Fubon Financial 2016 Q1 Interim Results and 2015 Embedded Value of Fubon Life · 2017. 3. 15. ·...

2016.05.11

Fubon Financial 2016 Q1 Interim Results

and

2015 Embedded Value of Fubon Life

2

Disclaimer

This meeting may contain forward-looking statements with respect to the financial

condition, results of operations and business of the company. These forward-looking

statements represent the company’s expectations or beliefs concerning future events

and involve known and unknown risks and uncertainty that could cause actual

results, performance or events to differ materially from those expressed. Certain

statements, such as those that include the words “potential”, “estimated”, and similar

expressions or variations on such expressions may be considered “forward-looking

statements”. Financial numbers in this report may include preliminary unaudited

numbers or management accounts.

3

Performance review by subsidiary

• Fubon Life

• Fubon Securities

Performance highlights of Fubon Financial Holdings

• Fubon Insurance

Agenda

• Taipei Fubon Bank

• Fubon Bank (China)


2015 Embedded value of Fubon Life

4

Fubon Financial Holdings: Operation highlights

Taipei Fubon Bank

Stable market share across business lines

Wealth management business development, aiming to be regional ETF market leader

Fubon Life

Fubon Insurance

Fubon Securities

Net profits NT$8,774 million 3M16, up 61% QoQ. 56.3% yoy drop due to lower investment

income and higher first year strain on the back of strong premium growth as regular-paid

policies increase

Recurring return continues improving

First year premium up 60% yoy with 18.7% market share. Contribution

from regular-paid premium continue growing

Net interest revenue and net fee revenue maintain steady growth

Asset quality remains benign

Leading position in premium income with 22.2% market share

5

Net profits

Earning per share (EPS)

NT$

Note: Fubon adopted fair value method for investment property evaluation since September 2014.

NT$bn

5

Fubon Financial Holdings: Profitability

38.5

60.2 63.6

2013 2014 2015

20.1

5.5

8.8

1Q15 4Q15 1Q16

3.90

5.89 6.21

2013 2014 2015

1.96

0.53

0.86

1Q15 4Q15 1Q16

6

Fubon Financial Holdings: Net profits from major subsidiaries

Net profits from major subsidiaries Profit contribution from major subsidiaries

NT$bn NT$bn

Note:

(1) Profit contribution are based on the summation of five major

subsidiaries; (2) Fubon Bank (China) contributed NT$547 mn net

profits to the Company on the basis of 80% shareholding.

4.9

13.3

0.9 0.4

0.8

2.7 2.2

0.6 0.6 0.1

4.9

2.1

0.5 0.4 0.7

Taipei FubonBank

Fubon Life Fubon P&C FubonSecurities

Fubon Bank(HK)

1Q15 4Q15 1Q16

Taipei Fubon

Bank, 4.9 , 57.3%

Fubon Life, 2.1 , 24.8%

Fubon P&C, 0.5 ,

6.0%

Fubon Securities, 0.4 , 4.2%

Fubon Bank (HK), 0.7 ,

7.8%

7 7

Total assets

Equity attributable to parent company

NT$bn

NT$bn

Fubon Financial Holdings: Asset and net worth


4,597

5,438 5,987

2013 2014 2015

5,554 5,985

3M15 3M16

342

408 368

2013 2014 2015

440

399

3M15 3M16

8 8

ROA

ROE

Fubon Financial Holdings: ROA & ROE


0.88%

1.21% 1.12%

2013 2014 2015

1.47%

0.38%

0.59%

1Q15 4Q15 1Q16

11.54%

16.07% 16.40%

2013 2014 2015

18.96%

5.62%

9.16%

1Q15 4Q15 1Q16

9


• Fubon Life



• Fubon Insurance

Agenda




4.2 4.5

3.0 3.2

2.1 2.1

1.0 1.8

1Q15 1Q16

Fubon Bank (China)

Treasury & others

Net fee income

Net interest income

15.8 17.3 17.9

8.4 10.6 11.1

9.5

11.0 7.4

5.2 6.0

2013 2014 2015

10

Taipei Fubon Bank: Revenue

Revenue composition of Taipei Fubon Bank

NT$bn

Steadily growth from net interest income and net fees

33.7

Note: Consolidated basis; Fubon Bank (China) accounted starting from Jan. 7th, 2014

44.1 42.4

10.3

11.5

41.0%

28.1%

38.7%

10.1%

20.3%

28.6%

15.3%

17.9%

28.2%

42.2% 39.3%

24.0%

25.0%

11.7%

46.8%

25.0%

14.1%

17.5%

26.3%

40.6%

77.6% 7.3%

5.4%

40.3%

13.6%

11.8%

3.5%

1Q15 1Q16

SN and others

Mutual funds

Custodian andtrust

Insurancecommission

11

Taipei Fubon Bank: Fee and wealth

management revenue

Sources of fee revenue(1) Wealth management fee(2)

NT$mn NT$mn

Note: (1) Fee income including Taipei Fubon Bank standalone and Taipei Fubon Bank Life Insurance Agency

(2) Wealth management revenue includes fee in the chart and other income (1Q16: NT$93mn; 1Q15: NT$106mn)

(3) Data are stand-alone basis in page 11-16

2,957

3,239 2,690

2,309

+16.5%

78.1% 83.0%

10.3%

9.2% 7.3%

3.7% 4.3%

4.0%

1Q15 1Q16

Others

Syndicationloan

Credit card

Wealthmanagement

Loans by type

10.3% 7.5%

50.8% 49.8%

34.7% 38.4%

3.6% 3.8%

0.6% 0.5%

Mar-15 Mar-16

Credit card revolving

Other consumer loans

Mortgage loan

Corporate loan

Government loan

12

Taipei Fubon Bank: Loan composition

NT$bn 1,160 YoY -0.9%

YoY -4.8%

YoY +3.1%

YoY +9.6%

YoY -2.8%

YoY -27.9%

Contribution from mortgage increase

Loan growth excluding government loans was 2.2%

1,170

Note: Ending balance

210 209 211

207 211

32.0% 31.7%

32.4% 33.5%

36.0%

1Q15 2Q15 3Q15 4Q15 1Q16

SME SME as % of corporate credit

345.3 340.3 346.4 353.9 346.8

248.5 262.5 255.9 247.1

230.7

41.9% 44.0% 42.5% 41.1% 39.9%

1Q15 2Q15 3Q15 4Q15 1Q16

NTD Non-NTD Non-NTD loan as % of corporate loan

13

Taipei Fubon Bank: Corporate credit

Corporate loan by currency SME credit and as % of corporate credit

NT$bn

Foreign currency loan represents 39.9% of corporate loan

SME credit accounts for 36% of corporate credit

NT$bn

Note: SME credit and corporate credit include loan and trade finance Note: Ending balance

14

Taipei Fubon Bank: Interest yield and margin

NIM and loan-to-deposit spread

Loan yield and deposit yield

Note: Loan rate calculation inclusive of credit card revolving

1.10% 1.09% 1.10% 1.07% 1.10% 1.08% 1.04% 1.01%

1.28% 1.24% 1.27%

1.24% 1.28% 1.31% 1.32% 1.31%

2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16

NIM Loan-to-deposit spread

2.08% 2.04% 2.08% 2.05% 2.05% 2.05% 2.03% 2.00%

0.80% 0.80% 0.81% 0.81% 0.77% 0.74% 0.70% 0.69%

2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16

Loan rate Deposit rate

41.7% 47.7%

58.3% 52.3%

Mar-15 Mar-16

Time

Demand

55.8% 52.9%

44.2% 47.1%

Mar-15 Mar-16

Time

Demand

15

Taipei Fubon Bank: Deposit mix and LDR

NTD loan-to-deposit ratio (LDR) Deposit mix in NTD

Deposit mix in foreign currency

NT$bn

NT$bn

Foreign currency LDR

1,039 1,103

382 438

Note: Ending balance

66.2%

53.5%

Mar-15 Mar-16

88.2% 83.8%

Mar-15 Mar-16

(118)

