1. finance
2. personal finance
3. insurance

COVER SHEET
2 8 0
1
S.E.C. Registration Number
B P I
/
M S
I
N S
U R A N C E
C O R P O R A T
I
1
O N
(Company’s Full Name)
1
1
T
H
F
C E N T
E R
M A K A T
L
I
O O R
6
A Y A L
8
1
1
C I
T
Y
A
A Y A L
L
A
I
F
E -
F
G U
A V E N U E
(Business Address: No. Street City/Town/Province)
Merlina P. Mendoza
Contact Person
1
2
3
1
Month
Day
Fiscal Year
840-9000
Company Telephone Number
A
F
S
0
FORM TYPE
5
C R M
Dept. Requiring this Doc.
Number/Section
NO
Amended Articles
Total Amount of Borrowings
NONE
NONE
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
Document I.D.
STAMPS
0
Month
Day
Annual Meeting
N/A
Secondary License Type, If Applicable
11
Total No. of Stockholders
3
LCU
Cashier
BPI/MS Insurance
Corporation
Financial Statements
As at and for the years ended December 31, 2012 and 2011
BPI/MS Insurance Corporation
Statements of Financial Position
December 31, 2012 and 2011
(In thousands of Philippine Peso)
Notes
2012
2011
ASSETS
CASH AND CASH EQUIVALENTS
INSURANCE BALANCES RECEIVABLE, net
5
594,074
951,976
6,7
714,834
656,983
REINSURANCE RECOVERABLE ON UNPAID LOSSES
7
1,235,464
1,213,978
DEFERRED REINSURANCE PREMIUM
7
1,751,350
1,236,593
65,208
57,918
DEFERRED ACQUISITION COST, net
HELD-TO-MATURITY FINANCIAL ASSETS
8
1,342,683
1,352,110
AVAILABLE-FOR-SALE FINANCIAL ASSETS, net
9
1,545,262
1,059,122
OTHER RECEIVABLES, net
10
38,234
85,231
INVESTMENT INCOME DUE AND ACCRUED
11
46,612
43,739
PROPERTY AND EQUIPMENT, net
12
80,423
97,813
SOFTWARE COSTS, net
13
311
1,014
DEFERRED INCOME TAX ASSETS, net
20
104,308
86,117
OTHER ASSETS, net
Total assets
14
19,202
7,537,965
19,106
6,861,700
RESERVE FOR OUTSTANDING LOSSES
7,18
1,565,984
1,500,125
RESERVE FOR UNEARNED PREMIUMS
7
2,623,864
2,007,534
DUE TO REINSURERS AND CEDING COMPANIES
7
381,663
620,866
FUNDS HELD FOR REINSURERS
7
184,339
108,643
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Total liabilities
SHARE CAPITAL
15
447,667
5,203,517
350,000
405,395
4,642,563
350,000
425,972
425,972
LIABILITIES AND EQUITY
21
SHARE PREMIUM
RETAINED EARNINGS
21
1,475,478
1,378,237
RESERVES
Total equity
Total liabilities and equity
21
82,998
2,334,448
7,537,965
64,928
2,219,137
6,861,700
(The notes on pages 1 to 58 are an integral part of these financial statements.)
BPI/MS Insurance Corporation
Statements of Income
For the years ended December 31, 2012 and 2011
(In thousands of Philippine Peso)
Notes
UNDERWRITING INCOME
Premiums written, net of returns
Reinsurance premiums ceded
Net premiums retained
Increase in reserve for unearned premiums, net
Premiums earned
Reinsurance commissions
GROSS UNDERWRITING INCOME
UNDERWRITING EXPENSES
Losses and claims, net of reinsurance
Commission expense
Total underwriting expenses
NET UNDERWRITING INCOME
GENERAL AND ADMINISTRATIVE EXPENSES
Staff costs
Occupancy and equipment related expenses
Communication and postage
Printing and supplies
Professional fees
Association and pool dues
Entertainment
Travel and transportation
Advertising and promotion
Taxes and licenses
Training and development
Interest expense
(Reversal of) provision for impairment
Other
Total general and administrative expenses
OPERATING INCOME
INVESTMENT AND OTHER INCOME
Interest income
Dividend income
Gain on sale of investments
Other
Net investment and other income
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX
NET INCOME FOR THE YEAR
16
12,13,23,25
2012
2011
4,632,411
2,893,271
1,739,140
(101,573)
1,637,567
218,148
1,855,715
3,807,426
2,186,007
1,621,419
(31,581)
1,589,838
210,654
1,800,492
560,565
477,400
1,037,965
817,750
589,780
457,567
1,047,347
753,145
239,602
76,786
21,107
11,236
11,228
8,295
6,219
5,988
4,934
4,426
3,867
2,422
(5,002)
3,458
394,566
423,184
225,616
84,080
17,922
10,358
10,451
8,263
6,253
5,263
4,593
3,007
3,523
1,596
5,872
3,001
389,798
363,347
19
9
9
229,618
34,287
66,781
(21,901)
308,785
731,969
223,149
16,973
15,705
4,122
259,949
623,296
20
162,228
569,741
150,632
472,664
10
(The notes on pages 1 to 58 are an integral part of these financial statements.)
BPI/MS Insurance Corporation
Statements of Total Comprehensive Income
For the years ended December 31, 2012 and 2011
(In thousands of Philippine Peso)
Note
NET INCOME FOR THE YEAR
OTHER COMPREHENSIVE INCOME
Changes in fair value of available-for-sale financial assets
Fair value gains transferred to profit or loss
Other comprehensive income
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
9
2012
569,741
2011
472,664
26,924
(8,854)
18,070
587,811
18,845
(15,705)
3,140
475,804
(The notes on pages 1 to 58 are an integral part of these financial statements.)
BPI/MS Insurance Corporation
Statements of Changes in Equity
For the years ended December 31, 2012 and 2011
(In thousands of Philippine Peso)
Balances at January 1, 2011
Comprehensive income
Net income for the year
Other comprehensive income
Changes in fair value of
available-for-sale financial assets
Fair value gains transferred to profit
or loss
Total comprehensive income for the year
Transactions with owners
Exercise of stock options
Cash dividends
Total transactions with owners
Balances at December 31, 2011
Comprehensive income
Net income for the year
Other comprehensive income
Changes in fair value of
available-for-sale financial assets
Fair value gains transferred to profit
or loss
Total comprehensive income for the year
Transactions with owners
Cash dividends
Total transactions with owners
Balances at December 31, 2012
Share
capital
(Note 21)
350,000
Share
premium
425,972
Retained
earnings
(Note 21)
1,263,308
Reserves
(Note 21)
63,283
Total
2,102,563
-
-
472,664
-
472,664
-
-
-
18,845
18,845
-
-
472,664
(15,705)
3,140
(15,705)
475,804
350,000
425,972
(357,735)
(357,735)
1,378,237
(1,495)
(1,495)
64,928
(1,495)
(357,735)
(359,230)
2,219,137
-
-
569,741
-
569,741
-
-
-
26,924
26,924
-
-
569,741
(8,854)
18,070
(8,854)
587,811
350,000
425,972
(472,500)
(472,500)
1,475,478
82,998
(The notes on pages 1 to 58 are an integral part of these financial statements.)
(472,500)
(472,500)
2,334,448
BPI/MS Insurance Corporation
Statements of Cash Flows
For the years ended December 31, 2012 and 2011
(In thousands of Philippine Peso)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations
Interest received
Interest paid
Corporate income taxes paid
Final income taxes paid
Net cash from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Held-to-maturity financial assets
Available-for-sale securities
Property and equipment
Software costs
Proceeds from:
Collection of loans and other receivables
Maturities of held-to-maturity financial assets
Disposals of available-for-sale financial assets
Disposals of property and equipment
Interest received
Dividends received
Final income taxes paid
Net cash (used in) from investing activities
CASH FLOW FROM FINANCING ACTIVITIES
Payment of cash dividends
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS
January 1
December 31
Notes
2012
2011
22
477,936
7,236
(2,422)
(139,851)
(1,406)
341,493
784,404
6,881
(1,596)
(122,724)
(1,420)
665,545
8
9
12
13
(2,892,759)
(14,020)
-
(12,471)
(1,303,518)
(21,280)
(4,832)
809
17,200
2,470,553
362
219,510
34,288
(39,163)
(203,220)
5,298
9,335
1,393,612
763
218,758
16,973
(37,960)
264,678
(472,500)
(357,735)
(23,675)
(1,195)
8
9
9
21
(357,902)
571,293
951,976
594,074
380,683
951,976
(The notes on pages 1 to 58 are an integral part of these financial statements.)
BPI/MS Insurance Corporation
Notes to Financial Statements
As at and for the years ended December 31, 2012 and 2011
(In the notes, all amounts are shown in thousands of Philippine Peso unless otherwise stated)
Note 1 - General information
BPI/MS Insurance Corporation (the “Company”) was incorporated and registered with the Securities
and Exchange Commission (SEC) primarily to carry on and engage in the business of insurance,
reinsurance, bonding, fidelity and guaranty except life insurance.
The Company’s immediate and ultimate parent company is the Bank of the Philippine Islands (BPI), a
local universal bank listed in the Philippine Stock Exchange, Inc., with a 51.4% ownership. The other
48.5% is owned by MSIG Holdings (Asia) PTE. Ltd. (MSIG), a corporation registered in Singapore.
The Company’s registered office, which is also its principal place of business, is located at the 11th, 14th
and 16th Floors of Ayala Life-FGU Center, 6811 Ayala Avenue, Makati City.
The financial statements were approved and authorized for issuance by the Company’s Board of
Directors on March 26, 2013.
Note 2 - Summary of significant accounting policies
The principal accounting policies applied in the preparation of the Company’s financial statements are
set out below. These policies have been consistently applied to both years presented, unless otherwise
stated.
2.1
Basis of preparation
The financial statements of the Company have been prepared in accordance with Philippine Financial
Reporting Standards (PFRS). The term PFRS in general includes all applicable PFRS, Philippine
Accounting Standards (PAS), and interpretations of the Philippine Interpretations Committee (PIC),
Standing Interpretations Committee (SIC) and International Financial Reporting Interpretations
Committee (IFRIC) which have been approved by the Financial Reporting Standards Council (FRSC)
and adopted by the SEC.
These financial statements have been prepared under the historical cost convention, as modified by the
revaluation of available-for-sale financial assets.
The preparation of financial statements in conformity with PFRS requires the use of certain critical
accounting estimates. It also requires management to exercise its judgment in the process of applying
the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or
areas where assumptions and estimates are significant to the financial statements are disclosed in
Note 4.
Changes in accounting policy and disclosures
(a) New and amended standards adopted by the Company
There are no PFRS or IFRIC interpretations that are effective for the first time for the financial year
beginning January 1, 2012 that have a material impact on the Company.
(b) New standards, amendments and interpretations not yet adopted
A number of new standards and amendments to standards and interpretations are effective for annual
periods beginning after January 1, 2012, and have not been applied in preparing these financial
statements. None of these are expected to have a significant effect on the financial statements, except
the following as set out below:
(2)

PAS 1 (Amendment), Financial Statement Presentation - Other Comprehensive Income
(effective July 1, 2012). The main change resulting from these amendments is a requirement for
entities to group items presented in other comprehensive income on the basis of whether they
can be potentially reclassified to profit or loss subsequently (reclassification adjustments). The
amendments do not address which items are presented in other comprehensive income. The
Company will apply the amendment beginning January 1, 2013. The adoption is not expected to
have a significant impact on the financial statements but will result in changes in presentation
in the Company’s statements of total comprehensive income.

PAS 19 (Amendment), Employee Benefits (effective January 1, 2013). These amendments
eliminate the corridor approach and calculate finance costs on a net funding basis. It would also
require recognition of all actuarial gains and losses in other comprehensive income as they
occur and of all past service costs in profit or loss. The amendments replace interest cost and
expected return on plan assets with a net interest amount that is calculated by applying the
discount rate to the net defined benefit liability (asset). As at December 31, 2012, the Company
has unrecognized actuarial loss of P18 million (Note 17) which will be recognized in other
comprehensive income upon adoption of the amendments.

PFRS 9, Financial Instruments (effective January 1, 2015). This new standard addresses the
classification, measurement and recognition of financial assets and financial liabilities. It
replaces the parts of PAS 39 that relate to the classification and measurement of financial
instruments. PFRS 9 requires financial assets to be classified into two measurement categories:
those measured as at fair value and those measured at amortized cost. The determination is
made at initial recognition. The classification depends on the entity’s business model for
managing its financial instruments and the contractual cash flow characteristics of the
instrument. For financial liabilities, the standard retains most of the PAS 39 requirements. The
main change is that, in cases where the fair value option is taken for financial liabilities, part of
the fair value change due to an entity’s own credit risk is recorded in other comprehensive
income rather than profit or loss, unless this creates an accounting mismatch. As at
December 31, 2012, the Company recognized P65 million of fair value gains on
available-for-sale debt securities in other comprehensive income. PFRS 9 only permits the
recognition of fair value gains in other comprehensive income if they relate to equity
investments that are not held for trading. The Company will consider the impact of the
remaining phases of PFRS 9 when issued.

