Audited Financial Statements - Tokio Marine · 2020. 6. 9. · Audited Financial Statements For the...

Audited Financial Statements For the Financial Year ended 31 December 2017

Tokio Marine Life Insurance Singapore Ltd. (Incorporated in Singapore. Registration Number: 194800055D)

And Its Subsidiary

429592 TM Financial Statement AR_CVR_KT1.indd 1 5/11/18 6:32 PM

TOKIO MARINE LIFE INSURANCE SINGAPORE LTD (Incorporated in Singapore) AND ITS SUBSIDIARY ANNUAL REPORT For the financial year ended 31 December 2017

Contents Page

Directors’ Statement 1 Independent Auditor’s Report 3 Statement of Comprehensive Income 6 Balance Sheet 7 Consolidated Statement of Changes in Equity 8 Statement of Changes in Equity - Company 9 Consolidated Statement of Cash Flows 10 Notes to the Financial Statements 12

TOKIO MARINE LIFE INSURANCE SINGAPORE LTD. AND ITS SUBSIDIARY DIRECTORS’ STATEMENT For the financial year ended 31 December 2017

1

The directors present their statement to the members together with the audited financial statements of the Company and of the Group for the financial year ended 31 December 2017. In the opinion of the directors, (a) the financial statements of the Company and the consolidated financial statements

of the Group set out on pages 6 to 102 are drawn up so as to give a true and fair view of the financial position of the Company and of the Group as at 31 December 2017 and of the financial performance, changes in equity of the Company and of the Group, and cash flows of the Group for the financial year covered by the financial statements; and

(b) at the date of this statement, there are reasonable grounds to believe that the

Company will be able to pay its debts as and when they fall due. Directors The directors of the Company in office at the date of this statement are as follows: Tan Cheng Han Ooi Chee Kar Rolf Gerber Seigo Fukushima (appointed on 13 October 2017) Yasuyuki Sekioka (appointed on 27 June 2017) Arrangements to enable directors to acquire shares and debentures Neither at the end of nor at any time during the financial year was the Company a party to any arrangement whose object was to enable the directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

TOKIO MARINE LIFE INSURANCE SINGAPORE LTD. AND ITS SUBSIDIARY DIRECTORS’ STATEMENT For the financial year ended 31 December 2017

2

Directors’ interests in shares or debentures According to the register of directors’ shareholdings, none of the directors holding office at the end of the financial year had any interest in the shares or debentures of the Company or its related corporations, except as follows:

Holdings registered in name of director

At

31.12.2017

At 1.1.2017 or date of

appointment, if later

Company (No. of ordinary stock units) Seigo Fukushima (as nominee of Asia General Holdings Limited) 1 1 Yasuyuki Sekioka (as nominee of Asia General Holdings Limited) 1 1 Immediate Holding Company - Asia General Holdings Limited (No. of ordinary shares) Seigo Fukushima (as nominee of Tokio Marine & Nichido Fire Insurance Co. Ltd) 1 1

Share options There were no options granted during the financial year to subscribe for unissued shares of the Company. No shares have been issued during the financial year by virtue of the exercise of options to take up unissued shares of the Company. There were no unissued shares of the Company under option at the end of the financial year.

Independent auditor The independent auditor, PricewaterhouseCoopers LLP, has expressed its willingness to accept re-appointment. On behalf of the directors Tan Cheng Han Director

Yasuyuki Sekioka Director

3

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TOKIO MARINE LIFE INSURANCE SINGAPORE LTD. FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 Report on the Audit of the Financial Statements Our Opinion In our opinion, the accompanying financial statements of Tokio Marine Life Insurance Singapore Ltd. (the “Company”) and its subsidiary (the “Group”) are properly drawn up in accordance with the provisions of the Companies Act, Chapter 50 (the “Act”) and Financial Reporting Standards in Singapore (“FRSs”) so as to give a true and fair view of the consolidated financial position of the Group and the financial position of the Company as at 31 December 2017 and of the consolidated financial performance, consolidated changes in equity and consolidated cash flows of the Group, and the financial performance and changes in equity of the Company for the financial year ended on that date. What we have audited The financial statements of the Company and of the Group comprise: • the consolidated balance sheet of the Group as at 31 December 2017; • the balance sheet of the Company as at 31 December 2017; • the consolidated statement of comprehensive income of the Group for the financial year then ended; • the statement of comprehensive income of the Company for the financial year then ended: • the consolidated statement of changes in equity of the Group for the financial year then ended; • the statement of changes in equity of the Company for the financial year then ended; • the consolidated statement of cash flows of the Group for the financial year then ended; and • the notes to the financial statements, including a summary of significant accounting policies. Basis for Opinion We conducted our audit in accordance with Singapore Standards on Auditing (“SSAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the Accounting and Corporate Regulatory Authority Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities (“ACRA Code”) together with the ethical requirements that are relevant to our audit of the financial statements in Singapore, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ACRA Code. Other Information Management is responsible for the other information. The other information comprises the Directors’ Statement included in pages 1 to 2 but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

4

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TOKIO MARINE LIFE INSURANCE SINGAPORE LTD. (continued) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 Responsibilities of Management and Directors for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Act and FRSs, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair financial statements and to maintain accountability of assets. In preparing the financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. The directors’ responsibilities include overseeing the Group’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with SSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or

error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

5

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TOKIO MARINE LIFE INSURANCE SINGAPORE LTD. (continued) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 Report on Other Legal and Regulatory Requirements In our opinion, the accounting and other records required by the Act to be kept by the Company and by those subsidiary corporations incorporated in Singapore of which we are auditors have been properly kept in accordance with the provisions of the Act. Public Accountants and Chartered Accountants Singapore,

TOKIO MARINE LIFE INSURANCE SINGAPORE LTD. AND ITS SUBSIDIARY STATEMENT OF COMPREHENSIVE INCOME For the financial year ended 31 December 2017

The accompanying notes form an integral part of these financial statements.

6

The Group The Company

Notes 2017

$'000 2016 $'000

2017 $'000

2016 $'000

Income Gross premiums 1,213,365 1,251,382 844,575 888,401 Less: Reinsurance premiums (84,627) (74,749) (59,355) (50,322) Net premiums 1,128,738 1,176,633 785,220 838,079 Fees and commission income 6(a) 5,423 4,633 5,423 4,613 Other income 6(b) 289,713 269,584 183,768 166,578 Other gains/(losses) – net 6(c) 136,367 5,584 97,041 (9,341) Net rental income 1,593 1,711 676 848 Total income 1,561,834 1,458,145 1,072,128 1,000,777 Outgo Claims under policies, paid and outstanding: - Death (47,344) (48,544) (29,500) (23,659) - Maturity (408,788) (284,408) (294,717) (159,586) - Others (78,053) (70,633) (29,370) (29,233) - Surrenders including bonus (136,991) (108,110) (40,016) (30,893) - Annuities (6,511) (6,461) (6,511) (6,461) - Change in Life Assurance Fund 24 (665,657) (649,291) (550,008) (562,632) - Change in Reinsurance assets arising from

policy liabilities 9(ii) 54 (14,388) 54 (14,388) (1,343,290) (1,181,835) (950,068) (826,852) Operating expenses and commission Commission and agency expenses (96,027) (155,486) (53,983) (110,207) Employee compensation 6(d) (50,199) (49,737) (30,070) (29,090) Depreciation 6(e) (2,686) (1,951) (1,206) (1,002) Amortisation 19 (11,025) (10,470) (859) (575) Other operating expenses 6(f) (43,019) (41,352) (26,668) (25,886) Total expenses (1,546,246) (1,440,831) (1,062,854) (993,612) Profit before income tax 15,588 17,314 9,274 7,165 Income tax (expense)/credit 5 (596) (248) 536 1,397 Net profit for the financial year 14,992 17,066 9,810 8,562 Other comprehensive income: Items that may be reclassified subsequently to

profit or loss: Financial assets, available-for-sale - fair value gains/(losses) 3,341 (529) 2,805 (550) - reclassification upon disposal 6(c) (674) (829) (484) (651) - deferred tax 21 (477) 240 (395) 204

Currency translation differences arising from consolidation 1,837 (1,989) - -

Other comprehensive income/(loss), net of tax 4,027 (3,107) 1,926 (997) Total comprehensive income 19,019 13,959 11,736 7,565

TOKIO MARINE LIFE INSURANCE SINGAPORE LTD. AND ITS SUBSIDIARY BALANCE SHEET As at 31 December 2017


7


Notes 2017

$'000 2016 $'000

2017 $'000

2016 $'000

ASSETS Cash and cash equivalents 7 241,926 330,313 142,333 227,726 Trade receivables 5,509 7,019 4,255 3,997 Outstanding premium and agents’ balances 8 29,746 27,101 20,702 16,156 Reinsurance assets 9 74,476 58,928 71,087 54,540 Financial assets, available-for-sale 10 8,088,332 7,029,912 6,292,770 5,425,166 Financial assets at fair value through profit or

loss 11 315,179 253,830 47,878 46,973 Financial assets, held-to-maturity 12 313,065 296,865 - - Derivative financial instruments 13 26,880 1,152 26,577 - Other assets 14 69,358 70,695 45,586 53,003 Loans 15 205,372 205,502 48,119 41,599 Investment properties 16 17,250 17,620 8,539 8,828 Investment in a subsidiary 17 - - 87,636 87,636 Property, plant and equipment 18 63,500 63,664 33,325 33,709 Intangible assets 19 31,280 38,212 8,400 6,710 TOTAL ASSETS 9,481,873 8,400,813 6,837,207 6,006,043 LIABILITIES Claims admitted or intimated 235,862 203,559 81,727 65,738 Trade payables 142,689 135,505 103,196 88,299 Other payables 20 90,105 93,523 69,771 76,419 Current tax liabilities 12,325 17,489 10,204 15,438 Deferred tax liabilities 21 420,073 355,965 397,811 341,659 Staff retirement benefits 22 147 585 62 502 Agents’ retirement benefits 23 9,907 9,430 507 569 Derivative financial instruments 13 - 74,932 - 74,932 Life Assurance Fund 24 8,455,019 7,410,218 6,055,227 5,232,641 TOTAL LIABILITIES 9,366,127 8,301,206 6,718,505 5,896,197 EQUITY Share capital and reserves Share capital 25 36,000 36,000 36,000 36,000 Capital reserve 4,800 4,800 - - Fair value reserve 1,288 (902) 901 (1,025) Foreign currency translation reserve (25,021) (26,858) - - Retained earnings 98,679 86,567 81,801 74,871 TOTAL EQUITY 115,746 99,607 118,702 109,846 TOTAL LIABILITIES AND EQUITY 9,481,873 8,400,813 6,837,207 6,006,043

TOKIO MARINE LIFE INSURANCE SINGAPORE LTD. AND ITS SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the financial year ended 31 December 2017


8

Notes Share capital

Capital reserve

Fair value reserve

Foreign currency

translation reserve

Retained earnings

Total equity

$'000 $'000 $'000 $'000 $'000 $'000 Balance at 1 January 2017 36,000 4,800 (902) (26,858) 86,567 99,607 Dividends relating to 2016 paid 32 - - - - (2,880) (2,880) Total comprehensive income - - 2,190 1,837 14,992 19,019 Balance at 31 December 2017 36,000 4,800 1,288 (25,021) 98,679 115,746 Balance at 1 January 2016 36,000 4,800 216 (24,869) 119,064 135,211 Transfer to Life Assurance Fund 24 - - - - (46,683) (46,683) Dividends relating to 2015 paid 32 - - - - (2,880) (2,880) Total comprehensive (loss)/income - - (1,118) (1,989) 17,066 13,959 Balance at 31 December 2016 36,000 4,800 (902) (26,858) 86,567 99,607 The foreign currency translation reserve and fair value reserve are not distributable.

TOKIO MARINE LIFE INSURANCE SINGAPORE LTD. AND ITS SUBSIDIARY STATEMENT OF CHANGES IN EQUITY - COMPANY For the financial year ended 31 December 2017


9

Notes Share capital

Fair value reserve

Retained earnings

Total equity

$’000 $’000 $’000 $’000 Balance at 1 January 2017 36,000 (1,025) 74,871 109,846 Dividends relating to 2016 paid 32 - - (2,880) (2,880) Total comprehensive income - 1,926 9,810 11,736 Balance at 31 December 2017 36,000 901 81,801 118,702 Balance at 1 January 2016 36,000 (28) 115,872 151,844 Transfer to Life Assurance Fund 24 - - (46,683) (46,683) Dividends relating to 2015 paid 32 - - (2,880) (2,880) Total comprehensive (loss)/income - (997) 8,562 7,565 Balance at 31 December 2016 36,000 (1,025) 74,871 109,846 The fair value reserve is not distributable.

TOKIO MARINE LIFE INSURANCE SINGAPORE LTD. AND ITS SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS For the financial year ended 31 December 2017


10

2017 $'000

2016 $'000

Cash flows from operating activities Profit before income tax 15,588 17,314 Change in life assurance fund 665,657 649,291 Change in Reinsurance assets arising from policy liabilities (54) 14,388 681,191 680,993 Adjustments for:

Depreciation of property, plant and equipment 2,350 1,655 Depreciation of investment properties 336 296 Amortisation of intangible asset 11,025 10,470 (Gain)/loss on disposal of property, plant and equipment (38) 9 Property, plant and equipment written off 32 4 Gain on disposal of investment property (149) - Intangible asset written off 411 - Gain on disposal of: - Financial assets, available-for-sale (96,111) (28,956) - Financial assets, held-to-maturity 9 11

Allowance for impairment written back: - Financial assets, available-for-sale (1,962) (3,756)

Fair value (gains)/losses: - Financial assets at fair value through profit or loss (36,174) (9,834) - Forward foreign exchange contracts (136,563) 64,182 - Warrants (358) (378) - Currency exchange on foreign currency denominated

debt securities 136,815 (25,996) Dividend income (67,886) (63,411) Interest income (221,635) (205,840) Rental Income (1,593) (1,711) Decrease in allowance for impairment of outstanding premiums

and agents’ balances (530) (103) Decrease in provision for staff retirement benefits (41) (42) Provision for agents’ retirement benefits 1,758 1,384 Unrealised currency translation gain 2,509 (3,254)

(407,795) (265,270) Changes in working capital: Receivables and other current assets 6,912 (19,735) Reinsurance assets (15,397) (17,042)

Claims admitted or intimated 29,268 36,751 Trade and other payables 3,842 18,523

24,625 18,497 Income tax (paid)/refunded (3,448) 3,241 Payment of staff retirement benefits (399) - Payment of agents’ retirement benefits (1,476) (1,505) (5,323) 1,736 Net cash provided by operating activities 292,698 435,956

TOKIO MARINE LIFE INSURANCE SINGAPORE LTD. AND ITS SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS For the financial year ended 31 December 2017


11

Note 2017

$'000 2016 $'000

Cash flows from investing activities Purchase of property, plant and equipment (2,078) (4,459) Purchase of investment property - (207) Purchase of intangible assets (4,100) (8,700) Proceeds from disposal of property, plant and equipment 603 113 Proceeds from disposal of investment property 313 43 Purchase of: - Financial assets, available-for-sale (2,924,252) (3,124,006) - Financial assets, held-to-maturity (24,739) (6,448) - Financial assets at fair value through profit or loss (78,434) (118,579) - Derivative financial instruments - (9,080)

Proceeds from disposal of: - Financial assets, available-for-sale 2,260,207 2,195,558 - Financial assets, held-to-maturity 15,157 18,054 - Financial assets at fair value through profit or loss 58,567 95,541 - Derivative financial instruments 36,295 103

Proceeds from repayment/(disbursement) of loans 3,740 (4,135) Rental received 1,872 1,851 Dividend received 67,129 66,313 Interest received 210,750 210,390 Net cash used in investing activities (378,970) (687,648) Cash flows from financing activities Dividends paid to shareholders of the Company (2,880) (2,880) Loan from immediate holding company - 46,683 Interest paid to immediate holding company (1,494) - Net cash (used in)/provided by financing activities (4,374) 43,803 Net decrease in cash and cash equivalents held (90,646) (207,889) Cash and cash equivalents at beginning of financial year 330,313 540,800 Effects of currency translation on cash and cash equivalents 2,259 (2,598) Cash and cash equivalents at end of financial year 7 241,926 330,313 Reconciliation of liabilities arising from financing activities

1 January 2017 $’000

Principal and interest payments

$’000 Non-cash changes

$’000

31 December 2017 $’000

Due to immediate holding company - non-trade (Note 20) 47,129 (1,494) 1,494 - 47,129

TOKIO MARINE LIFE INSURANCE SINGAPORE LTD. AND ITS SUBSIDIARY NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December 2017

12

These notes form an integral part of and should be read in conjunction with the accompanying financial statements. 1. General Information

Tokio Marine Life Insurance Singapore Ltd. (the “Company”) is incorporated and domiciled in Singapore. The address of its registered office is 20 McCallum Street, Tokio Marine Centre, #07-01, Singapore 069046. The principal activity of the Company and its subsidiary is life assurance business.

2. Significant accounting policies 2.1 Basis of preparation

These financial statements have been prepared in accordance with Singapore Financial Reporting Standards (“FRS”). The financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below. The preparation of financial statements in conformity with FRS requires management to exercise its judgement in the process of applying the Group’s accounting policies. It also requires the use of certain critical accounting estimates and assumptions. Areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Notes 3 and 4. Interpretations and amendments to published standards effective in 2017 On 1 January 2017, the Group adopted the new or amended FRS and Interpretations to FRS (“INT FRS”) that are mandatory for application for the financial year. Changes to the Group’s accounting policies have been made as required, in accordance with the transitional provisions in the respective FRS and INT FRS. The adoption of these new or amended FRS and INT FRS did not result in substantial changes to the Group’s and Company’s accounting policies and had no material effect on the amounts reported for the current or prior financial years.


13

2. Significant accounting policies (continued) 2.2 Insurance contracts

The Group issues contracts that transfer mainly insurance risk.

Insurance contracts are those contracts that transfer significant insurance risk. Such contracts may also transfer financial risk. As a general guideline, the Group defines as significant insurance risk the possibility of having to pay benefits on the occurrence of an insured event that are at least 1% more than the benefits payable if the insured event did not occur at some point during the contract.

Investment contracts are those contracts that transfer financial risk with no significant insurance risk. Currently the Group does not issue investment contracts.

