CHINA TAIPING INSURANCE (SINGAPORE) PTE. LTD. annual report 2015

Transcription

1 annual report 2015

2 CONTENTS COMPANY OVERVIEW MILESTONES CREDIT RATINGS RANGE OF PRODUCTS & SERVICES FINANCIAL HIGHLIGHTS STATEMENT BY DIRECTORS AUDITORS REPORT STATEMENT OF COMPREHENSIVE INCOME BALANCE SHEET STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS TAIPING SONG

3 COMPANY OVERVIEW Established in 1938, China Taiping Insurance (Singapore) Pte. Ltd. ( CTPIS ), is formerly known as China Insurance Co. Ltd, Singapore Branch. In 2002, the company merged with The Tai Ping Insurance Co. Ltd, Singapore Branch. On 1 January 2003, China Insurance Co. Ltd, Singapore Branch was restructured into China Insurance Co. (Singapore) Pte Ltd. In line with the Group to consolidate its operations under the same brand name, the company was known as China Taiping Insurance (Singapore) Pte. Ltd. from 9 September CTPIS is a wholly owned subsidiary of China Taiping International Company Limited, which is wholly owned by China Taiping Insurance Holdings Company Limited ( CTIH ), a company listed on the Hong Kong Stock Exchange and the ultimate shareholder being the State Council of the People s Republic of China. As a financial and insurance group with diversified business coverage and wide network, CTIH s business covers life insurance, general insurance, reinsurance, reinsurance broking and, also extended to asset management, trust investment, real estate development, securities broking and pensions etc. It has more than 20 subsidiaries across the world, including Mainland China, Hong Kong, Macau, Singapore, Japan, Indonesia, the United Kingdom, the Netherlands and New Zealand. Being one of the pioneers of the insurance industry in Singapore, CTPIS has grown to become one of the leading general insurers in the country. Today, its paid-up capital and shareholders fund has grown to S$80 million and S$128 million respectively with total assets worth more than S$331 million. It was assigned by A.M. Best a financial strength rating of A (Excellent) and issuer credit rating of a. Outlook for both ratings is Stable. CTPIS is principally engaged in the underwriting of general insurance businesses such as motor, home, travel, personal accident, fire, public liability, marine, work injury compensation, contractor s all risks, performance bond, foreign worker s bond, medical insurance and credit insurance etc. In addition, as the main support of CTIH s overseas general insurance business and the Group s regional management center in Southeast Asia and Oceania, CTPIS is assisting in managing its general insurance business in New Zealand and Indonesia. 01

4 MILESTONES 1938 Established The Tai Ping Insurance Co Ltd, Singapore Branch. Established China Insurance Co Ltd, Singapore Branch The Tai Ping Insurance made long-term commitment to Singapore with purchase of office space in a building at 62 Cecil Street. It was renamed as TPI Building. China Insurance expanded its operations with purchase of two floors of office space within The Octagon in the central business district China Insurance Co Ltd, Singapore Branch merged with The Tai Ping Insurance Co Ltd, Singapore Branch and operated as China Insurance Co Ltd, Singapore Branch. China Insurance Co Ltd, Singapore Branch locally incorporated into China Insurance Co (Singapore) Pte Ltd with a paid-up capital of S$45million. With the leasing of an additional floor within The Octagon, all business units consolidated their operations within the same building. Part of TPI Building was designated to be the operation recovery centre with full facilities for business continuity operations Paid-up capital was increased to S$50million to further strengthen the company s financial standing. In line with the Group to consolidate its global businesses and operations under a unified brand name and logo, the company was renamed as China Taiping Insurance (Singapore) Pte Ltd and adopted the new logo Purchased two floors of office space, with a total floor area of over 20,000 square feet at Springleaf Tower, in tandem with the company s expansion plans. Relocated our office operations to 15th and 16th floors of Springleaf Tower in July, while retaining the office space at The Octagon for alternative uses Paid-up capital was increased to S$65million to strengthen the company s financial standing 2015 Paid-up capital was further increased to S$80million as a long-term committee to the Singapore insurance industry. 02

