PHILAM EQUITABLE LIFE ASSURANCE COMPANY, INC. 2015 ANNUAL REPORT 1 Cash Production Report The table below shows the company’s cash production for FYTD November 2015 and February 2016. November 2015 FYTD Nov FYTD Nov FYTD Nov Amounts in Php Growth Actual 2015 2014 2015 '000s over PY vs Budget Actual Actual Budget First Year Premium - - n/a - n/a Renewal Premium 15,280 19,614 -22.10% 21,068 -27.47% Single Premium* (16) (34) -51.70% - n/a Total Premium 15,264 19,580 -73.79% 21,068 -27.55% February 2016 Amounts in Php FYTD Feb FYTD Feb FYTD Feb Growth Actual '000s 2016 2015 2016 over PY vs Budget Actual Actual Budget First Year Premium - - - - n/a Renewal Premium 2,621 4,055 -35.35% 2,202 19.04% Single Premium* (6) (5) 35.15% - n/a Total Premium 2,615 4,050 -35.43% 2,202 18.76% **Negative value represents the taxes on COI The table below shows the net asset value of PELAC’s VUL funds as of February 29, 2016. Original Translated Fund Currency Amount Amounts in '000s (USD) (PHP) Principal Protect 1 1,250 59,417 Principal Protect 2 3,053 145,177 High Water Mark 1,143 54,334 Total 5,445 258,928 2 2015 Calendar Year Results Presented below are the Financial Highlights for Calendar Year 2015 versus 2014 (Philippine GAAP basis). Phil. GAAP basis CYTD Dec 2015 CYTD Dec 2014 Growth Amounts in Php ’000s Actual Actual Over PY Net Insurance Premiums 2,764 4,813 -42.6% Net Investment Income 34,641 37,513 -7.7% Gain on Sale of Available for Sale 3,441 15,033.00 100.0% Financial Assets Net Insurance Benefits and 3,772 9,831 -61.6% Claims Operating Expenses 32,060 30,691 4.5% Net Income 24,284 23,054 5.3% 1 After the termination of the Bancassurance Agreement with BDO in 2009, PELAC was no longer issuing new policies. As a result, gross premium decreased by 28% in 2015 versus 2014. Income recognized in 2015 originated mostly from renewal premium and fees from VUL policies. Net investment income during the period in the amount of P34.64 Million declined by 8% mainly from lower investment income from bonds due to disposals made in 2015, lower interest on policy loans & lower interest on time deposits. Gain on sale of available for sale financial assets of P3.44 Million came from disposal of bonds in anticipation of scheduled maturities, bulk of which occurred in 2014. Operating Expenses stood at P32.06 Million, which consisted mainly of the shared service charges from Philam Life. The decrease in net insurance benefits and claims was due to the release of reserves largely coming from 10-year variant of Preferred Dollar, bulk of which matured in 2014. On the balance sheet, Total Assets slightly increased by 5% mostly coming from increase in Reinsurance receivables from payment of maturities & surrenders (P143M) offset by decrease in investments & cash (P85M) due to sale of bonds and lower Policy Loans for the year (P4M). 2 3 2015 Audited Financial Statements A. Balance Sheets December January December 31, 2014 1, 2014 31, 2015 (As restated) (As restated) A S S E T S Cash and cash equivalents 43,636 57,721 166,177 Insurance receivables 388,559 245,518 114,508 Financial assets at fair value through profit or loss 264,494 267,188 285,561 Available-for-sale financial assets 378,359 449,254 466,632 Loans and receivables 96,106 99,765 105,178 Accrued income 10,458 9,481 9,584 Other assets 530 406 6,034 Total assets 1,182,142 1,129,333 1,153,674 LIABILITIES AND EQUITY Insurance contract liabilities, net 323,316 325,932 351,059 Premium deposit fund 6,647 5,070 8,173 Policyholders' dividends 548 761 1,662 Reserve for policyholders' dividends 128 457 919 Insurance payables 18,802 15,660 37,278 Accounts payable and accrued expenses 95,512 51,969 48,654 Total liabilities 444,953 399,849 447,745 Share capital 250,000 250,000 250,000 Contributed surplus 25,000 25,000 25,000 Contingency surplus 169,100 169,100 169,100 Reserve for fluctuation on available-for-sale financial assets 67,226 83,805 83,304 Retained earnings 225,863 201,579 178,525 Total equity 737,189 729,484 705,929 Total liabilities and equity 1,182,142 1,129,333 1,153,674 3 B. Statements of Income 2014 Notes 2015 (As restated) REVENUES AND OTHER INCOME Gross premium on insurance contracts 13,963 19,517 Reinsurers’ share of gross premiums on insurance contracts (11,199) (14,704) Net insurance premiums 2,764 4,813 Investment income 35,228 37,613 Foreign exchange gains 16,952 1,852 Fee income 5,285 8,396 Gains on sale of available-for-sale financial assets 3,441 15,033 Commission income 2,110 2,650 Fair value losses on financial assets at fair value through profit or loss, net (6,804) (2,073) Other income 5,956 24 Total revenues and other income 64,932 68,308 EXPENSES General