Audited Financial Statements

Audited Financial Statements For the Financial Year ended 31 December Tokio Marine Life Insurance Singapore Ltd. (Incorporated in Singapore. Registration Number: 194800055D) And Its Subsidiary

TOKIO MARINE LIFE INSURANCE SINGAPORE LTD (Incorporated in Singapore) ANNUAL REPORT Contents Page Directors Statement 1 Corporate Governance 4 Independent Auditor s Report 7 Statement of Comprehensive Income 8 Balance Sheet 9 Consolidated Statement of Changes in Equity 10 Statement of Changes in Equity - Company 11 Consolidated Statement of Cash Flows 12 Notes to the Financial Statements 14

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 8 to 102 are drawn up so as to give a true and fair view of the state of affairs of the Company and of the Group as at 31 December and of the results of the business, changes in equity of the Company and of the Group and cash flows of the Group for the financial year then ended; 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 report are as follows: Ong Sim Ho Lee King Chi Arthur Tay Choon Peng Lance Kichiichiro Yamamoto Tan Cheng Han Ooi Chee Kar (appointed on 17 August ) 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

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 share capital of the Company or its related corporations, except as follows: Holdings registered in name of director At 31.12. At 1.1. Company (No. of ordinary stock units) Lee King Chi Arthur (as nominee of Asia General Holdings Ltd) 1 1 Immediate Holding Company - Asia General Holdings Limited (No. of ordinary shares) Lee King Chi Arthur (as nominee of Tokio Marine & Nichido Fire Insurance Co. Ltd) 1 1 Directors contractual benefits Since the end of the previous financial year, no director has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the director or with a firm of which he is a member or with a company in which he has a substantial financial interest, except as disclosed in the accompanying financial statements and in this report, and except that certain directors received remuneration from the holding company and related corporations in their capacities as directors and/or executives of those related corporations. Share options There were no options granted during the financial year to subscribe for unissued ordinary stock units/shares of the Company or its subsidiary. No stock units/shares have been issued during the financial year by virtue of the exercise of options to take up unissued ordinary stock units/shares in the Company or its subsidiary. There were no unissued ordinary stock units/shares of the Company or its subsidiary under option at the end of the financial year. 2

DIRECTORS STATEMENT Independent auditor The independent auditor, PricewaterhouseCoopers LLP, has expressed its willingness to accept re-appointment. On behalf of the directors Ong Sim Ho Director Tay Choon Peng Lance Director 23 March 2016 3

CORPORATE GOVERNANCE Introduction Tokio Marine Life Insurance Singapore Ltd. ( the Company ) believes in having high standards of corporate governance, and is committed to making sure that effective selfregulatory corporate practices exist to protect the interests of its shareholders and maximise long term shareholder value. So long as it is not in conflict with the regulations and laws of Singapore, the Company s Board of Directors shall abide and/or give due consideration to the requests and requirements of the Company s ultimate majority shareholder, Tokio Marine Holdings, Inc. ( TMHD ) as part of the Tokio Marine Group s governance and oversight. Management Organisation The Board of Directors The Board of Directors is responsible for decisions on important matters relating to the execution of the Company s business and establishing an effective internal control system. The Board of Directors are assisted by the board-level committees and management level committees in the implementation of the Corporate Governance Policies and internal controls in accordance to Tokio Marine Group s requirement. Board-level Committees a. Audit Committee The Audit Committee ( AC ) assists the Board of Directors in fulfilling its oversight responsibilities for the Company s internal control processes, financial reporting processes, the internal and external audit processes and processes for monitoring compliance with laws and regulations and the code of conduct. The AC communicates and coordinates with other Board-level committees and maintains strong, positive working relationships with the management, both external and internal auditors and other committee advisers. The AC is also responsible to review non-audit services rendered by the external auditors as well as the fees paid, and to ensure that the independence of the external auditors has not been impaired. b. Investment Committee The Investment Committee ( IC ) administers the investment policies of the Company on behalf of the Board of Directors. The Investment Committee is responsible for managing the Company s investment activities, including formulating the Company s investment strategy, principles and procedures for the investment function. 4

