Generali Pilipinas Life Assurance Company, Inc.

Transcription

1 Generali Pilipinas Life Assurance Company, Inc. (A Wholly Owned Subsidiary of Generali Pilipinas Holding Company, Inc.) Financial Statements December 31, 2015 and 2014 and Independent Auditors Report

2 SyCip Gorres Velayo & Co Ayala Avenue 1226 Makati City Philippines Tel: (632) Fax: (632) ey.com/ph BOA/PRC Reg. No. 0001, December 14, 2015, valid until December 31, 2018 SEC Accreditation No FR-4 (Group A), November 10, 2015, valid until November 9, 2018 INDEPENDENT AUDITORS REPORT The Stockholders and the Board of Directors Generali Pilipinas Life Assurance Company, Inc. We have audited the accompanying financial statements of Generali Pilipinas Life Assurance Company, Inc. (a wholly owned subsidiary of Generali Pilipinas Holding Company, Inc.), which comprise the statements of financial position as at December 31, 2015 and 2014, and the statements of income, statements of comprehensive income, statements of changes in equity, and statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine 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. 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 judgment, 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 control relevant to the entity s preparation and fair presentation of the financial statements 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 control. 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. A member firm of Ernst & Young Global Limited

3 - 2 - Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Generali Pilipinas Life Assurance Company, Inc. as at December 31, 2015 and 2014, and its financial performance and its cash flows for the years then ended in accordance with Philippine Financial Reporting Standards. Report on the Supplementary Information Required Under Revenue Regulations Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information required under Revenue Regulations in Note 29 to the financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Such information is the responsibility of the management of Generali Pilipinas Life Assurance Company, Inc. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. SYCIP GORRES VELAYO & CO. Bernalette L. Ramos Partner CPA Certificate No SEC Accreditation No AR-1 (Group A), April 15, 2013, valid until April 14, 2016 Tax Identification No BIR Accreditation No , May 12, 2015, valid until May 11, 2018 PTR No , January 4, 2016, Makati City March 18, 2016 A member firm of Ernst & Young Global Limited

4 GENERALI PILIPINAS LIFE ASSURANCE COMPANY, INC. (A Wholly Owned Subsidiary of Generali Pilipinas Holding Company, Inc.) STATEMENTS OF FINANCIAL POSITION December 31 ASSETS Cash and Cash Equivalents (Notes 4, 25 and 26) P=2,586,586,939 P=3,266,354,881 Insurance Receivables - net (Notes 5 and 25) 376,623, ,065,315 Financial Assets (Notes 6 and 25) Financial assets at fair value through profit or loss 948,204, ,967,236 Available-for-sale financial assets 17,881,335,426 14,106,446,607 Held-to-maturity investments 83,058,697 83,705,679 Loans and receivables - net 276,949, ,322,128 Accrued Income (Notes 8 and 25) 185,377, ,308,943 Reinsurance Assets (Notes 9 and 25) 227,789, ,442,339 Property and Equipment - net (Note 10) 67,604,661 82,221,641 Intangible Assets - net (Note 11) 34,232,148 49,360,654 Pension Asset - net (Note 23) 20,483,983 41,094,317 Deferred Tax Assets - net (Note 24) 5,896,263 Other Assets (Notes 12 and 25) 25,965,986 48,650,303 P=22,720,109,285 P=18,964,940,043 LIABILITIES AND EQUITY Liabilities Insurance contract liabilities (Notes 13 and 25) P=15,801,798,967 P=12,906,659,704 Premium deposit fund (Note 25) 2,224,320,230 1,662,666,468 Insurance payables (Notes 14 and 25) 448,922, ,245,697 Trade and other liabilities (Notes 15 and 25) 521,997, ,832,753 Deferred tax liability - net (Note 24) 10,016,191 18,997,039,554 15,469,420,813 Equity Capital stock (Note 16) 1,515,050,500 1,515,050,500 Contributed surplus 50,000,000 50,000,000 Contingency surplus 279,038, ,038,232 Revaluation reserve on available-for-sale financial assets (180,327,528) 674,490,116 Actuarial gain on defined benefit obligation 9,130,541 23,371,115 Retained earnings 2,050,177, ,569,267 3,723,069,731 3,495,519,230 P=22,720,109,285 P=18,964,940,043 See accompanying Notes to Financial Statements.

