indepe - philippines first · 2018-09-13 · philippines first insurance company, inc. statements...
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A member firm of Ernst & Young Global Limited
SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001, 6760 Ayala Avenue Fax: (632) 819 0872 December 14, 2015, valid until December 31, 2018 1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-4 (Group A), Philippines November 10, 2015, valid until November 9, 2018
INDEPENDENT AUDITOR’S REPORT
The Board of Directors and Stockholders
Philippines First Insurance Company, Inc.
Report on the Audit of the Financial Statements
Qualified Opinion
We have audited the financial statements of Philippines First Insurance Company, Inc. (the Company),
which comprise the statements of financial position as at December 31, 2017 and 2016, and the
statements of income, statements of comprehensive income, statements of changes in equity and
statements of cash flows for the years then ended, and notes to the financial statements, including a
summary of significant accounting policies.
In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion section of
our report, the financial statements present fairly, in all material respects, the financial position of
Philippines First Insurance Company, Inc. as at December 31, 2017 and 2016, and its financial
performance and its cash flows for the years then ended in accordance with accounting principles
generally accepted in the Philippines as described in Note 2 to the financial statements.
Basis for Qualified Opinion
The Company’s commission expense is accounted for on a cash basis. Management has not accrued
unpaid commissions and deferred commissions that pertain to the unexpired portion of the related
insurance policies as at December 31, 2017 and 2016, as required by accounting principles generally
accepted in the Philippines. The Company’s records indicate that had management accrued unpaid
commissions and deferred the unexpired portion of commissions, P=18,079,459 and P=33,311,413 would
have been set-up as commission payable and deferred acquisition costs, respectively, as at December 31,
2017; and P=34,672,885 and =P31,892,899 would have been set-up as commission payable and deferred
acquisition costs, respectively, as at December 31, 2016. Accordingly, commission expense would have
decreased by =P8,103,151 and increased by P=7,087,718 in 2017 and 2016, respectively, and net income
would have been increased by =P5,672,206 and reduced by P=4,961,403 in 2017 and 2016, respectively.
The Company’s insurance receivables and loans and receivables have not been subjected to impairment testing as at December 31, 2017 and 2016. We were unable to obtain sufficient appropriate audit evidence about the carrying amounts of insurance receivables and loans and receivables as at
December 31, 2017 and 2016. Consequently, we were unable to determine whether any adjustments to
these accounts were necessary.
We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics) together with the ethical requirements that are relevant to our audit of the financial statements in the Philippines, and we have fulfilled our ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.
A member firm of Ernst & Young Global Limited
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with accounting principles generally accepted in the Philippines as described in Note 2 to the
financial statements, and for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Company or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with PSAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Company’s ability to continue as a going
concern.
• If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial statements or, if such disclosures are inadequate,
A member firm of Ernst & Young Global Limited
to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of
our auditor’s report. However, future events or conditions may cause the Company to cease to
continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events
in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the audit. We remain solely
responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Report on the Supplementary Information Required Under Revenue Regulations No. 15-2010
Our audits were conducted for the purpose of forming an opinion on the financial statements taken as a
whole. The supplementary information required under Revenue Regulations 15-2010 in Note 32 is
presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic
financial statements. Such information is the responsibility of the management of Philippines First
Insurance Company, Inc. 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.
SYCIP GORRES VELAYO & CO.
Lucy L. Chan
Partner
CPA Certificate No. 88118
SEC Accreditation No. 0114-AR-4 (Group A),
January 7, 2016, valid until January 6, 2019
Tax Identification No. 152-884-511
BIR Accreditation No. 08-001998-46-2018,
February 26, 2018, valid until February 25, 2021
PTR No. 6621239, January 9, 2018, Makati City
June 29, 2018
PHILIPPINES FIRST INSURANCE COMPANY, INC.
STATEMENTS OF FINANCIAL POSITION December 31 January 1
2017
2016 (As restated Notes
2 and 30)
2016 (As restated
Notes 2 and 30)
ASSETS Cash and cash equivalents (Notes 4 and 28) ₱86,727,213 ₱67,719,992 ₱50,557,413 Short-term investments (Notes 4 and 28) 5,684,781 3,040,631 1,752,865 Insurance receivables - net (Notes 5, 20 and 28) 199,134,406 213,666,161 268,342,091 Financial assets (Notes 6, 20 and 28)
Financial assets at fair value through profit or loss 126,722,232 111,894,441 107,517,030 Available-for-sale financial assets 933,669,891 798,837,955 967,668,068 Held-to-maturity investments 187,663,653 188,633,510 65,289,018 Loans and receivables 76,230,429 71,103,277 56,774,628
Accrued income (Notes 7 and 28) 7,341,240 5,870,423 5,527,055 Investment in an associate (Note 8) 1,033,955,000 1,185,341,202 1,216,108,335 Reinsurance assets (Notes 10, 14 and 28) 71,511,712 98,128,211 158,520,428 Investment properties (Note 11) 203,628,486 183,163,032 167,736,977 Property and equipment - net (Note 12) 45,310,828 49,201,602 28,862,755 Other assets (Note 13) 7,737,122 3,757,038 5,001,433
₱2,985,316,993 ₱2,980,357,475 ₱3,099,658,096
LIABILITIES AND EQUITY Liabilities Insurance contract liabilities (Notes 14, 20 and 28) ₱339,137,842 ₱307,147,024 ₱297,212,225 Insurance payables (Notes 15, 21 and 28) 31,047,458 60,554,029 89,566,440 Stock subscription payable (Note 8) − − 34,995,200 Deferred tax liability (Note 26) 43,879,963 37,740,327 33,112,510 Accounts payable and accrued expenses (Notes 16 and 28) 88,564,064 80,457,268 140,280,815 Deferred reinsurance commissions (Note 9) 6,457,226 4,764,609 11,949,663 Net pension obligation (Note 17) 35,919,196 37,192,306 36,621,828 Other liabilities (Notes 18 and 28) 18,996,051 5,575,690 10,024,143
564,001,800 533,431,253 653,762,824
Equity Capital stock - =P100 par value
Authorized - 10,000,000 shares Issued - 6,500,000 shares (Note 19) 650,000,000 650,000,000 437,500,000
Revaluation reserves on available-for-sale financial assets
(Note 6) 414,504,894 359,963,849 378,272,039 Remeasurements on defined benefit plan (Note 17) (10,984,206) (10,000,957) (10,232,240) Share in associate’s other comprehensive income (Note
8) 102,755,277 (94,187,603) (58,945,035) Share in associate’s equity reserve (Note 8) 737,024 728,525 728,525 Retained earnings (Note 19) 1,272,996,346 1,549,116,550 1,707,266,125 Treasury stocks (Note 19) (8,694,142) (8,694,142) (8,694,142)
2,421,315,193 2,446,926,222 2,445,895,272
₱2,985,316,993 ₱2,980,357,475 ₱3,099,658,096
See accompanying Notes to Financial Statements.
