Audited Financial Statements

Transcription

1 Audited Financial Statements For the Financial Year ended 31 December Tokio Marine Life Insurance Singapore Ltd. (Incorporated in Singapore. Registration Number: D) And Its Subsidiary

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3 TOKIO MARINE LIFE INSURANCE SINGAPORE LTD (Incorporated in Singapore) ANNUAL REPORT Contents Page Directors Statement 1 Independent Auditor s Report 3 Statement of Comprehensive Income 6 Balance Sheet 7 Consolidated Statement of Changes in Equity 8 Statement of Changes in Equity - Company 9 Consolidated Statement of Cash Flows 10 Notes to the Financial Statements 12

4 DIRECTORS STATEMENT The directors present their statement to the members together with the audited financial statements of the Company and of the Group for the financial year ended 31 December. In the opinion of the directors, (a) (b) the financial statements of the Company and the consolidated financial statements of the Group set out on pages 6 to 102 are drawn up so as to give a true and fair view of the financial position of the Company and of the Group as at 31 December and of the financial performance, changes in equity of the Company and of the Group, and cash flows of the Group 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 of the Company in office at the date of this statement are as follows: Tan Cheng Han Ooi Chee Kar Rolf Gerber Seigo Fukushima (appointed on 13 October ) Yasuyuki Sekioka (appointed on 27 June ) 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. 1

5 DIRECTORS STATEMENT 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, except as follows: Holdings registered in name of director At At 1.1. or date of appointment, if later Company (No. of ordinary stock units) Seigo Fukushima (as nominee of Asia General Holdings Limited) 1 1 Yasuyuki Sekioka (as nominee of Asia General Holdings Limited) 1 1 Immediate Holding Company - Asia General Holdings Limited (No. of ordinary shares) Seigo Fukushima (as nominee of Tokio Marine & Nichido Fire Insurance Co. Ltd) 1 1 Share options There were no options granted during the financial year to subscribe for unissued shares of the Company. No shares have been issued during the financial year by virtue of the exercise of options to take up unissued shares of the Company. There were no unissued shares of the Company under option at the end of the financial year. Independent auditor The independent auditor, PricewaterhouseCoopers LLP, has expressed its willingness to accept re-appointment. On behalf of the directors Tan Cheng Han Director Yasuyuki Sekioka Director 2

6 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF TOKIO MARINE LIFE INSURANCE SINGAPORE LTD. FOR THE FINANCIAL YEAR ENDED 31 DECEMBER Report on the Audit of the Financial Statements Our Opinion In our opinion, the accompanying financial statements of Tokio Marine Life Insurance Singapore Ltd. (the Company ) and its subsidiary (the Group ) are properly drawn up in accordance with the provisions of the Companies Act, Chapter 50 (the Act ) and Financial Reporting Standards in Singapore ( FRSs ) so as to give a true and fair view of the consolidated financial position of the Group and the financial position of the Company as at 31 December and of the consolidated financial performance, consolidated changes in equity and consolidated cash flows of the Group, and the financial performance and changes in equity of the Company for the financial year ended on that date. What we have audited The financial statements of the Company and of the Group comprise: the consolidated balance sheet of the Group as at 31 December ; the balance sheet of the Company as at 31 December ; the consolidated statement of comprehensive income of the Group for the financial year then ended; the statement of comprehensive income of the Company for the financial year then ended: the consolidated statement of changes in equity of the Group for the financial year then ended; the statement of changes in equity of the Company for the financial year then ended; the consolidated statement of cash flows of the Group for the financial year then ended; and the notes to the financial statements, including a summary of significant accounting policies. Basis for Opinion We conducted our audit in accordance with Singapore Standards on Auditing ( SSAs ). Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the Accounting and Corporate Regulatory Authority Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities ( ACRA Code ) together with the ethical requirements that are relevant to our audit of the financial statements in Singapore, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ACRA Code. Other Information Management is responsible for the other information. The other information comprises the Directors Statement included in pages 1 to 2 but does not include the financial statements and our auditor s report thereon. Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 3