5 GENERALI PILIPINAS LIFE ASSURANCE COMPANY, INC. (A Wholly Owned Subsidiary of Generali Pilipinas Holding Company, Inc.) STATEMENTS OF INCOME Years Ended December 31 REVENUE Gross premiums on insurance contracts P=6,875,842,321 P=5,415,048,578 Reinsurers share of gross premiums on insurance contracts (511,698,114) (426,231,931) Net insurance premiums (Notes 17 and 25) 6,364,144,207 4,988,816,647 Investment income (Note 18) 832,077, ,324,561 Fair value gains on FVPL financial assets (Note 18) 9,742,157 Foreign exchange gain - net 13,760,773 Other income (Note 18) 24,526,382 26,256, ,603, ,083,959 7,220,748,037 5,976,900,606 BENEFITS, CLAIMS AND OPERATING EXPENSES Gross benefits and claims incurred on insurance contracts 1,948,471,214 2,353,519,549 Reinsurers share of benefits and claims incurred on insurance contracts (422,937,430) (399,618,477) Gross change in legal policy reserves 2,557,355,056 1,397,328,261 Reinsurers share of gross change in legal policy reserves (6,303,664) (5,995,711) Net insurance benefits and claims (Notes 19 and 25) 4,076,585,176 3,345,233,622 Commissions and other underwriting expenses (Note 20) 1,185,958,762 1,014,848,719 General and administrative expenses (Note 21) 422,233, ,346,723 Fair value losses on FVPL financial assets (Note 18) 44,558,217 Provision for impairment losses on AFS financial assets (Note 16) 39,939,366 Insurance taxes and licenses 131,783, ,931,402 Foreign exchange loss - net 10,675,480 Interest expense (Note 22) 75,677,354 77,149,395 Operating expenses 1,910,825,794 1,657,276,239 5,987,410,970 5,002,509,861 INCOME BEFORE INCOME TAX 1,233,337, ,390,745 PROVISION FOR INCOME TAX (Note 24) 136,728, ,730,807 NET INCOME P=1,096,608,719 P=851,659,938 See accompanying Notes to Financial Statements.

6 GENERALI PILIPINAS LIFE ASSURANCE COMPANY, INC. (A Wholly Owned Subsidiary of Generali Pilipinas Holding Company, Inc.) STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31 NET INCOME P=1,096,608,719 P=851,659,938 OTHER COMPREHENSIVE INCOME (LOSS) Items to be recycled to profit or loss Fair value gain (loss) on available-for-sale financial assets (Notes 6 and 16) (818,354,537) 883,215,553 Transferred to profit and loss (Note 16) (36,463,107) (295,595,403) (854,817,644) 587,620,150 Items not to be recycled to profit or loss Actuarial loss on retirement plan (Note 23) (20,343,677) (582,605) Income tax effect 6,103, ,782 (14,240,574) (407,823) TOTAL COMPREHENSIVE INCOME P=227,550,501 P=1,438,872,265 See accompanying Notes to Financial Statements.

7 GENERALI PILIPINAS LIFE ASSURANCE COMPANY, INC. (A Wholly Owned Subsidiary of Generali Pilipinas Holding Company, Inc.) STATEMENTS OF CHANGES IN EQUITY Capital Stock (Note 16) Contributed Surplus Contingency Surplus Other Comprehensive Income Actuarial Gain on Defined Benefit Obligation - net of tax (Notes 2 and 23) Revaluation Reserve on Available-forsale Financial Assets (Note 16) Retained Earnings Total As of January 1, 2015 P=1,515,050,500 P=50,000,000 P=279,038,232 P=23,371,115 P=674,490,116 P=953,569,267 P=3,495,519,230 Net income 1,096,608,719 1,096,608,719 Other comprehensive loss (14,240,574) (854,817,644) (869,058,218) Total comprehensive income (loss) (14,240,574) (854,817,644) 1,096,608, ,550,501 As of December 31, 2015 P=1,515,050,500 P=50,000,000 P=279,038,232 P=9,130,541 (P=180,327,528) P=2,050,177,986 P=3,723,069,731 As of January 1, 2014 P=1,515,050,500 P=50,000,000 P=279,038,232 P=23,778,938 P=86,869,966 P=101,909,329 P=2,056,646,965 Net income 851,659, ,659,938 Other comprehensive income (loss) (407,823) 587,620, ,212,327 Total comprehensive income (loss) (407,823) 587,620, ,659,937 1,438,872,265 As of December 31, 2014 P=1,515,050,500 P=50,000,000 P=279,038,232 P=23,371,115 P=674,490,116 P=953,569,267 P=3,495,519,230 See accompanying Notes to Financial Statements.

