A I A G R O U P LI M IT E D
友邦保險控股有限公司
MAKING A REAL DIFFERENCE.
LONGER, HEALTHIER,
BETTER LIVES.
ANNUAL REPORT 2016
STOCK CODE : 1299
VISION & PURPOSE
OUR VISION is to be the world’s pre-eminent
life insurance provider. That is our service
to our customers and our shareholders.
OUR PURPOSE is to play a leadership role
in driving economic and social development
across the region. That is our service to
societies and their people.
ABOUT AIA
AIA Group Limited and its subsidiaries (collectively “AIA”
or the “Group”) comprise the largest independent publicly
listed pan-Asian life insurance group. It has a presence in
18 markets in Asia-Pacific – wholly-owned branches and
subsidiaries in Hong Kong, Thailand, Singapore, Malaysia,
China, Korea, the Philippines, Australia, Indonesia, Taiwan,
Vietnam, New Zealand, Macau, Brunei, Cambodia,
a 97 per cent subsidiary in Sri Lanka, a 49 per cent joint
venture in India and a representative office in Myanmar.
The business that is now AIA was first established
in Shanghai almost a century ago. It is a market leader
in the Asia-Pacific region (ex-Japan) based on life
insurance premiums and holds leading positions across
the majority of its markets. It had total assets of
US$185 billion as of 30 November 2016.
AIA meets the long-term savings and protection needs
of individuals by offering a range of products and
services including life insurance, accident and health
insurance and savings plans. The Group also provides
employee benefits, credit life and pension services
to corporate clients. Through an extensive network
of agents, partners and employees across Asia-Pacific,
AIA serves the holders of more than 30 million individual
policies and over 16 million participating members
of group insurance schemes.
AIA Group Limited is listed on the Main Board of
The Stock Exchange of Hong Kong Limited under the
stock code “1299” with American Depositary Receipts
(Level 1) traded on the over-the-counter market
(ticker symbol: “AAGIY”).
Notes:
(1) Explanations of certain terms and abbreviations used in this
report are set forth in the Glossary.
(2) Unless otherwise specified, 2015 and 2016 refer to the
financial year of the Group, which ends on 30 November of
the year indicated.
KEY MILESTONES
1919
1948
INTASCO changed its name
to American International
Assurance Company, Limited.
We entered Malaysia.
1957
We registered in Brunei.
1972
We formed a subsidiary
in Australia.
1981
Our New Zealand operations
began as a branch
of American Life Insurance
Company (ALICO).
1982
We entered Macau.
1984
We entered Indonesia.
1987
Korean operations began.
1990
Our operations in Taiwan
were established
as a branch of ALICO.
1919
AIA put down its
corporate roots in Asia
when the group founder
Mr. Cornelius Vander Starr
established an insurance
agency in Shanghai.
1921
Mr. Cornelius Vander Starr
founded Asia Life Insurance
Company, his first
life insurance enterprise
in Shanghai.
1931
Mr. Cornelius Vander Starr
founded International
Assurance Company, Limited
(INTASCO), in Shanghai.
INTASCO established branch
offices in Hong Kong and
Singapore.
1938
INTASCO entered Siam,
later renamed Thailand.
1947
The Philippine American
Life and General Insurance
Company (Philam Life) was
founded in the Philippines.
INTASCO moved its
head office to Hong Kong.
2010
2015
2016
2010
AIA Group Limited
successfully listed on
the Main Board of
The Stock Exchange of
Hong Kong Limited, the
third-largest IPO ever
globally at the time.
2011
AIA Group Limited
became a constituent stock
of the Hang Seng Index.
We launched a sponsored
Level 1 American Depositary
Receipt programme.
2013
AIA completed the full
integration of the businesses
of AIA and ING Malaysia.
We commenced business
in Sri Lanka through the
acquisition of Aviva NDB
Insurance.
We opened a representative
office in Myanmar.
1992
We re-established our
presence in China through
a branch office in Shanghai,
the first foreign-owned
life business to receive
a licence in the country.
1998
We celebrated the return
to our former headquarters
building on The Bund
in Shanghai.
2000
We formed a subsidiary
in Vietnam.
2001
A joint venture in India
was established.
2009
ALICO Taiwan became
our branch office.
Philam Life became our
operating subsidiary.
We completed the
reorganisation driven
by AIG’s liquidity crisis
in 2008, leading to the
positioning of the Company
for a public listing.
2015
AIA became the #1 MDRT
company in the world.
We opened a representative
office in Cambodia.
2014
AIA and Citibank
formed a landmark,
long-term and exclusive
bancassurance partnership
that encompasses
11 markets in the
Asia-Pacific region.
AIA became the Official
Shirt Partner of Tottenham
Hotspur Football Club
to promote the role of
sports as a key element
of healthy living.
2016
AIA LEADERSHIP CENTRE
The AIA Leadership Centre opened in
Bangkok. The first-of-its-kind training centre
will strengthen and develop AIA’s senior
talent pool.
AIA TOPS MDRT AGAIN
AIA became the only company in the world
to have the largest number of Million Dollar
Round Table (MDRT) members for two
consecutive years.
GROWING PRESENCE IN INDIA
We increased AIA Group’s stake in Tata AIA
Life Insurance Company Limited, a joint venture
in India, from 26 per cent to 49 per cent.
AIA AT-A-GLANCE(1)
WE HAVE A DIVERSIFIED BUSINESS ACROSS THE ASIA-PACIFIC
REGION. OUR LONG EXPERIENCE IN THE REGION ALLOWS US TO TAILOR
OUR STRATEGIES TO THE CULTURE, DEMOGRAPHICS AND INSURANCE
NEEDS OF EACH MARKET IN WHICH WE OPERATE.
DRIVING ECONOMIC AND SOCIAL
DEVELOPMENT ACROSS ASIA
SINCE 1919
THE ONLY INTERNATIONAL LIFE INSURER
HEADQUARTERED AND LISTED IN HONG KONG AND
100% FOCUSED ON ASIA-PACIFIC
PRESENCE IN
18 MARKETS
HONG KONG
MACAU
THAILAND
SINGAPORE
BRUNEI
MALAYSIA
CHINA
KOREA
AUSTRALIA
INDONESIA
NEW ZEALAND
THE PHILIPPINES
SRI LANKA
TAIWAN
VIETNAM
INDIA
MYANMAR
CAMBODIA
Note:
(1) All the figures on this page are as of 30 November 2016.
THE
LARGEST LISTED COMPANY
ON THE HONG KONG STOCK
EXCHANGE
WHICH IS INCORPORATED AND
HEADQUARTERED IN HONG KONG
THE
SECOND LARGEST LIFE
INSURER IN THE WORLD
#1 WORLDWIDE
FOR MDRT MEMBERS;
THE ONLY COMPANY TO TOP THE TABLE
FOR TWO CONSECUTIVE YEARS
SERVING THE HOLDERS OF MORE THAN
30 MILLION INDIVIDUAL POLICIES
AND OVER
16 MILLION PARTICIPATING MEMBERS
OF GROUP INSURANCE SCHEMES
PROVIDES PROTECTION TO PEOPLE ACROSS
THE REGION WITH TOTAL SUM ASSURED OF
OVER US$1 TRILLION
MADE
13 MILLION
BENEFIT PAYMENTS DURING 2016,
HELPING CUSTOMERS AND THEIR FAMILIES
TO COPE WITH CHALLENGES AT DIFFERENT
LIFE STAGES
ANNUAL REPORT 2016 | 001
2016 RESULTS AT-A-GLANCE*
VALUE OF NEW BUSINESS
(VONB)(1)
ANNUALISED NEW PREMIUMS
(ANP)(2)
OPERATING PROFIT AFTER TAX
(OPAT)(3)(6)
US$
millions
2,800
2,400
2,000
1,600
1,200
800
400
0
2,750
2,198
1,845
1,490
1,188
2012
2013
2014
2015
2016
+28%
+25%
YoY (CER)
YoY (AER)
US$
millions
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
5,123
3,991
3,700
3,341
2,696
2012
2013
2014
2015
2016
+31%
+28%
YoY (CER)
YoY (AER)
US$
millions
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
3,981
3,556
3,248
2,839
2,441
2012
2013
2014
2015
2016
+15%
+12%
YoY (CER)
YoY (AER)
EV EQUITY(5)
TOTAL ASSETS(6) AND TOTAL LIABILITIES
TOTAL WEIGHTED PREMIUM INCOME
(TWPI)(4)
US$
millions
24,000
20,000
16,000
15,360
22,133
19,211
19,876
17,808
12,000
8,000
4,000
0
43,650
39,042 39,818
34,871
31,657
US$
millions
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
+14%
+11%
YoY (CER)
YoY (AER)
+11%
+10%
YoY (CER)
YoY (AER)
Note:
* Percentages shown indicate changes in 2016 compared with 2015.
US$
billions
200
160
120
80
40
0
169
170
136
138
185
150
149
123
136
108
2012
2013
2014
2015
2016
+9%
+8%
TOTAL ASSETS
TOTAL LIABILITIES
002
| AIA GROUP LIMITED
OVERVIEW 2016 BREAKDOWN BY MARKET SEGMENT
VALUE OF NEW BUSINESS
(VONB)(1)(7)
ANNUALISED NEW PREMIUMS
(ANP)(2)
OPERATING PROFIT AFTER TAX
(OPAT)(3)
11%
7%
11%
13%
18%
40%
19%
7%
8%
9%
12%
45%
17%
7%
11%
34%
12%
19%
HONG KONG
CHINA
THAILAND
SINGAPORE
MALAYSIA
OTHER MARKETS (8)
TOTAL WEIGHTED PREMIUM INCOME
(TWPI)(4)
25%
31%
8%
10%
11%
15%
Notes:
(1) Value of new business (VONB) is the present value, measured at the point
of sale, of projected after-tax statutory profits emerging in the future from
new business sold in the period less the cost of holding the required
capital in excess of regulatory reserves to support this business.
(2) Annualised new premiums (ANP) is a measure of new business activity
that is calculated as the sum of 100 per cent of annualised first year
premiums and 10 per cent of single premiums, before reinsurance ceded.
(3) Operating profit after tax (OPAT) is shown after non-controlling interests.
(4) Total weighted premium income (TWPI) consists of 100 per cent of
renewal premiums, 100 per cent of first year premiums and 10 per cent of
single premiums, before reinsurance ceded.
(5) Embedded value (EV) is an actuarially determined estimate of the
economic value of a life insurance business based on a particular set of
assumptions as to future experience, excluding any economic value
attributable to future new business. EV Equity is the total of embedded
value, goodwill and other intangible assets.
(6) OPAT and total assets from 2012 to 2015 have been adjusted to reflect the
revised definition of operating profit and accounting policies change for real
estate, as highlighted in notes 47 and 48 to the financial statements.
(7) Based on local statutory basis and before unallocated Group Office
expenses, VONB by segment includes pension business.
(8) The results of our joint venture in India are accounted for using the
equity method. For clarity, TWPI, ANP and VONB exclude any contribution
from India.
ANNUAL REPORT 2016 | 003
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONFINANCIAL HIGHLIGHTS CONTENTS
OVERVIEW
FINANCIAL STATEMENTS
002
016
018
FINANCIAL HIGHLIGHTS
CHAIRMAN’S STATEMENT
GROUP CHIEF EXECUTIVE AND
PRESIDENT’S REPORT
FINANCIAL AND
OPERATING REVIEW
024
FINANCIAL REVIEW
040 BUSINESS REVIEW
058 RISK MANAGEMENT
113
115
116
INDEPENDENT AUDITOR’S REPORT
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
117
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
119
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
121
CONSOLIDATED STATEMENT OF CASH FLOWS
123 NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS AND SIGNIFICANT
ACCOUNTING POLICIES
067 REGULATORY DEVELOPMENTS
229
SUPPLEMENTARY EMBEDDED
068
070
OUR PEOPLE
CORPORATE SOCIAL RESPONSIBILITY
VALUE INFORMATION
ADDITIONAL INFORMATION
251
253
INFORMATION FOR SHAREHOLDERS
CORPORATE INFORMATION
254 GLOSSARY
CORPORATE GOVERNANCE
075
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
076 BOARD OF DIRECTORS
082
EXECUTIVE COMMITTEE
087 REPORT OF THE DIRECTORS
093
CORPORATE GOVERNANCE REPORT
102 REMUNERATION REPORT
004
| AIA GROUP LIMITED
At AIA, we believe in the power
of life insurance protection and
long-term savings to make a positive
difference in people’s lives. We do
this through our products, services
and actively encouraging healthy
living and wellness of our customers,
employees and agents and
the communities in which
they live and work.
WE ARE COMMITTED TO
HELPING PEOPLE TO LIVE
LONGER, HEALTHIER,
BETTER LIVES
ANNUAL REPORT 2016 | 005
KNOW YOUR
HEALTH, IMPROVE
YOUR HEALTH,
ENJOY THE
REWARDS
006
| AIA GROUP LIMITED
LONGER, HEALTHIER, BETTER LIVES REAL PRIORITIES
AIA Vitality gives people the
knowledge, tools and motivation
to improve their health.
By better understanding their
personal health and working
towards improving it, they enjoy
longer and better lives, with the
added incentive of enjoying great
benefits, including travel,
entertainment, shopping and
lifestyle rewards.
AIA VITALITY
ANNUAL REPORT 2016 | 007
REAL COMMITMENT
AIA IS THE ONLY COMPANY IN
THE WORLD TO TOP THE MDRT LIST
FOR TWO CONSECUTIVE YEARS
In holding on to our 2015 #1 ranking,
AIA made history in 2016 as the only
multinational company to top the
prestigious Million Dollar Round Table
(MDRT) list for two consecutive
years. MDRT is recognised as the global
standard of excellence in the life insurance
and financial services business, whose
members are required to demonstrate
exceptional professional knowledge,
strict ethical conduct and exceptional
client service. The achievement reflects
the success of AIA’s Premier Agency
strategy, leading to significant investments
in agency training and development.
008
| AIA GROUP LIMITED
MDRT
LONGER, HEALTHIER, BETTER LIVES AIA VITALITY MALAYSIA
With the introduction of AIA Vitality,
a science-backed wellness
programme, AIA is committed to
helping people live longer, healthier,
better lives. Real change begins with
small steps and AIA offers support
at every step along the way.
ANNUAL REPORT 2016 | 009
REAL INNOVATION
AIA ACCELERATOR
010
| AIA GROUP LIMITED
Building on the great success
of the inaugural AIA Accelerator,
AIA Accelerator 2.0 expands on the
original programme’s scope into the
areas of customer engagement and
CSR. AIA is committed to supporting
innovative entrepreneurs who have
demonstrated passion and expertise
in helping improve people’s lives,
now and into the future.
LONGER, HEALTHIER, BETTER LIVES THE EXCEPTIONAL SUCCESS
OF iPoS LED AIA TO ELEVATE
THIS PLATFORM TO A NEW LEVEL
WITH AN INTERACTIVE
MOBILE OFFICE (iMO)
INNOVATION AT AIA
At AIA, innovation goes beyond
products and services. We launched
the AIA Leadership Centre, the
first-of-its-kind training centre and
a state-of-the-art learning space
designed to strengthen and develop
AIA’s senior talent pool. The AIA
Leadership Centre provides AIA with
a powerful new capability to develop
leaders who deliver on our strategic
goals and empower our people
to make a real difference in the
communities in which we operate.
ANNUAL REPORT 2016 | 011
CSR AT AIA
Our commitment to a wide-ranging
and impactful CSR programme
is a key component of our vision
to be the world’s pre-eminent life
insurance provider and key to our
purpose of playing a leadership
role in driving economic and social
development across the region.
012
| AIA GROUP LIMITED
LONGER, HEALTHIER, BETTER LIVES REAL SUPPORT
WE ARE PROUD OF THE WORK
BEING DONE BY OUR EMPLOYEES
AND AGENTS TO GIVE BACK
TO OUR COMMUNITIES, AND
STRIVE TO PROVIDE THEM WITH
THE ENCOURAGEMENT AND
RESOURCES NEEDED TO SUPPORT
A DIVERSE RANGE OF INITIATIVES
ACROSS THE REGION
ANNUAL REPORT 2016 | 013
REAL PRIDE
AIA GRAND SUMMIT
WE ARE PROUD OF WHAT
OUR AGENTS, EMPLOYEES, AND
PARTNERS ARE DOING TO HELP
PEOPLE IN THE REGION LIVE
LONGER, HEALTHIER, BETTER
LIVES BY DISTRIBUTING OUR
PRODUCTS AND SERVICES AND
ACTIVELY ENCOURAGING HEALTHY
LIVING AND WELLNESS.
014
| AIA GROUP LIMITED
LONGER, HEALTHIER, BETTER LIVES OVERVIEW
016 CHAIRMAN’S STATEMENT
018 GROUP CHIEF EXECUTIVE
AND PRESIDENT’S REPORT
ANNUAL REPORT 2016 | 015
CHAIRMAN’S STATEMENT
It gives me great pleasure to report that
2016 was another year of excellent progress
and growth for AIA.
Global politics, economics and capital markets all took
unexpected turns in 2016. Throughout this uncertainty,
AIA has remained focused on maintaining our established
track record of successfully executing our growth strategy
to create sustainable value for our shareholders. This has
been demonstrated once again by the exceptional results
delivered in 2016 across all of our financial metrics.
AIA has been in Asia for close to a century and strives
to play a leadership role in supporting economic and social
development across the region. We are here to serve our
customers by meeting their ever-changing needs for
financial security with our products and services and by
focusing on helping people live longer, healthier, better
lives. This enables us to continue to deliver consistent and
sustainable results through the many market cycles we
have faced over our long history. I would like to thank our
customers and our shareholders for their continuing
confidence, support and trust in AIA.
The Board of Directors has recommended a step up in
the final dividend of 25 per cent to 63.75 Hong Kong cents
per share, subject to shareholders’ approval at the
Company’s forthcoming AGM. This brings the total
dividend for 2016 to 85.65 Hong Kong cents per share,
an increase of 23 per cent compared with 2015. The
Board’s decision to recommend a further uplift from the
new higher base established last year reflects the strength
of our results and our confidence in AIA’s future prospects.
The Board intends to follow AIA’s prudent, sustainable
and progressive dividend policy from this higher base
allowing for future growth opportunities and the financial
flexibility of the Group. It is one of the many positive
aspects of AIA’s franchise that we are able to finance
significant profitable growth while ensuring that our
shareholders benefit directly from the Group’s success
through our dividend policy.
An important focus of the Board is to ensure that
AIA continues to meet the highest international
standards of corporate governance. We believe that
strong governance is fundamental to our sustainable
growth and to maintaining confidence in our organisation
from all our stakeholders. Equally important is a sound
risk management framework that ensures the prudent
and efficient running of the organisation while, at the
same time, meeting the highest regulatory expectations
and standards.
Effective financial management and leveraging our
financial strength have ensured our very strong capital
position. As at 30 November 2016, the solvency ratio
for our principal regulated operating company AIA Co.
remained strong at 404 per cent and the Group’s
free surplus above required regulatory capital was
US$9.8 billion.
My previous re-appointment as Non-executive Chairman
was for two years from January 2015. The Board has
invited me to remain as Chairman and I am very pleased
to accept.
AIA is exceptionally well positioned to benefit from
the demographic, social and economic progress across
Asia. The Board is keenly aware that converting these
opportunities into the excellent results we have achieved
since our IPO requires well-grounded strategies, high levels
of technical expertise and focused implementation. I would
like to convey the Board’s deep appreciation for the
dedication and commitment of the Group’s employees,
agents and partners without which our sustainable
success would not be possible.
Special thanks are due, as in past years, to our Group
Chief Executive and President Mark Tucker and his team
for the excellent leadership they provide in achieving
these outstanding results.
Edmund Sze-Wing Tse
Non-executive Chairman
24 February 2017
016
| AIA GROUP LIMITED
OVERVIEW CHAIRMAN’S STATEMENT
Mr. Edmund Sze-Wing Tse
Non-executive Chairman
ANNUAL REPORT 2016 | 017
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION GROUP CHIEF EXECUTIVE AND PRESIDENT’S REPORT
AIA has delivered another outstanding set of
results with consistently strong performances
across all our main financial metrics in 2016.
Value of new business (VONB) grew by 28 per cent
to US$2,750 million, IFRS operating profit after tax (OPAT)
increased by 15 per cent and underlying free surplus
generation was higher by 11 per cent, all on constant
exchange rates. As in past years, this reflects the
disciplined execution of our strategy to achieve superior
profitable growth that supports strong free surplus and
cash flow generation over time.
The Board has decided to recommend a significant
step up of 25 per cent in the 2016 final dividend from
the higher base in 2015. This reflects the Group’s past
success, the continued strength of these results and
our confidence in the Group’s future prospects.
Our significant progress has been achieved against
the backdrop of an uncertain global macroeconomic
and geopolitical environment. The strong fundamentals
in the region, the resilience of our business model and
our commitment to building a high-quality, sustainable
business for the long term has enabled us to deliver
a strong and consistent track record of year-on-year
growth. I often describe AIA as being on an exciting
and long-term journey, and this will always be my
unwavering conviction.
AIA’s core business is to offer Asian households products
and services that enhance their financial security and
provide them with peace of mind as their financial needs
evolve over their lifetimes. There is a wide diversity
of cultures and languages across our 18 markets and
each market is at a different stage of economic
development. However, they all share two fundamentally
important characteristics: far-reaching economic
expansion and rapid urbanisation are disrupting traditional
family support networks and community welfare systems,
and state intervention through the provision of medical,
welfare or retirement benefits is likely to remain limited.
The term “protection gap” is used to indicate the shortfall
in the levels of insurance cover needed to safeguard the
population against the risks of early mortality, disability,
out-of-pocket medical expenses and poverty in old age.
This is the challenge that AIA seeks to meet, with
an emphasis first and foremost on providing financial
protection against mortality, as the most serious threat
to family welfare and the most immediate customer
need. It is an unparalleled opportunity for the life
insurance industry and one that I believe AIA, with
our distribution scale, trusted brand, financial resources
and people capabilities, is in an advantaged position
to meet.
The life insurance industry plays a fundamentally
important role in the economic emergence of developing
societies by channelling retail savings into productive
investment and infrastructure. These are particularly
important because they improve productivity and because
they provide an economic lever to optimise growth across
the region. The adoption of risk-based capital approaches
to solvency testing across much of the region is proving
a significant enabler in this process. AIA is playing an
active role in collaboration and consultation with
regulators globally in developing and testing new
arrangements. For our part, AIA is proud to direct
US$120 billion of investments into local financial markets
and through the scale and reach of our distribution
we mobilise savings and pool premiums at the rate
of around US$20 billion a year – all exclusively in
the Asia-Pacific region.
This is not just a matter of good sense and sound
economic management but also important to us in
matching our policyholder liabilities with assets that
produce real rates of return. It is a “win-win” approach
that will benefit ourselves, our customers and the wider
economies in which we operate. Through aligning our
strategy with the fundamental social and economic needs
of the region and increasing our engagement with
customers, we are embedding our activities deeply into
the economic growth and prosperity of Asia.
2016 PERFORMANCE HIGHLIGHTS
(ON A CONSTANT EXCHANGE RATE BASIS)
Hong Kong had another very successful year with
a 42 per cent increase in VONB driven by higher activity
and productivity levels in our agency distribution,
combined with excellent growth in our partnership
distribution channel. Our Hong Kong business also
benefited from increased volumes of business from
018
| AIA GROUP LIMITED
OVERVIEW
Mainland Chinese customers. While we focus on sales
across a number of different customer segments in
Hong Kong, we continue to monitor closely any
developments relating to customers visiting from
Mainland China to ensure that we maintain robust
compliance with ongoing measures.
We achieved outstanding results in China with
a 54 per cent increase in VONB and 29 per cent growth
in OPAT. We are increasingly seeing the benefit of our
focus on combining the expansion of our professional
agency distribution through quality recruitment
and best-in-class training with a high-quality mix of
regular premium protection and long-term savings
products. The quality of our earnings underpins our strong
growth and differentiates AIA in the Chinese market.
In Singapore, our agency business delivered double-digit
VONB growth, although this was offset by lower single
premium sales through the broker channel as previously
reported in our Interim Report 2016.
We are committed to the ongoing professional
development of our market-leading agency distribution
in Thailand. Our new business generation held up well,
despite a period of reduced activity at the end of
our financial year during the mourning period following
the passing of King Bhumibol Adulyadej in October.
Malaysia delivered excellent results with VONB growth
of 23 per cent from our commitment to growing a
professional and high-quality agency distribution
and our focus on combining protection cover and long-
term, regular premium unit-linked savings with the
addition of health and wellness solutions.
Our Other Markets delivered VONB growth of 10 per cent
compared with 2015. VONB growth was higher in the
second half at 15 per cent compared with the second half
of 2015. Highlights included excellent performances
in Australia, Vietnam and Sri Lanka, partly offset by
weaker market conditions in the Philippines, and Korea.
The strength of our overall performance in 2016, with
each of our key financial metrics reaching new highs,
demonstrates the benefit of AIA’s broad reach and
diversification. It also emphasises the enormous potential
that AIA has for future profitable growth.
GROUP CHIEF EXECUTIVE AND PRESIDENT’S REPORT
GROUP-WIDE OVERVIEW
DISTRIBUTION
AIA pioneered the development of agency distribution in
Asia in the first half of the twentieth century and
it remains our core distribution channel accounting
for approximately 70 per cent of the Group’s total
VONB. Agency VONB grew by 21 per cent in 2016 to
US$1,995 million. Our agents are the most effective way
of serving the needs of the mass affluent market in Asia
and I believe place us in an enormously-advantaged
position by developing long-term relationships with our
customers and their families.
Our agency franchise is fundamental to our continued
success and sustained growth in Asia but we are in
no sense complacent about its continuing effectiveness.
The opportunities to harness training, people,
management and technology in support of both our new
and existing agents are constantly evolving. We are at
the forefront of driving these changes and our attention
to detail in managing every facet of the future of agency
management and customer service is one of the main
factors underlying AIA’s success.
We have also invested in developing collaborative
distribution partnerships to generate additional profitable
growth by broadening our access to customers across
the region, particularly through our intermediated
partnership channels and our more than 60 active national
and regional bancassurance relationships. VONB from
partnership business grew by 35 per cent to US$875
million and accounted for 30 per cent of the Group’s
overall VONB in 2016.
MARKETING AND PRODUCT INNOVATION
At AIA, we are engaged in people’s lives by providing
the right financial solutions in a constantly changing
world. As such, we are known as The Real Life Company;
a well-established proposition across our markets. Our
brand promise is to make a positive difference by helping
people live longer, healthier, better lives, and by equipping
them with the knowledge, expertise and opportunities
to make the right choices to secure their financial future.
