Audited Financial Statements For the Financial Year ended 31 December 2012

Transcription

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

2 TOKIO MARINE LIFE INSURANCE SINGAPORE LTD (Incorporated in Singapore) FINANCIAL STATEMENTS Contents Page Directors Report 1 Statement by Directors 3 Independent Auditor s Report 4 Statement of Comprehensive Income 5 Balance Sheet 6 Consolidated Statement of Changes in Equity 7 Statement of Changes in Equity - Company 8 Consolidated Statement of Cash Flows 9 Notes to the Financial Statements 11

3 DIRECTORS REPORT The directors present their report to the members together with the audited financial statements of the Company and of the Group for the financial year ended 31 December. Directors The directors of the Company in office at the date of this report are as follows: Ong Sim Ho Lee King Chi Arthur Prawiro Widjaja Shingo Toda Tay Choon Peng Lance (appointed on 1 May ) Woon Dar Vei (appointed on 28 June ) Arrangements to enable directors to acquire shares or debentures Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose object was to enable the directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. Directors interests in shares or debentures According to the register of directors shareholdings, none of the directors holding office at the end of the financial year had any interest in the share capital of the Company or its related corporations, except as follows: Holdings registered in name of director At 1.1. At Company (No. of ordinary stock units) Lee King Chi Arthur (as nominee of Asia General Holdings Ltd) 1 - Shingo Toda (as nominee of Asia General Holdings Ltd) 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 Shingo Toda (as nominee of Tokio Marine & Nichido Fire Insurance Co. Ltd) 1 1 1

4 DIRECTORS REPORT 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. 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 12 March

5 STATEMENT BY DIRECTORS 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 5 to 89 are drawn up so as to give a true and fair view of the state of affairs of the Company and of the Group at 31 December and of the results of the business, changes in equity of the Company and of the Group and the 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. On behalf of the directors Ong Sim Ho Director Tay Choon Peng Lance Director 12 March

6 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 5 to 89, 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 profit and loss accounts and balance sheets 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 state of affairs of the Company and of the Group as at 31 December, and the results 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. PricewaterhouseCoopers LLP Public Accountants and Certified Public Accountants Singapore, 12 March

7 STATEMENT OF COMPREHENSIVE INCOME Notes $'000 $'000 The Company $'000 $'000 Income Gross premiums 906, , , ,167 Less: Reinsurance premiums (34,797) (25,671) (16,787) (10,324) Net premiums 871, , , ,843 Fees and commission income 6(a) 2,739 1,733 1, Other income 6(b) 189, ,311 91,485 85,696 Other gains net 6(c) 80,874 20,293 43,912 28,986 Net rental income 3,069 2, Total income 1,147, , , ,206 Outgo Claims under policies, paid and outstanding: - Death (29,531) (23,714) (14,580) (11,727) - Maturity (214,896) (212,727) (172,992) (144,427) - Others (58,320) (46,851) (14,836) (14,798) - Surrenders including bonus (72,583) (68,269) (16,410) (15,743) - Annuities (6,711) (6,761) (6,711) (6,761) - Change in Life Assurance Fund 24 (571,745) (361,699) (378,623) (212,794) (953,786) (720,021) (604,152) (406,250) Operating expenses and commission Commission and agency expenses (109,276) (95,632) (68,264) (54,094) Employee compensation 6(d) (33,190) (27,971) (18,022) (14,886) Depreciation 6(e) (2,939) (3,005) (1,065) (985) Amortisation 19 (4,888) (4,956) - - Other operating expenses 6(f) (25,930) (22,321) (13,640) (12,054) Total expenses (1,130,009) (873,906) (705,143) (488,269) Profit before income tax 17,756 14,253 9,429 7,937 Income tax credit/(expense) 5 2,371 (2,715) 4,245 (1,156) Net profit for the financial year 20,127 11,538 13,674 6,781 Other comprehensive income: Financial assets, available-for-sale - fair value gains 3,985 3,250 3,349 2,801 - reclassification upon disposal (3,771) (1,450) (1,965) (1,388) - currency translation (26) (64) deferred tax 57 (343) (235) (240) Currency translation differences arising from consolidation (1,904) (2,384) - - Other comprehensive (loss)/income, net of tax (1,659) (991) 1,149 1,173 Total comprehensive income 18,468 10,547 14,823 7,954 The accompanying notes form an integral part of these financial statements. 5

8 BALANCE SHEET As at 31 December Notes $'000 $'000 The Company $'000 $'000 ASSETS Cash and cash equivalents 7 383, , , ,536 Trade receivables 4,656 2, Outstanding premium and agents balances 8 15,244 12,408 7,105 5,955 Reinsurers share of claims admitted or intimated 9 19,413 12,717 19,070 12,279 Financial assets, available-for-sale 10 4,307,497 3,509,068 2,883,468 2,328,298 Financial assets at fair value through profit or loss , ,480 36,062 33,568 Financial assets, held-to-maturity , , Derivative financial instruments Tax recoverable 3, ,029 - Other assets 14 43,883 38,763 22,748 19,956 Loans , ,984 31,923 30,835 Investment properties 16 44,204 46,374 9,983 10,272 Investment in a subsidiary ,952 40,952 Property, plant and equipment 18 50,176 50,493 34,256 34,953 Intangible asset 19 12,508 17, TOTAL ASSETS 5,688,811 4,903,438 3,313,097 2,740,771 LIABILITIES Claims admitted or intimated 134,194 76,847 62,812 21,476 Trade payables 78,234 56,309 32,727 23,653 Other payables 20 25,305 19,612 14,351 11,496 Current tax liabilities 1,180 10,357-10,171 Deferred tax liabilities , , , ,233 Staff retirement benefits Agents retirement benefits 23 10,467 10, ,061 Derivative financial instruments , ,569 Life Assurance Fund 24 5,021,141 4,368,063 2,847,399 2,367,520 TOTAL LIABILITIES 5,494,987 4,722,682 3,160,217 2,597,314 EQUITY Share capital and reserves Share capital 25 36,000 36,000 36,000 36,000 Capital reserve 4,800 4, Fair value reserve 4,477 4,232 3,177 2,028 Foreign currency translation reserve (8,350) (6,446) - - Retained earnings 156, , , ,429 TOTAL EQUITY 193, , , ,457 TOTAL LIABILITIES AND EQUITY 5,688,811 4,903,438 3,313,097 2,740,771 The accompanying notes form an integral part of these financial statements. 6

9 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Note 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 4,232 (6,446) 142, ,756 Dividends relating to paid (5,400) (5,400) Total comprehensive income/(loss) (1,904) 20,127 18,468 Balance at 31 December 36,000 4,800 4,477 (8,350) 156, ,824 Balance at 1 January 36,000 4,800 2,839 (4,062) 130, ,209 Total comprehensive income/(loss) - - 1,393 (2,384) 11,538 10,547 Balance at 31 December 36,000 4,800 4,232 (6,446) 142, ,756 The foreign currency translation reserve and fair value reserve are not distributable. The accompanying notes form an integral part of these financial statements. 7

10 STATEMENT OF CHANGES IN EQUITY - COMPANY Note Share Fair value Retained capital reserve earnings Total Balance at 1 January 36,000 2, , ,457 Dividends relating to paid (5,400) (5,400) Total comprehensive income - 1,149 13,674 14,823 Balance at 31 December 36,000 3, , ,880 Balance at 1 January 36, , ,503 Total comprehensive income - 1,173 6,781 7,954 Balance at 31 December 36,000 2, , ,457 The fair value reserve is not distributable. The accompanying notes form an integral part of these financial statements. 8

11 CONSOLIDATED STATEMENT OF CASH FLOWS $'000 $'000 Cash flows from operating activities Profit before income tax 17,756 14,253 Change in life assurance fund 571, , , ,952 Adjustments for: Depreciation of property, plant and equipment 2,123 2,186 Depreciation of investment properties Amortisation of intangible asset 4,888 4,956 Loss on disposal of property, plant and equipment (2) 31 Property, plant and equipment written off 63 - Loss on disposal of investment properties - 43 Gain on disposal of: - Financial assets, available-for-sale (45,286) (43,973) - Financial assets, held-to-maturity (3,378) (520) Allowance for impairment: - Financial assets, available-for-sale (251) 3,061 Fair value (gains)/losses: - Financial assets at fair value through profit or loss (31,693) 17,526 - Warrants Forward foreign exchange contracts (7,450) 8,888 - SWAP contracts - (413) - Currency exchange on foreign currencies denominated securities 7,553 (6,080) Dividend income (51,298) (47,674) Interest income (138,480) (127,637) Rental Income (3,069) (2,524) Impairment of outstanding premiums and agents balances (166) (236) Provision for staff retirement benefits 8 9 Write-back of staff retirement benefits (2) (43) Provision for agent s retirement benefits 1,449 1,470 (264,175) (190,075) Changes in working capital: Receivables and other current assets (6,574) 15,439 Reinsurers share of claims admitted or intimated (6,706) (5,150) Claims admitted or intimated 58,673 7,660 Trade and other payables 27,880 3,434 73,273 21,383 Income tax paid (20,616) (19,221) Payment of staff retirement benefits - (106) Payment of agent s retirement benefits (1,457) (1,058) (22,073) (20,385) Net cash provided by operating activities 376, ,875 The accompanying notes form an integral part of these financial statements. 9

12 CONSOLIDATED STATEMENT OF CASH FLOWS Note $'000 $'000 Cash flows from investing activities Purchase of property, plant and equipment (1,757) (1,528) Purchase of intangible asset (447) - Proceeds from disposal of property, plant and equipment Proceeds from disposal of investment properties Purchase of: - Financial assets, available-for-sale (1,692,772) (1,108,208) - Financial assets, held-to-maturity (12,089) (26,708) - Financial assets at fair value through profit or loss (31,310) (46,570) - Derivative financial instruments - (5,992) Proceeds from disposal of: - Financial assets, available-for-sale 1,093, ,313 - Financial assets, held-to-maturity 43,807 52,199 - Financial assets at fair value through profit or loss 45,272 57,298 - Derivative financial instruments 4,358 2,372 (Disbursement of loans)/proceeds from loan repayments (3,050) 3,534 Rental received 3,062 2,452 Dividend received 51,265 47,079 Interest received 134, ,640 Net cash used in investing activities (365,767) (50,826) Cash flows from financing activities Dividends paid to shareholders of the company (5,400) - Net cash used in financing activities (5,400) - Net increase in cash and cash equivalents held 5, ,049 Cash and cash equivalents at beginning of financial year 381, ,042 Effects of currency translation on cash and cash equivalents (3,783) (4,615) Cash and cash equivalents at end of financial year 7 383, ,476 The accompanying notes form an integral part of these financial statements. 10

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 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. 11

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 points 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 Actuary. 12

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 Actuary for all territories that the Company and the subsidiary operate in. Details of the methods and assumptions 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 and assumptions 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. 13

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 and assumptions 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 or within grace period of one month for premiums due before the financial year end. Premiums not received on due date or 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 remained 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. 14

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 and any negative reserves are set to zero for prudence. The results of liability adequacy tests for the Group are shown in the tables below: Group 1. Reported insurance contract liabilities 3,927, ,587 98, Gross Premium Reserve 1,233, ,343 92,678 Excess of reported insurance contract liabilities (1-2) 2,693,382 40,244 5,505 Company Nonparticipatinlinked Investment- Participating Nonparticipatinlinked Investment- Participating 1. Reported insurance contract liabilities 2,229, ,652 36, Gross Premium Reserve 573, ,786 31,402 Excess of reported insurance contract liabilities (1-2) 1,656,403 20,866 5,226 15

18 2. Significant accounting policies (continued) 2.2 Insurance contracts (continued) (f) Liability adequacy test (continued) 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. The aggregate reported liability is greater than the best estimate liability obtained by the cash flow method, by $2,739m and $1,682m respectively. As such, no shortfall needs to be recorded in the income statement. (g) Reinsurance contracts held 2.3 Revenue recognition Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts in Note 2.2(b) 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 Revenue is recognised as follows: (a) Premiums The policy in respect of recognition of premiums is disclosed in Note 2.2(c). (b) Interest income Interest income is recognised using the effective interest method. 16

