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Transcript of 2011 (PDF, 6.5 MB)
SUSTAININGLEADERSHIP
CONSOLIDATED ANNUAL REPORT
ABOUT THE COVER
More than a test of endurance, a marathon is won by persistence; when one is able to run through the ‘wall’, keeping one’s self focused on the prize ahead and not the struggles along the way, only then will one finish the race, ahead of the rest.
The Malayan Group of Insurance Companies finished 2011 ahead of the pact anew. In a non-life insurance industry where competition is cut-throat, our determination and dedication to serve our clients, who trust us with their business and family make us run the extra mile towards sustainable leadership.
ABOUT THE COVER
More than a test of endurance, a marathon is won by persistence; when one is able to run through the ‘wall’, keeping one’s self focused on the prize ahead and not the struggles along the way, only then will one finish the race, ahead of the rest.
The Malayan Group of Insurance Companies finished 2011 ahead of the pact anew. In a non-life insurance industry where competition is cut-throat, our determination and dedication to serve our clients, who trust us with their business and family make us run the extra mile towards sustainable leadership.
TABLE OF CONTENTS
Financial Highlights
Message from Ambassador Alfonso T. Yuchengco
YGC Chairman’s Business Affiliations
Report to Stakeholders
Consolidated Assets
Insurance Risk Portfolio
Financial Review
MICO Equities, Inc. & Subsidiaries
Financial Statements
Malayan Insurance Co., Inc. & Subsidiaries
Financial Statements
Board of Directors
Principal Officers
Directory of Subsidiaries, Offices and Branches
Products and Services
Vision, Mission and Core Values
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Malayan head office executives, together with Davao Branch employees and agents celebrate the branch’s 50th year anniversary. The Malayan Davao Branch is the company’s biggest provincial branch.
Malayan head office executives, together with Davao Branch employees and agents celebrate the branch’s 50th year anniversary. The Malayan Davao Branch is the company’s biggest provincial branch.
MICO EQUITIES, INC. AND SUBSIDIARIES
IN US DOLLARS 2011 2010 PeRceNt (%)
Gross Premiums Written $ 139,654,143 $ 137,836,637 1% Premiums Earned 63,439,562 58,600,516 8% Net Underwriting Income 10,431,237 12,170,498 -14% Investments and Other Income 17,050,785 15,932,732 7% General expenses 19,171,362 18,639,728 3% Net Income 7,436,964 10,155,545 -27% At YeAR eND Total Assets 447,325,563 443,363,883 1% Stockholders’ Equity 218,737,456 210,647,063 4% Unearned Premiums 1,983,830 (16,558,959) -112% Reserve for Losses and Loss Expenses 101,225,403 115,051,271 -12% Investments 219,964,774 211,353,150 4%
IN PHILIPPINe PeSOS 2011 2010 PeRceNt (%)
Gross Premiums Written P 6,048,420,953 P 5,969,704,747 1% Premiums Earned P 2,747,567,436 P 2,537,988,354 8% Net Underwriting Income 451,776,87 527,104,281 -14% Investments and Other Income 738,469,506 690,046,638 7% General expenses 830,311,684 807,286,628 3% Provision for Income Tax 37,839,788 (29,972,377) -226% Net Income 322,094,911 439,836,668 -27% - -
At YeAR eND Total Assets P 19,610,752,699 P 19,437,072,612 1% Stockholders’ Equity 9,589,450,080 9,234,767,263 4% Unearned Premiums-gross 86,971,100 (725,944,755) -112% Reserve for Losses and Loss Expenses-gross 4,437,721,661 5,043,847,739 -12% Investments 9,643,255,706 9,265,722,100 4% cONVeRSION RAteS Balance sheet Accounts P43.84 = US$ 1.00 Profit and Loss Accounts P43.31 = US$ 1.00
MESSAGE F
ROM
The theme for this year’s Annual Report, “Sustaining Leadership” is a propitious description of the times. We are aware that 2011 was full of challenges that adversely impacted the macro-economics of the country, which of course, cascaded to the individual businesses that operate in the local market.
But rather than dwell on the shortcomings of the past year, let me relate the many steps undertaken by Malayan Insurance to nourish its tradition of excellence and leadership in the non-life industry – both in good and in difficult times.
These steps also describe the collective effort of Malayan’s management to enable the Company to thrive amid uncertainties, and push the boundaries a little bit more, so that Malayan keeps not only its leadership, but more so, its relevance to the society.
For us, “Sustaining Leadership” is constantly moving forward, breaking through barriers and never resting on past successes. This unrelenting perseverance to succeed is anchored in our deep faith in the Filipino; that this nation deserves the very best from its stakeholders, including from a company such as ours.
To this end, Malayan Insurance made great bounds in sustaining the work environment in which its people are allowed to flourish and contribute to the organization and his own self-realization. The over-arching idea behind this is the development of a competent, empowered and engaged workforce which is part of Malayan’s Management Agenda.
Another aspect of leadership that Malayan has strived to work on is active participation in the development of the broader community – the community wherein our businesses are rooted in and to the country as a whole.
We believe that giving back to the community is an important fabric of our identity and a task we take seriously to pursue. Our programs for the street-children and involvement in other worthy causes, plus our environmental program is a testament to the value we attach to the humanitarian and ecological level of sustaining the environment.
In 2011, along with the Yuchengco Group of Companies, Malayan embarked on saving the watershed area of Laiban Dam in the province of Rizal, by planting thousands of Molave tree saplings. This is a 5-year commitment which we view as an indispensable part of our corporate social responsibility, an integral part of our business ecosystem.
Our ranking as the top performing non-life insurance provider in the country for more than four decades only points to our sustained leadership in this sector. We offer this great feat back to the stakeholders who helped Malayan Insurance succeed, providing a solid ground on which we are able to trudge through rocky moments in history and still emerge at the top!
SUStAININg LeADeRSHIP
gOVeRNmeNt POSItIONS Under the Administration of President gloria macapagal Arroyo• Presidential Adviser on Foreign Affairs with Cabinet Rank (January 19, 2004 – June 2010)• Member, Consultative Commission to Propose Revision to the 1987 Constitution (August 2005 – March 2006)• Philippine Permanent Representative to the United Nations with the rank of Ambassador (November 2001 – December 2002)• Presidential Special Envoy to Greater China, Japan and Korea (2001)
Under the Administration ofPresident Joseph ejercito estrada• Presidential Assistant on APEC Matter with Cabinet Rank (1998-2000)
Under the Administration of President Fidel V. Ramos• Ambassador Extraordinary & Plenipotentiary of the Republic of the Philippines to Japan (1995-1998)• Chairman, Council of Private Sector Advisers to the Philippine Government on the Spratly Issue (Marine and Archipelagic Development Policy Task Group) (1995-1998)• Member, Philippine Centennial Commission (1998)
Under the Administration of President corazon c. Aquino• Ambassador Extraordinary & Plenipotentiary of the Republic of the Philippines to the People’s Republic of China (PROC) (1986-1988)
AFFILIAtIONS – PRIVAte SectORS• Bachelor of Science in Commerce–Far Eastern University, Philippines – 1946• Certified Public Accountant (CPA) - 1947• Master of Science – Columbia University – 2007• Pan Malayan Management and Investment Corporation (PMMIC) Chairman of the Board and Chief Executive Officer• Rizal Commercial Banking Corporation Honorary Chairman of the Board• MICO Group (holding company of Malayan Group of Insurance Companies) Chairman of the Board• GPL Holdings, Inc. (holding company of Great Pacific Life Assurance Corporation & Great Life Financial Assurance Corporation) Chairman of the Board• Grepalife Financial Inc. Vice Chairman and Member of the Board• Great Life Financial Assurance Corporation (formerly Nippon Life Insurance Company of the Philippines Inc.) Chairman of the Board• House of Investments, Incorporated Member of the Board of Directors
• RCBC Realty Corporation Chairman of the Board• RCBC Land Inc., Member of the Board of Directors• AY Foundation, Chairman of the Board• Mapua Institute of Technology Chairman of the Board of Trustees• Yuchengco Center, De La Salle University, Philippines, Chairman of the Board• Yuchengco Museum, Chairman of the Board• YGC Corporate Services, Inc., Chairman of the Board• Waseda Institute for Asia Pacific Studies Member of the International Advisory Board• Ritsumeikan Asia Pacific University Member of the Advisory Board• University of Alabama Member, International Business Advisory Board• Culverhouse College of Commerce & Business Administration• University of San Francisco, (Mclaren School of Business), USA Trustee Emeritus• Columbia University, Business School, New York, USA - Member, Board of Overseers• Master of Business Administration (MBA) - Juris Doctor (JD) dual degree program of De La Salle University, Professional Schools Inc. Graduate School of Business and Far Eastern University Institute of Law Chairman of the Board• University of St. La Salle, Roxas City Member, Board of Trustees• Pacific Forum, Honolulu, Hawaii Member, Board of Governors• International Insurance Society (IIS) Member of the Board of Directors and Former Chairman of the Board• Philippine Ambassadors Foundation, Inc. Chairman & Member of the Board of Governors• Bantayog ng mga Bayani (Pillars of Heroes Foundation), Chairman of the Board• Blessed Teresa of Calcutta Awards Vice-Chairman of the Board of Judges• Bayanihan Foundation (Bayanihan Folk Arts Foundation, Inc.) – Philippine Women’s University, Chairman of the Board of Trustees• Philippines-Japan Society, Incorporated Advisory Board Member and Member of the Board of Directors• Philippines-Japan Economic Cooperation Committee, Member, Advisory Board• Confederation of Asia-Pacific Chambers of Commerce and Industries (CACCI) Chairman, Advisory Board and Former Chairman of the Board• The Asia Society, New York Trustee Emeritus• Honda Cars Kaloocan, Inc., Chairman of the Board• Enrique T. Yuchengco, Inc., Chairman of the Board• Compania Operatta ng Pilipinas, Inc. (Philippine Opera Company) Honorary Chairman of the Board
gOVeRNmeNt AwARDS:Philippine Legion of Honor With the Degree of Grand CommanderPresented by President Gloria Macapagal-Arroyo, June 29, 2010
First Recipient of the Order of Lakandula with the rank of Bayani (grand cross) Presented by President GloriaMacapagal-Arroyo, Republic of the Philippines (November 20, 2003)
Order of Sikatuna with the Rank of DatuPresented by President Fidel V. RamosRepublic of the Philippines (1998)
grand cordon of the Order of the Rising SunPresented by His Majesty,the Emperor of Japan.The highest honor ever given bythe Emperor to a foreigner (1998)
Knight Grand Officer of RizalPresented by the Knights of RizalRepublic of the Philippines (1998)
Order of the Sacred treasure, Gold and Silver StarAwarded by His Majesty,The Emperor of Japan (1993)
Outstanding manilan in DiplomacyCity of Manila (1995)
Outstanding citizen in the Field ofBusiness, City of Manila (1976)
NON-gOVeRNmeNt AwARDSLifetime Achievement AwardAsia Insurance Industry Awards(October 17, 2010)
Philconsa maharlika AwardPresented by the Philippine ConstitutionAssociation (2010)
Hall of Fame AwardeeFar Eastern University (December 13, 2003)
Outstanding Alumni AwardeeFar Eastern University (May 2003)
Lifetime Achievement AwardDr. Jose P. Rizal Awards for Excellence(June 2002)
KNP Pillar AwardKaluyagan Nen Palaris, Pangasinan(December 2006)
Parangal San mateoPhilippine Institute of Certified PublicAccountants Foundation, Inc.(October 2001)
the Outstanding Filipino AwardeeTOFIL 2000
gold medallionConfederation of Asia-PacificChambers of Commerce & Industry (CACCI) (2000)
First Asean to be elected to the“Insurance Hall of Fame”,International Insurance Society, Inc. (1997)
First Recipient of the globalInsurance Humanitarian AwardUniversity of Alabama (USA) (2008)
Hall of Fame AwardPhilippine Institute of Certified PublicAccountants (PICPA) (1997)
Outstanding Certified Public Accountant(CPA) in International RelationsPhilippine Institute of CertifiedPublic Accountants (PICPA) (1996)
ceO eXceL AwardInternational Association of BusinessCommunicators (2009)
medal of meritPhilippines-Japan Society (1995)
Outstanding Service to church & NationDe La Salle University (1993)
management man of the YearManagement Association ofthe Philippines (1992)
Distinguished La Sallian Award forInsurance & FinanceDe La Salle University (1981)
First Asian to Receive InternationalInsurance Society (IIS) Founders’gold medal Award of excellenceInternational Insurance Society (1979)
Presidential medal of meritFar Eastern University (1978)
most Outstanding JcI Senatorin the Field of Business and economicsXXXIII Jaycee ChamberInternational (JCI) World Congress (1978)
Insurance man of the YearBusiness Writers Association ofthe Philippines (1955)
most Distinguished AlumnusFar Eastern University (1955)
AmBASSADOR ALFONSO t. YUcHeNgcOChairman, MICO Equities, Inc.,
The year 2011 was another challenging year for Malayan. A string of natural calamities, regulatory risks, and global
financial uncertainty tested the company’s strategic plans and vision. Malayan Insurance faced these challenges, took advantage of opportunities, crossed obstacles, and invested in keeping the company strong and stable. Steering the company towards the realization of its vision of continuing, if not surpassing, its long and illustrious history of 81 years of achievement, is both a challenge and an honor.
Malayan’s sustained leadership and tradition of service excellence have always been the company’s trademarks. These values distinguished the company -- among the 83 insurance firms operating in the country today -- as being very competitive and determined to meet its commitment to provide the best services to its clients, and delivering positive returns for the investments of its stakeholders.
Following is Malayan’s performance annual report in 2011. It expounds on the actions undertaken to achieve real progress and the strategies – marketing, products and services – that have influenced a more than satisfactory performance of the company in 2011.
2011: A DIFFIcULt mARKet eNVIRONmeNt
the economyThe Philippines was not able to meet the projected economic growth compared to what was experienced in 2010 as several unfavorable conditions here and abroad influenced the slow down of the country’s economic output.
The adverse global economic environment affected Philippine
exports just as inflows of foreign investments decreased. The
Eurozone debt crisis caused a global economic downturn while
natural catastrophes reduced Philippine output. The unrest in
the Middle East caused fuel prices to rise, pulling food prices
up. The earthquake and tsunami that devastated Japan and
the severe flooding that hit Thailand disrupted supply chains in
the automotive industry. The government’s focus on eliminating
graft and corruption did not turn out as an impetuous for business
expansion and resulted to government under-spending,
impacting construction and other industries.
As a result, the country’s Gross Domestic Product (GDP) in 2011
posted a tepid growth of 3.7%, much lower than the
original government projection of 7-8%, and lower than the
7.6% growth in 2010.
A weak economy has far reaching effects on the insurance
industry: it impedes insurance premium growth as individuals
and businesses tend to self-insure or hold back on investments
and business expansion. Inflationary pressures are manifested by
increased claims costs which tend to cause premium pricing to
lag behind actual exposure. This is even more pronounced in
a market like the Philippines where an environment of intense
competition inhibits the increase in premium rates to match risk
exposure.
The increasing frequency and severity of natural catastrophes
have affected insurance companies’ profit margins and
balance sheets, resulting in larger-than-usual claims, as well as
a marked increase in reinsurance costs.
While these disasters may have brought increased risk awareness among the insuring public, the expected increase in the demand for insurance has not been at pace with the level of increased losses.
Industry Reforms – Local and RegionalThe Philippine insurance industry continues to have a prohibitive tax structure, the highest among its peers in Asia, with as much as 27 centavos of taxes for every 1 peso of premium. If not addressed prior to the ASEAN insurance integration in 2015, this will hamper the local insurance companies’ ability to compete with regional insurers.
One positive reform being undertaken by the insurance industry is to strengthen the industry’s financial position. The Philippines has one of the lowest capitalization requirements in the ASEAN region. After increasing the minimum paid-up capital to P175M in 2011, there is a proposal to increase this to P1B paid up capital by 2018. There are ongoing consultations on the impact of such a move.
This proposal is seen as a preemptive response to the l iberalization of the insurance industry in 2015 through the ASEAN Free Trade Agreement (AFTA) wherein cross-border transactions will enjoy a tariff-less region. An increase in
capitalization is envisioned as the answer to the local industry’s competitiveness in the face of the larger regional insurers.
SUStAININg LeADeRSHIP - DeLIVeRINg IN tHe FAce OF ADVeRSItY
The Malayan Group showed resolve in delivering solid results in the face of adverse conditions in the country and in the non-life insurance industry as well.
Stockholders’ Equity grew by 4% from P9.23B in 2010 to P9.59B in 2011 due to income from operations and increase in the value of our financial assets. Total Assets grew slightly from P19.44B in 2010 to P19.61B in 2011, due to the increase in the value of financial assets which counterbalanced the payment of a significant portion of outstanding losses from previous years.
The Malayan Group generated Gross Premiums Written of P6.05B in 2011, a modest growth from the Gross Premiums Written of P5.97B in 2010.
Malayan’s Direct Premiums Written grew by 7% from P4.25B in 2010 to P4.55B in 2011. The growth was driven primarily by the expansion in most underwriting lines. Fire, engineering, and surety business posted respectable growth, defying a 6% contraction in the Philippines’ construction sector. Malayan’s
retail business benefitted from increased demand on personal
accident insurance particularly in connection with travel
insurance which has been spurred by growth in the tourism
industry. Motor car also showed slight growth, overcoming
a 4% dip in vehicle sales in the country due to the supply
shortage brought about by the Japan earthquake/tsunami
and the Thai flooding. The growth in our direct business was
achieved through focused strategies on specific high-return
sectors and client segments with favorable risk profiles.
On the other hand, Malayan’s Inward Reinsurance business
contracted by 13% from P1.72B in 2010 to P1.5B in 2011, primarily
due to extension premium adjustments in 2010 that were not
present in 2011.
Malayan produced Net Underwriting profit of P452M in 2011,
declining from P527M in 2010. Malayan’s underwriting results
were greatly affected by flood losses from foreign reinsurance
treaties with exposure in Thailand. These are foreign reinsurance
treaties that we have carried for many years with historically
profitable results. The losses were unprecedented and un-
modelled given that Thailand was previously considered not
exposed to catastrophic risks.
In the uncertain investment climate, Malayan managed to
establish strong performance by avoiding risk concentration
with a better portfolio mix.
Malayan’s Investment Income grew by 7%, generated from
higher returns on financial assets, foreign currency gains, and
higher dividend income. Malayan consistently sought high-
yield investment vehicles and made timely trading decisions
to take advantage of positive market developments.
In 2011, Malayan registered a Net income of P322M, declining
from P440M in 2010, primarily due to the decrease in the Net
Underwriting profit.
We maintained our market position and produced positive
financial results in spite of the volatile market conditions which
validated our strong operating fundamentals, as supported by
our continued favorable ratings by AMBest and Standard &
Poors.
AMBest confirmed our financial strength rating of B++ (good),
while S&P confirmed our financial strength rating of BB. Both
ratings were supported with a stable outlook.
Leveraging financial strength to support business growthMalayan Insurance Co. Inc (MICO), the Malayan Group’s
flagship company, prides itself in having superior financial
capacity in the industry which we leverage to create value
for our clients. As of Dec. 2011, MICO has a Paid-up Capital of
P845M, well above industry requirements of P175M, and one of
the highest among the insurance companies in the Philippines.
Our strong capital base and our extensive reinsurance program
backed by highly-rated reinsurance partners here and abroad,
have given us the underwriting capacity to take on the volume
and magnitude of risks that address the needs of all industry
sectors. Moreover, this has allowed us to be more active and
creative in providing tailor-made products to the high-growth
markets and other business segments.
Innovation and channel diversificationMICO is in a strong financial position, with a comfortable capital
ratio that testifies to its stability, and solid brand equity in the
Philippine insurance market. These strengths allow MICO the
flexibility to pursue innovation and strategic projects for the
benefits of the ensuring public. The development of new products
and increasing access to these products through various
distribution channels have yielded benefits to the company’s
retained earnings. The company has generated a momentum
for its retail growth strategy and has targeted a growing low
and middle income class to sustain this. The foundation of
MICO’s business performance is in the talent and perseverance
of its people, the broad reach of its distribution and service
networks, and the quality of its products and services, as well
as MICO’s continued investment in the development of these
assets.
exceeding customer expectationsCustomer service has become a key area of competition and differentiation among insurance companies. After all, insurance is a financial service, an intangible product rendered for the benefits of its consumers during unforeseen events. Efficiency in operations and consumer friendly approaches are essential in the overall management of client relationships. This the company achieves by improving timeliness and flexibility of services, and being responsive to clients’ needs and expectations. MICO also fully utilized a new Business Center in its head office and took efforts to make its broad branch network client-friendly towards contributions to conversion and retention of business.
In keeping with the times, MICO improved its online web site to make it more customer-centric, and supported the web site through various social media network pages. With both online and off-line efforts to engage the customer, traffic to the website substantially improved and transformed MICO’s online facilities into venues for business generation and business support.
The Malayan customer has many reasons to be positive about MICO’s potential as his/her insurer of choice. The company is financially strong and stable. It is able to position and reposition its business model to respond to customer demands, and provide a nationwide network of service branches for the customer’s benefit. And it has the flexibility to pursue opportunities to serve the ensuring public better.
Operational ImprovementsIn 2011, Malayan’s continued ISO accreditation serves as the basis of our operational efficiency.
Malayan maximized the use of ArcGIS Explorer (geographic information system) to facilitate the preparation of quotations and proposals for our clients. We have also instituted a Catastrophe claims handling protocol called the “Catcher Protocol”, to better handle catastrophic claims.
In 2011, Malayan initiated a Client Database Project utilizing customer analytics to generate and analyze real-time data on
our clients for more effective marketing, pricing and customer service. We strengthened our Know-Your-Customer (KYC) program by developing customer-friendly information sheets and encouraging our clients to provide complete customer information, not only in compliance with the Anti-Money Laundering Act (AMLA) regulatory requirements, but as a means for us to customize our products and services to our customers’ needs. The success in this client data generation would be the key in implementing our new insurance administration system, Polisy Asia.
Polisy Asia is an integrated general insurance administration system that once fully deployed, is expected to improve our processes to respond to the increasing and changing demands of customers and to improve the management of operational costs.
maintaining a sustainable balance sheet in a turbulent marketAs the volatile insurance environment continues to erode profit margins, it compels us to maintain underwriting discipline in order to protect our balance sheet and preserve our capability in fulfilling the fundamental responsibility of providing timely claims payouts. Malayan believes in generating growth by identifying less-risky and high-return business.
Malayan Insurance President Yvonne S. Yuchengco (third from left) and EVP Antonio M. Rubin receive the Certificate of Authority from Insurance commissioner Emmanuel F. Dooc (far right) and Deputy Insurance Commissioner Vida T. Chiong.
MICO has continued to reinforce strict underwriting guidelines particularly in terms of the flood restricted and earthquake zones exposure and accumulation. Malayan has also intensified inspection and re-inspection of risks so that we have comprehensive and updated risk information. Malayan periodically updates its database on flood prone areas and earthquake buffer zones in the country.
Malayan is the first in the industry to use underwriting tools like the thermal imaging system to evaluate risks that allowed us to inspect equipment and electrical systems quickly and accurately.
The use of Catalytics (Philippine earthquake modelling) to analyze risks and losses related to earthquake has given us the opportunity to provide value-added service in the form of risk management recommendations to our clients.
Malayan is also one of the pioneers in the non-life insurance industry to have created its own Actuarial and Risk Management unit. Formed in 2010, Malayan’s Actuarial unit went full steam in 2011, helping our underwriters price and develop new products, determine optimum reinsurance programs, as well as improved classification of risks.
Answering the call of nation-buildingMalayan recognizes that businesses are responsible for creating social prosperity and environmental sustainability, not only for ethical reasons, but also because of the need to operate in a healthy society.
An insurance company should provide the foundation for economic growth through the provision of insurance protection needed to promote commerce and trade, especially for the underserved segments. To that end, Malayan fulfilled its role in developing grassroots economic development by expanding access to insurance to the small scale entrepreneurs and low income households.
The Malayan Group, thru the Bankers Assurance Corporation (BAC), also launched Bayan Asenso – a group of low-cost but high-value micro-insurance products. By providing these micro-insurance products, Malayan is able to utilize its capacity and expertise in the service of the public.
the environmentMalayan’s entry won the top prize in the Yuchengco Group’s environment theme competition in connection with its 100th year anniversary. Entitled “Sandaang Puno sa Sandaang Bayan para sa Sandaang Taon ng YGC” (One hundred trees for One Hundred Villages for YGC at One Hundred), the entry is a 5-year tree planting project that involves participation from various public and private organizations.
Malayan, working with the YGC, continues to be a major contributor to the Buhay Rizal project (named after the Philippine national hero, Jose Rizal) to promote values education among the youth. It is also involved in book donation drives to benefit poor schools nationwide. Malayan also regularly appropriates funds for its long-standing Street Education Program (now on its 11th year) and the Adopt-a-School program.
Industry recognition In 2011, Malayan won the Best in Corporate Governance and the Best in Corporate Social Responsibility awards given by the Philippine Insurers and Reinsurers Association (PIRA) in
The MIS Division of Malayan Insurance wins first place in the YGC-CSR Ideation Contest with it’s “100 Trees for 100 Villages” environment friendly proposal. No less than Amb. Alfonso T. Yuchengco awarded the trophy and cash prize.
HeLeN Y. DeeCHAIRMAN
Malayan Insurance Co., Inc.
YVONNe S. YUcHeNgcOPRESIDENT
Malayan Insurance Co., Inc.
recognition of Malayan’s commitment to good governance and its pursuit of what Ambassador Alfonso T. Yuchengco calls, a Social Return on Investment (SROI) through good corporate citizenship.
The Federation of Afro-Asian Insurers & Reinsurers (FAIR) inducted Ambassador Alfonso Yuchengco to the FAIR Hall of Fame, in recognition of his lifelong contributions to insurance development in the region. The ambassador became one of the first two individuals to be inducted in the FAIR Hall of Fame.
employees—building on our assetsOur people are our main source of competitive advantage and the primary driver of our organizational success. That is why developing a competent, empowered and engaged workforce is not just a goal – it is a mandate.
In 2011, Malayan implemented programs that created an environment designed to fulfil both employee and company goals.
Malayan in 2011 continued on its journey towards becoming an “Investor in People,” a globally recognized framework that improves all facets of people management such as per formance evaluation, rewards and recognit ion, identif ication of competencies, and development through training programs.
Malayan also provided its employees a host of training programs to further expand their technical and soft skills to help them maintain our standard of customer service. We implemented wellness programs to improve their health and well-being, and continued in earnest the upgrading of our offices and facilities to provide our employees a safe and healthy working environment.
SUStAININg LeADeRSHIP--BUILDINg ON tRUSt
On behalf of our directors, we acknowledge the commitment and dedication of our staff, and the trust and support of our policyholders and partners, in continuing Malayan’s distinguished tradition of excellence over the years.
Sustainable leadership requires trust from all stakeholders – trust that can only be built through a long-standing connection and inter-dependence, both on a personal and business level – knowing that their success is closely linked with ours and vice versa.
As we confront the challenges and opportunities we shall face over the next several years, Malayan’s actions will be guided with the best interests of our policyholders and stakeholders in mind. We will focus on long-term financial strength and stability, and in doing so, deliver on our fundamental promise to provide peace of mind to our customers, optimum best returns to our shareholders, and a stabilizing and strong presence in our community.
Ambassador Alfonso T. Yuchengco receives the Hall of Fame Award from the Federation of Afro-Asian Insurers and Reinsurers.
MICO EQUITIES, INC. AND SUBSIDIARIES
CONSOLIDATED ASSETS
MICO EQUITIES, INC. AND SUBSIDIARIES
It was a roller-coaster ride for the non-life insurance industry as world events and domestic issues, including natural
catastrophes, conspired to temper the growth of the economy in 2011 compared to the sterling economic growth achieved in the previous year.
To deal with these challenges, the Malayan Group trained its efforts to strengthen its operation by tapping new market segments to further boost and sustain its profitability and continue to deliver excellent service to its clients. Members of the group focused on several initiatives such as market segmentation, especially in their retail strategy, to capture more market share and thus continue in the path of growth.
The financial health and operational highlights of the companies comprising the group is further discussed in the financial reviews of the different companies under the Malayan Group.
malayan Insurance co. Inc. (mIcO)
MICO’s stockholders’ equity grew by 4 percent from P6.56 billion to P6.81 billion in 2011 due to the appreciation in the value of financial assets and income from operations. Moreover, MICO’s total assets of P16.20 billion is 2 percent lower than 2011’s P16.5 billion due to the settlement of outstanding losses of prior years.
In 2011, MICO managed to expand its business from P5.86 billion to P5.96 billion in terms of Gross Premiums Written (GPW) for a 2 percent growth rate. This directly translates to a realized 10 percent increase in Gross Premiums Earned (GPE) or P2.61 billion compared to the P2.37 billion earned in 2010.
Net underwriting income decreased from P480.3 million to P381.3 million due to increase in losses mainly coming from inward foreign treaties with exposure in Thailand.
Financial and other income recorded a 16 percent growth from P546.5 million to P635.5 million. The increase came from interest and dividend income and foreign currency exchange gains.
The Company’s P272.7 million Net Income is lower than the P365.5 million achieved in the previous year due to the contraction in net underwriting income but partially offset by the growth in financial and other income.
The process of strengthening MICO’s operation, moreover, does not end at producing great products. Following the successful ISO reassessment audit by Certification International in 2011, MICO retained its ISO 9001:2008 certification, further boosting its competence in serving its clients.
This is because earning the ISO certification speaks highly about MICO’s commitment to the Quality Management System (QMS). The QMS forms the basis of how MICO monitors, administers, and ensures compliance to globally-accepted management practices.
MICO first gained quality management certification in 2009 with the awarding of the ISO 9001:2000. In 2011, MICO transitioned to ISO 9001:2008 to adopt the latest standard for a well-planned QMS which seeks to implement a disciplined and controlled process to help achieve better customer satisfaction and operational efficiency.
Aside from continuously improving its QMS, MICO also continues to earn the trust of the public by retaining its rank as the NUMBER 1 non-life insurer in the country for an unprecedented 41 straight years.
This achievement only proves that MICO remains the country’s most preferred non-life insurance provider ready to settle just and valid claims at all times thus providing
peace of mind to its clients and policyholders. MICO’s performance in its GPW and GPE are the two crucial ranking categories that form the basis for this achievement. In 2011, A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb” of MICO. These ratings reflect MICO’s strong business profile, adequate level of capitalization and consistent investment performance.
A.M. Best has provided MICO with a favorable rating for seven (7) consecutive years since 2005.
the First Nationwide Assurance corporation (FNAc)
Another banner year was recorded by the FNAC wherein it posted a remarkable 23 percent growth in its GPW compared to 2010’s figures. In terms of absolute numbers this translate to P83.86 million versus P68.25 million in 2010.
While its GPE fell 21 percent to P38.3 million as against P48.3 million in the previous year, FNAC’s Underwriting Profit recorded a 45 percent spike at P23.3 million compared to 2010’s P16 million. Investment Income also recorded a 4 percent uptake to P39.9 million up from P35.6 million in 2010.
FNAC’s Net Income on the whole is 30 percent higher at P17.7 versus the previous year’s P13.6 million. Stockholders Equity is also up 3 percent at P602.6 million compared with P586.5 million in 2010. Total Assets of FNAC also improved to P793.4 million or 4 percent up from P765.4 million in 2010.
Aside from these strong financial achievements, FNAC continues to augment its product offerings to further solidify its position as the non-life insurance bancassurance partner of the Rizal Commercial Banking Corporation (RCBC). In 2011, it added two new products, MY BIZ, and MY WELLNESS, to complete its “MY SERIES” products in the bancassurance channel.
MY BIZ is ideal for the small and medium enterprise segment since it provides protection against fire, lightning and other perils. More than a traditional fire insurance cover, this product also protects against fraudulent acts by the business owner’s workers or legal costs due to litigations incurred while running the business. This particular product allows business owners to focus on creating success for their operations while FNAC takes care of the insurance risks.
MY WELLNESS, on the other hand, is a comprehensive accident and sickness protection plan that secures the insured with daily cash benefit for hospital confinements, accidental death and dismemberment cover, as well as cash benefits for funeral expenses.
Bankers Assurance corporation (BAc)
The rebuilding phase of the Bankers Assurance Corporation capped the company’s 2011 operation. During this period, BAC started to make available innovative insurance products for the microinsurance market and developed the Bayan Asenso Microinsurance trade name to address the risk priorities of the low-income sector.
This strategy made great contributions to the BAC’s GPW which experienced a 22 percent increase over its 2010 figures due mainly to the growth in its direct business from new microinsurance channels and increase in its reinsurance business.
While total GPW grew from P22.24 million to P27.22 million, total claims and losses improved from P7.62 million to P2.40 million in 2011. Also, BAC’s P16 million Gross Premiums Earned is 33 percent higher than the P12 million posted in 2010.
BAC’s total net income amounted to P72.5 million in 2011 as against P146.86 million in 2010 or less than half the previous year’s record. The downturn reflected lower financial income in 2011 compared to 2010 due mainly to nonrecurring gains from the sale of equity investments.
Malayan Insurance officers and employees troop to Barangay San Andres, Tanay in the Province of Rizal in support of a 5-year tree planting initiative to reforest the Laiban Dam Watershed. They established the Malayan Molave Woodland as MICO’s contribution to the YGC Centennial Forest Project.
The management of MICO Equities, Inc. and Subsidiaries is responsible for all information and represen-tations contained in the financial statements for the years ended December 31, 2011 and 2010. The financial statements have been prepared in conformity with generally accepted account-ing principles and reflect amounts that are based on the best estimate and informed judgment of management with an appropriate consideration to materiality.
In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized.
The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the company.
SyCip, Gorres, Velayo & Co., the independent auditors and appointed by the stockholders, has examined the financial statements of the company in accordance with generally accepted auditing standards and has expressed its opinion on the fairness of presentation upon completion of such examination, in its report to stockholders.
MICO EQUITIES, INC. AND SUBSIDIARIESSTATEMENT OF MANAGEMENT’S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
ALFONSO t. YUcHeNgcOCHAIRMAN OF THE BOARD
YVONNe S. YUcHeNgcOPRESIDENT
ALegRIA R. cAStROCONTROLLER
MICO EQUITIES, INC. AND SUBSIDIARIESINDePeNDeNt AUDItORS’ RePORt
The Stockholders and the Board of Directors MICO Equities, Inc. We have audited the accompanying consolidated financial statements of MICO Equities, Inc. and Subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2011 and 2010, and the consolidated statements of income, statements of comprehensive income, statements of changes in equity and statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. management’s Responsibility for the consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of MICO Equities, Inc. and Subsidiaries as at December 31, 2011 and 2010,
and their financial performance and their cash flows for the years then ended in accordance
with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Lucy L. Chan Partner CPA Certificate No. 88118 SEC Accreditation No. 0114-AR-2 (Group A), February 11, 2010, valid until February 10, 2013 Tax Identification No. 152-884-511 BIR Accreditation No. 08-001998-46-2009, June 1, 2009, valid until May 31, 2012 PTR No. 3174587, January 2, 2012, Makati City March 26, 2012
MICO EQUITIES, INC. AND SUBSIDIARIES
cONSOLIDAteD StAtemeNtS OF FINANcIAL POSItION
December 31 2011 2010 ASSetS cash and cash equivalents (Notes 4, 25, 26 and 27) P1,896,811,975 P1,542,040,998 Short-term Investments (Notes 5, 25, 26 and 27) 11,099,040 10,536,503 Insurance Receivables - net (Notes 6, 25 and 26) 2,795,947,195 2,435,554,116 Financial Assets (Notes 7, 25 and 26) Available-for-sale financial assets 9,063,830,701 8,581,368,142 Financial assets at fair value through profit or loss 224,561,299 378,094,876 Loans and receivables - net 457,333,124 359,905,483 Accrued Income (Notes 8, 25, and 26) 46,376,162 56,369,814 Deferred Acquisition costs (Note 9) 273,845,906 302,047,984 Reinsurance Assets (Notes 10, 14 and 25) 4,078,658,102 5,016,758,356 Investment Properties - net (Note 11) 88,307,387 99,420,776 Property and equipment - net (Note 12) 244,857,940 208,087,019 Pension Asset (Note 17) 7,032,535 10,188,809 Deferred tax Assets - net (Note 24) 70,024,767 75,897,368 Other Assets - net (Notes 13 and 27) 352,066,566 360,802,368 P19,610,752,699 P19,437,072,612 LIABILItIeS AND eQUItY Liabilities Insurance contract liabilities (Notes 14 and 25) P7,260,229,346 P7,953,326,524 Insurance payables (Notes 15, 25 and 26) 1,591,822,988 1,112,044,647 Accounts payable, accrued expenses and other liabilities (Notes 16, 25 and 26) 1,012,091,206 980,718,593 Income tax payable – 983,112 Deferred reinsurance commissions (Note 9) 114,520,762 108,903,268 Deferred tax liabilities - net (Note 24) 2,136,384 – Pension liability (Note 17) 40,501,933 46,329,205 P10,021,302,619 P10,202,305,349 equity (Note 18) Equity attributable to equity holders of the Parent Capital stock - P100 par value P600,000,000 P400,000,000 Revaluation reserve on available-for-sale financial assets (Note 7) 3,131,432,419 3,047,251,036 Other revaluation reserve 23,466,647 23,466,647 Cumulative translation adjustments (128,040,167) (82,173,217) Retained earnings 5,073,082,556 4,980,107,044 8,699,941,455 8,368,651,510 Non-controlling interest 889,508,625 866,115,753 9,589,450,080 9,234,767,263 P19,610,752,699 P19,437,072,612 See accompanying Notes to Consolidated Financial Statements.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
MICO EQUITIES, INC. AND SUBSIDIARIES
cONSOLIDAteD StAtemeNtS OF INcOme
Years ended December 31 2011 2010
INcOme Gross premiums earned P6,135,392,053 P5,243,759,992
Reinsurers’ share of gross premiums earned 3,387,824,617 2,705,771,638
Net premiums earned (Notes 14 and 19) 2,747,567,436 2,537,988,354
Investment and other income - net (Note 20) 755,126,602 707,526,826
Commission income (Note 9) 245,448,605 216,808,630
Other income 1,000,575,207 924,335,456
Total income P3,748,142,643 P3,462,323,810
BeNeFItS, cLAImS AND eXPeNSeS Gross insurance contract benefits and claims paid
(Notes 14 and 21) 2,443,944,923 3,321,758,429
Reinsurers’ share of gross insurance contract benefits
and claims paid (Notes 14 and 21) (1,056,527,485) (1,594,202,422)
Gross change in insurance contract liabilities (Note 21) (606,126,078) (1,890,758,443)
Reinsurers’ share of gross change in insurance
contract liabilities (Note 21) 833,185,577 1,552,848,768
Net insurance contract benefits and claims 1,614,476,937 1,389,646,332
Commission expense (Note 9) 845,546,569 735,218,230
General and administrative expenses (Note 22) 830,311,684 807,286,628
Other underwriting expense 81,215,658 102,828,141
Other investment expense (Note 9) 9,138,636 12,103,621
Interest expense on reinsurance funds held 7,518,460 5,376,567
Other expenses 1,773,731,007 1,662,813,187
Total benefits, claims and other expenses 3,388,207,944 3,052,459,519
INcOme BeFORe INcOme tAX 359,934,699 409,864,291
PROVISION FOR (BeNeFIt FROm) INcOme tAX
(Note 24) 37,839,788 (29,972,377)
Net INcOme P322,094,911 P439,836,668
Attributable to: Equity holders of the Parent Company P294,524,269 P393,855,147
Non-controlling interest 27,570,642 45,981,521
P322,094,911 P439,836,668 See accompanying Notes to Consolidated Financial Statements.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
MICO EQUITIES, INC. AND SUBSIDIARIES cONSOLIDAteD StAtemeNtS OF cOmPReHeNSIVe INcOme
Years ended December 31
2011 2010
Net INcOme P322,094,911 P439,836,668
OtHeR cOmPReHeNSIVe INcOme
Net fair value changes on available-for-sale financial assets
recognized in equity (Note 7) 91,303,613 841,312,877
Cumulative translation adjustment (45,866,950) (29,367,013)
tOtAL cOmPReHeNSIVe INcOme P367,531,574 P1,251,782,532
total comprehensive income attributable to:
Equity holders of the Parent Company P332,838,702 P1,139,277,230
Non-controlling interest 34,692,872 112,505,302
P367,531,574 P1,251,782,532
See accompanying Notes to Consolidated Financial Statements.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
MIC
O E
QUI
TIES,
INC
. AN
D S
UBSI
DIA
RIES
cO
NSO
LID
Ate
D S
tAte
meN
tS O
F c
HA
Ng
eS IN
eQ
UItY
eq
uity
Attr
ibut
able
to e
quity
Hol
ders
of t
he P
aren
t
Reva
luat
ion
Rese
rve
on
Ava
ilabl
e-fo
r-
Oth
er
sale
Fin
anci
al
Reva
luat
ion
c
umul
ativ
e
c
apita
l Sto
ck
Ass
ets
Re
serv
e
tran
slat
ion
Re
tain
ed
N
on-c
ontro
lling
(N
ote
18)
(Not
e 7)
(N
ote
18)
Adj
ustm
ents
ea
rnin
gs
tota
l In
tere
st
tota
l
Fo
r the
yea
r end
ed D
ecem
ber 3
1, 2
011
Bala
nce
at b
egin
ning
of y
ear
P400
,000
,000
P3
,047
,251
,036
P2
3,46
6,64
7 (P
82,1
73,2
17)
P4,9
80,1
07,0
44
P8,3
68,6
51,5
10
P866
,115
,753
P9
,234
,767
,263
Net
inco
me
–
–
–
–
294,
524,
269
29
4,52
4,26
9
27,5
70,6
42
322,
094,
911
Oth
er c
omp
rehe
nsiv
e in
com
e (lo
ss)
–
84,1
81,3
83
–
(45,
866,
950)
–
38
,314
,433
7,
122,
230
45
,436
,663
Tota
l com
pre
hens
ive
inco
me
(loss
) –
84
,181
,383
–
(4
5,86
6,95
0)
294,
524,
269
33
2,83
8,70
2
34,6
92,8
72
367,
531,
574
Stoc
k d
ivid
end
s (N
ote
18)
200,
000,
000
(2
00,0
00,0
00)
–
–
–
Ca
sh d
ivid
end
s d
ecla
red
–
–
–
–
–
–
(1
1,30
0,00
0)
(11,
300,
000)
Tra
nsa
ctio
n co
sts
–
–
–
–
(1,5
48,7
57)
(1,5
48,7
57)
–
(1,5
48,7
57)
Bala
nce
end
of y
ear
P6
00,0
00,0
00
P3,1
31,4
32,4
19
P23,
466,
647
(P
128,
040,
167)
P5
,073
,082
,556
P8
,699
,941
,455
P8
89,5
08,6
25
P9,5
89,4
50,0
80
Fo
r the
yea
r end
ed D
ecem
ber 3
1, 2
010
Bala
nce
at b
egin
ning
of y
ear
P300
,000
,000
P2
,272
,461
,940
P2
3,46
6,64
7
(P52
,806
,204
) P4
,686
,251
,897
P7
,229
,374
,280
P7
70,5
60,4
51
P7,9
99,9
34,7
31
Net
inco
me
–
–
–
–
39
3,85
5,14
7
393,
855,
147
45
,981
,521
43
9,83
6,66
8
Oth
er c
omp
rehe
nsiv
e in
com
e (lo
ss)
–
774,
789,
096
–
(2
9,36
7,01
3)
–
745,
422,
083
66
,523
,781
81
1,94
5,86
4
Tota
l com
pre
hens
ive
inco
me
(loss
) –
77
4,78
9,09
6
–
(29,
367,
013)
39
3,85
5,14
7
1,13
9,27
7,23
0
112,
505,
302
1,
251,
782,
532
Stoc
k d
ivid
end
s (N
ote
18)
100,
000,
000
–
–
–
(1
00,0
00,0
00)
–
–
–
Ca
sh d
ivid
end
s d
ecla
red
–
–
–
–
–
–
(16,
950,
000)
(1
6,95
0,00
0)
Bala
nce
end
of y
ear
P4
00,0
00,0
00
P3,0
47,2
51,0
36
P23,
466,
647
(P
82,1
73,2
17)
P4,9
80,1
07,0
44
P8,3
68,6
51,5
10
P866
,115
,753
P9
,234
,767
,263
See
acc
omp
any
ing
Not
es to
Con
solid
ate
d F
ina
ncia
l Sta
tem
ents
.
