In Asia. For Asia. - Asia Capital...

Asia Capital Reinsurance Group Pte. Ltd.Annual Report 2016

In Asia. For Asia.

Contents01 About Us

02 Accolades

03 Financial Highlights

04 ChiefExecutive’s BusinessReview

09 CorporateInformation

10 OurOffices

12 Statutory Reports and Financial Statements

OurVision

TobetheleadingrisksolutionsproviderandknowledgeexpertinAsia, alwaysplacingpriorityontheneedsandinterestsofourclients.

OurCommitment

Add Value to Our Clients

Weembraceinnovationandpursuetechnicalexcellencetoprovidequalitysolutionsandservicestoensurevaluecreation.

Build Long-Term Relationships Based on Mutual Trust and Respect

Wevalueourclients,businesspartners,shareholdersand employees,andalwaysactwiththehighestlevelofhonesty,

fairnessandopenness.

Attract and Nurture the Best

Weprovideopportunitiesforourpeopletogrowintheirareasofexpertise,andconstantlylookforwaystoshareourknowledgeand

experiencewithourclients.

Grow Our Presence in Asia

We seek to build a strong franchise across Asia by forging strategic partnershipsaswellasthroughorganicgrowth.

Exercise Prudence and Discipline to Protect Our Financial Strength

Weseekattractiveopportunitiesbutonlytakerisksthatcommensuratewiththerewards.

Maintain High Standards of Accountability

Wepractisegoodcorporategovernanceforoperationalexcellenceandsuccessfulcorporateperformance.

About Us

AsiaCapitalReinsuranceGroupPte.Ltd. (“AsiaCapitalRe”)hasanexclusivefocusonprovidingclientswith reinsurancesolutionsforlargeandspecialistrisksinthepan-Asianregion.RatedA-foritsfinancialstrengthby A.M.BestandStandard&Poor’s,AsiaCapitalReisheadquarteredinSingapore,withbranchesinHongKong, Dubai andKorea, representative offices inTaiwan, Japan andVietnam and a liaison office in India. AsiaCapitalReisalsotheparentcompanytoAsiaCapitalReinsuranceMalaysiaSdn.Bhd.andtwoACRReTakafuloperatingentities.

AsiaCapitalReisawhollyownedsubsidiaryofACRCapitalHoldingsPte.Ltd.,anAsia-dedicatedrisksolutionsproviderthathasrankedamongstA.M.Best’stop50globalreinsurancegroupssince2009.

FormoreinformationonAsiaCapitalRe,pleasevisitwww.asiacapitalre.com

Our Regional Presence

Our Financial Strength Ratings

Korea Japan

Taiwan

China

Hong Kong

Vietnam

SingaporeMalaysia

India

Dubai

Bahrain

ACRBusinessCoverage LocalACROffices

Standard&Poor’sA-(Strong),withstableoutlook

A.M.BestA-(Excellent),withnegativeoutlook

01

Asia Capital Reinsurance Group Pte. Ltd. Annual Report 2016

Accolades

The Asset Triple A Asset Servicing,

Fund Management and Investor Awards 2016

Insurance Company of the Year







The Asset Triple A Investment Awards 2012


Worldwide Reinsurance Awards 2011

Reinsurance Company of the Year

Singapore Venture Capital and Private Equity

Association (SVCA) Annual Awards 2010

Best Performing VC/PE-Backed Company (with 3i Group) – SVCA

Reinsurance Readers’ Awards 2008

Newcomer of the Year

Worldwide Reinsurance Awards 2007

Company Launch of the Year

Triple A Asset Asian Awards 2006

Most Innovative Deal – Equity US$620m Private Placement

02


FinancialHighlights

FY2013/14 FY2014/15 CY2015 FY20161

(Unaudited)1

Financial Results (US$ Million)Grosswrittenpremium 923.7 761.4 734.2 588.0Grossearnedpremium 778.0 756.5 763.8 650.0Grosstechnicalunderwritingresults 102.3 24.0 32.6 5.0Netwrittenpremium 489.7 371.7 353.6 295.9Netearnedpremium 430.4 399.3 385.1 318.6Netincurredclaims (268.7) (297.6) (274.4) (233.4)Netacquisitioncosts (117.3) (103.2) (109.8) (100.0)Nettechnicalunderwritingresults 44.4 (1.5) 0.9 (14.8)Operatingexpenses (47.0) (49.9) (53.7) (44.1)Cedingfees 19.0 15.6 15.8 5.8Netinvestmentincome 24.1 64.5 44.6 55.1Profit/(Loss)fortheyear 31.8 19.8 2.9 0.2Includes impact of below one-off charges: Restructuring expenses2 (0.6) Financialreviewoutcome3 (10.0) (6.4)Profit/(Loss)–excludingone-offcharges 31.8 19.8 12.9 7.2

Financial Position (US$ Million)Shareholders’equity 700.3 696.8 664.2 660.9Totalassets 2,651.3 2,658.6 2,206.9 2,104.9Netinsurancecontractprovisions 913.5 844.3 680.0 662.1Investmentandcash&cashequivalents 1,033.8 1,044.1 1,034.5 1,058.6

Ratios4 (%)Grosstechnicalcombinedratio 86.8 96.8 95.7 99.2Grossoperatingexpenseratio 6.0 6.6 7.0 6.8Grosscombinedratio 92.8 103.4 102.7 106.0Netcombinedratio 96.2 109.0 109.6 116.7Investmentreturn 2.2 6.9 4.3 5.3Returnonaverageequity 4.6 2.8 0.4 0

1 CY2015 (Unaudited) refers to the period 1 January 2015 to 31 December 2015 and FY2016 refers to the period 1 January 2016 to 31 December 2016.

2 Expenses associated with the appointment and retention of key talent which includes the instalment of a share-based retention plan for management and staff as well as a special cash bonus, altogether amounting to US$1 million for FY2016.

3 Results of financial control review consist of US$10 million negative impact through invoked reassessment of various technical receivables items arising from prior periods for CY2015 (Unaudited). FY2016 negative impact is US$6.4 mlllion due to the adopting of an accounting practice which recognises the revenue from the booking of retrocession fees gradually, rather than immediately.

4 Unaudited.

03


Chief Executive’s Business Review

The prospective change of ACR’s ownership is a major milestone in the group’s transition from a start-up created largely by financial investors towards a mature reinsurer owned by strategic shareholders with long-term ambitions in our industry.

04



In2016,ACRcelebratedits10thanniversary.Againstthisbackdrop,wepursuedsomemajorstrategicinitiatives. Inadditiontonumerousoperationalmeasurestargetedat improvingunderwritingperformance, themostsignificantstepwasthesealingofanagreementforACRtobeacquiredbyChinesegovernment-ownedinvestmentcompanies,ShenzhenQianhaiFinancialHoldingsCo.Ltd.(“QFH”)andShenzhenInvestmentHoldingsCo.Ltd. (“SIHC”),signed inOctober2016.Asof30April2017, theproposed transactionhasreceived key regulatory approvals and clearancesfromtherelevantjurisdictions,pavingthewayforallpartiestomoveexpedientlytowardscompletion,whichisanticipated to takeplace in thecomingmonths. TheprospectivechangeofACR’sownershipisamajormilestone in thegroup’s transition fromastart-upcreatedlargelybyfinancialinvestorstowardsamaturereinsurerownedbystrategicshareholderswithlong-termambitionsinourindustry.

Following the consolidation of all ACR-brandedreinsuranceentities into themainoperatingentity,discussedfurtheron,allreinsuranceoperationalactivitiesandtheirfinancialimpactarenowconcentratedinthemainoperatingcompany,AsiaCapitalReinsuranceGroupPte.Ltd. (“AsiaCapitalRe”).Theaccountsoftheholdingcompany,ACRCapitalHoldingsPte.Ltd.(“ACR”)henceforthwillreflectsolelyactivitiesassociatedwith strategiccorporate initiatives.Therearenowtwoeditionsof theannual report,oneforACRandanotherforAsiaCapitalRe.Theformerfocuseslargelyonshareholdermatters,includingthecostsassociatedwiththeprospectivesale,whilethisreportelaboratesonthereinsuranceoperationsinFY2016fromtheperspectiveofAsiaCapitalRe,whichistheratedcompanythatholds

all reinsuranceobligations toourclients.TofurthersupportAsiaCapitalReinthiscapacity,wetransferredanadditionalUS$93.2millionofcapitalfromtheholdingcompany intoAsiaCapitalRe inearly2017,therebyincreasingthecompany’scapitalbyabout14%.

InAnnualReport2015,wehaddescribedavarietyofgroup-widerestructuringmeasuresACRundertooktoupgradeouroperations,includingareviewoffinancialbalancesandcontrols.ForAsiaCapitalRe,thisincludedthedecisiontorecognise,effectivefrom2016,gradually,ratherthanimmediately,therevenuefromthebookingof ceding fees fromcertain retrocessioncontracts. TheintroductionofdeferralgoingforwardreducedtheFY2016incomebyUS$6.4million.

2016 in Review

In 2016, the challenging environment that besetthe global reinsurance industry, characterised byexcessivedemand-andvolume-chasingamideverdeterioratingrates,remainedinplace.Werespondedto thisenvironmentbybuildingonto thestrategicchangeswedescribed in lastyear’sannual report–sharpeningournewbusinessunderwritingprocessesandoperationsandmovingtowardsrebalancingtheportfolio.Asisnormalinourindustry,theimpendingchangeofownershipcreatedadegreeofcautionamongsomeclients.However, allmajorclientscontinuedtocedebusinesstoAsiaCapitalRe,someatslightlyreduced but otherswith even increased shares. Wewerealsoabletodevelopnewbusiness.Wewerethereforeable toactivelymanageourportfolioandmanoeuvreinaverycompetitivemarketenvironment.

05



Aspartofourportfoliomanagement,wedeliberatelyreducedexposuresinseverallineswhereratesbecameunsustainable.Inparticular,wereducedourexposuresincertainsegmentsofpropertytreatyandfacultative,marinehullandaviation.Theremainingmixcontinuedtobewelldiversifiedacrosslines,typesofreinsuranceandgeographies.Ournetretentionincreased,aswemanagedtowriteahigherportionofstructureddealswithlowvolatilitymarginsthatdidnotrequireretrocession.ThesecorrectiveactionsreducedourgrosswrittenpremiumtoUS$588million.

Oneofourkeystrengths–outstandingclientretention–remainedintactthroughtheyear:94%ofourpremiumin2016wasgeneratedfromclientswhohavebeenwithusforatleastfiveyears.Atthesametime,ourshareofpremiumfromnewerclients increased,driven largelyby our strategy to expand our support to smaller and youngerinsuranceenterprisesaroundAsianmarkets.

The hallmark of the year for an Asian reinsurance playerwasanunusuallyhighfrequencyofthenaturalcatastrophelossesintheregion,predominantlyaffectingthe2016underwritingyearcontracts.Thenaturalcatastrophesthatoccurredin2016weretwoearthquakes(TainanandKumomoto),TyphoonMeranti,andSriLanka

floodamongthenotableones,plusseveralsmallerfloodandwindevents.Theywerereservedfortheexpectedultimate losses in2016financials.Whenaseriesofcatastropheeventsoccurssoearlyinanunderwritingyear,theearnedpremiumisnotyetsufficienttoabsorbthelossesandthistookitstollonourresult.Besidesthesenaturalevents,westrengthenedreserves forthe legacycasualtybook (whichweexited lastyear)asanotherclassactionsuit intheUSagainstDaiichiPharmaceutical,froma2012contract,emerged.Ithasbeenreservedforthefullexposure.Takentogether,theselargeeventscontributedUS$48milliontothebookednetlosses,or15%ofthelossratio.Theattritionallossexperiencebenefitedfromdiversificationacrosslinesandwaswithinexpectations.

Wemaintainedourconservativeriskappetite,whichlimitspereventriskthroughtheuseofquota-shareandexcessofloss(“XOL”)retrocession.Thisapproachhelpedtomitigatetheeffectofthelargeclaims,asnearlyhalfof the losses from catastrophic events in 2016werepassedonto retrocessionaires.However,while theuseofretrocessionmateriallyreducedourbottomlinevolatility,italsocameatacost.In2016,weexperiencedanetmarginerosionduetothecombinationofXOLretrocessioncostandtheadversedifferentialbetween the retrocessionceding feesand theexpense ratioonassumedbusiness (adjustedforthe impactoftheaccountingchangeonthecedingfees).Netlossratiostoodat73.3%andthenetexpenseratioat41.2%respectively.Thisremainsadisappointingoutcome–thecombinationofelevatedcatastropheexperiencewithdevelopmentsfromtheclosedbooksexceededthepositiveeffectoftherestructuringactionstodatein2016.Therebalancingactionscontinuedonto2017renewals.

One of our key strengths – outstanding client retention – remained intact through the year: 94% of our premium in 2016 was generated from clients who have been with us for at least five years.

06



Asia Capital Re’s investment return continued tooutperformourbenchmarksandcomparesveryfavourablywithourpeers. In2016,our investmentreturnwas5.3%,despitethemarketvolatilitydrivenbypoliticalandeconomicuncertaintiesculminatinginasharpriseinbaseyieldsintheclosingmonthsoftheyear.Wecontinuedtobenefitfromourcarefulstrategicassetallocation,whichmatchesAsianinvestment-gradefixedincometoinsuranceliabilities,whiletakingadvantageofcontrolledexposurestoglobalfixedincomeandrealestateintheassetsbackingshareholdercapital.Boththeglobalbondandrealestatefundshadexcellentreturnsin2016,with6.7%and5.8%respectively.

All in,AsiaCapitalRe’sbottom line for2016wasmarginallypositive.

AsiaCapitalRe’sshareholderequityasof31December2016wasUS$660.9million.Thecompany’scapitalpositionremainsextremelystrong,exceedingregulatoryandratingagencyrequirementsbyahealthymarginsufficient towithstand extreme catastrophic andfinancial shocks.TheUS$93.2million injection intotheoperatingcompany–a14%increaseinitsequity,completedin2017–furtherstrengthensAsiaCapitalRe’scapitalposition.

OurKoreanbranchobtaineditslicenceandstartedtooperateaccordingtoplaninSeptember2016.Thepositiveresponse of cedants to our local presence carried through into2017renewals.WealsocontinueddiscussionstoestablishabranchofficeinIndia,whereourliaisonofficehasbeenpresentsince2008.

All ACR-branded reinsurance operations are now consolidated under one owner, Asia Capital Re. In addition to creating immediate value to shareholders, the move clears the way for rationalisation of capital and operational resources.

StrategicrestructuringwithintheACRgroupentailsnotonly thesaleof theholdingcompany,butalsoinvolvedstreamliningofthebalancesheetandcapitalstructureacrossvariousoperations.InDecember2016,ACRreceivedregulatoryclearancesforAsiaCapitalReto acquire the interest the ACR group did not already own intwo jointventures,AsiaCapitalReinsuranceMalaysiaSdn.Bhd.(“ACRM”;70%)andACRReTakafulHoldingsLimited(“ACRR”;80%)withitstwooperatingcompaniesinMalaysiaandBahrain.The30%and20%stakes,previouslyownedbyACR,werealsotransferredtoAsiaCapitalRe.BothtransactionswerecompletedinFebruary2017.Thus,allACR-brandedreinsuranceoperationsarenowconsolidatedunderoneowner, AsiaCapitalRe.Inadditiontocreatingimmediatevaluetoshareholders,themoveclearsthewayforrationalisationofcapitalandoperational resources.Following theacquisitionofACRR,whichclosedat anattractivediscount-to-bookvalue,theretakafuloperationinKualaLumpurhasceasedwritingnewbusiness,onaccountofthepersistentlychallengingandhighlycompetitiveretakafulmarketinMalaysia.ACRMontheotherhandcontinuesasanorganicpartofACR’sconventionalreinsurancebusinessinMalaysiaandprovidestechnicalandothersupporttogroupoperations.

07



Theoperationalimprovementmeasuresthatwedescribedinlastyear’sannualreportcontinued,inparticularintheareasofunderwritingprocessandportfoliomanagement.Theymanifestedthemselvesinthe2017renewalsasweimplementedtheportfolioturnaroundplan,beginningwithamaterial reductionofnaturalperil exposureconcentrations that have been creating significantretrocessioncost.Despitethesesteps,theJanuaryandApril2017renewalscontinuedtobenefitfromthestrongsupportofourclients.

InspiteoftheinevitableuncertaintycausedbyACR’ssaleprocess,thepersonnelmanagementmeasuresputinplacehavehelpedinoureffortstoretainamotivatedandcooperativeteamtoexecutethetransition.

Outlook

As we are nearing completion of the strategictransactionthatwillplaceourclientsinthehandsoflong-termstrategicowners,weareextremelyconfidentofourfutureasaleadingAsianreinsurer.Thefinancialinvestorswhoenabled thecreationof a reinsureroperating“inAsia,forAsia”willturnthebatontoownerswithresourcesandambitionstodevelopthecompanyover the longterm.Meanwhile,ourcommitmenttoourclientsinAsiaremainsattheheartofourefforts,acommitmentsharedbyourincomingnewowners.

IwouldliketothankallouremployeesfortheirdedicationtoAsiaCapitalReduringthisperiodofexceptionalchange.Onbehalfoftheteam,IwouldalsoliketoextendourdeepappreciationtoourclientsacrossAsia,whocontinuetosupportusaswemoveontothenextexcitingphasefortheACRgroup.

Hans-Peter Gerhardt ExecutiveDirectorChiefExecutive

Our commitment to our clients in Asia remains at the heart of our efforts, a commitment shared by our incoming new owners.

08


Corporate Information

BOARD OF DIRECTORS

Law Song KengIndependent Chairman

Neil MathisonIndependent Director

Hans-Peter Gerhardt ExecutiveDirectorChiefExecutive

EXECUTIVE COMMITTEE

Hans-Peter GerhardtGroupChiefExecutiveACRCapitalHoldings& ChiefExecutiveAsia Capital Re

A K WongSeniorExecutiveVicePresidentACR Capital Holdings

Tan Ching GueiChiefRiskOfficerAsia Capital Re

Don GuoChiefInvestmentOfficerAsia Capital Re

Hans-Joachim GuentherGroupChiefUnderwritingOfficerAsia Capital Re

Lee Ming KienDeputyChiefUnderwritingOfficer&HeadofActuarialAsia Capital Re

Sergei KorolGroupChiefFinancialOfficerACR Capital Holdings

Loh Wei-LynHead of Human ResourcesACR Capital Holdings

COMPANY SECRETARY

Chan Wan MeiGan Lee Teng

AUDITORS

KPMG LLP16RafflesQuay#22-00HongLeongBuildingSingapore048581

09


OurOffices

CORPORATE OFFICES

Asia Capital Reinsurance Group Pte. Ltd. (“Asia Capital Re”)100% ACR-owned Singapore Head Office6TemasekBoulevard#08-01SuntecTower4Singapore038986Telephone:+6562233111Facsimile: +6563058111www.asiacapitalre.com

Hong Kong Branch OfficeSuites803-804,8/F,AIAKowloonTower, LandmarkEast100HowMingStreetKwunTong,KowloonHongKongTelephone:+85221897662Facsimile: +85221897663

Dubai Branch OfficeOffice708,Level7AIFattanCurrencyHouse,Tower1DubaiInternational Financial CentreP.O.Box506775DubaiUnited Arab EmiratesRegulated by the DFSATelephone:+97144248500Facsimile: +97144325255

Korea Branch Office7F,D1D-Tower17Jongro3-gil,Jongro-guSeoul,Korea03155Telephone:+82267141700Facsimile: +82267141777

Taiwan Representative Office32ndFloorRoom3204333KeelungRoadSection1Taipei 110TaiwanTelephone:+886227579622Facsimile: +886227576928

Japan Representative OfficeMarunouchiTrustTowerMain,Level208-3,Marunouchi1-chomeChiyoda-ku,TokyoJapan100-0005Telephone:+81(0)362693090Facsimile: +81(0)362693091

Vietnam Representative Office7thFloor,AgrexBuilding58VoVanTanStr.6thWard 3rdDistrict,HoChiMinhCityVietnamTelephone:+842839333713Facsimile: +842839333714

India Liaison Office213TradeCentreBandraKurlaComplexBandra(E)Mumbai400051IndiaTelephone:+912267419526Facsimile: +912267103195

SUBSIDIARIES

Asia Capital Reinsurance Malaysia Sdn. Bhd.100% Asia Capital Re-ownedUnitA-12A-8,Level12AMenaraUOABangsar5JalanBangsarUtama159000KualaLumpurMalaysiaTelephone:+60322996800Facsimile: +60322996900www.asiacapitalre.com.my

ACR ReTakaful Holdings Limited100% Asia Capital Re-ownedOffice708,Level7AIFattanCurrencyHouse,Tower1DubaiInternational Financial CentreP.O.Box482061DubaiUnited Arab Emirateswww.acrretakaful.com

10


OurOffices

SUBSIDIARIES(cont’d)

ACR ReTakaful Berhad100%-owned subsidiary of ACR ReTakaful Holdings Limited UnitA-12A-10,Level12AMenaraUOABangsar5JalanBangsarUtama159000KualaLumpurMalaysiaTelephone:+60322992288Facsimile: +60322992289www.acrretakaful.com

ACR ReTakaful MEA B.S.C. (c)100%-owned subsidiary of ACR ReTakaful Holdings Limited GajriaTower8thFloorSeef DistrictP.O.Box1591ManamaKingdomofBahrainTelephone:+97317388350Facsimile: +97317388351www.acrretakaful.com

PARENT COMPANY

ACR Capital Holdings Pte. Ltd. (“ACR”)6TemasekBoulevard#08-01SuntecTower4Singapore038986Telephone:+6562233111Facsimile: +6563058111www.acrcapitalholdings.com

Shanghai Representative OfficeRoomA-03,18FTaipingFinanceTower488MiddleYinchengRoadPudong,Shanghai200120People’sRepublicofChinaTelephone:+862161562350Facsimile: +862161561619

SISTER COMPANIES

Asia Risk-Tech Enterprises Management Consulting (Shanghai) Company Limited100% ACR-owned RoomA-06,18FTaipingFinanceTower488MiddleYinchengRoadPudong,Shanghai200120People’sRepublicofChinaTelephone:+862161562320Facsimile: +862161561619

ACR Holdings Limited100% ACR-owned Suites803-804,8/F,AIAKowloonTower, LandmarkEast100HowMingStreetKwunTong,KowloonHongKongTelephone:+85221897662Facsimile: +85221897663

Concord Insurance Company Limited51%-owned subsidiary of ACR Holdings Limited 22/FCarPoCommercialBuilding37PottingerStreet,CentralHongKongTelephone:+85225434893Facsimile: +85228153630

11


12


Contents13 Directors’ Statement

15 Statement on Corporate Governance

23 Independent Auditors’ Report

25 StatementofFinancialPosition

26 StatementofProfitorLoss

27 Statement of Comprehensive Income

28 Statement of Changes in Equity

29 Statement of Cash Flows

30 Notes to the Financial Statements

Asia Capital Reinsurance Group Pte. Ltd.Year ended 31 December 2016

Statutory Reports

and Financial Statements

13


Directors’StatementYear ended 31 December 2016

WearepleasedtosubmitthisannualreporttothememberoftheCompanytogetherwiththeauditedfinancialstatementsforthefinancialyearended31December2016.

