(English Translation) CONSOLIDATED FINANCIAL STATEMENTS June 30, 2015 AND 2014 AND Independent Auditors Report Thereon Address: No. 237, Sec. 1, Chien Kuo S. Road, Taipei, Taiwan Telephone: 886-2-2706-7890
TABLE OF CONTENTS Contents Page INDEPENDENT AUDITORS REPORT 1-2 CONSOLIDATED BALANCE SHEETS 3-4 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 5 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 6 CONSOLIDATED STATEMENTS OF CASH FLOWS 7-8 NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION 9 2. APPROVAL DATE AND PROCEDURES OF THE CONSOLIDATED 9 FINANCIAL STATEMENTS 3. NEW STANDARDS AND INTERPRETATIONS 9~12 4. SIGNIFICANT ACCOUNTING POLICIES 12~35 5. MAJOR SOURCES OF ACCOUNTING ASSUMPTIONS, JUDGMENTS AND 36~39 ESTIMATION UNCERTAINTY 6. DETAIL OF MAJOR ACCOUNTS 39~115 7. RELATED PARTY TRANSACTIONS 116~123 8. ASSETS PLEDGED OR MORTGAGED 123 9. SIGNIFICANT COMMITMENTS AND CONTINGENCIES 124 10. SIGNIFICANT CATASTROPHE LOSSES 124 11. SIGNIFICANT SUBSEQUENT EVENTS 124 12. OTHERS 125~139 13. NOTES TO DISCLOSURE EVENTS 139~143 14. SEGMENT FINANCIAL INFORMATION DISCLOSURE 143~144
INDEPENDENT AUDITORS REPORT The Board of Directors Fubon Insurance Co., Ltd. We have audited the accompanying consolidated balance sheets of Fubon Insurance Co., Ltd. and its subsidiaries as of June 30, 2015 and December 31, 2014 and June 30 and January 1, 2014 (restated) and the related consolidated statements of comprehensive income for the three months and six months ended June 30, 2015 and 2014 (restated) and the changes in consolidated equity and cash flows for the six months ended June 30, 2015 and 2014 (restated). These consolidated financial reports are the responsibility of Fubon Insurance Co., Ltd. s management. Our responsibility is to express an opinion on these consolidated financial reports based on our audits. We conducted our audits in accordance with the Regulations Governing Auditing and Certification of Consolidated Financial Statements of Financial Institutions by Certified Public Accountants and generally accepted auditing standards of the Republic of China. Those regulations and standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial reports are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial report presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial reports referred to above present fairly, in all material respects, the financial position of Fubon Insurance Co., Ltd. and its subsidiaries as of June 30, 2015 and December 31, 2014 and June 30 and January 1, 2014 (restated), and the results of its consolidated operations and cash flows for the three months and six months ended June 30, 2015 and 2014 (restated), in conformity with Regulations Governing the Preparation of Financial reports by Insurance Companies and International Accounting Standard No. 34 Interim Financial Reporting, approved by the Financial Supervisory Commission. As mentioned in Note 4 in the consolidated financial reports, started from January 1, 2014, Fubon Insurance Co., Ltd. changed the subsequent measurement method from cost model to fair value model and retrospectively restated the consolidated financial reports for the six months ended June 30, 2014. - 1 -
We have also audited the financial report which was prepared separately as of and for the six months ended June 30, 2015 and 2014 of Fubon Insurance Co., Ltd. and expressed a modified unqualified opinion. KPMG Taipei, Taiwan, R.O.C. August 21, 2015 Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of consolidated operations and cash flows in accordance with IFRSs accepted by the Financial Supervisory Commission and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China. The auditors report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese language auditors report and consolidated financial statements, the Chinese version shall prevail. - 2 -
(English Translation) CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2015 AND DECEMBER 31 JUNE 30 AND JANUARY 1, 2014 (Expressed in Thousands of New Taiwan Dollars) (Restated) (Restated) June 30, 2015 December 31, 2014 June 30, 2014 January 1, 2014 Amount % Amount % Amount % Amount % ASSETS Cash and cash equivalents (Notes 4, 6(A), 7 and 8) $ 9,071,265 10 7,906,184 9 8,787,585 11 9,848,109 13 Receivables (Notes 4, 6(B), (C), (D), (H) and 7) 6,511,789 7 5,529,012 7 6,955,510 9 5,182,969 7 Financial assets measured at fair value through profit or loss 1,447,732 2 1,549,658 2 141,139-1,847 - (Notes 4, 6(I), (Y) and (Z)) Available-for-sale financial assets (Notes 4, 6(I), (X), (Y) and 8) 36,874,491 42 36,343,793 44 33,806,051 42 34,389,222 44 Financial assets carried at cost (Notes 4, 6(I), (X) and (Y)) 184,038-193,374-210,091-222,332 - Debts investment without active market (Notes 4 and 6(I)) 3,233,516 4 3,184,828 4 2,564,964 3 2,889,788 4 Investment property (Notes 4, 6(I) and (L)) 11,166,975 13 11,184,660 13 11,135,433 14 11,068,379 14 Re Assets (Notes 4, 6(E), (F), (G) and (O)) 14,575,108 16 12,800,566 15 12,226,068 15 10,143,306 13 Premises and Equipment (Notes 4 and 6(J)) 2,420,548 3 2,420,715 3 2,399,245 3 2,423,548 3 Intangible Assets (Notes 4 and 6(K)) 78,228-98,466-97,847-126,662 - Defferd tax assets (Notes 4 and 6(R)) 445,348 1 504,749 1 516,244 1 590,527 1 Other assets 1,722,592 2 1,632,789 2 1,388,586 2 1,438,161 1 TOTAL ASSETS $ 87,731,630 100 83,348,794 100 80,228,763 100 78,324,850 100 The accompanying notes are an integral part of the financial statements. - 3 -