Years ended December 31 2011 2010
cASH FLOwS FROm OPeRAtINg ActIVItIeS
Income before income tax P359,934,699 P409,864,291 Adjustments for: Fair value gain on financial assets at fair value through profit or loss (Notes 7 and 20) (8,331,918) (10,340,595) Depreciation and amortization (Note 22) 48,438,026 47,637,082 Loss (gain) on sale of: Available-for-sale financial assets (Note 20) (58,141,707) (103,217,763) Property and equipment (Note 20) (1,151,198) (21,897) Impairment loss on AFS financial assets (Note 20) 15,529,779 11,216,245 Interest expense on reinsurance funds held 7,518,460 5,376,567 Dividend income (Note 20) (354,991,441) (305,966,542) Interest income (Note 20) (276,305,551) (266,534,206) Unrealized foreign currency exchange loss - net 3,701,387 80,278,490 Operating loss before working capital changes (263,799,464) (131,708,328) Decrease (increase) in: Loans and receivables 5,190,268 (9,847,589) Insurance receivables (360,393,079) 784,051,767 Deferred acquisition costs 28,202,078 (100,203,898) Reinsurance assets 938,100,254 1,200,645,433 Accrued income 1,778,289 – Pension asset 3,156,274 (1,581,563) Increase (decrease) in: Insurance payables 479,778,341 (664,780,180) Insurance contract liabilities (693,097,178) (1,410,723,165) Accounts payable, accrued expenses and other liabilities 30,373,267 123,725,501 Deferred reinsurance commissions 5,617,494 30,849,738 Pension obligation (5,827,272) 1,412,785 Net cash generated from for operations 169,079,272 (178,159,499) Income tax paid (28,070,852) (30,601,352) Interest paid (7,518,460) (5,376,567) Net cash generated from operating activities 133,489,960 (214,137,418)
cASH FLOwS FROm INVeStINg ActIVItIeS Proceeds from sale/maturities of: Available-for-sale financial assets (Note 7) 804,318,588 1,306,626,165 Short-term investments 10,536,503 258,425,907 Financial assets at fair value through profit or loss (Note 7) 149,543,584 – Long-term investments (Note 7) 33,170,106 – Property and equipment (Note 12) 2,870,420 752,114 Investment properties (Note 11) 160,000 15,937,501 Dividends received 354,991,441 305,966,542 Interest received 284,520,914 275,880,610Increase in other assets (53,258,870) (101,085,257)
MICO EQUITIES, INC. AND SUBSIDIARIES
cONSOLIDAteD StAtemeNtS OF cASH FLOwS
(Forward)
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Years ended December 31
2011 2010
Acquisitions of:
Available-for-sale financial assets (Note 7) (P1,219,611,567) (P2,175,816,932)
Financial assets at FVPL (Note 7) (4,341,925) (25,058,522)
Short-term cash investments (11,099,040) (10,536,503)
Long-term commercial papers (Note 7) (73,110,230) (96,013,978)
Property and equipment (Note 12) (49,632,852) (63,229,027)
Investment properties (Note 11) (20,688,630) (64,958,893)
Software costs (Note 13) (12,436,889) (38,894,239)
Net cash provided by (used in) investing activities 195,931,246 (407,110,718)
cASH FLOwS FROm FINANcINg ActIVItIeS
Payments of:
Dividends paid (Note 18) (654) (6,740,421)
SEC filing fee for increase in authorized capital stock (1,212,510) –
Net cash used in investing activities (1,213,164) (6,740,421)
eFFect OF eXcHANge RAte cHANgeS ON cASH AND cASH eQUIVALeNtS 26,563,435 101,893,055
Net INcReASe (DecReASe) IN cASH AND cASH eQUIVALeNtS 354,770,977 (530,989,116)
cASH AND cASH eQUIVALeNtS At BegINNINg OF YeAR 1,542,040,998 2,073,030,114
cASH AND cASH eQUIVALeNtS At eND OF YeAR P1,896,811,975 P1,542,040,998
See accompanying Notes to Consolidated Financial Statements.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
1. corporate Information MICO Equities, Inc. (the Parent Company) is a domestic corporation which was incorporated and registered
with the Philippine Securities and Exchange Commission (SEC) on June 28, 1972 to invest in nonlife insurance companies.
The Parent Company’s ultimate parent is Pan Malayan Management and Investment Corporation (PMMIC) with
registered office address at 48th Floor, Yuchengco Tower, RCBC Plaza, 6819 Ayala Avenue, Makati City. The consolidated financial statements comprise the financial statements of the Parent Company and the
following wholly and majority-owned subsidiaries: Place of Percentage of Ownership Incorporation 2011 2010 Malayan Insurance Co., Inc. (MICO) and subsidiaries: Philippines 88.7% 88.7% Bankers Assurance Corporation (BAC) Philippines 100.0 100.0 The First Nationwide Assurance Corporation (FNAC) Philippines 54.7 54.7 Malayan International Insurance Corporation, Limited (MIIC) and subsidiaries: Bahamas 100.0 100.0 Malayan Insurance Company (U.K.) Limited United Kingdom 100.0 100.0 Malayan Insurance Company (H.K.) Limited Hong Kong 100.0 100.0 Asia-PAC Reinsurance Company, Limited British Virgin Islands 100.0 100.0 FNAC Philippines 45.3 45.3 Malayan Securities Corporation (MSC) Philippines 100.0 100.0 MICO and subsidiaries is engaged in the nonlife insurance business dealing with all kinds of insurance such as fire,
marine, bond, motor car, personal accident, miscellaneous casualty, and engineering, except life insurance. MIIC and subsidiaries and Asia-PAC Reinsurance Company, Limited are engaged in the reinsurance of nonlife
insurance business dealing with all kinds of insurance such as fire, marine, bond, motor car, personal accident, miscellaneous casualty, and engineering, except life insurance.
MSC is incorporated to invest in equity and debt securities. The accompanying consolidated financial statements of MICO Equities, Inc. and Subsidiaries (the Group) were
approved and authorized for issue by the Board of Directors (BOD) on March 26, 2012.
2. Summary of Significant Accounting Policies Basis of Preparation The accompanying consolidated financial statements of the Group have been prepared on a historical
cost basis, except for financial assets at fair value through profit or loss (FVPL) and available-for-sale (AFS) financial assets which have been measured at fair value. The consolidated financial statements are measured in Philippine Peso (P), which is also the Parent Company’s functional and presentation currency. All values are rounded off to the nearest Philippine Peso values, unless otherwise indicated.
MICO EQUITIES, INC. AND SUBSIDIARIES
NOteS tO cONSOLIDAteD FINANcIAL StAtemeNtS
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Statement of Compliance The accompanying consolidated financial statements of the Group have been prepared in compliance with
Philippine Financial Reporting Standards (PFRS). Basis of Consolidation The consolidated financial statements comprise the financial statements of the Group as of and for the years
ended December 31, 2011 and 2010. Basis of consolidation from January 1, 2010 Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains
control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting policies. All intra-group balances, transactions, unrealized gains and losses resulting from intra-group transactions and dividends are eliminated in full.
Non-controlling interests (NCIs) pertains to the equity in a subsidiary not attributable, directly or indirectly
to the Parent Company. Any equity instruments issued by a subsidiary that are not owned by the Parent Company are NCIs including preferred shares and options under share-based transactions.
NCIs represent the portion of profit or loss and net assets in subsidiaries not wholly-owned and are presented
separately in the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of financial position, separately from the Parent Company’s equity.
Losses within a subsidiary are attributed to the NCI even if that results in a deficit balance. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity
transaction. Any difference between the amount by which the NCIs are adjusted and the fair value of the consideration paid or received is recognized directly in equity as “Equity reserve” and attributed to the owners of the Parent Company.
If the Group loses control over a subsidiary it:
• Derecognizes the assets (including goodwill) and liabilities of the subsidiary • Derecognizes the carrying amount of any non-controlling interest • Derecognizes the cumulative translation differences recorded in equity • Recognizes the fair value of the consideration received • Recognizes the fair value of any investment retained • Recognizes any surplus or deficit in profit or loss • Reclassifies the parent’s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate.
Basis of consolidation prior to January 1, 2010 Certain of the above-mentioned requirements were applied on a prospective basis. The following differences, however, are carried forward in certain instances from the previous basis of consolidation:
• Acquisitions of non-controlling interests, prior to January 1, 2010, were accounted for using the parent entity extension method, whereby, the difference between the consideration and the book value of the share of the net assets acquired were recognized in goodwill.
• Losses incurred by the Group were attributed to the NCI until the balance was reduced to nil. Any further excess losses were attributed to the parent, unless the non-controlling interest had a binding obligation to cover these. Losses prior to January 1, 2010 were not reallocated between NCI and the parent shareholders.
• Upon loss of control, the Group accounted for the investment retained at its proportionate share of net asset value at the date control was lost. The carrying value of such investments at January 1, 2010 has not been restated.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Changes in Accounting PoliciesThe accounting policies adopted are consistent with those of the previous financial years except for the adoption of the following new and amended PFRS and Philippine Interpretations of International Financial Reporting Interpretation Committee (IFRIC) interpretations which became effective beginning January 1, 2011. Except as otherwise stated, the adoption of these new and amended standards and Philippine Interpretations did not have a significant impact on the Group’s financial statements.
• Philippine Accounting Standard (PAS) 24 (Amendment), Related Party Disclosures PAS 24 clarifies the definitions of a related party. The new definitions emphasize a symmetrical view of related
party relationships and clarify the circumstances in which persons and key management personnel affect related party relationships of an entity. In addition, the amendment introduces an exemption from the general related party disclosure requirements for transactions with government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity.
• PAS 32 (Amendment), Financial Instruments: Presentation - Classification of Rights Issues The amendment alters the definition of a financial liability in PAS 32 to enable entities to classify rights issues and
certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency.
• Philippine Interpretation IFRIC 14 (Amendment), Prepayments of a Minimum Funding Requirement The amendment removes an unintended consequence when an entity is subject to minimum funding
requirements and makes an early payment of contributions to cover such requirements. The amendment permits a prepayment of future service cost by the entity to be recognized as a pension asset.
• Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments
This Philippine Interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or loss.
Improvements to PFRS (issued 2010)
The omnibus amendments to PFRSs issued in May 2010 were issued primarily with a view to removing inconsistencies
and clarifying wordings. The amendments are effective for annual periods beginning January 1, 2011. Except as
otherwise stated, the adoption of the following amendments resulted in changes to accounting policies but did not
have impact on the financial position or performance of the Group.
• PFRS 3, Business Combinations
This Amendment clarifies that the Amendments to PFRS 7, Financial Instruments:
Disclosures, PAS 32 and PAS 39 that eliminate the exemption for contingent consideration, do not apply
to contingent consideration that arose from business combinations whose acquisition dates precede the
application of PFRS 3 (as revised in 2008).
It also limits the scope of the measurement choices that only the components of non-controlling interest that are
present ownership interests that entitle their holders to a proportionate share of the entity’s net assets, in the event
of liquidation, shall be measured either at fair value or at the present ownership instruments’ proportionate
share of the acquiree’s identifiable net assets. Other components of non-controlling interest are measured
at their acquisition date fair value, unless another measurement basis is required by another PFRS.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
• The amendment also requires an entity (in a business combination) to account for the replacement of the acquiree’s share-based payment transactions (whether obliged or voluntarily), i.e., split between consideration and post-combination expenses. However, if the entity replaces the acquiree’s awards that expire as a consequence of the business combination, these are recognized as post-combination expenses. It further specifies the accounting for share-based payment transactions that the acquirer does not exchange for its own awards: if vested - they are part of non-controlling interest and measured at their market- based measure; if unvested - they are measured at market-based value as if granted at acquisition date, and allocated between non-controlling interest and post-combination expense.
• PFRS 7, Financial Instruments: Disclosures The amendment was intended to simplify the disclosures provided by reducing the volume of disclosures around
collateral held and improving disclosures by requiring qualitative information to put the quantitative information in context.
• PAS 1, Presentation of Financial Statements This amendment clarifies that an entity will present an analysis of other comprehensive income for each
component of equity, either in the statement of changes in equity or in the notes to the financial statements.
• PAS 27, Consolidated and Separate Financial Statements This amendment clarifies that the consequential amendments from PAS 27 made to PAS 21, The Effect of
Changes in Foreign Exchange Rates, PAS 28, Investments in Associates and PAS 31, Interests in Joint Ventures apply prospectively for annual periods beginning on or after July 1, 2009 or earlier when PAS 27 is applied earlier.
Other amendments resulting from the 2010 Improvements to PFRSs to the following standards did not have any impact on the accounting policies, financial position or performance of the Group:
• PAS 34, Interim Financial Reporting • Philippine Interpretation IFRIC 13, Customer Loyalty Programmes Future Changes in Accounting Policies The Group will adopt the following new and amended standards and Philippine Interpretations enumerated below when these become effective. Except as otherwise stated, the Group does not expect the adoption of these new and amended PFRS and Philippine Interpretations to have significant impact on the consolidated financial statements. Effective 2012
• PAS 12 (Amendment), Income Taxes - Deferred Tax: Recovery of Underlying Assets This amendment is effective for annual periods beginning on or after January 1, 2012. It clarified the determination
of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in PAS 40, Investment Property, should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in PAS 16, Property, Plant and Equipment, always be measured on a sale basis of the asset.
• PFRS 7 (Amendment), Financial Instruments: Disclosures - Enhanced Derecognition Disclosure Requirements This amendment is effective for annual periods beginning on or after July 1, 2011. The amendment requires
additional disclosure about financial assets that have been transferred but not derecognized to enable the
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
user of the consolidated financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the amendment requires disclosures about continu-ing involvement in derecognized assets to enable the user to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognized assets.
Effective 2013
• PAS 1(Amendment), Financial Statement Presentation, Presentation of Items of Other Comprehensive Income This amendment is effective for annual periods beginning on or after July 1, 2012. It changed the grouping of
items presented in other comprehensive income. Items that could be reclassified (or ‘recycled’) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and will have no impact on the Group’s financial position or performance.
• PAS 19 (Amendments), Employee Benefits The amendments to PAS 19 range from fundamental changes such as removing the corridor mechanism
and the concept of expected returns on plan assets to simple clarifications and re-wording. The Group is currently assessing the impact of the amendment to PAS 19.
• PAS 27, Separate Financial Statements (as revised in 2011) As a consequence of the new PFRS 10, Consolidated Financial Statements and PFRS 12, Disclosure of Interests in
Other Entities, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements.
• PAS 28, Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the new PFRS 11, Joint Arrangements and PFRS 12, PAS 28 has been renamed PAS 28,
Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates.
• PFRS 7 (Amendments), Financial instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities These amendments require an entity to disclose information about rights of set-off and related arrangements
(such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set off in accordance with PAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information.
This is presented separately for financial assets and financial liabilities recognized at the end of the
reporting period:
a) The gross amounts of those recognized financial assets and recognized financial liabilities; b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the net amounts
presented in the statement of financial position; c) The net amounts presented in the statement of financial position; d) The amounts subject to an enforceable master netting arrangement or similar agreement that are not
otherwise included in (b) above, including: i. Amounts related to recognized financial instruments that do not meet some or all of the offsetting criteria in PAS 32; and ii. Amounts related to financial collateral (including cash collateral); and
e) The net amount after deducting the amounts in (d) from the amounts in (c) above.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The amendments are to be applied retrospectively. The amendments affect disclosures only and have no impact on the Group’s financial position or performance.
• PFRS 10, Consolidated Financial Statements PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements that addresses the
accounting for consolidated financial statements. It also includes the issues raised in SIC 12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27.
• PFRS 11, Joint Arrangements PFRS 11 replaces PAS 31, Interests in Joint Ventures and SIC 13, Jointly-controlled Entities - Non-monetary
Contributions by Venturers. PFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method.
• PFRS 12, Disclosure of Involvement with Other Entities PFRS 12 includes all of the disclosures that were previously in PAS 27 related to consolidated financial statements,
as well as all of the disclosures that were previously included in PAS 31 and PAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required.
• PFRS 13, Fair Value Measurement PFRS 13 establishes a single source of guidance under PFRS for all fair value measurements. PFRS 13 does not
change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted. The Group is currently assessing the impact that this standard will have on the Group’s financial position and performance.
Effective 2014
• PAS 32, (Amendments), Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities These amendments are to be retrospectively applied for annual periods beginning on or after January 1, 2014.
These amendments to PAS 32 clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The Group is currently assessing the impact of the amendments to PAS 32.
Effective 2015
• PFRS 9, Financial Instruments: Classification and Measurement The PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and applies to
classification and measurement of financial assets and financial liabilities as defined in PAS 39. In subsequent phases, hedge accounting and impairment of financial assets will be addressed with the completion of this project expected on the first half of 2012. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, but will potentially have no impact on classification and measurements of financial liabilities. The Group will quantify the effect in conjunction with the other phases, when issued, to present a more comprehensive picture.
Philippine Interpretation IFRIC 15, Agreement for the Construction of Real Estate This Philippine Interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. This Philippine Interpretation requires that revenue on
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. The SEC and the Financial Reporting Standards Council (FRSC) have deferred the effectivity of this interpretation until the final Revenue standard is issued by International Accounting Standards Board (IASB) and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed.
Product ClassificationInsurance contracts are those contracts where the Group (the insurer) has accepted significant insurance risk from another party (the policyholders) by agreeing to compensate the policyholders if a specified uncertain future event (the insured event) adversely affects the policyholders. As a general guideline, the Group determines whether it has significant insurance risk, by comparing benefits paid with benefits payable if the insured event did not occur. Insurance contracts can also transfer financial risk.
Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or have expired.
Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from dates of placement and that are subject to an insignificant risk of changes in value.
Short-term Investments Short-term investments are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of more than three months but less than one year from dates of placement. These earn interests at the respective short-term investment rates.
Insurance Receivables Premium receivables (Due from policyholders, agents and brokers and due from ceding companies) are recognized on policy inception dates and measured on initial recognition at the fair value of the consideration receivable for the period of coverage. Subsequent to initial recognition, insurance receivables are measured at amortized cost. The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in profit or loss.
Financial Instruments Date of recognition Financial instruments are recognized in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on the trade date.
Initial recognition of financial instruments Financial instruments are initially recognized at fair value of the consideration given (in case of an asset) or received (in case of a liability). Except for financial instruments at fair value through profit or loss (FVPL), the initial measurement of financial assets includes transaction costs. The Group classifies its financial assets in the following categories: held-to-maturity (HTM) investments, AFS investments, FVPL investments and loans and receivables. The Group classifies its financial liabilities into financial liabilities at FVPL and other financial liabilities. The classification depends on the purpose for which the investments were acquired and whether they are quoted in an active market. Management determines the classification of its investments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every end of the reporting period.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
As of December 31, 2011 and 2010, the Group’s financial instruments are in the nature of financial assets at FVPL, loans and receivables, AFS financial assets and other financial liabilities. Determination of fair valuesThe fair value for financial instruments traded in active markets at the end of the reporting period is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and ask prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models, and other relevant valuation models. Day 1 profit Where the transaction price in a non-active market is different from the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and fair value (a ‘Day 1’ profit) in profit or loss unless it qualifies for recognition as some other type of asset. In cases where an unobservable data is used, the difference between the transaction price and model value is only recognized in profit or loss when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the ‘Day 1’ profit amount. Financial assets at FVPL Financial assets at FVPL include derivatives, financial assets held for trading and financial assets designated upon initial recognition as FVPL. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments or a financial guarantee contract. The Group assesses whether embedded derivatives are required to be separated from the host contracts when the Group first becomes a party to the contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. An embedded derivative is separated from the host financial or non-financial asset contract and accounted for as a derivative if all of the following conditions are met:
• the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristic of the host contract;
• a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and
• the hybrid or combined instrument is not recognized as FVPL
Financial assets may be designated at initial recognition as FVPL if the following criteria are met:
• the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on them on a different basis or;
• the assets are part of a group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management strategy or;
• the financial asset contains an embedded derivative that would need to be separately recorded
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Fair value gains or losses on financial assets at FVPL, net of interest income accrued on these assets are recognized in the consolidated statement of income under “Investment and other income” account. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments and fixed maturities that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as financial assets held for trading, designated as AFS or FVPL. This accounting policy relates to the consolidated statement of financial position captions: (a) “Cash and Cash Equivalents”, (b) “Short-term Investments”, (c) “Insurance Receivables”, (d) “Loans and Receivables” and (e) “Accrued Income”. After initial measurement, the loans and receivables are subsequently measured at amortized cost using the effective interest rate method, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is included in the Investment and other income account in profit or loss. The losses arising from impairment of such loans and receivables are recognized in profit or loss. AFS investments AFS investments are those which are designated as such or do not qualify to be classified as designated at FVPL, HTM or loans and receivables. They are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions. After initial measurement, AFS investments are subsequently measured at fair value. The effective yield component of AFS debt securities, as well as the impact of restatement on foreign currency-denominated AFS debt securities, is reported in earnings. Interest earned on holding AFS investments are reported as interest income using the effective interest rate. Dividends earned on holding AFS investments are recognized in profit or loss when the right to receive the payment has been established. The unrealized gains and losses arising from the fair valuation of AFS investments are reported as ‘Revaluation reserve on available-for-sale financial assets’ in other comprehensive income. The losses arising from impairment of such investments are recognized in profit or loss. When the security is disposed of, the cumulative gain or loss previously recognized in other comprehensive income is recognized as realized gains or losses in profit or loss. When the Group holds more than one investment in the same security, the cost is determined using the weighted average method. When the fair value of AFS investments cannot be measured reliably because of lack of reliable estimates of future cash flows and discount rates necessary to calculate the fair value of unquoted equity instruments, these investments are carried at cost.
Other financial liabilitiesIssued financial instruments or their components, which are not designated at FVPL are classified as other financial liabilities, where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. After initial measurement, other financial liabilities are subsequently measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any discount or premium on the issue and fees that are an integral part of the effective interest rate. Any effects of restatement of foreign currency-denominated liabilities are recognized in the consolidated statement of comprehensive income. This accounting policy applies primarily to the Group’s insurance payables and accounts payable, accrued expenses and other liabilities that meet the above definition (other than liabilities covered by other accounting standards, such as pension liability and income tax payable).
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Impairment of Financial Assets The Group assesses at each end of the reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bank-ruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
Loan and receivables For loans and receivables carried at amortized cost, the Group first assesses whether objective evidence of impair-ment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses for impairment.
Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment for impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets’ carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of loss is charged against profit or loss. Receivables, together with the associated allowance accounts, are written off when there is no realistic prospect of future recovery and all collateral has been realized. If, in a subsequent period, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.
The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. Time value is generally not considered when the effect of discounting is not material. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate, adjusted for the original credit risk premium. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of credit risk characteristics such as past-due status and term. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any difference between loss estimates and actual loss experience.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
AFS financial assets carried at fair value In case of equity investments classified as AFS, impairment indicators would include a significant or prolonged decline in the fair value of the investments below its cost. Where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the parent company statement of income is removed from other comprehensive income and recognized in profit or loss. Impairment losses on equity investments are not reversed through profit or loss. Increases in fair value after impairment are recognized directly in other comprehensive income. In the case of debt instruments classified as AFS financial assets, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of “Interest income” in profit or loss. If, in subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through profit or loss. AFS investments carried at cost If there is an objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Offsetting of Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. Derecognition of Financial Assets and Liabilities Financial Asset A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized where:
• the rights to receive cash flows from the asset have expired;• the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full
without material delay to a third party under a ‘pass-through’ arrangement; or • the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially
all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Where the Group has transferred its right to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. Financial Liability A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is
recognized in profit or loss.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
ReinsuranceThe Group cedes insurance risk in the normal course of business. Reinsurance assets represent balances due from reinsurance companies for its share on the unpaid losses incurred by the Group. Recoverable amounts are estimated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contract. Reinsurance recoverable on paid losses are included as part of Insurance receivables. Reinsurance assets are reviewed for impairment at each end of the reporting period or more frequently when an indication of impairment arises during the reporting year. Impairment occurs when objective evidence exists that the Group may not recover outstanding amounts under the terms of the contract and when the impact on the amounts that the Group will receive from the reinsurer can be measured reliably. The impairment loss is recorded in the statement of income. Ceded reinsurance arrangements do not relieve the Group from its obligations to policyholders. The Group also assumes reinsurance risk in the normal course of business for insurance contracts. Premiums and claims on assumed reinsurance are recognized in profit or loss as income and expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business. Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the associated reinsurance contract. Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance. Reinsurance assets or liabilities are derecognized when the contractual rights are extinguished or expired or when the contract is transferred to another party. When the Group enters into a proportional treaty reinsurance agreement for ceding out its insurance business, the Group initially recognizes a liability at transaction price. Subsequent to initial recognition, the portion of the amount initially recognized as a liability which is presented as Insurance payables in the liabilities section of the consolidated statement of financial position will be withheld and recognized as Funds held for reinsurers and included as part of the Insurance payables in the liabilities section of the consolidated statement of financial position. The amount withheld is generally released after a year. Funds held by ceding companies are accounted for in the same manner. Deferred Acquisition Costs (DAC) Commissions and other acquisition costs incurred during the financial period that vary with and are related to securing new insurance contracts and or renewing existing insurance contracts, but which relates to subsequent financial periods, are deferred to the extent that they are recoverable out of future revenue margins. Acquisition costs include referral fee of FNAC which is classified under Other underwriting expense. All other acquisition costs are recognized as expense when incurred. Subsequent to initial recognition, these costs are amortized on a straight-line basis using the 24th method over the life of the contract except for the marine cargo where commissions for the last two months of the year are recognized as expense the following year. Amortization is charged against the profit or loss. The unamortized acquisition costs are shown as Deferred acquisition costs in the Assets section of the consolidated statement of financial position. An impairment review is performed at each end of the reporting period or more frequently when an indication of impairment arises. The carrying value is written down to the recoverable amount. The impairment loss is charged to profit or loss. DAC is also considered in the liability adequacy test for each end of the reporting period. Investment PropertiesProperties held for rental yields and for capital appreciation or both rather than for use in the production or supply of goods and services or for administrative purposes or sale in the ordinary course of business is classified as investment property.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Investment properties are measured initially at cost, including transaction costs. Investment properties consist of land and buildings. The land is carried at cost. The building is carried at cost, less accumulated depreciation and amortization and any accumulated impairment losses. Depreciation and amortization is computed using the straight-line method over the estimated useful life of 40 years. The estimated useful life and depreciation and amortization method are reviewed periodically to ensure that the period and method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of investment property. Investment properties are derecognized either when they have been disposed of, or when the investment property is permanently withdrawn from use and no future benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the profit or loss in the year of retirement or disposal. Transfers are made to investment property when, and only when, there is a change in use, evidenced by the end of owner-occupation or commencement of an operating lease to another party. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale. Construction-in-progress is carried at cost and transferred to the related investment property accountwhen the construction and related activities to prepare the property for its intended use are complete, and the property is ready for occupation. Construction-in-progress is not depreciated until such time that the relevant assets are completed and put into operational use. Property and Equipment Property and equipment are stated at cost, net of accumulated depreciation and amortization and any impairment in value. Land is stated at cost less accumulated impairment in value, if any. The initial cost of property and equipment comprises its purchase price, including nonrefundable taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of income during the financial period in which they are incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the properties as follows: Years Building and improvements 40 Building equipment 5 Office furniture, fixtures and equipment 5 Transportation equipment 5 Leasehold improvements are amortized over the term of the lease or estimated useful life of 5 years, whichever is shorter. The estimated useful lives and depreciation and amortization method are reviewed periodically to ensure that the period and method of depreciation and amortization are consistent with the expected pattern of economic benefits
from items of property and equipment.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
When property and equipment are retired or otherwise disposed of, the cost and the related accumulated
depreciation and amortization and accumulated provision for impairment losses, if any, are removed from the
accounts. Any gain or loss arising on derecognition of the assets, which is calculated as the difference between the
net disposal proceeds and the carrying amount of the asset, is included in the statement of income in the year the
asset is derecognized.
Computer Software
Costs associated with the acquisition of computer software are capitalized only if the asset can be reliably
measured, will generate future economic benefits, and there is an ability to use or sell the asset.
Intangible assets are carried at cost less accumulated amortization. The cost of intangible asset is amortized over its estimated useful life of five (5) years. Amortization commences when the asset is available for use or when it is in the location and condition necessary for it to be capable of operating in the manner intended by the Company. Impairment of Nonfinancial AssetsThe Group assesses at each end of the reporting period whether there is an indication that investment properties, property and equipment and computer software may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An assessment is made at each end of the reporting period as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss unless the asset is carried at revalued amount, in which case, the reversal is treated as a revaluation increase. After such reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Real Estate Properties for SaleReal estate properties for sale are measured at the lower of cost and net realizable value (NRV). Cost includes land costs and development costs. NRV is the estimated selling price in the ordinary course of business, based on market prices at the reporting date, less estimated costs of completion and the estimated costs to sell. The cost of inventory recognized in profit or loss on disposal is determined with reference to the specific costs incurred on the property. Insurance Contract LiabilitiesProvision for unearned premiums The proportion of written premiums, gross of commissions payable to intermediaries, attributable to subsequent periods or to risks that have not yet expired is deferred as provision for unearned premiums. Premiums from short-duration insurance contracts are recognized as revenue over the period of the contracts using the 24th method except for the marine cargo where premiums for the last two months are considered earned the following year. The portion of the
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
premiums written that relate to the unexpired periods of the policies at end of the reporting period are accounted for as Provision for unearned premiums as part of Insurance contract liabilities and presented in the liabilities section of the consolidated statement of financial position. The change in the provision for unearned premiums is taken to profit or loss in order that revenue is recognized over the period of risk. Further provisions are made to cover claims under unexpired insurance contracts which may exceed the unearned premiums and the premiums due in respect of these contracts.
Claims Provision and Incurred But Not Reported (IBNR) Losses These liabilities are based on the estimated ultimate cost of all claims incurred but not settled at the end of the reporting period together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of certain types of claims, therefore the ultimate cost of which cannot be known with certainty at the end of the reporting period. The liability is not discounted for the time value of money and includes provision for IBNR losses. The liability is derecognized when the contract is discharged, cancelled or has expired. Liability Adequacy Test At each end of the reporting period, liability adequacy tests are performed, to ensure the adequacy of insurance contract liabilities, net of related DAC assets. In performing the test, current best estimates of future cash flows, claims handling and policy administration expenses are used. Changes in expected claims that have occurred, but which have not been settled, are reflected by adjusting the liability for claims and future benefits. Any inadequacy is immediately charged to the consolidated statement of income by establishing an unexpired risk provision for losses arising from the liability adequacy tests. The provision for unearned premiums is increased to the extent that the future claims and expenses in respect of current insurance contracts exceed future premiums plus the current provision for unearned premiums. Pension Cost Pension cost is actuarially determined using the projected unit credit method. This method reflects services rendered by employees up to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Actuarial valuations are conducted with sufficient regularity, with option to accelerate when significant changes to underlying assumptions occur. Pension cost includes current service cost, interest cost, actuarial gains and losses and the effect of any curtailment or settlement. The pension asset recognized by the Group in respect of the defined benefit pension plan is the a) fair value of the plan assets less present value of the defined benefit obligation at the reporting date, together with adjustments for unrecognized actuarial gains or losses that shall be recognized in later periods; or (b) the total of any cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. The net pension liability recognized by the Group in respect of the defined benefit pension plan is the fair value of the plan assets less the present value of the defined benefit obligation at the end of reporting date, together with adjustments for unrecognized actuarial gains or losses that shall be recognized in later periods.
The defined benefit obligation is calculated annually by an independent actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by using risk-free interest rates of long-term government bonds that have terms to maturity approximating the terms of the related pension liability. Actuarial gains and losses is recognized in profit or loss if the cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceeded the greater of 10% of the present value of defined benefit obligation or 10% of the fair value of plan assets. These gains and losses are recognized over the expected average remaining working lives of the employees participating in the plan.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
EquityCapital stock is recognized as issued when the stock is paid for or subscribed under a binding subscription agreement and is measured at par value. When the shares are sold at a premium, the difference between the proceeds and the par value is credited to Additional paid-in capital (APIC) account. Share issuance costs incurred as necessary part of completing an equity transaction are accounted for as part of that transaction and are treated as a deduction from APIC from previous share issuance. If the APIC account is not sufficient, the excess is deducted from retained earnings. Other revaluation reserve pertains to the appraisal increment on building relating to the Parent Company’s previously held interest in TMMIC at the time of the business combination. The balance of the other revaluation reserve will be transferred to retained earnings when the building is disposed or derecognized. Retained earnings represent accumulated earnings of the Group less dividends declared and share issuance costs. Revenue Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: Premiums RevenueGross insurance written premiums comprise the total premiums receivable for the whole period of cover provided by contracts entered into during the accounting period and are recognized on the date on which the policy incepts. Premiums include any adjustments arising in the accounting period for premiums receivable in respect of business written in prior periods. Premiums from short-duration insurance contracts are recognized as revenue over the period of the contracts using the 24th method except for the marine cargo where premiums for the last two months are considered earned the following year. The portion of the premiums written that relate to the unexpired periods of the policies at end of the reporting period are accounted for as Provision for unearned premiums as part of Insurance contract liabilities and presented in the liabilities section of the consolidated statement of financial position. The related reinsurance premiums ceded that pertains to the unexpired periods at end of the reporting period are accounted for as Deferred reinsurance premiums and shown as part of reinsurance assets in the consolidated statement of financial position. The net changes in these accounts between each end of reporting periods are recognized in profit or loss. Reinsurance CommissionsCommissions earned from short-duration insurance contracts are recognized as revenue over the period of the contracts using the 24th method except for the marine cargo where the deferred reinsurance commissions for the last two months of the year are considered earned the following year. The portion of the commissions that relate to the unexpired periods of the policies at end of the reporting period are accounted for as deferred reinsurance commissions and presented in the Liabilities section of the consolidated statement of financial position. Dividend incomeDividend income is recognized when the shareholders’ right to receive the payment is established.
Interest income For all financial instruments measured at amortized cost and interest-bearing financial instruments, interest income is recorded at the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. The calculation takes into account all contractual terms of the financial instrument (for example,
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
prepayment options), includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses. The adjusted carrying amount is calculated based on the original effective interest rate. The change in carrying amount is recorded as interest income. Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the original effective interest rate applied to the new carrying amount. Rental income Rental income from investment properties are recognized on a straight-line basis over the term of the lease. Management fees Management fees are recognized as income when services are rendered. Benefits and Claims Benefits and claims consists of benefits and claims paid to policyholders, which includes changes in the valuation of Insurance contract liabilities, except for changes in the provision for unearned premiums which are recorded in insurance revenue. It further includes internal and external claims handling costs that are directly related to the processing and settlement of claims. Amounts receivable in respect of salvage and subrogation are also considered. General insurance claims are recorded on the basis of notifications received. Expenses General and administrative expense, other underwriting expense and other investment expense, except for lease agreements, are recognized as expense as they are incurred. Interest expenseInterest expense is charged against operations as they are incurred. LeasesThe determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies: a. There is a change in contractual terms, other than a renewal or extension of the arrangement; b. A renewal option is exercised or extension granted, unless that term of the renewal or extension was initially
included in the lease term; c. There is a change in the determination of whether fulfillment is dependent on a specified asset or; d. There is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios a, c or d above, and at the date of renewal or extension period for scenario b. Group as a lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. Lease payments received are recognized as an income in the consolidated statement of income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as the rental income.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Group as a lessee Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Fixed lease payments are recognized as an expense in the consolidated statement of income on a straight-line basis. Foreign Exchange TransactionsThe functional and presentation currency of the Parent Company is the Philippine Peso (P). Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange ruling at the end of the reporting period. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction and are not subsequently restated. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was determined. All foreign exchange differences are taken to profit or loss, except where it relates to equity securities where gains or losses are recognized directly in other comprehensive income. The assets and liabilities of foreign operations are translated into Philippine peso at the rate of exchange prevailing at the reporting date and their income statements are translated at exchange rates prevailing at the date of the transactions. The exchange differences arising on the translation are recognized in the other comprehensive income and reflected under Cumulative translation adjustment in the equity section of the consolidated statement of financial position. On disposal of a foreign operation, the cumulative translation adjustment relating to that particular foreign operation is recognized in the consolidated statement of income. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.
Provisions and ContingenciesProvisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss, net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.
Contingent liabilities are not recognized in the consolidated financial statements but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized but are disclosed in the consolidated financial statements when an inflow of economic benefits is probable. Income TaxCurrent tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the end of the reporting period. Deferred taxDeferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Deferred tax liabilities are recognized for all taxable temporary differences, including asset revaluations. Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits from the excess of minimum corporate income tax (MCIT) over the regular income tax, and unused net operating loss carryover (NOLCO), to the extent that it is probable that sufficient taxable profit will be available against which the deductible temporary differences and carryforward of unused tax credits from MCIT and unused NOLCO can be utilized. Deferred tax, however, is not recognized on temporary differences that arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, atthe time of the transaction, affects neither the accounting income nor taxable income or loss. The carrying amount of deferred tax assets is reviewed at each end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each end of the reporting period and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the end of the reporting period. Movements in the deferred tax assets and liabilities arising from changes in tax rates are charged against or credited to income for the period. Current tax and deferred tax relating to items recognized as other comprehensive income is also recognized in the consolidated statement of other comprehensive income. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and deferred taxes related to the same taxable entity and the same taxation authority. Events after End of the Reporting DateAny post year-end events that provide additional information about the Group’s position at the end of the reporting period (adjusting event) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events, if any, are disclosed in the consolidated financial statements when material.
3. Significant Accounting Judgments and Estimates The preparation of the accompanying consolidated financial statements in accordance with PFRS requires the Group to make judgments and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ from such estimates.
Judgments In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the consolidated financial statements:
Product classification The significance of insurance risk is dependent on both the probability of an insured event and the magnitude of its potential effect. As a general guideline, the Group defines significant insurance risk as the possibility of having to pay benefits on the occurrence of an insured event that are atleast 5% more than the benefits payable if the insured event did not occur.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The Group has determined that the insurance policies it issues have significant insurance risks and therefore meet the definition of insurance contracts and should be accounted for as such.
Functional Currency Based on the economic substance of the underlying circumstances relevant to the Parent Company, the functional currency of the Parent Company has been determined to be the Philippine Peso. The Philippine Peso is the currency of the primary economic environment in which the Parent Company operates. It is the currency that mainly influences the revenue and costs of the Parent Company’s operations.
Operating lease commitments - Group Company as lessor The Group entered into commercial property leases on its investment properties. The Group determined that it retains all the significant risks and rewards of ownership of the property, thus accounts for them as operating lease.
Operating lease commitments - Group as lessee The Group entered into various property leases with various lessors. The Group determined that the lessors retain all the significant risks and rewards of ownership of the leased properties thus accounts for them as operating leases.
Distinction between investment properties and owner-occupied propertiesThe Group determines whether a property qualifies as investment property. In making this judgment, the Group considers whether the property generates cash flows largely independent of the other assets held by an entity. Owner-occupied properties generate cash flows that are attributable not only to property but also to the other assets used in the production or supply process.
When properties comprise a portion that is held to earn rentals or for capital appreciation and another portion is held for use in the production or supply of goods or services or for administrative purpose, and these portions cannot be sold separately, the property is accounted for as investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. Judgment is applied in determining whether ancillary services are so significant that a property does not qualify as investment property. The Group considers each property separately in making this judgment.
Management’s Use of Estimates The key assumptions concerning the future and other key sources of estimation uncertainty at each reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Fair values of financial assets and liabilities The Group carries certain financial assets at fair value, which requires extensive use of accounting estimates and judgments. Fair value determinations for financial assets and liabilities are based generally on listed or quoted market prices. If prices are not readily determinable or if liquidating positions is reasonably expected to affect market prices, fair value is based on either internal valuation models or management’s estimate of amounts that could be realized under current market conditions, assuming an orderly liquidation over a reasonable period of time. While significant components of fair value were determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates, volatility rates), the amount of changes in fair value of these financial assets and liabilities would affect the statement of other comprehensive income. The carrying value of AFS financial assets is P9.06 billion and P8.58 billion as of December 31, 2011 and 2010, respectively (see Note 7). Valuation of insurance contract liabilities Estimates have to be made both for the expected ultimate cost of claims reported and for the expected ultimate cost of claims IBNR at the end of reporting period. It can take a significant period of time before the ultimate claims cost can be established with certainty.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The primary technique adopted by management in estimating the cost of notified and claims IBNR, is that of using past claims settlement trends to predict future claims settlement trends. At each reporting date, prior year claims estimates are assessed for adequacy and changes made are charged to provision. Insurance contract liabilities are not discounted for the time value of money. As of December 31, 2011 and 2010, the carrying values of provision for claims reported and IBNR amounted to P4.44 billion and P5.04 billion, respectively (see Note 14). Estimation of allowance for impairment losses The Group maintains allowance for impairment losses at a level considered adequate to provide for potential uncollectible receivables. The level of this allowance is evaluated by management on the basis of factors that affect the collectibility of the accounts. These factors include, but are not limited to, age of balances, financial status of counterparties, and legal opinion on recoverability in case of legal disputes. The Group reviews the age and status of receivables, and identifies accounts that are to be provided with allowance on a regular basis. The amount and timing of recorded expenses for any period would differ if the Group made different judgments or utilized different estimates. An increase in allowance for impairment losses would increase recorded expenses and decrease the related asset accounts. The carrying value of insurance receivables, net of impairment losses amounted to P2.80 billion and P2.44 billion as of December 31, 2011 and 2010, respectively. The related allowance for impairment losses amounted to P67.86 million and P55.02 million as of December 31, 2011 and 2010, respectively (see Note 6).
As of December 31, 2011 and 2010, the carrying value of loans and receivables amounted to P457.33 million and P359.91 million, respectively. As of December 31, 2011 and 2010, the related allowance for impairment losses amounted to P3.70 million and P10.02 million, respectively (see Note 7). Impairment of AFS equity financial assets The Group determines that AFS equity financial assets are impaired when there has been a significant or prolonged decline in the fair value below its cost. The determination of what is significant or prolonged requires judgment. The Group treats ‘significant’ generally as 20% or more and ‘prolonged’ as continuous decline for a period of six (6) months. In making this judgment, the Group evaluates among other factors, the normal volatility in share price for quoted securities. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. As of December 31, 2011 and 2010, the carrying value of the Group’s AFS equity financial assets amounted to P5.76 billion and P5.56 billion, respectively (see Note 7). Impairment loss recognized on Group’s AFS equity financial assets amounted to P15.53 million and P11.22 million in 2011 and 2010, respectively. Evaluation of net realizable value of real estate properties for sale Real estate properties for sale are valued at the lower of cost and NRV. This requires the Group to make an estimate of the real estate properties’ estimated selling price in the ordinary course of business, cost of completion and costs necessary to make a sale to determine the NRV. The Group adjusts the cost of its real estate properties for sale to net realizable value based on its assessment of the recoverability of the real estate properties. In determining the recoverability of its real estate properties for sale, management considers whether its real estate properties for sale are damaged or if their selling prices have declined.
Likewise, management also considers whether the estimated costs of completion or the estimated costs to be incurred to make the sale have increased. In the event that NRV is lower than the cost, the decline is recognized as an expense. The amount and timing of recorded expenses for any period would differ if different judgments were made or different estimates were utilized. See Note 13 for related balance.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Estimation of useful lives of investment properties, property and equipment and computer software The Group reviews annually the estimated useful lives of investment properties, property and equipment and computer software, based on the period over which the assets are expected to be available for use. It is possible that future results of operations could be materially affected by changes in these estimates. A reduction in the estimated useful lives of investment properties, property and equipment and computer software would increase recorded depreciation and amortization expense and decrease the related asset accounts. As of December 31, 2011 and 2010, the carrying value of the investment properties amounted to P88.31 million and P99.42 million, respectively (see Note 11). As of December 31, 2011 and 2010, the carrying value of the property and equipment amounted to P244.86 million and P208.09 million, respectively (see Note 12). As of December 31, 2011 and 2010, the carrying value of the computer software amounted to P64.50 million and P57.71 million, respectively (see Note 13).
