Coco Life Audited Financial Statement 2014

UNITED COCONUT PLANTERS LIFE ASSURANCE

CORPORATION

SEPARATE FINANCIAL STATEMENTS

December 31, 2014 and 2013

ABCD

R.G. Manabat & Co. Telephone +63 (2) 885 7000

The KPMG Center, 9/F Fax +63 (2) 894 1985

6787 Ayala Avenue Internet www.kpmg.com.ph

Makati City 1226, Metro Manila, Philippines E-Mail [email protected]

Branches: Subic · Cebu · Bacolod · Iloilo

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm

of the KPMG network of independent firms affiliated with KPMG International

Cooperative ("KPMG International"), a Swiss entity. KPMG International

provides no client services. No member firm has any authority to obligate

or bind KPMG International or any other member firm vis-à-vis third parties,

nor does KPMG International have any such authority to obligate or bind any

member firm. All rights reserved.

PRC-BOA Registration No. 0003, valid until December 31, 2016

SEC Accreditation No. 0004-FR-4, Group A, valid until November 10, 2017

IC Accreditation No. F-2014/014-R, valid until August 26, 2017

BSP Accredited, Category A, valid until December 17, 2017

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REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

United Coconut Planters Life Assurance Corporation

Report on the Separate Financial Statements

We have audited the accompanying separate financial statements of United Coconut Planters Life

Assurance Corporation (the “Parent Company”), which comprise the separate statements of

financial position as at December 31, 2014 and 2013, and the separate statements of

comprehensive income, separate statements of changes in equity and separate statements of cash

flows for the years then ended, and notes, comprising a summary of significant accounting

policies and other explanatory information.

Management’s Responsibility for the Separate Financial Statements

Management is responsible for the preparation and fair presentation of these separate financial

statements in accordance with Philippine Financial Reporting Standards, and for such internal

control as management determines is necessary to enable the preparation of separate financial

statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these separate financial statements based on our

audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those

standards require that we comply with ethical requirements and plan and perform the audit to

obtain reasonable assurance whether the separate financial statements are free from material

misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the separate financial statements. The procedures selected depend on the auditors’

judgment, including the assessment of the risks of material misstatement of the separate financial

statements, whether due to fraud or error. In making those risk assessments, the auditors consider

internal control relevant to the entity’s preparation and fair presentation of the separate financial

statements in order to design audit procedures that are appropriate in the circumstances, but not

for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An

audit also includes evaluating the appropriateness of accounting policies used and the

reasonableness of accounting estimates made by management, as well as evaluating the overall

presentation of the separate financial statements.

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

basis for our qualified audit opinion.

ABCD

Basis for Qualified Opinion

The Parent Company carries its investments in United Coconut Planters Bank (UCPB) shares as

available-for-sale (AFS) financial assets at cost as disclosed in Note 11 of the notes to financial

statements. As required under Philippine Financial Reporting Standards, such AFS financial

assets should have been carried at cost less impairment losses. Had the Parent Company

recognized such impairment losses, the carrying amounts of the AFS financial assets and retained

earnings as of December 31, 2014 and 2013 should have been reduced by P552 million.

Qualified Opinion

In our opinion, except for the possible effects on the financial statements of the matter described

in the Basis for Qualified Opinion paragraph, the separate financial statements present fairly, in

all material respects, the unconsolidated financial position of the Parent Company as at

December 31, 2014 and 2013, and its unconsolidated financial performance and its

unconsolidated cash flows for the years then ended in accordance with Philippine Financial

Reporting Standards.

Emphasis of Matter

Without qualifying our opinion, we draw attention to Note 11 to the financial statements which

discusses the Executive Orders (EOs) issued by the President of the Republic of the Philippines

regarding the inventory, reconveyance, utilization and privatization of coco levy assets that

reference the decision rendered by the Supreme Court involving the ownership of certain

sequestered shares in UCPB, and the ownership over the Coconut Industry Investment Fund

(CIIF) Oil Mills Companies, the Fourteen (14) CIIF Holding Companies and the proceeds of the

redeemed shares of stock in San Miguel Corporation (SMC) held by the 14 CIIF Holding

Companies, together with all dividends declared, paid and issued thereon as well as any

increments thereto arising from, but not limited to, exercise of pre-emptive rights, is owned by

the Republic of the Philippines for the benefit of the coconut farmers, thus making it a part of the

coco levy assets. Since the manner by which the reconveyance, utilization and privatization of

the coco levy assets to be undertaken has not been defined by the implementing authorities, the

Board of Directors and management will be assessing the impact of the EOs and the Supreme

Court Decision on the Parent Company moving forward and believe that, as at December 31,

2014, it is reasonable to maintain the status quo and continue with its normal business operations.

Report on the Supplementary Information Required Under Revenue Regulations

No. 15-2010 of the Bureau of Internal Revenue

Our audits were conducted for the purpose of forming an opinion on the basic financial

statements taken as a whole. The supplementary information in Note 40 to the financial

statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a

required part of the basic financial statements. Such supplementary information is the

responsibility of the management. The information has been subjected to the auditing procedures

applied in our audit of the basic financial statements. In our opinion, the information is fairly

stated, in all material respects in relation to the basic financial statements taken as a whole.

April 29, 2015

Makati City, Metro Manila

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Cocolife Building, 6774 Ayala Avenue

Makati City

Report on the Separate Financial Statements


Assurance Corporation (the “Parent Company”), which comprise the separate statements of

financial position as at December 31, 2014 and 2013, and the separate statements of

comprehensive income, separate statements of changes in equity and separate statements of cash

flows for the years then ended, and notes, comprising a summary of significant accounting

policies and other explanatory information.

Management’s Responsibility for the Separate Financial Statements

Management is responsible for the preparation and fair presentation of these separate financial

statements in accordance with Philippine Financial Reporting Standards, and for such internal

control as management determines is necessary to enable the preparation of separate financial

statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these separate financial statements based on our

audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those

standards require that we comply with ethical requirements and plan and perform the audit to

obtain reasonable assurance whether the separate financial statements are free from material

misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the separate financial statements. The procedures selected depend on the auditors’

judgment, including the assessment of the risks of material misstatement of the separate financial

statements, whether due to fraud or error. In making those risk assessments, the auditors consider

internal control relevant to the entity’s preparation and fair presentation of the separate financial

statements in order to design audit procedures that are appropriate in the circumstances, but not

for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An

audit also includes evaluating the appropriateness of accounting policies used and the

reasonableness of accounting estimates made by management, as well as evaluating the overall

presentation of the separate financial statements.

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

basis for our qualified audit opinion.

ABCD

Basis for Qualified Opinion

The Parent Company carries its investments in United Coconut Planters Bank (UCPB) shares as

available-for-sale (AFS) financial assets at cost as disclosed in Note 11 of the notes to financial

statements. As required under Philippine Financial Reporting Standards, such AFS financial

assets should have been carried at cost less impairment losses. Had the Parent Company

recognized such impairment losses, the carrying amounts of the AFS financial assets and retained

earnings as of December 31, 2014 and 2013 should have been reduced by P552 million.

Qualified Opinion

In our opinion, except for the possible effects on the financial statements of the matter described

in the Basis for Qualified Opinion paragraph, the separate financial statements present fairly, in

all material respects, the unconsolidated financial position of the Parent Company as at

December 31, 2014 and 2013, and its unconsolidated financial performance and its

unconsolidated cash flows for the years then ended in accordance with Philippine Financial

Reporting Standards.

Emphasis of Matter

Without qualifying our opinion, we draw attention to Note 11 to the financial statements which

discusses the Executive Orders (EOs) issued by the President of the Republic of the Philippines

regarding the inventory, reconveyance, utilization and privatization of coco levy assets that

reference the decision rendered by the Supreme Court involving the ownership of certain

sequestered shares in UCPB, and the ownership over the Coconut Industry Investment Fund

(CIIF) Oil Mills Companies, the Fourteen (14) CIIF Holding Companies and the proceeds of the

redeemed shares of stock in San Miguel Corporation (SMC) held by the 14 CIIF Holding

Companies, together with all dividends declared, paid and issued thereon as well as any

increments thereto arising from, but not limited to, exercise of pre-emptive rights, is owned by

the Republic of the Philippines for the benefit of the coconut farmers, thus making it a part of the

coco levy assets. Since the manner by which the reconveyance, utilization and privatization of

the coco levy assets to be undertaken has not been defined by the implementing authorities, the

Board of Directors and management will be assessing the impact of the EOs and the Supreme

Court Decision on the Parent Company moving forward and believe that, as at December 31,

2014, it is reasonable to maintain the status quo and continue with its normal business operations.

ABCD

Report on the Supplementary Information Required Under Revenue Regulations

No. 15-2010 of the Bureau of Internal Revenue

Our audits were conducted for the purpose of forming an opinion on the basic financial

statements taken as a whole. The supplementary information in Note 40 to the financial

statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a

required part of the basic financial statements. Such supplementary information is the

responsibility of the management. The information has been subjected to the auditing procedures

applied in our audit of the basic financial statements. In our opinion, the information is fairly

stated, in all material respects in relation to the basic financial statements taken as a whole.

R.G. MANABAT & CO.

DENNIS I. ILAN

Partner

CPA License No. 089564

IC Accreditation No. SP-2014/023-R, Group A, valid until August 26, 2017

SEC Accreditation No. 1182-A, Group A, valid until April 30, 2015

Tax Identification No. 161-313-405

BIR Accreditation No. 08-001987-28-2014

Issued September 26, 2014; valid until September 25, 2017

PTR No. 4748109MC

Issued January 5, 2015 at Makati City

April 29, 2015


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TO ACCOMPANY FINANCIAL STATEMENTS FOR FILING WITH THE

BUREAU OF INTERNAL REVENUE




Makati City


Assurance Corporation, as at and for the year ended December 31, 2014, on which we have

rendered our report dated April 29, 2015.

In compliance with Revenue Regulations V-20, we are stating that no partner of our Firm is

related by consanguinity or affinity to the president, manager or principal stockholder of the

Company.

R.G. MANABAT & CO.

DENNIS I. ILAN

Partner







PTR No. 4748109MC


April 29, 2015


ABCD

















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TO ACCOMPANY FINANCIAL STATEMENTS FOR FILING WITH THE

SECURITIES AND EXCHANGE COMMISSION




Makati City


Assurance Corporation, as at and for the year ended December 31, 2014, on which we have


In compliance with Securities Regulation Code Rule 68, As Amended, we are stating that the said

Company has nine (9) stockholders owning one hundred (100) or more shares each.

R.G. MANABAT & CO.

DENNIS I. ILAN

Partner







PTR No. 4748109MC


April 29, 2015


ABCD

















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ON SUPPLEMENTARY INFORMATION




Makati City


Assurance Corporation as at and for the year ended December 31, 2014, on which we have


Our audit was made for the purpose of forming an opinion on the basic financial statements of the

Parent Company taken as a whole. The supplementary information included in the following

accompanying additional components is the responsibility of the management:

Reconciliation of Retained Earnings Available for Dividend Declaration

Schedule of Philippine Financial Reporting Standards

These supplementary information are presented for purposes of complying with the Securities

Regulation Code Rule 68, As Amended, and are not a required part of the basic financial

statements. Such information have been subjected to the auditing procedures applied in the audit

of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in

relation to the basic financial statements taken as a whole.

R.G. MANABAT & CO.

DENNIS I. ILAN

Partner







PTR No. 4748109MC


April 29, 2015


UNITED COCONUT PLANTERS LIFE ASSURANCE CORPORATION

SEPARATE STATEMENTS OF FINANCIAL POSITION

December 31

Note 2014 2013

ASSETS

Cash and cash equivalents 8 P1,482,796,582 P1,799,306,327

Insurance receivables - net 9 419,153,554 203,997,141

Financial assets at fair value through profit or loss (FVPL) 10 1,144,533,764 755,326,450

Available-for-sale (AFS) financial assets 11 9,050,899,343 8,342,194,838

Loans and receivables - net 12 7,682,506,264 6,635,832,631

Accrued income - net 13 61,789,064 62,204,505

Reinsurance assets 14 44,740,721 28,698,683

Investments in subsidiaries and associate 15 1,128,915,018 1,128,915,018

Real estate inventories 16 31,818,136 34,561,536

Investment properties 17 583,983,965 496,578,393

Property and equipment - net 18 132,702,093 136,897,192

Intangible assets - net 19 14,067,581 11,692,106

Other assets 20 189,697,497 103,816,743

P21,967,603,582 P19,740,021,563

LIABILITIES AND EQUITY

LIABILITIES

Insurance contract liabilities 21 P10,367,802,789 P9,065,494,491

Reserve for policyholders’ dividends 22 197,631,126 188,309,755

Premium deposit funds 23 692,652,228 696,017,613

Insurance payables 24 179,479,629 29,548,393

Accounts payable and accrued expenses 25 1,368,411,574 1,196,433,521

Deferred tax liabilities - net 33 533,130,508 574,088,381

Net pension liability 32 199,790,290 59,002,114

Other liabilities 25 34,108,756 32,708,264

13,573,006,900 11,841,602,532

EQUITY

Capital stock 26 550,000,000 550,000,000

Contributed surplus 10,000,000 10,000,000

Reserve for fluctuation on available-for-sale financial

assets 11 5,379,901,156 5,307,349,442

Reserve for net pension liability (129,662,069) (26,912,347)

Retained earnings 26 2,584,357,595 2,057,981,936

8,394,596,682 7,898,419,031

P21,967,603,582 P19,740,021,563

See Notes to the Separate Financial Statements.


SEPARATE STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31

Note 2014 2013

NET PREMIUMS 27

Gross premiums on insurance contracts P4,325,822,330 P3,613,870,136

Reinsurance premiums ceded (525,941,470) (40,602,862)

3,799,880,860 3,573,267,274

OTHER REVENUE

Investments income 28 1,227,003,109 1,105,994,396

Service fees 29 190,354,483 84,202,855

Other income 28 98,954,133 118,868,639

1,516,311,725 1,309,065,890

NET BENEFITS AND CLAIMS 30

Gross benefits and claims 1,903,331,231 1,898,678,528

Reinsurers’ share on benefits and claims (17,071,367) (26,539,374)

Gross change in insurance contract liabilities 593,499,691 495,570,915

Reinsurers’ share on gross change in insurance

contract liabilities (26,452,735) (262,402)

2,453,306,820 2,367,447,667

OPERATING AND ADMINISTRATIVE

EXPENSES

General and administrative expenses 31 915,294,806 769,953,075

Policyholders’ dividends 429,327,147 501,622,032

Commissions 525,112,951 440,676,695

Investment expenses 28 337,425,453 254,005,779

Insurance taxes 76,433,282 62,816,458

Interest expenses 2,085,402 3,121,636

Increase (decrease) in loading and cost of collection 33,688,798 (3,918,558)

Foreign exchange loss (gain) - net (4,046,926) 5,617,646

2,315,320,913 2,033,894,763

INCOME BEFORE INCOME TAX 547,564,852 480,990,734

INCOME TAX 33

Current 10,506,407 5,928,813

Final 10,682,786 8,978,734

21,189,193 14,907,547

NET INCOME P526,375,659 P466,083,187

OTHER COMRPEHENSIVE INCOME

Item that will never be reclassified subsequently to

profit or loss

Remeasurement of net pension liability 32 (P146,785,317) P135,094,121

Income tax effect 44,035,595 (40,528,236)

(102,749,722) 94,565,885

Item that may be reclassified to profit or loss

Fair value adjustments on available-for-sale financial assets 11 75,629,436 (306,312,291)

Income tax effect (3,077,722) 5,064,602

72,551,714 (301,247,689)

TOTAL OTHER COMPREHENSIVE INCOME -

Net of tax (30,198,008) (206,681,804)

TOTAL COMPREHENSIVE INCOME P496,177,651 P259,401,383



SEPARATE STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

Reserve for

Capital

Stock (see Note 26)

Contributed

Surplus

Fluctuation on

Available-for-

Sale Financial

Assets

(see Note 11) Reserve for Net

Pension Liability

Retained

Earnings

(see Note 26) Total

Balance at January 1, 2014 P550,000,000 P10,000,000 P5,307,349,442 (P26,912,347) P2,057,981,936 P7,898,419,031

Total Comprehensive Income

Net income for the year - - - - 526,375,659 526,375,659

Other comprehensive income

Item that will never be reclassified

subsequently to profit or loss - - - (102,749,722) - 72,551,714

Item that may be reclassified to profit or loss - - 72,551,714 - - (102,749,722)

- - 72,551,714 (102,749,722) 526,375,659 496,177,651

Balance at December 31, 2014 P550,000,000 P10,000,000 P5,379,901,156 (P129,662,069) P2,584,357,595 P8,394,596,682

Balance at January 1, 2013 P550,000,000 P10,000,000 P5,608,597,131 (P121,478,232) P1,591,898,749 P7,639,017,648

Total Comprehensive Income Net income for the year - - - - 466,083,187 466,083,187

Other comprehensive income Item that will never be reclassified

subsequently to profit or loss - - - 94,565,885 - (301,247,689)

Item that may be reclassified to profit or loss - - (301,247,689) - - 94,565,885

- - (301,247,689) 94,565,885 466,083,187 259,401,383

Balance at December 31, 2013 P550,000,000 P10,000,000 P5,307,349,442 (P26,912,347) P2,057,981,936 P7,898,419,031

See Notes to the Separate Financial Statements


SEPARATE STATEMENTS OF CASH FLOWS


Note 2014 2013

CASH FLOWS FROM OPERATING

ACTIVITIES

Income before income tax P547,564,852 P480,990,734

Adjustments for:

Changes in insurance contact liabilities 1,302,308,298 1,564,917,614

Depreciation and amortization 31 32,132,175 28,771,406

Provision for impairment losses 31 55,122,776 46,228,017

Retirement benefit expense 32 34,153,645 48,449,088

Gain on sale of financial assets at FVPL (785,662) (548,331)

Gain on sale of AFS financial assets 28 (130,151,547) (244,949,510)

Loss (gain) on sale of investment properties 28 1,424,423 (12,075,644)

Loss on sale of real estate inventories 6,875,000 2,381,821

Gain on sale of loans and receivables 28 (1,630,000) (68,919,561)

Interest income 28 (928,821,105) (765,954,379)

Dividend income 28 (84,606,304) (73,648,643)

Unrealized foreign exchange gain - net (8,468,069) (28,693,640)

Rental income (6,514,309) (6,742,034)

Unrealized fair value loss (gain) - net 28 (73,964,845) 66,843,706

Gain on sale of property and equipment (673,916) (535,700)

Operating income before working capital changes 743,965,412 1,036,514,944

Decrease (increase) in:

Insurance receivables (215,156,413) 15,938,603

Loans and receivables (1,090,166,409) (995,514,064)

Accrued income 830,882 8,149,324

Reinsurance assets (16,042,038) (8,432,662)

Real estate inventories 16 (21,924,457) 40,774,679

Other assets (85,880,754) (28,962,438)

Increase (decrease) in:

Reserve for policyholders’ dividends 22 9,321,371 6,887,894

Premium deposit funds (3,365,385) (53,012,459)

Insurance payables 149,931,236 (6,220,358)

Accounts payable and accrued expenses 175,055,775 51,539,132

Other liabilities 1,400,492 (38,645,803)

Net cash flows provided by (used in) operations (352,030,288) 29,016,792

Income tax paid (21,189,193) (14,907,547)

Net cash flows provided by (used in) operating activities (373,219,481) 14,109,245

CASH FLOWS FROM INVESTING ACTIVITIES

Additional capital contribution to subsidiaries - (100,000,000)

Interest received 928,777,860 765,954,380

Dividend received 84,593,054 66,943,421

Rental income received 8,109,123 6,701,121

Contributions to retirement fund (40,150,786) (38,910,871)

Acquisitions of:

Financial assets at FVPL 10 (335,638,453) (118,923,862)

AFS financial assets 11 (1,738,418,230) (2,182,976,319)

Investment properties 17 (107,709,846) (103,834,689)

Property and equipment 18 (27,095,550) (40,562,788)

Computer software 19 (5,189,000) (6,190,498)

Forward


Note 2014 2013

Proceeds from disposal of:

Financial assets at FVPL P22,001,686 P27,169,355

AFS financial assets 1,238,111,255 2,254,447,932

Investment properties 16,884,025 119,168,175

Property and equipment 4,641,741 5,230,413

Loans and receivables (10,000,000) 452,172,837

Real Estate inventories 17,792,857

Net cash flows provided by investing activities 56,709,736 1,106,388,607

NET (DECREASE) INCREASE IN CASH AND

CASH EQUIVALENTS (316,509,745) 1,120,497,852

CASH AND CASH EQUIVALENTS AT

BEGINNING OF YEAR 8 1,799,306,327 678,808,475

CASH AND CASH EQUIVALENTS AT

END OF YEAR 8 P1,482,796,582 P1,799,306,327



NOTES TO THE SEPARATE FINANCIAL STATEMENTS

1. Reporting Entity

The United Coconut Planters Life Assurance Corporation (the “Parent Company”) was

incorporated on March 20, 1978 and is domiciled in the Republic of the Philippines. The

Parent Company was formed to undertake life insurance business, including accident and

health insurance; to write insurance contracts providing for all risks, hazards, guarantees

and contingencies to which life, accident or health insurance is applicable; to grant

endowment and annuities; to issue insurance policies providing for participation or

nonparticipation of profits; to reinsure all or part of the risks underwritten by the Parent

Company; to undertake all kinds of reinsurance to the extent allowed by the law; and to

act as agent or general agent of another insurance company.

The Parent Company has a Certificate of Authority No. 2013/86R issued by the

Insurance Commission (IC) to transact in life insurance business until

December 31, 2015.

The registered office address of the Parent Company is at Cocolife Building, 6774 Ayala

Avenue, Makati City.

2. Basis of Preparation

Statement of Compliance

The separate financial statements have been prepared in compliance with Philippine

Financial Reporting Standards (PFRSs). PFRSs are based on International Financial

Reporting Standards (IFRSs) issued by the International Accounting Standards Board

(IASB). PFRSs which are issued by the Philippine Financial Reporting Standards

Council (FRSC), consist of PFRSs, Philippine Accounting Standards (PASs), and

Philippine Interpretations.

In accordance with PFRS 10, Consolidated Financial Statements, the Parent Company

also prepares and issues consolidated financial statements for the same period in which it

consolidates its investments in subsidiaries. Such consolidated financial statements

provide information about the economic activities of the Parent Company and its

subsidiaries.

The separate financial statements should be read together with the Parent Company’s

consolidated financial statements as at and for the years ended December 31, 2014 and

2013 in order to obtain full information on the consolidated financial position and

financial performance of the Parent Company and its subsidiaries.

The separate financial statements of the Parent Company are intended for management’s

use and for filing with the Bureau of Internal Revenue (BIR). These financial statements

account for the Parent Company’s investments in subsidiaries at cost (see Note 15) in

accordance with the provisions of PAS 27, Separate Financial Statements.

The accompanying separate financial statements of the Parent Company were authorized

for issue by the Board of Directors (BOD) on April 29, 2015.

- 2 -

Basis of Preparation

The separate financial statements have been prepared on the historical cost basis except

for the following accounts which are measured on each reporting date as follows:

Items Measurement bases

Financial assets at fair value

through profit or loss (FVPL) Fair value through profit or loss

Available-for-sale (AFS) financial

assets Fair value through other comprehensive income

Net pension liability Present value of the defined benefit obligation less

the fair value of the plan assets

Functional and Presentation Currency

The separate financial statements are presented in Philippine peso, which is the Parent

Company’s functional currency. All financial information presented in Philippine peso

has been rounded off to the nearest peso, except as otherwise indicated.

Use of Judgments and Estimates

The preparation of the separate financial statements in accordance with PFRSs requires

management to make judgments, estimates and assumptions that affect the application of

policies and reported amounts of assets, liabilities, income, expenses and disclosures of

contingent assets and liabilities, if any. The estimates and associated assumptions are

based on historical experience and various other factors that are believed to be reasonable

under the circumstances, the results of which form the basis of making the judgments

about the carrying amounts of assets, liabilities, income and expenses that are not readily

apparent from other sources. Actual results may however differ from estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions

to accounting estimates are recognized prospectively.

Information about significant areas of estimation uncertainty and critical judgments in

applying accounting policies that have the most significant effect on the amounts

recognized in the separate financial statements are described in Note 4 to the separate

financial statements.

3. Summary of Significant Accounting Policies

The accounting policies set out below have been applied consistently to all years

presented in these separate financial statements. Certain comparative amounts in the

separate statements of comprehensive income have been reclassified as a result of a

change in the classification of certain accounts in the current year (see Note 39).