(English Translation) CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2015 AND DECEMBER 31 JUNE 30 AND JANUARY 1, 2014 (Expressed in Thousands of New Taiwan Dollars) (Restated) (Restated) June 30, 2015 December 31, 2014 June 30, 2014 January 1, 2014 LIABILITIES AND EQUITY Amount % Amount % Amount % Amount % Liabiliteis Liabilities Payables (Notes 4, 6(B), (C), (G), (H), (M), (O) and 7) $ 7,755,805 9 6,504,385 8 7,215,410 9 5,586,066 7 Current income tax liabilities (Notes 4 and 6(R)) 183,043-350,451-231,958-526,771 1 Financial liabilities measured at fair value through profit or loss 55,479-373,480-1,858-128,168 - (Notes 4, 6(I), (Y) and (Z)) Other financial liabilities (Notes 4 and 6(N)) - - - - 195,700-105,000 - Insurance liabilities (Notes 4, 6(O), (U) and (V)) 47,349,605 54 44,929,531 54 43,876,098 55 40,586,194 52 Deferred tax liabilities (Notes 4 and 6(R)) 887,305 1 728,654 1 627,105 1 585,909 1 Other liabilities 557,318 1 517,529 1 513,101 1 783,302 1 Reserve for liabilities (Notes 4 and 6(M)) 1,413,104 1 1,405,104 2 1,070,339 1 1,058,339 1 Total Liabilities 58,201,659 66 54,809,134 66 53,731,569 67 49,359,749 63 Equity attributed to the parent company (Note 6(P)) Capital stock 3,178,396 4 3,178,396 4 3,178,396 4 3,178,396 4 Capital surplus 5,934,408 7 5,934,408 7 5,934,408 7 8,434,408 11 Retained earnings 15,001,685 17 14,376,311 17 13,406,981 17 13,270,509 17 Other equity 4,714,898 5 4,175,442 5 3,508,137 4 3,429,956 4 Total equity attributed to the parent company 28,829,387 33 27,664,557 33 26,027,922 32 28,313,269 36 Non-controlling interest 700,584 1 875,103 1 469,272 1 651,832 1 Total Equity 29,529,971 34 28,539,660 34 26,497,194 33 28,965,101 37 TOTAL LIABILITIES AND EQUITY $ 87,731,630 100 83,348,794 100 80,228,763 100 78,324,850 100 The accompanying notes are an integral part of the financial statements. - 4 -
(Restated) (Restated) For the three months For the three months For the six months For the six months ended June 30, 2015 ended June 30, 2014 ended June 30, 2015 ended June 30, 2014 Operating Revenues Amount % Amount % Amount % Amount % Direct written premiums (Note 6 (U)) $ 9,539,917 119 8,989,062 127 17,690,258 114 16,529,881 121 Re premiums (Note 6 (U)) 620,222 8 352,609 5 1,051,410 7 682,772 5 Premiums revenues 10,160,139 127 9,341,671 132 18,741,668 121 17,212,653 126 Less : Re expenses (Note 6 (U)) 2,605,879 33 2,477,350 35 4,629,117 30 4,300,085 31 Net change in unearned premium reserve (Note 6 (O)) 721,467 9 891,374 13 829,635 5 1,115,159 8 Retention of earned premiums 6,832,793 85 5,972,947 84 13,282,916 86 11,797,409 87 Re commission income (Note 6 (U)) 286,927 4 307,311 5 565,467 4 522,445 4 Net income from investment Interest revenues (Note 6 (W)) 208,928 3 171,266 3 413,289 3 368,754 2 Losses on financial assets and liabilities at fair value through profit or loss (Note 6 (W)) (32,663) - 167,915 2 440,719 3 193,402 1 Realized gains on available-for-sale financial assets 473,609 6 445,522 6 921,129 6 765,561 6 Realized gains on financial assets carried at cost 20,571-16,175-20,571-16,175 - Realized gains on debt instruments without active market 15,464-29,271-15,618-29,405 - Foreign exchange (losses) gains- investment 81,231 1 (210,503) (2) (392,950) (3) (285,736) (2) Gains on investment properties 85,082 1 154,533 2 168,808 1 236,768 2 Other operating revenue 17,009-9,366-35,778-27,837 - Net Operating Revenues 7,988,951 100 7,063,803 100 15,471,345 100 13,672,020 100 Operating Costs Insurance payments (Note 6 (U)) 4,350,541 55 3,775,364 53 8,247,899 54 7,499,581 55 Less: Claims recovered from reinsurers (Note 6 (U)) 1,002,121 12 718,559 10 1,681,045 11 1,533,835 11 Retained payments 3,348,420 43 3,056,805 43 6,566,854 43 5,965,746 44 Net change in liability reserve (Note 6 (O)) Net change in claims reserve 193,528 2 302,435 4 583,393 4 1,515,786 11 Net change in liability reserve 697-1,097-489 - 2,404 - Net change in special reserve 44,921 1 64,389 1 3,146 - (889,366) (6) Net change in premiun deficiency reserve 9,326-4,069-9,616 - (9,795) - Net change in liability adequacy reserve 7,134 - (4,461) - 10,670-23,711 - Commission expenses (Notes 6 (T),(U)and (W)) 1,250,695 16 1,059,143 16 2,357,679 15 2,014,736 15 Other operating costs 37,532-36,082 1 67,066-59,567 - Total Operating Costs 4,892,253 62 4,519,559 65 9,598,913 62 8,682,789 64 Operating Expenses Operating expenses 1,460,851 18 1,619,904 23 2,663,937 17 2,936,388 22 Administrative expenses 450,011 6 92,517 1 992,807 7 280,342 2 Staff training expenses 3,683-6,170-6,410-8,882 - Total Operating Expenses 1,914,545 24 1,718,591 24 3,663,154 24 3,225,612 24 Operating income 1,182,153 14 825,653 11 2,209,278 14 1,763,619 12 Non-Operating Income Gains on disposal of premises and equipments (Note 6 (V)) (3) - 1,346-235 - 1,789 - Reversal of impairment losses on non-financial assets 6,501 - (2,080) - 6,501 - (7,658) - Miscellaneous income (35,211) - (21,122) - (57,701) - (45,283) - Total Non-Operating Expenses (28,713) - (21,856) - (50,965) - (51,152) - Income before tax of continuing operating department 1,153,440 14 803,797 11 2,158,313 14 1,712,467 12 Less: income tax expense (Note 6 (R)) 191,415 2 181,589 3 370,370 2 307,745 2 Current net income 962,025 12 622,208 8 1,787,943 12 1,404,722 10 Other comprehensive income: Items that are or may be reclassified subsequently to profit or loss: Difference of foreign exchange in translating financial statements of (23,662) - (17,041) - (37,347) - (10,022) - foreign operating units Unrealized valuation gains on available-for-sale financial assets (1,040,651) (13) 124,020 2 596,495 4 140,814 1 Income tax related to the components of other comprehensive 104,573 1 (9,115) - (21,299) - (52,611) - income Total items that are or may be reclassified subsequently to profit or loss: (959,740) (12) 97,864 2 537,849 4 78,181 1 Other comprehensive income (net amount after tax) (959,740) (12) 97,864 2 537,849 4 78,181 1 Total comprehensive income $ 2,285-720,072 10 2,325,792 16 1,482,903 11 Net income attributed to Parent company $ 1,050,095 13 747,487 10 1,944,761 13 1,573,916 11 Non-controlling interest (88,070) (1) (125,279) (2) (156,818) (1) (169,194) (1) $ 962,025 12 622,208 8 1,787,943 12 1,404,722 10 Total comprehensive income attributed to Parent company $ 91,962 1 845,351 12 2,484,217 17 1,652,097 12 Non-controlling interest (89,677) (1) (125,279) (2) (158,425) (1) (169,194) (1) $ 2,285-720,072 10 2,325,792 16 1,482,903 11 Basic earnings per share (Note 6 (S)) Diluted earnings per share (Note 6 (S)) (English Translation) COMSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (Expressed in Thousands of New Taiwan Dollars) $ 3.30 2.35 $ 3.30 2.35 6.12 6.12 4.95 4.95 The accompanying notes are an integral part of the financial statements. - 5 -
