Generali Pilipinas Life Assurance Company, Inc. · 2018. 4. 25. · Generali Pilipinas Life Assurance Company, Inc. We have audited the accompanying financial statements of Generali

Generali Pilipinas LifeAssurance Company, Inc.

(A Wholly Owned Subsidiary of GeneraliPilipinas Holding Company, Inc.)Financial StatementsDecember 31, 2015 and 2014

and

Independent Auditors’ Report

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INDEPENDENT AUDITORS’ REPORT

The Stockholders and the Board of DirectorsGenerali Pilipinas Life Assurance Company, Inc.

We have audited the accompanying financial statements of Generali Pilipinas Life AssuranceCompany, Inc. (a wholly owned subsidiary of Generali Pilipinas Holding Company, Inc.), whichcomprise the statements of financial position as at December 31, 2015 and 2014, and the statements ofincome, statements of comprehensive income, statements of changes in equity, and statements of cashflows for the years then ended, and a summary of significant accounting policies and other explanatoryinformation.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements inaccordance with Philippine Financial Reporting Standards, and for such internal control asmanagement determines is necessary to enable the preparation of financial statements that are freefrom material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. Weconducted our audits in accordance with Philippine Standards on Auditing. Those standards requirethat we comply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial statements. The procedures selected depend on the auditor’s judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entity’spreparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectivenessof the entity’s internal control. An audit also includes evaluating the appropriateness of accountingpolicies used and the reasonableness of accounting estimates made by management, as well asevaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 14, 2015, valid until December 31, 2018SEC Accreditation No. 0012-FR-4 (Group A), November 10, 2015, valid until November 9, 2018

A member firm of Ernst & Young Global Limited

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Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position ofGenerali Pilipinas Life Assurance Company, Inc. as at December 31, 2015 and 2014, and its financialperformance and its cash flows for the years then ended in accordance with Philippine FinancialReporting Standards.

Report on the Supplementary Information Required Under Revenue Regulations 15-2010

Our audits were conducted for the purpose of forming an opinion on the basic financial statementstaken as a whole. The supplementary information required under Revenue Regulations 15-2010 inNote 29 to the financial statements is presented for purposes of filing with the Bureau of InternalRevenue and is not a required part of the basic financial statements. Such information is theresponsibility of the management of Generali Pilipinas Life Assurance Company, Inc. Theinformation has been subjected to the auditing procedures applied in our audit of the basic financialstatements. In our opinion, the information is fairly stated, in all material respects, in relation to thebasic financial statements taken as a whole.

SYCIP GORRES VELAYO & CO.

Bernalette L. RamosPartnerCPA Certificate No. 0091096SEC Accreditation No. 0926-AR-1 (Group A), April 15, 2013, valid until April 14, 2016Tax Identification No. 178-486-666BIR Accreditation No. 08-001998-81-2015, May 12, 2015, valid until May 11, 2018PTR No. 5321681, January 4, 2016, Makati City

March 18, 2016

A member firm of Ernst & Young Global Limited

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GENERALI PILIPINAS LIFE ASSURANCE COMPANY, INC.(A Wholly Owned Subsidiary of Generali Pilipinas Holding Company, Inc.)STATEMENTS OF FINANCIAL POSITION

December 312015 2014

ASSETSCash and Cash Equivalents (Notes 4, 25 and 26) P=2,586,586,939 P=3,266,354,881Insurance Receivables - net (Notes 5 and 25) 376,623,703 316,065,315Financial Assets (Notes 6 and 25)

Financial assets at fair value through profit or loss 948,204,933 285,967,236Available-for-sale financial assets 17,881,335,426 14,106,446,607Held-to-maturity investments 83,058,697 83,705,679Loans and receivables - net 276,949,937 284,322,128

Accrued Income (Notes 8 and 25) 185,377,431 150,308,943Reinsurance Assets (Notes 9 and 25) 227,789,178 250,442,339Property and Equipment - net (Note 10) 67,604,661 82,221,641Intangible Assets - net (Note 11) 34,232,148 49,360,654Pension Asset - net (Note 23) 20,483,983 41,094,317Deferred Tax Assets - net (Note 24) 5,896,263 –Other Assets (Notes 12 and 25) 25,965,986 48,650,303

P=22,720,109,285 P=18,964,940,043

LIABILITIES AND EQUITY

LiabilitiesInsurance contract liabilities (Notes 13 and 25) P=15,801,798,967 P=12,906,659,704Premium deposit fund (Note 25) 2,224,320,230 1,662,666,468Insurance payables (Notes 14 and 25) 448,922,881 394,245,697Trade and other liabilities (Notes 15 and 25) 521,997,476 495,832,753Deferred tax liability - net (Note 24) – 10,016,191

18,997,039,554 15,469,420,813

EquityCapital stock (Note 16) 1,515,050,500 1,515,050,500Contributed surplus 50,000,000 50,000,000Contingency surplus 279,038,232 279,038,232Revaluation reserve on available-for-sale financial assets (180,327,528) 674,490,116Actuarial gain on defined benefit obligation 9,130,541 23,371,115Retained earnings 2,050,177,986 953,569,267

3,723,069,731 3,495,519,230P=22,720,109,285 P=18,964,940,043

See accompanying Notes to Financial Statements.

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GENERALI PILIPINAS LIFE ASSURANCE COMPANY, INC.(A Wholly Owned Subsidiary of Generali Pilipinas Holding Company, Inc.)STATEMENTS OF INCOME

Years Ended December 312015 2014

REVENUEGross premiums on insurance contracts P=6,875,842,321 P=5,415,048,578Reinsurers’ share of gross premiums on insurance contracts (511,698,114) (426,231,931)Net insurance premiums (Notes 17 and 25) 6,364,144,207 4,988,816,647Investment income (Note 18) 832,077,448 938,324,561Fair value gains on FVPL financial assets (Note 18) – 9,742,157Foreign exchange gain - net – 13,760,773Other income (Note 18) 24,526,382 26,256,468

856,603,830 988,083,9597,220,748,037 5,976,900,606

BENEFITS, CLAIMS AND OPERATING EXPENSESGross benefits and claims incurred on insurance contracts 1,948,471,214 2,353,519,549Reinsurers’ share of benefits and claims incurred on insurance contracts (422,937,430) (399,618,477)Gross change in legal policy reserves 2,557,355,056 1,397,328,261Reinsurers’ share of gross change in legal policy reserves (6,303,664) (5,995,711)Net insurance benefits and claims (Notes 19 and 25) 4,076,585,176 3,345,233,622Commissions and other underwriting expenses (Note 20) 1,185,958,762 1,014,848,719General and administrative expenses (Note 21) 422,233,280 433,346,723Fair value losses on FVPL financial assets (Note 18) 44,558,217 –Provision for impairment losses on AFS financial

assets (Note 16) 39,939,366 –Insurance taxes and licenses 131,783,335 131,931,402Foreign exchange loss - net 10,675,480 –Interest expense (Note 22) 75,677,354 77,149,395Operating expenses 1,910,825,794 1,657,276,239

5,987,410,970 5,002,509,861

INCOME BEFORE INCOME TAX 1,233,337,067 974,390,745

PROVISION FOR INCOME TAX (Note 24) 136,728,348 122,730,807

NET INCOME P=1,096,608,719 P=851,659,938


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GENERALI PILIPINAS LIFE ASSURANCE COMPANY, INC.(A Wholly Owned Subsidiary of Generali Pilipinas Holding Company, Inc.)STATEMENTS OF COMPREHENSIVE INCOME


NET INCOME P=1,096,608,719 P=851,659,938

OTHER COMPREHENSIVE INCOME (LOSS)Items to be recycled to profit or loss

Fair value gain (loss) on available-for-sale financialassets (Notes 6 and 16) (818,354,537) 883,215,553Transferred to profit and loss (Note 16) (36,463,107) (295,595,403)

(854,817,644) 587,620,150Items not to be recycled to profit or loss

Actuarial loss on retirement plan (Note 23) (20,343,677) (582,605)Income tax effect 6,103,103 174,782

(14,240,574) (407,823)

TOTAL COMPREHENSIVE INCOME P=227,550,501 P=1,438,872,265


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GENERALI PILIPINAS LIFE ASSURANCE COMPANY, INC.(A Wholly Owned Subsidiary of Generali Pilipinas Holding Company, Inc.)STATEMENTS OF CHANGES IN EQUITY

Other Comprehensive Income

Capital Stock(Note 16)

ContributedSurplus

ContingencySurplus

Actuarial Gain onDefined Benefit

Obligation -net of tax

(Notes 2 and 23)

RevaluationReserve on

Available-for-sale Financial

Assets(Note 16)

RetainedEarnings Total

As of January 1, 2015 P=1,515,050,500 P=50,000,000 P=279,038,232 P=23,371,115 P=674,490,116 P=953,569,267 P=3,495,519,230Net income – – – – – 1,096,608,719 1,096,608,719Other comprehensive loss – – – (14,240,574) (854,817,644) – (869,058,218)

Total comprehensive income (loss) – – – (14,240,574) (854,817,644) 1,096,608,719 227,550,501As of December 31, 2015 P=1,515,050,500 P=50,000,000 P=279,038,232 P=9,130,541 (P=180,327,528) P=2,050,177,986 P=3,723,069,731

As of January 1, 2014 P=1,515,050,500 P=50,000,000 P=279,038,232 P=23,778,938 P=86,869,966 P=101,909,329 P=2,056,646,965Net income – – – – – 851,659,938 851,659,938Other comprehensive income (loss) – – – (407,823) 587,620,150 – 587,212,327Total comprehensive income (loss) – – – (407,823) 587,620,150 851,659,937 1,438,872,265As of December 31, 2014 P=1,515,050,500 P=50,000,000 P=279,038,232 P=23,371,115 P=674,490,116 P=953,569,267 P=3,495,519,230


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GENERALI PILIPINAS LIFE ASSURANCE COMPANY, INC.(A Wholly Owned Subsidiary of Generali Pilipinas Holding Company, Inc.)STATEMENTS OF CASH FLOWS


CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax P=1,233,337,067 P=974,390,745Adjustments for:

Interest expense (Note 22) 75,677,354 77,149,395Depreciation and amortization (Notes 10, 11 and 21) 56,818,831 39,911,315Provision for impairment loss on AFS financial assets

(Note 6) 39,939,366 –Provision for impairment loss on other financial assets

(Note 21) – 14,373,023Fair value loss (gain) on financial assets at fair value through profit or loss (Notes 6 and 18) 44,558,217 (9,742,157)Gain on sale of property and equipment (Notes 10 and 18) (250,000) –Dividend income (Note 18) (64,236,341) (73,231,899)Foreign exchange (gain) on financial assets (Note 6) (318,753,656) 234,684,910Interest income (Note 18) (691,438,634) (569,497,259)Gain on sale of available-for-sale financial assets (Note 18) (76,402,473) (295,595,403)

Operating loss before working capital changes 299,249,731 392,442,670Changes in operating assets and liabilities:

Decrease (increase) in:Insurance receivables (60,558,388) (8,811,880)Loans and receivables 7,372,191 126,150,557Reinsurance assets 22,653,161 (57,624,315)Pension asset - net (3,646,431) (7,140,522)Other assets 16,788,054 11,698,915

Increase (decrease) in:Insurance contract liabilities 2,895,139,263 1,758,430,617Premium deposit fund 485,976,408 (133,789,910)Insurance payables 54,677,184 54,700,338Trade and other liabilities 26,164,723 222,841,809

Net cash generated from operations 3,743,815,896 2,358,898,279Interest received 704,930,286 580,853,954Dividends received 63,616,896 72,961,492Proceeds from sale/maturity:

Financial assets at fair value through profit or loss (Note 6) 674,869,981 –Available-for-sale financial assets (Note 6) 8,770,506,111 10,778,309,212

Acquisitions of:Financial assets at fair value through profit or loss (Note 6) (1,380,077,512) (219,691,697)Available-for-sale financial assets (Note 6) (13,093,877,907) (11,947,170,636)

Income taxes paid (136,728,348) (122,730,808)Net cash provided by (used in) operating activities (652,944,597) 1,501,429,796

(Forward)

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CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sale of property and equipment (Note 10) P=250,006 P=–Acquisitions of:

Property and equipment (Note 10) (17,533,609) (51,523,536)Intangible assets (Note 11) (9,539,742) (39,825,297)

Net cash used in investing activities (26,823,345) (91,348,833)

NET INCREASE (DECREASE) IN CASH ANDCASH EQUIVALENTS (679,767,942) 1,410,080,963

CASH AND CASH EQUIVALENTS ATBEGINNING OF YEAR 3,266,354,881 1,856,273,918

CASH AND CASH EQUIVALENTS ATEND OF YEAR (Note 4) P=2,586,586,939 P=3,266,354,881


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GENERALI PILIPINAS LIFE ASSURANCE COMPANY, INC.(A Wholly Owned Subsidiary of Generali Pilipinas Holding Company, Inc.)NOTES TO FINANCIAL STATEMENTS

1. Corporate Information

Generali Pilipinas Life Assurance Company, Inc. (the Company) was incorporated in thePhilippines and registered with the Philippine Securities and Exchange Commission (SEC) onJuly 9, 1999 to carry on the business of life insurance. It received its Certificate of Authority fromthe Insurance Commission (IC) on September 8, 1999 and commenced its commercial operationson January 1, 2000.

The Company is a wholly-owned subsidiary of Generali Pilipinas Holding Company, Inc.(GPHCI), a holding company incorporated and domiciled in the Philippines. GPHCI is 60%owned subsidiary of Generali Asia N.V., a company incorporated in Netherlands. The remaining38% is owned by Banco de Oro Universal Bank (BDO), a local universal bank listed in thePhilippines while 2% is owned by BDO Capital Trust and Investment Corporation, awholly-owned subsidiary of BDO and acts as BDO’s investment banking arm.

In November 2013, Generali Asia N.V. became a wholly owned subsidiary of AssicurazioniS.p.A.after the acquisition of the minority interest from Kuok Group of Companies, a Malaysianconglomerate who previously owned 40% interest. Assicurazioni Generali S.p.A., the ultimatecompany is incorporated and registered in Italy.

The major shareholders of the company, namely, BDO Unibank, Inc. (BDO), BDO Capital &Investment Corporation and Generali Asia N.V. (Generali), entered into a Share PurchaseAgreement (SPA) on June 8, 2015. The SPA will effectively terminate the Joint VentureAgreement entered into by and among Assicurazioni GeneraliS.p.A., Jerneh Asia Berhad, BDOUnibank, Inc. and Vantage Equities, Inc. on March 26, 1999.

Under the said SPA, Generali has agreed to sell to BDO, and BDO has agreed to purchase fromGenerali, the shares owned by Generali in Generali Pilipinas Holding Company, Inc. (GPHC) inaccordance with the terms and conditions contained in the SPA. As a result thereof, BDO shallfully own GPHC, the corporation that has full ownership of Generali Pilipinas Life AssuranceCompany, Inc. (GPLAC). Further, GPHC shall sell all its shares in Generali Pilipinas InsuranceCompany, Inc. (GPIC) to Generali, likewise subject to the terms and conditions of the SPA.

The completion of these transactions contemplated in the SPA are subject to regulatory approvalsand the fulfillment of certain closing conditions; provided that BDO’s acquisition of GPHC shallclose not later than June 30, 2016, or such other later date as the Parties shall agree in writing.

The registered office address of the Company, which is also its principal place of business, isGercon Plaza Building, 7901 Makati Avenue, Makati City, Philippines.

The accompanying financial statements were approved and authorized for issue by the Company’sBoard of Directors (BOD) on March 18, 2016.

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2. Summary of Significant Accounting Policies

Basis of PreparationThe financial statements of the Company have been prepared on a historical cost basis, except foravailable-for-sale (AFS) financial assets and financial assets at fair value through profit or loss(FVPL), which have been measured at fair value. The financial statements are presented inPhilippine Peso (P=), which is the Company’s functional currency and all values are rounded to thenearest Philippine Peso unit, unless otherwise indicated.

Statement of ComplianceThe financial statements of the Company have been prepared in compliance with PhilippineFinancial Reporting Standards (PFRS).

Adoption of New and Amended Accounting Standards and InterpretationsThe accounting policies adopted in the preparation of the company’s financial statements areconsistent with those of the previous financial year except the following amended PFRSs andPhilippine Accounting Standards (PAS), which were adopted as of January 1, 2015.

· PAS 19, Employee Benefits- Defined Benefit Plans: Employee Contributions (Amendments)· Annual Improvements to PFRSs (2010 - 2012 cycle)

The Annual Improvements to PFRSs (2010-2012 cycle) contain non-urgent but necessaryamendments to the following standards:· PFRS 2, Share-based Payment - Definition of Vesting Condition· PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business

Combination· PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of

the Total of the Reportable Segments’ Assets to the Entity’s Assets· PAS 16, Property, Plant and Equipment - Revaluation Method - Proportionate

Restatement of Accumulated Depreciation· PAS 24, Related Party Disclosures - Key Management Personnel

· Annual Improvements to PFRSs (2011 - 2013 cycle)

The Annual Improvements to PFRSs (2011-2013 cycle) contain non-urgent but necessaryamendments to the following standards:· PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements· PFRS 13, Fair Value Measurement - Portfolio Exception· PAS 40, Investment Property

There are new PFRS, amendments, annual improvements and interpretations to existing standardsthat are effective for periods subsequent to 2015 and these will be adopted on their effectivitydates in accordance with the transition provisions. Except as otherwise stated, these amendmentsand improvements to PFRS and new standard are not expected to have any significant impact onthe Company’s financial statements.

Effective in 2016· PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Clarification of

Acceptable Methods of Depreciation and Amortization (Amendments)· PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture - Bearer Plants

(Amendments)· PAS 27, Separate Financial Statements -Equity Method in Separate Financial Statements

(Amendments)

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The amendments will allow entities to use the equity method to account for investments insubsidiaries, joint ventures and associates in their separate financial statements. Entitiesalready applying PFRS and electing to change to the equity method in its separate financialstatements will have to apply that change retrospectively. For first-time adopters of PFRSelecting to use the equity method in its separate financial statements, they will be required toapply this method from the date of transition to PFRS. The amendments are effective forannual periods beginning on or after January 1, 2016, with early adoption permitted. Theseamendments will not have any impact on the Company’s financial statements since theCompany is already using equity accounting. The Company is currently assessing the impactof these amendments in its separate financial statements of the Company.

· PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and JointVentures -Sale or Contribution of Assets between an Investor and its Associate or JointVenture

· PFRS 11, Joint Arrangements - Accounting for Acquisitions of Interests in Joint Operations(Amendments)

· PFRS 14, Regulatory Deferral Accounts· Annual Improvements to PFRSs (2012-2014 cycle)

The Annual Improvements to PFRSs (2012-2014 cycle) contain non-urgent but necessaryamendments to the following standards:· PFRS 5, Non-current Assets Held for Sale and Discontinued Operations - Changes in

Methods of Disposal· PFRS 7, Financial Instruments: Disclosures - Servicing Contracts· PFRS 7 - Applicability of the Amendments to PFRS 7 to Condensed Interim Financial

Statements· PAS 19, Employee Benefits - regional market issue regarding discount rate· PAS 34, Interim Financial Reporting - disclosure of information ‘elsewhere in the interim

financial report’

Effective in 2018· PFRS 9, Financial Instruments – Classification and Measurement (2010 version)· PFRS 9, Financial Instruments-Hedge Accounting and amendments to PFRS 9, PFRS 7 and

PAS 39 (2013 version)· PFRS 9, Financial Instruments (2014 or final version)

The following new standard issued by the International Accounting Standard Board (IASB) hasnot yet been adopted by Financial Reporting Standards Council (FRSC), Board of Accountancy(BOA) and Professional Regulation Commission (PRC):

· IFRS 15, Revenue from Contracts with CustomersIFRS 15 was issued in May 2014 and establishes a new five-step model that will apply torevenue arising from contracts with customers. Under IFRS 15, revenue is recognized at anamount that reflects the consideration to which an entity expects to be entitled in exchange fortransferring goods or services to a customer. The principles in IFRS 15 provide a morestructured approach to measuring and recognizing revenue. The new revenue standard isapplicable to all entities and will supersede all current revenue recognition requirements underIFRS. Either a full or modified retrospective application is required for annual periodsbeginning on or after January 1, 2018 with early adoption permitted. The Company iscurrently assessing the impact of IFRS 15 and plans to adopt the new standard on the requiredeffective date once adopted locally.

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· IFRS 16, LeasesThis standard requires lessees to account for all leases under a single on-balance sheet model(subject to certain exemptions) in a similar way to finance leases under PAS 17. Lesseesrecognize a liability to pay rentals with a corresponding asset, and recognize interest expenseand depreciation separately. The new standard includes two recognition exemptions forlessees - leases of ’low-value’ assets (e.g., personal computer) and short-term leases (i.e.,leases with a lease term of 12 months or less). Reassessment of certain key considerations(e.g., lease term, variable rents based on an index or rate, discount rate) by the lessee isrequired upon certain events. Lessor accounting is substantially the same as today’s lessoraccounting, using PAS 17’s dual classification approach. IFRS 16 is effective for annualperiods beginning on or after 1 January 2019. Earlier application is permitted for entities thatapply IFRS 15 Revenue from Contracts with Customers at or before the date of initialapplication of IFRS 16. The Company is currently assessing the impact of IFRS 16 and plansto adopt the new standard on the required effective date, once adopted locally.

Use of Estimates, Assumptions and JudgmentsThe preparation of the financial statements necessitates the use of estimates, assumptions andjudgments. These estimates and assumptions affect the reported amounts of assets and liabilitiesand contingent liabilities at the end of the reporting period as well as affecting the reported incomeand expenses for the year. Although the estimates are based on management’s best knowledgeand judgment of current facts as at the end of the reporting period, the actual outcome may differfrom these estimates, possibly significantly. For further information on critical accountingestimates and judgments, refer to Note 3.

Foreign Currency TranslationTransactions in foreign currencies are initially recorded at the functional currency rate ruling at thedate of the transaction. Monetary assets and liabilities denominated in foreign currencies areretranslated using the functional currency rate of exchange ruling at the reporting date.Nonmonetary items that are measured in terms of historical cost in a foreign currency aretranslated using the exchange rate as at the date of the initial transaction and are not subsequentlyrestated. All foreign exchange differences are taken to profit or loss, except where it relates toequity securities where gains or losses are recognized directly in OCI, the gain or loss is thenrecognized net of the exchange component in OCI.

Product ClassificationInsurance contracts are those contracts when the Company (the insurer) has accepted significantinsurance risk from another party (the policyholders) by agreeing to compensate the policyholdersif a specified uncertain future event (the insured event) adversely affects the policyholders. As ageneral guideline, the Company determines whether it has significant insurance risk, by comparingbenefits paid with benefits payable if the insured event did not occur. Insurance contracts can alsotransfer financial risk.

Once a contract has been classified as an insurance contract, it remains an insurance contract forthe remainder of its lifetime, even if the insurance risk reduces significantly during this period,unless all rights and obligations are extinguished or expire. Investment contracts can, however, bereclassified as insurance contracts after inception if insurance risk becomes significant.

Insurance contracts are further classified as being either with or without discretionary participationfeature (DPF). DPF is a contractual right to receive, as a supplement to guaranteed benefits,additional benefits that are (a) likely to be a significant portion of the total contractual benefits,(b) whose amount or timing is contractually at the discretion of the issuer, and (c) that arecontractually based on the performance of a specified pool of contracts or a specified type of

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contract, (ii) realized and/or unrealized investment returns on a specified pool of assets held by theissuer, or (iii) the profit or loss of the Company, fund or other entity that issues the contract.

Investment contracts are those contracts that transfer significant financial risk. Financial risk is therisk of a possible future change in one or more of a specified interest rate, security price,commodity price, foreign currency exchange rate, index of price or rates, a credit rating or creditindex or other variable, provided in the case of a non-financial variable that the variable is notspecific to a party to the contract.

Cash and Cash EquivalentsCash includes cash on hand and in banks. Cash equivalents are short-term, highly liquidinvestments that are readily convertible to known amounts of cash with original maturities of threemonths or less from dates of placement and that are subject to an insignificant risk of change invalue and are free of any encumbrances.

Insurance ReceivablesInsurance receivables are recognized when due and measured on initial recognition at the fairvalue of the consideration received or receivable. Subsequent to initial recognition, insurancereceivables are measured at amortized cost, using the effective interest rate method. The carryingvalue of insurance receivables is reviewed for impairment whenever events or circumstancesindicate that the carrying amount may not be recoverable, with the impairment loss recorded inprofit or loss. Insurance receivables are derecognized following the derecognition criteria offinancial assets.

Financial InstrumentsDate of recognition

Financial instruments are recognized in the statement of financial position when the Companybecomes a party to the contractual provisions of the instrument. Purchases or sales of financialassets that require delivery of assets within the time frame established by regulation or conventionin the marketplace are recognized on the trade date.

Initial recognitionFinancial instruments are recognized initially at fair value. Except for financial instruments atFVPL, the initial measurement of financial assets includes transaction costs. Financial assets areclassified as in four categories: financial asset at FVPL, loans and receivables, held-to-maturity(HTM) investments and AFS financial assets. The classification depends on the purpose forwhich the investments were acquired and whether they are quoted in an active market.Management determines the classification of its investments at initial recognition and, whereallowed and appropriate, re-evaluates such designation at every reporting date.

As of December 31, 2015 and 2014, the Company did not have financial liabilities at FVPL.

Day 1 profit or lossWhere the transaction price in a non-active market is different to the fair value from otherobservable current market transactions in the same instrument or based on a valuation techniquewhose variables include only data from observable market, the Company recognizes the differencebetween the transaction price and fair value (a ‘Day 1’ profit or loss) in profit or loss unless itqualifies for recognition as some other type of asset. In cases where use is made of data which isnot observable, the difference between the transaction price and model value is only recognized inprofit or loss when the inputs become observable or when the instrument is derecognized. Foreach transaction, the Company determines the appropriate method of recognizing the ‘Day 1’profit or loss amount.

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Financial assets or financial liabilities at FVPLThis category consists of financial assets or financial liabilities that are held-for-trading ordesignated by management as at FVPL on initial recognition. The financial assets designated as atFVPL pertains to variable unit-linked investments.

Financial assets or financial liabilities designated by management as at FVPL are designated assuch on initial recognition when any of the following criteria are met:

· The designation eliminates or significantly reduces the inconsistent treatment that wouldotherwise arise from measuring the assets or liabilities or recognizing gains or losses on themon a different basis;

· The assets or liabilities are part of a group of financial assets, financial liabilities, or both,which are managed and whose performance are evaluated on a fair value basis, in accordancewith a documented risk management strategy; or

· The financial instrument contains an embedded derivative, unless the embedded derivativedoes not significantly modify the cash flows or it is clear that it would not be separated withlittle or no analysis.

The investments in equity, government securities, and other debt securities of the internalinvestment funds set up by the Company underlying the unit-linked insurance contracts aredesignated as financial assets at FVPL in accordance with the funds’ investment strategy.

AFS financial assetsAFS financial assets are those which are designated as such or do not qualify to be classified asfinancial assets at FVPL, HTM investments or loans and receivables. They are purchased andheld indefinitely, and may be sold in response to liquidity requirements or changes in marketconditions.

After initial measurement, AFS financial assets are subsequently measured at fair value. Theeffective yield component of AFS debt securities, as well as the impact of restatement on foreigncurrency-denominated AFS debt securities, is reported in profit or loss. Interest earned on holdingAFS financial assets is reported as interest income using the effective interest method. Dividendsearned on holding AFS financial assets are recognized in profit or loss under “Investment income”account when the right to receive payment has been established. The unrealized gains and lossesarising from the fair valuation of AFS financial assets are reported as “Revaluation reserve onAFS financial assets” in OCI. The losses arising from impairment of such investments arerecognized as “Provision for impairment losses” account in profit or loss. When a security isdisposed of, the cumulative gain or loss previously recognized in OCI is reported as “Gain on saleof AFS financial assets” in profit or loss.

When the fair value of AFS financial assets cannot be measured reliably because of lack ofreliable estimates of future cash flows and discount rates necessary to calculate the fair value ofunquoted equity instruments, these investments are carried at cost, less any allowance forimpairment loss.

The Company’s AFS financial assets consist of government securities, equity securities, andprivate debt instruments as of December 31, 2015 and 2014 (see Note 6).

HTM investmentsHTM investments are quoted non-derivative financial assets with fixed or determinable paymentsand fixed maturities for which management has the positive intention and ability to hold tomaturity. These investments are initially recognized at cost, being the fair value of the

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consideration paid for the acquisition of the investment. All transaction costs directly attributableto the acquisition are also included in the cost of HTM investments. After initial measurement,these financial assets are subsequently measured at amortized cost using the effective interest rate,less impairment in value. Amortized cost is calculated by taking into account any discount orpremium on acquisition and fees that are an integral part of the effective interest rate. Theamortization is included under “Investment income” in the profit or loss. Gains and losses arerecognized in profit or loss when the HTM investments are derecognized or impaired, as well asthrough the amortization process. The losses arising from impairment of such investments, if any,are recognized in profit or loss as “Provision for impairment losses” under “General andadministrative expenses” in the profit or loss. The effects of restatement of foreign currency-denominated HTM investments are recognized in profit or loss. Where the Company sells otherthan an insignificant amount of HTM investments, the entire category would be tainted andreclassified as AFS financial assets and will be carried at fair value.

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments andfixed maturities that are not quoted in an active market. They are not entered into with theintention of immediate or short-term resale and are not classified as financial assets held-for-trading, nor designated as AFS or at FVPL.

After initial measurement, the loans and receivables are subsequently measured at amortized costusing the effective interest rate method, less allowance for impairment. Amortized cost iscalculated by taking into account any discount or premium on acquisition and fees that are anintegral part of the effective interest rate. The amortization is included under “Investment income - Interest income” in profit or loss. The losses arising from impairment of such loans andreceivables, if any, are recognized in “Provision for impairment losses” account in profit or loss.

Loans and receivables together with the associated allowance are written-off when there is norealistic prospect of future recovery and all collateral, if any, has been realized or has beentransferred to the Company. If a write-off is later recovered, the recovery is recognized in theprofit or loss.

This accounting policy relates to the statement of financial position captions: (a) Cash and cashequivalents, (b) Insurance receivables, (c) Loans and receivables, (d) Accrued income and (e)Refundable lease and other deposits included under “Other assets”.

Other financial liabilitiesIssued financial liabilities or their components, which are not designated as financial liabilities atFVPL are classified as other financial liabilities, where the substance of the contractualarrangement results in the Company having an obligation either to deliver cash or anotherfinancial asset to the holder, or to satisfy the obligation other than by the exchange of a fixedamount of cash or another financial asset for a fixed number of own equity shares. This includesinvestment contracts which mainly transfer financial risk and has no or insignificant insurancerisk.

After initial measurement, other financial liabilities are subsequently measured at amortized costusing the effective interest rate. Amortized cost is calculated by taking into account any discountor premium on the issue and fees that are an integral part of the effective interest rate. Any effectsof restatement of foreign currency-denominated liabilities are recognized in profit or loss.

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This accounting policy applies primarily to the following: (a) Premium deposit fund, (b) Insurancecontract liabilities, (c) Insurance payables and (d) Trade and other liabilities that meet the abovedefinition (other than liabilities covered by other accounting standards, such as pension liabilityand income tax payable).

Classification of Financial Instruments Between Debt and EquityA financial instrument is classified as debt if it has a contractual obligation to:· deliver cash or another financial asset to another entity, or· exchange financial assets or financial liabilities with another entity under conditions that are

potentially unfavourable to the Company.

If the Company does not have an unconditional right to avoid delivering cash or another financialasset to settle its contractual obligation, the obligation meets the definition of a financial liability.

Financial instruments are classified as liability or equity in accordance with the substance of thecontractual agreement. Interests, dividends, gains and losses relating to a financial instrument or acomponent that is a financial liability, are reported as expense or income. Distributions to holdersof financial instruments classified as equity are charged directly to equity, net of any relatedincome tax benefits.

Offsetting of Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the statement

of financial position if, and only if, there is a currently enforceable legal right to offset therecognized amounts and there is an intention to settle on a net basis, or to realize the asset andsettle the liability simultaneously. The Company assesses that it has a currently enforceable rightof offset if the right is not contingent on a future event, and is legally enforceable in the normalcourse of business, event of default, and event of insolvency or bankruptcy of the Company andall of the counterparties.

Impairment of Financial AssetsThe Company assesses at each reporting date whether a financial asset or group of financial assetsis impaired.

A financial asset or a group of financial assets is deemed to be impaired if, and only if, there isobjective evidence of impairment as a result of one or more events that has occurred after theinitial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on theestimated future cash flows of the financial asset or the group of financial assets that can bereliably estimated. Evidence of impairment may include indications that the debtors or a group ofdebtors is experiencing significant financial difficulty, default or delinquency in interest orprincipal payments, the probability that they will enter bankruptcy or other financialreorganization and where observable data indicate that there is a measurable decrease in theestimated future cash flows, such as changes in arrears or economic conditions that correlate withdefaults.

AFS financial assets carried at fair valueFor AFS financial assets, the Company assesses at each reporting date whether there is objectiveevidence that an investment or a group of investments is impaired.

In the case of equity instruments classified as AFS financial assets, objective evidence wouldinclude a ‘significant or prolonged’ decline in the fair value of the investment below its cost.‘Significant’ is to be evaluated against the original cost of the investment and ‘prolonged’ againstthe period in which the fair value has been below its original cost. Where there is evidence of

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impairment, the cumulative loss - measured as the difference between the acquisition cost and thecurrent fair value, less any impairment loss on that investment previously recognized in the profitor loss - is removed from OCI and recognized in the profit or loss. Impairment losses on equityinvestments are not reversed through the profit or loss; increases in their fair value afterimpairment are recognized directly in OCI.

In the case of debt instruments classified as AFS, impairment is assessed based on the samecriteria as financial assets carried at amortized cost. However, the amount recorded forimpairment is the cumulative loss measured as the difference between the amortized cost and thecurrent fair value, less any impairment loss on that investment previously recognized in the profitor loss.

Future interest income continues to be accrued based on the reduced carrying amount of the assetand is accrued using the rate of interest used to discount the future cash flows for the purpose ofmeasuring the impairment loss. The interest income is recorded as part of interest and otherincome. If, in a subsequent year, the fair value of a debt instrument increases and the increase canbe objectively related to an event occurring after the impairment loss was recognized in the profitor loss, the impairment loss shall be reversed, with the amount of reversal recognized in the profitor loss.

AFS financial assets carried at costIf there is objective evidence that an impairment loss has been incurred on an unquoted equityinstrument that is not carried at fair value because its fair value cannot be reliably measured, or ona derivative asset that is linked to and must be settled by delivery of such unquoted equityinstrument, the amount of the loss is measured as the difference between the asset’s carryingamount and the present value of estimated future cash flows discounted at the current market rateof return for a similar financial asset.

Loans and receivablesFor loans and receivables carried at amortized cost, the Company first assesses whether objectiveevidence of impairment exists individually for financial assets that are individually significant, orcollectively for financial assets that are not individually significant. If the Company determinesthat no objective evidence of impairment exists for an individually assessed financial asset,whether significant or not, it includes the asset in a group of financial assets with similar creditrisk characteristics and collectively assesses for impairment. Assets that are individually assessedfor impairment and for which an impairment loss is, or continues to be, recognized are notincluded in a collective assessment for impairment.

If there is objective evidence that an impairment loss on assets carried at amortized cost has beenincurred, the amount of the impairment loss is measured as the difference between the carryingamount of the asset and the present value of estimated future cash flows (excluding futureexpected credit losses that have not been incurred) discounted at the financial asset’s originaleffective interest rate. If a loan has a variable interest rate, the discount rate for measuring anyimpairment loss is the current effective interest rate. The carrying amount of the asset is reducedthrough the use of an allowance account and the amount of the loss is recognized in profit or loss.Interest income continues to be accrued on the reduced carrying amount based on the rate ofinterest used to discount the future cash flows for the purpose of measuring the impairment loss.Loans together with the associated allowance are written off when there is no realistic prospect offuture recovery and all collateral, if any, has been realized or has been transferred to the Company.If in a subsequent year, the amount of the estimated impairment loss increases or decreasesbecause of an event occurring after the impairment was recognized, the previously recognizedimpairment loss is increased or reduced by adjusting the allowance account.

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If a write-off is later recovered, the recovery is recognized in profit or loss. Any subsequentreversal of an impairment loss is recognized in profit or loss, to the extent that the carrying valueof the asset does not exceed its amortized cost at the reversal date.The present value of the estimated future cash flows is discounted at the financial asset’s originaleffective interest rate. Time value is generally not considered when the effect of discounting is notmaterial. If a loan has a variable interest rate, the discount rate for measuring any impairment lossis the current effective interest rate, adjusted for the original credit risk premium. The calculationof the present value of the estimated future cash flows of a collateralized financial asset reflectsthe cash flows that may result from foreclosure less costs for obtaining and selling the collateral,whether or not foreclosure is probable.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basisof such credit risk characteristics as type of borrower, collateral type, past-due status and term.

Derecognition of Financial Assets and LiabilitiesFinancial assetsFinancial assets (or, where applicable, a part of a financial asset or part of a group of similarfinancial assets) are derecognized when:· the right to receive cash flows from the asset have expired;· the Company retains the right to receive cash flows from the asset, but has assumed an

obligation to pay them in full without material delay to a third party under a ‘pass-through’arrangement; or

· the Company has transferred its right to receive cash flows from the asset and either (a) hastransferred substantially all the risks and rewards of the asset, or (b) has neither transferred norretained substantially all the risks and rewards of the asset, but has transferred control of theasset.