19 2. Significant accounting policies (continued) 2.3 Revenue recognition (continued) (c) Dividend income Dividend income is recognised when the right to receive payment is established. (d) Rental income 2.4 Group accounting Rental income from operating leases on investment properties is recognised on a straight-line basis over the lease term. Subsidiaries Subsidiaries are entities over which the Group has power to govern the financial and operating policies so as to obtain benefits from its activities, generally accompanied by a shareholding giving rise to the majority of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are de-consolidated 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. 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 the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. 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. Please refer to Note 2.8 for the accounting policy on investments in subsidiaries. 17

20 2. Significant accounting policies (continued) 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 2.9). (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 2.9). (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 and 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. 18

21 2. Significant accounting policies (continued) 2.5 Property, plant and equipment (continued) (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. (d) Disposal 2.6 Intangible asset 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. See accounting policy Note 2.9 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. 19

22 2. Significant accounting policies (continued) 2.6 Intangible asset (continued) (b) Acquired computer software licences (continued) 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. 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 2.9) 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. 20

23 2. Significant accounting policies (continued) 2.9 Impairment of non-financial assets Property, plant and equipment Intangible asset Investment in a subsidiary Investment properties Property, plant and equipment, intangible asset, investment in a subsidiary and investment properties are tested for impairment whenever there is any objective evidence or indication that these assets may be impaired. For the purpose of impairment testing of these assets, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, the recoverable amount is determined for the cash-generating-unit ( CGU ) to which the asset belongs. If the recoverable amount of the asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. The difference between the carrying amount and recoverable amount is recognised as an impairment loss in profit or loss. An impairment loss for an asset is reversed if, and only if, there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognised. The carrying amount of an asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of any accumulated amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss is recognised in profit or loss Financial assets (a) Classification classifies its financial assets in the following categories: 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. 21

24 2. Significant accounting policies (continued) 2.10 Financial assets (continued) (a) Classification (continued) (i) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified as held for trading if it is acquired principally for the purpose of selling in the short term. Financial assets designated at fair value through profit or loss at inception are those that are managed and their performance are evaluated on a fair value basis, in accordance with the Group s investment strategy. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months after the balance sheet date. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are presented as current assets, except those maturing later than 12 months after the balance sheet date which are presented as non-current assets. Loans and receivables are presented as Cash and cash equivalents, Trade receivables, Outstanding premium and agents balances, and Loans on the balance sheet respectively. (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. 22

25 2. Significant accounting policies (continued) 2.10 Financial assets (continued) (a) Classification (continued) (iv) Financial assets, available-for-sale Financial assets, available-for-sale are non-derivatives that are either designated in this category or not classified in any of the other categories. They are presented as non-current assets unless management intends to dispose off the assets within 12 months after the balance sheet date. (b) Recognition and derecognition Regular way purchases and sales of financial assets are recognised on trade-date - the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. On disposal of a financial asset, the difference between the sale proceeds and the carrying amount is recognised in profit or loss. Any amount in the fair value reserve relating to that asset is transferred to profit or loss. (c) Initial measurement Financial assets are initially recognised at fair value plus transaction costs except for financial assets at fair value through profit or loss, which are recognised at fair value. Transaction costs for financial assets at fair value through profit or loss are recognised immediately as expenses. (d) Subsequent measurement Financial assets, both available-for-sale and at fair value through profit or loss, are subsequently carried at fair value. Loans and receivables and financial assets, held-to-maturity are subsequently carried at amortised cost using the effective interest method. 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. 23

26 2. Significant accounting policies (continued) 2.10 Financial assets (continued) (d) Subsequent measurement (continued) 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. The carrying amount of these assets is reduced through the use of an impairment allowance account which is calculated as the difference between the carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. When the asset becomes uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are recognised against the same line item in profit or loss. The allowance for impairment loss account is reduced through profit or loss in a subsequent period when the amount of impairment loss decreases and the related decrease can be objectively measured. The carrying amount of the asset previously impaired is increased to the extent that the new carrying amount does not exceed the amortised cost, had no impairment been recognised in prior periods. 24

27 2. Significant accounting policies (continued) 2.10 Financial assets (continued) (e) Impairment (continued) (ii) Financial assets, available-for-sale 2.11 Trade and other payables In addition to the objective evidence of impairment described in Note 2.10(e)(i), a significant or prolonged decline in the fair value of an equity security below its cost is considered as an indicator that the financial asset is impaired. The cumulative loss that was recognised in the fair value reserve is transferred to profit or loss. The cumulative loss is measured as the difference between the acquisition cost (net of any principal repayments and amortisation) and the current fair value, less any impairment loss previously recognised as an expense. The impairment losses recognised as an expense on equity securities are not reversed through profit or loss. Trade and other payables are initially measured at fair value, and subsequently measured at amortised cost, using the effective interest method Derivative financial instruments A derivative financial instrument is initially recognised at its fair value on the date the contract is entered into and is subsequently carried at its fair value. Fair value changes for derivative financial instruments that do not qualify for hedge accounting are recognised in profit or loss in the financial year when the changes arise Fair value estimation of financial assets and liabilities The fair value of financial instruments traded in active markets (such as exchange-traded and over-the-counter securities and derivatives) is based on quoted market prices at the balance sheet date. The quoted market prices used for financial assets are the current bid prices; the appropriate quoted market prices for financial liabilities are the current asking price. 25

28 2. Significant accounting policies (continued) 2.13 Fair value estimation of financial assets and liabilities (continued) The fair values of financial instruments that are not traded in an active market are determined by using valuation techniques. uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Where appropriate, quoted market prices or dealer quotes for similar instruments are used. Valuation techniques, such as estimated discounted cash flow analyses, are also used to determine fair values of the financial instruments. The fair values of currency forwards are determined using actively quoted forward exchange rates. The fair values of current financial assets and liabilities carried at amortised cost approximate their carrying amounts Operating leases (a) When the Group is the lessee: leases certain assets from third parties. Leases of assets where substantially all risks and rewards incidental to ownership are retained by the lessors are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessors) are recognised in profit or loss on a straight-line basis over the period of the lease. (a) When the Group is the lessor: 2.15 Income tax Leases of investment properties where the Group retains substantially all risks and rewards incidental to ownership are classified as operating leases. Rental income from operating leases (net of any incentives given to the lessees) is recognised in profit or loss on a straight-line basis over the lease term. Current income tax for current and prior periods is recognised at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred income tax is recognised for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements except when the deferred income tax arises from the initial recognition of an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of transaction. 26

29 2. Significant accounting policies (continued) 2.15 Income tax (continued) A deferred income tax liability is recognised on temporary differences arising on investment in a subsidiary, associated companies and joint ventures, except where the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. A deferred income tax asset is recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences and tax losses can be utilised. Deferred income tax is: (i) (ii) measured at the tax rates that are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date; and based on the tax consequence that would follow from the manner in which the Group expects, at the balance sheet date, to recover or settle the carrying amounts of its assets and liabilities. Current and deferred income tax are recognised as income or expenses in profit or loss, except to the extent that the tax arises from a business combination or a transaction which is recognised directly in equity. Deferred tax arising from the fair value gains and losses on Financial assets, available-for-sale are charged or credited directly to Equity/Life assurance fund in the same period the temporary differences arise Provisions Provisions for agents retirement benefits are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Agents retirement benefits are provided for the Group s tied agents and are calculated in accordance with the terms and conditions of the Agency s Agreement. 27

30 2. Significant accounting policies (continued) 2.17 Employee compensation (a) Defined contribution plans Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into separate entities such as the Central Provident Fund and Employees Provident Fund on a mandatory, contractual or voluntary basis. has no further payment obligations once the contributions have been paid. s contributions are recognised as employee compensation expenses when they are due. No legal or constructive obligation exists to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years. s contribution to defined contribution plans are recognised in the financial year to which they relate. (b) Employee leave entitlement Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long service leave as a result of services rendered by employees up to the balance sheet date. (c) Staff retirement benefits 2.18 Currency translation Retirement benefits are provided for executive staff. The benefit accrued was computed based on the length of service of the employees and his last drawn salary less the employer s contribution to the employee s Central Provident Fund or Employees Provident Fund. (a) Functional and presentation currency Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates ( functional currency ). The financial statements are presented in Singapore Dollar. 28

31 2. Significant accounting policies (continued) 2.18 Currency translation (continued) (b) Transactions and balances Transactions in a currency other than the functional currency ( foreign currency ) are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Currency translation differences from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rates at the balance sheet date are recognised in profit or loss. Non-monetary items measured at fair values in foreign currencies are translated using the exchange rates at the date when the fair values are determined. (c) Translation of Group entities financial statements The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) (ii) (iii) assets and liabilities are translated at the closing rates at the date of the balance sheet; income and expenses for each income statement are translated at the average exchange rate (unless the average rate is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated using the exchange rates at the dates of the transactions); and all resulting exchange differences are recognised in the foreign currency translation reserve Cash and cash equivalents For the purposes of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand, deposits with financial institutions which are subject to an insignificant risk of change in value. 29

32 3. Insurance contracts Insurance contract liabilities are determined based on a series of relevant assumptions made by the actuary of the respective companies in all the territories that the Company operates in. (a) Methodology A prospective cashflow method, known as gross premium valuation method, is used to compute insurance contract liabilities. Under the gross premium valuation approach, broadly speaking, the insurance contract liabilities are determined by first projecting future cash flows using realistic assumptions and then discounting these cash flow streams at appropriate interest rates. For this liability valuation method, assumptions are needed for: Mortality and morbidity Persistency Discount rate Renewal expenses and inflation Expected future bonus (for participating policies) For participating policies, the insurance contract liabilities include provision for future payments arising for both guaranteed and non-guaranteed benefits. In addition, the insurance contract liabilities are derived not only by aggregating the insurance contract liability of all policies in the fund, but are also dependent on the value of assets backing the liabilities and the extent to which benefits are guaranteed. The insurance contract liabilities of the non-participating or investmentlinked fund are calculated by aggregating the insurance contract liability of all policies in the fund. Additional provision is made in the liability valuation assumptions to allow for any adverse deviation from the best estimate experience and to reflect the inherent uncertainty of the best estimate of the insurance liabilities. 30

33 3. Insurance contracts (continued) (b) Process to determine assumptions All assumptions are reviewed and updated, if necessary, each year in order to value insurance contract liabilities that reflect the Company s experience. The assumptions are required to be on best estimate basis. Mortality and morbidity Assumptions for death and total and permanent disability (TPD) rates used in each territory are based on annual investigation into their respective mortality and morbidity experiences over the recent years, and are generally expressed as a percentage of a standard table or reinsurer s risk premium rates. For all territories, morbidity assumptions for Dread Disease benefits are based on a percentage of the reinsurer s risk premium rates. Based on the latest investigations, there has been a general reduction in the mortality and morbidity rates assumed for Singapore and Brunei. For Malaysia, the mortality and morbidity assumptions remain the same. Provision for adverse derivation from the best estimate assumption has been updated in accordance with the latest investigation. Persistency For each territory, an investigation into the Group s experience over recent years was performed. This investigation is conducted with respect to product classes, policy duration and premium payment mode (regular or single premium) as persistency rates are expected to vary by these factors. An allowance is then made for any trends in the data to arrive at a best estimate of future persistency rates. For Singapore and Brunei, there has been an improvement in persistency in general. For Malaysia, there has been a general deterioration in persistency. The assumptions have been suitably revised to reflect this. 31

34 3. Insurance contracts (continued) (b) Process to determine assumptions (continued) Discount rate For the Participating business, discount rates used to value insurance contract liabilities for each territory is determined based on the best estimate net investment return. To determine the best estimate investment returns, the Group has broken down the assets in the fund as at the reporting date into various asset classes and has applied long term expected returns to each class. A weighted average rate of investment return is then derived by combining different proportions of the various asset classes. A weighted average return is computed based on a notional asset mix and the long term expected return of each asset class. The assumed investment expense is subtracted from the results to arrive at the best estimate investment return. This is done separately for suitable subgroups of assets within the fund (single and regular premium products). For Singapore, the discount rate assumptions for Participating business have been lowered by 0.02% due to an increase in the investment expense assumption by the same amount. For Malaysia, the discount rate remains unchanged. Contract liabilities for non-participating business and minimum condition liability of the participating business are computed by discounting policy cash flows using risk-free interest rates. The riskfree rates used are derived from the gross yields to redemption of benchmark government securities as at the date of valuation. Renewal expense level and inflation For each territory, expense analyses are carried out regularly to determine the long-term unit cost assumptions. The analysis is done by dividing the current level of expense with the business volume. Adjustments are made to reflect expected changes in expense levels or business volume in the future, if any, to arrive at the long term best estimate unit cost assumptions. Different expense inflation is used for each territory, reflecting their respective interest rate and general economic environment. The inflation assumption for Singapore and Brunei remains at 2% per annum. For Malaysia, this remains at 3% per annum. 32

