation differences are recognized in profit or loss and the other changes are recognized in the fair value reserve. Changes in fair values of availablefor-sale equity securities (i.e. non-monetary items) are recognized in the fair value reserve, together with the related currency translation differences. Impairment The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired and recognizes an allowance for impairment when such evidence exists. (1) Loans and receivables Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy and default or significant delay in payments are evidence that these financial assets are impaired. The carrying amount of these assets is reduced through the use of an impairment allowance account which is calculated as the difference between the carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. When the asset becomes uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are recognized against the same line item in profit or loss. The allowance for impairment loss account is reduced through profit or loss in a subsequent period when the amount of impairment loss decreases and the related decrease can be objectively measured. The carrying amount of the assets previously impaired is increased to the extent that the new carrying amount does not exceed the amortized cost had no impairment been recognized in prior periods. (iii) (iv) Initial measurement Financial assets are initially recognized at fair value plus transaction costs. Subsequent measurement Loans and receivables are subsequently carried at amortized cost using the effective interest method. Financial assets, available-for-sale are subsequently carried at fair value. Interest and dividend income on financial assets, available-for-sale, are recognized separately in profit or loss. (2) Financial assets, available-for-sale In addition to the objective evidence of impairment described in Note 2 (e)(v)(1), a significant or prolonged decline in the fair value of the security below its cost and the disappearance of an active trading market for the security are objective evidence that the security is impaired. If any evidence of impairment exists, the cumulative loss that was recognized in the fair value reserve is reclassified to profit or loss. The cumulative loss is measured as the difference between the acquisition cost (net of any principal repayments and amortization) and the current fair value, less any impairment loss previously recognized as an expense. The impairment losses recognized as an expense on equity securities are not reversed through profit or loss.

16 2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (f) Fair value estimation The fair values of financial instruments traded in active markets (such as exchange-traded and over-thecounter Classifications of insurance contracts (continued) securities and derivatives) are based on quoted market prices at the balance sheet date. The quoted market prices used for financial assets are the current bid prices; the appropriate quoted market (i) Short-term insurance contracts (continued) prices for financial liabilities are the current asking prices. (g) (h) The fair values of financial instruments that are not traded in an active market are determined by using valuation techniques. The Company uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. When appropriate, quoted market prices or dealer quotes for similar instruments are used where appropriate. Valuation techniques, such as discounted cash flow analyzes, are also used to determine the fair values of the financial instruments. The fair values of current financial assets and liabilities carried at amortized cost approximate their carrying amounts. Insurance payables Insurance payables are initially measured at fair value and subsequently measured at amortized cost, using the effective interest method. Insurance The Company issues contracts that transfer insurance risk. Insurance contracts are those contracts that transfer significant insurance risk. Such contracts may also transfer financial risk. As a general guideline, the Company defines as significant insurance risk the possibility of having to pay benefits on the occurrence of an insured event that are at least 10% more than the benefits payable if the insured event did not occur. (h) Insurance (continued) (ii) Professional and Directors and Officers insurance contracts mainly indemnify the Company s customers against the legal liability as well as liability as a result of a breach of duty owed in a professional capacity in connection with the customer s business. Marine cargo and hull insurance contracts protect the Company s customers from the financial losses resulting from marine transportation and transit which can have a drastic impact to their business. Accident and health insurance contracts protect the Company s customers from the consequences of events such as hospitalization, total permanent disability or death arising from accident or sickness or diagnosis for dreaded diseases. Guaranteed benefits paid on occurrence of the specified insurance event are either fixed or linked to the extent of the economic loss suffered by the policyholder. There are no maturity or surrender benefits. Political risk insurance contracts protect the Company s customers against financial losses caused by government action or political force majeure in respect of loans (export and pre-export finance), or sales, purchase or service contracts. Credit insurance contracts protects the lenders involved in highly structured and/or secured trade transactions against default