- 3 -

Adoption of New or Revised Standards, Amendments to Standards and Interpretations

The Parent Company has adopted the following amendments to standards and

interpretations starting January 1, 2014. The adoption of these amendments to standards

and interpretations did not have any significant impact on the Parent Company’s separate


Offsetting Financial Assets and Financial Liabilities (Amendments to Financial

Instruments: Disclosure and Presentation - PAS 32). These amendments clarify that:

An entity currently has a legally enforceable right to set-off if that right is:

- not contingent on a future event; and

- enforceable both in the normal course of business and in the event of default,

insolvency or bankruptcy of the entity and all counterparties; and

Gross settlement is equivalent to net settlement if and only if the gross settlement

mechanism has features that:

- eliminate or result in insignificant credit and liquidity risk; and

- process receivables and payables in a single settlement process or cycle.

Recoverable Amount Disclosures for Non-financial Assets (Amendments to

Impairment of Assets - PAS 36). These narrow-scope amendments to PAS 36 address

the disclosure of information about the recoverable amount of impaired assets if that

amount is based on fair value less costs of disposal. The amendments clarified that

the scope of those disclosures is limited to the recoverable amount of impaired assets

that is based on fair value less costs of disposal.

Measurement of short-term receivables and payables (Amendment to Fair Value

Measurement - PFRS 13). Amendment to PFRS 13 is part of the Annual

Improvements to PFRSs 2010-2012 Cycle. The amendment clarifies that, in issuing

PFRS 13 and making consequential amendments to Financial Instruments:

Recognition and Measurement (PAS 39) and Financial Instruments (PFRS 9), the

intention is not to prevent entities from measuring short-term receivables and

payables that have no stated interest rate at their invoiced amounts without

discounting, if the effect of not discounting is immaterial. The amendment to

PFRS 13 is effective immediately.

New or Revised Standards, Amendments to Standards and Interpretations Not Yet

Adopted

A number of new standards and amendments to standards are effective for annual periods

beginning after January 1, 2014. However, the Parent Company have not applied the

following new or amended standards in preparing these separate financial statements.

The Parent Company is assessing the potential impact on its financial statements

resulting from the application of the new standards.

- 4 -

Effective July 1, 2014

Annual improvements to PFRSs 2010-2012 and 2011-2013 Cycles - Amendments

were made to a total of nine standards, with changes made to the standards on

business combinations and fair value measurement in both cycles. Most amendments

will apply prospectively for annual periods beginning on or after July 1, 2014. Earlier

application is permitted, in which case the related consequential amendments to other

PFRSs would also apply. Special transition requirements have been set for

amendments to the following standards: Share-based Payment (PFRS 2), Property,

Plant and Equipment (PAS 16), Intangible Assets (PAS 38) and Investment Property

(PAS 40). Below is the amendment to PFRSs, which may be applicable to the Parent

Company:

Definition of ‘related party’ (Amendment to PAS 24).The definition of a ‘related

party’ is extended to include a management entity that provides key management

personnel (KMP) services to the reporting entity, either directly or through a

group entity. For related party transactions that arise when KMP services are

provided to a reporting entity, the reporting entity is required to separately

disclose the amounts that it has recognized as an expense for those services that

are provided by a management entity; however, it is not required to ‘look

through’ management entity and disclose compensation paid by management

entity to the individuals providing the KMP services. The reporting entity will

also need to disclose other transactions with management entity under the

existing disclosure requirements of PAS 24 - e.g. loans.

Effective January 1, 2016

Clarification of Acceptable Methods of Depreciation and Amortization (Amendments

to PAS 16 and PAS 38). The amendments to PAS 38, Intangible Assets introduce a

rebuttable presumption that the use of revenue-based amortization methods for

intangible assets is inappropriate. This presumption can be overcome only when

revenue and the consumption of the economic benefits of the intangible asset are

‘highly correlated’, or when the intangible asset is expressed as a measure of

revenue.

The amendments to PAS 16, Property, Plant and Equipment explicitly state that

revenue-based methods of depreciation cannot be used for property, plant and

equipment. This is because such methods reflect factors other than the consumption

of economic benefits embodied in the asset - e.g. changes in sales volumes and

prices.

The amendments are effective for annual periods beginning on or after January 1,

2016, and are to be applied prospectively. Early application is permitted.

Equity Method in Separate Financial Statements (Amendments to PAS 27). The

amendments allow the use of the equity method in separate financial statements, and

apply to the accounting not only for associates and joint ventures, but also for

subsidiaries.

The amendments apply retrospectively for annual periods beginning on or after

January 1, 2016. Early adoption is permitted.

- 5 -

Effective January 1, 2018

PFRS 9, Financial Instruments (2014). PFRS 9 (2014) replaces PAS 39, Financial

Instruments: Recognition and Measurement and supersedes the previously published

versions of PFRS 9 that introduced new classifications and measurement

requirements (in 2009 and 2010) and a new hedge accounting model (in 2013).

PFRS 9 includes revised guidance on the classification and measurement of financial

assets, including a new expected credit loss model for calculating impairment,

guidance on own credit risk on financial liabilities measured at fair value and

supplements the new general hedge accounting requirements published in 2013.

PFRS 9 incorporates new hedge accounting requirements that represent a major

overhaul of hedge accounting and introduces significant improvements by aligning

the accounting more closely with risk management.

The new standard is to be applied retrospectively for annual periods beginning on or

after January 1, 2018 with early adoption permitted.

Insurance Contracts

Production Classification

Insurance contracts are defined as those contracts under which the Parent Company

(the insurer) accepts significant insurance risk from another party (the policyholders) by

agreeing to compensate the policyholders if a specified uncertain future event

(the insured event) adversely affects the policyholder. As a general guideline, the Parent

Company defines significant insurance risk as the possibility of having to pay benefits on

the occurrence of an insured event that is significantly greater than the benefits payable if

the insured event did not occur. Insurance contracts can also transfer financial risk.

Investment contracts are those contracts that transfer significant financial risk and no

significant insurance risk. Financial risk is the risk of a possible future change in one or

more of a specified interest rate, security price, commodity price, foreign exchange rate,

index of price or rates, credit rating or credit index or other variables, provided in the

case of non-financial variable that the variable is not specific to a party to the contract.

Once a contract has been classified as an insurance contract, it remains an insurance

contract for the remainder of its lifetime, even if the insurance risk reduces significantly

during the period, unless all rights and obligations are extinguished or expired.

Investment contracts can, however, be reclassified as insurance contracts after inception

if the insurance risk becomes significant.

Insurance and investment contracts are further classified as being with and without

Discretionary Participation Feature (DPF). DPF is a contractual right to receive, as a

supplement to guaranteed benefits, additional benefits that are:

Likely to be a significant portion of the total contractual benefits;

The amount or timing of which is contractually at the discretion of the issuer; and

Contractually based on the following:

Performance of a specified pool of contracts or a specified type of contract; or

Realized or an unrealized investment returns on a specified pool of assets held by

the issuer; or

The profit or loss of the Parent Company, fund or other entity that issues the

contract.

- 6 -

The additional benefits include policy dividends that are declared annually, the amounts

of which are computed using actuarial methods and assumptions, and are included under

“Policyholders’ dividends” account in profit or loss with the corresponding liability

recognized under the “Reserve for policyholders’ dividends” account in the separate

statements of financial position.

For financial options and guarantees which are not closely related to the host insurance

contract, bifurcation is required to measure these embedded financial derivatives

separately at FVPL. Bifurcation is not required if the embedded derivative itself is an

insurance contract or when the host insurance contract itself is measured at FVPL.

As such, the Parent Company does not separately measure options to surrender insurance

contracts for a fixed amount (or an amount based on a fixed amount and an interest rate).

Likewise, the embedded derivative in unit-linked insurance contracts linking the

payments on the contract to units of an internal investment fund meets the definition of

an insurance contract and is not, therefore, accounted for separately from the host

insurance contract.

Reinsurance Contracts Held

Contracts entered into by the Parent Company with reinsurers under which the Parent

Company is compensated for losses on one or more insurance contracts are classified as

reinsurance contracts held.

The benefits to which the Parent Company is entitled under its insurance contracts held

are recognized as reinsurance assets. These assets consist of short-term balances due

from reinsurers, as well as longer term receivables that are dependent on the expected

claims and benefits arising under the related reinsured insurance contracts. 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 reinsurance contracts. Liabilities arising from these contracts are primarily

premiums payable and are recognized as an expense when due. These liabilities are

presented under “Insurance payables” account in the separate statements of financial

position.

An impairment review is performed at each reporting date or more frequently when an

indication of impairment arises during the reporting year. Impairment occurs when

objective evidence as a result of an event that occurred after initial recognition that the

Parent Company may not recover outstanding amounts under the terms of the contract

and when the impact on the amounts that the Parent Company will receive from the

reinsurer can be measured reliably. Any impairment loss determined is recognized in

profit or loss.

Ceded reinsurance arrangements do not relieve the Parent Company from their

obligations to the policyholders.

The Parent Company also assumes reinsurance risk in the normal course of its business.

Premiums and claims on assumed reinsurance are recognized as income and expense in

the same manner as they would be if the reinsurance were considered direct business,

taking into account the product classification of the reinsured business. The liabilities

arising from these contracts are primarily claims and benefits payables and estimated in a

manner consistent with the associated reinsurance contracts. These liabilities are

presented under “Insurance payables” account in the separate statements of financial

position.

Premiums and claims are presented on a gross basis for both ceded and assumed

reinsurance.

- 7 -

Assets or liabilities from these contracts are derecognized when the contractual right is

extinguished or expired or when the contract is transferred to another party.

Insurance Contact Liabilities

Legal Policy Reserves. Life insurance contract liabilities are recognized when the

contracts are entered into and the premiums are recognized. These are determined by the

Parent Company’s actuary in accordance with the requirements of the Insurance Code

(the “Code”) and are calculated on the basis of a prudent prospective actuarial valuation

method where the assumptions used depend in the operation of each life insurance

product. These reserves represent the amounts which, together with future premiums and

investment income, are required to discharge the obligations of the insurance contracts

and to pay expenses related to the administration of those contracts. These reserves are

determined using generally accepted actuarial practices and have been approved by the

Insurance Commission (IC) at the product approval stage.

Insurance Contracts with Fixed and Guaranteed Terms. A liability for contractual

benefit expected to be incurred in the future is recorded when premiums are recognized.

The liability is determined as the expected discounted value of the benefit payment less

the expected discounted value of the theoretical premiums that would be required to meet

the benefits based on the valuation assumptions used. The liability is based on mortality,

morbidity and investments income assumptions that are established at the time the

contract is issued.

The Parent Company has different assumptions for different products. However,

liabilities for contractual benefits are computed to comply with statutory requirements

using the standard table of mortality with interest to be determined by IC. Reserves are

computed per thousand of sum insured and depend on the issue age and policy duration.

Unit-linked Insurance Contracts. A unit-linked insurance contract is an insurance

contract linking payments to units of an internal investment fund set up by the Parent

Company with the consideration received from the policyholders. The investment funds

supporting the linked policies are maintained in segregated accounts in conformity with

Philippine laws and regulations. The liability for such contracts is the higher amount

between the policyholder’s investment fund balance and the minimum guaranteed

amount stated in the policy contract.

Revenue from unit-linked insurance contracts consists of premiums received and policy

administration fees.

The reserve for unit-linked liabilities are increased by additional deposits and changes in

unit prices and decreased by policy administration fees, fund charges, mortality and

surrender charges and any withdrawals. As at the reporting date, this reserve is computed

on the basis of the number of units allocated to the policyholders multiplied by the unit

price of the underlying investment funds.

Liability Adequacy Test. Liability adequacy tests are performed annually to ensure the

adequacy of the insurance contract liabilities. In performing these tests, current best

estimates of future contractual cash flows, claims handling and policy administration

expenses are used. Any deficiency is immediately charged against the Parent Company’s

profit or loss initially by establishing a provision for losses arising from the liability

adequacy tests.

- 8 -

Reserve for Policyholders’ Dividends

DPF is a contractual right that gives policyholders the right to receive supplementary

discretionary returns through participation in the surplus arising from participating

business. These returns are subject to the discretion of the Parent Company and are

within the constraints of the terms and conditions of the contract.

For group commercial and farmers’ lines, the Parent Company sets up the policyholders’

dividends due and accrued for all groups which have participating feature based on the

agreed experience refund formula and an assessment of the individual groups’

prospective cash flows and operating results. For individual policyholders, all dividends

due and accrued are carried for participating policies using an estimated dividend scale

expected to be declared based on the Parent Company’s profit emergence for the

individual line.

Insurance Receivables and Payables

Receivables and payables are recognized when due. Insurance receivables and payables

include amounts due from agents and policyholders and amounts due to reinsurers. If

there is objective evidence that the insurance receivable is impaired, the Parent Company

reduces the carrying amount of the insurance receivable and recognizes the impairment

loss in profit or loss.

Premium Deposit Fund

This represents fund which will be used for payment of any unpaid premiums under the

policy. The fund earns interest of 1.50% and 3.00% per annum for dollar and peso

denominated policy, respectively, which is credited to the fund. The accumulated fund

shall not exceed the total future premium payments under the policy.

Financial Instruments

Classification. The Parent Company classifies its financial assets in the following

categories: financial assets at fair value through profit or loss (FVPL), available-for-sale

(AFS) financial assets, held-to-maturity (HTM) investments and loans and receivables.

The Parent Company classifies its financial liabilities either as financial liabilities at

FVPL or other financial liabilities.

The classification depends on the purpose for which the financial assets were acquired or

incurred. Management determines the classification of its financial instruments at initial

recognition and, where allowed and appropriate, re-evaluates such designation at every

reporting date.

Financial Assets or Financial Liabilities at FVPL. This category consists of financial

instruments that are held for trading or designated by management on initial recognition.

Financial assets and financial liabilities at FVPL are recorded in the separate statements

of financial position at fair value, with changes in fair value recorded in profit or loss.

Financial assets or financial liabilities are allowed to be designated by management on

initial recognition in this category when the following criteria are met:

The designation eliminates or significantly reduces the inconsistent treatment that

would otherwise arise from measuring the assets or liabilities or recognizing gains or

losses on them on a different basis; or

The assets and liabilities are part of a group of financial assets, financial liabilities or

both which are managed and their performance evaluated on a fair value basis, in

accordance with a documented risk management or investment strategy; or

- 9 -

The financial instrument contains an embedded derivative, unless the embedded

derivative does not significantly modify the cash flows or, it is clear, with little or no

analysis, that it would not be bifurcated.

Held-for-trading securities are not reclassified subsequent to their initial recognition,

unless they are no longer held for the purpose of being sold or repurchased in the near

term and the following conditions are met:

If the financial asset would have met the definition of loans and receivables (if the

financial asset had not been required to be classified as held-for-trading at initial

recognition), then it may be reclassified if the Parent Company has the intention and

the ability to hold the financial asset in the foreseeable future or until maturity; and

The financial asset may be reclassified out of the held-for-trading securities category

only under “rare circumstances”.

As at December 31, 2014 and 2013, the Parent Company does not have any financial

asset or financial liabilities designated by management as financial assets or financial

liabilities at FVPL. However, the Parent Company’s financial assets classified as held-

for-trading investments amounted to P1.14 billion and P0.76 billion as at December 31,

2014 and 2013, respectively (see Note 10).

As at December 31, 2014 and 2013, the Parent Company’s held-for-trading securities

include government debt and equity securities.

HTM Investments. HTM investments are quoted non-derivative financial assets with

fixed or determinable payments and fixed maturities for which management has the

positive intention and ability to hold to maturity. Where the Parent Company sells or

reclassifies other than an insignificant amount of HTM investments, the entire category

would be tainted and reclassified at fair value as AFS financial assets. After initial

measurement, these investments are subsequently measured at amortized cost using the

effective interest method, less any allowance for impairment. Amortized cost is

calculated by taking into account any discount or premium on acquisition and fees that

are an integral part of the effective interest rate (EIR). The amortization, if any, is

included as part of interest income in profit or loss.

As at December 31, 2014 and 2013, the Parent Company has no financial assets

classified as HTM investments.

AFS Financial Assets. AFS financial assets are financial assets which are designated as

such, or do not qualify to be classified or have not been classified under any other

financial asset category. They are purchased and held indefinitely and may be sold in

response to liquidity requirements or changes in market conditions.

As at December 31, 2014 and 2013, the Parent Company’s AFS financial assets

amounted to P9.05 million and P8.34 million, respectively, and composed of equity and

government debt securities (see Note 11).

Loans and Receivables. Loans and receivables are non-derivative financial assets with

fixed or determinable payments and fixed maturities that are not quoted in an active

market. These are not entered into with the intention of immediate or short-term resale

and are not held for trading.

- 10 -

As at December 31, 2014 and 2013, the Parent Company’s cash and cash equivalents,

insurance receivables, loans and receivables, accrued income, reinsurance assets and

other assets pertaining to lease and leasehold deposits and refundable deposits are

classified under this category.

Cash and Cash Equivalents. Cash includes cash on hand and in banks. Cash equivalents

are short-term, highly liquid investments that are readily convertible to known amounts

of cash with original maturities of three months or less and are subject to an insignificant

risk of change in value.

Other Financial Liabilities. Issued financial instruments or their component, which are

not classified as at FVPL are classified as other financial liabilities where the substance

of the contractual arrangement results in the Parent Company having an obligation either

to deliver cash or another financial asset to the holder or lender, or to satisfy the

obligation other than by the exchange of a fixed amount of cash or another financial asset

for a fixed number of the Parent Company’s own equity instruments.

This category includes the Parent Company’s policy and contract claims under

“Insurance contract liabilities” account, reserve for policyholders’ dividends, premium

deposit funds excluding amounts received which will be applied to premiums due,

insurance payables and accounts payable and accrued expenses.

Recognition and Measurements

Financial instruments are recognized in the separate statements of financial position

when the Parent Company becomes a party to the contractual provisions of the

instrument. Purchases or sales of financial assets that require delivery of assets within

the time frame established by regulation or convention in the marketplace are recognized

on the trade date. Financial instruments are initially recognized at fair value plus

transaction costs for all financial assets not carried at FVPL. Financial assets carried at

FVPL are initially recognized at fair value, and transaction costs are expensed in profit or

loss. AFS financial assets and financial assets at FVPL are subsequently carried at fair

value except for investments in equity instruments that do not have a quoted price in an

active market and whose fair value cannot be reliably measured are carried at cost. Loans

and receivables are subsequently carried at amortized cost using the effective interest

method.

Gains or losses arising from changes in the fair value of financial assets at fair value

through profit or loss are presented in profit or loss in the period in which they arise.

Changes in the fair value of AFS financial assets are recognized in other comprehensive

income. When securities classified as AFS are sold or impaired, the accumulated fair

value adjustments recognized in equity are included in profit or loss.

Interest income calculated using the effective interest method and dividend income on

financial assets at FVPL and AFS financial assets are recognized in profit or loss as part

of “Investment income” when the Parent Company’s right to receive payments is

established.

- 11 -

Determination of Fair Value

A number of the Parent Company’s accounting policies require the determination of fair

values, for both financial and non-financial assets and liabilities. Determination of fair

values requires evaluating, among others, whether the asset or liability is quoted or not in

an active market. Included in the evaluation on whether an asset or liability is quoted in

an active market is the determination of the principal market or, in the absence of a

principal market, the most advantageous market, and whether the Parent Company can

enter into a transaction at the price in that market at the measurement date.

Fair values have been determined for measurement and/or disclosure purposes, when

necessary, based on the estimated amounts that would be received to sell an asset or paid

to transfer a liability in an orderly transaction in the principal (or most advantageous)

market at the measurement date under current market conditions, regardless of whether

that price is directly observable or estimated using another valuation technique. When

applicable, the Parent Company uses valuation techniques that are appropriate in the

circumstances and for which sufficient data are available to measure fair value,

maximizing the use of relevant observable inputs and minimizing the use of unobservable

inputs.

Impairment of Financial Assets

The Parent Company assesses at each reporting date whether a financial asset or a group

of financial assets is impaired.

A financial asset or a group of financial assets is deemed to be impaired if, and only if,

there is objective evidence of impairment as a result of one or more events that has

occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss

event (or events) has an impact on the estimated future cash flows of the financial asset

or the group of financial assets that can be reliably estimated. Evidence of impairment

may include indications that the borrower or a group of borrowers is experiencing

significant financial difficulty, default or delinquency in interest or principal payments,

the probability that they will enter bankruptcy or other financial reorganization and where

observable data indicate that there is measurable decrease in the estimated future cash

flows, such as changes in arrears or economic conditions that correlate with defaults.

Loans and Receivables. The Parent Company first assesses whether objective evidence of

impairment exists individually for financial assets that are individually significant, or

collectively for financial assets that are not individually significant. If the Parent

Company determines that no objectives evidence of impairment exists for individually

assessed financial asset, whether significant or not, it includes the asset in a group of

financial assets with similar credit risk characteristics and collectively assesses for

impairment. Assets that are individually assessed for impairment and for which an

impairment loss is, or continues to be, recognized are not included in a collective

assessment for impairment. For the purpose of a collective evaluation of impairment,

loans and receivables are grouped on the basis of credit risk characteristics such as type

of borrower, collateral type, credit and payment status, and term.

- 12 -

If there is objective evidence that an impairment loss has been incurred, the amount of

the loss is measured as the excess of loan’s carrying amount over its net realizable value,

based on the present value of the estimated future cash flows from the asset. The present

value of the estimated future cash flows is discounted at the loan’s original EIR. Time

value is generally not considered when the effect of discounting is not material. If a loan

has a variable interest rate, the discount rate for measuring any impairment loss is the

current EIR, adjusted for the original credit risk premium. The calculation of the present

value of the estimated future cash flows of a collateral-dependent loan reflects the cash

flows that may result from foreclosure less costs for obtaining and selling the collateral.

Any impairment loss determined is recognized in profit or loss.

The carrying amount of an impaired loan is reduced to its net realizable value through the

use of an allowance account. For an impaired loan, interest income continues to be

recognized using the rate of interest used to discount the future cash flows for the

purpose of measuring the impairment loss. If, in a subsequent period, the amount of the

allowance for impairment loss decreases because of an event occurring after the

impairment loss was recognized, the previously recognized impairment loss is reversed to

profit or loss to the extent that the resulting carrying amount of the asset does not exceed

its amortized cost had no impairment loss been recognized.

Financial assets, particularly trade receivables, are written off to the extent of the amount

determined by management to be uncollectible. Those with pending cases in court are

written-off upon management’s approval.

AFS Financial Assets Carried at Fair Value. In case of equity investments classified as

AFS financial assets, impairment indicators would include a significant or prolonged

decline in the fair value of the investments below its cost. Where there is objective

evidence of impairment, the cumulative loss in equity, measured as the difference

between the acquisition cost and the current fair value, less any impairment loss

previously recognized, is recorded in profit or loss. Subsequent increase in the fair value

of an impaired AFS equity security is recognized in other comprehensive income.

In the case of AFS debt securities, impairment is assessed based on the same criteria as

financial assets carried at amortized cost. Interest continues to be accrued at the EIR on

the reduced carrying amount of the asset and is recorded as part of interest income in

profit or loss. If, in a subsequent year, the fair value of a debt instrument increases and

the increase can be objectively related to an event occurring after the impairment loss

was recognized, the impairment loss is reversed in profit or loss to the extent that the

resulting carrying amount of the asset does not exceed its carrying amount had no

impairment loss been recognized.

AFS Financial Assets Carried at Cost. If there is an objective evidence that an

impairment loss on an unquoted equity instrument that is not carried at fair value because

its fair value cannot be reliably measured, or on derivative asset that is linked to and must

be settled by delivery of such unquoted equity instrument has been incurred, the amount

of the loss is measured as the difference between the asset’s carrying amount and the

present value of estimated future cash flows discounted at the current market rate of

return for a similar financial asset. The carrying amount of the asset is reduced through

the use of an allowance account.

- 13 -

Offsetting Financial Instruments

Financial assets and financial liabilities are offset and the net amount is reported in the

Parent Company’s separate statements of financial position if, and only if, there is a

currently enforceable legal right to offset the recognized amounts and there is an

intention to settle on a net basis, or to realize the asset and settle the liability

simultaneously. This is generally not the case with master netting agreements, thus, the

related assets and liabilities are presented on a gross basis in the separate statements of

financial position.

Income and expense are presented on a net basis only when permitted under PFRSs, such

as in the case of any realized gains or losses arising from the Parent Company’s trading

activities.

Classification of Financial Instruments between Debt and Equity

A financial instrument is classified as debt if it has a contractual obligation to:

Deliver cash or another financial asset to another entity, or

Exchange financial assets or financial liabilities with another entity under conditions

that are potentially unfavorable to the Parent Company.

If the Parent Company does not have an unconditional right to avoid delivering cash or

another financial asset to settle its contractual obligation, the obligation meets the

definition of a financial liability.