8 GENERALI PILIPINAS LIFE ASSURANCE COMPANY, INC. (A Wholly Owned Subsidiary of Generali Pilipinas Holding Company, Inc.) STATEMENTS OF CASH FLOWS Years Ended December 31 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=1,233,337,067 P=974,390,745 Adjustments for: Interest expense (Note 22) 75,677,354 77,149,395 Depreciation and amortization (Notes 10, 11 and 21) 56,818,831 39,911,315 Provision for impairment loss on AFS financial assets (Note 6) 39,939,366 Provision for impairment loss on other financial assets (Note 21) 14,373,023 Fair value loss (gain) on financial assets at fair value through profit or loss (Notes 6 and 18) 44,558,217 (9,742,157) Gain on sale of property and equipment (Notes 10 and 18) (250,000) Dividend income (Note 18) (64,236,341) (73,231,899) Foreign exchange (gain) on financial assets (Note 6) (318,753,656) 234,684,910 Interest income (Note 18) (691,438,634) (569,497,259) Gain on sale of available-for-sale financial assets (Note 18) (76,402,473) (295,595,403) Operating loss before working capital changes 299,249, ,442,670 Changes in operating assets and liabilities: Decrease (increase) in: Insurance receivables (60,558,388) (8,811,880) Loans and receivables 7,372, ,150,557 Reinsurance assets 22,653,161 (57,624,315) Pension asset - net (3,646,431) (7,140,522) Other assets 16,788,054 11,698,915 Increase (decrease) in: Insurance contract liabilities 2,895,139,263 1,758,430,617 Premium deposit fund 485,976,408 (133,789,910) Insurance payables 54,677,184 54,700,338 Trade and other liabilities 26,164, ,841,809 Net cash generated from operations 3,743,815,896 2,358,898,279 Interest received 704,930, ,853,954 Dividends received 63,616,896 72,961,492 Proceeds from sale/maturity: Financial assets at fair value through profit or loss (Note 6) 674,869,981 Available-for-sale financial assets (Note 6) 8,770,506,111 10,778,309,212 Acquisitions of: Financial assets at fair value through profit or loss (Note 6) (1,380,077,512) (219,691,697) Available-for-sale financial assets (Note 6) (13,093,877,907) (11,947,170,636) Income taxes paid (136,728,348) (122,730,808) Net cash provided by (used in) operating activities (652,944,597) 1,501,429,796 (Forward)

9 - 2 - Years Ended December 31 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property and equipment (Note 10) P=250,006 P= Acquisitions of: Property and equipment (Note 10) (17,533,609) (51,523,536) Intangible assets (Note 11) (9,539,742) (39,825,297) Net cash used in investing activities (26,823,345) (91,348,833) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (679,767,942) 1,410,080,963 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,266,354,881 1,856,273,918 CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 4) P=2,586,586,939 P=3,266,354,881 See accompanying Notes to Financial Statements.

