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Asia Insurance(Philippines)CorporationFinancial StatementsAs at and for the years ended December 31, 2012 and 2011

Asia Insurance (Philippines) Corporation

Statements of Financial PositionDecember 31, 2012 and 2011

(All amounts in Philippine Peso)

Notes 2012 2011

A S S E T S

CASH AND CASH EQUIVALENTS 6 243,862,773 352,117,028

RECEIVABLES, net 7 215,821,345 159,834,675

AVAILABLE-FOR-SALE SECURITIES 8 92,231,585 91,079,476

HELD-TO-MATURITY SECURITIES 8 382,623,710 225,595,876

REINSURANCE RECOVERABLE ON UNPAID LOSSES 9 361,832,955 411,023,340

DEFERRED REINSURANCE PREMIUMS 9 87,977,043 74,734,336

DEFERRED ACQUISITION COSTS, net 9 84,849,495 61,940,595

INVESTMENT PROPERTY, net 10 28,862,371 30,617,981

PROPERTY AND EQUIPMENT, net 11 15,634,660 12,966,262

DEFERRED INCOME TAX ASSETS, net 12 17,364,947 15,145,999

OTHER ASSETS 9,492,465 8,869,155Total assets 1,540,553,349 1,443,924,723

LIABILITIES AND EQUITY

LOSSES AND CLAIMS PAYABLE 9 462,630,931 500,360,754

RESERVE FOR UNEARNED PREMIUMS 9 188,973,910 159,658,774

DUE TO REINSURERS AND CEDING COMPANIES 20 121,981,621 60,106,616

FUNDS HELD FOR REINSURERS 20 27,026,004 34,131,914

COMMISSIONS PAYABLE 34,362,509 23,130,504

ACCOUNTS PAYABLE AND OTHER LIABILITIES 13 60,783,097 49,235,190Total liabilities 895,758,072 826,623,752

SHARE CAPITAL 14 350,000,000 348,510,000

CONTRIBUTED SURPLUS 14 500,000 500,000

FAIR VALUE RESERVE ON AVAILABLE-FOR-SALESECURITIES 25,260,000 25,221,545

RETAINED EARNINGS 269,035,277 243,069,426Total equity 644,795,277 617,300,971Total liabilities and equity 1,540,553,349 1,443,924,723

(The notes on pages 1 to 52 are an integral part of these financial statements)


Statements of Total Comprehensive IncomeFor the years ended December 31, 2012 and 2011


Notes 2012 2011UNDERWRITING INCOME

Premiums written, net of returns 473,629,315 423,741,378Reinsurance premiums ceded 20 (201,973,903) (192,267,087)Premiums retained 271,655,412 231,474,291Increase in reserve for unearned premiums, net 9 (16,072,428) (4,705,502)Premiums earned 255,582,984 226,768,789Commissions earned 20 48,715,412 51,185,319Other underwriting income 1,945,784 2,811,070

GROSS UNDERWRITING INCOME 306,244,180 280,765,178UNDERWRITING EXPENSES

Commissions and other underwriting expenses 9,20 119,368,402 115,294,015Losses and claims, net 9,20 112,957,481 95,468,673

232,325,883 210,762,688NET UNDERWRITING INCOME 73,918,297 70,002,490INVESTMENT AND OTHER INCOME (EXPENSES)

Interest income 15 31,458,647 25,587,917Rent 10 4,005,022 3,866,381Gain on sale of investments 2,942,069 -Dividend 8 1,865,806 1,132,441Foreign exchange loss, net 4 (19,758,574) (78,270)Miscellaneous 2,712,429 573,756

23,225,399 31,082,225NET UNDERWRITING AND INVESTMENT INCOME 97,143,696 101,084,715GENERAL AND ADMINISTRATIVE EXPENSES

Salaries and employee benefits 16 33,061,260 31,083,473Occupancy and equipment-related costs 7,206,714 7,087,070Transportation and travel 3,289,013 3,088,094Representation and entertainment 2,440,897 4,241,074Printing, stationery and supplies 1,695,197 1,373,853Taxes, licenses and fees 1,240,547 1,615,910Communication and postage 1,121,772 1,115,225Association dues 1,001,432 892,910Professional and directors’ fees 20 885,885 855,750Advertising and promotion 515,382 503,510Miscellaneous 2,342,909 2,348,441

54,801,008 54,205,310INCOME BEFORE INCOME TAX 42,342,688 46,879,405PROVISION FOR INCOME TAX 12,18 (6,376,837) (9,733,260)NET INCOME FOR THE YEAR 35,965,851 37,146,145

OTHER COMPREHENSIVE INCOMENet change in fair value of available-for-sale securities 38,455 (1,337,292)

TOTAL COMPREHENSIVE INCOME FOR THEYEAR 36,004,306 35,808,853



Statements of Changes in EquityFor the years ended December 31, 2012 and 2011


Sharecapital

(Note 14)

Contributedsurplus

(Note 14)

Deposit for futureshare capitalsubscription

(Note 14)

Fair value reserveon available-for-sale securities

(Note 14)

Retained earnings(Notes 14)

Total equityAppropriated UnappropriatedBalances at January 1, 2011 200,000,000 500,000 35,000,000 26,558,837 40,000,000 241,923,281 543,982,118Comprehensive income

Net income for the year - - - - - 37,146,145 37,146,145Other comprehensive income

Changes in fair value ofavailable-for-sale investments - - - (1,337,292) - - (1,337,292)

Total comprehensive income for the year - - - (1,337,292) - 37,146,145 35,808,853Transactions with owners

Cash dividend - - - - - (6,000,000) (6,000,000)Share dividend 70,000,000 - - - (40,000,000) (30,000,000) -Issuance of shares for cash 20,260,000 - - - - - 20,260,000Deposit for future share capital subscription - - 23,250,000 - - - 23,250,000Issuance of shares from deposit for future

share subscription 58,250,000 - (58,250,000) - - - -Total transactions with owners 148,510,000 - (35,000,000) - (40,000,000) (36,000,000) 37,510,000Balances at December 31, 2011 348,510,000 500,000 - 25,221,545 - 243,069,426 617,300,971Comprehensive income

Net income for the year - - - - - 35,965,851 35,965,851Other comprehensive income

Changes in fair value ofavailable-for-sale investments - - - 38,455 - - 38,455

Total comprehensive income for the year - - - 38,455 - 35,965,851 36,004,306Transactions with owners

Cash dividend - - - - - (10,000,000) (10,000,000)Issuance of shares for cash 1,490,000 - - - - - 1,490,000

Total transactions with owners 1,490,000 - - - - (10,000,000) (8,510,000)

Balances at December 31, 2012 350,000,000 500,000 - 25,260,000 - 269,035,277 644,795,277



Statements of Cash FlowsFor the years ended December 31, 2012 and 2011


Notes 2012 2011CASH FLOWS FROM OPERATING ACTIVITIES

Cash generated from operations 19 29,333,108 85,594,615Interest received on cash and cash equivalents 13,847,911 8,089,504Income tax paid (745,697) (1,124,963)Net cash from operating activities 42,435,322 92,559,156

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of:

Property and equipment 11 (4,629,585) (2,246,643)Available-for-sale securities 8 (5,063,685) (2,000,000)Held-to-maturity securities 8 (189,611,036) (110,908,067)

Proceeds from:

Disposal of available-for-sale securities 8 4,241,960 2,000,000Maturities of held-to-maturity securities 8 27,482,702 66,021,457Disposal of property and equipment - 4,000

Interest received 18,458,238 19,870,968Dividends received 1,686,355 1,132,441Income tax paid (4,315,811) (2,844,631)Net cash used in investing activities (151,750,862) (28,970,475)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash dividends paid 14 - (6,000,000)Deposit for future share capital subscription 14 - 23,250,000Issuance of share capital 14 1,490,000 20,260,000Net cash from financing activities 1,490,000 37,510,000

EFFECTS OF EXCHANGE RATE CHANGES ON CASHAND CASH EQUIVALENTS (428,715) -

NET (DECREASE) INCREASE IN CASH ANDCASH EQUIVALENTS (108,254,255) 101,098,681

CASH AND CASH EQUIVALENTS 6January 1 352,117,028 251,018,347December 31 243,862,773 352,117,028



Notes to Financial StatementsAs at and for the years ended December 31, 2012 and 2011(All amounts are shown in Philippine Peso unless, otherwise stated)

Note 1 - General information

Asia Insurance (Philippines) Corporation (the “Company”) was incorporated and registered with thePhilippine Securities and Exchange Commission (SEC) primarily to engage in selling non-life insurancepolicies on fire, marine cargo, motor vehicle, casualty, surety bond, personal accident, comprehensivegeneral liability, engineering lines and miscellaneous insurances.

The Company’s registered office, which is also its principal place of business, is located at the15th Floor, Tytana Plaza, Plaza Lorenzo Ruiz, Binondo, Manila.

The Company has 79 employees as at December 31, 2012 (2011 - 71).

The financial statements have been approved and authorized for issuance by the Company’s Board ofDirectors on April 26, 2013. There were no material events that occurred subsequent to April 26, 2013until April 30, 2013.

Note 2 - Summary of significant accounting policies

The principal accounting policies adopted in the preparation of these financial statements are set outbelow. These policies have been consistently applied to both years presented, unless otherwise stated.

2.1 Basis of preparation

The financial statements of the Company have been prepared in accordance with Philippine FinancialReporting Standards (PFRS). The term PFRS in general includes all applicable PFRS, PhilippineAccounting Standards (PAS) and interpretations of the Philippine Interpretations Committee (PIC),Standing Interpretations Committee (SIC) and International Financial Reporting InterpretationsCommittee (IFRIC) which have been approved by the Financial Reporting Standards Council (FRSC)and adopted by SEC.

The financial statements have been prepared under the historical cost convention, as modified by therevaluation of available-for-sale securities.

The preparation of financial statements in conformity with PFRS requires the use of certain criticalaccounting estimates. It also requires management to exercise its judgment in the process of applyingthe Company’s accounting policies. The areas involving a higher degree of judgment or complexity, orareas where assumptions and estimates are significant to the financial statements are disclosed inNote 3.

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Changes in accounting policy and disclosures

A number of new PFRS standards, amendments to existing PFRS standards and IFRIC interpretationsare effective for annual periods beginning January 1, 2012 and onwards. The adoption of these standards,amendments and interpretations, to the extent applicable to the Company’s operations, transactions andbalances, did not have or are not expected to have a significant impact on the Company’s financialstatements except as set out below:

PAS 1 (Amendment), Financial Statement Presentation - Other Comprehensive Income (effectiveJuly 1, 2012). The main change resulting from these amendments is a requirement for entities togroup items presented in other comprehensive income on the basis of whether they are potentiallyreclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do notaddress which items are presented in other comprehensive income. The Company will apply theamendment beginning January 1, 2013. The adoption is not expected to have a significant impacton the financial statements but will result in changes in presentation in the statement of totalcomprehensive income.

PAS 19 (Amendment), Employee Benefits (effective January 1, 2013). These amendments eliminatethe corridor approach and calculate finance costs on a net funding basis. They would also requirerecognition of all actuarial gains and losses in other comprehensive income as they occur and of allpast service costs in profit or loss. The amendments replace interest cost and expected return on planassets with a net interest amount that is calculated by applying the discount rate to the net definedbenefit liability (asset). The Company will apply the amendment beginning January 1, 2013. At aminimum, the adoption of the amendment will result into the recognition of unrecognized actuariallosses amounting to P1,364,297 (Note 17) in other comprehensive income.

PFRS 9, Financial Instruments (effective January 1, 2015). This new standard addresses theclassification, measurement and recognition of financial assets and financial liabilities. It replacesthe parts of PAS 39 that relate to the classification and measurement of financial instruments.PFRS 9 requires financial assets to be classified into two measurement categories: those measuredat fair value and those measured at amortized cost. The determination is made at initialrecognition. The classification depends on the Company’s business model for managing itsfinancial instruments and the contractual cash flow characteristics of the instrument. For financialliabilities, the standard retains most of the PAS 39 requirements. The main change is that, in caseswhere the fair value option is taken for financial liabilities, part of the fair value change due to anentity’s own credit risk is recorded in other comprehensive income rather than profit or loss, unlessthis creates an accounting mismatch. The Company is yet to assess the full impact of PFRS 9 andintends to adopt this standard beginning January 1, 2015. The Company will also consider theimpact of the remaining phases of PFRS 9 when issued.

PFRS 13, Fair Value Measurement (effective January 1, 2013). This new standard aims to improveconsistency and reduce complexity by providing a clarified definition of fair value and a singlesource of fair value measurement and disclosure requirements for use across PFRS. Therequirements, which are largely aligned between IFRS and US GAAP, do not extend the use of fairvalue accounting but provide guidance on how it should be applied where its use is alreadyrequired or permitted by other standards within IFRS. The Company is yet to assess the full impactof PFRS 13 and intends to adopt the standard beginning January 1, 2013.

(3)

There are no other applicable and relevant standards, amendments and interpretations which areeffective beginning January 1, 2012 and adopted by the Company, and those issued but are not yeteffective as at December 31, 2012 that have or expected to have a significant impact on the Company’sfinancial statements during and at the end reporting period.

2.2 Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, and other short-termhighly liquid investments with original maturities of three months or less from the date of acquisitionand are subject to an insignificant risk of changes in value.

2.3 Financial assets

2.3.1 Classification

The Company classifies its financial assets in the following categories: loans and receivables, held-to-maturity securities, at fair value through profit or loss and available-for-sale securities. Theclassification depends on the purpose for which the financial assets were acquired.