Derecognition of Financial Assets and Liabilities

Financial Assets. A financial asset (or, where applicable a part of a financial asset or part

of a group of financial assets) is derecognized when:

The rights to receive cash flows from the asset have expired; or

The Parent Company retains the right to receive cash flows from the asset, but has

assumed an obligation to pay them in full without material delay to a third party

under a “pass-through” arrangement; or

The Parent Company has transferred its rights to receive cash flows from the asset

and either: (a) has transferred substantially all the risks and rewards of the asset, or

(b) has neither transferred nor retained the risk and rewards of the asset but has

transferred the control of the asset.

Where the Parent Company has transferred its rights to receive cash flows from an asset

or has entered into a pass-through arrangement, and has neither transferred nor retained

substantially all the risks and rewards of the asset nor transferred control of the asset, the

asset is recognized to the extent of the Parent Company’s continuing involvement in the

asset. Continuing involvement that takes the form of a guarantee over the transferred

asset is measured at the lower of original carrying amount of the asset and the maximum

amount of consideration that the Parent Company could be required to repay.

Financial Liabilities. A financial liability is derecognized when the obligation under the

liability is discharged, cancelled or has expired. Where an existing financial liability is

replaced by another from the same lender on substantially different terms, or the terms of

an existing liability are substantially modified, such an exchange or modification is

treated as a derecognition of the original liability and the recognition of a new liability,

with the difference in the respective carrying amounts recognized in profit or loss.

- 14 -

Investments in Subsidiaries and Associate

A subsidiary is an entity over which the Parent Company has control. There is control

when the Parent Company is exposed, or has rights, to variable returns from its

involvement with the entity and has the ability to affect returns through its power over

the entity.

Following the provisions of PAS 27, on the preparation of separate financial statements,

investments in subsidiaries are accounted for at cost, less any impairment in value. The

Parent Company recognizes income from the investment in subsidiaries only to the extent

that the Parent Company receives distributions from accumulated profits of the investee

arising after the date of acquisition. Distributions received in excess of such profits are

regarded as a return of investment and are recognized as a reduction from the cost of the

investment.

An associate, on the other hand, pertains to an entity over which the Parent Company has

significant influence but not control, generally accompanying a shareholding of between

20% and 50% of the voting rights.

Cost of investments in subsidiaries and associate includes the purchase price and other

costs directly attributable to the acquisition of the investment such as professional fees

for legal services, transfer taxes and other transaction costs. This includes any excess of

the cost of the acquisition over the fair value of identifiable net assets of a subsidiary or

an associate at the date of acquisition.

Subsequent to initial recognition, investments in shares of stock of associates are

measured at cost. Dividend income on these associates is recognized when declared from

accumulated profits of the investee.

Investments in subsidiaries and associate are derecognized upon sale or disposal. Any

gain or loss arising from derecognition is recognized in profit or loss. Gain or loss is

computed as the difference between the proceeds from the disposal and its carrying

amount.

Real Estate Inventories

Real estate inventories consist of columbary units. These are carried at the lower of cost

and net realizable value (NRV). NRV is the estimated selling price in the ordinary course

of business less the estimated costs of completion and the estimated costs necessary to

make the sale. Cost includes acquisition costs of columbary units and those costs

incurred for the development and improvement of the properties.

Investment Properties

Properties held for long-term yields or for capital appreciation or for both, are classified

as investment properties. These properties are initially measured at cost, which includes

transaction costs, but excludes day-to-day servicing costs. Replacement cost is

capitalized if it is probable that future economic benefits associated with the item will

flow to the entity and the cost of the item can be reliably measured. The carrying amount

of those parts that are replaced is derecognized. Subsequently, at each reporting date,

such properties are carried at cost less accumulated depreciation and impairment in value.

Depreciation is computed using the straight-line method over its estimated useful life of

ten (10) years.

Transfers are made to investment properties when, and only when, there is a change in

use, evidenced by ending of owner occupation, commencement of an operating lease to

another party or ending of construction or development.

- 15 -

Transfers are made from investment properties when, and only when, there is a change in

use, evidenced by commencement of owner occupation or commencement of

development with a view to sell.

Investment properties are derecognized when either their use change or they have been

disposed of or when the investment properties are permanently withdrawn from use and

no future benefit is expected from its disposal. Any gain or loss on the retirement or

disposal of investment properties is recognized in profit or loss in the year of retirement

or disposal.

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation and

amortization and any allowance for impairment in value.

The initial cost of property and equipment comprises its purchase price, including any

directly attributable costs of bringing the asset to its working condition and location for

its intended use.

Depreciation and amortization are calculated on the straight-line basis over the estimated

useful lives of the property and equipment as follows:

Number of Years

Buildings and leasehold improvements 5 - 10 or lease term,

whichever is shorter

Transportation equipment 5

Office furniture, fixtures and equipment 5

Subsequent costs are included in the asset’s carrying amount or recognized as a separate

asset, as appropriate, only when it is probable that the future economic benefits

associated with the item will flow to the Parent Company and the cost of the item can be

reliably measured. All other repairs and maintenance costs are charged against profit or

loss during the period in which these are incurred.

The property and equipment’s residual values, estimated useful lives and depreciation

and amortization method are reviewed periodically to ensure that the residual value,

period and method of depreciation and amortization are consistent with the expected

pattern of economic benefits from items of property and equipment.

Fully depreciated assets are retained in the accounts until they are no longer in use, at

which time, the cost and the related accumulated depreciation and amortization are

written off.

An item of property and equipment is derecognized upon disposal or when no further

future economic benefits are expected from its use or disposal. Any gain or loss arising

from derecognition of the asset (calculated as the difference between the net disposal

proceeds and the original of the asset) is included in profit or loss in the year the asset is

derecognized.

- 16 -

Intangible Asset

Intangible asset pertains to the Parent Company’s computer software. Costs incurred to

acquire computer software (not an integral part of its related hardware) and bring it to its

intended use are capitalized. These costs are amortized over their estimated useful lives

ranging from three (3) to five (5) years. Cost directly associated with the development of

identifiable computer software that generate expected future benefits to the Parent

Company are recognized. All other costs of developing and maintaining computer

software are recognized as expense when incurred.

Gain or losses arising from the derecognition of the computer software are measured as

the difference between the net disposal proceeds and the carrying amount of the asset and

are recognized in profit or loss.

Impairment of Non-financial Assets

This accounting policy primarily applies to the Parent Company’s real estate inventories,

investment properties, property and equipment, and intangible asset.

At each reporting date, the Parent Company assesses whether there is any indication that

its non-financial assets may be impaired. When an indicator of impairment exists, the

Parent Company estimates the recoverable amount of the impaired assets. The

recoverable amount is the higher of the fair value less costs of disposal and value in use.

For the purposes of assessing impairment, assets are grouped at the lowest levels for

which there are largely independent cash inflows (cash-generating unit). Value in use is

the present value of future cash flows expected to be derived from an asset while fair

value less costs of disposal is the amount obtainable from the sale of an asset in an arm’s

length transaction between knowledgeable and willing parties less cost of disposal. In

assessing value in use, the estimated future cash flows are discounted to their present

value using a pre-tax discount rate that reflects current market assessment of the time

value of money and the risks specific to the asset.

Where the carrying amount of an asset exceeds its recoverable amount, the impaired asset

is written down to its recoverable amount.

An impairment loss is recognized in profit or loss in the period in which it arises.

An assessment is made at each reporting date as to whether there is any indication that

previously recognized impairment loss may no longer exist or may have decreased. If

such indication exists, the recoverable amount is estimated. A previously recognized

impairment loss is reversed only if there has been a change in the estimates used to

determine the asset’s recoverable amount since the last impairment loss was recognized.

If that is the case, the carrying amount of the asset is increased to its recoverable amount.

The reversal can be made only to the extent that the resulting carrying amount does not

exceed the carrying amount that would have been determined, net of depreciation and

amortization, had no impairment loss been recognized. Such reversal is recognized in

profit or loss. After such a reversal, the depreciation and amortization is adjusted in

future years to allocate the asset’s revised carrying amount, less any residual value, on a

systematic basis over its remaining life.

Provisions

Provisions are recognized when the Parent Company has a present legal or constructive

obligation as a result of past event, it is more likely than not that an outflow of resources

will be required to settle the obligation, and the amount can be reliably estimated.

Provisions are not recognized for future operating losses.

- 17 -

Provisions are measured at the present value of the amount expected to be required to

settle the obligation using a pre-tax rate that reflects the current market assessment of the

time value of money and, where appropriate, the risk specific to the obligation. Where

discounting is used, the increase in the provision due to the passage of time is recognized

as interest expense.

Where the Parent Company expects some or all of a provision to be reimbursed, the

reimbursement is recognized only when the reimbursement is virtually certain. The

expense relating to any provision is presented in profit or loss net of any reimbursement.

Net Pension Liability

The Parent Company’s net obligation in respect of the defined benefit plan is calculated

by estimating the amount of the future benefit that employees have earned in the current

and prior periods, discounting that amount and deducting the fair value of any plan

assets.

The calculation of defined benefit obligation is performed on a periodic basis by a

qualified actuary using the projected unit credit method. When the calculation results in

a potential asset for the Parent Company, the recognized asset is limited to the present

value of economic benefits available in the form of any future refunds from the plan or

reductions in future contributions to the plan.

Remeasurements of the net pension liability, which comprise actuarial gains and losses,

return on plan assets (excluding interest) and the effect of the asset ceiling (if any,

excluding interest), are recognized immediately in other comprehensive income. The

Parent Company determines the net interest expense (income) on the net pension liability

(asset) for the period by applying the discount rate used to measure the defined benefit

obligation at the beginning of the annual period to the net pension liability (asset), taking

into account any changes in the net defined liability (asset) during the period as a result

of contributions and benefit payments. Net interest expense and other expenses related to

the defined benefit plan are recognized in profit or loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change

in benefit that relates to past service or the gain or loss on curtailment is recognized

immediately in profit or loss.

Short-term Employee Benefits

Short-term employee benefits are expensed as the related service is provided. A liability

is recognized for the amount expected to be paid if the Parent Company has a present

legal or constructive obligation to pay this amount as a result of past service provided by

the employee and the obligation can be estimated reliably.

Other Long-term Employee Benefits

The Parent Company’s net obligation in respect of long-term employee benefits is the

amount of future benefit that employees have earned in return for their service in the

current and prior periods. That benefit is discounted to determine its present value.

Remeasurements are recognized in profit or loss in the period in which they arise.

Termination Benefits

Termination benefits are expensed at the earlier of when the Parent Company can no

longer withdraw the offer of those benefits and when the Parent Company recognizes

costs for restructuring. If benefits are not expected to be settled wholly within twelve

months from the end of the reporting period, then they are discounted.

- 18 -

Equity

Capital Stock. Capital stock is measured at par value for all shares issued.

Contributed Surplus. Contributed surplus represents additional contribution of

shareholders as provided under the Code.

Retained Earnings. Retained earnings represent the cumulative balance of the net income

or loss of the Parent Company, net of any dividend distribution.

Revaluation Reserve. Revaluation reserve is comprised of the following: (1) gains and

losses due to the revaluation of AFS financial assets; and (2) actuarial gains and losses

from the remeasurement of the net pension liability.

Revenue Recognition

Revenue is recognized to the extent that it is probable that economic benefits will flow to

the Parent Company and the revenue can be reliably measured. The following specific

recognition criteria must also be met before revenue is recognized:

Net Premium

Net premium is recognized as gross premium on insurance contracts less reinsurance

premiums.

Gross Premium on Insurance Contracts. Premiums arising from insurance contracts are

initially recognized as income on the effective date of the insurance policies. Subsequent

to initial recognition, gross earned premiums on life insurance contracts are recognized as

revenue at the date when payments are due.

Reinsurance Premiums Ceded. Gross reinsurance premiums on traditional and variable

contracts are recognized as an expense when the policy becomes effective.

Investment Income

The Parent Company’s investment income is comprised of interest income; fair value

gain (loss) of financial assets at FVPL; dividend income; rental income; and gain (loss)

on sale of AFS financial assets, real estate inventories and investment properties.

Interest Income. Interest income is recognized on an accrual basis using the effective

interest method. The EIR is the rate that exactly discounts the estimated future cash

receipts through the expected life of the financial asset. The EIR is established on initial

recognition of the financial asset and is not revised subsequently. When the related

financial asset becomes impaired, the recognition of interest income is suspended and/or

limited up to the extent of cash collections received.

The calculation of the EIR includes all fees, transaction costs, and discounts or premiums

that are an integral part of the EIR. Transaction costs are incremental costs that are

directly attributable to the acquisition or disposal of a financial asset.

Dividend Income. Dividend income is recognized when the shareholder’s right to receive

payment is established.

Rental Income. Rental income from investment properties is recognized on a straight-line

basis over the lease term.

- 19 -

Gain (loss) on Sale of AFS Financial Assets. Gain (loss) on the sale of AFS financial

assets, other than those classified as financial assets at FVPL are calculated as the

difference between net sales proceeds and acquisition cost less any impairment in value.

Gain (loss) on the sale of AFS financial assets are recognized in profit or loss when the

sales transaction occurred.

Gain on Sale of Real Estate Inventory. Revenue from the sale of real estate inventory is

measured at the fair value of the consideration received or receivable less the cost of real

estate inventory at the date of sale. Revenue is recognized when significant risks and

rewards of ownership have been transferred to the customer, recovery of the

consideration is probable, the associated costs can be estimated reliably, and the amount

of revenue can be measured reliably.

The transfer of risk and reward occurs when the rights to the real estate inventory is

delivered to the customer.

Service Fees

Insurance contract of the policyholders are charged for policy administration services,

surrenders and other contract fees. These fees and charges are recognized as revenue over

the period in which the related services are performed.

Other Income

Income from other sources is recognized when earned.

Net Benefits and Claims

The Parent Company’s net benefits and claims consist of gross benefits and claims,

reinsurers’ share on benefits and claims, gross change in insurance contract liabilities and

reinsurers’ share on gross change in insurance contract liabilities.

Gross Benefits and Claims. Benefits and claims consist of benefits and claims of the

policyholders, which includes excess benefit claims for unit-linked contracts. Death

claims and surrenders are recorded on the basis of notifications received. Maturities and

annuity payments are recorded when due.

Reinsurers’ Share on Benefits and Claims. Reinsurers’ share on benefits and claims

pertains to the amount recoverable from reinsurers for recognized claims during the year.

Gross Change in Insurance Contract Liabilities. Gross change in insurance contract

liabilities represents the change in the valuation of legal policy reserves under “Insurance

contract liabilities” account in the separate statements of financial position.

Reinsurers’ Share on Gross Change in Insurance Contract Liabilities. Reinsurers’ share

on gross change in insurance contract liabilities pertains to the reinsurers’ share in the

change in the valuation of legal policy reserves under “Insurance contract liabilities”

account in the separate statements of financial position.

Operating and Administrative Expenses

Expenses are recognized when decrease in future economic benefits related to a decrease

in an asset or an increase of a liability has arisen that can be measured reliably. Expenses

are recognized when incurred.

General and Administrative Expenses. General and administrative expenses, other

underwriting expense and other investment expense, except for lease agreements, are

recognized as expense as they are incurred.

- 20 -

Commissions . Commissions are recognized when the insurance contracts are entered into

and the related premiums are recognized.

Investment Expenses. Investment expenses pertain to the interest incurred by the Parent

Company in relation to the Investment accounts payable obtained to fund its investment

in loans receivable (see Note 25).

Interest Expenses. Interest expenses on accumulated policyholders’ dividends and

premium deposit funds are recognized in profit or loss as it accrues and are calculated

using the effective interest method. Accrued interest is credited to the liability account

every policy anniversary date.

Foreign Currency Transactions

Transactions in foreign currencies are initially recorded using the exchange rate at the

date of the transactions. Monetary assets and liabilities denominated in foreign currencies

are retranslated using the closing exchange rates prevailing at reporting date; income and

expenses are translated using the average rate for the year.

Exchange gains or losses arising from foreign exchange transactions are credited to or

charged against profit or loss. For income tax reporting purposes, foreign exchange gains

or losses are treated as taxable income or deductible expenses, in the period such are

realized.

Leases

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

substance of the arrangement and requires an assessment of whether the fulfillment of the

arrangement is dependent on the use of a specific asset or assets and the arrangement

conveys a right to use the asset. A reassessment is made after inception of the lease only

if one of the following applies:

a. there is a change in contractual terms, other than a renewal or extension of the

arrangement; or

b. a renewal option is exercised or extension granted, unless that term of the renewal or

extension was initially included in the lease term; or

c. there is a change in the determination of whether fulfillment is dependent on a

specified asset; or

d. there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date

when the change in circumstances gives rise to the reassessment for scenarios a, c or d

above, and at the date of renewal or extension period for scenario b.

Parent Company as Lessee

Leases where the lessor does not transfer substantially all the risks and rewards of

ownership of the related assets are classified as operating leases. Fixed lease payments

are recognized as rent expense on a straight-line basis over the lease term.

- 21 -

Parent Company as Lessor

Leases where the Parent Company does not transfer substantially all the risks and

benefits of ownership of the assets are classified as operating leases. Lease payments

received are recognized as income in profit or loss on a straight-line basis over the lease

term. Initial direct costs incurred in negotiating operating leases are added to the carrying

amount of the leased asset and recognized over the lease term on the same basis as the

rental income.

Income Tax

Current Income Tax

Current tax assets and liabilities for the current and prior periods are measured at the

amount expected to be recovered from or paid to the taxing authorities. The tax rates and

tax laws used to compute the amount are those that are enacted or substantively enacted

as at reporting date.

Deferred Income Tax

Deferred tax is provided, using the liability method, on all temporary differences at the

reporting date between the tax bases of assets and liabilities and their carrying amounts

for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax

assets are recognized for all deductible temporary differences, carryforward of unused tax

credits from the excess of minimum corporate income tax (MCIT) over the regular

corporate income tax (RCIT), and unused net operating loss carryover (NOLCO), to the

extent that it is probable that sufficient taxable profit will be available against which the

deductible temporary differences and carryforward of unused tax credits from MCIT and

unused NOLCO can be utilized. Deferred tax, however, is not recognized on temporary

differences that arises from the initial recognition of an asset or liability in a transaction,

affects neither the accounting income nor taxable income or loss.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced

to the extent that it is no longer probable that sufficient taxable income will be available

to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred

tax assets are reassessed at each reporting date and are recognized to the extent that it has

become probable that future taxable income will allow the deferred tax asset to be

recovered.

Deferred tax assets and liabilities are measured at the tax rates that are applicable to the

period when the asset is realized or the liability is settled, based on tax rates and tax laws

that have been enacted at the reporting date.

Current tax and deferred tax relating to items recognized directly in equity or other

comprehensive income is also recognized in equity or comprehensive income and not in

profit or loss.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right

exists to set off current tax assets against current tax liabilities and deferred taxes related

to the same taxable entity and the same taxation authority.

Movements in the deferred tax assets and liabilities arising from changes in tax rates are

charged or credited to income for the period.

- 22 -

Value-added Tax (VAT)

Revenue, expenses and assets are recognized, net of the amount of sales tax, except:

where the tax incurred on a purchase of assets or services is not recoverable from the

tax authority, in which case the tax is recognized as part of the cost of acquisition of

the asset or as part of the expense items as applicable; and

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

The net amount of VAT recoverable from or payable to the tax authority is included

under “Other liabilities” in the separate statements of financial position.

Contingencies

Contingent liabilities are not recognized in the Parent Company’s separate financial

statements. They are disclosed unless the possibility of an outflow of resources

embodying benefit is remote. Contingent assets are not recognized in the Parent

Company’s separate financial statements but disclosed when an inflow of economic

benefits is probable.

Events After the Reporting Date

Post year-end events that provide additional information about the Parent Company’s

financial position at the reporting date (adjusting events) are reflected in the separate

financial statements when material. Post year-end events that are not adjusting events are

disclosed in the notes to the separate financial statements when material.

4. Critical Accounting Judgments and Estimates

The Parent Company makes judgment and estimates that affect the reported amounts of

assets, liabilities, income, expenses, and disclosures of contingent assets and liabilities, if

any, within the next accounting period. These judgments and estimates are continually

evaluated and are adjusted based on historical experience and other relevant factors,

including expectations of future events that are believed to be reasonable under the

circumstances.

Judgments

In the process of applying Parent Company’s accounting policy, management has made

the following judgments, apart from those involving estimation, which have the most

significant effect on the amounts recognized in the Parent Company’s financial

statements:

a) Product Classification

The Parent Company has determined that the unit-linked insurance policies it issues

that link the payments on the contract to units of internal investment funds has

significant insurance risk and therefore meets the definition of an insurance contract

and should be accounted for as such.

- 23 -

b) Impairment of Financial Assets

Investments at Fair Value

The Parent Company considers that investments are impaired when there has been a

significant or prolonged decline in the fair value below their cost. The determination

of what is significant or prolonged decline requires judgment. The Parent Company

treats ‘significant’ generally as twenty percent (20%) or more and ‘prolonged’ as

greater than twelve (12) months for quoted equity securities. In addition, the Parent

Company evaluates other factors, including normal volatility in share price for

quoted securities and the future cash flows and the discount factors for unquoted

securities. In making this judgment, the Parent Company evaluates among other

factors, the normal volatility in share/market price. In addition, impairment may be

appropriate when there is evidence of deterioration in the financial health of the

investee, industry and sector performance, changes in technology, and operational

and financing cash flows.

Receivables

The Parent Company reviews its receivables to assess impairment at least on an

annual basis, or as the need arises due to significant movements on certain accounts.

Receivables from policyholders and reinsurance that are individually significant are

assessed to determine whether objective evidence of impairment exists on an

individual basis, while those that are not individually significant are assessed for

objective evidence of impairment either on an individual or on collective basis. In

determining whether an impairment loss should be recorded in profit or loss, the

Parent Company makes judgment as to whether there are any observable data

indicating that there is a measurable decrease in the estimated future cash flows from

a portfolio of receivables before the decrease can be identified with an individual

receivable in that portfolio.

Estimates and Assumptions

The key estimates and assumptions concerning the future and other key sources of

estimation uncertainty at the reporting date that have a significant risk of causing a

material adjustment to the carrying amounts of assets and liabilities within the next

financial year are discussed below.

(a) Insurance Contract Liabilities

The estimation of the ultimate liability arising from claims made under life insurance

contract is the Parent Company’s most critical accounting estimate. There are several

sources of uncertainty that need to be considered in the estimation of the liability that

the Parent Company will ultimately pay to settle its benefits and claims.

The liability of the life insurance contracts are based on assumptions established at

the inception of the contract. At each reporting date, these estimates are reassessed

for adequacy and changes will be reflected in adjustments to the liability. The main

assumptions used relate to mortality, morbidity, investments and discount rates.

In determining the liabilities for life insurance contracts, estimates are made as to the

expected number of deaths, illness or injury for each of the years in which the Parent

Company is exposed to such risks. These estimates are based on standard mortality

and morbidity tables as required by the Code. The estimated number of deaths,

illness or injury determines the value of possible future benefits to be paid out, which

will be factored to insure sufficient amount of reserves, which in return is monitored

against current and future premiums.

- 24 -

Estimates are also made as to future investment income arising from the assets

backing life insurance contracts. These estimates are based on current market returns,

as well as expectations about future economic and financial developments.

In accordance with the provision of the Code, estimates for future deaths, illness or

injury and investment returns are determined at the inception of the contract and are

used to calculate the liability over the term of the contract. The interest rate used to

discount future liabilities does not exceed the interest rate prescribed by the

Insurance Commission. Likewise, no lapse and surrender assumptions are factored in

the computation of the liabilities.

Legal policy reserves are calculated in accordance with the requirements of the Code.

The liability adequacy test was performed using current best estimates on interest,

mortality, lapsation and expenses. The net present value of future cash flows as at

December 31, 2014 and 2013 computed under the requirements of PFRS 4,

amounted to cash outflows of P8.98 billion and P7.99 billion, respectively.

Accordingly, the recorded statutory reserves as at December 31, 2014 and 2013 of

P9.33 billion and P8.12 billion, respectively, is adequate using best estimate

assumptions (see Note 21).

(b) Liabilities arising from Claims made under Insurance Contracts

There are several sources of uncertainty that need to be considered in the estimation

of the liability that the Parent Company will ultimately pay for such claims. Although

the ultimate liability arising from life insurance contracts is largely determined by the

face amount of each individual policy, the Parent Company also issues accident and

health policies and riders where the claim amounts may vary.

Claims estimation by the Parent Company considers many factors such as industry

average mortality and morbidity experience, with adjustments to reflect Parent

Company’s historical experience. These liabilities form part of the Parent Company’s

Incurred but not Reported (IBNR) claims which amounted to P547.95 million and

P561.27 million as at December 31, 2014 and 2013, respectively, included in policy

and contract claims under “Insurance contract liabilities”.

(c) Impairment of Financial Assets

The Parent Company reviews its loans and receivables at each reporting date to

assess whether an allowance for impairment should be recorded in profit or loss. In

particular, judgment by management is required in the estimation of the amount and

timing of future cash flows when determining the level of allowance required. Such

estimates are based on assumptions about a number of factors and actual results may

differ, resulting in future changes to the allowance.