In our opinion:

(a) thefinancialstatementssetoutonpages25to78aredrawnupsoastogiveatrueandfairviewofthefinancialpositionoftheCompanyasat31December2016andthefinancialperformance,changesinequityandcashflowsoftheCompanyfortheyearendedonthatdateinaccordancewiththeprovisionsoftheSingaporeCompaniesAct,Chapter50andSingaporeFinancialReportingStandards;and

(b) atthedateofthisstatement,therearereasonablegroundstobelievethattheCompanywillbeabletopayitsdebtsasandwhentheyfalldue.

TheBoardofDirectorshas,onthedateofthisstatement,authorisedthesefinancialstatementsforissue.

Directors

Thedirectorsinofficeatthedateofthisstatementareasfollows:

LawSongKengHans-Peter Thomas Gerhardt Neil Robin Mathison (Appointed on 30 June 2016)

Directors’ interests

AccordingtotheregisterkeptbytheCompanyforthepurposesofSection164oftheCompaniesAct,Chapter50(theAct),particularsofinterestsofdirectorswhoheldofficeattheendofthefinancialyear(includingthoseheldbytheirspousesandinfantchildren)inshares,debentures,warrantsandshareoptionsintheCompanyandinrelatedcorporationsareasfollows:

Holdings HoldingsName of director and corporation at beginning at endin which interests are held of the year of the year

Holding CompanyACR Capital Holdings Pte. Ltd.

(Class A ordinary shares)Hans-PeterThomasGerhardt – 105,921

Exceptasdisclosedinthisstatement,nodirectorwhoheldofficeattheendofthefinancialyearhadinterests inshares,debentures,warrantsorshareoptionsoftheCompany,orofrelatedcorporations,eitheratthebeginningofthefinancialyear,ordateofappointmentiflater,orattheendofthefinancialyear.

Exceptasdisclosedinthisstatement,neitherattheendof,noratanytimeduringthefinancialyear,wastheCompanyapartytoanyarrangementwhoseobjectsare,oroneofwhoseobjectsis,toenablethedirectorsoftheCompanytoacquirebenefitsbymeansoftheacquisitionofsharesinordebenturesoftheCompanyoranyotherbodycorporate.

14


Share options

Duringthefinancialyear,therewere:

(i) nooptionsgrantedbytheCompanytoanypersontotakeupunissuedsharesintheCompany;and

(ii) nosharesissuedbyvirtueofanyexerciseofoptiontotakeupunissuedsharesoftheCompany.

Asattheendofthefinancialyear,therewere1,682(2015:1,682)outstandingoptionsthathadvested,butnotexercisedtopurchasesharesintheholdingcompany.Thedetailsoftheshareoptionsaredisclosedinnote16tothefinancialstatements.

Auditors

Theauditors,KPMGLLP,haveexpressedtheirwillingnesstoacceptre-appointment.

On behalf of the Board of Directors

Hans-Peter Thomas GerhardtDirector

Law Song KengDirector

24March2017

Directors’StatementYear ended 31 December 2016

15


Statement on Corporate GovernanceYear ended 31 December 2016

The Board’s Conduct of Affairs

The Board of Directors (“Board”) as at the date of this statement comprises the following 3 directors:

(i) LawSongKeng,Chairman(IndependentandNon-ExecutiveDirector)(ii) NeilRobinMathison(IndependentandNon-ExecutiveDirector)(iii) Hans-PeterThomasGerhardt(ExecutiveDirector)

Thekeyinformationregardingthedirectorsissetoutbelow:

Name of Director Nature of Appointment

Date When First Appointed

Board Committees

Academic and Professional Qualifications

LawSongKeng Chairman and Independent, Non-ExecutiveDirector

1 October 2011 Chairman,ACMember,RMC

Bachelor of Science (First Class Honours) fromUniversityofSingapore; M Sc (Actuarial Science) from NortheasternUniversity,USAandFellowof Society of Actuaries

Hans-Peter Thomas Gerhardt

ExecutiveDirector 1 February 2011 Member,ACMember,RMC

Diploma/MBA in Business and Economics fromUniversityofHannover,Germany

Neil Robin Mathison IndependentNon-ExecutiveDirector

30 June 2016 Chairman,RMCMember,AC

BSc (Hons) from University of Southampton

Board Balance

Two-thirdoftheBoardcomprisesindependentdirectors,andanindependentdirectorisalsotheChairman.ThecompositionoftheBoardiscurrentlybeingreviewedbytheBoardinconjunctionwiththeNominationCommitteeoftheholdingcompanyinordertoalignwiththeDirectivesissuedbytheMonetaryAuthorityofSingapore(“MAS”).Bio-dataofeachdirectorcanbefoundontheCompany’swebsite(www.asiacapitalre.com)underAboutUs–BoardofDirectors.

Board Responsibility

TheBoarddirectsandoverseestheCompanyintheconductofitsaffairs,undertakingafiduciaryroletoensurethatcorporateresponsibilityandethicalstandardsaremet. ItbearsultimateresponsibilityfortheCompany’sgovernance,strategy,riskmanagementandfinancialperformance.

The following are the Board’s key responsibility:

(i) Settingthelong-termstrategicdirectionandlong-termgoalsoftheCompanyanditsbranches,representativeofficesandliaisonofficeandensuringthatadequateresourcesareavailabletomeetstrategicobjectives;

(ii) ApprovingandmonitoringcapitalandfinancialplanstoensurethattheyareinlinewiththeCompany’sstrategicdirections,theannualbudget,theannualfinancialstatements,andcapitalexpendituresanddivestments;

(iii) Establishingariskstrategyandaneffectiveenterpriseriskmanagementframeworkforthemanagementofrisks;(iv) Monitoringandreviewingmanagementperformance;(v) Vettingcorporateplansandpoliciesaswellasmajordecisions;(vi) SettingvaluesandstandardsfortheCompanyandensuringthatobligationstoitsstakeholdersareunderstoodand

met;and(vii) Consideringsustainabilityissues(includingenvironmentandsocialfactors)aspartoftheCompany’sstrategy.

16


DelegationbytheBoard

ToenabletheBoardtodischargeitsstewardshipandfiduciaryresponsibilitieseffectively,Boardcommitteesareestablishedandempoweredwithspecificresponsibilitiesbasedonthewrittentermsofreference.EachCommitteehasdirectaccesstomanagementandthepowertohireindependentadvisersasitdeemsnecessary.Asatthedateofthisstatement,theBoardcommitteesestablishedbytheBoardareasfollows:

(i) theAuditCommittee(“AC”);and(ii) theRiskManagementCommittee(“RMC”);

(collectively,the“Committee(s)”andsingularly,the“Committee”).

Thetermsofreference(“TORs”)foreachCommitteestipulatetheresponsibilitiesoftheCommittee,quorumandvotingrequirements.TheTORsarereviewedonaregularbasistoensuretheircontinuedrelevance.AnychangetotheTORsforanyBoardcommitteerequirestheapprovaloftheBoard.FurtherdetailsofeachCommitteemaybereadinthefollowingpagesofthisstatement.

TheBoardhasinplacefinancialauthorisationandapprovallimitsforoperatingandcapitalexpenditureaswellasacquisitionanddisposalofinvestments.Withintheseguidelines,theBoardapprovestransactionsabovecertainthresholds.TheBoardisalsoguidedbytheprovisionsoftheCompany’sArticlesofAssociationinwhicharestatedshareholders’reservedmattersrequiringapprovalbytheshareholdersofitsholdingcompany,ACRCapitalHoldingsPte.Ltd.(“ACH”).

MaterialTransactionsRequiringBoardandShareholder’sApproval

FollowingarematerialtransactionsrequiringtheBoardandshareholders’approval:

(i) TheCompany’sstrategicandbusinessplans;(ii) TheCompany’sannualbudget;(iii) Capitalexpenditureandexpenditureexceedingannualbudgetand/orapprovallimits;(iv) Strategicinvestmentsanddivestments;(v) Capitalrelatedmattersincludingcapitaladequacyobjectivesandproposalsforcapitalissuanceandredemption;(vi) Dividendpolicy;and(vii) Riskstrategyandriskappetite.

Committees

AbriefdescriptionofthecompositionofeachCommittee,responsibilitiesdelegatedtoeachCommitteeanditsactivitiesareset out below:

TheAuditCommittee(“AC”)

Members of the AC comprise:

(i) LawSongKeng(Chairman)(ii) Hans-Peter Thomas Gerhardt(iii) Neil Robin Mathison

MembersoftheACareappropriatelyqualifiedtodischargetheirresponsibilities.AlltheACmembershavefinancialmanagementknowledgeandexperience.TheACmemberskeepabreastofrelevantchangesthroughregularupdatesfromtheexternalauditors,onchangestoaccountingstandardsandissueswhichhaveadirectimpactonthefinancialstatements.


17


TheAC’sresponsibilitiesinclude,inter alia:

(i) ReviewingannuallytheadequacyandeffectivenessoftheCompany’sfinancial,operational,complianceandinformationtechnologycontrols,aswellasaccountingpoliciesandsystems,whicharecollectivelyknownasinternalcontrols;

(ii) Reinforcingtheeffectivenessofinternalandexternalauditprocesses;(iii) ReviewingthefinancialreportingprocessandensuringtheintegrityoftheCompany’sfinancialstatements;(iv) MaintainingeffectivecommunicationbetweentheBoard,management,externalandinternalauditors;(v) Reviewinginternalandexternalauditors’plans,theeffectivenessoftheiraudits,andtheindependenceandobjectivityof

theexternalauditors;(vi) Recommendingtheappointment,re-appointmentanddismissaloftheexternalauditorsandapprovingtheremuneration

andtermsofengagementtotheBoard;and(vii) Approvingtheappointment,redeploymentorterminationoftheHeadofInternalAuditorandseniorofficersoftheinternal

auditfunction.

TheACalsohasthediscretiontoinviteanydirectorandexecutivetoattenditsmeetings.SeparatesessionswiththeexternalauditorsandtheHeadofGroupInternalAuditofACRCapitalHoldingsPte.Ltd. (“GIA”)areheldwithoutthepresenceofmanagementonceduringeachfinancialyeartodiscussmattersthathavetoberaisedprivately.Theauditors,bothinternalandexternal,haveunrestrictedaccesstotheAC,andtoinformationandsuchpersonswithintheCompanyasmaybenecessarytoconducttheaudit.

Duringthefinancialyear,theACreviewedwiththeHeadofGIA,theinternalauditplan,scopeandresultsoftheinternalaudits,theirevaluationofthesystemofinternalcontrolsandtheirauditreports.

TheACissatisfiedthat,duringthefinancialyear,theinternalauditfunctionisingoodstandingwithintheCompanyandisadequatelyresourcedtofulfilitsmandate.TheACalsoreviewedandevaluatedtheeffectiveness,independenceandobjectivityoftheexternalauditors,takingintoconsiderationthenatureandextentofthenon-auditservicesthattheexternalauditorsprovidetotheCompany.

TheRiskManagementCommittee(“RMC”)

Members of the RMC comprise:

(i) Neil Robin Mathison (Chairman) (ii) Hans-Peter Thomas Gerhardt (iii) LawSongKeng

TheRMC’sresponsibilitiesinclude,inter alia:

(i) Maintaining a sound system of risk management and internal controls to safeguard shareholders’ interest and the Company’sassets;

(ii) RecommendingtheCompany’sriskappetiteframeworkandoverallandspecificriskgovernanceframeworks,includingriskauthoritylimitstotheBoardforapproval;

(iii) ReviewingannuallytheadequacyandeffectivenessoftheriskmanagementandinternalcontrolsoftheCompany,includingfinancial,operational,complianceandinformationtechnologycontrols;

(iv) Establishingadequateriskmanagementpracticesformaterialrisks,suchascredit,market,underwriting,liquidity,countryandtransferrisk,interestraterisk,legal,compliance,fraud,reputational,regulatoryandoperationalrisksonaregularbasis;

(v) Reviewingthecurrentriskprofile,risktolerancelevelandriskstrategyoftheCompany;(vi) Overseeingan independentcompany-wideriskmanagementsystemandensuringtherearesufficientresourcesto

monitorrisks;(vii) Responsibleforapprovinginvestmentpolicy,strategicassetallocation,tacticalassetallocationandinvestmentrisklimits

oftheCompanyinconsultationwithitsholdingcompany’sFinanceandInvestmentCommittee;and(viii) Monitoringriskexposuresandriskstrategyinaccordancewithapprovedguidelines.

Duringthefinancialyear,theRMCreviewedtheabovetopicswithmanagement.Inaddition,theRMCalsoreviewedtheriskappetitestatement,retrocessionanalysis,arrangementsandstrategy,renewalstrategyandlargeclaimsdevelopment.


18


BoardMeetingsandAttendance

TheBoardmeetsonaregularbasisandad-hocmeetingsareheldwhenwarranted.DuringthescheduledBoardmeetings, theBoardisupdatedbymanagementontheCompany’sbusinessactivitiesandperformancetoenabletheBoardtohaveadeeperinsightintotheCompany’sbusinesses.TheChairmanofeachCommitteewillalsoupdatetheBoardonthemattersdiscussedduringtherespectiveCommitteemeetings.

WhenexigenciespreventadirectorfromattendingtheBoardandCommittees(whereheisamember)meetingsinperson, hecanparticipatebyteleconferencing.BoardapprovalsarealsoobtainedthroughwrittenresolutionscirculatedandapprovedaspermittedundertheCompany’sArticlesofAssociation.

Therewere4scheduledmeetingsduringthefinancialyear(2015:3).Keymattersdiscussedatthesemeetingsinclude inter aliafinancialperformance,corporateandriskstrategies,businessplans,significantoperationalandcapital-relatedmattersandmattersreviewedbytheBoardCommittees.

ThetablebelowsetsoutthenumberofmeetingsheldandattendedbytheBoardmembersduringthefinancialyearcoveringBoardandeachCommitteemeetings:

Name of DirectorsBoard AC RMC

Meetings Attended/Held Meetings Attended/Held Meetings Attended/HeldLawSongKeng 4/4 4/4 4/4

Hans-Peter Thomas Gerhardt 4/4 4/4 4/4

Neil Robin Mathison (1) 2/4 2/4 2/4

(1) NeilRobinMathisonjoinedtheBoardon30June2016.

BoardInductionandTraining

EachBoardmembermayundergotrainingasmayberelevantorrequiredbytheBoardsoastomeetthefitnessandproprietyrequirements.

NewboardmembersareissuedwithaletterofappointmentandprovidedwithsalientinformationoftheCompany.TheywillundergoaseriesofinductionbriefingsbymembersofseniormanagementtofamiliarisethemselveswiththeCompany’soperationsandbusinesses.TheNominatingCommitteeoftheholdingcompany(“ACH’sNC”)reviewsonanannualbasistrainingcurriculumthatcouldbetailoredtoprovidetheincomingandexistingdirectorswithmorein-depthtradeandbusinessrelatedknowledge,technicalknowledgeandgovernanceandregulatoryknowledgetoenabletheBoardtoprovideleadershiptomanagement.

Board Composition and Guidance

Independence of Judgement

TheBoardcontinuestoexerciseindependentobjectivejudgementintheCompany’scorporateaffairs.TheCompanydeterminesthe independence of its Directors in accordance with the requirements set out in the MAS’ Insurance (Corporate Governance) Regulations2013andMAS’GuidelinesonCorporateGovernanceforFinancialHoldingCompanies,Banks,DirectInsurers,ReinsurersandCaptiveInsurerswhichareincorporatedinSingapore(“Guidelines”).


19


Annual Review of Directors’ Independence

ACH’sNCconductsareviewanddeterminesannuallytheindependenceoftheindependentdirectorsontheBoard.Inmakingitsdetermination,ACH’sNCconsiderswhetheradirectoris:(i)independentofmanagementandbusinessrelationships;and (ii)independentbasedonlengthofservice.ThetwodirectorsconsideredindependentbyACH’sNCwereLawSongKengandNeilRobinMathison.TheindependentdirectorsprovidetheBoardwithobjectivityandbalanceofperspectives.Theyalsoensurethattheperformanceofmanagementisobjectivelymeasuredagainstthekeyperformanceindicatorsestablishedannuallytomeasureandguidemanagement’sperformance.Mr.JohnFrancisShettleJr.,whowasappointedasanindependentand non-executivedirectorontheBoard,hasservedontheBoardforacontinuousperiodof9yearsasatNovember2015. ByvirtueoftheInsurance(CorporateGovernance)Regulations2013,Mr.JohnFrancisShettleJr.wouldnolongerbeconsideredindependent,andresignedfromtheBoardon30June2016.

BoardCompositionandSize

TheBoardmemberscollectivelybringrangeanddepthofexperienceandindustryexpertisetothetable,representingdiversityofnationality,skillsandknowledgewithoutinterferingwithefficientdecision-making.TheBoardisoftheviewthatthecurrentsizeoftheBoardremainsappropriategiventheoversightprovidedbytheBoardoftheholdingcompany.ACH’sNCcontinuestoreviewthesizeandcompositionoftheBoardtakingintoaccounttherequirementsofthebusinessandtheresourcinglevelrequiredbytheCommitteesaswellastheDirectivesoftheMASandrelevantlaws.

Chairman and Chief Executive

AcleardivisionofresponsibilitiesbetweentheChairmanandtheChiefExecutiveallowstheChairmantoformallyassumetheroleofanindependentleaderwhochairsBoardmeetingsandleadsinitsoversightofmanagement.TheChairmanmanagestheBoard’sbusiness,includingitsworkinthevariousCommittees,andensuresthatitsagendafurthersthestrategicprioritiesoftheCompany.HealsoprovidesguidancetoandencouragesconstructiverelationsamongtheBoard,theChiefExecutiveandseniormanagement.

OnthebasisthatthepresentChairmanisindependent,theBoarddoesnotseeitnecessaryatthispointoftimetoappointaleadIndependentDirector.TheChairmanprovidesaclearanddistinctleadershiptotheBoardontheCompany’sstrategicgrowth.TheChiefExecutiveoverseestheexecutionoftheCompany’sstrategyandisresponsibleformanagingitsday-to-dayoperations.

Board Membership

New Directors

Aspartoftheformalprocessoftheappointmentofnewdirector(s),ACH’sNCconductsthefollowingassessmentofeachcandidate(tofillavacancyortoenhancetheskillsetsandeffectivenessoftheBoard):

(i) reviewacandidate’squalifications,attributes,capabilities,skills,age,pastexperienceandsuchotherrelevantfactorsasmaybedeterminedbyACH’sNCtodeterminewhetherthecandidateisafitandproperpersonfortheofficeinaccordancewiththeCompany’sFitandProperPolicy;and

(ii) ascertainwhetherthecandidateisindependentfromanysubstantialshareholderoftheCompanyand/orfrommanagementandbusinessrelationshipwiththeCompany.

Uponappointment,anewdirectorreceiveshisletterofappointmentdetailinghistermsofappointment;andgainsanunderstandingoftheCompany’smanagement,businessandgovernancepracticesthroughaseriesofinductionbriefingsbymembersofseniormanagementoftheCompany.

RotationandRe-electionofDirectors

TheArticlesofAssociationoftheCompanydoesnotprovideforrotationandre-appointmentofdirectors.Instead,allBoardappointmentsaresubjecttoapprovalbytheshareholdersofACRCapitalHoldingsPte.Ltd..Notwithstandingtherebeingnorotationandre-electionofDirectors,DirectorsaresubjectedtothetermofofficestipulatedintheMASDirectivesandthecontinuationoftheirofficewillrequiretheapprovalfromtheMAS.


20


Directors’ Time Commitment

TheBoardhasnotmadeadeterminationofthemaximumnumberoflistedcompanyboardrepresentationsadirectormayhold.ACH’sNC,however,reviewseachBoardmember’sadditionaldirectorshipsinothercorporationstoensuresufficienttimecommitmentofeachdirector.ACH’sNCisalsoprovidedwithalistingofeachBoardmember’sotherdirectorshipforannualreview.

Board Guidance

TheBoardiskeptwell-informedoftheCompany’sbusinessesandaffairsandupdatedontheindustrytrendsanddevelopmentsinwhichthebusinessesoperate.This istoenabletheBoardtoremaineffectiveandrobustandformembersoftheBoardtoengageinopenandconstructivedebateandtochallengemanagementonitsassumptionsandproposalsaspartofgoodcorporategovernance.ToensurethatNon-ExecutiveDirectorsarewellsupportedbyaccurate,completeandtimelyinformation,Non-ExecutiveDirectorshaveunrestrictedaccesstomanagement,sufficientresourcestodischargetheiroversightfunctioneffectivelyandreceiveperiodicinformationpapersandboardbriefingsonlatestmarketdevelopmentsandtrendsandkeybusinessinitiatives.

Board Performance

ACH’sNCmakesanassessmentatleastonceayearonwhetherthefullBoardandthevariousCommitteesareperformingeffectively,and it identifiesstepsfor improvement.Theevaluationcoversarangeof issues includingBoardcomposition, thetimelinessandqualityof informationprovidedtotheBoardanditsprocess,accountabilityandstandardsofconduct. TheBoardbelievesthathavingarobustevaluationprocessiscriticaltoitsperformance.

Annually,membersoftheBoardarerequiredtoassesstheeffectivenessoftheBoardandBoardCommitteesviaanonlineassessmentportal.ACH’sNCevaluatesthetabulatedresultsoftheassessmentbythemembersoftheBoard.TheBoardattherecommendationofACH’sNCconsidersthecurrentassessmentmethodusefulinevaluatingitsowneffectiveness.

Remuneration Matters

TheRemunerationCommitteeoftheholdingcompany(“ACH’sRC”)reviewsmattersconcerningremunerationoftheBoard,theChiefExecutiveandseniormanagement.ACH’sRCapprovestheframeworkofremunerationfortheentireorganisationincludingthestructuringofthelong-termincentiveplans.ACH’sRCalsoapprovestheannualsalaryincrementpoolandtotalincentivepoolfordistributiontostaffofallgrades.ACH’sRC’srecommendationsaresubmittedfortheBoard’sdiscussionor(asthecasemaybe)approval.

ACH’sRCChairman,togetherwithACH’sNC,reviewsandrecommendstotheBoardthespecificremunerationpackagesforExecutiveDirectorsandthekeyseniorpositionsuponrecruitment.Subsequently,annual increments,variablebonuses,employees’shareoptionplangrantsandotherincentiveawards,willbereviewedandapprovedbyACH’sRCor(asthecasemaybe)presentedfortheBoard’sapproval.