5 CREDIT RATINGS 2007 Assigned by Standard & Poor s the rating of BBB long term insurer of financial strength and counterparty credit ratings with stable outlook. Standard & Poor s revised its outlook on the Company from stable to positive. Local currency insurer financial strength and counterparty credit ratings were affirmed at BBB Attained Standard & Poor s rating upgrade to BBB+ on its long-term financial strength and counterparty credit ratings. Standard & Poor s affirmed its long-term insurer financial strength and counterparty credit ratings of BBB+ with stable outlook Assigned by A.M. Best a financial strength rating of A- (Excellent) and issuer credit rating of a-. Outlook for both ratings is stable. A.M. Best affirmed its financial strength rating of A- (Excellent) and issuer credit rating of a-. The outlook for both ratings is stable Reaffirmed by A.M. Best a financial strength rating of A- (Excellent) and issuer credit rating of a-. The outlook for both ratings is stable. A.M. Best revised the outlook to positive from stable and affirmed the financial strength rating of A- (Excellent) and issuer credit rating of a A.M. Best upgraded the financial strength rating to A (Excellent) and the issuer credit rating to a. The outlook for both ratings is stable. 03

6 RANGE OF PRODUCTS & SERVICES At China Taiping Insurance, we are deeply committed to protecting the customers corporate and personal interests with our comprehensive range of products and services. Our team of insurance professionals strives to understand and manage diverse needs. Commercial Lines We offer a broad range of insurance products with acceptable premiums and favourable terms for customers in this segment. We provide business solutions to both multinational corporations and smallmedium size enterprises through efficient distribution channels. The products are Industrial All Risks, Property Insurance, Contractors All Risks insurance, Work Injury Compensation Insurance, Biztrenz Packages, Equipment All Risks, Foreign Workers medical insurance, Hospital & Surgical insurance as well as Casualty insurance. Personal Lines China Taiping Insurance endeavours to provide a wide range of insurance solutions with competitive benefits and features. These include plans covering Travel, Personal Accident, Panda Safe (PA for children), Home, Hospital Cash & Motor to cater to individual needs and wants. Focused and concerted efforts have been made to upgrade and modify plans in keeping with changing demands. This is evidenced by our online purchase of CICS Travel, Home & Personal Accident Insurance products via our website. Marine We are committed to providing comprehensive Marine Cargo coverage to meet both multinational corporations and small-medium enterprises specific needs. Our product is customized for shipments of cargo by a range of modes: sea, air, courier, parcel post and/or land conveyance. We also specialize in bulk shipments and other general merchandise and offer technical expertise in areas of underwriting, marine risks management and claims support services. Credit As one of the most prominent insurers in the Foreign Workers security bond business, we are most focused on delivering efficient and timely services for organizations. Our established network of intermediaries allows us to provide our customers with support in both application and claims matters. Domestic Maid Insurance, Undertaking Bond, Rental Bond and Performance Bond are amongst the products underwritten by this Department. Customer Service At China Taiping Insurance, we pledge ourselves to provide a high level of service to all our customers. Besides our valued policyholders, we regard all external parties such as our intermediaries, panel lawyers, workshops and all other business associates as China Insurance s customers. An external appraisal system had been set up to collate feedback on our services and every feedback is handled with top priority. Risks Management Leveraging on a team of qualified professionals in their own specialized field, we have formulated stringent underwriting guidelines and operating procedures to ensure the continuing success for the Company. We adopt a proactive approach to exploring new business opportunities, but generating underwriting profits remains the core business objective. Our underwriters will assist customers to identify risk areas and recommend suitable risk management techniques. Within the group, the Internal Audit Department serves as an independent assessment body to ensure stringent compliance of our guidelines at all levels of hierarchy. 04

7 FINANCIAL HIGHLIGHTS Shareholders Fund/Total Assets ( S$million ) Shareholder Fund Total Assets Written Premium ( S$million ) Gross Premium Net Premium Profit before/after tax 20 ( S$million ) Profit before Tax Profit after Tax 05