The level of this allowance is evaluated by management on the basis of factor that

affects the collectability of the accounts. These factors include, but are not limited to

age of balances, financial status of counterparties, payment behavior and known

market factors. The Parent Company reviews the age and status of receivables, and

identifies accounts that are to be provided with allowance on a regular basis.

- 25 -

In addition to specific allowance against individually significant loans and

receivables, the Parent Company also makes a collective impairment allowance

against exposures which, although not specifically identified as requiring a specific

allowance, have a greater risk of default than when originally granted. This collective

allowance is based on any deterioration in the internal rating of the loan or

investment since it was granted or acquired. These internal ratings take into

consideration factors such as concentration risks, identified structural weaknesses

and deterioration in cash flows.

The amount and timing of recorded expenses for any period would differ if the

Parent Company made different judgments or utilized different estimates. An

increase in allowance for impairment losses would increase recorded expenses and

decrease net income.

Provision for impairment loss amounted to P55.12 million and P46.23 million in

2014 and 2013, respectively (see Note 31). Insurance receivables and loans and

receivables, net of allowance for impairment losses, amounted to P8.10 billion and

P6.84 billion as at December 31, 2014 and 2013, respectively (see Notes 9 and 12).

(d) NRV of Real Estate Inventories

The Parent Company reviews real estate inventories for probable impairment in

value. Management’s judgment in determining if the real estate inventories are

impaired is based on the assessment of the asset’s estimated net selling price and

management’s plan in discontinuing the real estate projects.

Estimated selling price is derived for publicly available market data and historical

experience, while estimated cost of disposal are basically commission expense based

on historical experience. Management would also obtain the services of an

independent appraiser to determine fair value of undeveloped land based on the latest

selling prices of the properties of the same characteristics of the undeveloped land.

As at December 31, 2014 and 2013, the carrying value of real estate inventories

amounted to P31.82 million and P34.56 million, respectively (see Note 16).

(e) Impairment of Non-financial Assets

The Parent Company assesses impairment on assets whenever events or changes in

circumstances indicate that the carrying amount of an asset may not be recoverable.

The factors that the Parent Company considers important which could trigger an

impairment review include the following:

significant underperformance relative to expected historical or projected future

operating results;

significant changes in the manner of use of the acquired assets or the strategy for

overall business; and

significant negative industry or economic trends.

The Parent Company recognizes an impairment loss whenever the carrying amount

of an asset exceeds its recoverable amount. The recoverable amount is computed

using the value in use approach. Recoverable amounts are estimated for individual

assets or, if it is not possible, for cash-generating unit to which the asset belongs.

- 26 -

The Parent Company recognizes an impairment loss on real estate inventories

whenever NRV is lower than cost. NRV is the estimated selling price in the ordinary

course of business, less estimated necessary costs to sell.

As at December 31, 2014 and 2013, real estate inventories, investment properties,

property and equipment, and intangible assets aggregated to P762.57 million and

P679.73 million, respectively (see Notes 16, 17, 18 and 19).

(f) Realization of Deferred Tax Assets

Deferred tax assets are recognized for all deductible temporary differences to the

extent that it is probable that taxable profit will be available against which these can

be utilized. Significant management judgment is required to determine the amount of

deferred tax assets that can be recognized. These assets are periodically reviewed for

realization. Periodic reviews cover the nature and amount of deferred income and

expense items, expected timing when assets will be used or liabilities will be required

to be reported, reliability of historical profitability of businesses expected to provide

future earnings and tax planning strategies which can be utilized to increase the

likelihood that tax assets will be realized.

As at December 31, 2014 and 2013, the recognized deferred tax assets amounted to

P101.27 million and P52.71 million, respectively (see Note 33).

As at December 31, 2014 and 2013, the unrecognized deferred tax assets amounted

to nil and P99.08 million, respectively (see Note 33).

(g) Pension and Other Employee Benefits

The determination of pension obligation and other employee benefit is dependent on

the selection of certain assumptions used in calculating such amounts. Those

assumptions include, among others, discount rates, mortality rates and salary increase

rates. Due to the long term nature of these plans, such estimates are subject to

significant uncertainty.

The assumed discount rates were determined using the market yields of Philippine

government bonds with terms consistent with the expected employee benefit payout

as at the separate statements of financial position date. As at December 31, 2014 and

2013, the Parent Company’s net pension liability amounted to P199.79 million and

P59.00 million, respectively (see Note 32).

(h) Contingencies

The Parent Company is currently involved in various legal proceedings. The estimate

of the probable costs for the resolution of these claims has been developed in

consultation with the legal counsels and based upon an analysis of potential results.

The Parent Company currently does not believe these proceedings will have a

material adverse effect on the Parent Company’s separate statements of financial

position. It is possible, however, that the results of operations could be materially

affected by changes in the estimates.

- 27 -

5. Insurance and Financial Risks Management

The primary objective of the Parent Company’s risk and financial management

framework is to protect the Parent Company from events that hinder the sustainable

achievement of the Parent Company’s performance objectives including failing to exploit

opportunities. The Parent Company recognizes the critical importance of having efficient

and effective risk management systems in place.

The Parent Company has established a risk management function with clear terms of

reference for the BOD, its committees and the associated executive management

committees. Further, a clear organizational structure with documented delegated

authorities and responsibilities from the BOD to executive management committees and

senior managers has been developed. Lastly, a policy framework which sets out the risk

appetite of the Parent Company, risk management, control and business conduct

standards for the Parent Company’s operations has been put in place. Each policy has a

member of senior management who is charged with overseeing compliance with the

policy throughout the Parent Company.

The BOD has approved the Parent Company risk management policies and meets

monthly to approve on any commercial, regulatory and own organization requirements in

such policies. The policies define the Parent Company’s identification of risk and its

interpretation, limit structure to ensure the appropriate quality and diversification of

assets, alignment of underwriting and reinsurance strategy to the corporate goals and

specify reporting requirement.

Insurance Risk

The risk under an insurance contract that an insured event will occur including the

uncertainty of the amount and timing of any resulting claim. The principal risk the Parent

Company faces under such contracts is that the actual claims and benefits payments

exceed the carrying amount of insurance liabilities. This is influenced by the frequency of

claims, severity of claims and actual benefits paid are greater than originally estimated.

Terms and Conditions

The Parent Company principally writes life insurance where the life of policyholder is

insured against death, illness, injury or permanent disability, usually for pre-determined

amount.

Life insurance contracts offered by the Parent Company mainly include whole life

insurance, term insurance, endowments and unit-linked products.

Whole life insurance and term insurance are conventional products where lump sum

benefits are payable on death.

Endowment products are investments/savings products where lump sum benefits are

payable after a fixed period or on death before the period is completed.

Unit-linked products differ from conventional policies as in unit-linked products, a

guaranteed percentage of each premium is allocated to units in a pooled investment fund

and the policyholder benefits directly from the total investment growth and income of the

fund.

The risks associated with the life and accident and health products are underwriting risk

and investment risk.

- 28 -

The main risks the Parent Company is exposed to include:

Mortality Risk - risk of loss arising from policyholder death experience being

different than expected.

Morbidity Risk - risk of loss arising from policyholder health experience being

different than expected.

Expense Risk - risk of loss arising from expense experience being different than

expected.

Policyholder Decision Risk - risk of loss arising from policyholder experience (lapses

and surrenders) being different than expected.

These risks do not vary significantly in relation to the location of the risk insured by the

Parent Company, type of risk insured and by industry. Undue concentration by amounts

could have an impact on the severity of benefit payments on a portfolio basis.

The Parent Company’s underwriting strategy is designated to ensure that risks are well

diversified in terms of type of risk and level of insured benefits. This is largely achieved

through diversification across industry sectors and geography, the use of medical

screening in order to ensure that pricing takes account of current health conditions and

family medical history, regular review of actual claims experience and product pricing, as

well as detailed claims handling procedures. Underwriting strategy is in place to enforce

appropriate risk selection criteria.

Concentration of Insurance Risk

The table below sets out the Parent Company’s concentration of insurance risk based on

the sum assured:

2014 2013

Number

of Policies Sum assured

Number

of Policies Sum assured

Group life 446,931 P611,475,475,539 449,744 P303,904,378,839

Accident and health 16,095 94,888,394,790 17,504 5,215,378,184

Endowment 47,982 12,424,414,592 40,277 9,803,980,575

Whole life 27,078 8,717,018,618 28,110 8,544,235,019

Term 13,488 4,053,257,005 14,141 4,457,673,832

Variable/unit-linked 2,601 3,355,481,605 1,973 2,526,752,744

554,175 P734,914,042,149 534,263 P334,452,399,193

The table below sets out the concentration of life insurance liabilities by type of contract,

at gross and net of reinsurance.

2014 2013

Gross

Legal Policy

Reserve

Reinsurers’

Share on

Liabilities

Net

Legal Policy

Reserve

Gross

Legal Policy

Reserve

Reinsurers’

Share on

Liabilities

Net

Legal Policy

Reserve

Endowment P3,268,882,492 P832,382 P3,268,050,110 P3,012,361,722 P734,262 P3,011,627,460

Variable/unit-linked 2,509,559,280 - 2,509,559,280 1,893,462,467 - 1,893,462,467

Whole life 2,079,538,221 3,307,440 2,076,230,781 1,849,525,778 3,134,445 1,846,391,333 Group life 1,032,918,450 26,457,274 1,006,461,176 879,360,368 - 879,360,368

Term 228,301,383 1,597,660 226,703,723 286,397,121 1,873,314 284,523,807

Accident and health 210,921,332 - 210,921,332 197,994,027 - 197,994,027

P9,330,121,158 P32,194,756 P9,297,926,402 P8,119,101,483 P5,742,021 P8,113,359,462

- 29 -

The table below sets out the concentration of life insurance liabilities with and without

DPF, at gross and net of reinsurance.

2014

Gross

Legal Policy

Reserve

Reinsurers’

Share on

Liabilities

Net

Legal Policy

Reserve

With fixed and guaranteed terms

Fixed and guaranteed - non-participating P4,771,449,406 P29,668,378 P4,741,781,028

Partially fixed and guaranteed - participating 2,049,112,472 2,526,378 2,046,586,094

Unit linked 2,509,559,280 - 2,509,559,280

Total insurance liabilities P9,330,121,158 P32,194,756 P9,297,926,402

2013

Gross

Legal Policy

Reserve

Reinsurers’

Share on

Liabilities

Net

Legal Policy

Reserve

With fixed and guaranteed terms

Fixed and guaranteed - non-participating P4,393,520,265 P3,332,162 P4,390,188,103

Partially fixed and guaranteed - participating 1,832,118,751 2,409,859 1,829,708,892

Unit linked 1,893,462,467 - 1,893,462,467

Total insurance liabilities P8,119,101,483 P5,742,021 P8,113,359,462

Classification by Attained Age (Based on 2014 and 2013 Data of Inforce Policies)

The table below presents the concentration of risk by attained age. For individual

insurance, exposure is concentrated on age brackets 40-44 to 50-54 and those below 20.

2014

Individual

Gross of Reinsurance Net Reinsurance

Attained

Age Exposure

‘000

Concentration

(%)

Exposure

‘000

Concentration

(%)

<20 P1,099,431,615 19.71% P1,099,273,203 19.73%

20 - 24 177,781,412 3.19% 177,717,566 3.19%

25 - 29 284,548,935 5.10% 284,430,676 5.10%

30 - 34 425,523,643 7.63% 425,292,901 7.63%

35 - 39 523,038,086 9.38% 522,453,221 9.38%

40 - 44 559,500,782 10.03% 558,957,880 10.03%

45 - 49 629,385,796 11.29% 628,707,159 11.29%

50 - 54 666,640,335 11.95% 665,812,158 11.95%

55 - 59 531,678,304 9.53% 530,556,451 9.52%

60 - 64 384,354,405 6.89% 383,654,728 6.89%

65 - 69 170,885,909 3.06% 170,519,895 3.06%

70 - 74 91,529,137 1.64% 91,228,736 1.64%

75 - 79 26,578,461 0.48% 26,536,175 0.48%

80 + 5,845,276 0.10% 5,843,866 0.10%

Total P5,576,722,096 100.00% P5,570,984,615 100.00%

- 30 -

2013

Individual

Gross of Reinsurance Net Reinsurance

Attained

Age

Exposure

‘000

Concentration

(%)

Exposure

‘000

Concentration

(%)

<20 P1,052,518,980 20.44% P1,052,408,988 20.46%

20 - 24 153,388,789 2.98% 153,320,544 2.98%

25 - 29 250,224,311 4.86% 250,086,805 4.86%

30 - 34 359,459,911 6.98% 359,217,462 6.99%

35 - 39 482,545,295 9.37% 481,934,749 9.37%

40 - 44 519,848,655 10.10% 519,343,698 10.10%

45 - 49 603,601,616 11.72% 602,780,969 11.72%

50 - 54 636,415,955 12.36% 635,406,379 12.36%

55 - 59 489,348,285 9.51% 488,449,240 9.50%

60 - 64 357,168,756 6.94% 356,438,396 6.93%

65 - 69 155,265,700 3.02% 154,906,813 3.01%

70 - 74 59,791,566 1.16% 59,624,783 1.16%

75 - 79 22,623,601 0.44% 22,541,804 0.44%

80 + 6,083,198 0.12% 6,081,970 0.12%

Total P5,148,284,618 100.00% P5,142,542,600 100.00%

The table below presents the concentration of risk by business type for group insurance.

2014 2013

Net Reinsurance Net Reinsurance

Business Type Exposure Concentration Exposure Concentration

Credit life insurance P846,747,758 84.13% P649,201,453 73.83%

Employer-employee/

association benefit 74,217,048 7.38% 73,637,423 8.37%

Compulsory migrant

workers insurance 38,293,711 3.80% 110,813,773 12.60%

Personal accident 20,474,743 2.04% 9,464,094 1.08%

Coconut farmers

insurance 11,387,543 1.13% 7,000,681 0.80%

Microinsurance 10,575,797 1.05% 12,076,403 1.37%

Reinsurance assumed 4,155,449 0.41% 6,924,257 0.79%

Preneed planholders 609,127 0.06% 10,241,784 1.16%

P1,006,461,176 100.00% P879,360,368 100%

The table below presents the concentration of risk by industry type for accident and

health insurance.

2014 2013

Net Reinsurance Net Reinsurance

Industry Type Exposure Concentration Exposure Concentration

Nonfinancial P147,501,954 69.93% P122,209,821 61.72%

Financial 58,596,533 27,78% 53,380,799 26.96%

Government 3,385,159 1.61% 20,069,984 10.14%

Non-profit institutions 1,437,686 0.68% 2,333,423 1.18%

P210,921,332 100.00% P197,994,027 100%

Source of Uncertainty in the Estimation of Future Claim Payment

Estimation of future payments and premium receipts is subject to unpredictability of

changes in mortality and morbidity levels. The Parent Company adopts standard industry

data in assessing future benefit payments and premium receipts as approved by IC.

Adjustments are made, if necessary, according to the experience of the Parent Company.

- 31 -

For individual life insurance, no adjustment is made by the Parent Company to the

standard mortality table. For group life, accident and health insurance, the mortality table

is adjusted to reflect the Parent Company’s actual and projected experiences which are

given weights or credibility depending on the amount and length of exposure under

consideration. The Parent Company currently monitors its actual experience on

individual business on a per policy basis and on an aggregate basis, and reporting the

same to management.

The liability for these contracts comprises the IBNR provision, a provision for reported

claims not yet paid and a provision for unexpired risk at reporting dates. The IBNR

provision is based on historical experience and is subject to a degree of uncertainty.

Key Assumptions

Material judgment is required in determining the liabilities and in the choice of

assumptions relating to insurance contracts. Assumptions are based on past experience,

current internal data and conditions and external market indices and benchmarks, which

reflect current observable market prices and other published information. Such

assumptions are determined as appropriate at inception of the contract and no credit is

taken for possible beneficial effects of voluntary withdrawals. Assumptions are further

evaluated on a continuous basis in order to ensure realistic and reasonable valuations.

Assumptions are subject to the provisions of the Code and guidelines set by IC.

For insurance contracts, the Parent Company determines the assumptions in relation to

future deaths, illness or injury and investment returns at inception of the contract.

Subsequently, new estimates are developed at each reporting date and liabilities are

tested to determine whether such liabilities are adequate in the light of the latest current

estimates. The initial assumptions are not altered if the liabilities are considered adequate.

If the liabilities are not adequate, assumptions are altered (“unlocked”) to reflect the latest

current estimates. As a result, the effect of changes in the underlying variables on

insurance liabilities and related assets is not symmetrical. Improvements in estimates

have no impact on the value of the liabilities and related assets, while significant

deteriorations in estimates have an impact.

The key assumptions to which the estimation and adequacy testing of liabilities are

particularly sensitive are as follow:

Mortality and Morbidity Rates

Assumptions are based on standard industry and national mortality and morbidity

tables, according to the type of contract written and which may be adjusted where

appropriate to reflect the Parent Company’s own experiences. Assumptions are

differentiated by age, underwriting class and contract type.

An increase in mortality and morbidity rates would lead to a larger number of claims

and claims occurring sooner than anticipated, increasing the expenditure and

generally reducing profits for the shareholders.

- 32 -

Discount Rate

Life insurance liabilities are determined as the sum of the discounted value of the

expected benefits, less the discounted value of the expected theoretical premiums that

would be required to meet these future cash outflows. The weighted average rate of

return is derived based on model portfolio that is assumed to back up liabilities,

consistent with the long-term assets allocation strategy. These estimates are based on

current market returns as well as expectations about future economic and financial

developments. Interest rates used for estimating liabilities is determined by the

Insurance Commissioner.

An increase in investment return would lead to an increase in profits for the

shareholders. A decrease in the discount rate will increase the value of the liability.

As required by the Code, lapse, surrender and expense assumptions are not factored

in the computation of the insurance contract liabilities.

Sensitivities

As part of the Parent Company’s investment strategy, in order to reduce both insurance

and financial risk, the Parent Company matches its investments to the liabilities arising

from insurance, by reference to the type of benefits payable to the policyholders.

The analysis below is performed for reasonably possible movements in key variables

with all other variables held constant, showing the impact on liabilities, income and

equity. The correlation of variables will have a significant effect in determining the

ultimate claims liabilities, but to demonstrate the impact due to changes in assumptions,

assumption changes had to be done on an individual basis. It should be noted that

movements in these variables are nonlinear.

2014

Change in

Assumption

Increase

(Decrease)

on Net

Liabilities

Increase

(Decrease)

on Profit

before Tax

Increase

(Decrease)

on Equity

Mortality/morbidity

110% of original

mortality table P65,402,859 (P65,402,859) (P65,402,859)

90% of original

mortality table (65,539,363) 65,539,363 65,539,363

Discount rate

Original valuation

interest rate +1% (516,057,785) (516,057,785) (516,057,785)

Original valuation

interest rate -1% P670,269,228 P670,269,228 P670,269,228

2013

Change in

Assumption

Increase

(Decrease)

on Net

Liabilities

Increase

(Decrease)

on Profit

before Tax

Increase

(Decrease)

on Equity

Mortality/morbidity

110% of original

mortality table P59,466,564 (P59,466,564) (P59,466,564)

90% of original

mortality table (61,664,190) 61,664,190 61,664,190

Discount rate

Original valuation

interest rate +1% (464,151,768) 464,151,768 464,151,768

Original valuation

interest rate -1% 599,769,069 (599,769,069) (599,769,069)

The methods used for deriving sensitivity information and significant assumptions did

not change from the previous period.

- 33 -

Investment Risk

The investment risk represents the exposure to loss resulting from cash flows from

invested assets, primarily long-term fixed rate investments, being less than the cash flows

required to meet the obligations of the expected policy and contract liabilities and the

necessary return on investments. Additionally, there exists a future investment risk

associated with certain policies currently in force which will have premium receipts in

the future. That is, the investment of those future premiums receipts may be at a yield

below that required to meet future policy liabilities. To maintain an adequate yield to

match the interest necessary to support future policy liabilities, management reinvest the

proceeds of the maturing securities and future premium receipts to financial instruments

with satisfactory investment quality.

The Parent Company’s strategy is to invest primarily in high quality securities while

maintaining diversification to avoid significant exposure to issuer, industry and/or

country concentrations taking into consideration limitations set by IC. Another strategy is

to produce cash flows required to meet maturing insurance liabilities. The Parent

Company invests in equities for various reasons, including diversifying its overall

exposure to equity price risk. AFS financial assets are subject to declines in fair value.

Generally, insurance regulations restrict the type of assets in which an insurance

company may invest.

The Parent Company uses asset-liability matching (ALM) as a management tool to

determine the composition of the invested assets and appropriate investment and

marketing strategies. As part of these strategies, the Parent Company may determine that

it is economically advantageous to be temporarily in an unmatched position due to

anticipated interest rate or other economic changes.

Financial Risk

The Parent Company is exposed to financial risk through its financial assets, financial

liabilities and insurance liabilities. In particular, the key financial risk that the Parent

Company is exposed to is that the proceeds from its financial assets are not sufficient to

fund the obligations arising from its insurance contracts. The most important components

of this financial risk are credit risk, liquidity risk and market risk.

There has been no change to the Parent Company’s exposure to financial risks (i.e. credit

risk, liquidity risk and market risks) or the manner in which it manages and measures the

risks since prior financial year.

Credit Risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an

obligation and cause the other party to incur a financial loss.

The following policies and procedures are in place to mitigate the Parent Company’s

exposure to credit risk:

A credit risk policy setting out the assessment and determination of what constitutes

credit risk for the Parent Company. Compliance with the policy is monitored and

exposures and breaches are reported to the Parent Company’s risk committee. The

policy is regularly reviewed for pertinence and for changes in the risk;

Net exposure limits are set for each counterparty or group of counterparties,

geographical and industry segments (i.e., limits are set for investments and cash

deposits, foreign exchange trade exposures and minimum credit ratings for

investments that may held);

- 34 -

Reinsurance is placed with highly rated counterparties and concentration of risk is

avoided by following policy guidelines in respect of counterparties’ limits that are set

each year and are subject to regular reviews. At each reporting date, management

performs an assessment of creditworthiness of reinsurers and updates the reinsurance

purchase strategy, ascertaining suitable allowance for impairment;

The Parent Company sets the maximum amounts and limits that may be advanced to

corporate counterparties by reference to their long term credit ratings; and

The credit risk in respect of customer balances, incurred on nonpayment of premiums

or contributions will only persist during the grace period specified in the policy

document or trust deed until expiry, when the policy is either paid up or terminated.

Commissions paid to intermediaries are offset against any amounts due to reduce the

risk of noncollection.

Except for mortgage loans, collateral loans, installment contract receivable and policy

loans, the maximum exposure to credit risk of all financial assets is equal to their

carrying amounts.

Policy loans are secured by the cash surrender values on the related policies. The Parent

Company grants policy loans up to the extent of the cash surrender values accumulated

on the latest policy anniversary dates. The Parent Company is not exposed to credit risk

with respect to policy loans.

The tables below show the financial effect of the collateral and credit enhancement to the

Parent Company’s maximum credit risk as at December 31, 2014 and 2013:

2014

Gross Maximum

Fair Value of

Collateral or

Credit

Enhancement Net Exposure

Financial Effect

of Collateral or

Credit

Enhancement

Mortgage loans P2,454,634,764 P2,056,605,578 P398,029,186 P2,056,605,578

Installment contract

receivables 370,098,469 372,608,841 - 370,098,469

Collateral loans 158,709,874 161,455,909 161,455,909 161,455,909

P2,983,443,107 P2,590,670,328 P559,485,095 P2,588,159,956

2013

Gross Maximum

Fair Value of

Collateral or Credit

Enhancement Net Exposure

Financial Effect

of Collateral or Credit

Enhancement

Mortgage loans P1,905,657,938 P2,407,134,126 P - P1,905,657,938 Installment contract

receivables 369,758,297 372,266,362 - 369,758,297

Collateral loans 66,766,812 1,155,215 65,611,597 1,155,215

P2,342,183,047 P2,780,555,703 P65,611,597 P2,276,571,450

The Parent Company’s concentration of credit risk arises from loans and receivables

since the said financial instruments amounted to P8.08 billion (2013: P7.08 billion) and

44% (2013: 39%) of its total financial assets as at December 31, 2014.

- 35 -

The following tables provide information regarding the credit risk exposure of the Parent

Company by classifying assets according to the Parent Company’s credit ratings of

counterparties.