186

1Q15 1Q16

0.0%

0.2%

0.4%

0.6%

Mar-13 Mar-14 Mar-15 Mar-16

Corporate loan Mortgage loan

16

Taipei Fubon Bank: Asset quality

NPL ratio

NPL ratio by business Net provision

Coverage ratio

0.27%

0.03%

NT$mn

Net recovery

0.11% 0.11% 0.12%

0.15% 0.18%

Mar-15 Jun-15 Sep-15 Dec-15 Mar-16

0.26% Market

average 1095.99% 1113.09% 1033.47%

816.37% 716.80%


17


• Fubon Life



• Fubon Insurance

Agenda




37.4

59.7

61.6

67.0

1Q15 1Q16

212.9 191.0 205.3

207.2 234.0

269.1

2013 2014 2015

Renewal premium

FYP

28% yoy growth in total premium income

18 18

NT$bn

Fubon Life: Total premium

420.1 425.0

474.4

56.7%

43.3%

55.1%

44.9%

49.3%

50.7%

99.0

126.7

52.9%

47.1%

62.2%

37.8%

FYP composition

19

Fubon Life: First year premium (FYP)

60% yoy growth in FYP mainly came from tradition regular-paid policies

NT$bn 1Q15 % 1Q16 % YoY

growth

Traditional life: Regular-paid 10.7 28.5% 24.9 41.7% 133.3%

Traditional life: Single-paid 20.8 55.7% 22.9 38.3% 9.7%

Interest-sensitive annuity 1.5 3.9% 7.4 12.4% 411.1%

Investment-linked 3.1 8.2% 2.5 4.2% -19.2%

Health, accidents and others 1.4 3.7% 2.0 3.4% 49.0%

Total 37.4 100.0% 59.7 100.0% 59.6%

FYPE growth 139% yoy led to

improvement in FYPE/FYP ratio

VNB grew 133.5% in 1Q16 yoy

20

Fubon Life: Value of new business (VNB)

& First year premium equivalent (FYPE)

FYPE

/FYP

NT$bn

12.3

29.4

32.9% 49.3%

VNB

FYPE

NT$bn

Note: 1Q16 VNB is based on 2015 EV actuarial assumptions

FYPE by channel

36.8% 29.9%

30.0% 38.3%

18.2% 21.0%

15.0% 10.8%

1Q15 1Q16

Other

Bancassurance: throughTaipei Fubon bank

Bancassurance: throughexternal banks

Tied agents

10.8% 6.9% 1.3% 2.6% 2.7%

0.9% 17.0% 7.8%

68.3%

81.8%

1Q15 1Q16

Traditional life:Regular-paid

Traditional life:Single-paid

Investment-linked

Interest-sensitiveannuity

Health, accidentsand others

VNB/

FYP 16.8% 24.6%

6.3

14.7

1Q15 1Q16

21 21

Investment income mainly came from recurring revenue

Fubon Life: Composition of investment income

Note: *2013 data is on pro forma basis to reflect fair value method for investment property evaluation.

NT$bn 1Q15 1Q16 YoY 2013* 2014 2015

Recurring investment income 19.6 23.1 17.8% 75.2 88.7 101.0

Realized gains from fixed income

investment 6.9 3.6 -47.6% 8.0 12.1 9.9

Realized gains from equity

investment 11.3 3.1 -72.3% 4.0 14.0 22.6

FX and others -3.5 -4.9 37.1% -6.3 -6.4 -3.6

Investment property fair value

movement 0.2 0.5 179.9% 5.4 1.4 0.4

Investment income 34.5 25.5 -25.9% 86.3 109.9 130.3

Total investment assets 2,636.4 2,866.1 8.7% 2,227.2 2,588.0 2,814.0

22 22

Investment assets grew steadily

Investment portfolio repositioned in response to market volatility

Fubon Life: Investment portfolio

Note: *Including OTC-listed international bond, the international bonds investment reached 8.2% of total investment assets as of 2016/03/31

2015/3/31 2015/12/31 2016/3/31

（NT$bn）

Deposit and cash equivalent 133.3 5.1% 168.6 6.0% 195.4 6.8%

Domestic fixed income 574.7 21.8% 523.2 18.6% 495.9 17.3%

Overseas fixed income* 1,123.1 42.6% 1,372.6 48.8% 1,408.7 49.1%

Domestic equity 289.6 11.0% 221.7 7.9% 224.7 7.8%

Overseas equity 222.3 8.4% 182.3 6.5% 188.2 6.6%

Mortgage loans 75.2 2.9% 86.4 3.1% 88.0 3.1%

Policy loans 50.9 1.9% 55.1 2.0% 55.1 1.9%

Real estate 167.4 6.3% 204.1 7.3% 210.1 7.3%

Total Investments 2,636.4 100.0% 2,814.0 100.0% 2,866.1 100.0%

Domestic 1,238.6 47.0% 1,185.9 42.1% 1,211.8 42.3%

Overseas* 1,397.9 53.0% 1,628.1 57.9% 1,654.3 57.7%

23

Fubon Life: Portfolio of overseas fixed

income

Overseas fixed income by region Overseas fixed income by asset type

4.0% 2.8%

45.7% 38.8%

45.9% 55.2%

4.4% 3.2%

Mar-15 Mar-16

Others

Corporatecredit

Financialbond

Governmentbond

21.6% 19.2%

52.4% 60.9%

26.0% 19.9%

Mar-15 Mar-16

Asia & Other

North America

Europe

-36 -36

-67 -65

1Q15 1Q16 CS cost

FX gain/loss & netprovision of FXreserve

24 24

Hedging cost & FX gain/loss FX position

Recurring return

Fubon Life: Hedging composition

Currency swap &

FX Policy, 74.7%

Naked USD, 8.1%

Other currencies

, 4.3% Equities/ mutual funds , 12.9%

3.17%

3.35%

2.98%

3.14%

1Q15 1Q16

Beforehedge

Afterhedge

-103bps -101bps

25 25

Fubon Life: Investment spread

Cost of liability improvement continues

Higher breakeven point (net underwriting cost) due to strong FYP growth

Breakeven point = (Profit before tax – Investment income) /

Average investment assets

Investment spread Recurring return and breakeven point

2.74%

3.24%

2.98% 3.14%

Mar-15 Mar-16

Breakeven point Recurring return

3.88% 3.82%

5.53%

3.72%

Mar-15 Mar-16

Cost of liabilities Investment return

(15.6)

7.4

5.9

28.9

26 26

Net Worth

Unrealized outstanding

Fubon Life: Investment performance

Improvement in unrealized position

NT$bn NT$bn Realized

gains

Dividend income &

MTM

Dec-15 Mar-16

Movement of unrealized gains from AFS assets

247.4 208.8

172.5 182.8 206.5


Note: *before tax basis

(15.6) 7.4 3.6

33.9

Dec-15 Mar-16

AFS HTM+Inactive*

27


• Fubon Life



• Fubon Insurance

Agenda




50.6% 52.1%

13.4%

13.7% 7.6%

5.7% 2.9%

3.3% 15.3%

15.2% 10.2%

10.0%

1Q15 1Q16

Others

Health/Injury

Engineering

Marine

Fire

Auto

28

Net combined ratio

28

NT$bn

Premium growth outperformed industry. Top 1 position in premium market share

Net claim ratio increase due to net retained losses from Tainan earthquake

Note: Standalone basis Note: Exclusive of auto compulsory due to the claims are reimbursed