When the Company has transferred its right to receive cash flows from an asset or has entered intoa ‘pass-through’ arrangement and has neither transferred nor retained substantially all the risks andrewards of the asset nor transferred control of the asset, the asset is recognized to the extent of theCompany’s continuing involvement in the asset. Continuing involvement that takes the form of aguarantee over the transferred asset is measured at the lower of the original carrying amount of theasset and the maximum amount of the consideration that the Company could be required to repay.

Financial liabilitiesFinancial liabilities are derecognized when the obligation under the liability is discharged,cancelled, or has expired. Where an existing financial liability is replaced by another from thesame lender on substantially different terms, or the terms of an existing liability are substantiallymodified, such an exchange or modification is treated as a derecognition of the original liabilityand the recognition of a new liability, and the difference in the respective carrying amounts isrecognized in profit or loss.

Fair ValuesFair value is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. The fair valuemeasurement is based on the presumption that the transaction to sell the asset or transfer theliability takes place either:

· In the principal market for the asset or liability, or· In the absence of a principal market, in the most advantageous market for the asset or liability.

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The principal or the most advantageous market must be accessible to by the Company.

The fair value of an asset or a liability is measured using the assumptions that market participantswould use when pricing the asset or liability, assuming that market participants act in theireconomic best interest.

Financial assetsThe fair value for financial instruments traded in active markets at the end of the reporting periodis based on their quoted market price or dealer price quotations (price between the bid and askspread), without any deduction for transaction costs. When current market prices are notavailable, the price of the most recent transaction provides evidence of the current fair value aslong as there has not been a significant change in economic circumstances since the time of thetransaction. For all other financial instruments not listed in an active market, the fair value isdetermined by using appropriate valuation techniques. Valuation techniques include net presentvalue techniques, comparison to similar instruments for which market observable prices exist,option pricing models, and other relevant valuation models.

Non-financial assetsA fair value measurement of a nonfinancial asset takes into account a market participant’s abilityto generate economic benefits by using the asset in its highest and best use or by selling it toanother market participant that would use the asset in its highest and best use.

Fair value hierarchyThe Company uses the following hierarchy for determining and disclosing the fair value offinancial assets by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilitiesLevel 2: other techniques for which all inputs which have a significant effect on the recorded fair

value are observable, either directly or indirectlyLevel 3: techniques which use inputs which have a significant effect on the recorded fair value that

are not based on observable market data

For assets and liabilities that are recognized in the financial statements on a recurring basis, theCompany determines whether transfers have occurred between Levels in the hierarchy byre-assessing categorization (based on the lowest level input that is significant to the fair valuemeasurement as a whole) at the end of each reporting period.

At each reporting date, management analyses the movements in the values of assets and liabilitieswhich are required to be re-measured or re-assessed as per the Company’s accounting policies. Forthis analysis, management verifies the major inputs applied in the latest valuation by agreeing theinformation in the valuation computation to contracts and other relevant documents with relevantexternal sources to determine whether the change is reasonable.

For the purpose of fair value disclosures, the Company has determined classes of assets andliabilities on the basis of the nature, characteristics and risks of the asset or liability and the levelof the fair value hierarchy as explained above.

Policy LoansPolicy loans included under loans and receivables are carried at their unpaid balances plus accruedinterest and are fully secured by the policy values on which the loans are made.

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ReinsuranceThe Company cedes insurance risk in the normal course of business. Reinsurance assets representbalances due from reinsurance company for unpaid losses. Recoverable amounts are estimated in amanner consistent with the outstanding claims provision and are in accordance with thereinsurance contract.

An impairment review is performed at each reporting date or more frequently when an indicationof impairment arises during the reporting period. Impairment occurs when objective evidenceexists that the Company may not recover outstanding amounts under the terms of the contract andwhen the impact on the amounts that the Company will receive from the reinsurer can bemeasured reliably. The impairment loss is charged to profit or loss.

Ceded reinsurance arrangements do not relieve the Company from its obligations to policyholders.Premiums are presented on gross basis for ceded reinsurance.

Reinsurance liabilities represent balances due to reinsurance companies, which are included under“Insurance payables” in the statement of financial position. Amounts payable are estimated in amanner consistent with the associated reinsurance contract.

Reinsurance assets or liabilities are derecognized when the contractual right is extinguished, hasexpired, or when the contract is transferred to another party.

Property and EquipmentProperty and equipment are carried at cost less accumulated depreciation and amortization, andany impairment in value.

The initial cost of property and equipment comprises its purchase price, including any directlyattributable costs of bringing the asset to its working condition and location for its intended use.Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, asappropriate, only when it is probable that future economic benefits associated with the item willflow to the Company and the cost of the item can be measured reliably. All other repairs andmaintenance are charged to profit and loss in the financial period in which they are incurred.

Depreciation and amortization is computed using the straight-line method over the estimateduseful lives of the related assets follow:

YearsEDP equipment 5Office equipment 5Motor vehicles 5

Leasehold improvements are amortized over the estimated useful life of 5 years or the term of thelease, whichever is shorter.

The assets’ residual values, estimated useful lives and depreciation and amortization method arereviewed periodically to ensure that the period and method of depreciation and amortization areconsistent with the expected pattern of economic benefits from items of property and equipment.

An item of property and equipment is derecognized upon disposal or when no further futureeconomic benefits are expected from its use or disposal. Any gain or loss arising on derecognitionof the asset (calculated as the difference between the net disposal proceeds and the carrying valueof the asset) is included in profit or loss in profit or loss in the year the asset is derecognized.

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Intangible AssetsIntangible assets, consisting mainly of computer software licenses (not an integral part of itsrelated hardware), are capitalized at cost. These costs are amortized over their useful life of threeto five years. Costs associated with maintaining computer software programs are recognized asexpense when incurred.

Gains or losses arising from derecognition of an intangible asset are measured as the differencebetween the net disposal proceeds and the carrying amount of the asset and are recognized inprofit or loss when the asset is derecognized.

Other AssetsCreditable withholding taxes Creditable withholding taxes represent amounts withheld by the Company’s counterparties inrelation to the revenue earned. Subsequently, these amounts are applied against the Company’sincome tax due.

PrepaymentsPrepayments, including prepaid developmental fees, represent expenses not yet incurred butalready paid in cash. Prepayments are initially recorded as assets and measured at the amount ofcash paid. Subsequently, these are charged to profit or loss as these are consumed in operations orexpire with the passage of time depending on the terms of the related agreements, if covered by acontract

Impairment of Nonfinancial AssetsThe Company assesses at each reporting date whether there is an indication that an asset may beimpaired. If any such indication exists, or when annual impairment testing for an asset is required,the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is thehigher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value inuse. The recoverable amount is determined for an individual asset, unless the asset does notgenerate cash inflows that are largely independent of those from other assets or groups of assets.Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset isconsidered impaired and is written down to its recoverable amount. In assessing value in use, theestimated future cash flows are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time value of money and the risks specific to the asset.In determining fair value less costs to sell, recent market transactions are taken into account, ifavailable. If no such transactions can be identified, an appropriate valuation model is used. Thesecalculations are corroborated by valuation multiples, quoted share prices for publicly tradedsubsidiaries or other available fair value indicators.

An impairment loss is charged to operations in the year in which it arises, unless the asset iscarried at revalued amount, in which case the impairment loss is charged to the revaluationincrement of the said asset.

For nonfinancial assets excluding goodwill, an assessment is made at each reporting date as towhether there is any indication that previously recognized impairment losses may no longer existor may have decreased. If such indication exists, the recoverable amount is estimated. Apreviously recognized impairment loss is reversed only if there has been a change in the estimatesused to determine the asset’s recoverable amount since the last impairment loss was recognized. Ifthat is the case, the carrying amount of the asset is increased to its recoverable amount. Thatincreased amount cannot exceed the carrying amount that would have been determined, net ofdepreciation and amortization, had no impairment loss been recognized for the asset in priorperiods. Such reversal is recognized in profit or loss. After such reversal, the depreciation and

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amortization expense is adjusted in future periods to allocate the asset’s revised carrying amount,less any residual value, on a systematic basis over its remaining life.

Insurance Contract LiabilitiesLife insurance contract liabilitiesLife insurance contract liabilities are recognized when the contracts are entered into and thepremiums are recognized. The provision for life insurance contracts is calculated on the basis of aprudent prospective actuarial valuation method where the assumptions used depend on thecircumstances prevailing at the inception of the contract. Assumptions and actuarial valuationmethods are also subject to the provisions of the Insurance Code (the Code) and guidelines set bythe IC. The movement in “Legal policy reserves” at each reporting period is recognized in profitor loss under “Gross change in legal policy reserves”.

Insurance contracts with fixed and guaranteed termsThe liability is determined as the expected discounted value of the benefit payments less theexpected discounted value of the theoretical premiums that would be required to meet the benefitsbased on the valuation assumptions used. The liability is based on mortality, morbidity andinvestment income assumptions that are established at the time the contract is issued.

The Company has different assumptions for different products. However, the reserves arecomputed to comply with the statutory requirements, which require annual discount rates to be notmore than 6% and mortality rates based on a standard table of mortality approved by the IC.Reserves are computed per thousand of sum insured and depend on the plan, issue age and policyduration.

Variable unit-linked insurance contractsThe Company issues unit-linked insurance contracts. In addition to providing insurance coverage,a unit-linked contract links payments to units of an internal investment fund set up by theCompany with the consideration received from the policyholders. Premiums received from theissuance of unit-linked insurance contracts are recognized as premiums revenue. As allowed byPFRS 4, Insurance Contracts, the Company chose not to unbundle the investment portion of itsunit-linked products.

The reserve for unit-linked liability is increased by additional deposits and changes in unit pricesand is decreased by policy administration fees, mortality and surrender charges and anywithdrawals. At each reporting date, this reserve is computed on the basis of the number of unitsallocated to the policyholders multiplied by the unit price of the underlying investment funds. Theassets and liabilities underlying the internal investment funds have been consolidated with thegeneral accounts of the Company.

Liability adequacy testLiability adequacy tests are performed annually to ensure the adequacy of the insurance contractliabilities. In performing these tests, current best estimates of future contractual cash flows, claimshandling and policy administration expenses are used. Any deficiency is immediately chargedagainst profit or loss initially by establishing a provision for losses arising from the liabilityadequacy tests.

Reserve for Policyholders’ DividendsDPF is a contractual right that gives policyholders the right to receive supplementary discretionaryreturns through participation in the surplus arising from participating business. These returns aresubject to the discretion of the Company and are within the constraints of the terms and conditionsof the contract. The obligations for all supplementary returns are recognized in “Reserve for

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policyholders’ dividends” in the statement of financial position. The movement in the reserve forpolicyholders’ dividends is recognized in profit or loss under benefits and claims incurred oninsurance contracts.

Premium Deposit FundPremium deposit fund represents advance payments from policyholders provided that themaximum amount that may be held at any time in the fund should not exceed the total futurepremiums due under the insurance policy. In the case of a renewable policy, the maximumamount that may be held in the fund should not exceed the total premiums payable until its lastrenewal date. In no case shall a policyholder make any additional deposit to if the existing balancethereof is already equal or greater than the sum of all future premiums payable on his policy.Subject to the provisions of the contract, any excess premium shall be refunded to thepolicyholders only after their policies have been paid-up. These advance payments will becredited to premiums once due.

Retirement CostThe Company has a funded, noncontributory retirement plan, administered by a trustee, coveringits regular employees. Retirement cost is actuarially determined using the projected unit creditmethod. This method reflects service rendered by employees to the date of valuation andincorporates assumptions concerning employees’ projected salaries.

Defined retirement costs comprise of the following:

(a) Service costs(b) Net interest on the net defined benefit liability or asset(c) Remeasurements of net defined benefit liability or asset

Service costs which include current service cost, past service cost and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service cost is recognizedwhen plan amendment or curtailment occurs. These amounts are calculated periodically byindependent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the netdefined benefit liability or asset that arises from the passage of time which is determined byapplying the discount rate based on government bonds to the net defined benefit liability or asset.Net interest on the net defined benefit liability or asset is recognized as interest expense or interestincome in profit or loss.

Remeasurements comprising actuarial gains and losses and return on plan assets (excluding netinterest on defined benefit liability) are recognized immediately in OCI under “Actuarial gain ondefined benefit plan” in the period in which they arise. Remeasurements are not recycled to profitor loss in subsequent periods.

EquityCapital stockCapital stock is measured at par value for all shares issued. When the shares are issued for aconsideration other than cash, the proceeds are measured by the fair value of the considerationreceived. In case the shares are issued to extinguish or settle the liability of the Company, theshares shall be measured either at the fair value of the shares issued or fair value of the liabilitysettled, whichever is more reliably determinable.

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Contributed surplusThis represents the original contribution of the stockholders of the Company, in addition to thepaid-up capital stock, in order to comply with the pre-licensing requirement as provided under theCode.

Contingency surplusThis represents contributions of the stockholders to cover any deficiency in the Margin ofSolvency as required under the Code and can be withdrawn only upon the approval of IC.

Retained earningsRetained earnings represent net accumulated gains and losses of the Company less any dividendsdeclared and paid.

Other comprehensive incomeOther comprehensive income comprises of items of income and expense that are not recognized inprofit or loss for the year in accordance with PFRS. Other comprehensive income of the ParentCompany pertains to remeasurements comprising actuarial gain on defined benefit planassets. Other comprehensive income items that will be reclassified/ recycled to profit or loss inthe subsequent period are presented separately from those items that will not be reclassified/recycled subsequently.

Revenue RecognitionRevenue is recognized to the extent that it is probable that economic benefits will flow to theCompany and the revenue can be reliably measured. The following specific recognition criteriamust also be met before revenue is recognized:

Premium incomePremiums from life insurance contracts are recognized as revenue when payable by thepolicyholders. For single premium business, revenue is recognized upon the effective date of thepolicy. For regular premium contracts, receivables are recorded at the date when payments aredue.

Investment income· Interest income is recognized in profit or loss as it accrues, taking into account the effective

yield of the asset. Interest income includes the amortization of any discount or premium orother differences between the initial carrying amount of an interest-bearing instrument and itsamount at maturity calculated using the effective interest method.

· Dividend income is recognized when the shareholders’ right to receive payment is established.· Fair value gain or loss on FVPL financial assets is recognized upon remeasurement.

Other incomeOther income consists of network services and miscellaneous income. It is recognized in profit orloss as it accrues.

Benefits, Claims and Expenses RecognitionBenefits and claimsLife insurance benefits and claims include the cost of all claims arising during the year. Deathclaims and surrenders are recorded on the basis of notifications received. Maturities are recordedwhen due. Ceded reinsurance recoveries are accounted for in the same period as the underlyingclaim.

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Commission expense and other underwriting expensesCommissions are recognized when the insurance contracts are entered and the premiums arerecognized.

General and administrative expensesGeneral and administrative expenses are recognized in profit or lossas incurred.

Insurance taxes and licensesInsurance taxes and licenses are recognized in profit or loss as incurred.

Interest expenseInterest expense on accumulated policyholders’ dividends and premium deposit fund is recognizedin profit or loss as it accrues and is calculated using the effective interest method. Accrued interestis credited to the liability account at every policy anniversary date.

Leases The determination of whether an arrangement is, or contains a lease, is based on the substance of

the arrangement and requires an assessment of whether the fulfillment of the arrangement isdependent on the use of a specific asset or assets and the arrangement conveys a right to use theasset. A reassessment is made after inception of the lease only if one of the following applies:

a. There is a change in contractual term, other than a renewal or extension of the arrangement;b. A renewal option is exercised or extension granted, unless that term of the renewal or

extension was initially included in the lease term;c. There is a change in the determination of whether fulfillment is dependent on a specified asset;

ord. There is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when thechange in circumstances gave rise to the reassessment for scenarios a, c or d above, and at the dateof renewal or extension period for scenario b.

Company as a lessee Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are

classified as operating leases. Operating lease payments are recognized as expense in profit orloss on a straight-line basis over the lease term. Minimum lease payments are recognized on astraight-line basis.

Income TaxIncome tax for the year consists of current and deferred tax. Income tax is determined inaccordance with Philippine tax laws. Income tax is recognized in profit or loss, except to theextent that it relates to items recognized directly in equity or OCI. Tax on these items isrecognized in equity or OCI.

Current taxCurrent tax assets and liabilities for the current and prior periods are measured at the amountexpected to be recovered from or paid to the taxation authorities. The tax rates and tax laws usedto compute this amount are those that have been enacted or substantively enacted as of thereporting date.

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Deferred taxDeferred tax is provided, using the balance sheet liability method, on all temporary differences,with certain exceptions, at the reporting date between the tax bases of assets and liabilities andtheir carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, with certainexceptions. Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits from excess of minimum corporate income tax (MCIT) over theregular corporate income tax and unused net operating loss carryover (NOLCO), to the extent thatit is probable that sufficient taxable profit will be available against which the deductible temporarydifferences and carry forward benefits of unused tax credits from excess MCIT and NOLCO canbe utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to theextent that it is no longer probable that sufficient taxable profit will be available to allow all or partof the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at eachreporting date and are recognized to the extent that it has become probable that future taxableprofit will allow all or part of the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rate that is expected to apply to theperiod when the asset is realized or the liability is settled, based on tax rates (and tax laws) thathave been enacted or substantively enacted as of end of the reporting period. Movements in thedeferred tax assets and liabilities arising from changes in the rates are charged or credited to profitor loss for the period.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to setoff current tax assets against current tax liabilities and the deferred taxes relate to the same taxableentity and the same taxation authority.

Value-added tax (VAT)Revenue, expenses and assets are recognized net of the amount of sales tax except:· Where the tax incurred on a purchase of assets or services is not recoverable from tax

authority, in which case the tax is recognized as part of the cost of acquisition of the asset oras a part of the expense item where it is applicable, and

· Receivables and payables that are stated with the amount of tax included.

The net amount of the tax recoverable from or payable to the tax authority is included as part ofother assets or trade and other liabilities in the statement of financial position.

ProvisionsProvisions are recognized when the Company has a present obligation (legal or constructive) as aresult of a past event, and when it is probable that an outflow of resources embodying economicbenefits will be required to settle the obligation, and a reliable estimate can be made of the amountof the obligation.

ContingenciesContingent liabilities are not recognized in the financial statements. They are disclosed unless thepossibility of an outflow of resources embodying economic benefits is remote. Contingent assetsare not recognized in the financial statements but are disclosed when an inflow of economicbenefits is probable.

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Events after the Reporting DatePost year-end events that provide additional information about the Company’s financial position atend of the reporting period (adjusting event) are reflected in the financial statements. Post year-end events that are not adjusting events, if any, are disclosed when material to the financialstatements.

3. Significant Accounting Judgments and Estimates

The preparation of the financial statements in accordance with PFRS requires the Company tomake judgments and estimates that affect the reported amounts of assets, liabilities, income andexpenses and disclosure of contingent assets and contingent liabilities. Future events may occurwhich will cause the assumptions used in arriving at the estimates to change. The effects of anychange in estimates are reflected in the financial statements as they become reasonablydeterminable.

Estimates and judgments are continually evaluated and are based on historical experience andother factors, including expectations of future events that are believed to be reasonable under thecircumstances.