35 3. Insurance contracts (continued) (b) Process to determine assumptions (continued) Additional assumptions for investment-linked contracts For investment-linked insurance policies, additional estimates are made for unit fund growth rate, fund management charge and investment and administration expenses. These assumptions are used for calculating the liabilities and are updated at each reporting date to reflect the best estimates. - Unit growth rate: To determine the growth rate, the Company took into consideration the average actual unit price growth rate weighted by unit fund values; and the average expected return from each unit fund based on their target asset mix weighted by unit fund values. - Fund management charge: Current actual rates of fund management charge the Company levies are used in the valuation. - Investment expenses: A long term average of investment and other related expenses, as determined based on an internal expense analysis, for investment linked funds are used. There has been a slight reduction in the unit growth rate for most investment-linked products for Malaysia. There are no changes to other assumptions from the previous year. 33

36 3. Insurance contracts (continued) (c) Assumptions used Mortality and morbidity Discount rate (best estimate) Risk-free discount rate (For guaranteed benefits for Min. Condition Liability (MCL)) Singapore and Brunei Death + TPD: 76% of reinsurance rates Death + TPD + DD: 64%/77% of reinsurance rates for male and female respectively up to age 55. Linearly increases to 100% from age 56 to 65. Par Fund: 5.30% for Regular Premium; 4.30% for Single Premium Derivation based on MAS Notice 319 Malaysia Death: 50% of M8388 (Traditional). 35% of M8388 (IL). DD: 45% of Swiss Re Table. Par Fund: 5.98% (after tax investment return). Malaysian Government Security (MGS) rate as at 31/12/ with temporary flexibility (Obtained from BondWeb - bond rating agency prescribed by Bank Negara Malaysia (BNM)). Persistency Based on Company s experience. Based on subsidiary s assumptions. Management expenses Distribution expenses Based on past actual expenses with adjustment for future trend, expressed as unit costs per in-force policy and percentage of premiums. Based on actual payments, expressed as percentage of premiums and percentage of commissions Based on subsidiary s assumptions (expressed as unit costs per inforce policy and percentage of premiums). Maximum limit based on BNM s Guidelines on Operating Cost Control (OCC). Expense inflation rate 2% p.a. 3% p.a. (d) Insurance contract liabilities Figures in S$ 000 Singapore and Brunei Malaysia Participating Business 2,229,606 1,904,747 1,697,407 1,636,751 Non-Participating Business 232, , , ,935 Investment-Linked Business 36,628 34,368 61,555 60,665 The insurance contract liabilities exclude the deferred tax liabilities related to the Participating Business. (e) Sensitivity analysis The Company conducted sensitivity analysis of the value of insurance liabilities disclosed to movements in the assumptions used in the estimation of insurance liabilities. 34

37 3. Insurance contracts (continued) (e) Sensitivity analysis (continued) The analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated, for example: change in interest rate and change in market values; and change in lapses and future mortality. For liabilities under Participating contracts (where total insurance contract liabilities take the value of the policy assets of the Participating fund), changes in these assumptions will not cause a change to the reported insurance contract liability unless the guaranteed liabilities under the stressed assumptions exceeds the value of assets backing liabilities. Singapore and Brunei - Participating and Non-Participating Business Change in liability Change in Variable variable Value Percentage Value Percentage (%) (%) Worsening of annuitant mortality +25% -4, % -5, % Improvement in annuitant mortality -25% 4, % 6, % Worsening of assurance mortality +25% % 1, % Improvement in assurance mortality -25% % % Worsening of lapse rate +25% % % Improvement in lapse rate -25% % % Increase in discount rate +100bps -5, % -6, % Lowering of discount rate -100bps 4, % 4, % Worsening of expense +25% 1, % 1, % Improvement in expense -25% -1, % -1, % Liabilities of non-linked insurance contracts are most sensitive to changes in discount rates. Singapore - Investment-linked insurance contracts Change in liability Change in Variable variable Value Percentage Value Percentage (%) (%) Worsening of assurance mortality +25% % % Improvement in assurance mortality -25% % % Worsening of lapse rate +25% % % Improvement in lapse rate -25% % % Increase in discount rate +100bps % % Lowering of discount rate -100bps % % Worsening of expense +25% % % Improvement in expense -25% % % Liabilities of investment-linked insurance contracts are most sensitive to changes in management expense. 35

38 3. Insurance contracts (continued) (e) Sensitivity analysis (continued) Malaysia - Participating & Non-Participating Business Variable Change in variable Change in liability Value in Value in RM 000 (%) RM 000 (%) Worsening of assurance mortality +25% 48,870 19, % 40,719 16, % Improvement in assurance mortality -25% -49,808-19, % -41,770-17, % Worsening of lapse rate +25% 5,337 2, % 5,919 2, % Improvement in lapse rate -25% -6,058-2, % -6,917-2, % Increase in discount rate +100bps -28,315-11, % -22,619-9, % Lowering of discount rate -100bps 36,243 14, % 27,393 11, % Worsening of expense +25% 11,840 4, % 8,977 3, % Improvement in expense -25% -11,757-4, % -8,977-3, % Liabilities of non-linked insurance contracts are affected most by changes in mortality rates. Malaysia - Investment-linked insurance contracts Variable Change in variable Change in liability Value in Value in RM 000 (%) RM 000 (%) Worsening of assurance mortality +25% 1, % % Improvement in assurance mortality -25% -1, % % Worsening of lapse rate +25% % % Improvement in lapse rate -25% % % Increase in discount rate +100bps -3,008-1, % -3,221-1, % Lowering of discount rate -100bps 3,432 1, % 3,702 1, % Worsening of expense +25% % % Improvement in expense -25% % % The liabilities of investment-linked insurance contracts are most sensitive to changes in discounting rate. There are no annuity policies for the Malaysia business. 36

39 4. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a) Liabilities of insurance business The estimation of the ultimate liability arising from claims made under life insurance contracts is the Group s most critical accounting estimate. The process for estimating the liabilities of insurance business is described in Note 3. (b) Impairment of financial assets, available-for-sale reviews its financial assets for objective evidence of impairment on a quarterly basis during the investment committee meeting. Financial assets are considered to be impaired if there has been a significant or prolonged period of decline in fair value below its cost or if there is objective evidence of impairment. The consideration of this requires management s judgement. evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of and near-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow. If actual experience differs negatively from the assumptions and other considerations used in the consolidated financial statements, unrealised losses currently in equity may be recognised in profit or loss in future periods. (c) Determining the fair value of unquoted investments holds financial assets which are not quoted on active markets, particularly its fixed income portfolio. The majority of the unquoted fixed income investments is debt securities issued by government and public authorities and by private sector corporations. The fair values of these financial assets are based on quotations from independent third parties, such as brokers. The quotations from these third parties may change drastically due to market and economic conditions. uses recent arm s length transactions or reference to instruments that are substantially the same or at cost if these are not available to value its unlisted equities. The assumption for valuation at cost will be affected by change in credit risk and interest rate and may have a negative impact on the financial statements. 37

40 4. Critical accounting estimates and judgements (continued) (d) Uncertain tax positions is subject to income taxes in numerous jurisdictions. In determining the income tax liabilities, management has estimated the amount of capital allowances and the taxability/deductibility of certain income/expenses ( uncertain tax positions ) at each tax jurisdiction. has significant open tax assessments with a tax authority at the balance sheet date. As management believes that the tax positions are sustainable, the Group has not recognised any additional tax liability on these uncertain tax positions. 5. Income taxes (a) Income tax expense The Company Life Assurance Fund On the profit for the financial year: Singapore income tax 2,814 1,859 2,814 1,859 Foreign income tax 9,792 7, Deferred tax (Note 21) 28,032 19,814 27,069 21,169 40,638 29,205 29,883 23,028 (Over)/under provision in preceding financial years: Singapore income tax 18 (692) 18 (692) Foreign income tax (1,195) (848) ,461 27,665 29,901 22,336 Shareholders fund On the profit for the financial year: Singapore income tax 1,351 1,043 1,351 1,043 Foreign income tax 2,059 1, Deferred tax (Note 21) (117) ,293 2,625 1,351 1,043 (Over)/under provision of Singapore income tax in preceding financial year (5,596) 113 (5,596) 113 Over provision of deferred tax in preceding financial years (68) (23) - - (2,371) 2,715 (4,245) 1,156 38

41 5. Income taxes (continued) (b) The tax expense on profit differs from the amount that would arise using the Singapore standard rate of income tax due to the following: The Company Profit before tax 17,756 14,253 9,429 7,937 Change in Life Assurance Fund 571, , , ,794 Tax calculated at Singapore statutory tax rate of 17% 100,215 63,912 65,969 37,524 Tax calculated at concessionary tax rate (733) (711) (733) (711) Effect of different tax rates in other countries (16,715) (13,773) - - Income not subject to tax (29,536) (30,619) (5,885) (5,715) Expenses not deductible for tax purpose 19,448 20, Tax effect of overseas branch Effect of concessionary tax rate on participating fund (17,384) (12,464) (17,384) (12,464) Tax effect of change in actuarial valuation (11,716) 4,293 (11,716) 4,293 Others (50) - (50) - 43,932 31,830 31,235 24,071 6(a). Fees and commission income The Company Management fee rebates and commission income 2,739 1,733 1,

42 6(b). Other income The Company Other income Dividend income - Financial assets, available-for-sale 46,104 42,803 30,397 28,654 - Financial assets at fair value through profit or loss 5,194 4, ,298 47,674 30,397 28,654 Interest income - Loans 17,143 17,601 2,269 2,289 - Fixed deposits 4,880 5, Financial assets, available-for-sale 101,218 87,378 58,378 54,415 - Financial assets at fair value through profit or loss 1,395 1, Financial assets, held-to-maturity 13,844 16, , ,637 61,088 57, , ,311 91,485 85,696 6(c). Other gains - net The Company Fair value gains/(losses) - Financial assets at fair value through profit or loss 31,693 (17,526) 5,419 (4,095) - Derivatives 7,450 (8,511) 7,450 (8,511) 39,143 (26,037) 12,869 (12,606) Financial assets, available-for-sale Transfer from Life Assurance Fund on disposal (Note 24) 41,515 42,523 36,561 37,426 Transfer from equity on disposal 3,771 1,450 1,965 1,388 Currency exchange (losses)/gains on debt securities (7,553) 6,080 (7,553) 6,080 Impairment loss (Note 10) 251 (3,061) - (3,061) 37,984 46,992 30,973 41,833 Financial assets, held-to-maturity - Net gains on early redemption 3, Loss on disposal of investment property - (43) - - Gain/(loss) on disposal of property, plant and equipment 2 (31) - - Property, plant and equipment written off (63) - (61) - Currency exchange gain/(loss) - net 14 (364) 56 (234) Others 416 (744) 75 (7) 80,874 20,293 43,912 28,986 40

43 6(d). Employee compensation The Company Employee compensation Wages and salaries 30,069 24,894 16,458 13,337 Employer s contribution to defined contribution plans including Central Provident Fund and Employees Provident Fund 3,115 3,110 1,566 1,592 Staff retirement benefits 6 (33) (2) (43) 33,190 27,971 18,022 14,886 6(e). Depreciation The Company Depreciation of property, plant and equipment: - Leasehold land and buildings Motor vehicles Furniture and equipment 1,028 1, Total depreciation (Note 18) 2,123 2, Depreciation of investment properties: Buildings (Note 16) ,939 3,005 1, (f). Other operating expenses The Company Rental expenses Investment management fees to a fellow subsidiary 4,479 3,623 3,667 3,124 Maintenance of property, plant and equipment 1,085 1, Professional fees Management fee to a fellow subsidiary 2,679 2,644 1,958 2,009 Advertising 2,303 2,612 1,235 1,061 Computer services and expenses 1, Medical fees Printing and stationery Utilities 1, Other expenses 10,217 8,168 4,364 3,944 25,930 22,321 13,640 12,054 41