(a) Discretionary participation feature

A number of insurance contracts contain a discretionary participation feature (“DPF”). This feature entitles the holder to receive, as a supplement to guaranteed benefits, additional bonuses:

- that are likely to be a significant portion of the total contractual benefits; - whose amount or timing is contractually at the discretion of the Group;

and - that are contractually based on:

(i) the performance of a specified pool of contracts or a specified type of contract;

(ii) realised and/or unrealised investment returns on a specified

pool of assets held by the Group; or (iii) the profit or loss of the Group, fund or other entity that issues

the contract. Local statutory regulations and the terms and conditions of these contracts set out the bases for the determination of the amounts on which the additional discretionary benefits are based (the DPF eligible surplus) and within which the Group may exercise its discretion as to the quantum and timing of their payment to contract holders. At least 90% of the eligible distributions must be attributed to the contract holders as a group, while the amount and timing of the distribution to individual contract holders are at the discretion of the Group, approved by the Board of Directors based on the advice of the Appointed Actuaries.


14

2. Significant accounting policies (continued)

2.2 Insurance contracts (continued)

(b) Recognition and measurement • Participating Insurance Contracts

These contracts insure events associated with human life (for

example death or survival) over a long duration. The contract holders participate in profits of the participating life fund by sharing a significant portion of insurance risk. Profits are distributed to the contract holders by way of a regular cash dividend, reversionary bonus, or terminal dividend or bonus.

Liabilities from these contracts are determined using the prospective

discounted cashflow method. Insurance contract liabilities are determined based on a series of relevant assumptions by the Company’s and the subsidiary’s Appointed Actuaries for all territories that the Company and the subsidiary operate in. Details of the methods used to determine the liabilities are provided in Note 3.

• Non-Participating Insurance Contracts

Non-Participating Insurance Contracts, which pay guaranteed benefits on the occurrence of specified insurance events, can be classified into two main categories: Individual and Group Insurance Contracts.

The Non-Participating Individual Insurance Contracts insure human

life events (for example death, critical illness or survival) over the duration of the contract. Details of the methods used to determine the liabilities are provided in Note 3.

Non-Participating Group Insurance Contracts are short-duration life

insurance contracts mainly issued to employers to insure their commitment to their employees in terms of the employees’ benefit plans. The guaranteed benefits paid on occurrence of the specified insurance event (for example death or disability) are either fixed or linked to the extent of the economic loss suffered by the assured. There are no maturity or surrender benefits.


15

2. Significant accounting policies (continued) 2.2 Insurance contracts (continued)

(b) Recognition and measurement (continued)

• Investment-Linked Contracts

These contracts insure human life events (for example death or survival) over a long duration. Liabilities for Investment-Linked Contracts consist of unit and non-unit reserves.

Unit reserves, comprising mainly the contract holders’ account balances, are determined by multiplying the number of units with the unit prices. The reserves represents the Company’s liabilities in terms of units under the Investment-Linked Contracts.

Non-unit reserves are held for claims, expenses or other net cash outflows, as well as to serve as additional margin for adverse deviations. Non-unit reserves are determined by projecting future cashflows of non-unit income (such as bid offer spread, policy fee, mortality charge and other annual charges) and outgo (including operating, distribution, claims and other expenses). Details of the methods used to determine the liabilities are provided in Note 3.

(c) Premiums

Premiums from Participating, Non-Participating and Investment-Linked Insurance Contracts are recognised on their respective due dates and within grace period of one month for premiums due before the financial year end. Premiums not received on due date and within grace period of one month for premiums due before the financial year end are recognised as revenue in profit or loss with the corresponding outstanding premiums reported in the balance sheet. Outstanding premiums are carried at amortised cost, which approximate fair value. Premiums due after but received before the financial year end are recorded as advance premiums and this item is included in trade payables in the balance sheet. Premiums from insurance contracts which remain outstanding beyond the contractual date would automatically trigger premium loans which are taken against the cash value standing to the credit of the policy. Where the cash value is insufficient to activate a premium loan, the policy lapses and the contract between the Group and the contract holder is deemed cancelled without further liabilities accruing from either party.


16

2. Significant accounting policies (continued) 2.2 Insurance contracts (continued)

(d) Claims

Full provision is made for the estimated cost of all life assurance claims notified but not settled at the balance sheet date using best estimates available at that time. Provision is made for claims incurred but not reported at the balance sheet date using best estimates available at that time.

(e) Commission

The commission expense is incurred or accrued for premiums paid or due within the grace period of one month before the financial year end. The commission expense arising from advance premiums is not accrued in the financial statements until the premiums are due and recognised as revenue in profit or loss.

(f) Liability adequacy test

At each balance sheet date, liability adequacy tests are performed to ensure the adequacy of the insurance contract liabilities. In performing these tests for the Group and the Company, current best estimates of future contractual cash flows and claims handling and administration expenses, as well as investment income from the assets backing such liabilities are used. The results of liability adequacy tests for the Group and the Company are shown in the tables below: Group

Participating Non-

participating Investment-

linked $’000 $’000 $’000 1. Reported insurance contract liabilities net of

reinsurance asset 6,672,949 465,629 157,113 2. Gross Premium Reserve 6,305,991 280,263 28,563 Excess of reported insurance contract liabilities (1-2) 366,958 185,366 128,550 Company

Participating Non-

participating Investment-

linked $’000 $’000 $’000 1. Reported insurance contract liabilities net of

reinsurance asset 5,026,612 222,609 48,147 2. Gross Premium Reserve 4,770,936 68,692 40,096 Excess of reported insurance contract liabilities (1-2) 255,676 153,917 8,051 From the results, it is clear that the reported liabilities for each respective line of business for the Group and the Company are greater than the best estimate liabilities obtained by cash flow method. As such, no shortfall needs to be recorded in the income statement.


17


2.2 Insurance contracts (continued) (g) Reinsurance contracts held

Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts as stated above. The benefits to which the Group is entitled under its reinsurance contracts are recognised as reinsurance assets. These assets consist of short term balances due from reinsurers as well as long term receivables that are dependent on expected claims and benefits arising under the related reinsured insurance contract. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each insurance contract. Reinsurance liabilities are primarily premium payable for reinsurance contracts and are recognised as an expense when due. The Group assesses its reinsurance assets for impairment at each balance sheet date. An allowance for impairment loss is established using the same method used for loans and receivables. These processes are described in Note 2.11(e).

2.3 Revenue recognition

Revenue is recognised as follows:

(a) Premiums

The policy in respect of recognition of premiums is disclosed in Note 2.2(c). (b) Fees and commission income

Fees and commission income comprise mainly commission and service fee income, which includes income earned from the provision of administration services. This fee income is recognised as revenue over the period in which the services are rendered. If the fees are for services to be provided in future periods, then they are deferred and recognised over those periods.

(c) Interest income

Interest income is recognised using the effective interest method.


18


2.3 Revenue recognition (continued)

(d) Dividend income

Dividend income is recognised when the right to receive payment is established.

(e) Rental income

Rental income from operating leases on investment properties is recognised on a straight-line basis over the lease term.

2.4 Group accounting

Subsidiaries

(i) Consolidation

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group fully. They are de-consolidated from the date on which control ceases. In preparing the consolidated financial statements, intercompany transactions, balances and unrealised gains on transactions between group entities are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment indicator of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency of policies adopted by the Group.

(ii) Acquisitions

The acquisition method of accounting is used to account for business combinations by the Group.

The consideration transferred for the acquisition of a subsidiary or business comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes any contingent consideration arrangement and any pre-existing equity interest in the subsidiary measured at their fair values at the acquisition date.


19

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

Subsidiaries (continued)

(ii) Acquisitions (continued) Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date.

(iii) Disposals When a change in the Group’s ownership interest in a subsidiary results in a loss of control over the subsidiary, the assets and liabilities of the subsidiary including any goodwill are derecognised. Amounts previously recognised in other comprehensive income in respect of that entity are also reclassified to profit or loss or transferred directly to retained earnings if required by a specific Standard. Any retained equity interest in the entity is remeasured at fair value. The difference between the carrying amount of the retained interest at the date when control is lost and its fair value is recognised in profit or loss. Please refer to the paragraph “Investment in a subsidiary” for the accounting policy on investment in a subsidiary (Note 2.8) in the separate financial statements of the Company.

2.5 Property, plant and equipment (a) Measurement

(i) Land and buildings

Land and buildings are initially recognised at cost. Freehold land is subsequently carried at cost less accumulated impairment losses. Leasehold land and buildings are subsequently carried at cost less accumulated depreciation and accumulated impairment losses (Note 2.10).

(ii) Other property, plant and equipment

All other items of property, plant and equipment are initially recognised at cost and subsequently carried at cost less accumulated depreciation and impairment losses (Note 2.10).


20

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

(iii) Components of cost

The cost of an item of property, plant and equipment initially recognised includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. The projected cost of dismantlement, removal or restoration costs is also included as part of the cost of property, plant and equipment if the obligation for dismantlement, removal or restoration is incurred as a consequence of acquiring or using the asset.

(b) Depreciation

Freehold land is not depreciated. Depreciation on other items of property, plant and equipment is calculated using the straight-line method to allocate their depreciable amounts over their estimated useful lives as follows:

Useful lives Leasehold land and buildings Shorter of 50 years and the lease term Motor vehicles 5 years Furniture and equipment 3 - 10 years The residual values, estimated useful lives and depreciation method of property, plant and equipment are reviewed and adjusted as appropriate, at each balance sheet date. The effects of any revision are recognised in profit or loss when the changes arise.

(c) Subsequent expenditure

Subsequent expenditure relating to property, plant and equipment that has already been recognised is added to the carrying amount of the asset only when it is probable that future economic benefits associated with the item will flow to the Group and the cost can be measured reliably. All other repair and maintenance expenses are recognised in profit or loss when incurred.

(d) Disposal

On disposal of an item of property, plant and equipment, the difference between the net disposals proceeds and its carrying amount is recognised in profit or loss.


21


2.6 Intangible assets

(a) Bancassurance rights

The bancassurance agreement provides an exclusive right to the use of the bancassurance network. The agreement fee is amortised over its useful life of 5 years using the straight-line method. It is reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Please refer to Note 2.10 for accounting policy on impairment of non-financial assets.

(b) Acquired computer software licences Acquired computer software licences are initially capitalised at cost which

includes the purchase prices (net of any discounts and rebates) and other directly attributable costs of preparing the asset for its intended use. Direct expenditures including employee costs, which enhance or extend the performance of computer software beyond its specifications and which can be reliably measured, are added to the original cost of the software. Costs associated with maintaining the computer software are recognised as an expense when incurred.

Computer software licences are subsequently carried at cost less

accumulated amortisation and accumulated impairment losses. These costs are amortised to profit or loss using the straight-line method over their estimated useful lives of four to ten years.

The amortisation period and amortisation method of intangible assets are reviewed at least at each balance sheet date. The effects of any revision are recognised in profit or loss when the changes arise.

2.7 Investment properties

Investment properties include those portions of buildings that are held for long-term rental yields and/or for capital appreciation and land under operating leases that are held for long-term capital appreciation or for a currently indeterminate use.

Investment properties are initially recognised at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses. Depreciation is calculated using a straight-line method to allocate the depreciable amounts over the estimated useful lives of 50 years. The residual values, useful lives and depreciation method of investment properties are reviewed, and adjusted as appropriate, at each balance sheet date. The effects of any revision are included in profit or loss when the changes arise.


22

2. Significant accounting policies (continued) 2.7 Investment properties (continued)

The cost of major renovations and improvements is capitalised and the carrying amounts of the replaced components are recognised in profit or loss. The cost of maintenance, repairs and minor improvements is recognised in profit or loss when incurred. On disposal of an investment property, the difference between the disposal proceeds and its carrying amount is recognised in profit or loss.

2.8 Investment in a subsidiary

Investment in a subsidiary is stated at cost less accumulated impairment losses (Note 2.10) in the Company’s balance sheet. On disposal, the difference between net disposal proceeds and the carrying amount of the investment is recognised in profit or loss.

2.9 Structured entities

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. A structured entity often has some or all of the following features or attributes: (a) restricted activities, (b) a narrow and well-defined objective, such as to provide investment opportunities for investors by passing on risks and rewards associated with the assets of the structured entity to investors, (c) insufficient equity to permit the structured entity to finance its activities without subordinated financial support and (d) financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches). The Group considers all of its investments in funds to be investments in unconsolidated structured entities. The Group invests in funds whose objectives range from achieving medium to long term capital growth. The funds are managed by related and unrelated asset managers and apply various investment strategies to accomplish their respective investment objectives. The funds finance their operations by issuing redeemable shares/units which entitles the holder to a proportional stake in the respective fund’s net assets. The Group holds redeemable shares/units in each of these funds. The change in fair value of the funds classified as fair value through profit or loss is included in the Consolidated Statement of Comprehensive Income in “other gains/(losses) – net”. The change in fair value of the funds classified as available-for-sale is included in the Consolidated Balance Sheet within the fair value reserve and the Life Assurance Fund.


23

2. Significant accounting policies (continued) 2.10 Impairment of non-financial assets

Property, plant and equipment Intangible assets Investment in a subsidiary Investment properties Property, plant and equipment, intangible assets, investment in a subsidiary and investment properties are tested for impairment whenever there is any objective evidence or indication that these assets may be impaired. For the purpose of impairment testing of these assets, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, the recoverable amount is determined for the cash-generating-unit (“CGU”) to which the asset belongs. If the recoverable amount of the asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. The difference between the carrying amount and recoverable amount is recognised as an impairment loss in profit or loss.

An impairment loss for an asset is reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. The carrying amount of an asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of any accumulated amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss is recognised in profit or loss.

2.11 Financial assets (a) Classification

The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity and available-for-sale financial assets. The classification depends on the nature of the assets and the purpose for which the assets were acquired. Management determines the classification of its financial assets at initial recognition and in the case of assets classified as held-to-maturity, re-evaluates this designation at each balance sheet date. The designation of financial assets at fair value through profit or loss is irrevocable.


24


2.11 Financial assets (continued)

(a) Classification (continued)

(i) Financial assets at fair value through profit or loss

This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified as held for trading if it is acquired principally for the purpose of selling in the short term. Financial assets designated as at fair value through profit or loss at inception are those that are managed and their performance are evaluated on a fair value basis, in accordance with the Group’s investment strategy. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months after the balance sheet date.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are presented as current assets, except those maturing later than 12 months after the balance sheet date which are presented as non-current assets. Loans and receivables are presented as “Cash and cash equivalents”, “Trade receivables”, “Outstanding premium and agents’ balances”, “Reinsurance assets” and “Loans” on the balance sheet.

(iii) Financial assets, held-to-maturity

Financial assets, held-to-maturity are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. If the Group were to sell other than an insignificant amount of held-to-maturity financial assets, the whole category would be tainted and reclassified as Financial assets, available-for-sale. They are presented as non-current assets, except for those maturing within 12 months after the balance sheet date which are presented as current assets.


25


2.11 Financial assets (continued)

(a) Classification (continued)

(iv) Financial assets, available-for-sale

Financial assets, available-for-sale are non-derivatives that are either designated in this category or not classified in any of the other categories. They are presented as non-current assets unless management intends to dispose off the assets within 12 months after the balance sheet date.

(b) Recognition and derecognition

Regular way purchases and sales of financial assets are recognised on trade-date – the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

On disposal of a financial asset, the difference between the sale proceeds and the carrying amount is recognised in profit or loss. Any amount in the fair value reserve relating to that asset is transferred to profit or loss.

(c) Initial measurement

Financial assets are initially recognised at fair value plus transaction costs except for financial assets at fair value through profit or loss, which are recognised at fair value. Transaction costs for financial assets at fair value through profit or loss are recognised immediately as expenses.

(d) Subsequent measurement

Financial assets, both available-for-sale and at fair value through profit or loss, are subsequently carried at fair value. Loans and receivables and financial assets, held-to-maturity are subsequently carried at amortised cost using the effective interest method.


26

2. Significant accounting policies (continued) 2.11 Financial assets (continued)

(d) Subsequent measurement (continued)

Changes in the fair value of financial assets at fair value through profit or loss, including the effects of currency translation, interest and dividends, are recognised in profit or loss when the changes arise.

Interest and dividend income on financial assets, available-for-sale are recognised separately in profit or loss. Changes in the fair values of available-for-sale debt securities (i.e. monetary items) denominated in foreign currencies are analysed into currency translation differences on the amortised cost of the securities and other changes; the currency translation differences are recognised in profit or loss and the other changes are recognised in the fair value reserve. Changes in fair values of available-for-sale equity securities (i.e. non-monetary items) are recognised in the fair value reserve, together with the related currency translation differences.

(e) Impairment

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired and recognises an allowance for impairment when such evidence exists. (i) Loans and receivables/Financial assets, held-to-maturity

Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy, and default or significant delay in payments are objective evidence that these financial assets are impaired. The carrying amount of these assets is reduced through the use of an impairment allowance account which is calculated as the difference between the carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. When the asset becomes uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are recognised against the same line item in profit or loss. The allowance for impairment loss account is reduced through profit or loss in a subsequent period when the amount of impairment loss decreases and the related decrease can be objectively measured. The carrying amount of the asset previously impaired is increased to the extent that the new carrying amount does not exceed the amortised cost, had no impairment been recognised in prior periods.


27

2. Significant accounting policies (continued) 2.11 Financial assets (continued)

(e) Impairment (continued)

(ii) Financial assets, available-for-sale

In addition to the objective evidence of impairment described in Note 2.11(e)(i), a significant or prolonged decline in the fair value of an equity security below its cost is considered as an indicator that the financial asset is impaired. The cumulative loss that was recognised in the fair value reserve is transferred to profit or loss. The cumulative loss is measured as the difference between the acquisition cost (net of any principal repayments and amortisation) and the current fair value, less any impairment loss previously recognised as an expense. The impairment losses recognised as an expense on equity securities are not reversed through profit or loss.

2.12 Offsetting of financial instruments Financial assets and liabilities are offset and the net amount reported in the balance

sheet when there is a legally enforceable right to offset and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

2.13 Trade and other payables

Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. They are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). Otherwise, they are presented as non-current liabilities.

Trade and other payables are initially measured at fair value, and subsequently measured at amortised cost, using the effective interest method.


28

2. Significant accounting policies (continued) 2.14 Derivative financial instruments

A derivative financial instrument is initially recognised at its fair value on the date the contract is entered into and is subsequently carried at its fair value. Fair value changes for derivative financial instruments that do not qualify for hedge accounting are recognised in profit or loss in the financial year when the changes arise. Transaction costs incurred in buying and selling derivative instruments are recognised in the profit or loss account when incurred. All derivatives are carried at assets when fair value is positive and as liabilities when fair value is negative.