10 GENERALI PILIPINAS LIFE ASSURANCE COMPANY, INC. (A Wholly Owned Subsidiary of Generali Pilipinas Holding Company, Inc.) NOTES TO FINANCIAL STATEMENTS 1. Corporate Information Generali Pilipinas Life Assurance Company, Inc. (the Company) was incorporated in the Philippines and registered with the Philippine Securities and Exchange Commission (SEC) on July 9, 1999 to carry on the business of life insurance. It received its Certificate of Authority from the Insurance Commission (IC) on September 8, 1999 and commenced its commercial operations on January 1, The Company is a wholly-owned subsidiary of Generali Pilipinas Holding Company, Inc. (GPHCI), a holding company incorporated and domiciled in the Philippines. GPHCI is 60% owned subsidiary of Generali Asia N.V., a company incorporated in Netherlands. The remaining 38% is owned by Banco de Oro Universal Bank (BDO), a local universal bank listed in the Philippines while 2% is owned by BDO Capital Trust and Investment Corporation, a wholly-owned subsidiary of BDO and acts as BDO s investment banking arm. In November 2013, Generali Asia N.V. became a wholly owned subsidiary of Assicurazioni S.p.A.after the acquisition of the minority interest from Kuok Group of Companies, a Malaysian conglomerate who previously owned 40% interest. Assicurazioni Generali S.p.A., the ultimate company is incorporated and registered in Italy. The major shareholders of the company, namely, BDO Unibank, Inc. (BDO), BDO Capital & Investment Corporation and Generali Asia N.V. (Generali), entered into a Share Purchase Agreement (SPA) on June 8, The SPA will effectively terminate the Joint Venture Agreement entered into by and among Assicurazioni GeneraliS.p.A., Jerneh Asia Berhad, BDO Unibank, Inc. and Vantage Equities, Inc. on March 26, Under the said SPA, Generali has agreed to sell to BDO, and BDO has agreed to purchase from Generali, the shares owned by Generali in Generali Pilipinas Holding Company, Inc. (GPHC) in accordance with the terms and conditions contained in the SPA. As a result thereof, BDO shall fully own GPHC, the corporation that has full ownership of Generali Pilipinas Life Assurance Company, Inc. (GPLAC). Further, GPHC shall sell all its shares in Generali Pilipinas Insurance Company, Inc. (GPIC) to Generali, likewise subject to the terms and conditions of the SPA. The completion of these transactions contemplated in the SPA are subject to regulatory approvals and the fulfillment of certain closing conditions; provided that BDO s acquisition of GPHC shall close not later than June 30, 2016, or such other later date as the Parties shall agree in writing. The registered office address of the Company, which is also its principal place of business, is Gercon Plaza Building, 7901 Makati Avenue, Makati City, Philippines. The accompanying financial statements were approved and authorized for issue by the Company s Board of Directors (BOD) on March 18, 2016.

11 Summary of Significant Accounting Policies Basis of Preparation The financial statements of the Company have been prepared on a historical cost basis, except for available-for-sale (AFS) financial assets and financial assets at fair value through profit or loss (FVPL), which have been measured at fair value. The financial statements are presented in Philippine Peso (P=), which is the Company s functional currency and all values are rounded to the nearest Philippine Peso unit, unless otherwise indicated. Statement of Compliance The financial statements of the Company have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). Adoption of New and Amended Accounting Standards and Interpretations The accounting policies adopted in the preparation of the company s financial statements are consistent with those of the previous financial year except the following amended PFRSs and Philippine Accounting Standards (PAS), which were adopted as of January 1, PAS 19, Employee Benefits- Defined Benefit Plans: Employee Contributions (Amendments) Annual Improvements to PFRSs ( cycle) The Annual Improvements to PFRSs ( cycle) contain non-urgent but necessary amendments to the following standards: PFRS 2, Share-based Payment - Definition of Vesting Condition PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business Combination PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of the Total of the Reportable Segments Assets to the Entity s Assets PAS 16, Property, Plant and Equipment - Revaluation Method - Proportionate Restatement of Accumulated Depreciation PAS 24, Related Party Disclosures - Key Management Personnel Annual Improvements to PFRSs ( cycle) The Annual Improvements to PFRSs ( cycle) contain non-urgent but necessary amendments to the following standards: PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements PFRS 13, Fair Value Measurement - Portfolio Exception PAS 40, Investment Property There are new PFRS, amendments, annual improvements and interpretations to existing standards that are effective for periods subsequent to 2015 and these will be adopted on their effectivity dates in accordance with the transition provisions. Except as otherwise stated, these amendments and improvements to PFRS and new standard are not expected to have any significant impact on the Company s financial statements. Effective in 2016 PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Clarification of Acceptable Methods of Depreciation and Amortization (Amendments) PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture - Bearer Plants (Amendments) PAS 27, Separate Financial Statements -Equity Method in Separate Financial Statements (Amendments)