2014

Neither Past Due nor Impaired

Investment

Grade

Non-

Investment

Grade

Satisfactory

Non-

Investment

Grade

Unsatisfactory

Past Due

but not

Impaired

Past Due

and

Impaired Total

Cash and cash equivalents P1,474,700,678 P - P - P - P - P1,474,700,678

Insurance receivables

Premiums due and

uncollected - 327,908,833 - 58,257,209 9,450,822 395,616,864

Due from agents - 27,855,096 - 5,132,414 17,182,694 50,170,204

Financial assets at FVPL

Debt securities 400,504,351 - - - - 400,504,351

AFS financial assets

Debt securities 626,982,228 - - - - 626,982,228

Loans and receivables

Notes receivable 588,755,405 14,984,832 12,828,719 2,355,272,643 182,892,887 3,154,734,485 Mortgage loans 2,010,743,373 36,115,900 4,348,412 388,069,294 15,357,785 2,454,634,764

Policy loans 10,281,893 - - - - 10,281,893

Installment contracts

receivable 18,982,733 502,257 344,109 350,269,370 - 370,098,469

Claims receivable - 247,909,477 - - - 247,909,477

HMO billback 96,936,934 40,482,708 38,249,877 204,658,794 116,814,718 497,143,031

Investment accounts

receivable 380,122,851 - 6,074,915 63,597,144 13,107,049 462,901,958

Advances to officers

and employees 962,583 1,687,134 49,748 2,601,789 - 5,301,255

Collateral loans 102,361,005 - 296,568 50,148,914 5,903,387 158,709,874

Others 50,007,342 32,331,031 18,831,349 - - 100,719,723

Reinsurance assets - 38,000,000 - - - 38,000,000

P5,761,341,376 P767,777,268 P80,573,697 P3,478,007,571 P360,709,341 P10,448,409,253

2013

Neither Past Due nor Impaired

Investment

Grade

Non-

Investment

Grade

Satisfactory

Non-

Investment

Grade

Unsatisfactory

Past Due

but not

Impaired

Past Due and

Impaired Total

Cash and cash equivalents P1,791,564,286 P - P - P - P - P1,791,564,286


Premiums due and

uncollected 19,065,924 154,069,350 - - 26,633,516 199,768,790

Due from agents 27,158,444 3,703,423 - - - 30,861,867

Financial assets at FVPL

Debt securities 161,872,186 - - - - 161,872,186

AFS financial assets

Debt securities 353,873,246 - - - - 353,873,246


Notes receivable 2,618,970,713 23,221,786 8,364,438 - 253,072,388 2,903,629,325

Mortgage loans 1,351,513,651 125,179,534 6,172,721 407,434,247 15,357,785 1,905,657,938

Policy loans 549,328,568 - - - - 549,328,568


receivable 367,580,003 - 2,178,294 - - 369,758,297

Claims receivable - 232,872,070 - - - 247,909,477

HMO billback 317,951,447 - - - 96,261,326 414,212,773

Investment accounts

receivable 496,701,476 82,097 4,394,029 - 15,582,780 516,760,382


and employees 29,890,753 468,237 388,204 - 2,349,212 33,096,406

Collateral loans 17,719,622 - 381,303 - 48,665,887 66,766,812

Others 74,728,081 127,463 183,894 - - 75,039,438

Reinsurance assets - 28,698,683 - - - 28,698,683

P8,177,918,400 P568,422,643 P22,062,883 P407,434,247 P472,960,301 P9,648,798,474

- 36 -

The Parent Company uses an internal credit rating concept based on the borrower’s and

counterparties’ overall credit worthiness, as follows:

Investment Grade - Rating given to borrowers and counterparties who

have very strong capacity to meet their obligations.

Non-investment Grade -

satisfactory

- Rating given to borrowers and counterparties whose

outstanding obligation is within the acceptable age

of group.

Non-investment Grade -

unsatisfactory

- Rating given to borrowers and counterparties whose

outstanding obligation is nearing to be past due or

impaired.

The tables below show the aging analysis of the financial assets.

2014

More than 90 Days

<30 Days

31 to

60 Days

61 to

90 Days

Past Due

but not

Impaired

Past Due

and

Impaired Total


Premiums due and

uncollected P174,552,713 P64,677,907 P88,678,213 P58,257,209 P9,450,822 P395,616,864

Due from agents 18,272,664 5,993,190 3,589,242 5,132,414 17,182,694 50,170,204


Notes receivable 588,755,405 14,984,832 12,828,719 2,355,272,643 182,892,887 3,154,734,485

Mortgage loans 2,010,743,373 36,115,900 4,348,412 388,069,294 15,357,785 2,454,634,764


receivable 18,982,733 502,257 344,109 350,269,370 - 370,098,469

Healthcare management

organization (HMO)

billback 96,936,934 40,482,708 38,249,877 204,658,794 116,814,718 497,143,031



and employees 962,583 1,687,134 49,748 2,601,789 - 5,301,255

Investment accounts

receivable 380,122,851 - 6,074,915 63,597,144 13,107,049 462,901,958

Others 76,658,788 12,660,469 8,661,896 2,738,569 - 100,719,722

Total P3,468,349,049 P177,104,397 P163,121,699 P3,480,746,140 P360,709,341 P7,650,030,626

2013

More than 90 Days

<30 Days

31 to

60 Days

61 to

90 Days

Past Due

but not

Impaired

Past Due

and

Impaired Total


Premiums due and

uncollected P96,494,278 P37,511,528 P19,167,811 P46,595,173 P26,633,516 P199,768,790

Due from agents 1,481,370 - 2,222,053 27,158,444 - 30,861,867


Notes receivable 2,489,899,529 49,096,149 27,074,048 337,559,599 253,072,388 2,903,629,325

Mortgage loans 1,351,513,652 125,179,534 6,172,721 422,792,031 15,357,785 1,905,657,938


receivable 31,435,782 489,324 2,178,294 335,654,897 - 369,758,297

Healthcare management

organization (HMO)

billback 82,287,940 92,911,467 73,625,949 165,387,417 96,261,326 414,212,773



and employees 28,323,675 468,237 388,204 3,916,290 2,349,212 33,096,406

Investment accounts

receivable 424,986,220 82,097 4,394,029 87,298,036 15,582,780 516,760,382

Others 57,627,193 127,463 183,894 17,100,888 15,037,407 75,039,438

Total P4,578,051,358 P305,865,799 P135,788,306 P1,495,846,565 P472,960,301 P6,515,552,028

An allowance for impairment is set up in the Parent Company’s separate statements of

financial position for assets classified as ‘past-due and impaired’. Financial assets are

considered as past due and impaired when the contractual payments are in arrears by 90

days and the amount is not adequately secured. When contractual payments are in

arrears0020more than 90 days but adequately secured, financial assets are classified as

‘past-due but not impaired’ with no allowance for impairment is recorded.

- 37 -

The amount and type of collateral required depends on an assessment of the credit risk of

the counterparty. Guidelines are implemented regarding the acceptability of types of

collateral and the valuation parameters. Collateral is mainly obtained for securities

lending and for cash purposes. Credit risk is also mitigated by entering into collateral

agreements. Management monitors the market value of the collateral, requests additional

collateral when needed and performs an impairment valuation when applicable. The

related fair value of the collateral for the above past due and impaired assets amounted to

P654.12 million and P466.50 million as at December 31, 2014 and 2013, respectively.

Liquidity Risk

Liquidity risk is the risk that the Parent Company will encounter difficulty in meeting its

obligations associated with its financial liabilities that are settled by delivering cash or

another financial asset.


exposure to liquidity risk:

A liquidity risk policy setting out the assessment and determination of what

constitutes liquidity risk for the Parent Company. Compliance with the policy is

monitored and exposures and breaches are reported to the Parent Company’s risk

committee. The policy is regularly reviewed for pertinence and for changes in the

risk environment;

Set guidelines on asset allocations, portfolio limit structures and maturity profiles of

assets, in order to ensure sufficient funding available to meet insurance and

investment contracts obligations; and

Setting up contingency funding plans which specify minimum proportions of funds

to meet emergency calls as well as specifying events that would trigger such plans.

The tables below summarizes the maturity profile of the Parent Company’s financial

liabilities based on contractual undiscounted payment except for the legal policy reserves

of the life insurance contracts which is included as part of “Insurance contract liabilities”

account.

2014

Up to a Year 1 - 5 Years Over 5 Years

No Term/

1-90 days Total

Insurance contract liabilities P1,639,011,549 P3,530,980,739 P5,197,810,501 P - P10,367,802,789

Premium deposit funds* 692,652,228 - - - 692,652,228

Insurance payables 179,479,629 - - - 179,479,629

Accounts payable and

accrued expenses 49,284,192 - - - 49,284,192

P2,560,427,598 P3,530,980,739 P5,197,810,501 P - P11,289,218,838

*Excluding amounts received that will be applied to premiums due.

2013

Up to a Year 1 - 5 Years Over 5 Years

No Term/

1-90 days Total

Insurance contract liabilities P1,452,410,113 P2,876,211,072 P4,736,873,306 P - P9,065,494,491

Premium deposit funds* 534,157,807 - - - 534,157,807

Insurance payables 29,548,393 - - - 29,548,393 Accounts payable and

accrued expenses 205,388,692 776,052,159 133,330,426 81,662,245 1,196,433,522

P2,221,505,005 P3,652,263,231 P4,870,203,732 P81,662,245 P10,825,634,213

*Excluding amounts received that will be applied to premiums due.

- 38 -

It is unusual for a company primarily engaged in insurance business to predict its funding

requirements with absolute certainty as theory of probability is applied on insurance

contracts to determine the likely provision and the time period when such liabilities will

require settlement. Thus, the amounts and maturities in respect of insurance liabilities are

based on management’s best estimate using statistical techniques and data on past

experience.

Market Risk

Market risk is the risk of change in fair value of financial instruments from fluctuations

in foreign exchange rates (currency risk), market interest risk rates (fair value interest rate

risk) and market prices (price risk), whether such change in price is caused by factors

specific to the individual instrument or its issuer or factors affecting all instruments

traded in the market.


exposures to market risk:

The Parent Company’s market risk policy sets out the assessment and determination

of what constitutes market risk for the Parent Company. Compliance with the policy

is monitored and exposures and breaches are reported to the Parent Company’s risk

committee. The policy is reviewed regularly for pertinence and for changes in the

risk environment.

Set asset allocation and portfolio limit structure to ensure that assets back specific

policyholder’s liabilities and that assets are held to deliver income and market value

appreciation for policyholders in line with their expectations.

Stipulated diversification benchmarks by type of instrument of the Parent Company.

Currency Risk

Currency risk is the risk that the fair value of future cash flows of financial instrument

will fluctuate because of changes in foreign exchange rates.

The Parent Company’s principal transactions are carried out in Philippine peso and its

foreign exchange risk arises primarily with respect to the transactions denominated in

U.S. dollar, where some of its products are denominated. The Parent Company’s

financial assets are primarily denominated in the same currency as its insurance

contracts, which mitigate the foreign exchange rate risk. Thus, the main foreign exchange

risk arises from recognized assets and liabilities denominated in currency other than in

which the insurance contracts are expected to be settled. The following tables show the

details of the Parent Company’s foreign-currency denominated monetary assets and

liabilities and their Philippine peso equivalents:

2014

US$ PHP

Assets

Cash and cash equivalents 3,549,345 158,361,126

Financial assets at FVPL 3,726,954 166,285,507

AFS financial assets 5,224,501 233,101,561

Accrued income 346,440 15,457,120

12,847,240 573,205,313

Liabilities

Insurance contract liabilities 6,848,656 305,566,485

Premium deposit funds 287,434 12,824,443

7,136,090 318,390,928

P5,711,150 P254,814,386

- 39 -

2013

US$ PHP

Assets

Cash and cash equivalents 3,711,042 164,822,191



Accrued income 184,602 7,942,787

12,171,561 540,331,567

Liabilities

Insurance contract liabilities 9,224,702 409,705,934

Premium deposit funds 457,057 20,299,592

9,681,759 430,005,526

2,489,802 110,326,041

In translating the foreign currency-denominated monetary assets and liabilities, the

exchange rates used were P44.72 to US$1.00 and P44.40 to US$1.00, the PHP-US$

prevailing exchange rates as at December 31, 2014 and 2013, respectively.


with all other variables held constant, showing the impact on income before income tax

(due to changes in fair value of currency sensitive monetary assets and liabilities). There

is no other impact on the Parent Company’s equity other than those already affecting

profit or loss.

The correlation of variables will have a significant effect in determining the ultimate

impact on market risk, but to demonstrate the impact, key changes had to be changed on

an individual basis. It should be noted that movements in these variables are nonlinear.

Currency

Change in

Variables

Impact on income

before income tax

Increase (decrease)

Impact on equity

Increase (decrease)

2014 USD -2.70% (P6,896,670) (P6,896,670)

USD +2.40% 6,130,374 6,130,374

2013 USD +8.70% 9,598,366 9,598,366

USD -1.00% (1,103,260) (1,103,260)

Reasonably possible movements in foreign exchange rate are computed based on average

percentage changes in the IC closing rate for two (2) years.

Fair Value Interest Rate Risk

Fair value interest rate risk is the risk that the value of a financial instrument will

fluctuate because of changes in market interest rate. The Parent Company’s fixed rate

investments classified as AFS financial assets are particularly exposed to such risk.

The Parent Company’s investment policy requires it to buy and hold AFS financial

assets, unless the need to sell arises, and to reduce the duration gap between financial

assets and financial liabilities to minimize interest rate risk.

- 40 -

The analysis below is performed for reasonably possible movements in interest rates with

all other variables held constant, showing the impact on profit before tax (due to changes

in fair value of fixed rate financial assets and liabilities).

2014

Currency

Change in

Variables

Impact on income

before income tax

Increase (decrease)

Impact on equity

Increase (decrease)

PHP 1.20% (P823,183) (P823,183)

USD 0.06% (89,035) (89,035)

PHP -0.09% 58,991 58,991

USD -1.30% 1,938,830 1,938,830

2013

Currency

Change in

Variables

Impact on income

before income tax

Increase (decrease)

Impact on equity

Increase (decrease)

PHP +0.31% (P39,792,791) (P39,792,791)

USD +2.17% (39,484,785) (39,484,785)

PHP -1.10% 57,803,441 57,803,441

USD -0.02% 10,486,121 10,486,121

In 2014 and 2013, the Parent Company determined the reasonably possible change in

interest rates using the percentage changes in weighted average yield rates of outstanding

securities for the past two (2) years.

Equity Price Risk

The Parent Company’s equity price risk exposure at year-end relates to financial assets

and liabilities whose values will fluctuate as a result of changes in market prices,

principally, equity securities classified as financial assets at FVPL and AFS financial

assets.

The Parent Company’s price risk relates to financial assets whose values will fluctuate as

a result of changes in market prices, principally investment securities not held for the

account of unit-linked business.

The correlation of variables will have a significant effect in determining the ultimate

impact on price risk, but to demonstrate the impact due to changes in variables, variables

had to be changed on an individual basis. It should be noted that movements in these

variables are nonlinear.


with all other variables held constant, showing the impact on income before income tax

(due to changes in fair value of financial assets and liabilities whose fair values are

recognized in profit or loss) and equity (that reflects adjustments to income before

income tax and changes in fair value of AFS financial assets).

2014

Market Indices

Change in

Variables

Impact on income

before income tax

Increase (Decrease)

Impact on equity

Increase (Decrease)

PSE index 28% P412,062,637 P412,062,637

PSE index -5% (73,582,614) (73,582,614)

- 41 -

2013

Market Indices

Change in

Variables

Impact on income

before income tax

Increase (Decrease)

Impact on equity

Increase (Decrease)

PSE index +37% P124,217,909 P124,217,909

PSE index -6% (20,143,445) (20,143,445)

In 2014 and 2013, the change in variables was derived from the percentage changes of

the composite PSE index for the past six (6) years.

6. Capital Management

Regulatory Framework

Regulators are interested in protecting the rights of the policyholders and maintain close

monitoring to ensure that the Parent Company is satisfactory managing affairs for their

benefit. At the same time, the regulators are also interested in ensuring that the Parent

Company maintains appropriate solvency position to meet liabilities arising from claims

and that the risk levels are at acceptable levels.

The operations of the Parent Company are subject to the regulatory requirements of the

IC. Such regulations not only prescribe approval and monitoring of activities but also

impose certain restrictive provisions, such as margin of solvency (MOS), to minimize the

risk of default and insolvency on the part of the insurance companies to meet the

unforeseen liabilities as these arise, net worth requirements, and Risk-Based Capital

(RBC) requirements.

Capital Management Framework

The Parent Company’s capital includes capital stock, contributed surplus and retained

earnings.

The Parent Company maintains a capital base to cover risks inherent in the business.

Externally imposed capital requirements are set and regulated by the IC. These

requirements are put in place to ensure solvency margins.

The Parent Company manages its capital requirements by complying with requirements

and limitations enforced by the IC, by maintaining profitability of the business and by

aligning the Parent Company’s operational strategy to its corporate goals.

The Parent Company fully complied with the externally imposed capital requirements as

at December 31, 2014 and 2013 and no changes were made to its capital base, objectives,

policies and processes.

The Parent Company’s primary capital management objectives are to ensure its ability to

continue as a going concern in order to fulfill the Parent Company’s mission and vision

and to provide adequate return to shareholders.

The Parent Company manages it capital structure in light of changes in the economic

conditions and the risk characteristics of its activities. The Parent Company takes into

consideration future capital requirements, capital deficiency, profitability, and projected

operating cash flows, expenditures and investment opportunities. No changes were made

in the objectives, policies and processes as at December 31, 2014 and 2013.

- 42 -

MOS Requirements

Under the Code, an insurance company doing business in the Philippines shall at all

times maintain the minimum paid-up capital and net worth requirements as prescribed by

the Commissioner.

The final amount of the MOS can be determined only after the accounts of the Parent

Company have been examined by the IC, specifically as to admitted and non-admitted

assets as defined in the Code.

If the insurance company failed to meet the minimum required MOS, the IC is authorized

to suspend or revoke all certificates of authority granted to such company, officers,

agents and no new business shall be transacted until its authority is restored by the IC.

As at December 31, 2014 and 2013, the estimated amounts of non-admitted assets, as

defined under the Code, which are included in the accompanying Parent Company’s

separate statements of financial position, are as follow:

2014 2013

Property and equipment - net P79,778,611 P82,178,168

Loans and receivables and other assets 505,788,804 226,029,469

P585,567,415 P308,207,637

The Parent Company complied with the externally imposed MOS requirements during

the reported financial periods.

Net Worth Requirements

Under the Code, every insurance company doing business in the Philippines needs to

comply with the following net worth requirements:

Net worth Compliance Date

P250,000,000 On or before June 30, 2013

550,000,000 On or before December 31, 2016

900,000,000 On or before December 31, 2019

1,300,000,000 On or before December 31, 2020

As at December 31, 2014 and 2013, the Parent Company has complied with the net worth

requirements.

RBC Requirements

Insurance Memorandum Circular (IMC) No. 6-2006 provides for the RBC framework for

the life insurance industry to establish the required amounts of capital to be maintained

by the companies in relation to their investments and insurance risks. Every life insurance

company is required annually to maintain a minimum RBC ratio of one hundred (100%)

and not fail the trend test. Failure to meet the minimum RBC ratio shall subject the

insurance company to corresponding regulatory intervention which has been defined at

various levels.

The RBC ratio shall be calculated as “net worth divided by the RBC requirement”. Net

worth shall include an insurance company’s paid-up capital, contributed and contingency

surplus and unassigned surplus. Revaluation and fluctuation reserve accounts shall form

part of net worth only to the extent authorized by the IC. RBC requirement shall be

computed based on the formula provided in the Circular and shall include asset default

risk, insurance pricing risk, interest rate risk and general business risk.

- 43 -

The following information shows the ratios determined by the Parent Company based on

its calculations:

2014 2013

Net worth P7,837,495,533 P7,590,974,408

RBC requirement 4,375,364,747 4,076,244,597

RBC Ratio 179.13% 186.22%

The final amount of the RBC ratio can be determined only after the accounts of the

Parent Company have been examined by the IC specifically as to admitted and non-

admitted assets as defined under the same Code. As at December 31, 2014 and 2013, the

Parent Company has complied with the minimum RBC ratio.

7. Fair Value Measurements and Disclosures

The fair value of the following financial assets and financial liabilities approximates their

carrying amount at end of each reporting period due to their short term nature:

Cash and cash equivalents;

Insurance receivables;

Accrued income;

Reinsurance assets;

Insurance contract liabilities except for legal policy reserves;

Reserve for policyholders’ dividends;

Premium deposit funds excluding amounts received which will be applied to

premiums due;

Insurance payables; and

Accounts payable and accrued expenses.

The recurring fair values of financial assets at FVPL and AFS financial assets are

determined by reference to quoted market prices at the close of business on the reporting

dates.

Fair Value Hierarchy

The table below presents financial instruments carried at fair value by valuation method

as at December 31, 2014 and 2013. The different levels have been defined as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or

liabilities.

Level 2: 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 3: inputs for the asset or liability that are not based on observable market data

(unobservable inputs).

- 44 -

December 31, 2014

Level 1 Level 2 Level 3 Total

Financial Assets

Financial Assets at FVPL

Equity securities P738,050,663 P - P - P738,050,663

Government Debt

securities 400,504,351 - - 400,504,351

Golf club shares 5,978,750 - - 5,978,750

AFS Financial Assets

Equity securities at fair

value 7,850,364,782 - - 7,850,364,782

Debt securities 626,982,228 - - 626,982,228

9,621,880,774 - - 9,621,880,774

Nonfinancial Assets

Investment properties - 823,155,820 - 823,155,820

P9,621,880,774 P823,155,820 P - P10,445,036,594

December 31, 2013

Level 1 Level 2 Level 3 Total

Financial Assets

Financial Assets at FVPL

Equity securities P587,475,514 P - P - P587,475,514

Government Debt

securities 161,872,186 - - 161,872,186

Golf club shares 5,978,750 - - 5,978,750

AFS Financial Assets

Equity securities at fair

value 7,415,498,384 - - 7,415,498,384

Debt securities 353,873,246 - - 353,873,246

8,524,698,080 - - 8,524,698,080

Nonfinancial Assets

Investment properties - 286,873,686 - 286,873,686

P8,524,698,080 P286,873,686 P - P8,811,571,766

As at December 31, 2014 and 2013, the Parent Company has AFS equity securities

measured at cost amounting to P573.56 million and P572.82 million, respectively.

There has been no transfer between levels in 2014 and 2013.

Fair value of nonfinancial asset under Level 2 is determined using Market Data Approach

(see Note 17).

8. Cash and Cash Equivalents

This account consists of:

2014 2013

Short-term placements P1,089,013,364 P1,411,800,397

Cash in banks 385,687,314 379,763,889

Cash on hand 8,095,904 7,742,041

P1,482,796,582 P1,799,306,327

- 45 -

Cash in banks earn interest at prevailing interest rates. Cash equivalents are made for

various periods depending on the immediate cash requirements of the Parent Company

and earn interest ranging from 1.00% to 2.13% and from 0.50% to 4.13% in 2014 and

2013, respectively.

Interest income earned in 2014 and 2013 amounted to P42.07 million and P37.61 million,

respectively (see Note 28).

9. Insurance Receivables


2014 2013

Premiums due and uncollected P395,616,865 P199,768,790

Due from agents 50,170,205 30,861,867

445,787,070 230,630,657

Less allowance for impairment loss 26,633,516 26,633,516

P419,153,554 P203,997,141

There has been no movement in the allowance for impairment losses as at

December 31, 2014 and 2013.

10. Financial Assets at Fair Value through Profit or Loss


2014 2013

Equity securities P738,050,663 P587,475,514

Government debt securities 400,504,351 161,872,186

Golf club shares 5,978,750 5,978,750

P1,144,533,764 P755,326,450

Fair value gains (losses) on financial assets at FVPL consist of:

Note 2014 2013

Equity securities P65,017,567 (P51,507,010)

Government debt securities 8,947,278 (15,336,696)

28 P73,964,845 (P66,843,706)

The carrying values of financial assets at FVPL have been determined as follows:

Note 2014 2013

Balance at beginning of year P755,326,450 P717,544,261

Additions 335,638,453 118,923,862

Maturities and disposals (21,216,024) (26,621,025)

Net fair value gain (loss) 28 73,964,845 (66,843,706)

Foreign exchange adjustments 820,040 12,323,058

Balance at end of year P1,144,533,764 P755,326,450

- 46 -

11. Available-for-Sale Financial Assets


2014 2013

Equity securities at fair value P7,850,364,782 P7,415,498,384

Equity securities at cost 573,552,333 572,823,208

Debt securities 626,982,228 353,873,246

P9,050,899,343 P8,342,194,838

(a) AFS Equity Securities at Fair Value

As at December 31, 2014 and 2013, AFS unlisted equity securities carried at fair

values consist mainly of the Parent Company’s investment in shares of stock of the

following Coconut Industry Investment Fund (CIIF) Oil Mills Companies:

Granexport Manufacturing Corporation (Granex)

Legaspi Oil Company, Inc. (LegOil)

San Pablo Manufacturing Corporation (SPMC)

Southern Luzon Coconut Oil Mills Co., Inc. (SolCom)

The fair values of the total investments in CIIF were determined by taking into

account the redemption price of San Miguel Corporation (SMC) shares, which

comprise 96.72% (over total balance) of CIIF’s assets, and DCF approach for other

operating net assets. The CIIF Oil Mills Companies have investments in

fourteen (14) CIIF holding companies which hold shares in SMC. The aggregate

market value of the Parent Company’s interest in these SMC shares amounted to

P6.21 billion as at December 31, 2014 and 2013. In addition, the fair values of the

other operating net assets of the CIIF Oil Mills Companies have been determined

using DCF approach. Significant assumptions used include a long-term growth rate

of nil and a discount rate of 12% in 2014 and 2013. DCF computation is based on

latest available figures of CIIF Oil Mills Companies as at December 31, 2014 and

2013.