2.15 Fair value estimation of financial assets and liabilities

The fair value of financial instruments traded in active markets (such as exchange-traded and over-the-counter securities and derivatives) is based on quoted market prices at the balance sheet date. The quoted market prices used for financial assets are the current bid prices; the appropriate quoted market prices for financial liabilities are the current asking price. The fair values of financial instruments that are not traded in an active market are determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Where appropriate, quoted market prices or dealer quotes for similar instruments are used. Valuation techniques, such as estimated discounted cash flow analyses, are also used to determine fair values of the financial instruments.

The fair values of currency forwards are determined using actively quoted forward exchange rates. The fair values of current financial assets and liabilities carried at amortised cost approximate their carrying amounts.

2.16 Operating leases

(a) When the Group is the lessee:

The Group leases certain assets from third parties.

Leases of assets where substantially all risks and rewards incidental to ownership are retained by the lessors are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessors) are recognised in profit or loss on a straight-line basis over the period of the lease.


29

2. Significant accounting policies (continued) 2.16 Operating leases (continued)

(b) When the Group is the lessor:

Leases of investment properties where the Group retains substantially all risks and rewards incidental to ownership are classified as operating leases. Rental income from operating leases (net of any incentives given to the lessees) is recognised in profit or loss on a straight-line basis over the lease term. Initial direct costs incurred by the Group in negotiating and arranging operating leases are added to the carrying amount of the leased assets and recognised as an expense in profit or loss over the lease term on the same basis as the lease income.

2.17 Income tax Current income tax for current and prior periods is recognised at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred income tax is recognised for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements except when the deferred income tax arises from the initial recognition of an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of transaction.

A deferred income tax liability is recognised on temporary differences arising on investment in a subsidiary, except where the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

A deferred income tax asset is recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences and tax losses can be utilised.


30

2. Significant accounting policies (continued) 2.17 Income tax (continued)

Deferred income tax is measured:

(i) at the tax rates that are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date; and

(ii) based on the tax consequence that would follow from the manner in which

the Group expects, at the balance sheet date, to recover or settle the carrying amounts of its assets and liabilities.

Current and deferred income tax are recognised as income or expenses in profit or loss, except to the extent that the tax arises from a business combination or a transaction which is recognised directly in equity. Deferred tax arising from the fair value gains and losses on Financial assets, available-for-sale are charged or credited directly to Equity/Life assurance fund in the same period the temporary differences arise.

2.18 Provisions

Provisions for agents’ retirement benefits are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated.

Agents’ retirement benefits are provided for the Group’s tied agents and are calculated in accordance with the terms and conditions of the Agency Agreement.


31

2. Significant accounting policies (continued) 2.19 Employee compensation

(a) Defined contribution plans

Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into separate entities such as the Central Provident Fund and Employees Provident Fund on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The Group’s contributions are recognised as employee compensation expenses when they are due. No legal or constructive obligation exists to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years. The Group’s contribution to defined contribution plans are recognised in the financial year to which they relate.

(b) Employee leave entitlement

Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long service leave as a result of services rendered by employees up to the balance sheet date.

(c) Staff retirement benefits

Retirement benefits are provided for executive staff. The benefit accrued is computed based on the length of service of the employees and his last drawn salary less the employer’s contribution to the employee’s Central Provident Fund or Employees Provident Fund.

2.20 Currency translation

(a) Functional and presentation currency

Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The financial statements are presented in Singapore Dollars, which is the functional currency of the Company.


32

2. Significant accounting policies (continued) 2.20 Currency translation (continued)

(b) Transactions and balances

Transactions in a currency other than the functional currency (“foreign currency”) are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Currency exchange differences from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rates at the balance sheet date are recognised in profit or loss. Non-monetary items measured at fair values in foreign currencies are translated using the exchange rates at the date when the fair values are determined.

(c) Translation of Group entities’ financial statements

The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) assets and liabilities are translated at the closing rates at the date of

the balance sheet; (ii) income and expenses for each income statement are translated at

the average exchange rate (unless the average rate is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated using the exchange rates at the dates of the transactions); and

(iii) all resulting currency translation differences are recognised in other

comprehensive income and accumulated in the foreign currency translation reserve. These currency translation differences are reclassified to profit or loss on disposal or partial disposal of the entity giving rise to such reserve.

2.21 Cash and cash equivalents

For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and deposits with financial institutions which are subject to an insignificant risk of change in value.


33

2. Significant accounting policies (continued) 2.22 Dividends to Company’s shareholders Dividends to the Company’s shareholders are recognised when the dividends are

approved for payment. 3. Insurance contracts

Insurance contract liabilities are determined based on a series of relevant assumptions made by the actuary of the respective companies in all the territories that the Group operates in.

(a) Methodology

A prospective cashflow method, known as gross premium valuation method, is used to compute insurance contract liabilities. Under the gross premium valuation approach, broadly speaking, the insurance contract liabilities are determined by first projecting future cash flows using realistic assumptions and then discounting these cash flow streams at appropriate interest rates.

For this liability valuation method, assumptions are needed for:

Mortality and morbidity Persistency Discount rate Renewal expenses and inflation Expected future bonus (for participating policies)

For participating policies, the insurance contract liabilities include provision for future payments arising for both guaranteed and non-guaranteed benefits. In addition, the insurance contract liabilities are derived not only by aggregating the insurance contract liability of all policies in the fund, but are also dependent on the value of assets backing the liabilities and the extent to which benefits are guaranteed. The insurance contract liabilities of the non-participating or investment-linked fund are calculated by aggregating the insurance contract liability of all policies in the fund. Additional provision is made in the liability valuation assumptions to allow for any adverse deviation from the best estimate experience and to reflect the inherent uncertainty of the best estimate of the insurance liabilities. Methodology used to calculate provision for adverse deviation is consistent with generally accepted actuarial practice. For Singapore, it is also consistent with the guidance published by the Singapore Actuarial Society.


34

3. Insurance contracts (continued)

(b) Process to determine assumptions

All assumptions are reviewed and updated, if necessary, each year in order to value insurance contract liabilities that reflect the Company’s experience. The assumptions are required to be on best estimate basis.

Mortality and morbidity

Assumptions for death and total and permanent disability (TPD) rates used in each territory are based on annual investigation into their respective mortality and morbidity experiences over the recent years, and are generally expressed as a percentage of a standard table or reinsurer’s risk premium rates. For all territories, morbidity assumptions for Critical Illness benefits are based on a percentage of the reinsurer’s risk premium rates. For Singapore, Brunei, and Malaysia the mortality assumption for certain product groups have been revised to reflect recent experience. Morbidity assumptions for Singapore and Brunei remains unchanged. While for Malaysia, certain Investment-Linked medical and accidental riders’ loss ratio have been revised upward to reflect past morbidity experience.

Persistency

For each territory, an investigation into the Group’s experience over recent years was performed. This investigation is conducted with respect to product classes, policy duration and premium payment mode (regular or single premium) as persistency rates are expected to vary by these factors. An allowance is then made for any trends in the data to arrive at a best estimate of future persistency rates. For Singapore and Brunei, persistency remains broadly stable. The assumptions for certain product groups have been revised to reflect recent experience. For Malaysia, persistency remains broadly stable except for the Whole Life Non-Participating products distributed through Agency channel. The assumptions have been suitably revised to reflect this.


35

3. Insurance contracts (continued) (b) Process to determine assumptions (continued)

Discount rate

For the Participating business, discount rates used to value insurance contract liabilities for each territory is determined based on the best estimate net investment return.

To determine the best estimate investment returns, the Group has broken down the assets in the fund as at the reporting date into various asset classes and has applied long term expected returns to each class. A weighted average rate of investment return is then derived by combining different proportions of the various asset classes. A weighted average return is computed based on a notional asset mix and the long term expected return of each asset class. The assumed investment expense is subtracted from the results to arrive at the best estimate investment return. This is done separately for suitable subgroups of assets within the fund (single and regular premium products).

For Brunei, the discount rate assumptions for Participating business have been revised downward. The assumptions for Singapore and Malaysia remains unchanged. Contract liabilities for non-participating business and minimum condition liability of the participating business are computed by discounting policy cash flows using risk-free interest rates. The risk-free rates used are derived from the gross yields to redemption of benchmark government securities as at the date of valuation in line with regulatory requirements.

Renewal expenses and inflation

For each territory, expense analyses are carried out regularly to determine the long-term unit cost assumptions. The analysis is done by dividing the current level of expense with the business volume. Adjustments are made to reflect expected changes in expense levels or business volume in the future, if any, to arrive at the long term best estimate unit cost assumptions. Different expense inflation is used for each territory, reflecting their respective interest rate and general economic environment. The inflation assumption for Singapore and Brunei remains at 2% per annum. For Malaysia, this remains at 3% per annum.


36

3. Insurance contracts (continued) (b) Process to determine assumptions (continued)

Additional assumptions for investment-linked contracts

For investment-linked insurance policies, additional estimates are made for unit fund growth rate, fund management charge and investment and administration expenses. These assumptions are used for calculating the liabilities and are updated at each reporting date to reflect the best estimates.

- Unit growth rate: For Malaysia, it is determined by taking into

consideration the average actual unit price growth rate weighted by unit fund values. For Singapore, the unit growth rate is set to an average risk free return consistent with the risk free discount rate and average in-force duration of the product group in question. There is no investment-linked business in Brunei.

- Fund management charge: Current actual rates of fund management charge the Company levies are used in the valuation. No changes for Singapore and Malaysia.

- Investment expenses: A portfolio average of investment and other related expenses, as determined based on an internal expense analysis, for investment linked funds are used. No changes for Singapore and Malaysia.

- Take-up rate for premium holding option: For Singapore, the take-up rate for the option to cease premium payment while the policy remains in-force is set based on industry experience.

There are no changes to other assumptions from the previous year.


37

3. Insurance contracts (continued) (c) Assumptions used

Singapore and Brunei Malaysia Mortality and morbidity Death, TPD and DD:

Between 64% and 100% of reinsurance rates, depending on product type, age and gender.

Death, TPD and DD: Between 45% to 110% of standard mortality table depending on product type.

Discount rate (best estimate)

Par Fund: between 3.4% and 5.0% Par Fund: 3.86% to 5.75% (after tax investment return).

Risk-free discount rate (For guaranteed benefits for Min. Condition Liability (MCL))

Derivation based on MAS Notice 319 Malaysian Government Security (MGS) rate as at 31/12/2017 (Obtained from BondWeb - bond rating agency prescribed by Bank Negara Malaysia (BNM)).

Persistency Based on Company’s experience.

Based on subsidiary’s experience.

Management expenses Based on past actual expenses with

adjustment for future trend, expressed as unit costs per in-force policy and percentage of premiums.

Based on subsidiary’s assumptions (expressed as unit costs per in-force policy and percentage of premiums).

Distribution expenses Based on actual payments, expressed

as percentage of commissions. Maximum limit based on BNM’s “Guidelines on Operating Cost Control” (OCC).

Expense inflation rate 2% p.a. 3% p.a.

(d) Insurance contract liabilities

Figures in S$‘000 Singapore and Brunei Malaysia 2017 2016 2017 2016 Participating Business 5,026,612 4,527,660 1,646,337 1,604,721 Non-Participating Business 237,611 231,312 243,021 195,795 Investment-Linked Business 48,124 42,323 108,966 72,397

The insurance contract liabilities are gross of reinsurance assets and exclude the deferred tax liabilities related to the Participating Business.

(e) Sensitivity analysis

The Company conducted sensitivity analyses of the value of insurance liabilities disclosed to movements in the assumptions used in the estimation of insurance liabilities. The analyses are based on a change in an assumption while holding all other assumptions constant.


38

3. Insurance contracts (continued)

(e) Sensitivity analysis (continued)

In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated, for example: change in interest rate and change in market values; and change in lapses and future mortality.

For liabilities under Participating contracts (where total insurance contract liabilities take the value of the policy assets of the Participating fund), changes in these assumptions will not cause a change to the reported insurance contract liability unless the guaranteed liabilities under the stressed assumptions exceeds the value of assets backing liabilities. The sensitivities are based on liabilities net of reinsurance assets.

Singapore and Brunei - Participating and Non-Participating Business

Change in liability Change in 2017 2016 Variable variable Value Percentage Value Percentage $’000 (%) $’000 (%) Worsening of annuitant mortality +25% -4,589 -0.09% -4,622 -0.10% Improvement in annuitant mortality -25% 5,132 0.10% 5,204 0.11% Worsening of assurance mortality and

morbidity +25% 9,615 0.18% 7,927 0.17% Improvement in assurance mortality and

morbidity -25% -7,064 -0.13% -6,075 -0.13% Worsening of lapse rate +25% -385 -0.01% 46 0.00% Improvement in lapse rate -25% 885 0.02% 313 0.01% Increase in nominal discount rate +100bps -11,386 -0.22% -10,842 -0.23% Lowering of nominal discount rate -100bps 12,785 0.24% 12,148 0.26% Worsening of expense +25% 5,117 0.10% 4,047 0.09% Improvement in expense -25% -5,031 -0.10% -3,983 -0.08%

Liabilities of non-linked insurance contracts are most sensitive to changes in discount rates.

Singapore - Investment-linked insurance contracts

Change in liability Change in 2017 2016 Variable variable Value Percentage Value Percentage $’000 (%) $’000 (%) Worsening of assurance mortality and

morbidity +25% 37 0.08% 20 0.05% Improvement in assurance mortality and

morbidity -25% -25 -0.05% -15 -0.04% Worsening of lapse rate +25% -49 -0.10% -46 -0.11% Improvement in lapse rate -25% 86 0.18% 86 0.20% Increase in nominal discount rate +100bps 36 0.07% 1 0.00% Lowering of nominal discount rate -100bps -35 -0.07% -5 -0.01% Worsening of expense +25% 785 1.63% 339 0.80% Improvement in expense -25% -654 -1.36% -173 -0.41% Liabilities of investment-linked insurance contracts are most sensitive to changes in management expense. The increase in sensitivity for expense, compared to the previous year, is due to additional expense overrun reserves held at the end of 2017.


39

3. Insurance contracts (continued) (e) Sensitivity analysis (continued)

Malaysia - Participating & Non-Participating Business

Change in liability 2017 2016 Variable Change in

variable Value in Value in

RM’000 $’000 (%) RM’000 $’000 (%) Worsening of assurance

mortality and morbidity +25% 99,538 32,798 1.74% 84,770 27,330 1.52% Improvement in assurance

mortality and morbidity -25% -100,191 -33,013 -1.75% -85,495 -27,564 -1.53% Worsening of lapse rate +25% 6,932 2,284 0.12% 14,434 4,653 0.26% Improvement in lapse rate -25% -4,893 -1,612 -0.09% -15,195 -4,899 -0.27% Increase in nominal discount

rate +100bps -60,366 -19,891 -1.05% -50,213 -16,189 -0.90% Lowering of nominal discount

rate -100bps 73,136 24,098 1.28% 60,023 19,351 1.07% Worsening of expense +25% 18,188 5,993 0.32% 15,163 4,889 0.27% Improvement in expense -25% -17,961 -5,918 -0.31% -15,031 -4,846 -0.27%

Liabilities of non-linked insurance contracts are affected most by changes in mortality rates.

Malaysia - Investment-linked insurance contracts

Change in liability 2017 2016 Variable Change in

variable Value in Value in

RM’000 $’000 (%) RM’000 $’000 (%) Worsening of assurance

mortality +25% 2,023 666 0.61% 635 205 0.28% Improvement in assurance

mortality -25% -829 -273 -0.25% -230 -74 -0.10% Worsening of lapse rate +25% -1,926 -635 -0.58% -556 -179 -0.25% Improvement in lapse rate -25% 2,296 756 0.69% 684 221 0.30% Increase in nominal discount

rate +100bps -8,604

-2,835 -2.60% -3,335 -1,075 -1.49%

Lowering of nominal discount rate

-100bps 10,255 3,379 3.10%

3,905 1,259 1.74%

Worsening of expense +25% 3,935 1,297 1.19% 1,365 440 0.61% Improvement in expense -25% -2,834 -934 -0.86% -993 -320 -0.44%

The liabilities of investment-linked insurance contracts are most sensitive to changes in discount rates. There is a general increase in sensitivity due to sales of new products in 2017 and revisions to charges for the in-force portfolio. There are no annuity policies for the Malaysia business.


40

4. Critical accounting estimates and judgements

Estimates/assumptions and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(a) Liabilities of insurance business

The estimation of the ultimate liability arising from claims made under life insurance contracts is the Group’s most critical accounting estimate. The process for estimating the liabilities of insurance business is described in Note 3.

(b) Impairment of financial assets, available-for-sale

The Group reviews its financial assets for objective evidence of impairment on a quarterly basis during the investment committee meeting. Equity securities are considered to be impaired if there has been a significant or prolonged period of decline in fair value below its cost or if there is objective evidence of impairment. Debt securities are considered to be impaired if there has been default in cash flows and a significant decline in credit rating below investment grade. The consideration of this requires management’s judgement. The Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of and near-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow. If actual experience differs negatively from the assumptions and other considerations used in the consolidated financial statements, unrealised losses currently in equity may be recognised in profit or loss in future periods.

(c) Determining the fair value of unquoted investments

The Group holds financial assets which are not quoted on active markets, particularly its fixed income portfolio. The majority of the unquoted fixed income investments is debt securities issued by government and public authorities and by private sector corporations. The fair values of these financial assets are based on quotations from independent third parties, such as brokers. The quotations from these third parties may change drastically due to market and economic conditions. The Group uses recent arm’s length transactions or reference to instruments that are substantially the same or at cost if these are not available to value its unlisted equities. The assumption for valuation at cost will be affected by change in credit risk and interest rate and may have a negative impact on the financial statements.


41

4. Critical accounting estimates and judgements (continued)

(d) Uncertain tax positions

The Group is subject to income taxes in a number of jurisdictions. In determining the income tax liabilities, management has estimated the amount of capital allowances and the taxability/deductibility of certain income/expenses (“uncertain tax positions”) at each tax jurisdiction.

The Group has significant open tax assessments with a tax authority at the balance sheet date that requires a certain degree of judgement and estimates. As the amount are subject to query by the tax authority, the Group has recognised the tax liability on these uncertain tax positions.