Fubon Insurance: Operating snapshot

Direct written premium by product

7.1

8.1 97.4%

88.8%

54.1% 61.8%

34.7%

35.6%

1Q15 1Q16

Net expense ratio

Net claim ratio

29


• Fubon Life



• Fubon Insurance

Agenda




30

Fubon Securities: Financial highlights

Market share & ranking

Operating revenue

NT$mn

Stable market position in major business

lines

Market leader in overseas ETF

Net profits

NT$mn 1,488

1,386

3M15 3M16

362 358

3M15 3M16

2016Q1 Ranking 2015Q1 Ranking

NAV of overseas

ETF (NT$mn) 55,700 #1 40,800 #1

Brokerage per

branch* 0.10% #2 0.10% #2

Emerging stock

trading 20.84% #2 20.32% #2

Brokerage 5.26% #3 5.21% #3

AUM of WM

business (NT$mn) 11,515 #3 12,513 #3

Note: *Ranking among top 10 brokers

31


• Fubon Life



• Fubon Insurance

Agenda




20,670 23,522

7,567 4,867

Mar-15 Mar-16

Rediscount Loans (excluding rediscount)

32

Fubon Bank (China): Key balance sheet

items

Assets Net worth

Deposits Loans

RMB$m

28,388 28,237

RMB$m RMB$m

RMB$m

37,882

43,387

Mar-15 Mar-16

4,578

5,033

Mar-15 Mar-16

60,885 67,367

Mar-15 Mar-16

33

Fubon Bank (China): Financial highlight

ROAA & ROAE

NIM Net Profits

NPL ratio & Coverage ratio

RMB$m

84

152

1Q15 1Q16

0.55%

0.86% 7.39%

12.24%

1Q15 1Q16

ROAA ROAE

1.17%

1.91%

230.0% 157.5%

Mar-15 Mar-16

NPL Coverage ratio

1.36%

1.55%

1Q15 1Q16

34


• Fubon Life



• Fubon Insurance

Agenda




35

Unit: NTD billion

Item 2014 2015 YoY Difference Impact

Net Worth (Book Value) 223.6 182.8 -18.3% -40.8

Adjusted Net Worth 196.2 183.2 -6.6% -13.0

VIF (before CoC) 273.6 306.0 11.8% 32.4

Cost of Capital (CoC) (73.8) (84.0) -13.8% -10.2

VIF (After CoC) 199.8 221.9 11.1% 22.2

Embedded Value 395.9 405.1 2.3% 9.2

FYP 191.0 205.3 7.5% 14.3

FYPE 58.2 67.2 15.5% 9.0

VNB 34.8 35.6 2.2% 0.8

VNB margin (VNB/FYP) 18.2% 17.3% -4.9% -0.9%

VNB margin (VNB/FYPE) 59.8% 52.9% -11.5% -6.9%

Multiplier 8.8 8.8 0.0% 0.0

Appraisal Value 703.6 719.6 2.3% 16.0

Outstanding shares (FHC) 10.2 10.2 0.0% 0.0

Embedded Value 38.7 39.6 2.3% 0.9

Appraisal Value 68.7 70.3 2.3% 1.6

Outstanding shares (Life) 4.4 5.7 30.3% 1.3

Embedded Value 90.0 70.7 -21.5% -19.4

Appraisal Value 160.0 125.5 -21.5% -34.4

Value per FHC share

Value per Life share

Inforce

Value Creation

New Sales

Value Creation

Appraisal Value

(20 year NB)

Note: Fubon Life issues 1.3338 bn new shares in 2015 from utilizing 13.338 bn retained earnings. If new issue shares are

excluded, EV and AV per Life share will grow 2.3%.

Value creation summary

Graph

add

% of change -32.8% + 18.3% -3.8% -18.3%

Adj. % + 4.4% -8.8% + 4.5% + 0.2%

223.6

(73.3)

41.0

(8.6)

182.8

8.1

(16.0)

8.3

183.2

Statutory NetWorth@Dec. 31,

2014(IFRS)

Unrealized capitalgain

Earning Others Statutory NetWorth@Dec. 31,

2015(IFRS)

Special Reserve(FX and RE

Appreciation)

Adjust MarketValue of (AFS)

Fixed Income Assetto Book Value

RE AppreciationValue

Adjusted NetWorth@Dec. 31,

2015

36

Note:

1. “Others” includes cash dividend payout of 8.8bn (-3.9%).

2. Self-use real estate appreciation value (8.3 bn) has been added to ANW adjustment items in 2015 for the first time.

Movement analysis: Adjusted net worth

Unit: NTD billion

37

% of change -0.8% -9.3% + 11.7% + 1.0% -6.3% + 0.5% + 15.1% + 11.8%

273.6

(2.3)(25.4)

32.0 2.7

(17.2)

1.3 41.2

306.0

-80.0

-30.0

20.0

70.0

120. 0

170. 0

220. 0

270. 0

320. 0

2014 VIF(before CoC)

Model Change Existingbusiness -

transfer to networth

Required returnon existing

business

Data Change Eco.Assumption

Change

Non-eco.Assumption

Change

2015VNB(before

CoC)

2015 VIF(beforeCoC)

Note:

1. Economic assumption change includes changes of foreign exchange rate (+0.9%) and investment return (-7.2%).

2. The equivalent return of EV2014 reporting for VIF increased from 4.64% to 4.70% to reflect rolling over effect.

3. The equivalent return of EV2015 reporting for VIF is 4.58%.

4. 2015 VNB (after CoC) is 35.6 bn.

Unit: NTD billion

Movement analysis: Value of in-force

(before CoC)

38

Same basis YoY +14%

% of change + 7.5% + 2.9% -7.4% -0.8% + 2.2%

VNB/FYP 18.2% 0.0% + 0.5% -1.3% -0.1% 17.3%

34.8

2.6 1.0

(2.6) (0.3)

35.6

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10. 0

12. 0

14. 0

16. 0

18. 0

20. 0

22. 0

24. 0

26. 0

28. 0

30. 0

32. 0

34. 0

36. 0

38. 0

40. 0

2014 VNB Sales Volume Product Mix Econ. Change Non-Econ.Change

2015 VNB

Same basis : +10.4%

Note:

1. The equivalent return of EV2014 reporting for VNB increased from 4.61% to 4.65% with consideration of rolling over

effect and reflected 2015 product mix.

2. The equivalent return of EV2015 reporting for VNB is 4.30%.

Movement analysis: Value of new business

Unit: NTD billion

39

Year 2014 Year 2015

Investment

return

VIF

NTD Traditional Policies :

Year 2015 to Year 2052 at 3.98%~5.43%(2053+)

USD Policies :

Year 2015 to Year 2030 at 5.16%~5.96%(2031+)

V1NB


Year 2014 to Year 2047 at 3.89%~5.43%(2048+)

USD Policies :

Year 2014 to Year 2043 at 5.14%~5.96%(2044+)

ISA

Average retained spread for the Interest sensitive

business is around 100bps.