7 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF TOKIO MARINE LIFE INSURANCE SINGAPORE LTD. (continued) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER Responsibilities of Management and Directors 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 Act and FRSs, and for devising and maintaining a system of internal accounting controls sufficient to provide a 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. In preparing the financial statements, management is responsible for assessing the Group s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. The directors responsibilities include overseeing the Group s financial reporting process. Auditor s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with SSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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 Group s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 4

8 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF TOKIO MARINE LIFE INSURANCE SINGAPORE LTD. (continued) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 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 and by those subsidiary corporations incorporated in Singapore of which we are auditors have been properly kept in accordance with the provisions of the Act. Public Accountants and Chartered Accountants Singapore, 5

9 STATEMENT OF COMPREHENSIVE INCOME Notes $'000 $'000 The Company $'000 $'000 Income Gross premiums 1,213,365 1,251, , ,401 Less: Reinsurance premiums (84,627) (74,749) (59,355) (50,322) Net premiums 1,128,738 1,176, , ,079 Fees and commission income 6(a) 5,423 4,633 5,423 4,613 Other income 6(b) 289, , , ,578 Other gains/(losses) net 6(c) 136,367 5,584 97,041 (9,341) Net rental income 1,593 1, Total income 1,561,834 1,458,145 1,072,128 1,000,777 Outgo Claims under policies, paid and outstanding: - Death (47,344) (48,544) (29,500) (23,659) - Maturity (408,788) (284,408) (294,717) (159,586) - Others (78,053) (70,633) (29,370) (29,233) - Surrenders including bonus (136,991) (108,110) (40,016) (30,893) - Annuities (6,511) (6,461) (6,511) (6,461) - Change in Life Assurance Fund 24 (665,657) (649,291) (550,008) (562,632) - Change in Reinsurance assets arising from policy liabilities 9(ii) 54 (14,388) 54 (14,388) (1,343,290) (1,181,835) (950,068) (826,852) Operating expenses and commission Commission and agency expenses (96,027) (155,486) (53,983) (110,207) Employee compensation 6(d) (50,199) (49,737) (30,070) (29,090) Depreciation 6(e) (2,686) (1,951) (1,206) (1,002) Amortisation 19 (11,025) (10,470) (859) (575) Other operating expenses 6(f) (43,019) (41,352) (26,668) (25,886) Total expenses (1,546,246) (1,440,831) (1,062,854) (993,612) Profit before income tax 15,588 17,314 9,274 7,165 Income tax (expense)/credit 5 (596) (248) 536 1,397 Net profit for the financial year 14,992 17,066 9,810 8,562 Other comprehensive income: Items that may be reclassified subsequently to profit or loss: Financial assets, available-for-sale - fair value gains/(losses) 3,341 (529) 2,805 (550) - reclassification upon disposal 6(c) (674) (829) (484) (651) - deferred tax 21 (477) 240 (395) 204 Currency translation differences arising from consolidation 1,837 (1,989) - - Other comprehensive income/(loss), net of tax 4,027 (3,107) 1,926 (997) Total comprehensive income 19,019 13,959 11,736 7,565 The accompanying notes form an integral part of these financial statements. 6