PHILIPPINES FIRST INSURANCE COMPANY, INC.
STATEMENTS OF INCOME Years Ended December 31
2016
(As restated -
2017 Notes 2 and 30)
Gross premiums earned ₱369,728,807 ₱313,680,070
Reinsurers’ share of gross premiums earned 118,193,627 127,196,727
Net premiums earned (Notes 14, 20 and 21) 251,535,180 186,483,343
Investment income (Note 22) 72,078,367 56,550,642
Commission income (Note 9) 13,307,958 21,661,539
Fair value gain on investment properties (Note 11) 20,465,454 15,426,055
Share in associate’s net income (Note 8) – 21,973,035
Other income (Note 23) 7,947,092 9,513,569
Other income 113,798,871 125,124,840
Total income 365,334,051 311,608,183
Gross insurance contract benefits and claims paid 85,652,577 81,235,643
Reinsurers’ share of insurance contract benefits and claims
paid (19,271,364) (30,097,429)
Gross change in insurance contract benefits and claims
liabilities 851,740 6,880,074
Reinsurers’ share of change in insurance contract benefits
and claims liabilities 31,074,583 30,721,703
Net insurance contract benefits and claims (Notes 14 and 24) 98,307,536 88,739,991
Share in associate’s net loss (Note 8) 348,337,581 –
Commission expense 79,022,081 70,568,810
General expenses (Note 25) 95,250,565 73,533,494
Taxes and licenses 5,588,949 4,547,965
Interest expense – 352,167
Other expenses 528,199,176 149,002,436
Total insurance contract benefits, claims and other expenses 626,506,712 237,742,427
INCOME (LOSS) BEFORE INCOME TAX (261,172,661) 73,865,756
PROVISION FOR INCOME TAX (Note 26) 14,947,543 12,015,331
NET INCOME (LOSS) (Note 30) (₱276,120,204) ₱61,850,425
See accompanying Notes to Financial Statements.
PHILIPPINES FIRST INSURANCE COMPANY, INC.
STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31
2016
(As restated -
2017 Notes 2 and 30)
NET INCOME (LOSS) (Note 30) (₱276,120,204) ₱61,850,425
OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) that will be reclassified to profit or
loss in subsequent periods:
Share in associate’s net changes in the revaluation reserves on
available-for-sale financial assets (Note 8) 193,530,191 (58,930,446)
Net changes in the revaluation reserves on available-for-sale
financial assets (Note 6) 54,541,045 (18,308,190)
Share in associate’s remeasurement on life insurance reserve
(Note 8) 3,320,245 1,304,776
Other comprehensive income (loss) that will not be reclassified to
profit or loss in subsequent periods:
Remeasurement gain on defined benefit plan, net of tax effect
(Note 17) (983,249) 231,283
Share in associate’s remeasurement gain on defined benefit
plan (Note 8) 92,444 22,383,102
Total other comprehensive income (loss) 250,500,676 (53,319,475)
TOTAL COMPREHENSIVE INCOME (LOSS) (₱25,619,528) ₱8,530,950
See accompanying Notes to Financial Statements.
PHILIPPINES FIRST INSURANCE COMPANY, INC.