Afterdueconsideration,theCompanyhasdecidednottodiscloseinformationonthenamesandremunerationofitstopkeymanagementexecutivesincludingtheChiefExecutive(Hans-PeterThomasGerhardt,whoisalsoanExecutiveDirector)inviewofthedisparitiesinremunerationintheindustryandthecompetitivepressuresthatarelikelytoresultfromsuchdisclosuresinparticularinahighlycompetitivemarketfortalent.Further,alldirectorsoftheCompanydonotreceiveanyremunerationintheformofdirectors’feesandallowances.

NoneoftheDirectorsortheChiefExecutivehasimmediatefamilymemberswhowereemployeesoftheCompanyandwhoseremunerationexceededS$50,000inrespectoffinancialyearended31December2016.


21


Access to Information

Directorshavedirectaccesstoseniormanagementandmayrequestmanagementsuchadditionalinformationasneededinordertomakeaninformedandtimelydecisions.DirectorshavethediscretiontoengageexternaladvisersattheexpenseoftheCompany.

PriortoeachBoardandCommitteemeetings,directorsareprovidedwithcompleteandrelevant informationconcerningagendaitems.

Accountability and Audit

ManagementprovidesBoardmemberswithdetailedreportsontheCompany’sfinancialperformanceandrelatedmatterspriortoeachquarterlyBoardmeeting.TheBoardensurestimelyandfulldisclosureofmaterialcorporatedevelopmentstoitssoleshareholderforitsbalancedandunderstandableassessmentoftheCompany’sperformanceandposition.

Risk Management and Internal Controls

Risk Management

Riskmanagementhasbeendisclosedinnote5tothefinancialstatements.

Internal Controls

TheBoardisassistedbytheACandRMCtoensurethatsoundinternalcontrols,includingoperational,complianceandriskmanagementpoliciesandsystemsestablishedbymanagementaremaintained.Indischargingitsobligations,theBoardreliesonthefindingsoftheinternalandexternalauditors.

TheBoardhasreceivedassurancefromtheChiefExecutiveandChiefFinancialOfficerontheeffectivenessoftheCompany’sriskmanagementandinternalcontrolsystems,andthatthefinancialrecordshavebeenproperlymaintainedandthefinancialstatementsgiveatrueandfairviewoftheCompany’soperationsandfinances.

BasedontheinternalcontrolsestablishedandmaintainedbytheCompany,workperformedbytheinternalandexternalauditors,andreviewsperformedbyManagementandvariousBoardCommittees,theBoard,withtheconcurrenceoftheAuditandRiskManagementCommittees,isoftheopinionthatthesystemofinternalcontrols, includingfinancial,operational,complianceandinformationtechnologycontrolsandriskmanagementsystems,wereadequateandeffectiveasat31December2016, toaddresstheriskswhichtheCompanyconsidersrelevantandmaterialtoitsoperations.

Thesystemofinternalcontrolsandriskmanagementprovidesreasonable,butnotabsolute,assurancethattheCompanywillnotbeadverselyaffectedbyanyeventthatcouldbereasonablyforeseenasitstrivestoachieveitsbusinessobjectives.However,theBoardalsonotesthatnosystemofinternalcontrolscanprovideabsoluteassuranceinthisregard,orabsoluteassuranceagainsttheoccurrenceofmaterialerrors,poorjudgmentindecision-making,humanerror,losses,fraudorotherirregularities.

Code of Conduct

The Company’s Code of Conduct sets out the principles and standards of behavior that are expected of all employees when dealing withcustomers,competitors,authoritiesandcolleagues.TheprinciplescoveredintheCodeofConductincludeprofessionalintegrity,confidentialityandconflictofinterest.

Whistle-blowing Policy

TheCompanyhasinstitutedawhistle-blowingpolicy.Itprovidesguidelinesforemployeestoreportirregularities,impropriety,breachesoflawsandregulations,informationontheinvestigationprocedure,criteriafordisciplinaryactionincludingsuspensionforoffendingpartiesandinformationontheappealsprocess.TheCompliancedepartmentisresponsibleformanagingthisprocessandemployeesmay,iftheysowish,maketheirreportsdirectlytotheChairmanoftheACinthefirstinstance.


22


MaterialRelatedPartyTransactions

Allrelatedpartytransactionsareconductedonreasonablecommercialtermsandintheordinarycourseofbusiness.Thetermsandconditionsofsuchtransactionsarecarriedoutonanarm’slengthbasis.Directorswithconflictsofinterestaretorecusethemselvesfromtheapprovalprocessofgrantingandmanagingrelatedpartytransactions.DetailsoftheCompany’smaterialrelatedpartytransactionshavebeendisclosedinthenote25tothefinancialstatements.

TherewerenomaterialcontractsenteredintobytheCompanyinvolvingtheinterestsoftheChiefExecutiveoranydirector.

Internal Audit

TheCompanyhasoutsourceditsinternalauditfunctiontotheGroupInternalAudit(“GIA”)toindependentlycarryoutauditactivitiesandreportdirectlytotheAC.Theinternalauditfunctionisexpectedtomeetthestandardsetbyrecognisedprofessionalbodies.TheACensuresthattheinternalauditfunctionisadequatelyresourced,whichisassessedannuallyandhasappropriatestandingwithintheCompany.

Communication with Shareholder

TheCompanyensuresthattimelyandadequatedisclosureofinformationonmattersofmaterialimpactontheCompanyismadeavailabletoitssoleshareholder.Thisisdonethroughvariousannouncementsandpressreleases.

Sole Shareholder’s Participation and Right

UndertheArticlesofAssociation,thesoleshareholderisentitledtoattendandvoteattheannualgeneralmeetingsbyperson,authorisedcorporaterepresentativeorproxy.Theshareholdermayappointaproxy,whoneednotbeshareholdersoftheCompany.

Resolutionsrequiringshareholder’sapprovalaretabledseparatelyforadoptionattheannualgeneralmeetingunlesstheyarecloselyrelatedandaremoreappropriatetobetabledtogether.


23


Independent Auditors’ ReportMembers of the CompanyAsiaCapitalReinsuranceGroupPte.Ltd.

Report on the audit of the financial statements

Opinion

WehaveauditedthefinancialstatementsofAsiaCapitalReinsuranceGroupPte.Ltd.(“theCompany”),whichcomprisethestatementoffinancialpositionasat31December2016,thestatementofprofitorloss,statementofcomprehensiveincome,statementofchangesinequityandstatementofcashflowsfortheyearthenended,andnotestothefinancialstatements,includingasummaryofsignificantaccountingpolicies,assetoutonpages25to78.

Inouropinion,theaccompanyingfinancialstatementsareproperlydrawnupinaccordancewiththeprovisionsoftheCompaniesAct,Chapter50(“theAct”)andFinancialReportingStandardsinSingapore(“FRSs”)soastogiveatrueandfairviewofthefinancialpositionoftheCompanyasat31December2016andofthefinancialperformance,changesinequityandcashflowsoftheCompanyfortheyearendedonthatdate.

Basis for opinion

Weconductedouraudit inaccordancewithSingaporeStandardsonAuditing (“SSAs”).Ourresponsibilitiesunderthosestandards are further described in the ‘Auditors’ responsibilities for the audit of the financial statements’sectionofourreport. WeareindependentoftheCompanyinaccordancewiththeAccountingandCorporateRegulatoryAuthorityCode of Professional Conduct and Ethics for Public Accountants and Accounting Entities (“ACRA Code”) together with the ethical requirements that arerelevanttoourauditofthefinancialstatementsinSingapore,andwehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeserequirementsandtheACRACode.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.

Other information

Managementisresponsiblefortheotherinformation.TheotherinformationcomprisestheDirectors’statementandStatementoncorporategovernance(“theReports”).

Ouropiniononthefinancialstatementsdoesnotcovertheotherinformationandwedonotexpressanyformofassuranceconclusionthereon.

Inconnectionwithourauditofthefinancialstatements,ourresponsibilityistoreadtheotherinformationand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththefinancialstatementsorourknowledgeobtainedintheauditorotherwiseappearstobemateriallymisstated.If,basedontheworkwehaveperformed,weconcludethatthereisamaterialmisstatementofthisotherinformation,wearerequiredtoreportthatfact.Wehavenothingtoreportinthisregard.

Responsibilities of management and directors for the financial statements

ManagementisresponsibleforthepreparationoffinancialstatementsthatgiveatrueandfairviewinaccordancewiththeprovisionsoftheActandFRSs,andfordevisingandmaintainingasystemofinternalaccountingcontrolssufficienttoprovideareasonableassurancethatassetsaresafeguardedagainstlossfromunauthoriseduseordisposition;andtransactionsareproperlyauthorisedandthattheyarerecordedasnecessarytopermitthepreparationoftrueandfairfinancialstatementsandtomaintainaccountabilityofassets.

Inpreparingthefinancialstatements,managementisresponsibleforassessingtheCompany’sabilitytocontinueasagoingconcern,disclosing,asapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlessmanagementeitherintendstoliquidatetheCompanyortoceaseoperations,orhasnorealisticalternativebuttodoso.

Thedirectors’responsibilitiesincludeoverseeingtheCompany’sfinancialreportingprocess.

24


Auditors’ responsibilities for the audit of the financial statements

Ourobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andtoissueanauditors’reportthatincludesouropinion.Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithSSAswillalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraudorerrorandareconsideredmaterialif,individuallyorintheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthesefinancialstatements.

AspartofanauditinaccordancewithSSAs,weexerciseprofessionaljudgementandmaintainprofessionalscepticismthroughouttheaudit.Wealso:

• Identifyandassesstherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror,designandperformauditproceduresresponsivetothoserisks,andobtainauditevidencethatissufficientandappropriatetoprovideabasisforouropinion.Theriskofnotdetectingamaterialmisstatementresultingfromfraudishigherthanforoneresultingfromerror,asfraudmayinvolvecollusion,forgery,intentionalomissions,misrepresentations,ortheoverrideofinternalcontrols.

• Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in thecircumstances,butnot for thepurposeofexpressinganopinionon theeffectivenessof theCompany’sinternalcontrols.

• Evaluatetheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesandrelateddisclosuresmadebymanagement.

• Concludeontheappropriatenessofmanagement’suseofthegoingconcernbasisofaccountingand,basedontheauditevidenceobtained,whetheramaterialuncertaintyexistsrelatedtoeventsorconditionsthatmaycastsignificantdoubtontheCompany’sabilitytocontinueasagoingconcern.Ifweconcludethatamaterialuncertaintyexists,wearerequiredtodrawattentioninourauditors’reporttotherelateddisclosuresinthefinancialstatementsor,ifsuchdisclosuresareinadequate,tomodifyouropinion.Ourconclusionsarebasedontheauditevidenceobtaineduptothedateofourauditors’report.However,futureeventsorconditionsmaycausetheCompanytoceasetocontinueasagoingconcern.

• Evaluatetheoverallpresentation,structureandcontentofthefinancialstatements,includingthedisclosures,andwhetherthefinancialstatementsrepresenttheunderlyingtransactionsandeventsinamannerthatachievesfairpresentation.

Wecommunicatewiththedirectorsregarding,amongothermatters,theplannedscopeandtimingoftheauditandsignificantauditfindings,includinganysignificantdeficienciesininternalcontrolsthatweidentifyduringouraudit.

Report on other legal and regulatory requirements

Inouropinion,theaccountingandotherrecordsrequiredbytheActtobekeptbytheCompanyhavebeenproperlykeptinaccordancewiththeprovisionsoftheAct.

KPMG LLPPublic Accountants andChartered Accountants

Singapore24March2017

Independent Auditors’ ReportMembers of the CompanyAsiaCapitalReinsuranceGroupPte.Ltd.

25


Note 2016 2015 US$’000 US$’000

AssetsPropertyandequipment 6 296 189Intangibleassets 7 67 –Deferredacquisitioncosts 9 98,404 114,785Cededshareofinsurancecontractprovisions 10 614,607 625,314Deferredtaxassets 19 7,897 8,920Investments 8 1,003,879 964,406Insurancereceivables 11 322,707 410,116Otherreceivables 13 2,245 13,126Taxrecoverable 78 –Cashandcashequivalents 14 54,733 70,081Total assets 2,104,913 2,206,937

EquitySharecapital 15 765,000 765,000Fairvaluereserve 15 (895) 2,646Accumulatedlosses (103,195) (103,414)Total equity 660,910 664,232

LiabilitiesInsurancecontractprovisions 10 1,276,727 1,305,280Cededshareofdeferredacquisitioncosts 9 45,858 58,555Financialliabilities 8 11,580 1,972Insurancepayables 17 98,738 165,071Amountsduetoholdingcompany 12 2,844 2,685Otherpayablesandaccruals 18 8,256 7,406Provisionfortaxation – 1,736Total liabilities 1,444,003 1,542,705

Total equity and liabilities 2,104,913 2,206,937

Statements of Financial PositionAs at 31 December 2016

Theaccompanyingnotesformanintegralpartofthesefinancialstatements.

26


Period from Year ended 1/4/2015 to Note 31/12/2016 31/12/2015 US$’000 US$’000

GrossWrittenpremiums 10 588,016 278,770Changeinprovisionforunexpiredrisks 61,974 314,291Earnedpremiums 10 649,990 593,061Claimsincurred 10 (459,287) (414,421)Amortisationofdeferredacquisitioncosts 9 (185,687) (172,950)Grosstechnicalunderwritingresults 5,016 5,690

CededWrittenpremiums 10 (292,096) (156,431)Changeinprovisionforunexpiredrisks (39,297) (143,084)Earnedpremiums 10 (331,393) (299,515)Claimsincurred 10 225,886 200,572Amortisationofdeferredacquisitioncosts 9 85,683 82,356 (19,824) (16,587)

NetWrittenpremiums 10 295,920 122,339Changeinprovisionforunexpiredrisks 22,677 171,207Earnedpremiums 10 318,597 293,546Claimsincurred 10 (233,401) (213,849)Amortisationofdeferredacquisitioncosts 9 (100,004) (90,594)Nettechnicalunderwritingresults (14,808) (10,897)

Netoperatingexpenses 23 (38,302) (29,634)Netinvestmentincomefromreinsurancebusiness 20 13,727 8,844Loss from reinsurance business (39,383) (31,687)

Netinvestmentincomefromcapitalfund 20 41,358 23,425Otheroperatingexpenses 21 (396) (1,422)Profit/(Loss) before tax 1,579 (9,684)Tax(expense)/credit 22 (1,360) 238Profit/(Loss) for the year/period 23 219 (9,446)


Statement of Profit or LossYear ended 31 December 2016

27



Profit/(Loss) for the year/period 219 (9,446)

Other comprehensive incomeItemsthatareormaybereclassifiedsubsequentlytoprofitorlossNetchangeinfairvalueofavailable-for-salefinancialassets (1,301) (4,858)Netchangeinfairvalueofavailable-for-salefinancialassetsreclassified toprofitorloss 20 (2,243) –Taxonothercomprehensiveincome 22 3 750Other comprehensive income for the year/period, net of tax (3,541) (4,108)Total comprehensive income for the year/period (3,322) (13,554)


Statement of Comprehensive IncomeYear ended 31 December 2016

28


Share Fair value Accumulated Note capital reserve losses Total US$’000 US$’000 US$’000 US$’000

At1April2015 765,000 6,754 (74,968) 696,786

Total comprehensive income for the periodLossfortheperiod – – (9,446) (9,446)

Other comprehensive incomeNet change in fair value of available-for-sale financialassets – (4,858) – (4,858)Taxonothercomprehensiveincome – 750 – 750Totalcomprehensiveincomefortheperiod – (4,108) (9,446) (13,554)

Transactions with owner, recognised directly in equityDividendstoequityholder 15 – – (19,000) (19,000)Total transactions with owner – – (19,000) (19,000)

At31December2015 765,000 2,646 (103,414) 664,232

At1January2016 765,000 2,646 (103,414) 664,232

Total comprehensive income for the yearProfitfortheyear – – 219 219

Other comprehensive incomeNet change in fair value of available-for-sale financialassets – (1,301) – (1,301)Net change in fair value of available-for-sale financialassetsreclassifiedtoprofitorloss – (2,243) – (2,243)Tax on other comprehensive income – 3 – 3Totalcomprehensiveincomefortheyear – (3,541) 219 (3,322)

At31December2016 765,000 (895) (103,195) 660,910


Statement of Changes in EquityYear ended 31 December 2016

29



Cash flows from operating activitiesInsurancepremiumsreceived 453,338 422,024Insuranceclaimspaid (415,238) (315,741)Cededpremiumspaid (223,321) (102,373)Cededshareofclaimsreceived 192,621 44,997Paymentstoholdingcompany (22,100) (15,161)Paymentstoemployeesandsuppliers (16,664) (18,300)Cash(usedin)/generatedfromoperatingactivities (31,364) 15,446Taxpaid (2,148) (873)Net cash (used in)/from operating activities (33,512) 14,573

Cash flows from investing activitiesAcquisitionofpropertyandequipment 6 (322) –Interestreceived 23,800 17,082Proceedsfromsaleofinvestments 779,673 606,334Settlementofderivatives (9,300) (5,455)Acquisitionofinvestments (775,173) (638,390)Paymentofinvestmentexpenses (800) (544)Acquisitionofintangibleassets 7 (67) –Net cash from/(used in) investing activities 17,811 (20,973)

Cash flows from financing activityDividendspaid – (19,000)Net cash used in financing activity 15 – (19,000)

Net decrease in cash and cash equivalents (15,701) (25,400)Cashandcashequivalentsatbeginningoftheyear/period 70,081 99,651Effectofexchangeratefluctuationsoncashheld 353 (4,170)Cash and cash equivalents at end of the year/period 14 54,733 70,081


Statement of Cash FlowsYear ended 31 December 2016

30


Thesenotesformanintegralpartofthefinancialstatements.

ThefinancialstatementswereauthorisedforissuebytheBoardofDirectorson24March2017.

1 Domicile and activities

AsiaCapitalReinsuranceGroupPte.Ltd.(the“Company”)isincorporatedintheRepublicofSingaporeandhasitsregisteredofficeat6TemasekBoulevard,#08-01SuntecTower4,Singapore038986.

TheCompanyisawholly-ownedsubsidiaryofACRCapitalHoldingsPte.Ltd.,acompanyincorporatedintheRepublicofSingapore.

TheCompanyislicensedasageneralandlifereinsurerundertheSingaporeInsuranceAct,Chapter142(the“InsuranceAct”).TheprincipalactivitiesoftheCompanyarethoseofageneralandlifereinsurer.

2 Basis of preparation

2.1 Statement of compliance

ThefinancialstatementshavebeenpreparedinaccordancewiththeSingaporeFinancialReportingStandards(“FRSs”).

TheassetsandliabilitiesoftheCompany,whichrelatetothereinsurancebusinesscarriedoninSingapore,aresubjecttotherequirementsoftheInsuranceAct.SuchassetsandliabilitiesareaccountedforinthebooksoftheinsurancefundsestablishedundertheInsuranceAct.AssetsheldintheinsurancefundsmaybewithdrawnonlyifthewithdrawalmeetstherequirementsstipulatedinSection17oftheInsuranceActandtheCompanycontinuestobeabletomeetthesolvencyrequirementsofSection18oftheInsuranceActandInsurance(ValuationandCapital)Regulations.Allotherassetsandliabilitiesareaccountedforinthebooksofthenon-insurancefunds.

2.2 Basis of measurement

Thefinancialstatementshavebeenpreparedonthehistoricalcostbasisexceptforcertainfinancialassetswhicharemeasuredatfairvalue.

ThefinancialstatementsoftheCompanyrepresentthecombinedassetsandliabilitiesandincomeandexpensesoftheinsuranceandnon-insurancefunds.

2.3 Functional and presentation currency

ThesefinancialstatementsarepresentedinUnitedStatesdollar,whichistheCompany’sfunctionalcurrency.AllfinancialinformationpresentedinUnitedStatesdollarhavebeenroundedtothenearestthousand,unlessotherwisestated.

2.4 Use of estimates and judgements

ThepreparationofthefinancialstatementsinconformitywithFRSsrequiresmanagementtomakejudgements,estimatesandassumptionsthataffecttheapplicationofaccountingpoliciesandthereportedamountsofassets,liabilities,incomeandexpenses.Actualresultsmaydifferfromtheseestimates.

Estimatesandunderlyingassumptionsarereviewedonanongoingbasis.Revisionstoaccountingestimatesarerecognisedintheperiodinwhichtheestimateisrevisedandinanyfutureperiodsaffected.

Inparticular,informationaboutsignificantareasofestimationuncertaintyandcriticaljudgementsinapplyingaccountingpoliciesthathavethemostsignificanteffectontheamountsrecognisedinthefinancialstatementsaredescribedinnote4–Criticalaccountingestimatesandjudgementsinapplyingaccountingpolicies.

Notes to the Financial StatementsYear ended 31 December 2016

31


2 Basis of preparation (cont’d)

2.4 Use of estimates and judgements (cont’d)

Measurement of fair values

AnumberoftheCompany’saccountingpoliciesanddisclosuresrequirethemeasurementoffairvalues,forbothfinancialandnon-financialassetsandliabilities.

TheCompanyhasanestablishedcontrolframeworkwithrespecttothemeasurementoffairvalues.This includesavaluationteamthathasoverallresponsibilityforallsignificantfairvaluemeasurementsandreportsdirectlytotheChiefFinancialOfficer.

Thevaluationteamregularlyreviewssignificantunobservableinputsandvaluationadjustments.Ifthirdpartyinformation,suchasbrokerquotesorpricingservices,isusedtomeasurefairvalues,thenthevaluationteamassessesanddocumentstheevidenceobtainedfromthethirdpartiestosupporttheconclusionthatsuchvaluationsmeettherequirementsofFRSs,includingthelevelinthefairvaluehierarchyinwhichsuchvaluationsshouldbeclassified.

Whenmeasuringthefairvalueofanassetoraliability,theCompanyusesmarketobservabledataasfaraspossible.Fairvaluesarecategorisedintodifferentlevelsinafairvaluehierarchybasedontheinputsusedinthevaluationtechniquesas follows:

• Level1: quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities.• Level2: inputsotherthanquotedpricesincludedwithinLevel1thatareobservablefortheassetorliability,either

directly(i.e.,asprices)orindirectly(i.e.,derivedfromprices).• Level3: inputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(unobservableinputs).

Iftheinputsusedtomeasurethefairvalueofanassetoraliabilitymightbecategorisedindifferentlevelsofthefairvaluehierarchy,thenthefairvaluemeasurementiscategorisedinitsentiretyinthesamelevelofthefairvaluehierarchyasthelowestlevelinputthatissignificanttotheentiremeasurement(withLevel3beingthelowest).

TheCompanyrecognisestransfersbetweenlevelsofthefairvaluehierarchyasattheendofthereportingperiodduringwhichthechangehasoccurred.