10 BALANCE SHEET As at 31 December Notes $'000 $'000 The Company $'000 $'000 ASSETS Cash and cash equivalents 7 241, , , ,726 Trade receivables 5,509 7,019 4,255 3,997 Outstanding premium and agents balances 8 29,746 27,101 20,702 16,156 Reinsurance assets 9 74,476 58,928 71,087 54,540 Financial assets, available-for-sale 10 8,088,332 7,029,912 6,292,770 5,425,166 Financial assets at fair value through profit or loss , ,830 47,878 46,973 Financial assets, held-to-maturity , , Derivative financial instruments 13 26,880 1,152 26,577 - Other assets 14 69,358 70,695 45,586 53,003 Loans , ,502 48,119 41,599 Investment properties 16 17,250 17,620 8,539 8,828 Investment in a subsidiary ,636 87,636 Property, plant and equipment 18 63,500 63,664 33,325 33,709 Intangible assets 19 31,280 38,212 8,400 6,710 TOTAL ASSETS 9,481,873 8,400,813 6,837,207 6,006,043 LIABILITIES Claims admitted or intimated 235, ,559 81,727 65,738 Trade payables 142, , ,196 88,299 Other payables 20 90,105 93,523 69,771 76,419 Current tax liabilities 12,325 17,489 10,204 15,438 Deferred tax liabilities , , , ,659 Staff retirement benefits Agents retirement benefits 23 9,907 9, Derivative financial instruments 13-74,932-74,932 Life Assurance Fund 24 8,455,019 7,410,218 6,055,227 5,232,641 TOTAL LIABILITIES 9,366,127 8,301,206 6,718,505 5,896,197 EQUITY Share capital and reserves Share capital 25 36,000 36,000 36,000 36,000 Capital reserve 4,800 4, Fair value reserve 1,288 (902) 901 (1,025) Foreign currency translation reserve (25,021) (26,858) - - Retained earnings 98,679 86,567 81,801 74,871 TOTAL EQUITY 115,746 99, , ,846 TOTAL LIABILITIES AND EQUITY 9,481,873 8,400,813 6,837,207 6,006,043 The accompanying notes form an integral part of these financial statements. 7

11 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Notes Share capital Capital reserve Fair value reserve Foreign currency translation reserve Retained earnings Total equity $'000 $'000 $'000 $'000 $'000 $'000 Balance at 1 January 36,000 4,800 (902) (26,858) 86,567 99,607 Dividends relating to paid (2,880) (2,880) Total comprehensive income - - 2,190 1,837 14,992 19,019 Balance at 31 December 36,000 4,800 1,288 (25,021) 98, ,746 Balance at 1 January 36,000 4, (24,869) 119, ,211 Transfer to Life Assurance Fund (46,683) (46,683) Dividends relating to 2015 paid (2,880) (2,880) Total comprehensive (loss)/income - - (1,118) (1,989) 17,066 13,959 Balance at 31 December 36,000 4,800 (902) (26,858) 86,567 99,607 The foreign currency translation reserve and fair value reserve are not distributable. The accompanying notes form an integral part of these financial statements. 8

12 STATEMENT OF CHANGES IN EQUITY - COMPANY Notes Share Fair value Retained Total capital reserve earnings equity Balance at 1 January 36,000 (1,025) 74, ,846 Dividends relating to paid (2,880) (2,880) Total comprehensive income - 1,926 9,810 11,736 Balance at 31 December 36, , ,702 Balance at 1 January 36,000 (28) 115, ,844 Transfer to Life Assurance Fund (46,683) (46,683) Dividends relating to 2015 paid (2,880) (2,880) Total comprehensive (loss)/income - (997) 8,562 7,565 Balance at 31 December 36,000 (1,025) 74, ,846 The fair value reserve is not distributable. The accompanying notes form an integral part of these financial statements. 9

13 CONSOLIDATED STATEMENT OF CASH FLOWS $'000 $'000 Cash flows from operating activities Profit before income tax 15,588 17,314 Change in life assurance fund 665, ,291 Change in Reinsurance assets arising from policy liabilities (54) 14, , ,993 Adjustments for: Depreciation of property, plant and equipment 2,350 1,655 Depreciation of investment properties Amortisation of intangible asset 11,025 10,470 (Gain)/loss on disposal of property, plant and equipment (38) 9 Property, plant and equipment written off 32 4 Gain on disposal of investment property (149) - Intangible asset written off Gain on disposal of: - Financial assets, available-for-sale (96,111) (28,956) - Financial assets, held-to-maturity 9 11 Allowance for impairment written back: - Financial assets, available-for-sale (1,962) (3,756) Fair value (gains)/losses: - Financial assets at fair value through profit or loss (36,174) (9,834) - Forward foreign exchange contracts (136,563) 64,182 - Warrants (358) (378) - Currency exchange on foreign currency denominated debt securities 136,815 (25,996) Dividend income (67,886) (63,411) Interest income (221,635) (205,840) Rental Income (1,593) (1,711) Decrease in allowance for impairment of outstanding premiums and agents balances (530) (103) Decrease in provision for staff retirement benefits (41) (42) Provision for agents retirement benefits 1,758 1,384 Unrealised currency translation gain 2,509 (3,254) (407,795) (265,270) Changes in working capital: Receivables and other current assets 6,912 (19,735) Reinsurance assets (15,397) (17,042) Claims admitted or intimated 29,268 36,751 Trade and other payables 3,842 18,523 24,625 18,497 Income tax (paid)/refunded (3,448) 3,241 Payment of staff retirement benefits (399) - Payment of agents retirement benefits (1,476) (1,505) (5,323) 1,736 Net cash provided by operating activities 292, ,956 The accompanying notes form an integral part of these financial statements. 10