STATEMENTS OF CHANGES IN EQUITY
Revaluation Reserves on Share in Available-for-sale Remeasurements Associate’s Other Share in
Capital Stock
(Note 19)
Financial Assets
(Note 6)
on Defined Benefit Comprehensive Associate’s Equity Plan Income Reserve (Note 17) (Note 8) (Note 8)
Retained Earnings (Note 19)
Treasury Stocks
(Note 19) Total
For the year ended December 31, 2017
At January 1, 2017, as previously reported ₱650,000,000 ₱359,963,849 (₱10,000,957) (₱100,902,754) ₱728,525 ₱1,474,627,330 (₱8,694,142) ₱2,365,721,851 Prior period adjustments (Notes 2 and 30) – – – 6,715,151 – 74,489,220 – 81,204,371 At January 1, 2017, as restated 650,000,000 359,963,849 (10,000,957) (94,187,603) 728,525 1,549,116,550 (8,694,142) 2,446,926,222 Net income for the year – – – – – (276,120,204) – (276,120,204) Other comprehensive income (loss) – 54,541,045 (983,249) 196,942,880 – – – 250,500,676 Total comprehensive income for the year – 54,541,045 (983,249) 196,942,880 – (276,120,204) – (25,619,528) Equity reserve – – – – 8,499 – – 8,499 At December 31, 2017 ₱650,000,000 ₱414,504,894 (₱10,984,206) ₱102,755,277 ₱737,024 ₱1,272,996,346 (₱8,694,142) ₱2,421,315,193
For the year ended December 31, 2016
At January 1, 2016, as previously reported ₱437,500,000 ₱378,272,039 (₱10,232,240) (₱50,571,842) ₱728,525 ₱1,662,003,616 (₱8,694,142) ₱2,409,005,956 Prior period adjustments (Notes 2 and 30) – – – (8,373,193) – 45,262,509 – 36,889,316 At January 1, 2016, as restated 437,500,000 378,272,039 (10,232,240) (58,945,035) 728,525 1,707,266,125 (8,694,142) 2,445,895,272 Net income for the year – – – – – 61,850,425 – 61,850,425 Other comprehensive income (loss) – (18,308,190) 231,283 (35,242,568) – – – (53,319,475) Total comprehensive income for the year – (18,308,190) 231,283 (35,242,568) – 61,850,425 – 8,530,950 Issuance of shares of stocks 212,500,000 – – – – – – 212,500,000 Cash dividends declaration – – – – – (220,000,000) – (220,000,000) At December 31, 2016, as restated ₱650,000,000 ₱359,963,849 (₱10,000,957) (₱94,187,603) ₱728,525 ₱1,549,116,550 (₱8,694,142) ₱2,446,926,222
See accompanying Notes to Financial Statements.
PHILIPPINES FIRST INSURANCE COMPANY, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31
2016
(As restated -
2017 Notes 2 and 30)
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) before income tax (₱261,172,661) ₱73,865,756
Adjustments for:
Share in associate’s net loss (income) (Note 8) 348,337,581 (21,973,035)
Depreciation (Notes 12 and 25) 8,590,976 5,058,576
Pension benefit expense (Notes 17 and 25) 3,620,052 3,176,874
Interest expense (Note 15) – 352,167
Fair value gains on financial assets at FVPL (Notes
6 and 22) (14,505,765) (10,226,134)
Fair value gains on investment property (Note 11) (20,465,454) (15,426,055)
Dividend income (Note 22) (23,206,990) (12,665,358)
Interest income (Note 22) (34,228,573) (33,659,150)
Gain on sale of AFS financial assets (Note 6) (137,039) –
Operating loss before working capital changes 6,832,127 (11,496,359)
Decrease (increase) in:
Insurance receivables 14,531,755 54,675,930
Loans and receivables (948,844) (10,388,425)
Accrued income (655,446) 580,296
Reinsurance assets 26,616,499 60,392,217
Other assets (2,690,112) 1,475,233
Increase (decrease) in:
Insurance contract liabilities 31,990,818 9,934,799
Insurance payables (29,506,571) (29,012,411)
Accounts payable and accrued expenses 8,106,796 (59,823,547)
Deferred reinsurance commissions 1,692,617 (7,185,054)
Other liabilities 13,420,362 (4,448,453)
Net cash generated from operations 69,390,001 4,704,226
Interest paid – (352,167)
Pension benefits paid (6,297,805) (2,275,991)
Income tax paid (including creditable withholding taxes and prepaid
taxes) (9,676,486) (7,717,474)
Net cash provided by (used in) operating activities 53,415,710 (5,641,406)
(Forward)
Years Ended December 31
2016
(As restated -
2017 Note 2)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received ₱33,823,957 ₱33,804,673
Dividends received 23,311,401 12,560,947
Stock subscription paid (Note 8) – (17,497,600)
Acquisitions of:
Short-term investments (5,684,781) (3,040,631)
Available-for-sale financial assets (Note 6) (84,835,138) (6,500,000)
Financial assets at fair value through profit or loss (Note 6) (648,228) –
Held-to-maturity investments (Note 6) – (32,645,576)
Investment in fund (Notes 6 and 17) (5,918,044) (5,269,613)
Property and equipment (Note 12) (5,467,068) (25,397,423)
Proceeds from disposals and maturities of: Short-term
investments 3,040,631 1,752,865
Financial assets at fair value through profit or loss (Note 6) 326,202 5,848,723
Available-for-sale financial assets (Note 6) 5,135,977 46,858,231
Held-to-maturity investments (Note 6) – 18,500,000
Loans receivables (Notes 6 and 17) 1,739,736 1,329,389
Property and equipment (Note 12) 766,866 –
Net cash provided by (used in) investing activities (34,408,489) 30,303,985
CASH FLOWS FROM FINANCING ACTIVITIES
Additional stock subscriptions (Note 19) – 212,500,000
Dividends paid (Note 19) – (220,000,000)
Net cash used in financing activities – (7,500,000)
NET INCREASE IN CASH AND CASH EQUIVALENTS 19,007,221 17,162,579
CASH AND CASH EQUIVALENTS, AT BEGINNING
OF YEAR 67,719,992 50,557,413
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Note 4) ₱86,727,213 ₱67,719,992
See accompanying Notes to Financial Statements.
PHILIPPINES FIRST INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. Corporate Information
Philippines First Insurance Company, Inc. (the Company) was incorporated in the Philippines to engage
in the business and operation of all kinds of insurance, reinsurance, insurance on buildings,
automobiles, cars and/or other motor vehicles, goods and merchandise goods in transit, goods in
storage, fire insurance, earthquakes, insurance against accidents and all other forms of undertaking to
indemnify any person against loss, damage or liability arising from unknown or contingent events,
except life insurance.