5. Income taxes (a) Income tax expense/(credit)


2017 $’000

2016 $’000

2017 $’000

2016 $’000

Life Assurance Fund On the profit for the financial year: Singapore income tax 7,907 10,032 7,907 10,032 Foreign income tax 8,048 8,137 - - Deferred tax (Note 21) 21,571 33,171 19,664 33,398 37,526 51,340 27,571 43,430 Over provision in preceding financial

years: Singapore income tax (7,677) (9,342) (7,677) (9,342) Foreign income tax (1,019) (1,189) - - 28,830 40,809 19,894 34,088 Shareholders’ fund On the results for the financial year: Singapore income tax 858 207 858 207 Foreign income tax 1,346 1,815 - - Deferred tax (Note 21) (21) (20) - - 2,183 2,002 858 207 Over provision in preceding financial

years: Singapore income tax (1,394) (1,604) (1,394) (1,604) Foreign income tax (193) (150) - - 596 248 (536) (1,397)


42

5. Income taxes (continued) (b) The tax expense on profit differs from the amount that would arise using the

Singapore standard rate of income tax due to the following:


2017 $’000

2016 $’000

2017 $’000

2016 $’000

Profit before tax 15,588 17,314 9,274 7,165 Change in Life Assurance Fund 665,657 649,291 550,008 562,632 Change in reinsurance assets arising

from policy liabilities (54) 14,388 (54) 14,388 681,191 680,993 559,228 584,185

Tax calculated at Singapore statutory

tax rate of 17% (2016: 17%) 115,802 115,769 95,069 99,311 Tax calculated at concessionary tax rate (4,529) (4,350) (4,529) (4,350) Effect of different tax rates in other

countries (6,993) (4,003) - - Income not subject to tax (10,400) (9,650) (8,046) (7,302) Expenses not deductible for tax purpose 1,176 1,001 1,089 813 Tax effect of overseas branch 327 119 327 119 Effect of concessionary tax rate on

participating fund (11,442) (19,354) (11,442) (19,354) Tax effect of change in actuarial

valuation (44,780) (26,368) (44,315) (25,778) Others 548 178 276 178 39,709 53,342 28,429 43,637

6(a). Fees and commission income The Group The Company

2017 $’000

2016 $’000

2017 $’000

2016 $’000

Management fee rebates and

commission income 5,423 4,633 5,423 4,613


43

6(b). Other income The Group The Company

2017 $’000

2016 $’000

2017 $’000

2016 $’000

Investment income Dividend income - Financial assets, available-for-sale 65,643 62,167 47,976 47,124

- Financial assets at fair value through

profit or loss 2,243 1,244 - - - Subsidiary - - 1,604 - 67,886 63,411 49,580 47,124 Interest income - Loans 13,862 14,365 2,822 2,842 - Fixed deposits 4,769 6,327 1,258 2,689 - Financial assets, available-for-sale 185,171 167,572 129,916 113,590


profit or loss 2,967 2,020 - - - Financial assets, held-to-maturity 14,866 15,556 - - 221,635 205,840 133,996 119,121 Government grant 192 333 192 333

289,713 269,584 183,768 166,578 6(c). Other gains/(losses) - net The Group The Company

2017 $’000

2016 $’000

2017 $’000

2016 $’000

Fair value gains/(losses)


profit or loss 36,174 9,799 7,726 2,572 - Derivatives 136,921 (63,804) 136,563 (64,182) 173,095 (54,005) 144,289 (61,610) Financial assets, available-for-sale

-Transfer from Life Assurance Fund on

disposal (Note 24) 95,437 28,127 85,344 23,801 -Transfer from equity on disposal 674 829 484 651

- Currency exchange (losses)/gains on

debt securities (Note 10) (136,815) 25,996 (136,815) 25,996

- Impairment losses written back

(Note 10) 1,962 3,756 1,871 2,015 (38,742) 58,708 (49,116) 52,463 Financial assets, held-to-maturity - Net loss on early redemption (9) (11) - - Gain on disposal of investment property 149 - - -

Gain/(loss) on disposal of property, plant

and equipment 38 (9) - (9) Property, plant and equipment written off (32) (4) - - Intangible assets written off (411) - (411) - Currency exchange losses - net (976) (2,284) (976) (2,284) Others 3,255 3,189 3,255 2,099 136,367 5,584 97,041 (9,341)


44

6(d). Employee compensation The Group The Company 2017

$’000 2016 $’000

2017 $’000

2016 $’000

Employee compensation Wages and salaries 44,681 43,923 27,076 26,204

Employer’s contribution to defined contribution plans including Central Provident Fund and Employees’ Provident Fund 5,559 5,856 3,035 2,895

Staff retirement benefits (41) (42) (41) (9) 50,199 49,737 30,070 29,090 6(e). Depreciation The Group The Company 2017

$’000 2016 $’000

2017 $’000

2016 $’000

Depreciation of property, plant and

equipment: - Leasehold land and buildings 946 1,145 255 255 - Motor vehicles 161 49 - - - Furniture and equipment 1,243 461 662 458 Total depreciation (Note 18) 2,350 1,655 917 713 Depreciation of investment properties: Buildings (Note 16) 336 296 289 289 2,686 1,951 1,206 1,002 6(f). Other operating expenses The Group The Company

2017 $’000

2016 $’000

2017 $’000

2016 $’000

Rental expenses 663 729 519 596

Investment management fees to a

fellow subsidiary 7,382 6,964 7,382 6,964

Maintenance of property, plant and

equipment 1,765 2,179 1,563 2,066 Professional fees 2,624 3,380 2,523 2,955 Management fee to a fellow subsidiary 3,360 3,343 2,752 2,767 Advertising 875 1,479 474 674 Computer services and expenses 1,262 1,490 24 20 Medical fees 734 985 173 208 Printing and stationery 731 972 191 321 Utilities 817 745 46 43 Other expenses 22,806 19,086 11,021 9,272 43,019 41,352 26,668 25,886


45

7. Cash and cash equivalents (a)


2017 $’000

2016 $’000

2017 $’000

2016 $’000

Cash at bank and on hand 97,746 192,583 86,785 180,051 Fixed deposits with financial institutions 144,180 137,730 55,548 47,675 241,926 330,313 142,333 227,726

(b) The fixed deposits with financial institutions at the balance sheet date had an

average maturity of 2 months (2016: 2 months) from the end of the financial year with the following weighted average effective interest rates per annum:

The Group The Company 2017 2016 2017 2016 Singapore Dollar 1.20% 0.93% 1.20 0.93% Malaysian Ringgit 0.03% 3.55% - -

(c) The fixed deposits with financial institutions are analysed as follows:


2017 $’000

2016 $’000

2017 $’000

2016 $’000

Fixed deposits maturing within 12 months 144,180 137,730 55,548 47,675

During the current financial year, a banker’s guarantee amounting to $1 million (2016: $1 million) is placed as a statutory deposit as required by the Autoriti Monetari Brunei Darrusalam.

8. Outstanding premium and agents’ balances


2017 $’000

2016 $’000

2017 $’000

2016 $’000

Outstanding premium and agents’ balances 23,284 20,037 15,658 11,701

Amounts due from brokers 7,442 8,550 5,538 4,906 30,726 28,587 21,196 16,607 Less: Provision for impairment Balance at beginning of financial year (1,486) (1,620) (451) (311) Decrease/(increase) in allowance for

impairment 530 103 (43) (140) Currency translation differences (24) 31 - - Balance at end of financial year (980) (1,486) (494) (451) Due within 12 months 29,746 27,101 20,702 16,156


46

9. Reinsurance assets

The Group The Company 2017 2016 2017 2016

$’000 $’000 $’000 $’000 Reinsurers’ share of claims admitted

or intimated 59,497 44,003 56,108 39,615 Reinsurance assets arising from policy

liabilities 14,979 14,925 14,979 14,925 74,476 58,928 71,087 54,540 (i) Reinsurers’ share of claims admitted or intimated The Group The Company 2017 2016 2017 2016 $’000 $’000 $’000 $’000

Reinsurers’ share of claims admitted or intimated 59,497 44,003 56,108 39,615

Balance at beginning of financial year 44,003 27,035 39,615 23,951

Currency translation differences 97 (74) - - Amount received for claims settled during the financial year (23,281) (21,778) (23,294) (19,695)

Claims notified during the financial year 38,678 38,820 39,787 35,359

Balance at end of financial year 59,497 44,003 56,108 39,615 Due within 12 months 59,497 44,003 56,108 39,615

(ii) Reinsurance assets arising from policy liabilities


$’000 $’000 $’000 $’000 Reinsurance assets arising from policy liabilities 14,979 14,925 14,979 14,925

Balance at beginning of financial year 14,925 29,313 14,925 29,313

Due to assumption changes (820) (19,515) (820) (19,515) Due to risk free rate changes 11 (4,542) 11 (4,542) Due to movement during the year 863 9,669 863 9,669

Change in Reinsurance assets arising from policy liabilities 54 (14,388) 54 (14,388)

Balance at end of financial year 14,979 14,925 14,979 14,925 Due after 12 months 14,979 14,925 14,979 14,925


47

10. Financial assets, available-for-sale


$’000 $’000 $’000 $’000 Balance at beginning of financial year 7,029,912 6,042,207 5,425,166 4,499,729 Currency translation differences 35,346 (36,953) - - Additions 2,924,252 3,124,006 2,545,803 2,787,851 Carrying value of disposals (2,260,207) (2,195,558) (1,954,163) (1,946,899) Amortisation of effective interest (4,071) (4,236) (5,806) (6,128) Fair value gains on foreign exchange on

debt securities (Note 6(c)) (136,815) 25,996 (136,815) 25,996 Impairment losses written back

(Note 6(c)) 1,962 3,756 1,871 2,015 Fair value gains transferred to Life

Assurance Fund (Note 24) 494,612 71,223 413,909 63,152 Fair value net gains/(losses) transferred

to equity 3,341 (529) 2,805 (550) Balance at end of financial year 8,088,332 7,029,912 6,292,770 5,425,166 Current 1,876,528 1,349,124 1,754,094 1,294,210 Non-current 6,211,804 5,680,788 4,538,676 4,130,956

Financial assets, available-for-sale are analysed as follows:


$’000 $’000 $’000 $’000 Quoted securities: - Equity securities - Singapore 968,906 898,001 968,906 898,001 - Equity securities - Malaysia 525,370 444,305 - - - Equity securities - Others 769,166 355,224 769,166 355,224 - Debt securities - Singapore 2,282,712 2,188,829 2,282,712 2,188,829 - Debt securities - Malaysia 1,336,191 1,222,187 108,668 103,443 - Debt securities - Others 1,774,629 1,510,608 1,774,629 1,510,608 - Investment in funds 403,992 384,467 388,689 369,061

8,060,966 7,003,621 6,292,770 5,425,166 Unquoted securities - Equity securities - Others - - - - - Equity securities - Malaysia 2,721 2,663 - - - Investment in funds 24,645 23,628 - - 27,366 26,291 - -

8,088,332 7,029,912 6,292,770 5,425,166


48

11. Financial assets at fair value through profit or loss


$’000 $’000 $’000 $’000 Debt securities 79,831 59,498 - - Equity securities 50,136 41,982 - - Investment in funds 185,212 152,350 47,878 46,973 315,179 253,830 47,878 46,973 Current 315,179 253,830 47,878 46,973

Financial assets at fair value through profit or loss are analysed as follows:


$’000 $’000 $’000 $’000 Quoted securities: - Equity securities 50,136 41,982 - - - Investment in funds 185,212 152,350 47,878 46,973

Unquoted securities: - Equity securities - - - - - Debt securities 79,831 59,498 - - 315,179 253,830 47,878 46,973

12. Financial assets, held-to-maturity

The Group

2017 $’000

2016 $’000

Government and public authority securities 242,077 224,266 Debt securities in corporations 70,988 72,599 313,065 296,865 Due within 12 months 8,212 14,451 Due after 12 months 304,853 282,414

The fair values of the financial assets, held-to-maturity at the balance sheet date are analysed as follows: The Group

2017 $’000

2016 $’000

Government and public authority securities 244,667 222,764 Debt securities in corporations 72,326 73,596 316,993 296,360


49

13. Derivative financial instruments (a)


$’000 $’000 $’000 $’000 Warrants 303 1,152 - - Foreign exchange contracts 25,316 (74,932) 25,316 (74,932) T-Note Futures 1,261 - 1,261 - Derivative financial assets/(liabilities) 26,880 (73,780) 26,577 (74,932) Presented as: Derivative financial assets 26,880 1,152 26,577 - Derivative financial liabilities - (74,932) - (74,932) 26,880 (73,780) 26,577 (74,932)

(b) Warrants

The Group 2017 2016

$’000 $’000 Warrants due after 12 months 303 1,152

(c) Foreign exchange contracts

At 31 December, the contractual amounts and the fair value of the Group and the Company’s outstanding foreign exchange contracts are as follows: The Group and the Company

Description Contract

notional amount Fair value asset/

(liabilities)

2017 $’000

2016 $’000

2017 $’000

2016 $’000

United States Dollar 1,993,949 1,442,855 25,316 (74,932)

2017 $’000

2016 $’000

Balance at beginning of financial year (74,932) (19,829) Fair value gains/ (losses) recognised in profit or loss 100,248 (55,103) Balance at end of financial year 25,316 (74,932)


50

13. Derivative financial instruments (continued) (d) T-Note Futures

At 31 December, the contractual amounts and the fair value of the Group and the Company’s outstanding T-Note Futures are as follows: The Group and the Company

Description Contract

notional amount Fair value asset

2017 $’000

2016 $’000

2017 $’000

2016 $’000

United States Dollar 123,200 - 1,261 -

2017 $’000

2016 $’000

Balance at beginning of financial year - - Fair value gains recognised in profit or loss 1,261 - Balance at end of financial year 1,261 -

14. Other assets The Group The Company

2017 $’000

2016 $’000

2017 $’000

2016 $’000

Accrued investment income 57,776 53,535 39,969 37,389 Club memberships 79 79 79 79 Due from fellow subsidiary - non-trade 65 211 65 211 Due from related companies - non-trade 10 83 - - Receivable from sale of investments 5,516 12,596 1,783 12,252 Prepayments 3,184 2,354 2,987 2,295 Other receivables 2,728 1,837 703 777 69,358 70,695 45,586 53,003 Other assets are due within 12 months. Amounts due from subsidiary, fellow subsidiaries, related companies and intermediate holding company are unsecured, non-interest bearing and repayable on demand.

15. Loans The Group The Company

2017 $’000

2016 $’000

2017 $’000

2016 $’000

Loans secured on properties 390 351 - - Cash and non-forfeiture loans on

policies within the surrender value 204,956 205,027 48,119 41,599 Other secured loans 26 124 - - 205,372 205,502 48,119 41,599


51

15. Loans (continued)

Cash and non-forfeiture loans on policies within the surrender value are repayable on demand and are collateratured against the surrender value of policyholders’ insurance contracts.

16. Investment properties (a) The Group

Freehold

land Buildings Total $’000 $’000 $’000 2017 Cost At 1 January 2017 3,051 20,945 23,996 Currency translation differences 66 144 210 Transfer from property, plant and equipment (Note 18(a)) (126) 66 (60) Disposals - (171) (171) At 31 December 2017 2,991 20,984 23,975 Accumulated depreciation At 1 January 2017 - 6,376 6,376 Currency translation differences - 16 16 Transfer from property, plant and equipment (Note 18(a)) - 4 4 Depreciation charge (Note 6(e)) - 336 336 Disposals - (7) (7) At 31 December 2017 - 6,725 6,725 Net book value at 31 December 2017 2,991 14,259 17,250 2016 Cost At 1 January 2016 3,172 20,871 24,043 Currency translation differences (74) (154) (228) Transfer from property, plant and equipment (Note 18(a)) (4) 21 17 Additions - 207 207 Disposals (43) - (43) At 31 December 2016 3,051 20,945 23,996 Accumulated depreciation At 1 January 2016 - 6,101 6,101 Currency translation differences - (17) (17) Transfer from property, plant and equipment (Note 18(a)) - (4) (4) Depreciation charge (Note 6(e)) - 296 296 At 31 December 2016 - 6,376 6,376 Net book value at 31 December 2016 3,051 14,569 17,620


52

16. Investment properties (continued) (a) The Group (continued)

The following amounts are recognised in profit or loss: The Group 2017 2016 $’000 $’000 Rental income (net) 1,593 1,711 Direct operating expenses arising from: - Investment properties that generate rental income (1,707) (1,546) - Investment properties that do not generate rental income (788) (1,219)

(b) The Company

Freehold

land Buildings Total $’000 $’000 $’000 2017 Cost At 1 January 2017 and 31 December 2017 59 14,433 14,492 Accumulated depreciation At 1 January 2017 - 5,664 5,664 Depreciation charge (Note 6(e)) - 289 289 At 31 December 2017 - 5,953 5,953 Net book value at 31 December 2017 59 8,480 8,539 2016 Cost At 1 January 2016 and 31 December 2016 59 14,433 14,492 Accumulated depreciation At 1 January 2016 - 5,375 5,375 Depreciation charge (Note 6(e)) - 289 289 At 31 December 2016 - 5,664 5,664 Net book value at 31 December 2016 59 8,769 8,828


53

16. Investment properties (continued) (b) The Company (continued)

The following amounts are recognised in profit or loss: The Company 2017 2016 $’000 $’000 Rental income (net) 676 848 Direct operating expenses arising from: - Investment properties that generate rental income (304) (206) - Investment properties that do not generate rental income - -

The fair values of the investment properties for the Group and the Company as at 31 December 2017 were approximately $114,314,000 (2016: $111,911,000) and $67,500,000 (2016: $66,000,000) respectively. Included in the fair values of the investment properties were $114,314,000 (2016: $111,911,000) and $67,500,000 (2016: $66,000,000) attributable to the Life Assurance Fund of the Group and the Company respectively. The investment properties of the Group were valued by independent professional valuers based on the properties’ highest-and-best use using the sales comparison approach at the balance sheet date. These are registered as Level 3 of the fair value measurement hierarchy. Under the sales comparison approach, the recent sale prices of properties in close proximity are adjusted for differences in key attributes such as tenure, location, condition of the properties. The most significant input into this valuation approach is selling price per square foot.

17. Investment in a subsidiary The Company 2017 2016 $’000 $’000 (a) Unquoted equity shares, at cost 87,636 87,636 (b) The subsidiary of the Company is as follows:

Name of subsidiary Principal activities

Country of incorporation

and place of business

Cost of investment

% of paid up capital held by the Company

2017 $’000

2016 $’000

2017 %

2016 %

Tokio Marine Life Insurance Malaysia Bhd.* Life assurance Malaysia 87,636 87,636 100 100

* Audited by PricewaterhouseCoopers, Malaysia.