14 CONSOLIDATED STATEMENT OF CASH FLOWS Note $'000 $'000 Cash flows from investing activities Purchase of property, plant and equipment (2,078) (4,459) Purchase of investment property - (207) Purchase of intangible assets (4,100) (8,700) Proceeds from disposal of property, plant and equipment Proceeds from disposal of investment property Purchase of: - Financial assets, available-for-sale (2,924,252) (3,124,006) - Financial assets, held-to-maturity (24,739) (6,448) - Financial assets at fair value through profit or loss (78,434) (118,579) - Derivative financial instruments - (9,080) Proceeds from disposal of: - Financial assets, available-for-sale 2,260,207 2,195,558 - Financial assets, held-to-maturity 15,157 18,054 - Financial assets at fair value through profit or loss 58,567 95,541 - Derivative financial instruments 36, Proceeds from repayment/(disbursement) of loans 3,740 (4,135) Rental received 1,872 1,851 Dividend received 67,129 66,313 Interest received 210, ,390 Net cash used in investing activities (378,970) (687,648) Cash flows from financing activities Dividends paid to shareholders of the Company (2,880) (2,880) Loan from immediate holding company - 46,683 Interest paid to immediate holding company (1,494) - Net cash (used in)/provided by financing activities (4,374) 43,803 Net decrease in cash and cash equivalents held (90,646) (207,889) Cash and cash equivalents at beginning of financial year 330, ,800 Effects of currency translation on cash and cash equivalents 2,259 (2,598) Cash and cash equivalents at end of financial year 7 241, ,313 Reconciliation of liabilities arising from financing activities 1 January Principal and interest payments Non-cash changes 31 December Due to immediate holding company - non-trade (Note 20) 47,129 (1,494) 1,494-47,129 The accompanying notes form an integral part of these financial statements. 11

15 These notes form an integral part of and should be read in conjunction with the accompanying financial statements. 1. General Information Tokio Marine Life Insurance Singapore Ltd. (the Company ) is incorporated and domiciled in Singapore. The address of its registered office is 20 McCallum Street, Tokio Marine Centre, #07-01, Singapore The principal activity of the Company and its subsidiary is life assurance business. 2. Significant accounting policies 2.1 Basis of preparation These 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 financial statements in conformity with FRS requires management to exercise its judgement in the process of applying the Group s accounting policies. It also requires the use of certain critical accounting estimates and assumptions. Areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Notes 3 and 4. Interpretations and amendments to published standards effective in On 1 January, the Group adopted the new or amended FRS and Interpretations to FRS ( INT FRS ) that are mandatory for application for the financial year. Changes to the Group 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 Group s and Company s accounting policies and had no material effect on the amounts reported for the current or prior financial years. 12