by a borrower/obligor due to either a political or credit event or protects exporters, contractors and sponsors against the calling of on-demand guarantees. Long-term insurance contracts Classifications of insurance contracts Insurance contracts are classified into two main categories, depending on the duration of risk and whether or not the terms and conditions are fixed. (i) Short-term insurance contracts These contracts are casualty, property, professional and directors and officers liability, marine, accident and health, political risks and credit insurance contracts. Casualty insurance contracts protect the Company s customers against the risk of causing harm to third parties as a result of their legitimate activities. Damages covered include both contractual and non-contractual events. The typical protection offered is designed for employers who become legally liable to pay compensation to injured employees (employers liability) and for individual and business customers who become liable to pay compensation to a third party for bodily harm or property damage (public liability). Property insurance contracts mainly compensate the Company s customers for damage suffered to their properties or for the value of property lost. Customers who undertake commercial activities on their premises could also receive compensation for the loss of earnings caused by the inability to use the insured properties in their business activities (business interruption cover). (i) These contracts are the Return of Premiums Products Plans which the premium received will be refunded after a specified number of years if the policy criteria for refund are met. The ultimate outcome of this can only be determined upon the expiry of the policies under the Plan and a provision on premium refundable for this class of policies is calculated by the in-house actuary. Provision for premiums refund made is taken against gross premium written. Reinsurance contracts held Contracts entered into by the Company with reinsurers under which the Company is compensated for losses on one or more contracts issued by the Company and that meet the classification requirements for insurance contracts are classified as reinsurance contracts held. Contracts that do not meet these classification requirements are classified as financial assets. Insurance contracts entered into by the Company under which the contract holder is another insurer (inward reinsurance) are included with insurance contracts. The benefits to which the Company is entitled under its reinsurance contracts held are recognized as reinsurance assets. These assets consist of short-term balances due from reinsurers (insurance receivables and other receivables), as well as longer term receivables (classified as reinsurance assets) that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amount recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognized as an expense when due.

17 2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (i) Reinsurance contracts held (continued) The Company assesses its reinsurance assets for impairment on a quarterly basis. If there is objective Leases of assets in which significant portion of the risks and rewards of ownership are retained by the evidence that the reinsurance asset is impaired, the Company reduces the carrying amount of the lessor are classified as operating lease. Payments made under operating leases (net of any incentives reinsurance asset to its recoverable amount and recognizes that impairment losses in profit or loss. The received from the lessors) are recognized in profit or loss on a straight-line basis over the period of the Company gathers objective evidence that a reinsurance asset is impaired using the same process adopted lease. for financial assets held as loans and receivables. The impairment loss is also calculated following the same method used for these financial assets. These processes are described in Note 2(e). (m) Income taxes (j) Insurance liabilities (i) Unearned premium reserve/deferred acquisition cost The portion of premium received on in-force contract that relate to unexpired risks at the balance sheet date is reported as unearned premium reserve. Unearned premium reserve are calculated using the 1/365 th method, except for direct marketing business which is calculated using the 1/24 th method, on gross premiums written less return premiums, premiums on reinsurance and deferred acquisition costs. Commission and other acquisition costs that vary with and are related to securing new contracts and renewing existing contracts are netted off against unearned premium provision. All other costs are recognized as expenses when incurred. Commission income and commission expense are deferred and subsequently amortized over the life of the policies as the premiums are ceded or earned. (l) Operating leases Current income tax for current and prior periods is recognized at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred income tax is recognized for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements except when the deferred income tax arises from the initial recognition an asset or liability in a transaction that affects neither accounting nor taxable profit or loss at the time of the transaction. A deferred income tax asset is recognized to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilized. Deferred income tax is measured: (i) at the tax rates that are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date; and Unearned premium provision also includes premium deficiency provisions which are derived using