54

18. Property, plant and equipment (a) The Group

Freehold

land Leasehold

land Buildings Motor

vehicles

Furniture and

equipment Total $’000 $’000 $’000 $’000 $’000 $’000 2017 Cost At 1 January 2017 25,715 2,103 46,083 793 12,101 86,795 Currency translation differences 109 46 734 10 140 1,039 Transfer from/(to) investment

properties (Note 16(a)) 126 - (66) - - 60

Additions - - 805 118 1,155 2,078 Disposals - (194) (532) (95) (123) (944) Write offs - - - - (896) (896) At 31 December 2017 25,950 1,955 47,024 826 12,377 88,132 Accumulated depreciation At 1 January 2017 - 120 13,893 568 8,550 23,131 Currency translation differences - 3 290 9 97 399 Transfer from/(to) investment

properties (Note 16(a)) - - (4) - - (4) Depreciation charge (Note 6(e)) - 22 924 161 1,243 2,350 Disposals - (33) (198) (79) (70) (380) Write offs - - - - (864) (864) At 31 December 2017 - 112 14,905 659 8,956 24,632 Net book value at

31 December 2017 25,950 1,843 32,119 167 3,421 63,500 2016 Cost At 1 January 2016 25,947 888 46,069 806 12,486 86,196 Currency translation differences (124) (21) (797) (11) (157) (1,110) Transfer from/(to) investment

properties (Note 16(a)) 4 - (21) - - (17)

Transfer to intangible assets (Note 19)

- - - - (2,315) (2,315)

Additions - 1,236 832 - 2,391 4,459 Disposals (112) - - (2) (204) (318) Write offs - - - - (100) (100) At 31 December 2016 25,715 2,103 46,083 793 12,101 86,795 Accumulated depreciation At 1 January 2016 - 95 13,084 526 9,637 23,342 Currency translation differences - (3) (312) (6) (114) (435) Transfer from/(to) investment

properties (Note 16(a)) - - 4 - - 4 Transfer to intangible assets

(Note 19) - - - - (1,143) (1,143) Depreciation charge (Note 6(e)) - 28 1,117 49 461 1,655 Disposals - - - (1) (195) (196) Write offs - - - - (96) (96) At 31 December 2016 - 120 13,893 568 8,550 23,131 Net book value at

31 December 2016 25,715 1,983 32,190 225 3,551 63,664


55

18. Property, plant and equipment (continued) (a) The Group (continued) (b) The Company

Freehold

land Buildings Motor

vehicles

Furniture and

equipment Total $’000 $’000 $’000 $’000 $’000 2017 Cost At 1 January 2017 20,766 12,765 353 6,879 40,763 Additions - - - 533 533 Disposals - - - (66) (66) At 31 December 2017 20,766 12,765 353 7,346 41,230 Accumulated depreciation At 1 January 2017 - 1,551 353 5,150 7,054 Depreciation charge (Note 6(e)) - 255 - 662 917 Disposals - - - (66) (66) At 31 December 2017 - 1,806 353 5,746 7,905 Net book value at

31 December 2017 20,766 10,959 - 1,600 33,325

2016 Cost At 1 January 2016 20,766 12,765 353 5,925 39,809 Additions - - - 1,158 1,158 Disposals - - - (204) (204) At 31 December 2016 20,766 12,765 353 6,879 40,763 Accumulated depreciation At 1 January 2016 - 1,296 353 4,887 6,536 Depreciation charge (Note 6(e)) - 255 - 458 713 Disposals - - - (195) (195) At 31 December 2016 - 1,551 353 5,150 7,054 Net book value at

31 December 2016 20,766 11,214 - 1,729 33,709


56

19. Intangible assets The Group The Company

2017 $’000

2016 $’000

2017 $’000

2016 $’000

Composition: Bancassurance rights (Note (a)) 16,639 24,421 - - Computer software licences (Note (b)) 14,641 13,791 8,400 6,710 31,280 38,212 8,400 6,710

(a) Bancassurance rights The Group

2017 $’000

2016 $’000

Cost At 1 January 60,173 61,648 Currency translation differences 1,325 (1,475) At 31 December 61,498 60,173 Accumulated amortisation At 1 January 35,752 28,289 Currency translation differences 1,002 (970) Amortisation charge 8,105 8,433 At 31 December 44,859 35,752 Net book value at 31 December 16,639 24,421

The Subsidiary has entered into an exclusive bancassurance agreement for a period of 10 years with a Malaysian bank commencing on 1 January 2015. Under this agreement, the Malaysian bank will only sell, distribute and market and promote life insurance products of the Subsidiary.

(b) Computer software licences The Group The Company

2017 $’000

2016 $’000

2017 $’000

2016 $’000

Cost At 1 January 18,729 7,801 8,101 4,164 Currency translation differences 209 (87) - - Transfer from Property, plant

and equipment (Note 18(a)) - 2,315 - - Additions 4,100 8,700 2,960 3,937 Write offs (411) - (411) - At 31 December 22,627 18,729 10,650 8,101 Accumulated amortisation At 1 January 4,938 1,833 1,391 816 Currency translation differences 128 (75) - - Transfer from Property, plant

and equipment (Note 18(a)) - 1,143 - - Amortisation charge 2,920 2,037 859 575 At 31 December 7,986 4,938 2,250 1,391 Net book value at 31 December 14,641 13,791 8,400 6,710


57

19. Intangible assets (continued)

(b) Computer software licences (continued)

Recognised within computer software licenses for the Group and the Company are assets under construction amounting to $1,063,000 (2016: $4,418,000). Assets under construction are not amortised until they are put in use.

20. Other payables


2017 $’000

2016 $’000

2017 $’000

2016 $’000

Investment creditors 1,591 103 1,591 103 Due to related companies - non-trade 3,854 3,687 3,409 3,305 Due to immediate holding company - non-trade 47,129 47,129 47,129 47,129 Unclaimed dividend 617 608 617 608 Accrued management expenses 20,036 19,534 6,788 7,253 Rental deposits and advances 1,072 1,199 201 153 GST payables 1,330 595 604 399 Other non-trade payables 14,476 20,668 9,432 17,469 90,105 93,523 69,771 76,419 Due within 12 months 43,422 46,840 23,088 29,736 Due after 12 months 46,683 46,683 46,683 46,683 Amounts due to related companies are unsecured, non-interest bearing and repayable on demand. The amount due to immediate holding company is unsecured and repayable in full on 13 September 2026. Interest is fixed at 3.2% per annum.

21. Deferred income taxes

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after appropriate offsetting, are shown in the balance sheet: The Group The Company

2017 $’000

2016 $’000

2017 $’000

2016 $’000

Deferred tax liabilities - Settled after 12 months 420,073 355,965 397,811 341,659


58

21. Deferred income taxes (continued) The movement in the deferred income tax account is as follows: Deferred tax liabilities


2017 $’000

2016 $’000

2017 $’000

2016 $’000

At 1 January 355,965 318,707 341,659 304,108 Currency translation differences 365 (340) - - Transfer from Life Assurance Fund

(Note 5(a) and Note 24) 21,571 33,171 19,664 33,398 Tax charge to Life Assurance Fund

(Note 24) 41,716 4,687 36,093 4,357 Tax credit to profit or loss (Note 5(a)) (21) (20) - - Tax charge/(credit) to equity 477 (240) 395 (204) At 31 December 420,073 355,965 397,811 341,659

The movement in deferred tax liabilities (prior to offsetting of balances within the same jurisdiction) during the period is as follows: The Group Deferred tax liabilities

Accelerated tax

depreciation

Fair value

reserve

Other temporary differences Total

$’000 $’000 $’000 $’000 2017 At 1 January 2017 1,192 22,037 332,736 355,965 Currency translation differences - 355 10 365 Transfer from Life Assurance Fund (Note 24) 235 2,041 19,295 21,571 Tax charge to Life Assurance Fund (Note 24) - 41,761 - 41,716 Tax credit to profit or loss (Note 5(a)) - - (21) (21) Tax charge to equity - 477 - 477 At 31 December 2017 1,427 66,626 352,020 420,073 2016 At 1 January 2016 564 16,344 301,799 318,707 Currency translation differences - (345) 5 (340) Transfer from Life Assurance Fund (Note 24) 628 1,591 30,952 33,171 Tax charge to Life Assurance Fund (Note 24) - 4,687 - 4,687 Tax credit to profit or loss (Note 5(a)) - - (20) (20) Tax credit to equity - (240) - (240) At 31 December 2016 1,192 22,037 332,736 355,965


59

21. Deferred income taxes (continued)

The Company Deferred tax liabilities

Accelerated tax

depreciation

Fair value

reserve

Other temporary differences Total

$’000 $’000 $’000 $’000 2017 At 1 January 2017 1,192 8,253 332,214 341,659 Transfer from Life Assurance Fund (Note 24) 235 - 19,429 19,664 Tax charge to Life Assurance Fund (Note 24) - 36,093 - 36,093 Tax charge to equity - 395 - 395 At 31 December 2017 1,427 44,741 351,643 397,811 2016 At 1 January 2016 564 4,100 299,444 304,108 Transfer from Life Assurance Fund (Note 24) 628 - 32,770 33,398 Tax charge to Life Assurance Fund (Note 24) - 4,357 - 4,357 Tax credit to equity - (204) - (204) At 31 December 2016 1,192 8,253 332,214 341,659

The other temporary differences mainly relate to deferred tax liabilities recognised for the non-guaranteed benefits due to policyholders and the shareholders.

22. Staff retirement benefits


2017 $’000

2016 $’000

2017 $’000

2016 $’000

At 1 January 585 630 502 511 Currency translation differences 2 (3) - - Amount paid during the financial year (399) - (399) - Decrease in provision for the financial

year (41) (42) (41) (9) At 31 December 147 585 62 502 Due after 12 months 147 585 62 502

23. Agents’ retirement benefits


2017 $’000

2016 $’000

2017 $’000

2016 $’000

At 1 January 9,430 9,771 569 561 Currency translation differences 195 (220) - - Amount paid during the financial year (1,476) (1,505) (90) (14) Increase in provision for the financial

year 1,758 1,384 28 22 At 31 December 9,907 9,430 507 569 Due within 12 months 2,180 2,460 - - Due after 12 months 7,727 6,970 507 569


60

24. Life Assurance Fund (a) The Group

Unallocated

surplus Policy

liabilities Fair value reserve Total

$'000 $'000 $’000 $’000 2017 At 1 January 2017 535,760 6,674,208 200,250 7,410,218 Currency translation differences 4,581 43,415 2,519 50,515 Fair value gains on Financial assets,

available-for-sale (Note 10) - - 494,612 494,612 Fair value changes transferred to profit or

loss on disposal during the financial year (Note 6(c)) - - (95,437) (95,437)

Tax on fair value changes (Note 21) - - (41,716) (41,716) Net gains recognised directly in

Life Assurance Fund - - 357,459 357,459 Change in Life Assurance Fund - Due to assumption changes - 15,139 - 15,139 - Due to risk free rate changes - 12,012 - 12,012 - Due to movement during the year 48,559 589,947 - 638,506

Change in Life Assurance Fund 48,559 617,098 665,657 Deferred tax expense (573) (20,998) - (21,571) Income tax expense (4,207) (3,052) - (7,259) At 31 December 2017 584,120 7,310,671 560,228 8,455,019 2016 At 1 January 2016 431,296 6,174,654 164,701 6,770,651 Currency translation differences (4,655) (46,492) (2,860) (54,007) Fair value gains on Financial assets,




Life Assurance Fund - - 38,409 38,409 Change in Life Assurance Fund - Due to assumption changes - (29,831) - (29,831) - Due to risk free rate changes - 1,328 - 1,328 - Due to movement during the year 65,031 612,763 - 677,794

Change in Life Assurance Fund 65,031 584,260 - 649,291 Transfer from equity 46,683 - - 46,683 Deferred tax expense (732) (32,439) - (33,171) Income tax expense (1,863) (5,775) - (7,638) At 31 December 2016 535,760 6,674,208 200,250 7,410,218 Included in the Life Assurance Fund are the unallocated surplus and fair value reserves of $589,637,000 (2016: $537,414,000) of the non-participating and investment-linked funds that are attributable to shareholders.

During the current financial year, there was no transfer (2016: $46,683,000) from the retained earnings of the Shareholders’ Fund to the Life Assurance Fund.


61

24. Life Assurance Fund (continued) (b) The Company

Unallocated

surplus Policy

liabilities Fair value reserve Total

$’000 $’000 $’000 $’000 2017 At 1 January 2017 360,263 4,801,295 71,083 5,232,641 Fair value gains on Financial assets,




Life Assurance Fund - - 292,472 292,472 Change in Life Assurance Fund - Due to assumption changes - 5,621 - 5,621 - Due to risk free rate changes - 4,003 - 4,003 - Due to movement during the year 22,507 517,877 - 540,384

Change in Life Assurance Fund 22,507 527,501 - 550,008 Deferred tax expense (231) (19,433) - (19,664) Income tax expense (3,214) 2,984 - (230) At 31 December 2017 379,325 5,312,347 363,555 6,055,227 2016 At 1 January 2016 277,259 4,309,072 36,089 4,622,420 Fair value gains on Financial assets,



Tax on fair value changes (Note 21) - - (4,357) (4,357) Net gains recognised directly in Life

Assurance Fund - - 34,994 34,994 Change in Life Assurance Fund - Due to assumption changes - (30,051) - (30,051) - Due to risk free rate changes - (1,247) - (1,247) - Due to movement during the year 37,465 556,465 - 593,930

Change in Life Assurance Fund 37,465 525,167 - 562,632 Transfer from equity 46,683 - - 46,683 Deferred tax expense (527) (32,871) - (33,398) Income tax expense (617) (73) - (690) At 31 December 2016 360,263 4,801,295 71,083 5,232,641 Included in the Life Assurance Fund are the unallocated surplus and fair value reserves of $394,511,000 (2016: $359,479,000) of the non-participating and investment-linked funds that are attributable to shareholders.

During the current financial year, there was no transfer (2016: $46,683,000) from the retained earnings of the Shareholders’ Fund to the Life Assurance Fund.


62

24. Life Assurance Fund (continued) (b) The Company (continued)

In December 2016, the Monetary Authority of Singapore (“MAS”) allowed insurers to apply for exemption in making reference to the prescribed mortality tables when computing the statutory capital requirement. The Company was successful in applying for the exemption. This resulted in a reduction in the provision for adverse deviation, which was set as half of the adjustment required for statutory capital. The impact is a $9m reduction in insurance contract liabilities in 2016.

25. Share capital

The Group and the Company Issued share capital

No. of ordinary

stock units Amount ’000 $’000

Beginning and end of financial year 36,000 36,000

All issued ordinary stock units (with no par value) are fully paid. 26. Related party transactions The related parties of, and their relationship with the Group, are as follows:

Country of

incorporation Relationship

Asia General Holdings Ltd Singapore Immediate holding company Tokio Marine Insurance Singapore Ltd Singapore Fellow subsidiary Tokio Marine Asia Pte Ltd Singapore Fellow subsidiary Tokio Marine Nichido Fire Insurance Co. Ltd Japan Intermediate holding company Tokio Marine Asset Management

International Ptd Ltd Singapore Fellow subsidiary

Tokio Marine & Nichido Life Insurance Co., Ltd Japan Fellow subsidiary

Tokio Marine Insurance (Malaysia) Berhad Malaysia Fellow subsidiary TM Claims Service Asia Pte Ltd Singapore Fellow subsidiary


63

26. Related party transactions (continued) (a) Other than disclosed elsewhere in the financial statements, the following significant

transactions took place between the Group, the Company and related parties during the financial year on terms agreed between the parties concerned:


2017 $’000

2016 $’000

2017 $’000

2016 $’000

Office rent paid to fellow subsidiary 427 460 427 460 Office rent received from fellow

subsidiary 106 109 - - Dividend paid to immediate holding

company 2,469 2,469 2,469 2,469 Dividend received from subsidiary - - 1,604 - Insurance premium received from

fellow subsidiary 225 266 135 154 Insurance premium paid to fellow

subsidiary 276 213 110 51 Investment management fee paid to

fellow subsidiary 5,626 5,245 5,626 5,245 General Service fee paid to fellow

subsidiary 1,999 2,123 1,427 1,634 Management fee received from fellow

subsidiary 140 135 140 132 Reinsurance arrangement paid to fellow

subsidiary 277 151 76 57 Subordinated loan interest paid to

immediate holding company 1,494 446 1,494 446 Guarantee fee paid to intermediate

holding company 174 145 174 145 (b) Key management personnel compensation

Key management personnel refers to directors of the Group and the Company. Key management personnel compensation is analysed as follows:


2017 $’000

2016 $’000

2017 $’000

2016 $’000

Salaries and other short-term

employment benefits 1,181 795 1,181 795 Directors’ post-employment benefits

including contributions to CPF 17 13 17 13 Directors’ fees 490 514 360 379


64

27. Immediate holding company and ultimate holding corporation

The Company’s immediate holding company is Asia General Holdings Limited, incorporated in Singapore. The ultimate holding corporation is Tokio Marine Holdings, Inc incorporated in Japan.

28. Commitments (a) Capital commitments

Capital expenditure contracted for at the balance sheet date but not recognised in the financial statements is as follows:

The Group 2017 2016 $’000 $’000

Capital commitments 29,196 28,197 (b) Operating lease commitments - where the Group is the lessee

The future minimum lease payables under non-cancellable operating leases contracted for at the balance sheet date but not recognised as liabilities, are as follows:


2017 $’000

2016 $’000

2017 $’000

2016 $’000

Not later than one year 1,598 1,541 1,498 1,449 Between one and five years 2,230 1,032 2,105 831 3,828 2,573 3,603 2,280

Included in operating lease commitments is the lease of the agency office. Rental expense on the lease of agency office amounting $473,000 (2016: $738,000) is recorded under “Commission and agency expenses” on the statement of comprehensive income.