8 STATEMENT BY DIRECTORS The directors present their statement to the members together with the audited financial statements for the financial year ended 31 December In the opinion of the directors, (a) (b) the financial statements as set out on pages 9 to 58 are drawn up so as to give a true and fair view of the financial position of the Company as at 31 December 2015 and the financial performance, changes in equity and cash flows of the Company for the financial year covered by the financial statements; and at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due. Directors The directors in office at the date of this statement are as follows: Meng Zhaoyi (Appointed on 1 November 2015) Ding Xiangqun (Resigned on 21 September 2015) Li Weiguo Yang Yamei Huang Jun (Resigned on 21 September 2015) Arrangements to enable directors to acquire shares and debentures 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 or debentures of the Company or its related corporations. Share options No options were granted during the financial year to subscribe for unissued shares of the Company. No shares were issued during the financial year by virtue of the exercise of options to take up unissued shares of the Company. There were no unissued shares of the Company under option at the end of the financial year. 06

9 STATEMENT BY DIRECTORS Independent auditor The independent auditor, PricewaterhouseCoopers LLP, has expressed its willingness to accept re-appointment. On behalf of the directors Li Weiguo Director Yang Yamei Director Date 18 April

10 AUDITORS REPORT TO THE SHAREHOLDER OF CHINA TAIPING INSURANCE (SINGAPORE) PTE. LTD. Report on the Financial Statements We have audited the accompanying financial statements of China Taiping Insurance (Singapore) Pte. Ltd. (the Company ) set out on pages 9 to 58, which comprise the balance sheet as at 31 December 2015, the statement of comprehensive income, the statement of changes in equity and statement of cash flows for the financial year 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 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 reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair financial statements and to maintain accountability of assets. Auditors 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. 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 control 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 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. 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 financial position of the Company as at 31 December 2015 and of the financial performance, changes in equity and cash flows of the Company for the 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 Chartered Accountants Singapore, 18 April

11 STATEMENT OF COMPREHENSIVE INCOME Notes $ $ Revenue Gross written premiums 91,353,583 85,257,617 Change in gross provision for unexpired risks (4,296,208) (1,343,567) Gross earned premium revenue 14(a) 87,057,375 83,914,050 Written premiums ceded to reinsurers (20,665,470) (17,761,108) Reinsurers share of change in provision for unexpired risks 2,552, ,272 Reinsurance premium expense 14(a) (18,112,778) (17,511,836) Net earned premium revenue 14(a) 68,944,597 66,402,214 Commission income 19 6,049,457 4,874,608 Net investment income 20 8,270,613 8,667,196 Other income - net 21 3,525, ,070 Total income 86,789,695 80,810,088 Gross claims incurred 14(b) (41,367,668) (43,080,753) Reinsurers share of claims incurred 14(b) 3,169,490 8,954,847 Net claims incurred 14(b) (38,198,178) (34,125,906) Commission expense (17,106,627) (14,477,329) Staff costs 22 (10,512,658) (8,879,473) Depreciation of property and equipment 12 (1,753,961) (1,851,352) Depreciation of investment property 13 (468,585) (346,216) Other operating expenses 23 (3,230,657) (2,819,719) Total claims incurred and expenses (71,270,666) (62,499,996) Profit before income tax 15,519,029 18,310,092 Income tax 24 (2,589,000) (3,031,000) Profit for the year 12,930,029 15,279,092 Other comprehensive income/(loss) Items that may be reclassified subsequently to profit or loss: Available-for-sale investments - Gains/(losses) arising during the year 933,889 (456,537) - Reclassification to profit or loss from equity on disposal of available-for-sale investments (2,439,236) (123,333) - Income tax relating to available-for-sale investments 255,909 98,419 Other comprehensive loss for the year, net of tax (1,249,438) (481,451) Total comprehensive income for the year 11,680,591 14,797,641 The accompanying notes form an integral part of these financial statements. 09