PFRS 13, Fair Value Measurement (effective January 1, 2013). This new standard aims to
improve consistency and reduce complexity by providing a clarified definition of fair value and
a single source of fair value measurement and disclosure requirements for use across PFRS. The
requirements, which are largely aligned with IFRS and US GAAP, do not extend the use of fair
value accounting but provide guidance on how it should be applied where its use is already
required or permitted by other standards within PFRS. The Company will adopt PFRS 13
effective January 1, 2013 but is not expected to have material impact on the Company’s
financial statements as the current fair value measurement of its financial instruments carried
at fair value is already consistent with the requirements of the new standard.
There are no other PFRS or IFRIC interpretations that are not yet effective that are expected to have a
material impact on the Company’s financial statements.
2.2
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits held at call with banks and other
short-term highly liquid investments with maturities of three months or less from the date of
acquisition and that are subject to insignificant risk of changes in value.
2.3
Financial assets
2.3.1
Classification
The Company classifies its financial assets in the following categories: loans and receivables,
held-to-maturity financial assets, and available-for-sale financial assets. Management determines the
classification of its financial assets at initial recognition.
(a) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments (i) that
are not quoted in an active market, (ii) with no intention of trading, and (iii) that are not designated as
available-for-sale. The Company’s loans and receivables comprise cash and cash equivalents, insurance
balances receivable and other receivables.
(b) Held-to-maturity financial assets
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments
and fixed maturities that the Company’s management has the positive intention and ability to hold to
maturity. If the Company were to sell other than an insignificant amount of held-to-maturity financial
assets, the entire category would be tainted and reclassified as available-for-sale.
(c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are either designated in this
category or not classified in any of the other categories.
(3)
2.3.2
Recognition and measurement
Regular-way purchases and sales of held-to-maturity and available-for-sale financial assets are
recognized on trade-date, the date on which the Company commits to purchase or sell the asset. Loans
and receivables are recognized upon origination when cash is advanced to the borrowers. Financial
assets are initially recognized at fair value plus transaction costs that are directly attributable to the
acquisition for all financial assets not carried at fair value through profit or loss.
Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables and
held-to-maturity financial assets are subsequently carried at amortized cost using the effective interest
method. Gains and losses arising from changes in the fair value of available-for-sale financial assets are
recognized directly in other comprehensive income, until the financial asset is derecognized or impaired
at which time the cumulative gain or loss previously recognized in other comprehensive income should
be recognized in profit or loss.
Interest on available-for-sale financial assets calculated using the effective interest method is
recognized in profit or loss as part of interest income. Dividends on available-for-sale equity
instruments are recognized in profit or loss as part of dividend income when the Company’s right to
receive payment is established.
2.3.3
Financial asset reclassification
The Company may choose to reclassify financial assets that would meet the definition of loans and
receivables out of the available-for-sale category if the Company has the intention and ability to hold
these financial assets for the foreseeable future or until maturity at the date of reclassification.
Reclassifications are made at fair value as at the reclassification date. Fair value becomes the new cost
or amortized cost as applicable, and no reversals of fair value gains or losses recorded before
reclassification date are subsequently made until the financial assets are sold or impaired. Effective
interest rates for financial assets reclassified to loans and receivables and held-to-maturity categories
are determined at the reclassification date. Further increases in estimates of cash flows adjust effective
interest rates prospectively.
Derecognition of financial assets
Financial assets are derecognized when the contractual right to receive the cash flows from these assets
has ceased to exist or the assets have been transferred and substantially all the risks and rewards of
ownership of the assets are also transferred (that is, if substantially all the risks and rewards have not
been transferred, the Company tests control to ensure that continuing involvement on the basis of any
retained powers of control does not prevent derecognition).
2.4
Impairment of financial assets
(a) Assets carried at amortized cost
The Company assesses at each reporting date whether there is objective evidence that a financial asset
or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and
impairment losses are incurred only if there is objective evidence of impairment as a result of one or
more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or
events) has an impact on the estimated future cash flows of the financial asset or group of financial
assets that can be reliably estimated.
(4)
The criteria that the Company uses to determine that there is objective evidence of impairment
include:






Delinquency in contractual payments of principal or interest;
Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage
of sales);
Breach of loan covenants or conditions;
Initiation of bankruptcy proceedings;
Deterioration of the borrower’s competitive position; and
Deterioration in the value of collateral.
The Company first assesses whether objective evidence of impairment exists individually for financial
assets that are individually significant, and collectively for financial assets that are not individually
significant. If the Company determines that no objective evidence of impairment exists for an
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 them for impairment.
Financial 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 of impairment.
The amount of loss is measured as the difference between the financial asset’s carrying amount and the
present value of estimated future cash flows (excluding future credit losses that have not been incurred)
discounted at the asset’s original effective interest rate (recoverable amount). The calculation of
recoverable amount of a collateralized financial asset reflects the cash flows that may result from
foreclosure less costs of obtaining and selling the collateral, whether or not foreclosure is probable. If a
loan or held-to-maturity financial asset has a variable interest rate, the discount rate for measuring any
impairment loss is the current effective interest rate determined under the contract. Impairment loss is
recognized in profit or loss and the carrying amount of the asset is reduced through the use of an
allowance account.
For purposes of a collective evaluation of impairment, financial assets are grouped on the basis of
similar credit risk characteristics (i.e., on the basis of the Company’s grading process that considers
asset type, industry, geographical location, collateral type, past-due status and other relevant factors).
Those characteristics are relevant to the estimation of future cash flows for groups of such assets by
being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the
assets being evaluated.
Loans and receivables are written-off in the year determined to be uncollectible. Loans and receivables
are determined to be uncollectible after exerting effort to collect the accounts and upon approval by the
Company’s Board of Directors.
If in a subsequent period, the amount of impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized (such as an improvement in the
debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the allowance
account. The amount of reversal is recognized in profit or loss.
(5)
(b) Assets classified as available-for-sale
The Company assesses at each reporting date whether there is evidence that a debt security classified as
available-for-sale is impaired. For an equity security classified as available-for-sale, a significant or
prolonged decline in the fair value below cost is considered in determining whether the securities are
impaired. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. The Company
treats ‘significant’ generally as 20% or more and ‘prolonged’ greater than twelve (12) months.
The cumulative loss (difference between the acquisition cost and the current fair value less any
impairment loss on that financial asset previously recognized in profit or loss) is removed from other
comprehensive income and recognized in profit or loss when the asset is determined to be impaired.
Impairment losses recognized in profit or loss on equity instruments are not reversed through profit or
loss. If in a subsequent period, the fair value of a debt instrument classified as available-for-sale
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. Reversal of
impairment losses recognized previously on equity instruments is made directly to other comprehensive
income.
2.5
Financial liabilities
The Company classifies its financial liabilities as financial liabilities at amortized cost. Financial
liabilities measured at amortized cost include cash collateral, accounts payable and accrued expenses
(included in Accounts payable and accrued expenses in the statements of financial position), due to
reinsurers and ceding companies, and funds held for reinsurers.
Financial liabilities are initially measured at fair value plus transaction costs. It is subsequently
measured at amortized cost using the effective interest method.
Financial liabilities are derecognized when they have been redeemed or otherwise extinguished.
2.6 Offsetting of financial assets and liabilities
Financial assets and liabilities are offset and the net amount reported in the statements of financial
position when there is a legally enforceable right to offset the recognized amounts and there is an
intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
2.7 Determination of fair value of financial instruments
The fair values of quoted investments are based on current bid prices. If the market for a financial asset
is not active (and for unlisted securities), the Company establishes fair value by using valuation
techniques. These include the use of recent arm’s length transactions, reference to other instruments
that are substantially the same, discounted cash flow analysis, and option pricing models making
maximum use of market inputs and relying as little as possible on entity-specific inputs.
A financial instrument is regarded as quoted in an active market if quoted prices are readily and
regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory
agency, and those prices represent actual and regularly occurring market transactions on an arm’s
length basis. If the above criteria are not met, the market is regarded as being inactive. Indications that
a market is inactive are when there is a wide bid-offer spread or significant increase in the bid-offer
spread or there are few recent transactions. For all other financial instruments, fair value is determined
using valuation technique using observable market data.
(6)
In cases when the fair value of unlisted equity instruments cannot be determined reliably, the
instruments are carried at cost less impairment. The fair value for loans and advances, as well as
liabilities to customers, is determined using a present value model on the basis of contractually agreed
cash flows, taking into account credit quality, liquidity and costs.
2.8
Investment in an associate
An associate is an entity over which the Company has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights.
Investment in an associate (included in Other assets) in the Company’s financial statements is
accounted for using the cost method. Under this method, investments are recognized at cost and
income from investment is recognized in profit or loss. Investment in an associate is also subject to
impairment.
Investment in an associate is derecognized when the shareholding interest is sold.
2.9
Property and equipment
Property and equipment are stated at historical cost less accumulated depreciation, amortization, and
impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the
items.
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 Company and the cost of the item can be measured reliably. All other repairs and maintenance are
charged to profit or loss during the year in which they are incurred.
Depreciation is calculated using the straight-line method to allocate the cost or residual values over the
estimated useful lives of the assets, as follows:
Condominium units
EDP equipment
Furniture, fixtures and office equipment
Leasehold improvements
Transportation equipment
25 years
5 years
5 years
5 years or lease term, whichever is shorter
5 years
The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting
date. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying
amount is greater than its estimated recoverable amount. The recoverable amount is the higher of an
asset’s fair value less costs to sell and value in use.
An item of property and equipment is derecognized upon disposal or when no future economic benefits
are expected to arise from the continued use of the asset. Any gain or loss arising from derecognition of
the asset (calculated as the difference between net disposal proceeds and the carrying amount of the
item) is included in profit or loss in the year the item is derecognized.
(7)
2.10
Investment property
Property that is held either to earn rental or for capital appreciation or for both and that is not
significantly occupied by the Company is classified as investment property (included in Other assets).
Investment property comprises land held for undetermined future use. Investment property is measured
initially at cost, including transaction costs. Subsequent to initial recognition, investment property is
stated at cost less accumulated impairment losses, if any. Impairment test is conducted when there is
an indication that the carrying amount of the asset may not be recovered. An impairment loss is
recognized for the amount by which the property’s carrying amount exceeds its recoverable amount,
which is the higher of the property’s fair value less costs to sell and value in use.
Investment property is derecognized when it has been disposed of or when permanently withdrawn
from use and no future benefit is expected from its disposal. Any gain or loss on the retirement or
disposal of investment properties is recognized in profit or loss in the year of derecognition.
2.11
Software costs
Software costs are capitalized on the basis of the costs incurred to acquire and bring to use the specific
software. These costs are amortized over their estimated useful life of five years.
Costs associated with developing or maintaining computer software programs are recognized as expense
when incurred. Development costs previously recognized as an expense are not recognized as an asset in a
subsequent period.
Software costs are derecognized upon disposal or when no future economic benefits are expected from
its use or disposal.
2.12
Impairment of non-financial assets
Assets that have an indefinite useful life, for example land, are not subject to amortization and are
tested annually for impairment. Assets that have definite useful lives are subject to depreciation or
amortization and are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by
which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher
of an asset’s fair value less costs to sell and value in use. For purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of
the impairment at each reporting date.
2.13
Classification of insurance and investment contracts
The Company issues contracts that transfer insurance risk or financial risk or both.
Insurance contracts are contracts that transfer significant insurance risk. Such risks include the
possibility of having to pay benefits on the occurrence of an insured event. The Company may also
transfer insurance risk in insurance contracts through its reinsurance arrangements, to hedge against a
greater possibility of claims occurring than expected. As a general guideline, the Company defines as
significant insurance risk the possibility of having to pay benefits on the occurrence of an insured event
that are at least 10% more than the benefits payable if the insured event did not occur.
(8)
Investment contracts are those contracts that transfer financial risk with no significant insurance risk.
The Company has no outstanding investment contracts for the years 2012 and 2011.
2.14
Insurance contracts
2.14.1 Recognition and measurement
Short-term insurance contracts of the Company include property and casualty insurance contracts.
For all these contracts, premiums are recognized as revenue (premiums earned) as follows:
(a) Direct business
Gross premiums written are recognized at the inception date of the risks underwritten and are earned
over the period of cover in accordance with the incidence of risk using the 24th method. The portion of
the gross premiums written that relates to the unexpired periods of the policies at year-end is referred
to as reserve for unearned premiums in the liability section of the statements of financial position.
(b) Inward reinsurance business
Gross premiums written are recognized based on the date of notification by the ceding companies
(generally one month after the inception date of the underlying risks underwritten) and are earned over
the period of cover in accordance with the incidence of risk using the 24th method. The portion of the
gross premiums written that relates to the unexpired periods of the policies at year-end is referred to as
reserve for unearned premiums in the liability section of the statements of financial position.
Claims and loss adjustment expenses are charged against profit or loss as incurred based on the
estimated liability for compensation owed to contract holders or third parties damaged by the contract
holders. They include direct and indirect claims settlement costs and arise from events that have
occurred up to the reporting date even if they have not yet been reported to the Company. The
Company does not discount its liabilities for unpaid claims. Liabilities for unpaid claim costs including
those for incurred but not reported (IBNR) are estimated and accrued. The liabilities for unpaid claims
are based on the estimated ultimate cost of settling the claims using the input of assessment for
individual cases reported to the Company. The method of determining such estimates and establishing
reserves is continually reviewed and updated. Changes in estimates of claims costs resulting from the
continuous review process and differences between estimates and payments for claims are recognized in
profit or loss in the year in which the estimates are changed or payments are made. Estimated
recoveries on settled and unsettled claims are evaluated in terms of estimated realizable values of the
salvage recoverable and deducted from the liability for unpaid claims. Outstanding claims and IBNR
are presented in the liability section of the statements of financial position as part of reserve for
outstanding losses.
2.14.2 Reinsurance commission
Reinsurance commission is initially deferred upon acceptance of the premium cession by reinsurers and
earned in proportion to premium revenue recognized.
(9)
2.14.3 Acquisition costs
Costs that vary with and are primarily related to the acquisition of new and renewal insurance contracts
such as commissions are deferred and charged to expense in proportion to premium revenue
recognized. Unamortized acquisition costs are shown in the statements of financial position as deferred
acquisition cost (DAC).
Reinsurance commissions are deferred and deducted from the applicable DAC, subject to the same
amortization method as the related acquisition costs.
2.14.4 Liability adequacy test
At each reporting date, liability adequacy tests are performed to ensure the adequacy of the contract
liabilities net of related DAC. In performing these tests, current best estimates of future contractual cash
flows and claims handling and administration expenses, as well as investment income from the assets
backing such liabilities, are used. Any deficiency is immediately charged to profit or loss initially by
writing-off DAC and by subsequently establishing a provision for losses arising from liability adequacy
tests (the unexpired provision).
Any DAC written off as a result of this test cannot be subsequently reinstated.
2.14.5 Reinsurance contracts held
Contracts entered by the Company with reinsurers which compensate the Company for losses on one or
more contracts issued and meet the classification requirements for insurance contracts are classified as
reinsurance contracts held. Insurance contracts entered into by the Company under which the contract
holder is another insurer (inward reinsurance) are classified as insurance contracts. Contracts that do
not meet these classification requirements are classified as financial assets.
The benefits to which the Company is entitled under its reinsurance contracts held are recognized as
reinsurance assets. These assets consist of due from reinsurers (classified within Insurance balances
receivable) and reinsurers’ share in insurance liabilities. Amounts recoverable from or due to
reinsurers are measured consistently with the amounts associated with the reinsured insurance
contracts and in accordance with terms of each reinsurance contract. Reinsurance liabilities are
primarily premiums payable for reinsurance contracts and are recognized as an expense upon
recognition of related premiums.
The Company assesses its reinsurance assets for impairment annually. If there is objective evidence
that the reinsurance asset is impaired, the Company reduces the carrying amount of the reinsurance
asset to its recoverable amount and recognizes that impairment loss in profit or loss. The Company
gathers the objective evidence that a reinsurance asset is impaired using the same process adopted for
financial assets held at amortized cost. The impairment loss is also calculated following the same
method used for these financial assets. These processes are described in Note 2.4.
2.14.6 Receivables and payables related to insurance contracts
Receivables and payables are recognized when the right to receive payment is established or when the
obligation becomes due. These include amounts due to and from agents, brokers and insurance contract
holders.
(10)
If there is objective evidence that the insurance receivable is impaired, the Company reduces the
carrying amount of the insurance receivable accordingly and recognizes that impairment loss in profit
or loss. The Company gathers the objective evidence that an insurance receivable is impaired using the
same process adopted for loans and receivables. The impairment loss is also calculated under the same
method used for these financial assets. These processes are described in Note 2.4.
2.15
Interest income and expense
Interest income on loans and investments, and interest expense, are recognized in profit or loss for all
interest-bearing financial instruments using the effective interest method.
The effective interest method is a method of calculating the amortized cost of a financial asset or a
financial liability and of allocating the interest income or interest expense over the relevant period. The
effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument or when appropriate, a shorter period to the net
carrying amount of the financial asset or financial liability.
When calculating the effective interest rate, the Company estimates cash flows considering all
contractual terms of the financial instrument but does not consider future credit losses. The calculation
includes all fees paid or received between parties to the contract that are an integral part of the effective
interest rate, transaction costs and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been written down as a result of an
impairment loss, interest income is recognized using the rate of interest used to discount future cash
flows for the purpose of measuring impairment loss.
2.16
Dividend income
Dividend income is recognized in profit or loss when the right to receive payment is established.
2.17
Foreign currency translation
(a) Functional and presentation currency
Items in the financial statements are measured using the currency of the primary economic
environment in which the Company operates (the “functional currency”). The financial statements are
presented in Philippine Peso, which is the Company’s functional and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year-end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognized in profit or loss. Non-monetary items
measured at historical cost denominated in a foreign currency are translated at the exchange rate as at
the date of initial recognition. Non-monetary items in a foreign currency that are measured at fair value
are translated using the exchange rate at the date when the fair value is determined.
(11)
Changes in the fair value of monetary securities denominated in foreign currency and classified as
available-for-sale are analyzed between translation differences resulting from changes in the amortized
cost of the security, and other changes in the carrying amount of the security. Translation differences
are recognized in profit or loss, and other changes in carrying amount are recognized in other
comprehensive income.
Translation differences on non-monetary financial instruments, such as equities classified as
available-for-sale, are included in other comprehensive income.
2.18
Provisions
Provisions are recognized when the Company has a present legal or constructive obligation as a result of
past events, it is more likely than not that an outflow of resources will be required to settle the
obligation and the amount has been reliably estimated. Provisions are not recognized for future
operating losses.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects the current market assessment of the time value of money and
the risk specific to the obligation. The increase in the provision due to the passage of time is recognized as
interest expense.
Where there are a number of similar obligations, the likelihood that an outflow will be required in
settlement is determined by considering the class of obligations as a whole. A provision is recognized
even if the likelihood of an outflow with respect to any one item included in the same class of
obligations may be small.
2.19
Income taxes
(a) Current income tax
Income tax payable is calculated on the basis of the applicable tax law and is recognized as an expense for
the year except to the extent that the current tax is related to items (for example, current tax on
available-for-sale financial assets) that are charged or credited in other comprehensive income or directly
to equity.
Interest income from cash in banks and investments are subject to final withholding tax. Such income is
presented at its gross amounts and the tax paid or withheld is included in Provision for income tax.
(b) Deferred income tax
Deferred income tax is provided in full, using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the financial statements.
The deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in
a transaction, other than a business combination, that at the time of the transaction affects neither
accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that
have been enacted or substantively enacted by the reporting date and are expected to apply when the
related deferred income tax asset is realized or the deferred income tax liability is settled.
(12)
Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of
unused tax losses (net operating loss carryover or NOLCO) and unused tax credits (excess minimum
corporate income tax or MCIT) to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilized. Deferred income tax liabilities are
recognized in full for all taxable temporary differences.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when the deferred income tax assets and liabilities
relate to income taxes levied by the same taxation authority where there is an intention to settle the
balances on a net basis.
The Company reassesses at each reporting date the need to recognize a previously unrecognized deferred
income tax asset.
Deferred income tax expense or credit included in Provision for income tax is recognized for the
changes during the year in the deferred income tax assets and liabilities.
2.20
Employee benefits
(a) Pension obligations
The Company has a trustee-administered, noncontributory defined benefit plan covering all qualified
officers and employees. A defined benefit plan is a pension plan that defines an amount of pension
benefit that an employee will receive on retirement, usually dependent on one or more factors such as
age, years of service and compensation.
The liability recognized in the statements of financial position in respect of defined benefit pension plan
is the present value of the defined benefit obligation at the reporting date less the fair value of plan
assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The
defined benefit obligation is calculated annually by independent actuaries using the projected unit
credit method. The present value of the defined benefit obligation is determined by discounting the
estimated future cash outflows using interest rates of high-quality government bonds that are
denominated in the currency in which the benefits will be paid and have terms to maturity that
approximate the terms of the related pension liability.
Cumulative actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit
obligation are charged or credited to profit or loss over the employees’ expected average remaining
working lives.
Past-service costs are recognized immediately in profit or loss, unless the changes to the pension plan
are conditional on the employees remaining in service for a specified period of time (the vesting period).
In this case, the past-service costs are amortized on a straight-line basis over the vesting period.
Where the calculation results in a benefit to the Company, the recognized asset is limited to the net total
of any unrecognized actuarial losses and past service costs, and the present value of any reductions in
future contributions to the plan.
(13)
(b) Profit-sharing and bonus plans
The Company recognizes a liability and an expense for bonuses and profit-sharing based on a formula
that takes into consideration the profit attributable to the Company’s shareholders after certain
adjustments. The Company recognizes a provision where contractually obliged or where there is a past
practice that has created a constructive obligation.
(c) Share-based compensation
The Company’s management awards high-performing employees bonuses in the form of options to
purchase BPI’s common shares, from time to time, on a discretionary basis. The options are subject to
certain service vesting condition, and their fair value is recognized as an employee benefits expense with
a corresponding increase in reserves over the vesting period.
2.21
Share capital; Share premium
Common shares are classified as share capital.