The assets of the CIIF Oil Mills Companies and the SMC shares are presently

sequestered and are the subject of an ongoing appeal by the Philippine Coconut

Producers Federation with the Supreme Court (SC). The investments of SPMC,

Iligan Coconut Industries, Inc. (‘Ilicoco’) and other CIIF Oils Mills in the 14 CIIF

holding companies and the loans and advances granted by SPMC, Ilicoco and other

CIIF Oil Mills to the 14 CIIF holding companies were used to purchase the shares of

stock in SMC. As at December 31, 2001, the loans and advances granted to the 14

CIIF holding companies were fully collected. These SMC shares were sequestered

by the Presidential Commission of Good Government (PCGG) in May 1986.

The 14 CIIF holding companies, United Coconut Planters Bank (UCPB) and SMC

executed and subsequently implemented in 1991 a compromise agreement and

amicable settlement involving the SMC shares of stock held by the 14 CIIF holding

companies. Notwithstanding the implementation of the compromise agreement and

amicable settlement, all the subject SMC shares of stock remain sequestered by the

PCGG. Certain parties, however, filed before the Sandiganbayan their opposition to

the implementation of the said agreement.

- 47 -

On November 10, 1993, the Republic of the Philippines, acting through the PCGG,

filed before the Sandiganbayan a motion for authority to sell all the 14 CIIF holding

companies’ shares of stock of SMC. The proceeds of the sale would then be utilized

to pay for the indebtedness of the CIIF holding companies to UCPB and any

remaining balance thereof would be used for urgently needed projects designed for

the benefit of the coconut farmers and pursuant to the intent of the CIIF. The motion

was opposed by certain parties.

On September 27, 1996, the 14 CIIF holding companies and UCPB, as administrator

of the CIIF holding companies and as then creditor of the 14 CIIF holding companies

(the UCPB loan was fully paid by the 14 CIIF holding companies in November

2002), filed a joint motion before the Sandiganbayan and respectfully moved that

they be authorized to sell all the 14 CIIF holding companies’ SMC class B shares and

to buy an equal number of SMC Class A shares. The motion was denied on

December 12, 1997. On January 7, 1998, the 14 CIIF holding companies and UCPB

filed a motion for reconsideration.

On May 7, 1998, in an “en banc” resolution, the PCGG lifted the sequestration of the

SMC shares, subject to the approval of the Sandiganbayan. The lifting of the

sequestration on the SMC shares owned by the 14 CIIF holding companies will

enable the CIIF companies to re-deploy their resources in response to the demands of

an ever-changing business environment and to initiate strategic programs aimed at

enhancing the competitiveness of the Philippine coconut industry.

On February 9, 1999, the Sandiganbayan considered the motion dated November 10,

1993 withdrawn without prejudice to whatever actions the parties may take for

revival or resuscitation thereof under such terms which may be appropriate at that

time. On March 12, 1999, certain parties filed a motion for permission to present

evidence in relation to their opposition of said November 10, 1993 motion to sell all

SMC shares.

On November 8, 2000, the President of the Philippines issued Executive Order (EO)

No. 313 creating an irrevocable trust fund to be known as the Coconut Trust Fund to

be managed by a Trust Fund Committee. EO No. 313 also provided that the subject

SMC shares shall form part of the initial capital of the Coconut Trust Fund. For the

purpose of implementing the creation of the Coconut Trust Fund, EO No. 313

directed the 14 CIIF holding companies, acting through Administrator of the coconut

levy fund, to: (a) convey the subject SMC shares to the Trustee; and, (b) sign,

execute and deliver such documents, deed or contracts, under such conditions not

inconsistent with EO No. 313 likewise mandates the PCGG and the Office of the

Solicitor General to lift the sequestration of the subject SMC shares and take all the

necessary steps to implement the purposes and objectives of EO No. 313.

As a first step toward the implementation of EO No. 313, the PCGG adopted

resolutions on November 28, 2000, lifting the sequestration of the subject SMC

shares. On January 10, 2001, a Motion to Withdraw Compliant was filed by the

PCGG before the Sandiganbayan requesting for the exclusion of the subject SMC

shares from Civil Case No. 0033-F and for the cause of action against defendants, the

14 CIIF holding companies, in connection with the said shares to be considered

withdrawn.

- 48 -

As a result of the installation of the new dispensation, on January 30, 2001,

a Manifestation and Motion to Hold in Abeyance Motion to Withdraw Complaint

dated January 10, 2001 was filed before Sandiganbayan requesting to defer action in

the aforementioned Motion until February 25, 2001 or later, for the reason that EO

No. 313 is still undergoing review by the Office of the President for possible

amendment, suspension and revocation.

The Sandiganbayan, in a Motion for Partial Summary Judgment on May 7, 2004,

decided that SPMC and the other CIIF Block of SMC shares of stock totaling

33,133,266 shares in 1983, together with all dividends declared, paid and issued

thereon, as well as any increments thereto arising from, but not limited to, exercise of

pre-emptive rights, are declared owned by the government in trust for all the coconut

farmer and ordered reconveyed to the government.

Certain parties filed a Motion for Reconsideration to such Sandiganbayan decision.

The motion for reconsideration was denied by Sandiganbayan on December 28,

2004.

On March 29, 2005, the 14 CIIF holding companies, as authorized by the PCGG,

exercised their pre-emptive rights first on the SMC Class B shares and thereafter on

the SMC Class A shares of SMC’s 105 stock offering to the extent of the cash

dividends held by the 14 CIIF holding companies. The 14 CIIF holding companies

subscribed to 27,952,430 Class B shares and 693,242 Class A shares resulting in total

shareholdings of 307,395,776 Class B shares and 446,476,531 Class A shares.

As at June 30, 2008, the aforementioned case pending with the First Division of the

Sandiganbayan is now awaiting decision.

On July 24, 2009, SMC made an offer to exchange (the Exchange Offer) preferred

shares for its issued and outstanding Class A and Class B common shares, on a one-

for-one basis. The peso-denominated nonvoting preferred shares (the Series 1

Preferred Shares) will have an issue price of P75.00 (the Issue Price). The maximum

Series 1 Preferred Shares that could be exchanged in the Exchange Offers is

1,104,000.

The Parent Company and the CIIF Oil Mills Companies chose to participate in the

Exchange Offer. The Parent Company and the CIIF Oil Mills Companies submitted

their applications to exchange in October 2009. The Parent Company and the CIIF

Oil Mills Companies received 751,185 and 753,848,312 Series 1 Preferred Shares,

respectively, in exchange for an equivalent number of common shares.

On December 23, 2009, the Parent Company’s BOD approved the Memorandum of

Agreement (MOA) which allowed the Parent Company to account for its investment

in CIIF Oil Mills Companies as investments in associates because despite ownership

of less than twenty percent (20%) interest in the CIIF Oil Mills Companies, the

Parent Company has significant influence by virtue of joint rights with UCPB as

stockholders of the CIIF Oil Mills Companies for their collective benefit. Upon

effectivity of the MOA on January 1, 2010, the CIIF Oil Mills Companies became

associates of the Parent Company. As allowed under PAS 27, the Parent Company

accounted for its investments in CIIF Oil Mills Companies as AFS financial assets

which are carried at fair value in its separate financial statements.

- 49 -

On January 24, 2012, the SC rendered its decision in favor of the government in two

cases involving: (a) the ownership of certain sequestered shares in UCPB and

(b) the ownership over the CIIF Oil Mills, the Fourteen CIIF Holding Companies and

the shares of stock in SMC held by the 14 CIIF Holding Companies, together with all

dividends declared paid and issued thereon as well as any increments thereto arising

from, but not limited to, exercise of pre-emptive rights.

On February 14, 2012, the Philippine Coconut Producers Federation, Inc., et. al.,

filed a Motion for Reconsideration on the decision rendered by the SC. The SC

subsequently rendered a decision on September 4, 2012 which resolves to deny with

finality the aforementioned case for the lack of merit. Further, the court clarifies that

the SMC shares, with all the dividends earnings as well as all increments that may

arise from, are owned by the government to be used for the benefit of all the coconut

farmers and for the development of the coconut industry.

On December 28, 2012, the Parent Company filed a Petition for Declaratory Relief to

seek for an authoritative declaration of its rights and duties as a stockholder of the

CIIF Oil Mills, and 14 CIIF holding companies. Against this petition the Philippine

Government through the PCGG filed with the Supreme Court a petition for, among

others, the issuance of the Temporary Restraining Order (TRO) enjoining the trial

court Judge from proceeding with the hearing of the petition for declaratory relief.

On February 26, 2014, the Supreme Court issued the TRO.

On December 10, 2014, the Supreme Court issued a resolution directing that an entry

of judgment be made for its January 24, 2012 Decision, which ordered the

reconveyance of the CIIF Block of SMC shares to the Government, to be used

exclusively for the benefit of coconut farmers and the development of the local

coconut industry.

As at December 31, 2014, the carrying amount of the Parent Company’s investments

in UCPB shares and CIIF Oil Mills shares amounted to P552.34 million and P6.41

billion, respectively.

The Parent Company recognized increase in the fair value of investments in CIIF

amounting to P30.78 million in 2014 from the recognized impairment losses in 2013

amounting to P50.65 million.

(b) AFS Equity Securities at Cost

In 2011, the Parent Company foreclosed its receivables from Archipelago Finance

and Leasing Corporation (Archipelago), an entity under common control, pertaining

to the sales of UCPB shares in 2000 up to 2002 amounting to P351.98 million and

secured by a pledge on 29,290,224 shares sold. Consequently, the Company’s

investments in UCPB shares increased from 100,000,000 shares as at December 31,

2010 valued at P100.00 million to 129,290,224 shares as at December 31, 2011

valued at P451.98 million. These stocks are nonparticipating, nonvoting preferred

shares convertible to common shares of UCPB with P1 par value, an affiliated local

commercial bank at the option of the holder. These shares are entitled to cumulative

dividends of 14% per annum.

- 50 -

A substantial portion of the outstanding shares of stock of UCPB remains

sequestered as a result of the sequestration orders previously issued by the PCGG on

June 26, 1986. In 2012, the Parent Company redeemed the UCPB shares amounting

to P100.00 million from UCPB General Insurance Company, Inc. (UCPB GEN), a

wholly-owned subsidiary. The Parent Company have investments in UCPB shares

amounting to a total of P552.34 million as at December 31, 2014 and 2013.

The issue of ownership of the sequestered shares has been the subject of ongoing

court proceeding with SC and Sandiganbayan. However, on December 14, 2001, the

SC ruled that the coconut levy funds, from which the funds to buy UCPB shares were

occurred, were prima facie public funds. Further, on July 2, 2002, the SC directed

the Sandiganbayan First Division to resolve with all deliberate speed and not later

than six (6) months such ownership issue.

The Sandiganbayan, in its decision dated July 11, 2003, ruled and declared that

ownership of 72.20% in UCPB legally belongs to the government. Subsequently, the

SC rendered a decision on January 25, 2012 supporting the decision of the

Sandiganbayan on July 11, 2003.

On February 14, 2012, the Philippine Coconut Producers Federation, Inc., et. al.,

filed a Motion for Reconsideration on the decision rendered by the SC. The SC

subsequently rendered a decision on September 4, 2012 which resolves to deny with

finality the said Motion for Reconsideration for lack of merit.

The Petition for Declaratory Relief by the Parent Company on December 28, 2012

also mentioned its ownership over these UCPB shares.

Update on UCPB Rehabilitation Plan

On March 29, 2004, UCPB requested certain concessions for the duration of the

rehabilitation period of ten (10) years or until such time that UCPB is able to comply

with the regulatory requirements, whichever is earlier. The Bangko Sentral ng

Pilipinas (BSP), in its reply date January 10, 2005:

Approved the 10-year Business/Rehabilitation Plan of UCPB;

Granted temporary relief by reducing the risk-weighted capital ratio from 10% to

8% for a period of three (3) years up to 2007 or until such time that UCPB is able

to comply with the required 10%, whichever comes earlier;

Allowed the staggered booking of P14.00 billion required valuation reserves

based on the fixed rate of 5% each year for the first three (3) years, ten percent

(10%) each year for the next four (4) years and fifteen percent (15%) each year

for the remaining three (3) years; and

Required UCPB to seek prior BSP approval for the merger of United Savings

Bank and UCPB Rural bank. The merger had been effected on December 29,

2005.

- 51 -

On May 15, 2008, the Philippine Depository Insurance Corporation (PDIC) Board, in

its Resolution No. 2008-05-073, approved the following:

1. Proposed rehabilitation scheme to address the capital deficiency of the UCPB

pending resolution of ownership issues, including the following:

a. Capital infusion to meet capital requirements via conversion of PDIC’s

P12.00 billion Financial Assistance into Capital Notes eligible as Interim

Tier 1 capital;

b. National Government’s minimum deposit placement of P25.00 billion for at

least ten (10) years to be invested in higher yielding government securities

(target net yield of 6% per annum or P1.50 billion net interest per annum);

c. BSP’s grant of regulatory relief; and

d. UCPB’s implementation of the business plans which includes operational

and income enhancements and cost control management.

2. PDIC’s conversion of outstanding P12.00 billion financial assistance into Capital

Notes subject to the fulfillment by the concerned parties of their respective

obligations to implement the other components of foregoing rehabilitation

scheme, Monetary Board reaffirmation of the continuing systemic risk to the

banking system that would result from the untimely closure of the UCPB, and

amendment to the terms and conditions of the 2003 FAA.

3. General features of the Capital Notes to be subscribed to by the PDIC, the final

features of Capital Notes and Subscription Agreement between PDIC and UCPB

subject to subsequent approval by the PDIC Board as follows:

Dividend Rate - Dividend rate of 12% per annum shall be noncumulative,

payable once UCPB has sufficient profits/retained earnings and meets capital

adequacy and liquidity thresholds after dividend payment.

Call Option - Option of UCPB to call on the Notes anytime after at least sixty

(60) months from date of issue upon fulfillment of capital adequacy/liquidity

thresholds. Upon its call on the Notes, UCPB shall pay dividends to the PDIC as

a Noteholder at the rate of fourteen percent (14%) per annum (gross) computed

from the issuance of the Notes up to the date of call option.

Assignability Feature - The PDIC may assign the notes anytime by giving a

notice in writing to the Issuer.

Conversion Right - The Capital Notes shall be convertible to UCPB’s preferred

shares and further convertible to common shares at any time at the option of

PDIC. Should PDIC be restrained or in any manner or for any reason be enjoined

from fully or partially exercising such right or in the event PDIC exercise his

right to convert the Capital Notes to UCPB shares and UCPB shall be unable, for

any reason whatsoever, then the UCPB shall be obliged immediately to redeem

to Capital Notes with thirty (30) days from notice to do so, then the Capital Notes

shall automatically be transformed into a P12.00 billion loan in favor of PDIC.

Conversion Price - The conversion price shall be fixed at the time of subscription

of the Interim Tier 1 Capital Notes. The number of common/preferred shares to

be issued upon conversion of the Notes be determined by dividing the principal

amount of the Notes plus any accrued interest thereon, by the conversion price.

The conversion price shall be subject to adjustment to allow PDIC to preserve its

ownership stake.

- 52 -

The Monetary Board, in its Resolution No. 590 dated May 15, 2008, decided to:

1. Approve the Ten-Year Rehabilitation/Business Plan (2008-2017) of UCPB and grant

to the UCPB the authority to issue P12.0 billion Capital Notes to PDIC which will

qualify as Interim Tier 1 Capital, provided that:

i. The Tier 1 Capital Notes to be issued meet the minimum features under Circular

No. 595 dated January 11, 2008;

ii. UCPB’s Articles of Incorporation shall be amended to:

Increase its authorized capital of P3.25 billion to an amount that will cover

the amount of the Capital Notes; and

Remove the Ownership limitation in UCPB which is 1% of the issued and

outstanding preferred and common shares for a stockholder as at

December 31, 1979.

2. Grant to UCPB following concessions:

i. Authority to accept deposit from the National Government (NG), Local

Government Units and Government-Owned and Controlled Corporations with

the ceiling of P5.90 billion increased by the amount that the NG will deposit with

UCPB;

ii. Consider the government securities purchased out of the P30.00 billion deposit of

the NG as alternative/eligible compliance with the liquidity reserves and liquidity

floor requirement;

iii. Stagger the booking of the unbooked valuation reserves and deferred charges

aggregating P27.90 billion consistent with UCPB’s approved 10-Year Business/

Rehabilitation Plan: Provided, that subsequent valuation reserves to be required

in excess of the P27.90 billion shall be immediately booked and no dividend

shall be declared while the concession is in effect;

iv. Waiver of the monetary penalties incurred for the following:

1. reserve deficiencies for the period January 1, 1999 to September 11, 2003

arising from the nontrust activities of the Trust Banking Division with

penalties amounting to P3.40 billion;

2. delay in the implementation of the Anti-Money Laundering System by

October 14, 2007 as required under Circular No. 495 dated September 20,

2005 as amended by Circular No. 527 dated April 28, 2006, with penalty at

P15,000 per day of delay;

3. violation of Section X602 of the Manual of Regulations for Banks (MORB)

for engaging in derivatives activities without prior BSP approval at P15,000

penalty per banking day estimated at P3.60 million as at February 29, 2008;

4. booking of Day 1 gain on its financial assistance (FA) from the PDIC in

violation of Circular No. 572 dated June 21, 2007 with estimated penalty of

P1.80 million; and

5. delayed submission of various reports with penalties aggregating P1.30

million.

v. Continued access to the BSP Rediscounting Facility, subject to a rediscount

ceiling of P1.50 billion.

Investments in preferred shares include the Parent Company’s investment in SMC

Series 1 Preferred Shares which have the following features:

a. Dividends shall be at a fixed rate of eight percent (8.00%) per annum. The dividend

rate shall be at the end of the fifth year after the date of issue to the higher of the

dividend rate or the 10-year PDST-F rate on the date corresponding to the end of the

fifth year from the Issue Date plus spread of three percent (3.00%).

- 53 -

b. The holder shall not be entitled to any participation or share in the retained earnings

remaining after dividend payment shall have been made.

c. SMC may redeem the preferred shares on the third anniversary from the Issue Date

or on any dividend payment date, in whole or in part, at a redemption price equal to

the Issue Price plus accrued and unpaid dividends.

d. The holder shall not be entitled to vote.

e. The holder shall have no pre-emptive right to any issue or disposition of any share of

any class of SMC.

f. There shall be preference in payment in the event of liquidation of SMC.

The carrying values of AFS financial assets have been determined as follows:

2014 2013

Balance at beginning of year P8,342,194,838 P8,453,594,049

Additions 1,738,418,230 2,182,976,319

Maturities and disposals (1,107,959,708) (2,009,498,422)

Reserve for fluctuation on AFS 72,551,714 (301,247,689)

Foreign exchange adjustments 5,694,269 16,370,581

Balance at end of year P9,050,899,343 P8,342,194,838

As at December 31, 2014 and 2013, government securities with a total value of

P93.88 million are deposited with the IC in accordance with the provision of the Code as

security for the benefit of policyholders and creditors of the Parent Company.

The rollforward analysis of the reserve for fluctuation on AFS financial assets is as

follows:

2014 2013


Fair value gain (loss) 202,703,261 (293,608,912)

Realized gain transferred to profit or loss (130,151,547) (7,638,777)


12. Loans and Receivables

This account consists of: Note 2014 2013

Note receivable P3,154,734,485 P2,903,629,325

Mortgage loans 2,454,634,764 1,905,657,938

Investment accounts receivable 462,901,958 516,760,382

Healthcare Management Organization

(HMO) billback 497,143,031 414,212,773

Installment contracts receivable 370,098,469 369,758,297

Claims receivable - farmers 37 296,633,525 247,909,477

Collateral loans 158,709,874 66,766,812

Advances to officers and employees 35,214,793 33,096,406

Others 100,719,723 75,039,438

7,530,790,622 6,532,830,848

Allowance for impairment losses (396,700,675) (446,326,785)

7,134,089,947 6,086,504,063

Policy loans 548,416,317 549,328,568

P7,682,506,264 P6,635,832,631

- 54 -

Note receivable refer to long-term promissory notes without collateral and earns interest

at prevailing market rate plus two percent (2%) add-on or twelve percent (12%),

whichever is higher.

Mortgage loans receivable pertain to housing loans secured by the property being

financed by the loans and collectible in monthly amortizations. Interest rates range from

five percent (5%) to twenty four percent (24%) in 2014 and 2013, with terms ranging

from five (5) to ten (10) years.

Investment accounts receivable pertain mainly to receivables from brokers relating to the

sale of investments and dividends receivable on the Parent Company’s investments in

subsidiaries and associates.

HMO billback is due from Healthcare cardholders under the Third Party Administration

accounts or auto bill back, wherein the Parent Company initially pays for the medical

expenses and subsequently bills the same to the cardholders plus service fee of seven

percent (7%) and network access fee.

Installment contracts receivable pertain to the outstanding receivable on foreclosed

properties sold to third parties. The interest is based on market rate or twelve percent

(12%), whichever is higher with terms ranging from five (5) to fifteen (15) years.

Collateral loans are loans collectible in monthly amortizations over a period of one (1) to

five (5) years, including interest of three percent (3%) to twelve percent (12%), secured

by a chattel mortgage.

Advances to officers and employees are collected thru payroll deductions or thru expense

liquidation.

Policy loans pertain to loans issued to policyholders. The loans are issued with collateral

of the cash surrender value of the policyholders insurance policies. Interest rates charged

are ten percent (10%) for peso and eight percent (8%) for dollar denominated policies.

The carrying amount of loans and receivables approximate its fair value as at

December 31, 2014 and 2013.

- 55 -

The rollforward analyses of allowance for impairment losses on loans and receivables are as follow:

2014

Notes

Receivable

Mortgage

Loans

Collateral

Loans

Advances to

Officers and

Employees

Investment

Accounts

Receivables HMO Billback

Claims

Receivable -

farmers Total

Balance at beginning of year P253,072,388 P15,357,785 P48,665,887 P2,349,212 P15,582,780 P96,261,326 P15,037,407 P446,326,785

Provisions during the year 33,609,406 - - - - 20,553,392 - 54,162,798

Write-off during the year (103,788,907) - - - - - - (103,788,907

Balance at end of year P182,892,887 P15,357,785 P48,665,887 P2,349,212 P15,582,780 P116,814,718 P15,037,407 P396,700,676

Specific assessment 182,892,887 15,357,785 48,665,887 - - 116,814,718 15,037,407 378,768,684

Collective assessment - - - P2,349,212 15,582,780 - - 17,931,992

Total P182,892,887 P15,357,785 P48,665,887 P2,349,212 P15,582,780 P116,814,718 P15,037,407 P396,700,676

Gross amount of receivables, individually determined to be impaired P182,892,887 P15,357,785 P48,665,887 P - P - P116,814,718 P15,037,407 P378,768,684

2013

Notes

Receivable

Mortgage

Loans

Collateral

Loans

Advances to Officers and

Employees

Investment Accounts

Receivables HMO Billback

Claims Receivable -

farmers Total

Balance at beginning of year P218,334,168 P15,357,785 P48,665,887 P2,349,212 P21,382,780 P100,145,436 P15,037,407 P421,272,675

Provisions during the year 35,668,146 - - - - 10,559,870 - 46,228,016 Write-off during the year (929,926) - - - (5,800,000) (14,443,980) - (21,173,906)

Balance at end of year P253,072,388 P15,357,785 P48,665,887 P2,349,212 P15,582,780 P96,261,326 P15,037,407 P446,326,785

Specific assessment P187,410,664 P15,357,785 P48,665,887 P1,334,373 P - P96,261,326 P - P349,030,035

Collective assessment 65,661,724 - - 1,014,839 15,582,780 - 15,037,407 97,296,750

Total P253,072,388 P15,357,785 P48,665,887 P2,349,212 P15,582,780 P96,261,326 P15,037,407 P446,326,785

Gross amount of receivables, individually

determined to be impaired P187,410,664 P15,357,785 P48,665,887 P1,334,373 P - P96,261,326 P - P349,030,035

- 56 -

In 2014 and 2013, the Parent Company recognized provision for impairment losses

amounting to P54.16 million and P46.22 million, respectively, based on the Parent

Company’s assessment of the individual balances of different receivables.