Impairment of nonfinancial assets The Group assesses the impairment of its nonfinancial assets (i.e., investment properties, property and equipment and computer software) whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The factors that the Group considers important which could trigger an impairment review include the following: • significant underperformance relative to expected historical or projected future operating results; • significant changes in the manner of use of the assets; and • significant negative industry or economic trends.
The Group recognizes an impairment loss whenever the carrying amount of an asset exceeds its recoverable amount. Recoverable amounts are estimated for individual asset or, if it is not possible, for the cash-generating unit to which the asset belongs. As of December 31, 2011 and 2010, the Group has not recognized any impairment losses on its nonfinancial assets.
Recognition of deferred tax assets Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable income will be available against which these can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized. These assets are periodically reviewed for realization. Periodic reviews cover the nature and amount of deferred income and expense items, expected timing when assets will be used or liabilities will be required to be reported, reliability of historical profitability of businesses expected to provide future earnings and tax planning strategies which can be utilized to increase the likelihood that tax assets will be realized. See Note 24 for the related balances. Estimating pension obligation and other retirement benefits The determination of pension obligation and cost of pension is dependent on the selection of certain assumptions used in calculating such amounts. Those assumptions include, among others, discount rates, expected return on plan asset and salary increase rates.
Due to the long-term nature of this plan, such estimates are subject to significant uncertainty. The assumed discount rates were determined using the market yields on Philippine government bonds with terms consistent with the expected employee benefit payout as of the reporting date. In accordance with PAS 19, actual results that differ from the Group’s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded asset or obligation in such future periods. While the Group believes that the assumptions are reasonable and appropriate, significant differences in the actual experience or significant changes in the assumptions may materially affect the pension obligations.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
As of December 31, 2011 and 2010, the carrying value of net plan assets amounted to P7.03 million and P10.19 million, respectively, while the carrying value of net pension obligation amounted to P40.50 million and P46.33 million, respectively (see Note 17).
Contingencies The Group is currently involved in various legal proceedings. The estimate of probable costs for the resolution of these claims has been developed in consultation with the legal counsels and based upon analysis of potential results. The Group does not believe that these proceedings will have a material adverse effect on the Group’s financial position. 4. cash and cash equivalents
This account consists of:
2011 2010
Petty cash fund P1,186,222 P877,328
Cash in banks:
Commercial banks and trust company (Note 27) 378,656,527 317,225,872
Thrift banks, rural banks and cooperatives 845,876 789,501
Short-term deposits (Note 27) 1,516,123,350 1,223,148,297
P1,896,811,975 P1,542,040,998
Cash in banks earns interest at the respective bank deposit rates. Short-term deposits are made for varying periods of up to three (3) months depending on the immediate cash requirements of the Group.
The range of interest rates of the short-term deposits follows: 2011 2010
Philippine Peso 0.50% to 4.50% 1.50% to 5.00%
US Dollar 0.25% to 2.00% 0.25% to 1.50%
5. Short-term Investments
This account consists of time deposits with maturity of more than three (3) months but less than one year from dates of placement and earns interest with annual rates ranging from 1.00% to 6.00% in 2011 and from 1.00% to 4.25% in 2010.
6. Insurance Receivables - net
This account consists of: 2011 2010 Due from policyholders, agents and brokers P1,616,704,536 P1,814,637,854 Due from ceding companies: Facultative 184,440,379 295,521,794 Treaty 763,126,217 127,677,080 Funds held by ceding companies - treaty 174,499,724 132,043,392 Reinsurance recoverable on paid losses Facultative 103,645,323 87,441,202 Treaty 21,392,188 33,249,289 2,863,808,367 2,490,570,611 Less allowance for impairment losses 67,861,172 55,016,495
P2,795,947,195 P2,435,554,116
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The reinsurance recoverable on paid losses pertains to amounts recoverable from the reinsurers in respect of claims already paid by the Group.
The following table shows aging information of insurance receivables: December 31, 2011
< 30 days 30 > 60 days 60 > 90 days 90 > 120 days > 120 days total Due from policyholders, agents and brokers P285,610,067 P180,143,822 P305,513,663 P91,145,676 P754,291,308 P1,616,704,536 Due from ceding companies: Facultative 41,753,561 6,161,219 97,890,339 1,789,783 36,845,477 184,440,379 Treaty 617,756,688 5,087,409 10,551,964 2,418,042 127,312,114 763,126,217 Funds held by ceding companies - treaty 10,401,669 28,110,168 19,445,173 1,490,851 115,051,863 174,499,724 Reinsurance recoverable on paid losses Facultative – 609,423 3,476,764 5,935,382 93,623,754 103,645,323 Treaty – 923 1,230 – 21,390,035 21,392,188 P955,521,985 P220,112,964 P436,879,133 P102,779,734 P1,148,514,551 P2,863,808,367
December 31, 2010
< 30 days 30 > 60 days 60 > 90 days 90 >120 days > 120 days Total Due from policyholders, agents and brokers P445,228,160 P207,574,836 P153,650,195 P124,452,402 P883,732,261 P1,814,637,854 Due from ceding companies: Facultative 268,637,785 2,871,280 1,415,089 7,192,368 15,405,272 295,521,794 Treaty 76,356,724 – 7,580,937 – 43,739,419 127,677,080 Funds held by ceding companies - treaty – 34,706,483 28,519,356 56,347,696 12,469,857 132,043,392 Reinsurance recoverable on paid losses Facultative 14,924,824 6,421,429 6,775,500 – 59,319,449 87,441,202 Treaty 1,328,687 82,602 1,118,910 – 30,719,090 33,249,289 P806,476,180 P251,656,630 P199,059,987 P131,644,770 P1,101,733,044 P2,490,570,611
The allowance for impairment losses on insurance receivables had been determined as follows: 2011 Due from Due from Due from Reinsurance Policyholders, ceding ceding Funds held Recoverable Agents and companies - companies - by ceding on Paid Brokers treaty Facultative companies Losses total Balance at beginning of year P47,058,842 P500,868 P6,076,008 P1,380,777 P– P55,016,495 Impairment loss (Note 22) – 300,000 6,945,739 – 9,072,311 16,318,050 Reversal of impairment loss (211,535) (159,866) (352,870) – – (724,271) Written-off (2,749,102) – – – – (2,749,102) Balance at end of year P44,098,205 P641,002 P12,668,877 P1,380,777 P9,072,311 P67,861,172
Individually impaired P16,944,841 P641,002 P12,668,877 P1,380,777 P– P31,635,497 Collectively impaired 27,153,364 – – – 9,072,311 36,225,675 total P44,098,205 P641,002 P12,668,877 P1,380,777 P9,072,311 P67,861,172
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
2010 Due from Due from Due from Reinsurance Policyholders, Ceding Ceding Funds held Recoverable Agents and Companies - Companies - by Ceding on Paid Brokers Treaty Facultative Companies Losses Total Balance at beginning of year P38,913,668 P552,684 P5,723,138 P– P– P45,189,490 Impairment loss (Note 22) 8,205,174 – 352,870 1,380,777 – 9,938,821 Reversal of impairment loss (Note 22) – (51,816) – – – (51,816) Written-off (60,000) – – – – (60,000) Balance at end of year P47,058,842 P500,868 P6,076,008 P1,380,777 P– P55,016,495
Individually impaired P17,602,351 P500,868 P6,076,008 P1,380,777 P– P25,560,004 Collectively impaired 29,456,491 – – – – 29,456,491 total P47,058,842 P500,868 P6,076,008 P1,380,777 P– P55,016,495
7. Financial Assets The Group’s financial assets are summarized by measurement categories as follows: 2011 2010
AFS financial assets P9,063,830,701 P8,581,368,142
Financial assets at FVPL 224,561,299 378,094,876
Loans and receivables - net 457,333,124 359,905,483
P9,745,725,124 P9,319,368,501
The assets included in each of the categories above are detailed below. a) AFS financial assets Details of this account follow: 2011 2010
equity securities
Listed equity securities:
Common shares P5,650,964,630 P5,455,250,872
Preferred shares 26,021,840 25,536,587
Unlisted equity securities:
Common shares 81,188,158 78,748,158
5,758,174,628 5,559,535,617
Debt securities
Private debt securities 2,309,033,662 2,094,514,726
Government debt securities:
Local currency 561,760,112 4 87,604,713
Foreign currency 34,862,299 4 39,713,086
3,305,656,073 3,021,832,525
P9,063,830,701 P8,581,368,142
In accordance with the provisions of the Insurance Code (the Code), government securities amounting to P163.32 million and P75.61 million are deposited with the Insurance Commission (IC) as security for the benefit of policy-holders and creditors of the Group as of December 31, 2011 and 2010, respectively.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
As of December 31, 2011 and 2010, allowance for impairment loss recognized on AFS investments amounted to P27.48 million and P10.44 million, respectively. The carrying values of AFS financial assets have been determined as follows: 2011 2010 Balance at beginning of year P8,581,368,142 P7,118,613,695 Acquisitions 1,219,611,567 2,175,816,932 Unrealized foreign currency exchange loss (30,264,822) (182,171,545) Fair value changes 131,836,230 780,720,262 Disposals and maturities (804,318,588) (1,306,626,165) Amortization of premium (34,401,828) (4,985,037) Balance at end of year P9,063,830,701 P8,581,368,142 The rollforward analysis of the revaluation reserve on AFS financial assets follows: 2011 2010 Balance at beginning of year P3,361,198,185 P2,652,187,350 Fair value gain credited to equity 131,836,230 780,720,262 Realized gain (Note 20) (58,141,707) (103,217,763) Impairment loss on AFS 15,529,779 11,216,245 Tax effect on net fair value gain 2,079,311 20,292,091 Balance at end of year P3,452,501,798 P3,361,198,185 Attributable to: Equity holders of the Parent Company P3,131,432,419 P3,047,251,036 Non-controlling interest 321,069,379 313,947,149 P3,452,501,798 P3,361,198,185 b) Financial assets at FVPL
This account consists of foreign currency-denominated securities which were initially designated as financial assets at FVPL. Details are as follow:
2011 2010 Debt securities: Private debt securities P73,738,836 P250,859,428 Government debt securities – 37,293,006 73,738,836 288,152,434 equity securities: Listed equity securities 148,876,055 73,775,324 Unlisted equity securities 1,946,408 16,167,118 150,822,463 89,942,442 P224,561,299 P378,094,876
The fair value gain (loss) on financial assets at FVPL recognized in the consolidated statements of income amounted to P8.33 million loss and P10.34 million gain in 2011 and 2010, respectively (see Note 20).
The carrying values of financial assets at FVPL have been determined as follows: 2011 2010 Balances at beginning of year P378,094,876 P342,695,759 Acquisitions 4,341,925 25,058,522 Fair value gain (loss) (Note 20) (8,331,918) 10,340,595 Disposals and maturities (149,543,584) – Balance at end of year P224,561,299 P378,094,876
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
c) Loans and receivables - net This account consists of: 2011 2010
Long-term commercial papers P344,835,665 P271,725,435
Creditable withholding tax 62,677,478 –
Accounts receivable 30,265,864 44,981,676
Long-term investments 10,026,513 43,196,312
Notes receivable 9,801,384 8,953,634
Due from related parties 1,888,360 –
Cash advances 1,198,492 727,108
Security fund 342,294 342,294
461,036,050 369,926,459
Less allowance for impairment losses 3,702,926 10,020,976
P457,333,124 P359,905,483
Creditable withholding tax for years 2009 and 2010 were filed for refund by the Parent Company to the BIR.
Long-term investments pertain to fixed deposits with maturity of more than 1 year.
The Group provides car plan for its managers and officers as part of their benefits. The employee’s share is
recorded as Notes receivable which is collected through salary deductions. The notes receivable is payable
within five (5) years with annual interest rate of 8.00%. The allowance for impairment losses on loans and receivable had been determined as follows:
Accounts Notes
Receivable Receivable total
Balance at beginning of year P9,421,602 P599,374 P10,020,976
Impairment loss (Note 22) – 1,097,877 1,097,877
Reversal of impairment loss (Note 22) (7,415,927) – (7,415,927)
Balance at end of year P2,005,675 P1,697,251 P3,702,926
Individually impaired, P2,005,675 P1,697,251 P3,702,926
Collectively impaired – – –
total P2,005,675 P1,697,251 P3,702,926
As of December 31, 2010, accounts receivable and notes receivable with carrying values of P9.4 million and
P0.6 million, respectively, were specifically determined as impaired and was fully provided with allowance. There
are no movements in the allowance for impairment losses in 2010.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
8. Accrued Income This account consists of: 2011 2010
Accrued interest on:
AFS financial assets P36,973,508 P39,529,104
Long-term commercial papers 2,549,440 2,941,344
Financial assets at FVPL 2,507,002 2,933,924
Long-term investments 361,180 2,176,815
Cash and cash equivalents 335,054 1,328,615
Funds held by ceding companies - treaty 169,429 1,897,770
Security fund 108,424 298,273
Short-term investments 80,545 194,100
Accrued rent income 3,291,580 5,069,869
P46,376,162 P56,369,814
9. Deferred Acquisition costs - net
The rollforward of deferred acquisition costs and deferred reinsurance commissions follow:
2011 2010
Deferred acquisition costs
Balance at beginning of year P302,047,984 P205,682,538
Cost deferred during the year 822,214,121 836,400,214
Cost incurred during the year (850,416,199) (740,034,768)
Balance at end of year 273,845,906 302,047,984
Deferred reinsurance commissions
Balance at beginning of year 108,903,268 78,053,530
Income deferred during the year 251,066,099 247,658,368
Income earned during the year (245,448,605) (216,808,630)
Balance at end of year 114,520,762 108,903,268
P159,325,144 P193,144,716
10. Reinsurance Assets
This account consists of:
2011 2010
Reinsurance recoverable on unpaid losses (Note 14) P2,547,606,744 P3,380,792,321
Deferred reinsurance premiums (Note 14) 1,531,051,358 1,635,966,035
P4,078,658,102 P5,016,758,356
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
11. Investment Properties - net The rollforward analysis of this account follows:
2011
construction
Land Buildings In-Progress total
cost
At beginning of year P30,036,226 P46,147,860 P37,112,019 P113,296,105
Additions 147,335 20,541,295 20,688,630
Transfers (Note 12) (1,013,187) (33,603,368) – (34,616,555)
Disposals (160,000) – – (160,000)
At end of year 29,023,039 12,691,827 57,653,314 99,208,180
Accumulated
depreciation and
amortization
At beginning of year – 13,875,329 – 13,875,329
Depreciation and
amortization
(Note 22) – 173,467 – 173,467
Transfers (Note 12) – (3,148,003) – (3,148,003)
At end of year – 10,900,793 – 10,900,793
Net book value P29,023,039 P1,791,034 P57,653,314 P88,307,387
2010
Construction
Land Buildings In-Progress Total
cost
At beginning of year P30,036,226 P59,673,198 P7,825,587 P97,535,012
Additions – 35,672,461 2 9,286,432 64,958,893
Transfers (Note 12) – (31,197,800) – (31,197,800)
Disposals – (18,000,000) – (18,000,000)
At end of year 30,036,226 46,147,860 37,112,019 113,296,105
Accumulated
depreciation and
amortization
At beginning of year – 25,372,653 – 25,372,653
Depreciation and
amortization
(Note 22) – 4,215,922 – 4,215,922
Transfers (Note 12) – (13,650,747) – (13,650,747)
Disposals – (2,062,499) – (2,062,499)
At end of year – 13,875,329 – 13,875,329
Net book value P30,036,226 P32,272,531 P37,112,019 P99,420,776
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
During 2011 and 2010, transfers pertain to the reclassification from investment properties to property and
equipment due to change in the intention of the Group on the use of its building from being held for rental
to being occupied as building office spaces.
Rental income from investment properties recognized in the consolidated statement of income amounted
to P22.50 million and P24.54 million in 2011 and 2010, respectively (see Note 20).
On October 1, 2009, MICO, RCBC Savings Bank, Inc. (RSB), Rizal Commercial Banking Corporation (RCBC),
Bankard Inc., Great Pacific Life Assurance Corporation (Grepalife) and Hexagonland Corporation signed
a Joint Venture Agreement for the construction and development of a twenty seven (27)-storey, high-rise
mixed used commercial/office building to be known as the “RCBC Savings Bank Building Project”.
The total construction period is estimated at thirty-nine (39) months and the total cost is estimated at P2.20
billion, of which the Parent Company shall contribute 4.47% in cash contributions.
As of December 31, 2011 and 2010, MICO’s total cash contributions to the RCBC Savings Bank Building
Project amounted to P57.65 million and P37.11 million, respectively, which is presented under Construction-
in-Progress.
Buildings with book value of P1.69 million and P1.73 million have fair value amounting to P13.43 million and
P2.50 million as of December 31, 2011 and 2010, respectively. Parcels of land with book value of P0.44 million
and P9.49 million have fair value amounting to P40.40 million and P76.56 million as of December 31, 2011
and 2010, respectively. The fair values of the investment properties were determined by independent professionally
qualified appraisers. The fair value represents the amount at which the assets could be exchanged between
a knowledgeable, willing buyer and knowledgeable, willing seller in an arm’s length transaction at the date
of valuation.
The value of the land and building was arrived at using the Market Data Approach. In this approach, the
value of the land is based on sales and listings of comparable property registered within the vicinity. The
technique of this approach requires the establishment of comparable property by reducing reasonable
comparative sales and listings to a common denominator. This is done by adjusting the differences between
the subject property and those actual sales and listings regarded as comparable. The properties used as
basis of comparison are situated within the immediate vicinity of the subject property.
Depreciation and amortization expense pertaining to investment properties amounted to P0.17 million and
P4.22 million in 2011 and 2010, respectively, (see Note 22).
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
12. Property and equipment - net The rollforward analysis of this account follows: December 31, 2011 Land, Building, Office Building, Furniture, equipment and Fixtures and transportation Leasehold Improvements equipment equipment Improvements total cost At beginning of year P164,583,207 P309,489,382 P56,610,541 P43,534,308 P574,217,438 Additions 4,297,985 27,676,603 5,878,296 11,779,968 49,632,852 Transfers (Note 11) 34,616,555 – – – 34,616,555
Disposals – (934,329) (4,557,961) – (5,492,290) At end of year 203,497,747 336,231,656 57,930,876 55,314,276 652,974,555
Accumulated depreciation and amortization
At beginning of year 45,032,000 255,596,472 37,250,950 28,250,997 366,130,419 Depreciation and
amortization (Note 22) 7,970,963 23,032,162 6,699,496 4,908,640 42,611,261
Transfers (Note 11) 1,293,342 1,671,301 176,428 6,932 3,148,003
Disposals – (44,548) (3,728,520) (3,773,068) At end of year 54,296,305 280,255,387 40,398,354 33,166,569 408,116,615
Net book value P149,201,442 P55,976,269 P17,532,522 P22,147,707 P244,857,940
December 31, 2010
Land,
Building, Office
Building, Furniture,
Equipment and Fixtures and Transportation Leasehold
Improvements Equipment Equipment Improvements Total
cost At beginning of year P105,710,920 P291,247,826 P48,548,545 P35,560,317 P481,067,608
Additions 27,557,891 18,365,923 9,139,237 8,165,955 63,229,006
Transfers (Note 11) 31,389,764 – – (191,964) 31,197,800
Disposals (75,368) (124,367) (1,077,241) – (1,276,976)
At end of year 164,583,207 309,489,382 56,610,541 43,534,308 574,217,438
Accumulated depreciation and amortization
At beginning of year 25,884,246 234,561,218 29,360,786 24,444,039 314,250,289
Depreciation and
amortization (Note 22) 5,403,779 21,057,474 8,347,682 3,905,024 38,713,959
Transfers (Note 11) 13,748,813 – – (98,066) 13,650,747
Disposals (4,838) (22,220) (457,518) – (484,576)
At end of year 4 5,032,000 255,596,472 37,250,950 28,250,997 366,130,419
Net book value P119,551,207 P53,892,910 P19,359,591 P15,283,311 P208,087,019
Depreciation and amortization expense charged against operations amounted to P42.61 million and
P38.71 million in 2011 and 2010, respectively (see Note 22).
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
13. Other Assets This account consists of:
2011 2010
Creditable withholding tax P149,408,856 P160,554,911
Real estate properties for sale 92,212,603 95,447,414
Computer software – net 64,496,741 57,713,150
Forms and supplies inventory 13,460,711 11,657,080
Refundable deposits 12,690,850 6,390,597
Prepayments 7,641,820 13,877,862
Miscellaneous assets 6,713,110 10,684,014
Others 5,441,875 4,477,340
P352,066,566 P360,802,368
Creditable withholding tax pertains to the Group’s tax withheld at source by its customers and is creditable
against the income tax liability of the Group. Real estate properties for sale consists of investments in Malayan Plaza condominium units and memorial lots.
As of December 31, 2011 and 2010, amounts of the real estate properties for sale are as follows:
2011 2010
Malayan Plaza condominium units P80,362,603 P82,289,914
Memorial lots 11,850,000 13,157,500
P92,212,603 P95,447,414
Cost of real estate properties disposed in 2011 and 2010 amounted to P3.23 million and P32.69 million, respectively.
The rollforward of the Computer software follows:
2011 2010
cost
At the beginning of the year P66,885,652 P27,991,413
Additions 12,436,889 38,894,239
At the end of the year 79,322,541 66,885,652
Accumulated amortization
At the beginning of the year 9,172,502 4,465,301
Depreciation (Note 22) 5,653,298 4,707,201
At the end of the year 14,825,800 9,172,502
Net book value P64,496,741 P57,713,150
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
14. Insurance contract Liabilities and Reinsurance Assets
Short-term insurance contract liabilities and reinsurers’ share of liabilities may be analyzed as follows:
2011 2010 Reinsurers’ Reinsurers’ Insurance Share of Insurance Share of contract Liabilities Contract Liabilities Liabilities (Note 10) Net Liabilities (Note 10) Net
Provision for claims reported
and loss adjustment P4,354,842,803 P2,547,606,744 P1,807,236,059 P4,976,836,151 P3,380,792,321 P1,596,043,830
Provision for IBNR losses 82,878,858 – 82,878,858 67,011,588 – 67,011,588
Total claims reported and
IBNR 4,437,721,661 2,547,606,744 1,890,114,917 5,043,847,739 3,380,792,321 1,663,055,418
Provision for unearned
premiums 2,822,507,685 1,531,051,358 1,291,456,327 2,909,478,785 1,635,966,035 1,273,512,750
Total insurance contract
liabilities P7,260,229,346 P4,078,658,102 P3,181,571,244 P7,953,326,524 P5,016,758,356 P2,936,568,168
Provision for claims reported and claims IBNR may be analyzed as follows: 2011 2010 Reinsurers’ Reinsurers’ Insurance Share of Insurance Share of contract Liabilities Contract Liabilities Liabilities (Note 10) Net Liabilities (Note 10) Net
Balance at beginning of year P5,043,847,739 P3,380,792,321 P1,663,055,418 P7,351,672,356 P5,350,907,263 P2,000,765,093
Claims incurred during the
year 1,821,951,575 223,341,908 1,598,609,667 1,001,323,605 (375,912,520) 1,377,236,125
Increase in IBNR 15,867,270 – 15,867,270 12,610,207 – 12,610,207
Total claims reported and
claims IBNR 6,881,666,584 3,604,134,229 3,277,532,355 8,365,606,168 4,974,994,743 3,390,611,425
Claims paid during the year
(Note 21) (2,443,944,923) (1,056,527,485) (1,387,417,438) (3,321,758,429) (1,594,202,422) (1,727,556,007)
Balance at end of year P4,437,721,661 P2,547,606,744 P1,890,114,917 P5,043,847,739 P3,380,792,321 P1,663,055,418
Provision for unearned premiums may be analyzed as follows: 2011 2010 Reinsurers’ Reinsurers’ Insurance Share of Insurance Share of contract Liabilities Contract Liabilities Liabilities (Note 10) Net Liabilities (Note 10) Net
Balance at beginning of year P2,909,478,785 P1,635,966,035 P1,273,512,750 P2,183,534,030 P866,496,526 P1,317,037,504
New policies written during
the year (Note 19) 6,048,420,953 3,282,909,940 2,765,511,013 5,969,704,747 3,475,241,147 2,494,463,600
Premiums earned during the
year (6,135,392,053) (3,387,824,617) (2,747,567,436) (5,243,759,992) (2,705,771,638) (2,537,988,354)
Balance at end of year P2,822,507,685 P1,531,051,358 P1,291,456,327 P2,909,478,785 P1,635,966,035 P1,273,512,750
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
15. Insurance Payables This account consists of: 2011 2010
Due to reinsurers and ceding companies P1,113,335,436 P738,907,076
Funds held for reinsurers 478,487,552 3 73,137,571
P1,591,822,988 P1,112,044,647
The rollforward analysis of insurance payables follows: Due to Reinsurers
and ceding Funds Held
companies for Reinsurers total
At January 1, 2010 P1,478,035,802 P298,789,025 P1,776,824,827
Arising during the year 2,372,925,800 81,594,983 2,454,520,783
Utilized (3,112,054,526) (7,246,437) ( 3,119,300,963)
At December 31, 2010 738,907,076 373,137,571 1,112,044,647
Arising during the year 2,675,936,506 210,608,743 2,886,545,249
Utilized (2,301,508,146) (105,258,762) (2,406,666,908)
At December 31, 2011 P1,113,335,436 P478,487,552 P1,591,922,988
16. Accounts Payable, Accrued expenses and Other Liabilities This account consists of: 2011 2010
Accounts payable P343,367,016 P314,050,193
Commissions payable 263,790,116 250,906,171
Deferred output value-added tax (VAT) 108,593,807 98,079,909
Accrued taxes 75,022,317 57,471,581
Documentary stamp taxes payable 52,807,654 79,827,836
Output VAT 40,966,576 18,897,862
Accrued expenses 37,332,345 26,242,360
Short-term employee benefits payable 36,826,464 28,119,111
Surety deposits 31,841,060 49,339,610
Deposits payable 11,306,889 12,334,227
Others 10,236,962 45,449,733
P1,012,091,206 P980,718,593
Accrued expenses pertain to accrual of monthly expenditures of the Group. This includes expenses for utilities, fringe benefit tax, allocated common expenses for the use of Y Tower 1 and 2 and other expenses that is necessary to carry out the operations of the Group.
17. Pension The Group has a defined benefit plans, covering substantially all of its employees, which requires contribution to
be made to administered funds. The plans are administered by a local bank as trustee.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The following tables summarize the components of net pension benefit expense recognized in the consolidated statements of income and the funded status and amounts recognized in the consolidated statements of financial position for the retirement plan.
The net pension benefit expense recognized in the consolidated statements of income, under employee benefits (see Note 22), follows:
2011 2010
Current service cost P25,316,531 P16,883,594
Interest cost 26,018,110 27,676,954
Net recognized actuarial loss 2,820,468 1,426,722
Expected return on plan assets (11,781,867) (10,130,283)
P42,373,242 P35,856,987
The pension obligation of MICO follows: 2011 2010
Present value of pension benefit obligation P337,430,587 P302,503,427
Fair value of plan assets (183,378,153) (178,040,586)
154,052,434 124,462,841
Unrecognized net actuarial losses (113,550,501) (78,133,636)
P40,501,933 P46,329,205
The pension assets of FNAC, BAC and MEI follows: 2011 2010
Present value of pension benefit obligation P75,182,772 P59,491,155
Fair value of plan assets (65,112,577) (57,596,764)
10,070,195 1,894,391
Unrecognized net actuarial losses 17,102,730 12,083,200
(P7,032,535) (P10,188,809)
The reconciliation in the present value of pension benefit obligation follows: 2011 2010
Balance at beginning of year P361,994,582 P312,595,916
Current service cost 25,316,531 16,883,594
Interest cost 26,018,110 27,676,954
Actuarial loss 36,150,111 30,176,570
Present value of obligation of resigned employee (2,613,004) –
Actual benefits paid (34,252,971) (25,338,452)
Balance at end of year P412,613,359 P361,994,582
The reconciliation of the fair value of the plan assets follows: 2011 2010
Balance at beginning of year P235,637,350 P217,794,550
Contributions paid 42,431,236 36,025,765
Expected return on plan assets 11,781,867 10,130,283
Actual benefits paid (34,252,971) (25,338,452)
Actuarial loss on plan assets (7,106,752) (2,974,796)
Balance at end of year P248,490,730 P235,637,350
Actual return on plan assets P4,675,115 P7,155,487
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Movements in the unrecognized net actuarial loss follow: 2011 2010
Balance at beginning of year P90,216,836 P58,492,192
Actuarial loss on obligation 36,150,111 30,176,570
Actuarial loss on plan assets 7,106,752 2,974,796
Actuarial loss recognized (2,820,468) (1,426,722)
Balance at end of year P130,653,231 P90,216,836
The distribution of the plan assets as of December 31, 2011 and 2010 follows: 2011 2010
Cash P75,006,546 P45,708,799
Receivables 3,214,455 2,788,184
Investments 171,843,828 188,449,357
Others 31,185 198,017
250,096,014 237,144,357
Less accrued trust fees and other payables (1,605,284) (1,507,007)
P248,490,730 P235,637,350
The principal actuarial assumptions used in determining plan assets and obligations are as follows: 2011 2010
Salary increase rate 5.00% 5.00%
Discount rate 5.69% - 5.88% 5.66% - 8.97%
Expected return on plan assets 5.00% 5.00%
The overall expected return on plan assets is determined based on the market expectations prevailing as
of December 31, 2011 applicable to the period over which the obligation is to be settled. The Group expects to contribute P41.95 million to its defined benefit pension plan for 2012. The amounts of deficit and experience adjustment follow: 2011 2010 2009 2008
Present value of pension benefit
obligation P412,613,359 P361,994,582 P312,595,916 P288,543,347
Fair value of plan assets 248,491,730 235,637,350 217,794,550 160,642,361
Deficit P164,121,629 P126,357,232 P94,801,366 P127,900,986
Experience adjustment follows: 2011 2010 2009 2008
Experience adjustments on plan
liabilities - loss (gain) P18,851,887 P3,952,360 (P5,684,791) P27,945,675
Experience adjustments on plan
assets - gain (loss) (P7,106,752) (P2,974,796) P15,794,882 (P7,318,901)
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
18. equity Capital Stock The details of the number of shares follow: 2011 2010
Authorized shares - P100 par value 10,000,000 4,000,000
Issued and outstanding shares 6,000,000 4,000,000
Retained Earnings
On August 8, 2011, the BOD approved the increase in the authorized capital stock from P400 million divided into
4 million shares with par value of P100 per share to P1 billion divided into 10 million shares with par value of P100 per
share. The SEC filing fee relating to the increase in authorized capital stock amounting to P1,212,510, net of the related
tax benefits, has been deducted from retained earnings in 2011. On the same date, the BOD approved the
declaration of P200 million worth of stock dividends out of the unrestricted retained earnings as of December 31,
2010, in favor of the stockholders of record as of August 8, 2011. The documentary stamp tax related to the stock
dividends amounting to P1.0 million has been accrued and the amount (net of the related tax benefits) is accounted
for as a deduction from retained earnings in 2011.
On July 26, 2010, the BOD approved the declaration of P100.0 million worth of stock dividends out of the unrestricted
retained earnings as of December 31, 2009, in favor of the stockholders of record as of July 26, 2010.
Other Revaluation Reserve
On April 10, 2008, MICO’s BOD and stockholders approved the articles of merger and plan of merger between Tokio
Marine Malayan Insurance Co., Inc. (TMMIC) and MICO. TMMIC is a 50-50 joint venture company owned by MICO
and Tokio Marine Asia Pte., Ltd. (Tokio Marine). On July 2, 2008, the SEC approved the articles and plan of merger. The
effects of the merger were reckoned from January 1, 2008. The merger was accounted for as a business combination
in accordance with PFRS 3. TMMIC and the Parent Company became a single corporation, with MICO as the
surviving corporation. TMMIC ceased to exist and its legal personality was terminated. As at the date of acquisition,
the identifiable assets and liabilities of TMMIC have been measured at fair value resulting in a difference of P46,933,294
against its carrying values. The difference between the carrying value and fair value pertains mainly to the increase
in the appraised value of the building. MICO recorded the appraisal increase amounting to P23,466,647 pertaining
to its previously held interest as “Other revaluation reserve” in the equity section of the consolidated statement of
financial position.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
19. Net Premiums earned Gross premiums earned and reinsurers’ share of gross premiums earned consists of the following: 2011 2010
Gross premiums written
Direct P4,552,146,949 P4,251,002,510
Assumed 1,496,274,004 1,718,702,237
Total gross premiums on insurance contracts
(Note 14) 6,048,420,953 5,969,704,747
Gross change in provision for unearned premiums 86,971,100 (725,944,755)
gross premiums earned (Note 14) 6,135,392,053 5,243,759,992
Reinsurers’ share of gross premiums written
Direct 2,407,367,327 2,101,539,110
Assumed 875,542,613 1,373,702,037
Total reinsurer’s share of gross premiums on
insurance contracts (Note 14) 3,282,909,940 3,475,241,147
Reinsurers’ share of gross change in provision for
unearned premiums 104,914,677 (769,469,509)
Reinsurers’ share of gross premiums earned
(Note 14) 3,387,824,617 2,705,771,638
Net premiums earned P2,747,567,436 P2,537,988,354
20. Investment and Other Income - net This account consists of: 2011 2010
Dividend income P354,991,441 P305,966,542
Interest income
AFS financial assets 186,992,467 192,388,846
Cash and cash equivalents 50,828,254 37,582,815
Short-term investments 627,922 1,181,163
Long-term investments 200,524 1,371,842
Long-term commercial papers 22,892,393 16,915,168
Financial assets at FVPL 5,986,803 11,930,068
Funds held by ceding companies - treaty 535,280 1,312,793
Others 8,241,908 3,851,511
Gain on sale of:
AFS financial assets (Note 7) 58,141,707 103,217,763
Property and equipment (Note 12) 1,151,198 21,897
Long-term commercial papers 100,000 –
Rent income (Note 11) 22,500,776 24,538,347
Impairment loss on AFS financial assets (Note 7) (15,529,779) (11,216,245)
Fair value gain (loss) on financial assets at FVPL
(Note 7) (8,331,918) 10,340,595
Foreign currency exchange loss - net 46,666,323 (49,974,740)
Others - net 19,131,303 58,098,461
P755,126,602 P707,526,826
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
21. Insurance Contract Benefits and Claims Paid
Gross insurance contract benefits and claims paid consist of:
2011 2010
Gross insurance contract benefits
and claims paid:
Direct insurance P1,764,604,101 P2,362,159,114
Assumed reinsurance 679,340,822 959,599,315
Total gross insurance contract benefits
and claims paid (Note 14) P2,443,944,923 P3,321,758,429
Reinsurers’ share of gross insurance contract benefits and claims paid consist of: 2011 2010
Reinsurer’s share of insurance contract benefits
and claims paid:
Direct insurance P987,135,585 P1,227,898,684
Assumed reinsurance 69,391,900 366,303,738
total reinsurers’ share of gross insurance
contract and benefits and claims paid (Note 14) P1,056,527,485 P1,594,202,422
Gross change in insurance contract liabilities consist of: 2011 2010
Change in provision for claims reported:
Direct (P347,790,043) (P1,135,341,075)
Assumed (242,468,765) (742,807,161)
Change in provision for IBNR (15,867,270) (12,610,207)
total gross change in insurance contract
liabilities (Note 14) (P606,126,078) (P1,890,758,443)
Reinsurers’ shares of gross change in insurance contract liabilities consist of: 2011 2010
Reinsurers’ share of gross insurance contract
liabilities:
Direct P682,056,240 P1,055,495,631
Assumed 151,129,337 497,353,137
total reinsurers’ share of gross change in
insurance contract liabilities (Note 14) P833,185,577 P1,552,848,768
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
22. general and Administrative expenses
This account consists of:
2011 2010
Salaries, wages and employee benefits P433,158,748 P416,323,390
Rent, light and water 61,491,430 58,046,972
Professional fees 51,148,640 36,694,006
Depreciation and amortization (Notes 11, 12 and 13) 48,438,026 47,637,082
Transportation and travel 43,196,735 38,188,763
Advertising and promotions 36,294,722 41,030,327
Postage, telephone and cable 30,430,741 26,788,624
Printing and office supplies 22,193,954 24,989,470
Entertainment, amusement and recreation 20,372,390 15,685,596
Maintenance and repairs 14,810,616 17,861,715
Taxes, licenses and fees 11,214,740 14,158,287
Donations and contributions 10,265,209 9,188,353
Provision for impairment losses (Note 6) 9,275,729 2,471,078
Business development 7,561,675 9,504,676
Membership and association dues 7,199,597 8,546,891
Insurance 1,154,715 910,696
Management fees 589,440 3,473,441
Others 21,514,577 35,787,261
P830,311,684 P807,286,628
23. Operating Lease commitments
Operating leases - Group as lessor
The Group entered into various lease agreements for its office spaces. These leases generally have terms of one
year, renewable every year.
Operating leases - Group as lessee
The Group entered into various property leases with various lessors for office space of its head office and local
and provincial branches. These leases generally have terms of one year, renewable every year.
24. Income tax The benefit from income tax consists of:
2011 2010
Final P18,401,681 P17,206,929
Current 8,686,059 13,879,418
Deferred 10,752,048 (61,058,724)
P37,839,788 (P29,972,377)
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The Group’s net deferred tax assets consist of: 2011 2010
Deferred income tax assets:
Excess of reserve for unearned premiums
per books over tax basis P477,841,581 P506,493,578
Deferred reinsurance commissions 31,840,859 32,670,981
Unamortized past service cost 22,631,117 23,731,915
Provision for claims IBNR 24,863,657 20,103,476
Allowance for doubtful accounts 20,453,914 18,097,373
Pension benefit obligation 12,150,580 13,898,761
Accrued for short-term employee benefits 9,894,512 8,435,733
Unrealized foreign currency exchange loss - net 1,663,611 24,083,547
601,339,831 47,515,364
Deferred income tax liabilities:
Deferred reinsurance premiums (419,178,867) (445,052,827)
Deferred acquisition costs (79,643,269) (89,462,860)
Pension asset (2,109,761) (3,056,643)
Unrealized foreign currency exchange gain - net (553,195) –
(501,485,092) (537,572,330)
Deferred income tax liability through equity:
Net unrealized gain on AFS financial assets (31,966,356) (34,045,666)
P67,888,383 P75,897,368
The net deferred tax assets are presented in the consolidated statements of financial position as follows: 2011 2010
Deferred tax assets P70,024,767 P75,897,368
Deferred tax liabilities 2,136,384 –
P67,888,383 P75,897,368
As of December 31, 2011 and 2010, the Group did not recognize the deferred income tax assets amounting to P178.36 million and P303.72 million, respectively, for the following:
2011 2010
NOLCO P485,008,004 P932,381,823
MCIT 26,657,568 20,798,178
Allowance for doubtful accounts 3,384,385 4,712,894
Provision for short-term employee benefits P63,677,648 P44,158,229
The related tax benefits will be recognized only as reassessment demonstrates that they are realizable.
Realization is entirely dependent upon future taxable income.
As of December 31, 2011, details of the NOLCO and MCIT, which is available for offset against future taxable income and future income tax liability, respectively, follows:
Year incurred MCIT NOLCO Tax effect Expiry Year
2011 P8,457,482 P303,398,907 P91,019,672 2014
2010 11,496,836 61,067,449 18,320,235 2013
2009 6,703,250 120,541,648 36,162,494 2012
P26,657,568 P485,008,004 P145,502,401
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The following are the movements in NOLCO:
2011 2010
Balance at beginning of year P932,381,823 P1,037,518,748
Addition 303,398,907 61,067,449
Expiration (750,772,726) (142,295,648)
Applied – (23,908,726)
Balance at end of year P485,008,004 P932,381,823
The following are the movements in MCIT: 2011 2010
Balance at beginning of year P20,798,178 P16,441,581
Addition 8,457,482 11,496,836
Expiration (2,598,092) (7,140,239)
Balance at end of year P26,657,568 P20,798,178 The reconciliation of provision for income tax computed at the statutory corporate income tax rate to benefit
from income tax shown in the consolidated statements of income follows: 2011 2010
At statutory income tax rate P110,698,410 P162,892,769
Adjustments for:
Change in unrecognized deferred
tax assets 105,985,051 8,171,875
Nondeductible expenses 2,529,711 7,301,720
Loss in decline in market value of stocks – 71,982
Expired MCIT – (5,939,303)
Income of tax-exempt subsidiaries – –
Gain on sale of AFS financial assets (15,066,300) (22,859,301)
Interest income subjected to final tax (46,391,963) (48,769,861)
Dividend income (119,915,121) (130,842,258)
P37,839,788 (P29,972,377)
25. Insurance and Financial Risk management
Insurance Risk The principal risk the Group faces under insurance contracts is that the actual claims and benefit payments or the
timing thereof, differ from expectations. This is influenced by the frequency of claims, severity of claims, actual benefits paid and subsequent development of claims. Therefore, the objective of the Group is to ensure that sufficient reserves are available to cover these The above risk exposure is mitigated by diversification across a large portfolio of insurance contracts and geographical areas. The variability of risks is also improved by careful selection and implementation of underwriting strategy guidelines, as well as the use of reinsurance arrangements.
The Group purchases reinsurance as part of its risks mitigation program. Reinsurance ceded is placed on both
a proportional and non-proportional basis with retention limits varying by product line and territory. The majority of proportional reinsurance is quota-share reinsurance which is taken out to reduce the overall exposure of the Group to certain classes of business. Non-proportional reinsurance is primarily excess-of-loss reinsurance designed to mitigate the Group’s net exposure to catastrophe losses. Retention limits for the excess-of-loss reinsurance vary by product line and territory.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision
and are in accordance with the reinsurance contracts. Although the Group has reinsurance arrangements, it
is not relieved of its direct obligations to its policyholders and thus a credit exposure exists with respect to ceded
insurance, to the extent that any reinsurer is unable to meet its obligations assumed under such reinsurance
agreements.
The Group’s placement of reinsurance is diversified such that it is neither dependent on a single reinsurer nor are
the operations of the Group substantially dependent upon any single reinsurance contract.
The Group principally issues the following types of general insurance contracts: motorcar, household, commercial
and business interruption. The most significant risks arise from climate changes and natural disasters. These risks
do not vary significantly in relation to the location of the risk insured by the Group, type of risk insured and by
industry.
To further reduce the risk exposure, the Group requires strict claim review policies to assess all new and ongoing
claims, regular detailed review of claims handling procedures and frequent investigation of possible fraudulent
claims.
The Group further enforces a policy of actively managing and prompt pursuing of claims, in order to reduce its
exposure to unpredictable future developments that can negatively impact the Group.
The Group also has limited its exposure level by imposing maximum claim amounts on certain contracts as well as
the use of reinsurance arrangements in order to limit exposure to catastrophic events. The purpose of these un-
derwriting and reinsurance strategies is to limit exposure to catastrophes to a predetermined maximum
amount based on the Group’s risk appetite as decided by management.
The tables below set out the concentration of the claims liabilities by type of contract (see Note 14). 2011
gross Reinsurers’ Share Net
Fire P2,825,623,289 P1,880,393,768 P945,229,521
Motorcar 411,028,052 14,007,531 397,020,521
Engineering 361,176,063 301,750,849 59,425,214
Bonds 119,169,267 90,265,302 28,903,965
Miscellaneous casualty 295,526,618 111,808,824 183,717,794
Marine cargo 230,252,512 113,143,577 117,108,935
Others 194,945,860 36,236,893 158,708,967
P4,437,721,661 P2,547,606,744 P1,890,114,917
2010
Gross Reinsurers’ Share Net
Fire P2,991,190,181 P2,489,254,329 P501,935,852
Motorcar 576,961,142 1,331,998 575,629,144
Engineering 377,920,354 326,590,326 51,330,028
Bonds 219,319,483 77,676,935 141,642,548
Miscellaneous casualty 191,647,998 61,736,925 129,911,073
Marine cargo 114,095,499 90,625,302 23,470,197
Others 572,713,082 333,576,506 239,136,576
P5,043,847,739 P3,380,792,321 P1,663,055,418
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The tables below set out the geographical concentration of the Group’s claims liabilities based on the countries where the insurance business is written.