JudgmentsIn the process of applying the Company’s accounting policies, management has made thefollowing judgments, apart from those involving estimations, which have the most significanteffect on the amounts recognized in the Company’s financial statements:

Functional currencyThe Company determined its functional currency to be the Philippine Peso. The determination offunctional currency was based on the primary economic environment in which the Companygenerates and expends cash.

Product classificationInsurance contracts are defined as those contracts under which the Company (the insurer) acceptssignificant insurance risk from another party (the policyholders) by agreeing to compensate thepolicyholders if a specified uncertain future event (the insured event) adversely affects thepolicyholder. As a general guideline, the Company defines significant insurance risk, bycomparing benefits paid with benefits payable if the insured event did not occur. Insurancecontracts can also transfer financial risk.

Investment contracts are those contracts that transfer significant financial risk and no significantinsurance risk. Financial risk is the risk of a possible future change in one or more of a specifiedinterest rate, financial instrument price, commodity price, foreign exchange rate, index of price orrates, credit rating or credit index or other variable, provided in the case of a non-financial variablethat the variable is not specific to a party to the contract.

Once a contract has been classified as an insurance contract, it remains an insurance contract forthe remainder of its lifetime, even if the insurance risk reduces significantly during this period,unless all rights and obligations are extinguished or expire. Investment contracts can, however, bereclassified as insurance contracts after inception if the insurance risk becomes significant.

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Insurance contracts are classified with and without a Discretionary Participation Feature (DPF).DPF is a contractual right to receive, as a supplement to guaranteed benefits, additional benefitsthat are:

· likely to be a significant portion of the total contractual benefits;· whose amount or timing is contractually at the discretion of the issuer; and· that are contractually based on 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

issuer or- the profit or loss of the Company, fund or other entity that issues the contract.

For financial options and guarantees which are not closely related to the host insurance contract,bifurcation is required to measure these embedded financial derivatives separately at fair valuethrough profit or loss. Bifurcation is not required if the embedded derivative is itself an insurancecontract or when the host insurance contract itself is measured at FVPL. As such, the Companydoes not separately measure options to surrender insurance contracts for a fixed amount (or anamount based on a fixed amount and an interest rate). Likewise, the embedded derivative in unit-linked insurance contracts linking the payments on the contract to units of an internal investmentfund meets the definition of an insurance contract and is not therefore accounted for separatelyfrom the host insurance contract.

Operating leases - Company as lesseeThe Company has entered into property leases for its operations. The Company has determinedthat the lessor retains all the significant risks and rewards of ownership of these properties whichare leased out on operating leases.

The future minimum rentals payable under non-cancellable operating leases amounted toP=24,400,159 and P=30,951,025 as of December 31, 2015 and 2014, respectively. Rent expenseamounted to P=22,126,091 and P=24,911,227 in 2015 and 2014, respectively (see Note 27).

EstimatesLegal policy reserves

Legal policy reserves represent estimates of present value of benefits in excess of present value ofpremium. These estimates are based on interest rates, mortality/morbidity tables, and valuationmethod as contained in the product submissions approved by the IC.

The liability for life insurance contracts are based on assumptions established at the inception ofthe contract. At each reporting date, these estimates are reassessed for adequacy and changes willbe reflected in adjustments to the liability. The main assumptions used relate to mortality,morbidity, investment return, and discount rate.

For life insurance contracts, estimates are made as to the expected number of deaths for each ofthe years in which the Company is exposed to risk. The Company uses the standard mortalitytables as accepted by the IC as the basis of these estimates. The estimated number of deaths,illness or injury determines the value of possible future benefits to be paid out, which will befactored into ensuring sufficient cover by reserves, which in return is monitored against currentand future premiums.

In accordance with the provisions of the Code, the annual interest rate used to discount futureliabilities should not exceed 6% as required by the Code. Likewise, no lapse, surrender andexpense assumptions are factored in the computation of the liability in accordance with the Code.

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The carrying value of the legal policy reserves, shown as part of “Insurance contract liabilities”,amounted to P=14,801,185,047 and P=11,978,233,370 as of December 31, 2015 and 2014,respectively (see Note 13). The reserve for unit-linked liability is increased by additional depositsand changes in unit prices and is decreased by policy administration fees, mortality and surrendercharges and any withdrawals. At each reporting date, this reserve is computed on the basis of thenumber of units allocated to the policyholders multiplied by the unit price of the underlyinginvestment funds. The assets and liabilities underlying the internal investment funds have beenconsolidated with the general accounts of the Company.

Fair values of financial assetsThe Company carries certain financial assets at fair value, which requires extensive use ofaccounting estimates. Fair value determinations for financial assets and liabilities are basedgenerally on listed or quoted market prices. If prices are not readily determinable or if liquidatingthe positions is reasonably expected to affect market prices, fair value is based on either internalvaluation models or management’s estimate of amounts that could be realized under currentmarket conditions, assuming an orderly liquidation over a reasonable period of time. Whilesignificant components of fair value measurement were determined using verifiable objectiveevidence (i.e., foreign exchange rates, interest rates, volatility rates), the amount of changes in fairvalue of these financial assets and liabilities would affect profit and loss and equity.

The carrying value of FVPL financial assets carried at fair value amounted to P=948,204,933 andP=285,967,236 as of December 31, 2015 and 2014, respectively (see Note 6).

The carrying value of AFS financial assets carried at fair value amounted to P=17,881,335,426 andP=14,106,446,607 as of December 31, 2015 and 2014, respectively (see Note 6).

Impairment of financial assetsThe Company treats AFS equity investments as impaired when there has been a significant orprolonged decline in the fair value below its cost or where other objective evidence of impairmentexists. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. TheCompany treats ‘significant’ generally as 20% or more and ‘prolonged’ greater than 12 months.In addition, the Company evaluates other factors, including normal volatility in share price forquoted equities and the future cash flows and the discount factors for unquoted equities.

Impairment may be appropriate also when there is evidence of deterioration in the financial healthof the investee, the industry and sector performance, changes in technology and operational andfinancing cash flows.

As of December 31, 2015 and 2014, the fair value of AFS financial assets amounted toP=17,881,335,426 and P=14,106,446,607, respectively (see Note 6). The Company had booked animpairment on five equity securities amounting to P=39,939,366 in 2015 due to significant decreasein market value of stocks and have been consistently over 30% below acquisition costs. Noprovision for impairment loss was recognized in 2014 related to AFS financial assets.

The Company reviews its loans and receivables at each reporting date to assess whether anallowance for impairment should be recognized. In particular, judgment by management isrequired in the estimation of the amount and timing of future cash flows when determining thelevel of allowance required. Such estimates are based on assumptions on several factors andactual results may differ from these estimates, resulting in future changes to the allowance.

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The level of this allowance is evaluated by management on the basis of factors that affect thecollectability of the accounts. These factors include, but are not limited to the age of balances,financial status of counterparties, payment behavior and known market factors. The Companyreviews the age and status of receivables, and identifies accounts that are to be provided withallowance on a regular basis.

In addition to specific allowance against individually significant loans and receivables, theCompany also makes a collective impairment allowance against exposures which, although notspecifically identified as requiring a specific allowance, have a greater risk of default than whenoriginally granted. This collective allowance is based on any deterioration in the internal rating ofthe loan or investment since it was granted or acquired. These internal ratings take intoconsideration factors such as any deterioration in country risk, industry, and technologicalobsolescence, as well as identified structural weaknesses or deterioration in cash flows.The amount and timing of recorded expenses for any period would differ if the Company madedifferent judgments or utilized different estimates. An increase in allowance for impairment losseswould increase recorded expenses and decrease net income.

Provision for impairment losses on its loans and receivables and other current assets amounting toP=14,373,023 were recognized in 2014.

Insurance receivables amounted to P=376,623,703 and P=316,065,315 as of December 31, 2015 and2014, respectively (see Note 5).

Loans and receivables, net of allowance for impairment losses, amounted to P=276,949,935 andP=284,322,128 as of December 31, 2015 and 2014, respectively. Allowance for impairment losseson loans and receivables amounted to P=157,377,456 and P=157,377,456 as of December 31, 2015and 2014, respectively. There was no write-off of impairment losses on loans and receivables in2015. Additional provision for impairment in loans and receivable recognized in 2014 amountedto P=13,012,064.

Estimated useful lives of property and equipment and intangible assetsThe Company reviews annually the estimated useful lives of property and equipment andintangible assets based on the period over which the assets are expected to be available for use. Itis possible that future results of operations could be materially affected by changes in theseestimates. A reduction in the estimated useful lives of property and equipment and intangibleassets would increase recorded depreciation and amortization expense and decrease the relatedasset accounts.

As of December 31, 2015 and 2014, the carrying value of property and equipment amounted toP=67,604,661 and P=82,221,641, respectively (see Note 10). As of December 31, 2015 and 2014,the carrying value of intangible assets amounted to P=34,232,148 and P=49,360,654, respectively(see Note 11).

Impairment of nonfinancial assetsThe Company assesses impairment on assets whenever events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable. The factors that theCompany considers important which could trigger an impairment review include the following:

· significant underperformance relative to expected historical or projected future operatingresults;

· significant changes in the manner of use of the acquired assets or the strategy for overallbusiness; and

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· significant negative industry or economic trends.

The Company recognizes an impairment loss whenever the carrying amount of an asset exceeds itsrecoverable amount. Recoverable amount is estimated for individual assets or, if it is not possible,for the cash-generating unit to which the asset belongs.

As of December 31, 2015 and 2014, the carrying value of property and equipment amounted toP=67,604,661 and P=82,221,641, respectively (see Note 10). As of December 31, 2015 and 2014,the carrying value of intangible assets amounted to P=34,232,148 and P=49,360,654, respectively(see Note 11). There was no provision for impairment losses in property and equipment andintangible assets recognized in 2015 and 2014.

Retirement benefitsThe cost of defined benefit pension plans and the present value of the pension obligation aredetermined using actuarial valuations. The actuarial valuation involves making variousassumptions. These include the determination of the discount rates, future salary increases,mortality rates and future pension increases. Due to the complexity of the valuation, theunderlying assumptions and its long-term nature, defined benefit obligations are highly sensitiveto changes in these assumptions. All assumptions are reviewed at each reporting date. The netpension asset as of December 31, 2015 and 2014 amounted to P=20,483,983 and P=41,094,317,respectively (see Note 23).

In determining the appropriate discount rate, management considers the interest rates ofgovernment bonds that are denominated in the currency in which the benefits will be paid, withextrapolated maturities corresponding to the expected duration of the defined benefit obligation.

The mortality rate is based on publicly available mortality tables for the specific country and ismodified accordingly with estimates of mortality improvements. Future salary increases andpension increases are based on expected future inflation rates for the specific country.

Further details about the assumptions used are provided in Note 23.

Recognition of deferred income tax assetsDeferred income tax assets are recognized for all deductible temporary differences to the extentthat it is probable that taxable profit will be available against which these can be utilized.Significant management judgment is required to determine the amount of deferred income taxassets that can be recognized. These assets are periodically reviewed for realization. Periodicreviews cover the nature and amount of deferred income and expense items, expected timing whenassets will be used or liabilities will be required to be reported, reliability of historical profitabilityof businesses expected to provide future earnings and tax planning strategies which can be utilizedto increase the likelihood that tax assets will be realized. Please see Note 24 for the relatedbalances.

ContingenciesThe Company is currently involved in various legal proceedings. The estimate of the probablecosts for the resolution of these claims has been developed in consultation with the legal counselsand based upon an analysis of potential results. The Company currently does not believe theseproceedings will have a material adverse effect on the Company’s financial position. It ispossible, however, that the results of operations could be affected by changes in these estimates.

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4. Cash and Cash Equivalents

This account consists of:

2015 2014Cash on hand P=629,706 P=564,489Cash in banks (Notes 7, 25 and 26) 173,415,744 83,437,061Cash equivalents (Notes 7, 25 and 26) 2,412,541,489 3,182,353,331

P=2,586,586,939 P=3,266,354,881

Cash in banks earns interest at the prevailing bank deposit rates. Cash equivalents are made forvarying periods of up to three months or less depending on the immediate cash requirements of theCompany, and earned interest at the prevailing short-term placement rates that ranged from 1.00%to 2.50% in 2015 and 2014.

Interest income from cash and cash equivalents amounted to P=25,711,101 and P=32,125,695 in2015 and 2014, respectively (see Note 18).

5. Insurance Receivables – net


2015 2014Premiums due and uncollected P=188,600,607 P=163,088,906Reinsurance recoverable on paid losses (Note 26) 147,716,203 112,493,498Due from reinsurers (Note 26) 40,306,893 40,482,911

P=376,623,703 P=316,065,315

Premiums due and uncollected pertain to premiums receivable from policyholders that are duewithin the grace period. Premiums receivable beyond the grace period are classified as “Due frompolicyholders” under “Loans and Receivables” (see Note 6).

Reinsurance recoverable on paid losses pertains to amounts recoverable from the reinsurers inrespect of claims already paid by the Company.

Due from reinsurers pertains to the reinsurer’s share in commission expenses, dividends, taxes andother expenses related to the issuance and claims of policies.

The following tables show the aging analysis of insurance receivables:

December 31, 2015

< 30 days 30 – 120 days 120 – 180 days > 180 days TotalPremiums due and uncollected P=136,196,841 P=52,403,766 P=– P=– P=188,600,607Reinsurance recoverable on paid

losses 147,716,203 – – – 147,716,203Due from reinsurers 40,306,893 – – – 40,306,893

P=324,219,937 P=52,403,766 P=– P=– P=376,623,703

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December 31, 2014

< 30 days 30 – 120 days 120 – 180 days > 180 days TotalPremiums due and uncollected P=110,451,949 P=52,636,957 P=– P=– P=163,088,906Reinsurance recoverable on paid

losses 104,838,726 7,654,772 – – 112,493,498Due from reinsurers 39,777,801 705,110 – – 40,482,911

P=255,068,476 P=60,996,839 P=– P=– P=316,065,315

6. Financial Assets

The Company’s financial assets are summarized by measurement categories as follows:

2015 2014FVPL financial assets (Note 26) P=948,204,933 P=285,967,236AFS financial assets (Note 26) 17,881,335,426 14,106,446,607HTM investments 83,058,697 83,705,679Loans and receivables – net (Note 26) 276,949,937 284,322,128

P=19,189,548,993 P=14,760,441,650

The assets included in each of the investments above are detailed below:

2015FVPL

financialassets

AFSfinancial assets

HTMinvestments Total

At fair value: Government debt securities Local currency P=55,056,288 P=5,409,488,527 P=– P=5,464,544,815 Foreign currency 65,313,985 5,778,435,529 – 5,843,749,514 Listed equity securities Common shares 803,873,812 3,474,250,317 – 4,278,124,129 Preferred shares – 154,500 – 154,500 Private debt securities 3,954,626 2,888,285,678 – 2,892,240,304

Unit Investment Trust Fund 20,006,222 330,720,875 – 350,727,097948,204,933 17,881,335,426 – 18,829,540,359

At amortized cost: Government debt securities Local currency – – 83,058,697 83,058,697

P=948,204,933 P=17,881,335,426 P=83,058,697 P=18,912,599,056

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2014FVPL

financialassets

AFSfinancial assets

HTMinvestments Total

At fair value: Government debt securities Local currency P=29,361,500 P=4,889,669,540 P=– P=4,919,031,040 Foreign currency 21,512,288 3,675,840,589 – 3,697,352,877 Listed equity securities Common shares 233,146,531 2,960,458,989 – 3,193,605,520 Preferred shares – 154,500 – 154,500 Private debt securities 1,946,917 2,580,322,989 – 2,582,269,906

285,967,236 14,106,446,607 – 14,392,413,843At amortized cost: Government debt securities Local currency – – 83,705,679 83,705,679

P=285,967,236 P=14,106,446,607 P=83,705,679 P=14,476,119,522

On January 10, 2013, the Company obtained the approval from the IC to issue variable unit-linkedproducts, where the payments to policyholders are linked to internal investments set up by theCompany. The company’s FVPL financial assets pertain to the investments in the unit-linkedfunds consolidated in the Company’s books (see Note 7).

FVPL financial assetsChanges in the market values are recorded as fair value gains (losses) on financial assets at FVPLunder investment income in profit or loss. Fair value loss in 2015 amounted to P=44,558,217 andfair value gain in 2014 amounted to P=9,742,157 (see Note 18).

Interest income pertaining to financial assets at FVPL has interest rates ranging from 1.625% to9.125% in 2015 and 4.0% to 8.0% in 2014.

AFS financial assetsChanges in the market values of AFS financial assets recorded under OCI as fair value loss onAFS financial assets amounted to P=818,354,537 in 2015 and fair value gains on AFS financialassets amounted to P=883,215,553 in 2014. The Company had booked impairment on five equitysecurities amounting to P=39,939,366 in 2015 due to significant decrease in market value of stocksand has been consistently over 30% below acquisition costs.

Interest income pertaining to AFS financial assets have interest rates ranging from 2.75% to12.13% and from 2.13% to 12.13% in 2015 and 2014, respectively. Interest income from AFSfinancial assets, including amortization of discounts and premiums, amounted to P=642,976,782and P=513,800,622 in 2015 and 2014, respectively (see Note 18).

HTM investmentsHTM investments consist of government securities with maturities of more than five years anddeposited with the Philippine Bureau of Treasury in accordance with the provisions of the Code assecurity for the benefit of its policyholders and creditors.

Interest income pertaining to HTM investments have interest rates ranging from 6.13% to 9.13%for 2015 and in 2014. Interest income from HTM investments, including amortization of discountand premium, amounted to P=5,326,736 and P=5,343,750 in 2015 and 2014, respectively (see Note18).

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The carrying values of the investments have been determined as follows:

FVPLFinancial Assets

AFSFinancial Assets

HTMInvestments Total

At January 1, 2014 P=50,487,593 P=12,314,862,172 P=84,296,216 P=12,449,645,981Additions 219,691,697 11,947,170,636 – 12,166,862,333Disposals/maturities – (10,778,309,212) – (10,778,309,212)Amortization of premium – (19,761,842) (590,537) (20,352,379)Fair value gain (Notes 16) 9,742,157 883,215,553 – 892,957,710Foreign exchange loss 6,045,790 (240,730,700) – (234,684,910)At December 31, 2014 285,967,236 14,106,446,607 83,705,679 14,476,119,522Additions 1,380,077,512 13,093,877,907 – 14,473,955,419Disposals/maturities (674,869,981) (8,770,506,111) – (9,445,376,092)Amortization of premium – (47,293,713) (646,982) (47,940,695)Fair value loss (Notes 16) (44,558,217) (818,354,537) – (862,912,754)Foreign exchange gain 1,588,383 317,165,273 – 318,753,656At December 31, 2015 P=948,204,933 P=17,881,335,426 P=83,058,697 P=18,912,599,056

Loans and receivablesThis account consists of:

2015 2014Due from policyholders P=189,340,031 P=222,246,834Policy loans 173,719,579 146,857,327Due from agents 35,891,880 35,891,880Due from network providers 25,028,483 22,718,477Due from employees 10,347,420 13,980,309Due from related parties (Note 26) – 4,757

434,327,393 441,699,584Less: allowance for impairment losses 157,377,456 157,377,456

P=276,949,937 P=284,322,128

Due from policyholders pertain to past due receivables from group life insurance premiums andreceivables arising from the amount paid by the Company in excess of the policyholders’maximum medical benefit. These are non-interest-bearing and are due and demandable.