Share premium includes any premiums on consideration received in excess of par value on the issuance
of share capital.
2.22
Cash and stock dividends
Cash and stock dividends are recorded in the period in which they are approved by the Company’s Board
of Directors and the Insurance Commission (IC).
2.23
Leases (Company as a lessee)
Leases in which substantially all risks and rewards of ownership are retained by another party, the
lessor, are classified as operating leases. Payments, including prepayments, made under operating
leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line
basis over the period of the lease.
Refundable deposits paid to the lessor are carried at the present value of the future cash flows using an
appropriate discount rate. The difference between the carrying amount and the actual consideration
paid is treated as additional rental incentive which is amortized on a straight-line basis over the term of
the lease.
2.24
General and administrative expenses
General and administrative expenses are recorded when incurred.
2.25
Related party relationships and transactions
Related party relationships exist when one party has the ability to control, directly, or indirectly through
one or more intermediaries, the other party or exercises significant influence over the other party in
making financial and operating decisions. Such relationships also exist between and/or among entities
which are under common control with the reporting enterprise, or between and/or among the reporting
enterprise and its key management personnel, directors, or its shareholders. In considering each
possible related party relationship, attention is directed to the substance of the relationship, and not
merely the legal form.
(14)
2.26
Subsequent events (or Events after reporting date)
Post year-end events that provide additional information about the Company’s financial position at
reporting date (adjusting events) are reflected in the financial statements. Post year-end events that are
not adjusting events are disclosed in the notes to financial statements when material.
Note 3 - Insurance and Financial Risk Management Objectives and Policies
and Capital Management
The Company issues contracts that transfer insurance risk or financial risk or both. This section
summarizes these risks and the way the Company manages them.
3.1
Insurance risk
The risk under any one insurance contract is the occurrence of the insured event and the uncertainty of
the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and
therefore unpredictable. For a portfolio of insurance contracts where the theory of probability is
applied to pricing and provisioning, the principal risk that the Company faces under its insurance
contracts is that the actual claim payments exceed the carrying amount of the insurance liabilities. This
could occur because the frequency or severity of claims is greater than estimated. Insurance events are
random and the actual number and amount of claims will vary from year to year from the estimate
established using statistical techniques.
The Company decides on its retention, or the absolute amount it is ready to assume from one event.
The retention amount is a function of capital, experience, actuarial study and risk appetite or aversion.
The retention amount is for the best type of risk and is further downgraded when the account is less
than standard. In excess of its retention, the Company arranges reinsurance with reputable and
financially sound insurance/reinsurance companies.
For event losses like earthquake that can involve several retained amounts, the Company is secured by a
reinsurance protection based on the Company’s estimated maximum loss exposure. The same adheres
to the IC's minimum catastrophe cover requirements.
Severity can be managed by loss prevention programs; frequency by correct pricing.
(15)
Summarized below are the aggregate exposures (gross and net of reinsurance) to earthquake, typhoon
and flood by the Company arising from the insurance contracts as at December 31 are as follows:
2012
Zones
1
2
3
4
5
6
7
8
9
10
Zones
1
2
3
4
5
6
7
8
9
10
Earthquake
Gross
Retention
3,131,076
2,207,464
25,260,327
12,282,522
64,895
64,895
73,571,398
43,404,274
245,883,878
29,901,264
82,977,488
12,638,234
9,497,725
4,397,296
5,349,244
2,446,426
54,709,526
1,164,212
500,445,557 108,506,587
Earthquake
Gross
Retention
2,860,701
1,912,541
19,268,049
10,107,665
1,000
1,000
49,895
49,895
69,209,404
33,293,969
166,048,809
21,683,774
60,451,858
9,031,932
5,839,503
2,589,605
3,197,052
2,163,107
105,020,186
904,715
431,946,457
81,738,203
Typhoon
Gross
Retention
11,109,735
5,112,522
86,407,043
12,624,546
144,073,706
49,067,991
249,953,768
31,205,090
2,181,053
1,345,323
962,676
840,795
494,687,981 100,196,267
2011
Typhoon
Gross
Retention
6,200,734
3,029,280
63,615,293
9,763,621
185,294,215
36,901,409
171,860,371
23,328,593
1,590,932
970,623
645,099
597,408
429,206,644
74,590,934
Flood
Gross
Retention
10,958,260
4,963,489
85,283,269 11,900,021
140,853,658 46,052,891
247,405,912 29,061,297
2,123,810
1,288,079
800,854
710,970
487,425,763 93,976,747
Flood
Gross
Retention
6,091,026
2,919,572
62,744,911
9,143,273
182,011,784 33,755,934
169,586,648 21,386,262
1,489,378
869,069
494,422
481,728
422,418,169 68,555,838
Zones pertain to geographical locations set internally by the Company.
3.2
Financial risk
The Company is exposed to financial risk through its financial assets, financial liabilities, reinsurance
assets and insurance and reinsurance liabilities. In particular, the key financial risk is that the proceeds
from its financial assets are not sufficient to fund obligations arising from its insurance contracts.
Components of this financial risk include market risk, credit risk and liquidity risk.
(16)
The Company maintains a high level of liquid assets for the adequate and prompt servicing of its
insurance liabilities. The Company's investible funds are managed by BPI's Asset & Management Trust
Group (AMTG). The investments are governed by the investment guidelines approved by the Board of
Directors and in compliance with the guidelines of the IC. The funds are generally in medium and longterm instruments, balancing the market risks against the desired yields, with provision for liquidity as
defined by the Company. The working capital funds are invested in short-term instruments with BPI.
The Company's senior management approves the credit terms to be extended to intermediaries and
reinsurance clients, evaluates the quality of receivables and the level of impairment, and decides the
cancellation rules and credit and collection policies.
Internal controls are well-defined and compliance is closely monitored.
3.2.1
Foreign exchange risk
The foreign exchange risk is the risk that the value of a financial instrument will fluctuate because of
changes in foreign exchange rates.
The insurance business of the Company is mostly denominated in local currency. Currency exposures
arise from the holding of monetary assets and liabilities denominated in foreign currencies, mainly debt
securities, bank balances and deposits with financial institutions. The Company minimizes its exposure
to any significant foreign exchange rate risk by generally investing in assets denominated in the same
currency as insurance and reinsurance liabilities.
The details of the Company’s foreign currency denominated assets and liabilities as at December 31
are as follows:
2012
Japanese
US Dollar
Yen
Assets
Cash and cash equivalents
Cash in banks
Time deposits
Available-for-sale financial assets
Liabilities
Due to reinsurers and ceding companies
Net assets (liabilities) (in thousands)
Peso equivalent (in thousands)
(17)
2011
Japanese
US Dollar
Yen
1,991
610
503
3,104
15,485
15,485
7,351
2,786
502
10,639
32,180
32,180
4,378
(1,274)
(52,290)
900
14,585
6,937
9,450
1,189
52,126
429
31,751
17,914
The exchange rates of US Dollar 1.00 and Yen 1.00 into Philippine peso as at December 31 are as
follows:
2012
41.050
0.4756
US dollar
Japanese yen
2011
43.840
0.5642
Unrealized foreign exchange gain charged to profit or loss amounts to P7 million (2011 – P1 million).
The table below presents the impact of possible movements of Philippine Peso against the US dollar and
Japanese Yen, with all other variables held constant, on the Company’s net income after tax. There is
no impact on the Company’s equity other than those already affecting net income after tax.
At December 31, 2012
US dollar
US dollar
Japanese Yen
Japanese Yen
Change in
exchange rate
+5%
-5%
+9%
-9%
Impact on income
after tax
1,917
(1,917)
460
(460)
At December 31, 2011
US dollar
US dollar
Japanese Yen
Japanese Yen
Change in
exchange rate
+9%
-9%
+14%
-14%
Impact on income
after tax
4,691
(4,691)
2,508
(2,508)
The reasonably possible movement in foreign currency exchange rates is based on projection by the
Company’s investment manager using year-on-year historical experience.
3.2.2
Interest rate risk
Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of
changes in market interest rate. Interest rate risk is managed by targeting a desired return, which is
reviewed periodically, based on the Company’s long-term view on interest rates. Strict investment
guidelines, as approved by the AMTG and the IC, are in place and reviewed regularly to provide the
general direction for the investment funds and to monitor the risk undertaken.
The Company’s policy is to pursue a stable return on investment in order to maintain solid solvency.
Priority is given to safety and liquidity as these assets are mainly for payment of insurance claims.
The Company’s interest rate risk arises primarily from investments in government securities classified
as available-for-sale.
(18)
On the assumption that the interest rate had increased/decreased by 100 basis points at
December 31, 2012 and 2011, fair value reserve is expected to increase/decrease by P15 million
(2011 - P4 million) as a result of changes in the fair value of available-for-sale debt financial assets. The
assumptions are based on the reasonable possible shift of interest rate as determined by management
based on historical year-on-year movements of similar instruments.
To minimize the interest rate risk, the Company does not pre-terminate its investments before their due
date. It manages its working capital to ensure that funds are available when a liability becomes due.
3.2.3
Price risk
The Company is exposed to price risk because of equity investments held by the Company and classified
in the statements of financial position as available-for-sale.
To minimize the price risk exposure in equity securities, the Company has put in place a policy to
dispose any single holding of equities which has an unrealized loss on investment of more than 30%,
unless otherwise approved by the Company’s Board of Directors.
The analysis below presents the impact of reasonable possible movements in the Philippine Stock
Exchange Index (PSEi) and the net asset value per share (NAVps) of existing investments in mutual
funds on the Company’s fair value reserve.
At December 31, 2012
PSEi
PSEi
NAVps of Mutual funds
NAVps of Mutual funds
Assumed volatility
+15%
-15%
+22%
-22%
Impact on equity
25
(25)
37
(37)
At December 31, 2011
PSEi
PSEi
NAVps of Mutual funds
NAVps of Mutual funds
Assumed volatility
+18%
-18%
+18%
-18%
Impact on equity
1,843
(1,843)
1,890
(1,890)
The assumed volatility in the PSEi is based on the historical year-on-year movements of the PSEi. The
assumed volatility in NAVps on existing investments in mutual funds is based on the projected
movement in the first quarter of the succeeding year. The assumed volatilities are consistent with the
assumption that all the variables are held constant and all the Company’s listed equity instruments and
investments in mutual funds moved according to the historical correlation with the stock index and
NAVps, respectively.
3.2.4 Credit risk
Credit risk represents the loss that would be recognized if counterparties to reinsurance, investment in
available-for-sale and held-to-maturity debt securities and insurance and reinsurance transactions are
unable or unwilling to fulfill their obligations.
(19)
(i) Credit risk management, risk limit and mitigation policies
(a) Reinsurance receivable balances
Reinsurance is used to manage insurance risks. This does not, however, discharge the Company’s
liability as primary insurer. If a reinsurer fails to pay a claim for any reason, the Company remains
liable for the payment to the policyholder. The creditworthiness of reinsurers is considered on an
annual basis by reviewing their financial strength prior to finalization of any contract.
The Company restricts its exposure to credit losses from its reinsurance business by entering into
master netting arrangements with counterparties. Master netting arrangements do not generally result
in an offset of balance sheet assets and liabilities, as transactions are usually settled on a gross basis.
However, the credit risk associated with favorable contracts (asset position) is reduced by a master
netting arrangement to the extent that if a default occurs, all amounts with the counterparty are
terminated and settled on a net basis. The Company accredits its reinsurers and sets a limit as to what
can be reinsured with such reinsurance company. Minimum rating allowed is Standard & Poor’s (S&P)
A- rating. The reinsurance treaties and the accreditation of reinsurers require board approval.
The credit risk arising from insurance operations is closely monitored by the Collections Unit of Finance
Group on an ongoing basis.
(b) Available-for-sale debt instruments, held-to-maturity financial assets and cash in banks
One of the Company’s primary investment objectives is to seek the preservation of its portfolio by
mitigating the credit risk which is the risk of loss due to failure of the issuer to make good on its
obligation when maturity becomes due. This is mitigated by investing in safe securities and diversifying
its investment portfolio so that the failure of any one issuer would not materially affect the cash flow of
the Company. Within the guidelines provided by the IC, the AMTG ensures that the Company invests in
allowable categories of investment instruments and provided limitation as to the percentage of the
portfolio which can be invested in a certain category. Presently, the Company has substantial
investments in government securities.
For time deposits and debt securities, external ratings such as those provided by Philippine Rating
Services Corporation (Philratings) and S&P or their equivalent are used by the Company for managing
credit risk exposures. Investments in these deposits and securities are viewed as a way to gain better
credit quality mix and at the same time, maintain a readily available source to meet funding
requirements.
(c) Mortgage loans
In measuring credit risk of mortgage loans, the Company considers three components: (i) the
probability of default by the borrower on its contractual obligations; (ii) current exposures to the
borrower and its likely future development; and (iii) the likely recovery ratio on the defaulted
obligations.
(20)
The Company structures the levels of credit risk it undertakes by placing limits on the amount of risk
accepted in relation to one borrower, or groups of borrowers, and to geographical and industry
segments. Such risks are monitored on a regular basis and subject to an annual or more frequent
review, when considered necessary. Limits on large exposures and credit concentration are approved
by the Board of Directors.
Exposure to credit risk is also managed through regular analysis of the ability of borrowers and
potential borrowers to meet interest and capital repayment obligations and by changing these lending
limits where appropriate.
The Company also accepts collateral type of loans in order to mitigate credit risk and require security
from its borrowers.
(d) Other receivables
The Company’s other receivables consist primarily of employees’ car loan as well as receivable from
agents.
Exposure to credit risk is low considering that the employees’ car loan is amortized monthly through
salary deduction while agents’ accounts are deducted from the commissions due them.
(ii) Maximum exposure to credit risk
Credit risk exposures relating to financial assets are as follows:
Cash and cash equivalents, excluding cash on hand
Insurance balances receivable
Held-to-maturity financial assets
Available-for-sale financial assets, excluding equity securities and
mutual funds
Other receivables
Mortgage loan
Accounts receivable - non-trade
Accounts receivable - trade
Investment income due and accrued
2012
593,935
761,467
1,342,683
2011
951,837
703,616
1,352,110
1,033,550
856,593
6,184
14,024
1,731
46,612
3,800,186
5,928
36,525
1,932
43,739
3,952,280
Allowance for impairment on available for sale financial assets, insurance balance receivable, and other
receivables amounts to P17 million, P47 million, and P2 million, respectively (2011 – nil, P47 million
and P8 million).
(21)
(iii) Credit ratings of cash and cash equivalents (excluding cash-on-hand),
held-to-maturity and available-for-sale financial assets (excluding equity securities)
The Company deposits its cash balance in universal, commercial and thrift banks to minimize credit
risk exposure. Amount deposited in these banks as at December 31 are as follows:
Universal banks
Commercial banks
Thrift banks
2012
556,973
34,904
2,058
593,935
2011
804,834
145,316
1,687
951,837
S&P
BB+
1,342,683
Total
1,342,683
882,527
20,648
2,245,858
1,012,902
20,648
2,376,233
S&P
BB+
1,352,110
Total
1,352,110
721,674
22,019
2,095,803
834,574
22,019
2,208,703
The table below presents the ratings of debt securities at December 31:
2012
Held-to-maturity
Available-for-sale
Fixed-term debt securities
US dollar Treasury bonds
2011
Held-to-maturity
Available-for-sale
Fixed-term debt securities
US dollar Treasury bonds
(22)
Philratings
AAA
A+ to A-
130,375
130,375
-
Philratings
AAA
A+ to A112,900
112,900
-
(iv) Other receivables and Investment income due and accrued
Loans and receivables and investment income due and accrued are summarized as follows:
2012
Insurance balances receivable
Mortgage loans
Non-employees
Employees
Accounts receivable - non-trade
Accounts receivable - trade
Investment income due and accrued
2011
Insurance balances receivable
Mortgage loans
Non-employees
Employees
Accounts receivable - non-trade
Accounts receivable - trade
Investment income due and accrued
Neither
past due
nor
impaired
656,328
5,174
14,024
904
46,612
723,042
Neither
past due
nor
impaired
578,068
4,603
25,533
525
43,739
652,468
Past due in the following periods
but not impaired
More
91-180
181-360
than 360
days
days
days
47,308
11,198
47,308
11,198
-
Past due in the following periods
but not impaired
More
91-180
181-360
than 360
days
days
days
57,363
21,552
57,363
2,187
93
23,832
3,309
3,309
Impaired
46,633
Gross
carrying
amount
761,467
1,010
827
48,470
1,010
5,174
14,024
1,731
46,612
830,018
Impaired
46,633
Gross
carrying
amount
703,616
1,325
5,496
1,314
54,768
1,325
4,603
36,525
1,932
43,739
791,740
The Company maintains a normal credit term of 90 days for insurance balances receivable and
considers past due as those outstanding beyond 90 days.
The details of allowance for impairment are as follows:
Insurance balances receivable
Mortgage loans - non-employees
Accounts receivable - non-trade
Accounts receivable - trade
2012
46,633
1,010
827
48,470
2011
46,633
1,325
5,496
1,314
54,768
The total impairment for mortgage loans represents the portfolio provision.
Further information of the impairment allowance is provided in Notes 6 and 10. The credit risk arising
from mortgage loans is not significant as this is covered by collateral. For accounts receivable -nontrade, this will be deducted by the Company from the salary of the employees. Majority of investment
income due and accrued came from government securities issued and guaranteed by the Philippine
Government.
(23)
(v) Repossessed or foreclosed
As at December 31, 2012 and 2011, the Company has possession of collaterals held as security for
mortgage and other loans with carrying amount of P16 million (2011 – P16 million). The related
foreclosed collaterals have aggregate fair value of P23 million (2011 - P23 million).
Repossessed properties are sold as soon as practicable and are classified as assets held-for-sale included
in Other assets in the statements of financial position.
(vi) Concentrations of risks of financial assets with credit risk exposure
The Company’s main credit exposure at their carrying amounts, as categorized by industry sectors
follow:
At December 31, 2012
Cash and cash equivalents, excluding
cash on hand
Insurance balances receivable, net
Held-to-maturity financial assets
Available-for-sale financial assets,
excluding equity securities and mutual
funds
Other receivables
Mortgage loans
Non-employees
Employees
Accounts receivable - non-trade
Accounts receivable - trade
Investment income due and accrued
At December 31, 2011
Cash and cash equivalents, excluding
cash on hand
Insurance balances receivable, net
Held-to-maturity financial assets
Available-for-sale financial assets,
excluding equity securities and mutual
funds
Other receivables
Mortgage loans
Non-employees
Employees
Accounts receivable - non-trade
Accounts receivable - trade
Investment income due and accrued
(24)
Financial
institutions
Real estate
Others
Less
allowance
Total
593,935
694,959
1,342,683
-
66,508
-
46,633
-
593,935
714,834
1,342,683
45,000
-
988,550
-
1,033,550
12,512
597
1,068,167
1,010
827
48,470
5,174
14,024
904
46,612
3,751,716
Others
Less
allowance
Total
46,633
-
951,837
656,983
1,352,110
1,405
1,134
46,612
2,725,728
Financial
institutions
1,010
5,174
107
6,291
Real estate
951,837
631,923
-
-
71,693
1,352,110
55,172
-
801,421
24,102
1,844
43,739
1,708,617
1,325
4,603
11
5,939
12,412
88
2,237,724
-
1,325
5,496
1,314
54,768
856,593
4,603
31,029
618
43,739
3,897,512
3.2.5
Liquidity risk
Liquidity risk is the risk that the Company will be unable to meet its financial obligations when due.
The Company manages its liquidity by close monitoring of cash flows to ensure that the operation
maintains optimum levels of liquidity at all times sufficient to meet contractual obligations as and when
they fall due.
It is also the Company’s policy to maintain adequate liquidity to meet its cash flow requirements.
Accordingly, each portfolio is structured in a manner that ensures sufficient cash is available to meet
anticipated liquidity needs. Selection of investment maturities is consistent with the cash requirements
in order to avoid the forced sale of securities prior to maturity.
Net insurance claim liabilities as detailed on Note 7 and 18 are expected to be settled within the
succeeding year. Due to reinsurer and ceding companies are settled within the premium warranty
period as stipulated in the insurance contract which normally covers one year. Accounts payable and
accrued expenses are expected to be settled within one year. Cash collateral covers construction bonds
expected to be completed within one year.
The table below analyzes the financial liabilities of the Company. Amounts disclosed in the table are the
expected undiscounted cash flows of financial liabilities which are all due within one year. Balances due
within one year equal their carrying balances as the impact of discounting is not significant.
Due to reinsurer and ceding companies
Accounts payable and accrued expenses
Accounts payable
Accrued expenses
Cash collateral
Funds held for reinsurers
2012
381,663
2011
620,866
69,338
102,084
73,088
184,339
810,512
38,781
107,692
80,259
108,643
956,241
The maturity analyses of financial assets are individually shown in their respective notes to financial
statements.
(25)
3.2.6 Fair value determination
(i) Fair value of financial assets and liabilities
The table below summarizes the carrying amount and fair value of those significant financial assets and
liabilities not presented in the statement of financial position at fair value.
Carrying value
2012
2011
Financial assets
Cash and cash equivalents
Insurance balances receivable, net
Held-to-maturity financial assets
Other receivables, net (excluding
prepayments, advance rentals and
creditable withholding taxes)
Investment income due and accrued
Financial liabilities
Due to reinsurers and ceding
Companies
Funds held for reinsurers
Cash collateral, accounts payable
and accrued expenses
Fair value
2012
2011
594,074
714,834
1,342,683
951,976
656,983
1,352,110
594,074
714,834
1,504,083
951,976
656,983
1,551,123
20,102
46,612
2,718,305
36,250
43,739
3,041,058
20,102
46,612
2,879,705
36,250
43,739
3,240,071
381,663
184,339
620,866
108,643
381,663
184,339
620,866
108,643
244,510
810,512
226,732
956,241
244,510
810,512
226,732
956,241
(a) Held-to-maturity financial assets
Fair value of held-to-maturity financial assets is based on market prices or broker/dealer price
quotations. Where this information is not available, fair value is estimated using quoted market prices
for securities with similar credit, maturity and yield characteristics.
(b) Other receivables
The estimated fair value of other receivables represents the discounted amount of estimated future cash
flows expected to be received. Expected cash flows are discounted at current market rates to determine
fair value.
(c) Other financial assets and financial liabilities
The carrying values of other financial assets and financial liabilities approximate their respective fair
values at reporting date due to their short-term nature.
(26)
(ii) Fair value hierarchy
PFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation
techniques are observable or unobservable. Observable inputs reflect market data obtained from
independent sources; unobservable inputs reflect the Company’s market assumptions. These two types
of inputs have created the following fair value hierarchy:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level
includes listed equity securities and debt instruments on exchanges (for example, Philippine Stock
Exchange, Inc., Philippine Dealing and Exchange Corp., etc.).