Management determines the classification of its financial assets at initial recognition. The Companyhas no investments classified as at fair value through profit or loss during and at the end of eachreporting period.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that arenot quoted in an active market.

The Company’s loans and receivables comprise cash and cash equivalents and receivables in thestatement of financial position.

Held-to-maturity securities

Held-to-maturity securities are non-derivative financial assets with fixed or determinable paymentsand fixed maturities for which management has the positive intention and ability to hold to maturity.

Available-for-sale securities

Available-for-sale securities are non-derivative financial assets that are either designated in thiscategory or not classified in any of the other categories.

2.3.2 Initial recognition and derecognition

Regular-way purchases and sales of financial assets are recognized on trade date (i.e., the date on whichthe Company commits to purchase or sell the asset). Financial assets are initially recognized at fairvalue plus transaction costs that are directly attributable to their acquisition.

Financial assets are derecognized when the contractual right to receive cash flows from the financialassets has ceased to exist or where the Company has transferred substantially all risks and rewards ofownership.

(4)

2.3.3 Subsequent measurement

Available-for-sale securities are subsequently carried at fair value.

Loans and receivables and held-to-maturity securities are subsequently carried at amortized cost usingthe effective interest method.

Gains and losses arising from changes in the fair value of available-for-sale securities are recognizeddirectly in equity, until the financial asset is derecognized or impaired at which time the cumulativegain or loss previously recognized in equity is recognized in profit or loss. Interest earned on thesesecurities is recognized using the effective interest rate in profit or loss. Dividends on available-for-saleequity instruments are recognized in profit or loss when the Company’s right to receive payment isestablished. Changes in the fair value of monetary securities denominated in foreign currency andclassified as available-for-sale are analyzed between translation differences resulting from changes inamortized cost of security and other changes in the carrying amount of the security. The translationdifferences are recognized in the profit or loss, and other changes in carrying amount are recognized inequity. Changes in the fair value of monetary securities classified as available-for-sale and non-monetary securities classified as available-for-sale are recognized in equity.

2.3.4 Impairment of financial assets

Assets classified as loans and receivables and held-to-maturity securities

The Company assesses at each reporting date whether there is objective evidence that a financial assetor group of financial asset is impaired. Individually significant financial asset is tested for impairmentif there are indicators of impairment. Impairment is measured on a portfolio basis when there isindication of impairment in a group of similar assets (with similar credit characteristics) andimpairment cannot be identified with an individual asset within the group. An asset that is deemedimpaired on an individual basis is not subsequently included in any group of assets that is tested forimpairment on a portfolio basis.

For purposes of a collective evaluation of impairment, financial assets are grouped on the basis ofsimilar credit risk characteristics (i.e., on the basis of the Company’s credit rating process thatconsiders asset type, industry, geographical location, collateral type, past-due status and other relevantfactors). Those characteristics are relevant to the estimation of future cash flows for groups of suchassets by being indicative of the debtor’s ability to pay all amounts due according to the contractualterms of the assets being evaluated.

Historical loss experience is adjusted on the basis of current observable data to reflect the effects ofcurrent conditions that did not affect the period on which the historical loss experience is based and toremove the effects of conditions in the historical period that do not currently exist. The methodologyand assumptions used for estimating future cash flows are reviewed regularly to reduce any differencesbetween loss estimates and actual loss experience.

The amount of impairment loss is measured as the difference between the financial asset’s carryingamount and the present value of estimated future cash flows discounted at the asset’s original effectiveinterest rate (recoverable amount). Impairment loss is recognized in profit or loss and the carryingamount of the asset is reduced through the use of an allowance account.

(5)

An impairment charge is reversed subsequently by adjusting the allowance account if the decrease inimpairment loss can be related objectively to an event occurring after the impairment loss isrecognized. The amount of reversal is recognized against impairment losses in profit or loss.

Loans and receivables are written-off in the year in which they are determined to be uncollectible.Loans and receivables are determined to be uncollectible after exerting effort to collect the accountsand upon approval by the Company’s Board of Directors.

Assets classified as available-for-sale

The Company assesses at the end of each reporting period whether there is objective evidence thatavailable-for-sale debt securities are impaired using similar criteria and process applied to financialassets carried at amortized cost as described above.

For equity investments classified as available-for-sale, a significant or prolonged decline in the fairvalue of the security below its cost is an objective evidence that the assets are impaired. A decline inthe fair value of the instrument by more than 20 percent is considered significant and a period of 12months or greater is considered to be a ‘prolonged’ decline. If any such evidence exists for available-for-sale equity securities, the cumulative loss - measured as the difference between the acquisitioncost and the current fair value, less any impairment loss on that financial asset previously recognizedin profit or loss - is removed from equity and recognized in profit or loss. Impairment losses onequity investment are not reversed in profit or loss. Increases in fair value after impairment arerecognized directly in equity.

2.4 Financial liabilities

2.4.1 Classification and measurement

The Company classifies its financial liabilities in the following categories: at fair value through profit orloss and at amortized cost. The classification depends on the purpose for which the financial liabilitieswere acquired or incurred. Management determines the classification of its financial instruments atinitial recognition.

The Company’s financial liabilities include financial instruments that are carried at amortized cost.These include commissions payable and accounts payable and other liabilities (excluding taxespayable).

The Company has no financial liabilities classified at fair value through profit or loss during and at theend of each reporting period.

2.4.2 Initial recognition and derecognition

Financial liabilities are initially recognized at fair value of the consideration received plus transactioncosts. A financial liability is derecognized when the obligation under the liability is discharged orcancelled, or has expired.

2.4.3 Subsequent measurement

Financial liabilities at amortized cost are subsequently measured at amortized cost using the effectiveinterest method.

(6)

2.5 Determination of fair value

The Company classifies its fair value measurements using a fair value hierarchy that reflects thesignificance of the inputs used in making the measurements. The fair value hierarchy has the followinglevels:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. This levelincludes listed equity securities and debt instruments on exchanges (for example, PhilippineStock Exchange, Inc., Philippine Dealing and Exchange Corp., etc.).

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset orliability, 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 (unobservableinputs). This level includes equity investments and debt instruments with significantunobservable components.

The fair value for financial instruments traded in active markets at the reporting date is based on theirquoted market price or dealer price quotations, without any deduction for transaction costs. Whencurrent bid and asking prices are not available, the price of the most recent transaction providesevidence of the current fair value as long as there has not been a significant change in economiccircumstances since the time of the transaction.

For all other financial instruments not listed in an active market, the fair value is determined by usingappropriate valuation techniques. Valuation techniques include discounted cash flow analyses,comparison to similar instruments for which market observable prices exist, option pricing models,and other relevant valuation models.

2.6 Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financialposition when there is a legally enforceable right to offset the recognized amounts and there is anintention to settle on a net basis, or realize the asset and settle the liability simultaneously.

2.7 Insurance contracts

2.7.1 Recognition and measurement

Short-term insurance contracts of the Company include property and casualty insurance contracts.

For all these contracts, premiums are recognized as revenue as follows:

Direct business

Gross premiums written are recognized at the inception date of the risks underwritten and are earnedover the period of cover in accordance with the incidence of risk using the 24th method. The portion ofthe gross premiums written that relates to the unexpired periods of the policies at year-end is presentedas reserve for unearned premiums in the statement of financial position.

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Inward reinsurance business

Gross premiums written are recognized based on the date of notification by the ceding companies andare earned over the period of cover in accordance with the incidence of risk using the 24th method.The portion of the gross premiums written that relates to the unexpired periods of the policies at year-end is presented as reserve for unearned premiums in the statement of financial position.

2.7.2 Losses and claims payable

Losses and claims payable are recognized when the contracts are entered into and the premiums arecharged. Loss and claims adjustment expenses are recognized in profit or loss based on the estimatedliability for compensation owed to contract holders or to third parties damaged by the contract holders.They include direct and indirect claim settlement costs arising from events that have occurred up to thereporting date even if they have not yet been reported to the Company [i.e., incurred but not reported(IBNR)]. The Company does not discount its liabilities for unpaid claims. Liabilities for unpaid claimcosts including those for incurred but not reported are estimated and accrued. The liabilities forunpaid claims are based on the estimated ultimate cost of settling the claims using the input ofassessment for individual cases reported to the Company. The method of determining such estimatesand establishing reserves is continually reviewed and updated. Changes in estimates of claim costsresulting from the continuous review process and differences between estimates and payments forclaims are recognized as income or expenses in the year in which the estimates are changed orpayments are made. Estimated recoveries on settled and unsettled claims are evaluated in terms ofestimated realizable values of the salvage recoverable and deducted from the liability for unpaid claims.Outstanding claims and IBNR losses are presented in the statement of financial position as part oflosses and claims payable.

2.7.3 Reinsurance commission

Reinsurance commission is initially deferred upon acceptance of the premium cession by reinsurersand earned in proportion to premium revenue recognized. Reinsurance commission is presented ascommissions earned in the statement of total comprehensive income.

2.7.4 Acquisition costs

Costs that vary with and are primarily related to the acquisition of new and renewal insurance contractssuch as commissions are deferred and charged to expense in proportion to premium revenuerecognized. Unamortized acquisition costs are shown in the statement of financial position as deferredacquisition costs.

Reinsurance commissions are deferred and deducted from the applicable deferred acquisition costs, andrecognized in profit or loss using the same amortization method as the related acquisition costs.

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2.7.5 Liability adequacy test

At each reporting date, liability adequacy tests are performed to ensure the adequacy of the contractliabilities, net of related deferred acquisition costs (DAC). In performing these tests, current best estimateof future contractual cash flows and claims handling and administration expenses, as well as investmentincome from the assets backing such liabilities, are used. Any deficiency is immediately charged to profitor loss initially by writing-off DAC and by subsequently establishing a provision for losses arising fromliability adequacy tests (the unexpired provision). There were no deficiencies recognized in profit or lossduring reporting periods. Any DAC written off as a result of this test cannot be subsequently reinstated.

2.7.6 Reinsurance contracts held

Contracts entered by the Company with reinsurers which compensate the Company for losses on one ormore contracts issued and meet the classification requirements for insurance contracts are classified asreinsurance contracts held. Insurance contracts entered into by the Company under which the contractholder is another insurer (inward reinsurance) are classified as insurance contracts. Contracts that donot meet these classification requirements are classified as financial contracts.

The benefits to which the Company is entitled under its reinsurance contracts held are recognized asreinsurance assets. These assets consist of reinsurance recoverable on paid losses, due from reinsurersand ceding companies and funds held by ceding companies (classified within receivables) andreinsurance recoverable on unpaid losses.

The Company assesses its reinsurance assets for impairment annually. If there is objective evidencethat the reinsurance asset is impaired, the Company reduces the carrying amount of the reinsuranceasset to its recoverable amount and recognizes that impairment loss in profit or loss. The Companygathers the objective evidence that a reinsurance asset is impaired using the same policies adopted forfinancial assets held at amortized cost. The impairment loss is also calculated following the samemethod used for these financial assets. These policies are described in Note 2.3 (e).

Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognized asan expense upon recognition of related premiums. These liabilities pertain to due to reinsurers andceding companies and funds held for reinsurers.

Amounts recoverable from or due to reinsurers are measured consistently with the amounts associatedwith the reinsured insurance contracts and in accordance with terms of each reinsurance contract.

2.7.7 Receivables and payables related to insurance contracts

Receivables and payables, such as premium receivable, losses and claims payable and commissionspayable, are recognized when the right to receive payment is established or when the obligation becomesdue. These include amounts due to and from agents, brokers and insurance contract holders.

If there is objective evidence that the insurance receivable is impaired, the Company reduces thecarrying amount of the insurance receivable accordingly and recognizes that impairment loss in profitor loss. The Company gathers the objective evidence that an insurance receivable is impaired using thesame policies adopted for loans and receivables. The impairment loss is also calculated under the samemethod used for these financial assets. These policies are described in Note 2.3 (e).

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2.7.8 Salvage and subrogation reimbursements

Some insurance contracts permit the Company to sell usually damaged property acquired in settling aclaim (i.e., salvage). The Company also have the right to pursue third parties for payment of some or allcosts (i.e., subrogation).

Subrogation reimbursements are also considered as an allowance in the measurement of the insuranceliability for claims and are charged against losses and claims payable when the liability is settled. Theallowance is the assessment of the amount that can be recovered from the action against the liable thirdparty.

The total salvage and subrogation reimbursements as at December 31, 2012 amount to P2,042,224(2011 - P520,000).

2.8 Investment properties

Properties held for long term rental yields or for capital appreciation or for both, are classified asinvestment 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 futureeconomic benefits associated with the item will flow to the Company and the cost of the item can bereliably measured. Subsequently, at each report date, investment properties, except for land, arecarried at cost less accumulated depreciation and impairment loses, if any. Land is carried at cost lessany impairment in value.

Depreciation of investment property is computed using the straight-line method over its useful life. Theestimated useful life and the depreciation method is reviewed periodically to ensure that the period andthe method of depreciation is consistent with the expected pattern of economic benefits from items ofinvestment properties. The estimated useful life of the investment properties is 25 years.

Transfers are made to investment property when there is a change in use, evidenced by ending of owneroccupation, commencement of an operating lease to another party or ending of construction ordevelopment. There were no transfers made to investment property during and at the end of eachreporting period.

Investment property is derecognized when it has been disposed of or when permanently withdrawnfrom use and no future benefit is expected from its disposal. Any gain or loss on the retirement ordisposal of investment property is recognized in profit or loss in the year of derecognition.