44 7. Cash and cash equivalents (a) The Company Cash at bank and on hand 217, , , ,516 Fixed deposits with financial institutions 165, ,825 22,433 19, , , , ,536 (b) The fixed deposits with financial institutions at the balance sheet date had an average maturity of 3 months (: 2 months) from the end of the financial year with the following weighted average effective interest rates: The Company Singapore Dollar 0.55% 0.33% 0.55% 0.33% Malaysian Ringgit 3.33% 3.27% - - (c) The fixed deposits with financial institutions are analysed as follows: The Company Fixed deposits maturing within 12 months 165, ,825 22,433 19,020 Fixed deposits maturing after 12 months Total fixed deposits with financial institutions 165, ,825 22,433 19, Outstanding premium and agents balances The Company Outstanding premium and agents balances 10,555 8,944 3,926 3,406 Amounts due from brokers 5,411 4,358 3,667 3,203 15,966 13,302 7,593 6,609 Less: Provision for impairment: Balance at the beginning of financial year (894) (1,141) (654) (778) Decrease in allowance for impairment Exchange differences Balance at end of financial year (722) (894) (488) (654) Due within 12 months 15,244 12,408 7,105 5,955 42

45 9. Reinsurers share of claims admitted or intimated The Company Reinsurers share of claims admitted or Intimated 19,413 12,717 19,070 12,279 Movement in reinsurers share of claims admitted or intimated: Balance at beginning of financial year 12,717 7,577 12,279 7,277 Exchange differences (10) (10) - - Amount received for claims settled during the year (1,057) (2,646) (629) (2,357) Claims notified during the year 7,763 7,796 7,420 7,359 19,413 12,717 19,070 12,279 Due within 12 months 19,413 12,717 19,070 12, Financial assets, available-for-sale The Company Balance at beginning of financial year 3,509,068 3,369,131 2,328,298 2,358,301 Currency translation differences (28,282) (32,515) - - Additions 1,692,772 1,108,208 1,348, ,631 Carrying value of disposals (1,093,424) (860,313) (970,273) (752,249) (Amortisation)/accretion of effective interest (1,549) 312 (3,071) (1,959) Fair value (losses)/gains on foreign exchange (7,553) 6,080 (7,553) 6,080 Net impairment (Note 6(c)) 251 (3,061) - (3,061) Fair value gains/(losses) transferred to Life Assurance Fund (Note 24) 232,229 (82,024) 183,964 (93,246) Fair value gains transferred to equity 3,985 3,250 3,349 2,801 Balance at end of financial year 4,307,497 3,509,068 2,883,468 2,328,298 Due within 12 months 876, , , ,376 Due after 12 months 3,430,537 2,848,033 2,082,131 1,695,922 43

46 10. Financial assets, available-for-sale (continued) Financial assets, available-for-sale are analysed as follows: The Company Quoted securities: - Equity securities - Singapore 716, , , ,733 - Equity securities - Malaysia 376, , Debt securities - Singapore 1,433,360 1,207,933 1,433,360 1,207,933 - Debt securities - Malaysia 1,075, ,985 79,752 79,251 - Debt securities - Others 320, , , ,318 - Collective investment schemes 355, , , ,838 4,278,003 3,497,244 2,883,263 2,327,073 Unquoted securities - Equity securities - Singapore Equity securities - Malaysia 2,200 1, Collective investment schemes 27,266 9, ,154 29,494 11, ,225 4,307,497 3,509,068 2,883,468 2,328, Financial assets at fair value through profit or loss The Company Debt securities 25,501 27, Equity securities 154, , Collective investment schemes 126, ,231 36,062 33, , ,480 36,062 33,568 Due within 12 months 305, ,480 36,062 33,568 Financial assets at fair value through profit or loss are analysed as follows: The Company Quoted securities: - Equity securities - Malaysia 154, , Unquoted securities: - Collective investment schemes 126, ,231 36,062 33,568 - Debt securities 25,501 27, , ,480 36,062 33,568 44

47 12. Financial assets, held-to-maturity Government and public authority securities 157, ,903 Debt securities in corporations 100, , , ,277 Due within 12 months 15,968 13,860 Due after 12 months 242, ,417 The fair values of the financial assets, held-to-maturity at the balance sheet date are analysed as follows: Government and public authority securities 162, ,317 Debt securities in corporations 105, , , , Derivative financial instruments (a) The Company Warrants Foreign exchange contracts (132) (3,569) (132) (3,569) Derivative financial (liabilities)/assets 103 (2,975) (132) (3,569) Presented as: Derivative financial assets Derivative financial liabilities (132) (3,569) (132) (3,569) 103 (2,975) (132) (3,569) (b) Warrants Warrants due after 12 months

48 13. Derivative financial instruments (continued) (c) Foreign exchange contracts and the Company At 31 December, the contractual amounts and the fair value of the Company s outstanding forward foreign exchange contracts are as follows: Description Contract notional amount Fair values liabilities United States Dollar 205,686 85, ,569 Balance at beginning of financial year 3,569 - Fair value losses/(gains) recognised in profit or loss (3,437) 3,569 Balance at end of financial year 132 3,569 The fair value of the forward foreign exchange contracts has been calculated using the rates quoted by the Company s bank to terminate the contracts at the balance sheet date. 14. Other assets - current The Company Accrued investment income 38,441 32,839 19,701 17,351 Club memberships Due from subsidiary - non-trade Due from intermediate holding company - non-trade Due from immediate holding company - non-trade Due from fellow subsidiary - non-trade Due from related companies - non-trade Receivable from sale of investment 1,952 1,929 1,871 1,821 Other receivables 3,173 3,751 1, ,883 38,763 22,748 19,956 Amounts due from subsidiary, fellow subsidiaries, related companies, immediate holding company and intermediate holding company are unsecured, non-interest bearing and repayable on demand. 46

49 15. Loans - current The Company Loans secured on properties Cash and non-forfeiture loans on policies within the surrender value 240, ,106 31,869 30,781 Other secured loans Unsecured loans , ,984 31,923 30, Investment properties (a) Freehold land Buildings Total Cost At 1 January 8,455 48,222 56,677 Currency translation differences (201) (809) (1,010) Transfer to property, plant and equipment (Note 18(a)) (89) (504) (593) At 31 December 8,165 46,909 55,074 Accumulated depreciation At 1 January - 10,303 10,303 Currency translation differences - (152) (152) Transfer to property, plant and equipment (Note 18(a)) - (97) (97) Depreciation charge (Note 6(e)) At 31 December - 10,870 10,870 Net book value at 31 December 8,165 36,039 44,204 Cost At 1 January 8,848 49,793 58,641 Currency translation differences (284) (1,137) (1,421) Transfer to property, plant and equipment (Note 18(a)) (7) (261) (268) Disposals (102) (173) (275) At 31 December 8,455 48,222 56,677 Accumulated depreciation At 1 January - 9,721 9,721 Currency translation differences - (188) (188) Transfer to property, plant and equipment (Note 18(a)) - (33) (33) Depreciation charge (Note 6(e)) Disposals - (16) (16) At 31 December - 10,303 10,303 Net book value at 31 December 8,455 37,919 46,374 47

50 16. Investment properties (continued) (a) (continued) The following amounts are recognised in profit or loss: Rental income 3,069 2,524 Direct operating expensed arising from: - Investment properties that generate rental income (2,102) (2,067) - Investment properties that do not generate rental income (224) (239) (b) The Company Freehold land Buildings Total Cost At 1 January and 31 December 59 14,433 14,492 Accumulated depreciation At 1 January - 4,220 4,220 Depreciation charge (Note 6(e)) At 31 December - 4,509 4,509 Net book value at 31 December 59 9,924 9,983 Cost At 1 January and 31 December 59 14,433 14,492 Accumulated depreciation At 1 January - 3,931 3,931 Depreciation charge (Note 6(e)) At 31 December - 4,220 4,220 Net book value at 31 December 59 10,213 10,272 48

51 16. Investment properties (continued) (b) The Company (continued) The following amounts are recognised in profit or loss: The Company Rental income(net) Direct operating expensed arising from: - Investment properties that generate rental income (181) (189) - Investment properties that do not generate rental income - - The fair values of the investment properties for the Group and the Company as at 31 December were approximately $154,576,000 (: $144,510,000) and $70,000,000 (: $66,000,000) respectively. Included in the fair values of the investment properties were $154,576,000 (: $144,510,000) and $70,000,000 (: $66,000,000) attributable to the Life Assurance Fund of the Group and the Company respectively. 17. Investment in a subsidiary The Company (a) Unquoted equity shares, at cost 40,952 40,952 (b) The subsidiary of the Company is as follows: Name of subsidiary Principal activities Country of incorporation and place of business Cost of investment % of paid up capital held by the Company % % Tokio Marine Life Insurance Malaysia Bhd.* Life assurance Malaysia 40,952 40, * Audited by PricewaterhouseCoopers, Malaysia. 49

52 18. Property, plant and equipment (a) Freehold land Leasehold land Buildings Motor vehicles Furniture and equipment Total Cost At 1 January 22,645 1,200 28, ,859 65,622 Currency translation differences (45) (29) (366) (12) (190) (642) Transfer from investment properties (Note 16) Additions ,757 Disposals (44) (29) (73) Write offs (144) (144) At 31 December 22,689 1,171 29, ,242 67,113 Accumulated depreciation At 1 January , ,512 15,129 Currency translation differences - (2) (128) (3) (153) (286) Depreciation charge (Note 6(e)) ,028 2,123 Disposals (18) (26) (44) Transfer from investment properties (Note 16) Write offs (82) (82) At 31 December , ,279 16,937 Net book value at 31 December 22,689 1,076 22, ,963 50,176 Cost At 1 January 22,700 1,240 28, ,026 64,920 Currency translation differences (62) (40) (496) (13) (240) (851) Transfer from investment properties (Note 16) Additions ,234 1,528 Disposals (82) (161) (243) At 31 December 22,645 1,200 28, ,859 65,622 Accumulated depreciation At 1 January , ,696 13,376 Currency translation differences - (2) (145) (1) (183) (331) Depreciation charge (Note 6(e)) ,120 2,186 Disposals (14) (121) (135) Transfer from investment properties (Note 16) At 31 December , ,512 15,129 Net book value at 31 December 22,645 1,111 22, ,347 50,493 50

53 18. Property, plant and equipment (continued) (b) The Company Freehold land Buildings Motor vehicles Furniture and equipment Total Cost At 1 January 20,766 12, ,930 38,814 Additions Disposals (15) (15) Write offs (144) (144) At 31 December 20,766 12, ,914 38,798 Accumulated depreciation At 1 January ,431 3,861 Depreciation charge (Note 6(e)) Disposals (13) (13) Write offs (82) (82) At 31 December ,787 4,542 Net book value at 31 December 20,766 12, ,127 34,256 Cost At 1 January 20,766 12, ,551 38,435 Additions Disposals (51) (51) At 31 December 20,766 12, ,930 38,814 Accumulated depreciation At 1 January ,079 3,184 Depreciation charge (Note 6(e)) Disposals (19) (19) At 31 December ,431 3,861 Net book value at 31 December 20,766 12, ,499 34,953 51

54 19. Intangible asset The Company Composition: Bancassurance rights (Note (a)) 12,061 17, Computer software licences (Note (b)) ,508 17, (a) Bancassurance rights Cost At 1 January 24,716 25,537 Currency translation difference (592) (821) Addition - - At 31 December 24,124 24,716 Accumulated amortisation At 1 January 7,415 2,553 Currency translation difference (240) (94) Amortisation charge 4,888 4,956 At 31 December 12,063 7,415 Net book value at 31 December 12,061 17,301 The Subsidiary entered into a mutually exclusive 5-year bancassurance relationship with a Malaysian bank commencing on 1 July 2010 with an option to extend for a further 5 years at the end of the first term. (b) Computer software licences The Company Cost/net book value