Capital (English Translation) CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (Expressed in Thousands of New Taiwan Dollars) Equity attributed to the parent company Retained Earnings Difference of foreign exchange in translating financial statements of foreign Unrealized valuation gains on availablefor-sale Capital Stock Capital Surplus Legal Reserve Special Reserve Unassigned retained earnings operating units financial assets Equity attributed to the parent company Non-controlling interest Total equity Balance, January 1, 2014 (restated) $ 3,178,396 8,434,408 3,761,712 8,071,353 1,437,444 1,339 3,428,617 28,313,269 651,832 28,965,101 Net income for the six months ended June 30, 2014 (restated) - - - - 1,573,916 - - 1,573,916 (169,194) 1,404,722 Other comprehensive income for the six months ended June 30, 2014 - - - - - (8,318) 86,499 78,181-78,181 Total comprehensive income for the six months ended June 30, 2014 (restated) - - - - 1,573,916 (8,318) 86,499 1,652,097 (169,194) 1,482,903 Earnings appropriation and distribution - Cash dividend of ordinary shares - - - - (1,437,444) - - (1,437,444) - (1,437,444) Cash dividend from capital surplus - (2,500,000) - - - - - (2,500,000) - (2,500,000) Changes in non-controlling interest - - - - - - - - (13,366) (13,366) Balance, June 30, 2014 (restated) $ 3,178,396 5,934,408 3,761,712 8,071,353 1,573,916 (6,979) 3,515,116 26,027,922 469,272 26,497,194 Other equity Balance, January 1, 2015 $ 3,178,396 5,934,408 3,761,712 9,189,591 1,425,008 59,385 4,116,057 27,664,557 875,103 28,539,660 Net income for the six months ended June 30, 2015 - - - - 1,944,761 - - 1,944,761 (156,818) 1,787,943 Other comprehensive income for the six months ended June 30, 2015 - - - - - (30,998) 570,454 539,456 (1,607) 537,849 Total comprehensive income for the six months ended June 30, 2015 - - - - 1,944,761 (30,998) 570,454 2,484,217 (158,425) 2,325,792 Earnings appropriation and distribution Special reserve - - - 105,621 (105,621) - - - - - Cash dividend of ordinary shares - - - - (1,319,387) - - (1,319,387) - (1,319,387) Changes in non-controlling interest - - - - - - - - (16,094) (16,094) Balance, June 30, 2015 $ 3,178,396 5,934,408 3,761,712 9,295,212 1,944,761 28,387 4,686,511 28,829,387 700,584 29,529,971 The accompanying notes are an integral part of the financial statements. - 6 -
(English Translation) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (Expressed in Thousands of New Taiwan Dollars) For the six months ended June 30, 2015 2014 (restated) Cash flows from operating activities Net income before tax $ 2,158,313 1,712,467 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Accounts that do not affect cash flow Depreciation 101,542 82,015 Amortization 31,442 36,574 Provision for bad debts expenses 9,359 18,701 Net gains on available-for-sale financial assets (516,636) (408,803) Net gains on financial assets and liabilities at cost (392) - Net gains on debt instruments without active market - (29,405) Interest expenses 1,944 19 Net changes in various liabilities 1,436,949 1,757,899 Gains on disposal and retirement of premises and equipments (235) (1,789) Impairment losses on non- financial assets - 7,658 Reversal gains on non- financial assets (6,501) - Loss on unrealized foreign exchange 49,217 141,803 Gains on fair value adjustment of investment properties 5,503 (61,780) Amortization of premium and discount on available-for-sale financial assets 132,484 (58,141) Total adjustments to reconcile profit 1,244,676 1,484,751 Changes in operating assets/liabilities: Net changes in operating assets: Increase in notes receivable (4,377) (376) Increase in premium receivable (704,325) (1,295,727) Increase in other receivables (283,433) (495,138) Increase in re contract assets (705,443) (488,213) Decrease in financial assets at cost 3,113 - (Increase)decrease in other assets (98,995) 9,162 Net changes of operating liabilities: Increase in claims payable 38,239 64,131 Increase in commission payable 87,355 160,863 Increase in proceeds due to reinsurers and ceding companies 1,498,135 1,166,141 Earned reserves (27,727) (26,070) Decrease in other payable (729,461) (226,011) Decrease in financial liabilities at fair value through profit or loss (216,076) (265,602) Increase(decrease) in provision for employee benefit liabilities 12,961 (58,659) Increase(decrease) in other liabilities 47,790 (258,203) Cash inflow from operating activities 2,320,745 1,483,516 Interest paid (1,956) (2,870) Income tax paid (3,565) (15,662) Net cash flows provided by operating activities 2,315,224 1,464,984-7 -