actuarial methods on the Company s loss statistics. (ii) based on the tax consequence that will follow from the manner in which the Company expects, at the balance sheet date, to recover or settle the carrying amounts of its assets and liabilities. (k) (ii) Outstanding claims reserves Outstanding claims reserves are estimates of claims which have been incurred and reported to the Company and estimates of losses which have occurred, but not yet reported to the Company. Provision made for claims incurred but not reported (IBNR) is based on the amount calculated and determined by an Appointed Actuary as at the balance sheet date. Any deficiency is immediately charged to profit or loss. In line with Section 37(1) (b) of the Insurance Act, an actuarial investigation is made on the claims liabilities and a provision for adverse deviation at a minimum 75% level of confidence is included in the loss reserves. Liability adequacy test At balance sheet date, liability adequacy tests are performed to ensure the adequacy of the contract liabilities net of related deferred acquisition cost. In performing these tests, current best estimates of future contractual cashflows and claims handling and administration expenses are used. Any deficiency is immediately charged to profit or loss. (n) (o) Current and deferred income taxes are recognized as income or expense in profit or loss, except to the extent that the tax arises from a transaction which is recognized directly in equity. Deferred tax on temporary differences arising from the revaluation gains and losses on available-for-sale financial assets is charged or credited directly to equity in the same period the temporary differences arise. Provisions for other liabilities and charges Provisions for other liabilities and charges are recognized when the Company has a legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Employee benefits (i) Defined contribution plans Defined contribution plans are post-employment benefit plans under which the Company pays fixed contributions into separate entities such as the Central Provident Fund on a mandatory, contractual or voluntary basis. The Company has no further payment obligations once the contributions have been paid.

18 2. SIGNIFICANT ACCOUNTING POLICIES (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (o) Employee benefits (continued) (iii) Employee entitlements to annual leave and long service leave are recognized when they accrue to employees. A provision is made for the estimated liability for annual leave and long-service leave as a result of services rendered by employees up to the balance sheet date. Share-based compensation The Company s ultimate holding corporation operates several share based compensation plans as described in Note 17(b). The total amount of equity-settled transactions to be recognized over the vesting period is determined by reference to the fair value on the date of the grant. The cost of equity-settled transactions is recognized as an expense together with a corresponding increase in equity over the vesting period, and subsequently recharged by the Company s ultimate holding corporation. (q) Cash and cash equivalents (ii) Employee leave entitlement For the purpose of presentation in the statement of cash flows, cash and cash equivalents include cash on hand, cash at bank and fixed deposits with financial institutions which are subject to an insignificant risk of change in value. (r) (s) Government grants Government grants are recognized at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. Government grant are recognized in other operating income in profit or loss on a systematic basis over the periods in which the entity recognizes as expenses the related costs for which the grants are intended to compensate. Share capital (p) Currency translation Ordinary shares are classified as equity. (i) Functional and presentation currency (t) Offsetting financial instruments (ii) Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The financial statements are presented in Singapore Dollar, which is the functional currency of the Company. Transactions and balances Transactions in a currency other than the functional currency ( foreign currency ) are translated into the functional currency using the exchange rates at the dates of the transactions. Currency translation differences resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rates at balance sheet date are recognized in profit or loss. (u) Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. Dividend Dividends to the Company s shareholder are recognized when the dividends are approved for payment. Changes in the fair value of monetary securities denominated in foreign currencies classified as available-for-sale are analyzed into currency translation differences on the amortized cost of the securities, and other changes. Currency translation differences on the amortized cost are recognized in profit or loss, and other changes are recognized in fair value reserve within equity. Non-monetary items measured at fair values in foreign currencies are translated using the exchange rates at the date when the fair values are determined. Currency translation differences on non-monetary items, whereby the gain or loss are recognized in profit or loss are reported as part of the fair value gain or loss in profit or loss. Currency translation differences on non-monetary items whereby the gains or losses are recognized directly in equity, such as equity investments classified as available-for-sale financial assets are included in the fair value reserve.