Rental income from investment property is recognized in profit or loss on a straight-line basis over thelease term. Lease incentives are recognized as an integral part of the total rent income. Expenses withregard to investment property are treated as ordinary operating expenses and are recognized whenincurred.

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2.9 Property and equipment

Property and equipment are stated at historical cost less accumulated depreciation and amortization andany impairment in value. Historical cost includes expenditures that are directly attributable to theacquisition of items. Subsequent costs are included in the asset’s carrying amount or recognized as aseparate asset, as appropriate, only when it is probable that economic benefits associated with the itemwill flow to the Company and the cost of the item can be measured reliably. All other repairs andmaintenance are charged to profit or loss during the period in which they are incurred.

Depreciation and amortization are calculated using the straight-line method to allocate their cost to theirresidual values over their estimated useful lives as follows:

Building 27 yearsEDP equipment 5 yearsTransportation equipment 5 yearsFurniture, fixtures and office equipment 5 to 7 years

Leasehold improvements5 years or lease term, whichever is

shorter

The assets’ residual values and useful lives are reviewed, and adjusted as appropriate, at each reportingdate.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’scarrying amount is greater than its estimated recoverable amount. The recoverable amount is thehigher of an asset’s fair value less costs to sell and value in use.

An item of property and equipment is derecognized upon disposal or when no future economic benefitsare expected from its use or disposal at which time the cost and their related accumulated depreciationare removed from the accounts. Gains and losses on disposals are determined by comparing proceedswith carrying amount and are recognized in profit or loss.

2.10 Impairment of non-financial assets

Assets that are subject to depreciation or amortization, such as property and equipment and investmentproperty, are reviewed for impairment whenever events or changes in circumstances indicate that thecarrying amount may not be recoverable. An impairment loss is recognized for the amount by which theasset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of anasset’s fair value less costs to sell and value in use. For purposes of assessing impairment, assets aregrouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).Value in use requires the Company to make estimates of future cash flows to be derived from a particularasset, and discount them using a pre-tax market rate that reflects current assessments of the time value ofmoney and the risks specific to the asset.

2.11 Income taxes

Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantivelyenacted at the reporting date. Management periodically evaluates positions taken in tax returns withrespect to situations in which applicable tax regulation is subject to interpretation and establishesprovisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

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Deferred income tax

Deferred income tax (DIT) is provided in full, using the liability method, on temporary differencesarising between the tax bases of assets and liabilities and their carrying amounts in the financialstatements. DIT is determined using the tax rates (and laws) that have been enacted or substantivelyenacted by the reporting date and are expected to apply when the related DIT asset is realized or theDIT liability is settled.

DIT assets are recognized for all deductible temporary differences, carry-forward of unused tax losses(net operating loss carryover or NOLCO) and unused tax credits to the extent that it is probable thatfuture taxable profits will be available against which the temporary differences can be utilized. DITliabilities are recognized in full for all taxable temporary differences, except to the extent that thedeferred tax liability arises from the initial recognition of goodwill.

DIT assets and liabilities are offset when there is a legally enforceable right to offset current tax assetsagainst current tax liabilities and when the DIT assets and liabilities relate to income taxes levied by thesame taxation authority and where there is an intention to settle the balances on a net basis.

DIT expense or credit included in provision for income tax is recognized for the changes during theyear in the DIT assets and liabilities.

2.12 Provisions

Provisions for legal claims are recognized when the following are present:

the Company has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognized for future operating losses.

Provisions are measured at the present value of the expenditures expected to be required to settle theobligation using a pre-tax rate that reflects current market assessments of the time value of money andthe risks specific to the obligation. The increase in the provision due to the passage of time isrecognized as interest expense.

2.13 Pension liability

The liability recognized in the statement of financial position in respect of defined benefit pension planis the present value of the defined benefit obligation at the reporting date less the fair value of planassets, together with adjustments for unrecognized actuarial gains or losses and past service costs. Thedefined benefit obligation is calculated annually by independent actuaries using the projected unitcredit method. The present value of the defined benefit obligation is determined by discounting theestimated future cash outflows using interest rates of government bonds that are denominated in thecurrency in which the benefits will be paid, and that have terms to maturity which approximate theterms of the related pension liability.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions inexcess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation arerecognized in profit or loss over the employees’ expected average remaining working lives.

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Past service costs are recognized immediately in profit or loss, unless the changes to the pension plan areconditional on the employees remaining in service for a specified period of time (the vesting period). Inthis case, the past-service costs are amortized on a straight-line basis over the vesting period.

The unrecognized pension liability (transition liability) is amortized over five years.

2.14 Equity

Common shares are classified as equity.

2.15 Deposit for future share subscription

Deposit for future share subscription represent funds received by the Company with a view to applyingthe same as payment for a future additional issuance of shares either from its authorized but unissuedshares, from a proposed increase in authorized share capital, or as additional paid-in capital. Uponapplication, the amount will be credited to share capital for the par value of the shares and sharepremium for the amount in excess of the par value.

2.16 Dividend distribution

Dividend distribution to the Company’s shareholders is recognized as a liability in the Company’sfinancial statements in the period in which the dividends are approved by the Company’s Board ofDirectors.

2.17 Revenue recognition

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

Premium revenue

Premiums from short-duration insurance contracts are recognized as revenue over the period of thecontracts using the 24th method, except for marine cargo where the provision for unearned premiumspertain to the premiums for the last two months of the year. The portion of the premiums written thatrelate to the unexpired periods of the policies at reporting date is accounted for as reserve for unearnedpremiums in the statement of financial position. The related reinsurance premiums that pertain to theunexpired periods at reporting date are accounted for as deferred reinsurance premiums presented inthe statement of financial position. The net changes in these accounts between reporting dates areincluded in the determination of net premium earned.

Commission income

Reinsurance commissions are recognized as revenue over the period of the contracts using the24th method, except for marine cargo where the deferred reinsurance commission pertains to thepremiums for the last two months of the year. The portion of the commissions that relates to theunexpired periods of the policies at the reporting date is accounted for as deferred reinsurancecommissions and offset against deferred acquisition costs in the statement of financial position.

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2.18 Leases

Leases where a significant portion of the risks and rewards of ownership are retained by the lessor areclassified as operating leases. Payments made under operating leases are charged to profit or loss on astraight-line basis over the period of the lease.

Properties leased out under operating leases are included in investment properties in the statement offinancial position. Rental income under operating leases is recognized in profit or loss on a straight-line basis over the period of the lease.

2.19 General and administrative expenses

General and administrative expenses are recognized when incurred.

2.20 Foreign currency transactions and translation

Functional and presentation currency

Items included in the financial statements are measured using the currency of the primary economicenvironment in which the Company operates (the “functional currency”). The Company’s financialstatements are presented in Philippine Peso, which is the Company’s functional and presentationcurrency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange ratesprevailing at the dates of the transaction. Foreign exchange gains and losses resulting from thesettlement of such transactions and from the translation of monetary assets and liabilities denominatedin foreign currencies are recognized in profit or loss.

2.21 Related party transactions and relationships

Related party relationships exist when one party has the ability to control, directly, or indirectlythrough one or more intermediaries, the other party or exercises significant influence over the otherparty in making financial and operating decisions. Such relationships also exist between and/or amongentities which are under common control with the reporting enterprise, or between and/or among thereporting enterprise and its key management personnel, directors, or its shareholders. In consideringeach possible related party relationship, attention is directed to the substance of the relationship, andnot merely the legal form.

2.22 Events after the reporting date

Post year-end events that provide additional information about the Company’s position at the reportingdate (adjusting events) are reflected in the financial statements. Post year-end events that are notadjusting events are disclosed in the notes to the financial statements when material.

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Note 3 - Critical accounting estimates, assumptions and judgments

The Company makes estimates and assumptions that affect the reported amounts of assets andliabilities within the next financial year. Estimates, assumptions and judgments are continuallyevaluated and are based on historical experience and other factors, including expectations of futureevents that are believed to be reasonable under the circumstances. The estimates, assumptions andjudgments that have significant risk of causing a material adjustment to the carrying amounts of assetsand liabilities within the next financial year are discussed below.

3.1 Critical accounting estimates and assumptions

The ultimate liability arising from claims made under insurance contracts (Note 9)

The estimation of the ultimate liability arising from claims made under insurance contracts is theCompany’s most critical accounting estimate. Management makes best estimate of its insuranceliability at reporting date using adjuster’s report and other available information relating to claims.However, there are several sources of uncertainty that need to be considered in the estimate of theliability that the Company will ultimately pay for such claims. The major uncertainties are thefrequency of claims due to the contingencies covered and the timing of benefit payments.

The Company considers that it is impracticable to discuss with sufficient reliability the possibleeffects of sensitivities surrounding the ultimate liability arising from claims made under insurancecontracts as the major uncertainties may differ significantly. With this, it is reasonably possible,based on existing knowledge, that the outcomes within the next fiscal year are different fromassumptions could require a material adjustment to the carrying amount of the asset or liabilityaffected including reserve for outstanding losses and related insurance balances.

The carrying value of losses and claims payable as at December 31, 2012 amounts to P462,630,931(2011 - P500,360,754). IBNR claims, gross of reinsurance, as at December 31, 2012 amount toP7,447,073 (2011 - P4,181,825). Net claims and losses during the year amount to P100,797,976(2011 - P89,337,414).

3.2 Critical accounting judgments

Impairment of available-for-sale securities (Note 8)

The Company determines that available-for-sale securities are impaired when there has been asignificant or prolonged decline in the fair value below its cost for equity securities. For debt securities,available-for-sale financial assets are impaired when an objective evidence of impairment is present.The determination of what is significant or prolonged decline or objective evidence of impairmentrequires judgment. Impairment may be appropriate when there is evidence of deterioration in thefinancial health and near-term business outlook of the investee or issuer, including factors such asindustry and sector performance, changes in technology, and financing and operational cash flows.

As at reporting date, the Company has no recognized impairment in available-for-sale securities.

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Classification to held-to-maturity securities (Note 8)

The Company follows the guidance of PAS 39 in classifying non-derivative financial assets with fixed ordeterminable payments and fixed maturity as held-to-maturity. This classification requires significantjudgment. In making this judgment, the Company evaluates its intention and ability to hold suchinvestments to maturity. If the Company fails to keep these investments to maturity other than for thespecific circumstances - for example, selling an insignificant amount close to maturity - it will berequired to reclassify the entire class as available-for-sale. The investments would therefore bemeasured at fair value and not amortized cost.

If the entire class of held-to-maturity investments is tainted, the carrying amount of investment wouldincrease by P8,770,396 (2011 - P18,610,943 increase) with a corresponding entry in reserve foravailable-for-sale securities in the equity section of the statement of financial position.

Impairment of reinsurance assets (Notes 7 and 9)

The Company reviews reinsurance assets at each reporting period to assess whether an allowance forimpairment should be recorded in profit or loss. In particular, judgment by management is required indetermining the amount and timing of future cash flows in establishing the level of allowance required.The amount and timing of recorded expenses for any period would differ if the Company madedifferent judgment. An increase in allowance for impairment losses would increase recorded expensesand decrease net income.

As at reporting date, the Company has no recognized impairment in reinsurance assets.

Recoverability of deferred income taxes (Note 12)

Management reviews at each reporting date the carrying amounts of DIT assets. The carrying amountof DIT assets is reduced to the extent that is no longer probable that sufficient taxable profit will beavailable against which the related tax assets can be utilized. Management believes that sufficienttaxable profit will be generated to allow all of the recognized DIT assets to be utilized.

The balance of DIT assets amounted to P43,171,535 (2011 - P33,903,632).

Note 4 - Insurance and financial risk and capital management

This section summarizes the Company’s insurance and financial risks and the way the Companymanages them, including the Company’s capital management objectives.

4.1 Insurance risk

Insurance is a form of contract whereby periodic payments (also known as insurance premiums) aremade to an insurance company, in order to provide an individual or business compensation in theevent of property loss or damage. The risk under any one insurance contract is the uncertainty aboutan unfavorable outcome in a given situation. Insurance risk is uncertainty over the likelihood of aninsured event occurring, the quantum of the claim, or the time when claims payments will fall due.

The principal risk the Company is facing under insurance contracts is when the actual claims andbenefit payments exceeds the carrying amount of the insurance liabilities. This could happen whenthere are numerous claims that occur in a particular period and the actual payment exceeds theestimated amount.

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Factors that aggravate insurance risk include reduction in rates of premium, geographical location, andtype of industry covered. One way of reducing insurance risk is by transfer and sharing of risk.

The Company has developed its insurance underwriting strategy to expand the type of insurance riskaccepted in order to attain premium income growth and above-average underwriting profit.

4.1.1 Casualty insurance contracts

Frequency and severity of claims

The frequency and severity of claims can be affected by several factors. Estimated inflation is also asignificant factor due to the long period typically required to settle these cases. Another factor is thepolitical and economic stability of the country which resulted to numerous theft claims. The Companymanages these risks through its well-designed underwriting strategy, adequate reinsurancearrangements and proactive claims handling.

The underwriting strategy attempts to ensure that the underwritten risks are well diversified in termsof type and amount of risk, industry and geography in order to spread possible losses fairly between theCompany (retention) and the reinsurers.

Management continues to review the loss experience and premium payment record of existing agenciesto identify and weed out the bad agencies and motivate the good agencies to produce more business.

Sources of uncertainty in the estimation of future claim payments

The claims outstanding provision is the estimated ultimate cost of all claims and the related claimshandling expenses in respect of events up to the accounting date less amounts already paid.