(English Translation) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (Expressed in Thousands of New Taiwan Dollars) For the six months ended June 30, 2015 2014 (restated) Cash flows from investing activities: Purchase of available-for-sale financial assets $ (5,165,010) (6,466,669) Disposal of available-for-sale financial assets 5,572,266 7,518,125 Purchase of debts investment without active market (926,330) - Disposal of debts investment without active market 878,704 392,313 Disposal of financial asset at cost 1,795 - Purchase of premises and equipments (93,272) (66,347) Disposal of premises and equipments 2,088 1,922 Purchase of intangible assets (11,862) (8,972) Purchase of investment property (480) - Proceeds from the capital reduction of investees 4,821 12,241 Net cash provided by investing activities 262,720 1,382,613 Cash flows from financing activities: Decrease in notes and bonds issued under repurchase agreement - 90,700 Distribution of cash dividend (1,319,387) (1,437,444) Changes in non-controlling interest (consolidated financial statements) (16,094) (13,366) Cash dividend from capital surplus - (2,500,000) Net cash used in financing activities (1,335,481) (3,860,110) Effect on cash and cash equivalent from foreign exchange fluctuation (77,382) (48,011) Increase (decrease) in cash and cash equivalents 1,165,081 (1,060,524) Cash and cash equivalents, beginning of the period 7,906,184 9,848,109 Cash and cash equivalents, end of the period $ 9,071,265 8,787,585 The accompanying notes are an integral part of the financial statements. - 8 -
NOTES TO CONSOLIDATED FINANCIAL REPORTS June 30, 2015, and 2014 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS UNLESS OTHERWISE STATED) 1. ORGANIZATION Fubon Insurance Co., Ltd. (the old Fubon) was founded on April 17, 1961 and primarily engaged in the business of property and casualty. The enactment of the Financial Holding Company Act in Taiwan in 2001 provided an opportunity to establish Fubon Group as the holding entity of the main financial services company that had been operating under the Fubon brand. Therefore, a new Fubon Insurance (the Company) was established on December 19, 2001. Substantially, all assets and liabilities and related operations of the Old Fubon were transferred to the New Fubon. The Old Fubon was renamed as Fubon Financial Holding Co., Ltd. As of December 31, 2014, the composition of the financial quarterly report includes the Group (hereafter the Group ) as well as the equity of the associates. The primary operating business is property. 2. APPROVAL DATE AND PROCEDURES OF THE CONSOLIDATED FINANCIAL STATEMENTS These consolidated financial reports were approved and announced by the board of directors on August 21, 2015. 3. NEW STANDARDS AND INTERPRETATIONS (A) The effect on application of 2013 International Financial Reporting Standards as accepted by the Financial Supervisory Commissions. The Group adopts the 2013 version of IFRSs, which are accepted by FSC, from the year 2015 when compiling financial reports. The announcement excludes the application of IFRS 9 Financial Instruments. The newly issued and revised accounting standards and interpretations are as follows: Effective date Newly issued, Revised accounting standards and interpretations per IASB Amendment to IFRS 1-Amended by Limited Exemption from Capital July 1, 2010 Comparative IFRS 7 Disclosures for First-time Adopters Amendment to IFRS 1-Amended by Severe Hyperin1flation and Removal of July 1, 2011 Fixed Dates for First-time Adopters Amendment to IFRS 1-Amended by Government Loans January 1, 2013 Amendment to IFRS 7-Amended by Disclosures Offsetting Financial Assets January 1, 2013 and Financial Liabilities IFRS 10 Consolidated Financial Statements January 1, 2013 (Effective for investment entities on January 1, 2014) - 9 -
Effective date Newly issued, Revised accounting standards and interpretations per IASB Amendment to IFRS 7-Amended by Disclosure-Transfers of Financial Assets July 1, 2011 IFRS 11 Joint Agreements January 1, 2013 IFRS 12 Disclosure of Interests in Other Entities January 1, 2013 IFRS 13 Fair Value Measurement January 1, 2013 Amendment to IAS 1-Amended by Presentation of Items of Other July 1, 2012 Comprehensive Income Amendment to IAS 12-Amended by Deferred Tax: Recovery of Underlying January 1, 2012 Assets Amendment to IAS 19-Superseded by Employee Benefits January 1, 2013 Amendment to IAS 27-Reissued as Separate Financial Statements January 1, 2013 Amendment to IAS 32-Amended by Offsetting Financial Assets and Financial January 1, 2014 Liabilities IFRIC20 Stripping Costs in the Production Phase of a Surface Mine January 1, 2013 Except for the following listed items, the adoption of the 2013 version IFRSs by the Group would have no significant impact on consolidated financial statements. (a) IAS 19 Employee Benefits The standard primarily amended and determined that net interest on the net defined benefit liability or asset, determined using the discount rate at the beginning of the period and the previous method before the amendment which applied interest costs and plan asset expected returns is replaced. The Group is no longer able to elect to use corridor method or recognize actuarial gains or losses in profit or loss and the standard specified that the actuarial gains and losses should be recognized in other comprehensive income. Prior service cost is recognized in profit or loss and is no longer amortized as expense per straight line method during the vesting period. In addition, an entity can no longer recognize termination benefit at the earlier of the dates to withdraw the offer of those benefits or when the entity recognizes costs for a restructuring under IAS 37 Provisions, Contingent Liabilities and Contingent Assets which involves the payment of termination benefits. This is not only to recognize termination benefits as liabilities and expenses when the termination event is committed. Furthermore, the disclosure requirement of defined benefit plan is increased. (b) IAS 1 Presentation of Financial Statements The standard amended the presentation of other comprehensive income. The other comprehensive income section is required to present line items which are classified by their nature, and grouped between those items that will or will not be reclassified to profit and loss in subsequent periods. The amendment also regulated that line items should be presented in pre-tax amount and relevant tax amount should be disclosed separately per the aforementioned categorization. The Group will change the presentation of other comprehensive income in conformity with the amendments. Moreover, the comparative information has been restated accordingly. - 10 -