55 20. Other payables The Company Investment creditors Due to fellow subsidiaries - non-trade Due to related companies - non-trade 1,333 1,954 1,333 1,954 Unclaimed dividend Accrued management expenses 10,982 7,655 5,173 4,107 Rental deposits and advances 1,378 1, GST payables Other non-trade payables 10,211 7,745 6,788 4,351 25,305 19,612 14,351 11,496 Due within 12 months 25,305 19,612 14,351 11,496 Amounts due to fellow subsidiaries and related companies are unsecured, noninterest bearing and repayable on demand. 21. Deferred income taxes Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after appropriate offsetting, are shown in the balance sheet: The Company Deferred tax liabilities - Settled after 12 months 224, , , ,233 The movement in the deferred income tax account is as follows: Deferred tax liabilities The Company At 1 January 176, , , ,591 Currency translation differences (458) (641) - - Transfer from Life Assurance Fund (Note 5(a) and Note 24) 28,032 19,814 27,069 21,169 Tax charge/(credit) to Life Assurance Fund (Note 24) 19,712 (14,281) 16,246 (14,767) Tax (credit)/charge to profit or loss (Note 5(a)) (117) Tax (credit)/charge to equity (57) At 31 December 224, , , ,233 53

56 21. Deferred income taxes (continued) The movement in deferred tax liabilities (prior to offsetting of balances within the same jurisdiction) during the period is as follows: Deferred tax liabilities Accelerated tax depreciation Fair value reserve Other temporary differences Total At 1 January , , ,937 Currency translation differences - (397) (61) (458) Transfer to Life Assurance Fund (Note 24) (32) - 28,064 28,032 Tax credit to Life Assurance Fund (Note 24) - 19,712-19,712 Tax charge to profit or loss - - (117) (117) Tax charge to equity - (57) - (57) At 31 December , , ,049 At 1 January , , ,559 Currency translation differences - (533) (108) (641) Transfer to Life Assurance Fund (Note 24) 10-19,804 19,814 Tax charge to Life Assurance Fund (Note 24) - (14,281) - (14,281) Tax charge to profit or loss Tax charge to equity At 31 December , , ,937 The Company Deferred tax liabilities Accelerated tax depreciation Fair value reserve Other temporary differences Total At 1 January 146 6, , ,233 Transfer to Life Assurance Fund (Note 24) (32) - 27,101 27,069 Tax charge to Life Assurance Fund (Note 24) - 16,246-16,246 Tax charge to equity At 31 December , , ,783 At 1 January , , ,591 Transfer to Life Assurance Fund (Note 24) 10-21,159 21,169 Tax credit to Life Assurance Fund (Note 24) - (14,767) - (14,767) Tax charge to equity At 31 December 146 6, , ,233 54

57 22. Staff retirement benefits The Company At 1 January Currency translation differences (3) (5) - - Amount paid during the financial year - (106) - (106) Increase in provision for the financial year Write-back in provision for the financial year (2) (43) (2) (43) At 31 December Due after 12 months Agents retirement benefits The Company At 1 January 10,706 10,594 1,061 1,270 Currency translation differences (231) (300) - - Amount paid during the financial year (1,457) (1,058) (264) (265) Increase in provision for the financial year 1,449 1, At 31 December 10,467 10, ,061 Due within 12 months 1,241 1, Due after 12 months 9,226 9, , Life Assurance Fund (a) Unallocated surplus Policy liabilities Fair value reserve Total $'000 $'000 At 1 January 196,686 3,942, ,047 4,368,063 Currency translation differences (1,055) (44,848) (4,305) (50,208) Fair value gains on Financial assets, available-for-sale (Note 10) , ,229 Fair value changes transferred to profit or loss during the financial year (Note 6(c)) - - (41,515) (41,515) Tax on fair value changes (Note 21) - - (19,712) (19,712) Net gains recognised directly in Life Assurance Fund , ,002 Change in Life Assurance Fund 56, , ,745 Deferred tax expense (27,159) (873) - (28,032) Income tax expense (3,631) (7,798) - (11,429) Bal as at 31 Dec 221,614 4,403, ,744 5,021,141 55

58 24. Life Assurance Fund (continued) (a) (continued) Unallocated surplus Policy liabilities Fair value reserve Total $'000 $' At 1 January 184,141 3,676, ,175 4,206,208 Currency translation differences (1,157) (54,894) (5,862) (61,913) Fair value losses on Financial assets, available-for-sale (Note 10) - - (82,024) (82,024) Fair value changes transferred to profit or loss during the financial year (Note 6(c)) - - (42,523) (42,523) Tax on fair value changes (Note 21) ,281 14,281 Net losses recognised directly in Life Assurance Fund - - (110,266) (110,266) Change in Life Assurance Fund 36, , ,699 Deferred tax expense (21,140) 1,326 - (19,814) Income tax expense (1,308) (6,543) - (7,851) Bal as at 31 Dec 196,686 3,942, ,047 4,368,063 Included in the Life Assurance Fund are the unallocated surplus and fair value reserves of $246,514,000 (: $214,601,000) of the non-participating and investment-linked funds that are attributable to shareholders. (b) The Company Unallocated surplus Policy liabilities Fair value reserve Total $'000 $'000 At 1 January 164,649 2,158,988 43,883 2,367,520 Fair value gains on Financial assets, available-for-sale (Note 10) , ,964 Fair value changes transferred to profit or loss during the financial year (Note 6(c)) - - (36,561) (36,561) Tax on fair value changes (Note 21) - - (16,246) (16,246) Net losses recognised directly in Life Assurance Fund , ,157 Change in Life Assurance Fund 38, , ,623 Deferred Tax Expense (27,069) - - (27,069) Income tax expense (2,832) - - (2,832) At 31 December 173,473 2,498, ,040 2,847,399 56

59 24. Life Assurance Fund (continued) (b) The Company (continued) Unallocated surplus Policy liabilities Fair value reserve Total $'000 $'000 At 1 January 150,969 1,982, ,788 2,292,967 Fair value losses on Financial assets, available-for-sale (Note 10) - - (93,246) (93,246) Fair value changes transferred to profit or loss during the financial year (Note 6(c)) - - (37,426) (37,426) Tax on fair value changes (Note 21) ,767 14,767 Net gains recognised directly in Life Assurance Fund - - (115,905) (115,905) Change in Life Assurance Fund 36, , ,794 Deferred Tax Expense (21,169) - - (21,169) Income tax expense (1,167) - - (1,167) At 31 December 164,649 2,158,988 43,883 2,367,520 Included in the Life Assurance Fund are the unallocated surplus and fair value reserves of $191,186,000 (: $173,394,000) of the non-participating and investment-linked funds that are attributable to shareholders. 25. Share capital and the Company Issued share capital No. of ordinary stock unit Amount 000 Beginning and end of financial year 36,000 36,000 All issued ordinary stock units (with no par value) are fully paid. 57

60 26. Related party transactions (a) Other than disclosed elsewhere in the financial statements, the following significant transactions took place between the Group, the Company and related parties during the financial year on terms agreed between the parties concerned: The Company Office rent paid to a fellow subsidiary Office rent payable to a fellow subsidiary Dividend paid to an immediate holding company 4,627-4,627 - Reinsurance premium payable to a fellow subsidiary 1,200 1,194 1,200 1,194 Reinsurance claims recoverable from a fellow subsidiary Reinsurance claim payable to a subsidiary Insurance premium paid to a fellow subsidiary Insurance premium received from a fellow subsidiary Investment management fees paid to a fellow subsidiary 2,718 2,176 2,718 2,176 Expenses paid on behalf by fellow subsidiaries 1,330 1,567 1,208 1,495 Expenses paid on behalf by intermediate holding company Expenses paid on behalf by ultimate holding company Expenses paid on behalf of fellow subsidiaries Expenses paid on behalf of immediate holding company Expenses paid on behalf of intermediate holding company Expenses paid on behalf of ultimate holding company Expenses paid on behalf of a subsidiary Management fee received from a fellow subsidiary Management fee receivable from a fellow subsidiary Management fee paid to a fellow subsidiary Management fee payable to a fellow subsidiary - 1,091-1,091 Staff secondment expense paid to intermediate holding company

61 26. Related party transactions (continued) (b) Key management personnel compensation Key management personnel compensation is analysed as follows: The Company Salaries and other short-term employment benefits 712 1, ,142 Directors post-employment benefits including contributions to CPF Directors income tax Directors fees Immediate holding company and ultimate holding corporation The Company s immediate holding company is Asia General Holdings Limited, incorporated in Singapore. The ultimate holding corporation is Tokio Marine Holdings, Inc incorporated in Japan. 28. Commitments (a) Capital commitments Capital expenditure contracted for at the balance sheet date but not recognised in the financial statements is as follows: Capital commitments 769 1,344 (b) Operating lease commitments - where the Group is the lessee Commitments in relation to non-cancellable operating leases contracted for at the reporting date but not recognised as liabilities, are payable as follows: The Company Not later than one year 986 1, Later than one year but not later than five years ,256 1,457 1,113 1,203 59

62 28. Commitments (continued) (b) Operating lease commitments - where the Group is the lessee (continued) Included in the operating lease commitments is the lease of agency office. Rental expense on the lease of agency office amounting $1,574,000 (: $1,356,000) is recorded under Commission and agency expenses on the statement of comprehensive income. (c) Operating lease commitments - where the Group is the lessor The future aggregate minimum lease payments under non-cancellable operating leases contracted for at the reporting date but not recognised as receivables are as follows: The Company Not later than one year 3,854 2, Later than one year but not later than five years 1,993 1, ,847 4, , Insurance and financial risk management (A) Insurance risk The risk under any one life insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the nature of an insurance contract, this risk is random and therefore unpredictable. For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits will vary from year to year from the estimate. A more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. Each life insurance company in Singapore is also required to conduct stress testing on the financial condition on an annual basis to assess its ability to withstand adverse deviations in various assumptions. For Malaysia, a dynamic solvency testing is performed annually to monitor its solvency position. 60

63 29. Insurance and financial risk management (continued) (A) Insurance risk (continued) Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk covered. (a) Long-term insurance contracts (All insurance contracts other than Group insurance contracts) (i) Frequency and severity of claims For contracts where death is the insured risk, the most significant factors that could increase the overall frequency of claims are epidemics (such as AIDS or SARS) or wide spread changes in lifestyle, such as eating, smoking and exercise habits, resulting in earlier or more claims than expected. For contracts where survival is the insured risk, the most significant factor is continued improvement in medical science and social conditions that would increase longevity. Undue concentration by amounts could have an impact on the severity of benefit payments on a portfolio basis. For non-participating contracts where the benefits are fully guaranteed and future premiums fixed, there are no mitigating terms and conditions that reduce the insurance risk accepted. For participating contracts, the participating nature of these contracts results in a significant portion of the insurance risk being shared with the policyholders. In addition, for Singapore contracts offering Dread Disease (after 1 July 2003) and stand-alone medical benefits, the Group has the right to vary the non-guaranteed future premium rates if claim experience deteriorates in the future. For investment-linked contracts, the Group charges for mortality and morbidity risks on a monthly basis. It has the right to alter these charges based on its mortality and morbidity experience and hence minimise its exposure to these risks. Delays in implementing increases in charges and market or regulatory restraints over the extent of the increases may reduce its mitigating effect. manages these risks through its underwriting strategy and reinsurance arrangements. has developed its underwriting strategy for accepting insurance risks, including selection and approval of risks to be insured, use of limits, appropriate risk classification and premium level. 61

64 29. Insurance and financial risk management (continued) (A) (a) Insurance risk (continued) Long-term insurance contracts (All insurance contracts other than Group insurance contracts) (continued) (i) Frequency and severity of claims (continued) Broadly speaking, for Singapore and Brunei, the Group has a retention limit of up to $300,000 on any single life insured. For policies sold on or after 1 January 2010, the Group reinsures 30% of the insured benefit up to the point where the Group s retention equals $300,000 for standard risks (from a medical point of view), beyond which 100% of the insured benefit is reinsured. RGA International Reinsurance Company Ltd remains as the incumbent reinsurer in. For older policies, the Group reinsures the excess of the insured benefit over $200,000 for standard risks under a surplus reinsurance arrangement. Medically impaired lives are reinsured at lower levels. does not have in place any reinsurance for contracts that insure survival risk. For Malaysia, the Group also manages the insurance risk by ceding insurance amounts above retention of RM200,000 (approximately $87,000) per life to reinsurers through traditional reinsurance arrangements. The tables below presents the concentration of insured benefits across three bands of insured benefits per individual life assured, separately for non-linked and investment-linked business. These tables do not include annuity contracts. Singapore Benefits assured () per life assured at the end of Total benefits insured () for Non-Linked Business (Singapore) Before Reinsurance After Reinsurance (Estimated) ,487, % 9,272, % 500-1,000 1,097, % 537, % More than 1, , % 171, % Total 13,251, % 9,981, % 62