The provision will relate to all events that have occurred up to the accounting date, whether or not theCompany has been notified of the claims in question before the close of the accounting period. Thelatter category of claims is referred to as IBNR claims.

It is impossible for an insurance company to predict its outstanding claims provisions with 100%accuracy. Yet this item is probably the most significant figure in the accounts. If it is understated, theCompany may distribute assets or otherwise act in a way that could lead to severe financial problems,and possible insolvency, when claims come to be paid.

The provision for reported claims and IBNR claims are the Company’s estimate of the amount which itwill have to pay at year-end.

The estimated cost of claims includes direct expenses to be incurred in settling claims, net of theexpected subrogation value and other recoveries. The Company takes all reasonable steps to ensurethat it has appropriate information regarding its claims exposures.

4.1.2 Property insurance contracts

Frequency and severity of claims

For property insurance contracts, climatic changes give rise to more frequent and severe extremeweather events (for example, flooding, typhoons, etc.) and their consequences.

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Cost of rebuilding properties, replacement or indemnity for contents and time taken to restartoperations for business interruption are the key factors that influence the level of claims under thesepolicies. The greatest likelihood of significant losses on these contracts arises from storm or flooddamage.

The Company has the right to re-price the risk on renewal. It also has the ability to impose deductiblesand reject fraudulent claims. Moreover, it has the right not to accept a certain risk by not engaging inany form of hazardous enterprise at all. These contracts are underwritten by reference to thecommercial replacement value of the properties and contents insured, and claim payment limits arealways included to cap the amount payable on occurrence of the insured event.

Sources of uncertainty in the estimation of future claims payments

Treaty cession limits and underwriting strategies are being implemented to protect the Company andreinsurers from high exposures to possible losses. Property claims are analyzed separately for itsexposures and risk accumulation. This is estimated within the definition of the crest zone exposures.The shorter settlement period for these claims allows the Company to achieve a higher degree ofcertainty about the estimated cost of claims.

4.1.3 Marine insurance contracts

Marine insurance contract covers marine cargo

All marine insurance policies issued are covered by the Company’s reinsurance program. TheCompany sees to it that the name of the vessel is stated to determine whether the vessel is acceptableand to ensure that it is insuring a shipment that is loaded in a sea worthy vessel.

Sources of uncertainty in the estimation of future claims payments

For marine claims, it is the marine adjusters who make valuations and recommendations for theestimated loss reserves including direct expenses, subrogation value and recoveries that will beincurred in settling the claims. The Company sees to it that the underwriting guidelines in accepting amarine risk is being implemented to mitigate exposure to an amount which is beyond the Company’scapacity to write involving one vessel.

4.1.4 Sensitivities

The general insurance claims provision is sensitive to the Company’s past claims developmentexperiences. The sensitivity of certain variables like legislative change, uncertainty in the estimationprocess, etc., is not possible to quantify. Furthermore, because of delays that arise between occurrenceof a claim and its subsequent notification and eventual settlement, the outstanding claims provisionsare not known with certainty at the reporting date.

Consequently, the ultimate liabilities will vary as a result of subsequent developments. Differencesresulting from reassessments of the ultimate liabilities are recognized in subsequent financialstatements.

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The Company provides for estimated IBNR losses based on the actual reported losses during the firstmonth subsequent to yearend. A sensitivity analysis was performed based on the standard deviation inIBNR for the past three years covering claims filed during the first month of each year for lossesincurred for the previous year.

Change in IBNR Effect on pre-tax incomeDecember 31, 2012 +/- 10% +/- 772,155December 31, 2011 +/- 41% +/- 1,718,461

4.2 Financial risk

The Company is exposed to financial risk through its financial assets and financial liabilities. Themost important components of this financial risk are market risk, credit risk and liquidity risk.

4.2.1 Market risk

Interest rate risk

This is the type of risk that the Company primarily faces due to the nature of its financial assets andliabilities. The interest rate risk is the only financial risk that has a materially different impact acrossthe assets and liabilities categorized in the Company’s asset liability management framework.

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuatebecause of changes in market interest rates. Fair value interest rate risk is the risk that the value of afinancial instrument will fluctuate because of changes in market interest rates.

The Company is exposed to fair value interest rate risk, the risk that the value of a financial instrumentwill fluctuate because of changes in market interest rate, because of debt securities held by theCompany and classified on the statement of financial position as available-for-sale (Note 8). Asensitivity analysis was performed based on a reasonable possible shift in interest rate year on year onthe Company’s debt securities. If interest rates increased/decreased by 216 basis points in 2012 (2011 –17 basis points), with all other variables held constant, the fair value reserve shown in equity woulddecrease/increase by P1,821 (2011 - P25,416).

The Company’s investments in government securities which are held-to-maturity (Note 8) bear fixedinterest rates and therefore the Company is not exposed to fair value and cash flow interest risk onthese securities.

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Foreign currency risk

The insurance business of the Company is mostly denominated in local currency.

Currency exposures arise primarily from the holding of monetary assets denominated in US Dollar.The Company does not enter into derivatives to manage foreign currency risks.

The Company’s foreign currency assets and liabilities as at December 31 are as follows:

Notes 2012 2011

Assets (in US Dollar)Cash and cash equivalents 6

Cash in banks 156,694 164,726

Time deposits 2,228,700 3,449,969

Available-for-sale securities 8 1,008,740 1,010,326

Held-to-maturity securities 8 4,185,000 1,975,000

Reinsurance recoverable on unpaid losses 2,056,961 2,921,450

Total assets 9,636,095 9,521,471

Liability

Losses and claims payable 2,018,448 2,975,000

Net asset 7,616,647 6,546,471

Peso equivalent 313,744,923 287,573,378

The exchange rate of US Dollar into Philippine Peso is P41.192 (2011 - P43.928).

For the years ended December 31, the Company’s foreign exchange (losses) gains are as follows:

2012 2011

Unrealized foreign exchange (loss) gain (8,630,886) 584,843Realized foreign exchange (loss) gain (11,127,688) (663,113)

(19,758,574) (78,270)

A sensitivity analysis was performed on the US Dollar denominated assets and liabilities. Thefluctuation rate is based on the historical movement of US Dollar year on year.

Year Change in currencyEffect on pre-tax income in

Philippine Peso

2012 +/- 6.00% +/- 21,841,8822011 +/- 0.10% +/- 281,331

Price risk

The Company is exposed to price risk in respect of equity securities classified as available-for-salesecurities.

Net change in fair value of available-for-sale equity securities would increase/decrease by P12,430,350(2011 - P2,570,844) as a result of an increase/decrease of 32% (2011 - 7%) in market prices which isbased on the average historical fluctuation in the stock price index year on year.

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4.2.2 Credit risk

Credit risk management, risk limit and mitigation policies

(i) Insurance and reinsurance receivable balances

The Company structures the levels of credit risk it accepts by placing limits on its exposure to a singlecounterparty, or group of counterparty, and to geographical and industry segments. Such risks aresubject to an annual or more frequent review. Limits on the level of credit risk by category andterritory are approved annually by the Board of Directors.

Reinsurance risk is used to manage insurance risk. This does not, however, discharge the Company’sliability as primary insurer. If a reinsurer fails to pay a claim for any reason, the Company remainsliable for the payment to the policyholder. The creditworthiness of reinsurers is considered on anannual basis by reviewing their financial strength prior to finalization of any contract. For facultativereinsurers, only approved companies are being used after taking into consideration their paying habitand reciprocal business.

Key areas where the Company is exposed to credit risk are:

reinsurers’ share of insurance liabilities; amounts due from reinsurers in respect of claims already paid; amounts due from insurance contract holders; and amounts due from insurance intermediaries.

(ii) Available-for-sale and held-to-maturity debt securities

One of the Company’s primary investment objectives is to seek the preservation of its portfolio bymitigating the credit risk which is the risk of loss due to failure of the issuer to make good on itsobligation when maturity becomes due. This is mitigated by investing in safe securities anddiversifying its investment portfolio so that the failure of any one issuer would not materially affect thecash flow of the Company. Within the guidelines provided by the Insurance Commission (IC), theCompany’s Investment Committee ensures that the Company invests in allowable categories ofinvestment instruments and provided limitation as to the percentage of the portfolio which can beinvested in certain category. Presently, the Company has heavily invested in government securities.

For time deposits and debt securities, external ratings such as those provided by Philippine RatingServices Corporation (Philratings) and Standard & Poor (S&P) or their equivalent are used by theCompany for managing credit risk exposures. Investments in these deposits and securities are viewedas a way to gain better credit quality mix and at the same time, maintain a readily available source tomeet funding requirements.

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Maximum exposure to credit risk

Credit risk exposures relating to financial assets at December 31 are as follows:

2012 2011

Cash and cash equivalents (excluding cash on hand) 219,686,939 327,530,936

Receivable arising from insurance contractsPremium receivable 61,870,942 53,151,648Reinsurance recoverable on paid losses 130,391,975 85,525,687

Due from reinsurers and ceding companies 5,460,729 5,020,333

Funds held by ceding companies 4,880,417 4,091,641

Other loans and receivablesAccounts receivable 9,663,611 9,255,490Accrued interest income 4,745,489 4,248,247

Accrued rental income 266,553 -Refundable deposits 69,700 69,700Security fund 24,929 24,929

Available-for-sale debt securities 51,825,921 54,990,169Held-to-maturity securities 382,623,710 225,595,876

Allowance for impairment on premium receivable amounts to P1,553,000 as at December 31, 2012 and2011.

Credit quality of receivables arising from insurance contracts and other loans and receivables

Amounts in thousands

Neither pastdue norimpaired

(1-30 days)

Past due but not impairedOverdue

andimpaired

Grosscarryingamount

31-180days

181-360days

More than360 days

December 31, 2012Receivable arising from insurance

contractsPremium receivable 11,348 35,764 10,063 3,143 1,553 61,871Reinsurance recoverable on paid

losses 18,217 64,614 10,487 37,074 - 130,392Due from reinsurers and ceding

companies 931 150 127 4,253 - 5,461Funds held by ceding companies - 1,802 41 3,037 - 4,880

Other loans and receivables -Accounts receivable 2,834 830 449 5,551 - 9,664Accrued interest income 376 4,369 - - - 4,745Accrued rental income 267 - - - - 267Refundable deposits - - - 70 - 70Security fund - - - 25 - 25

33,683 88,632 16,018 77,489 1,553 217,375

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Amounts in thousands

Neither pastdue norimpaired

(1-30 days)

Past due but not impairedOverdue

andimpaired

Grosscarryingamount

31-180days

181-360days

More than360 days

December 31, 2011Receivable arising from insurance

contractsPremium receivable 12,814 33,227 3,039 2,519 1,553 53,152Reinsurance recoverable on paid

losses 840 7,612 3,974 73,100 - 85,526Due from reinsurers and ceding

companies 569 1,994 522 1,935 - 5,020Funds held by ceding companies - 486 128 3,478 - 4,092

Other loans and receivablesAccounts receivable 2,778 1,285 1,806 3,386 - 9,255Accrued interest income 2,735 1,352 161 - - 4,248Refundable deposits - - - 70 - 70Security fund - - - 25 - 25

19,736 45,956 9,630 84,513 1,553 161,388

Credit quality of cash and cash equivalents, available-for-sale and held-to-maturity securities

A+ to AAA* BB- to BB+** Unrated*** Total

December 31, 2012


Debt securities-US Dollars - 51,825,921 - 51,825,921


Treasury bonds and notes

Philippine Peso - 103,654,350 - 103,654,350

US Dollar - 174,019,683 - 174,019,683

Corporate bonds - 30,980,737 - 30,980,737

Short-term time deposits - - 73,968,940 73,968,940

- 308,425,374 73,968,940 382,623,710

Cash and cash equivalents

Universal bank 124,511,930

Commercial bank 58,788,578

Thrift bank 36,309,436

Rural bank 76,995

219,686,939

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A+ to AAA* BB- to BB+** Unrated*** Total

December 31, 2011


Debt securities-US Dollars - 54,990,169 - 54,990,169



Philippine Peso - 89,521,881 - 89,521,881

US Dollar - 85,061,671 - 85,061,671

Corporate bonds - 38,977,622 - 38,977,622

Short-term time deposits - - 12,034,702 12,034,702

- 213,561,174 12,034,702 225,595,876

Cash and cash equivalents

Universal bank 210,947,857

Commercial bank 22,458,963

Thrift bank 94,124,116

327,530,936* Based on Philratings** Based on Standard & Poor’s rating

***Unrated short term deposits and corporate bonds are issued by local commercial and universal banks.

The credit quality of cash and cash equivalents is based on the Bangko Sentral ng Pilipinasclassification of banks operating in the Philippines based on total resources. The remaining balance ofcash and cash equivalents as at December 31, 2012 represents cash on hand of P24,175,834(2011 - P24,586,092).

Unrated counterparties, however, have no history of default.

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4.2.3 Liquidity risk

The Company is exposed to daily calls on its available cash resources mainly from claims arising fromshort-term insurance contracts. Liquidity risk is the risk that cash may not be available to payobligations when due at a reasonable cost. The IC as well as the Board of Directors have issued certainguidelines to comply with to ensure that the Company maintains liquidity at all times.

The amounts disclosed in the table are the expected undiscounted cash flows of assets and liabilities,which the Company uses to manage the inherent liquidity risk.