12 - 3 - The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. Entities already applying PFRS and electing to change to the equity method in its separate financial statements will have to apply that change retrospectively. For first-time adopters of PFRS electing to use the equity method in its separate financial statements, they will be required to apply this method from the date of transition to PFRS. The amendments are effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments will not have any impact on the Company s financial statements since the Company is already using equity accounting. The Company is currently assessing the impact of these amendments in its separate financial statements of the Company. PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and Joint Ventures -Sale or Contribution of Assets between an Investor and its Associate or Joint Venture PFRS 11, Joint Arrangements - Accounting for Acquisitions of Interests in Joint Operations (Amendments) PFRS 14, Regulatory Deferral Accounts Annual Improvements to PFRSs ( cycle) The Annual Improvements to PFRSs ( cycle) contain non-urgent but necessary amendments to the following standards: PFRS 5, Non-current Assets Held for Sale and Discontinued Operations - Changes in Methods of Disposal PFRS 7, Financial Instruments: Disclosures - Servicing Contracts PFRS 7 - Applicability of the Amendments to PFRS 7 to Condensed Interim Financial Statements PAS 19, Employee Benefits - regional market issue regarding discount rate PAS 34, Interim Financial Reporting - disclosure of information elsewhere in the interim financial report Effective in 2018 PFRS 9, Financial Instruments Classification and Measurement (2010 version) PFRS 9, Financial Instruments-Hedge Accounting and amendments to PFRS 9, PFRS 7 and PAS 39 (2013 version) PFRS 9, Financial Instruments (2014 or final version) The following new standard issued by the International Accounting Standard Board (IASB) has not yet been adopted by Financial Reporting Standards Council (FRSC), Board of Accountancy (BOA) and Professional Regulation Commission (PRC): IFRS 15, Revenue from Contracts with Customers IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after January 1, 2018 with early adoption permitted. The Company is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date once adopted locally.

13 - 4 - IFRS 16, Leases This standard requires lessees to account for all leases under a single on-balance sheet model (subject to certain exemptions) in a similar way to finance leases under PAS 17. Lessees recognize a liability to pay rentals with a corresponding asset, and recognize interest expense and depreciation separately. The new standard includes two recognition exemptions for lessees - leases of low-value assets (e.g., personal computer) and short-term leases (i.e., leases with a lease term of 12 months or less). Reassessment of certain key considerations (e.g., lease term, variable rents based on an index or rate, discount rate) by the lessee is required upon certain events. Lessor accounting is substantially the same as today s lessor accounting, using PAS 17 s dual classification approach. IFRS 16 is effective for annual periods beginning on or after 1 January Earlier application is permitted for entities that apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial application of IFRS 16. The Company is currently assessing the impact of IFRS 16 and plans to adopt the new standard on the required effective date, once adopted locally. Use of Estimates, Assumptions and Judgments The preparation of the financial statements necessitates the use of estimates, assumptions and judgments. These estimates and assumptions affect the reported amounts of assets and liabilities and contingent liabilities at the end of the reporting period as well as affecting the reported income and expenses for the year. Although the estimates are based on management s best knowledge and judgment of current facts as at the end of the reporting period, the actual outcome may differ from these estimates, possibly significantly. For further information on critical accounting estimates and judgments, refer to Note 3. Foreign Currency Translation Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated using the functional currency rate of exchange ruling at the reporting date. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction and are not subsequently restated. All foreign exchange differences are taken to profit or loss, except where it relates to equity securities where gains or losses are recognized directly in OCI, the gain or loss is then recognized net of the exchange component in OCI. Product Classification Insurance contracts are those contracts when the Company (the insurer) has accepted significant insurance risk from another party (the policyholders) by agreeing to compensate the policyholders if a specified uncertain future event (the insured event) adversely affects the policyholders. As a general guideline, the Company determines whether it has significant insurance risk, by comparing benefits paid with benefits payable if the insured event did not occur. Insurance contracts can also transfer financial risk. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. Investment contracts can, however, be reclassified as insurance contracts after inception if insurance risk becomes significant. Insurance contracts are further classified as being either with or without discretionary participation feature (DPF). DPF is a contractual right to receive, as a supplement to guaranteed benefits, additional benefits that are (a) likely to be a significant portion of the total contractual benefits, (b) whose amount or timing is contractually at the discretion of the issuer, and (c) that are contractually based on the performance of a specified pool of contracts or a specified type of