The Company was registered with the Securities and Exchange Commission (SEC) on February 24,
1954. On January 9, 2004, it was approved by at least a majority of the Board of Directors (BOD) and
the stockholders owning and representing at least two-thirds (2/3) of the outstanding capital stock that
the Articles of Incorporation will be amended to extend the existence of the Company to another fifty
(50) years from its original expiry date. The Philippine SEC approved the amended Articles of
Incorporation on May 21, 2004.
The registered office address of the Company is 7th Floor, STI Holdings Center, 6764 Ayala Avenue,
Makati City.
The accompanying financial statements were approved and authorized for issue by the BOD of the
Company on June 29, 2018.
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying financial statements of the Company have been prepared in compliance with
accounting principles generally accepted in the Philippines (PGAAP), except for the commission
expense which has been accounted for using the cash basis of accounting. PGAAP includes all
applicable Philippine Financial Reporting Standards (“PFRS”) including Philippine Accounting
Standards and Philippine Interpretations from the International Financial Reporting Interpretations
Committee (“IFRIC”) issued by the Philippine Financial Reporting Standards Council (“FRSC”), the
accounting standards set forth in the Pre-Need Rule 31, As Amended: Accounting Standards for
PreNeed Plans and Pre-Need Uniform Chart of Accounts (“PNUCA”), and applicable Insurance
Commission (IC) Circular Letter and accounting requirements for Philplans First, Inc., one of the
subsidiaries of Maestro Holdings, Inc.
The financial statements have been prepared using the historical cost basis, except for financial assets at fair value through profit or loss (FVPL), available-for-sale (AFS) financial assets and investment properties which have been measured at fair value.
The accompanying financial statements are presented in Philippine Peso (P=), which is also the Company’s functional currency. All amounts are rounded to the nearest peso values, unless otherwise indicated.
The financial statements provide comparative information in respect of the previous period. In addition,
the Company presents an additional statement of financial position at the beginning of the earliest
period presented when there is a retrospective application of an accounting policy, a retrospective
restatement, or a reclassification of items in the financial statements. An additional
statement of financial position as at January 1, 2016 is presented in these financial statements due to
retrospective adjustments as disclosed in Note 30.
Changes in Accounting Policies and Disclosures
The accounting policies adopted are consistent with those of the previous financial year, except as
discussed below.
The Company reassessed its accounting for investment property with respect to measurement after initial recognition. The Company had previously measured all investment property using the cost model whereby, after initial recognition of the asset classified as investment property, the asset was carried at cost less accumulated depreciation and accumulated impairment losses.
In 2017, the Company voluntarily changed its accounting policy on the subsequent measurement of its
investment properties from cost model to fair value model where the fair values are determined by an
independent firm of appraisers. Gains or losses arising from changes in the fair values of investment
properties are included in the profit or loss for the period in which they arise, including the
corresponding tax effect. The Company believes that the change will result in providing reliable and
more relevant information about the effects of transactions, other events or conditions on the
Company's financial position, financial performance and cash flows.
Circular Letter (CL) 2016-67, Valuation Standards for Non-life Insurance Policy Reserves
The circular prescribes the new valuation methodology for the non-life insurance companies. As
required by circular, provision for IBNR claims shall be valued based from actuarial projection
techniques and calculate its unearned premium reserves for marine cargo using 24th method. In
addition to the unearned premium reserves, the concept of unexpired risk reserves is also included in
the calculation of the premium liability. The incurred but not reported (IBNR) reserves will now be
computed using actuarial projection techniques such as but not limited to the chain ladder method,
expected loss ratio method and Bornheutter-Ferguson method.
A margin for adverse deviation is estimated based on standard projection techniques or combination of
such techniques, such as but not limited to the Mack Method, Bootstrapping Method, Stochastic Chain
Ladder Method to bring the actuarial estimate of the Policy Liabilities at the 75th percentile level of
sufficiency. Discount rates to be used shall be current risk-free rates. The rates shall exactly match the
duration of the policy and the currency of the cash flows and shall be prescribed by the Insurance
Commission.
The changes in accounting policies have been applied retrospectively. The impact of the adjustments
for each financial statement line item affected are disclosed in Note 30.
In addition, the Company has adopted the following new accounting pronouncements starting January 1, 2017. Adoption of these pronouncements did not have any significant impact on the Company’s financial position or performance unless otherwise indicated.
• Amendment to PFRS 12, Clarification of the Scope of the Standard (Part of Annual Improvements
to PFRSs 2014 - 2016 Cycle)
The amendments clarify that the disclosure requirements in PFRS 12, other than those relating to summarized financial information, apply to an entity’s interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) that is classified (or included in a disposal group that is classified) as held for sale.
The amendments did not have any impact on the Company’s financial position and results of
operation.
• Amendments to PAS 7, Statement of Cash Flows, Disclosure Initiative
The amendments to PAS 7 require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). On initial application of the amendments, entities are not required to provide comparative information for preceding periods. Early application of the amendments is permitted.
The amendments did not have any impact since the Company does not have non-cash financing
activities.
• Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for Unrealized Losses
The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.
Entities are required to apply the amendments retrospectively. However, on initial application of
the amendments, the change in the opening equity of the earliest comparative period may be
recognized in opening retained earnings (or in another component of equity, as appropriate),
without allocating the change between opening retained earnings and other components of equity.
Entities applying this relief must disclose that fact. Early application of the amendments is
permitted.
The amendments did not have any impact on the Company’s financial position and results of
operation.