Furtherinformationabouttheassumptionsmadeinmeasuringfairvaluesisincludedinnote5–Riskmanagement.

2.5 Changes in accounting policies

Anumberofnewstandards,amendmentstostandardsandinterpretationsareeffectiveforannualperiod1January2016andhavebeenappliedinpreparingthesefinancialstatements.NoneofthesehaveasignificanteffectonthefinancialstatementsoftheCompany.

3 Significant accounting policies

Theaccountingpoliciessetoutbelowhavebeenappliedconsistentlytoallperiodspresentedinthesefinancialstatements.

3.1 Foreign currency

Foreign currency transactions

TransactionsinforeigncurrenciesaretranslatedtothefunctionalcurrencyoftheCompanyatexchangeratesatthedatesofthetransactions.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesatthereportingdateareretranslatedtothefunctionalcurrencyattheexchangerateatthatdate.Theforeigncurrencygainorlossonmonetaryitemsisthedifferencebetweenamortisedcostinthefunctionalcurrencyatthebeginningoftheyear,adjustedforeffectiveinterestandpaymentsduringtheyearandtheamortisedcostinforeigncurrencytranslatedattheexchangerateattheendoftheyear.


32


3 Significant accounting policies (cont’d)

3.1 Foreign currency (cont’d)

Foreign currency transactions (cont’d)

Non-monetaryassetsandliabilitiesdenominatedinforeigncurrenciesthataremeasuredatfairvalueareretranslatedtothefunctionalcurrencyattheexchangerateatthedatethatthefairvaluewasdetermined.Non-monetaryitemsina foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction.Foreigncurrencydifferencesarisingonretranslationarerecognisedinprofitorloss,exceptfordifferenceswhicharerecognised inothercomprehensive income(“OCI”)arisingontheretranslationofavailable-for-saleequityinstruments(exceptonimpairment inwhichcaseforeigncurrencydifferencesthathavebeenrecognisedinOCIarereclassifiedtoprofitorloss).

Foreign operations

TheforeignoperationsoftheCompanyhavethesamefunctionalcurrencyastheCompany.

3.2 Property and equipment

Itemsofpropertyandequipmentaremeasuredatcostlessaccumulateddepreciationandaccumulatedimpairmentlosses,ifany.

Costincludesexpenditurethatisdirectlyattributabletotheacquisitionoftheasset.

Purchasedsoftwarethatisintegraltothefunctionalityoftherelatedequipmentiscapitalisedaspartofthatequipment.

The cost of replacing a component of an item of property and equipment is recognised in the carrying amount of the item ifitisprobablethatthefutureeconomicbenefitsembodiedwithinthecomponentwillflowtotheCompanyanditscostcanbemeasuredreliably.Thecarryingamountofthereplacedcomponentisderecognised.Thecostsoftheday-to-dayservicingofpropertyandequipmentarerecognisedinprofitorlossasincurred. Whenpartsofanitemofpropertyandequipmenthavedifferentusefullives,theyareaccountedforasseparateitems(majorcomponents)ofpropertyandequipment.

Thegainorlossondisposalofanitemofpropertyandequipment(calculatedasthedifferencebetweenthenetproceedsfromdisposalandthecarryingamountoftheitem)isrecognisedinprofitorloss.

Depreciationisbasedonthecostofanassetlessitsresidualvalue.Significantcomponentsofindividualassetsareassessedand ifacomponenthasauseful lifethat isdifferentfromtheremainderofthatasset, thatcomponent isdepreciatedseparately.

Depreciationisrecognisedasanexpenseinprofitorlossonastraight-linebasisovertheestimatedusefullivesofeachcomponentofanitemofpropertyandequipment,unlessitisincludedinthecarryingamountofanotherasset.Depreciationisrecognisedfromthedatethatthepropertyandequipmentareinstalledandarereadyforuse.

Theestimatedusefullivesforthecurrentandcomparativeperiodsareasfollows:

Computer equipment 3 yearsMotor vehicle 3 yearsOfficeequipment 3yearsFurnitureandfittings 3years

Depreciationmethods,usefullivesandresidualvaluesarereviewedattheendofeachreportingperiodandadjustedifappropriate.


33



3.3 Intangible assets

Club membership

Clubmembershipisrecognisedasanintangibleasset.Clubmembershipismeasuredatcostlessaccumulatedimpairmentlosses,ifany.

3.4 Financial instruments

Non-derivative financial assets

TheCompanyinitiallyrecognisesloansandreceivablesanddepositsonthedatethattheyareoriginated.Allotherfinancialassets(includingassetsdesignatedatfairvaluethroughprofitorloss)arerecognisedinitiallyonthetradedate,whichisthedatethattheCompanybecomesapartytothecontractualprovisionsoftheinstrument.

TheCompanyderecognisesafinancialassetwhenthecontractualrightstothecashflowsfromtheassetexpireorittransferstherightstoreceivethecontractualcashflowsonthefinancialassetinatransactioninwhichsubstantiallyalltherisksandrewardsofownershipofthefinancialassetaretransferredoritneithertransfersnorretainssubstantiallyalloftherisksandrewardsofownershipanddoesnotretaincontroloverthetransferredasset.AnyinterestintransferredfinancialassetsthatiscreatedorretainedbytheCompanyisrecognisedasaseparateassetorliability.

Financialassetsandliabilitiesareoffsetandthenetamountispresentedinthestatementoffinancialpositionwhen, andonlywhen,theCompanyhasalegalrighttooffsettheamountsandintendseithertosettleonanetbasisortorealisetheassetandsettletheliabilitysimultaneously.

TheCompanyclassifiesnon-derivativefinancialassetsintothefollowingcategories:financialassetsatfairvaluethroughprofitorloss,available-for-salefinancialassetsandloansandreceivables.

Financial assets at fair value through profit or loss

Afinancialassetisclassifiedatfairvaluethroughprofitorlossifitisclassifiedasheldfortradingorisdesignatedassuchuponinitialrecognition.FinancialassetsaredesignatedatfairvaluethroughprofitorlossiftheCompanymanagessuchinvestments and makes purchase and sale decisions based on their fair value in accordance with the Company’s documented riskmanagementorinvestmentstrategy.Attributabletransactioncostsarerecognisedinprofitorlossasincurred.Financialassetsatfairvaluethroughprofitorlossaremeasuredatfairvalue,andchangestherein,arerecognisedinprofitorloss.

Financialassetsdesignatedatfairvaluethroughprofitorlosscomprisedebtsecuritiesandinvestmentfundsthatotherwisewouldhavebeenclassifiedasavailable-for-sale.

Loans and receivables

Loansandreceivablesarefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinactivemarket. Suchassetsarerecognisedinitiallyatfairvalueplusanydirectlyattributabletransactioncosts.Subsequentto initialrecognition,loansandreceivablesaremeasuredatamortisedcostusingeffectiveinterestratemethodorcostiftheeffectofamortisationisnotmaterial,lessanyimpairmentlosses.

Loansandreceivablescompriseotherreceivables(excludingprepayments)andcashandcashequivalents.

Cashandcashequivalentscomprisebankbalancesanddepositswithfinancialinstitutions.


34



3.4 Financial instruments (cont’d)

Non-derivative financial assets (cont’d)

Available-for-sale financial assets

Available-for-salefinancialassetsarenon-derivativefinancialassetsthataredesignatedasavailableforsaleorarenotclassifiedinanyoftheabovecategoriesoffinancialassets.TheCompany’s investmentsincertaindebtsecuritiesareclassifiedasavailable-for-salefinancialassets.Available-for-salefinancialassetsarerecognisedinitiallyatfairvalueplusanydirectlyattributabletransactioncosts.Subsequenttoinitialrecognition,theyaremeasuredatfairvalueandchangestherein,otherthanimpairmentlossesandforeigncurrencydifferencesonavailable-for-saledebtinstrumentsarerecognisedinOCIandpresentedinthefairvaluereserveinequity.Whenaninvestmentisderecognised,thegainorlossaccumulatedinequityisreclassifiedtoprofitorloss.

Available-for-salefinancialassetscomprisedebtsecurities.

Non-derivative financial liabilities

TheCompanyinitiallyrecognisesfinancialliabilitiesonthetradedate,whichisthedatethattheCompanybecomesapartytothecontractualprovisionsoftheinstrument.

TheCompanyderecognisesafinancialliabilitywhenitscontractualobligationsaredischarged,cancelledorexpire.

Financialassetsandliabilitiesareoffsetandthenetamountispresentedinthestatementoffinancialpositionwhen, andonlywhen,theCompanyhasalegalrighttooffsettheamountsandintendseithertosettleonanetbasisortorealisetheassetandsettletheliabilitysimultaneously.

TheCompanyclassifiesnon-derivativefinancialliabilitiesintotheotherfinancialliabilitiescategorywhichcompriseamountsduetoholdingcompanyandotherpayablesandaccruals.

Suchfinancialliabilitiesarerecognisedinitiallyatfairvalueplusanydirectlyattributabletransactioncosts.Subsequenttoinitialrecognition,thesefinancialliabilitiesaremeasuredatamortisedcostusingtheeffectiveinterestmethod.

Share capital

Ordinarysharesareclassifiedasequity.Incrementalcostsdirectlyattributabletotheissueofordinarysharesarerecognisedasadeductionfromequity,netofanytaxeffects.

Derivative financial instruments

TheCompanyholdsderivativefinancialinstrumentstohedgeitsforeigncurrency,creditandinterestrateriskexposures.Embeddedderivativesareseparatedfromthehostcontractandaccountedforseparatelyiftheeconomiccharacteristicsandrisksofthehostcontractandtheembeddedderivativearenotcloselyrelated,aseparateinstrumentwiththesametermsastheembeddedderivativewouldmeetthedefinitionofaderivativeandthecombinedinstrumentisnotmeasuredatfairvaluethroughprofitorloss.

Derivativesarerecognisedinitiallyatfairvalue;anyattributabletransactioncostsarerecognisedinprofitor lossasincurred.Subsequenttoinitialrecognition,derivativesaremeasuredatfairvalueandchangesinitsfairvaluearerecognisedimmediatelyinprofitorloss.

Thefairvalueofforwardexchangecontractsistheirquotedmarketpriceatthereportingdate,beingthepresentvalueofthequotedforwardprice.

Economic hedges

Hedgeaccounting isnotappliedtoderivative instrumentsthateconomicallyhedgemonetaryassetsand liabilitiesdenominatedinforeigncurrencies.Changesinthefairvalueofsuchderivativesarerecognisedinprofitorlossaspartofforeigncurrencygainsandlosses.


35



3.5 Impairment

Non-derivative financial assets

Afinancialassetnotcarriedatfairvaluethroughprofitorlossisassessedatendofeachreportingperiodtodeterminewhetherthereisobjectiveevidencethatitisimpaired.Afinancialassetisimpairedifobjectiveevidenceindicatesthatalossevent(s)hasoccurredaftertheinitialrecognitionoftheassetandthatthelossevent(s)hasanimpactontheestimatedfuturecashflowsofthatassetthatcanbeestimatedreliably.

Objectiveevidencethatfinancialassetsareimpairedcanincludedefaultordelinquencybyadebtor,restructuringofanamountduetotheCompanyontermsthattheCompanywouldnotconsiderotherwise,indicationsthatadebtororissuerwillenterbankruptcy,economicconditionsthatcorrelatewithdefaultsorthedisappearanceofanactivemarketforasecurity.Inaddition,foraninvestmentinanequitysecurity,asignificantorprolongeddeclineinitsfairvaluebelowitscostisobjectiveevidenceofimpairment.

Loans and receivables

TheCompanyconsidersevidenceofimpairmentforloansandreceivablesataspecificassetlevel.Allindividuallysignificantloansandreceivablesareassessedforspecificimpairment.

Animpairmentlossinrespectofafinancialassetmeasuredatamortisedcostiscalculatedasthedifferencebetweenitscarryingamountandthepresentvalueoftheestimatedfuturecashflows,discountedattheasset’soriginaleffectiveinterestrate.Lossesarerecognisedinprofitorlossandreflectedinanallowanceaccountagainstloansandreceivables.Interestontheimpairedassetcontinuestoberecognised.WhentheCompanyconsidersthattherearenorealisticprospectsofrecoveryoftheasset,therelevantamountsarewrittenoff.Iftheamountofimpairmentlosssubsequentlydecreasesandthedecreasecanberelatedobjectivelytoaneventoccurringaftertheimpairmentwasrecognised,thenthepreviouslyrecognisedimpairmentlossisreversedthroughprofitorloss.

Available-for-sale financial assets

Impairmentlossesonavailable-for-salefinancialassetsarerecognisedbyreclassifyingthelossesaccumulatedinthefairvaluereserveinequitytoprofitorloss.Thecumulativelossthatisreclassifiedfromequitytoprofitorlossisthedifferencebetweentheacquisitioncost,netofanyprincipalrepaymentandamortisationandthecurrentfairvalue,lessanyimpairmentlossrecognisedpreviouslyinprofitorloss.

If,inasubsequentperiod,thefairvalueofanimpairedavailable-for-saledebtsecurityincreasesandtheincreasecanberelatedobjectivelytoaneventoccurringaftertheimpairmentlosswasrecognised,thentheimpairmentlossisreversed.Theamountofthereversalisrecognisedinprofitorloss.However,anysubsequentrecoveryinthefairvalueofanimpairedavailable-for-saleequitysecurityisrecognisedinOCI.

Non-financial assets

ThecarryingamountsoftheCompany’snon-financialassets,otherthandeferredtaxassets,arereviewedateachreportingdatetodeterminewhetherthereisanyindicationofimpairment.Ifanysuchindicationexists,thentheasset’srecoverableamountsareestimated.

Therecoverableamountofanassetorcash-generatingunit(“CGU”)isthegreaterofitsvalueinuseanditsfairvaluelesscoststosell.Inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusinga pre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheassetorCGU.Forthepurposeofimpairmenttesting,assetsthatcannotbetestedindividuallyaregroupedtogetherintothesmallestgroupofassetsthatgeneratescashinflowsfromcontinuingusethatarelargelyindependentofthecashinflowsofotherassetsorCGU.

AnimpairmentlossisrecognisedifthecarryingamountofanassetoritsCGUexceedsitsestimatedrecoverableamount.Impairmentlossesarerecognisedinprofitorloss.


36



3.5 Impairment (cont’d)

Non-financial assets (cont’d)

Impairmentlossesrecognisedinpriorperiodsareassessedateachreportingdateforanyindicationsthatthelosshasdecreasedornolongerexists.Animpairmentlossisreversediftherehasbeenachangeintheestimatesusedtodeterminetherecoverableamount.Animpairmentlossisreversedonlytotheextentthattheasset’scarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendetermined,netofdepreciationoramortisation,ifnoimpairmentlosshadbeenrecognised.

3.6 Employee benefits

Defined contribution plans

Adefinedcontributionplanisapost-employmentbenefitplanunderwhichanentitypaysfixedcontributionsintoaseparateentityandwillhavenolegalorconstructiveobligationtopayfutureamounts.

Obligationsforcontributionstodefinedcontributionpensionplansarerecognisedasanexpenseinprofitorlossintheperiodsduringwhichrelatedservicesarerenderedbyemployees.

Short-term employee benefits

Short-termemployeebenefitobligationsaremeasuredonanundiscountedbasisandareexpensedastherelatedserviceisprovided.

Aliabilityisrecognisedfortheamountexpectedtobepaidundershort-termcashbonusorprofit-sharingplansiftheCompanyhasapresentlegalorconstructiveobligationtopaythisamountasaresultofpastserviceprovidedbytheemployeeandtheobligationcanbeestimatedreliably.

Share-based payments

Share options

TheCompany’sholdingcompanygrantsshareoptionstoitsemployeesincludingtheCompany’semployees.Thegrantdatefairvalueofshare-basedpaymentawardsgrantedtoemployees isrecognisedasanemployeeexpense,withacorrespondingincreaseinamountduetoholdingcompany,overtheperiodthattheemployeesunconditionallybecomeentitledtotheawards.Theamountrecognisedasanexpenseisadjustedtoreflectthenumberofawardsforwhichtherelatedserviceandnon-marketvestingconditionsareexpectedtobemet,suchthattheamountultimatelyrecognisedasanexpenseisbasedonthenumberofawardsthatdomeettherelatedserviceandnon-marketperformanceconditionsatthevestingdate.

Partnership plan

TheCompany’sholdingcompanygrantsawardstoitsemployeesincludingtheCompany’semployees.Theawardisacontingentrighttoreceivecashpaymentequaltothebookormarketvalueofaspecifiednumberofdeemedsharesintheholdingcompanyontherelevantvestingdatesandthefairvalueoftheawardsgrantedtoemployeesisrecognisedasanemployeeexpense,withacorrespondingincreaseinamountduetoholdingcompany,overthevestingperiod. Any award not vested will be lapsed when the eligible employee ceases to be in employment with the holding company oranyofitssubsidiaries.

3.7 Lease payments

Paymentsmadeunderoperatingleasesarerecognisedinprofitorlossonastraight-linebasisoverthetermofthelease.Leaseincentivesreceivedarerecognisedasanintegralpartofthetotalleaseexpense,overthetermofthelease.


37



3.8 Provisions

Aprovision,otherthaninsurancecontractprovisions,isrecognisedif,asaresultofapastevent,theCompanyhasapresentlegalorconstructiveobligationthatanoutflowofeconomicbenefitswillberequiredtosettletheobligation.Iftheeffectismaterial,provisionsaredeterminedbydiscountingtheexpectedfuturecashflowsatapre-taxratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyand,whereappropriate,therisksspecifictotheliability.

3.9 Affiliated corporations

Anaffiliatedcorporationisacorporationinwhichasubstantialshareholderoftheholdingcompanyhasasubstantialinterest.

3.10 Classification of insurance contracts

ContractsunderwhichtheCompanyacceptssignificantinsuranceriskfromanotherpartybyagreeingtocompensatethebeneficiaryifaspecifieduncertainfutureevent(theinsuredevent)adverselyaffectsthecedantsareclassifiedasinsurancecontracts.

Insuranceriskissignificantif,andonlyif,aninsuredeventcouldcausetheCompanytopaysignificantadditionalbenefits.Onceacontractisclassifiedasaninsurancecontract,itremainsclassifiedasaninsurancecontractuntilallrightsandobligationsareextinguishedorexpire.

3.11 Insurance contracts

Written premiums and earned premium revenue

Writtenpremiumsincludepremiumsoncontractsenteredintoduringtheyear, irrespectiveofwhethertheyrelateinparttolaterfinancialyears.Writtenpremiumsaredisclosedgrossofcommissionpayabletocedantsandintermediaries.

Premiumsarefirstrecognisedaswrittenonthedatethatthecontractisincepted.Writtenpremiumisrecognisedbasedonestimatesofultimatepremiumsprovidedbythecedingcompanies.Initialestimatesofwrittenpremiumarerecognisedintheyearinwhichtheunderlyingrisksincept.Subsequentadjustments,basedonreportsofactualpremiumbythecedingcompaniesorrevisionsinestimates,arerecordedintheyearinwhichtheyaredetermined.

Earnedpremiumcomprisespremiumwrittenduringthefinancialyearandchangesinprovisionforunexpiredrisks.Premiumsareearnedfromthedateofattachmentofrisk,overtheindemnityperiod,inaccordancewiththepatternoftheexposureofriskexpectedunderthecontracts.Thepatternoftheriskexposureisgenerallymatchedbythepassageoftime.

Provision for unexpired risks

Theprovisionforunexpiredrisksincludesaprovisionforunearnedpremiumandanyadditionalprovisionforpremiumdeficiency.Theprovisionforunearnedpremiumiscalculatedusingwrittenpremiumsforallclassesofbusinessinaccordancewiththepatternofriskunderwritten.Anadditionalprovisionforpremiumdeficiencyismadewheretheexpectedvalueofclaimsandexpensesattributabletotheunexpiredperiodsofpoliciesinforceatthereportingdateexceedstheprovisionforunearnedpremiuminrelationtosuchpolicies.

Provisionforunexpiredrisksdenominatedinforeigncurrenciesatthereportingdateistranslatedtothefunctionalcurrencyattheexchangerateatthatdate.Theresultingexchangedifferencesarerecognisedinprofitorloss.


38



3.11 Insurance contracts (cont’d)

Claims incurred and provision for insurance claims

Claimsincurredconsistofclaimspaidduringthefinancialyear,netofsubrogationrecoveries,andchangesinprovisionforinsuranceclaims.

ProvisionforinsuranceclaimscompriseprovisionsfortheCompany’sestimateoftheultimatecostofsettlingallclaimsincurredbutunpaidatthereportingdatewhetherreportedornotandrelatedinternalandexternalclaimshandlingexpenses.Provision for insurance claims are assessed by reviewing individual claims and making allowance for claims incurred but not yetreported,theeffectofbothinternalandexternalforeseeableevents,suchaschangesinclaimshandlingprocedures,inflation,judicialtrends,legislativechangesandpastexperienceandtrends.

Provisionfor insuranceclaimsdenominatedinforeigncurrenciesatthereportingdateistranslatedtothefunctionalcurrencyattheexchangerateatthatdate.Theresultingexchangedifferencesarerecognisedinprofitorloss.

Reinsurance

TheCompanycedesreinsurance inthenormalcourseofbusinessforthepurposeof limiting itsnet losspotential. Assets,liabilities,incomeandexpensearisingfromcededreinsurancecontractsarepresentedseparatelyfromtherelatedassets,liabilities,incomeandexpensefromtherelatedinsurancecontractsbecausethereinsurancearrangementsdonotrelievetheCompanyfromitsdirectobligationstoitscedants.Premiumsrelatingtoreinsurancecededarerecognisedasanexpenseinaccordancewiththepatternofreinsuranceservicereceived.

Cededshareofearnedpremiumsandclaimsincurredarepresentedinprofitorlossandstatementoffinancialpositionseparately.

The amounts recognised as ceded share of insurance contract provisions are measured on a basis that is consistent with themeasurementoftheprovisionsheldinrespectoftherelatedinsurancecontracts.Balancesduefromreinsurancecompaniesinrespectofclaimspaidareincludedwithininsurancereceivablesinthestatementoffinancialposition.

Cededshareofinsurancecontractprovisionsandinsurancereceivablesareassessedforimpairmentateachreportingdate.Suchassetsaredeemedtobeimpairedifthereisobjectiveevidence,asaresultofaneventthatoccurredafteritsinitialrecognition,thattheCompanymaynotrecoverallamountsdueandthattheeventhasareliablymeasurableimpactontheamountsthattheCompanywillreceivefromthereinsurer.

Deferred acquisition costs

Acquisitioncostscomprisecommissionsandbrokerageswhichvarywithandaredirectlyrelatedtotheacquisitionandrenewalofinsurancecontracts.Theseacquisitioncostsaredeferred,totheextentthattheyarerecoverableandamortisedconsistentwiththeexpirationoftherisksassociatedwiththeunderlyinginsurancecontracts.