Policy loans pertain to loans issued to policyholders. The loan is issued with the cash surrendervalue of the policyholder’s insurance policy as collateral. Interest rates on Peso and Dollar policyloans are pegged at 10% and 8%, for both 2015 and 2014. Interest earned from policy loansamounted to P=14,816,922 and P=15,163,561 in 2015 and 2014, respectively (see Note 18).

Due from agents pertain to terminated agents’ receivables which are all past due and fullyprovided with allowance for doubtful accounts.

Due from network providers represent the funds held by the network providers intended formedical claims payment of policyholders covered by group policies. These are non-interest–bearing and are due and demandable.

Due from employees include unpaid loans and other receivables due from resigned employees thatare non-interest bearing and employee loans which earn interest at 9% per annum that are due tobe settled through salary deduction. Interest earned amounted to P=658,525 and P=644,767 in 2015and 2014, respectively (see Note 18).

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Due from related parties represent the receivable of the Company from the expenses paid inadvance such as travel expenses which are due to be settled within one year.

7. Unit-Linked Funds

Variable unit-linked (VUL) life insurance contracts are life insurance policies wherein a portion ofthe premiums received are invested in VUL funds which are composed mainly of investments inequity and debt securities. The withdrawal or surrender amount of a VUL policy can be computedby multiplying the total units held by the policyholder by the fund’s Net Asset Value (NAV) perunit, which changes daily depending on the fund’s performance.

In 2013, the Company obtained the approval from IC to issue variable unit-linked products, wherepayments to policyholders are linked to internal investment funds set up by the Company. Thedetails of the investment funds, which comprise the assets backing the unit linked liabilities arepresented in the table below. The assets and liabilities of these investment funds have beenconsolidated to the appropriate accounts in the financial statements. The Company’s VUL fundsare managed by Banco de Oro – Trust and Investment Group.

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The tables below show the details of the Company’s nine VUL funds in 2015 and six in 2014:

December 31, 2015

USDConservative

USDStandby

PesoModerate

PesoConservative

PesoAggressive

PesoStandby

PesoDragon Equity

PesoEquity Index

USDBest of US

Sectors Fund TotalAssetsCash and cash equivalents P=37,973,171 P=4,795,987 P=151,603,680 P=41,641,907 P=110,156,751 P=5,060,537 P=– P=– P=– P=351,232,033Financial assets at FVPL 31,613,473 – 189,858,029 54,105,359 599,474,360 – 19,656,404 19,796,796 33,700,513 948,204,933Accrued income 521,794 6,042 251,527 587,639 332,430 13,381 – 5,319 33,036 1,751,168

P=70,108,438 P=4,802,029 P=341,713,236 P=96,334,905 P=709,963,541 P=5,073,918 P=19,656,404 P=19,802,114 P=33,733,549 P=1,301,188,134

Liabilities and EquityTrade and other liabilities P=301,545 P=11,958 P=1,562,045 P=390,823 P=3,652,584 P=12,674 P=9,762,934 P=9,901,145 P=– P=25,595,707Net assets attributable

to unitholders 69,806,893 4,790,071 340,151,192 95,944,082 706,310,957 5,061,243 9,893,470 9,900,969 33,733,549 1,275,592,427P=70,108,438 P=4,802,029 P=341,713,237 P=96,334,905 P=709,963,541 P=5,073,917 P=19,656,404 P=19,802,114 P=33,733,549 P=1,301,188,134

December 31, 2014

USDConservative

USDStandby

PesoModerate

PesoConservative

PesoAggressive

PesoStandby Total

AssetsCash and cash equivalents P=13,602,816 P=4,535,712 P=36,985,096 P=15,798,941 P=27,749,053 P=5,011,911 P=103,683,529Financial assets at FVPL 21,512,288 – 95,499,905 31,308,418 137,646,626 – 285,967,236Accrued income 365,226 4,183 53,993 464,648 62,215 40,193 990,458

P=35,480,330 P=4,539,895 P=132,538,994 P=47,572,007 P=165,457,894 P=5,052,104 P=390,641,224

Liabilities and EquityTrade and other liabilities P=191,481 P=11,793 P=604,928 P=193,627 P=729,178 P=13,160 P=1,744,167Net assets attributable

to unitholders 35,288,849 4,528,102 131,934,066 47,378,380 164,728,715 5,038,945 388,897,057P=35,480,330 P=4,539,895 P=132,538,994 P=47,572,007 P=165,457,893 P=5,052,105 P=390,641,224

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The distribution of net assets attributable to unit holders follows:

December 31, 2015

2015 PercentagePolicyholders’ share in net assets (Note 13) P=1,207,532,198 95%Seed capital 68,060,229 5%Net assets attributable to unitholders P=1,275,592,427 100%

December 31, 2014

2014 PercentagePolicyholders’ share in net assets (Note 13) P=335,243,738 86%Seed capital 53,653,319 14%Net assets attributable to unit holders P=388,897,057 100%

USD Conservative FundThe Fund aims for capital preservation and income generation from higher yielding short tomedium-term bond investments and other similar fixed income securities with a portfolioweighted average life of more than one (1) year.

USD Standby FundThe Fund aims for capital preservation, income generation and liquidity from low-risk investmentswith a portfolio weighted average life of not more than one (1) year.

Peso Moderate FundThe Fund aims to achieve capital appreciation over the medium term by investing primarily inequities and to some fixed income securities.

Peso Conservative FundThe Fund aims for a high level of income with preservation of principal and maintenance ofliquidity by investing in a combination of short-term and long-term fixed-income securities.

Peso Aggressive FundThe Fund aims to provide a professionally managed portfolio seeking primarily capital growthover the medium to long-term by investing in a selection of exchange-listed equities.

Peso Standby FundThe Fund aims for capital preservation, income generation and liquidity from low-risk investmentswith a portfolio weighted average life of not more than one (1) year.

Peso Dragon Equity FundThe Fund aims to provide professionally managed portfolio seeking primarily capital growth overthe medium to long-term by investing in stocks of companies owned and/or controlled byprominent Chinese-Filipino businessmen, listed in Philippine Stock Exchange.

Peso Equity Index FundThe Fund aims to provide a professionally managed portfolio seeking primarily capital growthover the medium to long-term by investing in stocks of companies comprising the PhilippineStock Exchange Index (PSEi).

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USD Best of U.S. Sectors FundThe Fund is structured to provide capital preservation and optimized potential upside returnsthrough the “Best of US Sectors” exposure by overweighting the best performers andunderweighting the least performer. The Fund also aims to limit the maximum decline to 10% ofthe invested capital, provided that the Fund is held until its maturity date.

8. Accrued Income


2015 2014Interest receivable on:

AFS financial assets P=178,521,986 P=144,712,158Cash and cash equivalents 3,030,466 2,905,395Financial assets at FVPL (Note 7) 1,470,552 941,555HTM investments 1,047,361 1,060,972Policy loans 37,044 38,286

184,107,409 149,658,366Dividends receivable on:

AFS financial assets 989,406 601,674Financial assets at FVPL (Note 7) 280,616 48,903

P=185,377,431 P=150,308,943

9. Reinsurance Assets


2015 2014Reinsurance recoverable on unpaid losses

(Notes 13 and 26) P=132,928,070 P=161,884,895Reinsurers’ share on legal policy reserves

(Notes 13 and 26) 94,861,108 88,557,444P=227,789,178 P=250,442,339

10. Property and Equipment – net

The roll forward analysis of this account follows:

December 31, 2015Leasehold

ImprovementsEDP

EquipmentOffice

EquipmentMotor

Vehicles TotalCostAt January 1 P=65,405,636 P=158,874,707 P=13,573,266 P=1,642,281 P=239,495,890Additions 8,606,647 7,886,506 1,040,456 – 17,533,609Disposals – – – (1,642,281) (1,642,281)At December 31 74,012,283 166,761,213 14,613,722 – 255,387,218

(Forward)

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LeaseholdImprovements

EDPEquipment

OfficeEquipment

MotorVehicles Total

Accumulated Depreciation andAmortization

At January 1 P=40,540,112 P=103,395,076 P=11,696,786 P=1,642,275 P=157,274,249Depreciation and amortization (Note 21) 13,581,119 17,755,611 813,853 – 32,150,583Disposals – – – (1,642,275) (1,642,275))At December 31 54,121,231 121,150,687 12,510,639 – 187,782,557Net Book Value P=19,891,052 P=45,610,526 P=2,103,083 P=– P=67,604,661

December 31, 2014

LeaseholdImprovements

EDPEquipment

OfficeEquipment

MotorVehicles Total

CostAt January 1 P=32,988,109 P=140,884,622 P=12,457,342 P=1,642,281 P=187,972,354Additions 32,417,527 17,990,085 1,115,924 – 51,523,536At December 31 65,405,636 158,874,707 13,573,266 1,642,281 239,495,890Accumulated Depreciation and AmortizationAt January 1 32,542,267 88,181,020 11,134,559 1,341,190 133,199,036Depreciation and amortization (Note 21) 7,997,845 15,214,056 562,227 301,085 24,075,213At December 31 40,540,112 103,395,076 11,696,786 1,642,275 157,274,249Net Book Value P=24,865,524 P=55,479,631 P=1,876,480 P=6 P=82,221,641

Cost of fully depreciated property and equipment still being used amounted to P=119,725,455 andP=120,024,814 as of December 31, 2015 and 2014, respectively.

In 2015, the Company sold a motor vehicle for P=250,006 with carrying value of P=6. Gain on saleof the motor vehicle amounting to P=250,000 was recognized in profit or loss under “Otherincome”.

11. Intangible Assets

The roll forward analysis of this account follows:

2015 2014CostAt January 1 P=192,103,615 P=152,278,318Additions 9,539,742 39,825,297At December 31 201,643,357 192,103,615Accumulated amortizationAt January 1 142,742,961 126,906,859Amortization (Note 21) 24,668,248 15,836,102At December 31 167,411,209 142,742,961Net book value P=34,232,148 P=49,360,654

Intangible assets consist of the Company’s computer software which pertains mostly to the cost ofthe policy administration systems. Cost of fully amortized computer software still being usedamounted to P=129,909,236 and P=120,059,703 as of December 31, 2015 and 2014, respectively.

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12. Other Assets


2015 2014Creditable withholding taxes P=16,268,462 P=36,843,854Prepaid expenses 13,076,132 14,002,053Refundable lease and other deposits 8,962,903 10,145,907Security fund 130,209 130,209

38,437,706 61,122,023Less allowance for impairment loss (Note 21) 12,471,720 12,471,720

P=25,965,986 P=48,650,303

Creditable withholding taxes are attributable to taxes withheld by third parties arising fromissuance of insurance policies.

Prepaid expenses include prepayments on rent, supplies, uniform, installation of softwareprograms and renovation of the office premises.

Refundable lease and other deposits include deposits in relation to surety and cash bonds and leasecontracts entered into by the Company.

Security fund is maintained in compliance with Sections 365 and 367 of the Code. The amount ofthe security fund is determined by and deposited with the IC to pay benefit claims, which mightremain unpaid, against insolvent insurance companies.

Allowance for impairment loss provided pertains to creditable withholding taxes of the Companythat have not been utilized as of reporting date.

13. Insurance Contract Liabilities


2015 2014Legal policy reserves P=14,801,185,047 P=11,978,233,370Policy and contract claims payable 745,523,455 694,094,733Policyholders’ dividends 193,591,132 157,145,745Reserves for policyholders’ dividends 61,499,333 77,185,856

P=15,801,798,967 P=12,906,659,704

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Insurance contract liabilities may be analyzed as follows:

2015 2014

Type

InsuranceContract

Liabilities

Reinsurers’Share of

Liabilities(Note 9) Net

InsuranceContract

Liabilities



Aggregate reserves forordinary life policies P=13,328,270,674 P=– P=13,328,270,674 P=11,397,997,414 P=– P=11,397,997,414

Aggregate reserves forVUL contracts (Note 7) 1,207,532,198 – 1,207,532,198 335,243,738 – 335,243,738

Aggregate reserves forgroup life insurancepolicies 145,321,934 18,200,427 127,121,507 118,847,563 15,298,271 103,549,292

Aggregate reserves foraccident and healthpolicies 120,060,241 76,660,681 43,399,560 126,144,655 73,259,173 52,885,482

14,801,185,047 94,861,108 14,706,323,939 11,978,233,370 88,557,444 11,889,675,926Policy and contract claims 745,523,455 132,928,070 612,595,385 694,094,733 161,884,895 532,209,838Policyholders’ dividends 193,591,132 – 193,591,132 157,145,745 – 157,145,745Reserves for policyholders’

dividends 61,499,333 – 61,499,333 77,185,856 – 77,185,856P=15,801,798,967 P=227,789,178 P=15,574,009,789 P=12,906,659,704 P=250,442,339 P=12,656,217,365

The movements during the year in legal policy reserves are as follows:

2015 2014

Type

InsuranceContract

Liabilities



InsuranceContract

Liabilities



At January 1 P=11,978,233,370 (P=88,557,444 P=11,889,675,926 P=10,545,112,335 P=82,561,733 P=10,462,550,602Premiums received 4,383,622,317 511,698,113 3,871,924,204 3,497,351,078 426,231,931 3,071,119,147Liability released for

payments of death,maturity and surrenderbenefits and claims (2,374,186,057) (505,394,449) (1,868,791,608) (2,649,112,203) (420,236,220) (2,228,875,983)

Accretion of investmentincome or change in unitprices 547,918,796 – 547,918,796 550,936,132 – 550,936,132

Foreign exchangeadjustments 265,596,621 – 265,596,621 33,946,028 – 33,946,028

At December 31 P=14,801,185,047 P=94,861,108 P=14,706,323,939 P=11,978,233,370 P=88,557,444 P=11,889,675,926

The movements during the year in policy and contract claims payable follow:

2015 2014At January 1 P=694,094,733 P=426,570,531Arising during the year (Note 19) 1,912,407,856 2,271,167,545Payments during the year (1,860,979,134) (2,003,643,343)At December 31 P=745,523,455 P=694,094,733

The movements during the year in policyholders’ dividends follow:

2015 2014At January 1 P=157,145,744 P=112,179,948Arising during the year 51,749,881 82,352,005Payments during the year (15,304,493) (37,386,208)At December 31 193,591,132 157,145,745

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The movements during the year in reserves for policyholders’ dividends follow:

2015 2014At January 1 P=77,185,856 P=64,366,273Additions – 12,819,583Transfer to policyholders’ dividend (Note 19) (15,686,523) –At December 31 P=61,499,333 P=77,185,856

Key assumptionsMaterial judgment is required in determining the liabilities and in the choice of assumptionsrelating to insurance contracts. Assumptions in use are based on past experience, current internaldata and conditions and external market indices and benchmarks, which reflect current observablemarket prices and other published information. For policy reserves, such assumptions aredetermined as appropriate at inception of the contract and no credit is taken for possible beneficialeffects of voluntary withdrawals. Assumptions are further evaluated on a continuous basis inorder to ensure adequacy of valuations. Assumptions are subject to the provisions of the Code andguidelines set by the IC.

For insurance contracts, the Company determines the assumptions in relation to future deaths,illness or injury and investment returns at inception of the contract. Subsequently, new estimatesare developed at each reporting date and statutory liabilities are tested to determine whether suchliabilities are adequate in light of the latest estimates. The initial assumptions are not altered if theliabilities are considered adequate. Since assumptions and valuation methods used in estimatingpolicy reserves is locked unless a change in valuation method is approved by the IC, the effect ofchanges in the variables on insurance liabilities and related assets is not symmetrical.

Improvements in estimates have no impact on the value of the liabilities, while significant enoughdeteriorations in estimates may have an impact if the liabilities proved to be inadequate based onthe liability adequacy test.

Liability adequacy testTo test the adequacy of the statutory reserve liability, the present value of the future benefits andexpenses in excess of the present value of future gross premiums based on realistic assumptions isderived and compared to the statutory reserve liability. The key assumptions to which theestimation and adequacy testing of liabilities are particularly sensitive are as follows:

· Mortality ratesAssumptions are based on standard industry and morbidity tables, according to the type ofcontract written and adjusted, if appropriate, to reflect the Company’s own experiences.

The 2001 CSO Table was chosen as an appropriate base table of recognized standardmortality. A factor of 50% was used to reflect the Company’s historical experience. For lifeinsurance policies, increased mortality and morbidity rates would lead to a larger number ofclaims and claims occurring sooner than anticipated, increasing the expenditure and reducingprofits for the shareholders.

· Discount ratesThe discount rate affects the calculated present value of the cash flows. The estimate is basedon current market returns as well as expectations about future economic and financialdevelopments. A decrease in the discount rate will increase the present value of the cashflows. The discount rate used in the LAT is 4.5% for Peso and 3.5% for Dollar.

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In addition to the key assumptions above, other assumptions used are the following:

· Expense AssumptionsThe expense assumptions are based on the company’s actual current expense experience asdetermined by an expense study. Future expense assumptions were projected based on thecompany’s expense forecasts.

· Lapse and Surrender ratesThe lapse and surrender rates assumed varies by product type and policy duration. Theseassumptions are based on the company’s experience studies, with first year lapse ratesaveraging at about 20%.

SensitivitiesThe analysis below is performed for reasonably possible movements in key assumptions with allother assumptions held constant. The correlation of assumptions will have a significant effect indetermining the ultimate claims liabilities, but to demonstrate the impact due to changes inassumptions, assumption changes had to be done on an individual basis.

2015

Change inAssumptions

Discounted Projected Cash Flowsof Benefits and Expenses

Less Premiums

Excess ofBooked Liabilities OverDiscounted Cash Flow

Base assumption 13,735,087,740 1,066,097,307Mortality +25% 13,862,824,191 938,360,856

-25% 13,602,451,340 1,198,733,707Discount rate d+1% 11,625,065,365 3,176,119,682

d-1% 14,628,536,981 172,648,066

2014

Change inAssumptions

Discounted Projected Cash Flowsof Benefits and Expenses

Less Premiums

Excess ofBooked Liabilities OverDiscounted Cash Flow

Base assumption 11,143,229,666 835,003,705Mortality +25% 11,253,078,622 725,154,748

-25% 11,027,474,794 950,758,576Discount rate d+1% 9,292,968,174 2,685,265,196

d-1% 11,708,032,006 270,201,364

Based on the table above, the booked liabilities are adequate on the base assumption and on almostall sensitivities. Note that the effect on profit will be reflected only if the booked liabilities areinadequate using the base scenario.

The method used for deriving the information above did not change from the previous period. Thepersistency assumptions were updated to reflect the Company’s experience.