19 3. NET INSURANCE PREMIUM REVENUE 5. OTHER OPERATING INCOME Short-term insurance contracts - premium receivables 136,818, ,438,445 - change in unearned premium reserve (Note 13 (g)(ii)) 1,305,737 (4,238,683) Premium revenue arising from insurance contracts issued 138,124, ,199,762 Short-term reinsurance contracts - premium payables (98,296,004) (105,755,731) - change in unearned premium reserve (1,015,133) 1,830,925 Premium revenue ceded to reinsurers for insurance contracts purchased (99,311,137) (103,924,806) Net insurance premium revenue 38,813,157 38,274,956 Government grant Job Credits 100,343 Recovery of expenses from a related corporation 6,475 26,938 Gain on disposal of property, plant and equipment 5,444 Other miscellaneous income 102,463 65, NET INSURANCE CLAIMS 108, ,616 Insurance claims and loss adjustment expenses - gross claims paid (33,850,383) (36,245,681) - change in outstanding claims 3,352,938 (10,106,332) (30,497,445) (46,352,013) 4. INVESTMENT INCOME - NET Insurance claims and loss adjustment expenses recovered - paid claims recovered 25,570,734 28,966,363 - change in outstanding claims (7,532,644) 8,505,683 Financial assets, available-for-sale: - dividend income 59, ,671 - interest income 1,844,106 2,181,568 Cash and cash equivalents: - Interest income from banks 13,085 15,192 Net realized gains on available-for-sale financial assets (Note 18) 3, ,392 Impairment charge on available-for-sale financial assets (Note 18) (10,833) (385,594) 1,910,043 2,267,229 18,038,090 37,472,046 Net insurance claims (12,459,355) (8,879,967) 7. EMPLOYEE BENEFITS Wages and salaries 12,677,952 11,824,591 Share-based remuneration expenses (Note 17(c)) 158, ,990 Staff related expenses 1,057, ,330 13,893,756 12,669,911 Employer s contribution to Central Provident Fund 1,195,397 1,051,195 15,089,153 13,721,106

20 8. OTHER OPERATING EXPENSES 9. INCOME TAX (continued) The following items have been included in other operating expenses during the financial year: Management fees 3,218,981 2,681,843 IT related expenses 871, ,457 Rental on operating lease 1,349,390 1,388,032 Currency exchange (gain)/loss - net (133,614) 2,704,432 Impairment of insurance receivables (1,610) 162,708 Sales incentives paid to sponsors (324,382) 1,350,462 Other expenses 3,195,881 2,170, INCOME TAX 8,175,862 11,274,660 (a) Income tax expense (continued) The tax expense on profit differs from the amount that would arise using the Singapore standard rate of income tax due to the following: Profit before income tax 7,016,864 8,144,233 Tax calculated at a tax rate of 17% (2010: 17%) 1,192,867 1,384,520 Effects of: - Income taxed at concessionary rate of 10% (77,245) - Expenses not deductible for tax purposes 66, ,051 - Income not subject to tax (10,172) (37,402) - Singapore statutory stepped income exemption (25,925) (25,925) - Tax incentives (10,693) (a) Income tax expense Tax charge 1,212,573 1,451,999 (b) Movements in current income tax liabilities Tax expense attributable to profit is made up of: - current income tax 1,274,227 1,521,450 - deferred income tax (Note 16) (61,654) (69,451) 1,212,573 1,451,999 Over provision in prior financial years - current income tax (55,515) 1,157,058 1,451,999 At beginning of financial year 2,087,057 2,080,960 Income tax paid (1,750,050) (1,779,432) Income tax refunded 622, ,079 Tax payable on profit for current financial year 1,274,227 1,521,450 Over provision in tax expense (55,515) At end of financial year 2,177,978 2,087,057