AIA Vitality is the first, and only, comprehensive wellness
platform across the Asia-Pacific region. Life insurance
is the foundation of financial protection for those we care
most about, and AIA Vitality adds another level, using
behavioural economics and incentivising customers to
actively engage in health and wellness activities. Attractive
discounts and enhancements on AIA insurance policies
are available as well as valuable benefits from a wide range
of third-party providers.
ANNUAL REPORT 2016 | 019
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Mr. Mark Edward Tucker
Group Chief Executive and President
020
| AIA GROUP LIMITED
OVERVIEW GROUP CHIEF EXECUTIVE AND PRESIDENT’S REPORT
There are enormous opportunities in evolving life and
health insurance, moving from the traditional transactional
model to one where we work with our customers, helping
prevent the onset of illness by encouraging long-term
beneficial lifestyle changes. Being healthier is good for
customers, good for business and good for the
communities AIA operates in. In turn, this is fully aligned
with our corporate purpose of playing a leadership role
in driving economic and social development across the
region, demonstrating a truly shared value business model.
AIA has the scale, ambition, financial resources,
distribution and quality of leadership to make “longer,
healthier, better lives” a reality for millions of people
across Asia-Pacific.
INVESTMENT MANAGEMENT
The Group’s investment managers have delivered strong
results year on year. Building on these achievements,
we have established an internal asset management
company based in Singapore. This will provide both
functional leadership and investment services to local
investment teams within our operating units across the
region. This will help reinforce our investment governance
through sharing best practices and to gain greater traction
from opportunities for centres of excellence, particularly
with infrastructure investment and equities management.
TECHNOLOGY AND OPERATIONS
We continue to invest in the modernisation of our
technology infrastructure and applications across the
Group and have made substantial progress during
the year. We have completed major projects to replace the
policy administration systems in Singapore, Malaysia and
Hong Kong. In January 2016, we moved our data centre
operations to a long-term outsourcing arrangement and
installed modern data warehouses across all of our major
businesses. Our online and mobile capabilities were
enhanced with the roll-out of new iPoS modules for agents
and our bancassurance partners, and a new online portal
for customers across all of our markets.
In innovation, our primary research and development
focus in 2016 was on digital health, artificial intelligence
and blockchain. We completed three AIA Accelerator
programmes for start-up companies in Hong Kong and
Singapore and made progress with lab-based test-
and-learn initiatives in both markets.
Our business continuity and disaster recovery capabilities
were strengthened across the Group. We are committed to
protecting the interests of our customers, partners,
employees and stakeholders by providing a world-class
information security environment. Our Chief Information
Security Officer has continued to oversee further
improvements in the quality and consistency of technology
risk management and cyber security across the Group.
ENGAGEMENT WITH PEOPLE
AIA’s commercial success is a direct result of the quality,
commitment and enthusiasm of our employees and agents
at all levels of the organisation. We believe that our
approach, based on the empowerment of local businesses
to perform within the structure of a soundly-based group
corporate strategy and risk management framework, is one
that promotes strong engagement between employees and
their markets.
We are dedicated to leadership and operational excellence
in our current and next generation of leaders. The opening
of the AIA Leadership Centre in Bangkok in 2016
demonstrates our ongoing commitment to reinforcing
the capabilities of our senior leaders as well as developing
the strength of our leadership pipeline. The Centre’s
comprehensive curriculum focuses on executive
development, distribution capabilities and technical
expertise, and complements the comprehensive learning
programmes that our functional and local businesses
currently provide. This investment means that we will
continue to raise the bar in terms of regional leadership
and our recruiting and development initiatives across
Asia will ensure that we drive material increases in the
depth, professionalism and productivity of our people.
During the year, we refined and enhanced the way
in which we empower and engage every level of the
workforce. Our annual employee engagement survey
serves as a key indicator of the success of the collective
efforts across our markets to better understand our
people. Ninety-nine per cent of our workforce responded
to the survey in 2016, and the percentage of engaged
employees has improved significantly in the past six years
to levels well above global financial services and
insurance industry benchmarks.
The rigour with which we approach our workforce planning
and development in the areas of employee engagement,
learning and talent development, and performance
management earned AIA the “Regional Best Employer
2016, Asia Pacific” award from Aon Hewitt. This award
is an affirmation of our continuous efforts to build an
environment where high-quality people are excited to work
ANNUAL REPORT 2016 | 021
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GROUP CHIEF EXECUTIVE AND PRESIDENT’S REPORT
and motivated to be the best that they can be in doing
the best for our customers.
My very special thanks are due to all the people of
AIA. These excellent results are down to their hard work,
dedication and commitment.
OUTLOOK
Asian macroeconomic fundamentals remain resilient
and continue to deliver strong growth supported by
domestic drivers of demand. Emerging Asia remains one
of the most well-positioned regions in the global economy
and has demonstrated proven abilities over the past eight
years to withstand continued volatility arising from
political uncertainty in the US and Europe. Current
accounts in Asia are robust and foreign currency debt
levels have remained generally low ahead of rising
US interest rates and the potential for expansive fiscal
policy in the US. Asia also has the ability to augment
domestic drivers of growth through continued increases in
productivity as well as fiscal and monetary stimulus. Asian
policymakers have the ability, capacity and resolve to
respond proactively and effectively over time.
I have said many times that AIA is wonderfully well
positioned to benefit from the significant long-term
economic and demographic growth drivers in Asia. The
substantial and ongoing need for healthcare, protection
and savings products provides resilience to cyclical
economic forces.
We have a clear strategy in place and our dedicated
teams remain focused on the right priorities to help our
customers meet their long-term protection needs and
wealth aspirations.
We have a strong track record of delivery as demonstrated
once again by our financial performance in 2016 and
our consistent execution since our IPO. I believe the
opportunities available to us are truly exceptional and I am
confident of AIA’s continued success in delivering long-
term sustainable value creation for our shareholders.
Mark Edward Tucker
Group Chief Executive and President
24 February 2017
022
| AIA GROUP LIMITED
OVERVIEW
FINANCIAL AND OPERATING REVIEW
AIA is the largest publicly listed pan-Asian life insurance group, with a presence across 18 markets
in the Asia-Pacific region. We receive the vast majority of our premiums in local currencies and
we closely match our local assets and liabilities to minimise the economic effects of foreign exchange
movements. When reporting the Group’s consolidated figures, there is a currency translation effect
as we report in US dollars. We have provided growth rates and commentaries on our operating
performance on constant exchange rates unless otherwise stated, since this provides a clearer picture
of the year-on-year performance of the underlying businesses during the recent periods of foreign
exchange volatility.
024 FINANCIAL REVIEW
040 BUSINESS REVIEW
058 RISK MANAGEMENT
067 REGULATORY DEVELOPMENTS
068 OUR PEOPLE
070 CORPORATE SOCIAL RESPONSIBILITY
ANNUAL REPORT 2016 | 023
Mr. Garth Jones
Group Chief Financial Officer
024
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW FINANCIAL REVIEW
SUMMARY AND KEY FINANCIAL HIGHLIGHTS
AIA has delivered another year of excellent results. We
achieved double-digit growth in new business profitability,
operating profit and free surplus generation. This
continues the strong growth across each of our main
operating financial metrics that we have maintained since
our IPO in October 2010. Our financial performance in
2016 once again demonstrates our ability to deliver
resilient results through market cycles by focusing on the
quality of new business we write and the sources of
earnings and cash flow it generates. This is fundamental
to AIA’s ability to produce sustainable growth and
increasing returns to our shareholders.
VALUE GROWTH
Value of new business (VONB) increased by 28 per cent
to US$2,750 million compared with 2015. We have
generated substantial growth in profitable new business
by following our financial principles of investing capital
at attractive returns to optimise value. Hong Kong,
Malaysia, China and our Other Markets continued their
strong performances from the first half to deliver
double-digit VONB growth for the full year.
Annualised new premiums (ANP) grew by 31 per cent
to US$5,123 million and VONB margin remained strong
at 52.8 per cent. These results were underpinned by the
quality of our new business with over 90 per cent of our
ANP from regular premium sales, which increased by
37 per cent compared with 2015.
EV operating profit increased by 19 per cent to US$5,887
million, reflecting excellent new business growth and
very strong overall positive operating variances from the
proactive management of our in-force portfolio. This
excellent performance led to an increase in operating
return on EV (ROEV) to 15.4 per cent in 2016.
EV Equity grew by US$3,832 million to a new high
of US$43,650 million. The increase was driven by strong
EV operating profit growth of 19 per cent partly offset
by the effect of economic assumption changes and
the depreciation of local currencies against our US dollar
reporting currency. The increase is reported after
the payment of shareholder dividends totalling
US$1,124 million.
ANNUAL REPORT 2016 | 025
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION IFRS EARNINGS
IFRS operating profit after tax (OPAT) increased by
15 per cent to US$3,981 million compared with 2015. Each
of our operating market segments delivered positive OPAT
growth and contributed materially to our overall Group
results. This performance reflects our high-quality sources
of earnings combined with our scale and diversification
across the region. Operating margin after tax continued
to trend positively from a combination of changes to
product mix, increased scale, active management of our
in-force portfolio and our disciplined expense
management.
The strong growth in OPAT increased operating return
on shareholders’ allocated equity (ROE) to 14.1 per cent
in 2016. Shareholders’ allocated equity grew by 11 per cent
to US$29,632 million at 30 November 2016.
CAPITAL AND DIVIDENDS
In 2016, we generated increased capital and free surplus
from the management of our in-force portfolio, maintained
our resilient solvency position, financed our profitable
growth and progressively increased our dividends.
Underlying free surplus generation grew by 11 per cent
to US$4,024 million. The amount invested in new business
was US$1,374 million, which reduced by 5 per cent.
This decrease was mainly from a positive shift in product
and country mix as well as writing more capital-efficient
products. AIA has significant opportunities to invest
capital in organic growth at attractive returns for
shareholders. While new business strain reduction
is not a targeted objective, we are disciplined in how
we deploy capital.
Free surplus increased to US$9,782 million at
30 November 2016, including positive investment return
variances and other items and after the payment
of shareholder dividends.
The solvency ratio of AIA Co., our principal operating
company, was 404 per cent at 30 November 2016
compared with 428 per cent at 30 November 2015. Our
solvency position has remained very strong with growth
in retained earnings offset by the net effect of short-term
capital market movements on our investment portfolio
and statutory reserves, the payment for our increased
shareholding in Tata AIA, as previously reported in our
Interim Report 2016, and dividends to AIA Group Limited.
The Board of Directors has recommended a step up in
the final dividend of 25 per cent to 63.75 Hong Kong cents
per share, subject to shareholders’ approval at the
Company’s forthcoming AGM. This brings the total
dividend for 2016 to 85.65 Hong Kong cents per share,
an increase of 23 per cent compared with 2015. The
Board’s decision to recommend a further uplift from
the new higher base established last year reflects the
strength of our results and the confidence in AIA’s future
prospects. The Board intends to follow AIA’s established
prudent, sustainable and progressive dividend policy from
this higher base allowing for future growth opportunities
and the financial flexibility of the Group.
026
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW NEW BUSINESS GROWTH
Value of New Business (VONB), Annualised New Premiums (ANP) and Margin by Segment
US$ millions, unless otherwise stated
Hong Kong
Thailand
Singapore
Malaysia
China
Other Markets(2)
Subtotal
2016 (1)
VONB
Margin
48.8%
81.5%
74.1%
57.1%
86.4%
32.9%
56.0%
VONB
1,161
384
316
198
536
321
2,916
2015 (1)
VONB
Margin
62.0%
75.8%
72.4%
57.9%
83.5%
29.4%
58.9%
VONB Change
YoY
CER
42%
1%
(7)%
23%
54%
10%
25%
YoY
AER
42%
(3)%
(7)%
15%
46%
8%
22%
ANP
1,263
520
471
292
438
1,007
3,991
ANP
VONB
2,294
471
427
341
621
969
820
395
341
172
366
296
5,123
2,390
Adjustment to reflect additional Hong Kong
reserving and capital requirements
(37)
n/m
n/m
(72)
n/m
n/m
n/m
n/m
After-tax value of unallocated
Group Office expenses
(129)
n/m
n/m
(120)
n/m
n/m
Total
2,750
52.8%
5,123
2,198
54.0%
3,991
n/m
28%
n/m
25%
Notes:
(1) VONB includes pension business. ANP and VONB margin exclude pension business.
(2) For 2016, Korea is no longer disclosed separately as a reportable segment and is now included as part of the Other Markets segment. Prior year
comparatives have been adjusted accordingly to conform to current year presentation.
VONB grew by 28 per cent to US$2,750 million compared
with 2015.
ANP was higher by 31 per cent to US$5,123 million.
Annualised new business regular premiums increased
by 37 per cent and accounted for more than 90 per cent
of total ANP in 2016. VONB margin remained strong at
52.8 per cent reflecting positive shifts in country mix,
channel mix and others, offset by sales of participating
business that balance lower reported VONB margins with
greater capital efficiency at inception. Margin on a PVNBP
basis remained stable at 9 per cent compared with 2015.
We continued to achieve strong results across both agency
and partnership distribution channels. Agency delivered
21 per cent VONB growth to US$1,995 million and
partnership distribution VONB grew by 35 per cent to
US$875 million compared with 2015.
Hong Kong again delivered excellent growth with VONB up
by 42 per cent to US$1,161 million. This outstanding
performance was the result of a significant increase in
agent productivity and higher active agent numbers, as
well as excellent growth in our partnership distribution
channel including Citibank. While we focus on sales across
a number of different customer segments in Hong Kong, we
continue to monitor closely any developments relating to
customers visiting from Mainland China to ensure that we
maintain robust compliance with ongoing measures.
AIA’s wholly-owned business in China delivered excellent
VONB growth of 54 per cent to US$536 million. The
professionalism of our agents and the quality of our earnings
differentiate AIA in the Chinese life insurance market and
have underpinned our strong track record of growth.
VONB in Thailand was US$384 million with higher VONB
margin offset by lower new business volumes including
reduced activity at the end of our financial year during
the mourning period following the passing of the Thai king
in October. We are committed to the ongoing professional
development of our market-leading agency distribution
in Thailand and the proactive management of the quality
of new business we write. AIA continues to be well
positioned to capture the significant long-term growth
opportunities from the low levels of life insurance
penetration in the Thai market.
VONB in Singapore was lower than 2015 as growth in
new regular premium business was offset by lower single
premium sales from the broker channel, as previously
reported in our Interim Report 2016. Malaysia delivered
an excellent full year VONB increase of 23 per cent
to US$198 million, driven by growth in our agency
distribution and innovative new products combining
protection cover and regular premium unit-linked savings
with the addition of health and wellness solutions
including AIA Vitality.
ANNUAL REPORT 2016 | 027
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONFINANCIAL REVIEW VONB growth from Other Markets (including Korea) was
higher in the second half of 2016 at 15 per cent compared
with the second half of 2015 and delivered full year
VONB growth of 10 per cent to US$321 million. ANP was
US$969 million while VONB margin increased by 3.3 pps
to 32.9 per cent. Highlights included excellent performances
in Australia, Vietnam and Sri Lanka, partly offset by weaker
market conditions in the Philippines and Korea.
EMBEDDED VALUE (EV) EQUITY
EV OPERATING PROFIT
EV operating profit increased by 19 per cent to US$5,887
million compared with 2015. This excellent performance
was the result of 28 per cent growth in VONB to US$2,750
million, a higher expected return of US$2,854 million and
overall positive operating variances of US$394 million.
Overall operating variances have totalled more than
US$1.1 billion since our IPO in 2010.
VONB is reported after a US$166 million deduction for
additional Hong Kong reserving and capital requirements
over and above local statutory requirements and the
present value of unallocated Group Office expenses.
The strength of our new business growth and operating
performance delivered an increase in ROEV to 15.4
per cent in 2016.
EV Operating Profit Per Share – Basic
EV operating profit (US$ millions)
Weighted average number of ordinary shares (millions)
Basic EV earnings per share (US cents)
EV Operating Profit Per Share – Diluted
EV operating profit (US$ millions)
Weighted average number of ordinary shares (1) (millions)
Diluted EV earnings per share(1) (US cents)
2016
5,887
11,972
49.17
2016
5,887
12,006
49.03
2015
5,068
11,970
42.34
2015
5,068
12,007
42.21
YoY
CER
19%
n/a
19%
YoY
CER
19%
n/a
19%
YoY
AER
16%
n/a
16%
YoY
AER
16%
n/a
16%
Note:
(1) Diluted EV earnings per share including the dilutive effects, if any, of the awards of share options, restricted share units, restricted stock purchase units
and restricted stock subscription units granted to eligible directors, officers, employees and agents under the share-based compensation plans as
described in note 38 to the financial statements.
EV MOVEMENT
EV grew by US$3,916 million to US$42,114 million
in 2016. The increase was mainly driven by strong EV
operating profit growth of 19 per cent partly offset by the
effect of economic assumption changes and the effect
of foreign exchange translation movements from the
depreciation of local currencies against our US dollar
reporting currency.
Other non-operating variances from the net effect of
modelling enhancements and changes in regulatory capital
requirements and taxation were small at US$(22) million. This
included the revised undertaking provided to the Hong Kong
Office of the Commissioner of Insurance (HKOCI) and the
replacement of business tax with VAT in China, as previously
reported in our Interim Report 2016. The effect of foreign
exchange translation movements was US$(547) million.
Investment return variances, reflecting the net effect
of short-term capital market movements compared with
expected investment returns, were small at US$(37)
million. The effect of economic assumption changes
was US$(236) million.
The overall increase in EV is shown after the payment of
shareholder dividends totalling US$1,124 million.
028
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW
An analysis of the movement in EV is shown as follows:
US$ millions, unless otherwise stated
2016
Opening EV
Value of new business
Expected return on EV
Operating experience variances
Operating assumption changes
Finance costs
EV operating profit
Investment return variances
Effect of changes in economic assumptions
Other non-operating variances
Total EV profit
Dividends
Other capital movements
Effect of changes in exchange rates
Closing EV
US$ millions, unless otherwise stated
Opening EV
Value of new business
Expected return on EV
Operating experience variances
Operating assumption changes
Finance costs
EV operating profit
Investment return variances
Effect of changes in economic assumptions
Other non-operating variances
Total EV profit
Dividends
Other capital movements
Effect of changes in exchange rates
Closing EV
ANW
15,189
(695)
3,440
303
26
(111)
2,963
(67)
6
(142)
2,760
(1,124)
(5)
(276)
16,544
ANW
15,351
(902)
3,364
29
(112)
(76)
2,303
(1,494)
–
436
1,245
(814)
(12)
(581)
15,189
VIF
23,009
3,445
(586)
62
3
–
2,924
30
(242)
120
2,832
–
–
(271)
25,570
2015
VIF
21,802
3,100
(666)
245
86
–
2,765
(310)
145
(67)
2,533
–
–
(1,326)
23,009
EV
38,198
2,750
2,854
365
29
(111)
5,887
(37)
(236)
(22)
5,592
(1,124)
(5)
(547)
42,114
EV
37,153
2,198
2,698
274
(26)
(76)
5,068
(1,804)
145
369
3,778
(814)
(12)
(1,907)
38,198
ANNUAL REPORT 2016 | 029
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONFINANCIAL REVIEW EV Equity
US$ millions, unless otherwise stated
EV
Goodwill and other intangible assets (1)
EV Equity
As at
30 November
2016
As at
30 November
2015
42,114
1,536
43,650
38,198
1,620
39,818
Note:
(1) Consistent with the IFRS financial statements, net of tax, amounts attributable to participating funds and non-controlling interests.
EV AND VONB SENSITIVITIES
Sensitivities to EV and VONB arising from changes to central assumptions from equity price and interest rate movements
are shown below and are consistent with the prior period.
US$ millions, unless otherwise stated
Central value
Equity price changes
10 per cent increase in equity prices
10 per cent decrease in equity prices
Interest rate changes
50 basis points increase in interest rates
50 basis points decrease in interest rates
EV as at
30 November
2016
42,114
42,839
41,380
42,262
41,736
VONB
2016
2,750
n/a
n/a
2,927
2,524
38,924
37,458
38,305
38,087
EV as at
30 November
2015 VONB 2015
38,198
2,198
Please refer to Section 3 of the Supplementary Embedded Value Information for additional information.
IFRS PROFIT
IFRS Operating Profit After Tax (OPAT)(1) by Segment
US$ millions, unless otherwise stated
Hong Kong
Thailand
Singapore
Malaysia
China
Other Markets
Group Corporate Centre
Total
2016
1,334
768
453
265
469
662
30
2015
1,147
681
426
267
384
588
63
3,981
3,556
YoY
CER
16%
17%
6%
6%
29%
17%
(52)%
15%
Note:
(1) Attributable to shareholders of AIA Group Limited only excluding non-controlling interests.
030
| AIA GROUP LIMITED
n/a
n/a
2,336
2,036
YoY
AER
16%
13%
6%
(1)%
22%
13%
(52)%
12%
FINANCIAL AND OPERATING REVIEW
OPAT grew by 15 per cent to US$3,981 million compared
with 2015. The strong growth was from a combination of
positive changes to product mix, increased scale, active
management of our in-force portfolio and our disciplined
expense management.
OPAT from Thailand increased by 17 per cent including
the benefit of a lower corporate income tax rate. Singapore
and Malaysia each delivered growth of 6 per cent and our
Other Markets segment delivered excellent OPAT growth of
17 per cent overall.
Each of our operating market segments delivered positive
OPAT growth compared with 2015.
The strong growth in OPAT increased ROE to 14.1 per cent
in 2016.
China achieved excellent growth of 29 per cent mainly
driven by the quality of our earnings and the benefits of
increasing scale from sustained growth in profitable new
business. Hong Kong delivered another strong performance
with an increase of 16 per cent as we continued to benefit
from strong underlying business growth and the disciplined
management of our in-force portfolio.
OPAT reported in 2016 and the comparative figures for
2015 reflected the revised definition of operating profit
to include the expected long-term investment return for
equities and real estate as previously highlighted in
note 49 to the financial statements in our Annual Report
2015. Further details are shown in note 48 to the financial
statements. The change does not affect net profit or
shareholders’ equity.
Total Weighted Premium Income (TWPI) by Segment
US$ millions, unless otherwise stated
2016
2015
Hong Kong
Thailand
Singapore
Malaysia
China
Other Markets
Total
6,873
3,327
2,276
1,795
2,384
5,478
5,115
3,324
2,283
1,825
2,028
5,301
22,133
19,876
YoY
CER
34%
4%
1%
6%
24%
6%
14%
YoY
AER
34%
–
–
(2)%
18%
3%
11%
TWPI increased by 14 per cent to US$22,133 million compared with 2015. The Group’s persistency remained strong
and stable at 95.0 per cent in 2016.
Investment Return
US$ millions, unless otherwise stated
Interest income
Expected long-term investment return for equities
and real estate
Total
2016
5,081
1,343
6,424
2015
4,846
1,297
6,143
YoY
CER
8%
7%
7%
YoY
AER
5%
4%
5%
Investment return increased by 7 per cent to US$6,424 million compared with 2015. The growth was primarily driven
by an increase in the level of fixed income investments and higher expected return mainly due to higher market values
from our equity portfolio.
ANNUAL REPORT 2016 | 031
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONFINANCIAL REVIEW
Operating Expenses
US$ millions, unless otherwise stated
Operating expenses
2016
1,752
2015
1,638
YoY
CER
10%
Operating expenses grew by 10 per cent to US$1,752 million with a lower expense ratio of 7.9 per cent compared
with 8.2 per cent in 2015.
Net Profit (1)
US$ millions, unless otherwise stated
OPAT
Short-term fluctuations in investment return related
to equities and real estate, net of tax
Other non-operating investment return and
other items, net of tax
Total
2016
3,981
97
86
4,164
2015
3,556
(717)
(74)
2,765
YoY
CER
15%
n/m
n/m
55%
YoY
AER
7%
YoY
AER
12%
n/m
n/m
51%
Note:
(1) Attributable to shareholders of AIA Group Limited only excluding non-controlling interests.
IFRS NON-OPERATING MOVEMENT
IFRS net profit increased by 55 per cent to US$4,164 million
compared with 2015. The increase was due to strong growth
in OPAT of 15 per cent and positive short-term fluctuations
in investment returns of US$97 million compared with
negative movements of US$717 million in 2015. Other
non-operating items were US$86 million mainly from
a lower corporate income tax rate in Thailand.
Movement in Shareholders’ Allocated Equity
US$ millions, unless otherwise stated
Opening shareholders’ allocated equity
Opening adjustments on revaluation gains on property held for own use
Net profit
Purchase of shares held by employee share-based trusts
Dividends
Revaluation gains/(losses) on property held for own use
Foreign currency translation adjustments
Other capital movements
Total movement in shareholders’ allocated equity
Closing shareholders’ allocated equity
2016
26,705
259
4,164
(86)
(1,124)
50
(423)
87
2,927
29,632
2015
26,391
–
2,765
(98)
(814)
(2)
(1,623)
86
314
26,705
032
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW
The movement in shareholders’ allocated equity is shown
before fair value reserve movements. AIA believes this
provides a clearer reflection of the underlying movement
in shareholders’ equity over the period, before the IFRS
accounting treatment of movements in available for
sale bonds.
Shareholders’ allocated equity grew to US$29,632 million
at 30 November 2016. The increase of US$2,927 million
was mainly driven by the increase in net profit to US$4,164
million, partly offset by foreign exchange translation
movements of US$(423) million and the payment of
shareholder dividends totalling US$1,124 million.
IFRS Earnings Per Share – Basic
Sensitivities arising from foreign exchange rate, interest
rate and equity price movements are included in note 36
to the financial statements.
IFRS EARNINGS PER SHARE (EPS)
Basic EPS based on IFRS OPAT attributable to shareholders
increased by 15 per cent to 33.25 US cents in 2016.
Basic EPS based on IFRS net profit attributable to
shareholders, including mark-to-market movements from
our equity and investment property portfolios, increased
by 55 per cent to 34.78 US cents in 2016.
Profit (US$ millions)
Weighted average number of ordinary shares (millions)
Basic earnings per share (US cents)
IFRS Earnings Per Share – Diluted
Profit (US$ millions)
Weighted average number of ordinary shares (2) (millions)
Diluted earnings per share (2) (US cents)
Net Profit (1)
OPAT (1)
2016
4,164
11,972
34.78
2015
2,765
11,970
23.10
2016
3,981
11,972
33.25
Net Profit (1)
OPAT (1)
2016
4,164
12,006
34.68
2015
2,765
12,007
23.03
2016
3,981
12,006
33.16
2015
3,556
11,970
29.71
2015
3,556
12,007
29.62
Notes:
(1) Attributable to shareholders of AIA Group Limited only excluding non-controlling interests.