65 29. Insurance and financial risk management (continued) (A) (a) Insurance risk (continued) Long-term insurance contracts (All insurance contracts other than Group insurance contracts) (continued) (i) Frequency and severity of claims (continued) Benefits assured (in terms of Sum at Risk, ) per life assured at the end of Total benefits insured (in terms of Sum at Risk, ) for Linked Business (Singapore) Before Reinsurance After Reinsurance (Estimated) , % 59, % , % 31, % More than , % 20, % Total 115, % 111, % Malaysia Benefits assured (RM 000) per life assured at the end of Total benefits insured (RM 000) for Non-Linked Business (Malaysia) Before Reinsurance After Reinsurance (Estimated) Equivalent Equivalent RM RM ,296,876 13,698, % 29,621,349 11,830, % 500-1,000 1,086, , % 938, , % More than 1, , , % 475, , % Total 35,933,980 14,352, % 31,035,274 12,395, % Benefits assured (RM 000) per life assured at the end of Total benefits insured (RM 000) for Linked Business (Malaysia) Before Reinsurance After Reinsurance (Estimated) Equivalent Equivalent RM RM ,073, , % 876, , % , , % 296, , % More than , , % 259, , % Total 1,754, , % 1,432, , % 63

66 29. Insurance and financial risk management (continued) (A) (a) Insurance risk (continued) Long-term insurance contracts (All insurance contracts other than Group insurance contracts) (continued) (i) Frequency and severity of claims (continued) The following table for annuity insurance contracts illustrates the concentration of risk based on three bands that group these contracts in relation to the amount payable per annum as if the annuity were in payment at the year end. does not hold any reinsurance contracts against the liabilities carried for these contracts. Singapore Annuity payable () per annum per life assured at the end of , % % More than % Total 6, % Malaysia There is no annuity business in force as at 31 December. (ii) Sources of uncertainty in the estimation of future benefit payments and premium receipts Uncertainty in the estimation of future benefit payments and premium receipts for long-term insurance contracts arises from the unpredictability of long-term changes in overall levels of mortality, morbidity and the variability in contract holder behaviour. performs regular experience analyses, including mortality, morbidity, investment return, management expenses, and policy persistency. The objective is to compare the current best estimate assumptions with actual experiences, to identify any unexpected changes that would materially impact the Company s financial position. reviews and updates the assumptions (where the basis are not prescribed) used in the estimation of its insurance contract liabilities regularly to ensure its relevance and appropriateness. In addition, on a yearly basis, the Group also carries out a bonus investigation to ascertain the sustainability of current bonus scales. 64

67 29. Insurance and financial risk management (continued) (A) (b) Insurance risk (continued) Short-term life insurance contracts (Group Insurance Contracts) (i) Frequency and severity of claims These contracts are mainly issued to employers as part of their employee benefit plans. The risk of death and disability may be affected by the nature of the industry in which the employer operates, in addition to other factors stated above. manages these risks through its underwriting strategy, adequate reinsurance arrangements and proactive claims handling. The underwriting strategy attempts to ensure that the underwritten risks are well diversified in terms of type and amount of risk. Underwriting limits are in place to enforce appropriate risk selection criteria. For example, the Group has the right not to renew individual polices, it can impose deductibles and it has the right to reject the payment of a fraudulent claim. In addition, an authority table and underwriting guidelines are established to ensure that business underwriting is conducted with appropriate authorisation in accordance to level of seniority in the Company. The reinsurance arrangement includes an excess of loss as the basic reinsurance layer with a retention limit of $100,000 per life for Group Term Life, Personal Accident and Dread Disease benefits. Disability Income benefit is reinsured on a quota share arrangement. These are supplemented by surplus and catastrophe reinsurance cover. Group Insurance business in Malaysia is insignificant. (ii) Sources of uncertainty in the estimation of future claim payments There is no need to estimate mortality rates or morbidity rates for future years because these contracts have short duration. 65

68 29. Insurance and financial risk management (continued) (B) Group Risk Management Policies being a member of the Tokio Marine Group of Companies takes into consideration the risk management philosophy and business strategy of Tokio Marine when managing the risk. The Board of Directors is responsible for the overall establishment, supervision and review of all risk management processes in the Group. The Board of Directors is assisted by the Group s Risk Management Committee (the RMC ) chaired by the Chief Executive Officer and comprises senior management staff in the identification, evaluation and assessment of risks in the Group. The RMC responsibilities include the following: 1. Maintain sound, robust and effective risk management processes which are appropriate to the nature, scale and complexity of the Group s life insurance business, to safeguard the interest of Group s shareholders, as well as to protect policyholders interest. 2. Identify and formulate appropriate risk management processes for the Group. 3. Carry out risk identification and evaluation exercise from time to time or at least once a year to assess the risks faced by the Group. 4. Continuously review and evaluate the results of risk identification and evaluation exercises taking into consideration market practice, business environment, size of business operations, probability and costs. 5. Reasonably measure and quantify the various categories of risk identified and assess the impact on the Group resources. 6. Establish the necessary controls, whether strategic or operational, to manage each category of risk identified to ensure such risks are within the Group s tolerance limits and regulatory capital requirements. The Head of Departments of various departments in the Group will assist the RMC in all risk management activities and are responsible for the implementation of any controls, measures or policies put in place by RMC as part of risk management process. 66

69 29. Insurance and financial risk management (continued) (B) Group Risk Management Policies (continued) s risks are categorised into broad categories to streamline the risk management processes and are not meant to be restrictive as to the risk identification and evaluation process. The following are the 3 broad categories of risk faced by the Group: 1. Business Risks 2. Operational Risks 3. Financial Risks Business risk arising from the Group s business strategy, the environment in which the Group operates, and its ability to provide suitable products and services to customers often have a direct impact on business results should such risks occur and not be mitigated. There is also risk of loss or harm to policyholders arising from undesirable market conduct practices such as fraud committed by the Group and/or its financial adviser representatives, and/or their inability or unwillingness to comply with the requisite market and business conduct requirements. has in place measures to control and minimise the Group s exposure to business risks. Operational risks may arise from inadequate or failed internal processes and controls, poor corporate governance or from external events such as sudden disasters crippling the operations of the Group. Such risks, although difficult to quantity, have the potential to impose significant costs upon, and possibly seriously upset, the financial soundness and ongoing business of the Group. Business Continuity Risks are the risks of not being able to resume normal business operation in view of disruption which includes civil, economic, natural disasters etc. Such risks may cause the Group to be unable to continue business as a going concern due to significant financial losses or the destruction of lives and infrastructures arising from natural disasters. has in place measures to control and minimise the Group s exposure to operational risks. Financial risk pertaining to market risk is kept under close monitoring by the Investment Committee, which is elaborated in the next section. 67

70 29. Insurance and financial risk management (continued) (C) Investment Committees The Company s Investment Committee is responsible for managing the Company s investment activities and has appointed Tokio Marine Asset Management International Pte. Ltd. as the Investment Manager for the non investment-linked funds. The Subsidiary s investment activities are managed through in-house investment team headed by the Chief Investment Officer. The Investment Committees are responsible for formulation of the Company s and Subsidiary s investment strategy, principles, policies and procedures for the investment function. The Investment Committees set the credit limits and procedures to manage the market and credit risks faced by the Company and Subsidiary. The monitoring of market risks include the quantification of the Group s exposure to interest rate, currency, equity price and credit risks. is exposed to market risk arising from its investment in debt securities, equities and properties. Changes in interest rates, foreign exchange rates, and equity prices will impact the financial positions of the Group as any reaction to market changes will affect the present and future earnings of the Group for the life insurance operations and shareholders equity. The Investment Committees are responsible and have oversight over the investment teams to manage market risk actively through setting of investment policy and strategic asset allocation. The investment limits are set and monitored at various levels to ensure that all investment activities are within the guidelines set by the Investment Committees. The following is a brief description of the Group s various exposures to market risk. (a) Interest rate risk is exposed to interest rate risk through investments in debt instruments. managed the interest rate risk after taking into consideration the underwriting and investment risks. has made progress with adopting the Asset Liability Management ( ALM ) framework by producing a quarterly ALM report to monitor the duration, convexity of its fixed income portfolio and projected policy cash-flow. The Fund Managers will provide quarterly updates to the Investment Committees on the Company s and Subsidiary s exposure to interest rate as part of the fixed income review. 68

71 29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (a) Interest rate risk (continued) TABLE 29(A): The tables below illustrate the interest rate exposure of the Group s financial assets and liabilities: Non-Interest In Singapore Dollar Fixed Rate Floating Rate Bearing Total As at 31 December FINANCIAL ASSETS Financial assets, held-to-maturity 258, ,010 Financial assets, available-for-sale 2,829,385-1,478,112 4,307,497 Financial assets at fair value through profit or loss 25, , ,624 Derivative financial instruments Secured loans Unsecured loans Policy loans 31, , ,075 Reinsurer s share of claim s admitted or intimated ,413 19,413 Outstanding premium and agents balances ,244 15,244 Trade receivables - - 4,656 4,656 Other assets ,883 43,883 Cash and cash equivalents 22, , ,052 3,167,252-2,411,315 5,578,567 FINANCIAL LIABILITIES Claims admitted or intimated , ,194 Trade payables ,234 78,234 Other payables ,305 25,305 Derivative financial instruments , ,865 As at 31 December FINANCIAL ASSETS Financial assets, held-to-maturity 293, ,277 Financial assets, available-for-sale 2,303,701-1,205,367 3,509,068 Financial assets at fair value through profit or loss 27, , ,480 Derivative financial instruments Secured loans Unsecured loans Policy loans 30, , ,106 Reinsurer s share of claim s admitted or intimated ,717 12,717 Outstanding premium and agents balances ,408 12,408 Trade receivables - - 2,594 2,594 Other assets ,763 38,763 Cash and cash equivalents 19, , ,476 2,674,715-2,113,646 4,788,361 FINANCIAL LIABILITIES Claims admitted or intimated ,847 76,847 Trade payables ,309 56,309 Other payables ,612 19,612 Derivative financial instruments - - 3,569 3, , ,337 69

72 29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (a) Interest rate risk (continued) TABLE 29(A)(i): The tables below illustrate the interest rate exposure of the Company s financial assets and liabilities: In Singapore Dollar Fixed Rate Floating Rate Non-Interest Bearing Total As at 31 December FINANCIAL ASSETS Financial assets, available-for-sale 1,833,284-1,050,184 2,883,468 Financial assets at fair value through profit or loss ,062 36,062 Derivative financial instruments Unsecured loans Policy loans 31, ,869 Reinsurer s share of claims admitted or intimated ,070 19,070 Outstanding premium and agents balances - - 7,105 7,105 Trade receivables Other assets ,748 22,748 Cash and cash equivalents 22, , ,691 1,887,640-1,338,790 3,226,430 FINANCIAL LIABILITIES Claims admitted or intimated ,812 62,812 Trade payables ,727 32,727 Other payables ,351 14,351 Derivative financial instruments , ,022 As at 31 December FINANCIAL ASSETS Financial assets, available-for-sale 1,505, ,795 2,328,298 Financial assets at fair value through profit or loss ,568 33,568 Derivative financial instruments Unsecured loans Policy loans 30, ,781 Reinsurer s share of claims admitted or intimated ,279 12,279 Outstanding premium and agents balances - - 5,955 5,955 Trade receivables Other assets ,956 19,956 Cash and cash equivalents 19, , ,536 1,555,358-1,099,236 2,654,594 FINANCIAL LIABILITIES Claims admitted or intimated ,476 21,476 Trade payables ,653 23,653 Other payables ,496 11,496 Derivative financial instruments - - 3,569 3, ,194 60,194 70