12 BALANCE SHEET As at 31 December 2015 Notes $ $ ASSETS Current assets Cash and cash equivalents 6 46,441,926 54,139,868 Amount due from related companies 7 318,043 59,841 Deposits, prepayments and other receivables 8 1,972,518 2,336,599 Insurance receivables 9 8,373,079 5,334,361 Investments in securities 10 62,101,343 57,088,319 Provision for unexpired risk on reinsurance ceded 14 8,518,622 5,808,676 Provision for insurance claims recoverable from reinsurers 14 15,369,323 17,393, ,094, ,161,657 Non-current assets Investments in securities ,470, ,439,368 Property and equipment 12 48,636,017 50,204,923 Investment property 13 11,603,762 12,072,347 Provision for unexpired risk on reinsurance ceded 14 3,761,709 3,918,964 Provision for insurance claims recoverable from reinsurers 14 6,358,569 8,639,174 Deferred tax assets , ,064, ,274,776 Total assets 331,159, ,436,433 LIABILITIES AND EQUITY Current liabilities Insurance payables 15 4,084,152 3,056,165 Other payables and accruals 16 7,578,686 8,209,993 Amount due to related companies 7 1,450,105 1,592,862 Derivatives payable ,383 1,043,542 Current tax payable 3,079,840 3,443,390 Provision for unexpired risks 14 33,860,195 29,526,681 Provision for insurance claims 14 70,206,661 67,892, ,003, ,764,756 Non-current liabilities Other payables and accruals 16 10,939,230 11,173,591 Deferred tax liabilities 17-21,782 Provision for unexpired risks 14 30,151,023 30,188,329 Provision for insurance claims 14 41,304,146 41,623,658 82,394,399 83,007,360 Total liabilities 203,397, ,772,116 Shareholder s equity Share capital 18 80,000,000 65,000,000 Fair value reserves (663,079) 586,359 Retained earnings 48,424,987 55,077, ,761, ,664,317 Total liabilities and equity 331,159, ,436,433 The accompanying notes form an integral part of these financial statements. 10

13 STATEMENT OF CHANGES IN EQUITY Share capital Fair value reserves Retained earnings Advance capital from holding company Total $ $ $ $ $ 2015 Beginning of financial year 65,000, ,359 55,077, ,664,317 Increase in share capital 15,000,000 - (15,000,000) - - Total comprehensive (loss)/ income for the year - (1,249,438) 12,930,029-11,680,591 Dividends paid (Note 25) - - (4,583,000) - (4,583,000) End of financial year 80,000,000 (663,079) 48,424, ,761, Beginning of financial year 50,000,000 1,067,810 57,377,330 1,601, ,046,676 Increase in share capital 15,000,000 - (13,398,464) (1,601,536) - Total comprehensive (loss)/ income for the year - (481,451) 15,279,092-14,797,641 Dividends paid (Note 25) - - (4,180,000) - (4,180,000) End of financial year 65,000, ,359 55,077, ,664,317 The accompanying notes form an integral part of these financial statements. 11

14 STATEMENT OF CASH FLOWS Notes $ $ Operating activities Profit before income tax 15,519,029 18,310,092 Adjustments for: Depreciation of property and equipment 12 1,753,961 1,851,352 Amortisation of operating lease pre-payments , ,217 Loss on disposal of property and equipment 21-77,939 Gain on disposals of equity securities 20 (1,086,769) (325,071) Gain on redemption of debt securities 20 (40,597) (501,033) Gain on disposal of unit trusts 20 (803,890) (450,518) Impairment loss on available-for-sale equity , ,433 Dividend income 20 (399,121) (586,708) Interest income 20 (5,675,658) (4,581,501) Interest expense 23 17,800 11,411 Write back of insurance payables 21&23 (601,918) (672,703) Net gain in fair value of investment at fair value through profit or loss 20 (157,896) (2,926,975) Net unrealised loss on derivative instruments 20 (300,159) 547,177 Net change in provision for unexpired risks 1,743,516 1,094,295 Net change in provision for insurance claims 6,300,301 3,365,048 Operating profit before changes in working capital 16,930,661 15,716,455 (Increase)/decrease in insurance receivables (2,436,800) 729,819 Decrease in deposits, prepayments and other receivables 506,189 2,660,940 (Increase)/decrease in amounts due from related companies (258,202) 31,608 Decrease/(increase) in insurance payables 1,027,987 (1,523,666) (Decrease)/increase in other payables and accruals (602,045) 1,172,544 (Decrease)/increase in amounts due to related companies (142,757) 308,061 Cash generated from operations 15,025,033 19,095,761 Interest expense paid 23 (17,800) (11,411) Income tax paid (2,952,550) (2,378,646) Net cash from operating activities 12,054,683 16,705,704 The accompanying notes form an integral part of these financial statements. 12