VIF


Year 2016 to Year 2052 at 3.86%~5.57%(2053+)

USD Policies :

Year 2016 to Year 2040 at 5.15%~5.96%(2041+)

V1NB


Year 2015 to Year 2050 at 3.46%~5.55%(2051+)

USD Policies:

Year 2015 to Year 2045 at 4.37%~5.96%(2046+)

ISA

Average retained spread for the Interest sensitive

business is around 50~100 bps.

Risk Discount

Rate

VIF: 11.0%

V1NB: 10.5%

VIF: 11.0%

V1NB: 10.5%

Equivalent

Return

VIF: 4.64% (rolling over to 2015: 4.70%)

V1NB: 4.61% (rolling over to 2015: 4.65%)

VIF: 4.58%

V1NB: 4.30%

YC (10 year)

Initial / ultimate

TWD: 1.64% / 3.50%

USD : 2.28% / 5.25%

TWD: 1.16% / 3.50%

USD: 2.19% / 5.25%

Note

• The FX reserve mechanism was stipulated from 2012, its respective cost is reflected in the derivation of portfolio return.

Economic assumptions

40

3.86%

5.57%

3.98%

5.43%

3.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

1 5 9 13 17 21 25 29 33 37 41 45 49

In-force Portfolio Return: NTD Traditional Policies (excludes Interest Sensitive Annuity)

2015IF 2014IF

5.15%

5.96% 5.16%

5.96%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

1 5 9 13 17 21 25 29 33 37 41 45 49

In-force Portfolio Return: USD Policies

2015IF 2014IF

Economic assumptions: VIF portfolio

return

41

3.46%

5.55%

3.89%

5.43%

3.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

1 5 9 13 17 21 25 29 33 37 41 45 49

NB Portfolio Return: NTD Traditional Policies (excludes Interest Sensitive Annuity)

2015NB 2014NB

4.37%

5.96%

5.14% 5.96%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

1 5 9 13 17 21 25 29 33 37 41 45 49

NB Portfolio Return: USD Policies

2015NB 2014NB

Economic assumptions: V1NB portfolio

return

42

Economic assumptions: Discount rate

Fubon Life 2014/12/31 2015/12/31

Risk Free Rate 1.64%~3.50% 1.16%~3.50%

Equity plus Country Risk Premium 6.50% 6.50%

Beta 1.2 1.2

Calculated RDR 9.44%~11.30% 8.96%~11.30%

RDR used in the valuation VIF:11.0%

VNB:10.5%

VIF:11.0%

VNB:10.5%

• RDR: According to CAPM (Capital Asset Pricing Model);

RDR = Risk Free Rate + Beta * Equity and Country Premium.

43

Cost of capital

Cost of Capital projection

Maintain the regulatory minimum RBC level of 200% with consideration of following factors:

1) Add 30% C3 risk capital of previous year for all traditional products every year (excludes investment-linked product)；

2) Reflect current business operation and future strategy.

Risk-based capital (RBC) regulation changes in 2015:

1) Lower risk factor of foreign real estate investment via SPV-loan in C0 (from 0.2608 to 0.1) to be the same as foreign real estate investment via SPV-equity investment;

2) Lower risk factor of domestic and foreign private equity fund investment in C1 (from 0.2950 to 0.2638);

3) Lower risk factor of domestic stock investment in C1 from 0.2411 to 0.2274;

4) Raise the extra charge percentage of previous year’s C3 risk for traditional products from 10% to 30%.

43

-17.8% 17.8% -25.6% 25.6%

-14.0% 14.0% -19.9% 19.9%

(54.4)

306.0

54.4

Return - 0.25% Base Return + 0.25%

(56.8)

405.1

56.8


(56.8)

221.9

56.8


(7.1)35.6

7.1


44

Sensitivity summary：Portfolio return

Note: ANW will not be affected by portfolio return.

VIF (before CoC) VIF

EV VNB

44

Unit: NTD billion

45

9.9% -8.2% 16.1% -13.3%

8.8% -7.3% 18.2% -15.0%

30.3

306.0

(25.0)

RDR - 1% Base RDR + 1%

35.8

405.1

(29.6)


35.8

221.9

(29.6)


6.5 35.6

(5.3)


VIF (before CoC) VIF

EV VNB

Sensitivity summary：Risk discount rate

45 Note: ANW will not be affected by RDR

Unit: NTD billion

11.8

17.9

24.8 28.0

31.7 31.8 34.8 35.6

EV2008 EV2009 EV2010 EV2011 EV2012 EV2013 EV2014 EV2015

Value of New Business

46

單位: 新台幣十億元

38.5 52.5

73.6 88.7

116.8

161.9

199.8

221.9


77.7

128.8 155.5

176.0

217.9

295.7

395.9 405.1


CAGR = 17% (3.0x) CAGR = 13% (2.4x)

CAGR = 28% (5.8x)

CAGR = 27% (5.2x)

2015 summary: Track record of Fubon

Life’s value creation NB Margin (VNB / FYP)

Value of In-Force Embedded Value

Unit: NTD billion

3.68 3.87 3.88 3.97 4.06 4.14 4.10

3.78 3.80 4.01

4.42

4.74 4.97

EV2009/2010 EV2010/2011 EV2011/2012 EV2012/2013 EV2013/2014 EV2014/2015 EV2015/2016

47

Investment return: Assumption vs. Actual

Note:

1. Track record shows higher actual return than EV assumption in general.

2. The investment return for 2013 and 2014 includes fair value recognition of investment property, which is

+0.38% and +0.05% respectively.

The Engagement

• Deloitte Advisory (Hong Kong) Limited (“Deloitte Consulting”) were retained by Fubon Life to perform an

independent review of the Embedded Value (EV) as at 31 December 2015 and the Value of One Year’s New

Business (V1NB) written over the period of 1 January 2015 to 31 December 2015.

Scope of Deloitte Consulting’s Involvement

• Review and opine on the reasonableness of the EV and V1NB as calculated by the Company;

• Review of the reasonableness of the assumptions used in the calculations, taking into consideration both the

Company’s recent experience and the experience of the Taiwanese life insurance market;

• Review, at a high-level, model changes to the actuarial projection model since the previous valuation date;

• Review of the Company’s projection approach of the Cost of Capital;

• Review of the data put through the model compared to the policy data on the Company’s policy administration

systems to judge the extent to which the business has been valued in the financial model and to identify the

portion (if any) omitted and how that was valued;

• Review of the approach used to determine the Adjusted Net Worth (“ANW”), in particular, the adjustments

made in deriving the ANW, and any other adjustments made outside of the actuarial projection model;

• Review of the Company's analysis of change in the Value of In-Force Business (“VIF”) between 31 December

2014 and 31 December 2015.

Deloitte Consulting

The Engagement • Deloitte Advisory (Hong Kong) Limited (“Deloitte Consulting”) were retained by Fubon Life to perform an

independent review of the Embedded Value (EV) as at 31 December 2015 and the Value of One Year’s New

Business (V1NB) written over the period of 1 January 2015 to 31 December 2015.

Scope of Deloitte Consulting’s Involvement • Review and opine on the reasonableness of the EV and V1NB as calculated by the Company;

• Review of the reasonableness of the assumptions used in the calculations, taking into consideration both the

Company’s recent experience and the experience of the Taiwanese life insurance market;

• Review, at a high-level, model changes to the actuarial projection model since the previous valuation date;

• Review of the Company’s projection approach of the Cost of Capital;

• Review of the data put through the model compared to the policy data on the Company’s policy

administration systems to judge the extent to which the business has been valued in the financial model and

to identify the portion (if any) omitted and how that was valued;

• Review of the approach used to determine the Adjusted Net Worth (“ANW”), in particular, the adjustments

made in deriving the ANW, and any other adjustments made outside of the actuarial projection model;

• Review of the Company's analysis of change in the Value of In-Force Business (“VIF”) between 31 December

2014 and 31 December 2015.