16 2. Significant accounting policies (continued) 2.2 Insurance contracts issues contracts that transfer mainly insurance risk. Insurance contracts are those contracts that transfer significant insurance risk. Such contracts may also transfer financial risk. As a general guideline, the Group defines as significant insurance risk the possibility of having to pay benefits on the occurrence of an insured event that are at least 1% more than the benefits payable if the insured event did not occur at some point during the contract. Investment contracts are those contracts that transfer financial risk with no significant insurance risk. Currently the Group does not issue investment contracts. (a) Discretionary participation feature A number of insurance contracts contain a discretionary participation feature ( DPF ). This feature entitles the holder to receive, as a supplement to guaranteed benefits, additional bonuses: - that are likely to be a significant portion of the total contractual benefits; - whose amount or timing is contractually at the discretion of the Group; and - that are contractually based on: (i) (ii) (iii) the performance of a specified pool of contracts or a specified type of contract; realised and/or unrealised investment returns on a specified pool of assets held by the Group; or the profit or loss of the Group, fund or other entity that issues the contract. Local statutory regulations and the terms and conditions of these contracts set out the bases for the determination of the amounts on which the additional discretionary benefits are based (the DPF eligible surplus) and within which the Group may exercise its discretion as to the quantum and timing of their payment to contract holders. At least 90% of the eligible distributions must be attributed to the contract holders as a group, while the amount and timing of the distribution to individual contract holders are at the discretion of the Group, approved by the Board of Directors based on the advice of the Appointed Actuaries. 13

17 2. Significant accounting policies (continued) 2.2 Insurance contracts (continued) (b) Recognition and measurement Participating Insurance Contracts These contracts insure events associated with human life (for example death or survival) over a long duration. The contract holders participate in profits of the participating life fund by sharing a significant portion of insurance risk. Profits are distributed to the contract holders by way of a regular cash dividend, reversionary bonus, or terminal dividend or bonus. Liabilities from these contracts are determined using the prospective discounted cashflow method. Insurance contract liabilities are determined based on a series of relevant assumptions by the Company s and the subsidiary s Appointed Actuaries for all territories that the Company and the subsidiary operate in. Details of the methods used to determine the liabilities are provided in Note 3. Non-Participating Insurance Contracts Non-Participating Insurance Contracts, which pay guaranteed benefits on the occurrence of specified insurance events, can be classified into two main categories: Individual and Group Insurance Contracts. The Non-Participating Individual Insurance Contracts insure human life events (for example death, critical illness or survival) over the duration of the contract. Details of the methods used to determine the liabilities are provided in Note 3. Non-Participating Group Insurance Contracts are short-duration life insurance contracts mainly issued to employers to insure their commitment to their employees in terms of the employees benefit plans. The guaranteed benefits paid on occurrence of the specified insurance event (for example death or disability) are either fixed or linked to the extent of the economic loss suffered by the assured. There are no maturity or surrender benefits. 14

18 2. Significant accounting policies (continued) 2.2 Insurance contracts (continued) (b) Recognition and measurement (continued) Investment-Linked Contracts These contracts insure human life events (for example death or survival) over a long duration. Liabilities for Investment-Linked Contracts consist of unit and non-unit reserves. Unit reserves, comprising mainly the contract holders account balances, are determined by multiplying the number of units with the unit prices. The reserves represents the Company s liabilities in terms of units under the Investment-Linked Contracts. Non-unit reserves are held for claims, expenses or other net cash outflows, as well as to serve as additional margin for adverse deviations. Non-unit reserves are determined by projecting future cashflows of non-unit income (such as bid offer spread, policy fee, mortality charge and other annual charges) and outgo (including operating, distribution, claims and other expenses). Details of the methods used to determine the liabilities are provided in Note 3. (c) Premiums Premiums from Participating, Non-Participating and Investment-Linked Insurance Contracts are recognised on their respective due dates and within grace period of one month for premiums due before the financial year end. Premiums not received on due date and within grace period of one month for premiums due before the financial year end are recognised as revenue in profit or loss with the corresponding outstanding premiums reported in the balance sheet. Outstanding premiums are carried at amortised cost, which approximate fair value. Premiums due after but received before the financial year end are recorded as advance premiums and this item is included in trade payables in the balance sheet. Premiums from insurance contracts which remain outstanding beyond the contractual date would automatically trigger premium loans which are taken against the cash value standing to the credit of the policy. Where the cash value is insufficient to activate a premium loan, the policy lapses and the contract between the Group and the contract holder is deemed cancelled without further liabilities accruing from either party. 15