Amounts in thousandsUp to one

yearOver one

year TotalDecember 31, 2012Assets

Cash and cash equivalents 243,863 - 243,863Receivables arising from insurance contracts

Premium receivable 61,871 - 61,871Reinsurance recoverable on paid losses 130,392 - 130,392Due from reinsurers and ceding companies 5,461 - 5,461Funds held by ceding companies 4,880 - 4,880

Other loans and receivables

Accounts receivable 9,664 - 9,664Accrued interest income 4,745 - 4,745

Accrued rental income 267 - 267Refundable deposits 70 - 70Security fund 25 - 25

Available-for-sale securities - 92,231 92,231

Held-to-maturity securities 78,456 304,168 382,624539,694 396,399 936,093

LiabilitiesDue to reinsurers and ceding companies 121,982 - 121,982Funds held for reinsurers 27,026 - 27,026Commissions payable 34,362 - 34,362Accounts payable and other liabilities

(excluding taxes payable) 34,524 11,142 45,666217,894 11,142 229,036

Net assets 321,800 385,257 707,057

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Amounts in thousandsUp to one

yearOver one

year Total

December 31, 2011Assets

Cash and cash equivalents 352,117 - 352,117

Receivables arising from insurance contractsPremium receivable 53,152 - 53,152

Reinsurance recoverable on paid losses 85,526 - 85,526

Due from reinsurers and ceding companies 5,020 - 5,020Funds held by ceding companies 4,092 - 4,092

Other loans and receivables

Accrued interest income 4,248 - 4,248

Accounts receivable 9,255 - 9,255

Refundable deposits 70 - 70

Security fund 25 - 25Available-for-sale securities - 91,079 91,079

Held-to-maturity securities 19,495 206,101 225,596532,996 297,180 830,180

LiabilitiesDue to reinsurers and ceding companies 60,107 - 60,107Funds held for reinsurers 34,132 - 34,132Commissions payable 23,131 - 23,131Accounts payable and other liabilities

(excluding taxes payable) 29,091 8,538 37,629146,461 8,538 154,999

Net assets 386,539 288,641 675,180

4.3 Fair value of financial assets and financial liabilities

The Company’s available-for-sale financial assets measured at fair value amounting to P90.67 millionand P89.5 million in 2012 and 2011, respectively, are classified as Level 1.

There are no significant financial instruments that fall under Level 2 and Level 3 categories in 2012 and2011.

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The table below summarizes the carrying amounts and fair values of those financial assets andliabilities at December 31 that are not presented in the statement of financial position at fair value.

2012 2011Carrying

value Fair valueCarrying

value Fair valueFinancial assets

Cash and cash equivalents 243,862,773 243,862,773 352,117,028 352,117,028

Receivables 14,770,282 14,770,282 13,598,366 13,598,366Held-to-maturity securities 382,623,710 391,394,106 225,595,876 244,206,819

Financial liabilitiesCommission payable 34,362,509 34,362,509 23,130,504 23,130,504Accounts payable and other liabilities

(excluding taxes payable) 45,665,902 45,665,902 37,629,673 37,629,673

The method and assumptions used by the Company in estimating the fair value of financialinstruments are as follows:

Cash in banks and cash equivalents

The estimated fair value of interest bearing deposits is based on discounted cash flows using prevailingmoney market interest rates for debts with similar credit risk and remaining maturity.

Receivables

The estimated fair value of loans and receivables represents the discounted amount of estimated futurecash flows expected to be received. Expected cash flows are discounted at current market rates todetermine fair value. Due to short term nature of the receivables, the carrying amount approximatesfair value.

Held-to-maturity and available-for-sale securities

Fair values of held-to-maturity and available-for-sale securities are based on market prices orbroker/dealer price quotations. Where this information is not available, fair value is estimated usingquoted market prices for securities with similar credit, maturity and yield characteristics.

Financial liabilities

The estimated fair value of liabilities with no stated maturity is the amount repayable on demand.

4.4 Capital management

The Company’s objectives when managing capital are:

to comply with the minimum capitalization requirement, Margin of Solvency (MOS) andRisk-Based Capital (RBC) model set by the IC;

to safeguard the Company’s ability to continue as a going concern so that it can continue to providesecurity for its policyholders, returns for shareholders and benefits for other stakeholders; and

to maintain a strong capital base to support the development of its business.

(27)

The Company calculates its capital as equity as shown in the statement of financial position.

The Company maintains a certain level of capital to ensure solvency margin in excess of regulatoryrequirements, which in turn, protects its policyholders.

To ensure compliance with these externally imposed capital requirements, it is the Company’s policy toassess its position, at least on a quarterly basis, against set minimum capital requirements. TheCompany elevates any requirement for additional capital infusion to its shareholders to address anyforeseen capital deficiency.

The level of MOS is monitored by the Company’s management, employing the procedures based on theguidelines developed by the IC.

The Company also manages its capital through its compliance with the following regulatoryrequirements:

4.4.1 Fixed capitalization

In September 2006, the Department of Finance issued Order 27-06 increasing the capitalizationrequirements for insurance and reinsurance companies on a staggered basis for the five years endedDecember 31, 2006 up to 2011. Depending on the level of foreign ownership in the insurance company,the minimum statutory net worth and minimum paid-up capital requirements vary. The statutory networth includes the Company’s paid-up capital, capital in excess of par value, contingency surplus,retained earnings and revaluation increments as may be approved by the IC. The minimum paid-upcapital is pegged at 50% of the minimum statutory net worth.

The IC, in accordance with Department Order 27-2006 and Circular Letter 26-2008, required non-lifecompanies existing, operating, or otherwise doing business in the Philippines with more than fortypercent (40%) but less than sixty percent (60%) foreign equity to possess minimum paid-up capital ofP350 million as at December 31, 2012 and 2011, respectively (Note 14).

The Company is compliant with this requirement of the IC.

4.4.2 Risk-based capital

In October 2006, the IC issued Insurance Memorandum Circular No.7-2006 adopting the risk-basedcapital framework for non-life insurance industry to establish the required amounts of capital to bemaintained by insurance companies in relation to their investment and insurance risks. Every non-lifeinsurance company is annually required to maintain a minimum RBC ratio of 100% and not fail thetrend test. The insurance company will be subjected to the corresponding regulatory intervention uponits failure to meet the minimum RBC ratio.

The following table shows how the RBC ratio compliance was determined by the Company:

2012 2011

Net worth 644,795,277 617,300,971

RBC requirement 358,075,148 347,953,590

RBC ratio 180% 177%

The Company is compliant with this requirement of the IC.

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4.4.3 Margin of solvency requirements

Under the Insurance Code, a non-life insurance Company doing business in the Philippines shall maintainat all times a MOS equal to P500,000 or 10% of the total amount of its net premiums written during thepreceding year, whichever is higher. The MOS shall be the excess of the value of its admitted assets (asdefined under the Insurance Code), exclusive of its paid-up capital over the amount of its liabilities,reserve for unearned premiums and reinsurance reserves.

Reserve for unearned premiums determined in accordance with the Insurance Code for purposes of MOSamounts to P109,931,696 (2011 - P93,345,792).

The estimated amount of non-admitted assets as at December 31 as defined in the Insurance Codeconsists of the following:

2012 2011

Deferred acquisition costs, net 84,849,495 61,940,595

Receivables 23,553,119 16,195,870

Available-for-sale securities - 2,500,000

Property and equipment, net 4,450,548 1,511,114

Other assets 9,492,464 10,780,359

122,345,626 92,927,938

The final amounts of MOS can only be determined after the accounts of the Company have beenexamined by the IC specifically as to admitted and non-admitted assets as defined in the Insurance Code.

If an insurance company failed to meet the minimum required MOS, the IC is authorized to suspend orrevoke all certificates of authority granted to such companies, its officers and agents, and no newbusiness shall be done by and for such company until its authority is restored by the IC.

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Note 5 - Additional information on the results of operations by line of business

The following information shows the financial information by line of business for the years ended December 31:

Fire Marine Motor Car Casualty Bond Total

2012

UNDERWRITING INCOME

Premiums written, net of returns 144,678,810 11,746,564 231,788,905 53,121,987 32,293,049 473,629,315

Reinsurance premiums ceded (135,555,961) (8,862,534) (3,569,983) (40,193,185) (13,792,240) (201,973,903)

Premiums retained 9,122,849 2,884,030 228,218,922 12,928,802 18,500,809 271,655,412

Decrease (increase) in reserve for

unearned premiums 3,345,683 (102,129) (15,197,467) (4,545,713) 427,198 (16,072,428)

Premiums earned 12,468,532 2,781,901 213,021,455 8,383,089 18,928,007 255,582,984

Commissions earned 31,585,272 3,236,245 877,631 8,021,436 4,994,828 48,715,412

Other underwriting income 625,398 2,900 97,485 824,644 395,357 1,945,784

GROSS UNDERWRITING INCOME 44,679,202 6,021,046 213,996,571 17,229,169 24,318,192 306,244,180

UNDERWRITING EXPENSES

Commissions and other underwriting

expenses 26,899,940 4,211,561 63,730,350 14,763,483 9,763,068 119,368,402

Losses and claims, net 3,178,495 134,060 107,464,633 1,725,008 455,285 112,957,481

30,078,435 4,345,621 171,194,983 16,488,491 10,218,353 232,325,883

NET UNDERWRITING INCOME 14,600,767 1,675,425 42,801,588 740,678 14,099,839 73,918,297

INVESTMENT AND OTHER INCOME 23,225,399

NET UNDERWRITING AND INVESTMENT INCOME 97,143,696

GENERAL AND ADMINISTRATIVE EXPENSES 54,801,008

INCOME BEFORE INCOME TAX 42,342,688

PROVISION FOR INCOME TAX 6,376,837

NET INCOME FOR THE YEAR 35,965,851

OTHER COMPREHENSIVE INCOME 38,455

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 36,004,306

(30)

Fire Marine Motor Car Casualty Bond Total

2011

UNDERWRITING INCOME

Premiums written, net of returns 158,205,722 11,619,634 191,536,074 34,863,168 27,516,780 423,741,378

Reinsurance premiums ceded (147,366,934) (6,581,981) (2,500,994) (27,235,290) (8,581,888) (192,267,087)

Premiums retained 10,838,788 5,037,653 189,035,080 7,627,878 18,934,892 231,474,291

(Increase) decrease in reserve for

unearned premiums (659,544) 97,390 (538,341) (60,610) (3,544,397) (4,705,502)

Premiums earned 10,179,244 5,135,043 188,496,739 7,567,268 15,390,495 226,768,789

Commissions earned 34,058,575 3,415,344 965,302 8,059,939 4,686,159 51,185,319

Other underwriting income 643 - 17,313 2,253,991 539,123 2,811,070

GROSS UNDERWRITING INCOME 44,238,462 8,550,387 189,479,354 17,881,198 20,615,777 280,765,178

UNDERWRITING EXPENSES

Commission and other underwriting

expenses 32,629,224 4,026,539 60,807,690 7,858,010 9,972,552 115,294,015

Losses and claims, net 5,747,061 952,354 84,830,970 1,085,666 2,852,622 95,468,673

38,376,285 4,978,893 145,638,660 8,943,676 12,825,174 210,762,688

NET UNDERWRITING INCOME 5,862,177 3,571,494 43,840,694 8,937,522 7,790,602 70,002,490

INVESTMENT AND OTHER INCOME 31,082,225

NET UNDERWRITING AND INVESTMENT INCOME 101,084,715

GENERAL AND ADMINISTRATIVE EXPENSES (54,205,310)

INCOME BEFORE INCOME TAX 46,879,405

PROVISION FOR INCOME TAX (9,733,260)

NET INCOME FOR THE YEAR 37,146,145

OTHER COMPREHENSIVE LOSS (1,337,292)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 35,808,853

(31)

Note 6 - Cash and cash equivalents

The details of the account at December 31 are as follows:

Interest rate (%) Amount

2012 2011 2012 2011

Cash on hand - - 24,175,834 24,586,092

Cash in banks

US Dollar 0.01 - 0.25 0.01 - 0.05 6,454,522 7,236,094

Philippine Peso 0.13 - 2.00 0.01 - 0.50 37,581,426 32,147,992

Time deposits

US Dollar 0.16 - 6.25 0.016 - 3.70 91,804,625 154,786,104

Philippine Peso 1.45 - 3.90 1.45 - 5.00 83,846,366 133,360,746

243,862,773 352,117,028

The maturities of cash equivalents which consist of time deposits from reporting dates are as follows:

2012 2011

US Dollar 30-90 days 31-90 days

Philippine Peso 30-79 days 30-90 days

The related interest earned on cash and cash equivalents is presented in Note 15.

Cash on hand represents undeposited cash collections and various cash funds as at December 31, 2012and 2011.

(32)

Note 7 - Receivables, net

The account at December 31 consists of:

Note 2012 2011

Receivables arising from insurance contracts

Premium receivable 61,870,942 53,151,648

Reinsurance recoverable on paid losses 20 130,391,975 85,525,687

Due from reinsurers and ceding companies 5,460,729 5,020,333

Funds held by ceding companies 4,880,417 4,091,641

202,604,063 147,789,309

Other receivables

Accounts receivable 9,663,611 9,255,490

Accrued interest income 4,745,489 4,248,247

Accrued rental income 266,553 -

Refundable deposits 69,700 69,700

Security fund 24,929 24,929

14,770,282 13,598,366

217,374,345 161,387,675

Allowance for impairment on premium receivable (1,553,000) (1,553,000)

215,821,345 159,834,675

The Company’s receivables above are all current except for refundable deposits and security fund.

There are no movements in allowance for impairment during 2012 and 2011.