Independent review by Deloitte Consulting

48

Fubon Life calculated the EV and V1NB at Risk Adjusted Discount Rates (“RDR”) of

11.0% and 10.5% respectively.

RFR based on current government

bond yield

RFR based on Company’s long-

term view

Equivalent RFR for New Business

Equivalent RFR for In-Force Business

Risk Free Rate (“RFR”) 1.16% 3.50% 2.59% 2.64%

Equity and Country Risk Premium 6.50% 6.50% 6.50% 6.50%

Beta 1.20 1.20 1.20 1.20

Calculated Risk Discount Rate 8.96% 11.30% 10.39% 10.44%

Risk Discount Rate used in the Valuation for VIF

11.00%

Risk Discount Rate used in the Valuation for V1NB

10.50%

Reference – RDR based on Capital Asset Pricing Model (CAPM):

RDR = RFR + Beta * Equity and Country Risk Premium

Deloitte Consulting

Risk adjusted discount rates

49

50

Deloitte Consulting independently derived a range of RDRs using the CAPM

approach:

The low end of the RDR is developed based on the current yield on 10-year Taiwan government bonds.

The high end of the RDR is developed based on the Company’s view of the 10-year Taiwan government bond in the future.

The equivalent RFR is the RFR equivalent to using a set of graded-up RFR from 1.16% to 3.50% that derives the same VIF and V1NB.

The Equity and Country Risk Premium was developed based on the Country Default Spreads and Risk Premiums research published by New York University.

The Beta of 1.2 was set using a risk profiling approach which considers risks related to the product range, distribution diversification/vulnerability, regulatory intervention and investments. Note that this beta value is consistent with that used in previous valuations.

The RDR assumption applied by Fubon Life in the valuation lies within the range of RDR that we derived.

In particular, we feel comfortable with different RDRs being used for the valuation of the in-force and new business, given the specific market conditions in Taiwan: it is well-known that the legacy business has a much riskier profile than the current new business, and hence it is reasonable for shareholders to be expecting a higher rate of return for the higher risk level. We feel that Fubon Life has taken a good approach in splitting up the RDR assumption for the two distinctively different blocks of business.

Deloitte Consulting

Comments: Risk adjusted discount rates

A set of rising investment return assumption has been used in this valuation

which is considered reasonable for the present market conditions.

Fubon Life’s derivation of the investment return assumption is featured by the following:

• Derivation methodology is consistent with that applied in previous valuations;

• The methodology involves:

For VIF, the investment return assumption was derived from a combination of the investment return

generated by the run-off of the existing asset portfolio and of that from future purchases of new

assets;

For V1NB, the new business is not supported by returns on existing assets and the investment

return was derived from future purchases of new assets;

• New assets are purchased at the prevailing new money rates, which are set to equal to the expected future

risk free rates plus a risk margin for each asset type;

• Future risk free rates are set starting off with the actual yield curves as at the valuation date and are

assumed to rise to a long-term level over a 10-year period. For New Taiwan Dollar and US Dollar

respectively, the initial risk free rates are 1.16% and 2.19% and a long-term risk free rate of 3.50% and

5.25% is assumed.

• Different assumptions were derived for different types of business, which were assumed to have a different

long-term asset allocation.

• For some business lines, the investment return assumption derived in the above-mentioned manner was

capped at a certain level for conservative reasons.

Deloitte Consulting

Comments: Investment return (1)

51

It is in Deloitte Consulting’s view that:

Methodology

• Fubon Life’s derivation methodology for the investment return assumption is reasonable

and consistent with the way that the ANW is calculated;

Economic Assumptions

• The expected long-term risk-free rate for New Taiwan Dollar yield and US Dollar yield are

maintained at 3.5% and 5.25% respectively.

• We note that taking a view on the future capital market is not uncommon under the

traditional Embedded Value methodology. On a macro-economic level the arguments put

forward for rising interest rates are plausible, and we note that the expected future rise in

yields is spread out over a reasonably long period of 10 years.

• Readers should be aware that capital market conditions are subject to the impact of

many forces. Yields and prices of financial instruments can move dramatically in a short

period of time. As a result, it is difficult to predict the interest rate level in the future with

great certainty. Readers should refer to the sensitivity tests to develop a broader

understanding of the impact of the investment return assumption on the assessment of

the economic value of Fubon Life.

• Overall, the economic assumptions appear to be reasonable.

Deloitte Consulting

Comments: Investment return (2)

52

Non - Economic Assumptions

• The non-economic assumptions reflect Fubon Life’s best estimate of future operating experience, and

are appropriately supported by the company’s historical operating experience.

Deloitte Consulting

Comments: Non-Economic assumptions

53

Deloitte Consulting have reviewed the Embedded Value and Value of

One Year’s New Business results at a high-level under the generally accepted method for

calculating traditional embedded values in Taiwan:

• Review of the changes in the VIF relative to the assumption changes and model changes

from 2014 to 2015;

• Review of the changes in the new business profit margin relative to that in 2014 based on

information on changes in sales mix, sales volume and valuation assumptions;

• Review of the sensitivities relative to the base case results.

The Embedded Value and Value of One Year’s New Business results appear to be

reasonable within the above context.

Deloitte Consulting’s detailed opinion can be found in their opinion letter.

Deloitte Consulting

Comments: EV and V1NB Results

54

Thank you

Fubon Financial - Financial summary

NT$ millions, except for percentages 1Q16 4Q15 3Q15 2Q15 1Q15 2015 2014 YoY

Income Statement Data

Net interest income 25,781 25,445 24,892 22,271 22,357 94,965 89,315 6.3%

Insurance income 78,425 77,347 84,384 56,538 45,819 264,088 230,938 14.4%

Net gains (losses) on FX and financial assets 6,177 9,104 23,114 22,653 19,120 73,991 59,719 23.9%

Others (1,677) (192) (2,082) (1,042) 515 (2,801) 1,863 N.M.

Net revenue 108,705 111,704 130,308 100,420 87,811 430,243 381,835 12.7%

Bad debt expense and reserve for guarantee (330) (1,734) (89) 617 (6) (1,212) (2,988) -59.4%

Net change in insurance reserve (84,098) (87,073) (97,407) (61,766) (50,667) (296,913) (257,599) 15.3%

Operating expense (13,939) (15,365) (13,364) (13,117) (12,454) (54,300) (49,305) 10.1%

Income before tax 10,339 7,532 19,448 26,154 24,684 77,818 71,943 8.2%

Net income 8,887 5,459 16,177 22,027 20,143 63,806 60,478 5.5%

Net income to parent company 8,774 5,450 16,090 21,959 20,094 63,593 60,244 5.6%

Balance Sheet Data

Total assets 5,985,183 5,987,468 5,860,919 5,575,005 5,554,450 5,987,468 5,438,358 10.1%

Equity attributable to parent company 398,582 367,622 355,526 383,657 439,713 367,622 408,057 -9.9%

Outstanding shares (million shares) 10,234 10,234 10,234 10,234 10,234 10,234 10,234 0.0%