2011
gross Reinsurers’ Share Net Philippines P4,249,136,344 P2,539,118,832 P1,710,017,512 Greece 183,263,871 8,487,912 174,775,959 Netherlands 5,321,446 – 5,321,446 P4,437,721,661 P2,547,606,744 P1,890,114,917
2010
Gross Reinsurers’ Share Net
Philippines P4,607,548,363 P3,372,304,408 P1,235,243,955
Greece 420,404,971 8,487,913 411,917,058
Netherlands 15,894,405 – 15,894,405
P5,043,847,739 P3,380,792,321 P1,663,055,418
Key Assumptions The principal assumption underlying the liability estimates is the Group’s future claims development will follow a similar pattern to past claims development experience. This includes assumptions in respect of average claim costs, claims handling costs, claims inflation factors and claim numbers for each accident year. Additional qualitative judgments are used to assess the extent to which past trends may not apply in the future, for example once-off occurrence, changes in market factors such as public attitude to claiming, economic conditions, as well as internal factors such as portfolio mix, policy conditions and claims handling procedures. Judgment is further used to assess the extent to which external factors such as judicial decisions and government legislation affect the estimates.
Other key assumptions include variations in interest, delays in settlement and changes in foreign currency rates. Sensitivities The insurance claims provision is sensitive to the above key assumptions. Because of delays that arise between occurrence of a claim and its subsequent notification and eventual settlement, the outstanding claim provisions are not known with certainty at the reporting dates. The table below shows the impact of changes in certain important assumptions in general insurance business while other assumptions remain unchanged. The correlation of assumptions will have a significant effect in determining the claims but to demonstrate the impact due to changes in assumptions, assumptions had to be changed on an individual basis. 2011 Increase (Decrease) Impact on Impact on Net Insurance Impact on change in gross Insurance contract Income Before Assumptions % contract Liabilities Liabilities Income tax Average claim costs +5% P103,106,174 P63,121,828 (P63,121,828) Average number of claims +5% 199,402,037 101,644,553 (101,644,553) 2010 Increase (Decrease) Impact on Impact on Net Insurance Impact on Change in Gross Insurance Contract Income Before Assumptions % Contract Liabilities Liabilities Income Tax Average claim costs +5% P136,105,259 P58,834,794 (P58,834,794) Average number of claims +5% 172,267,144 74,530,339 (74,530,339)
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Claims Development Table The following tables reflect the cumulative incurred claims, including both claims notified and IBNR for each successive accident year at each reporting dates, together with cumulative payments to date.
The Group aims to maintain strong reserves in respect of its insurance business in order to protect against adverse future claims experience and developments. As claims develop and the ultimate cost of claims becomes more certain, adverse claims experiences are eliminated which results in the release of reserves from earlier accident years. In order to maintain strong reserves, the Group transfers much of this release to current accident year reserves when the development of claims is less mature and there is much greater uncertainty attaching to the ultimate cost of claims.
The risks vary significantly in relation to the location of the risk insured by the Group, type of risks insured and in respect of commercial and business interruption insurance by industry.
Gross insurance contract liabilities in 2011 2005 and Accident year prior year 2006 2007 2008 2009 2010 2011 Total Accident year P7,334,631,092 P5,197,768,631 P2,621,801,881 P3,845,134,282 P4,907,738,220 P2,845,875,444 P2,447,950,670 P2,447,950,670 One year later 7,515,242,790 7,152,187,131 3,170,661,594 3,472,284,452 4,412,821,063 2,750,189,825 – 2,750,189,825 Two years later 7,576,824,914 6,488,214,061 3,777,081,326 3,434,979,005 4,496,394,727 – – 4,496,394,727 Three years later 7,591,531,470 6,558,673,277 3,706,013,297 3,443,512,342 – – – 3,443,512,342 Four years later 7,632,735,128 6,456,147,626 3,686,018,144 – – – – 3,686,018,144 Five years later 7,515,804,136 6,466,547,034 – – – – – 6,466,547,034 Six years later 7,506,670,877 – – – – – – 7,506,670,877 Current estimate of cumulative claims 7,506,670,877 6,466,547,034 3,686,018,144 3,443,512,342 4,496,394,727 2,750,189,825 2,447,950,670 30,797,283,619 Cumulative payments to date 7,134,301,598 6,281,615,979 3,581,837,171 2,886,677,044 3,590,196,319 2,366,450,638 518,483,209 26,359,561,958 Liability recognized P372,369,279 P184,931,055 P104,180,973 P556,835,298 P906,198,408 P383,739,187 P1,929,467,461 P4,437,721,661
Net insurance contract liabilities in 2011 2005 andAccident year prior year 2006 2007 2008 2009 2010 2011 Total Accident year P3,368,253,955 P1,290,438,902 P1,500,535,558 P2,038,664,653 P1,240,045,907 P1,583,464,028 P1,620,463,843 P1,620,463,843 One year later 3,509,036,705 1,615,106,012 1,493,819,157 2,007,250,586 1,267,392,996 1,651,334,144 – 1,651,334,144 Two years later 3,521,799,053 1,664,924,899 2,010,425,256 2,063,210,946 1,330,815,130 – – 1,330,815,130 Three years later 3,559,521,627 1,674,353,506 1,971,674,192 2,031,060,153 – – – 2,031,060,153 Four years later 3,539,237,452 1,670,849,027 1,952,123,401 – – – – 1,952,123,401 Five years later 3,310,371,384 1,684,880,726 – – – – – 1,684,880,726 Six years later 3,021,574,663 – – – – – – 3,021,574,663 Current estimate of cumulative claims 3,021,574,663 1,684,880,726 1,952,123,401 2,031,060,153 1,330,815,130 1,651,334,144 1,620,463,843 13,292,252,060 Cumulative payments to date 2,850,901,697 1,667,715,177 1,923,773,788 1,946,308,174 1,257,062,153 1,405,602,446 350,773,708 11,402,137,143 Net Liability recognized P170,672,966 P17,165,549 P28,349,613 P84,751,979 P73,752,977 P245,731,698 P1,269,690,135 P1,890,114,917
Financial Risk
The Group is exposed to financial risk through its financial assets and financial liabilities. In particular, the key financial
risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance
contracts. The most important components of this financial risk are credit risk, liquidity risk and market risk.
These risks arise from positions in interest rate, currency and equity products, all of which are exposed to general and
specific market movements.
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other
party to incur a financial loss.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The Group manages the level of credit risk by setting up exposure limits for each counterparty or group of counterparties and industry segments; right of offset where counterparties are both debtors and creditors; guidelines on obtaining collaterals and guarantees; reporting of credit risk exposures; monitoring compliance with credit risk policy and review of credit risk policy for pertinence and changing environment. The Group sets the maximum amounts and limits that may be advanced to/placed with individual corporate counterparties which are set by reference to their long-term ratings. Credit risk exposure in respect of all other counterparties is managed by setting standard business terms that are required to be met by all counterparties. Commissions due to intermediaries are netted off against amounts receivable from them to reduce the risk of doubtful accounts.
The table below shows the Group’s maximum exposure to credit risk, net of impairment loss.
2011 2010 AFS financial assets: Equity securities: Listed equity securities P5,676,986,470 P5,480,787,459 Unlisted equity securities 81,188,158 78,748,158 Debt securities: Private debt securities 2,309,033,662 2,094,514,726 Government debt securities: Local currency 561,760,112 487,604,713 Foreign currency 434,862,299 439,713,086 FVPL financial assets: Debt securities: Private debt securities P73,738,836 P250,859,428 Government debt securities – 37,293,006 Equity securities: Listed equity securities 148,876,055 73,775,324 Unlisted equity securities 1,946,408 16,167,118 Loans and receivables: Cash and cash equivalents 1,895,625,753 1,541,163,670 Short-term investments 11,099,040 10,536,503 Insurance receivables: Due from policyholders, agents and brokers 1,572,606,331 1,767,579,012 Due from ceding companies: Facultative 171,771,502 289,445,786 Treaty 762,485,215 127,176,212 Funds held by ceding companies 173,118,947 130,662,615 Reinsurance recoverable on paid losses: Facultative 94,573,012 87,441,202 Treaty 21,392,188 33,249,289 Accrued interest income: AFS financial assets 36,973,508 39,529,104 Long-term commercial papers 2,549,440 2,941,344 Financial assets at FVPL 2,507,002 2,933,924 Long-term investments 361,180 2,176,815 Cash and cash equivalents 335,054 1,328,615 Funds held by ceding companies 169,429 1,897,770 Short-term investments 80,545 194,100 Security fund 108,424 298,273 Accrued rent income 3,291,580 5,069,869 Loans and receivables: Long-term commercial papers 344,835,665 271,725,435 Creditable withholding tax 62,677,478 – Accounts receivable 30,265,864 37,565,749 Long-term investments 10,026,513 43,196,312 Notes receivable 9,801,384 8,953,634 Due from related parties 1,888,360 – Cash advances 1,198,492 727,108 Security fund 342,294 342,294 P14,498,476,200 P13,365,597,653
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The following tables provide information regarding the credit risk exposure of the Group by classifying the financial assets according to the Group’s credit rating of the counterparties:
2011 High grade medium grade Low grade Impaired total AFS financial assets: Equity securities: Listed equity securities P5,676,986,470 P– P– P34,788,415 P5,711,774,885 Unlisted equity securities – 81,188,158 – – 81,188,158 Debt securities: Private debt securities 1,326,580,638 982,453,024 – – 2,309,033,662 Government debt securities: Local currency 561,760,112 – – – 561,760,112 Foreign currency 434,862,299 – – – 434,862,299 Financial assets at FVPL: Debt securities: Private debt securities 73,738,836 – – – 73,738,836 Equity securities: Listed equity securities 148,876,055 – – – 148,876,055 Unlisted equity securities 1,946,408 – – – 1,946,408 Loans and receivables: Cash and cash equivalents 1,894,779,877 845,876 – – 1,895,625,753 Short-term investments 11,099,040 – – – 11,099,040 Insurance receivables: Due from policyholders, agents, and brokers 308,876,076 462,080,812 828,802,807 16,944,841 1,616,704,536 Due from ceding companies: Facultative 19,734,830 126,070,289 25,966,383 12,668,877 184,440,379 Treaty 625,037,200 17,033,260 120,414,755 641,002 763,126,217 Reinsurance recoverable on paid losses 923 4,086,187 111,878,090 9,072,311 125,037,511 Funds held by ceding companies 88,713,516 11,432,770 72,972,661 1,380,777 174,499,724 Accrued interest income: AFS financial assets 22,184,213 14,789,295 – – 36,973,508 Long-term commercial papers 2,363,075 186,365 – – 2,549,440 Financial assets at FVPL 2,507,002 – – – 2,507,002 Long-term investments 361,180 – – – 361,180 Cash and cash equivalents 335,779 – – – 335,779 Funds held by ceding companies - treaty 169,429 – – – 169,429 Short-term investments 80,127 – – – 80,127 Security fund 108,414 10 – – 108,424 Accrued rent income 3,291,580 – – – 3,291,580 Loans and receivables: Long-term commercial papers 324,837,500 19,998,165 – – 344,835,665 Creditable withholding tax 62,677,478 – – – 62,677,478 Accounts receivable 28,201,642 58,547 – 2,005,675 30,265,864 Long-term investments 10,026,513 – – – 10,026,513 Notes receivable 8,045,586 58,547 – 1,697,251 9,801,384 Due from related parties 1,888,360 – – – 1,888,360 Cash advances 1,198,492 – – – 1,198,492 Security fund 342,294 – – – 342,294 P11,641,610,944 P1,720,281,305 P1,160,034,696 P79,199,149 P P14,601,126,094
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
2010 High Grade Medium Grade Low Grade Impaired Total AFS financial assets: Equity securities: Listed equity securities P5,473,477,605 P– P– P17,751,165 P5,491,228,770 Unlisted equity securities – 78,748,158 – – 78,748,158 Debt securities: Private debt securities 1,335,187,039 759,327,687 – – 2,094,514,726 Government debt securities: Local currency 487,604,713 – – – 487,604,713 Foreign currency 439,713,086 – – – 439,713,086 Financial assets at FVPL: Debt securities: Private debt securities 250,859,428 – – – 250,859,428 Government debt securities 37,293,006 – – – 37,293,006 Equity securities: Listed equity securities 73,775,324 – – – 73,775,324 Unlisted equity securities 16,167,118 – – – 16,167,118 Loans and receivables: Cash and cash equivalents 1,540,374,169 789,501 – – 1,541,163,670 Short-term investments 10,536,503 – – – 10,536,503 Insurance receivables: Due from policyholders, agents, and brokers 1,187,563,239 229,689,187 379,783,077 17,602,351 1,814,637,854 Due from ceding companies: Facultative 266,358,020 23,087,766 – 6,076,008 295,521,794 Treaty 112,745,842 14,430,370 – 500,868 127,677,080 Funds held by ceding companies - treaty 130,662,615 – – 1,380,777 132,043,392 Reinsurance recoverable on paid losses: 114,139,202 6,551,289 – – 120,690,491 Accrued interest income: AFS financial assets 22,167,347 17,361,757 – – 39,529,104 Long-term commercial papers 2,941,344 – – – 2,941,344 Financial assets at FVPL 2,933,924 – – – 2,933,924 Long-term investments 2,176,815 – – – 2,176,815 Cash and cash equivalents 441,222 887,393 – – 1,328,615 Funds held by ceding companies - treaty 1,897,770 – – – 1,897,770 Short-term investments 194,100 – – – 194,100 Security fund 298,273 – – – 298,273 Accrued rent income 5,069,869 – – – 5,069,869 Loans and receivables: Long-term commercial papers 271,725,435 – – – 271,725,435 Accounts receivable 35,560,074 – – 2,005,675 37,565,749 Long-term investments 43,196,312 – – – 43,196,312 Notes receivable 8,354,260 – – 599,374 8,953,634 Cash advances 727,108 – – – 727,108 Security fund 342,294 – – – 342,294 P11,874,483,056 P1,130,873,108 P379,783,077 P45,916,218 P P13,431,055,459
The credit rating is based on the following:
a) Cash and cash equivalents, short-term investments and related accrued income High grade pertains to those deposited, placed or invested in foreign and local banks belonging to the top banks
in the Philippines in terms of resources and profitability, while medium grade pertains to those deposited, placed or invested in thrift banks and rural banks in the Philippines.
b) Insurance receivables and loans and receivables For insurance receivables and loans and receivables except Due from ceding companies and Funds held by
ceding companies, the Group uses a credit rating concept based on the borrowers and counterparties’
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
overall creditworthiness. High grade is given to borrowers and counterparties who possess strong to very strong capacity to meet its obligations. Medium grade is given to borrowers and counterparties who possess above average capacity to meet its obligations. These counterparties are somewhat susceptible to adverse changes in business and economic conditions.
For Due from ceding companies and Funds held by ceding companies from local sources, the Group uses a
credit rating concept based on the debt-to-equity ratios of the borrowers and counterparties. High grade is given to borrowers and counterparties with debt-to-equity ratio of less than or equal to 2:1, while medium grade is given to borrowers and counterparties with debt-to-equity ratio of more than 2:1.
For Due from ceding companies and Funds held by ceding companies from foreign sources, the Group uses
Standard & Poor’s (S&P) and A.M. Best’s credit rating of insurance companies. High grade pertains to insurance companies rated by S&P and A.M. Best as higher than BB+, which means that the insurance company has good to strong financial security characteristics, but may be affected by adverse business conditions. Medium grade pertains to insurance companies that are ungraded and rated by S&P and A.M. Best as lower than BB+, which means that the insurance company has marginal financial security characteristics. Positive attributes exist, but adverse business conditions could lead to insufficient ability to meet financial commitments.
c) Equity securities Listed equity securities are classified as high grade. Unlisted equity securities are classified as medium grade.
d) Debt securities and related accrued income These are based on the credit ratings by the international rating agency, Standard & Poors (S&P), and by
Philippine Ratings Services Corporation (Philratings), the only domestic credit rating services in the Philippines accredited by Bangko Sentral ng Pilipinas (BSP) and SEC, in cases where an S&P rating is not available. High grade pertains to investments rated by S&P as BBB- and higher, which means that the counterparties have extremely strong to adequate capacity of paying interest and repaying principal, as well as Investments in Securities issued by the Philippine Government. Medium grade pertains to investments rated as Baa and higher by Philratings, as well as investments rated by S&P as BB+ to B- (except Philippine Government Securities). The Group’s holdings under this category are rated either BB- by S&P (due to sovereign credit rating ceiling) or Aaa by Philratings which is defined by Philratings to mean that the obligor’s capacity to meet its financial commitment on the obligation is extremely strong.
The aging information of the gross insurance receivables follows: 2011 Past Due but not Impaired Neither total Past Due Past Due but not impaired > 30 days >30 days not Impaired Impaired total Due from policyholders, agents and brokers P770,956,888 P91,456,340 P737,346,467 P828,802,807 P16,944,841 P1,616,704,536 Due from ceding companies: Facultative 145,805,118 1,789,783 24,176,601 25,966,384 12,668,877 184,440,379 Treaty 612,774,674 6,438,477 143,272,064 149,710,541 641,002 763,126,217 Funds held by ceding companies 9,122,873 2,661,324 161,334,750 163,996,074 1,380,777 174,499,724 Reinsurance recoverable on paid losses: – Facultative 4,086,187 5,935,382 93,623,754 99,559,136 – 103,645,323 Treaty 923 1,230 21,390,035 21,391,265 – 21,392,188
P1,542,746,663 P108,282,536 P1,181,143,671 P1,289,426,207 P31,635,497 P2,863,808,367
76
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
76
2011 Past Due but not Impaired Neither Total Past Due Past Due but not impaired > 30 days >30 days not Impaired Impaired Total Due from policyholders, agents and brokers P929,973,973 P369,074,424 P497,987,106 P867,061,530 P17,602,351 P1,814,637,854 Due from ceding companies: Facultative 216,943,349 4,240,388 68,262,049 72,502,437 6,076,008 295,521,794 Treaty 76,053,731 14,975,875 36,146,606 51,122,481 500,868 127,677,080 Funds held by ceding companies 16,724,301 113,938,314 – 113,938,314 1,380,777 132,043,392 Reinsurance recoverable on paid losses: – Facultative 28,121,753 793,096 58,526,353 59,319,449 – 87,441,202 Treaty 1,411,289 31,838,000 – 31,838,000 – 33,249,289 P1,269,228,396 P534,860,097 P660,922,114 P1,195,782,211 P25,560,004 P2,490,570,611
Liquidity Risk Liquidity or funding risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from either the inability to sell financial assets quickly at their fair values; or counterparty failing on repayment of a contractual obligation; or insurance liability falling due for payment earlier than expected; or inability to generate cash inflows as anticipated. An institution may suffer from a liquidity problem when its credit rating falls. The Group is also exposed to liquidity risk if markets on which it depends on are subject to loss of liquidity. The major liquidity risk faced by the Group is the provision for cash calls in respect of claims from insurance contracts which sustained losses. The Group manages liquidity through a management team which determines liquidity risk for the Group by identifying events that would trigger liquidity problems, providing contingency plans, identifying potential sources of funds and monitoring compliance of liquidity risk policy.
The tables below analyze financial liabilities of the Group into their relevant maturity groups based on the remaining period at the reporting dates to their contractual maturities or expected repayment dates.
2011 more than Up to a year 1-3 years 3 years No term total Cash and cash equivalents P1,896,811,975 P– P– P– P1,896,811,975 Short-term investments 11,099,040 – – – 11,099,040 Insurance receivables 2,831,894,766 29,690,140 2,223,461 2,863,808,367 AFS securities 192,473,648 91,163,833 3,022,018,592 5,758,174,628 9,063,830,701 Financial assets at FVPL 2,130,960 – – 5,358,476 7,489,436 Loans and receivables 115,466,190 10,732,360 334,837,500 – 461,036,050 Accrued income 46,376,162 – – – 46,376,162 Reinsurance recoverable on unpaid losses 2,547,606,744 – – – 2,391,297,070 Total financial assets P7,643,859,485 P131,586,333 P3,359,079,553 P5,763,533,104 P16,898,058,475 Insurance contract liabilities P4,585,387,517 P– P– P– 4,585,387,517 Insurance payables 4,437,721,661 – – – 4,437,721,661 Accounts payable, accrued expenses and other liabilities 723,393,963 – – – 723,393,963 Total financial liabilities P9,746,503,141 P– P– P– P9,746,503,141 * Up to a year are all commitments which are either due within one year or are payable in demand
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
2010
More than
Up to a year 1-3 years 3 years No term Total
Cash and cash equivalents P1,542,040,998 P– P– P– P1,542,040,998
Short-term investments 10,536,503 – – – 10,536,503
Insurance receivables 1,959,680,086 428,533,875 102,356,650 – 2,490,570,611
AFS securities 914,227,982 147,590,292 2,775,483,560 4,744,066,308 8,581,368,142
Financial assets at FVPL 378,094,876
Loans and receivables 79,051,781 29,086,982 261,787,696 – 369,926,459
Accrued income 56,369,814 – – – 56,369,814
Reinsurance assets 3,380,792,321 – – – 3,380,792,321
Total financial assets P7,942,699,485 P605,211,149 P3,139,627,906 P 4,744,066,308 P16,809,699,724
Insurance contract liabilities P7,953,326,524 P– P– P– P7,953,326,524
Insurance payables 1,112,044,647 – – – 1,112,044,647
Accounts payable, accrued
expenses and other liabilities 714,107,178 – – – 714,107,178
Total financial liabilities P9,779,478,349 P56,821,445 P– P– P9,779,478,349
* Up to a year are all commitments which are either due within one year or are payable in demand
The table below analyzes nonfinancial assets and liabilities of the Group into amounts expected to be recovered or settled within 12 months (current) and beyond 12 months (noncurrent).
2011 2010
current Noncurrent Current Noncurrent
Deferred acquisition costs P273,845,906 P– P302,047,984 P–
Deferred reinsurance premiums 1,531,051,358 – 1,635,966,035 –
Investment properties – 88,307,387 – 99,420,776
Property and equipment – 244,857,940 – 208,087,019
Pension assets – 7,032,535 – 3,990,234
Deferred tax assets – 70,024,767 – 75,897,368
Other assets 45,948,366 306,118,200 47,086,893 313,715,475
Total nonfinancial assets P1,850,845,630 P716,340,829 P1,985,100,912 P701,110,872
2011 2010
current Noncurrent Current Noncurrent
Provision for unearned
premiums P2,822,507,685 P– P2,909,478,785 P–
Deferred reinsurance commissions 114,520,762 – 108,903,268 –
Deferred tax liability 276,811 – – –
Pension liability – 40,501,933 – 46,329,205
Other liabilities 104,011,192 – 144,175,431 –
Total nonfinancial liabilities P3,041,316,450 P40,501,933 P3,162,557,484 P46,329,205
It is unusual for the Group primarily transacting insurance business to predict the requirements of funding with absolute certainty as theory of probability is applied on insurance contracts to ascertain the likely provision and the time period when such liabilities will require settlement. The amounts and maturities in respect of insurance liabilities are thus based on management’s best estimate based on past experience. Market Risk Market risk is the risk of change in fair value of financial instruments from fluctuations in foreign exchange rates (currency risk), market interest rates (interest rate risk) and market prices (price risk), whether such change in price is caused by factors specific to the individual instrument or its issuer or factors affecting all instruments traded in the market.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Market risk is the risk to an institution’s financial condition from volatility in the price movements of the assets
contained in a portfolio. Market risk represents what the Group would lose from price volatilities. Market risk can
be measured as the potential gain or loss in a position or portfolio that is associated with a price movement of a
given probability over a specified time horizon.
The Group manages market risk by evenly distributing capital among investment instruments, sectors and
geographical areas.
The Group structures levels of market risk it accepts through a sound market risk policy based on specific guidelines
set by an Investment Committee. This policy constitutes certain limits on exposure of investments mostly with
top-rated banks, which are selected on the basis of the bank’s credit ratings, capitalization and quality servicing
being rendered to the Group. Also, the said policy includes diversification benchmarks of investment portfolio to
different investment types duly approved by the IC, asset allocation and portfolio limit structure.
Moreover, control of relevant market risks can be addressed through compliance reporting of market risk
exposures, regular monitoring and review of the Group’s investment performance and upcoming investment
opportunities for pertinence and changing environment.
a) Currency Risk
The Group’s principal transactions are carried out in Philippine Peso and its exposure to foreign exchange risk
arises primarily with respect to U.S. Dollar and Euro.
The tables below summarize the Group’s exposure to foreign currency exchange rate risks by categorizing
assets and liabilities by major currencies.
2011
Philippine Peso U.S. Dollar euro Others total
AFS financial assets:
Equity securities:
Listed equity securities P5,240,584,412 P92,714,714 P78,635,812 P41,016,414 P5,452,951,352
Unlisted equity securities 80,495,744 – – – 80,495,744
Private debt securities 2,192,251,046 71,240,939 11,341,918 2,274,833,903
Government debt securities 561,760,112 342,870,492 91,991,807 996,622,411
Financial assets at FVPL:
Debt securities:
Private debt securities – – – – –
Government debt securities – – – – –
Equity securities:
Listed equity securities – – – – –
Unlisted equity securities – – – – –
Loans and receivables:
Cash and cash equivalents 1,471,793,331 66,611,075 46,704,904 28,195,243 1,613,304,553
Short-term investments 11,099,040 – – – 11,099,040
Insurance receivables - net 2,224,046,492 594,281,345 2,700,007 69,702,355 2,890,730,199
Accrued income 19,307,902 23,284,823 3,516,430 204,923 46,314,078
Loans and receivables 423,410,504 10,026,206 – – 433,436,710
Total financial assets P10,032,497,537 P3,322,039,701 P294,789,899 P150,460,853 P13,799,787,990
Other financial liabilities
Insurance payables 1,213,778,049 402,536,332 – 3,203,265 1,619,517,646
Accounts payable, accrued
expenses and other liabilities 712,074,127 – – – 712,074,127
Total financial liabilities P1,925,852,176 P402,536,332 P– P3,203,265 P2,331,591,773
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
2010
Philippine Peso U.S. Dollar Euro Others Total
AFS financial assets:
Equity securities:
Listed equity securities P P P P P–
Unlisted equity securities 78,748,158 – – – 78,748,158
Private debt securities – 1,835,593,949 258,920,777 – 2,094,514,726
Government debt securities 487,604,713 369,956,510 69,756,576 – 927,317,799
Financial assets at FVPL:
Private debt securities – 250,859,428 – – 250,859,428
Government debt securities – 37,293,006 – – 37,293,006
Equity securities:
Listed equity securities – 73,775,324 – – 73,775,324
Unlisted equity securities – 16,167,118 – – 16,167,118
Loans and receivables:
Insurance receivables - net 1,164,825,180 1,181,221,548 33,685,744 55,821,644 2,435,554,116
Cash and cash equivalents 681,747,546 670,595,398 167,535,707 22,162,347 1,542,040,998
Loans and receivables 361,820,289 43,150,490 – – 404,970,779
Accrued income 22,368,522 24,798,728 9,202,564 – 56,369,814
Short-term investments 5,028,937 5,507,566 – 10,536,503
Total financial assets 2,802,143,345 4,508,919,065 539,101,368 77,983,991 7,928,147,769
Other financial liabilities
Insurance payables 443,396,819 623,179,709 – 45,468,119 1,112,044,647
Accounts payable, accrued
expenses and other liabilities 765,243,902 6,262,799 – – 771,506,701
Total financial liabilities P1,208,640,721 P629,442,508 P– P45,468,119 P1,883,551,348
The following table shows the effect of the increase or decrease in exchange rates:
Impact on income before tax
Increase (Decrease)
currency change in rate 2011 2010
US Dollar + 5% P147,342,269 P132,251,147
- 5% (147,342,269) (132,251,147)
Euro + 5% 16,652,314 34,607,448
- 5% (16,652,314) (34,607,448)
Others + 5% 3,184,567 1,759,657
- 5% (3,184,567) (1,759,657)
b) Interest Rate Risk
Interest rate risk is the risk that the value/future cash flows of a financial instrument will fluctuate because of
changes in market interest rates.
The Group’s market risk policy requires it to manage interest rate risk by maintaining appropriate mix of
fixed and variable rate instruments. The policy also requires it to manage the maturities of interest bearing
financial assets.
The following table sets out the Group’s financial assets exposed to interest rate risk by maturity:
(Forward)
2011
within more than Interest Rate One Year 1-3 years 3 years total Cash and cash equivalents 0.25% - 4.50% P1,612,200,356 P– P– P1,612,200,356 Short-term investments 1.00% - 6.00% 11,099,040 – – 11,099,040 Long-term commercial
paper 5.25% - 9.33% – 79,998,165 264,837,500 344,835,665 AFS debt financial assets 2.50% - 12.38% 197,756,097 51,681,625 3,022,018,592 3,271,456,314 Long-term investment 2% 10,026,206 – – 10,026,206 Total interest-bearing
financial assets P1,831,081,699 P131,679,790 P3,286,856,092 P5,249,617,581
2010
Within More than
Interest Rate One Year 1-3 years 3 years Total
Cash and cash equivalents .01% to 5.00% P1,541,163,670 P– P– P1,541,163,670
Short-term investments 1.00% to 4.25% 10,536,503 – – 10,536,503
Financial debt assets at
FVPL 2.50% to 6.50% 300,176,389 32,561,314 45,357,173 378,094,876
AFS debt financial assets 2.50% to 18% 681,229,533 141,820,671 2,198,782,321 3,021,832,525
Loans and receivables - net 7.00% to 8% 353,690,087 51,280,692 – 404,970,779
Total interest-bearing
financial assets P2,886,796,182 P225,662,677 P2,244,139,494 P5,356,598,353
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other
variables held constant, of the Group’s equity:
Impact on income before tax
change in increase/(decrease)
Currency basis points 2011 2010
Philippine Peso +100 (P19,501,830) (P22,885,583)
US Dollar +100 (135,307,088) (91,959,299)
Euro +100 (2,776,029) (7,629,879)
Philippine Peso -100 28,250,970 24,073,398
US Dollar -100 141,661,019 87,740,624
Euro -100 2,909,236 7,965,932
c) equity Price Risk The Group’s price risk exposure at year-end relates to financial assets and liabilities whose values will fluctuate as
a result of changes in market prices, principally, AFS financial assets and financial assets at FVPL. Such financial assets are subject to price risk due to changes in market values of instruments arising either from
factors specific to individual instruments or their issuers or factors affecting all instruments traded in the market. The Group’s market risk policy requires it to manage such risks by setting and monitoring objectives and constraints
on investments; diversification plan; limits on investment in each country, sector and market; and careful and planned use of derivative instruments. The price risk on investments securities is also actively managed through the use of derivative financial instruments to mitigate the risk of adverse market movements.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The following table shows the equity impact of reasonably possible change of Philippine Stock Exchange index
and Morgan Stanley Capital International (MSCI) Euro:
2011 2010
change in Impact Change in Impact
currency basis points on equity basis points on equity
Philippine Peso +28% P1,304,966,708 +28% P978,274,642
-28% (1,304,966,708) -28% (978,274,642)
Euro +15% 30,964,907 +28% 40,765,588
-15% (30,964,907) -28% (40,765,588)
26. Financial Assets and Liabilities The table below presents a comparison by category of carrying amounts and estimated fair values of all the
Group’s financial instruments.
2011 2010 carrying Value Fair Value Carrying Value Fair Value AFS financial assets: Listed equity securities: Common shares P5,650,964,630 P5,650,964,630 P5,455,250,872 P5,455,250,872 Preferred shares 26,021,840 26,021,840 25,536,586 25,536,586 Unlisted equity securities: Common shares 81,188,158 81,188,158 78,748,158 78,748,158 Private debt securities 2,309,033,662 2,309,033,662 2,094,514,726 2,094,514,726 Government debt securities: Local currency 561,760,112 561,760,112 487,604,713 487,604,713 Foreign currency 434,862,299 434,862,299 439,713,086 439,713,086 Financial assets at FVPL: Debt securities: Private debt securities 73,738,836 73,738,836 250,859,428 250,859,428 Government debt securities 37,293,006 37,293,006 Equity securities: Listed equity securities 148,876,055 148,876,055 73,775,324 73,775,324 Unlisted equity securities 1,946,408 1,946,408 16,167,118 16,167,118 Loans and receivables: Cash and cash equivalents 1,896,811,975 1,896,811,975 1,542,040,998 1,542,040,998 Short-term cash investments 11,099,040 11,099,040 10,536,503 10,536,503 Insurance receivables: Due from policyholders, agents and brokers P1,572,606,331 P1,572,606,331 P1,767,579,012 P1,767,579,012 Due from ceding companies: Facultative 171,771,502 171,771,502 289,445,786 421,489,178 Treaty 762,485,215 762,485,215 127,176,212 125,795,435 Reinsurance recoverable on paid losses: Facultative 94,573,012 94,573,012 87,441,202 87,441,202 Treaty 21,392,188 21,392,188 33,249,289 33,249,289 Accrued income: AFS financial assets 36,973,508 37,625,748 39,529,104 39,529,104 Long-term commercial papers 2,549,440 2,549,440 2,941,344 2,941,344 Financial assets at FVPL 2,507,002 2,507,002 2,933,924 2,933,924 Long-term investments 390,465 390,465 2,176,815 2,176,815
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
(Forward)
Cash and cash equivalents 361,180 285,737 1,328,615 1,328,615 Funds held by ceding companies 169,429 169,429 1,897,770 1,897,770 Short-term cash investments 80,545 80,545 194,100 194,100 Security fund 342,294 342,294 342,294 342,294 Accrued rent income 3,291,580 3,291,580 5,069,869 5,069,869 Loans and receivables: Long-term commercial paper 344,835,665 401,017,218 271,725,435 298,686,033 Creditable withholding tax 62,677,478 62,677,478 – – Account receivable 30,265,864 30,265,864 37,565,749 37,565,749 Long-term investments 10,026,513 10,026,513 43,196,312 43,196,312 Notes receivable 9,801,384 9,801,384 8,953,634 8,953,634 Due from related parties 1,888,360 1,888,360 – – Cash advances 1,198,492 1,198,492 727,108 727,108 Security fund 342,294 342,294 342,294 342,294 Total financial assets P461,036,050 P517,217,603 P362,510,532 P389,471,130
Other financial liabilities Insurance payables Due to reinsurers and ceding companies P1,113,335,436 P1,113,335,436 P738,907,076 P738,907,076 Funds held for reinsurers 478,487,552 478,487,552 373,137,571 373,137,571 Accounts payable, accrued expenses and other liabilities: Accounts payable 343,367,016 343,367,016 314,050,193 314,050,193 Commissions payable 263,790,116 263,790,116 250,906,171 250,906,171 Accrued expenses 74,158,809 74,158,809 54,361,471 54,361,471 Surety deposits 31,841,060 31,841,060 49,339,610 49,339,610 Others 10,236,962 10,236,962 45,449,733 45,449,733
Total financial liabilities P2,315,216,951 P2,315,216,951 P1,826,151,825 P1,826,151,825
Fair values of financial assets are estimated as follows:
Cash and cash equivalents, short-term investments, insurance receivables, accrued income, loans and receivables, insurance payables, accounts payable and accrued expenses - the fair value approximates the carrying amounts at initial recognition due to short-term nature.
Debt securities - the fair values are generally based on quoted market prices.
Equity securities - the fair values are generally based on quoted market prices. For unquoted equity securities, these are carried at cost less allowance for impairment losses due to the unpredictable nature of future cash flows and the lack of other suitable methods of arriving at a reliable fair value.
Fair Value Hierarchy The Group uses the following hierarchy for determining and disclosing the fair values of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value
are observable, either directly or indirectly Level 3: techniques which uses inputs which have a significant effect on the recorded fair value that are
not based on observable market data
As of December 31, 2011, the Group classifies its financial assets at FVPL and AFS financial assets under Level 1 of the fair value hierarchy. During the reporting period ended December 31, 2011, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
27. Related Party transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.
Outstanding balances as of year-end are unsecured and settled in cash. There have been no guarantees
provided or received for any related party receivables or payables. For the year ended December 31, 2011 and 2010, the Group has not recorded any impairment of receivables relating to amounts owed by related parties. This assessment is undertaken each financial year by examining the financial position of the related party and the market in which the related party operates.
The Group maintains current and savings accounts and time deposits with Rizal Commercial Banking
Corporation, a related party under common control, the balances of which follow: 2011 2010
Current and savings accounts P202,762,610 P74,749,830
Short-term deposits 1,056,232,219 542,171,496
Short-term cash investments 1,618,815,933 15,756,264
Long-term commercial papers 28,000,000 8,000,000
P2,905,810,762 P640,677,590
Current and savings accounts and short-term deposits earn interest at market rates.
The total short-term employment benefit of the Group’s key management personnel in 2011 and 2010 amounted
to P80.42 million and P17.81 million, respectively. There are no agreements between the Group and any of its directors and key officers providing for benefits upon
termination of employment, except for such benefits to which they may be entitled under the Group’s retirement plan.
28. capital management Governance Framework The primary objective of the Group’s risk and financial management framework is to protect the Group from
events that hinder the sustainable achievement of the Group’s performance objectives, including failure to exploit opportunities. The Group recognizes the importance of having efficient and effective risk management systems in place.
Regulatory Framework Regulators are interested in protecting the rights of the policyholders and maintain close vigil to ensure that the
Group is satisfactorily managing affairs for their benefit. At the same time, the regulators are also interested in ensuring that the Group maintains appropriate solvency position to meet liabilities arising from claims and that the risk levels are at acceptable levels.
The operations of the Group are subject to the regulatory requirements of the IC. Such regulations not only
prescribe approval and monitoring of activities but also impose certain restrictive provisions (e.g., margin of solvency to minimize the risk of default and insolvency on the part of the insurance companies to meet the unforeseen liabilities as these arise, fixed capitalization requirements, risk-based capital requirements).
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
As mandated by the IC, most of the additional capital infusions are invested in government securities. Capital Management Framework The Group has established the following capital management objectives, policies and approach to managing
the risks that affect its capital position. The capital management objectives are:
(a) to maintain the required level of stability of the Group thereby providing a degree of security to policyholders; (b) to allocate capital efficiently and support the development of business by ensuring that returns on capital
employed meet the requirements of its capital providers and of its shareholders; (c) to retain financial flexibility by maintaining strong liquidity and access to a range of capital markets; (d) to align the profile of assets and liabilities taking account of risks inherent in the business; (e) to maintain financial strength to support new business growth and to satisfy the requirements of the
policyholders, regulators and stakeholders; and (f) to maintain strong credit ratings and healthy capital ratios in order to support the Group’s business
objectives and maximize shareholders’ value. The operations of the Group are also subject to regulatory requirements within the jurisdictions where it operates.
Such regulations not only prescribe approval and monitoring of activities, but also impose certain restrictive provisions (e.g. capital adequacy) to minimize the risk of default and insolvency on the part of the insurance companies to meet unforeseen liabilities as these arise.
The Group has met all of these requirements throughout the financial year. The Group’s capital management policy for its insurance and non-insurance business is to hold sufficient
capital to cover the statutory requirements based on the IC directives, including any additional amounts required by the regulator.
The Group seeks to optimize the structure and sources of capital to ensure that it consistently maximizes returns to the shareholders and policyholders. The Group’s approach to managing capital involves managing assets, liabilities and risks in a coordinated way, assessing shortfalls between reported and required capital levels (by each regulated entity) on a regular basis and taking appropriate actions to influence the capital position of the Group in the light of changes in economic conditions and risk characteristics. An important aspect of the Group’s overall capital management process is the setting of target risk adjusted rates of return which are aligned to performance objectives and ensure that the Group is focused on the creation of value for shareholders.
The regulatory requirements for the Philippine operations are as follows: Margin of Solvency (MOS) Under the Code, an insurance company doing business in the Philippines shall maintain at all times a MOS equal
to P500,000 or 10% of the total amount of its net premiums written during the preceding year, whichever is higher. The MOS shall be the excess of the value of its admitted assets (as defined under the Code), exclusive of its paid-up
capital, over the amount of its liabilities, unearned premiums and reinsurance reserves. The final amount of the margin of solvency can be determined only after the accounts of the Group have been examined by the IC, specifically as to admitted and non-admitted assets as defined in the Code.
MICO Provision for unearned premiums as of December 31, 2011, determined in accordance with the Code for purposes
of MOS, amounted to P1,042,832,380. The net provision for unearned premiums amounted to P1,227,105,318 computed as provision for unearned premiums of P2,619,297,310 less deferred reinsurance premiums of P1,392,191,992.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
As of December 31, 2011 and 2010, the estimated amount of nonadmitted assets, as defined under the Code follows:
2011 2010
Insurance receivables P791,496,269 P579,862,265
Deferred reinsurance premiums 1,411,345,774 1,476,985,322
Deferred acquisition costs 265,477,561 296,072,324
Other assets 332,463,019 57,152,349
Property and equipment – net 63,306,378 66,396,382
Other loans and receivables 7,661,141 212,988,177
P2,871,750,142 P2,689,456,819
FNAC Provision for unearned premiums, determined in accordance with the Code, for the purpose of MOS, amounted
to P19,460,190 as of December 31, 2011. The net provision for unearned premiums amounted to P25,897,588 computed as provision for unearned premiums of P45,051,369 less deferred reinsurance premiums of P19,153,781 .
The estimated amounts of nonadmitted assets, as defined under the Code follow: 2011 2010
Deferred reinsurance premiums P19,153,782 P12,662,992
Deferred acquisition costs 4,363,426 133,582
Insurance receivables 2,063,755 2,362,564
Property and equipment 1,505,439 1,899,398
Loans and receivables 396,627 336,327
Other assets 1,397,011 2,285,272
P28,880,040 P19,680,135
BAC Provision for unearned premiums as of December 31, 2011, determined in accordance with the Code for pur-
poses of MOS, amounted to P8,724,228. The net provision for unearned premiums amounted to P13,106,275 computed as provision for unearned premiums of P13,157,175 less deferred reinsurance premiums of P50,900.
The estimated amounts of non-admitted assets, as defined under the Code follow: 2011 2010
Net pension assets P368,542 P3,524,816
Deferred acquisition cost 2,501,649 2,003,626
Property and equipment – net 458,657 38,947
Loans and receivables 58,547 52,806
Other assets 1,268,443 1,334,673
P4,655,838 P6,954,868
In accordance with pertinent provisions of the Code, the Group is restricted from declaring dividends on its
outstanding capital stock except from profits attested to be remaining on hand after retaining unimpaired its entire paid-up capital stock, the required MOS, unearned premiums and a sum sufficient to pay all net losses reported, or in the course of settlement, and all other liabilities.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Fixed Capitalization Requirements Department of Finance Order (DO) 27-06 provides for the capitalization requirements for life, nonlife and
reinsurance companies on a staggered basis for the years ended December 31, 2006 up to 2011. Depending on the level of the foreign ownership in the insurance company, the minimum statutory net worth and minimum paid-up capital requirements vary. The statutory net worth shall include the Parent 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- up capital is pegged at 50% of the minimum statutory net worth.
Based on the scheduled increases under DO 27-06, the required statutory net worth and minimum paid-up capital for the Parent Company amounted to P500,000,000 and P250,000,000, respectively, as of December 31, 2011 and P350,000,000 and P175,000,000, respectively as of December 31, 2010.
Unimpaired capital requirement Insurance Memorandum Circular (IMC) 22-2008 provided that for purposes of determining compliance with the law,
rules and regulations requiring that the paid-up capital should remain intact and unimpaired at all times, the statement of financial position should show that the net worth or equity is at least equal to the actual paid-up capital.
RBC Requirements IMC No. 7-2006 provides for the RBC framework for the nonlife insurance industry to establish the required amounts
of capital to be maintained by the companies in relation to their investment and insurance risks. Every nonlife insurance company is annually required to maintain a minimum RBC ratio of 100% and not fail the trend test. Failure to meet the minimum RBC ratio shall subject the insurance company to the corresponding regulatory intervention which has been defined at various levels.
The RBC ratio shall be calculated as net worth divided by the RBC requirement. Net worth shall include the
Group’s paid-up capital contributed and contingency surplus and unassigned surplus. Revaluation and fluctuation reserve accounts shall form part of net worth only to the extent authorized by the IC.
Consolidated Compliance Framework The IC issued IMC 10-2006 integrating the compliance standards for the fixed capitalization and risk-based
capital framework. Under this IMC, all insurers must possess the capitalization required for the year 2006. Likewise, all insurers shall annually comply with the RBC ratio requirements.