Future Changes in Accounting Policies
Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, the Company
does not expect that the future adoption of the said pronouncements to have a significant impact on its
financial statements. The Company intends to adopt the following pronouncements when they become
effective.
Effective beginning on or after January 1, 2018
• Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-based
Payment Transactions
The amendments to PFRS 2 address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and the accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled.
On adoption, entities are required to apply the amendments without restating prior periods, but
retrospective application is permitted if elected for all three amendments and if other criteria are
met. Early application of the amendments is permitted.
These amendments are not expected to have any impact on the Company’s financial statements.
• Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, with PFRS
4
The amendments address concerns arising from implementing PFRS 9, the new financial
instruments standard before implementing the forthcoming insurance contracts standard. They
allow entities to choose between the overlay approach and the deferral approach to deal with the
transitional challenges. The overlay approach gives all entities that issue insurance contracts the
option to recognize in other comprehensive income, rather than profit or loss, the volatility that
could arise when PFRS 9 is applied before the new insurance contracts standard is issued. On the
other hand, the deferral approach gives entities whose activities are predominantly connected with
insurance an optional temporary exemption from applying PFRS 9 until the earlier of application
of the forthcoming insurance contracts standard or January 1, 2021.
The overlay approach and the deferral approach will only be available to an entity if it has not
previously applied PFRS 9.
The Company did not qualify for deferral approach and therefore, will adopt PFRS 9 in 2018.
The Company is currently assessing the impact of adopting this standard.
• PFRS 15, Revenue from Contracts with Customers
PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. Under PFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in PFRS 15 provide a more structured approach to measuring and recognizing revenue.
The new revenue standard is applicable to all entities and will supersede all current revenue
recognition requirements under PFRSs. Either a full or modified retrospective application is
required for annual periods beginning on or after January 1, 2018.
The Company is currently assessing the impact of adopting this standard.
• PFRS 9, Financial Instruments
PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, Financial
Instruments: Recognition and Measurement, and all previous versions of PFRS 9. The standard
introduces new requirements for classification and measurement, impairment, and hedge
accounting. PFRS 9 is effective for annual periods beginning on or after January 1, 2018, with
early application permitted. Retrospective application is required, but providing comparative
information is not compulsory. For hedge accounting, the requirements are generally applied
prospectively, with some limited exceptions.
The adoption of PFRS 9 will have an effect on the classification and measurement of the Company’s financial assets and impairment methodology for financial assets, but will have no impact on the classification and measurement of the Company’s financial liabilities. The adoption will also have an effect on the amount of its credit losses. The Company is currently assessing the impact of adopting this standard.
• Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of Annual
Improvements to PFRSs 2014 - 2016 Cycle)
The amendments clarify that an entity that is a venture capital organization, or other qualifying
entity, may elect, at initial recognition on an investment-by-investment basis, to measure its
investments in associates and joint ventures at fair value through profit or loss. They also clarify
that if an entity that is not itself an investment entity has an interest in an associate or joint venture
that is an investment entity, the entity may, when applying the equity method, elect to retain the
fair value measurement applied by that investment entity associate or joint venture to the
investment entity associate’s or joint venture’s interests in subsidiaries. This election is made
separately for each investment entity associate or joint venture, at the later of the date on which (a)
the investment entity associate or joint venture is initially recognized; (b) the associate or joint
venture becomes an investment entity; and (c) the investment entity associate or joint venture first
becomes a parent. The amendments should be applied retrospectively, with earlier application
permitted.
These amendments are not expected to have any impact to the Company.
• Amendments to PAS 40, Investment Property, Transfers of Investment Property
The amendments clarify when an entity should transfer property, including property under
construction or development into, or out of investment property. The amendments state that a
change in use occurs when the property meets, or ceases to meet, the definition of investment
property and there is evidence of the change in use. A mere change in management’s intentions for
the use of a property does not provide evidence of a change in use. The amendments should be
applied prospectively to changes in use that occur on or after the beginning of the annual reporting
period in which the entity first applies the amendments. Retrospective application is only permitted
if this is possible without the use of hindsight.
The Company is currently assessing the impact of adopting this standard.
• Philippine Interpretation IFRIC-22, Foreign Currency Transactions and Advance Consideration
The interpretation clarifies that in determining the spot exchange rate to use on initial recognition
of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset
or non-monetary liability relating to advance consideration, the date of the transaction is the date
on which an entity initially recognizes the nonmonetary asset or non-monetary liability arising
from the advance consideration. If there are multiple payments or receipts in advance, then the
entity must determine a date of the transactions for each payment or receipt of advance
consideration. The interpretation may be applied on a fully retrospective basis. Entities may apply
the interpretation prospectively to all assets, expenses and income in its scope that are initially
recognized on or after the beginning of the reporting period in which the entity first applies the
interpretation or the beginning of a prior reporting period presented as comparative information in
the financial statements of the reporting period in which the entity first applies the interpretation.
These amendments are not expected to have any impact on the Company.
Effective beginning on or after January 1, 2019
• Amendments to PFRS 9, Prepayment Features with Negative Compensation
The amendments to PFRS 9 allow debt instruments with negative compensation prepayment features to be measured at amortized cost or fair value through other comprehensive income. An entity shall apply these amendments for annual reporting periods beginning on or after January 1, 2019. Earlier application is permitted.
The Company is currently assessing the impact of adopting this interpretation.
• PFRS 16, Leases
Under the new standard, lessees will no longer classify their leases as either operating or finance
leases in accordance with PAS 17, Leases. Rather, lessees will apply the single-asset model. Under
this model, lessees will recognize the assets and related liabilities for most leases on their balance
sheets, and subsequently, will depreciate the lease assets and recognize interest on the lease
liabilities in their profit or loss. Leases with a term of 12 months or less or for which the underlying
asset is of low value are exempted from these requirements.