In 2014 and 2013, the Parent Company entered into agreements with various parties

whereby the Parent Company sold its loans and receivables without recourse amounting

to P8.37 million and P382.85 million at a gain of P1.63 million and P68.92 million,


13. Accrued Income


2014 2013

Interest receivable P79,688,733 P79,731,978

Less allowance for impairment losses 18,011,323 18,011,323

61,677,410 61,720,655

Rent receivable 99,104 458,050

Dividend receivable 12,550 25,800

P61,789,064 P62,204,505

Interest receivable includes accrued interest arising from short-term investments, AFS

debt securities, debt securities at FVPL and loans and receivables with interest rates

ranging from 1.00% to 2.13%, from 3.25% to 9.13%, from 2.13% to 7.75% and from

5.25% to 30.53%, respectively, in 2014, and 1.00% to 4.00%, 3.25% to 9.13%, 3.25% to

8.00% and 3.00% to 24.00%, respectively, in 2013.

There were no movements in the allowance for impairment losses as at December 31,

2014 and 2013.

14. Reinsurance Assets


2014 2013

Reinsurance recoverable on unpaid losses P12,545,965 P22,956,662

Reinsurer’s share on legal policy reserves 32,194,756 5,742,021

P44,740,721 P28,698,683

The movements of reinsurance recoverable on unpaid losses are as follow:

2014 2013


Claims incurred during the year 18,405,968 26,236,590

Claims paid during the year (28,816,665) (18,066,329)

P12,545,965 P22,956,662

- 57 -

The movements of reinsurer’s share on legal policy reserves are as follow:

2014 2013


Premiums received 535,674,436 49,860,440

Liability released for payments of death,

maturity and surrender benefits and claims 509,221,701 49,598,039

P32,194,756 P5,742,021

15. Investments in Subsidiaries and Associate


2014 2013

Subsidiaries

UCPB GEN P651,794,875 P651,794,875

Cocoplans, Inc. (Cocoplans) 420,442,203 420,442,203

Ultra Security Services, Inc (Ultra) 13,983,155 13,983,155

Cocolife Asset Management Company, Inc.

(CAMCI) 12,500,000 12,500,000

Healthassist, Inc. (Healthassist) 10,000,000 10,000,000

New Ultra Security Services, Inc. (New Ultra) 2,319,785 2,319,785

Archipelago Motors Corporation (AMC) 13,875,000 13,875,000

Associate

Direct Link Insurance Agency, Inc. (Direct Link) 4,000,000 4,000,000

P1,128,915,018 P1,128,915,018

The movements in this account are as follow:

2014 2013


Additional investments in UCPB GEN - 100,000,000


In 2013, the Parent Company acquired an additional 100,000,000 shares of common

stocks of UCPB GEN worth P1.00 per share.

The Parent Company’s percentages of ownership in its investees are as follow:

Investee 2014 2013

Subsidiaries

UCPB GEN 100.00% 100.00%

Cocoplans 100.00% 100.00%

CAMCI 100.00% 100.00%

Healthassist 100.00% 100.00%

New ultra 100.00% 100.00%

Ultra 100.00% 100.00%

AMC 54.00% 54.00%

Associate

Direct link 45.00% 45.00%

- 58 -

The above investees are incorporated in the Philippines.

The key financial information of the subsidiaries and associates are as follow:

2014

UCPB GEN Cocoplans* Ultra* CAMCI Healthassist* New Ultra* AMC* Direct Link*

Total assets P5,931,651,344 P1,987,987,016 P39,053,249 P37,235,954 P16,472,902 P - P11,736,205 P46,089,018

Total liabilities 4,968,387,574 1,933,861,763 14,365,229 17,043,487 195,802 - 950,789 35,636,130

Net assets 963,263,770 54,125,253 24,688,020 20,192,467 16,277,100 - 10,785,416 10,452,888 Revenues 1,697,041,749 228,781,261 28,988,488 48,127,169 6,733,988 - 12,500,850 6,338,300

Net income (loss) 75,505,339 14,817,919 6,106,344 22,413,858 306,567 - 3,931,565 979,213

Other comprehensive income (loss) (34,256,313) (20,225,860) - - - - - -

Total comprehensive income (loss) 41,249,026 (5,407,941) 6,106,344 22,413,858 306,567 - 3,931,565 979,213

*Unaudited

2013

UCPB GEN Cocoplans* Ultra* CAMCI Healthassist* New Ultra* AMC* Direct Link*

Total assets P8,314,965,055 P2,112,290,866 P46,091,348 P37,154,114 P34,396,598 P4,986,118 P20,818,253 P42,818,298

Total liabilities 7,391,361,675 2,012,591,016 14,553,297 14,375,505 6,054,351 2,535,835 5,676,399 33,408,744

Net assets 923,603,380 99,699,850 31,538,051 22,778,609 28,342,247 2,450,283 15,141,854 9,409,554 Revenues 1,499,738,101 285,655,640 190,565,000 49,973,678 44,824,442 - 27,572,583 6,069,686

Net income (loss) 8,206,497 20,380,258 11,538,000 21,096,732 15,757,980 (28,070) (2,538,977) 1,012,565

Other comprehensive income (loss) (18,274,649) (8,364,700) - - - - (22,791) - Total comprehensive income (loss) (10,068,152) 12,015,558 11,538,000 21,096,732 15,757,980 (28,070) (2,561,768) 1,012,565

*Unaudited

16. Real Estate Inventories


2014 2013


Additions 4,131,600 -

Disposals (6,875,000) (43,156,500)

Balance at end of year P31,818,136 P34,561,536

In 2014 and 2013, the Parent Company sold columbary units with a cost of

P6.88 million and P43.16 million, respectively. Realized gain, part of “Other income” in

profit or loss, amounted to P6.88 million and P2.38 million in 2014 and 2013,

respectively.

As at December 31, 2014 and 2013, the NRV of these inventories amounted to P72.36

million and P116.95 million, respectively.

- 59 -

17. Investment Properties


2014

Land

Buildings and

Improvements Total

Cost

Balance at beginning of year P477,632,124 P51,050,041 P528,682,165

Additions 26,115,631 81,594,215 107,709,846 Disposals (18,308,448) - (18,308,448)

Balance at end of year 485,439,307 132,644,256 618,083,563

Accumulated depreciation

Balance at beginning of year - 32,103,772 32,103,772

Depreciation - 1,995,826 1,995,826

Balance at end of year - 34,099,598 34,099,598

Net book value P485,439,307 P98,544,658 P583,983,965

2013

Land

Buildings and

Improvements Total

Cost

Balance at beginning of year P482,818,352 P49,121,655 P531,940,007

Additions 101,906,303 1,928,386 103,834,689

Disposals (107,092,531) - (107,092,531)

Balance at end of year 477,632,124 51,050,041 528,682,165

Accumulated depreciation

Balance at beginning of year - 30,107,946 30,107,946

Depreciation - 1,995,826 1,995,826

Balance at end of year - 32,103,772 32,103,772

Net book value P477,632,124 P18,946,269 P496,578,393

As at December 31, 2014 and 2013, the estimated fair value of these investment

properties amounted to P821.16 million and P922.54 million, respectively.

The fair values of investment properties were arrived at using the Market Data Approach.

Under this approach, the values of the properties are based on sale and listings of

comparable properties registered in the vicinity. It requires the establishment of

comparable properties by reducing reasonable comparative sales and listings to a

common deominator and adjustments of the differences between the subject properties

and those actual sales and listings regarded as comparables. The comparison was

premised on the factors of location, characteristics of the lot, time element, quality and

prospective use.

The fair value measurement for the investment properties has been categorized as a

Level 2 fair value. The Parent Company engaged accredited independent appraisers to

determine the fair value of its investment properties. Valuations were derived on the basis

of recent sales of similar properties in the same areas as the Parent Company’s

investment properties and taking into account the economic conditions prevailing at the

time the valuations were made.

- 60 -

In 2014 and 2013, the Parent Company sold investment properties with a carrying value

of P18.31million and P107.09 million, respectively. Gain (loss) on sale of investment

properties which forms part of “Investments income” in profit or loss amounted to loss

on sale of P1.42 million and gain on sale of P12.08 million in 2014 and 2013,


Rental income in 2014 and 2013 arising from investment properties amounted to

P8.47 million and P6.74 million, respectively (see Note 28), which are included in

“Investments income” in profit or loss. Operating expenses, including depreciation

expense, arising from these investment properties amounted to P3.82 million and

P5.58 million in 2014 and 2013, respectively.

18. Property and Equipment


2014

Land

Buildings and

Leasehold

Improvements

Transportation

Equipment

Office

Furniture,

Fixtures and

Equipment Total

Cost

Balance at beginning of year P38,000,000 P205,696,665 P59,032,178 P183,724,047 P486,452,890

Additions - 6,549,269 10,302,850 10,243,431 27,095,550

Disposals - (4,182,262) (7,024,259) (7,917,257) (19,123,778)

Balance at end of year 38,000,000 208,063,672 62,310,769 186,050,221 494,424,662

Accumulated Depreciation

Balance at beginning of year - 156,994,235 29,095,250 163,466,213 349,555,698

Depreciation during the year - 13,344,519 9,609,425 4,368,880 27,322,824

Disposals - (4,020,063) (3,292,001) (7,843,889) (15,155,953)

Balance at end of year - 166,318,691 35,412,674 159,991,204 361,722,569

Net Book Value P38,000,000 P41,744,981 P26,898,095 P26,059,017 P132,702,093

2013

Land

Buildings and

Leasehold

Improvements

Transportation

Equipment

Office

Furniture,

Fixtures and

Equipment Total

Cost

Balance at beginning of year P38,000,000 P189,024,270 P56,523,131 P179,364,357 P462,911,758

Additions - 22,690,210 10,848,240 7,024,338 40,562,788

Disposals - (6,017,815) (8,339,193) (2,664,648) (17,021,656)

Balance at end of year 38,000,000 205,696,665 59,032,178 183,724,047 486,452,890

Accumulated Depreciation

Balance at beginning of year - 152,468,013 25,930,940 159,933,486 338,332,439

Depreciation during the year - 10,295,563 7,201,478 6,053,161 23,550,202

Disposals - (5,769,341) (4,037,168) (2,520,434) (12,326,943)

Balance at end of year - 156,994,235 29,095,250 163,466,213 349,555,698

Net Book Value P38,000,000 P48,702,430 P29,936,928 P20,257,834 P136,897,192

- 61 -

19. Intangible Assets


2014 2013

Cost


Additions 5,189,000 6,190,498

Balance at end of year 132,474,935 127,285,935

Accumulated Amortization

Balance at beginning of year 115,593,829 112,368,451

Amortization 2,813,525 3,225,378

Balance at end of year 118,407,354 115,593,829

Net Book Value P14,067,581 P11,692,106

This account consists of computer software acquired from 2009 to 2014 were the

remaining useful life ranges from one (1) to five (5) years as at December 31, 2014 and

2013.

Amortization expenses which forms part of “General and administrative expenses”,

amounted to P2.81 million and P3.23 million in 2014 and 2013, respectively.

20. Other Assets


2014 2013

BIR tax credits P80,061,363 P55,357,105

Refundable deposits 51,521,391 8,645,060

Lease and leasehold deposits 19,762,507 18,144,841

Deferred charges 18,107,879 2,981,075

Prepaid expense 7,937,761 1,149,651

Contingency fund pool 7,520,387 13,154,190

Laboratory supplies inventory 2,200,262 1,997,825

Other assets 2,585,947 2,386,996

P189,697,497 P103,816,743

21. Insurance Contract Liabilities


2014 2013

Legal policy reserves P9,330,121,158 P8,119,101,483

Policy and contract claims 1,037,681,631 946,393,008

P10,367,802,789 P9,065,494,491

- 62 -

The movements in legal policy reserves are as follow:

2014 2013


Premiums received 3,615,798,410 3,367,156,263

Liability released for payments of death,

maturity and surrender benefits and claims (2,997,985,013) (2,400,312,104)

Fees deducted (3,870,885) (2,045,054)

Accretion of investment income or change

in unit prices 536,334,459 482,318,280

Adjustments due to change in mortality

and morbidity 40,666,757 -

Others 20,075,947 (4,796,443)


The movements in policy and contract claims are as follow:

2014 2013


Arising during the year 1,903,331,231 1,532,150,195

Paid during the year (1,812,042,608) (1,409,553,525)

Balance at end of year P1,037,681,631 P946,393,008

As at December 31, 2014 and 2013, assets held to cover unit-linked liabilities amounting

to P2.18 billion and P1.64 billion, respectively, are held in the Parent Company’s

separately manage funds, namely, Peso Fixed Income and Growth Fund, Peso Fixed

Income Fund, Peso Equity and Dollar Bond Fund (see Note 36).

On October 30, 2014, the Insurance Commission released Circular Letter No. 2014-42-A,

Valuation standards for life insurance policy reserves, requiring all life insurance

companies to calculate the reserves for traditional life insurance policies using the gross

premium valuation.

The Parent Company is assessing the potential impact on its financial statements

resulting from the application of the new valuation standards for life insurance policy

reserves.

22. Reserve for Policyholders’ Dividends


2014 2013


Net increase during the year 9,321,371 6,887,894


- 63 -

23. Premium Deposit Funds


2014 2013

Premium deposits P433,800,267 P387,649,184

HMO claims deposit 59,555,161 115,013,242

Fund builder rider 89,638,065 82,420,017

Premium deposit fund 79,193,087 79,439,790

HMO guarantee deposits 30,465,648 31,495,380

P692,652,228 P696,017,613

24. Insurance Payables


2014 2013


Arising during the year 525,941,470 22,233,749

Paid during the year (375,916,253) (28,387,625)

Foreign exchange adjustment (93,981) (66,482)


Insurance payable represents premiums due to reinsurers which are due and demandable.

25. Accounts Payable and Other Liabilities

These accounts consist of:

2014 2013

Accounts Payable and Accrued Expenses

Investment accounts payable P383,244,017 P572,408,691

Accounts payable 649,427,893 410,626,735

Accrued incentives and bonuses 194,455,169 104,583,593

Loading payables 88,552,318 54,863,520

Supplementary contracts without life contingency 49,745,373 51,128,381

Agents’ fidelity and annuity reserves 2,986,804 2,822,601

P1,368,411,574 P1,196,433,521

Other Liabilities

Deferred credits P19,756,781 P8,098,574

Taxes payable 13,485,997 24,609,690

Others 865,978 -

P34,108,756 P32,708,264

Investments accounts payable represent funds received from both related parties and third

parties to partially fund its loan financing facility. These amounts earn interest of 8.50%

in 2014 and 2013, respectively. Total interest expense incurred on these loans amounted

to P203.31 million in 2014 and P139.15 million in 2013.

- 64 -

Accounts payable consist mainly of unpaid commissions, supplies, utilities, postal and

communication, professional fees, repairs and maintenance, security services that are due

and demandable.

Accrued incentives and bonuses represent amounts payable to employees computed

based on current salary and length of service. These amounts are due to be paid within

one (1) year after the reporting date.

Loading payable refers to the portion of gross premium due and uncollected which is

expected to be paid out in the form of commission, service fees, overrides and taxes.

Supplementary contracts without life contingency represent claims which are held by the

Parent Company and are paid in monthly installments in the form of pension benefits.

These claims earn interest of six percent (6.00%) annually.

Agents’ fidelity and annuity reserves represent amounts withheld from agents which are

refunded upon resignation or termination.

Deferred credits represent reservation deposits which are refunded upon consumption of

sale of investment properties and real estate inventories.

Taxes payable consist mainly of VAT payable, withholding taxes from the employees’

compensation and purchases from suppliers which were subsequently remitted within one

month after the reporting date.

Others under “Other liabilities” in the separate statements of financial position are non-

interest bearing liability and are due and demandable.

26. Equity

2014 2013

Capital stock - P1 par value

Authorized - 1,000,000,000 shares P1,000,000,000 P1,000,000,000

Issued and outstanding - 550,000,000

shares 550,000,000 550,000,000

Under the Philippine Corporation Code (PCC), stock corporations are prohibited from

retaining surplus profits in excess of one hundred percent (100%) of its paid-up capital,

except when justified by any other reasons mentioned in the PCC.

As at December 31, 2014, the Parent Company’s retained earnings of P2.58 billion is in

excess of its paid-up capital of P550.00 million. The Parent Company plans to use the

excess retained earnings is dependent on the impact of the following to the Parent

Company:

a. IC’s directive to calculate the reserves for traditional life insurance policies using the

gross premium valuation (see Note 21); and

b. Amendments currently being implemented by IC with respect to the risk based

capital requirement.

- 65 -

27. Net Insurance Premiums

Gross premiums on insurance contracts:

2014 2013

Direct:

Group life insurance P1,548,708,098 P1,610,816,449

Accident and health 1,507,951,912 926,896,927

Ordinary life insurance 1,102,557,860 891,593,618

Unit-linked 46,009,986 53,754,840

4,205,227,856 3,483,061,834

Assumed group life insurance 120,594,474 130,808,302

Total life insurance contract premiums

revenue P4,325,822,330 P3,613,870,136

Reinsurance premiums ceded:

2014 2013

Group life insurance P150,755,389 P30,940,741

Ordinary life insurance 7,891,701 9,662,121

Accident and health 367,294,380 -

Total reinsurers’ share of life insurance

contract premium revenue P525,941,470 P40,602,862

28. Investments Income, Investment Expenses and Other Income

Investments income account consists of:

Note 2014 2013

Interest income on:

Loans and receivables P850,741,883 P699,436,881

Cash and cash equivalents 8 42,071,270 37,612,399



Gain on sale of AFS financial assets 130,151,547 244,949,510

Dividend income 84,606,304 73,648,643

Gain on sale of loans and receivables 12 1,630,000 68,919,561

Gain (loss) on sale of investment

properties 17 (1,424,423) 12,075,644

Rental income 17 8,468,069 6,742,034

Gain on sale of financial assets at FVPL 785,662 548,331

Fair value gain (loss) on financial assets at

FVPL 10 73,964,845 (66,843,706)

P1,227,003,109 P1,105,994,396

- 66 -

Investment expenses account consists of:

2014 2013

Interest expense P244,126,768 P191,116,989

Management fee 55,506,414 31,436,217

Foreclosed property 16,731,037 15,695,810

Commission, sales and VAT expenses 6,772,885 11,283,229

Consultancy fee 1,819,915 3,587,273

Others 12,468,434 886,261

P337,425,453 P254,005,779

Other income account consists of:

2014 2013

Variable life/unit-linked P87,362,360 P115,951,118

Gain on sale of La Loma Columbary 10,917,857 2,381,821

Gain on sale of property and equipment 673,916 535,700

P98,954,133 P118,868,639

29. Service Fees


2014 2013

HMO fees P139,103,437 P54,994,308

Policy fees 47,989,416 28,119,919

Cancellation fees 3,261,630 1,088,628

P190,354,483 P84,202,855

30. Net Insurance Benefits and Claims

Gross benefits and claims paid on insurance contracts consist of:

2014 2013


Accident and health 726,992,963 700,134,362

Maturities and surrenders 358,049,852 303,393,990


Total life insurance contract benefits

and claims paid P1,903,331,231 P1,898,678,527

Reinsurers’ share of gross insurance contract benefits and claims paid:

2014 2013



Total reinsurers’ share of life insurance

contract benefits and claims paid P17,071,367 P26,539,374

- 67 -

Changes in life insurance contract liabilities follow:

2014

Gross Change

in Insurance

Contract

Liabilities

Reinsurers’

Share of

Change in

Insurance

Contract

Liabilities Net

Ordinary life insurance P428,437,475 (P4,539) P428,442,014

Group life insurance 149,171,220 26,457,274 122,713,946

Accident and health 12,927,305 - 12,927,305

Foreign Exchange Loss 2,963,691 - 2,963,691

P593,499,691 P26,452,735 P567,046,956

2013

Gross Change

in Insurance

Contract

Liabilities

Reinsurers’

Share of Change

in Insurance

Contract

Liabilities Net

Ordinary life insurance P275,228,017 P262,402 P274,965,615

Group life insurance 169,705,823 - 169,705,823

Accident and health 20,873,262 - 20,873,262

Foreign exchange loss 29,763,813 - 29,763,813

P495,570,915 P262,402 P495,308,513

- 68 -

31. General and Administrative Expenses

General and administrative expense account consists of:

Note 2014 2013

Salaries and wages 32 P164,906,391 P156,089,735

Other employee benefits 126,028,805 136,707,546

HMO miscellaneous expenses 77,323,294 503,012

Advertising and promotions 62,170,057 62,633,336

Utilities 60,896,499 56,760,674

Rental 35 58,432,959 53,564,790

Provision for impairment losses 12 55,122,776 46,228,017

Depreciation and amortization 17, 18, 19 32,132,175 28,771,406

Taxes and licenses 25,597,964 13,882,884

Donations and contributions 23,500,000 3,560,000

Printing and office supplies 19,807,743 19,227,598

Training and development 18,087,282 18,569,742

Postage and telephone 17,855,819 17,341,412

Entertainment, amusement and recreation 17,943,399 16,551,239

Repairs and maintenance 16,923,019 13,610,872

Transportation and travel 15,867,644 14,524,158

Service fees 16,292,891 11,144,856

Bancassurance expenses 12,802,667 12,640,424

Meeting and conferences 11,094,602 8,771,122

Professional fees 5,891,015 4,582,851

Agency development allowance 3,707,637 5,769,405

Insurance 3,215,616 3,007,426

Directors’ fees 1,870,000 2,060,500

Medical fees 1,740,337 1,915,695

Condominium dues 1,640,373 2,219,072

Miscellaneous 64,443,842 59,315,303

P915,294,806 P769,953,075

Miscellaneous expenses amounting to P64.44 million and P59.32 million as at

December 31, 2014 and 2013, respectively, pertain to inspection and investigation

expenses, collection fees, referral fees and other expenses.

32. Employee Benefits

The Parent Company has a funded, non contributory, defined benefit plan covering all of

its permanent employees. Contributions and costs are determined in accordance with the

actuarial studies made for the plan. Annual cost is determined using the projected unit

credit method. The Parent Company’s latest actuarial valuation date is December 31,

2014. Valuations are obtained on a periodic basis.

The plan entitles a retired employee to receive an annual pension payment. Directors and

executive officers retire at age 60 and are entitled to receive annual payments equal to

seventy percent (70%) of their final salary until the age of 65, at which time their

entitlement falls to fifty percent (50%) of their final salary. Other retired employees are

entitled to receive annual payments equal to 1/60 of final salary for each year of service

that the employee provided.

- 69 -

The plan is registered with the BIR as a tax-qualified plan under Republic Act No. 4917,

as amended. The control and administration of the plan is vested in the Board of

Trustees (BOT). The plan’s accounting and administrative functions are undertaken by

the Parent Company’s Retirement Funds Office.

The following table shows reconciliation from the opening balances to the closing

balances for net pension liability (asset) and its components:

Defined Benefit Obligation Fair Value of Plan Assets Net Pension Liability

2014 2013 2014 2013 2014 2013

Balance at January 1 P512,726,924 P651,722,357 P453,724,810 P467,164,339 P59,002,114 P184,558,018

Included in profit or

loss

Current service cost 30,666,620 37,715,403 - - 30,666,620 37,715,403

Interest cost (income) 30,302,161 37,903,433 26,815,136 27,169,748 3,487,025 10,733,685

60,968,781 75,618,836 26,815,136 27,169,748 34,153,645 48,449,088

Included in OCI

Remeasurements loss

(gain):

Actuarial loss (gain)

arising from: - - - - - Demographic

assumptions - - - - - -

Financial assumptions 52,025,798 (61,291,775) 27,409,568 - 24,616,230 (61,291,775)

Experience adjustment 122,169,087 (96,498,110) - - 122,169,087 (96,498,110)

Return on plan assets

excluding interest

income - - - (22,695,764) - 22,695,764

174,194,885 (157,789,885) 27,409,568 (22,695,764) 146,785,317 (135,094,121)

Others

Contributions paid by the employer - 40,150,786 38,910,871 (40,150,786) (38,910,871)

Benefits paid (36,155,468) (56,824,384) (36,155,468) (56,824,384) - -

(36,155,468) (56,824,384) 3,995,318 (17,913,513) (40,150,786) (38,910,871)

Balance at December 31 P711,735,122 P512,726,924 P511,944,832 P453,724,810 P199,790,290 P59,002,114

The retirement benefit expense under “General and administrative expenses” in profit or

loss is recognized as follows:

2014 2013

Current service cost P30,666,620 P37,715,403

Net interest on the defined benefit

obligation 3,487,025 10,733,685

P34,153,645 P48,449,088

The Parent Company’s plan assets consist of the following:

2014 2013

Cash and cash equivalents P62,294,448 P49,435,291

Available-for-sale securities:

Equity instruments 263,778,559 223,571,295

Debt instruments 183,368,650 180,353,953

Loans and other receivables 2,765,950 2,526,637

Accounts payable and accrued expenses (262,775) (2,162,366)

P511,944,832 P453,724,810

- 70 -

Parent Company expects to contribute P112.02 million to its defined benefit retirement

plan in 2015.