(c) IFRS 12 Disclosure of Interests in Other Entities The Group has increased the disclosure of unconsolidated structured entities. Please refer to Note 6 (AB) for more information. (d) IFRS 13 Fair Value Measurement The standard defines fair value, provides a single IFRS framework for measuring fair value and requires disclosures about fair value measurement. The Group has increased relevant disclosure regarding fair value (Please refer to notes 6(I) and (Y)) and has postponed the adoption of the fair value measurement of the new standard per the interim regulation of the standard. However, the Group is not required to provide comparative information in terms of the new disclosure. The postponement of the new measurement rules from 2015 does not have significant impact over the Group s fair value measurement of asset and liability items. (B) The effect on newly issued International Financial Reporting Standards not yet accepted by the FSC. Listed as below are the accounting standards and interpretations newly issued and revised by IASB but not yet included in the 2013 IFRSs as accepted by FSC. Effective date Newly issued, Revised accounting standards and interpretations per IASB IFRS 9 Financial Instruments January 1, 2018 Amendment to IFRS 10 and IAS 28 Sales or contributions of assets between an January 1, 2016 investor and its associate/joint venture Amendment to IFRS 10, IFRS 12 and IAS 28 Investment entities: Applying the January 1, 2016 consolidation exception Amendment to IFRS 11 Amended by Acquisition of an Interest in a Joint January 1, 2016 Operation IFRS 14 Regulatory Deferral Accounts January 1, 2016 IFRS 15 Revenue from Contracts with Customers January 1, 2018 IAS 1 Disclosure initiative January 1, 2016 Amendments to IAS 16 and IAS 38 Amended by Clarification of Acceptable January 1, 2016 Methods of Depreciation and Amortization Amendments to IAS 16 and IAS 41 Amended by Bearer Plant January 1, 2016 Amendment to IAS 19 Amended by Defined Benefit Plans: Employee July 1, 2014 Contributions Amendment to IAS 27 Equity Method in Separate Financial Statements January 1, 2016 Amendment to IAS 36 Amended by Recoverable Amount Disclosures for January 1, 2014 Non-Financial Assets Amendment to IAS 39 Amended by Novations of Derivatives and Continuing of January 1, 2014 Hedge Accounting Amendment to IFRS Annual improvements 2010-2012 and 2011-2013 Amendment to IFRS Annual improvements 2012-2014 July 1, 2014 January 1, 2016 IFRIC 21 Levies January 1, 2014 The Group is continuously evaluating the influence on financial position and performance which resulted from the adoption of the abovementioned standards and interpretations. Relevant influence will be disclosed when the assessment is completed. - 11 -
4. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies presented in the consolidated financial statements are summarized as follows. Unless otherwise indicated, the significant accounting policies have been applied consistently to all periods presented in these consolidated financial statements. (A) Statement of compliance These consolidated interim financial statements were prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Insurance Companies (hereinafter referred to as the Regulations) and IAS 34- Interim Financial Reporting as accepted by the FSC. These consolidated interim financial statements do not include all the necessary information that a yearly financial statements should disclosed in accordance with the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations and SIC Interpretations accepted by the FSC (hereinafter referred to as the IFRS accepted by the FSC). (B) Basis of preparation The consolidated financial reports comprise consolidated balance sheets, consolidated statements of comprehensive income, consolidated statements of changes in equity, and consolidated statements of cash flows and relevant notes. The consolidated financial statements have been prepared on a historical cost basis except for the financial instruments measured at fair value through profit or losses (including derivative financial instruments) and investment properties are measured at fair value. The functional currency of each Group entities is determined based on the primary economic environment in which the entities operate. The Group consolidated financial statements are presented in New Taiwan Dollar, which is the Company s functional currency. All financial information presented in New Taiwan Dollar has been rounded to the nearest thousand. - 12 -