19 2. Significant accounting policies (continued) 2.2 Insurance contracts (continued) (d) Claims Full provision is made for the estimated cost of all life assurance claims notified but not settled at the balance sheet date using best estimates available at that time. Provision is made for claims incurred but not reported at the balance sheet date using best estimates available at that time. (e) Commission The commission expense is incurred or accrued for premiums paid or due within the grace period of one month before the financial year end. The commission expense arising from advance premiums is not accrued in the financial statements until the premiums are due and recognised as revenue in profit or loss. (f) Liability adequacy test At each balance sheet date, liability adequacy tests are performed to ensure the adequacy of the insurance contract liabilities. In performing these tests for the Group and the Company, current best estimates of future contractual cash flows and claims handling and administration expenses, as well as investment income from the assets backing such liabilities are used. The results of liability adequacy tests for the Group and the Company are shown in the tables below: Group Participating Nonparticipating Investmentlinked 1. Reported insurance contract liabilities net of reinsurance asset 6,672, , , Gross Premium Reserve 6,305, ,263 28,563 Excess of reported insurance contract liabilities (1-2) 366, , ,550 Company Participating Nonparticipating Investmentlinked 1. Reported insurance contract liabilities net of reinsurance asset 5,026, ,609 48, Gross Premium Reserve 4,770,936 68,692 40,096 Excess of reported insurance contract liabilities (1-2) 255, ,917 8,051 From the results, it is clear that the reported liabilities for each respective line of business for the Group and the Company are greater than the best estimate liabilities obtained by cash flow method. As such, no shortfall needs to be recorded in the income statement. 16

20 2. Significant accounting policies (continued) 2.2 Insurance contracts (continued) (g) Reinsurance contracts held 2.3 Revenue recognition Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts as stated above. The benefits to which the Group is entitled under its reinsurance contracts are recognised as reinsurance assets. These assets consist of short term balances due from reinsurers as well as long term receivables that are dependent on expected claims and benefits arising under the related reinsured insurance contract. 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 insurance contract. Reinsurance liabilities are primarily premium payable for reinsurance contracts and are recognised as an expense when due. assesses its reinsurance assets for impairment at each balance sheet date. An allowance for impairment loss is established using the same method used for loans and receivables. These processes are described in Note 2.11(e). Revenue is recognised as follows: (a) Premiums The policy in respect of recognition of premiums is disclosed in Note 2.2(c). (b) Fees and commission income Fees and commission income comprise mainly commission and service fee income, which includes income earned from the provision of administration services. This fee income is recognised as revenue over the period in which the services are rendered. If the fees are for services to be provided in future periods, then they are deferred and recognised over those periods. (c) Interest income Interest income is recognised using the effective interest method. 17

21 2. Significant accounting policies (continued) 2.3 Revenue recognition (continued) (d) Dividend income Dividend income is recognised when the right to receive payment is established. (e) Rental income 2.4 Group accounting Subsidiaries Rental income from operating leases on investment properties is recognised on a straight-line basis over the lease term. (i) Consolidation Subsidiaries are all entities (including structured entities) over which the Group has control. controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group fully. They are de-consolidated from the date on which control ceases. In preparing the consolidated financial statements, intercompany transactions, balances and unrealised gains on transactions between group entities are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment indicator of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency of policies adopted by the Group. (ii) Acquisitions The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary or business comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes any contingent consideration arrangement and any pre-existing equity interest in the subsidiary measured at their fair values at the acquisition date. 18

22 2. Significant accounting policies (continued) 2.4 Group accounting (continued) Subsidiaries (continued) (ii) Acquisitions (continued) Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. (iii) Disposals When a change in the Group s ownership interest in a subsidiary results in a loss of control over the subsidiary, the assets and liabilities of the subsidiary including any goodwill are derecognised. Amounts previously recognised in other comprehensive income in respect of that entity are also reclassified to profit or loss or transferred directly to retained earnings if required by a specific Standard. Any retained equity interest in the entity is remeasured at fair value. The difference between the carrying amount of the retained interest at the date when control is lost and its fair value is recognised in profit or loss. Please refer to the paragraph Investment in a subsidiary for the accounting policy on investment in a subsidiary (Note 2.8) in the separate financial statements of the Company. 2.5 Property, plant and equipment (a) Measurement (i) Land and buildings Land and buildings are initially recognised at cost. Freehold land is subsequently carried at cost less accumulated impairment losses. Leasehold land and buildings are subsequently carried at cost less accumulated depreciation and accumulated impairment losses (Note 2.10). (ii) Other property, plant and equipment All other items of property, plant and equipment are initially recognised at cost and subsequently carried at cost less accumulated depreciation and impairment losses (Note 2.10). 19