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14. Insurance Payables


2015 2014Premiums due to reinsurers (Note 26) P=186,555,343 P=171,776,620Funds held for reinsurers (Note 26) 262,367,538 222,469,077

P=448,922,881 P=394,245,697

The movements in insurance payables follow:

Premiums Dueto Reinsurers

Funds Heldfor Reinsurers Total

At January 1, 2014 P=155,207,302 P=184,338,057 P=339,545,359Arising during the year (Note 17) 426,231,931 58,327,190 484,559,121Payments during the year (409,662,613) (20,196,170) (429,858,783)At December 31, 2014 P=171,776,620 222,469,077 394,245,697Arising during the year (Note 17) 511,698,114 39,898,461 551,596,575Payments during the year (496,919,391) – (496,919,391)At December 31, 2015 P=186,555,343 P=262,367,538 P=448,922,881

15. Trade and Other Liabilities


2015 2014Life insurance deposits P=223,502,965 P=171,673,607Accounts payable 117,706,988 72,128,687Accrued expenses 76,196,042 98,246,775Commissions and service fees payable (Note 26) 26,056,266 20,620,182Accrued vacation leave 22,256,398 19,249,372Due to stockbrokers 19,649,244 69,321,053Investment fees payable (Note 26) 13,057,741 10,896,626Taxes payable 12,938,845 15,205,653Other liabilities 10,632,987 18,490,798

P=521,997,476 P=495,832,753

Life insurance deposits pertain to advance premium collections from policyholders which will berecognized as premium income when due and collections pertaining to policies not yet approvedwhich will be recognized as income upon approval.

Accounts payable pertain to the liability of the Company for the excess of allowable medicalbenefits paid by the network providers for policyholders covered by the Group policies. It alsoincludes policyholders’ deposits for refund and outstanding checks payable to suppliers.

Accrued expenses comprise of but not limited to bonuses, utilities and training expenses accruedas of the reporting date which are due within one year.

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Commissions and service fees payable pertain to sales force commission which are non-interestbearing and payable every month.

Accrued vacation leave pertains to accrual of unused vacation leaves which are convertible to cashafter one year.

Due to stock brokers are fees payable to brokers in relation to the purchase of equity securities andother investments of the Company. These are non-interest bearing and normally settled within oneyear.

Investment fees payable pertain to amount payable to BDO for expenses incurred in relation to itsinvestment management. These are non-interest bearing and normally settled within one year.

Taxes payable include taxes withheld from staffs and agents, premium taxes and stamp dutiespayable every due dates the following month.

Other liabilities pertain to the funds held by the Company from group insurance policies foradministering employee claims. It also pertains to the Company’s SSS, Medicare, and Pag-ibigpayables.

16. Equity

Capital stockThis account consists of:

2015 2014Preferred shares - P=100 par value

Authorized - 14,000,000 shares Issued and outstanding - 12,650,503 shares P=1,265,050,300 P=1,265,050,300Common shares - P=100 par value Authorized - 10,000,000 shares Issued and outstanding - 2,500,002 shares 250,000,200 250,000,200

P=1,515,050,500 P=1,515,050,500

Preferred sharesPreferred stockholders have preference over common stockholders with respect to the distributionof assets including dividends in arrears upon dissolution before distribution to common shares.

Preferred stockholders are entitled to dividends at the rate specified for each share. Moreover, onevoting right is vested on each preference share provided in the Articles of Incorporation.

Revaluation reserve on AFS financial assetsThe roll forward analysis of this account follows:

2015 2014At January 1 P=674,490,116 P=86,869,966Fair value gains (losses) (Note 6) (818,354,537) 883,215,553Transferred to profit and loss

Impairment loss on AFS financial assets (Note 6) 39,939,366 –Gain on sale financial assets (Note 18) (76,402,473) (295,595,403)

At December 31 (P=180,327,528) P=674,490,116

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The revaluation reserve for AFS financial assets records the difference between the amortized costand fair value of debt securities and acquisition cost and fair value of equity securities.

17. Net Insurance Premiums


2015 2014Gross premiums on insurance contracts:

Ordinary life insurance P=4,111,570,591 P=3,788,721,214Unit-linked 1,397,193,735 432,227,272Group life insurance 732,694,826 557,787,671Accident & Health 634,383,169 636,312,421

6,875,842,321 5,415,048,578Reinsurers’ share of gross premiums on insurance

contracts (Note 14)Ordinary life insurance 10,798,210 6,194,627Accident and health 375,580,357 330,686,353Group life insurance 125,319,547 89,187,750

Unit-linked – 163,201511,698,114 426,231,931

Net Premiums on Insurance Contracts P=6,364,144,207 P=4,988,816,647

18. Investment Income - net

Investment income account consists of:

2015 2014Interest income on:

AFS financial assets (Note 6) P=642,976,782 P=513,800,622Cash and cash equivalents (Note 4) 25,711,101 32,125,695Policy loans (Note 6) 14,816,922 15,163,561HTM investments (Note 6) 5,326,736 5,343,750Plan assets (Note 23) 1,948,568 2,418,864Due from employees (Note 6) 658,525 644,767

691,438,634 569,497,259Gain on sale of AFS financial assets (Note 16) 76,402,473 295,595,403Dividend income on:

AFS financial assets 64,236,341 73,231,899P=832,077,448 P=938,324,561

Fair value gains (losses) on FVPL financial assets (44,558,217) 9,742,157

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Other income account consists of:

2015 2014Income arising from:

Network fees P=19,217,484 P=17,480,358Reinstatement fees 2,004,779 2,350,174Reversal of long outstanding payables 797,564 –Reversal of deposits 530,262 5,369,464Gain on sale of property and equipment 250,000 –Miscellaneous 1,726,293 1,056,472

P=24,526,382 P=26,256,468

19. Net Insurance Benefits and Claims

Gross insurance benefits and claims incurred during the year consist of:

2015 2014Death and hospitalization benefits P=717,090,443 P=706,812,697Surrenders 314,578,491 358,706,724Maturities 880,738,922 1,205,648,123Policyholders’ dividends 36,063,358 82,352,005

P=1,948,471,214 P=2,353,519,549

Gross insurance contracts benefits and claims incurred are further analyzed into types of insurancecontracts as follows:

2015 2014Ordinary life insurance P=1,271,519,204 P=1,666,279,811Accident and health 431,706,380 467,448,937Group life insurance 245,245,630 219,790,801

P=1,948,471,214 P=2,353,519,549

Reinsurers’ share of gross benefits and claims incurred on insurance contracts consists of:

2015 2014Ordinary life insurance P=3,105,999 P=581,183Accident and health 330,307,904 323,844,127Group life insurance 89,523,527 75,193,167

P=422,937,430 P=399,618,477

Gross change in legal policy reserves consists of:2015 2014

Ordinary life insurance P=1,666,604,093 P=1,079,938,326Accident and health (6,084,414) (1,825,794)Unit-linked 870,361,006 304,961,500Group life insurance 26,474,371 14,254,229

P=2,557,355,056 P=1,397,328,261

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Reinsurers’ share of gross change in legal policy reserves consists of:

2015 2014Accident and health P=3,365,408 P=4,148,471Group life insurance 2,938,256 1,847,240

P=6,303,664 P=5,995,711

20. Commissions and Other Underwriting Expenses


2015 2014Employee related expenses P=593,802,424 P=513,283,754Commissions and service fees (Note 26) 296,021,531 228,297,461Service and administration fees (Note 26) 195,846,270 176,457,275Entertainment 23,909,281 20,386,471Communication and utilities 22,363,511 19,074,026Transportation and travel 18,402,854 16,872,823Advertising and promotions 12,387,817 20,672,775Rent expense (Note 27) 5,170,918 5,627,501Supplies 4,522,504 4,567,789Miscellaneous 13,531,652 9,608,844

P=1,185,958,762 P=1,014,848,719

21. General and Administrative Expenses


2015 2014Salaries, allowances and other benefits (Note 23) P=168,682,888 P=175,834,279Investment service fees 63,599,202 64,773,247Depreciation and amortization (Notes 10 and 11) 56,818,831 39,911,315Communications and utilities 27,678,210 32,846,914Rent expense (Note 27) 16,955,173 19,283,726Repairs and maintenance 16,760,559 16,096,592Provision for impairment losses – net of recoveries – 14,373,023Entertainment, amusement and recreation 14,523,219 12,167,051Contractual expense 8,203,470 6,704,537Transportation and travel 5,709,692 10,986,407Supplies 3,248,842 3,883,842Professional fees 4,256,037 2,859,314Association dues 1,784,250 2,124,272Electronic data processing charges 154,500 508,714Advertising and promotion 57,777 –Miscellaneous 33,800,630 30,993,490

P=422,233,280 P=433,346,723

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22. Interest Expense

Interest expense arises from premium deposit fund amounting to P=75,677,354 in 2015 andP=77,149,395 in 2014.

Premium deposit fund represents excess of premium payments made by policyholders which areretained by the Company as deposits that would be first applied in case policyholder missedpremium payments. Interest earned by policyholders ranged from 1.5% to 10% in 2015 and 0.93%to 10.00% in 2014.

23. Employee Benefits

The Company has a defined benefit plan, covering substantially all of its employees which requirecontributions to be made to an administered fund. The plan is administered by a local bank astrustee, Banco de Oro - Trust and Investment Group, an affiliate of BDO, a stockholder of GPHCI.

The Company’s annual contribution to the plan consists principally of payments which covers thecurrent service cost for the year and the required funding relative to the guaranteed minimumbenefits as applicable. The funds are administered by the Trustee under the supervision of theBoard of Trustees (BOT) of the plan which delegates the implementation of the investment policyto the Trustee. These funds are subject to the investment objectives and guidelines established bythe Trustee and rules and regulations issued by Bangko Sentral ng Pilipinas covering assets undertrust and fiduciary agreements. The Trustee is responsible for the investment strategy of the plan.

The latest actuarial valuation date of the Company’s retirement plan is December 31, 2015.

Republic Act 7641, The New Retirement Law, requires a provision for retirement pay to qualifiedprivate sector employees in the absence of any retirement plan in the entity. The law does notrequire minimum funding of the plan.

The following tables summarize the components of plan expense recognized in profit or loss andthe funded status and amounts recognized in the statements of financial position for the plan:

December 31, 20152015

Present value ofdefined benefit

obligation

Fair valueof plan assets

(Note 26)

Effectof asset

ceiling test Net pension assetAt January 1 P=56,127,791 (P=103,236,054) P=6,013,946 (P=41,094,317)Benefit cost in profit or loss

Current service cost (Note 21) 9,345,443 – – 9,345,443Net interest expense (income) (Note 18) 2,677,296 (4,912,729) 286,865 (1,948,568)

12,022,739 (4,912,729) 286,865 7,396,875Actuarial loss (gain) in OCI

Actuarial loss on plan assets – 85,748 – 85,748Actuarial loss on defined benefit

obligation 24,761,427 – – 24,761,427Effect of asset ceiling test – – (4,503,498) (4,503,498)

24,761,427 85,748 (4,503,498) 20,343,67736,784,166 (4,826,981) (4,216,633) 27,740,552

Contributions – (7,130,218) – (7,130,218)Benefits paid (7,617,881) 7,617,881 – –At December 31 P=85,294,076 (P=107,575,372) 1,797,313 (P=20,483,983)

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December 31, 20142014

Present value ofdefined benefit

obligation

Fair valueof plan assets

(Note 26)

Effectof asset

ceiling test Net pension assetAt January 1 P=52,663,702 (P=92,602,138) P=5,402,035 (P=34,536,401)Benefit cost in profit or loss

Current service cost (Note 21) 9,933,803 – – 9,933,803Net interest expense (income) (Note 18) 3,270,416 (6,024,746) 335,466 (2,418,864)

13,204,219 (6,024,746) 335,466 7,514,939Actuarial loss (gain) in OCI

Actuarial loss on plan assets – 4,220,229 – 4,220,229Actuarial gain on defined benefit

obligation (3,914,069) – – (3,914,069)Effect of asset ceiling test – – 276,445 276,445

(3,914,069) 4,220,229 276,445 582,6059,290,150 (1,804,517) 611,911 8,097,544

Contributions – (14,655,460) – (14,655,460)Benefits paid (5,826,061) 5,826,061 – –At December 31 P=56,127,791 (P=103,236,054) 6,013,946 (P=41,094,317)

The composition of the Company’s plan assets follow:


Cash and cash equivalents (Note 26) P=9,166,818 P=8,405,859Debt instrument:

Government securities 70,045,473 71,140,042Corporate bonds 23,317,654 18,667,827

Receivables 5,111,897 5,087,050Trust fee payable (66,470) (64,724)Fair value of plan assets P=107,575,372 P=103,236,054

All equity and debt instruments held have quoted prices in active markets. The plan assets havediverse investments and do not have any concentration risk.

The present value of the pension obligation is determined using actuarial valuations. The actuarialvaluation involves making various assumptions. The principal assumptions used in determiningthe pension obligation for the defined benefit plans are shown below:

2015 2014Discount rate 4.95% 4.77%Salary increase rate

FA/RSM/ASM 2.00% 2.00%Non-FA 7.00% 7.00%

Average remaining working livesof employees 28.0 years 27.9 years

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The sensitivity analysis below has been determined based on reasonably possible changes of eachsignificant assumption on the defined benefit obligation as of the end of the reporting period,assuming all other assumptions were held constant:

2015

RatesIncrease

(decrease)Discount rate +1.0% (P=3,906,642)

-1.0% 4,333,034

Salary increase rate +1.0% 3,939,757-1.0% (3,369,002)

2014

RatesIncrease

(decrease)Discount rate +1.0% (P=2,669,135)

-1.0% 2,969,688

Salary increase rate +1.0% 2,527,335-1.0% (2,334,092)

The Company does not expect to contribute to the retirement fund in 2016.

Shown below is the maturity analysis of the Company’s defined benefit obligation based onundiscounted benefit payments as of December 31, 2015:

Expected benefit paymentsLess than 1 year P=28,410,881More than 1 year to 5 years 9,305,905More than 5 years to 10 years 119,200,606

P=156,917,392

24. Income Tax

Provision for income tax consists of:

2015 2014Final tax P=113,815,935 P=107,572,165MCIT – 15,158,642RCIT 22,912,413 –

P=136,728,348 P=122,730,807

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The Company’s deferred tax asset (liability) consists of:


Presented in profit or lossDeferred tax asset

Accrued expense P=– P=21,162,381Deferred tax liability

Unrealized foreign exchange gain – (21,162,381)– –

Tax rate 30% 30%9,809,351 –

Presented in other comprehensive incomeDeferred tax liability

Actuarial gain on retirement plan (13,043,629) (33,387,303)Tax rate 30% 30%

(3,913,088) (10,016,191)Total deferred tax asset (liability) P=5,896,263 (P=10,016,191)

The table below shows the temporary differences for which deferred tax assets of P=9,809,351 havebeen set up only to the extent of excess MCIT over RCIT because the Company believes that therewill be future taxable profit against which the benefit from these can be utilized.

2015 2014Deferred tax assets on:

NOLCO P=– P=374,109,672Allowance for impairment losses 209,788,542 169,849,176

Accrued expenses 25,721,318 79,129,860Unrealized foreign exchange loss P=10,078,993 P=21,162,381Unamortized past service cost 10,588,572 13,980,305

256,177,425 658,231,394Tax rate 30% 30%Tax effect 76,853,228 197,469,418MCIT 9,809,351 31,485,000Total deferred tax assets P=86,662,579 P=228,954,418

As of December 31, 2015, the Company has MCIT that can be claimed as deduction from futuretaxable profit:

Year incurred MCIT Expiry year2015 P=9,809,350 2018

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The movements of NOLCO are as follows:

2015 2014At January 1 P=374,109,672 P=947,787,441Applications (374,109,672) (110,770,664)Expirations – (462,907,105)At December 31 P=– P=374,109,672

The movements of MCIT are as follows:

2015 2014At January 1 P=31,485,000 P=16,326,358Additions – 15,158,642Applications (21,675,650) –At December 31 P=9,809,350 P=31,485,000

The reconciliation of the statutory income tax rate to the effective income tax rate follows:

2015 2014Statutory income tax rate 30.00% 30.00%Add (deduct) tax effect of:

Interest income subject to final tax (12.84) (18.47)Change in unrecognized deferred tax assets (5.82) (0.39)Income exempt from tax (0.25) 1.46

Effective income tax rate 11.09% 12.60%

25. Capital Management and Management of Insurance and Financial Risks

Governance FrameworkThe Company has established a risk management function with clear terms of reference and withthe responsibility for developing policies on market, credit, liquidity, insurance and operationalrisk. It also supports the effective implementation of policies at the overall company andindividual business unit levels.

The policies define the Company’s identification of risk and its interpretation, limit structure toensure the appropriate quality and diversification of assets, alignment of underwriting andreinsurance strategies to the corporate goals and specific reporting requirements.

Regulatory FrameworkRegulators are interested in protecting the rights of the policyholders and maintain close vigil toensure that the Company is satisfactorily managing affairs for their benefit. At the same time, theregulators are also interested in ensuring that the Company maintains appropriate solvencyposition to meet liabilities arising from claims and that the risk levels are at acceptable levels.

The operations of the Company are subject to the regulatory requirements of the IC. Suchregulations not only prescribe approval and monitoring of activities but also impose certainrestrictive provisions (e.g., margin of solvency (MOS) to minimize the risk of default andinsolvency on the part of the insurance companies to meet the unforeseen liabilities as these arise,fixed capitalization requirements and Risk-Based Capital (RBC) requirements).

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Financial Reporting FrameworkIn 2015, IC issued Circular Letter No. 2015-29, Financial Reporting Framework under Section189 of the amended Insurance Code (RA No. 10607). Whereas, the FRF which is the financialreporting framework adopted in the preparation of the financial statements that is acceptable in.view of the nature of the entity and the objective of the financial statements, or that is required bylaw or regulation, will adopt the economic valuation of assets and liabilities based oninternationally accepted accounting, actuarial and insurance core principles.

The new regulatory requirements shall take effect after a transition period, the purpose of which isto allow the industry to assess the collective impact of implementing FRF, Reserving and RBC2-QIS simultaneously. This will allow the IC an opportunity to engage the industry in a meaningfuldialogue and obtain feedback prior to the full implementation date on June 30, 2016. Thetransition period shall encompass three (3) parallel runs as follows:

1. As of December 31, 20142. As of June 30, 20153. As of December 31, 2015

The Company complied with the submission of the FRF reports for December 31, 2014 and June30, 2015 on October 30, 2015 and February 26, 2016, respectively.

IC has released Circular 2014-42A on the Valuation Standards for Life Insurance Policy Reserveswhich provides a change in the basis of valuation of the life insurance policy reserves from NetPremium Valuation (NPV) to Gross Premium Valuation (GPV) which now considers otherassumptions such as morbidity, lapse and/or persistency, expenses, non-guaranteed benefits andmargin for adverse deviation.

IC decided to treat the change in the basis of valuation as a change in accounting policy and shallbe retrospectively applied. Since the full implementation of Financial Reporting Framework(FRF) and Reserving will be on June 30, 2016, there will be no impact on the 2015 financialstatements.

Based on the June 30, 2015 template submitted last February 26, 2016, there is a potential increaseon the aggregate life insurance policy reserves, decreasing the net worth of the Company. Evenwith the decline in net worth following the new valuation and financial reporting standards, theCompany is still in excess of the minimum net worth requirement of ₱550.00 million forDecember 31, 2016.