15 STATEMENT OF CASH FLOWS Notes $ $ Investing activities Interest received 5,533,520 4,205,727 Dividend received 399, ,708 Purchase of property and equipment 12 (185,055) (2,499,657) Purchase of equity securities (45,672,132) (59,391,469) Proceeds from disposal of equity securities 42,709,194 60,931,924 Purchase of debt securities (46,386,441) (73,876,313) Proceeds from redemption of debt securities 36,863,454 79,431,999 Purchases of unit trusts (13,367,961) (9,451,886) Proceeds on disposal of unit trusts 5,200,298 4,591,972 Net cash (used)/received in investing activities (14,906,002) 4,529,005 Financing activity Dividend paid 25 (4,583,000) (4,180,000) Net cash used in financing activity (4,583,000) (4,180,000 Net (decrease)/increase in cash and cash equivalents (7,434,319) 17,054,709 Cash and cash equivalents at beginning of year 47,013,935 29,959,226 Cash and cash equivalents at end of year* 39,579,616 47,013,935 * Cash and cash equivalents for the purpose of cash flow statements comprise of (Note 6) Cash and bank balance 46,441,926 54,139,868 Cash collaterals held in respect of insurance bonds (6,862,310) (7,125,933) 39,579,616 47,013,935 The accompanying notes form an integral part of these financial statements. 13

16 NOTES TO THE FINANCIAL STATEMENTS 1. General information China Taiping Insurance (Singapore) Pte. Ltd. (the Company ) is incorporated in Singapore with its principal place of business and registered office at 3 Anson Road, #16-00, Springleaf Tower, Singapore The financial statements are expressed in Singapore dollars. The Company was registered as a direct general insurer on 16 December 2002 under the Insurance Act, Chapter 142 ( Insurance Act ) to underwrite general insurance business. 2. Significant accounting policies 2.1 Basis of accounting 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. 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 areas involving a higher degree of judgement or complexity, or areas where estimates and assumptions are significant to the financial statements are disclosed in Note 3. Interpretations and amendments to published standards effective in 2015 On 1 January 2015, 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. The Company has not early adopted any mandatory standards, amendments and interpretations to existing standards that have been published but are only effective for the Company s accounting periods beginning on or after 1 January However, management anticipates that the adoption of these standards, amendments and interpretations will not have a material impact on the financial statements of the Company in the periods of their initial adoption. 14

17 NOTES TO THE FINANCIAL STATEMENTS 2. Significant accounting policies (continued) 2.2 Revenue recognition Revenue comprises the fair value of the consideration received or receivable from rendering of services in the ordinary course of the Company s activities, net of goods and services tax, rebates and discounts. Revenue is recognised as follows: (a) Premium earned Premiums on insurance contracts (see Note 2.10) are recognised as written at the time of inception of the policy and earned over the period of coverage. Treaty reinsurance inward premiums are recognised as written on receipt of statements from cedants up to the time of closing of the books. Gross written premium is shown before movements in provision for unexpired risks (see Note 2.12(a)) and deduction of commission; and are net of any taxes or duties levied on premiums. (b) Reinsurance commission income Reinsurance commission income is recognised as revenue on a basis that is consistent with the recognition of the costs incurred on the acquisition of the underlying insurance contract. (c) Interest income Interest income is recognised using the effective interest method. (d) Dividend income Dividend income is recognised when the right to receive payment is established. (e) Rental income Rental income from operating leases (net of any incentives given to the lessees) is recognised on a straight-line basis over the lease term. 2.3 Property and equipment Measurement All items of property and equipment are initially recognised at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses (see Note 2.4). The cost of property and equipment initially recognised includes its purchase price and any costs that are 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. 15