and administrative expenses 31,067 29,258 Benefits and claims paid on insurance contracts, net 20,653 39,298 Investment expense 587 100 Insurance taxes, licenses and fees 388 1,147 Commissions and other acquisition expenses 16 20 Interest expense 2 166 Change in insurance contract liabilities, net (16,881) (29,467) Total expenses 35,832 40,522 INCOME BEFORE INCOME TAX 29,100 27,786 INCOME TAX EXPENSE 4,816 4,732 NET INCOME FOR THE YEAR 24,284 23,054 4 5 CAPITAL STRUCTURE Authorized Capital Stock - P600,000,000.00 Subscribed & Paid-up - P250,000,000.00 Par Value - P10.00 per share LIST OF STOCKHOLDERS % of Beneficiary Date of First Name of Stockholder Shares Held Class Amount Paid Nationality Ownership Ownership Appointment The Philippine American Life and General 24, 999,993 Common 249,999,930.00 100% Hong Kong SAR Insurance Company (Philam Life) J. Axel Bromley 1 Common 10.00 U.S. Citizen Philam Life July 1, 2015 (Executive Director/Chairman) Andreas Rosenthal 1 Common 10.00 German Philam Life September 28, 2015 (CEO/Executive Director) Ernesto R. Lagdameo, Jr. 1 Common 10.00 Filipino Philam Life November 18, 2003 (Independent Director) Victoria S. Licuanan 1 Common 10.00 Filipino Philam Life January 30, 2007 (Independent Director) Eric S. Lustre 1 Common 10.00 Filipino Philam Life April 19, 2011 (Executive Director/CIO) Ma. Adoracion R. Go 1 Common 10.00 Filipino Philam Life April 19, 2011 (Executive Director/Controller) Richard Sumner 1 Common 10.00 British Philam Life July 30, 2014 (Non-Executive Director) TOTAL 25,000,000 250,000,000.00 100% CORPORATE GOVERNANCE The implementation of corporate governance principles is a priority of the Philam Group. Accordingly, the Board ensures compliance with IC Circular Letter No. 31-2005. The Corporation adopted a Manual of Corporate Governance in compliance with IC Circular Letter No. 21-2009. PELAC confirms its full compliance with the Code of Corporate Governance, and its commitment to the highest standards of corporate governance is rooted in the belief that a culture of integrity and transparency is essential to the consistent achievement of its common goals. Creating a sustainable culture, where trust and accountability are as vital as skill and wisdom, steers us toward achieving long-term value for shareholders and clients, and strengthens our confidence in the institution. ROLE AND RESPONSIBILITIES OF THE BOARD The Board of Directors exercises all the powers of the corporation, and all business conducted and all properties of the corporation are controlled and held by them. The Board is completely independent from management and major stockholders. The Board is accountable to the shareholders and as such it shall ensure the highest standard of governance in running the Company’s business and setting the strategic directions. The detailed role and responsibilities are set forth in the By Laws and the Manual of Corporate Governance. 6 BOARD INDEPENDENCE The Corporation has two (2) independent directors and who meet all the requirements set in the Manual of Corporate Governance. Each of the independent directors meets the guidelines set in the Manual of Corporate Governance. None of the independent directors has any business or significant financial interest in the Company or any of its subsidiaries. They, therefore, continue to be considered independent. BOARD PROCESS Board meetings are held semi-annually (scheduled at the beginning of the year) unless a special meeting is necessary to consider urgent matters. The Corporate Secretary schedules the meetings at the beginning of the year, which however may be subject to changes depending on the availability of the directors. The Corporate Secretary also ensures that Board materials are sent to the members at least five (5) business days in advance of the scheduled board meetings. The minutes of meetings of the Board and all Committee are recorded and kept by the Corporate Secretary. The minutes are open for inspection by the Board and the stockholders upon request. ELECTION OF DIRECTORS The Corporation uses a transparent procedure for the election of directors which is provided in the By Laws and the Manual of Corporate Governance. The Nomination Committee looks into the qualifications of directors and thereafter presented to the Board for consideration. ORIENTATION PROGRAM AND TRAINING The Corporate Secretary, together with the key officers of the corporation, provide the orientation for new directors to explain the organizational profile, charters, by-laws, policies and procedures in the Corporation. Board Induction/Orientation materials are also provided to the new directors for their reference.