(2) Diluted earnings per share including the dilutive effects, if any, of the awards of share options, restricted share units, restricted stock purchase units and
restricted stock subscription units granted to eligible directors, officers, employees and agents under the share-based compensation plans as described in
note 38 to the financial statements.
ANNUAL REPORT 2016 | 033
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONFINANCIAL REVIEW CAPITAL
FREE SURPLUS GENERATION
The Group’s free surplus at 30 November 2016
represented the excess of adjusted net worth over required
capital calculated under the Hong Kong reserving and
capital regulations (HKICO basis).
Underlying free surplus generation, which excludes
investment return variances and other items, increased by
11 per cent to US$4,024 million, reflecting the growing
scale of our in-force business and our focus on writing
quality new business with attractive returns on capital.
The amount invested in writing new business reduced by
5 per cent to US$1,374 million while we delivered VONB
growth of 28 per cent, mainly reflecting a positive shift in
product and country mix as well as writing more capital-
efficient products.
Free surplus increased by US$2,254 million to US$9,782
million at 30 November 2016. The excellent growth was
mainly due to a strong increase in underlying free surplus
generation, net of new business investment, of US$2,650
million and positive investment return variances and other
items totalling US$1,005 million, including the revised
undertaking to the HKOCI, less the payment of shareholder
dividends totalling US$1,124 million.
The following table summarises the change in free surplus:
US$ millions, unless otherwise stated
Opening free surplus
Underlying free surplus generated
Free surplus used to fund new business
Investment return variances and other items
Unallocated Group Office expenses
Dividends
Finance costs and other capital movements
Closing free surplus
2016
7,528
4,024
(1,374)
1,005
(161)
(1,124)
(116)
9,782
2015
7,794
3,719
(1,488)
(1,467)
(128)
(814)
(88)
7,528
034
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW NET FUNDS TO GROUP CORPORATE CENTRE
Working capital comprises debt and equity securities,
deposits and cash and cash equivalents held at the Group
Corporate Centre. Working capital increased to US$8,416
million at 30 November 2016.
of a medium term note with net proceeds of US$733
million, partly offset by the payment for our increased
shareholding in Tata AIA, repayment of borrowings
of US$473 million and the payment of shareholder
dividends totalling US$1,124 million.
The increase was mainly due to net remittances from
business units of US$2,021 million and the issuance
The movements in working capital are summarised
as follows:
US$ millions, unless otherwise stated
Opening working capital
Group Corporate Centre operating results (1)
Capital flows from business units
Hong Kong
Thailand
Singapore
Malaysia
China
Other Markets
Net funds remitted to Group Corporate Centre
Payment for increase in interest of an associate (Tata AIA)
Increase in borrowings
Purchase of shares held by the employee share-based trusts
Payment of dividends
Change in fair value reserve and others (1)
Closing working capital
2016
7,843
30
1,034
411
209
186
46
135
2,021
(310)
260
(86)
(1,124)
(218)
8,416
2015
6,614
63
850
708
329
188
1
119
2,195
–
183
(98)
(814)
(300)
7,843
Note:
(1) Change in fair value reserve and others include non-operating investment return and other non-operating income and expenses. The comparative
information has been adjusted to conform to current year presentation.
ANNUAL REPORT 2016 | 035
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONFINANCIAL REVIEW IFRS BALANCE SHEET
Consolidated Statement of Financial Position
US$ millions, unless otherwise stated
Assets
Financial investments
Investment property
Cash and cash equivalents
Deferred acquisition and origination costs
Other assets
Total assets
Liabilities
Insurance and investment contract liabilities
Borrowings
Other liabilities
Less total liabilities
Equity
Total equity
Less non-controlling interests
Total equity attributable to shareholders of AIA Group Limited
Shareholders’ allocated equity
Movement in Shareholders’ Equity
US$ millions, unless otherwise stated
Opening shareholders’ equity
Opening adjustments on revaluation gains on property held for own use
Net profit
Fair value gains/(losses) on assets
Purchase of shares held by employee share-based trusts
Dividends
Revaluation gains/(losses) on property held for own use
Foreign currency translation adjustments
Other capital movements
Total movement in shareholders’ equity
Closing shareholders’ equity
Total Investments
As at
30 November
2016
As at
30 November
2015
Change
AER
150,998
139,083
3,910
1,642
18,898
9,626
3,659
1,992
17,092
7,932
185,074
169,758
135,214
3,460
11,090
149,764
35,310
326
34,984
29,632
123,085
3,195
12,056
138,336
31,422
303
31,119
26,705
2016
31,119
259
4,164
938
(86)
(1,124)
50
(423)
87
3,865
34,984
9%
7%
(18)%
11%
21%
9%
10%
8%
(8)%
8%
12%
8%
12%
11%
2015
32,467
–
2,765
(1,662)
(98)
(814)
(2)
(1,623)
86
(1,348)
31,119
US$ millions, unless otherwise stated
Total policyholder and shareholder
Total unit-linked contracts and consolidated investment funds
Total investments
As at
30 November
2016
Percentage
of total
As at
30 November
2015
Percentage
of total
137,479
20,657
158,136
87%
13%
100%
126,435
19,794
146,229
86%
14%
100%
036
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW
The investment mix remained stable during the year as set out below:
Unit-Linked Contracts and Consolidated Investment Funds
US$ millions, unless otherwise stated
Unit-linked contracts and consolidated investment funds
Debt securities
Loans and deposits
Equities
Cash and cash equivalents
Derivatives
As at
30 November
2016
Percentage
of total
As at
30 November
2015
Percentage
of total
4,456
196
15,498
504
3
22%
1%
75%
2%
–
4,182
211
14,948
450
3
21%
1%
76%
2%
–
Total unit-linked contracts and consolidated investment funds
20,657
100%
19,794
100%
Policyholder and Shareholder Investments
US$ millions, unless otherwise stated
Participating funds
Government and government agency bonds
Corporate bonds and structured securities
Loans and deposits
Subtotal – Fixed income investments
Equities
Investment property and property held for own use
Cash and cash equivalents
Derivatives
Subtotal participating funds
Other policyholder and shareholder
Government and government agency bonds
Corporate bonds and structured securities
Loans and deposits
Subtotal – Fixed income investments
Equities
Investment property and property held for own use
Cash and cash equivalents
Derivatives
Subtotal other policyholder and shareholder
Total policyholder and shareholder
As at
30 November
2016
Percentage
of total
As at
30 November
2015
Percentage
of total
7,830
10,877
1,830
20,537
5,451
434
179
17
6%
8%
1%
15%
4%
–
–
–
7,866
11,190
1,917
20,973
4,915
436
204
34
6%
9%
2%
17%
4%
–
–
–
26,618
19%
26,562
21%
40,013
50,442
5,036
95,491
9,262
5,062
959
87
110,861
137,479
29%
36%
4%
69%
7%
4%
1%
–
81%
100%
35,425
45,977
5,083
86,485
7,296
4,718
1,338
36
99,873
126,435
28%
36%
4%
68%
6%
4%
1%
–
79%
100%
ANNUAL REPORT 2016 | 037
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONFINANCIAL REVIEW
ASSETS
Total assets increased by US$15,316 million to
US$185,074 million at 30 November 2016, compared
with US$169,758 million at 30 November 2015, due to
positive net revenues and mark-to-market gains from
our debt securities.
Total investments include financial investments,
investment property, property held for own use, and cash
and cash equivalents increased by US$11,907 million to
US$158,136 million at 30 November 2016, compared with
US$146,229 million at 30 November 2015.
Of the total US$158,136 million investments at
30 November 2016, US$137,479 million were held in
respect of policyholders and shareholders and the
remaining US$20,657 million were backing unit-linked
contracts and consolidated investment funds.
Fixed income investments, including debt securities, loans
and term deposits held in respect of policyholders and
shareholders, totalled US$116,028 million at 30 November
2016 compared with US$107,458 million at 30 November
2015. The average credit rating of the fixed income
portfolio remained consistent with the position at
30 November 2015.
Government and government agency bonds represented
41 per cent of fixed income investments at 30 November
2016, compared with 40 per cent at 30 November 2015.
Corporate bonds and structured securities accounted for
53 per cent of fixed income investments at 30 November
2016 and 30 November 2015.
Equity securities held in respect of policyholders and
shareholders totalled US$14,713 million at 30 November
2016, compared with US$12,211 million at 30 November
2015. The 20 per cent increase in carrying value was
mainly attributable to new purchases and positive mark-
to-market movements. Within this figure, equity securities
of US$5,451 million were held in participating funds.
increased investments in financial assets, payment
for the increase in our shareholding in Tata AIA and
the payment of shareholder dividends totalling
US$1,124 million.
Investment property and property held for own use
in respect of policyholders and shareholders totalled
US$5,496 million at 30 November 2016 compared with
US$5,154 million at 30 November 2015.
Deferred acquisition and origination costs increased to
US$18,898 million at 30 November 2016 compared with
US$17,092 million at 30 November 2015, largely reflecting
new business growth.
Other assets increased to US$9,626 million at
30 November 2016 compared with US$7,932 million at
30 November 2015, reflecting the increase in our
shareholding in Tata AIA and increased property, plant
and equipment.
LIABILITIES
Total liabilities increased to US$149,764 million
at 30 November 2016 from US$138,336 million at
30 November 2015.
Insurance and investment contract liabilities grew to
US$135,214 million at 30 November 2016 compared with
US$123,085 million at 30 November 2015, reflecting the
underlying growth of the in-force portfolio from new
business and positive mark-to-market movements on
equities backing unit-linked and participating policies and
foreign exchange translation.
Borrowings increased to US$3,460 million at 30 November
2016, due to the net proceeds of US$733 million from the
issuance of a medium term note in March 2016 less the
repayment of borrowings totalling US$473 million.
Other liabilities were US$11,090 million at 30 November
2016, compared with US$12,056 million at 30 November
2015.
Cash and cash equivalents decreased by 18 per cent
to US$1,642 million at 30 November 2016 compared with
US$1,992 million at 30 November 2015, reflecting
Details of commitments and contingencies are included
in note 41 to the financial statements.
038
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW REGULATORY CAPITAL
The Group’s lead insurance regulator is the Hong Kong
Office of the Commissioner of Insurance (HKOCI). The
Group’s principal operating company is AIA Co., a Hong
Kong-domiciled insurer.
At 30 November 2016, the total available capital for AIA Co.,
our main regulated entity, was US$6,699 million as
measured under the HKICO basis, resulting in a solvency
ratio of 404 per cent of regulatory minimum capital
compared with 428 per cent at 30 November 2015. The
solvency ratio remained very strong with growth in retained
earnings, offset by the net effect of short-term capital
market movements on our investment portfolio and statutory
reserves, the payment for our increased shareholding in Tata
AIA and dividends to AIA Group Limited.
A summary of the total available capital and solvency
ratios of AIA Co. is as follows:
US$ millions, unless otherwise stated
Total available capital
Regulatory minimum capital (100%)
Solvency ratio (%)
The Group’s individual branches and subsidiaries are
also subject to supervision in the jurisdictions in which
they and their parent entity operate. This means that local
operating units, including branches and subsidiaries,
must meet the regulatory capital requirements of their
local prudential and, where applicable, parent entity
regulators. These various regulators overseeing the
Group’s branches and subsidiaries actively monitor their
capital position. The local operating units were in
compliance with the capital requirements of their
respective local regulators in each of our geographical
markets at 30 November 2016.
GLOBAL MEDIUM TERM NOTE PROGRAMME
Under our US$5 billion Global Medium Term Note (GMTN)
programme, AIA Group Limited issued a senior unsecured
fixed rate note with nominal amount of US$750 million
in March 2016. The note will mature in 2046 and bears
annual interest of 4.5 per cent. At 30 November 2016,
the aggregate carrying amount of the debt issued under
the GMTN programme was US$3,459 million.
As at
30 November
2016
As at
30 November
2015
6,699
1,659
404%
6,761
1,579
428%
CREDIT RATINGS
At 30 November 2016, AIA Co. has financial strength
ratings of AA- (Very Strong) with a stable outlook from
Standard & Poor’s and Aa3 (Very Low Credit Risk) with
a positive outlook from Moody’s.
AIA Group Limited has issuer credit ratings of A (Strong)
with a stable outlook from Standard & Poor’s and A3
(Low Credit Risk) with a positive outlook from Moody’s.
DIVIDENDS
The Board of Directors has recommended a step up in
the final dividend of 25 per cent to 63.75 Hong Kong cents
per share, subject to shareholders’ approval at the
Company’s forthcoming AGM. This brings the total
dividend for 2016 to 85.65 Hong Kong cents per share,
an increase of 23 per cent compared with 2015. The
Board’s decision to recommend a further uplift from the
new higher base established last year reflects the strength
of our results and the confidence in AIA’s future prospects.
The Board intends to follow AIA’s established prudent,
sustainable and progressive dividend policy from this
higher base allowing for future growth opportunities and
the financial flexibility of the Group.
ANNUAL REPORT 2016 | 039
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONFINANCIAL REVIEW BUSINESS REVIEW
041 DISTRIBUTION
043 MARKETING
044 TECHNOLOGY AND OPERATIONS
046 GEOGRAPHICAL MARKETS
040
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW 01
DISTRIBUTION
AGENCY
AIA’s proprietary network of agents is our primary
distribution platform and central to our success. Our
focus is on developing and distributing high-quality
regular premium protection and long-term savings
products to provide our customers with financial security
and help meet their wealth aspirations. Our customers
value enormously the professional advice and service
delivered by our highly-skilled and well-trained agents
and we are committed to the ongoing professional
development of our agents and leaders to ensure that
our long-term customer relationships and levels of
customer engagement are of the highest standard. The
strong foundation provided by our large, experienced
and professional agency force differentiates AIA and
places us at an advantage to capture the significant
future growth opportunities from our broad range
of customers across Asia.
The consistent execution of our Premier Agency strategy
has delivered strong VONB growth of 21 per cent to
US$1,995 million, representing 70 per cent of the Group’s
total VONB in 2016. ANP increased by 25 per cent to
US$3,113 million with VONB margin of 64.1 per cent. These
excellent results were achieved by ensuring the highest
standards of knowledge, skills and best practices are
developed, maintained and shared across our entire
network of agents.
Our Premier Agency strategy emphasises the importance
of quality recruitment and best-in-class training for
new agents. AIA was the first insurer in Asia to introduce
mandatory pre-contract induction programmes for
new recruits across our markets. Our well-designed
programmes attract high-calibre individuals and enable
new agents to become more productive and in a shorter
period of time. This has proved instrumental in increasing
activity ratios. AIA’s approach to selective hiring and
professional training increased active new agents by
20 per cent in 2016.
01
In 2016, AIA became the only
company to be ranked number one
in the world for MDRT members for
two consecutive years.
AIA has an unmatched willingness and capacity to invest
in developing our agency distribution at scale. We have
collaborated with the very best institutions globally to
develop our proven training modules for our career agents
and agency leaders. In 2016, overall active agent numbers
increased alongside significant growth in productivity in
terms of ANP per active agent.
Million Dollar Round Table (MDRT) status is an important
global industry standard for agents. Members are
required to demonstrate exceptional professional
knowledge and customer service. We have continued
to support our agents in attaining MDRT qualification
through a clear and disciplined focus on improving
performance standards. In 2016, AIA became the only
company to be ranked number one in the world for
MDRT members for two consecutive years, driven by
a 48 per cent increase in registered members compared
with the prior year. While MDRT qualification is just one
measure of our success, AIA’s Premier Agency strategy
has made significant progress in raising the performance
across the whole of our agency distribution since our IPO.
AIA’s interactive Point of Sale (iPoS) technology has
been established as the principal sales tool for agents
across our markets, enabling reduced turnaround times,
increased productivity and an improved overall customer
experience. We have continued to invest further in
technology, including our second-generation interactive
Mobile Office (iMO) platform. This has been widely
recognised by our agents and agency leaders as
a significant step forward in the management of their
activities from recruitment and training to lead generation
and face-to-face sales. Along with our many other
initiatives across the region, iMO will ensure that we
continue to drive material increases in the professionalism,
activity and productivity of our agents.
Note:
VONB and VONB margin by distribution channel
are based on local statutory reserving and capital
requirements and exclude pension business.
ANNUAL REPORT 2016 | 041
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBUSINESS REVIEW PARTNERSHIPS
AIA’s partnership business complements our agency
distribution and creates significant opportunities for
additional profitable growth by broadening our access to
potential customers across the Asia-Pacific region. Our
clear focus on developing long-term collaborative
partnerships once again delivered excellent results with
VONB up 35 per cent to US$875 million. ANP increased
strongly by 43 per cent to US$2,010 million with VONB
margin of 43.5 per cent. Partnerships accounted for
30 per cent of the Group’s total VONB in 2016.
Intermediary Channels
The strength of our multi-channel distribution platform
is also reflected in the overall results from our
intermediated partnership channels including independent
financial advisers (IFAs), brokers, private banks and
specialist advisers, which has enabled us to provide
financial and protection solutions to a broader range
of customers. Our differentiated products, leading
customer service and dedicated intermediary support
have resulted in significant VONB growth through these
channels compared with 2015.
Bancassurance
AIA strives to develop new relationships and expand
existing partnerships with many highly-regarded local and
regional banks. Our strategy is to deliver VONB growth
through a disciplined approach to the products we offer
to meet customers’ needs while achieving our required
return on invested capital. We use technology, including
iPoS, to enhance the productivity of relationship managers
and insurance specialists, and to broaden the product
range available to bank customers. The successful
execution of our strategy delivered a double-digit increase
in VONB through this channel in 2016.
Our long-term exclusive partnership with Citibank, N.A.
(Citibank) across the region delivered very strong
double-digit VONB growth during the year. AIA and
Citibank share a mutual goal of providing a full range
of life and health insurance products and services to the
bank’s 15 million retail clients across these markets. We
are achieving this through a number of strategic initiatives
including ongoing product launches, investment in
front-end sales technology and targeted training for
Citibank’s relationship managers and in-branch insurance
specialists. Our comprehensive product strategy included
the introduction of new regular premium unit-linked
products for the mass affluent segment in Indonesia and
a new multiple payment critical illness rider to our flagship
All-in-One product in China. The successful integration
of AIA’s iPoS with Citibank’s sales platforms now provides
a seamless financial planning experience for customers.
Direct Marketing
Our direct marketing business continued to achieve robust
growth, particularly in Malaysia and Taiwan with higher
productivity levels from telesales representatives and from
a continued focus on selling protection products. The
expansion of our telemarketing business with Citibank
in Hong Kong, Singapore and Malaysia also made a strong
contribution. VONB from direct marketing increased
by more than 30 per cent excluding Korea.
GROUP INSURANCE
Group insurance is an important part of AIA’s strategy
to meet the potential protection needs of the more
than 1.8 billion people in the working population across
Asia-Pacific (ex-Japan). This figure compares with
just 160 million in the US and 250 million in the
European Union.
AIA is the leading provider of group insurance across
the region with top-ranked market positions in Hong Kong,
Thailand, Singapore, Malaysia and Australia. Across our
markets, we serve over 16 million existing group insurance
scheme members and more than 120,000 corporate clients.
AIA’s group insurance business delivered solid VONB
growth in 2016. We benefited from an increase in
our individual voluntary solutions business, the retention
of large employee benefits contracts in Australia and
improvements in operational efficiency.
Our multi-channel distribution platform provides
an important source of competitive advantage in
supporting both multinational corporate and small-and-
medium sized enterprise (SME) clients throughout the
region. We collaborate with a broad regional network
of employee benefits consultants and brokers to develop
tailored solutions and deepen penetration within their
large corporate client base.
AIA has benefited from our efforts in supporting our
agents to serve the growing SME market. More than half
of the entire labour force in Asia are employed by SMEs
and this market has become increasingly important as
SMEs evolve from small family-run operations into
scalable businesses. Our highly-trained agents are able
to leverage their strong relationships with business
owners to help identify and meet their needs and capture
the demand for group insurance as these businesses grow
in size and sophistication.
042
| AIA GROUP LIMITED
03
FINANCIAL AND OPERATING REVIEW Our approach to individual voluntary solutions allows
group scheme members to supplement their existing
group insurance cover with individual products and
additional benefits. In the US, more than 70 per cent
of employers currently offer voluntary benefits to their
employees. By contrast, this market is in the very early
stages of development in Asia. Since its launch in 2015,
our focus on individual voluntary solutions, combined with
a simplified underwriting process and products
specifically designed to complement existing scheme
benefits, has made solid progress.
01
Employers in Asia rely increasingly on more sophisticated
human resources capabilities to attract talent and,
as a result, the demand for group insurance provision
continues to grow strongly. AIA remains well-placed to
make the most of the significant growth potential of this
market as we continue to introduce innovative products
and enhance service levels for both employers and
individual scheme members.
MARKETING
AIA is one of the most recognised and trusted brands
in Asia. In 2016, we continued to build our brand strength
through our positioning as “The Real Life Company”. We
are committed to delivering our brand promise of helping
our customers meet their protection and long-term savings
needs at the various stages of life, while also motivating
them to living longer, healthier, better lives through
our range of wellness initiatives.
CUSTOMER ENGAGEMENT
Our brand promise is exemplified by AIA Vitality, our
science-backed wellness programme that allows
AIA to play an active role in empowering and motivating
customers to take better care of their health by rewarding
positive lifestyle choices. We launched AIA Vitality in
Malaysia and Thailand in 2016 following the successful
roll-out in Singapore, Australia, the Philippines and
Hong Kong. For example, AIA celebrated its 85th
anniversary in Hong Kong by hosting the AIA Vitality
Weekly Challenge. Rewards were provided through an
easy-to-use and engaging smartphone application to
motivate customers to lead an active lifestyle. The take-up
rate of AIA Vitality on integrated products in Hong Kong
exceeded 75 per cent by the end of 2016.
Our shirt sponsorship agreement with Tottenham Hotspur
Football Club (Spurs) plays a vital role in AIA’s promotion
of healthy lifestyles by encouraging active participation
in sport. The partnership with Spurs was recognised in the
“Best Sponsorship of a Sport, Team or Event of the Year”
02
01-02
AIA celebrated its 85th anniversary
in Hong Kong by hosting the AIA
Vitality Weekly Challenge.
Note:
VONB and VONB margin by distribution channel
are based on local statutory reserving and capital
requirements and exclude pension business.
ANNUAL REPORT 2016 | 043
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBUSINESS REVIEW 01
category at the 2016 Asian Sports Industry Awards. AIA
also organised various customer and employee engagement
events in 2016 to foster positive values of teamwork,
discipline and sportsmanship. These events included the
AIA Championship, a regional five-a-side football
tournament that has attracted participants across Asia.
AIA’s in-force customer base is an important source
of growth with more than 30 million individual policies
and over 16 million participating members of group
insurance schemes. We recognise the indispensable role
customer engagement plays in the successful delivery
of our brand promise. As such, we are focused on gaining
deeper insights into customers’ needs and buying
experiences. We continued to gather valuable feedback from
our online customer community platform, which has over
17,000 active customer members, helping us prioritise the
development of products and services by understanding
what matters most to our customers. For example, the
roll-out in March 2016 of Singapore’s first 2-in-1 SavestTM
plan combining unit-linked and participating benefits,
and our first multi-payment critical illness product in
China are just two examples of listening to customers
and developing innovative products that address their
requirements.
PRODUCT DEVELOPMENT
We fulfil our brand promise by providing a comprehensive
range of insurance products that meet customers’ needs
for savings and protection with an emphasis placed on
healthcare and wellness.
Our core offerings in many markets, including Malaysia,
Singapore, Indonesia and the Philippines, are our regular
premium unit-linked products. These provide customers
with the flexibility to personalise their mix of wealth
accumulation and protection cover as needs evolve over
their lifetimes. We continued to make further inroads into
the provision of unit-linked products in Thailand, building
on our first-mover advantage. In Malaysia, we introduced
an add-on plan to our popular regular premium unit-linked
products to enable our policyholders to extend coverage
to their families. Also in Malaysia, we launched AIA Vitality
in June, becoming the first company globally to integrate
health and wellness benefits with unit-linked life
insurance and Takaful products.
We expanded our leading suite of protection products
in 2016 with a focus on critical illness cover. AIA China
extended its flagship All-in-One protection range with
a new rider and a successful campaign to upgrade the
cover levels of existing customers. In Hong Kong, we
rolled out the first-in-market whole life simplified issue
long-term care rider that offers extra protection options
to allow the ageing population of the city to tailor their
lifetime coverage.
TECHNOLOGY AND OPERATIONS
AIA has continued to make significant progress
in transforming our technology systems and enhancing
business processes across Asia in 2016. Our technology
and operations functions are focused on delivering higher
operational efficiency and simplifying customer
interactions. By leveraging innovation and emerging
technologies, we are better supporting the sustainable
and profitable growth of our business, while providing
high-quality service to our customers.
DRIVING OPERATIONAL EFFICIENCY
AND PRODUCTIVITY
The implementation of our data centre modernisation
initiatives is well underway. These programmes provide
cost-efficient infrastructure services for AIA by reducing
data centre office space, while raising service quality,
increasing resilience and enhancing information security.
We also completed a major revamp of our policy
administration systems in Singapore, Malaysia and
Hong Kong.
Information security is a critical aspect of our technology
strategy. We are committed to protecting the interests
of our customers, partners, employees and stakeholders
by providing a world-class information security
environment. We are further enhancing our cyber security
practices through more advanced technologies,
intelligence-led security, and targeted training to raise
employee awareness.
SIMPLIFYING CUSTOMER INTERACTIONS
AIA’s early adoption of digital tools for our distribution
channels has enhanced efficiency as well as customer
experience. More than 70 per cent of new business was
submitted through iPoS in 2016. We continue to develop
044
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW additional functionality, further strengthening the sales
management capabilities of our distribution channels
through the innovative use of digital technology.
Knowing more about our customers is a critical factor
for successful marketing. Our group-wide data project
deploys a common data model across all of our major
markets. This programme will provide richer analytics and
deeper insights, benefiting our customers through product
development and targeted marketing. We implemented
a major revamp of our customer websites across the
Group in 2016. The new easy-to-use customer websites
are responsive to any mobile device, greatly facilitating
customers’ research into our products and business
operations.