The security fund is maintained in compliance with Sections 365 and 367 of the Insurance Code. Theamount of security fund is determined by and deposited with the IC to pay valid claims against insolventinsurance companies.

There is no concentration of credit risk with respect to receivables arising from insurance contracts.

Note 8 - Investments

Details and classification of the Company’s investments at December 31 follow:

2012 2011

Available-for-sale securities 92,231,585 91,079,476

Held-to-maturity securities, net of amortization 382,623,710 225,595,876

474,855,295 316,675,352

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The movements in investments are summarized as follows:

Available-for-sale

securities

Held-to-maturity

securities

Balances at January 1, 2011 92,437,111 182,234,661

Additions 2,000,000 110,908,067

Disposals/maturities (2,000,000) (66,021,457)

Fair value adjustment (1,337,292) -

Foreign currency revaluation 43,378 378,364

Amortization of bond premium, net (63,721) (1,903,759)

Balances at December 31, 2011 91,079,476 225,595,876

Additions 5,243,136 189,611,036

Disposals/maturities (1,299,891) (27,482,702)

Fair value adjustment 38,455 -

Foreign currency revaluation (2,764,256) (4,815,574)

Amortization of bond premium, net (65,335) (284,926)

Balances at December 31, 2012 92,231,585 382,623,710

Proceeds from the disposals of available-for-sale securities amounted to P4,241,960 (2011 - P2,000,000).Gain on sale of available-for-sale securities amounted to P2,942,069 (2011 - nil).

The assets included in each of the categories as at December 31 are detailed as follows:


2012 2011

Cost Fair value Cost Fair value

Debt securities (US Dollar) 41,552,016 51,825,921 44,381,609 54,990,168

Equity securities 25,419,569 40,405,664 21,476,323 36,089,308

66,971,585 92,231,585 65,857,932 91,079,476

Interest rates of available-for-sale debt securities range from 8.0% to 9.4% in 2012 and 2011.

Interest income earned from these securities is presented in Note 15.

Dividend income on equity securities amounts to P1,865,806 (2011 - P1,132,441).

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2012 2011

Listed debt securities (in Treasury bonds and notes)

US Dollar 172,388,520 86,757,800

Philippine Peso 101,265,000 87,713,000

Corporate bonds 31,000,000 39,000,000

Time deposits 73,968,940 12,034,702

378,622,460 225,505,502

Unamortized bond premiums, net 4,001,250 90,374

382,623,710 225,595,876

The Company’s held-to-maturity securities earn interest rates (in %) as follows:

2012 2011

Listed debt securities (in Treasury bonds and notes)

Philippine Peso 5.38 - 14.38 5.75 - 14.38

US Dollar 2.75 - 9.00 3.88 - 9.00

Corporate bonds 4.50 - 9.10 5.68 - 9.10

Time deposits 2.51 - 3.60 0.45 - 3.42

Interest income earned from held-to-maturity securities is presented in Note 15.

The maturities of the Company’s investments in debt securities are as follows:

2012 2011

Available-

for-sale

Held-to-

maturity

Available-

for-sale

Held-to-

maturity

Short-term (within one year) - 78,455,571 - 19,494,930

Medium-term (more than one year to five

years) - 89,262,221 - 98,528,108

Long-term (more than five years) 51,825,921 214,905,918 54,990,169 107,572,838

51,825,921 382,623,710 54,990,169 225,595,876

Government securities amounting to P103,265,000 (2011 - P89,713,000) are deposited with the IC inaccordance with the provisions of the Insurance Code of the Philippines (Insurance Code) for thebenefit of policyholders and creditors of the Company.

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Note 9 - Insurance liabilities and reinsurance assets


2012 2011

Reserve for outstanding losses

Reported claims 455,183,858 496,178,929

IBNR claims, gross of reinsurance 7,447,073 4,181,825

Losses and claims payable 462,630,931 500,360,754

Reserve for unearned premiums 188,973,910 159,658,774

Total insurance liabilities 651,604,841 660,019,528

Reinsurance recoverable on unpaid losses 361,832,955 411,023,340

Deferred reinsurance premiums 87,977,043 74,734,336

Total reinsurance assets 449,809,998 485,757,676

Insurance liabilities, net 201,794,843 174,261,852

The movements in these insurance liabilities and reinsurance assets are shown below:

Losses and claims payable, net

2012 2011

(Amounts in thousands) Gross Reinsurance Net Gross Reinsurance Net

Reported claims 496,179 410,280 85,899 337,087 261,084 76,003

IBNR claims 4,182 743 3,439 5,656 - 5,656

Balances at January 1 500,361 411,023 89,338 342,743 261,084 81,659

Claims and loss adjustment expenses

Cash paid for claims settled during the year 233,060 31,563 101,497 164,922 63,760 101,162

(Decrease) increase in liabilities arising

from current year claims (270,790) (180,753) (90,037) (7,304) 86,179 (93,483)

(37,730) (49,190) 11,460 157,618 149,939 7,679

Balances at December 31 462,631 361,833 100,798 500,361 411,023 89,338

Reported claims 455,184 361,789 93,395 496,179 410,280 85,899

IBNR claims 7,447 44 7,403 4,182 743 3,439

Balances at December 31 462,631 361,833 100,798 500,361 411,023 89,338

The Company utilizes reinsurance agreements to minimize its exposure to large losses in all aspects of itsinsurance business. Reinsurance permits recovery of a portion of losses from reinsurer, although it doesnot discharge the primary liability of the Company as direct insurer of the risk reinsured.

Reserve for unearned premiums, net

2012 2011(Amounts in thousands) Gross Reinsurance Net Gross Reinsurance NetBalances at January 1 159,659 74,734 84,925 136,148 55,930 80,218Increase during the year 29,315 13,243 16,072 23,511 18,804 4,707Balances at December 31 188,974 87,977 100,997 159,659 74,734 84,925

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Deferred acquisition costs, net

2012 2011

Balances at January 1 61,940,595 48,169,335

Costs deferred during the year 72,408,748 65,528,939

Amortization during the year (49,499,848) (51,757,679)

Balances at December 31 84,849,495 61,940,595

Amortization of deferred acquisition costs is presented as part of commissions and other underwritingexpenses in the statement of total comprehensive income.

Note 10 - Investment property, net

The movements of the account are as follows:

Land

Condominium Units

and Parking Lots Total

Cost

Balances at December 31, 2012 and 2011 2,288,822 43,890,250 46,179,072

Accumulated depreciation

Balances at January 1, 2011 - 13,805,481 13,805,481

Depreciation - 1,755,610 1,755,610

Balances at December 31, 2011 - 15,561,091 15,561,091

Depreciation - 1,755,610 1,755,610

Balances at December 31, 2012 - 17,316,701 17,316,701

Net book value

December 31, 2011 2,288,822 28,329,159 30,617,981

December 31, 2012 2,288,822 26,573,549 28,862,371

Rental income derived from these properties amounts to P4,005,022 (2011 - P3,866,381).

Based on the latest appraisal in 2011, the condominium units and parking lots have a current marketvalue of P50,777,000 as at reporting dates. The valuation of the condominium units and parking lotswere estimated using the market data approach based on sales and listings of comparable condominiumunits. This is done by adjusting the differences between the subject property and those actual sales andlistings regarded as comparable. The properties used as bases of comparison are situated within theimmediate vicinity or at different floor levels of the same building.

Management believes, in consultation with its appraiser, that there are no events or changes incircumstances that would result into a significant change in the appraised value of its investmentproperty in 2012.

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Note 11 - Property and equipment, net

The account consists of:

Building

EDP

equipment

Leasehold

improvements

Transportation

equipment

Furniture,

fixture and

office

equipment TotalCost

Balances at January 1, 2011 25,510,250 9,414,879 3,722,297 2,816,044 1,200,951 42,664,421Additions - 693,232 372,123 1,089,481 91,807 2,246,643Disposals - - - - (7,093) (7,093)Balances at

December 31, 2011 25,510,250 10,108,111 4,094,420 3,905,525 1,285,665 44,903,971Additions - 1,166,352 209,428 2,302,702 1,153,603 4,832,085Balances at

December 31, 2012 25,510,250 11,274,463 4,303,848 6,208,227 2,439,268 49,736,056

Accumulated depreciationBalances at January 1, 2011 15,161,949 8,200,557 3,491,311 2,581,659 806,176 30,241,652Depreciation and

amortization 940,741 398,273 64,803 193,721 99,672 1,697,210Disposals - - - - (1,153) (1,153)Balances at

December 31, 2011 16,102,690 8,598,830 3,556,114 2,775,380 904,695 31,937,709Depreciation and

amortization 940,741 585,453 120,622 390,666 126,205 2,163,687Balances at

December 31, 2012 17,043,431 9,184,283 3,676,736 3,166,046 1,030,900 34,101,396

Net book valueDecember 31, 2011 9,407,560 1,509,281 538,306 1,130,145 380,970 12,966,262December 31, 2012 8,466,819 2,090,180 627,112 3,042,181 1,408,368 15,634,660

Proceeds from sale of property and equipment in 2011 amount to P4,000. Loss on sale of property andequipment recognized amounts to P1,940.

Depreciation and amortization is included as part of Occupancy and equipment-related costs in thestatement of total comprehensive income.

Note 12 - Deferred income taxes

Details of the DIT at December 31 follow:

2012 2011

DIT assets 43,171,535 33,903,632

DIT liabilities (25,806,588) (18,757,633)

DIT, net 17,364,947 15,145,999

(38)

The movements in DIT assets and liabilities using the principal tax rate of 30% are as follows:

DIT assets

Allowance

for

impairment

Accrued

retirement

expense

Reserve for

unearned

premiums

Unrealized

foreign

exchange

loss IBNR NOLCO Total

At January 1, 2011 465,900 1,633,509 24,065,681 4,144,174 1,696,942 3,354,257 35,360,463

(Charged) credited to

income - 928,170 1,411,651 - (442,395) (3,354,257) (1,456,831)

At December 31, 2011 465,900 2,561,679 25,477,332 4,144,174 1,254,547 - 33,903,632

Credited to income - 781,016 4,821,729 2,685,584 979,574 - 9,267,903

At December 31, 2012 465,900 3,342,695 30,299,061 6,829,758 2,234,121 - 43,171,535

DIT liabilities

Deferredacquisition cost

Unrealizedforeign

exchange gain

Accruedrental

income TotalAt January 1, 2011 14,450,800 - - 14,450,800Credited to income 4,131,378 175,455 - 4,306,833At December 31, 2011 18,582,178 175,455 - 18,757,633Charged to income 6,872,670 96,319 79,966 7,048,955At December 31, 2012 25,454,848 271,774 79,966 25,806,588

The analysis of the recoverability and settlement of DIT assets and liabilities at December 31 is asfollows:

2012 2011

DIT assets

Expected to be recovered within 12 months 32,999,082 27,197,779

Expected to be recovered beyond 12 months 10,172,453 6,705,853

43,171,535 33,903,632

DIT liabilities

Expected to be recovered within 12 months 25,534,814 18,582,178

Expected to be recovered beyond 12 months 271,774 175,455

25,806,588 18,757,633

DIT assets, net 17,364,947 15,145,999

(39)

Note 13 - Accounts payable and other liabilities


Notes 2012 2011

Accounts payable 19,376,228 21,389,076

Taxes payable 16,871,852 11,605,517

Pension liability 17 11,142,312 8,538,927

Dividend payable 14 10,000,000 -

Accrued expenses 1,363,332 3,333,464

Other 2,029,373 4,368,206

60,783,097 49,235,190

Accounts payable as at December 31, 2012 and 2011 include advances from policyholders and agents andoverpayment of premium receivables.

Note 14 - Share capital

Details of the account at December 31, 2012 and 2011 follow:

2012 2011Number of

shares AmountNumber of

shares Amount

Authorized, at P100 par value per share 4,000,000 400,000,000 4,000,000 400,000,000

Issued and outstanding

Beginning of year 3,485,100 348,510,000 2,000,000 200,000,000

Issuance during the year 14,900 1,490,000 1,485,100 148,510,000

End of year 3,500,000 350,000,000 3,485,100 348,510,000

Contributed surplus represents additional capital contribution in 1997 from shareholders todemonstrate the commitment and strong support of shareholders to the local operations. Such amountis presented as part of contributed surplus in accordance with the guidelines of the IC.

As at December 31, 2012 and 2011, the Company's minimum paid up capital as required by the ICshould be at P350 million.

As favorably endorsed by the IC, the SEC approved the Company's application to increase itsauthorized capital stock from P200 million to P400 million on April 11, 2011.

To comply with the minimum capitalization, the following transactions have occurred:

Share dividend

In 2009, the Company declared P15 million share dividend and accordingly appropriated itsretained earnings for the same amount.

In 2010, additional share dividend was declared amounting to P25 million and retained earningswas also appropriated prior to issuance of shares.

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In 2011, the P40 million share dividend declared in 2009 and 2010 has been distributed to theshareholders.

In 2011, additional P30 million share dividend was declared and authorized for distribution by theCompany’s BOD.

Cash dividend

In 2009, P35 million cash dividend was declared which the shareholders used as deposit for futureshare subscription.

In 2011, the Company declared P6 million cash dividend to its shareholders which was paid in2012.

In 2012, the Company declared another cash dividend amounting to P10 million to its shareholdersof record as at February 28, 2012 which is expected to be settled in 2013.

Deposit for future share capital subscription

In 2011, additional P23.25 million deposit for share capital subscription was received. As at December 31, 2011, the corresponding shares for deposit for future share subscription

amounting to P58.25 million were issued to the shareholders.