23 2. Significant accounting policies (continued) 2.5 Property, plant and equipment (continued) (a) Measurement (continued) (iii) Components of cost The cost of an item of property, plant and equipment initially recognised includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. The projected cost of dismantlement, removal or restoration costs is also included as part of the cost of property, plant and equipment if the obligation for dismantlement, removal or restoration is incurred as a consequence of acquiring or using the asset. (b) Depreciation Freehold land is not depreciated. Depreciation on other items of property, plant and equipment is calculated using the straight-line method to allocate their depreciable amounts over their estimated useful lives as follows: Leasehold land and buildings Motor vehicles Furniture and equipment Useful lives Shorter of 50 years and the lease term 5 years 3-10 years The residual values, estimated useful lives and depreciation method of property, plant and equipment are reviewed and adjusted as appropriate, at each balance sheet date. The effects of any revision are recognised in profit or loss when the changes arise. (c) 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 Group and the cost can be measured reliably. All other repair and maintenance expenses are recognised in profit or loss when incurred. (d) Disposal On disposal of an item of property, plant and equipment, the difference between the net disposals proceeds and its carrying amount is recognised in profit or loss. 20

24 2. Significant accounting policies (continued) 2.6 Intangible assets (a) Bancassurance rights The bancassurance agreement provides an exclusive right to the use of the bancassurance network. The agreement fee is amortised over its useful life of 5 years using the straight-line method. It is reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Please refer to Note 2.10 for accounting policy on impairment of non-financial assets. (b) Acquired computer software licences Acquired computer software licences are initially capitalised at cost which includes the purchase prices (net of any discounts and rebates) and other directly attributable costs of preparing the asset for its intended use. Direct expenditures including employee costs, which enhance or extend the performance of computer software beyond its specifications and which can be reliably measured, are added to the original cost of the software. Costs associated with maintaining the computer software are recognised as an expense when incurred. Computer software licences are subsequently carried at cost less accumulated amortisation and accumulated impairment losses. These costs are amortised to profit or loss using the straight-line method over their estimated useful lives of four to ten years. The amortisation period and amortisation method of intangible assets are reviewed at least at each balance sheet date. The effects of any revision are recognised in profit or loss when the changes arise. 2.7 Investment properties Investment properties include those portions of buildings that are held for long-term rental yields and/or for capital appreciation and land under operating leases that are held for long-term capital appreciation or for a currently indeterminate use. Investment properties are initially recognised at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses. Depreciation is calculated using a straight-line method to allocate the depreciable amounts over the estimated useful lives of 50 years. The residual values, useful lives and depreciation method of investment properties are reviewed, and adjusted as appropriate, at each balance sheet date. The effects of any revision are included in profit or loss when the changes arise. 21

25 2. Significant accounting policies (continued) 2.7 Investment properties (continued) The cost of major renovations and improvements is capitalised and the carrying amounts of the replaced components are recognised in profit or loss. The cost of maintenance, repairs and minor improvements is recognised in profit or loss when incurred. On disposal of an investment property, the difference between the disposal proceeds and its carrying amount is recognised in profit or loss. 2.8 Investment in a subsidiary Investment in a subsidiary is stated at cost less accumulated impairment losses (Note 2.10) in the Company s balance sheet. On disposal, the difference between net disposal proceeds and the carrying amount of the investment is recognised in profit or loss. 2.9 Structured entities A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. A structured entity often has some or all of the following features or attributes: (a) restricted activities, (b) a narrow and well-defined objective, such as to provide investment opportunities for investors by passing on risks and rewards associated with the assets of the structured entity to investors, (c) insufficient equity to permit the structured entity to finance its activities without subordinated financial support and (d) financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches). considers all of its investments in funds to be investments in unconsolidated structured entities. invests in funds whose objectives range from achieving medium to long term capital growth. The funds are managed by related and unrelated asset managers and apply various investment strategies to accomplish their respective investment objectives. The funds finance their operations by issuing redeemable shares/units which entitles the holder to a proportional stake in the respective fund s net assets. holds redeemable shares/units in each of these funds. The change in fair value of the funds classified as fair value through profit or loss is included in the Consolidated Statement of Comprehensive Income in other gains/(losses) net. The change in fair value of the funds classified as available-for-sale is included in the Consolidated Balance Sheet within the fair value reserve and the Life Assurance Fund. 22