We continue to look for opportunities that leverage
innovative and emerging technologies to support the
evolution of our business operations. In Australia,
we launched an artificial intelligence (AI) solution
to perform natural language processing for claims
assessment. The successful implementation of this
AI solution has significantly improved operational
efficiency, while increasing the accuracy of the claims
assessment process.
PROMOTING INNOVATION
We organised the AIA Accelerator programme for the
second year, with the goal of delivering innovation through
the use of new and emerging technologies to support
business evolution and help drive social and economic
development across the Asia-Pacific region. In 2016,
AIA joined R3, a consortium of 50 of the world’s leading
financial institutions to develop groundbreaking
commercial applications for the financial service industry,
leveraging elements of distributed and shared ledger
technology. We are the first pan-Asian life insurer
to join R3 and we believe distributed ledger technology
or “blockchain” may offer significant opportunities for
the life and health insurance industry.
03
02
03
01
In Singapore, we launched the first
2-in-1 Savest™ plan combining
unit-linked and participating
benefits.
02-03
We organised the AIA Accelerator
programme for the second year,
with the goal of delivering
innovation through the use of
new and emerging technologies
to support business evolution and
help drive social and economic
development.
ANNUAL REPORT 2016 | 045
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBUSINESS REVIEW HONG KONG
FINANCIAL HIGHLIGHTS
AIA Hong Kong delivered an excellent performance
in 2016 with VONB growth of 42 per cent to US$1,161
million. This is the first year that AIA Hong Kong has
generated over US$1 billion of VONB. This outstanding
result was due to a significant increase in agent
productivity and higher active agent numbers, combined
with excellent growth in our partnership distribution
channel. ANP increased by 82 per cent to US$2,294
million with more than 90 per cent of new business
coming from regular premium products. VONB margin
remained strong at 48.8 per cent reflecting increased sales
of long-term participating products that balance lower
reported VONB margins with greater capital efficiency
at inception. While we focus on sales across a number
of different customer segments in Hong Kong, we continue
to monitor closely any developments relating to customers
visiting from Mainland China to ensure that we maintain
robust compliance with ongoing measures. IFRS operating
profit after tax increased by 16 per cent to US$1,334
million as we continued to benefit from strong underlying
business growth.
V O N B (1)
2016
1,161
2015
820
A N P
2016
YoY (CER)
42%
YoY (AER)
42%
YoY (CER)
82%
YoY (AER)
82%
2,294
2015
1,263
OPERATING PROFIT AFTER TAX
2016
1,334
2015
1,147
YoY (CER)
16%
YoY (AER)
16%
V O N B M A R G I N (2)
2016
48.8%
2015
62.0%
T W P I
2016
6,873
2015
5,115
YoY (CER)
(13.2)pps
YoY (AER)
(13.2)pps
YoY (CER)
34%
YoY (AER)
34%
US$ MILLIONS, UNLESS
OTHERWISE STATED
Notes:
(1) VONB figures shown in the table are based on
local statutory reserving and capital requirements
and include pension business.
(2) VONB margin excludes pension business to be
consistent with the definition of ANP used within
the calculation.
046
| AIA GROUP LIMITED
BUSINESS HIGHLIGHTS
We have focused on recruiting high-calibre agents and
supporting them with best-in-class training, contributing to
an increase in the number of active agents and a significant
uplift in agent productivity levels compared with 2015. Our
Gen-Y Club and Road to MDRT programmes have been very
successful in supporting our agency leaders in attracting
top young talent through the AIA Premier Academy. New
recruits aged 35 years or below accounted for close to
two-thirds of overall recruits in 2016.
We also launched a Premier Agency Leader programme
to develop our next generation of agency leaders by
equipping them with enhanced leadership, agency
management and recruitment skills. This contributed to
a 21 per cent increase in the number of new recruits
during the year. AIA retained its top-ranked position for
registered MDRT members in Hong Kong with an increase
of more than 60 per cent compared with 2015. AIA
Hong Kong has the distinction of being the third largest
company worldwide for registered MDRT members
measured on a stand-alone basis. We believe that AIA’s
Premier Agency strategy provides a strong foundation
for future growth in activity and productivity levels across
our agency distribution in Hong Kong.
Partnership distribution also delivered significant VONB
growth in 2016 with retail IFA business continuing its
excellent momentum from the first half of the year. Our
strategic long-term bancassurance partnership with
Citibank delivered an excellent performance with VONB
double the amount in 2015. This was the result of ongoing
efforts to increase the productivity of relationship
managers and in-branch insurance specialists through
a series of integrated training programmes, successful
customer campaigns and new product launches.
Our balanced product range enables us to capture the
significant growth opportunities across a broad range
of customer segments in Hong Kong. Since its launch
in October 2015, we have seen strong demand for AIA
Vitality, further differentiating our protection proposition
and the quality of our engagement with our customers in
Hong Kong. The take-up rate of AIA Vitality on integrated
products exceeded 75 per cent by the end of 2016.
FINANCIAL AND OPERATING REVIEW REAL LOVE
AIA continued to inspire people
to cherish their loved ones through
mini-films. Based on real life, the
film tells the story of Hong Kong’s
first world champion bowler,
Wu Siu Hong, and his fight against
cancer, conveying the message
that “Love is in Every Moment”.
ANNUAL REPORT 2016 | 047
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONGEOGRAPHICAL MARKETSBUSINESS REVIEW THAILAND
REAL STRENGTH
AIA’s new television commercial
brings to life AIA Vitality programme’s
compelling concept – that pursuing
a healthy lifestyle provides not only
physical but material rewards, with
premium discounts and a variety
of lifestyle privileges.
048
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW FINANCIAL HIGHLIGHTS
AIA Thailand reported VONB of US$384 million in 2016,
including a period of reduced activity at the end of our
financial year during the mourning period following the
passing of King Bhumibol Adulyadej in October. VONB
margin was up by 5.4 pps to 81.5 per cent offset by lower
new business volumes. We are committed to the ongoing
professional development of our market-leading agency
distribution in Thailand and the proactive management
of the quality of the new business we write. Our focus
on driving regular premium sales, rather than short-term
deposit replacement products, is reflected in our market-
leading position in the protection market. Regular
premium business accounted for 97 per cent of ANP with
protection business comprising the majority of the VONB
generated during the year. IFRS operating profit after tax
grew by 17 per cent to US$768 million including the
benefit of a lower corporate income tax rate.
BUSINESS HIGHLIGHTS
AIA continues to be well positioned to capture the
significant long-term growth opportunities from the
low levels of life insurance penetration in the Thai
market. Our focus remains on driving increased agent
activity and productivity through selective recruitment
and continued development of our training capabilities.
AIA Thailand’s “Financial Adviser” programme builds
on our positive experience and best practices in other
countries by offering high-quality induction programmes
to new agents with high potential. New hires through this
programme increased by 35 per cent compared with
2015 and productivity was 26 per cent higher than
the average level for new recruits. Ongoing training and
mentoring opportunities are available to increase
productivity levels with the aim of helping our agents
achieve MDRT status. At the same time, we continue to
strictly enforce the validation of agency contracts which
affected overall new sales during the year but positions
us well for future sustainable growth.
Our in-house training is developing highly-skilled agents
who can provide advice on a wider range of savings and
protection products. This is contributing to our market-
leading position in terms of agents qualified to sell
unit-linked insurance products. The launch of a new sales
tool on our mobile sales platform supported these efforts
by helping our agents explain the flexibility of unit-linked
products in meeting customers’ savings and protection
needs. The number of licensed AIA agents qualified to
distribute unit-linked products increased by 43 per cent
in 2016 building on the significant growth achieved in
2015. AIA’s market share of the unit-linked insurance
market in Thailand was around 90 per cent based on
reported premium in 2016, accounting for more than
15 per cent of AIA Thailand’s overall VONB in 2016.
AIA Thailand is the market leader in group insurance
with a significant in-force portfolio. Our agency channel
generated additional value from scheme members who
supplemented their insurance cover provided by their
employers with individual products. The launch of
AIA Vitality in June 2016 strengthened our leading
position in the protection market. AIA Vitality is the first
comprehensive wellness programme in Thailand and
it is designed to complement our existing product range.
V O N B (1)
2016
384
2015
395
A N P
2016
YoY (CER)
1%
YoY (AER)
(3)%
YoY (CER)
(6)%
YoY (AER)
(9)%
471
2015
520
OPERATING PROFIT AFTER TAX
2016
768
2015
681
YoY (CER)
17%
YoY (AER)
13%
V O N B M A R G I N (2)
2016
81.5%
2015
75.8%
T W P I
2016
3,327
2015
3,324
YoY (CER)
5.4 pps
YoY (AER)
5.7 pps
YoY (CER)
4%
YoY (AER)
-
US$ MILLIONS, UNLESS
OTHERWISE STATED
Notes:
(1) VONB figures shown in the table are based on
local statutory reserving and capital requirements
and include pension business.
(2) VONB margin excludes pension business to be
consistent with the definition of ANP used within
the calculation.
ANNUAL REPORT 2016 | 049
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONGEOGRAPHICAL MARKETSBUSINESS REVIEW We introduced a new MDRT mentoring programme
which provides our high potential agents with coaching
from existing MDRT members. The number of MDRT
qualifiers increased by 30 per cent compared with
2015. AIA continued to rank first in Singapore for
MDRT registered members in 2016.
Our strategic partnership with Citibank also made solid
progress in 2016. We provided structured training on
sales effectiveness and advisers received intensive
coaching from AIA’s product specialists. As well as this
focus on driving increased productivity within the bank’s
sales force, we captured opportunities from Citibank’s
credit card customer base by offering simplified protection
solutions through expanded telemarketing operations. AIA
Singapore continued to be a leader in the group insurance
market in 2016 and we continued to benefit from
increased individual protection sales to existing members
of our in-force group insurance schemes through our
agency distribution channel.
AIA Singapore is ranked number one for protection in
terms of new business sums assured and is at the forefront
of new product innovation. In August, we introduced
a popular new critical illness product with first-in-market
features that allow policyholders to fully restore their
coverage amounts after making a claim, subject to an
appropriate waiting period. AIA Vitality also continued to
gain traction with VONB from integrated products up by
70 per cent compared with 2015.
SINGAPORE
FINANCIAL HIGHLIGHTS
AIA Singapore reported VONB of US$316 million in
2016. VONB margin increased by 1.4 pps to 74.1 per cent
with ANP lower by 9 per cent to US$427 million. Growth
in new regular premium business was offset by lower
single premium sales through the broker channel,
as previously reported in our Interim Report 2016. This
reflected our approach to managing our product mix
through proactive pricing actions and lower overall market
sales, as we focus on delivering profitable growth over
the long term. VONB from regular premium business grew
by 16 per cent compared with 2015. IFRS operating profit
after tax increased by 6 per cent to US$453 million.
BUSINESS HIGHLIGHTS
AIA’s disciplined execution of our Premier Agency
strategy in Singapore drove a strong performance in
our agency channel in 2016. We delivered double-digit
growth in agency VONB from increased active agent
numbers and higher productivity in terms of ANP per active
agent. Our efforts were supported by the high adoption
rate of iPoS and the enhanced capabilities of iMO, including
providing customers with on-the-spot underwriting
decisions. Approximately 80 per cent of new business
applications in Singapore were submitted through iPoS
in 2016.
V O N B (1)
2016
316
2015
341
A N P
2016
YoY (CER)
(7)%
YoY (AER)
(7)%
YoY (CER)
(9)%
YoY (AER)
(9)%
427
2015
471
OPERATING PROFIT AFTER TAX
2016
453
2015
426
YoY (CER)
6%
YoY (AER)
6%
V O N B M A R G I N (2)
2016
74.1%
2015
72.4%
T W P I
2016
2,276
2015
2,283
YoY (CER)
1.4 pps
YoY (AER)
1.7 pps
YoY (CER)
1%
YoY (AER)
-
US$ MILLIONS, UNLESS
OTHERWISE STATED
Notes:
(1) VONB figures shown in the table are based on
local statutory reserving and capital requirements
and include pension business.
(2) VONB margin excludes pension business to be
consistent with the definition of ANP used within
the calculation.
050
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW REAL
UNDERSTANDING
AIA Singapore developed the
Savest™ concept based on the
understanding that consumers today
are seeking the best of both worlds -
an effective wealth management
solution that allows customers
to save as well as to invest.
ANNUAL REPORT 2016 | 051
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONGEOGRAPHICAL MARKETSBUSINESS REVIEW MALAYSIA
REAL CHALLENGES
AIA launched AIA Vitality in Malaysia
to provide participants with the
knowledge, tools and motivation to
improve their health. The programme
integrates health and wellness benefits
with AIA’s life insurance and Takaful
solutions, allowing AIA to play a more
active role in empowering and
motivating Malaysians to take much
better care of their health.
052
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW FINANCIAL HIGHLIGHTS
AIA Malaysia delivered excellent VONB growth of
23 per cent to US$198 million. ANP increased by
25 per cent to US$341 million while VONB margin
remained strong at 57.1 per cent. This sustained,
high-quality performance was driven by excellent results
from our agency distribution and new product innovation
which combines protection cover and regular premium
unit-linked savings with the addition of health and
wellness solutions. IFRS operating profit after tax
increased by 6 per cent to US$265 million.
BUSINESS HIGHLIGHTS
Our selective recruitment and rigorous agency training
have continued to deliver excellent results in 2016. Our
new long-term career development programme has
continued to attract high-calibre individuals leading to
a 25 per cent increase in the number of active new agents
compared with 2015. AIA’s agency business has also
benefited from rolling out activity management tools,
launching new products for the mass affluent segment
and the use of technology to improve the customer
experience at point of sale. As a result, agency productivity
has improved significantly, with ANP per active agent up
by more than 20 per cent compared with 2015.
AIA’s Takaful business is an increasingly important driver
of our new business growth in Malaysia. We are building
a high-quality agency force to tap into the significant
growth opportunities from this underpenetrated market.
Our agency distribution grew individual Takaful ANP by
90 per cent and the number of active Takaful-producing
agents increased by more than 70 per cent compared with
2015. In 2016, AIA became the second largest player
in the Family Takaful sector within only three years of
the launch of our joint Family Takaful operation with
Public Bank.
Partnership distribution continued to make good progress
in 2016. AIA’s strategic bancassurance partnership with
Public Bank continued to make solid progress, generating
double-digit VONB growth. The productivity of the
in-branch insurance specialists increased, benefiting from
new product launches which generated higher average
case sizes, and the comprehensive use of iPoS. Our
partnership with Citibank also delivered excellent VONB
growth as we introduced new critical illness products
through direct marketing, specifically targeted at
Citibank’s existing customer base.
AIA Malaysia is committed to improving customer
experience through the use of technology and innovation.
More than 90 per cent of agency new business applications
were submitted through iPoS in 2016. Turnaround times on
underwriting have been significantly reduced since we
introduced our new mobile underwriting system which
features personalised applications and on-the-spot
underwriting and has reduced processing times from days
to minutes. We launched AIA Vitality in June, providing
our customers in Malaysia with the knowledge, tools and
motivation to improve their health and making AIA the first
company globally to integrate health and wellness benefits
with unit-linked life insurance and Takaful products.
V O N B (1)
2016
198
2015
172
A N P
2016
YoY (CER)
23%
YoY (AER)
15%
YoY (CER)
25%
YoY (AER)
17%
341
2015
292
OPERATING PROFIT AFTER TAX
2016
265
2015
267
YoY (CER)
6%
YoY (AER)
(1)%
V O N B M A R G I N (2)
2016
57.1%
2015
57.9%
T W P I
2016
1,795
2015
1,825
YoY (CER)
(0.8) pps
YoY (AER)
(0.8) pps
YoY (CER)
6%
YoY (AER)
(2)%
US$ MILLIONS, UNLESS
OTHERWISE STATED
Notes:
(1) VONB figures shown in the table are based on
local statutory reserving and capital requirements
and include pension business.
(2) VONB margin excludes pension business to be
consistent with the definition of ANP used within
the calculation.
ANNUAL REPORT 2016 | 053
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONGEOGRAPHICAL MARKETSBUSINESS REVIEW Our new MDRT mentorship programme is designed to
promote a culture of activity management and ongoing
professional development that helps our agents and
leaders build long-term careers with AIA by providing
customers with high-quality advice tailored to their needs.
Our overall number of active agents increased by more
than 50 per cent compared with 2015.
While our agency channel accounts for more than
90 per cent of VONB in China, our bancassurance business
continued to make solid progress in 2016. We worked
closely with Citibank to equip its sales force with the skills
and tools to provide advice on protection and long-term
savings products to the bank’s customers. At the same
time, we continued to build closer relationships with
our other bank partners by developing regular premium
products specifically targeted at their affluent customers.
We continue to target affluent customers in China
by launching tailored branding campaigns and high-end
protection products to complement our dedicated client
services in meeting the growing needs for protection
cover, estate planning and long-term retirement savings.
Our objective is to reinforce AIA China’s position as the
provider of choice in this rapidly growing customer
segment. We also launched a new multiple payment
critical illness rider for our flagship All-in-One product
for agency distribution in the first part of the year and
extended this to our bank partners in the second half
to increase the proportion of protection sales through our
bancassurance channel.
CHINA
FINANCIAL HIGHLIGHTS
AIA’s wholly-owned business in China delivered another
set of excellent results in 2016 with 54 per cent growth
in VONB to US$536 million. Our focus on the provision
of regular premium protection cover embedded across
our product range, combined with the professionalism
of our distribution, continued to drive high-quality
growth. ANP grew by 49 per cent to US$621 million,
while VONB margin increased by 2.9 pps to 86.4 per cent
with regular premium sales accounting for 97 per cent
of new business. The quality of our earnings underpins
our strong track record of growth and differentiates AIA
in the market. Combined with the benefits of increasing
scale, our approach has led to a 29 per cent increase in
IFRS operating profit after tax to US$469 million in 2016.
BUSINESS HIGHLIGHTS
The sustained execution of AIA’s Premier Agency strategy
has continued to deliver strong results. We are focused
on growing AIA’s professional agency distribution through
quality recruitment, best-in-class training and advanced
leadership development programmes. Our stringent
selection criteria and dedicated residential induction
programmes have grown the number of new recruits by
more than 50 per cent and increased the productivity of
new agents by more than 20 per cent compared with 2015.
V O N B (1)
2016
536
2015
366
A N P
2016
YoY (CER)
54%
YoY (AER)
46%
YoY (CER)
49%
YoY (AER)
42%
621
2015
438
OPERATING PROFIT AFTER TAX
2016
469
2015
384
YoY (CER)
29%
YoY (AER)
22%
V O N B M A R G I N (2)
2016
86.4%
2015
83.5%
T W P I
2016
2,384
2015
2,028
YoY (CER)
2.9 pps
YoY (AER)
2.9 pps
YoY (CER)
24%
YoY (AER)
18%
US$ MILLIONS, UNLESS
OTHERWISE STATED
Notes:
(1) VONB figures shown in the table are based on
local statutory reserving and capital requirements
and include pension business.
(2) VONB margin excludes pension business to be
consistent with the definition of ANP used within
the calculation.
054
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW REAL
ASPIRATIONS
AIA truly understands the protection
and wealth aspiration needs of Chinese
families, providing tailored solutions
to help customers achieve their goals
of comfortable retirement and
comprehensive medical coverage.
ANNUAL REPORT 2016 | 055
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONGEOGRAPHICAL MARKETSBUSINESS REVIEW OTHER MARKETS
Other Markets include AIA’s operations in Australia,
Indonesia, Korea, New Zealand, the Philippines, Sri Lanka,
Taiwan, Vietnam and India.
In April 2016, we increased our shareholding in Tata AIA,
our joint venture with the Tata Group in India from
26 per cent to 49 per cent. The financial results from this
joint venture are accounted for using the equity method.
For clarity, TWPI, ANP and VONB exclude any contribution
from India.
FINANCIAL HIGHLIGHTS
Other Markets delivered VONB growth of 10 per cent to
US$321 million compared with 2015. VONB growth was
higher in the second half at 15 per cent, compared with the
second half of 2015. ANP was US$969 million while VONB
margin increased by 3.3 pps to 32.9 per cent. Highlights
included excellent performances in Australia, Vietnam and
Sri Lanka, partly offset by weaker market conditions in the
Philippines, and Korea. IFRS operating profit after tax grew
strongly by 17 per cent to US$662 million.
BUSINESS HIGHLIGHTS
Australia: AIA’s business in Australia delivered excellent
double-digit VONB growth in 2016, driven by outstanding
performances in both individual retail IFA and group
insurance businesses. Our new online portal helped us
maintain our leadership position in the Australian retail
IFA life market, enhancing our Premier IFA service model
and supporting our IFA partners in growing their
businesses. We also generated strong growth in group
insurance business by focusing on the retention of major
corporate clients during the year. AIA Vitality remains
a critical component of our customer proposition as an
independent protection specialist in Australia. In 2016,
we expanded our comprehensive wellness programme by
adding new partners and new product features, resulting
in the number of AIA Vitality members more than doubling
compared with 2015. We also launched an AIA Executive
Wellness programme to coach selected IFAs on the
benefits of our wellness products. AIA Vitality earned our
Australian business the Life Insurance Product of the Year
title at the Australian Insurance Awards 2016.
Indonesia: AIA Indonesia’s agency business delivered
double-digit VONB growth in 2016. Our approach in
Indonesia is to develop a high-quality agency distribution
that is well placed to capture the significant opportunities
from the increasingly sophisticated financial protection
needs of the rapidly growing middle class. In the second
half of 2016, we launched our Financial Advisers Academy
programme to drive quality recruitment and to embed
01
02
01
In November 2016, we expanded
our bancassurance footprint in
Sri Lanka by entering into a new
long-term exclusive bancassurance
partnership with DFCC Bank.
02
AIA Vitality remains a critical
component of our customer
proposition as an independent
protection specialist in Australia.
V O N B (1)
2016
321
2015
296
A N P
2016
YoY (CER)
10%
YoY (AER)
8%
YoY (CER)
(1)%
YoY (AER)
(4)%
969
2015
1,007
OPERATING PROFIT AFTER TAX
2016
662
2015
588
YoY (CER)
17%
YoY (AER)
13%
V O N B M A R G I N (2)
2016
32.9%
2015
29.4%
T W P I
2016
5,478
2015
5,301
YoY (CER)
3.3 pps
YoY (AER)
3.5 pps
YoY (CER)
6%
YoY (AER)
3%
US$ MILLIONS, UNLESS
OTHERWISE STATED
Notes:
(1) VONB figures shown in the table are based on
local statutory reserving and capital requirements
and include pension business.
(2) VONB margin excludes pension business to be
consistent with the definition of ANP used within
the calculation.
056
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW our culture of high activity levels and professionalism in
our new agents. AIA’s bancassurance business benefited
from our exclusive partnership with Citibank and our
emphasis on the launch of protection products to mass
affluent customers. This positive shift in product mix
has driven a higher VONB margin in our bancassurance
channel although with lower volumes compared with
the prior year.
Korea: Our Korean business showed positive momentum
over the second half. VONB margin increased by 4.8 pps
to 23.7 per cent in 2016, following a positive shift in
product mix and the launch of new protection products
in the second half of the year. IFRS operating profit after
tax has continued to be robust, growing by 10 per cent
compared with 2015. The business has new leadership
and we strengthened our distribution capabilities during
the year, while continuing to selectively write new
business that meets our return requirements. Our direct
marketing business engaged new sponsors for outbound
telemarketing leads and we increased the number of
telesales representatives in the second half of the year. AIA
is committed to our Premier Agency strategy with a clear
focus on our quality recruitment programme to attract
high-calibre individuals and the adoption of technology
to improve activity management and productivity.
New Zealand: Our business in New Zealand generated
strong VONB growth in 2016. This was the result of our
ongoing strategy of engaging with selected IFA partners
through our differentiated service model and enhancing
the benefit design of our protection products. Our strategy
continued to deliver strong year-on-year growth in the
number of new policies issued and average case sizes
through our IFA channel in 2016.
Philippines: Overall market conditions in the Philippines
were challenging in the first half of 2016. VONB for our
operations in the Philippines improved in the second half
and was up by more than 20 per cent compared with the
first half of the year. We are committed to strengthening our
agency distribution through launching our new agency
branch model and introducing recruitment initiatives during
the year to attract young professionals. We also
implemented a development programme to improve activity
ratios and average case sizes to support more of our
Premier Agents in their goal of achieving MDRT status. Our
joint venture partnership with the Bank of the Philippine
Islands (BPI) continued to lead the bancassurance market
in 2016. We launched new unit-linked protection products
to the bank’s customers during the year, focusing on health
and estate planning. This has significantly increased
the proportion of new business that comes from protection
sales compared with 2015. IFRS operating profit after tax
also grew strongly, benefiting from our deliberate shift
towards regular premium products.
Sri Lanka: Our Sri Lankan business delivered excellent
VONB growth in 2016 from our agency and bancassurance
distribution channels. We have continued the
implementation of our Premier Agency strategy with
the roll-out of new incentive schemes, recruitment and
training programmes and agency activity management
tools. Our agency business is supported by our new
e-payment platform that allows customers to pay their
premiums using mobile phones. AIA is the first insurer
in Sri Lanka to launch this platform, offering enhanced
service for our customers and improved efficiency for
our agents. AIA’s bancassurance channel benefited from
higher-quality lead generation following the launch of
a new digital sales activity management system and
financial needs analysis tools designed to drive a higher
proportion of regular premium sales and increased
average case sizes. In November 2016, we expanded our
bancassurance footprint by entering into a new long-term
exclusive bancassurance partnership with DFCC Bank,
one of the largest private sector banks in Sri Lanka.
Taiwan: Our Taiwanese business continued to develop
its multi-channel distribution platform in 2016. Our direct
marketing business delivered excellent VONB growth as
we benefited from a 17 per cent increase in numbers of
telesales representatives compared with 2015 and a higher
VONB margin, partly offset by lower agency sales. Our IFA
channel also had a strong year from new product launches
and expanded service coverage.
Vietnam: AIA Vietnam delivered another year of excellent
VONB growth. A strong increase in ANP was accompanied
by a higher VONB margin from an uplift in protection
rider sales and expense efficiency improvements. We
continued to expand our innovative branch model aimed
at attracting younger and more productive agents with
a total of seven branches established across five cities by
the end of 2016. These branches serve as regional centres
for the training and professional development of our agency
force. Along with other ongoing recruitment and training
initiatives, these centres supported an increase in
the number of active agents by more than 20 per cent
compared with 2015.