(C) Basis of consolidation (a) Principle of preparation of the consolidated financial statements The Group has prepared consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies and International Accounting Standards endorsed by the FSC. Under consolidated financial statements, it combines like items of assets, liabilities, equity, income and expenses and offsets the carrying amount of the parent's investment in each subsidiary and the parent's portion of equity of each subsidiary. The Group has prepared its financial reports with same reporting dates. A subsidiary is an enterprise controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unless there is evidence indicating that the assets transferred is impaired, the unrealized loss from intra-group transaction are eliminated. The Group has adopted same accounting policies for like transactions and events in similar circumstances in the preparation of the consolidated financial statements. If the accounting policies adopted by its subsidiaries are different from those adopted by the Group, the Group has properly modified former accounting policies to ensure the consistency of all financial reports (b) List of subsidiaries in the consolidated financial statements Shareholding Name of investor Name of subsidiary Business Type June 30, 2015 December 31, 2014 June 30, 2014 The Company Fubon (Vietnam) Co., Ltd (Note 1) Insurance 100% 100% 100% The Company Fubon P&C Insurance Co., Ltd (Note 2) Insurance 40% 40% 40% The Company Fubon Insurance Broker (Thailand) Co., Ltd Insurance broker 48.97% 48.97% 48.97% (Note 3) The Company Fubon Insurance Broker (Philippines) Co., Ltd (Note 4) Insurance broker 99.99% 99.99% 99.99% Note 1: The Company participated the capital increase of the subsidiary Fubon (Vietnam) Co., Ltd which amounted to VND200,000,000,000 under the resolution of the board of directors on June 30, 2014. It is approved and registered by the Financial Supervisory Commission per Gin Guan Bao Chan No. 10302090090 letter on August 5, 2014 and the base date is set on August 22, 2014. Note 2: The Company and Fubon Life Insurance Company jointly funded the investee. The registered paid in capital is RMB 400,000,000 and the base date of the capital increase is set on August 16, 2013. Xiamen Port Holding Group funded all the capital increase which amounted to RMB 100,000,000. The Company and Fubon Life Insurance Company s share holding drop to 40%, respectively. The Company possesses the management power and deemed the investee as a subsidiary. The Company participated the capital increase of the subsidiary Fubon P&C Insurance Co., Ltd which amounted to RMB 80,000,000 under the resolution of the board of directors on April 30, 2014. In addition, the competent authority approved that the Company is allowed to invest another RMB 50,000,000 in Fubon P&C Insurance Co., Ltd. per Jing Shen (2) Zhi No. 10300180760 letter. The Base date of the capital increase is set on September 24, 2014-13 -
(D) Foreign currency (a) Foreign currency transaction The Group translates all foreign currency items, which recorded initially at the rate of exchange at the trade day, into its functional currency. Monetary assets and liabilities are translated at the closing rate at the date of the balance sheet. Exchange differences, which arise when monetary items are translated at rates different from those initially recognized, are reported in profit or loss in the period. Non-monetary assets and liabilities measured at fair value are reported at the rate of exchange at the date of fair value determined. Non-monetary items measured at historical cost are translated at the rate of exchange at the trade day. Exchange differences arising when they are translated at rates difference from those initially recognized, except those from Non-monetary available-for-sale financial assets, financial liabilities designated as hedge of a net investment in a foreign operation, or qualifies cash flow hedges are recognized in other comprehensive income, are recognized in profit or loss. (b) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the Group s functional currency in New Taiwan Dollars at exchange rates at the reporting date. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to the Group s functional currency at average rate. Foreign currency differences are recognized in other comprehensive income. However, if the foreign operation is a non-wholly owned subsidiary, then the relevant proportion of the translation difference is allocated to non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of any part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interest. When the Group disposes of only part of investment in an associate of joint venture that includes a foreign operation while retaining significant or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planed nor likely in the foreseeable future, foreign currency gains and losses arising from such items are considered to form part of a net investment in the foreign operation and are recognized in other comprehensive income, and presented in the translation reserve in equity. - 14 -
(E) Principle of classifying assets and liabilities as current and non-current Due to the specific business feature of business, the operating cycle is more difficult to establish, and therefore assets and liabilities are not classified as current or non-current. Nonetheless, the items are classified per their properties and are arranged per their liquidity. (F) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value (including time deposits that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value). (G) Investment in associates Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Investments in associates are accounted for using Equity Method and are recognized initially at cost. The cost of the investment includes transaction costs. The carrying amount of the investment in associates includes goodwill which is arising from the acquisition less any accumulated impairment losses. The consolidated financial statements include the Group s share of the profit or loss and other comprehensive income of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group s share of losses exceeds its interest in associates, the carrying amount of the investment, including any interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. When the Group disposes associates and lose the significant influence over the associates, any remaining investments are measured at the fair value. The difference between the fair value of remaining investments in associates plus the proceeds from disposing associates and the carrying amount of remaining investment in associates when the Group loses its significant influence is recognized in profit or loss. The amount related to associates and recognized in other comprehensive income is reclassified as profit or loss from equity. (H) Financial assets and financial liabilities Financial assets and liabilities, including derivative instruments, are recognized in the condensed consolidated balance sheet and measured according to its classification under IFRS. - 15 -