Key Metrics

ROA 0.59% 0.38% 1.15% 1.60% 1.47% 1.12% 1.21%

ROE 9.16% 5.62% 16.86% 22.19% 18.96% 16.40% 16.07%

Equity / assets 6.80% 6.28% 6.21% 7.03% 8.06% 6.28% 7.65%

Double leverage 119.11% 120.55% 121.04% 119.36% 113.10% 120.55% 114.01%

Capital adequacy ratio 124.83% 137.36%

Cash dividend per share 2.00 3.00

Taipei Fubon Bank - Financial summary


Income statement data

Interest income 11,223 11,727 11,906 11,572 11,441 46,647 45,231 3.1%

Interest expense (5,377) (5,584) (5,830) (5,763) (6,118) (23,294) (22,964) 1.4%

Net interest income 5,846 6,143 6,076 5,809 5,324 23,352 22,268 4.9%

Net fee income 3,390 2,592 2,951 3,022 3,085 11,649 11,080 5.1%

Other income 2,264 1,432 1,942 2,069 1,925 7,367 10,727 -31.3%

Total net revenue 11,500 10,167 10,969 10,900 10,333 42,369 44,075 -3.9%

Operating expenses (5,188) (5,537) (5,166) (5,084) (4,903) (20,690) (19,293) 7.2%

Pre-provision profits 6,312 4,630 5,803 5,816 5,430 21,679 24,782 -12.5%

Provision for credit losses (186) (1,279) 153 740 209 (177) (2,261) -92.2%

Income before tax 6,126 3,351 5,956 6,556 5,639 21,502 22,521 -4.5%

Net income 5,268 2,842 5,105 5,610 5,048 18,606 19,131 -2.7%

Net income to parent company 4,933 2,732 4,806 5,372 4,873 17,783 18,237 -2.5%

Balance sheet data

Loans and discounts 1,337,192 1,353,533 1,357,185 1,329,011 1,339,635 1,353,533 1,304,563 3.8%

Deposits and remittances 1,793,280 1,813,356 1,751,102 1,675,802 1,622,975 1,813,356 1,606,174 12.9%

Allowance for loan losses* 14,543 14,651 13,965 14,018 14,575 14,651 15,483 -5.4%

Total assets 2,336,284 2,409,836 2,387,116 2,211,637 2,191,409 2,409,836 2,165,405 11.3%

Equity attributable to parent company 170,598 165,696 163,712 157,422 156,178 165,696 151,604 9.3%

Key metrics

ROA 0.89% 0.50% 0.90% 1.03% 0.93% 0.81% 0.97%

ROE 11.74% 6.89% 12.19% 13.91% 12.67% 11.21% 12.76%

Equity / assets 8.15% 7.69% 7.70% 7.98% 7.99% 7.69% 7.88%

Cost / income ratio -45.11% -54.46% -47.10% -46.64% -47.45% -48.83% -43.77%

NPL ratio* 0.18% 0.15% 0.12% 0.11% 0.11% 0.15% 0.17%

Reserve / NPL* 716.80% 816.37% 1033.47% 1113.09% 1095.99% 816.37% 788.58%

Tier 1 ratio* 11.30% 11.22% 11.30% 10.43%

BIS ratio* 13.44% 13.76% 13.44% 13.11%

Note: Data mark with * are stand-alone basis

Fubon Life - Financial summary



First year premium 59,722 62,108 62,152 43,604 37,418 205,282 190,974 7.5%

Retained earned premium 120,845 122,879 125,791 99,205 92,422 440,297 390,077 12.9%

Total investment income 25,537 26,382 32,907 36,376 34,591 130,256 109,876 18.5%

Recurring investment income 23,110 25,326 33,093 22,885 19,736 101,040 88,695 13.9%

Other investment income 2,427 1,056 (186) 13,491 14,855 29,216 21,181 37.9%

Realized gains (losses) from fixed income 3,603 1,520 (2,633) 4,112 6,872 9,870 12,127 -18.6%

Realized gains (losses) from equity 3,138 (612) (368) 12,271 11,331 22,622 14,021 61.3%

FX and others (4,855) (420) 3,301 (2,969) (3,541) (3,629) (6,413) -43.4%

Investment property fair value movement 541 569 (486) 77 193 353 1,446 -75.6%

Other income 626 647 686 458 367 2,159 2,006 7.6%

Total operating revenue 147,008 149,908 159,383 136,038 127,381 572,711 501,960 14.1%

Retained claim payment 45,527 47,735 44,330 45,926 49,610 187,601 168,249 11.5%

Net commission expense 9,113 7,101 7,314 6,300 5,378 26,093 23,215 12.4%

Net change in insurance liability 85,625 86,518 91,860 62,329 51,957 292,665 254,691 14.9%

General and administrative expense 4,122 4,672 3,761 3,601 3,491 15,526 13,652 13.7%

Other operating costs 462 441 447 664 379 1,932 1,078 79.2%

Total operating costs and expenses 144,850 146,466 147,713 118,821 110,816 523,816 460,885 13.7%

Net non-operating income / (expenses) 106 141 141 91 144 518 222 133.7%

Income before tax 2,265 3,583 11,812 17,309 16,710 49,413 41,296 19.7%

Net income 2,137 2,169 9,770 15,827 13,252 41,018 35,367 16.0%

Net income to parent company 2,137 2,169 9,770 15,827 13,252 41,018 35,367 16.0%

Balance sheet data

Total assets 3,117,105 3,035,563 2,951,402 2,843,190 2,845,002 3,035,563 2,790,427 8.8%

Total assets (general account) 2,982,282 2,900,201 2,821,057 2,709,001 2,708,199 2,900,201 2,653,199 9.3%

Insurance liabilities 2,728,570 2,656,145 2,569,316 2,447,646 2,390,639 2,656,145 2,346,722 13.2%

Total liabilities 2,910,646 2,852,781 2,778,892 2,634,408 2,597,645 2,852,781 2,566,830 11.1%

Total liabilities (general account) 2,775,823 2,717,419 2,648,546 2,500,220 2,460,842 2,717,419 2,429,603 11.8%

Equity attributable to parent company 206,459 182,782 172,511 208,781 247,357 182,782 223,597 -18.3%

Key matrices

ROA 0.28% 0.30% 1.36% 2.25% 1.88% 1.41% 1.35%

ROE 4.39% 4.27% 19.73% 29.28% 22.51% 20.19% 17.96%

Equity / Assets 6.62% 6.02% 5.85% 7.34% 8.69% 6.02% 8.01%

Claims and benefits ratio 37.67% 38.85% 35.24% 46.29% 53.68% 42.61% 43.13%

Expense ratio 3.41% 3.80% 2.99% 3.63% 3.78% 3.53% 3.50%

Persistency ratio - 13th month 96.19% 96.66% 94.57% 95.22% 95.24% 96.66% 95.12%

Persistency ratio - 25th month 92.92% 92.07% 90.71% 90.43% 90.13% 92.07% 89.67%

Fubon Insurance - Financial summary



Direct written premiums 9,297 8,874 8,452 9,540 8,150 35,016 32,718 7.0%

Retention of earned premiums 7,230 6,833 7,024 6,833 6,450 27,139 24,653 10.1%

Net income from investment 497 485 739 852 735 2,811 2,498 12.5%

Other operating revenue 345 363 331 304 297 1,295 1,082 19.7%

Retained insurance payments 3,833 3,887 3,796 3,348 3,218 14,250 13,128 8.5%

Net change in liability reserve 358 (329) 377 256 352 656 626 4.7%

Commission and operating expenses 3,306 3,506 3,178 3,203 2,885 12,772 11,363 12.4%