65

28. Commitments (continued) (c) Operating lease commitments - where the Group is the lessor The future aggregate minimum lease receivables under non-cancellable operating

leases contracted for at the balance sheet date but not recognised as receivables are as follows:


2017 $’000

2016 $’000

2017 $’000

2016 $’000

Not later than one year 2,928 2,711 788 612 Between one and five years 2,992 1,268 305 789 5,920 3,979 1,093 1,401 29. Insurance and financial risk management

(A) Insurance risk The risk under any one life insurance contract is the possibility that the insured event

occurs and the uncertainty of the amount of the resulting claim. By the nature of an insurance contract, this risk is random and therefore unpredictable.

For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits will vary from year to year from the estimate. A more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. Each life insurance company in Singapore is also required to conduct stress testing on the financial condition on an annual basis to assess its ability to withstand adverse deviations in various assumptions. For Malaysia, a dynamic solvency testing is performed annually to monitor its solvency position. Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk covered.


66

29. Insurance and financial risk management (continued)

(A) Insurance risk (continued)

(a) Long-term insurance contracts (All insurance contracts other than Group insurance contracts)

(i) Frequency and severity of claims

For contracts where death or critical illness is the insured risk, the most significant factors that could increase the overall frequency of claims are epidemics (such as AIDS or SARS) or wide spread changes in lifestyle, such as eating, smoking and exercise habits, resulting in earlier or more claims than expected. For contracts where survival is the insured risk, the most significant factor is continued improvement in medical science and social conditions that would increase longevity.

Undue concentration by amounts could have an impact on the severity of benefit payments on a portfolio basis.

For non-participating contracts where the benefits are fully guaranteed and future premiums are fixed, there are no mitigating terms and conditions that reduce the insurance risk accepted. For participating contracts, the participating nature of these contracts results in a significant portion of the insurance risk being shared with the policyholders. In addition, for Singapore contracts offering Critical Illness (after 1 July 2003) and stand-alone medical benefits, the Group generally has the right to vary the non-guaranteed future premium rates if claim experience deteriorates in the future.

For investment-linked contracts, the Group charges for mortality and morbidity risks on a monthly basis. It has the right to alter these charges based on its mortality and morbidity experience and hence minimise its exposure to these risks. Delays in implementing increases in charges and market or regulatory restraints over the extent of the increases may reduce its mitigating effect.

The Group manages these risks through its underwriting strategy and reinsurance arrangements. The Group has developed its underwriting strategy for accepting insurance risks, including selection and approval of risks to be insured, use of limits, appropriate risk classification and premium level.


67



(a) Long-term insurance contracts (All insurance contracts other than Group insurance contracts) (continued)

(i) Frequency and severity of claims (continued)

For Singapore and Brunei, the Group has a retention limit of up to $1,300,000 on any single life insured who purchased individual life products, with a lower limit of $300,000 applicable to lives who purchased only mass market (as opposed to High Net Worth) products. RGA International Reinsurance Company Ltd (Singapore Branch) is the main incumbent reinsurer.

For Malaysia, the Group also manages the insurance risk by ceding insurance amounts above retention of RM200,000 (approximately $64,500) per life to reinsurers through traditional reinsurance arrangements. The tables below presents the concentration of insured benefits across three bands of insured benefits per individual life assured, separately for non-linked and investment-linked business. These tables do not include annuity contracts. Singapore

Benefits assured ($’000) per life assured at the end of 2017

Total benefits insured ($’000)

for Non-Linked Business (Singapore) Before Reinsurance After Reinsurance (Estimated) 0 - 500 17,726,609 74.98% 13,579,142 86.92% 500 - 1,000 2,747,587 11.62% 1,258,838 8.06% More than 1,000 3,168,105 13.40% 783,470 5.02% Total 23,642,301 100.00% 15,621,450 100.00%

Benefits assured (in terms of Sum at Risk, $’000) per life assured at the end of 2017

Total benefits insured (in terms of Sum at Risk, $’000)

for Linked Business (Singapore) Before Reinsurance After Reinsurance (Estimated)

0 - 100 115,780 58.29% 104,805 64.51% 100 - 200 42,899 21.60% 34,200 21.05% More than 200 39,955 20.11% 23,460 14.44% Total 198,634 100.00% 162,465 100.00%


68

29. Insurance and financial risk management (continued) (A) Insurance risk (continued)



Malaysia

Benefits assured (RM’000) per life assured at the end of 2017

Total benefits insured (RM’000)

for Non-Linked Business (Malaysia) Before Reinsurance After Reinsurance (Estimated) Equivalent Equivalent RM$’000 $’000 % RM$’000 $’000 % 0 - 500 52,636,022 17,343,569 84.24% 38,971,655 12,841,160 84.24% 500 - 1,000 7,782,437 2,564,313 12.45% 5,762,108 1,898,615 12.45% More than 1,000 2,067,554 681,259 3.31% 1,530,815 504,404 3.31% Total 62,486,013 20,589,141 100.00% 46,264,578 15,244,179 100.00%

Benefits assured (RM’000) per life assured at the end of 2017

Total benefits insured (RM’000) for Linked Business (Malaysia)

Before Reinsurance After Reinsurance (Estimated) Equivalent Equivalent RM$’000 $’000 % RM$’000 $’000 0 - 100 4,278,581 1,409,792 49.27% 3,167,857 1,043,809 49.27% 100 - 200 1,586,087 522,616 18.26% 1,174,337 386,944 18.26% More than 200 2,819,932 929,168 32.47% 2,087,875 687,955 32.47% Total 8,684,600 2,861,576 100.00% 6,430,069 2,118,708 100.00%

The following table for annuity insurance contracts illustrates the concentration of risk based on three bands that group these contracts in relation to the amount payable per annum as if the annuity were in payment at the year end. The Group does not hold any reinsurance contracts against the liabilities carried for these contracts.

Singapore

Annuity payable ($’000) per annum per life assured at the end of 2017 0 - 10 6,596 81.92% 10 - 20 1,087 13.50% More than 20 369 4.58% Total 8,052 100.00%

Malaysia There is no annuity business in force as at 31 December 2017.


69




(ii) Sources of uncertainty in the estimation of future benefit payments

and premium receipts

Uncertainty in the estimation of future benefit payments and premium receipts for long-term insurance contracts arises from the unpredictability of long-term changes in overall levels of mortality, morbidity and the variability in contract holder behaviour.

The Group performs regular experience analyses, including mortality, morbidity, investment return, management expenses, and policy persistency. The objective is to compare the current best estimate assumptions with actual experiences, to identify any unexpected changes that would materially impact the Company’s financial position. The Group reviews and updates the assumptions (where the basis are not prescribed) used in the estimation of its insurance contract liabilities regularly to ensure its relevance and appropriateness. In addition, on a yearly basis, the Group also carries out a bonus investigation to ascertain the sustainability of current bonus scales.

(b) Short-term life insurance contracts (Group Insurance Contracts)

(i) Frequency and severity of claims

These contracts are mainly issued to employers as part of their employee benefit plans. The risk of death and disability may be affected by the nature of the industry in which the employer operates, in addition to other factors stated above. The Group manages these risks through its underwriting strategy, adequate reinsurance arrangements and proactive claims handling. The underwriting strategy attempts to ensure that the underwritten risks are well diversified in terms of type and amount of risk. Underwriting limits are in place to enforce appropriate risk selection criteria. For example, the Group has the right not to renew individual polices, it can impose deductibles and it has the right to reject the payment of a fraudulent claim.


70


(A) Insurance risk (continued) (b) Short-term life insurance contracts (Group Insurance Contracts) (continued)


In addition, an authority table and underwriting guidelines are established to ensure that business underwriting is conducted with appropriate authorisation in accordance to level of seniority in the respective Company.

The main reinsurance arrangement is a surplus reinsurance with a retention limit of $100,000 per life for Group Term Life, Personal Accident and Critical Illness benefits. The Group Disability Income benefit is reinsured on a quota share arrangement. These are supplemented by catastrophe excess of loss reinsurance cover. Group Insurance business in Malaysia is insignificant.

(ii) Sources of uncertainty in the estimation of future claim payments

Uncertainty in the estimation of future claims payments for short-term life insurance contracts arises from the unpredictability of mortality and morbidity experience for unexpired coverage as at valuation date, and uncertainty over the timing and amount of late reporting of claims that have incurred as at valuation date. The Group analyses each year the loss ratios in recent past in order to refresh the assumption about claims experience of various product lines.

(B) Group Risk Management Policies

The Group being a member of the Tokio Marine Group of Companies takes into

consideration the risk management philosophy and business strategy of Tokio Marine Group when managing the risk. The Group aims to assume and manage risks that are consistent with maintaining its internal capital target return and supporting its business objectives. The Group is selective in its approach to risk taking, striking a balance between risk accepted and the reward it can derive from accepting that risk.

The Boards of Directors are responsible for the overall establishment, supervision

and review of all risk management processes in the Company and Subsidiary. The Boards of Directors are assisted by the respective Board-level and Management-level committees in the identification, evaluation and assessment of risks in the Company and Subsidiary.


71


(B) Group Risk Management Policies (continued)

The Company established a Board-level Risk Management Committee in 2016 to assist the Board of Directors in carrying out the responsibility of overseeing the Company’s risk management framework and policies.

The Board of Directors’ responsibilities associated with risk governance include the

following:

1. Approving the philosophy to risk management; 2. Establishing risk appetite and limits; 3. Approving Risk Management Policy and other associated policies; 4. Ensuring that systems and controls are in place to manage risks effectively

within the Group according to approved policies; 5. Reviewing risk information presented by the Group’s management; 6. Setting a consistent tone-from-the-top on risk matters.

Risk Management within the Group is a combined effort from senior executives,

departments and committees, who are responsible for the implementation of any controls, measures or policies put in place as part of the risk management process. The respective parties are also supported by the Risk Management Department in monitoring and coordination of the Group’s Risk Management practices.

The Group’s risks are categorised into broad categories to streamline the risk

management processes and are not meant to be restrictive as to the risk identification and evaluation process.

The following are the 3 broad categories of risk faced by the Group:

1. Business Risk 2. Operational Risk 3. Financial Risk

Business risk arising from the Group’s business strategy, the environment in which the Group operates, and its ability to provide suitable products and services to customers often have a direct impact on business results should such risks occur and not be mitigated. There is also risk of loss or harm to policyholders arising from undesirable market conduct practices such as fraud committed by the Group and/or its financial adviser representatives, and/or their inability or unwillingness to comply with the requisite market and business conduct requirements. The Group has in place measures to control and optimise the Group’s exposure to business risk in pursuit of the Group’s business objectives.


72


(B) Group Risk Management Policies (continued)

Operational risk may arise from inadequate or failed internal processes and controls, poor corporate governance or from external events such as sudden disasters crippling the operations of the Group. Such risks, although difficult to quantify, have the potential to impose significant costs upon, and possibly seriously upset, the financial soundness and ongoing business of the Group. Business Continuity Risk is the risk of not being able to resume normal business operation in view of disruption which includes civil, economic, natural disasters etc. Such risks may cause the Group to be unable to continue business as a going concern due to significant financial losses or the destruction of lives and infrastructures arising from natural disasters. The Group has in place measures to control and minimise the Group’s exposure to operational risks.

Financial risk pertaining to market risk is kept under close monitoring by the

Investment Committee, which is elaborated in the next section.

To maintain financial soundness, the Group is using the statutory Risk-based Capital Requirement (“RBC”) as a proxy for capital adequacy assessment. RBC Framework ensures that a company holds the statutory minimum amount of capital to appropriately support its overall business operations in consideration to its size and risk profile. The framework determines the amount of risk a company can take as it requires a company with a higher amount of risk to hold a higher amount of capital. On risk concentration, extra capital will be held in accordance to the Insurance Regulations when concentration limits are exceeded.

(C) Investment Committees

The Company’s Investment Committee (also known as “Asset Liability Management & Investment Committee”) is responsible for managing the Company’s investment activities. The Subsidiary’s Investment Committee is responsible for managing the subsidiary’s investment activities and these are managed through an in-house investment team headed by the Chief Investment Officer. The respective Investment Committees are responsible for formulation of the Company’s and Subsidiary’s investment strategy, principles, policies and procedures for the investment function. The Investment Committees set the investment limits and procedures to manage the market and credit risks faced by the Company and Subsidiary.


73


(C) Investment Committees (continued)

The Company establishes suitable investment allocations and limits - Strategic Asset Allocation (“SAA”) for each asset class that are in line with the Company’s broad investment strategy, subject to an overall risk tolerance and requirements from shareholders, regulators and policyholders.

For the insurance funds, the setting of SAA pays due regard to asset-liability

management, which puts priority on ensuring the ability to pay all contractual policyholder benefits and expense obligations. The primary aim is to generate relatively stable investment returns for the portfolio over the long-term.

The SAA are reviewed on an annual basis, recognising among other things,

changes in business in-force and the economic environment, so as to ensure that they remain appropriate and are consistent with the asset-liability management strategies required to support any new products.

The monitoring of market risks includes the quantification of the Group’s exposure

to interest rate, currency, equity price and credit risks. The Group is exposed to market risk arising from its investment in debt securities,

equities and properties. Changes in interest rates, foreign exchange rates, equity prices and credit will impact the financial positions of the Group as they affect the present and future earnings of the Group for the life insurance operations and shareholders’ equity.

The Investment Committees are responsible and have oversight over the

investment teams to manage market risk actively through the setting of investment policies and strategic asset allocations. Investment limits are set and monitored at various levels to ensure that all investment activities are within the guidelines set by the Investment Committees.

The following is a brief description of the Group’s various exposures to market risk. The liabilities assumptions used for Asset Liability Management (“ALM”) purpose

are the same as those disclosed in Note 3(c) in Assumptions used for insurance contracts. Capital held as a consequence of a mismatch between assets and liabilities are in accordance with the Insurance (Valuation & Capital) Regulations 2004.


74

29. Insurance and financial risk management (continued) (C) Investment Committees (continued)

(a) Interest rate risk

The Group is exposed to interest rate risk primarily through investments in debt instruments. The Group manages the interest rate risk after taking into consideration the underwriting and investment risks. The Company produces a quarterly Investment and ALM report for the Investment Committee to monitor the duration, convexity of its fixed income portfolio and projected policy cash-flow. The Investment Committee of the respective Company and Subsidiary would receive quarterly updates on their exposure to interest rate as part of the fixed income review.

The tables below illustrate the interest rate exposure of the Group’s financial assets and liabilities:

The Group In Singapore Dollar Fixed rate Floating rate

Non-interest bearing Total

$’000 $’000 $’000 $’000 As at 31 December 2017 FINANCIAL ASSETS Financial assets, held-to-maturity 313,065 - - 313,065 Financial assets, available-for-sale 5,015,404 378,128 2,694,800 8,088,332 Financial assets at fair value through profit or loss 79,831 - 235,348 315,179 Derivative financial instruments - - 26,880 26,880 Secured loans - - 416 416 Policy loans 48,119 - 156,837 204,956 Reinsurance assets - - 74,476 74,476 Outstanding premium and agents’ balances - - 29,746 29,746 Trade receivables - - 5,509 5,509 Other assets - - 69,358 69,358 Cash and cash equivalents 56,549 - 185,377 241,926 5,512,968 378,128 3,478,747 9,369,843 FINANCIAL LIABILITIES Claims admitted or intimated - - 235,862 235,862 Trade payables - - 142,689 142,689 Other payables - - 90,105 90,105

- - 468,656 468,656


75

29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (a) Interest rate risk (continued)

The tables below illustrate the interest rate exposure of the Group’s financial assets and liabilities: (continued)

The Group In Singapore Dollar Fixed rate Floating rate


$’000 $’000 $’000 $’000 As at 31 December 2016 FINANCIAL ASSETS Financial assets, held-to-maturity 296,865 - - 296,865 Financial assets, available-for-sale 4,583,432 338,193 2,108,287 7,029,912 Financial assets at fair value through profit or loss 59,498 - 194,332 253,830 Derivative financial instruments - - 1,152 1,152 Secured loans - - 475 475 Policy loans 41,599 - 163,428 205,027 Reinsurance assets - - 58,928 58,928 Outstanding premium and agents’ balances - - 27,101 27,101 Trade receivables - - 7,019 7,019 Other assets - - 70,695 70,695 Cash and cash equivalents 47,675 - 282,638 330,313 5,029,069 338,193 2,914,055 8,281,317 FINANCIAL LIABILITIES Claims admitted or intimated - - 203,559 203,559 Trade payables - - 135,505 135,505 Other payables - - 93,523 93,523 Derivative financial instruments - - 74,932 74,932

- - 507,519 507,519

The tables below illustrate the interest rate exposure of the Company’s financial assets and liabilities:

The Company In Singapore Dollar Fixed rate Floating rate


$’000 $’000 $’000 $’000 As at 31 December 2017 FINANCIAL ASSETS Financial assets, available-for-sale 3,787,881 378,128 2,126,761 6,292,770 Financial assets at fair value through profit or loss - - 47,878 47,878 Derivative financial instruments - - 26,577 26,577 Policy loans 48,119 - - 48,119 Reinsurance assets - - 71,087 71,087 Outstanding premium and agents’ balances - - 20,702 20,702 Trade receivables - - 4,255 4,255 Other assets - - 45,586 45,586 Cash and cash equivalents 56,548 - 85,785 142,333 3,892,548 378,128 2,428,631 6,699,307 FINANCIAL LIABILITIES Claims admitted or intimated - - 81,727 81,727 Trade payables - - 103,196 103,196 Other payables - - 69,771 69,771

- - 254,694 254,694


76



(a) Interest rate risk (continued) The tables below illustrate the interest rate exposure of the Company’s financial assets and liabilities: (continued)

The Company In Singapore Dollar Fixed rate Floating rate


$’000 $’000 $’000 $’000 As at 31 December 2016 FINANCIAL ASSETS Financial assets, available-for-sale 3,464,688 338,193 1,622,285 5,425,166 Financial assets at fair value through profit or loss - - 46,973 46,973 Policy loans 41,599 - - 41,599 Reinsurance assets - - 54,540 54,540 Outstanding premium and agents’ balances - - 16,156 16,156 Trade receivables - - 3,997 3,997 Other assets - - 53,003 53,003 Cash and cash equivalents 47,675 - 180,051 227,726 3,553,962 338,193 1,977,005 5,869,160 FINANCIAL LIABILITIES Claims admitted or intimated - - 65,738 65,738 Trade payables - - 88,299 88,299 Other payables - - 76,419 76,419 Derivative financial instruments - - 74,932 74,932

- - 305,388 305,388

As the Group also invests in bonds, a study of movement in risk-free rate is undertaken for all the bonds held on the balance sheet date. For investment-linked funds, the risk exposure for the Group is limited only to the underwriting aspect as investment risks are generally borne by the policyholders. A study of a 1% yield movement across relevant curves has been undertaken on the fixed income securities and this is considered to be a reasonable basis for interest rate sensitivity analysis. The table below summarises the impact on profit after tax, equity and Life Assurance Fund based on a 1% parallel shift in the yield curves:

Singapore Operations

Impact on

profit after tax Impact on equity Impact on

Life Assurance Fund In Singapore Dollar 2017 2016 2017 2016 2017 2016 Change in variables $’000 $’000 $’000 $’000 $’000 $’000 Interest rate +100bps - - (6,198) (5,073) (364,046) (309,964) -100bps - - 6,198 5,073 364,046 309,964


77



(a) Interest rate risk (continued) Malaysia Operations

Impact on


Life Assurance Fund In Singapore Dollar 2017 2016 2017 2016 2017 2016 Change in variables $’000 $’000 $’000 $’000 $’000 $’000 Interest rate +40bps (2016: +50bps) (13) (21) (634) (737) (29,296) (33,279) -40bps (2016: -50bps) 13 22 654 763 30,670 35,055

Note: Fixed income securities in this sensitivity analysis includes preference shares.