In accordance with International Accounting Standards 39 Financial instruments ( IAS 39 ) as endorsed by FSC, financial assets are classified into the following categories: financial assets measured at fair value through profit or loss, available-for-sale financial assets, hedging derivative financial assets, financial assets carried at cost, debt investments in non-active market, held-to-maturity financial assets, other financial assets, and loans and receivables. Financial liabilities are classified into financial liabilities measured at fair value through profit or loss, hedging derivative financial liabilities, and financial liabilities measured at amortized cost. The trading of financial assets is recorded on trading date. (a) Financial assets (1) Financial assets measured at fair value through profit or loss A financial asset is classified in this category if acquired principally for the purpose of selling or repurchasing in the short term, for which there is a recent pattern of short-term profit taking, or as derivative financial instruments. This category comprises financial assets classified as held-for-trading and designated as at fair value through profit or loss on initial recognition. Financial assets are classified as held-for-trading under one of the following situations: A. Assets acquired primarily for the purpose of selling in the short term; B. A portion of identified financial instruments at initial recognition and for which there is a pattern of short-term profit taking; or C. Derivative financial instruments (excluding financial guarantee contracts and those designated effective hedging instruments). The Group designates financial assets, other than ones classified as held-for-trading, as at fair value through profit or loss at initial recognition under one of the following situations: A. Designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; B. Performance of the financial asset is evaluated on a fair value basis; or C. Hybrid instrument contains one or more embedded derivatives. - 16 -
Financial assets in this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, which take into account any dividend and interest income, are recognized in profit or loss. Financial assets at fair value through profit or loss are measured at fair value and changes therein, which take into account any dividend and interest income, are recognized in profit or loss. Financial assets measured at fair value through profit or loss and designated as such at the time of initial recognition are classified as financial assets measured at fair value through profit or loss in the condensed consolidated balance sheet. Changes in fair value are recognized in profit of loss as gain or loss on financial assets and liabilities measured at fair value through profit or loss. (2) Held-to-maturity financial assets Financial assets which the Group have the positive intent and ability to hold to maturity are classified as held-to-maturity financial assets. After initially acquired, these assets are measured at amortized cost using the effective interest rate method less impairment losses. The effective interest method is a method of calculating the amortized cost of the financial instrument and of allocating the interest income over the relevant period. An effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial instrument. The calculation includes all transaction costs and fees and points paid or received that are an integral part of the effective interest rate. A sale or reclassification of a more than insignificant amount of held-to-maturity investments would result in the reclassification of all held-to-maturity investments as available-for-sale, and would prevent the Group from classifying financial assets as held-to-maturity for the current and the following two financial reporting years. (3) Available-for-sale financial assets Available-for-sale financial assets are any non-derivative financial assets designated on initial recognition as available-for-sale or any other instruments that are not classified as loans and receivables, held-to-maturity investments, or financial assets measured at fair value through profit or loss. Available-for-sale financial assets are recognized initially at fair value plus any directly attributable transaction cost. Subsequent to initial recognition, they are measured at fair value and changes therein, other than foreign currency differences on available-for-sale debt instruments, interest income calculated using the effective interest method, and dividend income, are recognized in other comprehensive income. When impairment loss of available-for-sale financial assets is recognized or derecognized, the gain or loss accumulated in the fair value reverse in equity is reclassified to profit or loss. - 17 -