The accounting by lessors is substantially unchanged as the new standard carries forward the principles of lessor accounting under PAS 17. Lessors, however, will be required to disclose more information in their financial statements, particularly on the risk exposure to residual value.
Entities may early adopt PFRS 16 but only if they have also adopted PFRS 15. When adopting PFRS 16, an entity is permitted to use either a full retrospective or a modified retrospective approach, with options to use certain transition reliefs.
The Company is currently assessing the impact of adopting PFRS 16.
• Philippine Interpretation IFRIC-23, Uncertainty over Income Tax Treatments
The interpretation addresses the accounting for income taxes when tax treatments involve
uncertainty that affects the application of PAS 12 and does not apply to taxes or levies outside the
scope of PAS 12, nor does it specifically include requirements relating to interest and penalties
associated with uncertain tax treatments.
The interpretation specifically addresses the following:
o Whether an entity considers uncertain tax treatments separately
o The assumptions an entity makes about the examination of tax treatments by taxation
authorities
o How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax
credits and tax rates
o How an entity considers changes in facts and circumstances
An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed.
20. Related Party Transactions
Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise
significant influence over the other party in making financial and operating decisions and the parties
are subject to common control or common significant influence. Related parties may be individual or
corporate entities. In considering each possible related entity relationship, attention is directed to the
substance of the relationship and not merely the legal form.
The balances resulting from the transactions described above are carried in the following accounts in
the statement of financial position and statement of income as follows:
2017 2016
_________________________________________________________________________________
Due from brokers and agents (note 5) ₱22,614,461 ₱12,722,885
Advances (Note 6) 40,862,200 40,622,200
Accounts receivables (Note 6) 687,857 354,200
Dividends received (paid) - (130,019,196)
Insurance contract liabilities (Notes 14 and 28) (2,033,986) ( 1,864,388)
Customers’ deposit (Note 18) - ( 331,327)
2017 2016
Gross premiums written (Note 21) ₱63,285,850 ₱44,457,259
Gross insurance contract benefits and claims paid
(Note 24) ( 2,993,764) ( 2,199,211)
Dividend income (Note 22) 3,853,881 3,843,915
General expenses ( 4,065,609) ( 3,977,196)
The outstanding balances from the related parties are to be settled in cash.
Management of Capital, Insurance and Financial Risks
Regulatory Framework
Regulators are interested in protecting the rights of the policyholders and maintain close vigil to ensure
that the Company is satisfactorily managing affairs for their benefit. At the time, the regulators are also
interested in ensuring that the Company maintains appropriate solvency position to meet liabilities
arising from claims and that the risk levels are at acceptable levels.
The operations of the Company are subject to the regulatory requirements of the IC. Such regulations
not only prescribe approval and monitoring of activities but also impose certain restrictive provisions
(e.g. minimum statutory net worth and risk-based capital requirements).
Capital Management Framework
The Company maintains a certain level of capital to ensure sufficient solvency margins and to
adequately protect the policyholders.
The Company reviews the capital requirements by monitoring the minimum statutory and the RBC which
is regularly communicated to the major stockholders. With this procedure, shareholders are forewarned in
anticipation of the IC requirements of additional capital infusion. Shareholders are well updated with these
externally imposed capital requirements since these are being discussed during the annual BOD meeting.
Minimum Statutory
On August 15, 2013, the President of the Philippines approved Republic Act No. 10607 to be known as the
“New Insurance Code” which provides the new capitalization requirements for all existing insurance
companies based on net worth on a staggered basis starting June 30, 2013 up to December 31, 2022.
On January 13, 2015, the IC issued the Circular Letter (CL) No. 2015-02-A which provides for the
clarification of minimum capital requirements under Sections 194, 197, 200 and 289 of the New Insurance
Code. The said circular supersedes the Department Order Nos. 27-06 and 15-2012 and CL Nos. 22-2008
and 26-2008.
The following presents the amount of required and the schedule of compliance per Amended Insurance
Code.
Compliance Date
₱ 250,000.00 June 30, 2013
550,.000.00 December 31, 2016
900,000.00 December 31, 2019
1,300,000.00 December 31, 2022
Based on its latest synopsis issued by the Insurance Commission as of December 31, 2016, the audited
statutory of the Company amounted to P1,971,197,660.
Solvency Requirement
Under the revised Insurance Code (RA 10607), an insurance company doing business in the Philippines
shall at all times maintain paid-up capital, and net worth requirements as prescribed by the Commissioner.
Such solvency requirements shall be based on internationally accepted solvency frameworks and accepted
only after due consultation with the insurance industry association.
The amounts of estimated non-admitted assets, as defined in the Code, are as follows:
2017
(Estimated) 2016 (Actual)
Premium Receivables ₱47,178,765 ₱36,750,036
Property and equipment and investment properties 13,543,630 7,520,163
Accounts receivables - 71,103,277
Other Investments - 122,825,009
Cash on hand - 3,096,976
Investments - 1,606,450
Reinsurance assets - 9,465,822
Other assets 60,626,408 31,694,543
₱121,348,803 ₱284,062,276
If an insurance company failed to meet the minimum required capital, the Insurance Commission is
authorized to suspend or revoke all certificates of authority granted to such companies, its officers and
agents, and no new business shall be done by and for such company until its authority is restored by the
Insurance Commission.