In June 2015, the Insurance Commission had issued Circular No. 2015-29 regarding the FinancialReporting Framework (FRF) under Section 189 of the amended Insurance Code (Republic ActNo. 10607). Subsequently, the Insurance Commission also issued Circular No. 2015-30 and 2015-31 for the transition period and full implementation of Financial Reporting Framework, valuationstandard for insurance policy reserves and new risk-based capital framework.

Capital Management FrameworkThe Company maintains a certain level of capital to ensure sufficient solvency margins and toadequately protect the policyholders.

To ensure compliance with these externally imposed capital requirements, it is the Company’spolicy to assess its position, at least on a quarterly basis, against set minimum capitalrequirements. The Company elevates any requirement for additional capital infusion to GPHCI toaddress any foreseen capital deficiency.

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There were no changes made to its capital management objectives, policies and processes from theprevious year.

Fixed capitalization requirementsOn January 13, 2015, the IC issued Circular Letter No. 2015-02-A clarifying the minimumcapitalization and networth requirements of new and existing insurance companies in thePhilippines. All domestic life and non-life insurance companies duly licensed by the InsuranceCommission must have a networth of at least P=250.0 million by December 31, 2013. Theminimum networth of the said companies shall remain unimpaired at all times and shall increaseto the amounts as follows:

Minimum Networth Compliance DateP=550,000,000 December 31, 2016

900,000,000 December 31, 20191,300,000,000 December 31, 2022

The Company has complied with the minimum statutory net worth requirements as at the end ofeach reporting period.

RBC requirementsIn 2006, the IC issued Memorandum Circular (IMC) No. 6-2006 adopting a risk-based capitalframework to establish the required amounts of capital to be maintained by the life insurancecompanies in relation to their investment and insurance risks. The investments and insurance risksof the company are classified under four major categories as asset default risk, insurance pricingrisk, interest rate risk and general business risk.

The RBC ratio shall be calculated as net worth divided by the RBC requirement. Net worth shallinclude the company’s paid-up capital, capital in excess of par value, contributed and contingencysurplus and unassigned surplus. Revaluation and fluctuation reserve accounts shall form part ofnet worth only to the extent authorized by the IC.

Every life insurance company is annually required to maintain a minimum RBC ratio of 100% andnot fail the trend test. The trend test has failed, in the event that:

a. The RBC ratio is less than 125% but is not below 100%b. The RBC ratio has decreased over the past yearc. The difference between RBC ratio and the decrease in the RBC ratio over the past year is less

than 100%

Failure to meet the RBC ratio shall subject the insurance company to the corresponding regulatoryintervention which has been defined at various levels.

As of December 31, 2015 and 2014, the Company’s statutory net worth amounted toP=3,272,252,876 and P=2,729,373,923, respectively. The RBC requirements as computed based onthe formula set by IC amounted to P=2,082,884,413 and P=1,721,797,474 as of December 31, 2015and 2014, respectively. The RBC ratio based on the net worth and RBC requirement resulted to157% and 159% in 2015 and 2014, respectively. The final amounts of the RBC ratio can only bedetermined after the accounts of the Company have been examined by the IC.

Insurance RiskThe risk under an insurance contract is the risk that an insured event will occur, including theuncertainty of the amount and timing of any resulting claim. The principal risk the Company

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faces under such contracts is that the actual claims and benefit payments exceed the carryingamounts of insurance liabilities. This is influenced by the frequency of claims, severity of claims,whether actual benefits paid are greater than originally estimated, and subsequent development oflong-term claims.

Terms and conditionsThe Company principally writes life insurance where the life of the policyholder is insured againstdeath or permanent disability, usually for a predetermined amount. Life insurance contractsoffered by the Company mainly include whole life, term insurance, and endowments. Whole lifeand term insurance are conventional products where lump sum benefits are payable on death,provided death occurs within the terms of the policy. Endowment products are products wherelump sum benefits are payable after a fixed period or on death before the period is completed.

Underwriting riskUnderwriting risk represents the exposure to loss resulting from actual policy experience adverselydeviating from assumptions made in the product pricing. Underwriting risks are brought about bya combination of the following:

· Mortality risk - risk of loss arising from the policyholder’s death experience being higher thanexpected.

· Morbidity risk - risk of loss arising from the policyholder’s health experience being higherthan expected.

· Expense risk - risk of loss arising from expense experience being higher than expected.· Policyholder decision risk - risk of loss arising due to policyholder experiences (lapses and

surrenders) being different than expected.

Underwriting guidelines and limits for insurance and reinsurance contracts are regularly monitoredfor compliance and updated to reflect current requirements. To further control the underwritingrisks, the Company’s Actuarial Department regularly assesses the adequacy of the insurancepremiums and technical provisions. The risks of defaults by reinsurers are mitigated as most ofthe risks are ceded with related parties. Further, the Company only deals with accreditedreinsurers. Additionally, provisions for known and unknown liabilities arising from theCompany’s commitments are calculated using prudent actuarial methods.

The main underwriting strategies of the Company to control risk are the use of reinsurance, whichis discussed below, and the controlled granting of non-medical authority (NMA) to the sales force.The NMA is being given only to members of the sales force who either qualify by virtue of fieldexperience or by passing a certain underwriting and training program. Actual experience is closelymonitored and corrective actions are executed whenever necessary.

The reinsurance programs being utilized by the Company as a method of managing insurance riskare the surplus reinsurance and quota share reinsurance for Generali Employee Benefit (GEB)group accounts. A brief summary of these reinsurance treaties is presented below:

· Surplus treaty - This covers all life business assurances for both non-GEB Group andIndividual, with a retention limit of P=2,000,000 for standard basic life and P=1,000,000 forriders or supplementary covers. This protects the Company from large adverse fluctuations inclaim experience, thus minimizing short run insolvency and instability in Company’searnings.

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· GEB reinsurance agreement (quota share) - This covers group life business under the GEBpool and captive clients. The Company’s retention on GEB clients is only 5% of the totalcoverage (basic cover and supplemental coverage). The other 95% is ceded to AssicurazioniGenerali S.p.A. (90%) and National Reinsurance Corporation of the Philippines (5%).Approximately 50% of the Company’s total Group business is under this arrangement.

The table below sets out the concentration of risks:

2015 2014

TypeNumber

of PoliciesAmount ofInsurance

Numberof Policies

Amount ofInsurance

Ordinary: Whole life 9,839 P=9,527,327,833 9,196 P=8,527,712,736 Endowment 70,741 18,087,608,206 61,671 16,562,829,972 Term 1,868 2,085,204,636 1,475 1,810,939,398Unit-linked policies 19,414 14,972,473,771 5,215 4,773,587,405Group Insurance: Term 407 254,317,739,342 383 188,594,598,640

102,269 P=298,990,353,788 77,940 P=220,269,668,151

Investment RiskThe investment risk represents the exposure to loss resulting from cash flows from invested assets,primarily long-term fixed rate investments, being less than the cash flows required to meet theobligations of the expected policy and contract liabilities and the necessary return on investments.Additionally, there exists a future investment risk associated with certain policies currently inforce which will have premium receipts in the future. That is, the investment of those futurepremium receipts may be at a yield below that required to meet future policy liabilities.

To maintain an adequate yield to match the interest necessary to support future policy liabilities,management focus is required to reinvest the proceeds of the maturing securities and to invest thefuture premium receipts while continuing to maintain satisfactory investment quality.

The Company’s strategy is to invest primarily in high quality securities while maintainingdiversification to avoid significant exposure to issuer, industry and or country concentrations.Another strategy is to produce cash flows required to meet maturing insurance liabilities. TheCompany invests in equities for various reasons, including diversifying its overall exposure tointerest rate risk. AFS financial assets are subject to changes in fair value. Generally, insuranceregulations restrict the type of assets in which an insurance company may invest.

The Company uses asset-liability matching as a management tool to determine the composition ofthe invested assets and appropriate investment and marketing strategies. As part of thesestrategies, the Company may determine that it is economically advantageous to be temporarily inan unmatched position due to anticipated interest rate or other economic changes.The risk assessment policy on investment risk is managed by BDO, a related party

Fair Value of Financial InstrumentsDue to the short-term nature of cash and cash equivalents, insurance receivables, loans andreceivables, accrued income, refundable lease and other deposits, premium deposit fund,policyholders’ dividends, insurance payables and trade and other liabilities, their carrying valuesreasonably approximate fair values as of the reporting date.

The fair value of AFS financial assets that are actively traded in organized financial markets isdetermined by reference to quoted market prices, at the close of business on the end of the

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reporting period. When the fair value of AFS financial assets cannot be measured reliably becauseof lack of reliable estimates of future cash flows and discount rates necessary to calculate the fairvalue of unquoted equity instruments, these investments are carried at cost.

Due to the long-term nature of the HTM investments, its carrying value differs from its fair value.The fair value of HTM investments is based on the quoted market prices at the end of the reportingdate. As of December 31, 2015 and 2014, the fair value and carrying value of HTM investmentsfollows:

2015 2014Carrying value P=83,058,697 P=83,705,679Fair value 81,823,973 87,328,132

Fair Value HierarchyThe Company classifies its financial assets carried at fair value as follows:

December 31, 2015

Level 1 Level 2 Level 3 TotalFVPL financial assetsGovernment debt securities Local currency P=55,056,288 P=– P=– P=55,056,288 Foreign currency 65,313,986 – – 65,313,986Listed common equity shares 803,873,811 – – 803,873,811Private debt securities 3,954,626 – – 3,954,626Unit Investment Trust Fund 20,006,222 – – 20,006,222

(Forward)

Level 1 Level 2 Level 3 TotalAFS financial assetsGovernment debt securities Local currency P=5,409,488,527 P=– P=– P=5,409,488,527 Foreign currency 5,778,435,529 – – 5,778,435,529Listed equity securities 3,474,404,817 – – 3,474,404,817Private debt securitiesUnit Investment Trust Fund

2,888,285,678330,720,875 – –

2,888,285,678330,720,875

P=18,829,540,359 P=– P=– P=18,829,540,359

December 31, 2014

Level 1 Level 2 Level 3 TotalFVPL financial assetsGovernment debt securities Local currency P=29,361,500 P=– P=– P=29,361,500 Foreign currency 21,512,288 – – 21,512,288Listed equity securities 233,146,531 – – 233,146,531Private debt securities 1,946,918 – – 1,946,918AFS financial assetsGovernment debt securities Local currency 3,675,840,588 – 3,675,840,588 Foreign currency 4,889,669,540 – – 4,889,669,540Listed equity securities 2,960,613,489 – – 2,960,613,489Private debt securities 2,580,322,989 – – 2,580,322,989

P=14,392,413,843 P=– P=– P=14,392,413,843

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As of December 31, 2015 and 2014, the Company classifies financial assets at FVPL and AFSfinancial assets under Level 1 of the fair value hierarchy. During the reporting period endedDecember 31, 2015 and 2014, there were no transfers between Level 1 and Level 2 fair valuemeasurements, and no transfers into and out of Level 3 fair value measurement.

Financial RiskThe Company is exposed to financial risk through its financial assets, financial liabilities,insurance assets and insurance liabilities. In particular, the key financial risk is that the proceedsfrom its financial assets are not sufficient to fund the obligations arising from its insurancecontracts. The most important components of this financial risk are credit risk, liquidity risk andmarket risk. These risks arise from open positions in interest rate, currency and equity products,all of which are exposed to general and specific market movements.

Credit riskCredit risk is the risk that one party to a financial instrument will fail to discharge an obligationand cause the other party to incur a financial loss. The following policies and procedures are inplace to mitigate the Company’s exposure to credit risk:

· Net exposure limits are set for each counterparty or group of counterparties and industrysegment (i.e. limits are set for investments and cash deposits, foreign exchange tradeexposures and minimum credit ratings for investments that may be held).

· Guidelines are provided to determine when to obtain collateral and guarantees.

· The maximum amounts and limits that may be advanced to corporate counterparties byreference to their long term credit ratings are also set.

The Company also enters into reinsurance agreements. Although the Company has reinsurancearrangements, it is not relieved of its direct obligations to its policyholders and thus a creditexposure exists with respect to reinsurance ceded, to the extent that any reinsurer may be unable tomeet its obligations assumed under such reinsurance agreements. The Company selects onlydomestic and foreign companies with strong financial standing and excellent track records whichare allowed to participate in the Company’s reinsurance programs.

As of December 31, 2015 and 2014, the carrying values of the Company’s financial instrumentsrepresent maximum exposure as of reporting date other than the Policy loans of the Companywhich is covered by the cash surrender value of the policyholders’ policy.

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The table below shows the credit risk exposure of the Company by classifying assets according toCompany’s credit ratings of the counterparties.

December 31, 2015

Neither Past Due nor ImpairedInvestment

GradeNon-investment

GradePast Due and/or

Impaired TotalLoans and receivablesCash and cash equivalents P=2,586,586,939 P=– P=– P=2,586,586,939Insurance receivables Premiums due and uncollected – 188,600,607 – 188,600,607 Reinsurance recoverable on paid losses – 147,716,203 – 147,716,203 Due from reinsurers – 40,306,893 – 40,306,893Loans and receivables Due from policyholders – 4,911,050 176,239,563 181,150,613 Policy loans – 173,719,579 – 173,719,579 Due from agents – – 35,891,880 35,891,880 Due from network providers – 2,789,491 22,238,992 25,028,483

Due from officers and employees – 10,347,420 – 10,347,420 Receivables from resigned employees – 2,289,812 5,899,606 8,189,418Accrued income 185,377,431 – – 185,377,431Refundable lease and other deposits – 8,962,903 – 8,962,903Financial assets at FVPL Government debt securities 86,669,760 33,700,514 – 120,370,274 Listed equity securities – 803,873,811 – 803,873,811 Private debt securities 3,954,626 – – 3,954,626 Unit Investment Trust Fund 20,006,222 – – 20,006,222AFS financial assets Government debt securities 11,187,924,056 – – 11,187,924,056 Listed equity securities – 3,474,404,817 – 3,474,404,817 Private debt securities Unit Investment Trust Fund

2,694,257,352330,720,875

194,028,326– –

2,888,285,678330,720,875

HTM investments Government debt securities 83,058,697 – – 83,058,697

P=17,178,555,958 P=5,085,651,426 P=240,270,041 P=22,504,477,426

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December 31, 2014

Neither Past Due nor ImpairedInvestment

GradeNon-investment

GradePast Due and/or

Impaired TotalLoans and receivablesCash and cash equivalents P=3,266,354,881 P=– P=– P=3,266,354,881Insurance receivables Premiums due and uncollected – 163,088,906 – 163,088,906 Reinsurance recoverable on paid losses 112,493,498 112,493,498 Due from reinsurers – 40,482,911 – 40,482,911Loans and receivables – Due from policyholders – 6,048,935 208,469,533 214,518,468 Policy loans – 146,857,326 – 146,857,326 Due from agents – – 35,891,880 35,891,880 Due from network providers – 2,432,334 20,286,143 22,718,477

Due from officers and employees – 13,980,309 – 13,980,309Due from brokers – – – –

Receivables from resigned employees – 1,828,759 5,899,606 7,728,365 Due from related parties – 4,757 – 4,757Accrued income 150,308,943 – – 150,308,943Refundable lease and other deposits – 10,145,907 – 10,145,907Financial assets at FVPL Government debt securities 50,873,787 – – 50,873,787 Listed equity securities 233,146,531 – – 233,146,531 Private debt securities 1,946,917 – – 1,946,917AFS financial assets Government debt securities 8,565,510,128 – – 8,565,510,128 Listed equity securities 2,960,613,489 – – 2,960,613,489 Private debt securities 2,580,322,989 – – 2,580,322,989HTM investments Government debt securities 83,705,679 – – 83,705,679

P=17,892,783,344 P=497,363,642 P=270,547,162 P=18,660,694,148

The Company determines the credit ratings of its counterparties based on the following criteria:

Investment grade - Ratings given to counterparties with strong to very strong capacity to meet itsobligations.

Non-investment grade - Ratings given to counterparties with average capacity to meet itsobligations.

Cash and cash equivalents are substantially deposited to a related party commercial bank in goodfinancial standing and covered by the standard deposit insurance. As part of Company policy,bank deposits are only maintained with reputable financial institutions.

FVPL financial assets and AFS securities consist mostly of government bonds while others areprivate local corporations issued debt and equity securities. Loans and receivables are composedsignificantly of loan to policyholders which are 100% secured by earned cash values, net ofoutstanding premiums and due from cedants.

The Company structures the levels of credit risk it accepts by placing limits on its exposure to asingle counterparty or Company of counterparty, and to geographical and line of risk segments.The policy of the Company is to deal only with creditworthy counterparties.

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The tables below show the analysis of age of financial assets that are past-due but are notimpaired.

December 31, 2015

Age Analysis of Financial Assets Past-Due but not Impaired

< 30 days 31 to 90 days > 90 days

Total PastDue but

not ImpairedPast Due

and Impaired TotalLoans and receivables Due from

policyholders P=– P=– P=73,995,195 P=73,995,195 P=102,244,368 P=176,239,563 Due from agents – – – – 35,891,880 35,891,880 Due from network

providers – – 8,897,390 8,897,390 13,341,602 22,238,992 Receivables from

employees – – – – 5,899,606 5,899,606P=– P=– P=82,892,585 P=82,892,585 P=157,377,456 P=240,270,041

December 31, 2014

Age Analysis of Financial Assets Past-Due but not Impaired

< 30 days 31 to 90 days > 90 days

Total PastDue but

not ImpairedPast Due

and Impaired TotalLoans and receivables Due from policyholders P=– P=– P=108,363,370 P=108,363,370 P=102,244,368 P=208,469,533 Due from agents – – – – 35,891,880 35,891,880 Due from network

providers – – 4,806,336 4,806,336 13,341,602 20,286,143 Receivables from

employees – – – – 5,899,606 5,899,606P=– P=– P=113,169,706 P=113,169,706 P=157,377,456 P=270,547,162

The Company conducts a periodic review of allowance for impairment losses based on thecorresponding age of past due accounts, payment behavior, credit capacity and length ofrelationship with the counterparty.

The Company did not have any significant concentration of credit risk with a single counterpartyor group of counterparties, geographical and industry segments as of December 31, 2014 and2013.

Liquidity riskLiquidity or funding risk is the risk that an entity will encounter difficulty in raising funds to meetcommitments associated with financial instruments. Liquidity risk may result from either theinability to sell financial assets quickly at their fair values; or the counterparty failing onrepayment of a contractual obligation; or the insurance liabilities falling due for payment earlierthan expected; or the inability to generate cash inflows as anticipated.

The Company manages liquidity through an assessment of the minimum amount of funds neededto meet operating and investment requirements; forecasting cash flows on both a short andlong-term basis; setting up of normal and contingency funding plans; specifying the sources offunding; maintaining counterparty exposures within approved limits; and periodic reporting andreview of the credit facilities made available to the Company.

It is unusual for a company primarily transacting insurance business to predict the requirements offunding with absolute certainty as theory of probability is applied on insurance contracts toascertain the likely provision and the time period when such liabilities will require settlement.