73 29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (b) Foreign currency risk is exposed to foreign exchange risk primarily from transactions denominated in foreign currencies pertaining to investment activities. The Investment Committees manage foreign currency risk by setting limits and monitoring the exposure to foreign currency on a regular basis. Currency risk arising from investments in foreign currency instruments is generally hedged using foreign currency forward exchange contracts to manage these exposures, which are relatively certain in their timing and extent. TABLE 29(B): The tables below show the foreign exchange position of the Group s financial assets and liabilities by major currencies: Group In Singapore Dollar SGD RM Others Total As at 31 December FINANCIAL ASSETS Financial assets, held-to-maturity - 258, ,010 Financial assets, available-for-sale 2,346,654 1,420, ,124 4,307,497 Financial assets at fair value through profit or loss 36, ,317 74, ,624 Derivative financial instruments Secured loans Unsecured loans Policy loans 28, ,205 3, ,075 Reinsurer s share of claims admitted or intimated 10, ,625 19,413 Outstanding premium and agents balances 6,493 8, ,244 Trade receivables 184 4, ,656 Other assets 22,451 21, ,883 Cash and cash equivalents 212, ,466 12, ,052 2,663,941 2,274, ,939 5,578,567 FINANCIAL LIABILITIES Claims admitted or intimated 62,455 71, ,194 Trade payables 32,565 45, ,234 Other payables 14,282 10, , , , ,733 Net financial assets 2,554,639 2,146, ,351 5,340,834 Less: Forward foreign exchange contracts , ,686 Less: Net financial assets denominated in the respective entities functional currencies 2,551,310 2,146,716-4,698,026 Currency exposure 3, , ,122 71

74 29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (b) Foreign currency risk (continued) TABLE 29(B): The tables below show the foreign exchange position of the Group s financial assets and liabilities by major currencies: (continued) Group In Singapore Dollar SGD RM Others Total As at 31 December FINANCIAL ASSETS Financial assets, held-to-maturity - 293, ,277 Financial assets, available-for-sale 1,964,575 1,175, ,696 3,509,068 Financial assets at fair value through profit or loss 33, ,979 63, ,480 Derivative financial instruments Secured loans Unsecured loans Policy loans 27, ,325 2, ,106 Reinsurer s share of claims admitted or intimated 5, ,502 12,717 Outstanding premium and agents balances 5,457 6, ,408 Trade receivables 163 2,431-2,594 Other assets 19,942 18, ,763 Cash and cash equivalents 216, ,970 7, ,476 2,273,750 2,064, ,715 4,788,361 FINANCIAL LIABILITIES Claims admitted or intimated 20,902 55, ,847 Trade payables 23,553 32, ,309 Other payables 11,415 8, ,612 55,870 96, ,768 Net financial assets 2,217,880 1,968, ,961 4,635,593 Less: Forward foreign exchange contracts ,571 85,571 Less: Net financial assets denominated in the respective entities functional currencies 2,212,893 1,968,704-4,181,597 Currency exposure 4, , ,425 72

75 29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (b) Foreign currency risk (continued) TABLE 29(B)(i): The tables below show the foreign exchange position of the Company s financial assets and liabilities by major currencies: The Company In Singapore Dollar SGD RM Others Total As at 31 December FINANCIAL ASSETS Financial assets, available-for-sale 2,343, ,124 2,883,468 Financial assets at fair value through profit or loss 36, ,062 Unsecured loans Policy loans 28,782-3,087 31,869 Reinsurer s share of claims admitted or intimated 10,444-8,626 19,070 Outstanding premium and agents balances 6, ,105 Trade receivables Other assets 22, ,748 Cash and cash equivalents 212, , ,691 2,660, ,695 3,226,430 FINANCIAL LIABILITIES Claims admitted or intimated 62, ,812 Trade payables 32, ,727 Other payables 14, , , ,890 Less: Forward foreign exchange contracts , ,686 Less: Net financial assets denominated in the Company s functional currency 2,551, ,551,309 Currency exposure , ,545 73

76 29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (b) Foreign currency risk (continued) TABLE 29(B)(i): The tables below show the foreign exchange position of the Company s financial assets and liabilities by major currencies: (continued) The Company In Singapore Dollar SGD RM Others Total As at 31 December FINANCIAL ASSETS Financial assets, available-for-sale 1,959, ,696 2,328,298 Financial assets at fair value through profit or loss 33, ,568 Unsecured loans Policy loans 27,919-2,862 30,781 Reinsurer s share of claims admitted or intimated 5,777-6,502 12,279 Outstanding premium and agents balances 5, ,955 Trade receivables Other assets 19, ,956 Cash and cash equivalents 216, , ,536 2,268, ,782 2,654,594 FINANCIAL LIABILITIES Claims admitted or intimated 20, ,476 Trade payables 23, ,653 Other payables 11, ,496 55, ,625 Less: Forward foreign exchange contracts ,571 85,571 Less: Net financial assets denominated in the Company s functional currency 2,212, ,212,893 Currency exposure , ,505 (c) Equity price risk is exposed to equity price risk primarily through its investments in quoted equities instruments. is directly exposed to equity price risk for investments made and bears all or most of the volatility in returns and investment performance risk. Equity price risk also exists in investment-linked products which are borne directly by the policyholders. The impact to the Group is that the revenues of the insurance operations (management fees) are linked to the value of the underlying investmentlinked products. has in place a Strategic Asset Allocation (SAA) approved by the Investment Committees, which determines the target percentage of equity exposure to the total investment portfolio. s investment in equity must be within the Tactical Asset Allocation boundaries approved by the Investment Committee. In addition, the Investment Committees also set and monitor limits for exposure to various sectors of the equity market. 74

77 29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (c) Equity price risk (continued) The table below summarises the Group s exposure to the equity securities across different markets. The Company Market Singapore Exchange 41% 39% 66% 67% KLSE 31% 36% 0% 0% Others including unlisted equities 28% 25% 34% 33% Total 100% 100% 100% 100% (i) Sensitivity analysis The analysis below is performed for reasonable possible movements in key variables with all other variables constant. In practice, the estimated future change may not be accurate particularly in periods of market turmoil. Actual results may differ substantially from these estimates. invests primarily in the Singapore stock market for its Singapore operations and Malaysia equity market for its Malaysia operations. Therefore the Group has chosen STI and KLSE index as representative market indices for all the equities held at the balance sheet date. The statistical risk analytic tools used by the Group to monitor price risk exposures are the volatility of the benchmark and beta of the portfolio. In this analysis, equity and index exposures are grouped by appropriate market indices, as determined by the Group, and the net beta adjusted exposures to each market index are calculated. In addition, the Group makes adjustments or assumptions where it determines this to be necessary or appropriate. has no material foreign currency exposure since the functional currency of its subsidiary in Malaysia will be excluded from the currency exposure. The exposure in Singapore Dollar (SGD) for the subsidiary, Malaysian Ringgit (MYR) for the Company and other currencies at Group level relating to investment securities are not material. 75

78 29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (c) (i) Equity price risk (continued) Sensitivity analysis (continued) As the Group invests mainly in Singapore and Malaysia markets, a study of movement in risk-free rate for the past 3 years is undertaken for both the markets and based on the weights assigned considering the current market condition, a 18% (: 20%) movement in yield for investments in Singapore market and 10% (: 10%) movement in yield for investments in Malaysian market is considered to be reasonable basis for interest rate sensitivity analysis. Investments in debt securities held-to-maturity are excluded as these are accounted for at amortised cost and their carrying amounts are not sensitive to changes in the level of interest rates. s held-to-maturity debts are held by the subsidiary. For investment-linked funds, the risk exposure for the Group is limited only to the underwriting aspect as all investment risks are borne by the policyholders. The table below summarises the Group s sensitivity analysis Singapore Operations Impact on profit after tax Impact on equity Impact on Life Assurance Fund In Singapore Dollar Change in variables Equities +18% Change in STI Index (: +20%) , ,922-18% Change in STI Index (: -20%) - (931) (586) (902) (161,312) (149,922) Interest rate +7 bps (: +6 bps) - - (391) (332) (7,538) (5,144) -7 bps (: - 6 bps) ,632 5,168 76

79 29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (c) (i) Equity price risk (continued) Sensitivity analysis (continued) Malaysia Operations Impact on profit after tax Impact on equity Impact on Life Assurance Fund In Singapore Dollar Change in variables Equities +10% Change in KLSE Index (: +10%) 25,277 26, ,761 34,463-10% Change in KLSE Index (: -10%) (25,695) (26,705) - - (36,343) (34,463) Interest rate +20 bps (: +40 bps) (8) (25) (13) (194) (611) (1,555) -20 bps (: - 40 bps) (119) (d) Alternative investment risk is exposed to alternative investment risk through investments in direct real estate investments in Singapore and Malaysia, but the exposure is minimal. (e) Credit risk is exposed to credit risk through (i) investments in cash, money market and debt instruments (ii) lending activities (iii) exposure to counterparty s credit in group and reinsurance contracts. For all three types of exposures, financial loss may materialise as a result of default by the borrower or counterparty. For investments in cash, money market and debt instruments, financial loss may also materialise as a result of a default by the issuer on coupon payment or even the principal amount that causes a widening of credit spread or a downgrade of credit rating. has internal limits by issuer or counterparty and by investment grades. These limits are actively monitored to manage the credit and concentration risk. These limits are reviewed on a regular basis by the Investment Committees. The creditworthiness of reinsurers is assessed on an annual basis by reviewing their financial strength through published credit ratings and other publicly available financial information. 77

80 29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (e) Credit risk (continued) manages its lending activities by extending loans against collateral pledged to the Group. Regular monitoring and review of the payments of loans are performed by the Group to identify any nonperforming loan. Any non-performing loan identified is communicated to the management. Based on the suggestions from the management on the possible course of recovery and provision of these loans, appropriate action is taken. The table below shows the maximum exposure to credit risk for the components of the balance sheet. The table also provides information regarding the credit risk exposure of the Group by classifying assets according to the Group s credit ratings of counterparties. TABLE 29(C): The tables below show the credit ratings of financial assets held by the Group: Past due Neither past-due nor impaired or impaired Total Investment Grade* (AAA to A-) Investment Grade* (BBB to BB+) Non Investment Grade* (BB to C) Not Rated Not Rated In Singapore Dollar As at 31 December HTM 1 - Government and public authority securities 3, , ,414 HTM - Unquoted debentures in corporations 100, ,596 AFS 2 - Quoted government and public authority securities 458,479 12,897 9, ,741-1,056,876 AFS - Quoted debentures 1,048, , ,886-1,774,466 AFS - Equities ,792 1,095,363 1,476,155 FVTPL 3 - Unquoted debentures 23,641 1, ,501 FVTPL - Equities , ,123 Derivative financial instruments Secured loans Unsecured loans Policy loans , ,075 Resinsurer s share of claims admitted or intimated ,413-19,413 Trade receivables , ,656 Outstanding premium and agents balances ,244 15,244 Other assets ,883-43,883 Cash and cash equivalents 206,862 18, , ,052 1,841, ,531 9,759 2,409,341 1,110,970 5,578,567 1 HTM refers to financial assets, held-to-maturity 2 AFS refers to financial assets, available-for-sale 3 FVTPL refers to financial assets at fair value through profit or loss 78

81 29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (e) Credit risk (continued) TABLE 29(C): The tables below show the credit ratings of financial assets held by the Group: (continued) Investment Grade* (AAA to A-) Neither past-due nor impaired Investment Non Grade* Investment (BBB to Grade* BB+) (BB to C) Past due or impaired Not Rated Not Rated In Singapore Dollar As at 31 December HTM 4 - Government and public authority securities 30, , ,904 HTM - Unquoted debentures in corporations 135, ,373 AFS 5 - Quoted government and public authority securities 307, , ,380 AFS - Quoted debentures 950,597 79, ,099-1,617,320 AFS - Equities , ,477 1,205,368 FVTPL 6 - Unquoted debentures 25,944 1, ,882 FVTPL - Equities , ,598 Derivative financial instruments Secured loans Unsecured loans Policy loans , ,106 Resinsurer s share of claims admitted or intimated ,717-12,717 Trade receivables , ,594 Outstanding premium and agents balances ,408 12,408 Other assets ,763-38,763 Cash and cash equivalents 204,545 18, , ,476 1,654, ,083-2,156, ,052 4,788,361 Total 4 HTM refers to financial assets, held-to-maturity 5 AFS refers to financial assets, available-for-sale 6 FVTPL refers to financial assets at fair value through profit or loss 79