The final amount of the networth as of December 31, 2017 can be determined only after the accounts of
the Company have been examined by the Insurance Commission, specifically as to admitted and non-
admitted assets as defined under the Code.
Risk-based Capital Requirements
In 2006, the IC issued Memorandum Circular (IMC) No. 7-2006 adopting a risk-based capital
framework to establish the required amounts of capital to be maintained by non-life insurance
companies in relation to their investment and insurance risks. The RBC ratio of a company shall be
calculated as Net worth divided by the RBC requirement. Net worth shall include the 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 Insurance
Commissioner.
In 2016, the IC issued Circular Letter No. 2016-68, Amended Risk-Based Capital (RBC2) Framework,
pursuant to Section 437 of the Amended Insurance Code. The RBC ratio shall be calculated as Total
Available Capital (TAC) divided by the RBC requirement. TAC is the aggregate of Tier 1 and Tier 2
capital minus deductions, subject to applicable limits and determinations. Tier 1 Capital represents
capital that is fully available to cover losses of the insurer at all times on a going concern and winding
up basis (e.g. Capital Stock, Statutory Deposit, Capital Stock Subscribed, Contributed Surplus, etc.).
Tier 2 Capital does not have the same high-quality characteristics of Tier 1 capital, but can provide an
additional buffer to the insurer [e.g. Reserve for Appraisal Increment – Property and Equipment,
Remeasurement Gains (Losses) on Retirement Pension Asset (Obligation), etc. Tier 2 Capital shall not
exceed 50% of Tier 1 Capital.
The minimum RBC ratio is set at 100%. All insurance companies are required to maintain the
minimum RBC ratio and not fail the Trend Test.
The following table shows how the RBC ratio as of December 31, 2017 and 2016 was determined
by the Company:
2017 2016
(Estimated) (Actual)
Insurance Risk
The risk under an insurance contract is the possibility of occurrence of the insured event and uncertainty
of the amount and timing of the resulting claim. The principal risk the Company faces under such
contracts is that the actual claims and benefit payments will 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.
P = 2,377,765,281 P = 1,971,197,660
RBC requirement 648,086,464 387,427,080
RBC Ratio 3 67 % 509 %
The variability of risks is improved by diversification of risk of loss to a large portfolio of insurance
contracts as a more diversified portfolio is less likely to be affected across the board by change in any
subset of the portfolio. The variability of risks can also be improved by careful selection and
implementation of underwriting strategy and guidelines.
The majority of reinsurance business ceded is placed on a quota share basis with retention limits.
Amounts recoverable from reinsurers are estimated in a manner consistent with the assumptions used
for ascertaining the underlying policy benefits and are presented in the statement of financial position
as reinsurance assets.
Although the Company has reinsurance agreements, it is not relieved of its direct obligations to its
policyholders and thus a credit exposure exists with respect to reinsurance ceded, to the extent that any
reinsurer is unable to meet the obligations assumed under such reinsurance agreements.
The Company’s placement of reinsurance is diversified such that it is neither dependent on a single
reinsurer nor are the operations of the Company substantially dependent upon any single reinsurance
contract.
The business of the Company mainly comprises of short-term nonlife insurance contract.
The Company principally issued the following types of general insurance contracts: fire, engineering,
marine, motor car, personal accident and miscellaneous casualty.
The Company also enforces a policy of actively managing and promptly pursuing claims, in order to
reduce its exposure to unpredictable future developments that can negatively impact the Company.
The Company also has limited its exposure level by imposing maximum claim amounts on certain
contracts as well as the use of reinsurance arrangements in order to limit exposure to catastrophic
events. The purpose of these underwriting and reinsurance strategies is to limit exposure to
catastrophes to a predetermined maximum amount based on the Company’s risk appetite as decided by
management.
Assumptions
The principal assumption underlying the estimates is the Company’s past claims development
experience. This includes assumptions in respect of average claim cost, claims handling costs, claims
inflation factors and claim numbers for each accident year. Judgment is used to assess the extent to
which external factors such as judicial decisions and government legislation affect the estimates.
Other key assumptions include variation in interest, delays in settlement and changes in foreign
currency rates.
Sensitivities
In insurance, as a rule, there may be claims filed in the current year that would attach policies issued in
the previous years. This in effect makes claims provision highly sensitive as represented by the table
below. Other unpredictable circumstances like legislative uncertainties make it impossible to quantify
claims. Also, due to delays arising between occurrence of claims and their subsequent reporting to and
settlement by the Company, the outstanding claim provisions cannot be ascertained with confidence at
the end of the reporting period.
As a result, the final liabilities will change as a result of succeeding developments. Differences from
recomputation of the final liabilities are taken up in subsequent financial statements.
Financial Risk
The Company is exposed to financial risk through its financial assets and financial liabilities. In
particular, the key financial risk 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.
These risks arise from open in interest rate, currency and equity products, all of which are exposed to
general and specific market movements. The risk that the Company primarily faces due to the nature
of its investments and liabilities is interest rate and equity price risks.
Credit risk
Credit risk is a risk that one party to a financial instrument will fail to discharge an obligation and cause
the party to incur a financial loss.
Prior to extending credit, the Company manages its credit risk by assessing the credit quality of its
counterparty. Another method by which the Company manages its credit risk exposure is through
credit analysis. This is a process of assessing the credit quality of a counterparty which is a process
that entails judgment.
The credit policy group reviews all information about the counterparty which may include the
counterparty’s statement of financial position, statement of income and other market information. The
nature of the obligation is likewise considered. Based upon this analysis, the credit analyst assigns the
counterparty a credit rating to determine whether or not credit may be provided.