21 10. PROPERTY, PLANT AND EQUIPMENT 11. FINANCIAL ASSETS, AVAILABLE-FOR-SALE Leasehold Office Furniture Computer The movements during the year are as follows: 40 improvements equipment and fittings equipment Total 41 $ 2011 Cost Beginning of financial year 3,019, ,039 1,448,004 1,820,680 7,177,713 Additions 8,145 48,563 56,708 End of financial year 3,019, ,184 1,448,004 1,869,243 7,234,421 Accumulated depreciation Beginning of financial year 2,723, ,090 1,400,879 1,202,591 6,123,363 Depreciation charge 177,730 53,492 30, , ,246 End of financial year 2,901, ,582 1,431,650 1,459,844 6,642,609 Beginning of financial year 70,164,039 80,996,425 Additions 77,094,395 76,141,711 Fair value gains recognized in other comprehensive income 1,173,495 1,404,947 Impairment losses (10,833) (385,594) Amortization of premiums (net of discounts) (74,866) (147,913) Disposals (72,565,147) (87,395,032) Currency translation differences (6,698) (450,505) End of financial year 75,774,385 70,164,039 Available-for-sale financial assets are analyzed as follows: Net book value End of financial year 118,457 47,602 16, , ,812 Leasehold Office Furniture Computer Motor improvements equipment and fittings equipment vehicles Total 2010 Cost Beginning of financial year 3,019, ,876 1,447,204 1,748,365 36,666 7,130,101 Additions 11, ,316 94,279 Disposals (10,001) (36,666) (46,667) End of financial year 3,019, ,039 1,448,004 1,820,680 7,177,713 Listed securities: Government securities - SGD 28,248,515 18,603,154 Government securities - USD 5,134,292 1,511,272 33,382,807 20,114,426 Equity shares in companies - SGD 2,023,600 Loan stocks in corporations - SGD 39,414,105 46,078,006 Loan stocks in corporations - USD 2,977,473 1,948,007 42,391,578 48,026,013 75,774,385 70,164,039 Accumulated depreciation Beginning of financial year 2,400, ,531 1,316, ,605 36,666 5,411,298 Depreciation charge 323,628 56,559 84, , ,765 Disposals (7,034) (36,666) (43,700) End of financial year 2,723, ,090 1,400,879 1,202,591 6,123,363 Net book value End of financial year 296,187 92,949 47, ,089 1,054,350 The loan stocks and government securities have maturity dates from January 2011 to December 2049 with the following weighted average effective interest rates: Singapore Dollar 4.76% 3.04% United States Dollar 3.27% 5.46% The exposure of investments to interest rate risks is disclosed in Note 22(a)(iii).

22 12. INSURANCE RECEIVABLES AND OTHER RECEIVABLES 13. INSURANCE LIABILITIES AND REINSURANCE ASSETS Receivables from insurance and reinsurance contracts: - related companies 7,201,262 3,657,929 - third parties 41,608,701 45,198,466 48,809,963 48,856,395 Less provision for impairment of receivables - third parties (249,463) (402,994) 48,560,500 48,453,401 Other receivables: - Prepayments 153, ,885 - Receivables from related companies 137, ,620 - Accrued interest receivable 448, ,593 - Rental and other deposits 634, ,012 - Sundry receivables 696, ,371 2,071,179 1,947,481 Total insurance receivables and other receivables 50,631,679 50,400,882 Gross Current: - outstanding claims reserves 67,962,123 68,572,578 - reserves for unearned premium* 55,977,797 57,283,534 - no claims bonus provision 2,732,854 2,520, ,672, ,376,903 Non-current: - outstanding claims reserves 45,808,980 48,551,463 - provision for premiums refund 3,955,894 5,174,123 49,764,874 53,725,586 Total insurance liabilities, gross 176,437, ,102,489 Recoverable from reinsurers Current: - outstanding claims reserves 54,566,804 57,004,530 - reserves for unearned premium 31,517,631 32,532,764 The carrying amounts of the insurance receivables and other receivables approximate their fair values. The receivables from related companies are unsecured, interest-free and are repayable on demand. 86,084,435 89,537,294 Non-current: - outstanding claims 34,538,830 39,633,748 Total reinsurer s share of insurance liabilities 120,623, ,171,042 Net Current: - outstanding claims reserves 13,395,319 11,568,048 - reserves for unearned premium provision 24,460,166 24,750,770 - no claims bonus provision 2,732,854 2,520,791 40,588,339 38,839,609 Non-current: - outstanding claims reserves 11,270,150 8,917,715 - provision for premiums refund 3,955,894 5,174,123 15,226,044 14,091,838 Total insurance liabilities, net 55,814,383 52,931,447 * Reserves for unearned premium are shown net of deferred acquisition cost.