Subsequent to year 2006, the fixed capitalization requirements for a given year may be suspended for insurers
that comply with the required industry RBC ratio compliance rate. The IMC provides the annual schedule of progressive rates for the industry RBC ratio compliance rates and the RBC hurdle rates from 2007 to 2011. For the review year 2011, which shall be based on the 2010 synopsis the industry RBC ratio compliance rate is 90% and the RBC hurdle rate is 250%. For the review year 2010, which shall be based on the 2009 synopsis, the industry RBC ratio compliance rate is 90% and the RBC hurdle rate is 200%. Failure to achieve one of the rates will result in the imposition of the fixed capitalization requirement for the year under review.
On October 29, 2008, the IC issued Insurance Memorandum Circular (IMC) No. 26-2008, which recalls that in view
of the compliance of insurance companies with the requirement of IMC No. 10-2006, the scheduled increases due December 31, 2007 have been deferred for a year. The IMC reiterates that by December 31, 2008, insurance companies should comply with the increase previously scheduled for December 31, 2007. Based on this IMC, the required minimum statutory net worth and paid up capital for the Parent Company amounted to P500.00 million and P250.00 million, respectively, as of December 31, 2011 and P350.00 million and P175.00 million, respectively as of December 31, 2010.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The following table shows MICO, FNAC and BAC’s statutory net worth, MOS, paid up capital and RBC ratio as of
December 31, 2011 and 2010.
MICO
2011 2010
minimum Minimum
Required Actual* required Actual*
Statutory net worth P350.00 million P5.48 billion P250.00 million P5.12 billion
Paid-up capital 175.00 million 0.84 billion 125.00 million 0.84 billion
MOS 259.26 million 3.14 billion 241.29 million 2.90 billion
RBC hurdle rate 250% 286% 250% 250%
* The Statutory net worth, MOS and RBC hurdle for both years are based on amounts estimated by MICO
BAC
2011 2010
minimum Minimum
Required Actual* required Actual*
Statutory net worth P350,000,000 P771,386,950 P250,000,000 P811,695,678
Paid-up capital 175,000,000 250,000,000 125,000,000 250,000,000
MOS 2,048,611 184,832,622 2,025,215 267,062,653
RBC Hurdle rate 250% 456% 250% 452%
* The statutory net worth, MOS and RBC ratio for both years are based on amounts estimated by BAC.
FNAC
2011 2010
minimum Minimum
Required Actual* required Actual*
Statutory net worth P350,000,000 P608,881,965 P250,000,000 P588,733,957
Paid up capital 175,000,000 175,000,000 125,000,000 175,000,000
MOS 4,833,847 150,290,819 3,101,186 198,438,433
RBC hurdle rate 250% 464% 250% 450%
* The statutory net worth, MOS and RBC ratio for both years are based on amounts estimated by FNAC.
30. contingencies The Group operates in the insurance industry and has various contingent liabilities arising in the ordinary
conduct of business, which are either pending decision by the courts or being contested, the outcome of which are not presently determinable. In the opinion of management and its legal counsel, the eventual liability under these lawsuits or claims, if any, will not have a material or adverse effect on the Group’s financial position and results of operations.
31. Notes to Statement of cash Flows The Group’s noncash activities include:
a. Transfer of properties amounting to P31.47 million and P29.14 million from investment properties to property and equipment in 2011 and 2010, respectively.
b. Transfer of creditable withholding tax filed with BIR for refund amounting to P62.68 million from other assets to loans and receivables.
MICO EQUITIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The management of Malayan Insurance Co., Inc. is responsible for all information and representations contained in the financial statements for the years ended December 31, 2011 and 2010. The financial statements have been prepared in conformity with generally accepted accounting principles and reflect amounts that are based on the best estimate and informed judgment of management with an appropriate consideration to materiality.
In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized.
The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the company.
SyCip, Gorres, Velayo & Co., the independent auditors and appointed by the stockholders, has examined the financial statements of the company in accordance with generally accepted auditing standards and has expressed its opinion on the fairness of presentation upon completion of such examination, in its report to stockholders.
MALAYAN INSURANCE, CO., INC. AND SUBSIDIARIESSTATEMENT OF MANAGEMENT’S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
HeLeN Y. DeeCHAIRMAN OF THE BOARD
YVONNe S. YUcHeNgcOPRESIDENT
ALegRIA R. cAStROCONTROLLER
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIESINDePeNDeNt AUDItORS’ RePORt The Stockholders and the Board of Directors Malayan Insurance Co., Inc.4th Floor, Yuchengco Building484 Quintin Paredes StreetBinondo, Manila
We have audited the accompanying consolidated financial statements of Malayan Insurance Co., Inc. and Subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2011 and 2010, and the consolidated statements of income, statements of comprehensive income, statements of changes in equity and statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.
management’s Responsibility for the consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Malayan Insurance Co., Inc. and Subsidiaries as at December 31, 2011 and 2010, and their financial performance and their cash flows for the years then ended in accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Lucy L. ChanPartnerCPA Certificate No. 88118SEC Accreditation No. 0114-AR-2 (Group A),February 11, 2010, valid until February 10, 2013Tax Identification No. 152-884-511BIR Accreditation No. 08-001998-46-2009,June 1, 2009, valid until May 31, 2012PTR No. 3174587, January 2, 2012, Makati CityMarch 26, 2012
December 31
2011 2010
ASSetS cash and cash equivalents (Notes 4, 26, 27 and 28) P1,613,304,553 P1,206,923,303 Short-term Investments (Notes 5, 26, 27 and 28) 11,099,040 10,536,503 Insurance Receivables - net (Notes 6, 26 and 27) 2,791,353,731 3,012,606,738 Financial Assets (Notes 7, 26, 27 and 28) Available-for-sale financial assets 8,057,111,728 7,765,898,833 Loans and receivables - net 432,868,288 403,309,185 Accrued Income (Notes 8, 26, 27 and 28) 43,321,543 53,435,230 Deferred Acquisition costs (Notes 9 and 29) 272,708,433 302,047,984 Reinsurance Assets (Notes 10, 14, 26 and 29) 3,802,693,743 4,563,758,412 Investment Properties - net (Note 11) 88,467,387 99,420,776 Property and equipment - net (Notes 12 and 29) 244,199,753 208,052,386 Pension Assets (Note 17) 833,960 3,990,234 Deferred tax Assets - net (Note 24) 70,024,768 74,977,345 Other Assets (Note 13) 342,543,204 349,292,363 P17,770,530,131 P18,054,249,292 LIABILItIeS AND eQUItY Liabilities Insurance contract liabilities (Notes 14 and 26) P6,853,074,787 P7,352,054,746 Insurance payables (Notes 15, 26 and 27) 1,619,517,646 1,673,606,402 Accounts payable, accrued expenses and other liabilities (Notes 16, 26 and 27) 999,078,567 938,086,652 Income tax payable – 983,112 Deferred reinsurance commissions (Note 9) 113,367,069 112,741,720 Deferred tax liability - net (Note 24) 276,811 – Pension liability (Note 17) 40,501,933 46,329,205 P9,625,816,813 P10,123,801,837
December 31 2011 2010 equity (Note 29) Equity attributable to equity holders of the Parent Company Capital stock - P100 par value Preferred shares Authorized and unissued - 5,000 shares Common shares Authorized - 10,000,000 shares Issued and outstanding - 8,452,925 shares P845,292,500 P845,292,500 Capital in excess of par value 780,882,008 780,882,008 Contributed surplus 50,000 50,000 Contingency surplus 4,485,618 4,485,618 Revaluation reserve on available-for-sale financial assets (Note 7) 2,841,321,940 2,778,293,357 Other revaluation reserve (Note 18) 23,466,647 23,466,647 Retained earnings (Note 18) 3,376,259,031 3,232,271,047 7,871,757,744 7,664,741,177 Non-controlling interests 272,955,574 265,706,278 8,144,713,318 7,930,447,455 P17,770,530,131 P18,054,249,292
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES
cONSOLIDAteD StAtemeNtS OF FINANcIAL POSItION
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Years ended December 31
2011 2010
INcOme
Gross premiums earned P6,101,524,783 P5,346,596,563
Reinsurers’ share of gross premiums earned 3,437,859,242 2,919,638,940
Net premiums earned (Notes 14 and 19) 2,663,665,541 2,426,957,623
Investment and other income - net (Note 20) 663,259,208 652,976,710
Commission income (Note 9) 265,491,425 214,856,711
Other income 928,750,633 867,833,421
Total income 3,592,416,174 3,294,791,044
BeNeFItS, cLAImS AND eXPeNSeS
Gross insurance contract benefits and claims paid
(Notes 14 and 21) 2,535,943,920 3,453,118,093
Reinsurers’ share of gross insurance contract benefits
and claims paid (Notes 14 and 21) (1,172,867,873) (1,725,562,086)
Gross change in insurance contract liabilities (Note 21) (449,105,058) (1,890,758,443)
Reinsurers’ share of gross change in insurance contract
liabilities (Note 21) 682,749,749 1,494,186,771
Net insurance contract benefits and claims 1,596,720,738 1,330,984,335
Commission expense (Note 9) 845,472,913 717,949,905
General and administrative expenses (Note 22) 768,957,612 744,058,412
Other underwriting expenses (Note 9) 77,545,371 100,842,391
Other investment expense 9,138,636 12,103,622
Interest expense on reinsurance funds held 8,474,522 5,557,525
Other expenses 1,709,589,054 1,580,511,855
Total benefits, claims and other expenses 3,306,309,792 2,911,496,190
INcOme BeFORe INcOme tAX 286,106,382 383,294,854
PROVISION FOR (BeNeFIt FROm) INcOme tAX (Note 24) 34,111,664 (29,767,370)
Net INcOme (Note 25) P251,994,718 P413,062,224
Attributable to:
Equity holders of the Parent Company P243,987,984 P406,916,116
Noncontrolling interests 8,006,734 6,146,108
P251,994,718 P413,062,224
See accompanying Notes to Consolidated Financial Statements.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES
cONSOLIDAteD StAtemeNtS OF INcOme
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Years ended December 31 2011 2010
Net INcOme P251,994,718 P413,062,224
OtHeR cOmPReHeNSIVe INcOme
Net fair value changes on available-for-sale financial
assets - net of tax effect (Note 7) 71,331,145 616,835,578
tOtAL cOmPReHeNSIVe INcOme P323,325,863 P1,029,897,802
total comprehensive income attributable to:
Equity holders of the Parent Company P307,016,567 P995,622,142
Non-controlling interests 16,309,296 34,275,660
P323,325,863 P1,029,897,802
See accompanying Notes to Consolidated Financial Statements.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES
cONSOLIDAteD StAtemeNtS OF cOmPReHeNSIVe INcOme
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
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Years ended December 31 2011 2010 cASH FLOwS FROm OPeRAtINg ActIVItIeS Income before income tax P286,106,382 P383,294,854 Adjustments for: Depreciation and amortization (Note 22) 48,419,175 47,570,359 Unrealized foreign currency exchange loss - net 3,701,383 80,278,490 Interest expense on reinsurance funds held 8,474,522 5,557,525 Impairment loss on AFS financial assets (Notes 7 and 20) 15,529,779 10,441,311 Dividend income (Note 20) (286,305,928) (276,258,731) Interest income (Note 20) (255,270,201) (253,715,002) Loss (gain) on sale of (Note 20): Available-for-sale financial assets (58,173,271) (100,351,412) Real estate properties for sale (3,011,250) (14,649,967) Property and equipment (1,151,198) 25,542 Operating loss before working capital changes (241,680,607) (117,807,031) Decrease (increase) in: Loans and receivables 73,058,499 (21,246,754) Insurance receivables 221,253,007 193,307,818 Pension assets 3,156,274 (1,581,563) Accrued rent income 1,778,289 (1,163,312) Deferred acquisition costs 29,339,551 (100,203,898) Reinsurance assets 761,064,669 1,145,634,338 Other assets (52,379,539) (2,092,821) Increase (decrease) in: Insurance contract liabilities (498,979,959) (1,312,285,556) Insurance payables (54,088,756) (101,400,584) Deferred reinsurance commissions 625,349 34,688,190 Pension liability (5,827,272) 1,412,785 Accounts payable, accrued expenses and other liabilities 60,991,915 128,578,696 Net cash used for operations 298,311,420 (154,159,692) Income taxes paid (27,786,077) (29,224,779) Interest paid on reinsurance funds held (8,474,522) (5,557,525) Net cash provided by (used in) operating activities 262,050,821 (188,941,996)
cASH FLOwS FROm INVeStINg ActIVItIeS Proceeds from sale or maturities of: Available-for-sale financial assets (Note 7) 802,356,405 1,303,735,510 Short-term investments 10,536,503 228,054,742 Investment properties (Note 11) 160,000 15,937,501
Long-term commercial papers (Note 7) – 5,023,522 Property and equipment (Note 12) 2,870,420 705,675
Long-term investments (Note 7) 33,170,106 –
Real estate properties for sale 6,246,061 18,259,967 Dividends received 286,305,928 276,258,731 Interest received 298,007,427 263,836,793
(Forward)
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES
cONSOLIDAteD StAtemeNtS OF cASH FLOw
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Years ended December 31 2011 2010
Acquisitions of:
Available-for-sale financial assets (Note 7) (P1,046,340,624) (P2,030,640,510)
Short-term investments (11,099,040) (5,507,566)
Long-term commercial papers (Note 7) (73,110,230) (101,037,500)
Property and equipment (Note 12) (49,596,026) (63,229,006)
Investment properties (Note 11) (20,848,630) (64,958,893)
Computer software (Note 13) (11,831,310) (38,894,239)
Real estate properties for sale (Note 13) – (21,918,350)
Net cash provided by (used in) investing activities 226,826,990 (214,373,623)
cASH FLOwS FROm FINANcINg ActIVItY
Dividends paid (Note 18) (109,060,000) (159,060,000)
eFFect OF eXcHANge RAte cHANgeS ON cASH AND cASH eQUIVALeNtS 26,563,439 101,454,135
Net INcReASe (DecReASe) IN cASH AND cASH eQUIVALeNtS 406,381,250 (460,921,484)
cASH AND cASH eQUIVALeNtS At BegINNINg OF YeAR (Note 4) 1,206,923,303 1,667,844,787
cASH AND cASH eQUIVALeNtS At eND OF YeAR P1,613,304,553 P1,206,923,303
See accompanying Notes to Consolidated Financial Statements.
1. corporate Information
Malayan Insurance Co., Inc. (the Parent Company) is a domestic corporation, which was registered with the Philippine Securities and Exchange Commission (SEC) on February 16, 1949. The Parent Company is engaged in the nonlife insurance business dealing with all kinds of insurance such as fire, marine, bond, motor car, personal accident, miscellaneous casualty, and engineering, except life insurance.
On October 22, 2001, the SEC approved the Amended Articles of Incorporation extending the Parent Company’s existence to another 50 years from February 16, 1999.
The Parent Company’s parent is MICO Equities, Inc. (MEI). The registered office address of the Parent Company is 4th Floor, Yuchengco Building, 484 Quintin Paredes Street, Binondo, Manila. The Parent Company’s ultimate parent is Pan Malayan Management and Investment Corporation (PMMIC) with registered office address at 48th Floor, Yuchengco Tower, RCBC Plaza, 6819 Ayala Avenue, Makati City.
The accompanying consolidated financial statements of Malayan Insurance Co., Inc. and Subsidiaries (the Group) were approved and authorized for issue by the Board of Directors (BOD) on March 26, 2012.
2. Summary of Significant Accounting Policies
Basis of Preparation The accompanying consolidated financial statements of the Group have been prepared on a historical cost
basis, except for available-for-sale (AFS) financial assets which have been measured at fair value. The consolidated financial statements are measured in Philippine Peso (P), which is also the Group’s functional and presentation currency. All values are rounded off to the nearest Philippine Peso values, unless otherwise indicated.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES
NOteS cONSOLIDAteD FINANcIAL StAtemeNtS
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Statement of Compliance The accompanying consolidated financial statements of the Group have been prepared in compliance with
Philippine Financial Reporting Standards (PFRS).
Basis of Consolidation The consolidated financial statements comprise the financial statements of the Parent Company and its
subsidiaries (the Group) as of and for the years ended December 31, 2011 and 2010.
Basis of consolidation from January 1, 2010 Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains
control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting policies. All intra-group balances, transactions, unrealized gains and losses resulting from intra-group transactions and dividends are eliminated in full.
Non-controlling interests (NCIs) pertains to the equity in a subsidiary not attributable, directly or indirectly to the Parent Company. Any equity instruments issued by a subsidiary that are not owned by the Parent Company are NCIs including preferred shares and options under share-based transactions.
NCIs represent the portion of profit or loss and net assets in subsidiaries not wholly-owned and are presented separately in the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of financial position, separately from the Parent Company’s equity.
Losses within a subsidiary are attributed to the NCI even if that results in a deficit balance.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. Any difference between the amount by which the NCIs are adjusted and the fair value of the consideration paid or received is recognized directly in equity as “Equity reserve” and attributed to the owners of the Parent Company.
If the Group loses control over a subsidiary it:
• Derecognizes the assets (including goodwill) and liabilities of the subsidiary • Derecognizes the carrying amount of any non-controlling interest • Derecognizes the cumulative translation differences recorded in equity • Recognizes the fair value of the consideration received • Recognizes the fair value of any investment retained • Recognizes any surplus or deficit in profit or loss • Reclassifies the parent’s share of components previously recognized in other comprehensive income to
profit or loss or retained earnings, as appropriate.
Basis of consolidation prior to January 1, 2010 Certain of the above-mentioned requirements were applied on a prospective basis. The following differences,
however, are carried forward in certain instances from the previous basis of consolidation:
• Acquisitions of non-controlling interests, prior to January 1, 2010, were accounted for using the parent entity extension method, whereby, the difference between the consideration and the book value of the share of the net assets acquired were recognized in goodwill.
• Losses incurred by the Group were attributed to the NCI until the balance was reduced to nil. Any further excess losses were attributed to the parent, unless the non-controlling interest had a binding obligation to cover these. Losses prior to January 1, 2010 were not reallocated between NCI and the parent shareholders.
• Upon loss of control, the Group accounted for the investment retained at its proportionate share of net asset value at the date control was lost. The carrying value of such investments at January 1, 2010 has not been restated.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The consolidated financial statements comprise the financial statements of the Parent Company and the following wholly and majority-owned subsidiaries:
Place of Percentage of Ownership Incorporation 2011 2010 Bankers Assurance Corporation (BAC) Philippines 100.0% 100.0% The First Nationwide Assurance Corporation (FNAC) Philippines 54.7% 54.7%
Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial years except for the
adoption of the following new and amended PFRS and Philippine Interpretations of International Financial Reporting Interpretation Committee (IFRIC) interpretations which became effective beginning January 1, 2011. Except as otherwise stated, the adoption of these new and amended standards and Philippine Interpretations did not have a significant impact on the Group’s financial statements.
• Philippine Accounting Standard (PAS) 24 (Amendment), Related Party Disclosures PAS 24 clarifies the definitions of a related party. The new definitions emphasize a symmetrical view of
related party relationships and clarify the circumstances in which persons and key management personnel affect related party relationships of an entity. In addition, the amendment introduces an exemption from the general related party disclosure requirements for transactions with government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity.
• PAS 32 (Amendment), Financial Instruments: Presentation - Classification of Rights Issues The amendment alters the definition of a financial liability in PAS 32 to enable entities to classify rights issues
and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency.
• Philippine Interpretation IFRIC 14 (Amendment), Prepayments of a Minimum Funding Requirement The amendment removes an unintended consequence when an entity is subject to minimum funding
requirements and makes an early payment of contributions to cover such requirements. The amendment permits a prepayment of future service cost by the entity to be recognized as a pension asset.
• Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments This Philippine Interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability
qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or loss.
Improvements to PFRS (issued 2010) The omnibus amendments to PFRSs issued in May 2010 were issued primarily with a view to removing inconsis-
tencies and clarifying wordings. The amendments are effective for annual periods beginning January 1, 2011. Except as otherwise stated, the adoption of the following amendments resulted in changes to accounting policies but did not have impact on the financial position or performance of the Group.
• PFRS 3, Business Combinations This Amendment clarifies that the Amendments to PFRS 7, Financial Instruments: Disclosures, PAS 32 and PAS
39 that eliminate the exemption for contingent consideration, do not apply to contingent consideration that arose from business combinations whose acquisition dates precede the application of PFRS 3 (as revised in 2008).
It also limits the scope of the measurement choices that only the components of non-controlling interest that are present ownership interests that entitle their holders to a proportionate share of the entity’s net assets, in the event of liquidation, shall be measured either at fair value or at the present ownership instruments’ proportionate share of the acquiree’s identifiable net assets. Other components of non-controlling interest are measured at their acquisition date fair value, unless another measurement basis is required by another PFRS.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
• The amendment also requires an entity (in a business combination) to account for the replacement of the acquiree’s share-based payment transactions (whether obliged or voluntarily), i.e., split between consideration and post-combination expenses. However, if the entity replaces the acquiree’s awards that expire as a consequence of the business combination, these are recognized as post-combination expenses. It further specifies the accounting for share-based payment transactions that the acquirer does not exchange for its own awards: if vested - they are part of non-controlling interest and measured at their-market- based measure; if unvested - they are measured at market-based value as if granted at acquisition date, and allocated between non-controlling interest and post-combination expense.
• PFRS 7, Financial Instruments: Disclosures The amendment was intended to simplify the disclosures provided by reducing the volume of disclosures
around collateral held and improving disclosures by requiring qualitative information to put the quantitative information in context.
• PAS 1, Presentation of Financial Statements This amendment clarifies that an entity will present an analysis of other comprehensive income for
each component of equity, either in the statement of changes in equity or in the notes to the financial statements.
• PAS 27, Consolidated and Separate Financial Statements This amendment clarifies that the consequential amendments from PAS 27 made to PAS 21, The Effect of Changes in Foreign Exchange Rates, PAS 28, Investments in Associates and PAS 31,
Interests in Joint Ventures apply prospectively for annual periods beginning on or after July 1, 2009 or earlier when PAS 27 is applied earlier.
Other amendments resulting from the 2010 Improvements to PFRSs to the following standards did not have any impact on the accounting policies, financial position or performance of the Group:
• PAS 34, Interim Financial Reporting • Philippine Interpretation IFRIC 13, Customer Loyalty Programmes
Future Changes in Accounting Policies The Group will adopt the following new and amended standards and Philippine Interpretations enumerated
below when these become effective. Except as otherwise stated, the Group does not expect the adoption of these new and amended PFRS and Philippine Interpretations to have significant impact on the consolidated financial statements.
Effective 2012• PAS 12 (Amendment), Income Taxes - Deferred Tax: Recovery of Underlying Assets This amendment is effective for annual periods beginning on or after January 1, 2012. It clarified the
determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in PAS 40, Investment Property, should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in PAS 16, Property, Plant and Equipment, always be measured on a sale basis of the asset.
• PFRS 7 (Amendment), Financial Instruments: Disclosures - Enhanced Derecognition Disclosure Requirements This amendment is effective for annual periods beginning on or after July 1, 2011. The amendment requires
additional disclosure about financial assets that have been transferred but not derecognized to enable the user of the consolidated financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognized assets to enable the user to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognized assets.
Effective 2013• PAS 1(Amendment), Financial Statement Presentation, Presentation of Items of Other Comprehensive Income
This amendment is effective for annual periods beginning on or after July 1, 2012. It changed the grouping of
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
items presented in other comprehensive income. Items that could be reclassified (or ‘recycled’) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and will have no impact on the Group’s financial position or performance.
• PAS 19 (Amendments), Employee Benefits The amendments to PAS 19 range from fundamental changes such as removing the corridor mechanism
and the concept of expected returns on plan assets to simple clarifications and re-wording. The Group is currently assessing the impact of the amendment to PAS 19.
• PAS 27, Separate Financial Statements (as revised in 2011) As a consequence of the new PFRS 10, Consolidated Financial Statements and PFRS 12, Disclosure of Interests
in Other Entities, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements.
• PAS 28, Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the new PFRS 11, Joint Arrangements and PFRS 12, PAS 28 has been renamed PAS
28, Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates.
• PFRS 7 (Amendments), Financial instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities These amendments require an entity to disclose information about rights of set-off and related arrangements
(such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set off in accordance with PAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information.
This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period:
a) The gross amounts of those recognized financial assets and recognized financial liabilities;b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the net amounts
presented in the statement of financial position;c) The net amounts presented in the statement of financial position;d) The amounts subject to an enforceable master netting arrangement or similar agreement that are not
otherwise included in (b) above, including:i. Amounts related to recognized financial instruments that do not meet some or all of the offsetting
criteria in PAS 32; andii. Amounts related to financial collateral (including cash collateral); and
e) The net amount after deducting the amounts in (d) from the amounts in (c) above.
The amendments are to be applied retrospectively. The amendments affect disclosures only and have no impact on the Group’s financial position or performance.
• PFRS 10, Consolidated Financial Statements PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements that addresses
the accounting for consolidated financial statements. It also includes the issues raised in SIC 12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27.
• PFRS 11, Joint Arrangements PFRS 11 replaces PAS 31, Interests in Joint Ventures and SIC 13, Jointly-controlled Entities - Non-monetary
Contributions by Venturers. PFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
• PFRS 12, Disclosure of Involvement with Other Entities PFRS 12 includes all of the disclosures that were previously in PAS 27 related to consolidated financial
statements, as well as all of the disclosures that were previously included in PAS 31 and PAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required.
• PFRS 13, Fair Value Measurement PFRS 13 establishes a single source of guidance under PFRS for all fair value measurements. PFRS 13 does not
change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted. The Group is currently assessing the impact that this standard will have on the Group’s financial position and performance.
Effective 2014• PAS 32, (Amendments), Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities These amendments are to be retrospectively applied for annual periods beginning on or after January 1,
2014. These amendments to PAS 32 clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The Group is currently assessing the impact of the amendments to PAS 32.
Effective 2015• PFRS 9, Financial Instruments: Classification and Measurement The PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and applies to
classification and measurement of financial assets and financial liabilities as defined in PAS 39. In subsequent phases, hedge accounting and impairment of financial assets will be addressed with the completion of this project expected on the first half of 2012. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, but will potentially have no impact on classification and measurements of financial liabilities. The Group will quantify the effect in conjunction with the other phases, when issued, to present a more comprehensive picture.
Philippine Interpretation IFRIC 15, Agreement for the Construction of Real Estate This Philippine Interpretation covers accounting for revenue and associated expenses by entities that undertake
the construction of real estate directly or through subcontractors. This Philippine Interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. The SEC and the Financial Reporting Standards Council (FRSC) have deferred the effectivity of this interpretation until the final Revenue standard is issued by International Accounting Standards Board (IASB) and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed.
Product Classification Insurance contracts are those contracts where the Group (the insurer) has accepted significant insurance risk
from another party (the policyholders) by agreeing to compensate the policyholders if a specified uncertain future event (the insured event) adversely affects the policyholders. As a general guideline, the Group determines whether it has significant insurance risk, by comparing benefits paid with benefits payable if the insured event did not occur. Insurance contracts can also transfer financial risk.
Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or have expired.
Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are
readily convertible to known amounts of cash with original maturities of three months or less from dates of placement and that are subject to an insignificant risk of changes in value.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Short-term Investments Short-term investments are short-term, highly liquid investments that are readily convertible to known amounts of
cash with original maturities of more than three months but less than one year from dates of placement. These earn interests at the respective short-term investment rates.
Insurance Receivables Premium receivables (Due from policyholders, agents and brokers and due from ceding companies) are
recognized on policy inception dates and measured on initial recognition at the fair value of the consideration receivable for the period of coverage. Subsequent to initial recognition, insurance receivables are measured at amortized cost. The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in profit or loss.
Financial Instruments Date of recognition Financial instruments are recognized in the consolidated statement of financial position when the Group becomes
a party to the contractual provisions of the instrument. Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on the trade date.
Initial recognition of financial instruments Financial instruments are initially recognized at fair value of the consideration given (in case of an asset) or
received (in case of a liability). Except for financial instruments at fair value through profit or loss (FVPL), the initial measurement of financial assets includes transaction costs. The Group classifies its financial assets in the following categories: held-to-maturity (HTM) investments, AFS investments, FVPL investments and loans and receivables. The Group classifies its financial liabilities into financial liabilities at FVPL and other financial liabilities. The classification depends on the purpose for which the investments were acquired and whether they are quoted in an active market. Management determines the classification of its investments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every end of the reporting period.
As of December 31, 2011 and 2010, the Group’s financial instruments are in the nature of loans and receivables, AFS financial assets and other financial liabilities.
Determination of fair values The fair value for financial instruments traded in active markets at the end of the reporting period is based on
their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and ask prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models, and other relevant valuation models.
Day 1 profit Where the transaction price in a non-active market is different from the fair value from other observable current
market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and fair value (a ‘Day 1’ profit) in profit or loss unless it qualifies for recognition as some other type of asset. In cases where an unobservable data is used, the difference between the transaction price and model value is only recognized in profit or loss when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the ‘Day 1’ profit amount.
Loans and receivables Loans and receivables are financial assets with fixed or determinable payments and fixed maturities that are not
quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as financial assets held for trading, designated as AFS or FVPL. This accounting policy relates to the consolidated statement of financial position captions: (a) “Cash and Cash Equivalents”, (b) “Short-term Investments”, (c) “Insurance Receivables”, (d) “Loans and Receivables” and (e) “Accrued Income”.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
After initial measurement, the loans and receivables are subsequently measured at amortized cost using the effective interest rate method, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is included in the Investment and other income account in profit or loss. The losses arising from impairment of such loans and receivables are recognized in profit or loss.
AFS investments AFS investments are those which are designated as such or do not qualify to be classified as designated at FVPL,
HTM or loans and receivables. They are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions.
After initial measurement, AFS investments are subsequently measured at fair value. The effective yield component of AFS debt securities, as well as the impact of restatement on foreign currency-denominated AFS debt securities, is reported in earnings. Interest earned on holding AFS investments are reported as interest income using the effective interest rate. Dividends earned on holding AFS investments are recognized in profit or loss when the right to receive the payment has been established. The unrealized gains and losses arising from the fair valuation of AFS investments are reported as ‘Revaluation reserve on available-for-sale financial assets’ in other comprehensive income. The losses arising from impairment of such investments are recognized in profit or loss. When the security is disposed of, the cumulative gain or loss previously recognized in other comprehensive income is recognized as realized gains or losses in profit or loss. When the Group holds more than one investment in the same security, the cost is determined using the weighted average method.
When the fair value of AFS investments cannot be measured reliably because of lack of reliable estimates of future cash flows and discount rates necessary to calculate the fair value of unquoted equity instruments, these investments are carried at cost.
Other financial liabilities Issued financial instruments or their components, which are not designated at FVPL are classified as other financial
liabilities, where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.
After initial measurement, other financial liabilities are subsequently measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any discount or premium on the issue and fees that are an integral part of the effective interest rate. Any effects of restatement of foreign currency-denominated liabilities are recognized in the consolidated statement of comprehensive income.
This accounting policy applies primarily to the Group’s insurance payables and accounts payable, accrued expenses and other liabilities that meet the above definition (other than liabilities covered by other accounting standards, such as pension liability and income tax payable).
Impairment of Financial Assets The Group assesses at each end of the reporting period whether there is objective evidence that a financial asset
or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
Loan and receivables For loans and receivables carried at amortized cost, the Group first assesses whether objective evidence of
impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for individually
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses for impairment.
Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment for impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of loss is charged against profit or loss. Receivables, together with the associated allowance accounts, are written off when there is no realistic prospect of future recovery and all collateral has been realized. If, in a subsequent period, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.
Time value is generally not considered when the effect of discounting is not material. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate, adjusted for the original credit risk premium. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of credit risk characteristics such as past-due status and term.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Histori-cal loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of con-ditions in the historical period that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any difference between loss estimates and actual loss experience.
AFS investments carried at fair value In case of equity investments classified as AFS, impairment indicators would include a significant or prolonged
decline in the fair value of the investments below its cost. Where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the parent company statement of income is removed from other comprehensive income and recognized in profit or loss. Impairment losses on equity investments are not reversed through profit or loss. Increases in fair value after impairment are recognized directly in other comprehensive income.
In the case of debt instruments classified as AFS financial assets, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of “Interest income” in profit or loss. If, in subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through profit or loss.
AFS investments carried at cost If there is an objective evidence that an impairment loss on an unquoted equity instrument that is not carried at
fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Offsetting of Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial
position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Derecognition of Financial Assets and Liabilities Financial Asset A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is
derecognized where:
• the rights to receive cash flows from the asset have expired;• the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them
in full without material delay to a third party under a ‘pass-through’ arrangement; or• the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially
all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Where the Group has transferred its right to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset.
Financial Liability A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has
expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.
Reinsurance The Group cedes insurance risk in the normal course of business. Reinsurance assets represent balances due from
reinsurance companies for its share on the unpaid losses incurred by the Group. Recoverable amounts are estimated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contract. Reinsurance recoverable on paid losses are included as part of Insurance receivables.
Reinsurance assets are reviewed for impairment at each end of the reporting period or more frequently when an indication of impairment arises during the reporting year. Impairment occurs when objective evidence exists that the Group may not recover outstanding amounts under the terms of the contract and when the impact on the amounts that the Group will receive from the reinsurer can be measured reliably. The impairment loss is recorded in the statement of income.
Ceded reinsurance arrangements do not relieve the Group from its obligations to policyholders.
The Group also assumes reinsurance risk in the normal course of business for insurance contracts. Premiums and claims on assumed reinsurance are recognized in profit or loss as income and expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business. Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the associated reinsurance contract.
Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance.
Reinsurance assets or liabilities are derecognized when the contractual rights are extinguished or expired or when the contract is transferred to another party.
When the Group enters into a proportional treaty reinsurance agreement for ceding out its insurance business, the Group initially recognizes a liability at transaction price. Subsequent to initial recognition, the portion of the amount initially recognized as a liability which is presented as Insurance payables in the liabilities section of the consolidated statement of financial position will be withheld and recognized as Funds held for reinsurers and included as part of the Insurance payables in the liabilities section of the consolidated statement of financial
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
position. The amount withheld is generally released after a year. Funds held by ceding companies is accounted for in the same manner.
Deferred Acquisition Costs (DAC) Commissions and other acquisition costs incurred during the financial period that vary with and are related to
securing new insurance contracts and or renewing existing insurance contracts, but which relates to subsequent financial periods, are deferred to the extent that they are recoverable out of future revenue margins. Acquisition costs include referral fee of FNAC which is classified under Other underwriting expense. All other acquisition costs are recognized as expense when incurred.
Subsequent to initial recognition, these costs are amortized on a straight-line basis using the 24th method over the life of the contract except for the marine cargo where commissions for the last two months of the year are recognized as expense the following year. Amortization is charged against the profit or loss. The unamortized acquisition costs are shown as Deferred acquisition costs in the Assets section of the consolidated statement of financial position.
An impairment review is performed at each end of the reporting period or more frequently when an indication of impairment arises. The carrying value is written down to the recoverable amount. The impairment loss is charged to profit or loss. DAC is also considered in the liability adequacy test for each end of the reporting period.
Investment Properties Properties held for rental yields and for capital appreciation or both rather than for use in the production or
supply of goods and services or for administrative purposes or sale in the ordinary course of business is classified as investment property.
Investment properties are measured initially at cost, including transaction costs.
Investment properties consist of land and buildings. The land is carried at cost. The buildings are carried at cost, less accumulated depreciation and amortization and any accumulated impairment losses.
Depreciation and amortization is computed using the straight-line method over the estimated useful life of 40 years. The estimated useful life and depreciation and amortization method are reviewed periodically to ensure that the period and method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of investment property.
Investment properties are derecognized either when they have been disposed of, or when the investment property is permanently withdrawn from use and no future benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the profit or loss in the year of retirement or disposal.
Transfers are made to investment property when, and only when, there is a change in use, evidenced by the end of owner-occupation or commencement of an operating lease to another party. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale.
Property and Equipment Property and equipment are stated at cost, net of accumulated depreciation and amortization and any
impairment in value.
The initial cost of property and equipment comprises its purchase price, including nonrefundable taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of income during the financial period in which they are incurred.
Construction in-progress is carried at cost and transferred to the related property and equipment account when the construction and related activities to prepare the property for its intended use are complete, and the property is ready for occupation.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the properties as follows:
Years Building and improvements 40 Building equipment 5 Office furniture, fixtures and equipment 5 Transportation equipment 5
Leasehold improvements are amortized over the term of the lease or estimated useful life of 5 years, whichever is shorter. The estimated useful lives and depreciation and amortization method are reviewed periodically to ensure that the period and method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment.
When property and equipment are retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization and accumulated provision for impairment losses, if any, are removed from the accounts. Any gain or loss arising on derecognition of the assets, which is calculated as the difference between the net disposal proceeds and the carrying amount of the asset, is included in the statement of income in the year the asset is derecognized.
Computer Software Costs associated with the acquisition of computer software are capitalized only if the asset can be reliably
measured, will generate future economic benefits, and there is an ability to use or sell the asset.
Computer software is carried at cost less accumulated amortization. Computer software cost is amortized over the expected useful life of the asset, but not to exceed five (5) years. All computer software components are amortized over five (5) years. Amortization commences when the asset is available for use or when it is in the location and condition necessary for it to be capable of operating in the manner intended by the Group.
Impairment of Nonfinancial Assets The Group assesses at each end of the reporting period whether there is an indication that investment properties
and property and equipment may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
An assessment is made at each end of the reporting period as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recover-able amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recog-nized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss unless the asset is carried at revalued amount, in which case, the reversal is treated as a revaluation increase. After such reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
Real Estate Properties for Sale Real estate properties for sale are measured at the lower of cost and net realizable value (NRV). NRV is the
estimated selling price in the ordinary course of business, based on market prices at the reporting date, less estimated costs of completion and the estimated costs to sell. The cost of inventory recognized in profit or loss on disposal is determined with reference to the specific costs incurred on the property.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Insurance Contract Liabilities Provision for Unearned Premiums The proportion of written premiums, gross of commissions payable to intermediaries, attributable to subsequent
periods or to risks that have not yet expired is deferred as provision for unearned premiums. Premiums from short-duration insurance contracts are recognized as revenue over the period of the contracts using the 24th method except for the marine cargo where premiums for the last two months are considered earned the following year. The portion of the premiums written that relate to the unexpired periods of the policies at end of the reporting period are accounted for as Provision for unearned premiums as part of Insurance contract liabilities and presented in the liabilities section of the consolidated statement of financial position. The change in the provision for unearned premiums is taken to profit or loss in order that revenue is recognized over the period of risk. Further provisions are made to cover claims under unexpired insurance contracts which may exceed the unearned premiums and the premiums due in respect of these contracts.
Claims Provision and Incurred But Not Reported (IBNR) Losses These liabilities are based on the estimated ultimate cost of all claims incurred but not settled at the end of the
reporting period together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of certain types of claims, therefore the ultimate cost of which cannot be known with certainty at the end of the reporting period. The liability is not discounted for the time value of money and includes provision for IBNR losses. The liability is derec-ognized when the contract is discharged, cancelled or has expired.
Liability Adequacy Test At each end of the reporting period, liability adequacy tests are performed, to ensure the adequacy of insurance
contract liabilities, net of related DAC assets. In performing the test, current best estimates of future cash flows, claims handling and policy administration expenses are used. Changes in expected claims that have occurred, but which have not been settled, are reflected by adjusting the liability for claims and future benefits. Any inadequacy is immediately charged to the consolidated statement of comprehensive income by establishing an unexpired risk provision for losses arising from the liability adequacy tests. The provision for unearned premiums is increased to the extent that the future claims and expenses in respect of current insurance contracts exceed future premiums plus the current provision for unearned premiums.
Pension Cost Pension cost is actuarially determined using the projected unit credit method. This method reflects services
rendered by employees up to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Actuarial valuations are conducted with sufficient regularity, with option to accelerate when significant changes to underlying assumptions occur. Pension cost includes current service cost, interest cost, actuarial gains and losses and the effect of any curtailment or settlement.
The pension asset recognized by the Group in respect of the defined benefit pension plan is the (a) fair value of the plan assets less present value of the defined benefit obligation at the reporting date, together with adjustments for unrecognized actuarial gains or losses that shall be recognized in later periods; or (b) the total of any cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.
The net pension liability recognized by the Group in respect of the defined benefit pension plan is the fair value of the plan assets less the present value of the defined benefit obligation at the end of reporting date, together with adjustments for unrecognized actuarial gains or losses that shall be recognized in later periods.
The defined benefit obligation is calculated annually by an independent actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by using risk-free interest rates of long-term government bonds that have terms to maturity approximating the terms of the related pension liability.
Actuarial gains and losses is recognized in profit or loss if the cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceeded the greater of 10% of the present value of defined benefit obligation or 10% of the fair value of plan assets. These gains and losses are recognized over the expected aver-age remaining working lives of the employees participating in the plan.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Equity Capital stock is recognized as issued when the stock is paid for or subscribed under a binding subscription
agreement and is measured at par value.
Capital in excess of par value includes any premiums received in excess of par value on the issuance of capital stock.
Contributed surplus represents the original contribution of the stockholders of the Group, in addition to the paid-in capital stock, in order to comply with the pre-licensing requirements as provided under the Code.
Contingency surplus pertains to capital infusion of shareholders in order to comply with Margin of Solvency (MOS) deficiency as a result of the examination made by the Insurance Commission (IC).
Other revaluation reserve pertains to the appraisal increment on building relating to the Parent Company’s previously held interest in TMMIC at the time of the business combination. The balance of the other revaluation reserve will be transferred to retained earnings when the building is disposed or derecognized.
Retained earnings include all the accumulated earnings of the Group, net of dividends declared.
Revenue Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the
revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:
Premiums Revenue Gross insurance written premiums comprise the total premiums receivable for the whole period of cover provided
by contracts entered into during the accounting period and are recognized on the date on which the policy incepts. Premiums include any adjustments arising in the accounting period for premiums receivable in respect of business written in prior periods.
Premiums from short-duration insurance contracts are recognized as revenue over the period of the contracts using the 24th method except for the marine cargo where premiums for the last two months are considered earned the following year. The portion of the premiums written that relate to the unexpired periods of the policies at end of the reporting period are accounted for as Provision for unearned premiums as part of Insurance contract liabilities and presented in the liabilities section of the consolidated statement of financial position. The related reinsurance premiums ceded that pertains to the unexpired periods at end of the reporting period are accounted for as Deferred reinsurance premiums and shown as part of reinsurance assets in the consolidated statement of financial position. The net changes in these accounts between each end of reporting periods are recognized in profit or loss.
Reinsurance Commissions Commissions earned from short-duration insurance contracts are recognized as revenue over the period of the
contracts using the 24th method except for the marine cargo where the deferred reinsurance commissions for the last two months of the year are considered earned the following year. The portion of the commissions that relate to the unexpired periods of the policies at end of the reporting period are accounted for as deferred reinsurance commissions and presented in the Liabilities section of the consolidated statement of financial position.
Dividend income Dividend income is recognized when the shareholders’ right to receive the payment is established.
Interest income For all financial instruments measured at amortized cost and interest-bearing financial instruments, interest
income is recorded at the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options), includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not future credit losses. The adjusted carrying amount is calculated based on the original effective interest rate. The change in carrying amount is recorded as interest income.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the original effective interest rate applied to the new carrying amount.
Rental income Rental income from investment properties are recognized on a straight-line basis over the term of the lease. Management fees Management fees are recognized as income when services are rendered.
Benefits and Claims Benefits and claims consists of benefits and claims paid to policyholders, which includes changes in the valuation
of Insurance contract liabilities, except for changes in the provision for unearned premiums which are recorded in insurance revenue. It further includes internal and external claims handling costs that are directly related to the processing and settlement of claims. Amounts receivable in respect of salvage and subrogation are also considered. General insurance claims are recorded on the basis of notifications received.
Expenses General and administrative expense, other underwriting expense and other investment expense, except for
lease agreements, are recognized as expense as they are incurred.
Interest expense Interest expense is charged against operations as they are incurred.
Leases The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement
and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies:
a. There is a change in contractual terms, other than a renewal or extension of the arrangement;b. A renewal option is exercised or extension granted, unless that term of the renewal or extension was initially
included in the lease term;c. There is a change in the determination of whether fulfillment is dependent on a specified asset or;d. There is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios a, c or d above, and at the date of renewal or extension period for scenario (b).