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (that is, as prices) or indirectly (that is, derived from prices). The primary
source of input parameters is Bloomberg.

Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable
inputs). This level includes equity investments and debt instruments with significant unobservable
components. This hierarchy requires the use of observable market data when available. The
Company considers relevant and observable market prices in its valuations where possible.
The following table presents the Company’s assets that are measured at fair value at December 31:
Level 1
Available-for-sale financial assets
Debt securities
Equity securities (excluding unlisted shares), net
Investment in mutual funds
December 31, 2012
903,175
437,544
163
1,340,882
Level 1
Available-for-sale financial assets
Debt securities
Equity securities (excluding unlisted shares), net
Investment in mutual funds
December 31, 2011
698,693
119,964
10,172
828,829
Level 2
130,375
130,375
Level 2
157,900
157,900
Total
1,033,550
437,544
163
1,471,257
Total
856,593
119,964
10,172
986,729
The Company has no financial instruments that fall under the Level 3 category as at December 31, 2012
and 2011.
Unlisted available-for-sale equity securities are carried at cost less impairment.
(27)
3.3
Capital management
The Company’s objectives when managing capital (total equity as shown in the statements of financial
position) are:



to comply with the capitalization requirement through the Margin of Solvency (MOS) set by the IC;
to safeguard the Company’s ability to continue as a going concern so that it can continue to provide
returns for shareholders and benefits for other stakeholders; and
to maintain a strong capital base to support the development of its business.
The Company maintains a certain level of capital to ensure that solvency margins are in excess of
regulatory requirements which, in turn, protect its policyholders.
The level of MOS is monitored by the Company’s management, employing the procedures based on the
guidelines developed by the IC.
Under the Insurance Code, a non-life insurance company doing business in the Philippines shall
maintain at all times an MOS equal to P500 thousand 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 Insurance Code), exclusive of its paid-up capital over the amount
of its liabilities, reserve for unearned premiums and reinsurance reserves. Reserve for unearned
premiums determined in accordance with the same Code for purposes of MOS amounts to P655 million
(2011 - P591 million).
In the accompanying financial statements, the PFRS net reserve for unearned premiums at
December 31 follows:
Reserve for unearned premiums
Deferred reinsurance premiums
(28)
2012
2,623,864
1,751,350
872,514
2011
2,007,534
1,236,593
770,941
The MOS computations of the Company at December 31 follow:
Total assets
Non-admitted assets
Due from agents and brokers
Deferred reinsurance premium
Deferred acquisition cost, net
Investments
Other receivables
Property and equipment, net
Deferred income tax assets, net
Other assets
Total admitted assets
Total liabilities and share capital
Reserve for unearned premiums
Other liabilities
Paid-up capital
Available for MOS
Minimum MOS
Excess MOS
2012
7,537,965
2011
6,861,700
214,710
1,751,350
65,208
82,998
2,538
8,347
104,308
12,543
2,242,002
5,295,963
43,030
1,236,593
57,918
64,928
19,235
20,742
86,117
19,781
1,548,344
5,313,356
654,621
2,579,653
350,000
3,584,274
1,711,689
162,142
1,549,547
590,893
2,635,028
350,000
3,575,921
1,737,435
146,356
1,591,079
The final amounts of the MOS can be determined only after the accounts of the Company have been
examined by the IC, specifically as to admitted and non-admitted assets as defined in the Insurance
Code.
The Company also manages its capital through its compliance with the following regulatory
requirements:
Fixed capitalization
In September 2006, the Department of Finance issued Department Order 27-06 increasing the
capitalization requirements for insurance and reinsurance companies on a staggered basis for the five
years ended December 31, 2006 up to 2011. Depending on the level of foreign ownership in the
insurance company, the minimum statutory net worth and minimum paid-up capital requirements
vary. The statutory net worth shall include the Company’s paid-up capital, capital in excess of par
value, contingency surplus, retained earnings and revaluation increments as may be approved by the IC.
The minimum paid-up capital is pegged at 50% of the minimum statutory net worth.
On October 29, 2009, the IC issued Circular Letter No. 26-08 deferring the scheduled increase due
December 31, 2008 to December 31, 2009.
(29)
On November 11, 2010, the IC issued an advisory regarding the implementation of Department Order
27-2006. Based on the advisory, the Company, being an insurance company with at least 40% equity
but less than 60% foreign equity, is required to maintain a minimum statutory net worth and minimum
paid-up capital as at December 31, 2012 of P700 million and P350 million, respectively.
As at December 31, 2012 and 2011, the Company is fully compliant with these requirements.
Risk-based capital
In October 2006, the IC issued Insurance Memorandum Circular No. 7-2006 adopting the risk-based
capital framework for non-life insurance industry to establish the required amounts of capital to be
maintained by insurance companies in relation to their investment and insurance risks. Every non-life
insurance company is annually required to maintain a minimum RBC ratio of 100% and not fail the
trend test. The insurance company will be subjected to the corresponding regulatory intervention upon
its failure to meet the minimum RBC ratio.
The Company calculates and is compliant with the RBC ratio based on the requirements of the Circular.
Limitation on dividend declaration
The Code provides that the Company shall declare or distribute dividends on its outstanding stock only
from profits remaining on hand after retaining unimpaired:




the entire paid-up capital stock;
the margin of solvency required;
the legal reserve fund required; and,
a sum sufficient to pay all net losses reported or in the course of settlement and all liabilities for
expenses and taxes.
The Company is required to report such dividend declaration or distribution to the IC within thirty
30 days from the date of such declaration (Note 21).
Note 4 - Critical accounting estimates, assumptions and judgments in applying
accounting policies
The Company makes estimates and assumptions that affect the reported amounts of assets and
liabilities. Estimates and judgments are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable under the
circumstances. It is reasonably possible that the outcomes within the next financial year could differ
from assumptions made at reporting date and could result in the adjustment to the carrying amount of
affected assets or liabilities.
A. Critical accounting estimate
The ultimate liability arising from claims made under insurance contracts (Note 18)
The estimation of the ultimate liability arising from claims made under insurance contracts is the
Company’s most critical accounting estimate. There are several sources of uncertainty that need to be
considered in the estimate of the liability that the Company will ultimately pay for such claims. The
major uncertainties are the frequency of claims due to the contingencies covered and the timing of
benefit payments.
(30)
The Company considers that it is impracticable to discuss with sufficient reliability the possible effects
of sensitivities surrounding the ultimate liability arising from claims made under insurance contracts as
the major uncertainties may differ significantly. With this, it is reasonably possible, based on existing
knowledge, that the outcomes within the next financial year are different from assumptions and could
require a material adjustment to the carrying amount of the asset or liability affected including reserve
for outstanding losses and related reinsurance balances.
The carrying value of reserve for outstanding losses as at December 31, 2012 and 2011 amounts to
P1,566 million and P1,500 million, respectively.
B. Critical accounting judgments
(a) Held-to-maturity financial assets (Note 8)
The Company follows the guidance of PAS 39 in classifying non-derivative financial assets with fixed or
determinable payments and fixed maturity as held-to-maturity. This classification requires significant
judgment. In making this judgment, the Company evaluates its intention and ability to hold such
investments to maturity. If the Company fails to keep these investments to maturity other than for the
specific circumstances - for example, selling an insignificant amount close to maturity - it will be
required to reclassify the entire class to available-for-sale financial assets. The investments will
therefore be measured at fair value and not at amortized cost.
If the entire class of held-to-maturity financial assets is tainted, the fair value would increase by
P161 million (2011 - P199 million) with a corresponding increase in other comprehensive income.
(b) Impairment of available-for-sale financial assets (Note 9)
The Company follows the guidance of PAS 39 to determine when an available-for-sale financial asset is
impaired. This determination requires significant judgment. The determination of what is ‘significant’
or ‘prolonged’ requires judgment. The Company treats ‘significant’ generally as 20% or more and
‘prolonged’ greater than twelve (12) months. In making this judgment, the Company evaluates, among
other factors, the duration and extent to which the fair value of an investment is less than its cost; and
the financial health and near-term business outlook of the issuer, including factors such as industry and
sector performance, changes in technology and operational and financing cash flows.
The allowance for impairment recognized for available-for-sale financial assets as at December 31, 2012
amounts to P17 million (2011 - nil).
(c) Impairment of other financial assets (Notes 6, 8, 10 and 11)
The Company reviews other financial assets at each reporting date to assess whether an allowance for
impairment should be recorded in profit or loss. In particular, judgment by management is required in
the estimation of the amount and timing of future cash flows when determining the level of allowance
required. The amount and timing of recorded expenses for any period would differ if the Company
made different judgment. An increase in allowance for impairment losses would increase recorded
expenses and decrease net income.
Other financial assets consist of insurance balances receivable, held-to-maturity financial assets, other
receivables and investment income due and accrued.
(31)
The allowance for impairment recognized for other financial assets as at December 31 follows:
Insurance balances receivable
Other receivables
At December 31
2012
46,633
1,837
48,470
2011
46,633
8,135
54,768
(d) Income taxes (Note 20)
Management reviews at each reporting date the carrying amounts of deferred tax assets. The carrying
amount of deferred tax assets is reduced to the extent that the related tax assets cannot be utilized due
to insufficient taxable profit against which the deferred tax losses will be applied. Management believes
that sufficient taxable profit will be generated to allow all or part of the deferred income tax assets to be
utilized.
Note 5 - Cash and cash equivalents
The details of the account at December 31 follow:
Cash on hand
Cash in banks
Philippine peso
US dollar
Japanese yen
Time deposits
Philippine peso
US dollar
2012
139
2011
139
198,073
81,743
7,365
287,181
163,045
322,823
18,156
504,024
281,702
25,052
306,754
594,074
325,678
122,135
447,813
951,976
The Philippine peso and US dollar time deposits have maturities of 90 days or less. The Philippine peso
time deposits have annual interest rates ranging from 1.0% to 3.75% (2011 - 1.25% to 2.5%). The US
dollar time deposits bear interest rates ranging from 0.4625% to 1.375% (2011 - 0.925% to 1.85%).
Interest income earned on cash and cash equivalents amounts to P7 million (2011 – P7 million) (see
Note 19).
(32)
Note 6 - Insurance balances receivable, net
The details of the account at December 31 follow:
Due from agents and brokers
Due from ceding companies and reinsurers
Funds held by ceding companies
Allowance for impairment
2012
663,663
86,881
10,923
761,467
(46,633)
714,834
2011
599,305
91,916
12,395
703,616
(46,633)
656,983
All insurance receivables are due within one year.
There are no movements in allowance for impairment during 2012 and 2011.
Note 7 - Reinsurance balances
The Company utilizes reinsurance agreements to minimize its exposure to large losses in all aspects of
its insurance business. Reinsurance permits recovery of a portion of losses from reinsurers, although it
does not discharge the primary liability of the Company as direct insurer of the risks reinsured.
The details of reinsurance balances at December 31 are as follows:
2012
761,467
2011
703,616
(381,663)
(184,339)
195,465
(620,866)
(108,643)
(25,893)
Reserve for outstanding losses
Less Reinsurance recoverable on unpaid losses
Balance, net of reinsurance
1,565,984
(1,235,464)
330,520
1,500,125
(1,213,978)
286,147
Reserve for unearned premiums
Less Deferred reinsurance premium
Balance, net of reinsurance
2,623,864
(1,751,350)
872,514
2,007,534
(1,236,593)
770,941
Insurance balances receivable, gross
Less reinsurance balances
Due to reinsurers and ceding companies
Funds held for reinsurers
Balance, net of reinsurance
Note 8 - Held-to-maturity financial assets
The account consists of peso-denominated fixed-term Treasury notes with interest rates ranging from
4.7% to 9.9% (2011 - 4.7% to 13%).
Current
Non-current
(33)
2012
1,342,683
1,342,683
2011
17,200
1,334,910
1,352,110
Movements in the account follow:
At January 1
Additions
Maturities
Amortization of discount, net
At December 31
2012
1,352,110
(17,200)
7,773
1,342,683
2011
1,341,820
12,471
(9,335)
7,154
1,352,110
Securities amounting to P88 million (2011 - P88 million) are deposited with the IC in accordance with
the provisions of the Insurance Code of the Philippines (Insurance Code) for the benefit of policyholders
and creditors of the Company.
The fair value of the held-to-maturity financial assets at December 31, 2012 amounts to P1,504 million
(2011 - P1,551 million).
Interest income earned from held-to-maturity securities amount to P133 million (2011 - P133 million)
(see Note 19).
Note 9 - Available-for-sale financial assets
Available-for-sale financial assets at December 31 consist of:
Equity securities
Listed shares
Unlisted shares
Debt securities
Fixed-term Treasury notes
US dollar Treasury bonds
Investment in mutual funds
Allowance for impairment on unlisted shares
Current
Non-current
(34)
2012
2011
455,005
74,005
119,964
72,393
1,012,902
20,648
163
1,562,723
(17,461)
1,545,262
834,574
22,019
10,172
1,059,122
1,059,122
2012
359,970
1,185,292
1,545,262
2011
61,280
997,842
1,059,122
Movements in the account follow:
At January 1
Additions
Disposals
Amortization of premium, net
Net fair value gain
Provision for impairment
Exchange differences
At December 31
2012
1,059,122
2,892,759
(2,403,772)
(2,177)
18,070
(17,461)
(1,279)
1,545,262
2011
1,131,686
1,303,518
(1,377,907)
(1,730)
3,140
415
1,059,122
Movements in allowance for impairment are as follows:
At January 1
Provision for impairment
At December 31
2012
17,461
17,461
2011
-
Listed equity securities include common shares of BPI Parent and other related parties (see Note 23).
Dividend income earned from listed securities and unlisted equity securities as of December 31, 2012
amounts to P10 million and P24 million, respectively (2011 - P4 million and P13 million, respectively).
Debt securities have interest rates ranging from 4.7% to 9.9% (2011 - 5.1% to 9.9%).
The Company has an Investment Management and Custodianship Agreement with BPI (see Note 23).
Interest income earned on available-for-sale financial assets amounts to P88 million
(2011 - P81 million) (see Note 19).
The Company sold certain available-for-sale securities which resulted in a gain of P67 million and
P16 million for the years ended December 31, 2012 and 2011, respectively. Proceeds from disposals of
available-for-sale securities amount to P2,471 million and P1,394 million for the years ended
December 31, 2012 and 2011, respectively.
(35)
Note 10 - Other receivables, net
The details of the account at December 31 follow:
Mortgage loans
Non-employees
Employees
Accounts receivable - trade
Accounts receivable - non-trade
Prepayments
Advance rentals
Creditable withholding taxes
Allowance for impairment
Current
Non-current
2012
2011
1,010
5,174
1,731
14,024
7,053
5,490
5,589
40,071
(1,837)
38,234
1,325
4,603
1,932
36,525
14,734
5,047
29,200
93,366
(8,135)
85,231
2012
15,662
22,572
38,234
2011
46,674
38,557
85,231
Movements in allowance for impairment follow:
At January 1
(Reversal of) provision for impairment
Write-off
At December 31
2012
8,135
(5,002)
(1,296)
1,837
2011
2,713
5,872
(450)
8,135
2012
1,010
827
1,837
2011
1,325
6,810
8,135
Breakdown of the allowance for impairment follows:
Mortgage loans
Accounts receivable - trade
The Company’s mortgage loans - non-employees pertain to participation on a without recourse basis in
the mortgage loan portfolio of BPI-Philam Life Assurance Corporation (BPLAC), a related party.
The Company has a Service Agreement with BPI Family Savings Bank, Inc. (BPI Family Bank), a related
party, for the processing, servicing and administration of the Company’s mortgage and other loans (see
Note 23).
Interest income on mortgage and other loans amount to P2 million (2011 - P2 million) (see Note 19).
Accounts receivable - non-trade consists mainly of employee salary and car facility loans while accounts
receivable - trade represents receivable from agents for unremitted premium collections.
(36)
Note 11 - Investment income due and accrued
The account at December 31 represents income earned but not yet received from the following:
2012
Cash in bank
Time deposits
Financial assets
Held-to-maturity financial assets
Available-for-sale financial assets
2011
77
323
14,654
31,881
46,612
31,902
11,514
43,739
The amounts presented above are expected to be realized within one year.
Note 12 - Property and equipment, net
The details of the account are as follows:
Furniture,
fixtures and
Condominium
EDP
office
Leasehold
Transportation
units
equipment
equipment
improvements
equipment
66,242
Total
Year ended December 31, 2012
Opening net book value
15,935
6,575
5,991
3,070
97,813
-
5,449
2,592
3,128
2,851
14,020
Reclassification
-
173
(173)
-
Disposals
-
(99)
(136)
-
Additions
-
-
(127)
(362)
Depreciation charge
(5,064)
(14,472)
(3,061)
(5,502)
(2,949)
(31,048)
Closing net book value
61,178
6,986
5,797
3,617
2,845
80,423
At December 31, 2012
Cost
126,687
67,211
15,748
21,905
10,692
242,243
Accumulated depreciation
(65,509)
(60,225)
(9,951)
(18,288)
(7,847)
(161,820)
61,178
6,986
5,797
3,617
2,845
80,423
71,306
25,091
3,772
7,060
1,092
108,321
7,760
5,359
4,367
3,794
21,280
Net book value
Year ended December 31, 2011
Opening net book value
Additions
-
Disposals
-
(314)
-
(283)
(166)
(763)
Depreciation charge
(5,064)
(16,602)
(2,556)
(5,153)
(1,650)
(31,025)
Closing net book value
66,242
15,935
6,575
5,991
3,070
97,813
At December 31, 2011
Cost
139,462
63,545
13,942
18,777
10,240
245,966
Accumulated depreciation
(73,220)
(47,610)
(7,367)
(12,786)
(7,170)
(148,153)
66,242
15,935
6,575
5,991
3,070
97,813
Net book value
Depreciation charge is included in Occupancy and equipment-related expenses in the statements of
income.
(37)
Note 13 - Software costs, net
The details of the account at December 31 follow:
Opening net book value
Additions
Amortization charge
Closing net book value
2012
1,014
(703)
311
2011
5,477
4,832
(9,295)
1,014
Amortization charge is included in Occupancy and equipment-related expenses in the statements of
income.
Note 14 - Other assets, net
The details of the account at December 31 are as follows:
2012
Current
Certificate of Cover (COC) revolving fund (a)
Non-current
Investment property (b)
Investment in an associate (c)
Assets held-for-sale, net (d)
Security fund (e)
Other properties
2011
325
228
15,390
2,605
843
21
18
18,877
19,202
15,390
2,605
844
21
18
18,878
19,106
(a) COC Revolving Fund
COC revolving fund is a seed fund maintained at third-party service providers which covers the
documentary stamp taxes (DST) and value added taxes (VAT) for certificates of cover issued on
outstanding policies.
(b) Investment property
Investment property consists of a residential real estate property held for undetermined future use. The
Company received the property in 2005 in settlement of a loan receivable. The fair value of the
investment property in 2012 and 2011, based on appraised value determined by BPI Family Bank
Appraisal Unit, amounts to P18 million. The appraised value is determined using market data approach.
(c) Investment in an associate
Investment in an associate at December 31, 2012 and 2011 consist of the acquisition cost of the 49%
ownership in FCS Insurance Agency and Consultants, Inc., net of allowance for impairment of
P2 million.
(38)
(d) Assets held-for-sale
Assets held-for-sale as at December 31, 2012 and 2011 is net of allowance for impairment of
P160 thousand.
(e) Security fund
Security fund is maintained in compliance with Sections 365 and 367 of the Insurance Code. The
amount of security fund is determined by and deposited with the IC to pay valid claims against
insolvent insurance companies.
Note 15 - Accounts payable and accrued expenses
The details of the account at December 31 are as follows:
Note
Taxes payable
Accrued expenses
Retirement benefit obligation
Accounts payable
Cash collateral
17
2012
200,641
102,084
2,516
69,338
73,088
447,667
2011
178,663
107,692
38,781
80,259
405,395
Cash collateral pertains to cash deposits posted primarily by building contractors as security for the
bond issued by the Company.
Accrued expenses include contingent profit commission amounting to P50 million
(2011 - P60 million). The contingent profit commission pertains to bonuses to intermediaries in
relation to insurance premiums generated during the year.
Accounts payable and accrued expenses as at December 31, 2012 and 2011 are due within one year and
considered as current, except for retirement benefit obligation.
Note 16 - Staff costs
The details of the account for the years ended December 31 are as follows:
Note
Salaries and wages
Pension costs
Social security costs
Other employee benefits
17
The Company has 354 employees as at December 31, 2012 (2011 - 336).
(39)
2012
200,113
12,915
5,671
20,903
239,602
2011
190,689
10,299
5,464
19,164
225,616
Note 17 - Post-employment benefit plan
The Company has a trusteed defined benefit plan. Under the plan, the normal retirement age is 60 years
or the employee should have completed at least 10 years of service, whichever is earlier. The normal
retirement benefit is equal to 150% of the final basic monthly salary for each year of service for below 10
years and 175% of the final basic monthly salary for each year of service for 10 years and above.
The amounts recognized in the statements of financial position at December 31 are determined as
follows:
Present value of obligation
2012
154,175
2011
143,410
2010
133,587
2009
117,593
2008
100,730
Fair value of plan assets
(Surplus) Deficit
Unrecognized actuarial loss
Retirement benefit obligation
169,626
(15,451)
17,967
2,516
156,065
(12,655)
12,655
-
148,999
(15,412)
15,412
-
127,062
(9,469)
9,469
-
99,249
1,481
940
2,421
The movements in the present value of defined benefit obligation are as follows:
At January 1
Interest cost
Current service cost
Benefits paid
Actuarial loss on obligation
At December 31
2012
143,410
9,967
13,279
(7,654)
(4,827)
154,175
2011
133,587
9,792
12,427
(12,121)
(275)
143,410
2012
156,065
10,331
10,399
(7,654)
485
169,626
2011
148,999
11,920
10,299
(12,121)
(3,032)
156,065
The movements in the fair value of plan assets are as follows:
At January 1
Expected return on plan assets
Contributions
Benefits paid
Actuarial gain (loss) on plan assets
At December 31
The carrying value of plan assets as at December 31, 2012 and 2011 is the same as its fair value. These
assets, which are held in trust and governed by local regulations and practices in the Philippines, are as
follows:
Government securities
Fixed income funds (including accrued interest)
Equity securities
(40)
2012
Amount
%
118,086
69.62%
28,786
16.97%
22,754
13.41%
169,626
100.00
2011
Amount
%
123,304
79.01
15,803
10.13
16,958
10.87
156,065
100.00
Experience adjustments on pension liabilities and plan assets follow:
Experience adjustments on pension
liabilities
Experience adjustments on plan assets
2012
2011
2010
3,691
485
(2,204)
(3,032)
(3,331)
9,546
2009
3,380
11,244
2008
2,888
(16,771)
Expense recognized in the statements of income follows:
Interest cost
Current service cost
Expected return on plan assets
2012
9,967
13,279
(10,331)
12,915
2011
9,792
12,427
(11,920)
10,299
2012
10,331
485
10,816
2011
11,920
(3,032)
8,888
The actual return on plan assets is as follows:
Expected return
Actuarial gain (loss)
Actual return
The principal actuarial assumptions used are as follows:
Discount rate
Expected return on plan assets
Salary increase rate
2012
6.66%
5.66%
4.00%
2011
6.95%
6.62%
6.50%
Mortality rate is based on the 1983 US Group Annuity Mortality Table, male and female.
The expected return on plan assets was determined by considering the expected returns available on the
assets underlying the current investment policy. Expected yields on fixed interest investments are
based on gross redemption yields as at the reporting date. Expected returns on equity investments
reflect long-term real rates of return experienced in the market.
The Company has no other transactions with fund other than the contributions and reimbursement of
benefit payments presented above as at December 31, 2012 and 2011.
The expected contribution to the retirement fund in 2013 amounts to P12 million.
(41)
Note 18 - Provision for losses and claims
(a) Process used to decide on assumptions
A loss is registered immediately upon receipt of a notice of claim from policyholders. Since insurance
companies are required to set-up provisional loss reserve, a physical inspection is done on the damaged
property to ensure a more accurate estimate on the amount of loss. For property and engineering
insurance, services of a professional adjustment firm are sought to do the inspection, investigation and
data gathering while marine surveyors are contacted to do loss surveys for marine losses. Motor car
losses are handled by the Company’s motor car damage evaluators.
(b) Changes in assumptions and sensitivity analysis
There were no changes in assumptions made in reserves for outstanding losses net of reinsurance claims in
2012 and 2011. Majority of the Company’s claims are from motor car insurance which account for about
83% (2011 – 81%) of the total number of claims received. Since motor car line is fully retained, it is
important to underwrite this line using the proper rates, terms and conditions. Proper claims control should
always be exercised so that unreasonable payment of losses can be avoided.
(c) Claims development table
Presented below is a table that shows the development of claims, excluding IBNR losses, over a period
of time on a gross and net of reinsurance basis.
i.
Gross of reinsurance
As at December 31, 2012
Accident year
Year of payment
2008
2009
2010
2011
2012
2008
14,362
2009
295
36,358
2010
385 121,850
22,110
2011
194
5,629
(5,284)
810,948
2012
235
14,536
4,107
141,955
1,653,662
Current estimate of
cumulative
claims
15,471 178,373
20,933
952,903
1,653,662
Cumulative
payments to
date
(12,963) (170,570)
(34,552)
(678,503)
(446,658)
Liability recognized
in the statements
of financial
position
2,508
7,803
(13,619)
274,400
1,207,004
Liability in respect of prior years
Total gross liability included in the statement of financial position, excluding IBNR
Provision for IBNR
Reserve for outstanding losses
(42)
Total
14,362
36,653
144,345
811,487
1,814,495
2,821,342
(1,343,246)
1,478,096
68,488
1,546,584
19,400
1,565,984
As at December 31, 2011
Accident year
Year of payment
2007
2008
2009
2010
2011
2007
(584)
2008
674
48,061
2009
(34,837)
162,891
2010
(2)
(69)
(247,324)
267,358
2011
17
136
10,651
112,344
1,904,596
Current estimate of
cumulative claims
105
13,291
(73,782)
379,702
1,904,596
Cumulative
payments to
date
(674) (37,599)
(204,582)
(302,448)
(431,659)
Liability recognized
in the statements
of financial position
(569) (24,308)
(278,364)
77,254
1,472,937
Liability in respect of prior years
Total gross liability included in the statements of financial position, excluding IBNR
Provision for IBNR
Reserve for outstanding losses
Total
(584)
48,735
128,054
19,963
2,027,744
2,223,912
(976,962)
1,246,950
233,775
1,480,725
19,400
1,500,125
ii. Net of reinsurance
As at December 31, 2012
Accident year
Year of payment
Total
2008
2009
2010
2011
2012
2008
5,506
5,506
2009
172
3,085
3,257
2010
372
1,665
18,058
20,095
2011
191
309
10,735
100,449
111,684
2012
70
10,868
3,576