CORPORATE GOVERNANCE Board-level Committees (continued) c. IT Steering Committee The IT Steering Committee ( ITSC ) is responsible for the formulation of IT plans and strategies to meet the Company s business objectives and strategies. The ITSC is also responsible for monitoring and evaluating the Company s overall IT performance, which includes prioritising and monitoring major IT projects. d. Management Committee The Management Committee ( MC ) is the main management body of the Company, where members advise and assist the CEO in decision-making on all key strategic and operational issues. e. Nomination & Remuneration Committee The Nomination & Remuneration Committee ( NRC ) serves as an advisory body to the Board of Directors and is responsible for - appointing and nominating directors; assisting in performance evaluation of directors; determining annually the independence of directors; reviewing and recommending remuneration to the directors; reviewing the adequacy of the Board s training and professional development programmes; reviewing the Board s succession plans for directors, in particular the Chairman and CEO; reviewing and recommending the remuneration of the Company s senior management; and formulating the performance evaluation framework for the Company s senior management. Management-level Committees a. Claims Committee The Claims Committee has been established to approve settlement of claims exceeding the authority of the Claims Department or to handle cases with special circumstances or appeal cases to ensure robust risk management and compliance with established governance in managing the claims process. 5

CORPORATE GOVERNANCE Management-level Committees (continued) b. Compensation Committee The Compensation Committee ( CC ) is responsible for remuneration issues for all employees of the Company, except for members of the CC and other selected senior employees, whose remuneration is determined by the Board Nomination & Remuneration Committee. c. Fair Dealing Committee The Fair Dealing Committee ( FDC ) is responsible for developing a fair dealing culture in order to achieve the desired fair dealing outcomes in the organisation when the Company conducts business with its customers. d. Outsourcing Committee The Outsourcing Committee ( OC ) is responsible for evaluating and determining the risk and materiality of all existing and prospective outsourcing based on the framework approved by the Board of Directors, and the regulator, Monetary Authority of Singapore s Guidelines as well as developing and implementing sound and prudent policies and procedures relating to risk management of Outsourcing Arrangements. e. Product Development Committee The Product Development Committee ( PDC ) is responsible for driving the Company s product strategy. f. Risk Management Committee The Risk Management Committee ( RMC ) is responsible for maintaining sound, robust and effective risk management processes which are appropriate to the nature, scale and complexity of the Company s business, to safeguard the interests of the Company s shareholders and policyholders. g. Underwriting and Reinsurance Committee The Underwriting and Reinsurance Committee ( URC ) is responsible for implementing the Company s philosophy and strategy in managing mortality and morbidity risks as set out in the Underwriting and Reinsurance Policy. 6

Report on the Financial Statements INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF TOKIO MARINE LIFE INSURANCE SINGAPORE LTD. We have audited the accompanying financial statements of Tokio Marine Life Insurance Singapore Ltd. (the Company ) and its subsidiary (the Group ) set out on pages 8 to 102, which comprise of the balance sheets of the Company and of the Group as at 31 December, the statements of comprehensive income, statements of changes in equity of the Company and of the Group, and the consolidated statement of cash flows of the Group for the financial year then ended, and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act (the Act ) and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from 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. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to 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 controls relevant to the entity s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal controls. An audit also involves 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 and the consolidated financial statements of the Group 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 and of the Group as at 31 December, and the financial performance and changes in equity of the Company and of the Group and the cash flows of the Group for the financial year ended on that date. Report on Other Legal and Regulatory Requirements In our opinion, the accounting and other records required by the Act to be kept by the Company have been properly kept in accordance with the provisions of the Act. Public Accountants and Chartered Accountants Singapore, 23 March 2016 7