Dividend income is recognized in profit or loss on the date that an entity s right to receive payment is established. Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment loss at the end of each reporting period and are recognized in a separate line item as financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets cannot be reliably measured, the financial assets are remeasured at fair value. The difference between carrying amount and fair value is recognized in profit or loss or other comprehensive income on financial assets. (4) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables comprise initial originated and non-initial originated. Initial originated assets indicate that the Group directly provide money, merchandise or service to debtors. Non-initial originated assets are other than initial originated loans and receivables. Loans and receivables are initially recognized at fair value plus incremental direct transaction costs, services fees, and discount or premium, and subsequently measured at their amortized cost using the effective interest method. When the discounted effect is insignificant, loans and receivables can be measured at original cost. The non-accrual loans arising from transferred loans are recognized as loans, and other non-accrual loans are recognized as other financial assets. (5) Other financial assets A. debt investments without active market Debt investments without active market are debt investments with fixed or determinable payments that are not quoted in an active market. At initial recognition, debt instruments without active market quote are recognized at fair value plus any directly attributable transaction costs. Disposal gain or loss is recognized in profit or loss upon derecognition. Subsequent to initial recognition, theses debt investments without active market are measured at amortized cost using the effective interest rate method. - 18 -
B. Financial assets carried at cost (b) Financial liabilities At initial recognition, the costs of the equity investments in a non-active market are valued at fair value plus the acquisition costs. These assets can be measured at fair value under one of the following conditions: a. The variability in the range of reasonable fair value measurements is not significant for that asset. b. The probabilities of the various estimates within the range can be reasonably assessed and used when measuring fair value. If a financial asset does not meet both of these conditions, then it is carried at cost. (1) Financial liabilities measured at fair value through profit or loss Financial liabilities held-for-trading or are designated on initial recognition are classified as financial liabilities at fair value through profit or loss. Financial liabilities are classified as held-for-trading under one of the following situations: A. Liabilities acquired primarily for the purpose of selling or repurchasing in the short term; B. Part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short term profit taking; C. Derivative financial liabilities, except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument; or D. Obligations to deliver financial assets borrowed by a short seller. The Group enter into interest rate swaps as hedges. For those which are designated as financial liabilities measured at fair value through profit or loss at the time of initial recognition, the designation cannot be revoked. Financial liabilities measured at fair value through profit or loss and those designated as such at the time of initial recognition are recognized as financial liabilities measured at fair value through profit or loss in the condensed consolidated balance sheet. The changes in fair value are recognized as gain or loss on financial assets and liabilities measured at fair value through profit or loss in the condensed consolidated statement of comprehensive income. - 19 -
(2) Financial liabilities carried at amortized cost Financial liabilities carried at amortized cost include the following: financial liabilities which are not classified as financial liabilities measured at fair value through profit or loss, hedging derivative financial liabilities, financial bonds payable, financial guarantee contracts, loan commitments below market rate, and financial liabilities arising from transfer of financial assets that does not qualify for derecognition to the extent of transferor s continuing involvement. (c) Derecognition A financial asset is derecognized when the contractual rights of the cash inflow from the financial asset are terminated, or when all the risks and rewards of ownership of the financial assets are substantially transferred. If the Group enter into securities lending transactions or pledge of bonds or stocks as security for repo transaction, the financial assets are not derecognized as substantially all risks and rewards of ownership are still retained by the Group. This accounting treatment is also adopted when the Group enter into securitization transaction in which the Group keep portion of the risk and rewards of ownership. When the Group derecognize financial assets, the difference between the carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that is recognized in other comprehensive income is recognized in profit or loss. The Group derecognize a financial liability when its contractual obligations has been discharged, cancelled, or expire. (d) Reclassification Under IAS 39 as endorsed by the FSC, the following principles are adopted concerning the non-derivative financial assets: (1) no reclassification is made out of the fair value measured through profit or loss category while it is held or issued. (2) no reclassification is made of any financial instrument out of the fair value measured through profit or loss category if it was designated as at fair value measured through profit or loss at initial recognition. (3) if a financial asset is no longer held for the purpose of selling or repurchasing it in the near term, it is reclassified out of the fair value measured through profit or loss category, but only in rare circumstances. (4) no reclassification is made of any financial instrument into the fair value measured through profit or loss category subsequent to initial recognition. - 20 -