14 - 5 - contract, (ii) realized and/or unrealized investment returns on a specified pool of assets held by the issuer, or (iii) the profit or loss of the Company, fund or other entity that issues the contract. Investment contracts are those contracts that transfer significant financial risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate, security price, commodity price, foreign currency exchange rate, index of price or rates, a credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from dates of placement and that are subject to an insignificant risk of change in value and are free of any encumbrances. Insurance Receivables Insurance receivables are recognized when due and measured on initial recognition at the fair value of the consideration received or receivable. Subsequent to initial recognition, insurance receivables are measured at amortized cost, using the effective interest rate method. The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in profit or loss. Insurance receivables are derecognized following the derecognition criteria of financial assets. Financial Instruments Date of recognition Financial instruments are recognized in the statement of financial position when the Company becomes a party to the contractual provisions of the instrument. Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on the trade date. Initial recognition Financial instruments are recognized initially at fair value. Except for financial instruments at FVPL, the initial measurement of financial assets includes transaction costs. Financial assets are classified as in four categories: financial asset at FVPL, loans and receivables, held-to-maturity (HTM) investments and AFS financial assets. The classification depends on the purpose for which the investments were acquired and whether they are quoted in an active market. Management determines the classification of its investments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date. As of December 31, 2015 and 2014, the Company did not have financial liabilities at FVPL. Day 1 profit or loss Where the transaction price in a non-active market is different to the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a Day 1 profit or loss) in profit or loss unless it qualifies for recognition as some other type of asset. In cases where use is made of data which is not observable, the difference between the transaction price and model value is only recognized in profit or loss when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the Day 1 profit or loss amount.

15 - 6 - Financial assets or financial liabilities at FVPL This category consists of financial assets or financial liabilities that are held-for-trading or designated by management as at FVPL on initial recognition. The financial assets designated as at FVPL pertains to variable unit-linked investments. Financial assets or financial liabilities designated by management as at FVPL are designated as such on initial recognition when any of the following criteria are met: The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them on a different basis; The assets or liabilities are part of a group of financial assets, financial liabilities, or both, which are managed and whose performance are evaluated on a fair value basis, in accordance with a documented risk management strategy; or The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear that it would not be separated with little or no analysis. The investments in equity, government securities, and other debt securities of the internal investment funds set up by the Company underlying the unit-linked insurance contracts are designated as financial assets at FVPL in accordance with the funds investment strategy. AFS financial assets AFS financial assets are those which are designated as such or do not qualify to be classified as financial assets at FVPL, HTM investments or loans and receivables. They are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions. After initial measurement, AFS financial assets are subsequently measured at fair value. The effective yield component of AFS debt securities, as well as the impact of restatement on foreign currency-denominated AFS debt securities, is reported in profit or loss. Interest earned on holding AFS financial assets is reported as interest income using the effective interest method. Dividends earned on holding AFS financial assets are recognized in profit or loss under Investment income account when the right to receive payment has been established. The unrealized gains and losses arising from the fair valuation of AFS financial assets are reported as Revaluation reserve on AFS financial assets in OCI. The losses arising from impairment of such investments are recognized as Provision for impairment losses account in profit or loss. When a security is disposed of, the cumulative gain or loss previously recognized in OCI is reported as Gain on sale of AFS financial assets in profit or loss. When the fair value of AFS financial assets cannot be measured reliably because of lack of reliable estimates of future cash flows and discount rates necessary to calculate the fair value of unquoted equity instruments, these investments are carried at cost, less any allowance for impairment loss. The Company s AFS financial assets consist of government securities, equity securities, and private debt instruments as of December 31, 2015 and 2014 (see Note 6). HTM investments HTM investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities for which management has the positive intention and ability to hold to maturity. These investments are initially recognized at cost, being the fair value of the

16 - 7 - consideration paid for the acquisition of the investment. All transaction costs directly attributable to the acquisition are also included in the cost of HTM investments. After initial measurement, these financial assets are subsequently measured at amortized cost using the effective interest rate, less impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is included under Investment income in the profit or loss. Gains and losses are recognized in profit or loss when the HTM investments are derecognized or impaired, as well as through the amortization process. The losses arising from impairment of such investments, if any, are recognized in profit or loss as Provision for impairment losses under General and administrative expenses in the profit or loss. The effects of restatement of foreign currencydenominated HTM investments are recognized in profit or loss. Where the Company sells other than an insignificant amount of HTM investments, the entire category would be tainted and reclassified as AFS financial assets and will be carried at fair value. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments and fixed maturities that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as financial assets held-fortrading, nor designated as AFS or at FVPL. After initial measurement, the loans and receivables are subsequently measured at amortized cost using the effective interest rate method, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is included under Investment income - Interest income in profit or loss. The losses arising from impairment of such loans and receivables, if any, are recognized in Provision for impairment losses account in profit or loss. Loans and receivables together with the associated allowance are written-off when there is no realistic prospect of future recovery and all collateral, if any, has been realized or has been transferred to the Company. If a write-off is later recovered, the recovery is recognized in the profit or loss. This accounting policy relates to the statement of financial position captions: (a) Cash and cash equivalents, (b) Insurance receivables, (c) Loans and receivables, (d) Accrued income and (e) Refundable lease and other deposits included under Other assets. Other financial liabilities Issued financial liabilities or their components, which are not designated as financial liabilities at FVPL are classified as other financial liabilities, where the substance of the contractual arrangement results in the Company having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. This includes investment contracts which mainly transfer financial risk and has no or insignificant insurance risk. After initial measurement, other financial liabilities are subsequently measured at amortized cost using the effective interest rate. Amortized cost is calculated by taking into account any discount or premium on the issue and fees that are an integral part of the effective interest rate. Any effects of restatement of foreign currency-denominated liabilities are recognized in profit or loss.