STATEMENT OF COMPREHENSIVE INCOME Notes $'000 $'000 The Company $'000 $'000 Income Gross premiums 1,182,751 1,622,154 808,899 1,207,653 Less: Reinsurance premiums (63,201) (64,935) (44,827) (40,297) Net premiums 1,119,550 1,557,219 764,072 1,167,356 Fees and commission income 6(a) 6,570 7,548 4,820 5,937 Other income 6(b) 268,206 234,308 164,371 140,897 Other gains net 6(c) 54,925 31,006 42,937 22,272 Net rental income 1,642 1,734 862 851 Total income 1,450,893 1,831,815 977,062 1,337,313 Outgo Claims under policies, paid and outstanding: - Death (37,700) (35,386) (18,185) (16,779) - Maturity (194,018) (248,112) (96,747) (134,943) - Others (66,329) (69,851) (21,627) (17,354) - Surrenders including bonus (93,393) (87,939) (25,005) (16,220) - Annuities (6,610) (6,695) (6,610) (6,695) - Change in Life Assurance Fund 24 (789,987) (1,082,722) (644,613) (938,001) - Change in Reinsurance assets arising from policy liabilities 9(ii) 4,684 18,929 4,684 18,929 (1,183,353) (1,511,776) (808,103) (1,111,063) Operating expenses and commission Commission and agency expenses (165,977) (217,200) (118,536) (165,152) Employee compensation 6(d) (44,117) (43,408) (25,767) (22,148) Depreciation 6(e) (2,891) (2,911) (1,079) (1,123) Amortisation 19 (9,356) (7,335) (451) (318) Other operating expenses 6(f) (34,348) (36,929) (20,640) (17,301) Total expenses (1,440,042) (1,819,559) (974,576) (1,317,105) Profit before income tax 10,851 12,256 2,486 20,208 Income tax (expense)/credit 5 (2,997) 653 (1,668) 2,187 Net profit for the financial year 7,854 12,909 818 22,395 Other comprehensive income: Items that may be reclassified subsequently to profit or loss: Financial assets, available-for-sale - fair value (losses)/gains (1,074) 2,144 (630) 2,148 - reclassification upon disposal 6(c) (857) (857) (913) (608) - deferred tax 256 (193) 262 (262) Currency translation differences arising from consolidation (12,233) (1,328) - - Other comprehensive (loss)/income, net of tax (13,908) (234) (1,281) 1,278 Total comprehensive income (6,054) 12,675 (463) 23,673 The accompanying notes form an integral part of these financial statements. 8

BALANCE SHEET As at 31 December Notes $'000 $'000 The Company $'000 $'000 ASSETS Cash and cash equivalents 7 540,800 504,348 432,171 290,463 Trade receivables 2,677 1,668 1,782 1,042 Outstanding premium and agents balances 8 21,933 18,217 13,057 8,779 Reinsurance assets 9 56,348 59,417 53,264 57,169 Financial assets, available-for-sale 10 6,042,207 5,897,402 4,499,729 4,268,093 Financial assets at fair value through profit or loss 11 225,495 223,540 46,374 41,878 Financial assets, held-to-maturity 12 315,912 298,349 - - Derivative financial instruments 13 911 1,808 - - Other assets 14 64,772 62,792 40,141 35,134 Loans 15 205,380 233,648 37,582 36,580 Investment properties 16 17,942 19,530 9,117 9,406 Investment in a subsidiary 17 - - 87,636 40,952 Property, plant and equipment 18 62,854 68,068 33,273 33,437 Intangible assets 19 39,327 1,466 3,348 1,466 TOTAL ASSETS 7,596,558 7,390,253 5,257,474 4,824,399 LIABILITIES Claims admitted or intimated 169,694 161,741 49,011 39,390 Trade payables 124,602 136,018 78,739 80,013 Other payables 20 40,692 43,257 24,994 18,922 Current tax liabilities 6,771 10,801 5,457 7,920 Deferred tax liabilities 21 318,707 320,696 304,108 303,621 Staff retirement benefits 22 630 506 511 369 Agents retirement benefits 23 9,771 11,201 561 754 Derivative financial instruments 13 19,829 32,866 19,829 32,866 Life Assurance Fund 24 6,770,651 6,475,163 4,622,420 4,175,837 TOTAL LIABILITIES 7,461,347 7,192,249 5,105,630 4,659,692 EQUITY Share capital and reserves Share capital 25 36,000 36,000 36,000 36,000 Capital reserve 4,800 4,800 - - Fair value reserve 216 1,891 (28) 1,253 Foreign currency translation reserve (24,869) (12,636) - - Retained earnings 119,064 167,949 115,872 127,454 TOTAL EQUITY 135,211 198,004 151,844 164,707 TOTAL LIABILITIES AND EQUITY 7,596,558 7,390,253 5,257,474 4,824,399 The accompanying notes form an integral part of these financial statements. 9