(b) Foreign currency risk

The Group is exposed to foreign exchange risk primarily from transactions denominated in foreign currencies pertaining to investment activities. The Investment Committees manage foreign currency risk by setting limits and monitoring the exposure to foreign currency on a regular basis.

The Singapore Operations has less than 10% net foreign currency exposure for all its overseas investment assets. Currency risk arising from fixed income investments in foreign currency instruments is generally managed using foreign currency forward contracts, which are relatively certain in their timing and extent.

The exposure to Singapore Dollar (SGD) for the Subsidiary, Malaysian Ringgit (MYR) for the Company and other currencies for the Group at the Group level relating to investment securities are not material.


78



(b) Foreign currency risk (continued) The tables below show the foreign exchange position of the Group’s financial assets and liabilities by major currencies: The Group In Singapore Dollar SGD RM USD Others Total $’000 $’000 $’000 $’000 $’000 As at 31 December 2017 FINANCIAL ASSETS Financial assets, held-to-maturity - 313,065 - - 313,065 Financial assets, available-for-sale 3,823,198 1,795,562 2,196,819 272,753 8,088,332 Financial assets at fair value through

profit or loss 47,878 144,919 - 122,382 315,179 Derivative financial instruments - 303 26,577 - 26,880 Secured loans - 416 - - 416 Policy loans 44,852 156,837 30 3,237 204,956 Reinsurance assets 56,431 3,389 14,656 - 74,476 Outstanding premium and agents’

balances 18,590 9,044 1,987 125 29,746 Trade receivables 3,391 1,254 864 - 5,509 Other assets 45,289 23,772 - 297 69,358 Cash and cash equivalents 120,690 99,768 11,599 9,869 241,926 4,160,319 2,548,329 2,252,532 408,663 9,369,843 FINANCIAL LIABILITIES Claims admitted or intimated 81,056 154,135 - 671 235,862 Trade payables 80,827 39,501 22,238 123 142,689 Other payables 69,668 20,334 - 103 90,105 231,551 213,970 22,238 897 468,656 Net financial assets 3,928,768 2,334,359 2,230,294 407,766 8,901,187 Less: Foreign exchange contracts

(net) - - 1,993,949 - 1,993,949 Less: Net financial assets

denominated in the respective entities’ functional currencies 3,928,768 2,334,192 - - 6,262,960

Currency exposure - 167 236,345 407,766 644,278


79



(b) Foreign currency risk (continued)

The tables below show the foreign exchange position of the Group’s financial assets and liabilities by major currencies: (continued)

The Group In Singapore Dollar SGD RM USD Others Total $’000 $’000 $’000 $’000 $’000 As at 31 December 2016 FINANCIAL ASSETS Financial assets, held-to-maturity - 296,865 - - 296,865 Financial assets, available-for-sale 3,553,710 1,604,746 1,751,560 119,896 7,029,912 Financial assets at fair value through

profit or loss 46,973 111,757 - 95,100 253,830 Derivative financial instruments - 1,152 - - 1,152 Secured loans - 475 - - 475 Policy loans 38,025 163,428 16 3,558 205,027 Reinsurance assets 31,988 4,388 22,552 - 58,928 Outstanding premium and agents’

balances 15,383 10,945 665 108 27,101 Trade receivables 3,061 3,022 936 - 7,019 Other assets 52,732 17,692 - 271 70,695 Cash and cash equivalents 172,606 102,763 29,084 25,860 330,313 3,914,478 2,317,233 1,804,813 244,793 8,281,317 FINANCIAL LIABILITIES Claims admitted or intimated 64,923 137,820 - 816 203,559 Trade payables 57,297 47,205 30,881 122 135,505 Other payables 76,300 17,104 - 119 93,523 198,520 202,129 30,881 1,057 432,587 Net financial assets 3,715,958 2,115,104 1,773,932 243,736 7,848,730 Less: Foreign exchange contracts


denominated in the respective entities’ functional currencies 3,715,958 2,114,928 - - 5,830,886



80




The tables below show the foreign exchange position of the Company’s financial assets and liabilities by major currencies: The Company In Singapore Dollar SGD RM USD Others Total $’000 $’000 $’000 $’000 $’000 As at 31 December 2017 FINANCIAL ASSETS Financial assets, available-for-sale 3,823,198 - 2,196,819 272,753 6,292,770 Financial assets at fair value through

profit or loss 47,878 - - - 47,878 Derivative financial instruments - - 26,577 - 26,577 Policy loans 44,852 - 30 3,237 48,119 Reinsurance assets 56,431 - 14,656 - 71,087 Outstanding premium and agents’

balances 18,590 - 1,987 125 20,702 Trade receivables 3,391 - 864 - 4,255 Other assets 45,289 - - 297 45,586 Cash and cash equivalents 120,690 175 11,599 9,869 142,333 4,160,319 175 2,252,532 286,281 6,699,307 FINANCIAL LIABILITIES Claims admitted or intimated 81,056 - - 671 81,727 Trade payables 80,827 8 22,238 123 103,196 Other payables 69,668 - - 103 69,771

231,551 8 22,238 897 254,694 Net financial assets 3,928,768 167 2,230,294 285,384 6,444,613 Less: Foreign exchange contracts


denominated in the Company’s functional currency 3,928,768 - - - 3,928,768



81




The tables below show the foreign exchange position of the Company’s financial assets and liabilities by major currencies: (continued)

The Company In Singapore Dollar SGD RM USD Others Total $’000 $’000 $’000 $’000 $’000 As at 31 December 2016 FINANCIAL ASSETS Financial assets, available-for-sale 3,553,710 - 1,751,560 119,896 5,425,166 Financial assets at fair value through

profit or loss 46,973 - - - 46,973 Derivative financial instruments - - - - - Policy loans 38,025 - 16 3,558 41,599 Reinsurance assets 31,988 - 22,552 - 54,540 Outstanding premium and agents’

balances 15,383 - 665 108 16,156 Trade receivables 3,061 - 936 - 3,997 Other assets 52,732 - - 271 53,003 Cash and cash equivalents 172,606 176 29,084 25,860 227,726 3,914,478 176 1,804,813 149,693 5,869,160 FINANCIAL LIABILITIES Claims admitted or intimated 64,923 - - 815 65,738 Trade payables 57,297 - 30,881 121 88,299 Other payables 76,300 - - 119 76,419

198,520 - 30,881 1,055 230,456 Net financial assets 3,715,958 176 1,773,932 148,638 5,638,704 Less: Foreign exchange contracts


denominated in the Company’s functional currency 3,715,958 - - - 3,715,958


(c) Equity risk

The Group is exposed to equity price risk primarily through its investments in

quoted equity instruments. The Group is directly exposed to equity price risk for investments and bears all or most of the volatility in returns and investment performance. Equity price risk also exists in investment-linked products but these risks are generally borne by the policyholders. The impact to the Group is that the revenues of the insurance operations (management fees) are linked to the value of the underlying investment-linked assets.


82



(c) Equity risk (continued)

The Group has determined the target percentage of equity exposure to the total investment portfolio. These exposure limits approved by the Investment Committees, are defined within SAA and includes the monitoring of limits to various countries and sectors in the equity market.

The table below summarises the Group’s and Company’s exposure to the equity securities across different markets.


2017

% 2016

% 2017

% 2016

% Market Singapore Exchange 33 39 45 54 KLSE 20 22 - -

Others including unlisted

equities 47 39

55 46 Total 100 100 100 100

(i) Sensitivity analysis

The analysis below is performed for reasonable possible movements in key variables with all other variables remaining constant. In practice, the estimated future change may not be accurate particularly in periods of market turmoil. Actual results may differ substantially from these estimates.

The Group invests primarily in the Singapore and Asian stock markets with a small exposure to developed Global stock markets for its Singapore operations and Malaysia and Asian stock markets for its Malaysia operations. In this analysis, the applicable shock is applied to each market exposure. In addition, the Group makes adjustments or assumptions where it determines this to be necessary or appropriate.


83



(c) Equity risk (continued) (i) Sensitivity analysis (continued)

The table below summarises the Group’s sensitivity analysis based on investment holdings as of 31 December 2017. The parameters used are for illustration purpose only.

Singapore Operations

Impact on


Life Assurance Fund In Singapore Dollar 2017 2016 2017 2016 2017 2016 Change in variables $’000 $’000 $’000 $’000 $’000 $’000 Equities +10% - - - - 161,912 126,305 -10% - - - - (161,912) (126,305)

Malaysia Operations

Impact on


Life Assurance Fund In Singapore Dollar 2017 2016 2017 2016 2017 2016 Change in variables $’000 $’000 $’000 $’000 $’000 $’000 Equities +10% Change in KLSE

Index (2016: +10%) - - 50 113 70,781 58,933 -10% Change in KLSE

Index (2016: -10%) - - (50) (113) (70,781) (58,933) Note: The equity holdings in this sensitivity analysis exclude preference shares.


84



(d) Credit risk

The Group is exposed to credit risk through (i) investments in cash, money market and debt instruments (ii) exposure to counterparty’s credit in group and reinsurance contracts (iii) lending activities.

For all three types of exposures, financial loss may materialise as a result of a default by the borrower or counterparty. For investments in cash, money market and debt instruments, financial loss may also materialise as a result of a default by the issuer on the coupon payment or the principal amount. Even without a default, losses may materialise due to a widening of credit spread or a downgrade of credit rating. The Group has internal limits by issuer or counterparty and restrict debt instruments to investment grade ratings or equivalents (internal ratings for unrated bonds). These limits are actively monitored to manage the credit and concentration risk. These limits are reviewed on a regular basis by the Investment Committees. For unrated issues, they were not rated as the issuer did not obtain any credit rating from the respective rating agencies during the launch. Such issues although not rated are issued by companies which have sound financial and high credit worthiness. The credit worthiness for such bonds is evaluated and given an internal rating by the investment manager. They are then monitored on an ongoing basis with a review annually at the minimum for any deviation especially for a deterioration.

The creditworthiness of reinsurers is assessed on at least a quarterly basis

by reviewing their financial strength through published credit ratings and other publicly available financial information.

The Group manages its lending activities by extending loans against collateral pledged to the Group. Regular monitoring and review of the payments of loans are performed by the Group to identify any non-performing loan. Any non-performing loan identified is communicated to the management. Based on the decisions made by the management on the possible course of recovery and provision of these loans, appropriate action is taken.


85



(d) Credit risk (continued) The table below shows the maximum exposure to credit risk for the

components of the balance sheet. The table also provides information regarding the credit risk exposure of the Group by classifying assets according to the Group’s credit ratings of counterparties.

The tables below show the credit ratings of financial assets held by the Group:

Neither past-due nor impaired Past due

or impaired Total

Investment grade*

(AAA+ to A-)

Investment grade*

(BBB+ to BBB-)

Non-investment

grade* (BB+ to C) Not rated Not rated

The Group $’000 $’000 $’000 $’000 $’000 $’000 In Singapore Dollar As at 31 December 2017 HTM1 - Government and public

authority securities - - - 242,077 - 242,077 HTM - Unquoted debentures in

corporations 70,988 - - - - 70,988 AFS2 - Quoted government and public

authority securities 926,076 201,622 - 389,735 - 1,517,433 AFS - Quoted debentures 2,282,033 1,048,858 - 545,208 - 3,876,099 AFS - Equities - - - 2,430,197 264,603 2,694,800 FVTPL3 - Unquoted debentures 56,749 - - 23,082 - 79,831 FVTPL - Equities - - - 235,348 - 235,348 Derivative financial instruments - - - 26,880 - 26,880 Secured loans - - - 416 - 416 Policy loans - - - 204,956 - 204,956 Reinsurance assets - - - 74,476 - 74,476 Trade receivables - - - 1,254 4,255 5,509 Outstanding premium and agents’

balances - - - - 29,746 29,746 Other assets - - - 69,358 - 69,358 Cash and cash equivalents 218,193 23,732 - 1 - 241,926

3,554,039 1,274,212 - 4,242,988 298,604 9,369,843

1 “HTM” refers to financial assets, held-to-maturity 2 “AFS” refers to financial assets, available-for-sale 3 “FVTPL” refers to financial assets at fair value through profit or loss


86



(d) Credit risk (continued)

The tables below show the credit ratings of financial assets held by the Group: (continued)


or impaired Total

Investment grade*

(BBB+ to BBB-)

Non-investment

grade* (BB+ to C) Not rated

Investment grade*

(BBB+ to BBB-)

Non-investment

grade* (BB+ to C) Not rated

The Group $’000 $’000 $’000 $’000 $’000 $’000 In Singapore Dollar As at 31 December 2016 HTM4 - Government and public

authority securities - - - 224,266 - 224,266

HTM - Unquoted debentures in corporations

72,599 - - - - 72,599

AFS5 - Quoted government and public authority securities

940,901 187,056 - 338,861 - 1,466,818

AFS - Quoted debentures 2,190,680 803,529 - 460,598 - 3,454,807 AFS - Equities - - - 1,875,002 233,285 2,108,287 FVTPL6 - Unquoted debentures 37,360 - - 22,138 - 59,498 FVTPL - Equities - - - 194,332 - 194,332 Derivative financial instruments - - - 519 633 1,152 Secured loans - - - 475 - 475 Policy loans - - - 205,027 - 205,027 Reinsurance assets - - - 58,928 - 58,928 Trade receivables - - - 3,022 3,997 7,019 Outstanding premium and agents’

balances - - - - 27,101 27,101

Other assets - - - 70,695 - 70,695 Cash and cash equivalents 294,338 35,974 - 1 - 330,313

3,535,878 1,026,559 - 3,453,864 265,016 8,281,317

4 “HTM” refers to financial assets, held-to-maturity 5 “AFS” refers to financial assets, available-for-sale 6 “FVTPL” refers to financial assets at fair value through profit or loss


87

29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (d) Credit risk (continued)

The tables below show the credit ratings of financial assets held by the Company:


or impaired Total

Investment grade*

(AAA+ to A-)

Investment grade*

(BBB+ to BBB-)

Non-investment

grade* (BB+ to C) Not rated Not rated

The Company $’000 $’000 $’000 $’000 $’000 $’000 In Singapore Dollar As at 31 December 2017 AFS8 - Quoted government and public

authority securities 916,178 201,623 - - - 1,117,801 AFS8 - Quoted debentures 1,475,559 1,048,858 - 523,791 - 3,048,208 AFS8 - Equities - - - 1,968,018 158,743 2,126,761 FVTPL9 - Equities - - - 47,878 - 47,878 Derivatives Financial Instruments - - - 26,577 - 26,577 Policy loans - - - 48,119 - 48,119 Reinsurance assets - - - 71,087 - 71,087 Trade receivables - - - - 4,255 4,255 Outstanding premium and agents’


2,510,338 1,274,212 - 2,731,057 183,700 6,699,307 As at 31 December 2016 AFS8 - Quoted government and public

authority securities 931,202 187,056 - - - 1,118,258 AFS8 - Quoted debentures 1,436,616 803,529 - 444,477 - 2,684,622 AFS8 - Equities - - - 1,477,307 144,979 1,622,286 FVTPL9 - Equities - - - 46,973 - 46,973 Policy loans - - - 41,599 - 41,599 Reinsurance assets - - - 54,540 - 54,540 Trade receivables - - - - 3,997 3,997 Outstanding premium and agents’


2,559,569 1,026,559 - 2,117,900 165,132 5,869,160 _______________________ 8 “AFS” refers to financial assets, available-for-sale 9 “FVTPL” refers to financial assets at fair value through profit or loss


88




The financial assets, available-for-sale, which are not rated comprise mainly bonds issued by statutory authorities or companies listed on the Singapore Stock Exchange or the Kuala Lumpur Stock Exchange. The issues were not rated as the issuer did not obtain any credit rating from the respective rating agencies during the launch. Such issues although not rated are issued by companies which have sound financial and high credit worthiness. The credit worthiness for such bonds is monitored by the investment manager on a regular basis and reviewed annually at the minimum.

The Group’s business portfolio includes mortgage loans as well as other unsecured loans to staff or advisers. Mortgage loans are generally secured by collateral. The amount of loan is based on the valuation of the collateral as well as an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of the types of collateral and the valuation parameters. The fair value of collaterals, held by the Group as lender, for which it is entitled to sell or pledge in the event of default is as follows:

The tables below show the status of loans given by the Group:

Financial assets of the Group (including AFS - unquoted debentures,

outstanding premium and agents’ balances, loan secured by properties and trade receivables) are neither past due nor impaired except for $34,001,000 (2016: $31,099,000) which are past due but not impaired; and $980,000 (2016: $1,486,000) which are past due and impaired.

Type of

collaterals

Carrying amount of loans

Fair value of collaterals

The Group $’000 $’000 As at 31 December 2017 Loan secured by properties Properties 390 1,937 Secured loans Computers 26 - 416 1,937 As at 31 December 2016 Loan secured by properties Properties 351 1,895 Secured loans Computers 124 - 475 1,895


89




Financial assets of the Company (including AFS - unquoted debentures, outstanding premium and agents’ balances, loan secured by properties and trade receivables) are neither past due nor impaired except for $24,957,000 (2016: $20,153,000) which are past due but not impaired; and $494,000 (2016: $450,000) which are past due and impaired.

In respect of those financial assets which are past due but not impaired, there was no objective evidence that the amount due cannot be collected. The objective evidence includes significant financial difficulties of the counterparty and the probability that the counterparty will enter bankruptcy.