Credit risk limit is also used to manage credit exposure which specifies exposures limits for each
intermediary depending on the size of its portfolio and its ability to meet its obligation based on past
experience.
Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments
associated with financial instruments. Liquidity risk may result from either the inability to sell financial
assets quickly at their fair values; or counterparty failing on repayment of a contractual obligation; or
insurance liability falling due to payment earlier than expected; or inability to generate cash inflows as
anticipated. The major liquidity risk confronting the Company is the daily calls on its available cash
resources in respect of claims arising from insurance contracts.
The Company manages liquidity through a liquidity risk policy which determines what constitutes
liquidity risk for the Company; specifies minimum proportion of funds to meet emergency calls; set up
to contingency funding plans; specifies the source of funding and the events that would trigger the plan;
determines concentration of funding sources; reports liquidity risk exposures and breaches; monitoring
compliance with liquidity risk policy and reviews liquidity risk policy for pertinence and changing
environment.
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 rates (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.
The Company structures levels of market risk it accepts through a market risk policy that determines
what constitutes market risk for the Company; the basis used to fair value financial assets and liabilities;
assets allocation and portfolio limit structure; diversification benchmarks by type of instrument; the net
exposure limits by each counterparty or group of counterparties, industry segments and market risk
exposures; compliance with market risk policy and review of market risk policy for pertinence and
changing environment.
Currency risk
The Company’s principal transactions are carried out in Philippine peso and its exposure to foreign
exchange risk arises primarily with respect to the US Dollar and Euros as it deals with foreign reinsurers
in settlement of its obligations and receipt of any claim reimbursements.
The following table demonstrates the sensitivity to a reasonably possible change in the foreign
exchange rates, with all other variable held constant, of the Company’s income before tax.
2017
Impact
Before tax
Currency Change in exchange rate Increase (decrease)
US Dollar +9% ₱2,158,532
-9% ( 2,158,532)
Euro +8% 172,260
-8% ( 172,260)
2016
Impact
Before tax
Currency Change in exchange rate Increase (decrease)
US Dollar +4% ₱1,007,192
-4% ( 1,007,192)
Euro +9% 2,810
-9% ( 2,810)
The sensitivity analysis has been determined assuming that the change in foreign currency exchange
rates has occurred at the reporting date and has been applied to the Company’s exposure to currency
risk for financial instruments in existence at that date, and all other variables, interest rates in particular,
remain constant.
The stated changes represent management’s assessment of reasonable possible changes in foreign
exchange rates over the period until the next annual reporting date. Results of the analysis as presented
in the above table represent the effects on the Company’s income before tax measured in US dollars
and Euro using the closing foreign exchange rate at the reporting date.
There is no other impact on the Company’s equity other than those already affecting the statement of
income.
Interest rate risk
Interest rate risk is the risk that the value/future cash flows of a financial instrument will fluctuate
because of changes in market interest rates.
Floating rate instruments expose the Company to cash flow interest risk, whereas fixed interest rate
instruments expose the Company to fair value risk. The Company’s AFS debt securities in particular
is exposed to fair value risk.
The Company’s market risk policy requires it to manage interest rate risk by maintaining appropriate
mix of fixed and variable rate instruments. The policy also requires it to manage the maturities of
interest bearing financial assets and interest bearing financial liabilities.
Price risk
The Company’s price risk exposure at year end relates to financial assets and liabilities whose value
will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or
currency risk), principally, its AFS equity financial assets.
Such investment securities are subject to price risk due to changes in market values of instruments
arising either from factors specific to individual instruments or their issuers or factors affecting all
instruments traded in the market.
The Company’s market risk policy requires it to manage such risks by setting and monitoring objectives
and constrains; diversification plan; limits on investment in each sector and market.
Financial Risk
The Company is exposed to financial risk through its financial assets and financial liabilities. In particular, the key financial risk 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.
These risks arise from open positions in interest rate, currency and equity products, all of which are
exposed to general and specific market movements. The risk that the Company primarily faces due to
the nature of its investments and liabilities is interest rate and equity price risks.
Credit risk
Credit risk is a risk that one party to a financial instrument will fail to discharge an obligation and cause
the other party to incur a financial loss.
Prior to extending credit, the Company manages its credit risk by assessing the credit quality of its
counterparty. Another method by which the Company manages its credit risk exposure is through credit
analysis. This is a process of assessing the credit quality of a counterparty which is a process that
entails judgment.
The credit policy group reviews all information about the counterparty which may include the
counterparty’s statement of financial position, statements of income and other market information. The
nature of the obligation is likewise considered. Based upon this analysis, the credit analyst assigns the
counterparty a credit rating to determine whether or not credit may be provided.
Credit risk limit is also used to manage credit exposure which specifies exposure limits for each
intermediary depending on the size of its portfolio and its ability to meet its obligation based 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 rates (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.
The Company structures levels of market risk it accepts through a market risk policy that determines
what constitutes market risk for the Company; the basis used to fair value financial assets and liabilities;
asset allocation and portfolio limit structure; diversification benchmarks by type of instrument; the net
exposure limits by each counterparty or group of counterparties, industry segments and market risk
exposures; compliance with market risk policy and review of market risk policy for pertinence and
changing environment.
Currency risk
a. The Company’s principal transactions are carried out in Philippine peso and its exposure to foreign
exchange risk arises primarily with respect to the US Dollar and Euros as it deals with foreign
reinsurers in its settlement of its obligations and receipt of any claim reimbursements.
b. Investment Properties
As discussed in Note 2, the Company voluntarily changed its accounting policy on the subsequent measurement of investment properties from cost model to fair value model which has been applied retrospectively.