23 13. INSURANCE LIABILITIES AND REINSURANCE ASSETS (continued) 13. INSURANCE LIABILITIES AND REINSURANCE ASSETS (continued) Actuarial methods, assumptions and sensitivity analysis (a) Methods Discount rate (b) Four standard actuarial methods (Chain ladder on Incurred and Paid Claims, Bornhuetter-Ferguson and Average Incurred Cost Development) have been applied to each class of business to determine the undiscounted insurance liabilities. The selection of an appropriate method depends on the nature of the claim development and claim volatility. The Outstanding Liability is equal to the Case Estimates in situations where no further loss development is expected. The insurance liabilities also include an appropriate allowance for allocated and unallocated future claim handling expenses. In addition, an administration expense reserve of 4.8% (2010: 5.5%) of gross premiums (or gross unearned premium reserve) and excess of loss ceded premiums have been included in the assessment of the premium liability. Assumptions The following assumptions have been made in determining the gross outstanding claim liabilities: 2011 Discounted average weighted term to settlement 1.22 years Ultimate claim number current year 13,930 cases Average claim size current year $3,361 Unallocated claim expense rate 3.4% Discount rate 0.4% (c) (d) Process used to determine assumptions (continued) The discount rate is derived from market yields of government securities at the balance sheet date. Inflation rate The inflation rate is implicit in the valuation models used so no explicit inflation rate is used in the valuation. Movement in average claim size provides a de facto estimate of the inflation rate implied in the valuation. Sensitivity analysis The Company conducts sensitivity analysis to quantify the exposure to risk of changes in the key underlying variables. The valuations included in the reported results are calculated using certain assumptions about these variables as disclosed above. The movement in any key variable will impact the performance and equity of the Company. The table below shows how a change in each assumption will affect the outstanding claims liabilities (net) and on profit or loss. As no explicit inflation rate is used in the valuation no sensitivity analysis is able to be carried out for a change in the inflation rate. Increase/ Increase/ (decrease) in Change in (decrease) in profit before Variables variable liability tax (c) Process used to determine assumptions Discounted average weighted term to settlement The discounted average weighted term to settlement is calculated separately by class of business based on historical payment patterns. Ultimate claim number current year The ultimate claim number for the current accident year is estimated separately by class of business by projecting the number of claims reported to date based on historical reporting patterns. Average claim size current year The average claim size for the current accident year is estimated separately by class of business by projecting the ultimate claims cost based on historical claim development patterns and dividing by the estimated ultimate claim number. Unallocated claim expense rate (or indirect claim expense rate) The unallocated claim expense rate is calculated separately by class of business based on historical unallocated claim expenses as a percentage of historical payments. (e) Discounted average weighted term to settlement +0.5 years (52,230) 52, years 37,699 (37,699) Ultimate claim number - current year +10% 1,697,066 (1,697,066) 10% (1,697,066) 1,697,066 Average claim size - current year +10% 1,697,066 (1,697,066) 10% (1,697,066) 1,697,066 Unallocated claim expense rate +1% 1,098,145 (1,098,145) 1% (1,098,145) 1,098,145 Discount rate +1% (384,368) 384,368 1% 379,546 (379,546) Process for determining risk margin The overall risk margin was determined after allowing for uncertainty of the outstanding claim estimate. Uncertainty was analyzed for each class of business taking into account potential uncertainties relating to the actuarial models and assumptions, the quality of the underlying data used in the models and the general insurance environment. The estimate of uncertainty is greater for long tailed classes when compared to short tail classes due to the longer time until settlement of outstanding claims. The assumptions regarding uncertainty for each class were applied to the gross and net central estimates, and the results were aggregated to arrive at an overall provision which is intended to have a 75% probability of sufficiency. The risk margin applied in 2011 is 14.3% (2010: 14.3%).