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Notes Share capital Capital reserve Fair value reserve Foreign currency translation reserve Retained earnings Total $'000 $'000 $'000 $'000 $'000 $'000 Balance at 1 January 36,000 4,800 1,891 (12,636) 167,949 198,004 Transfer to Life Assurance Fund 24 - - - - (51,339) (51,339) Dividends relating to paid 32 - - - - (5,400) (5,400) Total comprehensive (loss)/income - - (1,675) (12,233) 7,854 (6,054) Balance at 31 December 36,000 4,800 216 (24,869) 119,064 135,211 Balance at 1 January 36,000 4,800 797 (11,308) 160,440 190,729 Dividends relating to 2013 paid 32 - - - - (5,400) (5,400) Total comprehensive income/(loss) - - 1,094 (1,328) 12,909 12,675 Balance at 31 December 36,000 4,800 1,891 (12,636) 167,949 198,004 The foreign currency translation reserve and fair value reserve are not distributable. The accompanying notes form an integral part of these financial statements. 10

STATEMENT OF CHANGES IN EQUITY - COMPANY Notes Share Fair value Retained capital reserve earnings Total Balance at 1 January 36,000 1,253 127,454 164,707 Transfer to Life Assurance Fund 24 - - (7,000) (7,000) Dividends relating to paid 32 - - (5,400) (5,400) Total comprehensive (loss)/income - (1,281) 818 (463) Balance at 31 December 36,000 (28) 115,872 151,844 Balance at 1 January 36,000 (25) 110,459 146,434 Dividends relating to 2013 paid 32 - - (5,400) (5,400) Total comprehensive income - 1,278 22,395 23,673 Balance at 31 December 36,000 1,253 127,454 164,707 The fair value reserve is not distributable. The accompanying notes form an integral part of these financial statements. 11

CONSOLIDATED STATEMENT OF CASH FLOWS $'000 $'000 Cash flows from operating activities Profit before income tax 10,851 12,256 Change in life assurance fund 789,987 1,082,722 Change in Reinsurance assets arising from policy liabilities (4,684) (18,929) 796,154 1,076,049 Adjustments for: Depreciation of property, plant and equipment 2,558 2,572 Depreciation of investment properties 333 339 Amortisation of intangible asset 9,356 7,335 Loss on disposal of property, plant and equipment 10 4 Property, plant and equipment written off 2 - (Gain)/loss on disposal of: - Financial assets, available-for-sale (66,603) (43,499) - Financial assets, held-to-maturity - 4 Allowance for impairment: - Financial assets, available-for-sale 1,326 8,923 Fair value (gains)/losses: - Financial assets at fair value through profit or loss (6,406) (5,083) - Forward foreign exchange contracts 58,572 35,931 - Warrants 664 264 - Currency exchange on foreign currency denominated debt securities (44,007) (26,771) Dividend income (74,736) (68,821) Interest income (193,216) (165,405) Rental Income (1,642) (1,734) Increase in allowance for impairment of outstanding premiums and agents balances 836 45 Provision for staff retirement benefits 142 139 Provision for agents retirement benefits 1,798 1,697 Unrealised currency translation gain (14,422) (2,989) (325,435) (257,049) Changes in working capital: Receivables and other current assets (5,928) (2,753) Reinsurance assets 7,464 (8,102) Claims admitted or intimated 23,676 31,234 Trade and other payables (3,659) 18,065 21,552 38,444 Income tax paid (21,399) (16,101) Payment of agents retirement benefits (1,886) (904) (23,285) (17,005) Net cash provided by operating activities 468,986 840,439 The accompanying notes form an integral part of these financial statements. 12