Deferredacquisitioncostsdenominatedinforeigncurrenciesatthereportingdatearetranslatedtothefunctionalcurrencyattheexchangerateatthatdate.Theresultingexchangedifferencesarerecognisedinprofitorloss.

Liability adequacy test

The liability of the Company under insurance contracts is tested for adequacy by comparing the expected future contractual cashflowswiththecarryingamountofgrossinsurancecontractprovisionsforunearnedpremiumsandinsuranceclaims.Whereanexpectedshortfallisidentified,additionalprovisionsaremadeforunearnedpremiumsorinsuranceclaimsandthedeficiencyisrecognisedinprofitorloss.


39



3.12 Receivables and payables related to insurance contracts

Insurance receivables and insurance payables are recognised on the date that the Company becomes a party to the insurancecontracts.Theseincludeamountsduetoandfromreinsurancecontractholders.Theyaremeasuredoninitialrecognitionatthefairvalueoftheconsiderationreceivableorpayable.Subsequenttoinitialrecognition,receivablesandpayablesaremeasuredatamortisedcost,usingtheeffectiveinterestratemethod.

The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that thecarryingamountmaynotberecoverable.Ifthereisobjectiveevidencethattheinsurancereceivablesis impaired, theCompanyreducesthecarryingamountoftheinsurancereceivablesandrecognisesthatimpairmentlossintheprofitorloss.TheCompanygatherstheobjectiveevidencethataninsurancereceivableis impairedusingthesameprocessadoptedforloansandreceivables.Theimpairmentlossiscalculatedunderthesamemethodusedforthesefinancialassets.Insurancereceivablesandinsurancepayablesarederecognisedbasedonthesamederecognitioncriteriaasfinancialassetsandliabilitiesrespectively,asdescribedinnote3.4.

3.13 Investment income and expenses

Investment income

Investment incomecomprises interest income,dividendincome,netrealisedgains/lossesresultingfromdisposalofinvestmentsandnetfairvaluegains/lossesonfinancialassetsatfairvaluethroughprofitorloss.

Interestincomeisrecognisedasitaccruesinprofitorloss,usingtheeffectiveinterestmethod.

DividendincomeisrecognisedinprofitorlossonthedatethattheCompany’srighttoreceivepaymentisestablished.

Investment expenses

Investmentexpensescomprisefeespaidtoexternalinvestmentmanagersandfundadministrationcosts.

3.14 Tax

Taxexpensecomprisescurrentanddeferredtax.CurrenttaxanddeferredtaxisrecognisedinprofitorlossexcepttotheextentthatitrelatestoitemsrecogniseddirectlyinequityorinOCI.

Currenttaxistheexpectedtaxpayableorreceivableonthetaxableincomeorlossfortheyear,usingtaxratesenactedorsubstantivelyenactedatthereportingdateandanyadjustmenttotaxpayableinrespectofpreviousyears.Theamountofcurrenttaxpayableorreceivableisthebestestimateofthetaxamountexpectedtobepaidorreceivedthatreflectsuncertaintyrelatedtoincometaxes,ifany.

Deferredtaxisrecognisedinrespectoftemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesforfinancialreportingpurposesandtheamountsusedfortaxationpurposes.Deferredtaxisnotrecognisedfortemporarydifferencesthataffectsneitheraccountingnortaxableprofitorloss.ThemeasurementofdeferredtaxesreflectsthetaxconsequencesthatwouldfollowthemannerinwhichtheCompanyexpects,atthereportingdate,torecoverorsettlethecarryingamountofitsassetsandliabilities.Deferredtaxismeasuredatthetaxratesthatareexpectedtobeappliedtotemporarydifferenceswhentheyreverse,basedonthelawsthathavebeenenactedorsubstantivelyenactedbythereportingdate.

Deferredtaxassetsandliabilitiesareoffsetifthereisalegallyenforceablerighttooffsetcurrenttaxliabilitiesandassetsandtheyrelatetotaxesleviedbythesametaxauthorityonthesametaxableentity. Adeferredtaxassetisrecognisedforunusedtaxlosses,taxcreditsanddeductibletemporarydifferences,totheextentthatitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichtheycanbeutilised.Deferredtaxassetsarereviewedateachreportingdateandarereducedtotheextentthatitisnolongerprobablethattherelatedtaxbenefitwillberealised.


40



3.14 Tax (cont’d)

Indeterminingtheamountofcurrentanddeferredtax,theCompanytakesintoaccounttheimpactofuncertaintaxpositionsandwhetheradditionaltaxesandinterestmaybedue.TheCompanybelievesthatitsaccrualsfortaxliabilitiesareadequateforallopentaxyearsbasedonitsassessmentofmanyfactors,includinginterpretationsoftaxlawandpriorexperience.Thisassessmentreliesonestimatesandassumptionsandmayinvolveaseriesofjudgementsaboutfutureevents. NewinformationmaybecomeavailablethatcausestheCompanytochangeitsjudgementregardingtheadequacyofexistingtaxliabilities;suchchangestotaxliabilitieswillimpacttaxexpenseintheperiodthatsuchadeterminationismade.

3.15 Key management personnel

KeymanagementpersonneloftheCompanyarethosepersonshavingtheauthorityandresponsibilityforplanning,directingandcontrollingtheactivitiesoftheCompany.ThedirectorsandcertainexecutiveofficersareconsideredaskeymanagementpersonneloftheCompany.

4 Critical accounting estimates and judgements in applying accounting policies

Managementhasassessedthedevelopment,selectionanddisclosureofthecriticalaccountingpoliciesandestimates, andtheapplicationof thesepoliciesandestimates.Thecriticalaccountingestimatesmadebythemanagementinapplyingaccountingpoliciesrelatetotheprovisionsforunexpiredrisks,insuranceclaimsandfairvaluesoftheCompany’sinvestments.

Theinsurancecontractprovisionsforgeneralreinsurancebusinessconsistofclaimsliabilitiesandpremiumliabilities. The process undertaken by the Company to derive the insurance contract provisions of the general reinsurance business is as follows:

Process involved in determining claims liabilities

TheCompanydeterminestheclaimsliabilitiesinaccordancewithinternationallyrecognisedpractices.Theassumptionsusedintheestimationofinsuranceassetsandliabilitiesareintendedtoresultinprovisionswhicharesufficienttocoveranyliabilitiesarisingoutofinsurancecontractstotheextentthatcanbereasonablyforeseen.

However,giventheuncertaintyinestablishingaprovisionforinsuranceclaims,itislikelythatthefinaloutcomecouldprovetobesignificantlydifferentfromtheoriginalliabilityestablished.

Provisionismadeatthereportingdatefortheexpectedultimatecostofsettlementofallclaimsincurredinrespectofeventsuptothatdate,whetherreportedornot,togetherwithrelatedclaimshandlingexpenses,lessamountsalreadypaid.

ThedatausedfordeterminingtheexpectedultimateclaimsliabilitiesiscollatedinternallybasedoninformationreceivedfromcedantsrelatingtobusinessunderwrittenbytheCompany.This isfurthersupplementedbyexternallyavailableinformationonindustrystatisticsandtrends.

TheCompany’sreservingmethodologyestimatestheexpectedultimateclaimamountsfortheportfolioofrisksbyanalysingthehistoricaldata,pricingandunderwritinginformation,currentmarket,legalandsocio-economicenvironmentandlikelyfuturetrends.

TheCompanysetsasidecasereservesaftertakingintoconsiderationtheclaimcircumstances,currentavailableinformationandhistoricalevidenceofsimilarclaims.Casereservesarereviewedregularlyandupdatedasandwhennewinformationbecomesavailable.However,theultimateclaimsliabilitiesmayvarysignificantlyasaresultofsubsequentdevelopments.

TheCompanysystematicallyandperiodicallyreviewstheprovisionsestablishedandadjuststhelossestimationprocessinanefforttominimisevariationsbetweentheactualfinaloutcomeandtheoriginalprojection.Theprovisionsforoutstandingclaimliabilitiesarediscountedforthetimevalueofmoney.


41


4 Critical accounting estimates and judgements in applying accounting policies (cont’d)

Process involved in determining claims liabilities (cont’d)

Provisionsforinsuranceliabilitiesasat31December2016havebeenassessedbyanexternalconsultingactuarialfirm,withsupportfromtheCompany’sactuarialreservingteam.

Inestimatingtheclaimsliabilities,riskswerecategorisedintovariousreservingcohorts,withaviewtobalancetheneedforstatisticalstabilityandhomogeneityinrespectoffactorsincludingriskcharacteristicsandlossreportingpatterns.Broadly,thesegregationofriskswasguidedbyclassofbusinessandtypeofreinsurance.

TheCompanyusesanumberofreservingmethodstoestimatetheultimateclaimsliabilities.ThesemethodsincludeIncurredChainDevelopment(“ICD”)Method,IncurredBornhuetter-Ferguson(“BF”)methodandExpectedLossRatiomethod.Inthereservevaluation,lossstatisticsrelatetonaturalcatastrophesarearrangedbyaccidentyear,whiletheotherlossstatisticsarearrangedbyunderwritingyear.

Totheextentthatthestatisticalmethoduseshistoricalclaimsdevelopmentinformation,itisassumedthatthehistoricalclaimsdevelopmentpatternwilloccuragaininthefuture.Therearereasonswhythismaynotbethecase,which,insofarastheycanbeidentified,havebeenallowedforbymodifyingthemathematicalmodels.Suchreasonsinclude:

• Changesinprocessesthataffectthedevelopment/recordingofclaimspaidandincurred;• Economic,legal,political,socialandenvironmentaltrends,whichcouldresultindifferentexpectedlevelsofinflation,

claimfrequencyandseverity;• Changesinbusinesscomposition;and• Randomfluctuations,includingtheimpactofahigherfrequencyoflargelosses.

ThebestestimateofclaimsliabilitiesisdiscountedbasedonabasketofAsian/USrisk-freeratesofvaryingdurationswitha0.5%liquiditypremiumaddedontopofthem,reflectingtheexpectedcurrencycompositionofunderlyingliabilities.

Process involved in determining premium liabilities

TheCompanydeterminesthepremiumliabilitiesbasedonthehigherofunearnedpremiumreserves(“UPR”)lessdeferredacquisitioncostsandunexpiredriskreserves(“URR”)attheinsurancefundlevel,withaminimumofURRbylineofbusiness.

TheURRneedstobeadequatetomeetfutureclaimsplustheportionoftheCompanyexpensesassociatedwithadministeringtherun-offoftheseclaims.TheURRisdiscountedbasedonabasketofAsian/USrisk-freeratesofvaryingdurationswitha0.5%liquiditypremiumaddedontopofthem,similartoclaimsliabilities.

RatherthancalculatingtheUPRonauniformbasisforalltypesofcontracts,theCompanyhasconsideredtheactualunderlyingriskexposureandapproximatedtheappropriatepremiumrecognitionpatterns.

Sensitivity analysis

Thesensitivityanalysisisperformedonthenetpremiumsandnetclaimsliabilities,basedonchangesinassumptionsthatmayaffectthelevelofliabilities.Theassumptionsconsideredinthesensitivityanalysisareasfollows:

• Discount rate • Technicalcombinedratio

Totestthesensitivityofpremiumandclaimsliabilitiesseparatelyforgrossandnetofreinsurancerecoveries,changesinthediscountrates,simultaneouschangesinthediscountrateforalldurationswereconsidered.Thelevelofchangeisfrom–1%to+1%.Theresultateachchange level isthencomparedtothepremiumandclaims liabilities,netofreinsurancerecoveries.


42


4 Critical accounting estimates and judgements in applying accounting policies (cont’d)

Process involved in determining premium liabilities (cont’d)

Theassumptionthathasthegreatesteffectonthedeterminationof insurancecontractprovisions istheexpectedlossratio(inpercentageterms).Expectedlossratiosarederivedwithreferencetoexpectedtechnicalcombinedratio. Thetestwasconductedbasedonachangelevelof-10%to+10%(2015:-10%to+10%)ofthenetearnedpremiums, netofreinsurancerecoveries.Theimpactonprofitorlossisshownbelow:

Net of reinsurance recoveries Discount rate Technical combined ratio +1% –1% +10% –10% US$’000 US$’000 US$’000 US$’000

31 December 2016Profit/(Loss) 8,132 (8,453) (31,860) 31,860

31 December 2015Profit/(Loss) 8,217 (7,993) (29,355) 29,355

Inaddition,premiumandclaimsliabilitiesaredeterminedasbestestimates.AnadditionalprovisionofapproximatelyUS$58.3million(2015:US$54.3million)(netofreinsurancerecoveries)isrequiredifpremiumandclaimsliabilitiesarecalculatedata75%levelofsufficiencyanddiscountedbasedonabasketofAsian/USrisk-freeratesofvaryingdurations.

Process involved in determining the fair values of the investments

The fair values of investments are based on current bid prices or last traded prices obtained from independent price sources suchasBloombergandInteractiveDataCorporation(“IDC”).ForsecuritiesthatarenotactivelytradedandvaluationsarenotavailableonBloomberg,thefairvaluesarebasedonbidpricesobtainedfrombrokers.

5 Risk management

5.1 Risk management framework

TheCompanyisexposedtoavarietyofreinsuranceandfinancialrisksinthenormalcourseofitsbusinessactivities.The Board of Directors (the “Board”) has overall responsibility for the establishment and oversight of the Company’s risk managementframework.TheBoardistheapprovingauthorityforchangesandexceptionstoallkeyriskmanagementstrategyandpolicieswhichareestablishedtoidentify,analyse,manageandmonitortherisksfacedbytheCompany. TheBoardisalsoresponsibleforapprovingtheCompany’srisktoleranceandrisklimits.TheBoardissupportedbytheRiskManagementCommittee(“RMC”).

TheCompanyleveragesonEnterpriseRiskManagement(“ERM”)frameworktoidentifypotentialeventsthatmayaffecttheorganisationandmanagerisktobewithinitsriskappetitetoprovidereasonableassuranceregardingtheachievementoforganisationobjectives.

TheERMframeworkprovidesasystematicandholisticriskmanagementapproachthroughouttheorganisationandfacilitatesalignmentofriskappetite,businessstrategyandcapitalmanagement.Underthisframework,theCompanycaneffectivelymanageandassessitssolvencyconditionbylinkingbusinessstrategyandcapitalmanagementthroughaclearlydefinedriskappetite.TheCompanydefinesitsriskappetiteintovariouslevelsandlimits.Keyriskindicatorsarethendevelopedinlinewiththesevariousrisklevelssothattherisk-takingactivitiesofthevariousbusinessandfunctionalunitscanbemeasuredandcontrolled.TheCompanyhasputinplacekeypoliciesandguidelinestoensurerisksareidentifiedandcontrolledandtheseareregularlyreviewed.

TheERMframeworkenablesmanagementofdownsiderisks,improvesqualityofrisk-takingandfacilitatessustainablebusinessdevelopmentby identifyingandaddressingpotentialobstaclestoachievingtheorganisationalobjectives. Theframeworkalsoprovidesacomparableandconsistentmeasurementofthevariousrisksfromdifferentbusinessareasandfunctions.


43


5 Risk management (cont’d)

5.1 Risk management framework (cont’d)

TheERMframeworkiscontinuouslybeingoperationalisedtoconsistentlyandsystematicallyevaluate,manageandmonitorrisksandbeingrefinedtostrengthentheeffectivenessoftheCompany’sriskmanagementpractices.

TheCompanycontinuestobuildriskmanagementculturebyimplementingariskgovernancestructure,definingrolesofresponsibilitiesandsettingupclearchannelsofcommunicationregardingriskmanagementobjectivesandplans.

TheERMframeworkprovidesthreelinesofdefencetomitigatetheCompany’srisks:

(i) Riskownersinbusinessandfunctionalunitsconductday-to-dayactivitiesinaccordancewiththeframeworkbyproperly identifying,assessing,controlling,managingandmonitoringrisks.Theriskmanagementpracticesaregovernedbyriskmanagementpoliciesforvariousmajorriskcategoriesandguidelinesforspecificbusinessandfunctionalunits.

(ii) TheERMandCompliancedepartmentsfacilitatetheriskmanagementpractices,developriskmanagementsystemandtools,monitorandcommunicatematerialrisks.TheERMteamalsohasdirectaccesstotheBoardoftheCompanythroughtheRMCforindependentreportingofsignificantriskissues.

(iii) Theinternalauditunitprovidesindependentassuranceofintegrityoftheriskmanagementprocessandeffectivenessofinternalcontrols.TheunitworksindependentlywithintheCompanyandreportsdirectlytotheAuditCommitteeoftheCompany.

5.2 Insurance risk management

Reinsuranceandinsuranceriskreferstotheriskoffinanciallossandconsequentinabilitytomeetliabilitiesasaresultofinadequateorinappropriateunderwriting,claimsmanagement,productdesign,pricingandreserving.

TheCompanyunderwritestreatyandfacultativereinsurancebusinessbothonaproportionalandnon-proportionalbasis.Mainclassesofreinsurancebusinessunderwrittenincludeaviation,credit,marine,energy,property,engineering,casualtyandmotor.

TheCompanymanagesinsuranceriskbymonitoringfactorsthataffecttheperilsandcoverageofthepoliciessuchaschangesinthemacroeconomicorindustrylandscapesandriskenvironment.TheCompanycontinuouslystrengthensitsinformationtechnologysystemanddatamanagementframeworktoensurequalitydataisavailableforcomprehensiveportfolioanalysisandactuarialstudies.

(a) Underwriting risks

ThevariousunderwritingrisksandprocessesandprotectionsputinplaceinrelationtotheserisksbytheCompanyare as follows:

Pricing risk

Pricingistheprocessofdeterminingtheappropriatepremiumtochargefortherisksunderwrittenwhichinvolvestheestimationoffutureclaimfrequencyandseverityandthepaymentpatternassociatedwiththeultimateclaimspayable.

TheCompanyhasanextensivesetofunderwritingguidelinesforusebyunderwritersandemploysseniorunderwriterseachwithconsiderableindustryexperiencetodeterminetheappropriatepriceofeachriskaccepted.Underwritersarealsosupportedbyateamofpricingactuariesandnaturalcatastrophemodellingspecialists.Arangeofsophisticatedpricingtoolsisalsomadeavailabletotheunderwriterswhichcomplementtheirunderwritingjudgement,thusfailuretoconsidertheappropriatefactorsaffectingtheriskisreduced.

TheCompanyacceptsrisksfromoverfiftydifferentcountries,acrosseight linesofbusiness,andfourtypesofbusiness.Thisensuressignificantdiversificationandreducestheriskofsystemicpricingerror.


44



5.2 Insurance risk management (cont’d)

(a) Underwriting risks (cont’d)

Selection risk

Selectionriskemanatesfrompersistentlypoorselectionofrisks.Estimationoffutureclaimscanneverbeperfectandinvolvesprofessionaljudgement.

TheCompanyhasanextensivesetofunderwritingguidelinesdelineatingauthorities,referralprocess,limitsandcapacitiesforusebyunderwriters.Allrisksaresubjecttoapeerreviewprocesspriortoacceptance.Largeandcomplexrisksaresubjecttoreferraltomanagement.

Stochastic claims risk

Theoccurrence,sizeandpaymenttimingofreinsuranceclaimsisaninherentlystochasticprocessandrandomadversefluctuationsposearisktotheCompany.

TheCompanywould limit itsnetexposure toany single risk toUS$20.0million (2015:US$24.0million). TheCompany’sriskandcapitalmanagementaredesignedandexecutedinordertomaintainan“A”levelratingposta1in1000yearreturnperiodlosseventaffectingtheCompanyoveraoneyearhorizon.The1in1000yearreturnperiodevent,benchmarkedagainsttheAsiannaturalcatastrophepeakscenarios,ismodelledtoresultinaUS$54.0million(2015:US$32.1million)(netofretrocession)negativeimpactonprofitorloss.

ThesignificantdiversificationoftheCompany’sbusinessacrosscountriesandlinesofbusinessesalsoreducestheimpactofanysingleclaims.

Reserving risk

Theestimationofliabilitiesisinherentlyuncertain.Theuncertaintiescanarisefromthefollowingfactors:

• Range and quality of data available• Model error • Parameter error• Randomvolatilityinfutureexperience

Onceaclaimhasoccurred,theCompanymustsetasideadequateclaimsreservetomeettheultimatecostofthoseclaims.Therearetypicallyanumberofcomponentsofthereserves:

• Caseestimate–anestimateforaparticularknownclaimoftheamountoftheultimateclaimcosttakingintotheparticularcircumstancesoftheclaim.

• IBNER–knownas“incurredbutnotenoughreported”.Thisisaportfolioadjustmenttoallcaseestimatesreflectinganyoverallinadequacy(ifany)inthoseamounts.

• IBNR–knownas“incurredbutnotreported”.ThisisanestimateofclaimscoststhathavebeenincurredbuthavenotyetbeenreportedtotheCompany.

• Claims expense costs – this is an amount that is set aside for the expected costs of administering claims settlement.

Inadditiontoreservingforoutstandingclaims,areservemayneedtobeestablishedforanyinadequacies(ifany)inunearnedpremium.Unearnedpremiumsshouldreflecttheamountoffutureexposureremainingoverotherperiodoftheunderlyingcontract.CircumstancesmayhavearisensinceacceptingaparticularriskthatleadstheCompanytore-evaluatetheexposureandasaresult,theunearnedpremiummightbeinadequate.

Theprovisionsforinsuranceliabilitiesaresigned-offbyanexternalconsultingactuarialfirm,withsignificantanalyticalsupportfromtheCompany’sactuarialreservingteam.Duringthecourseoftheyear,theprovisionsarereviewedcloselybytheCompany’sactuarialreservingteam.


45




(b) Concentration/accumulation of insurance risks

Claimscanaccumulatefromvariouscontractsfromasinglesystemiccause,suchasanaturalcatastropheorchangeinliabilityawardlevels.Furtherconcentrationcanoccurifpartsofthesamerisksareacceptedfromdifferentclients.SuchaccumulationscanputfinancialstrainontheresourcesoftheCompany.

TheCompanycloselymonitorspotentialaccumulationfornaturalcatastrophesthroughoutAsia.RisksforeachpotentialnaturalcatastrophearecapturedwithintheCompany’ssystemsandarefrequentlyanalysed.

TheCompanyhasnaturalcatastrophespecialistswhoassesstheimpactofpotentialaccumulations.Accumulationisassessedusinganumberofdifferentmethodologiestoensurereliabilityandtoreducetheriskofsystemicmisevaluation.Inadditiontoproportionalretrocessionarrangements,theCompanyhas inplaceanexcessof lossreinsuranceprotectionfornaturalcatastrophesamountinguptoUS$188.7million(2015:US$182.4million).TheCompanyalsocarriesoutregularanalysistomonitorpotentialconcentrationofthesameriskreinsuredfromdifferentclients.