Non-Operating Income (22) (9) (36) (29) (22) (96) (109) -12.2%

Income before tax 553 607 707 1,153 1,005 3,472 3,007 15.5%

Net income 444 485 566 962 826 2,839 2,420 17.3%

Net income to parent company 516 595 674 1,050 895 3,213 2,816 14.1%

Balance sheet data

Total assets 94,323 89,213 90,125 87,732 86,170 89,213 83,349 7.0%

Investment assets 65,752 64,689 64,278 61,978 63,377 64,689 60,362 7.2%

Policy reserve 51,580 47,470 48,059 47,350 45,445 47,470 44,930 5.7%


Summary ratios

ROA 1.94% 2.25% 2.61% 4.50% 3.90% 3.29% 2.99%

ROE 7.00% 8.44% 9.67% 14.87% 12.40% 11.41% 10.06%

Total investment return 3.05% 3.10% 4.74% 5.57% 4.83% 4.50% 4.21%

Solvency margin (NWP/equity) 99.48% 99.62% 97.27% 104.81% 87.28% 97.95% 94.11%

Retention ratio 75.19% 75.46% 75.13% 74.35% 76.42% 75.30% 76.11%

Fubon Securities - Financial summary



Brokerage commissions 701 791 771 790 692 3,044 3,204 -5.0%

Net interest income 215 219 202 274 247 942 932 1.0%

Fee income 39 242 11 26 19 298 157 89.7%

Net principal transactions and financial products gains 222 334 (266) (92) 348 324 575 -43.6%

Other income 208 212 626 399 182 1,419 1,089 30.3%

Total operating revenue 1,386 1,797 1,345 1,398 1,488 6,025 5,955 1.2%

Total operating expense (1,229) (1,405) (1,292) (1,305) (1,214) (5,216) (5,146) 1.4%

Net non-operating income / (expenses) 243 184 193 180 128 685 678 1.0%

Income before tax 399 575 245 272 402 1,494 1,488 0.4%

Net income 358 560 233 193 362 1,348 1,356 -0.6%

Net income to parent company 358 560 233 193 362 1,348 1,356 -0.6%

Balance sheet data

Margin loans 11,613 11,950 10,219 15,185 17,830 11,950 16,338 -26.9%

Total assets 95,452 84,481 81,215 83,085 81,455 84,481 69,957 20.8%


Key metrics

ROA 1.59% 2.90% 1.23% 1.01% 1.91% 1.75% 2.12%

ROE 4.47% 7.12% 2.99% 2.47% 4.57% 4.29% 4.39%

Equity / assets 34.10% 37.38% 38.25% 37.49% 39.34% 37.38% 44.79%

Expenses / revenues -88.73% -86.57% -90.12% -87.30% -81.60% -86.57% -86.41%

Margin loans / total assets 12.17% 14.14% 12.58% 18.28% 21.89% 14.14% 23.35%

Margin loans / shareholders' equity 35.68% 37.84% 32.90% 48.75% 55.64% 37.84% 52.14%

Fubon Bank (China) - Financial Summary

RMB millions, except for percentages 1Q16 4Q15 3Q15 2Q15 1Q15 2015 2014 YoY

Income Statement Data

Interest income 491 552 550 559 572 2,232 2,425 -7.9%

Interest expense (418) (449) (480) (482) (515) (1,925) (1,846) 4.3%

Net interest income 73 102 70 77 57 307 579 -47.0%

Net fee income 31 25 31 34 30 120 141 -14.8%

Other income 217 222 190 156 101 669 250 167.6%

Operating expenses (126) (178) (120) (120) (101) (519) (378) 37.1%

Pre-provision profits 195 170 172 147 88 577 591 -2.4%

Provision for credit losses 0 (98) 1 (4) 18 (84) (59) 41.0%

Income before tax 195 72 173 143 106 493 532 -7.3%

Net income 152 59 135 112 84 390 422 -7.5%

Balance Sheet Data

Loans 28,388 30,822 29,813 29,493 28,237 30,822 31,163 -1.1%

Deposits 43,387 46,013 41,222 41,185 37,882 46,013 42,063 9.4%

Total assets 67,367 73,647 69,033 65,541 60,885 73,647 61,604 19.5%

Total equity 5,033 4,879 4,791 4,669 4,578 4,879 4,547 7.3%

Key metrics

ROA 0.86% 0.35% 0.82% 0.71% 0.55% 0.58% 0.76%

ROE 12.24% 5.00% 11.54% 9.75% 7.39% 8.28% 11.09%

Equity / assets 7.47% 6.63% 6.94% 7.12% 7.52% 6.63% 7.38%

Cost / income ratio -36.32% -48.11% -37.86% -41.27% -48.02% -43.72% -35.08%

NPL ratio 1.91% 1.04% 1.13% 1.03% 1.17% 1.04% 0.89%

Reserve / NPL 157.53% 265.11% 228.81% 252.23% 230.00% 265.11% 282.25%

Loan to deposit ratio (Renminbi) 62.88% 74.91% 69.32% 69.10% 68.74% 74.91% 70.13%

Tier 1 ratio 13.01% 12.59% 12.72% 13.04% 13.65% 12.59% 13.93%

BIS ratio 13.82% 13.73% 13.87% 14.19% 14.80% 13.73% 15.08%

6 May 2016

Fubon Life Insurance Company Limited

14F, No. 108, Section 1

Tun Hwa South Road

Taipei 10557

Taiwan, R.O.C

For the attention of: Mr. Chun-Pan Chen, President

Ms. Tsai-Ling Chao, EVP

Dear Sirs,

Review of Embedded Value as at 31 December 2015 and Value of One Year's New Business of Fubon Life Insurance Company Limited

Deloitte Advisory (Hong Kong) Limited (“Deloitte Consulting”, or "we") have been retained by Fubon

Life Insurance Company Limited (“Fubon Life” or "the Company") to prepare an independent

opinion in respect of the Embedded Value (“EV”) as at 31 December 2015 and the Value of One

Year of New Business (“V1NB”) sold during the calendar year 2015 as calculated and published by

the Company. The purpose of the publication of the EV and V1NB figures was to provide

supplementary information to investors, analysts and other stakeholders.

This opinion letter ("the Opinion Letter") sets out the work carried out and findings from that work

and has been prepared in accordance with the Work Order dated 1 March 2016 between Fubon Life

and Deloitte Consulting.

This engagement is solely with Fubon Life and this Opinion Letter is solely for the use of Fubon Life

and its Directors as a body for the stated purpose only. To the fullest extent permitted by law we do

not accept or assume responsibility or liability (including without limitation, those arising from

negligence) to anyone other than Fubon Life's Directors as a body for our work in respect of this

Opinion Letter or for the conclusions that we have reached.