CONSOLIDATED STATEMENT OF CASH FLOWS Note $'000 $'000 Cash flows from investing activities Purchase of property, plant and equipment (1,994) (2,188) Purchase of intangible assets (46,430) (691) Proceeds from disposal of property, plant and equipment 14 27 Purchase of: - Financial assets, available-for-sale (3,105,901) (2,721,520) - Financial assets, held-to-maturity (64,728) (65,257) - Financial assets at fair value through profit or loss (61,616) (40,798) - Derivative financial instruments (71,609) (5,240) Proceeds from disposal of: - Financial assets, available-for-sale 2,630,275 1,807,362 - Financial assets, held-to-maturity 8,918 8,338 - Financial assets at fair value through profit or loss 42,148 77,106 Proceeds from repayment of/(disbursement of) loans 2,946 (5,689) Rental received 1,502 1,763 Dividend received 74,520 68,035 Interest received 192,304 161,682 Net cash used in investing activities (399,651) (717,070) Cash flows from financing activities Dividends paid to shareholders of the Company (5,400) (5,400) Net cash used in financing activities (5,400) (5,400) Net increase in cash and cash equivalents held 63,935 117,969 Cash and cash equivalents at beginning of financial year 504,348 388,600 Effects of currency translation on cash and cash equivalents (27,483) (2,221) Cash and cash equivalents at end of financial year 7 540,800 504,348 The accompanying notes form an integral part of these financial statements. 13

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 069046. 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 from that date. 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. 14

2. Significant accounting policies (continued) 2.2 Insurance contracts (a) Discretionary participation feature 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 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. 15

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, dread disease 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. 16

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 linked to the unit prices. 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. 17

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, 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 are shown in the tables below: Group Nonparticipatinlinked Investment- Participating 1. Reported insurance contract liabilities net of reinsurance asset 5,636,536 405,531 103,273 2. Gross Premium Reserve 5,113,113 206,102 16,868 Excess of reported insurance contract liabilities (1-2) 523,423 199,429 86,405 18

2. Significant accounting policies (continued) 2.2 Insurance contracts (continued) (f) Liability adequacy test (continued) Company Nonparticipatinlinked Investment- Participating 1. Reported insurance contract liabilities net of reinsurance asset 4,014,134 223,422 42,203 2. Gross Premium Reserve 3,636,668 50,042 29,644 Excess of reported insurance contract liabilities (1-2) 377,466 173,379 12,559 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. (g) Reinsurance contracts held 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 in Note 2.2(a) are classified as reinsurance contracts held. 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). 2.3 Revenue recognition Revenue is recognised as follows: (a) Premiums The policy in respect of recognition of premiums is disclosed in Note 2.2(c). 19

2. Significant accounting policies (continued) 2.3 Revenue recognition (continued) (b) Fees and commission income Fees and commission income comprise mainly of 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 service 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. (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 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 consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date on which control ceases. In preparing the consolidated financial statements, transactions, balances and unrealised gains on transactions between group entities are eliminated. Unrealised losses are also eliminated but are considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency of policies adopted by the Group. 20

2. Significant accounting policies (continued) 2.4 Group accounting (continued) Subsidiaries (continued) (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. 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. 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). 21

2. Significant accounting policies (continued) 2.5 Property, plant and equipment (continued) (a) Measurement (continued) (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). (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 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. 22

2. Significant accounting policies (continued) 2.5 Property, plant and equipment (continued) (d) Disposal 2.6 Intangible assets 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. (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 other than goodwill are reviewed at least at each balance sheet date. The effects of any revision are recognised in profit or loss when the changes arise. 23

2. Significant accounting policies (continued) 2.7 Investment properties Investment properties include those portions of buildings that are held for longterm 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. The cost of major renovation and improvement is capitalised and the carrying amounts of the replaced components are recognised in profit or loss. The cost of maintenance, repairs and minor improvement 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). 24

2. Significant accounting policies (continued) 2.9 Structured entities (continued) 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 - net and fair value gains/(losses). 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. 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. 25

2. Significant accounting policies (continued) 2.10 Impairment of non-financial assets (continued) Property, plant and equipment Intangible assets Investment in a subsidiary Investment properties 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. 2.11 Financial assets (a) Classification classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, held-to-maturity and available-for-sale. 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. The designation of financial assets at fair value through profit or loss is irrevocable. (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 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. 26

2. Significant accounting policies (continued) 2.11 Financial assets (continued) (a) Classification (continued) (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, 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. (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. 27

2. Significant accounting policies (continued) 2.11 Financial assets (continued) (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. 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-for-sale 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. 28