ANNUAL REPORT 2016 | 057
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONGEOGRAPHICAL MARKETSBUSINESS REVIEW
RISK MANAGEMENT
Risk
Landscape
Risk
Culture
Risk
Appetite
STRATEGIC
OBJECTIVES
Risk
Management
Process
Risk
Governance
058
| AIA GROUP LIMITED
OVERVIEW
The Group recognises the importance of sound risk
management in every aspect of our business and for all
our stakeholders. For our policyholders it provides the
security of knowing that we will always be there for them;
for our investors it is key to protecting and enhancing the
long-term value of their investment. Also for our regulators
it is supportive of industry growth and the public’s trust in
the industry.
While effective risk management is vital to any
organisation, it goes to the core of a life insurance
business where it is a main driver of value. The Group’s
Risk Management Framework (RMF) does not seek to
eliminate all risks but rather to identify, understand and
manage them within acceptable limits in order to support
the creation of long-term value.
The Group’s RMF is built around developing an appropriate
and mindful risk culture at every level of the organisation
in support of our strategic objectives. The RMF provides
business units with appropriate tools, processes and
capabilities for the identification, assessment and, where
required, upward referral of identified material risks for
further evaluation.
The Group’s RMF consists of the following key components:
• Risk Culture;
• Risk Management Process;
• Risk Governance;
• Risk Appetite; and
• Risk Landscape.
RISK CULTURE
The RMF recognises the importance of risk culture
in the effective management of risks. Risk Culture defines
the Group’s attitude to risks and ensures its remuneration
structure promotes the right behaviour.
ACCOUNTABILITY
A key component of the Group’s risk culture is
accountability. The First Line of Defence (First Line)
is responsible for managing risks with Risk Champions
appointed to coordinate risk management-related matters.
The Group Chief Risk Officer (CRO) has overall
accountability for the Risk and Compliance function
FINANCIAL AND OPERATING REVIEW
The Risk and Compliance Organisational Structure is shown below:
Group Chief Executive
and President
Group CRO
Group Risk
Group Compliance
Business Unit
CROs
across the Group. Each local CRO has a primary reporting
line into the Group CRO and a secondary reporting line
to the local Chief Executive Officer (CEO). This structure
ensures independence of the Second Line of Defence
(Second Line) and allows local CROs full access to local
business discussions so as to provide risk management
perspectives and insights. The Group CRO is a member
of the Group Executive Committee while local CROs are,
in most cases, also members of their respective local
Executive Committees.
REMUNERATION
The Company’s executive remuneration structure
ensures appropriate consideration of the RMF within
a strong performance-oriented culture. This is supported
by a performance management system where all staff are
measured on ‘how’ as well as ‘what’ they deliver. This
structure places significant emphasis on conduct as well
as achievement, and is consistent with our fundamental
Operating Philosophy of “Doing the Right Thing, in
the Right Way, with the Right People… and the results
will come”.
RISK MANAGEMENT PROCESS
The Group has a robust Risk Management Process that
provides sufficient information, capability and tools to
manage its key risks. To that end, the Group has developed
the following key processes to identify, quantify, manage
and monitor the risk exposures.
IDENTIFICATION
Timely and complete identification of risks is an essential
first step to the risk management process. The Risk &
Compliance function has developed a systematic process
to identify existing and emerging risks in the business
units.
QUANTIFICATION
Quantification of risk is important in establishing the level
of exposure and in determining the appropriate
management actions within the Group’s Risk Appetite.
Specific risk metrics adopted to support the quantification
process are detailed in Risk Landscape section of this
report.
ESCALATION AND MITIGATION
Following the risk quantification process, the executives
working in the First Line are responsible for the timely
identification and escalation of material risk developments
and for the implementation of risk mitigation actions, as
appropriate.
REPORTING AND MONITORING
The Second Line is responsible for monitoring First Line
activities and reporting to the appropriate Risk
Committees the performance of the First Line against risk
metrics and limits defined in the Risk Appetite. In addition,
to ensure the effectiveness of the Risk Management
Process, an Own Risk and Solvency Assessment is
reported to the Risk Committees for annual review.
ANNUAL REPORT 2016 | 059
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONRISK MANAGEMENT AIA Group Limited Board
Group and Business Units
Functions
Group and Business Units
Risk & Compliance
Group Internal Audit
Executive Management
Risk Oversight
Independent Assurance
First Line of Defence
Second Line of Defence
Third Line of Defence
RISK GOVERNANCE
THREE LINES OF DEFENCE
The Group’s Risk Governance framework is built on
the “Three Lines of Defence” model. With regard to risk
management, the objective is to ensure that an appropriate
framework is in place, including an independent system of
checks and balances, to provide assurance that risks are
identified, assessed, managed and governed properly. The
framework clearly defines roles and responsibilities for the
management of risk between the Executive Management,
Risk & Compliance and Internal Audit functions. While
each line of defence is independent from the others, they
work closely to ensure effective oversight.
The First Line is made up of the business decision-takers
who are responsible for ensuring that effective and
appropriate processes are in place at all times to
effectively identify, assess and manage risk in a manner
consistent with the RMF. In particular, the amount of risk
taken at each level of the organisation must be consistent
with both the Risk Appetite of the Group and the relevant
business unit.
Initial identification, assessment and management of risk
is the responsibility of executives operating in the First
Line. Decisions regarding activities deemed to have
significant risks attached or that are outside the limits
of a given level of management are referred to a senior
Group executive or, where appropriate, through the
Group Chief Executive and President to the Risk
Committee of the Board and, where appropriate, to the
full Group Board of Directors.
The Second Line consists of the Risk & Compliance
function. This function is independent of the First Line
(under a Group Chief Risk Officer who reports direct to the
Group Chief Executive and President) but works closely
with the First Line to ensure that risks are being managed
appropriately within the Group’s Risk Appetite. The Second
Line is also responsible for overseeing First Line activities
and ensuring the Group adheres to its own high standards.
The Third Line of Defence (Third Line) is Group
Internal Audit (GIA) function, which reports to the
Audit Committee of the AIA Group Limited Board. GIA
is responsible for providing independent assurance over
the effectiveness of key internal controls and makes
recommendations based on the audit findings.
The Three Lines of Defence converge at the Board, which
retains overall responsibility for the Group’s RMF.
060
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW
AIA Group Limited Board
Audit
Committee
Risk
Committee
Remuneration
Committee
Nomination
Committee
Operational Risk
Committee
Financial Risk
Committee
Operational Risk (ORC) and Financial Risk (FRC)
Committees
The Risk Committee is supported by two Executive Risk
Committees which, between them, oversee the
management of all risks. The ORC is chaired by the Group
Chief Financial Officer and oversees risks associated with
failure in internal processes, personnel and systems or
from external events. The FRC is chaired by the Group
Chief Executive and President and oversees risks
associated with Financial, Insurance and Investment risks.
The FRC and ORC meet at least four times a year.
The above committee structures are replicated at business
unit level where applicable.
RISK COMMITTEE STRUCTURE
The Group’s risk committee structure is designed to
provide:
• consistent application of the RMF across the Group;
streamlined processes for the timely identification,
•
assessment and escalation of risk issues;
• objective analysis of risk issues enabling informed
decision-making; and
• discussion and challenge in relation to risk issues in
suitable forums.
The Board
The Board retains overall responsibility for oversight of
the Group’s risk management activities. In this regard the
Board sets the Group’s Risk Appetite, approves the RMF
(including amendments or refinements from time to time)
and monitors material Group-wide risks. In fulfilling these
responsibilities, the Board is supported and advised by
the Risk Committee.
Risk Committee
The Risk Committee oversees risk management across
the Group and advises the Board on all risk-related issues
requiring Board attention. The members of the Risk
Committee are all Board directors, with the majority
of members including the Committee Chairman being
Independent Non-executive Directors. The Risk Committee
meets at least four times a year.
ANNUAL REPORT 2016 | 061
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONRISK MANAGEMENT RISK APPETITE
Risk Appetite Statement
Risk Principles and
Risk Tolerances
Risk Controls
and Risk Limits
The Group’s Risk Appetite is the foundation of its RMF. It
establishes the quantum and nature of risks the Group is
prepared to take to achieve its strategic objectives.
The RAS is supported by five Risk Principles:
Risk Principles
• The Risk Appetite Statement (RAS) is an overarching
Regulatory Capital
statement on the enterprise’s attitude to risk;
• Risk Principles and Risk Tolerances are qualitative
statements and quantitative metrics that expand and
validate the RAS; and
• Risk Controls and Risk Limits are used to manage
specific risks.
The Group has adopted the following Risk Appetite
Statement:
“The amount of risk taken by AIA in the ordinary course of its
business will be sufficient to meet its customers’ reasonable
requirements for protection and benefits while ensuring that
the level and volatility of shareholder returns are in line with
a broadly-based risk profile appropriate to an Asia-Pacific
ex-Japan-focused life insurance company.”
Financial Strength
Liquidity
Earnings Volatility
Business Practice
“AIA has no appetite for regulatory
non-compliance and as such will
ensure that we hold sufficient
capital to meet our current
statutory minimum solvency in
all but the most extreme market
conditions.”
“AIA will ensure the Group’s
ability to meet all future
commitments to our customers,
both financial obligations and in
terms of the promises we make to
them. We will maintain sufficient
capital to support a Financial
Strength Rating that meets our
business needs.”
“AIA will maintain sufficient
liquidity to meet our expected
financial commitments as they
fall due.”
“AIA will seek to deliver reported
operating earnings consistent with
expectations and will implement
policies, limits and controls to
contain operational risks, risk
concentrations and insurance risks
within reasonable tolerances.”
“AIA will uphold high ethical
standards and will implement
sound internal controls to minimise
the downside risk from the impact
of any operational failures within
reasonable tolerances.”
062
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW RISK LANDSCAPE
The Group maintains a detailed risk taxonomy to ensure all risks are identified and systematically managed. The principal
risks and their definitions are summarised below:
Financial Risks
Operational Risks
Investment
Insurance
ALM
Credit
Lapse
Interest Rate
Distribution
Equity Price
Expense
Foreign
Exchange Rate
Fraud & Financial
Crime
Property Price
Morbidity
Credit Spread
Mortality
Investment
Liquidity
Financial
Liquidity
Legal &
Regulatory
Investment
Operations
People
Strategic Risks
Information
Technology
Information
Security
Finance &
Actuarial
Product
Management
Operations
Third Party
Key Projects
Business
Interruption
Risks
Investment
Insurance
Definition
Investment risk is the risk arising from the Group’s investment portfolio due to (i) counterparties
defaulting on obligations - “Credit Risk”; (ii) market movements - “Market Risk”; or (iii) reduced
liquidity in markets.
Insurance risk is the risk arising from changes in claims experience as well as more general
exposure relating to the acquisition and persistency of insurance business. This also includes
changes to actuarial and investment assumptions regarding future experience for these risks.
Asset-Liability Mismatch
(ALM)
ALM risk is the risk arising from the difference in duration between the Group’s assets and
liabilities. This mismatch is mainly caused by differences in timing and size of the respective asset
and liability cash flows.
Operational
Operational risk is the risk arising from internal processes, personnel and systems or from external
events which may result in direct or indirect business impact.
ANNUAL REPORT 2016 | 063
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONRISK MANAGEMENT FINANCIAL RISKS – INVESTMENT
Credit
The risk arising from the uncertainty of third parties
meeting their obligations to the Group when they fall due.
Although the primary source of credit risk is the Group’s
investment portfolio, such risk can also arise through
reinsurance and treasury activities. The Group performs a
detailed analysis of each counterparty and recommends a
rating, which will be updated from time to time. The
Group’s Risk Management function manages the Group’s
internal ratings framework and reviews these
recommendations and, where appropriate, makes
recommendations for revisions from time to time.
Equity Price
The risk arising from changes in the market value of equity
securities.
Equity price risk is managed through the individual
investment mandates which define benchmarks and any
tracking error targets. Equity limits are also applied to
contain individual exposures. Equity exposures are included
in the aggregate credit exposure reports on individual
counterparties to monitor total concentration levels.
Property Price
The risk arising from the volatility of real estate market
value due to general or specific factors.
Property price risk can be driven by broader economic and
social factors, notably tenant supply and demand, liquidity
of individual assets, evolving infrastructure or government
actions that may directly or indirectly influence the
market. It can also be driven by the characteristics of
specific holdings: their location within an area, the
competitiveness of their facilities and their physical
condition.
Any material property investment is individually reviewed
by the Group to ensure it does not give rise to an
unacceptable concentration of exposure and that it does
not compromise the financial flexibility of the relevant
business unit.
Credit Spread
The risk arising from changes in the market value of
securities as a result of a change in perception as to their
likelihood of repayment.
The Group invests in non-government securities in
a number of its portfolios for yield purposes, and the
primary intention is to hold these to maturity. The Group
manages its credit spread risk carefully, focusing on
overall portfolio quality and diversification and seeking
to avoid excessive volatility in the mark-to-market value
of its investment portfolios.
Investment Liquidity
The risk arising from the Group’s ability to buy and sell
investments subject to market availability and pricing.
Investment liquidity risk is managed in the first instance
through the size of the Group’s individual holdings relative
to market volume, complemented by the quality of the
investments which are primarily in government and
high-quality corporate bonds with good liquidity profile.
The Group also maintains a minimum liquidity threshold
on its investments in listed equities.
FINANCIAL RISKS – INSURANCE
Lapse
The rate of policy termination deviating from the Group’s
expectation.
Ensuring that customers only buy products that match
their needs is central to the Group’s Operating Philosophy.
Through effective implementation of the Business Quality
Framework, comprehensive sales training programmes
and active monitoring of sales activities and persistency,
the Group seeks to ensure that appropriate products are
sold by qualified sales representatives and that standards
of service consistently meet our customers’ needs.
Expense
The risk of the cost of selling new business and of
administering the in-force book exceeding the assumptions
made in pricing.
Daily operations follow a disciplined budgeting and control
process that allows for the management of expenses
based on the Group’s very substantial experience within
the markets in which we operate.
Morbidity and Mortality
The occurrence and/or amounts of medical/death claims are
higher than the assumptions made in pricing or reserving.
064
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW The Group adheres to well-defined market-oriented
underwriting and claims guidelines and practices that have
been developed based on extensive historical experience
and with the assistance of professional reinsurers.
Exposure to interest rate risk is summarised in note 36
to the financial statements, which shows the split of
financial assets and liabilities between variable, fixed and
non-interest bearing investments.
The Group’s actuarial teams conduct regular experience
studies of all the insurance risk factors in its in-force book.
These internal studies together with external data are used
to identify emerging trends which can then be used to
inform product design, pricing, underwriting, claims
management and reinsurance needs.
Foreign Exchange Rate
The risk arising from foreign exchange rate movements
on the value of future asset and liability cash flows, and
the translation of business units’ balance sheets to the
Group’s reporting currency.
Assets, liabilities and all regulatory and stress capital in
each business unit are currency matched within set limits
with the exception of holdings of equities denominated in
currencies other than the local currency. Any expected
capital movements due within one year are required to be
hedged. The balance sheet values of the Group’s business
units are not hedged to the Group’s reporting currency
of US dollar.
Financial Liquidity
The risk arising from the availability of cash resources
to meet payment obligations to counterparties as they
fall due.
As disclosed in note 19 to the financial statements, most
of the Group’s investments are in the form of marketable
securities and can be readily converted into cash should
the need arise.
Another financial liquidity risk arises from the availability
of collateral in derivative and repo trades. This risk is
managed by determining appropriate limits and assessing
the ability of the business units to withstand extreme
market events. The Group also supports its liquidity needs
through committed bank facilities and maintaining access
to debt markets via the Group’s Global Medium Term Note
programme.
Note 36 to the financial statements provides a maturity
analysis of the Group’s financial assets and its financial
liabilities and insurance contract liabilities.
Through monitoring the development of both local and
global trends in medical technology, health and wellness,
the impact of legislation and general social, political and
economic conditions, the Group seeks to anticipate and
respond promptly to potential adverse experience impacts
on its products.
Reinsurance is used to reduce concentration and volatility
risk, especially with large policies or new risks, and as
protection against catastrophic events such as pandemics
or natural disasters.
Recent initiatives to manage morbidity risk and improve
claims management include the promotion of wellness
programmes such as AIA Vitality and the establishment
of a dedicated Healthcare team to improve customer
healthcare experience.
FINANCIAL RISKS – ASSET-LIABILITY MISMATCH (ALM)
Interest Rate
The risk arising from the impact of interest rate movements
on the value of future asset and liability cash flows.
Exposure to interest rate risk predominantly arises from
any difference between the duration of the Group’s assets
and liabilities.
The Group manages its interest rate risk primarily on an
economic basis to determine the durations of both assets
and liabilities. Interest rate risk on the local solvency basis
is also taken into consideration for business units where
local solvency regimes deviate from the economic basis.
Furthermore, for products with discretionary benefits,
additional modelling of interest rate risk is performed to
guide determination of appropriate management actions.
Management also takes into consideration the
asymmetrical impact of interest rate movements when
evaluating products with options and guarantees.
ANNUAL REPORT 2016 | 065
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONRISK MANAGEMENT RISK MANAGEMENT
OPERATIONAL RISKS
Operational risk arises from business processes
including inadequate procedures or policies, employee
errors, system failures, fraud, criminal activity or from
other external events which may result in direct or indirect
business impact.
The Group uses various techniques to manage operational
risks, including:
• Appointment of First Line Risk Owners and Risk
Champions;
• Risk and Control Assessments (RCAs) for each key
operational risk;
Operational risk is categorised into a common taxonomy
which is adopted across the Group. The Group’s
operational risks arise in the following key areas:
• Key Risk Indicators (KRIs) monitoring;
•
Internal Incidents reporting; and
• Operational risk checklists for material projects and
key processes such as product management.
• Distribution Risk – This involves intermediary
misconduct such as churning, mis-selling / product
suitability, fraud and other market conduct-related
issues;
• Regulatory Compliance Risk – This concerns
compliance with the relevant laws and regulations;
• Financial and Operational Process Risk – This involves
the controls in key processes in business functions
such as product management, investment, finance,
actuarial, underwriting, claims, and policy
administration; and
• Systems and Information Security Risk – This includes
system performance, disaster recovery, and cyber and
information security standards.
Each operational risk is assessed against four defined
impacts that such risk could have on the business, namely;
Financial Loss, Regulatory Breach, Reputation Damage
and Business Disruption. This assessment allows the
Group to monitor its exposure against the newly defined
Business Practice Risk Principle and Risk Tolerance stated
in the earlier Risk Appetite section.
The Group also protects itself against financial losses by
purchasing insurance cover against a range of operational
loss events including business disruption, property
damage and internal fraud. The coverage is determined
after taking into consideration the Group’s Operational
Risk Profile.
STRATEGIC RISKS
Strategic risk is identified as part of the business plan
process and is defined as the potential impact of the
business strategy on the Group’s earnings, capital and
reputation. This also takes into consideration the wider
social, economic, political, regulatory, competitive or
technological trends that could impact the business
strategy within a set time period.
066
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW REGULATORY DEVELOPMENTS
Internationally, the regulatory environment facing
life insurers has continued to evolve. In particular, the
International Association of Insurance Supervisors (IAIS)
continues a multi-year review of certain Insurance Core
Principles with the longer-term aim of developing and
implementing an updated common framework for the
international regulation of insurance companies.
During 2016, regulators across AIA’s span of operation
continued a variety of initiatives intended to align their
respective regulatory frameworks with the broad
principles recommended by the IAIS. AIA continues to be
involved in these initiatives across the region, and is an
active participant in the international industry dialogue
on a host of relevant issues, including formulation of
an international capital standard.
In particular, Bermuda’s prudential framework for
insurance was deemed to be equivalent to the regulatory
standards applied to European insurers in accordance with
the requirements of the Solvency II Directive. Under its
enhanced commercial prudential return regime,
the Bermuda Monetary Authority has instituted a number
of changes to its statutory and prudential reporting
requirements including the need for commercial insurers
to prepare an economic balance sheet. These new
regulatory requirements will first apply to AIA’s financial
year ending 30 November 2017 and AIA is participating
in the development of these initiatives.
In Hong Kong, the process continues in support
of the creation of an Independent Insurance Authority. A
Governing Board has been appointed and it is anticipated
that the Independent Insurance Authority will take over
the responsibilities of the HKOCI in 2017 and will also
directly regulate intermediaries in due course. A multi-year
consultation process is also underway towards the
development of a risk-based capital regime for Hong Kong
insurers. As previously disclosed, AIA is closely and
constructively engaged in these developments.
ANNUAL REPORT 2016 | 067
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION OUR PEOPLE
01
02
01
The ALC provides a range of
programmes designed to enhance
the quality, effectiveness and
professionalism of our leaders.
03
A wide array of wellness
programmes for our workforce
were conducted throughout
the year.
02
AIA Group was recognised as
‘Regional Best Employer 2016,
Asia Pacific’ by Aon Hewitt.
068
| AIA GROUP LIMITED
Our commitment to helping customers live
longer, healthier, better lives extends to our
employees and distribution partners.
We are acutely aware that our ability to sustain our
success depends on our people. Our vision to be the
world’s pre-eminent insurance provider and a global
leader in our industry is supported by our more than
20,000 employees and many thousands of agents.
Guided by our operating philosophy of ‘Doing the
Right Thing, in the Right Way, with the Right People…
and the results will come,’ we have built a culture that
encourages each and every person at AIA to be the best
they can be. While the development of our people is both
the focus of our efforts and its own reward, we are
gratified to have had several AIA businesses around the
region receive ‘Best Employer’ awards in their markets,
as well as to have AIA Group be recognised as ‘Regional
Best Employer 2016, Asia Pacific’ by Aon Hewitt.
DEVELOPING OUR LEADERS
Each year we conduct a very thorough and in-depth
Organisation and People Review to assess the depth,
quality and performance of our current leadership as well
as the continuing progress of our future leaders. In 2016,
this process encompassed the review of over 1,300 senior
leadership positions across 20 business entities and 11
functions. This disciplined and ongoing process enables
the Group to ensure that capable leaders emerge to fill key
roles as they arise. In addition, our ability to develop our
employees and agents has burnished the Group’s
reputation as an employer of choice enabling us to attract
excellent recruitment candidates and to retain key leaders.
As part of our continuing focus on leadership development,
we officially opened the AIA Leadership Centre (ALC)
in Bangkok in March 2016, with an exclusive focus on
developing AIA executives, distribution leaders and
functional specialists. The ALC is a world-class facility
that provides a range of programmes designed to enhance
the quality, effectiveness and professionalism of our
leaders. The curriculum includes programmes focusing on:
• Executive Leadership – Targeting AIA’s current and
future senior executives, these programmes accelerate
effective and sustainable leadership as well as general
management capabilities;
FINANCIAL AND OPERATING REVIEW development through discussing not only ‘what’ is
to be delivered, but also ‘how’ the key deliverables are
executed. Performance levels achieved, both in relation
to what is delivered and how it is delivered, influence
performance assessment and with that, rewards
recognition. In addition, all recognition and benefit
programmes are regularly assessed to ensure that they are
appropriate and competitive relative to market practice.
Included in our rewards programme is an Employee
Share Purchase Plan (ESPP) designed to encourage
our employees to become AIA shareholders, thus further
aligning the interests of our employees with those of our
shareholders. In 2016, the employee participation rate
for ESPP grew to the highest levels to date. In addition,
the Employee Insurance Purchase Plan protects our staff
while helping them to prepare for their future.
ENGAGING OUR WORKFORCE
To encourage our employees to lead healthier, better lives,
we offered a wide array of wellness programmes
throughout the year, while integrating work, personal
and wellness priorities. These programmes included
complimentary AIA Vitality memberships, wellness-
themed activity days, team challenges, health check-ups
sponsored by affiliated partners and work-life integration
consultations.
AIA’s annual employee engagement survey is a key tool
in measuring our success in engaging our employees. In
2016, 99 per cent of our workforce responded to the survey
and the Group recorded engagement scores surpassing
global financial services and insurance industry
benchmarks. As in past years, the results for each team
are shared to identify key focus areas for improvement and
strategies are developed to ensure that employees at all
levels are connected with the wider vision, mission and
purpose of the Group and can see how their work supports
the Group’s wider achievements.
03
• Distribution Leadership – Designed for AIA’s senior
distribution executives, senior agents and partners,
these programmes develop leadership and the
technical skills required to produce consistent
best-in-class results; and
• Technical/Professional Leadership – Designed
to develop technical capabilities within AIA core
functions to promote technical and operational
excellence.
PROMOTING PERSONAL AND PROFESSIONAL GROWTH
The ability to develop our people is both a core strength
of AIA and a foundational element of our ability to deliver
sustainable, high-quality results over the longer term. To
enhance the capability of our emerging managers, in 2016
we launched the People Manager Accelerator Programme.
Focus areas of the programme include structuring
accountabilities, energising change, engaging with care
and respect and exercising influence. Peer network
sessions are also offered to enable managers to connect
across various departments and share both experiences
and best practice.
We also launched career roadmaps for several key
functions during the year. Six functional baseline career
roadmap models – including success profiles of roles,
a career map and a development guide – were designed
and rolled out. Eight entities have embarked on the career
customisation roadmap, to be implemented by next year.
In addition, career mobility and stretch assignments are
encouraged to enhance the capability of the Group’s pool
of emerging talent. To that end, we launched and
enhanced structured functional mobility programmes
that encourage employees to take on different roles
within the Group. During 2016 more than 850 internal
assignments and transfers have taken place across
the Group.
RECOGNISING PERFORMANCE
An effective Total Rewards Programme is vital to attracting
and retaining talented and engaged people. Our reward
programmes are designed to encourage our people to
deliver the right outcomes in the right ways, all in support
of the delivery of sustainable increases in real value for
our customers and investors.
Alongside the appropriate levels of performance-based
reward in our remuneration structure, in 2016 we updated
the Performance Development Dialogue, a unique AIA
performance management process that encourages
managers to focus on supporting team members’
ANNUAL REPORT 2016 | 069
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONOUR PEOPLE CORPORATE SOCIAL RESPONSIBILITY
At AIA, we are deeply committed to helping
people in our communities. This is intimately
connected with our aspiration to help people
to lead longer, healthier, better lives and to play
a leadership role in driving the social and
economic development of the markets
in which we operate.
PROMOTING HEALTHY LIVING
Regular exercise is a key contributor to healthy living and
at AIA we encourage everyone in our communities to take
part in a wide range of physical activities.
In May, approximately 12,000 runners took part in The
Music Run™ by AIA in Shenzhen, including customers,
employees, agents and partners of AIA in China together
with their friends and families. This followed the second
edition of The Music Run™ by AIA in Singapore, held in
April, at which more than 10,000 people walked, ran and
danced to their favourite music. These events built on the
momentum achieved in 2015 when AIA sponsored Music
Runs in Thailand, Malaysia and the Philippines.