ThefollowingtablessetouttheCompany’sconcentrationofinsurancerisksbycountriesbasedonthelocationofthecedinginsurerorreinsurerandlinesofbusinessbygrosswrittenpremiums.

2016 2015 US$’000 US$’000

CountriesChina 224,462 29,936HongKongandMacau 12,493 4,368India 40,848 34,774Indonesia 24,693 17,163Japan 89,031 82,325Malaysia 18,470 (5,844)MiddleEast 21,696 18,071Philippines 10,279 7,217Singapore 17,328 11,897SouthKorea 30,779 20,515Taiwan 31,029 34,284Thailand 15,590 8,665Turkey 19,022 1,491Vietnam 14,840 2,654Others 17,456 11,254 588,016 278,770

Line of businessAviation 27,472 22,165Casualty 22,632 21,068Credit 39,961 27,096Energy 12,507 8,935Engineering 32,247 28,062Marine 59,488 24,999Motor 84,421 35,633Property 309,288 110,812 588,016 278,770


46




(c) Claims development

Thefollowingtablesshowtheestimatesofcumulativeincurredclaims, includingbothclaimsnotifiedandIBNRforeachsuccessiveunderwritingyearateachreportingdate,togetherwithcumulativepaymentstodate.Theimpactofexchangedifferencesbetweentransactionrateandperiodendrateisshownatthebottomofthetable. TheCompanyalsopresentstablesshowingthedevelopmentofthegrossearnedpremiumsforeachunderwritingyearateachreportingdate.

Underwritingyearisdefinedfrom1Januaryto31Decemberoftheyear,exceptforunderwritingyear2007wherecontractsinceptingpriorto1April2007areincluded;forunderwritingyears2008to2014,underwritingyearisdefinedfrom1Apriloftheyearto31Marchofthefollowingyearandforunderwritingyear2015,underwritingyearisdefinedfrom1April2015to31December2015.

(i) Analysis of claims development – gross of reinsurance recoveries

Gross incurred claims31 December 2016 Underwriting years 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Atendoffirst financialyear 101,494 94,275 85,197 218,135 271,019 170,122 184,035 125,245 106,246 238,520Oneyearlater 227,928 255,198 256,467 825,295 524,115 415,134 534,366 343,730 196,998Twoyearslater 277,226 288,831 341,902 891,762 564,504 480,776 600,326 448,962Threeyearslater 280,348 294,225 342,941 904,270 557,845 489,868 593,357Fouryearslater 275,469 302,244 351,969 923,406 564,402 521,541Fiveyearslater 274,581 297,234 350,701 931,321 554,819Sixyearslater 271,557 294,652 352,947 936,467Sevenyearslater 270,352 292,582 356,735Eightyearslater 270,342 293,198Nineyearslater 270,454Currentestimates oflossreserves 270,454 293,198 356,735 936,467 554,819 521,541 593,357 448,962 196,998 238,520 4,411,051Cumulative payments (267,700)(281,165)(344,303)(856,832)(516,100)(427,107)(438,817)(234,346) (55,592) (11,939) (3,433,901)Best estimate of outstanding claims liabilities 2,754 12,033 12,432 79,635 38,719 94,434 154,540 214,616 141,406 226,581 977,150Currencytranslation (47,171)Total current estimatesof lossreserves 929,979

Gross earned premiums31 December 2016 Underwriting years 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Atendoffirst financialyear 128,362 146,551 159,196 225,724 282,387 272,313 292,726 207,373 102,160 299,015Oneyearlater 305,395 403,360 436,538 666,915 619,731 670,015 749,130 540,821 243,671 Twoyearslater 359,770 465,200 504,111 755,682 698,804 748,380 876,770 745,315 Threeyearslater 366,777 463,463 510,884 755,293 698,601 764,141 864,046 Fouryearslater 368,816 468,146 515,537 762,938 704,589 773,480 Fiveyearslater 372,000 471,307 520,452 766,853 707,877 Sixyearslater 373,091 473,076 523,857 769,315 Sevenyearslater 373,315 473,560 526,133 Eightyearslater 373,575 473,881 Nineyearslater 373,583 Total gross earned premiums 373,583 473,881 526,133 769,315 707,877 773,480 864,046 745,315 243,671 299,015 5,776,316


47




(c) Claims development (cont’d)

(i) Analysis of claims development – gross of reinsurance recoveries (cont’d)

Gross incurred claims31 December 2015 Underwriting years 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Atendoffirstfinancialyear 101,494 94,275 85,197 218,135 271,019 170,122 184,035 125,245 106,246Oneyearlater 227,928 255,198 256,467 825,295 524,115 415,134 534,366 343,730Twoyearslater 277,226 288,831 341,902 891,762 564,504 480,776 600,326Threeyearslater 280,348 294,225 342,941 904,270 557,845 489,868Fouryearslater 275,469 302,244 351,969 923,406 564,402Fiveyearslater 274,581 297,234 350,701 931,321Sixyearslater 271,557 294,652 352,947Sevenyearslater 270,352 292,582Eightyearslater 270,342Currentestimatesof lossreserves 270,342 292,582 352,947 931,321 564,402 489,868 600,326 343,730 106,246 3,951,764Cumulativepayments (266,926)(277,456)(335,100)(835,748)(498,820)(389,829)(325,628) (69,467) 2,018 (2,996,956)Best estimate of outstanding claims liabilities 3,416 15,126 17,847 95,573 65,582 100,039 274,698 274,263 108,264 954,808Currencytranslation (54,421)Totalcurrentestimatesof lossreserves 900,387

Gross earned premiums31 December 2015 Underwriting years 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Atendoffirstfinancialyear 128,362 146,551 159,196 225,724 282,387 272,313 292,726 207,373 102,160Oneyearlater 305,395 403,360 436,538 666,915 619,731 670,015 749,130 540,821Twoyearslater 359,770 465,200 504,111 755,682 698,804 748,380 876,770Threeyearslater 366,777 463,463 510,884 755,293 698,601 764,141Fouryearslater 368,816 468,146 515,537 762,938 704,589Fiveyearslater 372,000 471,307 520,452 766,853Sixyearslater 373,091 473,076 523,857Sevenyearslater 373,315 473,560Eightyearslater 373,575Totalgrossearnedpremiums 373,575 473,560 523,857 766,853 704,589 764,141 876,770 540,821 102,160 5,126,326


48





(ii) Analysis of claims development – net of reinsurance recoveries

Net incurred claims31 December 2016 Underwriting years 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Atendoffirst financialyear 92,443 80,770 50,917 144,661 181,482 95,539 102,224 62,012 49,350 121,720Oneyearlater 215,772 193,277 176,086 524,698 350,496 229,740 288,933 171,311 91,930Twoyearslater 264,178 209,025 234,672 556,831 369,720 273,142 325,160 228,253Threeyearslater 266,559 213,178 237,747 565,991 366,843 278,921 320,270Fouryearslater 262,291 220,088 248,087 579,982 370,423 296,931Fiveyearslater 261,675 216,565 246,214 589,453 364,539Sixyearslater 258,795 214,094 247,887 591,839Sevenyearslater 257,468 212,560 249,614Eightyearslater 257,472 213,276Nineyearslater 257,566Currentestimates oflossreserves 257,566 213,276 249,614 591,839 364,539 296,931 320,270 228,253 91,930 121,720 2,735,938Cumulative payments (256,230)(202,799)(238,517)(532,149)(344,937)(243,994)(243,480)(121,449) (26,875) (5,521) (2,215,951)Best estimate of outstanding claims liabilities 1,336 10,477 11,097 59,690 19,602 52,937 76,790 106,804 65,055 116,199 519,987Currencytranslation (27,063)Total current estimatesof lossreserves 492,924

Net earned premiums31 December 2016 Underwriting years 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Atendoffirst financialyear 111,881 118,545 90,507 147,188 198,750 147,893 160,725 100,232 45,129 150,668Oneyearlater 267,481 297,438 282,230 488,771 399,652 370,467 405,883 261,361 110,324Twoyearslater 321,732 336,377 327,848 551,213 447,458 412,489 475,743 363,104Threeyearslater 328,040 329,877 330,764 536,638 447,702 421,223 467,498Fouryearslater 327,177 332,204 338,960 541,439 450,262 425,625Fiveyearslater 328,777 334,782 343,469 544,593 452,195Sixyearslater 331,872 336,662 345,865 545,709Sevenyearslater 332,373 337,094 347,413Eightyearslater 332,525 337,328Nineyearslater 332,528Total net earned premiums 332,528 337,328 347,413 545,709 452,195 425,625 467,498 363,104 110,324 150,668 3,532,392


49





(ii) Analysis of claims development – net of reinsurance recoveries (cont’d)

Net incurred claims31 December 2015 Underwriting years 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Atendoffirstfinancialyear 92,443 80,770 50,917 144,661 181,482 95,539 102,224 62,012 49,350Oneyearlater 215,772 193,277 176,086 524,698 350,496 229,740 288,933 171,311Twoyearslater 264,178 209,025 234,672 556,831 369,720 273,142 325,160Threeyearslater 266,559 213,178 237,747 565,991 366,843 278,921Fouryearslater 262,291 220,088 248,087 579,982 370,423Fiveyearslater 261,675 216,565 246,214 589,453Sixyearslater 258,795 214,094 247,887Sevenyearslater 257,468 212,560Eightyearslater 257,472Currentestimatesof lossreserves 257,472 212,560 247,887 589,453 370,423 278,921 325,160 171,311 49,350 2,502,537Cumulativepayments (255,464)(199,562)(230,967)(518,598)(334,126)(224,218)(179,960) (36,530) 873 (1,978,552)Best estimate of outstanding claims liabilities 2,008 12,998 16,920 70,855 36,297 54,703 145,200 134,781 50,223 523,985Currencytranslation (33,761)Totalcurrentestimatesof lossreserves 490,224

Net earned premiums31 December 2015 Underwriting years 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Atendoffirstfinancialyear 111,881 118,545 90,507 147,188 198,750 147,893 160,725 100,232 45,129Oneyearlater 267,481 297,438 282,230 488,771 399,652 370,467 405,883 261,361 Twoyearslater 321,732 336,377 327,848 551,213 447,458 412,489 475,743 Threeyearslater 328,040 329,877 330,764 536,638 447,702 421,223 Fouryearslater 327,177 332,204 338,960 541,439 450,262 Fiveyearslater 328,777 334,782 343,469 544,593 Sixyearslater 331,872 336,662 345,865 Sevenyearslater 332,373 337,094 Eightyearslater 332,525 Totalnetearnedpremiums 332,525 337,094 345,865 544,593 450,262 421,223 475,743 261,361 45,129 3,213,795

5.3 Financial risk management

(a) Introduction and overview

TransactionsinfinancialinstrumentsmayresultintheCompanyassumingfinancialrisks.Theseinclude:

• Credit risk• Liquidityrisk• Market risk

ThisnotepresentsinformationabouttheCompany’sexposuretoeachoftheaboverisks,theCompany’sobjectives,policiesandprocessesformeasuringandmanagingsuchrisks.


50



5.3 Financial risk management (cont’d)

(b) Credit risk

Creditriskrepresentsthelossthatwouldberecognisedifcounterpartiestoinsuranceandinvestmenttransactionsfailedtomeettheircontractualobligations.

Aninsurer’sfinancialstrengthratingisaforward-lookingopinionaboutthefinancialsecuritycharacteristicsofaninsuranceorganisationwithrespecttoitsabilitytopayunderits insurancepoliciesandcontractsinaccordancewiththeirterms.

TransactionsaremainlyenteredintowithexternalretrocessionaireswithfinancialstrengthratingofA-andabovebyeitherAMBestorStandard&Poor’s (“S&P”)andassociatesoftheholdingcompany.Thecontingentcreditexposuretoanysingleretrocessionaire is limitedanddependantonanumberoffactors, includingratingandcompanysize.ThelargestcontingentcreditriskforasinglecounterpartyforasingledefaulteventisUS$87.6million (2015:US$50.7million).

Themaximumexposuretocreditriskisnormallyrepresentedbythecarryingamountofeachfinancialassetinthefinancialstatements,althoughinthecaseofinsurancereceivables,itisafairlycommonpracticeforaccountstobesettledonanetbasis.Insuchcases,themaximumexposuretocreditriskisexpectedtobelimitedtotheextentoftheamountoffinancialassetsthathasnotbeenfullyoffsetbyfinancialliabilitieswiththesamecounterparty. Themaximumamountrecoverablefromeachretrocessionaireatanytimeisalsodependentontheclaimsrecoverablefromsuchretrocessionairesatthatpointintime.Asat31December2016,thetopfiveinsurancecounterpartiescollectivelyaccountedforabout32%(2015:40%)oftotalinsurancereceivables.Allfiveinsurancecounterpartiesareregulatedbytheirrespectiveauthorityinthecountrytheyoperateandarefinanciallysound,andthereforetheCompanydoesnotexpectanydefaultinpaymentsasandwhenpaymentsfalldue.

TheCompany’sinvestmentportfolioismanagedinaccordancetotheCompany’sconservativeandprudentinvestmentphilosophywiththeprimaryfocusonmaintainingminimalrisktocapital. Itfocusesoninvestinginhighqualityinvestmentgradefixedincomesecurities.Asat31December2016,theaveragecreditqualityoftheCompany’sinvestmentportfoliowasA(2015:A-).

TheCompanyalsoentersintocreditdefaultswapsforthepurposeofcreditriskhedgingandefficientportfoliomanagement.Acreditriskswapisdesignedtotransferthecreditexposureoffixedincomeproductsbetweentwoormoreparties.Atinception,thereisnoexchangeofprincipalamountsandthenetreceivableorpayablepositionissettledonmaturity. TheCompanyreviewsitsissuerconcentrationandcreditqualityaswellascompliancewithestablishedcreditlimitsonaregularbasis.TheCompanyisnotexposedtoanysignificantcreditconcentrationriskonits investments. Asat31December2016,theCompany’slargestcounterpartyissuerexposureis1.6%(2015:2.1%)oftheCompany’stotalinvestments.

Seenote8forasummaryofthetypeofinvestments,heldbytheCompanyandtherespectivecreditratings.

(c) Liquidity risk

LiquidityriskistheriskthattheCompanywillencounterdifficultyinmeetingobligationsassociatedwithitsfinancialandinsuranceliabilitiesthataresettledbydeliveryofcashoranotherfinancialasset.TheCompanyhastomeetitsliabilitiesasandwhentheyfalldue,notablyfromclaimsarisingfromitsgeneralreinsurancecontracts.Thereishenceariskthatthecashandcashequivalentsheldwillnotbesufficienttomeetitsliabilitieswhentheybecomedue.

TheCompany’sapproachtomanagingliquidityistoensure,asfaraspossible,thatitwillalwayshavesufficientliquiditytomeetitsliabilitiesarisingfrominsuranceclaimsandmaturingliabilitieswhendue,underbothnormalandstressedconditions,withoutincurringunacceptablelossesorriskingdamagetotheCompany’sreputation.


51




(c) Liquidity risk (cont’d)

The Company’s approach to managing its liquidity risk is as follows:

• Cashflowpositionisbeingreviewed,onanongoingbasis,bymonitoringitsoverallliquiditypositionandfundingrequirementsovertheshort,mediumandlongterm;

• TheassetspurchasedfortheCompany’sliabilityfundhavetosatisfyspecifiedmarketabilityrequirementsintermsofrating,durationandconcentrationlimitsasrequiredbytheCompany’sinvestmentguidelineandassetandliabilitymanagement(“ALM”)requirements;

• TheCompanymaintainssufficientcashandliquidassetstomeetdailycallsonitsinsuranceandinvestmentneeds;and

• TheCompanyregularlyupdatesitscontingencyfundingplanstoensurethatadequateliquidfinancialresourcesareinplacetomeetobligationsastheyfalldueintheeventofreasonablyforeseeableabnormalcircumstances.

Giventhehighlevelofcreditqualityandshortdurationinvestmentportfolio,theCompanyisabletoquicklyliquidateitsinvestmentsatanamountclosetotheirfairvaluetomeetitsliquidityrequirementsortorespondtospecificeventssuchasdeteriorationinthecreditworthinessofanyparticularissuer.Inaddition,theCompanyinvestsinAAAratedliquidityfundswhichprovideliquidityforworkingcapitalrequirementsandpaymentofliabilitieswhentheneedarises. Theexpectedcontractualundiscountedcashoutflowsoffinancialliabilitiesasat31December2016and2015areas follows:

Cash flows Contractual Within 1 to 5 cash flows 1 year years US$’000 US$’000 US$’000

31 December 2016Insurancepayables 98,738 5,915 92,823Amountsduetoholdingcompany 2,844 2,844 –Otherpayables* 4,960 4,960 – 106,542 13,719 92,823

31 December 2015Insurancepayables 165,071 69,637 95,434Amountsduetoholdingcompany 2,685 2,685 –Otherpayables* 3,637 3,637 – 171,393 75,959 95,434

* The amount excludes accrued expenses.

Forinsurancecontractprovisions,theanalysisoftheestimatedtimingofcashoutflowsisshowninnote10.


52




(d) Market risk

MarketriskistheriskthatchangesinmarketpricesthatwillaffecttheCompany’sincomeorthevalueofitsholdingoffinancialinstruments.MarketriskfortheCompanycomprisesthreetypesofrisks:

• Currency risk• Interest rate risk• Price risk

Theobjectiveofmarketriskmanagementistomanageandcontrolmarketriskexposureswithinacceptableparameters,whileoptimisingthereturnonrisk.ThenatureoftheCompany’sexposurestomarketrisksanditsobjectives, policiesandprocessesformanagingmarketriskhavenotchangedsignificantlyfromthepreviousfinancialperiod.

Foreachofthemajorcomponentsofmarketrisk,theCompanyhaspoliciesandproceduresinplacewhichdetailhoweachriskshouldbemanagedandmonitored.ThemanagementofeachofthesemajorcomponentsofmajorriskandtheexposureoftheCompanyatthereportingdatetoeachmajorriskisaddressedbelow.

(i) Currency risk

Currencyriskistheriskthatthefairvalueoffuturecashflowsofafinancialinstrumentwillfluctuatebecauseofchangesinforeignexchangerates. TheCompany’scurrencyriskislargelymitigatedbyitsALMframework.Underthisframework,theCompanyestablishedaninternallymanagedinvestmentportfolioaswellasexternalmanagedfunds,withtheobjectiveofinvestingintoAsianlocalcurrencydenominatedfixedincomesecuritiestomatchitsliabilitiesdenominatedinthevariousAsiancurrencies.TheCompanyisrequiredtomaintainassetsinthecurrencyinwhichthecashflowsfromitsliabilitiesaretobesettledinordertoeconomicallyhedgethecurrencyriskinherentintheseexpectedcashflows.Notwithstandingthis,theALMframeworkissubjecttotimelag,estimatesandjudgementswhichmayaffectthedesiredoutcome.

The Company enters into currency forward contracts for the purpose of foreign exchange risk hedging and efficientportfoliomanagement.Acurrencyforwardcontract isanagreementbetweentwopartiestobuyorsellacurrencyataspecifiedprice,ataspecifiedquantityandonaspecifiedfuturedate.At inception,thereisnoexchangeofprincipalamountsandthenetreceivableorpayablepositionissettledonmaturity. Currencyforwardsareusedforforeignexchangeriskhedgingandefficientportfoliomanagement.

TheCompanymayoverweightcertainassetsdenominatedinacurrencyotherthanthefunctionalcurrencyoftheCompanybeyondcurrentALMrequirementsaspartofstrategicassetallocationapprovedbytheBoardtoprepareforunderwritingbusinessexpansionincertaincountriesand/orenhanceinvestmentreturn. Theseinvestmentsaremonitoredandmaybereducedwhenthecurrencyoutlook/valuationofthatinvestmentbecomesstretched.

ThenatureoftheCompany’sexposurestocurrencyriskanditsobjectives,policiesandprocessesformanagingcurrencyriskhavenotchangedsignificantlyfromthepreviousfinancialperiod.

ThefollowingtablesetsouttheCompany’smainexposureatthereportingdatetocurrencyriskarisingfromrecognisedassetsorliabilitiesdenominatedinacurrencyotherthanthefunctionalcurrencyoftheCompany.Theoverallnetexposure isbeforetaking intoconsiderationtheCompany’scurrencyforwardcontractsposition.


53




(d) Market risk (cont’d)

(i) Currency risk (cont’d)

South Malaysian Singapore Korean Japanese Renminbi Ringgit Dollar Won Yen US$’000 US$’000 US$’000 US$’000 US$’000

31 December 2016AssetsInvestments 73,313 13,748 5,150 15,319 –Insurancereceivables 76,842 14,061 5,035 9,024 31,215Otherreceivables – 1 381 75 6Cashandcashequivalents 1,146 1,727 14,573 3,082 4,342 151,301 29,537 25,139 27,500 35,563

LiabilitiesInsurance contract provisions (net of ceded share and deferred acquisitioncosts) (110,367) (11,874) (18,110) (24,602) (98,665)Insurancepayables (16,548) (13,689) (12,942) (20,385) (14,367)Otherpayablesandaccruals (84) – (3,371) (48) 36 (126,999) (25,563) (34,423) (45,035) (112,996)

Overallnetexposure 24,302 3,974 (9,284) (17,535) (77,433)

31 December 2015AssetsInvestments 116,457 8,303 24,042 – –Insurancereceivables 68,438 11,862 11,789 16,902 26,573Otherreceivables (1) – 541 10 6Cashandcashequivalents 6,136 1,201 15,003 – 8,811 191,030 21,366 51,375 16,912 35,390

LiabilitiesInsurance contract provisions (net of ceded share and deferred acquisitioncosts) (125,600) (13,966) (22,399) (38,352) (84,629)Insurancepayables (18,954) (12,293) (16,994) (25,297) (5,357)Otherpayablesandaccruals – (178) (4,591) (1) (6) (144,554) (26,437) (43,984) (63,650) (89,992)

Overallnetexposure 46,476 (5,071) 7,391 (46,738) (54,602)


54





(i) Currency risk (cont’d)


A10%strengtheningofUnitedStatesdollaragainstthefollowingcurrenciesatthereportingdatewouldincrease/(decrease)profitorlossbytheamountsshownbelow.Thisanalysisassumesthatallothervariables,inparticularinterestrates,remainconstant.

Impact on profit/(loss) US$’000

31 December 2016Renminbi (2,430)MalaysianRinggit (397)SingaporeDollar 928SouthKoreanWon 1,754JapaneseYen 7,743

31 December 2015Renminbi (4,648)MalaysianRinggit 507SingaporeDollar (739)SouthKoreanWon 4,674JapaneseYen 5,460

A10%weakeningofUnitedStatesdollaragainsttheabovecurrencieswouldhavehadtheequalbutoppositeeffectontheabovecurrenciesonthebasisthatallothervariablesremainconstant.