17 - 8 - This accounting policy applies primarily to the following: (a) Premium deposit fund, (b) Insurance contract liabilities, (c) Insurance payables and (d) Trade and other liabilities that meet the above definition (other than liabilities covered by other accounting standards, such as pension liability and income tax payable). Classification of Financial Instruments Between Debt and Equity A financial instrument is classified as debt if it has a contractual obligation to: deliver cash or another financial asset to another entity, or exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Company. If the Company does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability. Financial instruments are classified as liability or equity in accordance with the substance of the contractual agreement. Interests, dividends, gains and losses relating to a financial instrument or a component that is a financial liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity, net of any related income tax benefits. Offsetting of Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. The Company assesses that it has a currently enforceable right of offset if the right is not contingent on a future event, and is legally enforceable in the normal course of business, event of default, and event of insolvency or bankruptcy of the Company and all of the counterparties. Impairment of Financial Assets The Company assesses at each reporting date whether a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. AFS financial assets carried at fair value For AFS financial assets, the Company assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity instruments classified as AFS financial assets, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Significant is to be evaluated against the original cost of the investment and prolonged against the period in which the fair value has been below its original cost. Where there is evidence of

18 - 9 - impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the profit or loss - is removed from OCI and recognized in the profit or loss. Impairment losses on equity investments are not reversed through the profit or loss; increases in their fair value after impairment are recognized directly in OCI. In the case of debt instruments classified as AFS, impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the profit or loss. Future interest income continues to be accrued based on the reduced carrying amount of the asset and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of interest and other income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the profit or loss, the impairment loss shall be reversed, with the amount of reversal recognized in the profit or loss. AFS financial assets carried at cost If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such unquoted equity instrument, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Loans and receivables For loans and receivables carried at amortized cost, the Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment for impairment. If there is objective evidence that an impairment loss on assets carried at amortized cost has been incurred, the amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in profit or loss. Interest income continues to be accrued on the reduced carrying amount based on the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral, if any, has been realized or has been transferred to the Company. If in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account.

19 If a write-off is later recovered, the recovery is recognized in profit or loss. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. The present value of the estimated future cash flows is discounted at the financial asset s original effective interest rate. Time value is generally not considered when the effect of discounting is not material. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate, adjusted for the original credit risk premium. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of such credit risk characteristics as type of borrower, collateral type, past-due status and term. Derecognition of Financial Assets and Liabilities Financial assets Financial assets (or, where applicable, a part of a financial asset or part of a group of similar financial assets) are derecognized when: the right to receive cash flows from the asset have expired; the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; or the Company has transferred its right to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Company has transferred its right to receive cash flows from an asset or has entered into a pass-through arrangement and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of the consideration that the Company could be required to repay. Financial liabilities Financial liabilities are derecognized when the obligation under the liability is discharged, cancelled, or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss. Fair Values Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability.

20 The principal or the most advantageous market must be accessible to by the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. Financial assets The fair value for financial instruments traded in active markets at the end of the reporting period is based on their quoted market price or dealer price quotations (price between the bid and ask spread), without any deduction for transaction costs. When current market prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, option pricing models, and other relevant valuation models. Non-financial assets A fair value measurement of a nonfinancial asset takes into account a market participant s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. Fair value hierarchy The Company uses the following hierarchy for determining and disclosing the fair value of financial assets by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. At each reporting date, management analyses the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Company s accounting policies. For this analysis, management verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents with relevant external sources to determine whether the change is reasonable. For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. Policy Loans Policy loans included under loans and receivables are carried at their unpaid balances plus accrued interest and are fully secured by the policy values on which the loans are made.