In Malaysia, more than 25,000 runners and spectators
enjoyed the “Men’s Health Women’s Health Night Run” by
AIA Vitality, held in Penang, Putrajaya and Johor. Runners
were cheered on by percussionists and a marching band
stationed along the route.
In China, AIA supported “The Most Nostalgic Road Running
Race” through title sponsorship of the “2016 Shanghai
International EasyRun” by AIA. More than 4,000 runners
wearing AIA red took part in the 10km race, during which
AIA provided insurance services to all runners.
For a second consecutive year, AIA in Hong Kong acted
as the principal sponsor of the “Oxfam Trailwalker,”
a prominent annual fundraising event. We were very proud
of the 29 groups comprising 116 employees and financial
planners that participated in the gruelling 100km challenge.
Also in Hong Kong, AIA sponsored the inaugural
“Hong Kong Disneyland 10K Weekend by AIA Vitality.” The
initiative welcomed participants of all ages and offered
them a special way of experiencing Hong Kong Disneyland,
with Disney characters in sports outfits cheering on the
runners along the course.
To support Indonesia’s tourism industry, in 2016 AIA
sponsored the “Toba International Detour 2016” – a series
of music and sports activities to promote the beautiful
Lake Toba region in North Sumatra.
In July, AIA introduced “GO! Vitality” to encourage healthier
lifestyles amongst our Group Office employees. Activities
included nutrition, running, posture assessments, an
express health check and a variety of workshops.
ENGAGING COMMUNITIES THROUGH FOOTBALL
At the core of our association with football is our long-term
partnership with English Premier League Club Tottenham
Hotspur (Spurs). Working together, both AIA and Spurs
engaged with local and regional communities to convey
the value of teamwork, discipline and sportsmanship
to positively impact lives. To date, we have initiated
more than 250 football-related activities across
15 AIA markets, and engaged tens of thousands of people
across the region.
Following a successful tour of Asia in 2015, Spurs visited
Australia in 2016 – running special youth clinics, including
one conducted with 30 children from the Special Olympics.
Spurs players joined AIA employees, families and friends
for a special “AIA Family Day” where more than AUD10,000
was raised for the Royal Children’s Hospital – following
which some of the players visited children at the
local hospital.
Under the banner of “Real Dreams Never Stop,” the AIA
Football Clinic returned to Thailand for a fifth consecutive
year to inspire youngsters to take up the sport and sharpen
their skills. This year, AIA joined with Bangkok Glass F.C.,
a leading football club in Thailand’s Premier League, to
offer an exciting opportunity for 700 young Thai football
lovers (aged 8-13 years and from more than 40 schools
in Bangkok and its vicinity) to join an exclusive training
session with professional coaches.
Further programmes were developed to create pathways
for aspiring young footballers, from the grass-roots level
to the elite. In June 2016, AIA and the Oceania Football
Confederation announced the launch of a new pilot
initiative “The Oceania Football Education Programme –
powered by AIA” in New Zealand to support aspiring young
Asian and Pacific footballers. The partnership sees
070
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW 01
In Hong Kong, AIA sponsored the
inaugural ‘Hong Kong Disneyland
10K Weekend by AIA Vitality.’
01
AIA supporting a scholarship programme that enables
13 participants from around Asia-Pacific to spend two
terms in Auckland, where they will benefit from some of
the best coaching and facilities available in the region. The
scholarship provides funding to cover education –
including English language training – coaching,
accommodation and living costs of all participants
to attend One Tree Hill College, while participating in
the Oceania Football Academy.
Partnering with the China Youth Development Foundation
for the third year, AIA launched the “2016 AIA China
Youth Football Development Programme,” with the goal of
improving football skills at the grass-roots level. Following
the launch, 25 high school volunteers, who received
football training from professional institutions, visited
13 elementary schools in Guangdong, Jiangsu and Yunnan
to share their knowledge of the sport with local children.
This was also the first time that the programme included
Yunnan province, providing many young people an
opportunity to receive formal football training for the
first time.
Also in China, AIA launched the “AIA-Tom Byer Football
Partnership.” With support from AIA, Tom Byer, a world-
famous youth football coach, shared his concept of
early-education football training and the importance
of parental involvement at the introductory stage to help
children stay active, while cultivating a healthy and
happy learning environment.
SUPPORTING EDUCATION… CONNECTING
BODY AND MIND
Many of AIA’s businesses have long-lasting partnerships
and programmes through which they support the
education of children and young adults.
In the Philippines, frequent torrential rains and high
humidity cause damage to many public schools. In 2016,
the Philam Foundation continued its partnership with
the Department of Education, building fully furnished
classrooms for calamity-stricken schools – setting
an example for rebuilding the nation. After typhoons
devastated the provinces of Nueva Ecija, Aurora, and
Camarines Sur, Philam Life helped the students of Palayan
City Central School, Setan Elementary School, and
Severo High School by building new classrooms in
partnership with the Public Safety Savings and Loan
Association, Inc, Philippine Veterans Affairs Office,
Happy Hearts Fund and the Republic of the Philippines’
Office of the Vice President. The Philam Foundation
has donated 121 classrooms since 2011, to date bringing
the total number of public school students that could
benefit from the partnership to 6,000.
Also in the Philippines, Philam Life partnered with
World Vision, an international humanitarian organisation,
to enable children to receive lifetime sponsorships.
Through the help of sponsors and donors, World Vision
improves the lives of impoverished children and their
communities by giving them access to opportunities
for a full and better life.
In Indonesia, AIA invited more than 145 school students
to visit KidZania – an education and entertainment centre
for children to role-play more than 100 professions to
spark their interest in exploring future careers. AIA also
presented to students a collection of books donated
by employees through the Company’s “1,000 Books for
AIA Village” programme, launched in early 2016. In
Singapore, AIA also hosted an “AIA Insurance Office” at the
venue to encourage early interest in financial literacy.
ANNUAL REPORT 2016 | 071
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCORPORATE SOCIAL RESPONSIBILITY 03
04
01
02
01
The Philam Foundation has
donated 121 classrooms since
2011, to date bringing the total
number of public school students
that could benefit from the
partnership to 6,000.
02
In Thailand, AIA volunteers
contributed through the long-
running CSR programme ‘AIA
Sharing a Life Day.’
03
AIA, jointly with Bangkok Glass
F.C., offered an exclusive training
session for 700 young Thai football
lovers.
04
In China, AIA launched the ‘AIA-
Tom Bayer Football Partnership.’
072
| AIA GROUP LIMITED
FINANCIAL AND OPERATING REVIEW In Australia, four million tonnes of food ends up in
landfills each year, yet two million people still rely
on food relief. To help fight hunger, AIA forged a new
community partnership with OzHarvest, a food rescue
charity. OzHarvest collects quality excess food from
commercial outlets, converts it to nutritious meals, and
delivers it to 600 charities, providing much-needed
assistance across Australia. In 2016, groups of AIA
employees in Sydney and Melbourne volunteered
to transform food otherwise destined for landfills into
hundreds of meals for those most in need.
In Sri Lanka, where more than one million Poson
pilgrims use the reservoirs in and around the sacred
city of Anuradhapura for bathing every summer,
AIA strengthened its long-running local Poson Safety
Programme by deploying more lifesavers to address
the threat posed by bad weather. In 2016 – the
programme’s 23rd consecutive year – 600 lifeguards
helped ensure the safety of all participants.
ESG REPORT
We are pleased to announce AIA’s first Environmental,
Social and Governance (ESG) Report which describes
AIA’s approach and priorities in managing its ESG
performance. Our ESG Report meets the requirements
of the Global Reporting Initiative (GRI) G4 and is available
on the Company’s website at www.aia.com.
In Vietnam, more than 200,000 children drop out of school
each year, primarily because of the long distances they
need to travel to and from school each day. In 2016 AIA
continued to support its “Real Life Journey” initiative to
continue to raise funds to provide bicycles to children
to encourage them to continue their educations. In 2016
alone, more than 1,000 bicycles were donated across
12 locations nationwide.
In Thailand, the AIA School Library programme aims
to help students and community members to enhance
their extracurricular learning experiences. Since 2005,
AIA Thailand has built 34 libraries throughout the country
to provide learning opportunities for students and the
general public while also providing scholarships and
a variety of learning and development aids to
various schools.
EMPOWERING COMMUNITIES
Building strong, harmonious and safe communities
enables environmental, economic and social development.
AIA is committed to helping empower communities across
the region to thrive and create a better future for all.
In Thailand, AIA continued its long-running CSR programme
“AIA Sharing a Life Day.” For the third consecutive year, AIA
volunteers contributed through various community service
activities at four locations in Bangkok and six others across
Thailand. Areas of focus included improving landscapes and
facilities in each locale, such as renovating playgrounds,
parks and school buildings. The projects also employed
mobile medical units for health checks, and provided sports
equipment to community youth. The initiative also educated
the public about potential critical illnesses, and members
of the public were offered health check-ups. Also in 2016,
AIA partnered with the Kanchanabaramee Foundation to
provide free mammography services to high-risk women.
Combining our support of this initiative with our partnership
with Spurs, the team wore special “AIA Sharing A Life” shirts
for a match against West Bromwich Albion – bringing this
valuable initiative to the attention of people across the
globe. The match-worn shirts were auctioned raising
approximately THB1.2 million.
In Hong Kong, AIA launched a “Let’s Work Together”
campaign to encourage further diversity in the workplace
and promote equal job opportunities for people with
disabilities. AIA partnered with CareER, a non-profit
organisation and registered charity supporting people
with disabilities to achieve their employment goals. The
partnership produced a series of videos highlighting the
enormous potential of people with disabilities.
ANNUAL REPORT 2016 | 073
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCORPORATE SOCIAL RESPONSIBILITY CORPORATE GOVERNANCE
075 STATEMENT OF DIRECTORS’ RESPONSIBILITIES
076 BOARD OF DIRECTORS
082 EXECUTIVE COMMITTEE
087 REPORT OF THE DIRECTORS
093 CORPORATE GOVERNANCE REPORT
102 REMUNERATION REPORT
074
| AIA GROUP LIMITED
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Company’s
consolidated financial statements in accordance with
applicable laws and regulations.
The Directors are responsible for keeping proper accounting
records that give a true and fair view of the state of the
Company’s affairs and explain its transactions.
In preparing the consolidated financial statements of the
Company, the Directors are required to:
•
select suitable accounting policies and apply them
consistently;
• make judgments and estimates that are reasonable
The Directors are responsible for taking reasonable steps
to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities. The Directors are
also responsible for preparing a Report of the Directors
and the Corporate Governance Report on pages 87 to 101
of this Annual Report.
and prudent;
The Directors confirm that to the best of their knowledge:
•
state whether the financial statements have been
prepared in accordance with Hong Kong Financial
Reporting Standards and International Financial
Reporting Standards; and
• prepare the financial statements on a going concern
basis, unless it is inappropriate to presume that the
Group will continue in business.
1. the consolidated financial statements of the Company,
prepared in accordance with Hong Kong Financial
Reporting Standards and International Financial
Reporting Standards, give a true and fair view of the
assets, liabilities, financial position, cash flows and
results of the Company and its undertakings included
in the consolidated financial statements taken as
a whole; and
2. the section headed “Financial and Operating Review”
included in this Annual Report presents a fair review
of the development and performance of the business
and the position of the Company and the undertakings
included in the consolidated financial statements taken
as a whole, together with a description of the principal
risks and uncertainties that the Group faces.
ANNUAL REPORT 2016 | 075
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION BOARD OF DIRECTORS
076
| AIA GROUP LIMITED
CORPORATE GOVERNANCE From left to right:
Dr. Narongchai Akrasanee
Professor Lawrence Juen-Yee Lau
Ms. Swee-Lian Teo
Mr. Mohamed Azman Yahya
Mr. Mark Edward Tucker
Mr. Edmund Sze-Wing Tse
Mr. Jack Chak-Kwong So
Mr. Chung-Kong Chow
Mr. John Barrie Harrison
Mr. George Yong-Boon Yeo
ANNUAL REPORT 2016 | 077
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBOARD OF DIRECTORS NON-EXECUTIVE CHAIRMAN
AND NON-EXECUTIVE DIRECTOR
EXECUTIVE DIRECTOR
AND GROUP CHIEF EXECUTIVE AND PRESIDENT
Mr. Edmund Sze-Wing Tse
Aged 79, is the Non-executive Chairman and a
Non-executive Director of the Company. He was
appointed Non-executive Director of the Company on
27 September 2010 and was elected Non-executive
Chairman on 1 January 2011. He is also the Chairman
of AIA Foundation. Mr. Tse’s appointments during almost
55 years with the Group and its predecessor, AIG Group,
include serving as Honorary Chairman of AIA Co. from
July 2009 to December 2010, Chairman and Chief
Executive Officer from 2000 to June 2009 and President
and Chief Executive Officer from 1983 to 2000. He also
served as Chairman of The Philippine American Life and
General Insurance (PHILAM LIFE) Company from 2005
to 2015. Mr. Tse is a non-executive director of PCCW
Limited (listed on the Hong Kong Stock Exchange) and
a director of Bridge Holdings Company Limited. He served
as a non-executive director of PineBridge Investments
Limited from 2012 to 2014 and a non-executive director
of PICC Property and Casualty Company Limited (listed on
the Hong Kong Stock Exchange) from 2004 to July 2014.
In recognition of his outstanding contributions to the
development of Hong Kong’s insurance industry, Mr. Tse
was awarded the Gold Bauhinia Star by the HKSAR
Government in 2001. Mr. Tse received an honorary
fellowship and an honorary degree of Doctor of Social
Sciences from The University of Hong Kong in 1998 and
2002 respectively. In 2003, he was elected to the
prestigious Insurance Hall of Fame.
Mr. Mark Edward Tucker
Aged 59, is an Executive Director and the Group Chief
Executive and President of the Company. Mr. Tucker
joined the Group in July 2010 and is also Chairman and
Chief Executive Officer of AIA Co. and AIA International.
Mr. Tucker spearheaded AIA’s record-breaking IPO on
29 October 2010, serving as Executive Chairman and
Group Chief Executive Officer of the Company from
12 October 2010 to 31 December 2010. In addition
to his responsibilities with AIA, Mr. Tucker has been an
Independent Director of The Goldman Sachs Group, Inc.
since November 2012. Mr. Tucker is an Honorary Professor
at the Chinese University of Hong Kong. He serves on the
Asia Business Council and the Advisory Board of the Asia
Global Institute. He is also a member of the International
Advisory Boards of the Lingnan College, Sun Yat-Sen
University in China, the Discovery Group of South Africa
and the Edinburgh Festival International. Mr. Tucker was a
non-executive director of the Court of The Bank of England
from June 2009 to May 2012, also serving as a member
of its Financial Stability Committee and Audit and Risk
Committee. Mr. Tucker served as Group Chief Executive of
Prudential plc from 2005 to 2009 and was the founder and
Chief Executive of Prudential Corporation Asia Limited
from 1994 to 2003 and an Executive Director of Prudential
plc from 1999 to 2003. From 2004 to 2005, Mr. Tucker
served as Group Finance Director of HBOS plc. Mr. Tucker
qualified as an Associate of the Institute of Chartered
Accountants in England and Wales (ACA) in 1985.
078
| AIA GROUP LIMITED
CORPORATE GOVERNANCE INDEPENDENT NON-EXECUTIVE DIRECTORS
Mr. Jack Chak-Kwong So
Aged 71, is an Independent Non-executive Director of the
Company. He was appointed a Non-executive Director of
the Company on 28 September 2010 and re-designated
as an Independent Non-executive Director of the Company
on 26 September 2012. From August 2007 to September
2010, Mr. So served as an Independent Non-executive
Director of AIA Co. He is currently an independent non-
executive director of China Resources Power Holdings Co.
Ltd. (listed on the Hong Kong Stock Exchange) and serves
as the Chairman of Airport Authority Hong Kong. He is also
an independent senior advisor to Credit Suisse, Greater
China. Mr. So was Chairman of the Consultative Committee
on Economic and Trade Co-operation between Hong Kong
and Mainland China from October 2013 to December
2015. He has been a member of the Chinese People’s
Political Consultative Conference since 2008. Mr. So was
awarded the Gold Bauhinia Star by the HKSAR Government
in 2011. He is also an Honorary Consultant to the
Mayor of San Francisco. Mr. So served as an executive
director of the Hong Kong Trade Development Council from
1985 to 1992 and served as its Chairman from 2007 to
2015. He was an independent non-executive director
of Cathay Pacific Airways Limited (listed on the Hong Kong
Stock Exchange) from 2002 to May 2015, a non-executive
director of Huanxi Media Group Limited (listed on the
Hong Kong Stock Exchange) from September 2015 to
September 2016 and served as the Chairman of the
Hong Kong Film Development Council from 2007 to 2013.
Mr. Chung-Kong Chow
Aged 66, is an Independent Non-executive Director of
the Company, having been appointed on 28 September
2010. Mr. Chow is the Chairman of Hong Kong Exchanges
and Clearing Limited (listed on the Hong Kong Stock
Exchange). He was appointed a non-official member of the
Executive Council of Hong Kong from 1 July 2012, the
Chairman of the Advisory Committee on Corruption of the
Independent Commission Against Corruption from 1 January
2013 and the Chairman of the Advisory Committee on
Admission of Quality Migrants and Professionals of the
HKSAR from 1 July 2016. He has also been a Steward
of The Hong Kong Jockey Club since March 2011. Mr. Chow
was knighted in the United Kingdom for his contribution to
industry in 2000 and was awarded the Gold Bauhinia Star
by the HKSAR Government in 2015. Mr. Chow was Chief
Executive Officer of MTR Corporation Limited (listed on the
Hong Kong Stock Exchange) from 2003 to 2011, Chief
Executive Officer of Brambles Industries plc, a global support
services company, from 2001 to 2003, and Chief Executive
of GKN plc, a leading industrial company based in the
United Kingdom, from 1997 to 2001. He was an independent
non-executive director of Anglo American plc from 2008 to
2014, independent non-executive director of Standard
Chartered plc (listed on the Hong Kong Stock Exchange)
from 1997 to 2008 and the Chairman of the Hong Kong
General Chamber of Commerce from 2012 to June 2014.
Mr. John Barrie Harrison
Aged 60, is an Independent Non-executive Director of the
Company, having been appointed on 1 July 2011. Mr. Harrison
is an independent non-executive director of Hong Kong
Exchanges and Clearing Limited, Cathay Pacific Airways
Limited (both listed on the Hong Kong Stock Exchange),
The London Metal Exchange Limited and LME Clear Limited.
He is also an independent non-executive director of
BW Group Limited and has been Vice Chairman of BW LPG
Limited since 2013. He was appointed an Honorary Court
Member of The Hong Kong University of Science and
Technology with effect from 20 September 2016. From
2008 to 2010, Mr. Harrison was Deputy Chairman of KPMG
International. In 2003, he was elected Chairman and Chief
Executive Officer of KPMG, China and Hong Kong and
Chairman of KPMG Asia Pacific. Mr. Harrison began his
career with KPMG in London in 1977, becoming a partner
of KPMG Hong Kong in 1987. From 2012 to May 2015,
he was also a member of the Asian Advisory Committee
of AustralianSuper Pty Ltd. Mr. Harrison is a Fellow of the
Institute of Chartered Accountants in England and Wales
and a member of the Hong Kong Institute of Certified
Public Accountants.
ANNUAL REPORT 2016 | 079
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBOARD OF DIRECTORS Mr. George Yong-Boon Yeo
Aged 62, is an Independent Non-executive Director of
the Company, having been appointed on 2 November
2012. Mr. Yeo is the Chairman of Kerry Logistics Network
Limited (listed on the Hong Kong Stock Exchange) and
a director of Kerry Holdings Limited. He was the
Vice-chairman of Kerry Group Limited until 30 June
2016. He has been a member of the International Advisory
Committee of Mitsubishi Corporation since June 2014
and a non-executive director of Wilmar International
Limited since November 2014. He is a member of the Board
of Trustees of the World Economic Forum and the
International Advisory Board of the Berggruen Institute
on Governance. In 2013, he was appointed a member of
the Pontifical Commission for Reference on the Economic-
Administrative Structure of the Holy See. He became
a member of the Vatican Council for the Economy in
February 2014. In 2012, Mr. Yeo was presented with the
Order of Sikatuna by the Philippines Government and the
Padma Bhushan by the Indian Government, and became
an Honorary Officer of the Order of Australia. From 1988
to 2011, Mr. Yeo was a member of the Singapore Parliament
and held various Cabinet positions, including Minister for
Foreign Affairs, Minister for Trade and Industry, Minister
for Health, Minister for Information and the Arts and
Minister of State for Finance. From 1972 to 1988, Mr. Yeo
served in the Singapore Armed Forces and attained the
rank of Brigadier-General in 1988 when he was Director
of Joint Operations and Planning in the Ministry of Defence.
Mr. Mohamed Azman Yahya
Aged 53, is an Independent Non-executive Director
of the Company, having been appointed on 24 February
2014. Mr. Yahya is the Executive Chairman of Symphony
Life Berhad and the Non-executive Chairman of Ranhill
Holdings Berhad, both of which are listed on the Main
Market of Bursa Malaysia Securities Berhad (Bursa
Malaysia). Mr. Yahya is a director and Chairman of various
companies, including Symphony House Sdn Bhd (formerly
known as Symphony House Berhad) and Sepang
International Circuit Sdn Bhd. Mr. Yahya is active in public
service and sits on the boards of Khazanah Nasional
Berhad, the Malaysian government investment arm, and
Ekuiti Nasional Berhad, a government linked private equity
fund management company. He is also a member of the
Capital Market Advisory Group of the Malaysian Securities
Commission and a member of the Malaysian Special
Economic Committee. He started his career at KPMG in
London and thereafter worked in a variety of roles
in investment banking, ultimately being named chief
executive of Amanah Merchant Bank. In 1998, he was
tasked by the Malaysian Government to set-up and head
Danaharta, the national asset management company. He
was also the Chairman of the Corporate Debt Restructuring
Committee, set up by Bank Negara Malaysia, to mediate
and assist in debt restructuring programmes of viable
companies. He was an Independent Non-executive
Director of Scomi Group Berhad (listed on Bursa Malaysia)
from 2003 to 2017. Mr. Yahya received his BSc Economics
(First Class) from the London School of Economics and
Political Science in 1985 and is a member of the Institute
of Chartered Accountants in England and Wales, the
Malaysian Institute of Accountants and a fellow of the
Institute of Bankers Malaysia.
Professor Lawrence Juen-Yee Lau
Aged 72, is an Independent Non-executive Director
of the Company, having been appointed on 18 September
2014. Professor Lau currently serves as an independent
non-executive director of CNOOC Limited and Hysan
Development Company Limited (both listed on the
Hong Kong Stock Exchange). He is also an independent
non-executive director of Far EasTone Telecommunications
Company Limited which is listed on the Taiwan Stock
Exchange. He has been serving as the Ralph and Claire
Landau Professor of Economics at The Chinese University
of Hong Kong (CUHK) since 2007 and the Chairman
of the Council of Shenzhen Finance Institute of CUHK,
Shenzhen since 12 January 2017. He currently serves
as a member of the Exchange Fund Advisory Committee
of the HKSAR, Chairman of its Governance Sub-committee
and a member of its Currency Board Sub-committee and
Investment Sub-committee. In addition, he serves as
a member and Chairman of the Prize Recommendation
Committee for the LUI Che Woo Prize Limited, as well as
Vice-Chairman of the Our Hong Kong Foundation. He was
awarded the Gold Bauhinia Star by the HKSAR Government
in 2011. From 2004 to 2010, Professor Lau served as
Vice-Chancellor (President) of CUHK. He was appointed
Chairman of CIC International (Hong Kong) Co., Limited,
a wholly-owned subsidiary of China Investment
Corporation, in September 2010 and retired from the
position in September 2014. He also served as a
non-executive director of Semiconductor Manufacturing
International Corporation (listed on the Hong Kong Stock
Exchange) from 2011 to 2014. He is a member of the
12th National Committee of the Chinese People’s
Political Consultative Conference and the Vice-Chairman
of its Sub-committee of Economics, as well as the
Vice-Chairman of China Center for International Economic
080
| AIA GROUP LIMITED
CORPORATE GOVERNANCE Dr. Narongchai Akrasanee
Aged 71, is an Independent Non-executive Director
of the Company, having been appointed on 15 January
2016, and was appointed as Chairman of Advisory Board
of AIA Thailand with effect from 1 December 2016. Dr.
Narongchai was previously an Independent Non-executive
Director of the Company from 21 November 2012 to
31 August 2014. He is the former Minister of Energy
and Minister of Commerce for the Kingdom of Thailand,
and served as a Senator. Dr. Narongchai served as
Chairman of the Export-Import Bank of Thailand from
December 2005 to June 2010, as a Director of the Office
of the Insurance Commission of Thailand from October
2007 to August 2012, as a Director of the National
Economic and Social Development Board for the period
from July 2009 to July 2013 and as a member of the
Monetary Policy Committee of the Bank of Thailand from
November 2011 to September 2014. He is currently the
Chairman of the Steering Committee and Vice-Chairman
of the Council of Mekong Institute, the Chairman of the
Thailand National Committee for the Pacific Economic
Cooperation Council and the Chairman of the Khon Kaen
University Council in Thailand. Dr. Narongchai also acts
as the Chairman and an independent director of three
entities listed on the Stock Exchange of Thailand, namely
MFC Asset Management Public Company Limited, Ananda
Development Public Company Limited and Thai-German
Products Public Company Limited. He is the Chairman
and an independent director of The Brooker Group Public
Company Limited, which is listed on the Stock Exchange
of Thailand’s Market for Alternative Investment. Dr.
Narongchai is also the Chairman of the Seranee Group
of companies. He previously served as an independent
director of each of Malee Sampran Public Company Limited
and ABICO Holdings Public Company Limited and as the
Vice-Chairman and an independent director of Thai-German
Products Public Company Limited, all companies listed on
the Stock Exchange of Thailand. Dr. Narongchai received
a Bachelor’s degree in Economics with Honours from the
University of Western Australia and a M.A. and Ph.D. in
Economics from Johns Hopkins University.
Exchanges, Beijing. He received his B.S. degree (with
Great Distinction) in Physics from Stanford University
in 1964 and his M.A. and Ph.D. degrees in Economics from
the University of California at Berkeley in 1966 and 1969,
respectively. He joined the faculty of the Department of
Economics at Stanford University in 1966, becoming its
Professor of Economics in 1976 and the first Kwoh-Ting Li
Professor in Economic Development in 1992. From 1992
to 1996, he served as a Co-Director of the Asia-Pacific
Research Center at Stanford University, and from 1997
to 1999 as the Director of the Stanford Institute for
Economic Policy Research. He became its Kwoh-Ting Li
Professor in Economic Development, Emeritus, upon his
retirement from Stanford University in 2006.