18 NOTES TO THE FINANCIAL STATEMENTS 2. Significant accounting policies (continued) 2.3 Property and equipment (continued) Depreciation Work-in-progress assets are not depreciated. Depreciation on property and equipment is calculated using the straight-line method to allocate their depreciable amounts over their estimated useful lives as follows: Freehold and leasehold properties 2% Furniture, fixtures and equipment 20% Computers 20% Motor vehicles 20% The residual values, estimated useful lives and depreciation method of property and equipment are reviewed and adjusted as appropriate, at each balance sheet date. The effects of any revision are recognised in profit or loss when the changes arise. Subsequent expenditure Subsequent expenditure relating to property, plant and equipment that has already been recognised 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 measured reliably. All other repair and maintenance expenses are recognised in profit or loss when incurred. Disposal On disposal of an item of property, plant and equipment, the difference between the net disposal proceeds and its carrying amount is recognised in profit or loss. 2.4 Impairment of non-financial assets Property, plant and equipment and other non-financial assets are tested for impairment whenever there is any objective evidence or indication that these assets may be impaired. For the purpose of impairment testing of the assets, the recoverable amount (i.e. the higher of the fair value less cost to sell and 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 impairment loss is recognised in profit or loss unless the asset is carried at revalued amount, in which case, such impairment loss is treated as a revaluation decrease. An impairment loss for an asset is reversed only if, there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognised. The carrying amount of an 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 accumulated depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for an asset is recognised in profit or loss, unless the asset is carried at revalued amount, in which case, such reversal is treated as a revaluation increase. 16

19 NOTES TO THE FINANCIAL STATEMENTS 2. Significant accounting policies (continued) 2.5 Investment property Investment property, which is property held to earn rentals and/or for capital appreciation, is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is charged so as to write off the cost of assets, over their estimated useful lives, using the straight-line method, on the following bases: Freehold and leasehold properties 2% The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. The gain or loss arising on disposal or retirement of an item of investment property is determined as the difference between the sales proceeds and the carrying amounts of the asset and is recognised in profit or loss. 2.6 Financial assets (a) Classification The Company classifies its financial assets into loans and receivables, available-for-sale financial assets, financial assets at fair value through profit or loss and held-to-maturity. 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 and in the case of assets classified as held-to-maturity, re-evaluates this designation at each balance sheet date. (i) 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 realised later than 12 months after the balance sheet date which are presented as non-current assets. Loans and receivables are presented as cash and cash equivalents, amounts due from insured, agents, brokers and reinsurers, other current assets and other non-current assets on the balance sheet. (ii) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are presented as non-current assets unless the investment matures or management intends to dispose of the assets within 12 months after the balance sheet date. (iii) Financial assets at fair value through profit or loss A financial asset is classified as held for trading if it is acquired principally for the purpose of selling in the short term. Derivatives held by the company are also classified as held for trading. 17

20 NOTES TO THE FINANCIAL STATEMENTS 2. Significant accounting policies (continued) 2.6 Financial assets (continued) (a) Classification (continued) (iv) Held-to-maturity financial assets Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company s has the positive intention and ability to hold to maturity. If the Company were to sell other than an insignificant amount of held-tomaturity financial assets, the whole category would be tainted and reclassified as availablefor-sale. (b) Recognition and derecognition Regular way purchases and sales of financial assets are recognised on trade-date the date on which the Company commits to purchase or sell the asset. Financial assets are derecognised when the right 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 net sale proceeds and its carrying amount is recognised in profit or loss. Any amount previously recognised in the fair value reserve relating to that asset is transferred to profit or loss. (c) Initial measurement Financial assets are initially recognised at fair value plus transaction costs except for financial assets at fair value through profit or loss, which are recognised at fair value. Transaction costs for financial assets at fair value through profit or loss are recognised immediately as expenses. (d) Subsequent measurement Loans and receivables and held-to-maturity financial assets are subsequently carried at amortised cost using the effective interest method. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Interest and dividend income on available-for-sale financial assets are recognised separately in income. Changes in the fair value of available-for-sale financial assets are recognised in the fair value reserve and changes relating to currency translation differences are recognised in profit and loss. When available-for-sale financial assets are sold or impaired, the accumulated fair value adjustments in the fair value reserve are included in profit or loss. Changes in the fair value of financial assets at fair value through profit or loss including the effects of currency translation are recognised in profit or loss when the changes arise. 18