Issuance of shares for cash

In 2011, the Company issued 202,600 shares for P20.26 million with par value of P100 per share. In 2012, the Company issued 14,900 shares for P1.49 million with par value of P100 per share.

Based on the above transactions, the Company’s paid-up capital as at December 31, 2011 amounting toP348,510,000 is lower than the required statutory networth of P350 million. In order to address thedeficiency, the Company received share capital subscription for 14,900 shares at par value in 2011which were subsequently collected in full and shares were issued in February 2012.

As at December 31, 2012, the Company’s paid-up capital amounting to P350,000,000 is equal to therequired statutory networth of P350 million.

Movements in reserve for available-for-sale securities for the years ended December 31 follow:

Note 2012 2011

At January 1 25,221,545 26,558,837

Unrealized fair value gain (loss) 8 38,455 (1,337,292)

At December 31 25,260,000 25,221,545

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Note 15 - Interest income

Details of interest income for the years ended December 31 are as follows:

2012 2011

Cash and cash equivalents 13,847,911 8,089,504



US Dollar 4,347,769 4,099,168

Philippine Peso 5,378,626 6,688,363

Corporate bonds 2,939,880 2,304,009

Short-term time deposits 575,925 653,359


Treasury bonds 4,368,536 3,753,514

31,458,647 25,587,917

Note 16 - Salaries and employee benefits

The details of the account for the years ended December 31 are as follows:

Note 2012 2011

Salaries and wages 21,672,420 19,437,389

Allowance and bonuses 5,175,567 4,853,670

Pension expense 17 3,603,384 4,093,899

Social security contributions 1,118,792 1,038,327

Other employee benefits 1,491,097 1,669,188

33,061,260 31,083,473

Note 17 - Retirement benefit obligation

The Company has a funded, noncontributory defined benefit plan providing death, disability andretirement benefits for all its employees. The fund is being managed and administered by a financialinstitution on the basis of a duly executed trust agreement. Under the plan, qualified officers andemployees are entitled to retirement benefits when they reach the normal retirement age of 60 years orearly retirement age of 50 years and have completed at least 10 years of continuous service. Normaland early retirement benefits consist of a lump sum benefit equivalent to one month’s final pay forevery year of service. The plan also provides late retirement, death, disability and voluntary separationbenefits.

The details of the pension liability and pension expense recognized in the statement of financialposition and profit of loss, respectively, as at and for the years ended December 31 are as follows:

2012 2011

Pension liability (included in Accounts payable and other liabilities) 11,142,312 8,538,927Pension expense (included in Salaries and employee benefits) 3,603,384 4,093,899

(42)

The reconciliation of the present value of defined benefit obligation to the liability recognized in thestatement of financial position as at December 31 follows:

2012 2011 2010 2009 2008Present value of defined benefit

obligation 30,270,708 26,416,750 22,492,883 17,640,065 15,688,864Fair value of plan assets 17,764,099 16,599,989 15,563,818 14,461,682 9,419,618Deficit in the plan 12,506,609 9,816,761 6,929,065 3,178,383 6,269,246Unrecognized net transition

obligation - - (354,262) (849,388) (1,344,514)Unrecognized actuarial (losses)

gains (1,364,297) (1,277,834) (1,129,775) 148,704 (118,419)

Pension liability 11,142,312 8,538,927 5,445,028 2,477,699 4,806,313

Movements in the present value of the defined benefit obligation for the years ended December 31 areas follows:

2012 2011Balance, January 1 26,416,750 22,492,883Interest cost 1,542,738 1,650,978Current service cost 2,724,646 3,022,488Benefits paid (579,593) (718,583)Actuarial losses (gains) on obligation 166,167 (31,016)Balance, December 31 30,270,708 26,416,750

The movements in the fair value of plan assets for the years ended December 31 are as follows:

2012 2011Balance, January 1 16,599,989 15,563,818Expected return on plan assets 664,000 933,829Contributions 1,000,000 1,000,000

Benefits paid (579,593) (718,583)Actuarial gains (losses) on plan assets 79,704 (179,075)Balance, December 31 17,764,099 16,599,989

Plan assets as at December 31 comprise of:

2012 2011Cash 355 263Investments in treasury bonds, mutual funds and deposit instruments 17,792,284 16,626,635Trustee fee payable (28,540) (26,909)

17,764,099 16,599,989

The carrying value of plan assets as at December 31, 2012 and 2011 is the same as its fair value.

There are no plan assets invested in debt or equity securities of the Company or its related entities.

The Company has no other transactions with the plan other than the contributions and benefitpayments presented above for the years ended December 31, 2012 and 2011.

(43)

Pension expense for the years ended December 31 are as follows:

2012 2011

Current service cost 2,724,646 3,022,488

Interest cost 1,542,738 1,650,978

Expected return on plan assets (664,000) (933,829)

Amortization of transitional liability - 354,262

Pension expense 3,603,384 4,093,899

In determining the overall expected rate of return on plan assets, the returns being realized by similarfunds and the return which can be expected on contributions paid in the future is taken intoconsideration. The average return on plan assets held to meet benefits payable twenty or more yearsforms the basis for the investment return assumption.

The actual return on plan assets in 2012 was P743,702 (2011 - P754,754).

The principal actuarial assumptions used as at December 31 are as follows:

2012 2011

Discount rate 6.60% 5.84%

Expected return on plan assets 4.48% 4.00%

Future salary increases 8.00% 8.00%

The Company’s expected retirement contribution for the year ending December 31, 2013 amounts toP1,997,867.

Note 18 - Provision for income tax

Provision for income tax for the years ended December 31 follows:

2012 2011

Current 8,595,785 3,969,596

Deferred (2,218,948) 5,763,664

6,376,837 9,733,260

Current tax expense for the year ended December 31, 2012 includes final tax amounting to P4,553,987(2011 - P3,969,596).

A reconciliation between the provision for income tax computed at the statutory rate and the actualprovision for income tax for the years ended December 31 follows:

2012 2011

Tax calculated at 30% 12,702,806 14,063,822

Income subject to final tax rate, net (4,883,607) (4,420,856)

Tax-exempt income (1,442,362) (339,732)

Non-deductible expense - 430,026

Actual provision for income tax 6,376,837 9,733,260

(44)

Note 19 - Cash generated from operations

The details of cash generated from operations for the years ended December 31 are as follows:

Notes 2012 2011

Income before income tax 42,342,688 46,879,405

Adjustments for:

Unrealized foreign exchange loss (gain), net 8,630,886 (584,843)

Depreciation 10,11 3,919,297 3,452,819

Gain on sale of available-for-sale securities 8 (2,942,069) -

Loss on sale of property and equipment 11 - 1,940

Interest income 15 (31,458,647) (25,587,917)

Dividend income 8 (1,865,806) (1,132,441)

Operating income before changes in operating assets

and liabilities 18,626,349 23,028,963

Changes in operating assets and liabilities

(Increase) decrease in:

Receivables, net (56,483,911) 40,921,631

Reinsurance recoverable on unpaid losses 49,190,385 (149,938,862)

Deferred reinsurance premiums (13,242,707) (18,804,625)

Deferred acquisition costs, net (22,908,900) (13,771,260)

Other assets (4,157,587) (2,321,337)

Increase (decrease) in:

Losses and claims payable (38,352,164) 157,780,242


Due to reinsurers and ceding companies 61,875,005 (6,229,236)

Funds held for reinsurers (7,105,910) 5,735,538

Commissions payable 11,232,005 3,812,685

Accounts payable and other liabilities 1,345,407 21,870,749

Cash generated from operations 29,333,108 85,594,615

At December 31, 2011, non-cash financing activities of the Company represent the distribution of sharedividend to shareholders amounting to P70,000,000 and conversion of deposit for future stocksubscription amounting to P58,250,000 into share capital (Note 14).

Note 20 - Related party transactions

In the ordinary course of business, the Company cedes reinsurance businesses under variousreinsurance contracts (mainly treaty) with its related reinsurance companies.

Premiums paid to related party reinsurers are booked as reinsurance premiums ceded in profit or lossand the related payables are included as part of due to reinsurers and ceding companies in thestatement of financial position. Commissions earned out of these reinsurance transactions are includedas part of commissions earned and any outstanding uncollected commissions are included as part ofdue from reinsurers and ceding companies within net receivables.

(45)

The share of the related party reinsurer in incurred losses is included as part of reinsurance recoverableon unpaid losses or reinsurance recoverable on paid losses under net receivables in the statement offinancial position.

Outstanding balances under treaty and facultative contracts with such related parties as at December 31are as follows:

2012 2011 Terms and conditionsShareholders

Reinsurance recoverable on paidlosses 10,731,135 7,665,072 - Unsecured and

unguaranteed- Non-interest bearing- Collectible in (1) cash within15 days after reinsurer’sconfirmation or (2) can beoffset against any outstandingreinsurance premiumspayable

Reinsurance recoverable onunpaid losses 8,854,346 11,337,592 - Unsecured and

unguaranteed- Non-interest bearing- Collectible in (1) cash afterreinsurer’s confirmation or (2)can be offset against anyoutstanding reinsurancepremiums payable

Due to reinsurers and cedingcompanies (10,887,186) (9,911,900) - Unsecured and

unguaranteed- Non-interest bearing- Payable in (1) cash within15days after reinsurer’sconfirmation or (2) can beoffset against receivablesarising from reinsuranceshare in losses

Funds held for reinsurers - (3,526,819) - Represents 40% ofreinsurance premiums cededto foreign reinsurers

- Payable in cash within oneyear after the end of thequarter

(46)

Transactions under treaty and facultative contracts with such related parties for the years endedDecember 31 are as follows:

2012 2011 Terms and conditionsShareholders

Reinsurance premiums ceded 8,272,366 6,915,390 - Represents premiums cededout to reinsurers

Losses and claims 3,225,426 4,240,343 - Represents share ofreinsurers in incurred losses

Commissions earned 2,359,913 354,176 - Represents commissionsearned from reinsurance

13,857,705 11,509,909

Contribution to the retirement fund 1,000,000 1,000,000 - Represents contributionsmade and benefits paid bythe Company to and from itsretirement fund

Benefits paid from the retirementfund

(579,593) (718,583)

420,407 281,417

The table below shows transactions and outstanding balances with the Company’s key managementpersonnel as at and for the years ended December 31:

2012 2011 Terms and conditionsAdvances 3,376,732 1,584,764 - Secured and guaranteed up

to the amount of the officer’sretirement benefit

- Interest-bearing at 8% perannum

- Collectible in cash over aperiod of one year or morethrough salary deduction

Salaries and wages 5,858,559 5,371,940 - Represents salaries andother benefits paid to keymanagement personnelduring the year

- No provisions for termination,post-employment and otherlong-term benefits for keymanagement personnel,except for such benefits towhich they are entitled underthe Company’s retirementplan

Allowance and bonuses 2,157,740 1,888,735Social security contributions 104,225 102,910Other employee benefits 16,000 6,000

8,136,524 7,369,585

Directors’ fees 159,332 175,000 - Fees paid to directors duringthe year which are settledduring the Board of Directorsmeeting

There are no provisions for impairment recognized on due from related parties as at and for the yearsended December 31, 2012 and 2011.

(47)

Note 21 - Reconciliation of net income under PFRS and Statutory AccountingPractices (SAP)

PFRS varies in certain respects from SAP prescribed by the IC. A reconciliation of net income underPFRS and net income determined under SAP for the years ended December 31 follows:

2012 2011

PFRS net income 35,965,851 37,146,145

(Deduct) add:

Difference in change in reserve for unearned premiums, net (513,476) (3,986,716)

Increase in deferred acquisition costs, net (22,908,900) (13,771,260)

Unrealized foreign exchange loss (gain), net 8,630,886 (584,843)

Net income under SAP 21,174,361 18,803,326

In the accompanying financial statements, the PFRS net reserve for unearned premiums at December 31follows:

2012 2011


Deferred reinsurance premiums (87,977,043) (74,734,336)

100,996,867 84,924,438

Note 22 - Contingencies

In the ordinary course of business, the Company, as plaintiff, is currently pursuing a number ofcollection-related cases against certain customers. Any asset or income arising from the ultimateresolution of these cases will be recognized when actual settlement is received or when collection isvirtually certain.

Note 23 - Supplementary information required by the Bureau of Internal Revenue (BIR)

This information is presented for purposes of filing with the BIR and is not a required part of the basicfinancial statements.

(a) Supplementary information required by Revenue Regulations No. 15-2010

On December 28, 2010, RR No. 15-2010 became effective and amended certain provisions ofRR No. 21-2002 prescribing the manner of compliance with any documentary and/or proceduralrequirements in connection with the preparation and submission of financial statements and income taxreturns. Section 2 of RR No. 21-2002 was further amended to include in the notes to financial statementsinformation on taxes, duties and license fees paid or accrued during the year in addition to what ismandated by PFRS.

(48)

Below is the additional information required by RR No. 15-2010 that is relevant to the Company.

I. Output value-added tax (VAT)

Output VAT declared for the year ended December 31, 2012 and the revenues upon which thesame was based consist of:

Gross amountof revenues Output VAT

Premiums (non-life) 417,530,222 50,103,627Commission income 40,168,692 4,820,243

Rental income 3,664,454 439,735

461,363,368 55,363,605

The gross revenues shown above are based on gross receipts of the Company for VAT purposeswhile gross revenues presented in the statement of total comprehensive income are measured inaccordance with the policy in Notes 2.17 and 2.18.