75,663
903,824
994,001
Current estimate of
cumulative claims
6,311
15,927
32,369
176,112
903,824 1,134,543
Cumulative payments to
date
(3,694)
(4,864)
(24,879) (183,331) (367,121) (583,889)
Liability recognized in the
statements of financial
position
2,617
11,063
7,490
(7,219)
536,703
550,654
Liability in respect of prior years
(239,534)
Total net liability included in the statements of financial position, excluding IBNR
311,120
Provision for IBNR
19,400
Reserve for outstanding losses
330,520
(43)
As at December 31, 2011
Year of
Accident year
payment
2007
2008
2009
2010
2007
(120)
2008
667
7,149
2009
(3,322)
(2,848)
2010
(91)
(627)
237,416
2011
17
131
3,516
81,132
Current estimate of
cumulative claims
564
3,867
41
318,548
Cumulative payments to
date
(287)
(3,501)
(6,549)
(224,073)
Liability recognized in the
statements of financial
position
277
366
(6,508)
94,475
Liability in respect of prior years
Total net liability included in the statements of financial position, excluding IBNR
Provision for IBNR
Reserve for outstanding losses
2011
965,035
Total
(120)
7,816
(6,170)
236,698
1,049,831
965,035
1,288,055
(409,527)
(643,937)
555,508
644,118
(377,371)
266,747
19,400
286,147
IBNR losses
The Company provides for estimated IBNR losses based on the average five-year historical experience
covering claims filed during the first quarter of each year for losses incurred for the previous year. Total
reserve for IBNR losses included in Reserve for outstanding losses as at December 31, 2012 and 2011
amounts to P19 million.
Note 19 - Interest income
The details of the account for the years ended December 31 are as follows:
Interest income from:
Held-to-maturity financial assets
Available-for-sale financial assets
Cash and cash equivalents
Mortgage and other loans
(44)
Notes
2012
2011
8
9
5
10
132,917
87,884
6,990
1,827
229,618
132,959
81,435
6,981
1,774
223,149
Note 20 - Income taxes
The details of the account for the years ended December 31 follows:
2012
40,569
139,850
(18,191)
162,228
Final tax
Provision for income tax - current
Benefit from income tax - deferred
2011
39,380
116,347
(5,095)
150,632
The movements in deferred income tax assets and liabilities in 2012 are as follows:
At
January 1
Deferred income tax assets
Excess of reserve for unearned premium
per books over tax basis, net
Provision for IBNR
Allowance for impairment
Retirement benefit obligation
Unamortized past service cost
Accrued service fees
Contingent profit commission
Unrealized foreign exchange loss, net
Deferred income tax liabilities
Deferred acquisition costs
Unrealized foreign exchange gain, net
Net deferred income tax assets
(45)
Credited
(charged)
to income
At
December 31
54,014
5,820
16,479
146
9,397
17,953
103,809
16,550
3,349
755
(37)
462
(3,102)
2,084
20,061
70,564
5,820
19,828
755
109
9,859
14,851
2,084
123,870
(17,375)
(317)
(17,692)
86,117
(2,187)
317
(1,870)
18,191
(19,562)
(19,562)
104,308
The movements in deferred income tax assets and liabilities in 2011 are as follows:
Deferred income tax assets
Excess of reserve for unearned premium
per books over tax basis, net
Provision for IBNR
Allowance for impairment
Unamortized past service cost
Accrued service fees
Contingent profit commission
Deferred income tax liabilities
Deferred acquisition costs
Unrealized foreign exchange gain, net
Net deferred income tax assets
At
January 1
Credited
(charged)
to income
At
December 31
64,656
5,820
14,852
182
9,869
95,379
(10,642)
1,627
(36)
9,397
8,084
8,430
54,014
5,820
16,479
146
9,397
17,953
103,809
(14,125)
(232)
(14,357)
81,022
(3,250)
(85)
(3,335)
5,095
(17,375)
(317)
(17,692)
86,117
The future tax benefits of deferred income tax assets are expected to be realized primarily upon realization
of excess of recorded reserve for unearned premiums over tax basis, payment of claims and contingent
profit commission and receivable write-off.
The analysis of the recoverability of deferred income tax assets and liabilities is as follows:
Deferred tax assets
Deferred tax asset expected to be recovered within 12 months
Deferred tax asset expected to be recovered after 12 months
Deferred tax liabilities
Deferred tax liability expected to be settled within 12 months
Deferred tax assets, net
2012
2011
103,215
20,655
123,870
87,330
16,479
103,809
19,562
104,308
17,692
86,117
The reconciliation between the provision for income tax computed at the statutory income tax rate and
the actual provision for income tax follows:
Income before income tax
Income tax at statutory tax rate of 30%
Income subject to lower final tax rate, net
Tax-exempt income, net
Non-deductible expenses
Provision for income tax
(46)
2012
731,969
219,591
(27,768)
(30,322)
727
162,228
2011
623,296
186,989
(27,032)
(9,803)
478
150,632
Note 21 - Share capital; Reserves; Dividends
The Company’s total authorized share capital consists of 3,550,000 shares with a par value of P100 per
share, of which 3,500,000 shares are issued and outstanding as at December 31, 2012 and 2011.
The Company intends to use its retained earnings as an additional reserve for losses and claims from
policyholders (Note 3).
The movement in reserves for the years ended December 31 follow:
Fair value reserve on available-for-sale financial assets
Balance, January 1
Net fair value gain
Balance, December 31
Stock option scheme
Balance, January 1
Exercise of options
Balance, December 31
Notes
2012
2011
9
64,928
18,070
82,998
61,788
3,140
64,928
82,998
1,495
(1,495)
64,928
The Company’s Board of Directors declared the following cash dividends in 2012 and 2011:
Declaration
date
May 31, 2012
May 27, 2011
(47)
Record date
May 31, 2012
May 27, 2011
Date paid
December 19, 2012
September 14, 2011
IC Approval date
August 10, 2012
July 8, 2011
Amount
472,500
357,735
Cash
dividend/
share
P135.00
P102.21
Note 22 - Cash generated from operations
The details of cash generated from operations for the years ended December 31 follow:
Income before income tax
Adjustments for:
Depreciation and amortization
(Reversal of) provision for impairment
Impairment loss on available-for-sale financial assets
Amortization of premium/discount, net
Gain on sale of available-for-sale financial assets
Unrealized foreign exchange gain
Interest expense
Interest income
Dividend income
Operating income before changes in operating assets and
liabilities
Changes in operating assets and liabilities
(Increase) decrease in:
Insurance balances receivable, net
Reinsurance recoverable on unpaid losses
Deferred reinsurance premium
Deferred acquisition cost, net
Other receivables, net
Other assets
Increase (decrease) in:
Reserve for outstanding losses
Reserve for unearned premiums
Due to reinsurers and ceding companies
Funds held for reinsurers
Accounts payable and accrued expenses
Cash generated from operations
(48)
Notes
2012
731,969
2011
623,296
12,13
10
9
8,9
9
3
31,751
(5,002)
17,461
(5,596)
(66,781)
6,948
2,421
(229,618)
(34,287)
40,320
5,872
(5,424)
(15,705)
(1,054)
1,596
(223,149)
(16,973)
449,266
408,779
(42,857)
(21,486)
(514,757)
(7,290)
54,657
(97)
108,764
(306,113)
(144,266)
(10,835)
(53,182)
297
65,859
616,331
(239,203)
75,695
41,818
477,936
313,133
175,847
234,153
(15,229)
73,056
784,404
19
9
Note 23 - Related party transactions and balances
The table below summarizes the Company’s transactions and balances with its related parties.
As at and for the year ended December 31, 2012:
Outstanding
Transactions
balances
Treaty reinsurance transactions with an entity under common control
Reinsurance
premiums ceded
496,109
156,971
Reinsurance
commissions
99,561
Reinsurance
recoveries from
losses incurred
203,696
799,366
156,971
Dividend income
Parent
1,294
Investor of Parent
238
Entity under
common control
395
1,927
Cash in bank
Parent
377,490
550,822
Interest income
Parent
Terms and conditions
The outstanding balances are settled
simultaneously and are due 105 days after
the end of each quarter. The receivables
are unsecured in nature and bear no
interest.
Receivable within a year.
Bank deposits with Parent Company can
be withdrawn any time.
6,822
-
Other investment income and expenses
Entity under
common control
5,221
-
Occupancy and equipment related expenses
Associate of Parent
13,833
-
Arises under a lease agreement. Payable
within 5 days after end of each month.
Professional fees
Parent
22,041
-
Share in common expenses with Parent
Company. Payable 5 days before end of
each month.
1,404
-
Retirement benefits
Key management
personnel
(Forward)
(49)
Interest income from bank deposits with
Parent Company can be withdrawn any
time
Arises under a Service Agreement for
processing of mortgage and other loans.
Payable within first week after end of each
quarter.
Refer to Note 17 – Post-employment
benefit plan
Transactions
Staff costs
Key management
personnel
Parent
Outstanding
balances
26,057
10,267
-
36,324
-
Terms and conditions
Payments to key management personnel
include bonuses, payable within the first
quarter of the following calendar year and
remunerations, payable within the year.
Staff cost payments to Parent Company
includes share of common expenses on
compensation and internal audit reviews
incurred by Parent.
As at and for the year ended December 31, 2011:
Outstanding
Transactions
balances
Treaty reinsurance transactions with an entity under common control
Reinsurance
premiums ceded
418,443
226,373
Reinsurance
commissions
81,178
Reinsurance
recoveries from
losses incurred
33,545
533,166
226,373
Dividend income
Parent
399
Investor of Parent
237
Entity under
common control
167
803
Cash in bank
Parent
440,360
802,832
Interest income
Parent
Terms and conditions
The outstanding balances are settled
simultaneously and are due 105 days after
the end of each quarter. The receivables
are unsecured in nature and bear no
interest.
Receivable within a year.
Bank deposits with Parent Company can
be withdrawn any time.
5,879
-
Other investment income and expenses
Entity under
common control
7,867
-
Occupancy and equipment related expenses
Associate of Parent
12,376
-
Arises under a lease agreement. Payable
within 5 days after end of each month.
Professional fees
Parent
-
Share in common expenses with Parent
Company. Payable 5 days before end of
each month.
(Forward)
(50)
18,952
Interest income from bank deposits with
Parent Company can be withdrawn any
time.
Arises under a Service Agreement for
processing of mortgage and other loans.
Payable within first week after end of each
quarter.
Transactions
Retirement benefits
Key management
personnel
Staff costs
Key management
personnel
Parent
Outstanding
balances
Terms and conditions
1,042
-
Refer to Note 17 - Post-employment
benefit plan
22,819
-
9,887
-
Payments to key management personnel
include bonuses, payable within the first
quarter of the following calendar year and
remunerations, payable within the year.
Staff cost payments to Parent Company
includes share of common expenses on
compensation and internal audit reviews
incurred by Parent.
32,706
-
No provisions were recognized against receivables from related parties.
No additional provision was recognized during the 2012 and 2011.
Note 24 - Reconciliation of net income under PFRS and statutory accounting
practices (SAP)
PFRS varies in certain respects from SAP as prescribed by the IC. A reconciliation of net income under
PFRS and the net income determined under SAP at December 31 is shown below:
PFRS net income
Add (deduct):
Increase in deferred acquisition costs, net
Difference in change in reserve for unearned premiums, net
Tax effect of above adjustments
Net income under SAP
2012
569,741
2011
472,664
(7,290)
55,165
(14,878)
602,738
(10,835)
(35,472)
(3,505)
422,852
Note 25 - Lease commitments
The Company has entered into various lease agreements covering its branches with terms ranging from
one to five years.
Rent expense charged to operations and included in occupancy and equipment related expenses
amounts to P22 million and P20 million in 2012 and 2011, respectively. As at December 31, 2012 and
2011, the minimum aggregate rental commitments for future years are as follows:
Within one year
After one year but not more than five years
(51)
2012
19,758
45,034
64,792
2011
22,063
63,234
85,297
Note 26 - Additional information on the results of operation by line of business
Details of the results of operation by line of business follow:
Total
Premiums, net of returns and unearned reserves
Reinsurance premiums ceded
Reinsurance commission
UNDERWRITING INCOME
Gross claims incurred
Reinsurance recoveries
Claims and losses, net
Commissions
UNDERWRITING EXPENSES
NET UNDERWRITING INCOME
GENERAL AND OPERATING EXPENSES
OPERATING INCOME
INVESTMENT AND OTHER INCOME
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX
NET INCOME FOR THE YEAR
(52)
Fire
2,947,758
(2,660,314)
172,427
459,871
(729,388)
658,084
(71,304)
(185,610)
(256,914)
202,957
Motor
1,083,995
(18,180)
4,742
1,070,557
(500,237)
63,903
(436,334)
(200,872)
(637,206)
433,351
Marine
237,606
(70,639)
13,290
180,257
(52,894)
18,639
(34,255)
(44,740)
(78,995)
101,262
Casualty
170,787
(100,739)
11,960
82,008
(20,142)
4,903
(15,239)
(25,293)
(40,532)
41,476
Bonds
90,692
(43,399)
15,729
63,022
(12,270)
8,837
(3,433)
(20,885)
(24,318)
38,704
2012
4,530,838
(2,893,271)
218,148
1,855,715
(1,314,931)
754,366
(560,565)
(477,400)
(1,037,965)
817,750
394,566
423,184
2011
3,775,845
(2,186,007)
210,654
1,800,492
(1,194,223)
604,443
(589,780)
(457,567)
(1,047,347)
753,145
(389,798)
363,347
308,785
731,969
(162,228)
569,741
259,949
623,296
(150,632)
472,664
Note 27 - Supplementary information required by the Bureau of Internal Revenue (BIR)
The following information is presented for purposes of filing with the BIR and is not a required part of
the basic financial statements.
(a) Supplementary information required by Revenue Regulations No. 15-2010
On December 28, 2010, RR No. 15-2010 became effective and amended certain provisions of
RR No. 21-2002 prescribing the manner of compliance with any documentary and/or procedural
requirements in connection with the preparation and submission of financial statements and income
tax returns. Section 2 of RR No. 21-2002 was further amended to include in the Notes to Financial
Statements information on taxes, duties and license fees paid or accrued during the year in addition to
what is mandated by PFRS.
(i) Output value-added tax (VAT)
Output VAT declared for the years ended December 31, 2012 consists of:
Non-life premiums
Subject to 12% VAT
Zero-rated
Exempt
Total
Gross amount of
revenues
Output VAT
3,894,843
531,240
30,545
4,456,628
467,381
467,381
Zero-rated premiums are sales of non-life premiums to PEZA-registered entities pursuant to BIR
Revenue Regulations No. 16-2005, As Amended. Exempt premiums are sales of accident and health
premiums, which are subject to premium tax, and sales of non-life premiums to VAT-exempt entities.
Gross premiums above are based on actual collection of premiums, net of returns for tax purposes.
(ii) Input VAT
Details of input VAT for the years ended December 31, 2012 and their movements during the year
follow:
Beginning balance
Add: Current year’s domestic purchases/payments for:
Capital goods subject to amortization
Claims
Commission
Goods other than for resale
Reinsurance
Ending balance
(53)
Amount
4,445
1,586
29,635
17,135
10,189
1,728
64,718
(iii) Documentary stamp tax
Documentary stamp taxes paid and accrued for the years ended December 31, 2012 consist of:
Non-life insurance policies
Paid
536,611
Accrued
16,208
Total
552,819
Accrued documentary stamp taxes as at December 31, 2012 are included under Accounts payable and
accrued expenses in the statements of financial position.
(iv) All other local and national taxes
All other local and national taxes paid and accrued for the years ended December 31, 2012 consist of:
Local government taxes
Premium tax (Life insurance)
Municipal taxes
Real property tax
Mayor’s permit
Community tax
Others
Paid
10,299
624
749
1,138
44
22
2,471
13,172
Accrued
11,482
220
11,702
Total
21,781
844
749
1,138
44
22
2,471
24,874
The above local and national taxes are lodged under Taxes and licenses in general and administrative
expenses except for local government taxes and premium taxes which are passed on to policyholders.
(v)
Withholding taxes
Withholding taxes paid and accrued and/or withheld for the years ended December 31, 2012 consist of:
Withholding tax on compensation
Expanded withholding tax
Final withholding tax
Fringe benefit tax
VAT withholding
(vi)
Paid
31,550
45,548
4,049
2,115
152
83,414
Accrued
3,565
5,186
34,861
591
10
44,213
Total
35,115
50,734
38,910
2,706
162
127,627
Tax assessments/ tax cases
Taxable years 2011, 2010 and 2009 are open tax years. The Company has not received any Final
Assessment Notice (FAN) as at December 31, 2012.
The Company has no outstanding tax cases under preliminary investigation, litigation and/or
prosecution in courts or bodies outside the BIR as at December 31, 2012 and 2011.
(54)
(b) Supplementary information required by Revenue Regulations No. 19-2011
RR No. 19-2011 prescribes the new BIR forms that should be used for income tax filing covering and
starting with the calendar year 2011 and modifies Revenue Memorandum Circular No. 57-2011. In the
Guidelines and Instructions Section of the new BIR Form 1702 (version November 2011), a required
attachment to the income tax returns is an Account Information Form and/or Financial Statements
that include in the Notes to Financial Statements schedules of sales/receipts/fees, cost of
sales/services, non-operating and taxable other income, itemized deductions (if the taxpayer did not
avail of the Optional Standard Deduction or OSD), taxes and licenses and other information prescribed
to be disclosed in the Notes to Financial statements.
The Company’s schedules for the year ended December 31, 2012 follow:
(i) Receipts
Receipts
Creditable tax
withheld
88,399
Taxable
amount
1,910,880
The Company’s receipts are subject to the regular tax rate of 30%. None of the receipts are subject to
special rates.
A reconciliation of the gross underwriting income in the statement of income to the above receipts
follows:
Gross underwriting income
Excess of reserve for unexpired risk per books over tax basis
Receipts
Amount
1,855,715
55,165
1,910,880
(ii) Cost of services
Salaries, wages and benefits
Losses and claims, net of reinsurance
Commission expense
Amount
81,675
560,565
493,492
1,135,732
The Company’s direct charges are subject to the regular tax rate of 30%. None of the direct charges
have been subjected to special rates.
(55)
(iii) Non-operating and taxable other income
Settlement fee
Interest on fixed income
Realized foreign exchange gain
Interest income on treaties
Miscellaneous income
Amount
5,636
1,313
1,054
514
6,302
14,819
The Company’s other non-operating and taxable other income includes interest on local bank deposits,
trust funds and deposit substitutes (including short-term deposits and investments) and interest on
foreign currency bank deposits which are subject to 20% and 7.5% final income tax, respectively and
dividend income and gain on sale of investments which are tax exempt. No creditable withholding tax
from non-operating and taxable other income was withheld in 2012.
A reconciliation of miscellaneous investment and other income in the statement of income to the above
non-operating and taxable other income follows:
Miscellaneous investment and other income (expense)
Temporary differences arising from
Provision in impairment
Foreign exchange gains and losses
Taxable other income included in interest income
Interest income on treaties
Interest income on fixed income
Miscellaneous investment and other income included in itemized deductions
Investment fees
Other investment expenses
Non-credit write off
(56)
Amount
(21,901)
17,461
8,003
514
1,313
5,285
1,138
3,006
14,819
(iv) Itemized deductions
Nature of expense
Salaries and allowances
Communication, postage, light and water
Depreciation
Rental
Printing and office supplies
Professional fees
Repairs and maintenance - computer equipment
Representation and entertainment
Transportation and travel
SSS, GSIS, Philhealth, HDMF and other contributions
Advertising
Taxes and licenses
Janitorial and messengerial services
Fringe benefits
Other outside services
Security services
Insurance
Amortization of intangibles
Director’s fees
Repairs and maintenance - building, leasehold and furniture and equipment
Repairs and maintenance - others
Bad debts
Others
Total
Amount
141,245
31,523
31,047
22,063
11,236
11,228
6,807
6,219
5,988
5,671
4,934
4,426
4,155
2,706
2,298
1,268
1,018
703
408
168
157
808
27,724
323,800
The above itemized deductions are subject to the regular tax rate of 30%. None of the itemized
deductions have been subjected to special rates.
(57)
A reconciliation of the underwriting and general and administrative expenses in statement of income to
the total expenses shown in cost of services and itemized deductions above follows:
Cost of services
Itemized deductions
Total deductible expenses
Temporary differences arising from:
Accrual of BPI service fees
Accrual of contingent profit commission
Provision for impairment
Interest expense limitation
Provision for retirement benefit obligation
Amortization of past service cost
Excess of deferred acquisition costs per books over tax basis
Total temporary differences
Expenses included in investment and other income, net
Investment fees
Other investment expenses
Non-credit write off
(v) Taxes and licenses
The details of the Company’s taxes and licenses are presented in section (a) of this note.
(vi) Other information
All other information prescribed to be disclosed by the BIR has been included in this note.
(58)
Amount
1,135,732
323,800
1,459,532
1,541
(10,342)
(6,297)
2,421
2,516
(121)
(7,290)
(17,572)
1,441,960
5,285
1,138
3,006
9,429
1,432,531
BPI/MS Insurance Corporation
Reconciliation of Retained Earnings
As at December 31, 2012
(In thousands of Philippine Peso)
Items
Unappropriated Retained Earnings, December 31, 2011
Adjustments:
Unappropriated Retained Earnings, as adjusted, beginning
Net Income based on the face of audited financial statements
Less: Non-actual/unrealized income net of tax
• Equity in net income of associate/joint venture
• Unrealized foreign exchange gain - net (except those attributable to Cash
and Cash Equivalents)
• Unrealized actuarial gain
• Fair value adjustment (M2M gains)
• Fair value adjustment of Investment Property resulting to gain Adjustment
due to deviation from PFRS/GAAP - gain
• Other unrealized gains or adjustments to the retained earnings as a result of
certain transactions accounted for under the PFRS
Add: Non-actual losses
• Depreciation on revaluation increment (after tax)
• Adjustment due to deviation from PFRS/GAAP - loss
• Loss on fair value adjustment of investment property (after tax)
Net Income Actual/Realized
Less: Dividend declarations during the period
Unappropriated Retained Earnings, as adjusted, ending
Amount
1,378,237
1,378,237
569,741
16,735
553,006
(472,500)
1,458,743
BPI/MS Insurance Corporation
Philippine Financial Reporting Standards and Interpretations
Effective as at December 31, 2012
Adopted
Framework for the Preparation and Presentation of Financial Statements
Conceptual Framework Phase A: Objectives and qualitative characteristics