82 29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (e) Credit risk (continued) TABLE 29 (C)(i): The tables below show the credit ratings of financial assets held by the Company: Investment Grade* (AAA to A-) Neither past-due nor impaired Investment Non Grade* Investment (BBB to Grade* BB+) (BB to C) Past due or impaired Not Rated Not Rated The Company In Singapore Dollar As at 31 December AFS 8 - Quoted government and public authority securities 417,817 12,897 9, , ,005 AFS 8 - Quoted debentures 395, , ,930-1,119,278 AFS 8 - Equities ,050,185 1,050,185 FVTPL 9 - Equities ,062-36,062 Unsecured loans Policy loans ,869-31,869 Resinsurer s share of claims admitted or intimated ,070 19,070 Trade receivables Outstanding premium and agents balances ,105 7,105 Other assets ,748-22,748 Cash and cash equivalents 206,862 18, ,691 1,019, ,671 9, ,452 1,057,653 3,226,430 Total As at 31 December AFS 8 - Quoted government and public authority securities 252, , ,498 AFS 8 - Quoted debentures 442,746 79, ,635-1,107,005 AFS 8 - Equities , ,795 FVTPL 9 - Equities ,568 33,568 Unsecured loans Policy loans ,781-30,781 Resinsurer s share of claims admitted or intimated ,279-12,279 Trade receivables Outstanding premium and agents balances ,955 5,955 Other assets ,956-19,956 Cash and cash equivalents 204,545 18, , ,621 98, , ,917 2,654,594 8 AFS refers to financial assets, available-for-sale 9 FVTPL refers to financial assets at fair value through profit or loss 80

83 29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (e) Credit risk (continued) The financial assets, available-for-sale, which are not rated comprise mainly bonds issued by statutory authorities or companies listed on the Singapore Stock Exchange or the Kuala Lumpur Stock Exchange. The issues were not rated as the issuer did not obtain any credit rating from the respective rating agencies during the launch. Such issues although not rated are issued by companies which have sound financial and high credit worthiness. The credit worthiness is monitored by the investment manager through alert via Bloomberg on any downgrade news related to any investment in the debt portfolio. s business portfolio includes mortgage loans as well as other unsecured loans to staff or advisers. Mortgage loans are generally secured by collateral. The amount of loan is based on the valuation of collateral as well as an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of the types of collateral and the valuation parameters. The fair value of collaterals, held by the Group as lender, for which it is entitled to sell or pledge in the event of default is as follows: TABLE 29(D): The tables below show the status of loans given by the Group: Type of collaterals Carrying amount of loans Fair value of collaterals As at 31 December Loan secured by properties Properties 541 1,908 Secured loans Computers Unsecured loans ,908 As at 31 December Loan secured by properties Properties 676 3,609 Secured loans Computers Unsecured loans ,609 81

84 29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (e) Credit risk (continued) TABLE 29(D)(i): The tables below show the status of loans given by the Company: The Company Type of collaterals Carrying amount of loans As at 31 December Unsecured loans - 54 Fair value of collaterals As at 31 December Unsecured loans Financial assets of the Group (including AFS - unquoted debentures, outstanding premium and agents balances, loan secured by properties and trade receivables) are neither past due nor impaired except for $15,607,000 (: $12,574,000) which are past due but not impaired; and $722,000 (: $894,000) which are past due and impaired. Financial assets of the Company (including AFS - unquoted debentures, outstanding premium and agents balances, loan secured by properties and trade receivables) are neither past due nor impaired except for $7,468,000 (: $6,122,000) which are past due but not impaired; and $488,000 (: $654,000) which are past due and impaired. In respect of those financial assets which are past due but not impaired, there was no objective evidence that the amount due cannot be collected. The objective evidence includes significant financial difficulties of the counterparty and the probability that the counterparty will enter bankruptcy. (f) Fair value measurements The following table presents the assets and liabilities measured at fair value and classified by level of the following fair value measurement hierarchy: (a) (b) (c) Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2); and Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). 82

85 29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (f) Fair value measurements (continued) Level 1 Level 2 Level 3 Total Group As at 31 December Financial assets, available-for-sale 1,027,105 3,278,006 2,386 4,307,497 Financial assets at fair value though profit and loss 154, , ,624 Financial assets held-to-maturity - 258, ,010 Derivatives financial instruments Total assets 1,181,409 3,687,571 2,386 4,871,366 Derivative financial instruments Total liabilities Group As at 31 December Financial assets, available-for-sale 861,825 2,644,114 3,129 3,509,068 Financial assets at fair value though profit and loss 153, , ,480 Financial assets held-to-maturity - 293, ,277 Derivatives financial instruments Total assets 1,015,785 3,078,505 3,129 4,097,419 Derivative financial instruments - 3,569-3,569 Total liabilities - 3,569-3,569 Company As at 31 December Financial assets, available-for-sale 628,466 2,254, ,883,468 Financial assets at fair value though profit and loss - 36,062-36,062 Total assets 628,466 2,290, ,919,530 Derivative financial instruments Total liabilities As at 31 December Financial assets, available-for-sale 487,388 1,839,685 1,225 2,328,298 Financial assets at fair value though profit and loss - 33,568-33,568 Total assets 487,388 1,873,253 1,225 2,361,866 Derivative financial instruments - 3,569-3,569 Total liabilities - 3,569-3,569 83

86 29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (f) Fair value measurements (continued) The following table presents the changes in Level 3 instruments: The Company Balance at beginning of financial year 3,129 2,545 1, Currency translation differences (47) (54) - - Purchases Disposals (888) (295) (888) (295) Fair value gains/(losses) recognised in: - other comprehensive income (109) 933 (109) profit or loss (23) - Balance at end of financial year 2,386 3, , Capital management s capital management objective is to hold sufficient capital in order to Ensure obligations to policyholders are met with a high degree of certainty. Provide capacity to take risk and generate a reasonable return on capital for shareholders. Fulfil expectations of regulators and rating agencies about the Company s capital adequacy. currently uses capital requirements under the respective regulatory regimes it operates in as a proxy for capital adequacy assessment. Each regime prescribes a minimum amount of capital that must be held to fulfil statutory solvency requirements in each country that it operates and must be met at all times throughout the year. As part of the statutory requirements, the Company and its Malaysia subsidiary report their capital position quarterly. Internally, the Group also sets its own minimum capital position with consideration for the above objectives. 84

87 30. Capital management (continued) In Singapore, under the Risk-based Capital Framework regulated by the Monetary Authority of Singapore (MAS), the minimum capital adequacy ratio is 100%. As at 31 December, the capital adequacy ratio is 299% (: 337%), which is the ratio of available capital of $1,331 million (: $1,145 million) to the total risk requirement of $445 million (: $340 million). The current internal target is minimum capital adequacy ratio of 200%. In Malaysia, under the Risk-based Capital Framework regulated by the Bank Negara Malaysia (BNM), the minimum requirement for each insurance entity is 130%. As at 31 December, the capital adequacy ratio is 318% (: 253%), which is the ratio of available capital of $913 million (: $775 million) to the total risk requirement of $287 million (: $307 million). The current internal target is capital adequacy ratio of 185%. Liquidity Risks Liquidity risk arises when a company is unable to meet its obligations on a timely basis; especially so when the investment portfolio is largely made up of illiquid assets. Under normal circumstances, the liquidity demands of an insurance company are often determined through ongoing operations, continuous premium income, sale of disposable assets and borrowings. For insurers, the expected liquidity needs are often met through projection of outflows from the in-force insurance policy contract liabilities; the liabilities include renewal commissions, claims and other benefits (maturity and surrender). While the nature of these outflows is deemed to be largely stable and can be assumed at outset, the Group remains susceptible to exceptional experiences (surrender or catastrophic events) for its insurance portfolio. Also, companies may be subject to unexpected liquidity tightening due to adverse implications from the wider economic factors (domestic or global) or undue volatilities and unexpected losses experienced within investments. Liquidity risk is reduced by having insurance contract liabilities that are well diversified by product and policyholder. designs insurance products to encourage policyholders to maintain their policies in-force, thereby generating a diversified and stable flow of recurring premium income. adopts prudent liquidity risk management by monitoring daily operating liquidity and cash movements to ensure liquidity is available and cash is employed optimally. has cash and cash equivalents of $383 million (: $381 million) to meet its liquidity requirements. 85

88 30. Capital management (continued) Liquidity Risks (continued) The following table shows the contractual maturity profile of the Group s financial liabilities. As all the financial liabilities are current, the carrying value approximates the undiscounted cash flows. In Singapore Dollar (millions) <1 Year 1-5 years > 5 years Claims admitted or intimated Trade payables Other payables In Singapore Dollars (millions) Claims admitted or intimated Trade payables Other payables The following table shows the expected contractual maturity profile of the Group s insurance contract liabilities. All insurance contract liabilities values are approximates of the undiscounted cash flows. In Singapore Dollars (millions) <1 Year 1-5 years > 5 years Insurance contract liabilities (111) (252) (19,213) In Singapore Dollars (millions) <1 Year 1-5 years > 5 years Insurance contract liabilities 21 (432) (14,079) 86

89 30. Capital management (continued) Liquidity Risks (continued) Demands for funds can usually be met through ongoing normal operations, premiums received, sale of assets or borrowings. Unexpected demands for liquidity may be triggered by negative publicity, deterioration of the economy, reports of problems in other companies in the same or similar lines of business, unanticipated policy claims, or other unexpected cash demands from policyholders. Expected liquidity demands are managed through a combination of treasury, investment and asset-liability management practices, which are monitored on an ongoing basis. Actual and projected cash inflows and outflows are monitored and a reasonable amount of assets are kept in liquid instruments at all times. The projected cash flows from the in-force insurance policy contract liabilities consist of renewal premiums, commissions, claims, maturities and surrenders. Renewal premiums, commissions, claims and maturities are generally stable and predictable. Surrenders can be more uncertain although it has been quite stable over the past several years. Unexpected liquidity demands are managed through a combination of product design, diversification limits, investment strategies and systematic monitoring. The existence of surrender penalty in insurance contracts also protects the Group from losses due to unexpected surrender trends as well as reduces the sensitivity of surrenders to changes in interest rates. 31. Net fair values of financial assets and liabilities The financial assets and the financial liabilities of the Group and the Company comprise current assets (except tax recoverable and prepayments), loans, financial assets at fair value through profit or loss, financial assets available-forsale, financial assets held-to-maturity, derivative financial instruments, current liabilities (except current tax liabilities), bank loans, staff retirement benefits and agents retirement benefits. The fair values of these financial assets and liabilities (except held-to-maturity financial assets) at 31 December approximate their carrying amounts as shown in the balance sheet. The fair values of held-tomaturity financial assets are disclosed in Note

90 32. Dividends Ordinary dividends paid Final dividend paid in respect of the previous financial year of $0.15 per share 5,400 - At the next Annual General Meeting, a final dividend of $0.15 per ordinary stock amounting to $5,400,000 will be recommended. These financial statements do not reflect this dividend, which will be accounted for in shareholders equity as an appropriation of retained profits in the financial year ended 31 December Events occurring after balance sheet date On 17 May, the Monetary Authority of Singapore (the MAS ) issued the revised MAS Notice 319, which determines the regulatory requirements in respect of valuing policy liabilities for life insurance companies. From 1 January 2013, the period defining short, medium and long term liability risk-free discount rate used in valuing certain liabilities was extended by 5 years. On adoption of new regulations on 1 January 2013, the impact was to increase the Company s policy liabilities by approximately $4.9 million. 34. New accounting standards and interpretations The mandatory standards, amendments and interpretations to existing standards that have been published, and are relevant for the Company s accounting periods beginning on or after 1 January 2013 or later periods and which the Company has not early adopted are: Annual Improvements (effective for annual periods beginning on or after 1 January 2013). These annual improvements address six issues in the 2009 to reporting cycle. It includes changes to FRS 101 First time adoption, FRS 1 Presentation of Financial Statements, FRS 16 Property, plant and equipment, FRS 32 Financial Instruments: Presentation and FRS 34 Interim Financial Reporting. Amendment to FRS 1 Presentation of Items of Other Comprehensive Income (effective for annual period beginning on or after 1 July ). The amendment is requires items presented in other comprehensive income ( OCI ) to be separated into two groups, based on whether or not they may be recycled to profit or loss in the future. The amendments do not address which items are presented in OCI. 88

91 34. New accounting standards and interpretations (continued) The management anticipates that the adoption of the above amendments to FRS FRSs, INT FRSs amendment to FRS in the future periods will not have a material impact on the financial statements of the Company in the period of their initial adoption. 35. Authorisation of financial statements These financial statements were authorised for issue in accordance with a resolution of the Board of Directors of Tokio Marine Life Insurance Singapore Ltd. on 12 March