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The projected timing and amounts need to meet insurance liabilities are thus based onmanagement’s best estimate based on statistical techniques and past experience.

The table below summarizes the maturity profile of the financial assets and liabilities, andinsurance accounts of the Company based on the undiscounted contractual obligations, except forthe legal policy reserves of the life insurance contracts which shows the maturity analysis based onthe estimated timing of the net cash outflows using the recognized insurance liability accounts.

December 31, 2015

Up to a Year* 1-3 Years 3-5 Years Over 5 Years No Term TotalFinancial AssetsCash and cash equivalents P=2,586,586,939 P=– P=– P=– P=– P=2,586,586,939Insurance receivables 376,623,703 – – – – 376,623,703Financial assets Financial assets at FVPL – – – – 948,204,933 948,204,933 AFS financial assets 461,988,708 656,027,888 1,467,250,186 11,490,942,952 3,805,125,692 17,881,335,426 HTM investments 25,257,774 – 57,800,923 – 83,058,697 Loans and receivables - net 276,949,937 – – – – 276,949,937

Accrued income 185,377,431 – – – – 185,377,431Refundable lease and other

deposits 8,962,903 – – – – 8,962,903Total financial assets P=3,921,747,395 P=656,027,888 P=1,467,250,186 P=11,548,743,875 P=4,753,330,625 P=22,347,099,969

Financial liabilitiesLegal policy reserves P=265,382,176 P=721,734,526 P=784,666,477 P=13,029,401,869 P=– P=14,801,185,047Policy and contract claims payable 745,523,455 – – – – 745,523,455Premium deposit fund 2,131,060,622 82,098,421 9,864,644 1,296,543 – 2,224,320,230Policyholders’ dividends 255,090,465 – – – – 255,090,465Insurance payables 448,922,881 – – – – 448,922,881Trade and other liabilities 521,997,476 – – – – 521,997,476Total financial liabilities P=4,367,977,075 P=803,832,947 P=794,531,121 P=13,030,698,412 P=– P=18,997,039,554Liquidity gap (P=446,229,680) (P=147,805,059) P=672,719,065 (P=1,481,954,537) P=4,753,330,625 P=3,350,060,415* Up to a year are all commitments which are either due within the time frame or are payable on demand.

December 31, 2014

Up to a Year* 1-3 Years 3-5 Years Over 5 Years No Term TotalFinancial AssetsCash and cash equivalents P=3,266,354,881 P=– P=– P=– P=– P=3,266,354,881Insurance receivables 316,065,315 – – – – 316,065,315Financial assets Financial assets at FVPL – – – – 285,967,236 285,967,236 AFS financial assets 328,979,892 1,163,648,772 1,519,905,926 8,133,298,528 2,960,613,489 14,106,446,606 HTM investments 25,683,967 – 58,021,711 – 83,705,679 Loans and receivables - net 284,322,126 – – – – 284,322,126

Accrued income 150,308,943 – – – – 150,308,943Refundable lease and other

deposits 10,145,907 – – – – 10,145,907Total financial assets P=4,356,177,064 P=1,189,332,739 P=1,519,905,926 P=8,191,320,239 P=3,246,580,725 P=18,503,316,693

Financial liabilitiesLegal policy reserves P=244,992,218 P=1,094,782,235 P=744,301,092 P=9,894,157,825 P=– P=11,978,233,370Policy and contract claims payable 694,094,733 – – – – 694,094,733Premium deposit fund 386,280,582 983,420,680 177,620,756 115,344,450 – 1,662,666,468Policyholders’ dividends 157,145,744 – – – – 157,145,744Insurance payables 394,245,697 – – – – 394,245,697Trade and other liabilities 495,832,753 – – – – 495,832,753Total financial liabilities P=2,372,591,727 P=2,078,202,915 P=921,921,848 P=10,009,502,275 P=– P=15,382,218,765Liquidity gap P=1,983,585,337 (P=888,870,176) P=597,984,078 (P=1,818,182,036) P=3,246,580,725 P=3,121,097,928

* Up to a year are all commitments which are either due within the time frame or are payable on demand.

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Market riskMarket risk is the risk that the fair value or future cash flows of a financial instrument willfluctuate because of changes in market prices. Market risk consists of three types of risks: foreignexchange rate (currency risk), market interest rate (fair value interest rate risk) and market price(equity price risk).

The following policies and procedures are in place to mitigate the Company’s exposure to marketrisk:

· Set out the assessment and determination of what constitutes market risk for the Company.Compliance with the policy is monitored and exposures and breaches are reported to the riskcommittee. The policy is reviewed regularly for pertinence and for changes in the riskenvironment.

· Establish asset allocation and portfolio limit structure to ensure that assets back specificpolicyholders’ liabilities and are held to deliver income and gains for policyholders in linewith expectations of the policyholders.

· Stipulate diversification benchmarks by type of instrument, as the Company is exposed toguaranteed bonuses, cash and annuity options when interest rates fall.

Currency riskThe Company’s principal transactions are carried out in Philippine Peso and its foreign exchangerisk arises primarily with respect to the US Dollar (US$) where some of its products aredenominated. The Company’s financial assets are primarily denominated in the same currenciesas its insurance contracts, which mitigate the foreign exchange rate risk. Thus, the main foreignexchange risk arises from recognized assets and liabilities denominated in currencies other thanthose in which the insurance contracts are expected to be settled.

The following tables show the details of the Company’s foreign currency denominated monetaryassets and liabilities and their Philippine Peso equivalents.

2015 2014US$ PHP US$ PHP

AssetsCash and cash equivalents $9,675,223 P=455,349,036 $12,985,436 P=580,708,737Premiums due and uncollected 90,017 4,236,179 319,394 14,283,294AFS financial assets 126,056,075 5,932,198,903 112,596,559 5,035,318,108Accrued income 2,115,398 99,550,621 1,879,999 84,073,555Policy loan 1,202,095 56,570,614 1,121,170 50,138,711

139,138,808 6,547,905,353 128,902,558 5,764,522,405

LiabilitiesInsurance contract liabilities 116,618,716 5,488,076,787 112,615,387 5,036,160,118Premium deposit fund 18,137,041 853,529,144 16,608,912 742,750,528Trade and other liabilities 82,278 3,881,202 78,702 3,465,849

134,838,035 6,345,487,133 129,303,001 5,782,376,495$4,300,773 P=202,418,220 ($400,443) (P=17,854,090)

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The analysis below is performed for reasonably possible movements in P=US$ exchange rates withall other variables held constant, showing the impact on profit before tax (due to changes in fairvalue of currency sensitive monetary assets and liabilities).

December 31, 2015Change in

Exchange RateImpact on Profit

Before TaxUSD +3% P=6,072,547USD -3% (6,072,547)


Exchange RateImpact on Profit

Before TaxUSD +1% P=178,541USD -1% (178,541)

The Company determined the reasonably possible change in foreign exchange rates usingpercentage changes in weighted average foreign exchange rate for the past three years. Thesensitivity analysis includes only outstanding foreign currency denominated monetary assets andliabilities as at reporting date.

There is no impact on the Company’s equity other than those already affecting profit or loss.

Fair value interest rate riskFair value interest rate risk is the risk that the value/future cash flows of a financial instrument willfluctuate because of changes in market interest rates.

The following table shows the information relating to the Company’s financial instruments thatare exposed to fair value interest rate risk presented by maturity profile.

December 31, 2015

Range ofInterest Rate Up to a Year* 1-3 Years 3-5 Years Over 5 Years Total

Financial assetsCash and cash equivalents .25%-2.50% P=2,586,586,939 P=– P=– P=– P=2,586,586,939Financial assets at FVPL 1.625%-9.125% 2,033,982 9,812,990 30,496,388 81,981,540 124,324,900AFS debt securities: 2.75%-12.125% Foreign currency 153,243,524 384,792,833 318,636,525 5,075,526,021 5,932,198,903 Local currency 308,745,183 271,235,056 1,148,613,660 6,415,416,932 8,144,010,831HTM debt securities 6.125%-9.125% 25,257,774 - – 57,800,923 83,058,697Loans and receivables: Policy loans 8.00%-10.00% 173,719,578 – – – 173,719,578 Due from officers and employees 9.00% 10,347,420 – – – 10,347,420

P=3,259,934,400 P=665,840,879 P=1,497,746,573 P=11,630,725,416 P=17,054,247,268


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December 31, 2014

Range ofInterest Rate Up to a Year* 1-3 Years 3-5 Years Over 5 Years Total

Financial assetsCash and cash equivalents 1.00%-2.50% P=3,266,354,881 P=– P=– P=– P=3,266,354,881Financial assets at FVPL 1.625%-9.125% – 3,080,838 7,467,203 42,272,664 52,820,705AFS debt securities: 2.125%-12.125% Foreign currency 74,404,406 495,026,032 362,110,874 4,103,776,796 5,035,318,108 Local currency 254,575,485 668,622,740 1,157,795,053 4,029,521,732 6,110,515,010HTM debt securities 6.125%-9.125% – 25,683,967 – 58,021,712 83,705,679Loans and receivables: Policy loans 8.00%-10.00% 146,857,326 – – – 146,857,326 Due from officers and employees 9.00% 13,980,309 – – – 13,980,309

P=3,756,172,407 P=1,192,413,577 P=1,527,373,130 P=8,233,592,904 P=14,709,552,018


The analysis below is performed for reasonably possible movements in fair value interest rateswith all other variables held constant, showing the impact on equity (that reflects adjustments onrevaluing fixed rate AFS financial assets).


Interest RateImpact on

EquityPeso +100 basis points (P=632,458,820)Peso -100 basis points 574,561,440

USD +50 basis points (P=301,145,649)USD -50 basis points 325,870,984


Interest RateImpact on

EquityPeso +100 basis points (P=450,508,410)Peso -100 basis points 358,828,120

USD +50 basis points (P=235,524,626)USD -50 basis points 253,341,016

The sensitivity rate used for reporting fair value interest rate risk internally to key managementpersonnel represents management’s assessment of the reasonably possible change in its fair valueusing the percentage changes in weighted average yield rates.

Equity price riskThe Company’s equity price risk exposure at year-end relates to financial assets whose values willfluctuate as a result of changes in market prices, principally, AFS equity securities.

Such investment securities are subject to price risk due to changes in market values of instrumentsarising either from factors specific to individual instruments or their issuers or factors affecting allinstruments traded in the market.

The analysis below is performed for reasonably possible movements in price index with all othervariables held constant, showing the impact on other comprehensive income (that reflectsadjustments on changes in fair value of AFS financial assets). The impact of sensitivity of equity

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prices on the Company’s other comprehensive income already excludes the impact on transactionsaffecting profit or loss.


Price IndexImpact on

EquityPSEi +4% P=149,115,153PSEi -4% (149,115,153)


Price IndexImpact on

EquityPSEi +13% P=384,859,669PSEi -13% (384,859,669)

The Company determined the reasonably possible change in equity pricing using percentagechanges in the Philippine Stock Exchange (PSE) composite index for the past three years. Thesensitivity analysis includes the Company’s stock portfolio with amounts adjusted by the specificbeta for these investments as at reporting date.

26. Related Party Transactions

Transactions between related parties are based on terms similar to those offered to nonrelatedparties. Parties are related if one party has the ability, directly or indirectly, to control the otherparty or exercise significant influence over the other party in making financial and operatingdecisions and the parties are subject to common control or common significant influence. Relatedparties may be individuals or corporate entities.

Significant related party transactions are summarized below:Amount/ Volume Outstanding Balance*

Category 2015 2014 2015 2014Ultimate parentAssicurazioni Generali S.p.A/Ruckversicherung

Reinsurance premiums (Note 14) a (P=482,023,197) (P=402,374,101) (P=133,709,499) (P=117,167,829)RI Recoverable on paid losses (Notes 5 and 9) a 416,113,746 332,720,201 133,571,199 101,927,953RI Recoverable on unpaid losses (Notes 5 and 9) a (16,744,359) 45,130,609 119,691,015 136,435,374Legal policy reserves (Notes 5 and 9) a 5,971,893 5,680,148 89,868,419 83,896,526Funds held for reinsurers(Note 14) a (19,904,468) 55,022,602 246,550,031 208,440,644

AffiliatesBDO

Bank deposits (Note 4) b 7,995,305,345 5,848,538,765 2,578,690,124 3,156,205,725Interest from bank deposits(Note 4) b 25,711,101 32,125,695 322,873 202,866Due from brokers (Note 6) c – (69,304,059) – (69,304,059)Investment in equity securities (Note 6)Unit Investment Trust Fund

d 131,268,055419,500,000

112,856,352–

153,438,390350,727,096

141,255,284–

Bancassurance (Note 20) f (195,461,293) (174,615,945) (18,462,687) (12,540,780)Management fees (Note 21) g (63,599,202) (64,773,247) (13,057,741) (10,742,300)

Assicurazioni Generali S.p.A. (Asia)Due from related parties (4,757) 4,757 – 4,757

P=3,507,629,220 P=3,618,614,161

*All related party transactions are non-interest bearing, except for bank deposits, due and demandable,unrestricted and unimpaired, and expected to be settled in cash

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The Company’s related party transactions pertain to the following:

a. In the ordinary course of its business, the Company cedes insurance business under a treatyreinsurance contract with Assicurazioni Generali S.p.A.,the Company’s ultimate parent.Only a part of the ceded business goes to the ultimate parent. Most of the ceded businessgoes to Generali Employee Benefits in Belgium and Generali Duetschland, in Germany,related parties under common control of the Company’s ultimate parent (see Notes 5, 9 and14).

b. The Company maintains savings and current accounts and cash equivalents with Banco de Oro(BDO), a stockholder of the immediate company GPHCI. The interest rates for bank depositsranged from .25% to 2.5% and 1.00% to 2.5% in 2015 and 2014, respectively. Cash depositsand cash equivalents maintained by the Company in BDO amounted to P=166,148,635 andP=2,412,541,489 respectively, as of December 31, 2015 and P=76,987,659 and P=3,079,218,066respectively, as of December 31, 2014 (see Note 4).

c. Due from brokers pertain to receivable of the Company from sale of its investments in stocksheld by BDO, the Company’s fund manager (see Note 6).

d. The Company’s investments are being managed by BDO and include equity instruments ofBDO as follows (see Note 6):

2015Number of

shares CostMarket

ValueUnrealized

Gain (Loss)AFS securities 1,225,228 P=124,588,794 128,648,940 P=4,060,146FVPL financial assets 236,090 24,871,610 24,789,450 (82,160)

P=149,460,404 P=153,438,390 P=3,997,986

2014Number of

shares CostMarketValue

UnrealizedGain (Loss)

AFS securities 1,214,108 P=105,873,943 133,309,058 P=27,435,115FVPL financial assets 72,370 6,982,409 7,946,226 963,817

P=112,856,352 P=141,255,284 P=28,398,932

e. BDO is the trustee bank of the Company’s retirement plan. The Company’s plan assetsamounted to P=107,575,372 and P=103,236,054 as of December 31, 2015 and 2014 respectively(see Note 23). The plan assets have diverse investments and do not have any concentrationrisk. As of December 31, 2015 and 2014, the plan assets of the retirement plan do not haveany debt or equity of a related party. The Company’s plan assets also maintain cash depositsin BDO amounting to P=818 and P=5,859 as of December 31, 2015 and 2014, respectively (seeNote 23).

f. The Company also entered into a bancassurance agreement with BDO in relation to the sale ofpolicy insurance contracts to the clients of BDO through the Company’s financial advisors.The Company pays service fees recognized as expenses in the profit or loss. (see Note 20).

g. The Company’s transactions with related parties also include expenses incurred in itsinvestment management. The Company has an existing Investment Management Agreementwith BDO. For services rendered, the Company shall pay BDO management fees shall bebased on the average daily balance of the fund type and shall be deducted quarterly from thefund (see Note 20).

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h. There are no loans of any kind extended to directors in 2015 and 2014.

Compensation of Key Management Personnel of the CompanyDetails of the compensation of key management personnel of the Company are as follows:

2015 2014Salaries and other benefits P=148,117,476 P=147,912,739Retirement expense (Note 23) 4,508,817 4,554,244

P=152,626,293 P=152,466,983

27. Lease Commitments

The Company has a lease contracts covering its head office premises which will expire onMay 31, 2016. This lease contracts are noncancellable and renewable upon mutual agreement ofthe Company and the lessors. The Head office leases do not include a clause on upward revisionof the rental charge.

The estimated future minimum lease payments under noncancellable operating lease agreementsas of December 31 follow:

2015 2014Within one year P=24,400,159 P=21,731,420After one year but not more than three years – 9,219,605

P=24,400,159 P=30,951,025

The distribution of rent expense in profit or loss follows:

2015 2014General and administrative expenses (Note 21) P=16,955,173 P=19,283,726Commissions and other underwriting expenses

(Note 20) 5,170,918 5,627,501P=22,126,091 P=24,911,227

28. Contingencies

Various legal actions and claims are pending or may be assessed in the future against theCompany from litigations and claims incident to the ordinary course of business. Related riskshave been analyzed as to likelihood of occurrence. Although the outcome of these matters cannotalways be ascertained with precision, management believes that no material liabilities are likely toresult.

29. Supplementary Tax Information under Revenue Regulations 15-2010

In compliance with the requirements set forth by RR 15-2010, hereunder are the information ontaxes, duties and license fees paid and accrued in 2015.

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Premium TaxThe Company is primarily engaged in the business of life insurance and paid the amount ofP=111,035,900 as percentage tax pursuant to the Tax Code based on the amount reflected in thepremiums on insurance contracts of P=5,551,794,991.

Net sales and output VAT declared in the Company’s VAT returns for 2015 follows:

Transaction Net sales OutputTaxable sales:

Sales of services (network fees) P=14,557,324 P=1,746,879

The Company did not claim any input VAT in 2015.

DSTThe DST paid/accrued on the following transactions are:

Transaction Amount DSTLife insurance policies – individual 16,242,661,244 927,050Policy loan 16,628,040 83,140Life insurance policies – group 7,230,907,135 5,860

P=23,490,196,419 P=1,016,050

Information on the Company’s importation for 2015The Company has no importation transaction for 2015.

Other Taxes and LicensesThis includes all other taxes, local and national, including licenses and permit fees lodged under“Insurance taxes and licenses” in the Statement of Income.

LocalBusiness permit P=11,418,290NationalOther taxes and licenses 5,208,522Fringe benefit tax 59,398BIR annual registration 500

P=16,686,710

Withholding TaxesThe amount of withholding taxes paid and accrued for the year amounted to:

Tax on compensation and benefits P=142,852,156Expanded withholding tax 41,030,685Final withholding tax 765,993

P=184,648,834

Tax Assessments and CasesThe Company has no deficiency tax assessment or any tax case, litigation, and/or prosecution incourts or bodies outside the Bureau of Internal Revenue as of December 31, 2015.

Documents

Generali Pilipinas Life Assurance Company, Inc. · 2018. 4. 25. · Generali Pilipinas Life Assurance Company, Inc. We have audited the accompanying financial statements of Generali