The difference between the output VAT shown above and output VAT presented as part ofaccounts payable and other liabilities in Note 13 amounting to P4,815,985 pertains to the deferredoutput VAT.

II. Input VAT

Movements in input VAT for the year ended December 31, 2012 follow:

AmountBeginning balance 1,070,963Input tax on services 22,089,601Deferred input tax (21,581,301)Ending balance 1,579,263

The above input VAT is presented as part of other assets in the statement of financial position.

III. Documentary stamp tax

Documentary stamp taxes paid for the year ended December 31, 2012 consist of:

Paid Accrued TotalPolicies of insurance upon property 46,100,000 7,765,465 53,865,465

Accrued documentary stamp taxes are included as part of accounts payable and other liabilities inthe statement of financial position.

(49)

IV. All other local and national taxes

All other local and national taxes paid and accrued for the year ended December 31, 2012consist of:

Paid Accrued TotalFire service tax 1,693,801 362,381 2,056,182Real property tax 820,805 - 820,805Local government tax on premiums - 611,336 611,336Premium tax (non-life) 61,894 119,879 181,773IC supervision/filing fees 124,500 - 124,500IC Certificate of Authority renewal fees 62,750 - 62,750Community tax 10,500 - 10,500Supreme court allocation 10,000 - 10,000Mayor’s permit 7,330 - 7,330SEC application fee 5,050 - 5,050Municipal taxes 2,550 - 2,550Fire inspection fee 1,700 - 1,700Others 195,362 - 195,362

2,996,242 1,093,596 4,089,838

The above local and national taxes are charged to Taxes and licenses account in profit or loss,except for fire service tax, local government tax on premiums and premium tax which are passedon to the policyholders.

V. Withholding taxes

Withholding taxes paid and accrued for the year ended December 31, 2012 consist of:

Paid Accrued TotalExpanded withholding tax 12,928,306 1,491,069 14,419,375Final withholding tax 378,475 166,052 544,527Withholding tax on compensation 2,561,526 1,539,685 4,101,211

15,868,307 3,196,806 19,065,113

Creditable withholding taxes as at December 31, 2012 amounting to P1,010,977 is included as partof other assets.

(50)

VI. Tax assessments and cases

As at reporting date, the Company’s open tax years are 2011, 2010 and 2009. The Company has nopending tax cases as at December 31, 2012.

The Company has not received final assessment notice from the BIR for the year endedDecember 31, 2012.

(b) Supplementary information required by Revenue Regulations No. 19-2011

RR No. 19-2011 prescribes the new BIR forms that should be used for income tax filing starting withthe calendar year 2011 and modifies Revenue Memorandum Circular No. 57-2011. In theGuidelines and Instructions Section of the new BIR Form 1702 (version November 2011), a requiredattachment to the income tax returns is an Account Information Form and/or Financial Statementsthat include in the notes to financial statements schedules of sales/receipts/fees, cost ofsales/services, non-operating and taxable other income, itemized deductions (if the taxpayer didnot avail of the Optional Standard Deduction or OSD), taxes and licenses and other informationprescribed to be disclosed in the notes to financial statements.

Below is the additional information required by RR No. 19-2011.

I. Sale of services

The Company’s sales subject to regular tax rate of 30% for the year ended December 31, 2012 areas follows:

Nature of income AmountGross underwriting income 306,244,180Increase in reserve for unearned premiums, net 16,072,428Taxable net earned insurance premium 322,316,608

The increase in net reserve for unearned premiums is adjusted back to net earned premiums asthis is considered as non-deductible for income tax purposes.

There are no other sales of services subject to special tax rates.

(51)

II. Cost of services

The Company’s cost of sales for the year ended December 31, 2012 subject to regular tax rate of30% are as follows:

Nature of expense AmountUnderwriting expenses 232,325,883Adjustments for:

Change in deferred acquisition costs 22,908,900Change in losses incurred but not reported (3,265,248)

19,643,652

Net deductible cost of services 251,969,535

III. Non-operating and taxable other income

The Company’s non-operating and taxable other income for the year ended December 31, 2012subject to regular tax rate of 30% are as follows:

Nature of income AmountInvestment and other income 23,225,399Adjustments for:

Interest subject to final tax (31,458,647)Realized foreign exchange loss 11,127,688Unrealized foreign exchange loss 8,630,886Gain on sale of investments (2,942,069)Dividend income (1,865,806)Accrued rental income (266,553)

(16,774,501)Net taxable non-operating and other income 6,450,898

Interest income of the Company is subject to 20% final tax rate. The Company’s unrealized foreignexchange loss is a deductible temporary difference subject to 30% regular tax rate while therealized foreign exchange loss is presented as itemized deductions. The dividend income and gainon sale of investments are exempt from income taxes. Accrued rental income is a taxabletemporary difference subject to 30% regular tax rate.

(52)

IV. Itemized deductions

The Company’s itemized deductions for the year ended December 31, 2012 subject to regular taxrate of 30% are as follows:

Nature of expenses AmountSalaries and employee benefits 33,061,260Occupancy and equipment-related costs 7,206,714Transportation and travel 3,289,013Representation and entertainment 2,440,897Taxes, licenses and fees 1,240,547Printing, stationery and supplies 1,695,197Communication and postage 1,121,772Association dues 1,001,432Professional and directors’ fees 885,885Advertising and promotion 515,382Miscellaneous 2,342,909

54,801,008Adjustments for:

Realized foreign exchange loss 11,127,688Non-deductible portion of pension expense (2,603,385)

63,325,311

V. Taxes and licenses

The details of the Company’s taxes and licenses as at December 31, 2012 are presented insection (a) of this note.

Asia Insurance (Philippines) CorporationSchedule of Philippine Financial Reporting Standards

effective as at December 31, 2012

PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONS

Effective as at December 31, 2012

Adopted Not Adopted Not Applicable

Framework for the Preparation and Presentation ofFinancial Statements

Conceptual Framework Phase A: Objectives and qualitativecharacteristics

PFRSs Practice Statement Management Commentary

Philippine Financial Reporting Standards

PFRS 1 (Revised) First-time Adoption of PhilippineFinancial Reporting Standards

Amendments to PFRS 1 and PAS 27:Cost of an Investment in a Subsidiary,Jointly Controlled Entity or Associate

Amendments to PFRS 1: AdditionalExemptions for First-time Adopters

Amendment to PFRS 1: LimitedExemption from Comparative PFRS 7Disclosures for First-time Adopters

Amendments to PFRS 1: SevereHyperinflation and Removal of FixedDate for First-time Adopters

Amendments to PFRS 1: GovernmentLoans

PFRS 2 Share-based Payment

Amendments to PFRS 2: VestingConditions and Cancellations

Amendments to PFRS 2: Group Cash-settled Share-based PaymentTransactions

PFRS 3 (Revised) Business Combinations

PFRS 4 Insurance Contracts

Amendments to PAS 39 and PFRS 4:Financial Guarantee Contracts

Asia Insurance (Philippines) CorporationSchedule of Philippine Financial Reporting Standardseffective as at December 31, 2012Page 2




PFRS 5 Non-current Assets Held for Sale andDiscontinued Operations

PFRS 6 Exploration for and Evaluation of MineralResources

PFRS 7 Financial Instruments: Disclosures

Amendments to PAS 39 and PFRS 7:Reclassification of Financial Assets

Amendments to PAS 39 and PFRS 7:Reclassification of Financial Assets -Effective Date and Transition

Amendments to PFRS 7: ImprovingDisclosures about Financial Instruments

Amendments to PFRS 7: Disclosures -Transfers of Financial Assets

Amendments to PFRS 7: Disclosures -Offsetting Financial Assets and FinancialLiabilities

Amendments to PFRS 7: MandatoryEffective Date of PFRS 9 and TransitionDisclosures

PFRS 8 Operating Segments

PFRS 9* Financial Instruments

Amendments to PFRS 9: MandatoryEffective Date of PFRS 9 and TransitionDisclosures

PFRS 10* Consolidated Financial Statements

PFRS 11* Joint Arrangements

PFRS 12* Disclosure of Interests in Other Entities

PFRS 13* Fair Value Measurement





Philippine Accounting Standards

PAS 1 (Revised) Presentation of Financial Statements

Amendment to PAS 1: CapitalDisclosures

Amendments to PAS 32 and PAS 1:Puttable Financial Instruments andObligations Arising on Liquidation

Amendments to PAS 1: Presentation ofItems of Other Comprehensive Income

PAS 2 Inventories

PAS 7 Statement of Cash Flows

PAS 8 Accounting Policies, Changes inAccounting Estimates and Errors

PAS 10 Events after the Reporting Period

PAS 11 Construction Contracts

PAS 12 Income Taxes

Amendment to PAS 12 - Deferred Tax:Recovery of Underlying Assets

PAS 16 Property, Plant and Equipment

PAS 17 Leases

PAS 18 Revenue

PAS 19 Employee Benefits

Amendments to PAS 19: Actuarial Gainsand Losses, Group Plans andDisclosures

PAS 19(Amended)*

Employee Benefits





PAS 20 Accounting for Government Grants andDisclosure of Government Assistance

PAS 21 The Effects of Changes in ForeignExchange Rates

Amendment: Net Investment in a ForeignOperation

PAS 23 (Revised) Borrowing Costs

PAS 24 (Revised) Related Party Disclosures

PAS 26 Accounting and Reporting by RetirementBenefit Plans

PAS 27 Consolidated and Separate FinancialStatements

PAS 27(Amended)*

Separate Financial Statements

PAS 28 Investments in Associates

PAS 28(Amended)*

Investments in Associates and JointVentures

PAS 29 Financial Reporting in HyperinflationaryEconomies

PAS 31 Interests in Joint Ventures

PAS 32 Financial Instruments: Disclosure andPresentation

Amendments to PAS 32 and PAS 1:Puttable Financial Instruments andObligations Arising on Liquidation

Amendment to PAS 32: Classification ofRights Issues

Amendments to PAS 32: OffsettingFinancial Assets and Financial Liabilities

PAS 33 Earnings per Share





PAS 34 Interim Financial Reporting

PAS 36 Impairment of Assets

PAS 37 Provisions, Contingent Liabilities andContingent Assets

PAS 38 Intangible Assets

PAS 39 Financial Instruments: Recognition andMeasurement

Amendments to PAS 39: Transition andInitial Recognition of Financial Assetsand Financial Liabilities

Amendments to PAS 39: Cash FlowHedge Accounting of Forecast IntragroupTransactions

Amendments to PAS 39: The Fair ValueOption

Amendments to PAS 39 and PFRS 4:Financial Guarantee Contracts

Amendments to PAS 39 and PFRS 7:Reclassification of Financial Assets

Amendments to PAS 39 and PFRS 7:Reclassification of Financial Assets -Effective Date and Transition

Amendments to Philippine InterpretationIFRIC 9 and PAS 39: EmbeddedDerivatives

Amendment to PAS 39: Eligible HedgedItems

PAS 40 Investment Property

PAS 41 Agriculture





Philippine Interpretations

IFRIC 1 Changes in Existing Decommissioning,Restoration and Similar Liabilities

IFRIC 2 Members' Share in Co-operative Entitiesand Similar Instruments

IFRIC 4 Determining Whether an ArrangementContains a Lease

IFRIC 5 Rights to Interests arising fromDecommissioning, Restoration andEnvironmental Rehabilitation Funds

IFRIC 6 Liabilities arising from Participating in aSpecific Market - Waste Electrical andElectronic Equipment

IFRIC 7 Applying the Restatement Approachunder PAS 29 Financial Reporting inHyperinflationary Economies

IFRIC 8 Scope of PFRS 2

IFRIC 9 Reassessment of Embedded Derivatives

Amendments to Philippine InterpretationIFRIC 9 and PAS 39: EmbeddedDerivatives

IFRIC 10 Interim Financial Reporting andImpairment

IFRIC 11 PFRS 2: Group and Treasury ShareTransactions

IFRIC 12 Service Concession Arrangements

IFRIC 13 Customer Loyalty Programmes

IFRIC 14 The Limit on a Defined Benefit Asset,Minimum Funding Requirements andtheir Interaction





Amendments to Philippine InterpretationsIFRIC 14, Prepayments of a MinimumFunding Requirement

IFRIC 16 Hedges of a Net Investment in a ForeignOperation

IFRIC 17 Distributions of Non-cash Assets toOwners

IFRIC 18 Transfers of Assets from Customers

IFRIC 19 Extinguishing Financial Liabilities withEquity Instruments

IFRIC 20* Stripping Costs in the Production Phaseof a Surface Mine

SIC-7 Introduction of the Euro

SIC-10 Government Assistance - No SpecificRelation to Operating Activities

SIC-12 Consolidation - Special Purpose Entities

Amendment to SIC - 12: Scope of SIC 12

SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers

SIC-15 Operating Leases - Incentives

SIC-21 Income Taxes - Recovery of RevaluedNon-Depreciable Assets

SIC-25 Income Taxes - Changes in the TaxStatus of an Entity or its Shareholders

SIC-27 Evaluating the Substance ofTransactions Involving the Legal Form ofa Lease

SIC-29 Service Concession Arrangements:Disclosures





SIC-31 Revenue - Barter Transactions InvolvingAdvertising Services

SIC-32 Intangible Assets - Web Site Costs

* The standards, interpretations and amendments to existing standards that have been issued butnot yet effective as at December 31, 2012 are ticked as not adopted while the standards,interpretations and amendments to existing standards that are not currently applicable are tickedas not applicable.

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