(ii) Interest rate risk

Interestrateriskistheriskthatthevalueorfuturecashflowsofafinancialinstrumentwillfluctuateduetothe impact of changes in market interest rates have on interest income from cash and cash equivalents and otherfixedincomeinvestments.

TheearningsoftheCompanyareaffectedbychangesinmarketinterestratesduetotheimpactsuchchangeshaveoninterestincomefromcashandcashequivalents,includinginvestmentsinfixeddeposits.

TheCompanymanagesitsinterestrateriskbymatching,wherepossible,thedurationandprofileofassetsandliabilitiestominimisetheimpactofmismatchesbetweenthevalueofassetsandliabilitiesfrominterestratemovements.

The Company also enters into interest rate futures contracts and interest rate swaps for the purpose of interest rateriskhedgingandefficientportfoliomanagement.Aninterestratefuturescontractisacontractbetweenthebuyerandselleragreeingtothefuturedeliveryofanyinterest-earningasset.Aninterestrateswapisacontractbetweentwopartiesagreeingtoexchangeinterestratecashflows,basedonaspecifiednotionalamountfromafixedratetoafloatingrate(orviceversa)orfromonefloatingratetoanother.Atinception,thereisnoexchangeofprincipalamountsandthenetreceivableorpayablepositionissettledonmaturity.


55





(ii) Interest rate risk (cont’d)

TheCompany’sinvestmentportfoliohasanaveragedurationof2.19years(2015:2.75years),significantlyreducinganylongterminterestratevolatilitywithintheportfolio.

ThenatureoftheCompany’sexposuretointerestrateriskanditsobjectives,policiesandprocessesformanaginginterestrateriskhavenotchangedsignificantlyfromthepreviousfinancialperiod.

Thefollowingtablessetoutthecarryingamount,bymaturity,oftheCompany’sfinancialinstrumentsthatareexposed to interest rate risk:

Within 1 to More than 1 year 5 years 5 years Total US$’000 US$’000 US$’000 US$’000

31 December 2016

Fixed rateFixeddeposits 16,316 – – 16,316Debtsecurities 43,126 202,822 190,484 436,432Bondfunds 75,710 118,938 110,775 305,423 135,152 321,760 301,259 758,171

Floating rateCashatbank 38,417 – – 38,417Liquidityfunds 123,300 – – 123,300 161,717 – – 161,717 296,869 321,760 301,259 919,888

31 December 2015

Fixed rateFixeddeposits 11,437 – – 11,437Debtsecurities 35,895 191,276 124,784 351,955Bondfunds 96,992 154,392 154,095 405,479 144,324 345,668 278,879 768,871

Floating rateCashatbank 58,644 – – 58,644Debtsecurities – – 2,930 2,930Bondfunds – 1,602 – 1,602Liquidityfunds 10,974 – – 10,974 69,618 1,602 2,930 74,150 213,942 347,270 281,809 843,021


56





(ii) Interest rate risk (cont’d)


Achangeof100basispoints(“bp”)ininterestratesatthereportingdatewouldhaveincreased/(decreased)profitorlossandequitybytheamountsshownbelow.Thisanalysisassumesthatallothervariables,inparticularforeigncurrencyrates,remainconstantanddoesnottakeintoconsiderationtheCompany’sinterestratefuturescontractsandinterestrateswapspositions.

Profit or loss Equity 100 bp 100 bp 100 bp 100 bp increase decrease increase decrease US$’000 US$’000 US$’000 US$’000

31 December 2016Debtsecurities – – (17,715) 17,715Bondfunds (10,696) 10,696 – – (10,696) 10,696 (17,715) 17,715

31 December 2015Debtsecurities (272) 272 (11,675) 11,675Bondfunds (13,822) 13,822 – – (14,094) 14,094 (11,675) 11,675

(iii) Price risk

Priceriskistheriskthatthefairvalueorfuturecashflowsofafinancialinstrumentwillfluctuatebecauseofchangesinmarketprices,whetherthosechangesarecausedbyfactorsspecifictotheindividualfinancialinstrumentoritsissuerorfactorsaffectingallsimilarfinancialinstrumentstradedinthemarket.

TheCompanyinvestsprimarily indebtsecuritieswherebyfairvaluesorfuturecashflowsofthefinancialinstrumentsmainlyarisefromchangesininterestrateandtheissuers’repaymentabilities.TheCompanyhasverysmallallocationtoequityfundsandrealestates,thusthepriceriskfacedbytheCompanyisrelativelylessvolatileinthecontextoftotalinvestibleassets.TheCompanymayconsiderreducingweightingsinriskassetswhentheeconomyandassetoutlookappearslessoptimistic.


57



5.4 Capital management

TheCompany’scapitalmanagementapproachisfoundedontheobjectivesofmaintainingadequatecapitaltomeetregulatoryandratingagencies’requirementsandmaintainingacapitalstructureandbusinessmixthatoptimisestakeholdervalue.Significantbuffersarealsomaintainedagainstunexpectedandcatastrophiclossesthatcouldthreatensolvency.

TheCompany’sobjectiveswhenmanagingcapitalare:

• TocomplywithinsurancecapitalrequirementsstipulatedbytheregulatorsoftherespectiveinsurancemarketswheretheCompanyoperatesasrequired.Inthisrespect,theCompanymanagesitscapitalatanamountinexcessoftheminimumregulatorycapital;

• TosafeguardtheCompany’sabilitytocontinueasagoingconcern,sothatitcancontinuetoprovidereturnsforitsshareholderandbenefitsforotherstakeholders;

• To provide an adequate return to its shareholder by pricing reinsurance contracts commensurately with the level ofrisk;

• Toaligntheprofileoftheassetsandliabilitiestakingintoaccountofrisksinherentinthebusiness;and

• Tomaintainstrongcreditratingsandhealthycapitalratiosinordertosupportitsbusinessobjectivesandmaximiseshareholder’svalue.

Primary capital

TheprimarysourceofcapitalusedbytheCompanyisshareholders’equity.TheCompanyalsoconsidersalternativesourcesofcapitalincludingretrocession,asappropriatewhenassessingitsdeploymentandusageofcapital.

Theobjectiveofthecapitalmanagementpolicyissustainedandensuredthroughupdatesofforecastsaspartofanannualstrategicandfinancialplanningprocess.

Regulatory capital

Thelocalinsuranceregulator,theMonetaryAuthorityofSingapore(“MAS”),specifiestheminimumrequiredcapitalthatmustbemaintainedatalltimesthroughouttheyear.Thisminimumrequiredcapitalisdeterminedtobetheriskbasedcapital,basedontheMAS’sRiskBasedCapitalframework(“RBC”).RBCisamethodofmeasuringtheminimumamountofcapitalappropriateforaninsurancecompanytosupportitsoverallbusinessoperationsinconsiderationofitssizeandriskprofile.Thecalculationisbasedonfactorsdeemedhigherforthoseitemswithgreaterunderlyingrisk.

Rating agency capital

TheCompanywasassignedfinancialstrengthandissuercreditratingsbyratingagencies.TheassignmentofsuchratingsarebasedonassessmentoftheCompany’scapitaladequacycalculatedusingtheagencies’ownratingmethodology. Asat31December2016and2015,theCompanycarriesanassignedratingof‘A-’(Excellent)and‘A-’(Strong)issuedbyA.M.BestandStandard&Poor’srespectively.

TherewerenochangesintheCompany’sapproachtocapitalmanagementduringthefinancialyear.


58



5.5 Accounting classifications and fair values

Fair values versus carrying amounts

Thefairvaluesoffinancialassetsandliabilities,togetherwiththecarryingamountsshowninthestatementoffinancialposition,areasfollows:

Designated Fair value – Other Total at fair hedging Loans and Available- financial carrying Fair Note value instruments receivables for-sale liabilities amount value US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

31 December 2016Cashandcashequivalents 14 – – 54,733 – – 54,733 54,733Otherreceivables* 13 – – 1,823 – – 1,823 1,823Available-for-saledebtsecurities 8 – – – 436,432 – 436,432 436,432Financial assets designated at fairvaluethroughprofitorloss 8 564,012 – – – – 564,012 564,012Currency forward exchange contractsusedforhedging 8 – 2,916 – – – 2,916 2,916Credit default and interest rate swapsusedforhedging 8 – 513 – – – 513 513Interest rate futures contracts used forhedging 8 – 6 – – – 6 6 564,012 3,435 56,556 436,432 – 1,060,435 1,060,435

Currency forward exchange contractsusedforhedging 8 – (11,290) – – – (11,290) (11,290)Credit default and interest rate swapsusedforhedging 8 – (202) – – – (202) (202)Interest rate futures contracts used forhedging 8 – (88) – – – (88) (88)Amountsduetoholdingcompany 12 – – – – (2,844) (2,844) (2,844)Otherpayablesandaccruals 18 – – – – (8,256) (8,256) (8,256) – (11,580) – – (11,100) (22,680) (22,680)

31 December 2015Cashandcashequivalents 14 – – 70,081 – – 70,081 70,081Otherreceivables* 13 – – 12,646 – – 12,646 12,646Available-for-saledebtsecurities 8 – – – 336,686 – 336,686 336,686Financial assets designated at fairvaluethroughprofitorloss 8 625,867 – – – – 625,867 625,867Currency forward exchange contractsusedforhedging 8 – 1,166 – – – 1,166 1,166Interest rate futures contracts used forhedging 8 – 687 – – – 687 687 625,867 1,853 82,727 336,686 – 1,047,133 1,047,133

Currency forward exchange contractsusedforhedging 8 – (1,972) – – – (1,972) (1,972)Amountsduetoholdingcompany 12 – – – – (2,685) (2,685) (2,685)Otherpayablesandaccruals 18 – – – – (7,406) (7,406) (7,406) – (1,972) – – (10,091) (12,063) (12,063)

* The amount excludes prepayments.


59



5.5 Accounting classifications and fair values (cont’d)

Fair value hierarchy

Level 1 Level 2 Level 3 Total US$’000 US$’000 US$’000 US$’000

Financial assets and financial liabilities carried at fair value

31 December 2016

Fair value through profit or lossBondfunds 305,423 – – 305,423Equityfund – 5,466 – 5,466Liquidityfunds 123,300 – – 123,300Propertyfunds – – 129,823 129,823 428,723 5,466 129,823 564,012

Available-for-saleDebtsecurities 436,432 – – 436,432

Derivatives designated as hedging instrumentsCurrencyforwardcontracts – (8,374) – (8,374)Credit default and interest rate swaps – 311 – 311Interestratefuturescontracts – (82) – (82) – (8,145) – (8,145)

865,155 (2,679) 129,823 992,299

31 December 2015

Fair value through profit or lossDebtsecurities 17,026 1,173 – 18,199Bondfunds 407,081 – – 407,081Equityfund 37,532 35,982 – 73,514Liquidityfunds 10,974 – – 10,974Propertyfunds – – 116,099 116,099 472,613 37,155 116,099 625,867

Available-for-saleDebtsecurities 300,531 36,155 – 336,686

Derivatives designated as hedging instrumentsCurrencyforwardcontracts – (806) – (806)Interestratefuturescontracts – 687 – 687 – (119) – (119)

773,144 73,191 116,099 962,434


60



5.6 Measurement of fair values

Thefairvalueoffinancialassetstradedinactivemarketsisbasedonquotedmarketpricesatthereportingdate.Thequotedmarketisdeterminedbyreferencetotheirquotedbidpricesorlasttradedprice.TheseinvestmentsareincludedinLevel1.

Thefairvalueoffinancialassetsandfinancialliabilitiesthatarenottradedinanactivemarket(forexample,over-the-counterderivatives)isdeterminedbyusingvaluationtechniques.Quotedmarketpricesordealerquotesforsimilarinstrumentsareusedtoestimatefairvalue.Thefairvaluesofforwardexchangecontracts,creditdefaultandinterestrateswaps, interestratefuturescontractsandcertaindebtsecuritiesandequityfundareestimatedbasedonquotesobtainedfromReuters/Bloombergandpricesquotedbythebrokeratthereportingdate.TheseinvestmentsareincludedinLevel2andcomprisedebtsecurities,equityfundandderivativefinancialinstruments.

The fair values of property funds are derived based on the net asset values obtained from the fund managers at the reportingdate.Thevaluationsobtainedfromthemanagersarebasedonvariousanalysesontheunderlyingholdingsineachfund,includingfinancialvaluationmodelsandprojections,comparablevaluationsfromthepublicmarketsandprecedentprivatemarkettransactions.Investmentsarevaluedbasedonthefund’sbeneficialinterestintheunderlyingnetassetsofthefundasdeterminedbythepartnershipagreement.Asthevaluationtechniquefortheseinvestmentsisbasedonsignificantunobservableinputs,suchinvestmentsareincludedinLevel3.

TheLevel3relatestopropertyfundswhereobservablemarketdataisnotavailable.AlthoughtheCompanybelievesthatthefairvaluesareappropriate,theuseofdifferentmethodologiesorassumptionscouldleadtodifferentmeasurementsoffairvalue.

Fairvalueofpropertyfundswillincreaseifcomparablevaluationsfromthepublicmarketsandprecedentprivatemarkettransactionsarefavourable.

Duringthefinancialyear,thereisnotransferofinvestmentsbetweenLevel1,2and3.

ThefollowingtableshowsareconciliationfromtheopeningbalancestotheendingbalancesforLevel3fairvalues:

Fair value through profit or loss US$’000

At1January2016 116,099Purchases 8,116Totalgainsandlossesrecognisedinprofitorloss:– Changeinfairvalueofinvestments 5,608At31December2016 129,823


61


6 Property and equipment

Furniture Computer Motor Office and equipment vehicle equipment fittings Total US$’000 US$’000 US$’000 US$’000 US$’000

CostAt1April2015 387 82 143 515 1,127Disposals – – (12) – (12)At31December2015 387 82 131 515 1,115

At1January2016 387 82 131 515 1,115Additions 163 – 2 157 322Disposals (5) – (1) (146) (152)At31December2016 545 82 132 526 1,285

Accumulated depreciationAt1April2015 283 82 117 266 748Disposals – – (12) – (12)Depreciationchargefortheperiod 52 – 17 121 190At31December2015 335 82 122 387 926

At1January2016 335 82 122 387 926Disposals (4) – (1) (117) (122)Depreciationchargefortheyear 55 – 9 121 185At31December2016 386 82 130 391 989

Carrying amountsAt1April2015 104 – 26 249 379At31December2015 52 – 9 128 189At31December2016 159 – 2 135 296

7 Intangible assets

Club membership US$’000

Cost and carrying amountAt1April2015/31December2015 –Additions 67At31December2016 67


62


8 Investments

2016 2015 US$’000 US$’000

Financial assets

Fair value through profit or loss– Debtsecurities – 18,199– Bondfunds 305,423 407,081– Equityfund 5,466 73,514– Liquidityfunds 123,300 10,974– Propertyfunds 129,823 116,099 564,012 625,867

Available-for-sale– Debtsecurities 436,432 336,686

Derivatives designated as hedging instruments– Currencyforwardcontracts 2,916 1,166– Creditdefaultandinterestrateswaps 513 –– Interestratefuturescontracts 6 687 3,435 1,853

1,003,879 964,406

Financial liabilities

Derivatives designated as hedging instruments– Currencyforwardcontracts (11,290) (1,972)– Credit default and interest rate swaps (202) –– Interestratefuturescontracts (88) – (11,580) (1,972)

Investments are allocated as follows:

2016 2015 US$’000 US$’000

Non-current 753,155 745,178Current 239,144 217,256 992,299 962,434


63


8 Investments (cont’d)

ThefollowingtablesshowasummaryofthetypeofinvestmentsheldbytheCompanyasat31December2016and2015andtherespectivecreditratings,whicharebasedonS&P’screditratingoritsequivalent.

AAA AA A BBB BB B Below B Not rated rated rated rated rated rated rated rated Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

31 December 2016

Fair value through profit or lossEquityfund* – – – – – – – 5,466 5,466Bond funds# 101,081 21,298 32,332 72,110 23,340 26,952 28,310 – 305,423Liquidityfunds** 122,278 – 1,022 – – – – – 123,300Property funds^ – – – – – – – 129,823 129,823 223,359 21,298 33,354 72,110 23,340 26,952 28,310 135,289 564,012

Available-for-saleDebt securitiesCorporatebonds 12,412 29,879 134,108 168,503 41,672 – – 4,014 390,588Government & quasi- governmentbonds 12,421 13,694 11,027 5,327 3,375 – – – 45,844 24,833 43,573 145,135 173,830 45,047 – – 4,014 436,432

Derivatives designated as hedging instrumentsCurrency forward contracts – (6,883) (1,490) – – – – (1) (8,374)Credit default and interest rate swaps – – 311 – – – – – 311Interest rate futures contracts – – (82) – – – – – (82) – (6,883) (1,261) – – – – (1) (8,145)

Total 248,192 57,988 177,228 245,940 68,387 26,952 28,310 139,302 992,299


64



AAA AA A BBB BB B Below B Not rated rated rated rated rated rated rated rated Total US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

31 December 2015

Fair value through profit or lossDebt securitiesCorporatebonds – – 5,721 9,733 1,043 1,487 – – 17,984Government & quasi- governmentbonds – 215 – – – – – – 215 – 215 5,721 9,733 1,043 1,487 – – 18,199

Equityfund* – – – – – – – 73,514 73,514Bond funds# 113,498 45,876 40,405 90,776 35,256 51,958 29,312 – 407,081Liquidityfunds** – 10,974 – – – – – – 10,974Property funds^ – – – – – – – 116,099 116,099 113,498 57,065 46,126 100,509 36,299 53,445 29,312 189,613 625,867

Available-for-saleDebt securitiesCorporatebonds – 52,458 120,276 86,337 29,132 – – – 288,203Government & quasi- governmentbonds 7,235 20,228 – 14,967 6,053 – – – 48,483 7,235 72,686 120,276 101,304 35,185 – – – 336,686

Derivatives designated as hedging instrumentsCurrency forward contracts – (52) – – – – – (754) (806)Interest rate futures contracts – 687 – – – – – – 687 – 635 – – – – – (754) (119)

Total 120,733 130,386 166,402 201,813 71,484 53,445 29,312 188,859 962,434

* TheCompanyinvestsinanequityfundwiththeaimofdiversifyinginvestmentportfolioaswellasenhancinglong-terminvestmentreturn.Thefund,whichfocusesonvalueinvestmentphilosophy,investsprimarilyinAsianlistedsecuritieswiththeobjectivetoachievelongtermabsolutegain.

** TheCompanyinvestsinliquidityfunds(“funds”)mainlyforitsworkingcapitalrequirements.Thesefundsaimtoachieveacurrentinvestmentincomewhilemaintainingliquidityandstabilityoftheprincipal.Thesefundsinvestprimarilyinaportfolioofhighquality,shortdurationfixedincomesecuritiessuchascommercialpapers,certificatesofdeposits,timedeposits,governmentbonds,governmentagencydebtsandcorporatebonds.

# TheCompanyinvestsinbondfundswiththeaimofachievinginvestmentreturnwhilemaintainingstrongliquidityandpreservationofcapital.Thefundsinvestprimarilyingovernmentandcorporatebonds.

^ TheCompanyalsoinvestsinpropertyfundswiththeaimofdiversifyingtheinvestmentportfolioaswellasenhancinglong-terminvestmentreturns.Thesefundsutilisedisciplinedvalue-addedinvestmentapproach,investsinpan-EuropeanprivateandNorthAmericanpropertieswiththeobjectiveofachievinginvestmentgainsthroughenhancingthevaluepropositionofitspropertyassets.


65



Derivative financial instruments

TheCompanyentersintocurrencyforwardcontracts,creditdefaultandinterestrateswapsandinterestratefuturescontractsforthepurposeofforeignexchangeriskhedging,creditriskhedgingandinterestratehedgingrespectivelyandefficientportfoliomanagement.

Thenotionalamountandnetfairvalueofthederivativefinancialinstrumentsasat31December2016and2015areassetoutbelow.

Notional Fair Notional Fair amount value amount value 2016 2016 2015 2015 US$’000 US$’000 US$’000 US$’000

Currencyforwardcontracts 323,451 (8,374) 213,626 (806)Creditdefaultandinterestrateswaps 19,702 311 – –Interestratefuturescontracts 10,964 (82) 48,300 687

9 Deferred acquisition costs

Themovementsindeferredacquisitioncostsareasfollows:

2016 2015 Gross Ceded share Net Gross Ceded share Net US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Deferred acquisition costsAtbeginningoftheyear/period 114,785 (58,555) 56,230 195,621 (99,091) 96,530Acquisitioncosts 168,353 (72,453) 95,900 91,791 (42,332) 49,459Amortisationofdeferred acquisitioncosts (185,687) 85,683 (100,004) (172,950) 82,356 (90,594)Currencytranslation 953 (533) 420 323 512 835Atendoftheyear/period 98,404 (45,858) 52,546 114,785 (58,555) 56,230

Deferredacquisitioncostsareallocatedasfollows:


Non-current 11,493 (6,742) 4,751 41,383 (19,366) 22,017Current 86,911 (39,116) 47,795 73,402 (39,189) 34,213 98,404 (45,858) 52,546 114,785 (58,555) 56,230


66


10 Insurance contract provisions


Provisionforunexpiredrisks 346,748 (177,552) 169,196 404,893 (215,151) 189,742Provisionforinsuranceclaims 929,979 (437,055) 492,924 900,387 (410,163) 490,224Total 1,276,727 (614,607) 662,120 1,305,280 (625,314) 679,966

Insurance contract provisions are allocated as follows:


Non-current 562,545 (271,544) 291,001 713,411 (331,987) 381,424Current 714,182 (343,063) 371,119 591,869 (293,327) 298,542 1,276,727 (614,607) 662,120 1,305,280 (625,314) 679,666

The movements in insurance contract provisions are as follows:


Provision for unexpired risksAtbeginningoftheyear/period 404,893 (215,151) 189,742 718,220 (359,425) 358,795Premiumswritten 588,016 (292,096) 295,920 278,770 (156,431) 122,339Premiumsearned (649,990) 331,393 (318,597) (593,061) 299,515 (293,546)Currencytranslation 3,829 (1,698) 2,131 964 1,190 2,154Atendoftheyear/period 346,748 (177,552) 169,196 404,893 (215,151) 189,742

Provision for insurance claimsAtbeginningoftheyear/period 900,387 (410,163) 490,224 858,841 (373,331) 485,510Claimspaid (432,863) 196,937 (235,926) (361,167) 157,937 (203,230)Lossportfoliotransfers (4,082) 2,609 (1,473) 4,684 (3,126) 1,558Claimsincurred 459,287 (225,886) 233,401 414,421 (200,572) 213,849Currencytranslation 7,250 (552) 6,698 (16,392) 8,929 (7,463)Atendoftheyear/period 929,979 (437,055) 492,924 900,387 (410,163) 490,224

Total 1,276,727 (614,607) 662,120 1,305,280 (625,314) 679,966

Thetablebelowsummarisestheestimatedmaturityprofilesoftheprovisionfor insuranceclaimsbytheexpectedpayment dates:


Dueinoneyear 414,852 (192,754) 222,098 389,806 (178,263) 211,543Dueafteronethroughthreeyears 351,424 (169,204) 182,220 344,275 (157,277) 186,998Dueafterthreeyearsbutlessthan fiveyears 117,956 (54,526) 63,430 120,386 (54,120) 66,266Dueafterfiveyears 45,747 (20,571) 25,176 45,920 (20,503) 25,417Total 929,979 (437,055) 492,924 900,387 (410,163) 490,224


67


11 Insurance receivables

2016 2015 US$’000 US$’000

Inward insurance receivables and amounts due from retrocessionaires– thirdparties 277,278 343,069– associatesoftheholdingcompany 26,388 46,359 303,666 389,428Depositsretainedbycedants 19,041 20,688 322,707 410,116

Insurancereceivablesarecurrent.