The following were the principal actuarial assumptions at the reporting date:

2014 2013

Discount rate 4.61% 5.91%

Future salary growth 5.00% 5.00%

Assumptions regarding the mortality and disability rates used were based on the 1980

CSO Mortality Table and 1952 Ben-5 Disability Study, respectively.

The weighted-average duration of the defined benefit obligation is 33 years and 32 years

as at December 31, 2014 and 2013, respectively.

Maturity analysis of the benefit payments (in thousands):

2014

Carrying

Amount

Contractual

Cash Flows

Within

1 Year

Within

1-5 Years

More than

5 Years

Defined benefit obligation P711,735 P7,703,562 P125,371 P90,792 P7,487,400

2013

Carrying

Amount

Contractual

Cash Flows

Within

1 Year

Within

1-5 Years

More than

5 Years

Defined benefit obligation P512,727 P9,176,197 P112,022 P157,786 P8,906,389

Sensitivity Analysis

Reasonably possible changes at the reporting date to one of the relevant actuarial

assumptions, holding other assumptions constant, would have affected the defined benefit

obligation by the amounts shown below:

Discount Rate Salary Increase Rate

+100% -100% +100% -100%

Defined benefit obligation (P40,794,098) P46,270,377 P39,322,153 (P35,428,698)

Although the analysis does not take account the full distribution of cash flows expected

under the plan, it does provide an approximation of the sensitivity of the assumption

shown.

These defined benefit plan exposes the Parent Company to actuarial risks, such as

longevity risk, interest rate risk, and market (investment) risk.

The BOT reviews the level of funding required for the retirement fund. Such a review

includes the ALM strategy and investment risk management policy. The Parent

Company’s ALM objective is to match maturities of the plan assets to the retirement

benefit obligation as they fall due. The Parent Company monitors how the duration and

expected yield of the investments are matching the expected cash outflows arising from

the retirement benefit obligations.

- 71 -

33. Income Tax

The current provision for income tax consists of MCIT, final taxes on interest income on

savings deposits, deposit substitutes and government securities and deferred tax benefits.

The reconciliation of the income tax expense computed at statutory tax rate to the current

income tax expense shown in the separate statements of comprehensive income is as

follows:

2014 2013

Income before income tax P547,564,852 P480,990,734

Statutory income tax 164,269,456 144,297,220

Gain on sale of stock (39,281,163) (73,604,138)

Fair value gain (22,189,453) 20,053,112

Dividend income (25,381,891) (22,094,593)

Income subjected to final tax at a lower tax rate (5,879,792) (5,105,934)

Gain on sale of investment properties 239,962 (3,672,339)

Change in unrecognized deferred tax assets (15,579,777) 133,219

Excess MCIT over RCIT 178,196 -

Others (35,186,345) (45,099,000)

Effective income tax P21,189,193 P14,907,547

The significant components of the deferred tax assets and liability consist of the deferred

tax effects of the following:

2014 2013

Deferred tax assets on:

Allowance for impairment losses P28,040,467 P28,040,467

Net pension liability 59,370,087 17,700,634

Unamortized past service cost - 6,965,483

Others 13,857,756 -

Deferred tax liabilities on:

Reserve for fluctuations of AFS financial assets (629,872,687) (626,794,965)

Unrealized foreign exchange gain (1,214,078) -

Others (3,879,053) -

Net deferred tax liabilities (P533,697,508) (P574,088,381)

Movements in net deferred tax liabilities are as follow:

2014 2013

Amounts charged against equity P40,390,873 (P35,463,634)

Amounts charged against income - -

P40,390,873 (P35,463,634)

- 72 -

The Parent Company did not recognize deferred tax assets on certain temporary

differences as shown below, since management believes that the tax benefit of these

assets will not be realized through income tax deductions in the near future.

2014 2013

Allowance for impairment losses P347,877,291 P287,715,619

NOLCO 60,000,000 62,308,705

407,877,291 330,261,614

Tax rate 30% 30%

122,363,187 99,078,484

MCIT 178,195 -

Total P122,541,382 P99,078,484

Details of the Company’s NOLCO as at December 31, 2014 which are available for

offset against future taxable income are as follow:

Year Incurred Amount Applied Expired Balance Expiry Date

2012 P62,308,705 P2,308,705 P - P60,000,000 December 31, 2015

Transitory provisions of Revenue Regulation No. 16-2008 introduced the Optional

Standard Deduction (OSD) as an alternative deduction for corporations. The Parent

Company used itemized method of deduction for its annual income tax return in 2014

and 2013.

34. Related Party Transactions

Parties are considered related if one party has control, joint control, or significant

influence over the other party in making financial and operating decisions. The key

management personnel of the Parent Company are also considered to be related parties.

The Parent Company’s transactions with related parties are as follow:

Outstanding Balance

Amount

of the

Due from

Related

Due to

Related Terms and

Category/Transactions Year Note Transaction Parties Parties Conditions

United Fund, Inc.(UFI) - Under

Common Control

Due to centralized administrative

services 2014 P13,197,741 P - P8,044,216 Due and demandable; Non-

interest bearing; Unsecured

2013 34a - - 4,984,895 Due and demandable; Non-


Loans and receivables; Payments

due to centralized administrative

services

2014 4,167,339 957,539 - Due and demandable; Non-

interest bearing; Unsecured;

Unimpaired

2013 - 957,539 - Due and demandable; Non-


Unimpaired

Cocolife Fixed Income Fund, Inc.

(CFIFI) - Under Common Control

Loans and receivables; Payments

due to centralized administrative

services

2014 4,222,966 - 670,311 Due and demandable; Non-


2013 - - 266,261 Due and demandable; Non-


2014 15,664,530 2,414,614 - Due and demandable; Non-


Unimpaired

2013 - 1,102,122 - Due and demandable; Non-


Unimpaired

Forward

- 73 -

Cocolife Dollar Fund Builder, Inc.

(CDFBI) - Under Common Control

Centralized administrative services 2014 P60,422 P - P -

2013 - - P46,585 Due and demandable; Non-


Healthassist - Subsidiary

Investment accounts payable 2014 34c - - 3,876,467 Due and demandable; Non-


Unimpaired

2013 - - 9,651,812 Due and demandable; Non-


Unimpaired

Cocolife Asset Management

Company, Inc. (CAMCI) -

Subsidiary

Allocation of expenses for

centralized personnel and technical

services

2014 1,437,398 - -

2013 34d 5,915,557 - 5,915,558 Due and demandable; Non-


2014 2,926,636 1,381,492 - Due and demandable; Non-


Unimpaired

2013 - - -

Cocoplans - Subsidiary

Allocation of expense for

centralized personnel and

2014 5,516,368 32,557,964 - On demand; non-interest

bearing; Unsecured;

Unimpaired

technical services

2013 34e - 25,666,346 - On demand; non-interest

bearing; Unsecured; Unimpaired

Advances 2014 1,375,250 - 4,604,645 1 year; 9%

2013 34e - - 5,979,895 On demand; non-interest

bearing; Unsecured

UCPB GEN - Subsidiary

Allocation of expense for

centralized personnel and technical

services

2014 34f 6,402,554 688,161 - 30 days; Non-interest bearing;

Unsecured; Unimpaired

2013 6,831,449 3,158,152 - 30 days; Non-interest bearing;


- - 200,511 60 days; Non-interest bearing;

Unsecured

- - 200,511 60 days; Non-interest bearing;

Unsecured

Premiums written 2014 3,353,425 - 5,083,361 180 days; Non-interest

bearing; Unsecured;

Unimpaired

2013 4,168,641 - 4,685,180 180 days; Non-interest bearing;


Total 2014 P58,324,629 P37,999,770 P22,479,511

Total 2013 P16,915,647 P30,884,159 P37,710,592

Notes:

34a. These pertain to investments that were received and paid by the investors to the

Parent Company that were supposedly paid to UFI and CFIFI.

34b. The Parent Company provides investments in loans to CFIFI and portion of the

interest earned are remitted to the Parent Company.

34c. These pertain to DepEd Participation Investments of Healthassist to the Parent

Company.

34d. These pertain to common expenses initially paid by CAMCI and subsequently

allocated to the Parent Company.

34e. These pertain to common expenses initially paid and subsequently allocated by the

Parent Company.

34f. The Parent Company provides group insurance to the employees of UCPB Gen and

ceded premiums related to accident and health insurance. Other transactions include

billings to cover share in common expenses and lease of office premises by UCPB

GEN in some of the Parent Company’s branches.

- 74 -

Compensation of Key Management Personnel

Key management personnel are those persons having authority and responsibility for

planning, directing and controlling the activities of the entity, directly or indirectly,

including any director, whether executive or otherwise, of that entity.

The key management personnel compensation is as follows:

2014 2013

Short-term employee benefits P73,161,547 P64,758,916

Post employment benefits 8,348,360 7,387,838

P81,509,907 P72,146,754

35. Lease Commitments

The Parent Company has entered into non-cancelable leases with terms of between one to

ten years and payment on a monthly basis, both as lessee and lessor from the date of the

contracts which are renewable under certain terms and conditions. Some of these lease

agreements provide for an escalation in the rental rates ranging from two percent (2%) to

ten percent (10%). None of the leases include contingent rentals and restrictions.

a. Operating Lease Commitments - the Parent Company as Lessee

Future minimum rentals payable under non-cancelable operating leases as at

December 31, 2014 and 2013 follow:

2014 2013

Within one year P41,665,443 P51,605,336

After one year but not more than five years 3,575,819 2,580,267

P45,241,262 P54,185,603

Rent expense presented under General and administrative expenses amounted to

P58.43 million and P53.56 million as at December 31, 2014 and 2013, respectively.

b. Operating lease commitments - the Parent Company as Lessor

Future minimum rentals receivable under non-cancelable operating leases as at

December 31, 2014 and 2013:

2014 2013

Within one year P9,060,833 P8,916,456

After one year but not more than five years 634,258 377,403

P9,695,091 P9,293,859

- 75 -

36. Unit-linked Funds

The Parent Company issues unit-linked insurance contracts where payments to

policyholders are linked to internal investment funds set up. The details of these internal

investments funds, which comprise the assets backing the unit-linked liabilities, are

presented in the tables below. The assets, liabilities, income and expenses of these

internal investment funds have been reflected in the appropriate accounts in the separate


Guaranteed Funds

Guaranteed funds offered to unit-linked policyholders are available in one (1) year and

three (3) year maturity periods. Unit linked policyholders are allowed to allocate up to

maximum of ninety percent (90%) of the policy’s investible funds to any one of these

funds and the remaining portion to any of the unitized funds. The income earned by the

funds is based on fixed interest rates that the Parent Company has declared at the time of

investment. The interest declared by the Parent Company is net of any fees necessary to

manage the funds. In the case of fund withdrawal before the chosen maturity date,

corresponding penalties are charged on the interest earned.

2014

Dollar

Guaranteed

Fund

Peso

Guaranteed

Fund

Peso Medium

Term Fund

Peso Long

Term Guarantee

Fund Total

Assets

Cash and cash equivalents P4,864,702 P36,112,269 P184,860,389 P31,903,616 P257,740,976

Financial assets at FVPL 144,194,515 - - - 144,194,515

Loans and receivables - 272,314,305 1,358,467,919 243,784,643 1,874,566,867

Accrued income 3,050,688 719,009 838,806 438,230 5,046,733

P152,109,905 P309,145,583 P1,544,167,114 P276,126,489 P2,281,549,091

Liabilities

Insurance contract liabilities P103,976,321 P280,447,318 P1,533,879,832 P253,813,553 P2,172,117,024


accrued expenses 284,700 577,072 3,042,039 4,157,355 8,061,166

P104,261,021 P281,024,390 P1,536,921,871 P257,970,908 P2,180,178,190

Guaranteed interest rates 2.00% 4.50% 5.00% 7.10%

2013

Dollar

Guaranteed Fund

Peso

Guaranteed Fund

Peso Medium Term Fund

Peso Long

Term Guarantee Fund Total

Assets Cash and cash equivalents P6,479,668 P56,444,220 P201,779,669 P98,286,529 P362,990,086

Financial assets at FVPL 137,714,401 - - - 137,714,401

Loans and receivables - 224,274,022 828,626,139 156,336,803 1,209,236,964

Accrued income 3,254,765 1,929,860 1,545,336 2,333,665 9,063,626

P147,448,834 P282,648,102 P1,031,951,144 P256,956,997 P1,719,005,077

Liabilities

Insurance contract liabilities P110,011,504 P258,612,420 P1,023,669,133 P238,580,652 P1,630,873,709


accrued expenses (7,390,232) 4,315,389 3,612,973 7,021,707 7,559,837

P102,621,272 P262,927,809 P1,027,282,106 P245,602,359 P1,638,433,546

Guaranteed interest rates 2.00% 5.25% 6.00% 7.10%

- 76 -

Growth Funds

Peso Income and Growth Fund

This is a unitized variable fund available only in conjunction with the 3-year Peso

Medium Term Fund. The performance of the fund is reflected by the Net Assets Value

(NAV) computed at the end of each trading day. The Peso Income and Growth Fund

seeks to maximize interest income, consistent with its policy to preserve capital, through

a diversified portfolio of high-grade bonds and/or evidences of debt of the Philippine

government-owned or controlled corporations, solvent corporations and institutions.

Dollar Bond Fund

This is a unitized variable fund available for dollar investments together with the Dollar

Guaranteed Fund. The fund seeks to generate regular interest income, consistent with its

policy to preserve capital and to maintain liquidity of its investments. The fund is

invested primarily in dollar-denominated fixed-income instruments ranging from

debentures, money market instruments and government securities.

Peso Equity Fund

This is unitized variable fund available for peso investments and may be chosen together

with the Peso Guaranteed Fund and Peso Bond Fund. The fund seeks to maximize

income consistent with its policy to preserve capital and to maintain liquidity of

investments through a diversified portfolio of high-quality listed equity issues-blue chips

and growth stocks listed in the Philippine Stock Exchange.

Peso Fixed Income Fund

This is a unitized variable fund available for peso investments and may be chosen

together with the Peso Guaranteed Fund and Peso Equity Fund. The fund seeks to

generate regular interest income, consistent with its policy to preserve capital and

maintain liquidity of investment through a diversified portfolio of high grade bonds and

evidence of debt of solvent corporations and institutions.

Peso Bond Fund

This is a unitized variable fund aims to provide regular interest income, consistent with

its policy to preserve capital and to maintain liquidity of its investments, through a

diversified portfolio such as Treasury Notes/Bills, Certificates of Indebtedness issued by

the Bangko Sentral ng Pilipinas and other government securities or bonds and other

evidences of indebtedness or obligations, the servicing and repayment of which are fully

guaranteed by the Republic of the Philippines or any of its instrumentalities. Duration of

Peso Bond Fund's investment will be mostly between medium and long-term. Peso Bond

Fund was established in October 2013 but operations only commenced in February 2014.

2014

Dollar Fund

Peso Equity

Fund

Peso Fixed

Income Fund

Peso Income

and Growth

Fund

Peso Bond

Fund* Total

Assets

Cash and cash equivalents P6,505,904 P12,717,045 P7,396,557 P20,127,142 P1,169,282 P47,915,930

Financial assets at FVPL 12,453,720 60,207,344 - - - 72,661,064

Loans and receivables - 2,483,807 54,689,360 169,443,129 8,261,315 234,877,611

Accrued income 414,011 20,014 109,140 119,766 19,308 682,239

P19,373,635 P75,428,210 P62,195,057 P189,690,037 P9,449,905 P356,136,844

Liabilities

Insurance contract

liabilities P22,225,196 P66,374,948 P57,710,883 P186,736,452 P4,394,776 P337,442,255


accrued expenses 243,625 986,972 1,464,479 1,829,380 9103 4,533,559

P22,468,821 P67,361,920 P59,175,362 P188,565,832 P4,403,879 P341,975,814

NAV 1.4630 1.6208 1.4919 1.1304 1.0012

*Peso Bond Fund started operations on February 2014.

- 77 -

2013

Dollar Fund

Peso Equity

Fund

Peso Fixed

Income Fund

Peso Income and Growth

Fund Total

Assets

Cash and cash equivalents P7,470,787 P17,166,177 P55,914,660 P97,351,511 P177,903,135

Financial assets at FVPL 21,257,651 44,239,234 2,900,134 - 68,397,019

Loans and receivables 924,377 372,049 - 38,177,338 39,473,764 Accrued income 414,320 35,387 73,539 66,822 590,068

P30,067,135 P61,812,847 P58,888,333 P135,595,671 P286,363,986

Liabilities

Insurance contract

liabilities P23,777,769 P53,915,909 P50,796,390 P134,098,690 P262,588,758 Accounts payable and

accrued expenses 467,853 345,838 2,738,341 409,620 3,961,652

P24,245,622 P54,261,747 P53,534,731 P134,508,310 P266,550,410

NAV 1.3998 1.4118 1.4350 1.1073

37. Life Insurance Coverage of Coconut Farmers

Under a group master policy contract dated March 27, 1978, As Amended, the Parent

Company agreed to provide group whole-life insurance coverage to certain coconut

farmer members of the Philippine Coconut Producers Federation (Program I). This

Group insurance plan shares in the Group’s savings in mortality expenses and extra

earnings in investments through policyholders’ dividends and policy benefits.

Effective April 1, 1985, the insurance coverage of the coconut farmers was converted

from a whole-life insurance plan to a modified extended term insurance. The amount of

insurance and other benefits remained substantially the same, except for cash surrender

and policy loan privileges. Policyholders’ dividends, policy benefits and the legal policy

reserves maintained under the farmers’ insurance program are used to sustain, until these

can, the modified extended term insurance coverage of the insured coconut farmers.

On November 5, 1996, the Philippine Coconut Authority (PCA) and the CIIF Companies

signed a memorandum of agreement which will expand the number of farmers covered

under the Insurance Program from existing 0.6 million to 1.5 million farmers

(Program II). The premium payments for the additional farmers will be taken from an

insurance fund to be set up by the CIIF Companies in keeping with their social

responsibility to the coconut industry.

On August 28, 2002, the PCA and CIIF Companies signed a memorandum of agreement

which proposed a further expansion of the insurance program in order to restore the

insurance benefit of the remaining insured coconut farmers under Program I and II from

P5,000 to P10,000 (Program III). Further, under the same program, the PCA also

proposed to extend the same benefit to an additional 2.48 million coconut farmers and

coconut farm workers that were not included under Programs I and II. Accordingly, the

PCA and CIIF companies have agreed in principle to implement Program III as follows:

Phase I

Upgrade the insurance coverage of the existing 1.02 million insured farmers from P5,000

to P10,000 per farmer effective June 12, 2002.

Phase II

Provide an additional 0.85 million coconut farmers and workers with a P10,000 Group

yearly Renewable term Coverage.

- 78 -

Phase III


Yearly renewable term Coverage.

Phase IV


Yearly Renewable Coverage.

38. Subsequent Events

On March 18, 2015, President Benigno S. Aquino III of the Republic of the Philippines

issued Executive Order No. 179 (Providing the Administrative Guidelines for the

Inventory and Privatization of Coco Levy Assets) and No. 180 (Providing the

Administrative Guidelines for the Reconveyance and Utilization of Coco Levy Assets for

the Benefit of the Coconut Farmers and the Development of the Coconut Industry, and

For Other Purposes), together referred to as the “EOs”.

The EOs mandate the inventory, reconveyance, utilization and privatization of coco levy

assets to ensure that the Coco Levy Fund and Coco Levy Assets will only be utilized for

the benefit of the coconut farmers and the Philippine coconut industry. The EOs define

coco levy funds as all funds created or sourced from the Coconut Levy imposed by the

government, including the Coconut Industry Investment Fund (CIIF) and the Coconut

Consumers Stabilization Fund (CCSF). Coco levy assets meanwhile refer to the money,

assets or properties, whether real or personal, tangible or intangible, wherever situated,

arising from or otherwise funded by or acquired through the use or by means of any of

the coco levy funds, directly or indirectly, including but not limited to shares, rights, and

interests, whether vested, contingent, expectant, choate or inchoate, and any and all fruits,

income, interest, or profits derived from these assets including those acquired in

exchange or substitution thereof.

The said EOs shall take effect on the date of its publication in a newspaper of general

circulation. As at April 29, 2015, the EOs have not been published in any newspapers of

general circulation. The mandate given to the concerned government agencies will have

to be complied with within 60 days from the EO’s effectivity date.

39. Reclassification of Accounts

In 2014, the Parent Company reclassified some accounts in the separate statements of

comprehensive income in order to better reflect the nature of the accounts. Accordingly,

the Parent Company also reclassified the comparative figures in 2013.

A summary of the impact of the reclassification to the separate statements of

comprehensive income for the year ended December 31, 2013 are as follow:

As previously

reported Reclassified As restated

General and administrative expense P771,410,575 (P1,457,500) P769,953,075

Other income (120,326,139) 1,457,500 (118,868,639)

Gross benefits and claims paid on

insurance contracts 1,926,059,090 (27,380,562) 1,898,678,528

Policyholders’ dividends 474,241,470 27,380,562 501,622,032

- 79 -

a. Cost of sales of real estate inventories amounting to P1.46 million in 2013 which was

previously taken up under “General and administrative expenses” have been

reclassified to gain on sale of La Loma Columbary under “Other income” account.

b. Policyholders dividends amounting to P27.38 million in 2013 that were previously

taken up under “Gross benefits and claims” have been reclassified to policyholders’

dividends account under “Operating and administrative expenses”.

The above reclassifications have no significant effect on the information in the separate

statements of financial position and separate statements of comprehensive income,

Accordingly, management did not present separate statements of financial positions at the

beginning of the earliest comparative period.

40. Supplementary Information Required Under Revenue Regulations No. 15-2010 of

Bureau of Internal Revenue

In addition to the disclosures mandated under PFRSs, and such other standards and/or

conventions as may be adopted, companies are required by the BIR to provide in the

notes to the financial statements, certain supplementary information for the taxable year.

The amounts relating to such supplementary information may not necessarily be the same

with those amounts disclosed in the financial statements which were prepared in

accordance with PFRSs. The following are the tax information/disclosures required for

the taxable year ended December 31, 2014:

A. VAT

1. Output VAT

Account title used:

Basis of the Output VAT:

Vatable sales P18,047,859

Exempt sales -

Zero rated sales -

P18,047,859

2. Input VAT

Beginning of the year P -

Current year’s domestic purchases:

a. Goods for resale/manufacture or further

processing -

b. Goods other than for resale or manufacture -

c. Capital goods subject to amortization -

d. Capital goods not subject to amortization -

e. Services lodged under cost of goods sold -

f. Services lodged under other accounts 161,686

Claims for tax credit/refund and other adjustments -

Balance at the end of the year P161,686

- 80 -

B. Documentary Stamp Tax

On loan instruments P1,036,357

On shares of stocks -

On others (Policies Issued) 302,310

P1,338,667

C. Withholding Taxes

Tax on compensation and benefits P36,956,328

Creditable withholding taxes 101,039,126

Final withholding taxes - s

P137,995,454

D. All Other Taxes (Local and National)

Other taxes paid during the year recognized under

“Taxes and licenses” account under Cost of Sales &

Operating Expenses

Real estate taxes P4,233,667

License and permit fees 8,849,843

Others 12,514,454

P25,597,964

E. Tax Contingencies

The Company has no deficiency tax assessment or any tax case, litigation, and/or

prosecution in courts or bodies outside the Bureau of Internal Revenue as at

December 31, 2014.

COVER SHEET For

AUDITED FINANCIAL STATEMENTS

SEC Registration Number

2 8 7 1 5

Company Name

U N I T E D

C O C O N U T

P L A N T E R S

L I F E

A S S U R A N C E

C O R P O R A T I O N

Principal Office ( No./Street/Barangay/City/Town)Province)

C o c o l i f e

B u i l d i n g

6 8 0 7

A y a l a

A v e n u e

M a k A t i

C i t y

Form Type

Department requiring the report

Secondary License Type, If

Applicable

A A F S

COMPANY INFORMATION

Company's Email Address

Company's Telephone Number/s

Mobile Number

N/A

812 - 9015

N/A

No. of Stockholders Annual Meeting

Month/Day

Fiscal Year Month/Day

9

April

December 31

CONTACT PERSON INFORMATION The designated contact person MUST be an Officer of the Corporation

Name of Contact Person

Email Address

Telephone Number/s

Mobile Number

Atty. Alfredo C. Tumacder

[email protected]

812-9015

09178019168

Contact Person's Address

6807 Ayala Avenue Makati City

Note: In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated.

Coco Life Audited Financial Statement 2014

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Transcript of Coco Life Audited Financial Statement 2014