26 2. Significant accounting policies (continued) 2.10 Impairment of non-financial assets Property, plant and equipment Intangible assets Investment in a subsidiary Investment properties Property, plant and equipment, intangible assets, investment in a subsidiary and investment properties 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 these assets, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, the recoverable amount is determined for the cash-generating-unit ( CGU ) to which the asset belongs. If the recoverable amount of the asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. The difference between the carrying amount and recoverable amount is recognised as an impairment loss in profit or loss. An impairment loss for an asset is reversed if, and only if, there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was 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 any accumulated amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss is recognised in profit or loss Financial assets (a) Classification classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-tomaturity and available-for-sale financial assets. The classification depends on the nature of the assets 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. The designation of financial assets at fair value through profit or loss is irrevocable. 23

27 2. Significant accounting policies (continued) 2.11 Financial assets (continued) (a) Classification (continued) (i) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified as held for trading if it is acquired principally for the purpose of selling in the short term. Financial assets designated as at fair value through profit or loss at inception are those that are managed and their performance are evaluated on a fair value basis, in accordance with the Group s investment strategy. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months after the balance sheet date. (ii) 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 those maturing 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, Trade receivables, Outstanding premium and agents balances, Reinsurance assets and Loans on the balance sheet. (iii) Financial assets, held-to-maturity Financial assets, held-to-maturity are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group s management has the positive intention and ability to hold to maturity. If the Group were to sell other than an insignificant amount of held-to-maturity financial assets, the whole category would be tainted and reclassified as Financial assets, available-for-sale. They are presented as non-current assets, except for those maturing within 12 months after the balance sheet date which are presented as current assets. 24

28 2. Significant accounting policies (continued) 2.11 Financial assets (continued) (a) Classification (continued) (iv) Financial assets, available-for-sale Financial assets, available-for-sale are non-derivatives that are either designated in this category or not classified in any of the other categories. They are presented as non-current assets unless management intends to dispose off the assets within 12 months after the balance sheet date. (b) Recognition and derecognition Regular way purchases and sales of financial assets are recognised on trade-date the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. On disposal of a financial asset, the difference between the sale proceeds and the carrying amount is recognised in profit or loss. Any amount 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 Financial assets, both available-for-sale and at fair value through profit or loss, are subsequently carried at fair value. Loans and receivables and financial assets, held-to-maturity are subsequently carried at amortised cost using the effective interest method. 25

29 2. Significant accounting policies (continued) 2.11 Financial assets (continued) (d) Subsequent measurement (continued) Changes in the fair value of financial assets at fair value through profit or loss, including the effects of currency translation, interest and dividends, are recognised in profit or loss when the changes arise. Interest and dividend income on financial assets, available-for-sale are recognised separately in profit or loss. Changes in the fair values of available-for-sale debt securities (i.e. monetary items) denominated in foreign currencies are analysed into currency translation differences on the amortised cost of the securities and other changes; the currency translation differences are recognised in profit or loss and the other changes are recognised in the fair value reserve. Changes in fair values of available-forsale equity securities (i.e. non-monetary items) are recognised in the fair value reserve, together with the related currency translation differences. (e) Impairment 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/financial assets, held-to-maturity 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 allowance for impairment loss account is reduced through profit or loss in a subsequent period when the amount of impairment loss decreases and the related decrease can be objectively measured. The carrying amount of the 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. 26