21 NOTES TO THE FINANCIAL STATEMENTS 2. Significant accounting policies (continued) 2.6 Financial assets (continued) (e) Determination of fair value The fair values of quoted available-for-sale financial assets are based on quoted market prices at the balance sheet date. The quoted market price used by the Company is the current bid price. When current bid price is unavailable, the price of the most recent transaction is used to estimate the fair value of the financial asset. If the market for an available-for-sale financial asset is not active or for unquoted financial assets, the Company establishes fair value based on indicative quotes from investment intermediaries. The fair value of forward foreign exchange contract is determined using quoted forward currency rates at the balance sheet date. (f) 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 recognises an allowance for impairment when such evidence exists. (i) Loans and receivables/held-to-maturity financial assets Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy and default or significant delay in payments are objective 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 recognised against the same line item in profit or loss. The impairment allowance 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 asset previously impaired is increased to the extent that the new carrying amount does not exceed the amortised cost had no impairment been recognised in prior periods. (ii) Available-for-sale financial assets In addition to the objective evidence of impairment described in Note 2.6 (f) (i), a significant or prolonged decline in the fair value of an equity security below its cost is considered as an indicator that the available-for-sale financial asset is impaired. If any evidence of impairment exists, the cumulative loss that was previously recognised 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 amortisation) and the current fair value, less any impairment loss previously recognised as an expense. The impairment losses recognised as an expense on equity securities are not reversed through profit or loss. 19

22 NOTES TO THE FINANCIAL STATEMENTS 2. Significant accounting policies (continued) 2.7 Insurance payables Insurance payables represent liabilities for services provided to the Company prior to the end of the financial year, which are unpaid. They are classified as current liabilities if payment is due within one year or less. Otherwise, they are presented as non-current liabilities. Insurance payables are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. 2.8 Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Company as lessor Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease unless another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the lease income. The Company as lessee Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 2.9 Income taxes Current income tax for current and prior periods is recognised 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 recognised 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 of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction. A deferred income tax asset is recognised 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 utilised. 20

23 NOTES TO THE FINANCIAL STATEMENTS 2. Significant accounting policies (continued) 2.9 Income taxes (continued) Deferred income tax is measured: (i) (ii) at the tax rates that are expected to apply when the related deferred income tax asset is realised 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 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. Current and deferred income tax are recognised as income or expense in profit or loss for the period. 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 as the temporary differences arise Insurance contracts Insurance contracts are those contracts that transfer significant insurance 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 significant when compared to the premiums collected for such contracts Reinsurance contracts held Contracts entered into by the Company with reinsurers under which the Company is compensated for losses on one or more insurance contracts issued by the Company where significant insurance risk is transferred are classified as reinsurance contracts held. Insurance contracts entered into by the Company under which the contract holder is another insurer (inwards reinsurance) are included with insurance contracts. The benefits to which the Company is entitled under its reinsurance contracts held are recognised as reinsurer s share of insurance liabilities. These assets consist of short-term balances due from reinsurers, as well as longer-term receivables that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amounts 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 recognised as an expense when due. The Company assesses its reinsurance assets for impairment when there is objective evidence that the Company will not be able to collect all amounts due in accordance with the original terms of the contract, having regard to market data on the financial strength of each of the reinsurance companies. The amount of the allowance is recognised in profit or loss. 21