Summary of Embedded Value and Value of One Year of New Business Results

The Embedded Value as at 31 December 2015 and the Value of the One Year of New Business

written over the period of 1 January 2015 to 31 December 2015 as calculated by the Company is

summarised as follows:

Values (NT$ bn)

Adjusted Net Worth 183.2

Value of In Force Business after Cost of Capital 221.9

Embedded Value 405.1

Value of One Year of New Business after Cost of Capital 35.6

Definitions

A number of specific terms are used in this Opinion Letter. They are defined as follows:

Embedded Value ("EV"): this is the sum of the Adjusted Net Worth and Value of In Force

Business as at the valuation date. It includes no allowance for the value of future business yet

to be written;

Adjusted Net Worth ("ANW"): this represents the shareholder equity in the enterprise as at the

valuation date. This is equal to the shareholder equity as reported in its Taiwan statutory

balance sheet plus several adjustment items. The purpose of the adjustments is to make the

Adjusted Net Worth consistent with the projection of future profits and Cost of Capital;

Value of In Force Business ("VIF"): this is equal to the present value as at valuation date of the

future statutory profits from the business in force as at the valuation date using a risk adjusted

discount rate, less the Cost of Capital associated with such business;

Appraisal Value ("AV"): this is the sum of the Embedded Value and Value of Future New

Business as at the valuation date. It represents an assessment of the economic value of the

company on a going concern basis using best estimate assumptions and a discounted cash flow

approach;

Value of One Year of New Business ("V1NB"): this is equal to the present value as at the policy

issue dates of the future statutory profits from the policies sold in 2015 less the Cost of Capital

associated with such business;

Value of Future New Business ("VNB"): this is equal to the present value as at the issue date of

the future statutory profits from policies assumed to be sold in the future less the Cost of

Capital associated with such business. One of the common calculation approaches is to multiply

the Value of One Year of New Business by a new business multiplier. The new business

multiplier reflects an assessment of the company's future new business volume, the profitability

of such new business and the uncertainty in achieving such volume and profitability.

Cost of Capital: this is defined as the amount of capital required to be held at the valuation date

less the present value of future releases of such capital and after-tax earnings on the assets

backing it. The level of capital required depends on the Company's internal target of capital

level but is subject to the minimum of statutory requirement.

This Opinion Letter does not give any opinion on the “fair market value” of any part or the whole of

the Company. Actual market values are determined by investors based on a variety of information

available to them and their own investment criteria.

The techniques for calculating a company’s Embedded Value and the Value of One Year of New

Business have been evolving over the last 20 years. The Company has used “traditional”

techniques. This is a common approach in Taiwan which is consistent with the methodology used by

all local domestically-owned companies which publish their Embedded Values. This method does not

include an explicit allowance for the cost of options and guarantees within the business. Instead,

this approach makes an implicit allowance for the time value cost of options and guarantees and

other risks associated with the realisation of the projected future profits through the use of a risk

adjusted discount rate.

Scope of Review

The scope of our review is outlined as follows:

Review and opine on the reasonableness of the EV and V1NB as calculated by the Company;

Review of the reasonableness of the assumptions used in the calculations, taking into

consideration both Company’s recent experience and the experience of the Taiwanese life

insurance market;

Review of the Company’s projection approach of the Cost of Capital;

Review, at a high-level, of the changes made to the actuarial projection model by the Company

since the previous valuation date of 31 December 2014;

Review of the data put through the model compared to the policy data on the Company’s policy

administration systems to judge the extent to which the business has been valued in the

financial model and to identify the portion (if any) omitted and how that was valued;

Review of the approach used to determine the Adjusted Net Worth (“ANW”), in particular, the

adjustments made in deriving the ANW, and any other adjustments made outside of the

actuarial projection model;

Review of the Company's analysis of change in the VIF between 31 December 2014 and 31

December 2015.

The scope of our review did not include the following aspects:

Review of the policy data on the Company’s administration systems;

Our review did not cover an audit of the accuracy or completeness of the policy data items and

we offer no comment on the quality of the policy data used by the Company in the valuation,

and readers should not assume our review verifies the data is free from error.

Review or audit of the valuation of the assets or any items unless specifically stated on the

Company’s balance sheet;

We referred to the Company’s audited financial statements and placed reliance on them.

Review of the calculation of the RBC (risk based capital) of the Company as at 31 December

2015; and

Whilst we reviewed the projection of the RBC into future periods, we relied on the accuracy and

completeness of the starting RBC figures as at 31 December 2015 as submitted by the

Company to the Taiwanese regulator.

Any other actuarial or other valuation figures, such as an Appraisal Value, Value of Future New

Business, New Business Multiplier, or any “Fair Value” or potential transaction price.

Only the EV and V1NB fell in the scope of our review, and we offer no opinion on any other

values.

Our review was conducted in accordance with current generally accepted actuarial practices and

processes for reviews of traditional Embedded Value calculations. In particular, we made reference

to the methods, approach and other considerations as set out in:

The relevant parts of Practice Guideline 199.03 of the Institute of Actuaries of Australia entitled

“Economic Valuations”; and

Professional Conduct Standards as defined by the Professional Affairs Board of the Institute and

Faculty of Actuaries in the UK.

Findings from our Review

Our findings are summarised as follows:

With respect to the calculation methodology adopted by the Company in the calculations:

The chosen traditional EV methodology used by the Company has been applied in line with

generally accepted actuarial practice and relevant guidance; and

The methodology was in line with the purpose stated by the Company, and is consistent

with a “going concern” approach.

With respect to the policy data used in the calculations:

The Company has used policy data that is, in aggregate, consistent with the policy data held

on the Company's administration systems as at the appropriate dates.

With respect to the actuarial projection and valuation systems and the results produced by the

Company:

Over 99% of the policy data has been included in the valuation and a zero value has been

assigned to that part which was not included in the valuation;

At the aggregate level, the model outputs for each major block of business that we reviewed

appear to be consistent with the assumptions applied in the calculations, the features of the

products included in each block of business, the prevailing applicable and relevant

regulations in Taiwan.

With respect to the assumptions used in the calculations:

The assumptions, taken as a whole, are reasonable for the Company and the environment in

which it conducts business;

The economic assumptions, including rate of investment return, risk adjusted discount rate

and inflation rate, were set consistently with one another and with the way in which the

adjusted net worth was calculated;

The economic assumptions represent plausible future outcomes for expected future total

returns (including the release of risk margins) and lie within a reasonable range of such

plausible future outcomes; and

The non-economic assumptions have been set with regard to relevant actual historical

experience of both the Company and the industry, and the Company has provided plausible,

reasoned arguments in relation to their expectations of future trends and developments for

these assumptions.

With respect to the calculation of the Adjusted Net Worth:

The Company has made adjustments to the Net Worth as reported on the statutory balance

sheet which are appropriate for the purpose of this valuation.

In conclusion, we find the results of the Embedded Value and Value of One Year of New Business

calculated by the Company to be reasonable within the purpose and chosen methodology of their

calculation, and that the methodology is consistent with the approach taken by all local

domestically-owned life insurers which publish similar figures in Taiwan and with one generally

accepted method for their calculation.

In stating the above opinion, we draw attention to the uncertainty related to such calculations.

The calculations of EV and V1NB results necessarily make numerous assumptions with respect to

economic conditions, operating conditions, taxes and other matters, many of which are not fully

within the control of the Company. Although the assumptions used represent estimates which fall

within a reasonable range of expectations, actual experience in the future is almost certain to vary

from that assumed in the calculation of the results and any such variations may be material.

Deviations from assumed experience are normal and are to be expected.

We note, and draw the attention of readers to the sensitivity of the results to assumptions, and in

particular, to the assumed rate of future investment return and the risk discount rate; this is

illustrated quantitatively in the Company's disclosures. A deviation from the assumed future

investment return, even still within a reasonably plausible range of such assumptions, may lead to

a materially different result. We note that future investment returns are subject to market factors

beyond the control of the Company and hence it is not possible for the Company to fully immunise

future profitability against movements in future investment returns.

Yours faithfully,

Deloitte Advisory (Hong Kong) Limited

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