PFRSs Practice Statement Management Commentary

Not
Adopted
Not
Applicable
Philippine Financial Reporting Standards
PFRS 1
(Revised)
PFRS 2
First-time Adoption of Philippine Financial Reporting Standards

Amendments to PFRS 1 and PAS 27: Cost of an Investment in
a Subsidiary, Jointly Controlled Entity or Associate

Amendments to PFRS 1: Additional Exemptions for First-time
Adopters

Amendment to PFRS 1: Limited Exemption from Comparative
PFRS 7 Disclosures for First-time Adopters

Amendments to PFRS 1: Severe Hyperinflation and Removal of
Fixed Date for First-time Adopters

Amendments to PFRS 1: Government Loans

Share-based Payment

Amendments to PFRS 2: Vesting Conditions and Cancellations

Amendments to PFRS 2: Group Cash-settled Share-based
Payment Transactions

PFRS 3
(Revised)
Business Combinations
PFRS 4
Insurance Contracts

Amendments to PAS 39 and PFRS 4: Financial Guarantee
Contracts

PFRS 5
Non-current Assets Held for Sale and Discontinued Operations

PFRS 6
Exploration for and Evaluation of Mineral Resources
PFRS 7
Financial Instruments: Disclosures



Amendments to PAS 39 and PFRS 7: Reclassification of
Financial Assets

Amendments to PAS 39 and PFRS 7: Reclassification of
Financial Assets - Effective Date and Transition

BPI/MS Insurance Corporation
Philippine Financial Reporting Standards and Interpretations
Effective as at December 31, 2012
Page 2
Adopted
Amendments to PFRS 7: Improving Disclosures about Financial
Instruments
Not
Adopted

Amendments to PFRS 7: Disclosures - Transfers of Financial
Assets
Amendments to PFRS 7: Disclosures – Offsetting Financial
Assets and Financial Liabilities
Not
Applicable


Amendments to PFRS 7: Mandatory Effective Date of PFRS 9
and Transition Disclosures


PFRS 8
Operating Segments
PFRS 9*
Financial Instruments

Amendments to PFRS 9: Mandatory Effective Date of PFRS 9
and Transition Disclosures

PFRS 10*
Consolidated Financial Statements

PFRS 11*
Joint Arrangements

PFRS 12*
Disclosure of Interests in Other Entities

PFRS 13*
Fair Value Measurement

Philippine Accounting Standards
PAS 1
(Revised)
Presentation of Financial Statements

Amendment to PAS 1: Capital Disclosures

Amendments to PAS 32 and PAS 1: Puttable Financial
Instruments and Obligations Arising on Liquidation
Amendments to PAS 1: Presentation of Items of Other
Comprehensive Income



PAS 2
Inventories
PAS 7
Statement of Cash Flows

PAS 8
Accounting Policies, Changes in Accounting Estimates and
Errors

PAS 10
Events after the Balance Sheet Date

PAS 11
Construction Contracts
PAS 12
Income Taxes

Amendment to PAS 12 - Deferred Tax: Recovery of Underlying
Assets

Property, Plant and Equipment

PAS 16

BPI/MS Insurance Corporation
Philippine Financial Reporting Standards and Interpretations
Effective as at December 31, 2012
Page 3
Adopted
PAS 17
Leases

PAS 18
Revenue

PAS 19
Employee Benefits

Amendments to PAS 19: Actuarial Gains and Losses, Group
Plans and Disclosures

PAS 19
Employee Benefits
(Amended)*
PAS 20
PAS 21
Not
Adopted

Accounting for Government Grants and Disclosure of
Government Assistance
The Effects of Changes in Foreign Exchange Rates



Amendment: Net Investment in a Foreign Operation
PAS 23
(Revised)
Borrowing Costs
PAS 24
(Revised)
Related Party Disclosures
PAS 26
Accounting and Reporting by Retirement Benefit Plans
PAS 27
(Amended)
Separate Financial Statements
Not
Applicable




PAS 28
Investments in Associates and Joint Ventures
(Amended)*

PAS 29
Financial Reporting in Hyperinflationary Economies

PAS 31
Interests in Joint Ventures

PAS 32
Financial Instruments: Disclosure and Presentation

Amendments to PAS 32 and PAS 1: Puttable Financial
Instruments and Obligations Arising on Liquidation

Amendment to PAS 32: Classification of Rights Issues

Amendments to PAS 32: Offsetting Financial Assets and
Financial Liabilities

PAS 33
Earnings per Share

PAS 34
Interim Financial Reporting

PAS 36
Impairment of Assets

PAS 37
Provisions, Contingent Liabilities and Contingent Assets

PAS 38
Intangible Assets

BPI/MS Insurance Corporation
Philippine Financial Reporting Standards and Interpretations
Effective as at December 31, 2012
Page 4
Adopted
PAS 39
Financial Instruments: Recognition and Measurement

Amendments to PAS 39: Transition and Initial Recognition of
Financial Assets and Financial Liabilities

Not
Adopted
Not
Applicable
Amendments to PAS 39: Cash Flow Hedge Accounting of
Forecast Intragroup Transactions

Amendments to PAS 39: The Fair Value Option

Amendments to PAS 39 and PFRS 4: Financial Guarantee
Contracts

Amendments to PAS 39 and PFRS 7: Reclassification of
Financial Assets

Amendments to PAS 39 and PFRS 7: Reclassification of
Financial Assets – Effective Date and Transition

Amendments to Philippine Interpretation IFRIC–9 and PAS 39:
Embedded Derivatives

Amendment to PAS 39: Eligible Hedged Items

PAS 40
Investment Property
PAS 41
Agriculture


Philippine Interpretations
IFRIC 1
IFRIC 2
Changes in Existing Decommissioning, Restoration and Similar
Liabilities

Members' Share in Co-operative Entities and Similar
Instruments


IFRIC 4
Determining Whether an Arrangement Contains a Lease
IFRIC 5
Rights to Interests arising from Decommissioning, Restoration
and Environmental Rehabilitation Funds

Liabilities arising from Participating in a Specific Market - Waste
Electrical and Electronic Equipment

Applying the Restatement Approach under PAS 29 Financial
Reporting in Hyperinflationary Economies

IFRIC 8
Scope of PFRS 2

IFRIC 9
Reassessment of Embedded Derivatives

Amendments to Philippine Interpretation IFRIC–9 and PAS 39:
Embedded Derivatives

Interim Financial Reporting and Impairment

IFRIC 6
IFRIC 7
IFRIC 10
BPI/MS Insurance Corporation
Philippine Financial Reporting Standards and Interpretations
Effective as at December 31, 2012
Page 5
Adopted
Not
Adopted
Not
Applicable
IFRIC 11
PFRS 2- Group and Treasury Share Transactions

IFRIC 12
Service Concession Arrangements

IFRIC 13
Customer Loyalty Programmes

IFRIC 14
The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction

Amendments to Philippine Interpretations IFRIC- 14,
Prepayments of a Minimum Funding Requirement

IFRIC 16
Hedges of a Net Investment in a Foreign Operation

IFRIC 17
Distributions of Non-cash Assets to Owners

IFRIC 18
Transfers of Assets from Customers

IFRIC 19
Extinguishing Financial Liabilities with Equity Instruments

IFRIC 20
Stripping Costs in the Production Phase of a Surface Mine

SIC-7
Introduction of the Euro

SIC-10
Government Assistance - No Specific Relation to Operating
Activities

Consolidation - Special Purpose Entities

Amendment to SIC - 12: Scope of SIC 12

Jointly Controlled Entities - Non-Monetary Contributions by
Venturers

SIC-12
SIC-13
SIC-15
Operating Leases - Incentives
SIC-25
Income Taxes - Changes in the Tax Status of an Entity or its
Shareholders
SIC-27
Evaluating the Substance of Transactions Involving the Legal
Form of a Lease



SIC-29
Service Concession Arrangements: Disclosures.

SIC-31
Revenue - Barter Transactions Involving Advertising Services

SIC-32
Intangible Assets - Web Site Costs

* The standards, interpretations and amendments to existing standards that have been issued but not yet effective as at
December 31, 2012 are ticked as not adopted while the standards, interpretations and amendments to existing
standards that are not currently applicable are ticked as not applicable.