Ms. Swee-Lian Teo
Aged 57, is an Independent Non-executive Director of the
Company, having been appointed on 14 August 2015. Ms. Teo
currently serves as a non-executive and independent director
and a member of the Audit Committee, Executive Resource
and Compensation Committee and Risk Committee of
Singapore Telecommunications Limited, which is listed on
the Singapore Exchange. She is also a non-executive director
and Chairlady of the Audit and Risk Committee of Avanda
Investment Management Pte Ltd., a Singapore-based fund
management company. Ms. Teo has been appointed as
a member of Corporate Governance Council of the
Monetary Authority of Singapore (MAS) on 27 February
2017. Ms. Teo has over 27 years of experience with MAS.
During her time at the MAS, she worked in foreign reserves
management, financial sector development, strategic
planning and financial supervision. She was the Deputy
Managing Director in charge of Financial Supervision,
overseeing the regulation and supervision of the banking,
insurance and capital markets industries and
macroeconomic surveillance, and also represented the
MAS on various international fora, including the Basel
Committee on Banking Supervision, and on various
committees and working groups of the Financial Stability
Board. She retired from the MAS as Special Advisor in the
Managing Director’s office in June 2015. In addition to the
MAS, Ms. Teo also served on the Board of the Civil Aviation
Authority of Singapore from 2002 to 2010. Ms. Teo received
her B.Sc. (First) in Mathematics from the Imperial College
of Science and Technology, University of London in 1981
and her M.Sc. in Applied Statistics from the University of
Oxford in 1982. She was also awarded the Public
Administration Medal (Gold) (Bar) at the Singapore
National Day Awards in 2012.
ANNUAL REPORT 2016 | 081
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBOARD OF DIRECTORS EXECUTIVE COMMITTEE
082
| AIA GROUP LIMITED
CORPORATE GOVERNANCE From left to right:
Mitchell New
Mark Konyn
Ng Keng Hooi
Gordon Watson
Mark Edward Tucker
Garth Jones
Shulamite Khoo
William Lisle
Mark Saunders
Simeon Preston
Cheong Jin Keat
ANNUAL REPORT 2016 | 083
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONEXECUTIVE COMMITTEE Mr. Mark Edward Tucker
Mr. Tucker’s biography is set out above.
Mr. Garth Jones
Aged 54, is the Group Chief Financial Officer responsible
for leading the Group in all aspects of capital and financial
management, as well as managing relationships with
key external stakeholders, including independent auditors
and actuaries, rating agencies and international accounting
and regulatory bodies. He is a director of various
companies within the Group, including AIA Co. and AIA
International. He joined the Group in April 2011. Prior
to joining the Group, Mr. Jones was the Executive Vice
President of China Pacific Life Insurance Co., Ltd., the
life insurance arm of China Pacific Insurance (Group) Co.,
Ltd. He also held a number of senior management positions
during 12 years with Prudential Corporation Asia Limited,
including Chief Financial Officer of the Asian life insurance
operations. Prior to joining Prudential, Mr. Jones led the
development of Swiss Re’s Asia life business. Mr. Jones is
a Fellow of the Institute of Actuaries in the United
Kingdom. On 1 June 2016, he was appointed a member
of the industry advisory committee on long term business,
which advises the Independent Insurance Authority in
Hong Kong.
Mr. Ng Keng Hooi
Aged 62, is the Regional Chief Executive responsible
for the Group’s businesses operating in China, Thailand,
Singapore, Indonesia, Taiwan and Brunei as well as Group
Agency Distribution. He is a director of various companies
within the Group, including AIA Co. and AIA International.
He joined the Group in October 2010. Prior to joining the
Group, Mr. Ng was Group Chief Executive Officer and
a director of Great Eastern Holdings Limited from
December 2008. Mr. Ng worked for Prudential plc from
1989 to 2008, serving in a variety of senior roles, including
as a Managing Director of Insurance of Prudential
Corporation Asia Limited from 2005 to 2008, responsible
for its operations in Malaysia, Singapore, Indonesia and
the Philippines. He has been a Fellow of the Society
of Actuaries (U.S.) since 1985.
Mr. Gordon Watson
Aged 53, is the Regional Chief Executive responsible
for the Group’s businesses operating in Hong Kong,
Australia, the Philippines, Vietnam, New Zealand and
Macau as well as the Group Corporate Solutions business,
Group Health Care business, Group Partnership
Distribution and the AIA Vitality. He is a director of various
companies within the Group, including AIA Co. and
AIA International, and serves as the Chairman of The
Philippine American Life and General Insurance (PHILAM
LIFE) Company. Mr. Watson rejoined the Group in January
2011. He worked in various parts of AIG (including within
AIA) for over 30 years, during which time he served
as Global Vice Chairman of ALICO and Chairman and
Chief Executive Officer of ALICO Asia. He also served as
Global Chief Operating Officer and as Chairman of ALICO
Japan. He is a Fellow of the Chartered Insurance Institute
and Chartered Institute of Marketing.
084
| AIA GROUP LIMITED
CORPORATE GOVERNANCE Mr. William Lisle
Aged 51, is the Regional Chief Executive responsible
for the Group’s businesses operating in Malaysia, Korea,
Sri Lanka, India and Cambodia. Mr. Lisle was Chief
Executive Officer of AIA’s operation in Malaysia from
December 2012 to May 2015, including leading the
large-scale and successful integration of ING Malaysia
after its acquisition by the Group in 2012. He is a director
of various companies within the Group, including AIA Co.
and AIA International. Mr. Lisle joined the Group in January
2011 as Group Chief Distribution Officer. Prior to joining
the Group, Mr. Lisle was the Managing Director, South Asia
for Aviva from May 2009 until 2010. Prior to joining Aviva,
Mr. Lisle held a number of senior positions at Prudential
Corporation Asia Limited, including Chief Executive Officer
in Malaysia from 2008 to 2009, Chief Executive Officer
in Korea from 2005 to 2008, Chief Agency Officer for ICICI
Prudential from 2002 to 2004 and Director of Agency
Development, South Asia in 2001.
Mr. Simeon Preston
Aged 46, is the Group Chief Operations Officer responsible
at the Group level for technology, operations and
innovation. He is a director of various companies within
the Group. He joined the Group in September 2010. Prior
to joining the Group, Mr. Preston served as a senior partner
in the financial services practice of global management
consultants Bain & Company, where he specialised in the
Asia life insurance sector. He previously spent almost nine
years with consulting firm Marakon Associates, becoming
a partner in 2006.
Ms. Shulamite Khoo
Aged 55, is the Group Chief Human Resources Officer
responsible for the development of overall human capital
strategies and their implementation across the Group, as
well as leading and providing support to the human
resources functions in country market operations. She
is a director of a subsidiary of the Company, Chair of AIA
Leadership Centre Supervisory Council and is also
responsible for the Group Corporate Security function. She
joined the Group in January 2011. Prior to joining the
Group, Ms. Khoo was Group Executive Vice President,
Global Head of Human Resources and Group Executive
Management of the AXA Group, based in Paris. Previously,
she occupied various senior roles covering life insurance
operations and human resources with Prudential
Singapore and was Regional Head of Human Resources for
Prudential Corporation Asia Limited based in Hong Kong.
Ms. Khoo is a member of the International Advisory Panel
of the Singapore Public Service Division (Prime Minister’s
Office). She is a Chartered Fellow of the Chartered
Institute of Personnel and Development.
Mr. Mitchell New
Aged 53, is the Group General Counsel and Company
Secretary responsible for the provision of legal services
and company secretarial services for the Group and
providing leadership to legal and corporate governance
functions within country operations. He is a director of
various companies within the Group. He joined the Group
in April 2011. Prior to joining the Group, Mr. New occupied
various senior roles with Manulife Financial, where he was
most recently Senior Vice President and Chief Legal
Officer for Asia, based in Hong Kong. He was also
previously Senior Vice President and General Counsel
to Manulife’s Canadian division.
ANNUAL REPORT 2016 | 085
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONEXECUTIVE COMMITTEE Mr. Cheong Jin Keat (Tony)
Aged 52, is the Group Chief Risk Officer responsible
for the Group’s risk and compliance functions. He is also
a director of a subsidiary of the Company. Mr. Cheong
initially joined the Group in May 2016 as Regional Business
Development & Special Projects Director. Prior to joining
the Group, Mr. Cheong was Group Chief Financial Officer
at Great Eastern Life. He also previously held senior
management positions at Prudential Corporation Asia
Limited, including General Manager, Finance, Actuarial
and Operations of Prudential Singapore and Chief Financial
Officer of Prudential Malaysia. Mr. Cheong is a Fellow of
the Institute and Faculty of Actuaries (UK).
EXECUTIVE COMMITTEE
Mr. Mark Saunders
Aged 53, is the Group Chief Strategy and Marketing
Officer responsible for the Group’s strategy, customer
propositions, corporate transactions and marketing
functions at the Group level. He joined the Group in April
2014. Prior to joining the Group, Mr. Saunders was Managing
Director of Towers Watson for the Asia-Pacific Insurance
Sector, as well as Managing Director for the firm’s
Hong Kong office. Prior to joining Towers Watson, he was
Asian Regional Leader, Hong Kong Chief Executive Officer,
and Executive Director and Board Member of the Isle of
Man-based international life insurance operations
of Clerical Medical and its joint venture life insurer in
Korea (Coryo-CM). Mr. Saunders has been involved in the
insurance industry in Asia since 1989. He is a Fellow of
the Institute and Faculty of Actuaries and Fellow of five
other professional actuarial bodies.
Dr. Mark Konyn
Aged 55, is the Group Chief Investment Officer responsible
for providing oversight to the management of the
investment portfolios of the Group. He is a director of
various companies within the Group. He joined the Group
in September 2015. Dr. Konyn joined AIA from Cathay
Conning Asset Management, where he was Chief Executive
Officer responsible for the company’s investment business
and strategic expansion in the region. He has held senior
positions at Allianz Global Investors (where he was
Asia-Pacific CEO for RCM Global Investors), Fidelity
Investments and Prudential UK. He is a Fellow of the Royal
Statistical Society, and holds a Diploma from the London
Business School in Investment Management, having
previously completed his Ph.D. in Operational Research
sponsored by the UK Government.
086
| AIA GROUP LIMITED
CORPORATE GOVERNANCE REPORT OF THE DIRECTORS
The Board is pleased to present this report and the
audited consolidated financial statements of the Company
for the year ended 30 November 2016.
PRINCIPAL ACTIVITIES
The Group is a life insurance based financial services
provider operating in 18 markets throughout the Asia-
Pacific region. The Group’s principal activity is the writing
of life insurance business, providing life insurance, accident
and health insurance and savings plans throughout Asia,
and distributing related investment and other financial
services products to its customers.
Details of the activities and other particulars of the
Company’s principal subsidiaries are set out in note 42
to the financial statements.
RESULTS
The results of the Group for the year ended 30 November
2016 and the state of the Group’s affairs at that date are
set out in the financial statements on pages 115 to 228
of this Annual Report.
BUSINESS REVIEW
The review of the business of the Group, including
a description of principal risks and uncertainties facing
the Group and an indication of likely future development
in the Group’s businesses, for the year ended 30 November
2016 as required by Schedule 5 to the Hong Kong
Companies Ordinance is contained in the Financial Review
(pages 25 to 39), Business Review (pages 41 to 57), Risk
Management (pages 58 to 66), Our People (pages 68 to 69),
Corporate Social Responsibility (pages 70 to 73) sections
under Financial and Operating Review as well as note 41
and note 44 to the financial statements. These discussions
form part of this report.
The Group is licensed to conduct insurance business and
subject to extensive local regulatory oversight in each of the
geographical markets in which its branches and subsidiaries
operate. While the extent of regulation varies from
jurisdiction to jurisdiction, they are generally laws and
regulations regarding, among other things, corporate
governance, solvency, investment management, financial
reporting and distribution. The Group dedicates resources
and personnel to ensure compliance with relevant laws and
regulations. In particular, during the year ended
30 November 2016, the Group has complied with the
relevant laws and regulations that have a significant impact
on the operations of the Group including compliance with
the solvency and capital adequacy requirements applied
by its regulators, details of which are contained in note 35
to the financial statements.
Please also see the Corporate Governance Report for a
discussion on the Company’s commitment to high standards
of corporate governance and the Board’s responsibility for
compliance with statutory obligations.
Details of significant events affecting the Company that
have occurred since 30 November 2016 are set out in
note 44 to the financial statements.
DIVIDENDS
An interim dividend of 21.90 Hong Kong cents per share
(2015:18.72 Hong Kong cents per share) was paid on
31 August 2016. The Board has recommended a final
dividend of 63.75 Hong Kong cents per share (2015: 51.00
Hong Kong cents per share) for the year ended
30 November 2016. If approved, the proposed final
dividend together with the interim dividend will represent
a total dividend of 85.65 Hong Kong cents per share (2015:
69.72 Hong Kong cents per share) for the year ended
30 November 2016.
Under the Trust Deed of the Company’s Restricted Share
Unit Scheme, shares of the Company are held by the
trustee in either of two trust funds. These shares are held
against the future entitlements of scheme participants.
Provided the shares of the Company are held by the trustee
and no beneficial interest in those shares has been vested
in any beneficiary, the trustee shall waive any right to
dividend payments or other distributions in respect of
those shares (unless the Company determines otherwise).
As of 31 August 2016 (being the payment date of the
interim dividend), 75,983,261 shares were held by the
trustee. The amount of interim dividend waived was
approximately US$2 million. Pursuant to the Trust Deed, the
trustee will waive the right to final dividend if it is declared.
Subject to shareholders’ approval at the AGM, the final
dividend will be payable on Wednesday, 31 May 2017 to
shareholders whose names appear on the register of
members of the Company at the close of business on
Wednesday, 17 May 2017.
ANNUAL REPORT 2016 | 087
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS
The Directors of the Company during the year and
up to the date of this report are as follows:
Non-executive Chairman and Non-executive Director
Mr. Edmund Sze-Wing Tse
Executive Director
Mr. Mark Edward Tucker
(Group Chief Executive and President)
Independent Non-executive Directors
Mr. Jack Chak-Kwong So
Mr. Chung-Kong Chow
Mr. John Barrie Harrison
Mr. George Yong-Boon Yeo
Mr. Mohamed Azman Yahya
Professor Lawrence Juen-Yee Lau
Ms. Swee-Lian Teo
Dr. Narongchai Akrasanee
Their biographical information is set out on pages 78 to 81
of this Annual Report.
Dr. Narongchai Akrasanee was appointed Independent
Non-executive Director of the Company on 15 January
2016 and was re-elected as Independent Non-executive
Director of the Company by the shareholders at the 2016
Annual General Meeting of the Company held on 6 May
2016 in accordance with Article 104 of the Company’s
Articles of Association.
In accordance with Article 100 of the Company’s Articles
of Association, Mr. Mohamed Azman Yahya, Mr. Edmund
Sze-Wing Tse and Mr. Jack Chak-Kwong So will retire from
office by rotation and, being eligible, offer themselves for
re-election at the AGM.
CHANGES IN DIRECTORS’ INFORMATION
Changes in the Directors’ information which are required to be disclosed pursuant to the requirement of Rule 13.51B(1)
of the Listing Rules are set out below:
Name of Director
Change
Mr. Jack Chak-Kwong So
• Resigned as a non-executive director of Huanxi Media Group Limited (listed on the Hong Kong
Stock Exchange) with effect from 30 September 2016
• Ceased to be an advisor to The Hong Kong and China Gas Company Limited with effect from
1 January 2017
Mr. John Barrie Harrison
• Appointed as an Honorary Court Member of The Hong Kong University of Science and Technology
with effect from 20 September 2016
Mr. Mohamed Azman Yahya
• Appointed as Non-executive Chairman of Sepang International Circuit Sdn Bhd with effect from
18 October 2016
• Resigned as a director of PLUS Expressways International Berhad with effect from 1 February 2017
• Resigned as an Independent Non-executive Director of Scomi Group Berhad (listed on Bursa
Malaysia Securities Berhad) with effect from 1 March 2017
Professor Lawrence Juen-Yee Lau
• Appointed as Chairman of the Council of Shenzhen Finance Institute of The Chinese University of
Hong Kong, Shenzhen with effect from 12 January 2017
Ms. Swee-Lian Teo
• Appointed as a member of Corporate Governance Council of the Monetary Authority of Singapore
with effect from 27 February 2017
Dr. Narongchai Akrasanee
• Appointed as Chairman of Advisory Board of AIA Thailand with effect from 1 December 2016
Save for the information disclosed above, there is no other information required to be disclosed pursuant to Rule 13.51B(1)
of the Listing Rules.
088
| AIA GROUP LIMITED
CORPORATE GOVERNANCE DIRECTORS’ SERVICE CONTRACTS
No Director proposed for re-election at the AGM has
a service contract with the Company which is not
determinable by the Company or any of its subsidiaries
within one year without payment of compensation
(other than statutory compensation).
DIRECTORS OF SUBSIDIARIES
The names of all directors who have served on the boards
of the subsidiaries of the Company during the year and
up to the date of this report are available on the Company’s
website at www.aia.com.
PERMITTED INDEMNITY PROVISION
Pursuant to the Company’s Articles of Association,
subject to the relevant statutes, every Director shall be
indemnified out of the assets of the Company against all
costs, charges, expenses, losses and liabilities which
he/she may sustain or incur in or about the execution of
his/her office or which may attach thereto. The Company
has taken out insurance against the liabilities and costs
associated with proceedings which may be brought
against directors of the Group.
DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES
As at 30 November 2016, the Directors’ and Chief Executive’s interests and short positions in the shares, underlying
shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO)
as recorded in the register required to be kept under Section 352 of the SFO, or as otherwise notified to the Company
and the Hong Kong Stock Exchange pursuant to the Model Code, are as follows:
Interests and short positions in the shares and underlying shares of the Company:
Name of Director
Mr. Mark Edward Tucker
Mr. Edmund Sze-Wing Tse
Mr. Chung-Kong Chow
Mr. Jack Chak-Kwong So
Mr. John Barrie Harrison
Mr. George Yong-Boon Yeo
Number of shares or
underlying shares
25,512,500(L) (1)
3,560,400(L)(2)
86,000(L) (2)
260,000(L)(2)
50,000(L)(2)
100,000(L)(2)
Class
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Percentage
of the total
number of
shares in issue (4)
Capacity
0.21
0.03
< 0.01
< 0.01
< 0.01
< 0.01
Beneficial owner
Beneficial owner
Beneficial owner
Interest of controlled
corporation(3)
Beneficial owner
Beneficial owner
Notes:
(1) The interests include 5,479,453 ordinary shares of the Company, 16,448,100 share options under the Share Option Scheme, 3,582,194 restricted share
units under the Restricted Share Unit Scheme and 2,753 matching restricted stock purchase units under the Employee Share Purchase Plan.
(2) The interests are ordinary shares of the Company.
(3) The 260,000 shares were held by Cyber Project Developments Limited, a company beneficially wholly owned by Mr. Jack Chak-Kwong So.
(4) Based on 12,056,451,026 ordinary shares in issue as at 30 November 2016.
Save as disclosed above, as at 30 November 2016, none of the Directors or Chief Executive of the Company had any
interests or short positions in the shares, underlying shares or debentures of the Company or its associated corporations
(within the meaning of Part XV of the SFO) as recorded in the register required to be kept under Section 352 of the SFO,
or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code.
ANNUAL REPORT 2016 | 089
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONREPORT OF THE DIRECTORS
INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES OF PERSONS OTHER THAN
THE DIRECTORS OR CHIEF EXECUTIVE
As at 30 November 2016, the following are the persons, other than the Directors or Chief Executive of the Company,
who had interests or short positions in the shares or underlying shares of the Company as recorded in the register
required to be kept under Section 336 of the SFO:
Name of Shareholder
JPMorgan Chase & Co.
Number of shares
or underlying shares
(Note 2)
Long Position (L)
Short Position (S)
Lending Pool (P)
1,140,955,379(L)
67,419,367(S)
775,293,224(P)
Class
Ordinary
The Capital Group Companies, Inc.
961,995,290(L)
Ordinary
BlackRock, Inc.
604,419,448(L)
4,404,600(S)
Ordinary
Notes:
(1) The interests held by JPMorgan Chase & Co. were held in the following capacities:
Percentage of
the total number
of shares in issue
(Note 3)
Long Position (L)
Short Position (S)
Lending Pool (P)
9.46(L)
0.56(S)
6.43(P)
7.98(L)
5.01(L)
0.04(S)
Capacity
Beneficial owner
Investment manager
Trustee (other than a bare trustee)
Custodian corporation/approved lending agent
(2) The interests or short positions include underlying shares as follows:
Number of shares
(Long position)
141,779,073
223,688,656
194,426
775,293,224
Capacity
Note 1
Interest of
controlled
corporation
Interest of
controlled
corporation
Number of shares
(Short position)
67,419,367
–
–
–
Long position
Short position
Name of Shareholder
Physically
settled
listed equity
derivatives
Cash
settled
listed equity
derivatives
Physically
settled
unlisted equity
derivatives
Cash
settled
unlisted equity
derivatives
Physically
settled
listed equity
derivatives
Cash
settled
listed equity
derivatives
Physically
settled
unlisted equity
derivatives
Cash
settled
unlisted equity
derivatives
JPMorgan Chase & Co.
5,335,972
230,200
3,251,131
43,286,053
5,363,000 7,112,200
4,965,606 49,488,961
BlackRock, Inc.
-
-
-
281,400
-
-
-
3,238,000
(3) Based on 12,056,451,026 ordinary shares in issue as at 30 November 2016.
Save as disclosed above, as at 30 November 2016, no person, other than the Directors and Chief Executive of the
Company, whose interests are set out in the section entitled “Directors’ and Chief Executive’s Interests and Short
Positions in Shares and Underlying Shares”, had any interests or short positions in the shares or underlying shares
of the Company as recorded in the register required to be kept under Section 336 of the SFO.
090
| AIA GROUP LIMITED
CORPORATE GOVERNANCE
DIRECTORS’ RIGHTS TO ACQUIRE SHARES
OR DEBENTURES
Under his service contract, Mr. Mark Edward Tucker
(by virtue of his role as Group Chief Executive and
President) is entitled to an annual discretionary earned
incentive award, which includes payment in the form
of shares of the Company. Details of Mr. Tucker’s incentive
award are set out in the Remuneration Report.
DIRECTORS’ INTERESTS IN TRANSACTIONS,
ARRANGEMENTS OR CONTRACTS
No transactions, arrangements or contracts of significance
to which the Company or any of its subsidiaries was a
party, and in which any Director of the Company or his/her
connected entity has a material interest, directly or
indirectly, subsisted as at 30 November 2016 or at any
time during the year.
RESERVES
As at 30 November 2016, the aggregate amount of
reserves available for distribution to shareholders of the
Company, as calculated under the provisions of Part 6 of
the Hong Kong Companies Ordinance, was US$2,620
million (2015: US$2,785 million).
CHARITABLE DONATIONS
Charitable donations made by the Group during the year
ended 30 November 2016 amounted to US$2 million
(2015: US$2 million).
MAJOR CUSTOMERS AND SUPPLIERS
During the year ended 30 November 2016, the percentage
of the aggregate purchases attributable to the Group’s five
largest suppliers was less than 30 per cent of the Group’s
total value of purchases and the percentage of the
aggregate sales attributable to the Group’s five largest
customers was less than 30 per cent of the Group’s total
value of sales.
SHARES ISSUED
Details of the shares issued during the year ended
30 November 2016 are set out in note 33 to the financial
statements.
DEBENTURES ISSUED
Details of the debentures issued during the year ended
30 November 2016 are set out in note 28 to the financial
statements.
EQUITY-LINKED AGREEMENTS
During the year ended 30 November 2016, the Company
did not enter into any equity-linked agreements and there
did not subsist any equity-linked agreement entered into
by the Company as at 30 November 2016, save for the
restricted share units, outstanding share options,
restricted stock purchase units and restricted stock
subscription units awarded to employees and agents under
the Restricted Share Unit Scheme, Share Option Scheme,
Employee Share Purchase Plan and Agency Share
Purchase Plan, respectively, described below and in the
Remuneration Report and note 38 to the financial
statements.
RESTRICTED SHARE UNIT SCHEME
During the year ended 30 November 2016, 18,964,022
restricted share units were awarded by the Company under
the Restricted Share Unit Scheme adopted by the
Company on 28 September 2010 (as amended). Details
of the scheme are set out in the Remuneration Report and
note 38 to the financial statements.
SHARE OPTION SCHEME
During the year ended 30 November 2016, 9,550,232
share options were awarded by the Company under
the Share Option Scheme adopted by the Company on
28 September 2010 (as amended). 7,174,665 share options
were exercised during the year and the Company issued
7,174,665 new shares accordingly. The proceeds received
amounted to approximately US$26 million. Details of the
Share Option Scheme are set out in the Remuneration
Report and note 38 to the financial statements.
EMPLOYEE SHARE PURCHASE PLAN
During the year ended 30 November 2016, 1,164,179
restricted stock purchase units were awarded by the
Company under the Employee Share Purchase Plan
adopted by the Company on 25 July 2011 (as amended).
694,583 matching restricted stock purchase units were
vested during the year and no shares have been issued
pursuant to the Employee Share Purchase Plan. Details
of the plan are set out in the Remuneration Report and
note 38 to the financial statements.
ANNUAL REPORT 2016 | 091
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONREPORT OF THE DIRECTORS REPORT OF THE DIRECTORS
AGENCY SHARE PURCHASE PLAN
The Agency Share Purchase Plan (ASPP) was adopted
by the Company on 23 February 2012 (ASPP Adoption
Date). Under the ASPP, certain agents of the Group were
selected to participate in the plan. Those agents selected
for participation may elect to purchase shares and receive
one matching share for each two shares purchased after
having been in the plan for a period of three years through
the award of matching RSSUs. Each eligible agent’s
participation level is capped at a maximum purchase in
any plan year of US$15,000. Upon vesting of the matching
RSSUs, those agents who remain as agents of the Group
will receive one matching share for each RSSU which he
or she holds. The aggregate number of shares which can
be issued by the Company under the ASPP during the
10-year period shall not exceed 2.5 per cent of the number
of shares in issue on the ASPP Adoption Date.