(e) Alternative investment risk

The Group is exposed to alternative investment risk through investments in direct real estate investments in Singapore and Malaysia, but the exposure is minimal.

(f) Fair value measurements

The following table presents the assets and liabilities measured at fair value and classified by level of the following fair value measurement hierarchy:

(a) Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

(b) Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2); and

(c) Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

Level 1 Level 2 Level 3 Total $’000 $’000 $’000 $’000 The Group As at 31 December 2017 Financial assets, available-for-sale 2,677,366 5,408,244 2,722 8,088,332 Financial assets at fair value though profit or loss 50,136 265,043 - 315,179 Financial assets held-to-maturity - 313,065 - 313,065 Derivatives financial instruments 303 26,577 - 26,880 Total assets 2,727,805 6,012,929 2,722 8,743,456


90

29. Insurance and financial risk management (continued) (C) Investment Committees (continued) (f) Fair value measurements (continued) Level 1 Level 2 Level 3 Total $’000 $’000 $’000 $’000 The Group (continued) As at 31 December 2016 Financial assets, available-for-sale 2,256,647 4,770,602 2,663 7,029,912 Financial assets at fair value though profit or loss 41,982 211,848 - 253,830 Financial assets held-to-maturity - 296,865 - 296,865 Derivatives financial instruments 1,152 - - 1,152 Total assets 2,299,781 5,279,315 2,663 7,581,759 Derivative financial instruments - 74,932 - 74,932 Total liabilities - 74,932 - 74,932 The Company As at 31 December 2017 Financial assets, available-for-sale 2,136,693 4,156,077 - 6,292,770 Financial assets at fair value though profit or loss - 47,878 - 47,878 Financial assets derivative financial instruments - 26,577 - 26,577 Total assets 2,136,693 4,230,532 - 6,367,225 As at 31 December 2016 Financial assets, available-for-sale 1,796,936 3,628,230 - 5,425,166 Financial assets at fair value though profit or loss - 46,973 - 46,973 Total assets 1,796,936 3,675,203 - 5,472,139 Derivative financial instruments - 74,932 - 74,932 Total liabilities - 74,932 - 74,932

The fair value of financial instruments traded in active markets (such as trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the last current bid prices. These instruments are included in Level 1.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for similar instruments are used to estimate fair value for long-term debt for disclosure purposes. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates at the balance sheet date. These investments are included in Level 2 and comprise debt investments and derivative financial instruments. In infrequent circumstances, where a valuation technique for these instruments is based on significant unobservable inputs, such instruments are included in Level 3.


91



(f) Fair value measurements (continued)

The following table presents the changes in Level 3 instruments: The Group The Company

2017 $’000

2016 $’000

2017 $’000

2016 $’000

Balance at beginning of financial year 2,663 2,747 - 20 Currency translation differences 59 (64) - - Purchases - - - - Disposals - - - - Fair value losses recognised in: - - other comprehensive income - (20) - (20) - profit or loss - - - - Balance at end of financial year 2,722 2,663 - -

Total losses for the period included in profit or loss for assets and liabilities held at the end of financial year - - - -

During the financial years ended 31 December 2017 and 2016, there was no transfer of investments between Level 1 and 2 and in and out of Level 3 of the fair value hierarchy. The carrying amount less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated based on quoted market prices for dealer quotes for similar instruments by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.


92


(C) Investment Committees (continued) (g) Offsetting financial assets and financial liabilities

The Group and the Company has the following financial instruments subject to enforceable master netting arrangements or similar agreement as follows:

Derivative

financial assets

2017 $’000

2016 $’000

The Group and the Company Gross amount 26,880 - Less: Gross amount set off in balance sheet - - Net amount presented in balance sheet 26,880 - Net exposure 26,880 -

Derivative

financial liabilities

2017 $’000

2016 $’000

The Group and the Company Gross amount - 74,938 Less: Gross amount set off in balance sheet - (6) Net amount presented in balance sheet - 74,932 Net exposure - 74,932 (h) Investment in funds The funds invested in by the Group may utilise a variety of financial

instruments in their trading strategies, including equity and debt securities as well as an array of derivative instruments. Several of these financial instruments contain varying degrees of off-balance sheet risk whereby changes in market values of the securities underlying the financial instruments may be in excess of the amounts recorded on each portfolio fund’s statement of financial position. However, as the Group has limited interests in these funds, the Group’s risk with respect to such transactions is limited to its capital balance in each fund.

The Group’s holding in a fund, as a percentage of the fund’s total net asset

value, may vary from time to time depending on the volume of subscriptions and redemptions at the fund level. It is possible that the Group may, at any point in time, hold a majority of a fund’s total units in issue.


93



(h) Investment in funds (continued)

The Group’s maximum exposure to loss from its interests in fund is equal to the total fair value of its investments in the funds. Once the Group has disposed of its shares/units in a portfolio fund, the Group ceases to be exposed to any risk from that fund.

The following table summarise the Group’s holdings in funds by risk of concentration with respect to geographic region and investment strategy of the funds:

% of the investment

in funds

Market Value

(S$’000) The Group 31 December 2017 Investment strategy Long only 100% 613,849 Geography Singapore 0.5% 2,915 Malaysia 7.0% 42,842 Asia (excluding Singapore and Malaysia) 89.4% 549,023 Others 3.1% 19,069 100.0% 613,849 31 December 2016 Investment strategy Long only 100% 560,445 Geography Singapore 0.7% 3,818 Malaysia 7.3% 41,112 Asia (excluding Singapore and Malaysia) 88.7% 497,085 Others 3.3% 18,430 100.0% 560,445


94



(h) Investment in funds (continued) The following table summarise the Company’s holdings in funds by risk of

concentration with respect to geographic region and investment strategy of the funds:

% of the investment

in funds

Market Value

(S$’000) The Company 31 December 2017 Investment strategy Long only 100% 436,567 Geography Singapore 0.7% 2,915 Asia (excluding Singapore) 95.8% 418,309 Others 3.5% 15,343 100% 436,567 31 December 2016 Investment strategy Long only 100% 416,034 Geography Singapore 0.9% 3,818 Asia (excluding Singapore) 95.0% 395,303 Others 4.1% 16,913 100.0% 416,034 30. Capital management

The Group’s capital management objective is to hold sufficient capital in order to Ensure obligations to policyholders are met with a high degree of certainty. Provide capacity to take risk and generate a reasonable return on capital for

shareholders. Fulfil expectations of regulators about the Company’s capital adequacy.


95

30. Capital management (continued) The Group currently uses capital requirements under the respective regulatory regimes it operates in as a proxy for capital adequacy assessment. Each regime prescribes a minimum amount of capital that must be held to fulfil statutory solvency requirements in each country that it operates in and must be met at all times throughout the year. As part of the statutory requirements, the Company and its Malaysian subsidiary report their capital position quarterly. Internally, the Group also sets its own minimum capital position with consideration for the above objectives. In Singapore, under the Risk-based Capital Framework regulated by the Monetary Authority of Singapore (MAS), the minimum capital adequacy ratio is 120%. As at 31 December 2017, the capital adequacy ratio is 252% (2016: 237%), which is the ratio of available capital of $2,413 million (2016: $1,990 million) to the total risk requirement of $957 million (2016: $838 million). The current internal target is minimum capital adequacy ratio of 200% under normal circumstances. In Malaysia, under the Risk-based Capital Framework regulated by the Bank Negara Malaysia (BNM), the minimum requirement for each insurance entity is 130%. As at 31 December 2017, the capital adequacy ratio is 269% (2016: 267%), which is the ratio of available capital of $915 million (2016: $791 million) to the total risk requirement of $340 million (2016: $296 million). The current internal target is capital adequacy ratio of 200%. Liquidity Risks Liquidity risk arises when a company is unable to meet its obligations on a timely basis; especially so when the investment portfolio is largely made up of illiquid assets. Under normal circumstances, the liquidity demands of an insurance company are often determined through ongoing operations, continuous premium income, sale of disposable assets and borrowings. For insurers, the expected liquidity needs are often determined through projection of outflows from the in-force insurance policy contract liabilities; the liabilities include renewal commissions, claims and other benefits (maturity and surrender). While the nature of these outflows is deemed to be largely stable and can be assumed at the outset, the Group remains susceptible to exceptional experiences (surrender or catastrophic events) for its insurance portfolio. Also, companies may be subject to unexpected liquidity tightening due to adverse implications from the wider economic factors (domestic or global) or undue volatilities and unexpected losses experienced within investments. Liquidity risk is reduced by having insurance contract liabilities that are well diversified by product and policyholder. The Group designs insurance products to encourage policyholders to maintain their policies in-force, thereby generating a diversified and stable flow of recurring premium income.


96

30. Capital management (continued)

Liquidity Risks (continued)

The Group adopts prudent liquidity risk management by monitoring daily operating liquidity and cash movements to ensure liquidity is available and cash is employed optimally. The Group has cash and cash equivalents of $242 million (2016: $330 million) to meet its liquidity requirements.

The following table shows the contractual maturity profile of the Group’s financial liabilities. As all the financial liabilities are current, the carrying value approximates the undiscounted cash flows.

The Group In Singapore Dollar (millions) 2017 <1 Year 1- 5 years > 5 years

Claims admitted or intimated 236 - - Trade payables 143 - - Other payables 43 - 47

In Singapore Dollars (millions) 2016


The Company In Singapore Dollar (millions) 2017 <1 Year 1- 5 years > 5 years


In Singapore Dollars (millions) 2016



97

30. Capital management (continued)

Liquidity Risks (continued)

The following table shows the expected contractual maturity profile of the Group’s insurance contract liabilities. All insurance contract liabilities values are approximates of the undiscounted cash flows and are net of reinsurance assets.

In Singapore Dollars (millions) 2017 <1 Year 1- 5 years > 5 years

Insurance contract liabilities 161 (222) (29,790)

In Singapore Dollars (millions) 2016 <1 Year 1- 5 years > 5 years

Insurance contract liabilities 100 (103) (29,624) Demands for funds can usually be met through ongoing normal operations, premiums received, sale of assets or borrowings. Unexpected demands for liquidity may be triggered by negative publicity, deterioration of the economy, reports of problems in other companies in the same or similar lines of business, unanticipated policy claims, or other unexpected cash demands from policyholders. Expected liquidity demands are managed through a combination of treasury, investment and asset-liability management practices, which are monitored on an ongoing basis. Actual and projected cash inflows and outflows are monitored and a reasonable amount of assets are kept in liquid instruments at all times. The projected cash flows from the in-force insurance policy contract liabilities consist of renewal premiums, commissions, claims, maturities and surrenders. Renewal premiums, commissions, claims and maturities are generally stable and predictable. Surrenders can be more uncertain although it has been quite stable at a company level over the past several years. Unexpected liquidity demands are managed through a combination of product design, diversification limits, investment strategies and systematic monitoring. The existence of surrender penalty in insurance contracts also protects the Group from losses due to unexpected surrender trends as well as reduces the sensitivity of surrenders to changes in interest rates.

31. Net fair values of financial assets and liabilities The financial assets and the financial liabilities of the Group and the Company

comprise current assets (except tax recoverable and prepayments), loans, financial assets at fair value through profit or loss, financial assets available-for-sale, financial assets held-to-maturity, derivative financial instruments, current liabilities (except current tax liabilities), staff retirement benefits and agents’ retirement benefits. The fair values of these financial assets and liabilities (except held-to-maturity financial assets) at 31 December 2017 approximate their carrying amounts as shown in the balance sheet. The fair values of held-to-maturity financial assets are disclosed in Note 12.


98

32. Dividends

The Group

and the Company

2017 $’000

2016 $’000

Ordinary dividends paid Final dividend paid in respect of the previous financial year of $0.08 (2016: $0.08) per share 2,880 2,880

At the next Annual General Meeting, a final dividend of $0.08 per ordinary stock amounting to $2,880,000 will be recommended. These financial statements do not reflect this dividend, which will be accounted for in shareholders’ equity as an appropriation of retained profits in the financial year ending 31 December 2018.

33. Events occurring after balance sheet date

On 1 January 2018, the net book value of the bancassurance rights of RM$50 million (S$16.6 million) was reclassified from life assurance fund to the shareholders’ fund to be consistent with other insurers in Malaysia.

34. New or revised accounting standards and interpretations

Below are the mandatory standards, amendments and interpretations to existing

standards that have been published and are relevant for the Group’s accounting periods beginning on or after 1 January 2018 and which the Group has not early adopted: FRS 109 Financial instruments (effective for annual periods beginning on or

after 1 January 2018)

FRS 109 replaces FRS 39 Financial instruments: Recognition and Measurement and its relevant interpretations.

FRS 109 retains the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through Other Comprehensive Income (OCI) and fair value through Profit or Loss. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI (FVOCI). Gains and losses realised on the sale of financial assets at FVOCI are not transferred to profit or loss on sale but reclassified from the FVOCI reserve to retained earnings.


99

34. New or revised accounting standards and interpretations (continued)

FRS 109 Financial instruments (effective for annual periods beginning on or after 1 January 2018) (continued)

Under FRS 109, there were no changes to the classification and measurement requirements for financial liabilities except for the recognition of fair changes arising from changes in own credit risk. For liabilities designed at fair value through profit or loss, such changes are recognised in OCI.

FRS 109 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes.

There is also now a new expected credit losses model that replaces the incurred loss impairment model used in FRS 39. It applies to financial assets classified at amortised cost, all debt securities, lease receivables and loan commitments.

The new standard also introduces expanded disclosure requirements and changes in presentation.

The Group expects to defer application of FRS 109 until 1 January 2021 as allowed under the amendments to FRS 104 Insurance contracts outlined below.

These amendments address the concerns of insurance companies about the different effective dates of FRS 109 Financial instruments, and the forthcoming new insurance contracts standard. The amendment to FRS 104 provides two different solutions for insurance companies: a temporary exemption from FRS 109 for entities that meet specific requirements (applied at the reporting entity level); and the ‘overlay approach’. Both approaches are optional.

(1) Temporary exemption from applying FRS 109

For annual periods beginning before 1 January 2021, the amendment to FRS 104 allows insurers to continue to apply FRS 39 Financial Instruments: Recognition and measurement, instead of adopting FRS 109, if their activities are ‘predominantly connected with insurance’. To assess whether activities are ‘predominantly connected with insurance’, two tests have to be performed. Only if both tests are passed are an insurer’s activities considered to be predominantly connected with insurance. First, an insurer assesses whether the carrying amount of its liabilities arising from contracts within FRS 104’s scope is significant, compared to the total carrying amount of all of its liabilities.


100



(1) Temporary exemption from applying FRS 109 (continued)

Secondly, the insurer compares the total carrying amount of its liabilities connected with insurance with the total carrying amount of all of its liabilities. In addition to liabilities arising directly from contracts within FRS 104’s scope, liabilities connected with insurance include • non-derivative investment contract liabilities measured at fair value

through profit or loss applying FRS 39; and • liabilities that arise because the insurer issues, or fulfils obligations

arising from, those insurance and non-derivative investment contracts.

The second test is passed if the resulting percentage is either: greater than 90%; or if it is less than or equal to 90% but greater than 80%, the insurer is not engaged in a significant activity unconnected with insurance. The assessment is made, based on the carrying amounts as at the annual reporting date that immediately precedes 1 April 2016. Under certain circumstances, a reassessment is required or permitted.

(2) Overlay approach

Under FRS 109, certain financial assets have to be measured at fair value through profit or loss; whereas, under FRS 104, the related liabilities from insurance contracts are often measured on a cost basis. This mismatch creates volatility in profit or loss. By using the ‘overlay approach’, the effect is eliminated for certain eligible financial assets. For these financial assets, an insurer is permitted to reclassify - from profit or loss to other comprehensive income - the difference between the amount that is reported in profit or loss under FRS 109 and the amount that would have been reported in profit or loss under FRS 39. The ‘overlay approach’ is applied retrospectively. Accordingly, the difference between the fair value of the designated financial assets and its carrying amount is recognised as an adjustment to the opening balance of accumulated other comprehensive income.

FRS 104 (including the amendments that have now been issued) will be superseded by the forthcoming new insurance contracts standard. Accordingly, both the temporary exemption and the ‘overlay approach’ are expected to cease to be applicable when the new insurance standard becomes effective.


101



(2) Overlay approach (continued)

Management has assessed that the Group’s activities are ‘predominantly connected with insurance’ and will be applying the temporary exemption from FRS 109. Management’s assessment is as follows. As at 31 December 2015, the proportion of the carrying amount of the Group’s liabilities arising from contracts within the scope of FRS 104 and liabilities connected with insurance constitutes approximately 84.4% and 95.0% of the total liabilities respectively. As the proportion of liabilities connected with insurance is greater than 90%, management has assessed that to be significant and deemed the Group’s activities to be predominantly connected with insurance.

The Group has decided that it will defer the application of FRS 109 till the new insurance accounting standard is effective and it is able to perform a comprehensive assessment of the impact both standards together.

FRS 115 Revenue from contracts with customers (effective for annual periods

beginning on or after 1 January 2018)

FRS 115 replaces FRS 11 Construction contracts, FRS 18 Revenue, and related interpretations.

Revenue is recognised when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. The core principle of FRS 115 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

FRS 115 also includes a cohesive set of disclosure requirements that will result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. Either a full or modified retrospective application is required for annual periods beginning on or after 1 January 2018 with early adoption permitted. The Group has assessed that there are no contracts under the Group that are categorised as investment contracts and as such, there are no impact on the financial statements upon adoption of the new standard as the Group.


102

34. New or revised accounting standards and interpretations (continued) FRS 116 Leases (effective for annual periods beginning on or after 1 January

2019)

FRS 116 will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not change significantly.

The standard will affect primarily the accounting for the Group’s operating leases. As at the reporting date, the Group has non-cancellable operating lease commitments of $3,828,000 (Note 28(b)). However, the Group has yet to determine to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this will affect the Group’s profit and classification of cash flows.

Some of the commitments may be covered by the exception for short-term and low-value leases and some commitments may relate to arrangements that will not qualify as leases under FRS 116.

35. Authorisation of financial statements These financial statements were authorised for issue in accordance with a resolution of the Board of Directors of Tokio Marine Life Insurance Singapore Ltd. on

THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK

103

Audited Financial Statements - Tokio Marine · 2020. 6. 9. · Audited Financial Statements For the...

Documents

Transcript of Audited Financial Statements - Tokio Marine · 2020. 6. 9. · Audited Financial Statements For the...