Theageingof inwardinsurancereceivables,amountsduefromretrocessionairesandrelatedallowancefordoubtfulreceivablesatthereportingdateareasfollows:

2016 2015 Gross Allowance Net Gross Allowance Net US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Notdue 233,441 – 233,441 276,164 – 276,164Upto6months 23,898 – 23,898 34,061 – 34,061Above 6 months but not exceeding12months 13,964 – 13,964 13,701 – 13,701Above12months 33,641 (1,278) 32,363 66,671 (1,169) 65,502 304,944 (1,278) 303,666 390,597 (1,169) 389,428

Theabovereceivableshavebeenindividuallyassessedforimpairmentafterconsideringinformationsuchasoccurrenceofsignificantchangesinthecounterparty’sfinancialposition,patternsofhistoricalpaymentinformationanddisputewithcounterparties.

Basedonhistoricaldefaultrates,theCompanybelievesthatnoimpairmentallowanceisnecessaryinrespectoftheinsurancereceivablesnotpastdueorpastdueupto6months.ThesereceivablesaremainlyarisingbycedantsandbrokersthathaveagoodcredithistorywiththeCompany.

Themovementsinallowancefordoubtfulreceivablesinrespectofinsurancereceivablesduringtheyear/periodareas follows:

Note 2016 2015 US$’000 US$’000

Atbeginningoftheyear/period 1,169 180Impairmentlossesoninsurancereceivables 23 71 1,013Currencytranslation 38 (24)Atendoftheyear/period 1,278 1,169


68


12 Amounts due to holding company

2016 2015 US$’000 US$’000

Amountsduetoholdingcompany(non-trade) 2,844 2,685

Theamountsduetoholdingcompanyarecurrent.

Theamountsduetoholdingcompanyareunsecured,interest-freeandarerepayableinthenormalcourseofbusiness.Therewasnoallowancefordoubtfuldebtsarisingfromtheoutstandingbalanceintheprioryear.

13 Other receivables

2016 2015 US$’000 US$’000

Accruedinterestfromcashandcashequivalents 38 27Investmentreceivables 549 7,854Others 1,236 4,765Prepayments 422 480 2,245 13,126

Otherreceivablesarecurrent.

14 Cash and cash equivalents

2016 2015 US$’000 US$’000

Cashatbank 38,417 58,644Depositswithfinancialinstitutions 16,316 11,437 54,733 70,081

Theweightedaverageeffectiveinterestrateperannumrelatingtodepositswithfinancialinstitutionsatthereportingdateis1.2%(2015:1.1%).

Depositswithfinancialinstitutionsaregenerallyplacedonshort-termmaturitiesoflessthan12monthsinduration.

15 Capital and reserves

Share capital

2016 2015 Number of Number of shares shares ’000 ’000

Fully paid ordinary shares, with no par value:Atbeginningandendoftheyear/period 765,000 765,000 TheholderofordinarysharesareentitledtoreceivedividendsasdeclaredfromtimetotimeandareentitledtoonevotepershareatmeetingsoftheCompany.AllsharesrankequallywithregardtotheCompany’sresidualassets.


69


15 Capital and reserves (cont’d)

Fair value reserve

Thefairvaluereservecomprisesthecumulativenetchangeinthefairvalueofavailable-for-salefinancialassetsuntiltheinvestmentsarederecognisedorimpaired.

Dividends

Duringtheyear/period,thefollowingdividendsweredeclaredandpaidbytheCompany:

2016 2015 US$’000 US$’000

Final tax exempt dividend paid:– Nil(2015:US$0.025pershare) – 19,000

16 Employee share options/other share-based payment

On15November2007,theholdingcompanyestablishedtheACRCapitalHoldingsShareOptionPlan(the“Plan”),whichwasamendedon18January2010.UnderthePlan,certainemployeesanddirectorsoftheCompanyaregrantedshareoptionswhichentitledthemtopurchasesharesintheholdingcompanywhentheshareoptionsareexercised.InaccordancewiththePlan,shareoptionsareexercisableattheexercisepriceofthesharesspecifiedintheoptionletterissuedtotheparticipantsaftertheoptionshadvested.Noshareoptiongrantedpriorto1December2009maybeexercisedlaterthanthetenthanniversaryofthegrantdate.

Thetermsandconditionsoftheemployeeshareoptionprogrammeareasfollows:

Number of ContractualGrant date options Vesting conditions life of options

15November2007 207,281 50%ofoptionscanbevestedafter3years 10years fromgrantdate,regardlessofperformance.

Thenumberofoptionsandtheirrelatedweightedaverageexercisepricesareasfollows:

2016 2015 Weighted Weighted average average exercise exercise price No. of price No. of US$ options US$ options

Atbeginningoftheyear/period 100.00 1,682 100.00 29,055Forfeitedduringtheyear/period 100.00 – 100.00 (27,373)Atendoftheyear/period 100.00 1,682 100.00 1,682


70


16 Employee share options/other share-based payment (cont’d)

Shareoptionsoutstandingattheendoftheyear/periodhavethefollowingexpirydatesandexerciseprices:

Exercise price Share optionsDate of grant of options Expiry date (US$) outstanding 2016 2015

15November2007 15November2017 100 1,682 1,682

ThefairvalueofservicesreceivedinreturnforshareoptionsgrantedaremeasuredbyreferencetothefairvalueofshareoptionsgrantedwhichisestimatedbasedontheBlack-Scholesmodel.

Fair value of share options and assumptions

15 NovemberDate of grant 2007

Fairvalueofeachoptionatdateofgrant US$26.44

Shareprice US$100Strikeprice US$100Expectedvolatility 21.6%Expectedduration 4.8yearsRisk-freeinterestratebasedontheannualyieldofa5yearTreasuryNote 3.672%

Therearenomarketconditionsassociatedwiththeshareoptiongrants.Serviceconditionsandnon-marketperformanceconditionsarenottakenintoaccountinthemeasurementofthefairvalueoftheoptionstobereceivedatthegrantdate.

On6October2016,theholdingcompanyhaswrittentoallRightsHolders(i.e.optionsandwarrantsholders)toofferacash-outpaymentonthecompletiondateoftheproposedacquisitionoftheholdingcompanybyapotentialbuyer. AllRightsHoldershaverespondedbefore21October2016withtheundertakingsnottoexercisetheiroptions/warrantsandelectedtoreceivethecash-outpaymentoffered.

Thecashamountforeachoption/warrantwillequaltothedifferencebetweenthepurchasepricepersharepaidbythepotentialbuyeroncompletionandthestrikepriceofUS$100foreachoption/warrant.

Other share based payment

On12November2015,theholdingcompanygrantedtherighttoown105,921ClassAordinarysharestotheCompany’sDirectorin2016,uponfulfillingcertainconditions.On12November2016,105,921ClassAordinaryshareswereissuedtohim.

Partnership plan

On24February2016,theholdingcompanyestablishedanemployeeshareplan,ACRCapitalHoldingsPartnershipPlan(“the Plan”) where all employees in permanent employment with the holding company and its subsidiaries as at and from 1January2016andwhoarenotservinganynoticeperiodatsuchtime(subjecttotheircompletionofanyapplicableprobationperiod),unlessotherwisewaivedbytheholdingcompany’sRemunerationCommitteeatitssoleandabsolutediscretion,shallbeeligibletothePlanandbegrantedanaward.

Theawardisacontingentrighttoreceiveacashpaymentequaltothebookormarketvalueofaspecifiednumberofdeemedshares(“DS”)intheholdingcompanyontherelevantvestingdates,intheformofanawardletterandanyaward not vested will be lapsed when the eligible employee ceases to be in employment with the holding company or anyofitssubsidiaries.


71


16 Employee share options/other share-based payment (cont’d)

Partnership plan (cont’d)

AparticipatingemployeeDSvestingdate(s)willfallunderoneofthefollowingcombinations:

(a) 100%on31December2016;(b) 33%on31December2016,andtheremainder,or67%,on31December2017;or(c) 100%on31December2017.

Thetotalvalueofawardsasat31December2016wasUS$614,400basedon5,120DSatUS$120perDS,outofwhichUS$505,224wasfullyvestedby31December2016andtheremainingUS$109,176isexpectedtobefullyvestedby31December2017.

17 Insurance payables

2016 2015 US$’000 US$’000

Insurancepayables 98,738 165,071

Insurancepayablesarecurrent.

18 Other payables and accruals

2016 2015 US$’000 US$’000

Accruedexpenses 3,296 3,769Otherpayables 4,960 3,637 8,256 7,406

Otherpayablesandaccrualsarecurrent.

19 Deferred tax assets and liabilities

Deferredtaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttosetoffcurrenttaxassetsagainstcurrenttaxliabilitiesandwhenthedeferredtaxesrelatetothesametaxauthority.

Deferredtaxassetsandliabilitiesareattributabletothefollowing:

Assets Liabilities Net 2016 2015 2016 2015 2016 2015 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Available-for-salefinancialassets (3) – – – (3) –Taxlosscarry-forwards (7,894) (8,920) – – (7,894) (8,920)Deferredtaxassets (7,897) (8,920) – – (7,897) (8,920)Setoffoftax – – – – – –Netdeferredtaxassets (7,897) (8,920) – – (7,897) (8,920)


72


19 Deferred tax assets and liabilities (cont’d)

Movementsindeferredtaxassetsandliabilities(priortooffsettingofbalances)duringtheyear/periodareasfollows:

Balance Recognised Balance Recognised Balance as at Recognised in other as at Recognised in other as at 1 April in profit comprehensive 31 December in profit comprehensive 31 December 2015 or loss income 2015 or loss income 2016 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Available-for-sale financialassets 750 – (750) – – (3) (3)Taxlosscarry-forwards (6,686) (2,234) – (8,920) 1,026 – (7,894) (5,936) (2,234) (750) (8,920) 1,026 (3) (7,897)

20 Net investment income

Period from Year ended 1/4/2015 to 31/12/2016 31/12/2015 US$’000 US$’000

Interest income:– Cash and cash equivalents 160 200– Liquidityfunds 102 179– Debtsecurities 22,719 15,315– Insurance deposits and others 212 262Net(losses)/gainsonsaleofinvestments (16,210) 33,136Netgainondisposalofavailable-forsalefinancialassetsreclassifiedfromequity 2,243 –Netfairvaluegains/(losses) 43,827 (19,003)Investmentexpenses (2,920) (1,080)Dividendincomefrominvestments 4,952 3,260 55,085 32,269

Net investment income is derived from:Reinsurancebusiness 13,727 8,844Capitalfund 41,358 23,425 55,085 32,269

Netinvestmentincomefromreinsurancebusinessisdeterminedbasedonthenetcashinflows/(outflows)received/(paid)derivedfromreinsuranceoperationsthatareinvestedintotheCompany’sfinancialassetsforgenerationofinvestmentincomeandafterdeductinginvestmentexpenses.

NetinvestmentincomefromcapitalfundisderivedfrominvestmentofcapitalinjectedintotheCompany,takingintoaccountaccumulatedinvestmentincome/(loss)received/(paid),afterdeductinginvestmentexpenses.

21 Other operating expenses


Netforeignexchangelosses (545) (1,712)Otheroperatingincome 149 290 (396) (1,422)


73


22 Tax expense/(credit)

Recognised in profit or loss


Current tax expenseCurrentyear/period 82 200Adjustmentforprioryears 252 1,796 334 1,996

Deferred tax (income)/expenseMovementsintemporarydifferences (891) (1,762)Adjustmentforprioryears 1,917 (472) 1,026 (2,234)

Total tax expense/(credit) 1,360 (238)

Recognised in other comprehensive income

For the year/period ended 31 December

2016 2015 Before Tax Net of Before Tax Net of tax credit tax tax credit tax US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

Available-for-salefinancialassets (3,544) 3 (3,541) (4,858) 750 (4,108)


Reconciliation of effective tax rateProfit/(Loss)beforetax 1,579 (9,684)

TaxcalculatedusingSingaporetaxrateof17% 268 (1,646)Effectsof:– Concessionarytaxrateof10% 268 1,619– Incomenotsubjecttotax (1,944) (886)– Effectsoftaxratesinforeignjurisdiction 450 (722)– Non-deductibleexpenses 149 73– Adjustmentforprioryears 2,169 1,324 1,360 (238)

Pursuanttosection43CoftheSingaporeIncomeTaxAct,Cap134,incomefromoffshorebusinessissubjecttotaxattheconcessionaryrateof10%,insteadofthestandardrateof17%.


74


22 Tax expense/(credit) (cont’d)

TheCompanyhasbeenawardedthefollowingtaxexemptionschemes:

• TaxexemptionschemeforOffshoreMarineHullandLiabilityinsurancebusinessforaperiodof10yearscommencing5February2007;and

• TaxexemptionschemeforQualifyingOffshoreSpecialisedInsuranceRiskswasrenewedforaperiodof5yearswitheffectfrom1January2013.

Incomeandexpensesderivedfromunderthesetaxexemptionschemesareexemptedfromtax,subjecttotheconditionssetoutinsection43CoftheSingaporeIncomeTaxAct,Cap134.

23 Profit/(Loss) for the year/period

Thefollowingitemsinnetoperatingexpenseshavebeenincludedinarrivingatprofit/(loss)fortheyear/period:


Personnel expenses – Staffcosts 16,769 15,506– Contributionstoadefinedcontributionplan 676 504– Valueofemployeeservicesreceivedforissueofshareoptions – (68)– Partnershipplan 560 –Depreciationofpropertyandequipment 6 185 190Lossondisposalofpropertyandequipment 30 –Impairmentlossesoninsurancereceivables 11 71 1,013Auditfees 422 364Non-auditfees – 8Operatingleaseexpense 650 676Ceding fee# (5,811) (6,516)

# Ceding fee is derived from the Company’s whole account quota share arrangement to defray operating expenses incurred.

24 Operating leases

Non-cancellableoperatingleaserentalsarepayableasfollows:

2016 2015 US$’000 US$’000

Payable:Withinoneyear 677 613Betweenoneandfiveyears 832 240 1,509 853


75


25 Significant related party transactions

Duringtheyear/period,apartfromthebalancesandtransactionsdisclosedelsewhere inthesefinancialstatements, thetransactionswiththeCompany’srelatedpartiesareasfollows:


Holding company– Managementfeeschargedtotheholdingcompany – 180– Managementfeeschargedbytheholdingcompany (1,794) (1,325)– Expensesrechargedtotheholdingcompany – 1,801– Expensesrechargedbytheholdingcompany (17,935) (13,251)

Related company – Consultingfeespaid/payable (642) (542)

Affiliated companies– Premiumsreceived/receivable 1,802 2,213– Commissionpaid/payable (878) (735)– Claimspaid/payable (155) (80)– Brokeragefeespaid/payable (470) (908)

Associates of the holding company– Premiumspaid/payable (18,789) (11,927)– Premiumsreceived/receivable 18,023 (255)– Commissionreceived/receivable 3,105 649– Commissionpaid/payable (5,865) (15,650)– Claimsreceived/receivable 20,053 13,131– Claimspaid/payable (50,368) (45,116)– Servicefeespaid/payable (125) (404)

26 Key management personnel compensation


Shorttermemploymentbenefits 1,855 1,024Postemploymentbenefits 19 11 1,874 1,035

Shareoptionsthatweregrantedtokeymanagementpersonnelon15November2007,18December2009and 21December2010wereonthesametermsandconditionsasthoseofferedtootheremployeesoftheCompanyasdescribedinnote16.Atthereportingdate,none(2015:none)ofthoseshareoptions,heldbykeymanagementpersonnel,areoutstanding.


76


27 New standards and interpretations not adopted

Anumberofnewstandards,amendmentstostandardsandinterpretationsareeffectiveforannualperiodsbeginningafter1January2016andearlierapplicationispermitted;howevertheCompanyhasnotearlyappliedthefollowingneworamendedstandardsinpreparingthesestatements.

ForthosenewstandardsandamendmentstostandardsthatareexpectedtohaveaneffectonthefinancialstatementsoftheCompanyinfuturefinancialperiods,theCompanyisassessingthetransitionoptionsandthepotentialimpactonitsfinancialstatements,andtoimplementthesestandards.TheCompanydoesnotplantoadoptthesestandardsearly.

Applicable to 2018 financial statements

New standardsSummary of the requirements Potential impact on the financial statementsApplying FRS 109 Financial Instruments with FRS 104 Insurance Contracts(AmendmentstoFRS104)

The amendments introduce two approaches: an overlay approachandadeferralapproach.TheamendedFRS104:

• gives all companies that issue insurance contracts theoptiontorecognise inothercomprehensiveincome,ratherthanprofitorloss,thevolatilitythatcouldarisewhenFRS109isappliedbeforethenewinsurance contracts standard is issued (the “Overlay Approach”);and

• givescompanieswhoseactivitiesarepredominantlyconnectedwithinsuranceanoptionaltemporaryexemptionfromapplyingFRS109until2021(the“DeferralApproach”).TheentitiesthatdefertheapplicationofFRS109willcontinuetoapplytheexistingfinancialinstrumentsstandard–FRS39.

An insurer that applies the Overlay Approach shall disclose informationtoenableusersoffinancialstatementstounderstand:

(a) howthetotalamountreclassifiedbetweenprofitor loss and other comprehensive income in the reportingperiodiscalculated;and

(b) theeffectofthatreclassificationonthefinancialstatements.

AninsurerthatelectstoapplytheTemporaryExemptionfromFRS109shalldiscloseinformationtoenableusersoffinancialstatements:

(a) tounderstandhowthe insurerqualifiedforthetemporaryexemption;and

(b) to compare insurers applying the temporary exemptionwithentitiesapplyingFRS109.

Thenewinsuranceaccountingstandardthat iscurrentlyunderdevelopmentisexpectedtohaveasignificantimpactontheCompany’sfinancialstatements.ThatstandardmayimpacthowtheclassificationandmeasurementoffinancialinstrumentsrequirementsunderFRS109isadopted. The Company is currently assessing the impact and has decidedthat itwilldefertheimplementationofFRS109tillthenewinsuranceaccountingstandard is issuedandit is able to perform a comprehensive assessment of both standardstogether.


77


27 New standards and interpretations not adopted (cont’d)

Applicable to 2018 financial statements (cont’d)

New standardsSummary of the requirements Potential impact on the financial statementsApplying FRS 109 Financial Instruments with FRS 104 Insurance Contracts(AmendmentstoFRS104)(cont’d)

Anentityshallapplythoseamendments,whichpermitinsurersthatmeetspecifiedcriteriatoapplytheDeferralApproach, for annual periodsbeginningonor after 1January2018.

Anentityshallapplythoseamendments,whichpermitinsurers to apply the overlay approach to designated financialassets,whenitfirstappliesFRS109.

Applicable to 2019 financial statements

New standardsSummary of the requirements Potential impact on the financial statementsFRS 116 Leases

FRS116eliminatesthelessee’sclassificationofleasesaseitheroperatingleasesorfinanceleasesandintroducesasingle lesseeaccountingmodel.Applying thenewmodel,a lessee is requiredtorecogniseright-of-use(“ROU”)assetsand lease liabilitiesforall leaseswithatermofmorethan12months,unlesstheunderlyingassetisoflowvalue.

FRS116substantiallycarriesforwardthelessoraccountingrequirements inFRS17Leases.Accordingly,a lessorcontinuestoclassifyitsleasesasoperatingleasesorfinanceleases,andtoaccountforthesetwotypesofleasesusingtheFRS17operatingleaseandfinanceleaseaccountingmodelsrespectively.However,FRS116requiresmoreextensivedisclosurestobeprovidedbyalessor.

When effective, FRS 116 replaces existing leaseaccountingguidance, includingFRS17, INTFRS104 Determining whether an Arrangement contains a Lease; INTFRS15Operating Leases – Incentives;and INTFRS27Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

FRS116iseffectiveforannualperiodsbeginningonorafter1January2019,withearlyadoptionpermittedifFRS115isalsoapplied.

The Company has performed a preliminary high-level assessmentofthenewstandardonitsexistingoperatingleasearrangementsasalessee(refertoNote24).Basedonthepreliminaryassessment,theCompanyexpectstheimpacttothefinancialstatementstobeimmaterialtothenetassetsoftheCompanyunderthenewstandard.

The Company plans to adopt the standard when it becomes effective in2019.TheCompanywillperformadetailedanalysisofthestandard, includingthetransitionoptionsandpracticalexpedientsbeforethestandardiseffective.


78


28 Comparative information

Thecurrentreportingperiodrunsfrom1January2016to31December2016whereasthepriorperiodcomparativecoversaperiodofninemonthsfrom1April2015to31December2015.

29 Subsequent event

On31January2017,theCompanyacquireda30%stakeinAsiaCapitalReinsuranceMalaysiaSdn.Bhd.(“ACRM”)fromitsholdingcompany,ACRCapitalHoldingsPte.Ltd.(“ACH”),throughsharesissuancewithavalueofUS$24.2millionandfurtheracquiredtheremaining70%stakeinACRMforUS$42.0million(RM188.2million)cashfromtheothershareholders.

On31January2017,theCompanyacquireda20%stakeinACRReTakafulHoldingsLimited(“ACRR”)fromitsholdingcompany,ACH,throughsharesissuancewithvalueofUS$24.0millionandon1February2017,itfurtheracquiredtheremaining80%stakeinACRRforUS$95.8millioncashfromtheothershareholders.

Withtheaboveacquisitions,ACRMandACRRbecamefullyownedsubsidiariesoftheCompanyon31January2017and1February2017,respectively.


Asia Capital Reinsurance Group Pte. Ltd.6TemasekBoulevard#08-01SuntecTower4Singapore038986

Telephone:+6562233111Facsimile:+6563058111www.asiacapitalre.com

Co. Reg. No. (UEN)200617360M

Date post:	12-Jun-2018
Category:	Documents
Upload:	phamcong
View:	252 times
Download:	1 times

In Asia. For Asia. - Asia Capital...

Documents