Group as a lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the assets are
classified as operating leases. Lease payments received are recognized as an income in the consolidated statement of income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as the rental income.
Group as a lessee Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as
operating leases. Fixed lease payments are recognized as an expense in the consolidated statement of income on a straight-line basis.
Foreign Exchange Transactions The functional and presentation currency of the Group is the Philippine Peso (P). Transactions in foreign currencies
are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange ruling at the end of the reporting period. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction and are not subsequently restated. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was determined. All foreign exchange differences are taken to profit or loss, except where it relates to equity securities where gains or losses are recognized directly in other comprehensive income.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Provisions and Contingencies Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past
event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss, net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.
Contingent liabilities are not recognized in the consolidated financial statements but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized but are disclosed in the consolidated financial statements when an inflow of economic benefits is probable.
Income Tax Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be
recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the end of the reporting period.
Deferred tax Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period
between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, including asset revaluations. Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits from the excess of minimum corporate income tax (MCIT) over the regular income tax, and unused net operating loss carryover (NOLCO), to the extent that it is probable that sufficient taxable profit will be available against which the deductible temporary differences and carryforward of unused tax credits from MCIT and unused NOLCO can be utilized. Deferred tax, however, is not recognized on temporary differences that arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss.
The carrying amount of deferred tax assets is reviewed at each end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each end of the reporting period and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the end of the reporting period. Movements in the deferred tax assets and liabilities arising from changes in tax rates are charged against or credited to income for the period.
Current tax and deferred tax relating to items recognized as other comprehensive income is also recognized in the consolidated statement of other comprehensive income.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and deferred taxes related to the same taxable entity and the same taxation authority.
Events after End of the Reporting Date Any post year-end events that provide additional information about the Group’s position at the end of the
reporting period (adjusting event) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events, if any, are disclosed in the consolidated financial statements when material.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
3. Significant Accounting Judgments and Estimates
The preparation of the accompanying consolidated financial statements in accordance with PFRS requires the Group to make judgments and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. The estimates and assumptions used in the accompanying consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ from such estimates.
Judgments In the process of applying the Group’s accounting policies, management has made the following judgments,
apart from those involving estimations, which have the most significant effect on the amounts recognized in the consolidated financial statements:
Product classification The significance of insurance risk is dependent on both the probability of an insured event and the magnitude of
its potential effect. As a general guideline, the Group defines significant insurance risk as the possibility of having to pay benefits on the occurrence of an insured event that are at least 5% more than the benefits payable if the insured event did not occur.
The Group has determined that the insurance policies it issues have significant insurance risks and therefore meet the definition of insurance contracts and should be accounted for as such.
Functional Currency Based on the economic substance of the underlying circumstances relevant to the Parent Company, the func-
tional currency of the Parent Company has been determined to be the Philippine Peso. The Philippine Peso is the currency of the primary economic environment in which the Parent Company operates. It is the currency that mainly influences the revenue and costs of the Parent Company operations.
Operating lease commitments - Group Company as lessor The Group entered into commercial property leases on its investment properties. The Group determined that
it retains all the significant risks and rewards of ownership of the property, thus accounts for them as operating lease.
Operating lease commitments - Group as lessee The Group entered into various property leases with various lessors. The Group determined that the lessors retain
all the significant risks and rewards of ownership of the leased properties thus accounts for them as operating leases.
Distinction between investment properties and owner-occupied properties The Group determines whether a property qualifies as investment property. In making this judgment, the Group
considers whether the property generates cash flows largely independent of the other assets held by an entity. Owner-occupied properties generate cash flows that are attributable not only to property but also to the other assets used in the production or supply process.
When properties comprise a portion that is held to earn rentals or for capital appreciation and another portion is held for use in the production or supply of goods or services or for administrative purpose, and these portions cannot be sold separately, the property is accounted for as investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. Judgment is applied in determining whether ancillary services are so significant that a property does not qualify as investment property. The Group considers each property separately in making this judgment.
Management’s Use of Estimates The key assumptions concerning the future and other key sources of estimation uncertainty at each reporting
date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Fair values of financial assets and liabilities The Group carries certain financial assets at fair value, which requires extensive use of accounting estimates and
judgments. Fair value determinations for financial assets and liabilities are based generally on listed or quoted market prices. If prices are not readily determinable or if liquidating positions is reasonably expected to affect market prices, fair value is based on either internal valuation models or management’s estimate of amounts that could be realized under current market conditions, assuming an orderly liquidation over a reasonable period of time. While significant components of fair value were determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates, volatility rates), the amount of changes in fair value of these financial assets and liabilities would affect the statement of other comprehensive income.
The carrying value of AFS financial assets is P8.06 billion and P7.77 billion as of December 31, 2011 and 2010, respectively (see Note 7).
Valuation of insurance contract liabilities Estimates have to be made both for the expected ultimate cost of claims reported and for the expected
ultimate cost of claims IBNR at the end of reporting period. It can take a significant period of time before the ultimate claims cost can be established with certainty.
The primary technique adopted by management in estimating the cost of notified and claims IBNR, is that of using past claims settlement trends to predict future claims settlement trends. At each reporting date, prior year claims estimates are assessed for adequacy and changes made are charged to provision. Insurance contract liabilities are not discounted for the time value of money.
As of December 31, 2011 and 2010, the carrying values of provision for claims reported and IBNR amounted to P4.18 billion and P4.62 billion, respectively (see Note 14).
Estimation of allowance for impairment losses The Group maintains allowance for impairment losses at a level considered adequate to provide for potential
uncollectible receivables. The level of this allowance is evaluated by management on the basis of factors that affect the collectability of the accounts. These factors include, but are not limited to, age of balances, financial status of counterparties, and legal opinion on recoverability in case of legal disputes. The Group reviews the age and status of receivables, and identifies accounts that are to be provided with allowance on a regular basis. The amount and timing of recorded expenses for any period would differ if the Group made different judgments or utilized different estimates. An increase in allowance for impairment losses would increase recorded expenses and decrease the related asset accounts.
The carrying value of insurance receivables, net of impairment losses amounted to P2.79 billion and P3.01 billion as of December 31, 2011 and 2010, respectively. The related allowance for impairment losses amounted to P67.86 million and P55.02 million as of December 31, 2011 and 2010, respectively (see Note 6).
As of December 31, 2011 and 2010, the carrying value of loans and receivables amounted to P432.87 million and P403.31 million, respectively. As of December 31, 2011 and 2010, the related allowance for impairment losses amounted to P3.70 million and P10.02 million, respectively (see Note 7).
Impairment of AFS equity financial assets The Group determines that AFS equity financial assets are impaired when there has been a significant or
prolonged decline in the fair value below its cost. The determination of what is significant or prolonged requires judgment. The Group treats ‘significant’ generally as 20% or more and ‘prolonged’ as continuous decline for a period of six (6) months. In making this judgment, the Group evaluates among other factors, the normal volatility in share price for quoted securities. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows.
As of December 31, 2011 and 2010, the carrying value of the Group’s AFS equity financial assets amounted to P4.79 billion and P4.74 billion, respectively (see Note 7).
Impairment loss recognized on Group’s AFS equity financial assets amounted to P15.53 million and P10.44 million in 2011 and 2010, respectively (see Note 7).
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Estimation of useful lives of computer software, investment properties and property and equipment The Group reviews annually the estimated useful lives of computer software, investment properties and property
and equipment, based on the period over which the assets are expected to be available for use. It is possible that future results of operations could be materially affected by changes in these estimates. A reduction in the estimated useful lives of computer software, investment properties and property and equipment would increase recorded depreciation and amortization expense and decrease the related asset accounts.
As of December 31, 2011 and 2010, the carrying value of the investment properties amounted to P88.47 million and P99.42 million, respectively (see Note 11).
As of December 31, 2011 and 2010, the carrying value of the property and equipment amounted to P244.20 million and P208.05 million, respectively (see Note 12).
As of December 31, 2011 and 2010, the carrying value of the computer software amounted to P64.50 million and P57.71 million, respectively (see Note 13).
Evaluation of net realizable value of real estate properties for sale Real estate properties for sale are valued at the lower of cost and NRV. This requires the Group to make an estimate
of the real estate properties’ estimated selling price in the ordinary course of business, cost of completion and costs necessary to make a sale to determine the NRV. The Group adjusts the cost of its real estate properties to net realizable value based on its assessment of the recoverability of its real estate properties for sale. In determining the recoverability of its real estate properties for sale, management considers whether its real estate properties for sale are damaged or if their selling prices have declined.
Likewise, management also considers whether the estimated costs of completion or the estimated costs to be incurred to make the sale have increased. In the event that NRV is lower than the cost, the decline is recognized as an expense. The amount and timing of recorded expenses for any period would differ if different judgments were made or different estimates were utilized. See Note 13 for the related balances.
Impairment of nonfinancial assets The Group assesses the impairment of its nonfinancial assets (i.e., investment properties, property and equipment
and computer software) whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The factors that the Group considers important which could trigger an impairment review include the following:
• significant underperformance relative to expected historical or projected future operating results;• significant changes in the manner of use of the assets; and• significant negative industry or economic trends.
The Group recognizes an impairment loss whenever the carrying amount of an asset exceeds its recoverable amount. Recoverable amounts are estimated for individual asset or, if it is not possible, for the cash-generating unit to which the asset belongs.
As of December 31, 2011 and 2010, the Group has not recognized any impairment losses on its nonfinancial assets. See Notes 11, 12 and 13 for related balances.
Recognition of deferred tax assets Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that
taxable income will be available against which these can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized. These assets are periodically reviewed for realization. Periodic reviews cover the nature and amount of deferred income and expense items, expected timing when assets will be used or liabilities will be required to be reported, reliability of historical profit-ability of businesses expected to provide future earnings and tax planning strategies which can be utilized to increase the likelihood that tax assets will be realized. See Note 24 for the related balances.
Estimating pension obligation and other retirement benefits The determination of pension obligation and cost of pension is dependent on the selection of certain assumptions
used in calculating such amounts. Those assumptions include, among others, discount rates, expected return on plan asset and salary increase rates.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Due to the long-term nature of this plan, such estimates are subject to significant uncertainty.
The assumed discount rates were determined using the market yields on Philippine government bonds with terms consistent with the expected employee benefit payout as of the reporting date. In accordance with PAS 19, actual results that differ from the Group’s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded asset or obligation in such future periods. While the Group believes that the assumptions are reasonable and appropriate, significant differences in the actual experience or significant changes in the assumptions may materially affect the pension obligations.
As of December 31, 2011 and 2010, the carrying value of pension obligation amounted to P40.50 million and P46.33 million, respectively (see Note 17).
As of December 31, 2011 and 2010, the carrying value of pension assets amounted to P0.83 million and P3.99 million, respectively (see Note 17).
Contingencies The Group is currently involved in various legal proceedings. The estimate of probable costs for the resolution of
these claims has been developed in consultation with the legal counsels and based upon analysis of potential results. The Group does not believe that these proceedings will have a material adverse effect on the Group’s financial position.
4. cash and cash equivalents
This account consists of:
2011 2010
Cash on hand:
Petty cash fund P1,141,297 P832,416
Special funds 28,000 28,000
Cash in banks:
Commercial banks and trust company (Note 28) 226,386,348 150,279,774
Thrift banks, rural banks and cooperatives 845,876 789,501
Short-term deposits (Note 28) 1,384,903,032 1,054,993,612
P1,613,304,553 P1,206,923,303
Cash in banks earns interest at the respective bank rates. Short-term deposits pertain to deposits that are placed for varying periods of up to three (3) months depending on the immediate cash requirements of the Group.
The range of interest rates of the short-term deposits follows:
2011 2010
Philippine Peso 0.50% to 4.50% 1.50% to 5.00%
US Dollar 0.25% to 2.00% 0.25% to 1.50%
5. Short-term Investments
This account consists of time deposits with maturity of more than three months but less than one year from dates of placement and earns interest with annual rates ranging from 1.00% to 6.00% in 2011 and from 1.00% to 4.25% in 2010.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
6. Insurance Receivables - net
This account consists of:
2011 2010 Due from policyholders, agents and brokers P1,616,704,536 P1,814,637,854 Due from ceding companies: Facultative 184,440,379 540,525,415 Treaty 764,272,537 432,236,877 Funds held by ceding companies - treaty 168,759,940 171,391,851 Reinsurance recoverable on paid losses: Facultative 103,645,323 87,441,202 Treaty 21,392,188 21,390,034 2,859,214,903 3,067,623,233 Less allowance for impairment losses 67,861,172 55,016,495 P2,791,353,731 P3,012,606,738
The reinsurance recoverable on paid losses pertains to amounts recoverable from the reinsurers in respect of claims already paid by the Group.
The following table shows aging information of insurance receivables:
December 31, 2011
90 >
< 30 days 30 > 60 days 60 > 90 days 120 days > 120 days total
Due from policyholders,
agents and brokers P285,610,067 P180,143,822 P305,513,663 P91,145,676 P754,291,308 P1,616,704,536
Due from ceding companies:
Facultative 41,753,561 6,161,219 97,890,339 1,789,783 36,845,477 184,440,379
Treaty 616,695,042 1,066,974 10,422,241 2,418,042 133,670,238 764,272,537
Funds held by ceding
companies - treaty 10,401,669 27,349,849 16,995,237 1,490,851 112,522,334 168,759,940
Reinsurance recoverable on paid losses
Facultative – 609,42 33,476,76 45,935,38 293,623,754 103,645,323
Treaty – 923 1,230 – 21,390,035 21,392,188
P954,460,339 P215,332,210 P434,299,474 P102,779,734 P1,152,343,146 P2,859,214,903
December 31, 2010
< 30 days 30 > 60 days 60 > 90 days 90 days > 120 days Total
Due from policyholders, agents
and brokers P445,228,160 P207,574,836 P278,102,597 P124,452,402 P759,279,859 P1,814,637,854
Due from ceding companies:
Facultative 469,039,216 2,871,280 8,607,457 7,192,368 52,815,094 540,525,415
Treaty 380,916,521 – 7,580,937 8,764,046 34,975,373 432,236,877
Funds held by ceding companies - treaty – 34,706,483 28,519,356 56,347,696 51,818,316 171,391,851
Reinsurance recoverable on paid losses
Facultative 14,924,824 6,421,429 6,775,500 5,128,967 54,190,482 87,441,202
Treaty 1,328,687 82,602 1,118,910 – 18,859,835 21,390,034
P1,311,437,408 P251,656,630 P330,704,757 P201,885,479 P971,938,959 P3,067,623,233
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The allowance for impairment loss on insurance receivables has been determined as follows:
2011 Due from Due from Due from Reinsurance Policyholders, ceding ceding Funds Held Recoverable
Agents and companies companies by ceding on Paid Brokers Facultative treaty companies Losses total Balance at beginning of year P47,058,842 P6,076,008 P500,868 P1,380,777 P– P55,016,495 Impairment loss (Note 22) – 6,945,739 300,000 – 9,072,311 16,318,050 Reversal of impairment loss (Note 22) (211,535) (352,870) (159,866) – – (724,271) Written-off (2,749,102) – – – – (2,749,102) Balance at end of year P44,098,205 P12,668,877 P641,002 P1,380,777 P9,072,311 P67,861,172 Individually impaired P16,944,841 P12,668,877 P641,002 P1,380,777 P– P31,635,497 Collectively impaired 27,153,364 – – – 9,072,311 36,225,675 total P44,098,205 P12,668,877 P641,002 P1,380,777 P9,072,311 P67,861,172
2010
Due from Due from Due from
Policyholders, Ceding Ceding Funds Held
Agents and Companies Companies by Ceding
Brokers Facultative Treaty Companies Total
Balance at beginning of year P38,913,668 P5,723,138 P552,684 P– P45,189,490
Impairment loss (Note 22) 8,205,174 352,870 – 1,380,777 9,938,821
Reversal of impairment loss (Note 22) – – (51,816) – (51,816)
Written-off (60,000) – – – (60,000)
Balance at end of year P47,058,842 P6,076,008 P500,868 P1,380,777 P55,016,495
Individually impaired P17,602,35 P6,076,008 P500,868 P1,380,777 P25,560,004
Collectively impaired 29,456,491 – – – 29,456,491
total P47,058,842 P6,076,008 P500,868 P1,380,777 P55,016,495
7. Financial Assets
The Group’s financial assets are summarized by measurement categories as follows:
2011 2010 AFS financial assets P8,057,111,728 P7,765,898,833 Loans and receivables - net 432,868,288 403,309,185 P8,489,980,016 P8,169,208,018 The assets included in each of the categories above are detailed below.
a) AFS financial assets
Details of this account follow:
2011 2010 Quoted securities - at fair value Listed equity securities (Note 28): Common shares P4,679,137,830 P4,640,473,978 Preferred shares 26,021,840 25,536,586 Government debt securities: Local currency 561,760,112 487,604,713 Foreign currency 434,862,299 439,713,086 Private debt securities (Note 28) 2,274,833,903 2,094,514,726 7,976,615,984 7,687,843,089 Non-quoted securities - at cost Unlisted equity securities: Common shares 80,495,744 78,055,744
P8,057,111,728 P7,765,898,833
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
In accordance with the provisions of the Insurance Code (the Code), government securities amounting to P163.32 million and P75.61 million are deposited with the Insurance Commission (IC) as security for the benefit of policyholders and creditors of the Group as of December 31, 2011 and 2010, respectively.
As of December 31, 2011 and 2010, allowance for impairment loss recognized on AFS investments amounted to P25.97 million and P10.44 million in 2011 and 2010, respectively.
The carrying values of AFS financial assets have been determined as follows:
2011 2010
Balance at beginning of year P7,765,898,833 P6,539,696,827
Acquisitions 1,046,340,624 2,030,640,510
Unrealized foreign currency exchange loss (30,264,822) (182,171,545)
Fair value changes 111,895,326 686,453,588
Disposals and maturities (802,356,405) (1,303,735,510)
Amortization of premium (34,401,828) (4,985,037)
Balance at end of year P8,057,111,728 P7,765,898,833
The roll forward analysis of the revaluation reserve on AFS financial assets follow:
2011 2010
Balance at beginning of year P2,897,499,717 P2,280,664,139
Fair value gain credited to equity 111,895,326 686,453,588
Impairment loss (Note 20) 15,529,779 10,441,311
Realized gain transferred to profit or loss (Note 20) (58,173,271) (100,351,412)
Tax effect of net fair value gain (Note 24) 2,079,311 20,292,091
P2,968,830,862 P2,897,499,717
Attributable to:
Equity holders of the Parent Company P2,841,321,940 P2,778,293,357
Non-controlling interests 127,508,922 119,206,360
P2,968,830,862 P2,897,499,717
b) Loans and receivables - net
This account consists of:
2011 2010
Long-term commercial papers (Note 28) P344,835,665 P271,725,435
Creditable withholding tax 62,677,478 –
Long-term investments (Note 28) 10,026,206 43,196,312
Notes receivable 9,801,384 8,953,634
Accounts receivable 4,427,838 35,930,081
Due from related parties (Note 28) 3,261,857 52,481,223
Cash advances 1,198,492 701,182
Security fund 342,294 342,294
436,571,214 413,330,161
Less allowance for impairment losses 3,702,926 10,020,976
P432,868,288 P403,309,185
Creditable withholding tax for years 2009 and 2010 were filed for refund by the Parent Company to the BIR.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Long-term investments pertain to fixed deposits with original maturity of more than 1 year.
The Group provides car plan for its managers and officers as part of their benefits. The employee’s share is recorded as Notes receivable which is collected through salary deductions. The notes receivable is payable within five (5) years with annual interest rate of 8.00%.
The allowance for impairment losses on loans and receivable had been determined as follows:
2011
Due from related Accounts Notes
parties Receivable Receivable total
Balance at beginning of year P7,415,927 P2,005,675 P599,374 P10,020,976
Impairment loss (Note 22) – – 1,097,877 1,097,877
Reversal of impairment loss (Note 22) (7,415,927) – – (7,415,927)
Balance at end of year P– P2,005,675 P1,697,251 P3,702,926
Individually impaired P– P2,005,675 P1,697,251 P3,702,926
Collectively impaired – – – –
total P– P2,005,675 P1,697,251 P3,702,926
As of December 31, 2010, due from related parties, accounts and notes receivable with carrying value of P10.02 million was specifically determined as impaired and was fully provided with allowance. There was no movement in the allowance for impairment losses in 2010.
8. Accrued Income
This account consists of:
2011 2010 Accrued interest income on (Note 28): AFS financial assets P36,426,308 P39,529,104 Long-term commercial papers 2,549,440 2,941,344 Long-term investments 361,180 2,176,815 Cash and cash equivalents 335,054 1,328,615 Funds held by ceding companies - treaty 169,429 1,897,770 Security fund 108,425 298,273 Short-term investments 80,127 193,440 Accrued rent income 3,291,580 5,069,869 P43,321,543 P53,435,230
9. Deferred Acquisition costs - net
The details of deferred acquisition costs net of deferred reinsurance commissions follow:
2011 2010 Deferred acquisition costs Balance at beginning of year P302,047,984 P201,844,086 Cost deferred during the year (Note 28) 821,002,992 822,970,341 Amortized during the year (850,342,543) (722,766,443) Balance at end of year 272,708,433 302,047,984 Deferred reinsurance commissions Balance at beginning of year 112,741,720 78,053,530 Income deferred during the year (Note 28) 266,116,774 249,544,901 Amortized during the year (265,491,425) (214,856,711) Balance at end of year 113,367,069 112,741,720
P159,341,364 P189,306,264
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
10. Reinsurance Assets
This account consists of:
2011 2010
Deferred reinsurance premiums (Note 14) P1,411,396,673 P1,489,711,593
Reinsurance recoverable on unpaid losses (Note 14) 2,391,297,070 3,074,046,819
P3,802,693,743 P4,563,758,412
11. Investment Properties - net
The rollforward analysis of this account follows:
2011
construction
Land Buildings in-Progress total
cost
At beginning of year P30,036,226 P46,147,860 P37,112,019 P113,296,105
Additions 160,000 147,335 20,541,295 20,848,630
Transfers (Note 12) (1,013,187) (33,603,368) – (34,616,555)
Disposals (160,000) – – (160,000)
At end of year P29,023,039 P12,691,827 P57,653,314 P99,368,180
Accumulated depreciation and amortization
At beginning of year – 13,875,329 – 13,875,329
Depreciation and amortization (Note 22) – 133,906 – 133,906
Transfers (Note 12) – (3,108,442) – (3,108,442)
At end of year – 10,900,793 – 10,900,793
Net book value P29,023,039 P1,791,034 P57,653,314 P88,467,387
2010
Construction
Land Buildings in-Progress Total
cost
At beginning of year P30,036,226 P59,673,199 P7,825,587 P97,535,012
Additions – 35,672,461 29,286,432 64,958,893
Transfers (Note 12) – (31,197,800) – (31,197,800)
Disposals – (18,000,000) – (18,000,000)
At end of year 30,036,226 46,147,860 37,112,019 113,296,105
Accumulated depreciation and amortization
At beginning of year – 25,372,653 – 25,372,653
Depreciation and amortization (Note 22) – 4,215,922 – 4,215,922
Transfers (Note 12) – (13,650,747) – (13,650,747)
Disposals – (2,062,499) – (2,062,499)
At end of year – 13,875,329 -- 13,875,329
Net book value P30,036,226 P32,272,531 P37,112,019 P99,420,776
During 2011 and 2010, transfers pertain to the reclassification from investment properties to property and equipment due to change in the intention of the Group on the use of its building, from being held for rental to being occupied as building office spaces.
Rental income from investment properties recognized in the consolidated statement of income amounted to P22.50 million and P24.54 million in 2011 and 2010, respectively (see Note 20). Direct operating expenses arising from the investment properties amounted to P10.42 million and P13.30 million in 2011 and 2010, respectively (see Note 22).
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
On October 1, 2009, the Parent Company, RCBC Savings Bank, Inc. (RSB), Rizal Commercial Banking Corporation (RCBC), Bankard Inc., Great Pacific Life Assurance Corporation (Grepalife) and Hexagonland Corporation signed a Joint Venture Agreement for the construction and development of a twenty seven (27)-storey, high-rise mixed used commercial/office building to be known as the “RCBC Savings Bank Building Project”.
The total construction period is estimated at thirty-nine (39) months and the total cost is estimated at P2.20 billion, of which the Parent Company shall contribute 4.47% in cash contributions.
As of December 31, 2011 and 2010, the Parent Company’s total cash contributions to the RCBC Savings Bank Building Project amounted to P57.65 million and P37.11 million, respectively.
Buildings with book value of P1.68 million and P1.73 million have fair value amounting to P13.43 million and P2.50 million as of December 31, 2011 and 2010, respectively. Parcels of land with book value of P0.44 million and P9.49 million have fair value amounting to P40.40 million and P76.56 million as of December 31, 2011 and 2010, respectively. The fair values of the investment properties were determined by independent professionally qualified appraisers. The fair value represents the amount at which the assets could be exchanged between a knowledgeable, willing buyer and knowledgeable, willing seller in an arm’s length transaction at the date of valuation.
The fair value of the land and buildings were arrived at using the Market Data Approach. In this approach, the value of the land and buildings are based on sales and listings of comparable property registered within the vicinity. The technique of this approach requires the establishment of comparable property by reducing reasonable comparative sales and listings to a common denominator. This is done by adjusting the differences between the subject property and those actual sales and listings regarded as comparable. The properties used as basis of comparison are situated within the immediate vicinity of the subject property.
Depreciation and amortization expense pertaining to investment properties amounted to P0.13 million and P4.22 million in 2011 and 2010, respectively (see Note 22).
12. Property and equipment - net
The rollforward analysis of this account as of December 31, 2011 and 2010 follows:
2011
Land,
Building, Office
Building Furniture,
equipment and Fixtures and transportation Leasehold
Improvements equipment equipment Improvements total
cost
At beginning of year P164,583,207 P308,256,777 P56,610,541 P43,534,308 P572,984,833
Additions 4,297,985 27,639,777 5,878,296 11,779,968 49,596,026
Transfers (see Note 11) 34,616,555 – – – 34,616,555
Disposals – (934,329) (4,557,961) – (5,492,290)
At end of year 203,497,747 334,962,225 57,930,876 55,314,276 651,705,124
Accumulated depreciation and
amortization
At beginning of year 45,032,000 254,398,500 37,250,950 28,250,997 364,932,447
Transfers (see Note 11) 3,108,442 – – – 3,108,442
Depreciation and amortization
(Note 22) 9,264,305 22,181,749 6,875,924 4,915,572 43,237,550
Disposals – (44,548) (3,728,520) – (3,773,068)
At end of year 57,404,747 276,535,701 40,398,354 33,166,569 407,505,371
Net book value P146,093,000 P58,426,524 P17,532,522 P22,147,707 P244,199,753
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
2010
Land,
Building, Office
Building Furniture,
Equipment and Fixtures and Transportation Leasehold
Improvements Equipment Equipment Improvements Total
cost
At beginning of year P105,710,920 P289,954,038 P48,548,545 P35,560,317 P479,773,820
Additions 27,557,891 18,365,923 9,139,237 8,165,955 63,229,006
Transfers (see Note 11) 31,389,764 – – (191,964) 31,197,800
Disposals (75,368) (63,184) (1,077,241) – (1,215,793)
At end of year 164,583,207 308,256,777 56,610,541 43,534,308 572,984,833
Accumulated depreciation and
amortization
At beginning of year 25,884,246 233,429,969 29,360,786 24,444,039 313,119,040
Depreciation and amortization
(see Note 22) 5,403,779 20,990,751 8,347,682 3,905,024 38,647,236
Transfers (Note 11) 13,748,813 – – (98,066) 13,650,747
Disposals (4,838) (22,220) (457,518) – (484,576)
At end of year 45,032,000 254,398,500 37,250,950 28,250,997 364,932,447
Net book value P119,551,207 P53,858,277 P19,359,591 P15,283,311 P208,052,386
Depreciation and amortization expense charged against operations amounted to P43.24 million and P38.65 million 2011 and 2010, respectively (see Note 22).
13. Other Assets
This account consists of:
2011 2010
Creditable withholding taxes P140,771,660 P154,554,911
Real estate properties for sale - at cost 92,212,603 95,447,414
Computer software - net 64,496,741 57,713,150
Forms and supplies inventory 13,460,711 11,657,080
Refundable deposits 12,296,845 6,056,639
Miscellaneous assets 6,838,110 9,708,090
Prepayments 6,703,818 9,677,719
Others 5,762,716 4,477,360
P342,543,204 P349,292,363
Creditable withholding tax pertains to the Group’s tax withheld at source by its customers and is creditable against the income tax liability of the Group.
Real estate properties for sale consists of investments in Malayan Plaza condominium units and memorial lots. As of December 31, 2011 and 2010, amounts of the real estate properties for sale are as follows:
2011 2010
Malayan Plaza condominium units P80,362,603 P82,289,914
Memorial lots 11,850,000 13,157,500
P92,212,603 P95,447,414
Cost of real estate properties disposed in 2011 and 2010 amounted to P3.23 million and P3.61 million, respectively.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The rollforward analysis of the computer software account follows:
2011 2010 cost At the beginning of the year P66,885,652 P27,991,413 Additions 11,831,310 38,894,239 At the end of the year 78,716,962 66,885,652 Accumulated amortization At the beginning of the year 9,172,502 4,465,301 Depreciation (Note 22) 5,047,719 4,707,201 At the end of the year 14,220,221 9,172,502 Net book value P64,496,741 P57,713,150
14. Insurance contract Liabilities and Reinsurance Assets
Short-term insurance contract liabilities and reinsurers’ share of liabilities may be analyzed as follows:
2011 2010
Reinsurers’ Reinsurers’ Insurance Share of Insurance Share of contract Liabilities Contract Liabilities Liabilities (see Note 10) Net Liabilities (see Note 10) Net
Provision for claims reported
and loss adjustment P4,092,690,075 P2,391,297,070 P1,701,393,005 P4,557,662,403 P3,074,046,819 P1,483,615,584
Provision for IBNR losses 82,878,858 – 82,878,858 67,011,588 – 67,011,588
Total claims reported and IBNR 4,175,568,933 2,391,297,070 1,784,271,863 4,624,673,991 3,074,046,819 1,550,627,172
Provision for unearned premiums 2,677,505,854 1,411,396,673 1,266,109,181 2,727,380,755 1,489,711,593 1,237,669,162
total insurance contract liabilities P6,853,074,787 P3,802,693,743 P3,050,381,044 P7,352,054,746 P4,563,758,412 P2,788,296,334
Provisions for claims reported by policyholders and claims IBNR may be analyzed as follows:
2011 2010 Reinsurers’ Reinsurers’ Insurance Share of Insurance Share of contract Liabilities Contract Liabilities Liabilities (see Note 10) Net Liabilities (see Note 10) Net
Balance at beginning of year P4,624,673,991 P3,074,046,819 P1,550,627,172 P6,515,432,434 P4,568,233,590 P1,947,198,844
Claims incurred during the year 2,070,971,592 490,118,124 1,580,853,468 1,549,749,443 231,375,315 1,318,374,128
Increase in IBNR 15,867,270 – 15,867,270 12,610,207 – 12,610,207
Total claims reported
and claims IBNR 6,711,512,853 3,564,164,943 3,147,347,910 8,077,792,084 4,799,608,905 3,278,183,179
Claims paid during the year
(Note 21) (2,535,943,920) (1,172,867,873) (1,363,076,047) (3,453,118,093) (1,725,562,086) (1,727,556,007)
Balance at end of year P4,175,568,933 P2,391,297,070 P1,784,271,863 P4,624,673,991 P3,074,046,819 P1,550,627,172
Provision for unearned premiums may be analyzed as follows:
2011 2010
Reinsurers’ Reinsurers’ Insurance Share of Insurance Share of contract Liabilities Contract Liabilities Liabilities (see Note 10) Net Liabilities (see Note 10) Net
Balance at beginning of year P2,727,380,755 P1,489,711,593 P1,237,669,16 P2,148,907,868 P1,141,159,160 P1,007,748,708
New policies written during
the year (Note 19) 6,051,649,882 3,359,544,322 2,692,105,560 5,925,069,450 3,268,191,373 2,656,878,077
Premiums earned during the year
(Note 19) (6,101,524,783) (3,437,859,242) (2,663,665,541) (5,346,596,563) (2,919,638,940) (2,426,957,623)
Balance at end of year P2,677,505,854 P1,411,396,673 P1,266,109,181 P2,727,380,755 P1,489,711,593 P1,237,669,162
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
15. Insurance Payables
This account consists of:
2011 2010
Due to reinsurers (Note 28) P1,095,809,972 P1,266,798,322
Funds held for reinsurers (Note 28) 523,707,674 406,808,080
P1,619,517,646 P1,673,606,402
The roll forward analysis of insurance payables follows:
Due to Funds held
reinsurers for reinsurers total
At January 1, 2010 P1,448,860,266 P326,207,339 P1,775,067,605
Arising during the year 2,395,446,439 143,777,013 2,539,223,452
Paid during the year (2,577,508,383) (63,176,272) (2,640,684,655)
At December 31, 2010 1,266,798,322 406,808,080 1,673,606,402
Arising during the year 2,320,785,374 210,619,457 2,531,404,831
Paid during the year (2,491,773,724) (93,719,863) (2,585,493,587)
At December 31, 2011 P1,095,809,972 P523,707,674 P1,619,517,646
16. Accounts Payable, Accrued expenses and Other Liabilities
This account consists of:
2011 2010
Accounts payable P341,342,089 P290,059,957 Commissions payable 263,790,116 250,906,171 Deferred output value-added tax (VAT) 108,593,807 98,079,909 Accrued taxes 73,329,514 55,193,499 Documentary stamp taxes payable 52,807,654 79,827,836 Output VAT 40,966,576 18,855,180 Accrued expenses 34,340,337 46,152,911 Short-term employee benefits payable 32,981,708 24,574,398 Surety deposits 31,841,060 49,339,610 Deposits payable 11,306,889 12,334,227 Others 7,778,817 12,762,954 P999,078,567 P938,086,652
Accrued expenses pertain to accrual of monthly expenditures of the Group. This includes expenses for utilities, fringe benefit tax, allocated common expenses for the use of Y Tower 1 and 2 and other expenses that is necessary to carry out the operations of the Group.
17. Pension
The Group has a defined benefit plan, covering substantially all of its employees, which requires contribution to be made to administered funds. The plan is administered by a local bank as trustee.
The following tables summarize the components of net pension benefit expense recognized in the consolidated statements of income and the funded status and amounts recognized in the consolidated statements of financial position for the retirement plan.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The net pension benefit expense recognized in the consolidated statements of income, under employee benefits (see Note 22), follows:
2011 2010 Current service cost P22,027,098 P14,670,065 Interest cost 21,761,572 23,180,425 Settlement of obligation (2,613,004) – Actuarial loss recognized 2,569,612 1,218,092 Expected return on plan assets (9,122,182) (7,103,102) P34,623,096 P31,965,480
The pension obligation of the Parent Company follows:
2011 2010 Present value of pension benefit obligation P337,430,587 P302,503,427 Fair value of plan assets (183,378,153) (178,040,586) 154,052,434 124,462,841 Unrecognized net actuarial losses (113,550,501) (78,133,636) P40,501,933 P46,329,205
The plan assets of FNAC and BAC follows: 2011 2010 Fair value of plan assets (P5,238,744) (P4,403,064) Present value of pension benefit obligation 5,951,858 1,421,054 (713,114) 2,982,010 Unrecognized net actuarial losses (1,547,074) (1,008,224) P833,960 P3,990,234
The reconciliation of the present value of the pension benefit obligation follow:
2011 2010 Balance at beginning of year P303,924,481 P262,467,386 Current service cost 22,027,098 14,670,065 Interest cost 21,761,572 23,180,425 Actuarial loss 32,535,269 28,945,057 Present value of obligation of resigned employee (2,613,004) - Benefits paid (34,252,971) (25,338,452) Balance at end of year P343,382,445 P303,924,481
The reconciliation of the fair value of the plan assets follow:
2011 2010 Balance at beginning of year P182,443,650 P170,861,518 Expected return on plan assets 9,122,182 7,103,102 Contributions by employer 37,294,094 32,134,258 Actuarial loss (5,990,058) (2,316,776) Benefits paid (34,252,971) (25,338,452) Balance at end of year P188,616,897 P182,443,650 Actual return on plan assets P3,132,124 P4,786,326
Movements in the unrecognized net actuarial loss follow:
2011 2010 Balance at beginning of year P79,141,860 P49,098,119 Actuarial loss on obligation 32,535,269 28,945,057 Actuarial loss on plan assets 5,990,058 2,316,776 Actuarial loss recognized (2,569,612) (1,218,092) Balance at end of year P115,097,575 P79,141,860
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The distribution of the plan assets as of December 31, 2011 and 2010 follows:
2011 2010 Cash P32,877,043 P30,107,256 Receivables 2,869,103 2,418,126 Investments 154,183,362 151,030,299 Others 31,185 198,017 189,960,693 183,753,698 Less accrued trust fees and other payables 1,343,796 1,310,048 P188,616,897 P182,443,650
The principal actuarial assumptions used in determining plan assets and obligations are as follows:
2011 2010 Salary increase rate 5.00% 5.00% Discount rate 5.69% - 5.88% 5.66% - 7.36% Expected return on plan assets 5.00% 5.00%
The overall expected return on plan assets is determined based on the market expectations prevailing as of December 31, 2011 applicable to the period over which the obligation is to be settled.
The amounts for the current and the previous periods follows:
2011 2010 2009 2008 2007
Present value of pension benefit obligation P343,382,445 P303,924,481 P262,467,386 P245,795,547 P252,633,913
Fair value of plan assets (188,616,897) (182,443,650) (170,861,518) (125,739,602) (130,995,839)
Deficit P154,765,548 P121,480,831 P91,605,868 P120,055,945 P121,638,074
Experience adjustment follows:
2011 2010 2009 2008 2007
Experience adjustments on plan
liabilities - loss (gain) P16,842,946 P3,637,578 P,713,098) P29,428,354 P2,494,210
Experience adjustments on plan
assets - gain (loss) (P5,990,058) (P2,316,776) P12,779,682 (P11,395,487) (P8,555,625)
The Group expects to contribute P36,845,297 to the retirement fund in 2012.
18. cash Dividends and Other Revaluation Reserve
Cash Dividends On July 26, 2010, the Parent Company’s BOD approved the declaration of cash dividends amounting to
P150 million or P17.75 per share out of the unappropriated retained earnings of the Parent Company as of December 31, 2009 in favor of the stockholders of record as of July 26, 2010. Dividends were paid on December 20, 2010.
On August 8, 2011, the Parent Company’s BOD approved the declaration of cash dividends amounting to P100 million or P11.83 per share out of the unappropriated retained earnings of the Parent Company as of December 31, 2010 in favor of the stockholders of record as of August 8, 2011. Dividends were paid on October 27, 2011 and November 14, 2011.
Other Revaluation Reserve On April 10, 2008, the Parent Company’s BOD and stockholders approved the articles of merger and plan of
merger between Tokio Marine Malayan Insurance Co., Inc. (TMMIC) and the Parent Company. TMMIC is a 50-50 joint venture company owned by the Parent Company and Tokio Marine Asia Pte., Ltd. (Tokio Marine). On July 2, 2008, the SEC approved the articles and plan of merger. The effects of the merger were reckoned from
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
January 1, 2008. The merger was accounted for as a business combination in accordance with PFRS 3. TMMIC and the Parent Company became a single corporation, with the Parent Company as the surviving corporation. TMMIC ceased to exist and its legal personality was terminated. As at the date of acquisition, the identifiable assets and liabilities of TMMIC have been measured at fair value resulting in a difference of P46,933,294 against its carrying values. The difference between the carrying value and fair value pertains mainly to the increase in the appraised value of the building. The Parent Company recorded the appraisal increase amounting to P23,466,647 pertaining to its previously held interest as “Other revaluation reserve” in the equity section of the consolidated statement of financial position.
19. Net Premiums earned
Gross premiums earned and reinsurers’ share of gross premiums earned consist of the following:
2011 2010 Gross premiums written Direct P4,555,375,878 P4,251,002,510 Assumed (Note 28) 1,496,274,004 1,674,066,940 Total gross premiums on insurance contracts (see Note 14) 6,051,649,882 5,925,069,450 Gross change in provision for unearned premiums 49,874,901 (578,472,887) gross premiums earned (see Note 14) 6,101,524,783 5,346,596,563 Reinsurers’ share of gross premiums written Direct insurance 2,410,469,360 2,101,539,111 Assumed reinsurance (Note 28) 949,074,962 1,166,652,262 Total reinsurers’ share of gross premiums on insurance contracts (see Note 14) 3,359,544,322 3,268,191,373 Reinsurers’ share of gross change in provision for unearned premiums 78,314,920 (348,552,433) Reinsurers’ share of gross premiums earned on insurance contacts (see Note 14) 3,437,859,242 2,919,638,940 Net premiums earned P2,663,665,541 P2,426,957,623
20. Investment and Other Income - net
This account consists of:
2011 2010 Dividend income (Note 28) P286,305,928 P276,258,731 Interest income (Note 28): AFS financial assets 186,992,467 192,388,846 Cash and cash equivalents 35,001,314 37,582,815 Long-term commercial papers 22,892,393 16,915,168 Funds held by ceding companies 1,202,061 1,329,113 Short-term investments 627,922 275,707 Long-term investments 200,524 1,371,842 Others 8,353,520 3,851,511 Gain (loss) on sale of: AFS financial assets (see Note 7) 58,173,271 100,351,412 Property and equipment (see Note 12) 1,151,198 (25,542) Long-term commercial paper 100,000 –
Rental income (see Note 11) 22,500,776 24,538,347 Impairment loss (see Note 7) (15,529,779) (10,441,311) Foreign currency exchange gains (losses) - net 48,904,010 (49,360,338) Others 6,383,603 57,940,409 P663,259,208 P652,976,710
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
21. Insurance Contract Benefits and Claims Paid
Gross insurance contract benefits and claims paid consist of:
2011 2010 Gross insurance contract benefits and claims paid: Direct insurance P1,897,732,136 P2,362,159,114 Assumed reinsurance 638,211,784 1,090,958,979 Total gross insurance contract benefits and claims paid (see Note 14) P2,535,943,920 P3,453,118,093
Reinsurers’ share of gross insurance contract benefits and claims paid consist of:
2011 2010 Reinsurers’ share of insurance contract benefits and claims paid: Direct insurance (P990,644,369) (P1,227,898,684) Assumed reinsurance (182,223,504) (497,663,402) total reinsurers’ share of gross insurance contract benefits and claims paid (see Note 14) (P1,172,867,873) (P1,725,562,086)
Gross change in insurance contract liabilities consist of:
2011 2010 Change in provision for claims reported: Direct insurance (P418,727,332) (P1,135,341,075) Assumed reinsurance (14,510,456) (742,807,161) Change in provision for IBNR (15,867,270) (12,610,207) total gross change in insurance contract liabilities (see Note 14) (P449,105,058) (P1,890,758,443)
Reinsurers’ shares of gross change in insurance contract liabilities consist of:
2011 2010 Reinsurers’ share of gross insurance contract liabilities: Direct insurance P683,124,253 P1,055,495,631 Assumed reinsurance (374,504) 438,691,140 total reinsurers’ share of gross change in insurance contract liabilities (see Note 14) P682,749,749 P1,494,186,771
22. general and Administrative expenses
This account consists of:
2011 2010 Salaries, wages and allowances (Note 28) P306,892,963 P297,190,816 Employee benefits (Note 17) 72,447,694 70,669,475 Rent, light and water (Notes 23 and 28) 59,363,592 56,220,965 Depreciation and amortization (Notes 11, 12 and 13) 48,419,175 47,570,359 Professional fees 45,307,823 31,659,690 Transportation and travel 42,867,990 37,898,367 Advertising and promotions 36,294,722 41,030,327 Postage, telephone and cable 30,307,430 26,696,132 Printing and office supplies 22,170,343 24,989,470
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
(Forward)
Entertainment, amusement and recreation P20,325,418 P15,685,596 Repairs and maintenance 14,755,488 17,861,715 Donations and contributions 10,265,209 9,188,353 Provisions for impairment loss - net of reversals (Notes 6 and 7) 9,275,729 9,887,005 Taxes, licenses and fees 8,067,873 10,862,450 Membership and association dues 7,199,597 8,546,891 Business development 7,561,675 9,504,676 Management fees (Note 28) 7,508,397 5,723,519 Bank charges 3,847,831 4,297,770 Insurance 1,076,514 910,696 Others 15,002,149 17,664,140 P768,957,612 P744,058,412
23. Leases
Operating leases - Group as lessor The Group entered into various lease agreements for its office spaces. These leases generally have terms of one
year, renewable every year.