24 NOTES TO THE FINANCIAL STATEMENTS 2. Significant accounting policies (continued) 2.12 Insurance liabilities Insurance liabilities comprise provision for unexpired risks and provision for insurance claims. (a) Provision for unexpired risks The provision for unexpired risks includes a provision for unearned premiums and any additional provision for premiums deficiency. The provision for unearned premiums is calculated using the 365 th method on written premiums less commission expense for all classes of business except for marine cargo business which is calculated at 25% of written premiums. An additional provision for premium deficiency is made where the expected value of claims and expenses attributable to the unexpired periods of policies in force at the end of the reporting period exceeds the provision for unearned premiums in relation to such policies. The provision for unexpired risks is calculated separately by reference to classes of business which are managed together. (b) Provision for insurance claims Provision for claims is made for the estimated cost of claims notified but not settled at the date of the balance sheet, less reinsurance recoveries using the best information available at that time. In addition, a provision is made for claims incurred but not reported ( IBNR ) for all business written, at the date of the balance sheet based on the past claims experience and statistics derived from prior trends (see Note 3). Claims and loss adjustment expenses are charged to profit or loss as incurred based on the estimated liability for compensation owed to contract holders or third parties damages to be borne by the contract holders. They include direct and indirect claims settlement costs and arise from events that have occurred up to the balance sheet date even if they have not yet been reported to the Company. The Company does not discount its liabilities for unpaid claims. Liabilities for unpaid claims are estimated using the input of assessments for individual cases reported to the Company and statistical analyses for the claims incurred but not reported. (c) Commissions 2.13 Provisions Commissions and other acquisition costs that vary with and are directly related to securing new contracts and renewing existing contracts are deducted against unearned premium reserves. Acquisition costs are deferred over the period in which the related premiums are earned. All other costs are recognised as expenses when incurred. Provisions for other liabilities and charges are recognised 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. 22

25 NOTES TO THE FINANCIAL STATEMENTS 2. Significant accounting policies (continued) 2.14 Employee compensation Employee benefits are recognised as an expense, unless the cost qualifies to be capitalised as an asset. (a) 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. The Company s contributions to defined contribution plans are recognised as employee compensation expense when they are due. (b) Employee leave entitlement Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date Currency translation These financial statements are presented in Singapore dollars, which is the functional currency of the Company. Transactions in a currency other than the Singapore dollar ( foreign currency ) are translated into Singapore dollars using the exchange rates prevailing 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 the balance sheet date are recognised in profit or loss Offsetting financial instruments 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 realise the asset and settle the liability simultaneously Cash and cash equivalents For the purpose of presentation in the statement of cash flows, cash and cash equivalents include cash on hand and deposits with financial institutions which are subject to an insignificant risk of change in value Share capital Ordinary shares are classified as equity Dividends Dividends for the Company s shareholder are recognised when the dividends are approved for payment. 23

26 NOTES TO THE FINANCIAL STATEMENTS 2. Significant accounting policies (continued) 2.20 Derivative financial instruments A derivative financial instrument is initially recognised at its fair value on the date the contract is entered into and is subsequently carried at its fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Fair value changes on derivatives that are not designated or do not qualify for hedge accounting are recognised in profit or loss when the changes arise. 3. Critical accounting judgements and key sources of estimation uncertainty Estimates, assumptions and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Provisions for unexpired risks and insurance claims For the provisions for unexpired risks and insurance claims, management has relied significantly on the actuarial valuation performed by an approved actuary in accordance with local insurance regulatory requirements. The description of the principal estimates and assumptions underlying the determination of provisions for unexpired risks and insurance claims and the impact of changes in these estimates and assumptions are discussed in the sensitivity analysis below. The sensitivity analysis has been performed on a net basis after accounting for reinsurance. Actuarial methodology The assumptions used in the estimation of insurance assets and liabilities are intended to result in provisions which are sufficient to cover any liabilities arising out of insurance contracts so far as can reasonably be foreseen. However, given the uncertainty in estimating insurance contract provisions, it is likely that the final outcome will prove to be different from the original liability established. Premium liabilities Premium liability of each line of business is the higher of the unearned premium reserve ( UPR ) and the best estimate of the unexpired risk reserve ( URR ). The estimation of URR takes into account of all future payments including future claim payments, claims handling expenses and ongoing policy administration cost arising from the unearned portion of premiums collected. The expected ultimate loss ratios for accident year 2015 that were derived from the analysis of the best estimate claim liabilities are applied to the UPR before including assumptions for claims handling and management expenses to arrive at the estimation of URR. 24