Operating leases - Group as lessee The Group entered into various property leases with various lessors for office space of its head office and local
and provincial branches. These leases generally have terms of one year, renewable every year.
24. Income tax
The benefit from income tax consists of:
2011 2010 Final P18,345,48 P17,203,258 Current 8,457,482 13,871,319 Deferred 7,308,699 (60,841,947) P34,111,664 (P29,767,370)
The Group’s net deferred tax assets (liabilities) consist of:
2011 2010 Deferred tax assets: Excess of provision for unearned premiums per books over tax basis P477,841,581 P506,493,578 Deferred reinsurance commissions 31,840,859 33,822,516 Provision for IBNR losses 24,863,657 20,103,476 Unamortized past service costs 22,631,118 23,876,384 Allowance for impairment losses 20,453,914 18,097,373 Pension obligation 12,150,580 13,898,762 Accrual for short-term benefits 9,894,512 7,372,319 Unrealized foreign exchange losses 1,663,611 24,083,547 601,339,832 647,747,955 Deferred tax liabilities: Unrealized foreign exchange gains (P553,195) P-
Deferred reinsurance premiums (419,178,867) (446,913,478) Deferred acquisition costs (79,643,269) (90,614,395) Pension assets (250,188) (1,197,070) (499,625,519) (538,724,943) Deferred tax liability through equity: Net unrealized gain on AFS financial assets (31,966,356) (34,045,667) P69,747,957 P74,977,345
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The net deferred tax assets are presented in the consolidated statements of financial position as follows:
2011 2010 Deferred tax assets P70,024,768 P74,977,345 Deferred tax liability (276,811) –
P69,747,957 P74,977,345
As of December 31, 2011 and 2010, the Group did not recognize the deferred income tax assets amounting to P159.74 million and P292.41 million, respectively, for the following:
2011 2010 NOLCO P364,857,127 P856,501,006 Accrued expenses 59,832,892 44,158,229 MCIT 26,657,568 20,798,178 Impairment loss 15,430,478 –
Allowance for doubtful accounts P3,384,386 P4,712,894
The related tax benefits will be recognized only as reassessment demonstrates that they are realizable. Realization is entirely dependent upon future taxable income.
As of December 31, 2011, details of the NOLCO and MCIT, which is available for offset against future taxable income and future income tax liability, respectively, follows:
Tax Effect
Inception Year NOLCO of NOLCO MCIT Expiration Year
2011 P241,217,138 P72,365,142 P8,457,482 2014
2010 18,872,133 5,661,640 11,496,836 2013
2009 104,767,856 31,430,357 6,703,250 2012
P364,857,127 P109,457,139 P26,657,568
The following are the movements in NOLCO:
2011 2010 Balance at beginning of year P856,501,006 P981,314,579 Addition 241,217,138 18,872,133 Expiration (732,861,017) (103,472,930) Applied – (40,212,776) Balance at end of year P364,857,127 P856,501,006
The following are the movements in MCIT:
2011 2010 Balance at beginning of year P20,798,178 P16,441,582 Addition 8,457,482 11,496,836 Expiration (2,598,092) (7,140,240) Balance at end of year P26,657,568 P20,798,178
The reconciliation of provision for income tax computed at the statutory corporate income tax rate to benefit from income tax shown in the consolidated statements of income follows:
2011 2010 At statutory income tax rate P85,831,914 P114,988,456 Adjustments for: Change in unrecognized deferred tax assets 89,755,608 7,304,951 Nondeductible expenses 2,523,432 7,753,952 Dividend income (84,592,676) (82,665,065) Interest income exempt or already subjected to final tax (46,331,820) (48,609,032) Gain on sale of AFS financial assets (13,074,794) (22,601,329) Applied NOLCO – (5,939,303) P34,111,664 (P29,767,370)
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
25. Reconciliation of Net Income under PFRS to Statutory Net Income
The reconciliation of net income under PFRS to statutory net income of the Group follows:
2011 2010 Net income under PFRS P251,994,718 P413,062,224 Adjustments: Difference in change in provision for unearned premiums - net (9,260,124) 178,394,610 Net pension benefit income (2,670,998) (1,581,563) Deferred reinsurance commission (2,607,633) 2,756,752 Deferred acquisition costs - net 32,570,980 (68,272,460) Net adjustments to interest income (2,546,822) – Others 1,481,175 (14,613,861) Eliminated dividend income 110,940,000 110,940,000 Tax effect of adjustments 3,995,179 (57,788,255) P383,896,475 P562,897,447
26. Insurance and Financial Risk management
Insurance Risk The principal risk the Group faces under insurance contracts is that the actual claims and benefit payments or the
timing thereof, differ from expectations. This is influenced by the frequency of claims, severity of claims, actual benefits paid and subsequent development of claims. Therefore, the objective of the Group is to ensure that sufficient reserves are available to cover these liabilities.
The above risk exposure is mitigated by diversification across a large portfolio of insurance contracts and geographical areas. The variability of risks is also improved by careful selection and implementation of underwriting strategy guidelines, as well as the use of reinsurance arrangements.
The Group purchases reinsurance as part of its risks mitigation program. Reinsurance ceded is placed on both a proportional and non-proportional basis with retention limits varying by product line and territory. The majority of proportional reinsurance is quota-share reinsurance which is taken out to reduce the overall exposure of the Group to certain classes of business.
Non-proportional reinsurance is primarily excess-of-loss reinsurance designed to mitigate the Group’s net exposure to catastrophe losses. Retention limits for the excess-of-loss reinsurance vary by product line and territory.
Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contracts. Although the Group has reinsurance arrangements, it is not relieved of its direct obligations to its policyholders and thus a credit exposure exists with respect to ceded insurance, to the extent that any reinsurer is unable to meet its obligations assumed under such reinsurance agreements.
The Group’s placement of reinsurance is diversified such that it is neither dependent on a single reinsurer nor are the operations of the Group substantially dependent upon any single reinsurance contract.
The Group principally issues the following types of general insurance contracts: fire, motorcar, personal accident, marine, engineering, bonds and miscellaneous casualty. The most significant risks arise from climate changes and natural disasters. These risks do not vary significantly in relation to the location of the risk insured by the Group, type of risk insured and by industry.
To further reduce the risk exposure, the Group requires strict claim review policies to assess all new and ongoing claims, regular detailed review of claims handling procedures and frequent investigation of possible fraudulent claims.
The Group further enforces a policy of actively managing and prompt pursuing of claims, in order to reduce its exposure to unpredictable future developments that can negatively impact the Group.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The Group also has limited its exposure level by imposing maximum claim amounts on certain contracts as well as the use of reinsurance arrangements in order to limit exposure to catastrophic events. The purpose of these underwriting and reinsurance strategies is to limit exposure to catastrophes to a predetermined maximum amount based on the Group’s risk appetite as decided by management.
The tables below set out the concentration of the claims liabilities by type of contract (see Note 14).
2011 gross Reinsurers’ Share Net Fire P2,618,601,729 P1,725,239,060 P893,362,669 Motor 411,028,052 14,007,531 397,020,521 Engineering 361,176,063 301,750,849 59,425,214 Miscellaneous casualty 249,998,346 108,326,727 141,671,619 Marine cargo 226,496,861 112,806,428 113,690,433 Bonds 114,095,499 90,265,302 23,830,197 Surety 128,861,927 38,901,173 89,960,754 Personal accident 63,775,747 – 63,775,747 Others 1,534,709 – 1,534,709 P4,175,568,933 P2,391,297,070 P1,784,271,863
2010 Gross Reinsurers’ Share Net Fire P2,991,190,181 P2,489,254,329 P501,935,852 Motor 576,961,142 1,331,998 575,629,144 Engineering 377,920,354 326,590,326 51,330,028 Miscellaneous casualty 219,319,483 77,676,935 141,642,548 Marine cargo 191,647,998 61,736,925 129,911,073 Bonds 114,095,499 90,265,302 23,830,197 Surety 94,026,311 27,179,742 66,846,569 Personal accident 57,924,572 11,262 57,913,310 Others 1,588,451 – 1,588,451 P4,624,673,991 P3,074,046,819 P1,550,627,172
The tables below set out the geographical concentration of the Group’s claims liabilities based on the countries where the insurance business is written.
2011 gross Reinsurers’ Share Net Philippines P3,986,983,615 P2,382,809,158 P1,604,174,457 Greece 183,263,872 8,487,912 174,775,960 Netherlands 5,321,446 – 5,321,446 P4,175,568,933 P2,391,297,070 P1,784,271,863
2010 Gross Reinsurers’ Share Net Philippines P4,188,374,615 P3,065,558,907 P1,122,815,708 Greece 420,404,971 8,487,912 411,917,059 Netherlands 15,894,405 – 15,894,405 P4,624,673,991 P3,074,046,819 P1,550,627,172
Key Assumptions The principal assumption underlying the liability estimates is the Group’s future claims development will follow a similar
pattern to past claims development experience. This includes assumptions in respect of average claim costs, claims handling costs, claims inflation factors and claim numbers for each accident year. Additional qualitative judgments are used to assess the extent to which past trends may not apply in the future, for example once-off occurrence, changes in market factors such as public attitude to claiming, economic conditions, as well as internal factors such as portfolio mix, policy conditions and claims handling procedures. Judgment is further used to assess the extent to which external factors such as judicial decisions and government legislation affect the estimates.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Other key assumptions include variations in interest, delays in settlement and changes in foreign currency rates.
Sensitivities The insurance claims provision is sensitive to the above key assumptions. Because of delays that arise between
occurrence of a claim and its subsequent notification and eventual settlement, the outstanding claim provisions are not known with certainty at the reporting dates.
The table below shows the impact of changes in certain important assumptions in general insurance business while other assumptions remain unchanged. The correlation of assumptions will have a significant effect in determining the claims but to demonstrate the impact due to changes in assumptions, assumptions had to be changed on individual basis.
2011
Impact on Impact on gross Insurance Net Insurance Impact on contract contract Income Before Liabilities Liabilities Income tax change in Increase Increase Increase Assumptions % (Decrease) (Decrease) (Decrease)
Average claim costs +5% P103,106,174 P63,121,828 P(63,121,828)
Average number of claims +5% 199,402,037 101,644,553 (101,644,553)
2010
Impact on Impact on Gross Insurance Net Insurance Impact on Contract Contract Income Before Liabilities Liabilities Income Tax Change in Increase Increase Increase
Assumptions % (Decrease) (Decrease) (Decrease)
Average claim costs +5% P136,105,259 P58,834,794 (P58,834,794)
Average number of claims +5% 172,267,144 74,530,339 (74,530,339)
Claims Development Table The following tables reflect the cumulative incurred claims, including both claims notified and IBNR for each
successive accident year at each reporting dates, together with cumulative payments to date.
The Group aims to maintain strong reserves in respect of its insurance business in order to protect against adverse future claims experience and developments. As claims develop and the ultimate cost of claims becomes more certain, adverse claims experiences are eliminated which results in the release of reserves from earlier accident years. In order to maintain strong reserves, the Group transfers much of this release to current accident year reserves when the development of claims is less mature and there is much greater uncertainty attaching to the ultimate cost of claims.
The risks vary significantly in relation to the location of the risk insured by the Group, type of risks insured and in respect of commercial and business interruption insurance by industry.
gross insurance contract liabilities in 2011 2005 and Accident year prior year 2006 2007 2008 2009 2010 2011 TotalAccident year P7,033,157,544 P4,850,917,503 P2,154,031,020 P3,454,804,095 P4,559,381,129 P2,481,332,474 P2,104,628,116 P2,104,628,116 One year later 7,211,482,104 6,805,336,003 2,702,868,685 3,083,112,663 4,040,021,119 2,385,646,855 – 2,385,646,855 Two years later 7,270,837,804 6,141,362,933 3,309,288,417 3,045,807,229 4,123,594,783 – – 4,123,594,783Three years later 7,280,263,333 6,211,822,149 3,238,220,388 3,054,340,566 – – – 3,054,340,566Four years later 7,321,310,337 6,109,296,498 3,218,225,235 – – – – 3,218,225,235Five years later 7,204,204,826 6,119,695,906 – – – – – 6,119,695,906Six years later 7,194,462,945 – – – – – – 7,194,462,945Current estimate of cumulative claims 7,194,462,945 6,119,695,906 3,218,225,235 3,054,340,566 4,123,594,783 2,385,646,855 2,104,628,116 28,200,594,406Cumulative payments to date 6,748,172,182 5,938,215,791 3,157,308,792 2,509,171,327 3,229,872,661 2,037,098,728 405,185,992 24,025,025,473Liability recognized P446,290,763 P181,480,115 P60,916,443 P545,169,239 P893,722,122 P348,548,127 P1,699,442,124 P4,175,568,933
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Net insurance contract liabilities in 2011 2005 and Accident year prior year 2006 2007 2008 2009 2010 2011 TotalAccident year P3,085,614,472 P1,242,378,749 P1,431,258,014 P1,952,183,387 P1,125,272,584 P1,497,315,141 P1,514,620,790 P1,514,620,790 One year later 3,226,397,222 1,567,045,893 1,424,541,612 1,920,769,319 1,152,619,674 1,565,185,256 – 1,565,185,256Two years later 3,254,192,237 1,616,864,780 1,941,147,712 1,976,729,680 1,216,041,807 – – 1,216,041,807Three years later 3,278,762,812 1,626,293,386 1,902,396,647 1,944,578,887 – – – 1,944,578,887Four years later 3,271,630,637 1,622,788,908 1,882,845,857 – – – – 1,882,845,857Five years later 3,042,764,568 1,636,820,607 – – – – – 1,636,820,607Six years later 2,753,967,847 – – – – – – 2,753,967,847Current estimate of cumulative claims 2,753,967,847 1,636,820,607 1,882,845,857 1,944,578,887 1,216,041,807 1,565,185,256 1,514,620,790 12,514,061,051Cumulative payments to date 2,607,125,248 1,623,104,604 1,855,079,829 1,871,572,825 1,153,088,282 1,331,894,814 287,923,586 10,729,789,188Net liability recognized P146,842,599 P13,716,003 P7,766,028 P73,006,062 P62,953,525 P233,290,442 P1,226,697,204 P1,784,271,863
Financial Risk The Group is exposed to financial risk through its financial assets and financial liabilities. In particular, the key
financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance contracts. The most important components of this financial risk are credit risk, liquidity risk and market risk.
These risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements.
Credit Risk Credit risk is a risk due to uncertainty in a counterparty’s (also called an obligor) ability to meet its obligation.
Prior to extending credit, the Group manages its credit risk by assessing credit quality of its counterparty.
The Group has a credit policy group that reviews all information about the counterparty which may include its statement of financial position, statements of income and other market information. The nature of the obligation is likewise considered. Based on this analysis, the credit analyst assigns the counterparty a credit rating to determine whether or not credit may be provided.
Credit risk limit is also used to manage credit exposure which specifies exposure credit limit for each intermediary depending on the size of its portfolio and its ability to meet its obligation based on past experience.
The table below shows the maximum exposure to credit risk for the components of the consolidated statement of financial position, net of impairment loss.
2011 2010
AFS financial assets:
Quoted securities:
Listed equity securities
Common shares P4,679,137,830 P4,640,473,978
Preferred shares 26,021,840 25,536,586
Government debt securities:
Local currency 561,760,112 487,604,713
Foreign currency 434,862,299 439,713,086
Private debt securities 2,274,833,903 2,094,514,726
Non-quoted securities:
Unlisted equity securities P80,495,744 P78,055,744
Loans and receivables:
Cash and cash equivalents 1,612,135,256 1,206,062,887
Short-term investments 11,099,040 10,536,503
Insurance receivables:
Due from policyholders, agents and brokers P1,572,606,331 P1,767,579,012
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
(Forward)
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
2011 2010 Due from ceding companies: Treaty 763,631,535 431,736,009 Facultative 171,771,502 534,449,407 Funds held by ceding companies 167,379,163 170,011,074 Reinsurance recoverable on paid losses: Facultative 94,573,012 87,441,202 Treaty 21,392,188 21,390,034 Loans and receivables: Long-term commercial paper 344,835,665 271,725,435 Creditable withholding tax 62,677,478 – Long-term investments 10,026,206 43,196,312 Notes receivable 8,104,133 8,354,260 Accounts receivable 2,422,163 33,924,406 Due from related parties 3,261,857 45,065,296 Cash advances 1,198,492 701,182 Security fund 342,294 342,294 Accrued income: Accrued interest income: AFS financial assets 36,426,308 39,529,104 Long term commercial paper 2,549,440 2,941,344 Long-term investments 361,180 2,176,815 Cash and cash equivalents 335,054 1,328,615 Funds held by ceding companies 169,429 1,897,770 Security fund 108,425 298,273 Short-term investments 80,127 193,440 Accrued rent income 3,291,580 5,069,869 P12,947,889,586 P12,451,849,376
The following tables provide information regarding the credit risk exposure of the Group by classifying the financial assets according to the Group’s credit ratings of the counter parties.
2011
Neither past due nor impaired Past due but Individually
High grade medium grade not impaired Impaired total
AFS financial assets:
Quoted securities:
Listed equity securities
Common shares P4,668,081,997 P– P– P34,385,935 P4,702,467,932
Preferred shares 26,021,840 – – – 26,021,840
Government debt securities:
Local currency 561,760,112 – – – 561,760,112
Foreign currency 434,862,299 – – – 434,862,299
Private debt securities 1,326,580,638 948,253,265 – – 2,274,833,903
Non-quoted securities:
Unlisted equity securities – 80,495,744 – – 80,495,744
Loans and receivables:
Cash and cash equivalents 1,611,289,380 845,876 – – 1,612,135,256
Short-term investments 11,099,040 – – – 11,099,040
Insurance receivables:
Due from policyholders, agents, and brokers 308,876,076 462,080,812 828,802,807 16,944,841 1,616,704,536
Due from ceding companies:
Facultative 19,734,830 126,070,289 25,966,383 12,668,877 184,440,379
Treaty 611,150,997 17,033,260 135,447,278 641,002 764,272,537
Funds held by ceding companies 165,222,389 788,629 1,368,145 1,380,777 168,759,940
Reinsurance recoverable on paid losses:
Facultative – 4,086,187 99,559,136 – 103,645,323
Treaty 923 – 21,391,265 – 21,392,188(Forward)
Accrued income: Accrued interest: AFS financial assets 21,637,013 14,789,295 – – 36,426,308 Long-term commercial papers 2,363,075 186,365 – – 2,549,440 Cash and cash equivalents 335,054 – – – 335,054 Long-term investments 361,180 – – – 361,180 Funds held by ceding companies 169,429 – – – 169,429 Security fund 108,414 11 – – 108,425 Short-term investments 80,127 – – – 80,127 Accrued rent income 3,291,580 – – – 3,291,580 Loans and receivables: Long-term commercial paper 324,837,500 19,998,165 – – 344,835,665 Creditable withholding tax 62,677,478 – – – 62,677,478 Long-term investments 10,026,206 – – – 10,026,206 Notes receivable 8,104,133 – – 1,697,251 9,801,384 Accounts receivable 2,363,616 58,547 – 2,005,675 4,427,838 Due from related parties 3,261,857 – – – 3,261,857 Cash advances 1,198,492 – – – 1,198,492 Security fund 342,294 – – – 342,294 P10,185,837,969 P1,674,686,445 P1,112,535,014 P69,724,358 P13,042,783,786
2010 Neither past due nor impaired Past due but not Individually High Grade Medium Grade Impaired Impaired Total AFS financial assets: Quoted securities: Listed equity securities Common shares P4,633,064,823 P– P– P17,850,466 P4,650,915,289 Preferred shares 25,536,586 – – – 25,536,586 Government debt securities: Local currency 444,772,930 42,831,783 – – 487,604,713 Foreign currency 439,713,086 – – – 439,713,086 Private debt securities 1,335,187,039 759,327,687 – – 2,094,514,726 Non-quoted securities: Unlisted equity securities – 78,055,744 – – 78,055,744 Loans and receivables: Cash and cash equivalents 1,205,273,386 789,501 – – 1,206,062,887 Short-term investments 10,536,503 – – – 10,536,503 Insurance receivables: Due from policyholders, agents, and brokers 281,756,232 647,601,807 867,677,464 17,602,351 1,814,637,854 Due from ceding companies: Facultative 467,960,090 12,557,863 53,931,454 6,076,008 540,525,415 Treaty 350,011,598 38,485,860 43,238,551 500,868 432,236,877 Funds held by ceding companies 168,441,200 – 1,569,874 1,380,777 171,391,851 Reinsurance recoverable on paid losses: Facultative 24,323,515 3,798,238 59,319,449 – 87,441,202 Treaty 1,328,687 82,602 19,978,745 – 21,390,034 Accrued income: Accrued interest: AFS financial assets 22,167,347 17,361,757 – – 39,529,104 Long-term commercial papers 2,100,623 840,721 – – 2,941,344 Long-term investments 2,176,815 – – – 2,176,815 Funds held by ceding companies 1,897,770 – – – 1,897,770 Cash and cash equivalents 441,222 887,393 – – 1,328,615 Short-term investments 193,440 – – – 193,440 Others 76,095 222,178 – – 298,273 Accrued rent income 5,069,869 – – – 5,069,869 Loans and receivables: Long-term commercial paper 203,037,500 68,687,935 – – 271,725,435 Long-term investment 43,196,312 – – – 43,196,312 Notes receivable 8,354,260 – – 599,374 8,953,634 Accounts receivable 19,871,600 14,052,806 2,005,675 35,930,081 Due from related parties 45,065,296 – – 7,415,927 52,481,223 Security fund 284,386 57,908 – – 342,294 Others 701,182 – – – 701,182
P9,742,539,392 P1,685,641,783 P1,045,715,537 P53,431,446 P12,527,328,158
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The credit rating is based on the following:
a) Cash and cash equivalents, short-term investments and related accrued income High grade pertains to those deposited, placed or invested in foreign and local banks belonging to the top
banks in the Philippines in terms of resources and profitability, while medium grade pertains to those deposited, placed or invested in thrift banks and rural banks in the Philippines.
b) Insurance receivable, loans and receivables, accrued rent income and management fee For insurance receivables and loans and receivables except Due from ceding companies, Funds held by
ceding companies, and Long-term commercial papers, the Group uses a credit rating concept based on the borrowers and counterparties’ overall creditworthiness. High grade is given to borrowers and counterparties who possess strong to very strong capacity to meet its obligations. Medium grade is given to borrowers and counterparties who possess above average capacity to meet its obligations. These counterparties are somewhat susceptible to adverse changes in business and economic conditions.
For Due from ceding companies and Funds held by ceding companies from local sources, the Group uses a credit rating concept based on the debt-to-equity ratios of the borrowers and counterparties. High grade is given to borrowers and counterparties with debt-to-equity ratio of less than or equal to 2:1, while medium grade is given to borrowers and counterparties with debt-to-equity ratio of more than 2:1.
For Due from ceding companies and Funds held by ceding companies from foreign sources, the Group uses Standard & Poor’s (S&P) and A.M. Best’s credit rating of insurance companies. High grade pertains to insurance companies rated by S&P and A.M. Best as higher than BB+, which means that the insurance company has good to strong financial security characteristics, but may be affected by adverse business conditions. Medium grade pertains to insurance companies that are ungraded and rated by S&P and A.M. Best as lower than BB+, which means that the insurance company has marginal financial security characteristics. Positive attributes exist, but adverse business conditions could lead to insufficient ability to meet financial commitments.
c) Equity securities Listed equity securities are classified as high grade. Unlisted equity securities are classified as medium grade.
d) Debt securities, long-term commercial papers, and related accrued income These are based on the credit ratings by the international rating agency, Standard & Poors (S&P), and by
Philippine Ratings Services Corporation (Philratings), the only domestic credit rating services in the Philippines accredited by Bangko Sentral ng Pilipinas (BSP) and SEC, in cases where an S&P rating is not available. High grade pertains to investments rated by S&P as BBB- and higher, which means that the counterparties have extremely strong to adequate capacity of paying interest and repaying principal, as well as Investments in Securities issued by the Philippine Government. Medium grade pertains to investments rated as Baa and higher by Philratings, as well as investments rated by S&P as BB+ to B- (except Philippine Government Securities). The Group’s holdings under this category are rated either BB- by S&P (due to sovereign credit rating ceiling) or Aaa by Philratings which is defined by Philratings to mean that the obligor’s capacity to meet its financial commitment on the obligation is extremely strong
The following shows the aging analysis of financial assets:
2011
Past due but not impaired
Neither past total past due
due nor but not Individually
impaired <30 days > 30 days Impaired Impaired total
Listed equity securities:
Common shares P4,668,081,997 P– P– P– P34,385,935 P4,702,467,932
Preferred shares 26,021,840 – – – – 26,021,840
Government debt securities:
Local currency 561,760,112 – – – – 561,760,112
Foreign currency 434,862,299 – – – – 434,862,299
Private debt securities 2,274,833,903 – – – – 2,274,833,903
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
(Forward)
Unlisted equity
securities - common shares 80,495,744 – – – – 80,495,744 Cash and cash equivalents 1,612,135,256 – – – – 1,612,135,256 Short-term investments 11,099,040 – – – – 11,099,040 Due from policyholders,
agents and brokers 770,956,888 91,456,340 737,346,467 828,802,807 16,944,841 1,616,704,536 Due from ceding companies:
Facultative P145,805,119 P1,789,783 P24,176,600 P25,966,383 P12,668,877 P184,440,379 Treaty 628,184,257 2,418,042 133,029,236 135,447,278 641,002 764,272,537 Funds held by ceding
companies - treaty 166,011,018 410,154 957,991 1,368,145 1,380,777 168,759,940 Reinsurance recoverable on
paid losses
Facultative 4,086,187 5,935,382 93,623,754 99,559,136 – 103,645,323 Treaty 923 1,230 21,390,035 21,391,265 – 21,392,188
Accrued interest:
AFS financial assets 36,426,308 – – – – 36,426,308 Long-term
commercial papers 2,549,440 – – – – 2,549,440 Long-term investments 361,180 – – – – 361,180 Cash and cash equivalents 335,054 – – – – 335,054 Funds held by ceding
companies - treaty 169,429 – – – – 169,429 Short-term investments 80,127 – – – – 80,127 Security fund 108,425 – – – – 108,425 Accrued rent income 3,291,580 – – – – 3,291,580 Loans and receivables
Long-term
commercial papers 344,835,665 – – – – 344,835,665 Creditable withholding tax 62,677,478 – – – – 62,677,478 Long-term investments 10,026,206 – – – – 10,026,206 Notes receivable 8,104,133 – – – 1,697,251 9,801,384 Accounts receivable 2,422,163 – – – 2,005,675 4,427,838 Due from related parties 3,261,857 – – – – 3,261,857 Cash advances 1,198,492 – – – – 1,198,492 Security fund 342,294 – – – – 342,294 P11,860,524,414 P102,010,931 P1,010,524,083 P1,112,535,014 P69,724,358 P13,042,783,786
2010
Past due but not impaired
Neither past Total past due
due nor but not Individually
impaired <30 days > 30 days Impaired Impaired Total
Listed equity securities:
Common shares P4,633,064,823 P– P– P– P17,850,466 P4,650,915,289
Preferred shares 25,536,586 – – – – 25,536,586
Government debt securities:
Foreign currency 439,713,086 – – – – 439,713,086
Local currency 487,604,713 – – – – 487,604,713
Private debt securities 2,094,514,726 – – – – 2,094,514,726
Unlisted equity
securities - common shares 78,055,744 – – – – 78,055,744
Cash and cash equivalents 1,206,062,887 – – – – 1,206,062,887
Short-term investments 10,536,503 – – – – 10,536,503
Due from policyholders, agents
and brokers 929,358,039 124,631,691 743,045,773 867,677,464 17,602,351 1,814,637,854
Due from ceding companies:
Facultative P480,517,953 P7,192,368 P46,739,086 P53,931,454 P6,076,008 P540,525,415
Treaty 388,497,458 8,764,046 34,474,505 43,238,551 500,868 432,236,877
Funds held by ceding companies 168,441,200 965,532 604,342 1,569,874 1,380,777 171,391,851
Reinsurance recoverable
on paid losses:
Facultative 28,121,753 5,128,967 54,190,482 59,319,449 – 87,441,202
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
(Forward)
Treaty 1,411,289 1,118,910 18,859,835 19,978,745 – 21,390,034
Accrued interest:
AFS financial assets 39,529,104 – – – – 39,529,104
Long-term commercial papers 2,941,344 – – – – 2,941,344
Long-term investments 2,176,815 – – – – 2,176,815
Cash and cash equivalents 1,328,615 – – – – 1,328,615
Funds held by ceding
companies - treaty 1,897,770 – – – – 1,897,770
Short-term investments 193,440 – – – – 193,440
Security fund 298,273 – – – – 298,273
Accrued rent income 5,069,869 – – – – 5,069,869
Loans and receivables
Long-term
commercial papers 271,725,435 – – – – 271,725,435
Long-term investments 43,196,312 – – – – 43,196,312
Notes receivable 8,354,260 – – – 599,374 8,953,634
Accounts receivable 33,924,406 – – – 2,005,675 35,930,081
Due from related parties 45,065,296 – – – 7,415,927 52,481,223
Cash advances 701,182 – – – – 701,182
Security fund 342,294 – – – – 342,294
P11,428,181,175 P147,801,514 P897,914,023 P1,045,715,537 P53,431,446 P12,527,328,158
Liquidity Risk Liquidity or funding risk is the risk that an entity will encounter difficulty in raising funds to meet commitments
associated with financial instruments. Liquidity risk may result from either the inability to sell financial assets quickly at their fair values; or counterparty failing on repayment of a contractual obligation; or insurance liability falling due for payment earlier than expected; or inability to generate cash inflows as anticipated.
An institution may suffer from a liquidity problem when its credit rating falls. The Group is also exposed to liquidity risk if markets on which it depends on are subject to loss of liquidity. The major liquidity risk faced by the Group is the potential daily calls on its available cash resources in respect of claims from insurance contracts.
The Group manages liquidity through a management team which determines liquidity risk for the Group by identifying events that would trigger liquidity problems, providing contingency plans, identifying potential sources of funds and monitoring compliance of liquidity risk policy.
The tables below analyze financial assets and financial liabilities of the Group into their relevant maturity groups based on the remaining period at the reporting date to their contractual maturities or expected repayment dates.
2011
more than
Up to a year* 1-3 years 3 years No term total
Cash and cash equivalents P1,613,304,553 P– P– P– P1,613,304,553
Short-term investments 11,099,040 – – – 11,099,040
Insurance receivables 2,859,214,903 – – – 2,859,214,903
AFS financial assets 197,756,097 51,681,625 3,022,018,592 4,785,655,414 8,057,111,728
Loans and receivables 23,993,178 147,310,140 265,267,896 – 436,571,214
Accrued income 43,321,543 – – – 43,321,543
Reinsurance recoverable on unpaid losses 2,391,297,070 – – – 2,391,297,070
Total financial assets P7,139,986,384 P198,991,765 P3,287,286,488 P4,785,655,414 P15,411,920,051
Insurance contract liabilities P4,175,568,933 P– P– P– P4,175,568,933
Insurance payables 1,619,517,646 – – – 1,619,517,646
Accounts payable, accrued expenses
and other liabilities 712,074,127 – – – 712,074,127
Total financial liabilities P6,507,160,706 P– P– P– P6,507,160,706
* Up to a year are all commitments which are either due within one year or are payable in demand
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
2010 More than
Up to a year* 1-3 years 3 years No term Total
Cash and cash equivalents P1,206,923,303 P– P– P– P1,206,923,303
Short-term investments 10,536,503 – – – 10,536,503
Insurance receivables 3,067,623,233 – – – 3,067,623,233
AFS securities 110,350,378 135,997,798 2,775,484,349 4,744,066,308 7,765,898,833
Loans and receivables 117,899,976 53,791,526 241,638,659 – 413,330,161
Accrued income 53,435,230 – – – 53,435,230
Reinsurance recoverable on unpaid losses 3,074,046,819 – – – 3,074,046,819
Total financial assets P7,640,815,442 P189,789,324 P3,017,123,008 P4,744,066,308 P15,591,794,082
Insurance contract liabilities P4,624,673,991 P– P– P– P4,624,673,991
Insurance payables 1,673,606,402 – – – 1,673,606,402
Accounts payable, accrued expenses
and other liabilities 673,796,001 – – – 673,796,001
Total financial liabilities P6,972,076,394 P– P– P– P6,972,076,394
* Up to a year are all commitments which are either due within one year or are payable in demand
In 2011 and 2010, certain insurance receivables, AFS securities and loans and receivables have been provided with allowance for impairment.
The table below analyzes nonfinancial assets and liabilities of the Group into amounts expected to be recovered or settled within 12 months (current) and beyond 12 months (noncurrent).
2011 2010
current Noncurrent Current Noncurrent
Deferred acquisition costs P272,708,433 P– P302,047,984 P–
Deferred reinsurance premiums 1,411,396,673 – 1,489,711,593 –
Investment properties – 88,467,387 – 99,420,776
Property and equipment – 244,199,753 – 208,052,386
Pension assets – 833,960 – 3,990,234
Deferred tax assets – 70,024,768 – 74,977,345
Other assets 45,062,200 297,481,004 41,576,888 307,715,475
Total nonfinancial assets P1,729,167,306 P701,006,872 P1,833,336,465 P694,156,216
Provision for unearned premiums P2,677,505,854 P– P2,727,380,755 P–
Deferred reinsurance commissions 113,367,069 – 112,741,720 –
Deferred tax liability – 276,811 – –
Pension liability – 40,501,933 – 46,329,205
Other liabilities 287,004,440 – 264,290,651 –
Total nonfinancial liabilities P3,077,877,363 P40,778,744 P3,104,413,126 P46,329,205
It is unusual for the Group primarily transacting insurance business to predict the requirements of funding with absolute certainty as theory of probability is applied on insurance contracts to ascertain the likely provision and the time period when such liabilities will require settlement. The amounts and maturities in respect of insurance liabilities are thus based on management’s best estimate based on past experience.
Market Risk Market risk is the risk of change in fair value of financial instruments from fluctuations in foreign exchange rates
(currency risk), market interest rates (interest rate risk) and market prices (price risk), whether such change in price is caused by factors specific to the individual instrument or its issuer or factors affecting all instruments traded in the market.
Market risk is the risk to an institution’s financial condition from volatility in the price movements of the assets contained in a portfolio. Market risk represents what the Group would lose from price volatilities. Market risk can be measured as the potential gain or loss in a position or portfolio that is associated with a price movement of a given probability over a specified time horizon.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The Group manages market risk by evenly distributing capital among investment instruments, sectors and geographical areas.
The Group structures levels of market risk it accepts through a sound market risk policy based on specific guidelines set by an Investment Committee. This policy constitutes certain limits on exposure of investments mostly with top-rated banks, which are selected on the basis of the bank’s credit ratings, capitalization and quality servicing being rendered to the Group. Also, the said policy includes diversification benchmarks of investment portfolio to different investment types duly approved by the IC, asset allocation and portfolio limit structure.
Moreover, control of relevant market risks can be addressed through compliance reporting of market risk exposures, regular monitoring and review of the Group’s investment performance and upcoming investment opportunities for pertinence and changing environment.
a) Currency Risk
The Group’s principal transactions are carried out in Philippine Peso and its exposure to foreign exchange risk arises primarily with respect to U.S. Dollar and Euro.
The tables below summarize the Group’s exposure to foreign currency exchange rate risks by categorizing assets and liabilities by major currencies.
2011
Philippine Peso U.S. Dollar euro Others total
AFS financial assets:
Equity securities:
Listed equity securities P4,492,792,730 P92,714,714 P78,635,812 P41,016,414 P4,705,159,670
Unlisted equity securities 80,495,744 – – – 80,495,744
Private debt securities – 2,192,251,046 71,240,939 11,341,918 2,274,833,903
Government debt securities 561,760,112 342,870,492 91,991,807 – 996,622,411
Loans and receivables:
Cash and cash equivalents 1,471,793,331 66,611,075 46,704,904 28,195,243 1,613,304,553
Short-term investments 11,099,040 – – – 11,099,040
Insurance receivables - net 2,124,670,024 594,281,345 2,700,007 69,702,355 2,791,353,731
Loans and receivables 423,410,504 10,026,206 – – 432,868,288
Accrued income 16,315,367 23,284,823 3,516,430 204,923 43,321,543
total assets 9,182,336,852 3,322,039,701 294,789,899 150,460,853 12,949,058,883
Other financial liabilities
Accounts payable, accrued expenses and
other liabilities 712,074,127 – – – 712,074,127
Insurance payables 1,213,778,049 402,536,332 – 3,203,265 1,619,517,646
total liabilities P1,925,852,176 P402,536,332 P– P3,203,265 P2,331,591,773
2010
Philippine Peso U.S. Dollar Euro Others Total
AFS financial assets:
Equity securities:
Listed equity securities P4,437,171,266 P20,654,462 P195,935,901 P12,248,935 P4,666,010,564
Unlisted equity securities 78,055,744 – – – 78,055,744
Private debt securities – 1,835,593,949 258,920,777 – 2,094,514,726
Government debt securities 487,604,713 369,956,510 69,756,576 – 927,317,799
Loans and receivables:
Cash and cash equivalents 678,075,118 339,150,131 167,535,707 22,162,347 1,206,923,303
Short-term investments 5,028,937 5,507,566 – – 10,536,503
Insurance receivables - net 1,804,047,322 1,119,052,028 33,685,744 55,821,644 3,012,606,738
Loans and receivables 360,212,873 43,096,312 – – 403,309,185
(Forward)
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Accrued income 22,367,862 21,864,804 9,202,564 53,435,230
total assets 7,872,563,835 3,754,875,762 735,037,269 90,232,926 12,452,709,792
Other financial liabilities
Accounts payable, accrued expenses and
other liabilities 673,796,001 – – – 673,796,001
Insurance payables 1,082,618,962 545,519,321 – 45,468,119 1,673,606,402
total liabilities P1,756,414,963 P545,519,321 P– P45,468,119 P2,347,402,403
The following table demonstrates the sensitivity to a reasonably possible change in the US Dollar, euro and other currency exchange rates, with all other variables held constant, of the Group’s profit before tax (due to changes in the foreign exchange rate).
Impact on income before tax
Increase (Decrease)
Currency change in rate 2011 2010
US Dollar + 5% P147,342,269 P132,251,147
– 5% (147,342,269) (132,251,147)
Euro + 5% 16,652,314 34,607,448
– 5% (16,652,314) (34,607,448)
Others + 5% 3,184,567 1,759,657
– 5% (3,184,567) (1,759,657)
b) Interest Rate Risk
Interest rate risk is the risk that the value/future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s fixed rate investments in particular are exposed to such risk.
The Group’s market risk policy requires it to manage interest rate risk by maintaining appropriate mix of fixed and variable rate instruments. The policy also requires it to manage the maturities of interest bearing financial assets.
The following table sets out the Group’s financial assets exposed to interest rate risk by maturity:
2011
more than
Interest Rate within one year 1-3 years 3 years total
Cash and cash equivalents 0.25% - 4.50% P1,612,135,256 P– P– P1,612,135,256
Short-term investments 1.00% - 6.00% 11,099,040 – – 11,099,040
Long-term commercial papers 5.25% - 9.33% – 79,998,165 264,837,500 344,835,665
Long-term investments 2.00% 10,026,206 – – 10,026,206
AFS debt financial assets 2.50% - 12.38% 197,756,097 51,681,625 3,022,018,592 3,271,456,314
Total interest-bearing financial assets P1,831,016,599 P131,679,790 P3,286,856,092 P5,249,552,481
2010
More than
Interest Rate Within one year 1-3 years 3 years Tota
Cash and cash equivalents 0.25% - 5.00% P1,206,062,887 P– P– P1,206,062,887
Short-term investments 1.00% - 4.25% 10,536,503 – – 10,536,503
Long-term commercial papers 7.00% - 9.33%– 30,288,500 241,436,935 271,725,435
Long-term investments 1.50% - 6.75% 33,170,106 10,026,206 – 43,196,312
AFS debt financial assets 3.86% - 14.70% 110,350,378 135,997,798 2,775,484,349 3,021,832,525
Total interest-bearing financial assets P1,360,119,874 P176,312,504 P3,016,921,284 P4,553,353,662
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on the AFS debt securities, with all other variables held constant, of the Group’s equity:
Impact on equity
Increase (decrease)
Currency change in basis points 2011 2010 Philippine Peso + 100 (P19,501,830) (P30,214,083) U.S. Dollar + 100 (135,307,088) (94,076,348) Euro + 100 (2,776,029) (7,629,879) Philippine Peso – 100 28,250,970 31,769,413 U.S. Dollar – 100 141,661,019 89,977,468 Euro – 100 2,909,236 7,965,932
c) Equity Price Risk
The Group’s price risk exposure at year-end relates to financial assets and liabilities whose values will fluctuate as a result of changes in market prices, principally, AFS equity financial assets.
Such financial assets are subject to price risk due to changes in market values of instruments arising either from factors specific to individual instruments or their issuers or factors affecting all instruments traded in the market.
The Group’s market risk policy requires it to manage such risks by setting and monitoring objectives and constraints on investments; diversification plan; limits on investment in each country, sector and market; and careful and planned use of derivative instruments. The price risk on investments securities is also actively managed through the use of derivative financial instruments to mitigate the risk of adverse market movements.
The following table shows the equity impact of reasonably possible change of Philippine Stock Exchange index (PSEi) and Morgan Stanley Capital International (MSCI) Euro.
Impact on equity Increase (decrease) change in equity prices PSEi MSCI Euro 2011 +28% P955,460,547 P30,964,907 –28% (955,460,547) (30,964,907) 2010 +28% 515,388,227 21,838,708 –28% (333,502,103) (21,838,708)
27. Financial Assets and Liabilities
The table below presents a comparison by category of carrying amounts and estimated fair values of all the Group’s financial instruments.
2011 2010
carrying Value Fair Value Carrying Value Fair Value
AFS financial assets:
Quoted securities:
Listed equity securities
Common shares P4,679,137,830 P4,679,137,830 P4,640,473,978 P4,640,473,978
Preferred shares 26,021,840 26,021,840 25,536,586 25,536,586
Government debt securities:
Local currency 561,760,112 561,760,112 487,604,713 487,604,713
Foreign currency 434,862,299 434,862,299 439,713,086 439,713,086
Private debt securities 2,274,833,903 2,274,833,903 2,094,514,726 2,094,514,726
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
(Forward)
Non-quoted securities:
Unlisted equity securities 80,495,744 80,495,744 78,055,744 78,055,744
Loans and receivables:
Cash and cash equivalents 1,613,304,553 1,613,304,553 1,206,923,303 1,206,923,303
Short-term investments 11,099,040 11,099,040 10,536,503 10,536,503
Insurance receivables:
Due from policyholders, agents and brokers 1,572,606,331 1,572,606,331 1,767,579,012 1,767,579,012
Due from ceding companies:
Facultative 171,771,502 171,771,502 534,449,407 534,449,407
Treaty 763,631,535 763,631,535 431,736,009 431,736,009
Funds held by ceding companies 167,379,163 167,379,163 170,011,074 170,011,074
Reinsurance recoverable on paid losses:
Facultative 94,573,012 94,573,012 87,441,202 87,441,202
Treaty 21,392,188 21,392,188 21,390,034 21,390,034
Loans and receivables:
Long-term commercial papers 344,835,665 401,017,218 271,725,435 298,686,033
Creditable withholding tax 62,677,478 62,677,478 – –
Long term investments 10,026,206 10,026,206 43,196,312 43,196,312
Accounts receivable 2,422,163 2,422,163 33,924,406 33,924,406
Notes receivable 8,104,133 7,615,386 8,354,260 7,207,351
Due from related parties 3,261,857 3,261,857 45,065,296 45,065,296
Cash advances 1,198,492 1,198,492 701,182 701,182
Security fund 342,294 342,294 342,294 342,294
Accrued income:
Accrued interest income:
AFS financial assets 36,426,308 36,426,308 39,529,104 39,529,104
Long term commercial paper 2,549,440 2,549,440 2,941,344 2,941,344
Long-term investments 361,180 361,180 2,176,815 2,176,815
Cash and cash equivalents 335,054 335,054 1,328,615 1,328,615
Funds held by ceding companies 169,429 169,429 1,897,770 1,897,770
Security fund 108,425 108,425 298,273 298,273
Short-term investments 80,127 80,127 193,440 193,440
Accrued rent income 3,291,580 3,291,580 5,069,869 5,069,869
Total financial assets P12,949,058,883 P13,004,751,689 P12,452,709,792 P12,478,523,481
Other financial liabilities
Insurance payables
Due to reinsurers and ceding companies P1,095,809,972 P1,095,809,972 P1,266,858,941 P1,266,858,941
Funds held for reinsurers 523,707,674 523,707,674 406,747,461 406,747,461
Accounts payable and accrued expenses and other liabilities:
Accounts payable 341,342,089 341,342,089 290,059,957 290,059,957
Commissions payable 263,790,116 263,790,116 250,906,171 250,906,171
Accrued expenses 34,340,337 34,340,337 46,152,911 46,152,911
Surety deposits 31,841,060 31,841,060 49,339,610 49,339,610
Others 40,760,525 40,760,525 37,337,352 37,337,352
Total financial liabilities P2,331,591,773 P2,331,591,773 P2,347,402,403 P2,347,402,403
Fair values of financial assets are estimated as follows:
Cash and cash equivalents, short-term investments - the fair value approximates the carrying amounts at initial recognition due to their short term nature.
Debt securities - the fair values are based on quoted market prices.
Quoted equity securities - the fair values are generally based on quoted market prices. For unquoted equity securities, these are carried at cost less allowance for impairment losses due to the unpredictable nature of future cash flows and the lack of other suitable methods of arriving at a reliable fair value.
Unquoted equity securities - these are carried at cost less allowance for impairment losses because fair value cannot be measured reliably due to lack of reliable estimates of future cash flows and discount rates necessary to calculate the fair value.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
Insurance receivables, accrued income, short-term loans and receivables, insurance payables, accounts payable and accrued expenses - the fair values approximate the carrying amounts due to the short-term nature of the transactions.
Long-term commercial papers - fair values are based on present value of future cash flows discounted using the original interest rates of the instruments.
Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair values of financial instruments by
valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are
observable, either directly or indirectly Level 3: techniques which uses inputs which have a significant effect on the recorded fair value that are not
based on observable market data
As of December 31, 2011, the Group classifies AFS financial assets under Level 1 of the fair value hierarchy. During the reporting period ended December 31, 2011, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.
28. Related Party transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.
Outstanding balances as of year-end are unsecured and settled in cash. There have been no guarantees provided or received for any related party receivables or payables. In 2011, the Group has not recorded any impairment of receivables relating to amounts owed by related parties. This assessment is undertaken each financial year by examining the financial position of the related party and the market in which the related party operates.
Significant transactions with related parties include:
a) The Group accepts and cedes insurance business under various reinsurance contracts with Malayan International Insurance Corporation (MIIC), a subsidiary of MEI.
Cessions to MIIC amounted to P529.12 million and P649.53 million in 2011 and 2010, respectively. The total payable to MIIC as of December 31, 2011 and 2010 follows:
2011 2010 Due to reinsurers (see Note 15) P363,262,849 P50,492,540 Funds withheld for reinsurers (see Note 15) 236,829,400 39,348,459
Commission income earned from cession amounted to P11.89 million and P9.10 million in 2011 and 2010, respectively (Note 9).
b) The Group has a management contract with MEI which manages and supervises its insurance business, and investment and financial activities for a fixed annual fee of P7.50 million and P5.72 million which is included in the General and administrative expenses account in the consolidated statements of income in 2011 and 2010, respectively (see Note 22).
c) The Group leased various office spaces from Y Realty Corporation, with lease term of one year, renewable every year. Annual rent expense recognized for 2011 and 2010 amounted to P11.16 million and P10.80 million, respectively (Note 22).
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
d) Other transactions with related parties consist mainly of non interest-bearing cash advances and share in common overhead expenses. As of December 31, 2011 and 2010, net receivable included in loans and receivables (see Note 7) in the consolidated statement of financial position follows:
2011 2010
RCBC Bankard P1,357,334 P-
ASIA-PAC Reinsurance Company, Limited (ASPAC) 567,475 –
MIIC 519,057 495,804
RCBC 416,918 –
Malayan Insurance Company (Hongkong) Limited (MICO-HK) 286,965 237,976
Great Pacific Life Assurance Corporation (Grepalife) 114,108 –
MEI – 51,747,443
P3,261,857 P52,481,223
The Group advances certain expenses to MEI. As of December 31, 2010, the Group’s outstanding receivable from MEI related to the said transaction amounted to P51.70 million, with an allowance for impairment loss amounting to P9.42 million. In 2011, the said receivable was collected in full and the allowance previously provided was reversed.
e) In 2010, the Group extended various short-term borrowings to MEI collectible within a year with interest rate of 7% per annum. As of December 31, 2010, the loan, including its interests, was paid in full. Interest income recognized amounted to P3.10 million in 2010.
In 2010, MEI acquired a loan from the Group amounting to P14.00 million, which is included in Accounts receivable under the loans and receivable in the statement of financial position. The loan is payable in equal monthly installments starting January 15, 2011 up to
December 15, 2011 with an interest rate of 6% per annum. On November 18, 2011, the loan, including its interests, was paid in full. Interest income earned amounted to P0.73 million and P0.40 million in 2011 and 2010, respectively.
In 2011, the Parent Company provided a loan to MEI amounting to P6.00 million collectible within a year with an interest rate of 6% per annum. As of December 31, 2011, the loan, including its interests, was paid in full. Interest income recognized amounted to P0.22 million in 2011.
f) The Group maintains savings, current accounts and time deposits with Rizal Commercial Banking Corporation, a subsidiary of PMMIC. The balances are as follows:
2011 2010
Cash in bank P201,265,836 P74,195,665
Short-term deposits 1,052,943,003 534,108,950
Short-term investments – 570,000
Long-term investments – 31,850,764
Investment in AFS:
Debt securities 329,452,770 320,033,657
Stocks 1,208,228,163 1,112,943,321
Long-term commercial papers 28,000,000 8,000,000
P2,819,889,772 P2,081,702,357
Related interest and dividend income, as well as interest and dividends receivable from RCBC for the listed financial assets above amounts to:
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
2011 2010 Interest and dividend income: Cash in bank P3,971,353 P1,923,352 Short-term deposits 20,828,830 17,081,567
Short-term investments – 53 Long-term investments 70,127 1,070,563 Investment in AFS: Debt securities 26,812,064 22,241,938 Stocks 31,405,808 23,554,356 Long-term commercial papers 589,167 561,556 P83,677,349 P66,433,385
2011 2010 Interest and dividend receivable:
Cash in bank P– –
Short-term deposits 266,512 230,775
Short-term investments – 53
Long-term investments – 2,000,124 Investment in AFS: Debt securities 5,699,653 5,473,801
Stocks – –
Long-term commercial papers 71,867 48,533 P6,038,032 P7,753,286
The range of annual interest rates is as follows:
2011 2010 Cash in bank 0.25% - 4.25% 0.25 % - 4.25% Short-term deposits 0.25% - 4.00% 0.25 % - 5.00%
Short-term investments – 3.38%
Long-term investments – 3.00% - 5.00% Investment in AFS - debt securities 4.77% - 9.88% 6.25% - 9.96%
Long-term commercial papers 5.25% - 7.00% 7.00%
g) The Company has entered into a referral agreement with Rizal Commercial Banking Corporation (RCBC) and Go! Travel Insurance Corporation to pay certain percentage of premiums for every policy sold. Referral fees incurred amounted to P7.95 million and P4.13 million in 2011 and 2010, respectively.
h) Retirement fund of the Group is being managed by RCBC’s Trust and Investment Group. In 2011 and 2010, balance of the retirement fund amounted to P188.62 million and P182.44 million, respectively (Note 17).
i) Key management personnel of the Group include executive and non-executive directors and senior management. The total short-term employment benefit of the Group’s key management personnel amounted to P65.78 million and P62.33 million in 2011 and 2010, respectively.
29. capital management
Governance Framework The primary objective of the Group’s risk and financial management framework is to protect the Group from
events that hinder the sustainable achievement of the Group’s performance objectives, including failure to exploit opportunities. The Group recognizes the importance of having efficient and effective risk management systems in place.
Regulatory Framework Regulators are interested in protecting the rights of the policyholders and maintain close vigil to ensure that the
Group is satisfactorily managing affairs for their benefit. At the same time, the regulators are also interested in
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
ensuring that the Group maintains appropriate solvency position to meet liabilities arising from claims and that the risk levels are at acceptable levels.
The operations of the Group are subject to the regulatory requirements of the IC. Such regulations not only prescribe approval and monitoring of activities but also impose certain restrictive provisions (e.g., margin of solvency to minimize the risk of default and insolvency on the part of the insurance companies to meet the unforeseen liabilities as these arise, fixed capitalization requirements, risk-based capital requirements).
As mandated by the IC, most of the additional capital infusions are invested in government securities.
Capital Management Framework The Group has established the following capital management objectives, policies and approach to managing
the risks that affect its capital position.
The capital management objectives are:
a) to maintain the required level of stability of the Group thereby providing a degree of security to policyholders;b) to allocate capital efficiently and support the development of business by ensuring that returns on capital
employed meet the requirements of its capital providers and of its shareholders;c) to retain financial flexibility by maintaining strong liquidity and access to a range of capital markets;d) to align the profile of assets and liabilities taking account of risks inherent in the business;e) to maintain financial strength to support new business growth and to satisfy the requirements of the
policyholders, regulators and stakeholders; andf) to maintain strong credit ratings and healthy capital ratios in order to support the Group’s business
objectives and maximize shareholders’ value.
The operations of the Group are also subject to regulatory requirements within the jurisdictions where it operates. Such regulations not only prescribe approval and monitoring of activities, but also impose certain restrictive provisions (e.g. capital adequacy) to minimize the risk of default and insolvency on the part of the insurance companies to meet unforeseen liabilities as these arise.
The Group has met all of these requirements throughout the financial year. The Group’s capital management policy for its insurance and non-insurance business is to hold sufficient capital
to cover the statutory requirements based on the IC directives, including any additional amounts required by the regulator.
The Group seeks to optimize the structure and sources of capital to ensure that it consistently maximizes returns to the shareholders and policyholders. The Group’s approach to managing capital involves managing assets, liabilities and risks in a coordinated way, assessing shortfalls between reported and required capital levels (by each regulated entity) on a regular basis and taking appropriate actions to influence the capital position of the Group in the light of changes in economic conditions and risk characteristics. An important aspect of the Group’s overall capital management process is the setting of target risk adjusted rates of return which are aligned to performance objectives and ensure that the Group is focused on the creation of value for shareholders.
The Group maintains a certain level of capital to ensure sufficient solvency margins and to adequately protect the policyholders. The level of capital maintained is usually higher than the minimum capital requirements set by the regulators and the amount computed under the Risk-based Capital (RBC) Model. The Group fully complied with the externally imposed capital requirements during the reported financial periods.
The IC capital requirements are the margin of solvency (MOS), fixed capitalization requirements, RBC requirements, and unimpaired capital requirement.
The following tables show MICO, BAC and FNAC’s statutory net worth, MOS, fixed capital requirements and RBC ratio as of December 31, 2011 and 2010.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
MICO
2011 2010
minimum Minimum
Required Actual* Required Actual*
Statutory net worth P350.00 million P5.50 billion P250.00 million P5.18 billion
Paid-up capital 175.00 million 0.84 billion 125.00 million 0.84 billion
MOS 259.26 million 3.15 billion 241.29 million 2.95 billion
RBC hurdle rate 250% 284% 250% 252%
* The statutory net worth, MOS and RBC ratio for both years are based on amounts estimated by MICO.
BAC
2011 2010
minimum Minimum
Required Actual* Required Actual*
Statutory net worth P350,000,000 P771,386,950 P250,000,000 P811,695,678
Paid-up capital 175,000,000 250,000,000 125,000,000 250,000,000
MOS 2,048,611 184,832,622 2,025,215 267,062,653
RBC Hurdle rate 250% 456% 250% 452%
* The statutory net worth, MOS and RBC ratio for both years are based on amounts estimated by BAC.
FNAC
2011 2010
minimum Minimum
Required Actual* Required Actual*
Statutory net worth P350,000,000 P608,881,965 P250,000,000 P588,733,957
Paid up capital 175,000,000 175,000,000 125,000,000 175,000,000
MOS 4,833,847 150,290,819 3,101,186 198,438,433
RBC hurdle rate 250% 464% 250% 450%
* The statutory net worth, MOS and RBC ratio for both years are based on amounts estimated by FNAC.
No changes were made to its capital base, objectives, policies and processes from the previous year.
margin of Solvency (mOS) Under the Code, an insurance company doing business in the Philippines shall maintain at all times a MOS equal
to P500,000 or 10% of the total amount of its net premiums written during the preceding year, whichever is higher. The MOS shall be the excess of the value of its admitted assets (as defined under the Code), exclusive of its paid-up capital, over the amount of its liabilities, unearned premiums and reinsurance reserves. Provision for unearned premiums as of December 31, 2011, determined in accordance with the Code for purposes of MOS, amounted to P1,071,016,798. In the accompanying consolidated financial statements, the net Provision for unearned premiums amounted to P1,266,109,181 computed as Provision for unearned premiums of P2,677,505,854 less deferred reinsurance premiums of P1,411,396,673 (see Note 14).
The estimated amounts of the consolidated non-admitted assets as of December 31, 2011 and 2010, as defined under the Code, which are included in the accompanying consolidated statement of financial position follow:
2011 2010
Deferred reinsurance premiums P1,411,396,673 P1,489,711,593
Insurance receivables 791,496,269 830,791,011
Deferred acquisition costs 272,708,433 302,047,984
Property and equipment - net 63,306,378 59,090,695
Loans and receivables 7,661,141 67,153,418
Net pension assets 368,542 3,524,816
Other assets 289,617,147 302,824,212
P2,836,554,583 P3,055,143,729
The final amount of the MOS can only be determined after the accounts of the Group have been examined by the IC, particularly with respect to the determination of admitted and non admitted assets.
Fixed capitalization Requirements Department of Finance Order (DO) 27-06 provides for the capitalization requirements for life, nonlife and
reinsurance companies on a staggered basis for the years ended December 31, 2006 up to 2011. Depending on the level of the foreign ownership in the insurance company, the minimum statutory net worth and minimum paid-up capital requirements vary. The statutory net worth shall include the Group’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-up capital is pegged at 50% of the minimum statutory net worth.
Based on the scheduled increases under DO 27-06, the required statutory net worth and minimum paid-up capital for the Parent Company amounted to P500,000,000 and P250,000,000, respectively, as of December 31, 2011 and P350,000,000 and P175,000,000, respectively as of December 31, 2010.
On October 29, 2008, the IC issued Circular Letter No. 26-2008, which recalls that in view of the compliance of insurance companies with the requirement of IMC No. 10-2006, the scheduled increases due December 31, 2007 have been deferred for a year. Hence, the IMC reiterates that by December 31, 2008, insurance companies should comply with the increase previously scheduled for December 31, 2007. Based on this Circular Letter, the required statutory net worth and minimum paid up capital for the Group amounted to P350.00 million and P175.00 million, respectively, as of December 31, 2011 and P250.00 million and P125.00 million, respectively as of December 31, 2010.
As of December 31, 2011, MICO, BAC and FNAC have complied with the minimum paid-up capital requirement while each entity’s statutory net worth based on its computation amounted to P5,455,181,198, P771,386,950 and P608,881,966, respectively.
Unimpaired capital requirement Insurance Memorandum Circular (IMC) 22-2008 provided that for purposes of determining compliance with the
law, rules and regulations requiring that the paid-up capital should remain intact and unimpaired at all times, the statement of financial position should show that the net worth or equity is at least equal to the actual paid-up capital.
Risk-based capital Requirements IMC No. 7-2006 provides for the RBC framework for the nonlife insurance industry to establish the required amounts
of capital to be maintained by the companies in relation to their investment and insurance risks. Every nonlife insurance company is annually required to maintain a minimum RBC ratio of 100% and not fail the trend test. Failure to meet the minimum RBC ratio shall subject the insurance company to the corresponding regulatory intervention which has been defined at various levels.
The RBC ratio shall be calculated as Net worth divided by the RBC requirement. Net worth shall include the Group’s paid-up capital contributed and contingency surplus and unassigned surplus. Revaluation and fluctua-tion reserve accounts shall form part of net worth only to the extent authorized by the IC.
The following table shows how the RBC ratio as of December 31, 2011 and 2010 was determined by MICO, BAC and FNAC:
MICO
2011 2010
Net worth P5,455,181,198 P5,174,233,540
RBC requirement 1,919,679,741 2,055,855,106
RBC ratio 284% 252%
BAC
2011 2010
Net worth P771,386,950 P811,695,678
RBC requirement 169,027,739 179,385,570
RBC ratio 456% 452%
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
150
FNAC
2011 2010
Net worth P608,881,966 P588,733,957
RBC requirement 131,118,785 130,783,022
RBC ratio 464% 450%
The final RBC ratio can be determined only after the accounts of the Group have been examined by the IC.
If an insurance company failed to meet the minimum required MOS, fixed capitalization requirements and RBC requirements, the IC is authorized to suspend or revoke all certificates of authority granted to such companies, its officers and agents, and no new business shall be done by and for such company until its authority is restored by the IC.
consolidated compliance Framework The IC issued IMC 10-2006 integrating the compliance standards for the fixed capitalization and risk-based capi-
tal framework. Under this IMC, all insurers must possess the capitalization required for the year 2006. Likewise, all insurers shall annually comply with the RBC ratio requirements.
Subsequent to year 2006, the fixed capitalization requirement for a given year may be suspended for insurers that comply with the required RBC hurdle rate, provided that the industry complies with the required Industry RBC Ratio Compliance Rate. The IMC provides the annual schedule of progressive rates for the Industry RBC Ratio Compliance Rates and the RBC Hurdle Rate 250%. For the review year 2011 which shall be based on the 2010 synopsis, the Industry RBC Ratio Compliance Rate is 90% and the RBC Hurdle Rate is 250%. Failure to achieve one of the rates will result in the imposition of the fixed capitalization requirement for the year under review.
In cases where the Group will be required to comply with the higher capital requirements of the IC including the RBC ratio, the Group’s stockholders are committed to infuse additional contribution to cover up any deficiency it may have and meet the capital requirements as mandated by the IC.
30. contingencies
The Group operates in the insurance industry and has various contingent liabilities arising in the ordinary conduct of business, which are either pending decision by the courts or being contested, the outcome of which are not presently determinable. In the opinion of management and its legal counsel, the eventual liability under these lawsuits or claims, if any, will not have a material or adverse effect on the Group’s financial position and results of operations.
31. Note to Statement of cash Flows
The Group’s noncash activities include:
a. Transfer of properties amounting to P31.51 million and P17.55 million from investment properties to property and equipment in 2011 and 2010, respectively.
b. Transfer of creditable withholding tax filed with BIR for refund amounting to P62.68 million from other assets to loans and receivables.
MALAYAN INSURANCE CO., INC. AND SUBSIDIARIES FINANCIAL STATEMENTS
151
Malayan Group Officers and employees join the 100 years anniversary celebration of the Yuchengco Group of Companies, led by MICO President Yvonne S. Yuchengco and MICO Chairman Helen Y. Dee. Malayan Insurance is a flagship company of the Yuchengco Group, a financial services and investment conglomerate.
Malayan Group Officers and employees join the 100 years anniversary celebration of the Yuchengco Group of Companies, led by MICO President Yvonne S. Yuchengco and MICO Chairman Helen Y. Dee. Malayan Insurance is a flagship company of the Yuchengco Group, a financial services and investment conglomerate.
BOARD OF DIRECTORS
MICO EQUITIES, INC. AND SUBSIDIARIES
YVONNE S. YUCHENGCOPRESIDENTMalayan Insurance Company, Inc., PRESIDENT AND DIRECTORFirst Nationwide Assurance Corporation, CHAIRMANRCBC Capital Corporation, CHAIRMAN AND DIRECTORGreat Pacific Life Assurance Corporation, DIRECTORAY Foundation, Inc., MEMBER, BOARD OF TRUSTEESMalayan Securities Corporation, CHAIRMAN AND PRESIDENT
HELEN Y. DEEDIRECTORMalayan Insurance Company, Inc., CHAIRMANHouse of Investments, Inc., CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICERRizal Commercial Banking Corporation, CHAIRMANRCBC Savings Bank, CHAIRMANManila Memorial Park Cemetery, Inc., CHAIRMANMapúa, BOARD OF TRUSTEES, MEMBERPhilippine Long Distance Telephone Company, DIRECTORMalayan Securities Corporation, DIRECTORTEODORO D. REGALA
DIRECTORRizal Commercial Banking Corporation, DIRECTORAngara, Abello, Concepcion, Regala & Cruz Law Offices, FOUNDING PARTNERAGC Flat Glass Philippines, Inc., CORPORATE SECRETARYSafeway Philtech, Inc., DIRECTORMalayan Insurance Company, Inc., DIRECTOROEP Philippines, Inc., DIRECTOR AND CORPORATE SECRETARY
ALFONSO S. YUCHENGCO, JR.DIRECTORRizal Commercial Banking Corporation, ADVISORY BOARD MEMBERRCBC Savings Bank, Inc., DIRECTORGreat Pacific Life Assurance Corporation, DIRECTORHouse of Investments, Inc., DIRECTORMapúa Institute of Technology, TRUSTEEYuchengco Museum, Inc., VICE CHAIRMAN AND TRUSTEE
ALFONSO T. YUCHENGCOCHAIRMAN
(Refer to page 5 for his business affiliations)
CONSOLIDATED ANNUAL REPORT
153
MALAYAN INSURANCE CO., INC.
SUSTAININGLEADERSHIP
ARMANDO M. MEDINAINDEPENDENT DIRECTORRizal Commercial Banking Corporation, INDEPENDENT DIRECTORRCBC Savings Bank, INDEPENDENT DIRECTOR RCBC Capital Corporation, INDEPENDENT DIRECTOR RCBC Forex, INDEPENDENT DIRECTOR Great Life Financial Assurance Corporation, INDEPENDENT DIRECTOR Malayan Insurance Company, Inc., INDEPENDENT DIRECTOR Rizal Micro Bank, INDEPENDENT DIRECTOR
JOVITO R. SALONGAINDEPENDENT DIRECTOR Kilosbayan, CHAIRMAN EMERITUS Bantayog ng mga Bayani Foundation (Pillars of Heroes Foundation), CHAIRMAN EMERITUS FORMER PRESIDENT OF THE SENATE, Republic of the PhilippinesFORMER CHAIRMAN, Presidential Commission on Good Government, Republic of the Philippines
ADELITA A. VERGEL DE DIOSDIRECTORInstitute of Corporate Directors (ICD), Philippines, FOUNDING MEMBER, CONSULTANT AND ADVISERNational Reinsurance Corporation of the Phils., FORMER VICE-CHAIR OF THE UNDERWRITING COMMITTEEInsurance Commission, Republic of the Philippines, FORMER INSURANCE COMMISSIONERPhilippine Savings Bank (PSBank), FORMER PRESIDENT AND CHIEF OPERATING OFFICER
HELEN Y. DEECHAIRMANHouse of Investments, Inc., CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICERRizal Commercial Banking Corporation, CHAIRMANRCBC Savings Bank, CHAIRMANManila Memorial Park Cemetery, Inc., CHAIRMANMapúa, BOARD OF TRUSTEES, MEMBERPhilippine Long Distance Telephone Company, DIRECTORMalayan Securities Corporation, DIRECTOR
TEODORO D. REGALADIRECTORRizal Commercial Banking Corporation, DIRECTORAngara, Abello, Concepcion, Regala & Cruz Law Offices, FOUNDING PARTNERAGC Flat Glass Philippines, Inc., CORPORATE SECRETARYSafeway Philtech, Inc., DIRECTOROEP Philippines, Inc., DIRECTOR AND CORPORATE SECRETARYMICO Equities, Inc., DIRECTOR
YVONNE S. YUCHENGCOPRESIDENTFirst Nationwide Assurance Corporation, CHAIRMANRCBC Capital Corporation, CHAIRMAN AND DIRECTORGreat Pacific Life Assurance Corporation, DIRECTORAY Foundation, Inc., MEMBER, BOARD OF TRUSTEESMalayan Securities Corporation, CHAIRMAN AND PRESIDENT
MICHELE DEE-SANTOSDIRECTORMICO Equities, Inc., TREASURERFirst Nationwide Assurance Corporation, DIRECTORAY Foundation, EXECUTIVE VICE PRESIDENT Luis Miguel Foods, Inc., CHAIRMAN AND PRESIDENT Sandee Unlimited, Inc., PRESIDENT Pan Malayan Express, Inc., DIRECTORMalayan Securities Corporation, DIRECTOR
RENATO C. VALENCIAINDEPENDENT DIRECTOR i-People, Inc., CHAIRMAN AND DIRECTORHypercash Payment Systems, Inc., CHAIRMANBastion Payment Systems, Inc., CHAIRMANAsia Pacific Network Holdings, Inc., VICE CHAIRMANAnglo Philippine Holdings Corporation, DIRECTORPhilippine Veterans Bank, BOARD ADVISER
CESAR E.A. VIRATADIRECTORRizal Commercial Banking Corp., CORPORATE VICE CHAIRMAN AND DIRECTOR RCBC Savings Bank, Inc., DIRECTORRCBC Realty Corporation, DIRECTORRCBC Forex Brokers Corporation, CHAIRMAN AND DIRECTORRCBC Land, Inc., DIRECTOR AND PRESIDENTRCBC International Finance, Ltd. (Hong Kong), DIRECTORPacific Fund, Inc., DIRECTOR AND CHAIRMANBankard, Inc., VICE CHAIRMAN AND DIRECTORMalayan Colleges, Inc. (Operating under Mapúa), TRUSTEE YGC Corporate Services, Inc., DIRECTORAY Foundation, Inc., TRUSTEEYuchengco Center, Inc., TRUSTEEYuchengco Museum, TRUSTEEGreat Life Financial Assurance Corporation, DIRECTORLuisita Industrial Park Corporation, DIRECTOR Niyog Property Holdings, Inc., DIRECTOR
Executive Committee: Helen Y. Dee • Yvonne S. Yuchengco • Renato C. Valencia* • Cesar E.A. VirataAudit Committee: Renato C. Valencia* • Jovito R.Salonga* • Armando M.
MedinaRemuneration & Nomination Committee: Renato C. Valencia* • Teodoro D. Regala • Michele Dee-Santos(*independent directors)
TAKASHI YOSHIKAWADIRECTORTokio Marine Asia Pte. Ltd., CHIEF EXECUTIVE OFFICER
RIZALINO S. NAVARRO INDEPENDENT DIRECTOR(2000 - 2011)
ARTHUR LEEDIRECTORTokio Marine Asia Pte. Ltd., CHIEF EXECUTIVE OFFICER(June 22, 2011)
154
BANKERS ASSURANCE CORPORATION
FIRST NATIONWIDE ASSURANCE CORPORATION
YVONNE S. YUCHENGCOCHAIRMAN
ANTONIO M. RUBINPRESIDENT
MICHELE DEE-SANTOSDIRECTOR
ANTONIO G. PUYATINDEPENDENT DIRECTOR
ANNABELLE S. YUCHENGCODIRECTOR
EDMUNDO L. BUNYIINDEPENDENT DIRECTOR
Audit Committee: Edmundo L. Bunyi* • Antonio G. Puyat*Remuneration & Nomination Committee: Edmundo L. Bunyi • Michele Dee-Santos(*independent directors)
JOEL T. ALMAGROPRESIDENT
ANTONIO M. RUBINCHAIRMAN
EDMUNDO L. BUNYIINDEPENDENT DIRECTOR
HERMINIA S. JACINTOINDEPENDENT DIRECTOR
ALMA P. PEñALOSADIRECTOR
MA. THERESA B. TIUDIRECTOR
Audit Committee: Edmundo L. Bunyi* • Herminia S. Jacinto*Remuneration & Nomination Committee: Edmundo L. Bunyi • Antonio M. Rubin • Alma P. Peñalosa(*independent directors)
JOSE MARTIN A. MORENTEDIRECTOR(October 28, 2011)
155
Malayan Insurance supports the Rizal Youth Program, wherein the values and teachings of Dr. Jose P. Rizal are highlighted through various activities for the youth, to enable them to follow the example set by the Philippine National Hero.
MICO EQUITIES, INC.
ALFONSO T. YUCHENGCOChairman
YVONNE S. YUCHENGCO President
MICHELE DEE-SANTOSTreasurer
SAMUEL V. TORRESCorporate Secretary
JOSE MARTIN A. MORENTEAssistant Corporate Secretary
MALAYAN INSURANCE COMPANY, INC.
HELEN Y. DEEChairman
YVONNE S. YUCHENGCO President
ANTONIO M. RUBINExecutive Vice President
JOEL T. ALMAGROExecutive Vice President
MA. THERESA B. TIUSenior Vice President
DAISUKE FUJIISecond Vice President
GEMA O. CHENGSecond Vice President / Treasurer(Resigned October 31, 2011)
JOSEPHINE S. GATCHALIANFirst Vice President
MA. VICENTA LUCIA M. ALCIDFirst Vice President
JOSELITO C. BANTAYANFirst Vice President
ATSUSHI SEGAWAFirst Vice President
BEATRIZ H. SORIANOVice President II
PAOLO Y. ABAYAVice President
JOSE MARTIN A. MORENTEVice President / Asst. Corporate Secretary
AKIRA YOSHIDAVice President
RAUL B. TANVice President
ALEGRIA R. CASTROVice President
JOANNE S.P. DELA CRUZVice President
ELMER S. JOSEVice President
RODELIO M. NOBVice President
SAMUEL V. TORRESCorporate Secretary
BANKERS ASSURANCE CORPORATION
ANTONIO M. RUBINChairman
JOEL T. ALMAGROPresident
SAMUEL V. TORRESCorporate Secretary
JOSE MARTIN A. MORENTEAssistant Corporate Secretary
FIRST NATIONWIDE ASSURANCE CORPORATION
YVONNE S. YUCHENGCO Chairman
ANTONIO M. RUBINPresident
SAMUEL V. TORRESCorporate Secretary
JOSE MARTIN A. MORENTEAssistant Corporate Secretary
157
PhILIPPINE SUBSIDIARIES
MALAYAN INSURANCE COMPANY, INC.
Yuchengco Tower, 500 Quintin Paredes Street
1006 Binondo, Manila
P. O. Box 3389 - Manila
Tel. No.: (632) 242-8888
Fax No.: (632) 242-2222
Website: http://www.malayan.com
E-mail: [email protected]
BANKERS ASSURANCE CORPORATION
6th Floor, Rm 604, Dona Felisa Syjuco Building
Remedios St., cor. Taft Avenue, Malate, Manila
Tel. Nos.: (632) 567-4678 / 567-4676
Telefax No.: (632) 567-4675
Website: http://www.bankersassurance.com.ph
E-mail: [email protected]
The FIRST NATIONWIDE ASSURANCE CORPORATION
4th Floor, Y - Tower II
L.P. Leviste Street cor. Gallardo Street
Salcedo Village, 1227 Makati City
Tel. Nos.: (632) 843-8080 local 213, 246
Fax No.: (632) 843-6168 / 843-0611
Website: http://www.fnac.com.ph
E-mail: [email protected]
FOREIGN SUBSIDIARIES
MALAYAN INTERNATIONAL INSURANCE CORP. LTD.
Room 501 B, 5th Floor
Lansing House, 41 - 47 Queen’s Road
Central, Hong Kong SAR
Tel. Nos.: (852) 2525-8088 / 2525-2137
Fax No.: (852) 2525-7299
E-mail : [email protected]
MALAYAN INSURANCE COMPANY (HONG KONG) LTD.
Unit B, 20th Floor, Li Dong Building
9 Li Yuen Street East
Central, Hong Kong
Tel: (852) 2525-2137
Fax: (852) 2167-7422
E-mail : [email protected]
MALAYAN INSURANCE COMPANY (UK) LTD.
c/o Chiltington International Limited
Holland House, 1-4 Bury Street,
London EC3A 5AW
Tel. Nos.: (020) 7621-6333 / 6332
Fax No.: (020) 7621-6344
Email: [email protected]
FOREIGN AGENCIES
GREECE
INSURANCE GROUP GENKA S.A.
320 Sygrou Avenue
17673 Kallithea, Athens, Greece
Tel. Nos.: (30) 210-925-0110 / 20 / 30
Fax No.: (30) 210-924-4434 / 210-923-7768
Email : [email protected]
Mr. Paul Karacostas - Managing Director
THE NETHERLANDS
CORINS B.V.
Amstelveenseweg 638
1081 JJ Amsterdam, The Netherlands
Tel. No.: 31 (0) 546-2600
Fax No.: 31 (0) 644-5107
E-mail: [email protected]
Mr. J.V. Kohlbrugge - Managing Director
REPRESENTATIVE OFFICE
CHINA
c/o Mr. Cai Zhichao, Xiamen Representative
Unit 806, SOHO Building
619 Hubin Nan Road, Xiamen, China 361004
Tel. No.: (86592) 504-6168
Fax No.: (86592) 504-6178
E-mail: [email protected]
METRO MANILA SERVICE OFFICES
ALABANG
2nd Floor, RCBC Building, Tierra Nueva Subd.,
Zapote Road, Alabang Muntinlupa
Tel. Nos.: (632) 850-7659 / 842-0234
Telefax No.: (632) 842-0228
QUEZON CITY
8th Floor, Aurora Tower
Aurora Boulevard, Cubao, Quezon City
Tel. Nos.: (632) 912-9367 / 911-3827 / 421-4526
Telefax No.: (632) 911-3825
MAKATI CITY
5th Floor, Yuchengco Tower II
L.P. Leviste Street cor. Gallardo Street
Salcedo Village, 1227 Makati City
Tel. Nos.: (632) 843-8080 / 844-4694 / 818-4880
Fax No.: (632) 813-4543
MARIKINA CITY
Unit A-12 of Marikina East Centre Building
83 Gil Fernando Avenue
San Roque, Marikina City
Telefax Nos.: (632) 646-9788 / 369-7112
PhILIPPINE REGIONAL OFFICES
UPPER NORTH LUZON
3rd Floor, RCBC Building
A. B. Fernandez Ave., 2400 Dagupan City
Tel. No.: (075) 515-5811
Telefax No.: (075) 522-0928
LOWER NORTH LUZON
3rd Floor, RCBC Savings Bank Building
Maharlika Highway cor. Paco Roman Street
3100 Cabanatuan City, Nueva Ecija
Tel. No.: (044) 463-9683
Telefax No.: (044) 463-0910
SOUTH LUZON
Ground Floor, RCBC Building
National Highway cor. Dolor Street
Barangay 1 Crossing, Calamba City, Laguna
Tel. No.: (049) 545-1162
Telefax No.: (049) 545-0955
VISAYAS & MINDANAO
2nd Floor, Great Pacific Life Building
Fuente Osmeña, Rotonda, 6000 Cebu City
Tel. Nos.: (032) 253-9382 / 253-4801
Fax No.: (032) 255-3009
PROVINCIAL BRANChES
UPPER NORTH LUZON
BAGUIO CITY
3rd Floor, RCBC Building
Session Road, 2600 Baguio City
Tel. Nos.: (074) 442-6300 / 446-0026
Fax No.: (074) 442-7247
DAGUPAN CITY
2nd Floor, RCBC Building
A.B. Fernandez Avenue, 2400 Dagupan City
Tel. No.: (075) 515-5811
Telefax No.: (075) 522-0928
CAUAYAN CITY
Talavera Twin Building
Don Canciller Avenue, Cauayan City, Isabela
Tel. No.: (078) 652-0092 / 634-5122
Telefax No.: (078) 634-5331
SAN FERNANDO CITY
3rd Floor, DNCP Building
Ortega Street cor. Rizal Avenue
San Fernando City, La Union
Tel. No.: (072) 607-0066
Telefax No.: (072) 607-8419
158
LAOAG CITY
2nd Floor, Cristina Building
Gen. A. Luna Street, 2900 Laoag City
Tel. No.: (077) 772-0015
Telefax No.: (077) 771-4806
TUGUEGARAO CITY
2nd Floor, RCBC Building
Gomez Street cor. Bonifacio Street
Tuguegarao City
Telefax No.: (078) 844-1393
LOWER NORTH LUZON
BALIWAG CITY
321 2nd Floor, J & U Building
Benigno S. Aquino Avenue
Baliwag City, Bulacan
Telefax No.: (044) 766-6387
CABANATUAN CITY
3rd Floor, RCBC Savings Bank Building
Maharlika Highway cor. Paco Roman Street
3100 Cabanatuan City
Tel. No.: (044) 463-9683
Telefax No.: (044) 463-0910
OLONGAPO CITY
Ground Floor, Building 789
Subic International Hotel, Sta. Rita Road
Subic Bay Freeport Zone, Olongapo City
Tel. No.: (047) 252-3255
Telefax No.: (047) 252-3256
SAN FERNANDO CITY
2nd Floor, HIZ-SAN Building
Mac Arthur Highway, Dolores Street
San Fernando City, Pampanga
Tel. No.: (045) 961-0042
Telefax No.: (045) 963-1027
TARLAC CITY
2nd Floor, Rm 205 Jaral Building
Corners Juan Luna Street & McArthur Highway
Tarlac City, Tarlac
Telefax No.: (045) 982-2748
SOUTH LUZON AREA
CALAMBA CITY
Ground Floor, RCBC Building
National Highway cor. Dolor Street
Barangay 1 Crossing, Calamba, Laguna
Tel. No.: (049) 545-1162
Telefax No.: (049) 545-0955
TAGBILARAN CITY
Door # 4, 2nd Floor, RCBC Building
CPG Avenue, Tagbilaran City, Bohol
Telefax No.: (038) 235-4551
MINDANAO AREA
CAGAYAN DE ORO CITY
Ground Floor, Malayan House, Velez corner
Nacalaban Streets, 9000 Cagayan De Oro City
Tel. No.: (088) 856-1685
Telefax No.: (08822) 856-1686
DAVAO CITY
Ground Floor, Malayan House, Km. 6, J.P. Laurel
Lanang 8000 Davao City
Tel. Nos.: (082) 234-1790 / 235-2476 /
234-1765 / 234-3541
Fax No.: (082) 234-1766
DAVAO CITY - Satellite Office
Ground Floor, RCBC Building, Palma Gil cor.
C. M. Recto Street, Davao City
Tel. No.: (082) 224-6887
Telefax No.: (082) 224-6889
GENERAL SANTOS CITY
2nd Floor, RCBC Savings Building
Pioneer Avenue, 9500 General Santos City
Tel. No.: (083) 552-2225
Telefax No.: (083) 552-3580
TAGUM CITY
Ground Floor RCBC Building
Pioneer Avenue cor. Quirante Street
Tagum, Davao Del Norte
Tel. No.: (084) 218-1904
Telefax No.: (084) 400-2181
ZAMBOANGA CITY
Ground Floor, YPC Building
Veterans Avenue, 7000 Zamboanga City
Tel. No.: (062) 991-2779
Telefax No.: (062) 991-2296
IMUS CITY
Room 1-B Ground Floor, Melta Building
Villa Nicasia III Village
Emilio Aguinaldo Highway, Imus City, Cavite
Tel. No.: (046) 471-6613
Telefax No.: (046) 471-8687
LEGAZPI CITY
2nd Floor, Sia Ko Pio Building
Rizal Street, 4500 Legazpi City
Tel. No.: (052) 480-7523
Telefax No.: (052) 820-4119
LIPA CITY
Ground Floor, Unit 17, K-POINTE
Commercial Center, Ayala Highway, Lipa City
Tel. No.: (043) 756-6951
Telefax No.: (043) 756-6952
SAN PABLO CITY
Maharlika Highway, Brgy. San Rafael
San Pablo City 4000 Laguna
Tel. Nos.: (049) 562-5788 / 562-3655
Fax No.: (049) 562-0181
NAGA CITY
3rd Floor, Room 3A, Castro Building
Panganiban Drive, Naga City
Telefax No.: (054) 473-5050
VISAYAS AREA
CEBU CITY
2nd Floor, Grepalife Building
Fuente Osmeña Rotonda, 6000 Cebu City
Tel. Nos.: (032) 253-9384 / 253-4801
Fax No.: (032) 255-3009
BACOLOD CITY
2nd Floor, Malayan House Building
Lacson cor. 3rd Street, 6100 Bacolod City
Tel. No.: (034) 434-6566
Telefax No.: (034) 434-6567
ILOILO CITY
2nd Floor, RCBC Building, J. M. Basa Street
cor. Arsenal Street, 5000 Iloilo City
Tel. No.: (033) 335-0763 / 335-0302
Fax No.: (033) 335-0406
PUERTO PRINCESA CITY
2nd Floor, RCBC Building
Rizal Avenue corner Junction I
Puerto Princesa City, 5300 Palawan
Telefax No.: (048) 434-4360
159
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RETAIL FIRE- Fire and Lightning, including Allied Perils- Home Protect Plus- EZ Fire- Business Protect - MyHome- MyBiz
RETAIL MISCELLANEOUS CASUALTY- Comprehensive Personal Liability- Golfers’ Comprehensive Insurance- Photo Rx
BONDS- Administrator’s Bond- Attachment Bond- Attachment Bond (to Lift)- Bidder’s Bond- BOI Omnibus Bond- Broker’s Bond - Contract Growers Bond- Dealership Bond- Execution Pending Appeal Bond- Fidelity Bond- Firearm Bond- Forestry Bond (Internal Revenue)- Forestry Bond (Bureau of Forestry)- Guaranty Bond (Maintenance Warranty)- Guardians Bond- Haulers Bond- Heirs Bond- Immigration Bond- Indemnity Bond (3rd Party Sheriffs)- Injunction Bond (Plaintiff)- Injunction Bond (to Lift)- Manufacturer’s Official Bond- Miller’s Bond- Payment Bond- Performance Bond for Constructions- Receiver’s Bond- Reconstituted Title Bond- Replacement for Lost TW, Checks, etc. Bond- Replevin Bond- Supersedeas Bond- Surety Bond General - Warehouse Bond for Rice Bonded
MICROINSURANCE PRODUCTS
- Bayan Asenso Bahay Asenso Buhay Asenso Nego Asenso- Weather Index Insurance Credit Asenso
AVIATION
ENGINEERING- Advance Loss and Profits- Boiler Pressure Vessel- Contractor’s All Risk- Deterioration of Stock following Machinery Breakdown- Electronic Equipment Insurance- Erection All Risk- Loss of Profit following Machinery Breakdown- Machinery Breakdown- Civil Engineering Completed Risk- Special Risk / Equipment Floater
FIRE- Fire and Lightning, including Allied Perils- Business Interruption- Commercial All Risk- Industrial All Risk
MARINE- Marine Cargo- Marine Hull- Fine Arts, Jewellery & Specie (FAJS)- Jeweller’s Block
MISCELLANEOUS CASUALTY- Bankers Blanket Bond / Computer Crime- Burglary & Housebreaking- Comprehensive Dishonesty Disappearance and Destruction- Fidelity Guarantee- Money in Transit- Money, Securities & Payroll- Comprehensive General Liability Employers Liability Excess Auto Liability- Foresight Directors & Officers Liability
Insurance- Errors & Omissions- Professional Liability - Other Lines Trade Credit Insurance Plate Glass Insurance Hole in One (Tournament only)
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our vision
our core values
our mission
PASSION FOR EXCELLENCEStriving to be great and not just be good; continuously improving results.
SENSE OF URGENCYDoing things fast; taking the initiative to respond to the needs of various stakeholders.
PROFESSIONAL DISCIPLINEWith strong working ethics; deserving of others’ trust and respect; using company resources prudently; acting with fairness and objectivity; being accountable for one’s actions.
TEAMWORKActively tapping areas of Synergy; communicating and collaborating towards shared goals.
LOYALTYA good corporate citizen; pursuing corporate interests as one’s own; speaking well of the company and taking pride in its achievements.
MALAYAN
guarantees to
provide its policyholders
the best non-life insurance
protection and fair and
prompt settlement
of valid claims at all times.
MALAYAN equals
Non-life Insurance.