During the year ended 30 November 2016, 1,366,682
matching RSSUs were awarded by the Company, 927,042
matching RSSUs vested and 927,042 new shares were
issued pursuant to the ASPP. The proceeds received
amounted to approximately US$1 million. Since the ASPP
Adoption Date and up to 30 November 2016, a total of
1,968,732 new shares were issued under the ASPP,
representing 0.02 per cent of the shares in issue as at the
ASPP Adoption Date.
NON-EXEMPT CONNECTED TRANSACTIONS
During the year ended 30 November 2016, the Group had
not entered into any connected transactions which are not
exempt from the annual reporting requirement under
Chapter 14A of the Listing Rules.
RELATED PARTY TRANSACTIONS
Details of the related party transactions undertaken
by the Group during the year ended 30 November 2016,
in the ordinary course of business are set out in note 40
to the financial statements. Such related party transactions
are all exempt connected transactions under Chapter 14A
of the Listing Rules.
PURCHASE, SALE OR REDEMPTION
OF THE COMPANY’S LISTED SECURITIES
Save for the purchase of 16,849,376 shares and sale
of 276,401 forfeited shares of the Company under the
Restricted Share Unit Scheme and the Employee Share
Purchase Plan at a total consideration of approximately
US$88 million and US$2 million respectively, neither
the Company nor any of its subsidiaries purchased, sold
or redeemed any of the Company’s listed securities during
the year ended 30 November 2016. These purchases and
sales were made by the relevant scheme trustees on
the Hong Kong Stock Exchange. These shares are held
on trust for participants of the relevant schemes and
therefore were not cancelled. Please refer to note 38
to the financial statements for details.
PUBLIC FLOAT
Based on information that is publicly available to the
Company and within the knowledge of the Directors,
the Company has maintained the amount of public float
as approved by the Hong Kong Stock Exchange and
as permitted under the Listing Rules as at the date
of this report.
AUDITOR
PricewaterhouseCoopers was re-appointed auditor
of the Company in 2016.
PricewaterhouseCoopers will retire and, being eligible,
offer itself for re-appointment. A resolution for the
re-appointment of PricewaterhouseCoopers as auditor
of the Company will be proposed at the AGM.
By Order of the Board
Edmund Sze-Wing Tse
Non-executive Chairman
24 February 2017
092
| AIA GROUP LIMITED
CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT
CORE PRINCIPLES
The Board believes that strong corporate governance
is essential for delivering sustainable value, enhancing
a culture of business integrity and maintaining investor
confidence. The Board is ultimately responsible for the
performance of the Group, including the consistent
achievement of business plans and compliance with
statutory as well as corporate obligations. The Board is
also responsible for the development and implementation
of the Group’s corporate governance practices. This
Corporate Governance Report explains the Company’s
corporate governance principles and practices, including
how the Board manages the business to deliver long-term
shareholder value and to promote the development of
the Group.
As a company listed on the Main Board of the Hong Kong
Stock Exchange, the Company is committed to high
standards of corporate governance and sees the
maintenance of good corporate governance practices as
essential to its sustainable growth. It is vital that Board
members, in aggregate, have their requisite skills and
expertise supported by a structure that enables
appropriate delegation between the Board, its committees
and management, whilst ensuring that the Board retains
overall control. To promote effective governance across all
of its operations, the Board has approved a governance
framework, which maps out internal approval processes
including those matters that may be delegated.
Throughout this Corporate Governance Report, the Board
of Directors seeks to set out the Company’s corporate
governance structure and policies, inform shareholders
of the corporate governance undertakings of the Company
and demonstrate to shareholders the value of such
practices.
The Company complied with all applicable code provisions
of the Corporate Governance Code throughout the year
ended 30 November 2016.
The Company has also adopted its own Directors’ and
Chief Executives’ Dealing Policy (Policy) on terms no less
exacting than those set out in the Model Code in respect of
dealings by the Directors in the securities of the Company.
With a single exception based on an inadvertent omission
on the part of a member of the Board to notify the Company
in respect of a purchase of shares in the Company resulting
in a late filing of a statutory Disclosure of Interests Notice
(which has been reported to the Hong Kong Stock
Exchange), all of the Directors confirmed, following specific
enquiry by the Company, that they have complied with the
required standards set out in the Model Code and the Policy
throughout the year ended 30 November 2016.
BOARD OF DIRECTORS
ROLES AND RESPONSIBILITIES
The Board is accountable to shareholders for the affairs
of the Company. It meets these obligations by ensuring
the maintenance of high standards of governance in all
aspects of the Company’s business, setting the strategic
direction for the Group and maintaining appropriate levels
of review, challenge and guidance in its relationship with
Group management. It is also the ultimate decision-making
body for all matters considered material to the Group and
is responsible for ensuring that, as a collective body, Board
members have the appropriate skills, knowledge and
experience to perform their roles effectively.
In these matters, the Board provides leadership to the
Company in respect of operational issues through the
Group Chief Executive, who is authorised to act on behalf
of the Board in the operational management of the
Company. Any responsibilities not so delegated by the
Board to the Group Chief Executive remain the
responsibility of the Board.
ANNUAL REPORT 2016 | 093
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION During the year, the Board updated the terms of reference
of the Audit Committee and the Risk Committee to reflect
best practices and reviewed the Company’s compliance
with the Corporate Governance Code, including the
necessary disclosures in its reports to shareholders. The
Board also adopted and/or updated various policies as
recommended by the Audit Committee and the Risk
Committee for better corporate governance.
The Board discharges the following responsibilities either
by itself or through delegation to the Audit Committee,
the Nomination Committee, the Remuneration Committee
and the Risk Committee:
(a) the development and review of the Company’s policies
and practices on corporate governance;
(b) the review and monitoring of the training and
continuous professional development of Directors and
senior management;
(c) the review and monitoring of the Company’s policies
and practices on compliance with legal and regulatory
requirements;
(d) the development, review and monitoring of the Code
of Conduct applicable to all officers and employees
of the Group; and
(e) the review of the Company’s compliance with the
Corporate Governance Code and disclosure in this
Corporate Governance Report.
BOARD COMPOSITION
As of 30 November 2016 and up to the date of this
Corporate Governance Report, the Board consists of ten
members, comprising one Executive Director and nine
Non-executive Directors, eight of whom are Independent
Non-executive Directors. All Directors are expressly
identified by reference to such categories in all corporate
communications that disclose their names. The
composition of the Board is well balanced with each
Director having sound board level experience and
expertise relevant to the business operations and
development of the Group. The Board is comprised of
members with extensive business, financial, government,
regulatory and policy experience from a variety of
backgrounds. There is diversity of nationality, ethnicity,
educational background, functional expertise, gender,
age and experience.
Biographies of the Directors are set out on pages 78 to 81
of this Annual Report.
BOARD INDEPENDENCE
More than 75% (8 out of 10) of the Board are Independent
Non-executive Directors. Each of the Independent
Non-executive Directors of the Company meets the
independence guidelines set out in Rule 3.13 of the Listing
Rules and has provided to the Company the requisite
annual confirmation as to his or her independence. None
of the Independent Non-executive Directors has any
business with or significant financial interests in the
Company or its subsidiaries and therefore all the
Independent Non-executive Directors continue to be
considered by the Company to be independent.
BOARD PROCESS
Board meetings are held at least four times a year to
determine overall strategies, receive management updates,
approve business plans as well as interim and annual
results and to consider other significant matters. At these
meetings, senior management also provides regular
updates to the Board with respect to the business
activities and development of the Group, together with
regulatory and policy updates.
Directors are empowered under the relevant terms
of reference to request further information from the
management whenever they think fit.
During the year, there were six scheduled Board meetings,
all of which were convened in accordance with the Articles
of Association of the Company and attended by the
Directors either in person or through electronic means
of communication.
094
| AIA GROUP LIMITED
CORPORATE GOVERNANCE Details of the attendance of individual Directors at the Board meetings, committees meetings and the 2016 annual
general meeting of the Company (2016 AGM) during the year are as follows:
Name of Director
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
Risk
Committee
2016 AGM
No. of Meetings Attended / No. of Meetings Held
Non-executive Chairman and
Non-executive Director
Mr. Edmund Sze-Wing Tse(1)
Executive Director,
Group Chief Executive and President
Mr. Mark Edward Tucker(2)
Independent Non-executive Directors
Mr. Jack Chak-Kwong So
Mr. Chung-Kong Chow
Mr. John Barrie Harrison
Mr. George Yong-Boon Yeo
Mr. Mohamed Azman Yahya
Professor Lawrence Juen-Yee Lau
Ms. Swee-Lian Teo
Dr. Narongchai Akrasanee(3)
6/6
6/6
6/6
6/6
6/6
5/6
6/6
6/6
6/6
6/6
–
–
3/4
–
4/4
4/4
–
–
–
4/4
1/1
–
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
3/3
–
3/3
–
–
3/3
3/3
–
–
–
4/4
4/4
–
4/4
4/4
–
–
3/4
4/4
–
1
1
1
1
1
1
1
1
1
1
Notes:
(1) Mr. Tse was appointed to the Remuneration Committee on 15 January 2016 and ceased to be a member of the Audit Committee on the same
date. No meeting of the Remuneration Committee and the Audit Committee took place between 1 December 2015 and 14 January 2016.
(2) Mr. Tucker ceased to be a member of the Remuneration Committee on 15 January 2016. No meeting of the Remuneration Committee took place
between 1 December 2015 and 14 January 2016.
(3) Dr. Narongchai was appointed to the Board, the Audit Committee and the Nomination Committee on 15 January 2016 and attended all Board,
Audit Committee and Nomination Committee meetings held from his date of appointment to 30 November 2016.
Minutes of the meetings of and circular resolutions passed
by the Board and all committees are kept by the Company
Secretary. These minutes and resolutions are open for
inspection on reasonable notice by any Director.
CHAIRMAN AND GROUP CHIEF EXECUTIVE
Mr. Edmund Sze-Wing Tse, Non-executive Chairman of
the Company, plays the critical role of leading the Board
in fulfilling its responsibilities. With the support of the
Group Chief Executive and President and senior
management, Mr. Tse seeks to ensure that all Directors
are properly briefed on issues arising at Board meetings
and that they receive adequate and reliable information in
a timely manner. He is also responsible for making sure
that good corporate governance practices and procedures
are followed.
Mr. Mark Edward Tucker, Group Chief Executive and
President of the Company, reports to the Board and is
responsible for the overall leadership, strategic and
executive management and profit performance of the
Group, including all operations and administration. Mr.
Tucker attends Board meetings as the sole Executive
Director and, in his capacity as Group Chief Executive and
President, ensures that the Board is updated at least
monthly in respect of material aspects of the Company’s
performance. Mr. Tucker discharges his responsibilities
within the framework of the Company’s policies, reserved
powers and routine reporting requirements and is advised
and assisted by the senior management of the Group.
The segregation ensures a clear distinction between
the Chairman’s responsibility to manage the Board and
the Group Chief Executive and President’s responsibility
to manage the Group’s business.
The roles and responsibilities of the Board, the Chairman
of the Board and the Group Chief Executive are set out
in the Board Charter of the Company, which is available
on the Company’s website at www.aia.com.
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OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCORPORATE GOVERNANCE REPORT
APPOINTMENT OF DIRECTORS
The Company uses a formal and transparent procedure
for the appointment of new Directors. The Board receives
recommendations for the appointment of new Directors
from the Nomination Committee, which considers the
background of the proposed new Directors. The Board then
deliberates over such recommendations prior to approval.
All Directors (including Non-executive Directors) are
subject to retirement by rotation once every three years and
are subject to re-election at the general meetings of the
Company in accordance with the Articles of Association
of the Company and the Corporate Governance Code.
INDUCTION AND ONGOING DEVELOPMENT
The Company provides each Director with personalised
induction, training and development. On appointment,
each Director receives a comprehensive and tailored
induction covering, amongst other things, the role of the
Board and its key committees, group structure, governance
structure and the duties and responsibilities of a director
under applicable laws and regulations.
Each Director receives detailed briefings on the Group’s
principal businesses, the markets in which it operates and
the overall competitive environment. Other areas addressed
include legal and compliance issues affecting directors
of financial services companies, the Group’s governance
arrangements, the principal basis of accounting for the
Group’s results, the internal audit and risk management
functions, its investor relations programme and
remuneration policies. The Directors are continually updated
on the Group’s business and the latest developments to
the Listing Rules and other applicable statutory
requirements to ensure compliance and continuous good
corporate governance practice.
During the year, the Company organised a Board Strategy
Day and provided a number of briefings to the Directors
to update them on the latest developments in the Group’s
principal businesses and major products. In November 2016,
the Board visited Jakarta, Indonesia, where Directors had
an in-depth review of the Group’s local operations. The visit
also provided an opportunity for the Directors to gain new
insights into the insurance sector in Indonesia and its
prospects for continued growth.
All Directors are encouraged to participate in continuous
professional development to extend and refresh their
knowledge and skills, and are required to provide their
training records to the Company. The training received by
the Directors during the year is summarised as follows:
Name of Director
Non-executive Chairman and Non-executive Director
Mr. Edmund Sze-Wing Tse
Executive Director, Group Chief Executive and President
Mr. Mark Edward Tucker
Independent Non-executive Directors
Mr. Jack Chak-Kwong So
Mr. Chung-Kong Chow
Mr. John Barrie Harrison
Mr. George Yong-Boon Yeo
Mr. Mohamed Azman Yahya
Professor Lawrence Juen-Yee Lau
Ms. Swee-Lian Teo
Dr. Narongchai Akrasanee
Types of Training
Reading or attending briefings /
seminars / conferences
relevant to regulatory and
governance updates
Attending corporate events /
Board visits / executive
briefings relevant to
the Group’s business
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
096
| AIA GROUP LIMITED
CORPORATE GOVERNANCE COMMITTEES OF THE BOARD
The Company’s corporate governance is implemented
through a structured hierarchy, which includes the Board
of Directors and four committees of the Board established
by resolutions of the Board, namely the Audit Committee,
the Nomination Committee, the Remuneration Committee
and the Risk Committee. The membership and terms of
reference of all the Board committees are available on the
websites of both the Hong Kong Stock Exchange and the
Company. In addition, the Group Chief Executive has
established a number of management committees including,
among others, an Executive Committee and Operational
and Financial Risk Committees.
AUDIT COMMITTEE
The Audit Committee consists of four members, all of
whom are Independent Non-executive Directors. These are
Mr. Harrison, who serves as chairman of the Committee,
Mr. So, Mr. Yeo and Dr. Narongchai. Dr. Narongchai became
a member and Mr. Tse ceased to be a member of the Audit
Committee on 15 January 2016. The duties performed by
the Audit Committee during the year included overseeing
the Group’s financial reporting system and internal control
system, monitoring the integrity of the preparation of the
Company’s financial information, including quarterly
business highlights, interim and annual results of the Group,
reviewing the Group’s financial and accounting policies
and practices as well as its whistle-blowing arrangements,
and monitoring the effectiveness of the internal audit
function. The Audit Committee also provided oversight
for and management of the relationship with the Group’s
external auditor, including reviewing, and monitoring in
accordance with applicable standards the external auditor’s
independence and objectivity and the effectiveness of
the audit process.
the structure, size and composition of the Board, including
the skills, knowledge, experience and diversity of
background of its membership, considering the nomination
of Dr. Narongchai as an Independent Non-executive
Director, providing oversight and direction in respect
of the succession planning for directors and determining
the composition of the Board committees.
The Nomination Committee’s processes and criteria
for selecting and making recommendations on the
appointment of Board members are designed to satisfy
high standards of corporate governance. These processes
meet or exceed the Listing Rules requirements to ensure
that every director of the Company has the requisite
character, experience and integrity and is able to
demonstrate a standard of competence, commensurate
with his or her position as a director of a listed issuer
(including without limitation, race, gender, age, nationality,
cultural and educational background). These standards
give due regard to the benefits of diversity as set out in the
Board Diversity Policy adopted by the Board in 2013, which
is available on the Company’s website, and where the
nomination of Independent Non-executive Directors is
under consideration, to the satisfaction of the requirements
of Rule 3.13 of the Listing Rules.
The Nomination Committee held one meeting during
the year ended 30 November 2016. The attendance records
of the Nomination Committee members are set out on
page 95 of this Annual Report.
A summary of the Board Diversity Policy, which describes
the Company’s approach to ensuring adequate diversity,
is set out below:
• Consideration and selection of candidates for
The Audit Committee held four meetings during the year
ended 30 November 2016. The attendance records of the
Audit Committee members are set out on page 95 of this
Annual Report.
appointment to the Board will be based on merit which
shall include a review of any candidate’s integrity,
experience, educational background, industry or related
experience and more general experience;
NOMINATION COMMITTEE
The Nomination Committee consists of nine members,
including the Non-executive Chairman, Mr. Tse, who serves
as chairman of the Committee, and the eight Independent
Non-executive Directors, Mr. So, Mr. Chow, Mr. Harrison,
Mr. Yeo, Mr. Yahya, Professor Lau, Ms. Teo and
Dr. Narongchai who became a member of the Nomination
Committee on 15 January 2016. The duties performed
by the Nomination Committee during the year included
reviewing and making recommendations to the Board on
• Within that overriding emphasis on merit, the
Nomination Committee shall seek to address Board
vacancies by actively considering candidates that bring
a diversity of background and opinion from amongst
those candidates with the appropriate background
and industry or related expertise and experience. The
Nomination Committee’s considerations shall include
achieving an appropriate level of diversity having regard
to factors such as race, gender, age, nationality, cultural
and educational background;
ANNUAL REPORT 2016 | 097
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCORPORATE GOVERNANCE REPORT
• The Nomination Committee will (a) in reviewing the
Board composition, consider the benefits of all aspects
of diversity including, but not limited to, those
described above, in order to maintain an appropriate
range and balance of skills, experience, knowledge and
character on the Board; and (b) as part of the
performance evaluation of the Board, consider the
balance of skills, experience, knowledge and
independence of the Board; and
• As part of the Nomination Committee’s annual review
of the structure, size and composition of the Board, the
Nomination Committee will expressly consider and
include commentary to the Board on the subject of the
Board’s diversity.
REMUNERATION COMMITTEE
The Remuneration Committee consists of four members,
including three Independent Non-executive Directors,
Mr. So, the Committee chairman, Mr. Yeo and Mr. Yahya,
as well as Mr. Tse, the Non-executive Chairman. Mr. Tse
became a member and Mr. Tucker ceased to be a member
of the Remuneration Committee on 15 January 2016. The
duties of the Remuneration Committee are to evaluate and
make recommendations to the Board on the remuneration
policy covering the Directors and senior management of
the Group.
The Remuneration Committee held three meetings during
the year ended 30 November 2016. The attendance records
of the Remuneration Committee members are set out on
page 95 of this Annual Report. Details of the key activities
performed by the Remuneration Committee during the year
have been set out in the Remuneration Report, which forms
part of this Corporate Governance Report.
RISK COMMITTEE
The Risk Committee consists of six members,
four of whom are Independent Non-executive Directors,
including Mr. Chow, the Committee chairman, Mr. Harrison,
Professor Lau and Ms. Teo, as well as Mr. Tse, the
Non-executive Chairman and Mr. Tucker, the Executive
Director. The duties performed by the Risk Committee
during the year included providing advice to the Board on
the risk profile and risk management strategy of the Group,
considering and reviewing disclosures in interim and
annual reports, risk management related policies and
guidelines, statutory solvency positions, risk appetite
and metrics. It also oversees the risk management and
compliance framework, endorses the Company’s risk
governance structure and reviews major risks.
The Risk Committee held four meetings during the year
ended 30 November 2016. The attendance records of the
Risk Committee members are set out on page 95 of this
Annual Report.
EXTERNAL AUDITOR
The external auditor of the Company is
PricewaterhouseCoopers. The Audit Committee
is responsible for making recommendations to the Board
on the external auditor’s appointment, re-appointment
and removal, which are subject to approval by the Board
and at the general meetings of the Company by its
shareholders. In assessing the external auditor, the Audit
Committee will take into account relevant experience,
performance, objectivity and independence of the external
auditor. During the year, the Board has reviewed, updated
and adopted policies on nomination and appointment of
and services performed by the external auditor to enhance
related governance practices.
The Audit Committee also reviews the non-audit services
provided by the external auditor and its remuneration
on a regular basis. For the year ended 30 November 2016,
the total estimated remuneration payable by the Group
to PricewaterhouseCoopers was US$15.2 million (2015:
US$13.3 million), an analysis of which is set out below:
US$ million
Audit services
Non-audit services, including:
Audit-related services
Tax services
Other services
Total
2016
11.9
0.7
1.4
1.2
15.2
2015
11.5
0.3
1.0
0.5
13.3
In addition to those fees disclosed above, audit fees
of US$0.8 million (2015: US$0.7 million) were payable
to PricewaterhouseCoopers by funds for which the Group
is the investment adviser, manager or administrator.
The Company engaged PricewaterhouseCoopers to
review the Group’s supplementary embedded value results
for the 2017 financial year.
ACCOUNTABILITY AND AUDIT
FINANCIAL REPORTING
The annual results of the Company and other financial
information were published in accordance with the
requirements of the Listing Rules and other applicable
regulations and industry best practice. When preparing
098
| AIA GROUP LIMITED
CORPORATE GOVERNANCE the Company’s financial reports, the Board of Directors
endeavours to present this information in a comprehensible,
informative and user-friendly manner.
The Directors acknowledge their responsibility for preparing
the Company’s consolidated financial statements and
ensuring that the preparation of the Company’s consolidated
financial statements is in accordance with the relevant
requirements and applicable standards.
The statement of the Company’s auditor concerning its
reporting responsibilities on the Company’s consolidated
financial statements is set out in the Independent Auditor’s
Report on pages 113 to 114 of this Annual Report.
RISK MANAGEMENT AND INTERNAL CONTROL
The Board of Directors is responsible for the Company’s
risk management and internal control systems, as well as
reviewing their effectiveness. The Group’s Risk
Management Framework (RMF) does not seek to eliminate
all risks but rather to identify, understand and manage
them within acceptable limits in order to support the
creation of long-term value. The main features and other
information on the RMF and the process used to identify,
evaluate and manage significant risks are set out in the
Risk Management section of this Annual Report.
The Company has an internal audit function. The Board
of Directors has, through the Audit Committee, conducted
review on, and is generally satisfied with the adequacy
and effectiveness of the Group’s internal control systems
(covering all material controls such as financial,
operational and compliance controls), including the
adequacy of resources, staff qualifications and experience,
training programmes and the budget of the Company’s
accounting, internal audit and financial reporting functions
for the year ended 30 November 2016.
The Company has implemented proper procedures and
internal controls for the handling and dissemination of
inside information:
• The Company has established a policy on the
disclosure of inside information to ensure that all
current and prospective investors of the Company,
market participants and the public are provided with
appropriate information relating to the Group in a
timely and simultaneous manner. The policy has been
communicated to all relevant staff and related training
has also been provided to them; and
• A written communications protocol has also been
established to implement a control process within
the Group for the management of communications
with various internal and external stakeholders. Such
protocol identifies a list of spokespersons who are
authorised to provide information about the Group
to the relevant stakeholders. The Company’s Code
of Conduct further contains a strict prohibition on the
unauthorised use of confidential or non-public
information.
COMPANY SECRETARY
All the Directors have access to the advice and services
of the Company Secretary at any time in respect of their
duties and the effective operation of the Board and Board
committees. The Company Secretary advises the Board
on all corporate governance matters, facilitates the
induction and professional development of Directors, and
ensures good information flows and communications
within the Board and its committees, and between
management and non-executive directors. The Company
Secretary also plays an important role in ensuring that
Board and committee policies and procedures are followed
and the Board’s obligations to shareholders pursuant to
the Listing Rules are discharged. During the year, the
Company Secretary undertook at least 15 hours of relevant
continuing professional education.
ENGAGEMENT WITH SHAREHOLDERS
The Board recognises the importance of maintaining
an ongoing dialogue with the Company’s shareholders
and does so through general meetings, releases,
announcements and corporate communications such as
the annual report, interim report and circulars. The Board
is committed to the timely disclosure of information. The
latest information regarding the Group’s activities,
announcements, results presentations, webcasts and
corporate communications is made available on the
Company’s website at www.aia.com in a timely manner.
The financial calendar highlighting the key dates for
shareholders is set out on page 251 of this Annual Report.
The Investor Relations function oversees the Company’s
engagement with investors. The Company’s institutional
shareholder base is geographically diversified and the
Company is also extensively covered by research analysts
from a wide range of broker houses. An active and open
dialogue with institutional investors is maintained through
regular investor interactions, including meetings,
investment conferences and roadshows. Investor feedback
and analysts’ reports on the Company are circulated to the
Board and the Executive Committee on a regular and
ANNUAL REPORT 2016 | 099
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCORPORATE GOVERNANCE REPORT systematic basis to promote an understanding of external
views on the Company’s performance.
The Board has adopted a Shareholders’ Communication
Policy and such policy will be reviewed on a regular basis
to ensure its effectiveness. The Board welcomes views,
questions and concerns from shareholders and stakeholders.
Shareholders and stakeholders may send their enquiries
and concerns to the Board. The contact details are set out
on pages 251 to 252 of this Annual Report.
2016 ANNUAL GENERAL MEETING
The most recent general meeting of the Company was the
2016 AGM which was held at the Grand Ballroom, Kowloon
Shangri-La, Hong Kong, 64 Mody Road, Tsim Sha Tsui East,
Kowloon, Hong Kong on 6 May 2016. The Chairman and all
other members of the Board, together with the Group’s
senior management and external auditor, attended the 2016
AGM. The poll voting results are available on the Company’s
website. The matters resolved at the 2016 AGM are
summarised below:
• Receipt of the audited consolidated financial statements
of the Company, the Report of the Directors and
the Independent Auditor’s Report for the year ended
30 November 2015;
• Declaration of a final dividend of 51.00 Hong Kong cents
per share for the year ended 30 November 2015;
• Re-election of Ms. Teo, Dr. Narongchai and Mr. Yeo as
Independent Non-executive Directors of the Company;
• Re-election of Mr. Tucker as Executive Director of the
Company;
• Re-appointment of PricewaterhouseCoopers as auditor
of the Company until the conclusion of the next annual
general meeting and authorising the Board to fix its
remuneration;
• General mandate to Directors to cause the Company
to issue additional shares of the Company, not exceeding
10 per cent of the aggregate number of shares of the
Company in issue on the date of the 2016 AGM and
the discount for any shares to be issued not exceeding
10 per cent to the benchmarked price;
• General mandate to Directors to cause the Company
to repurchase shares of the Company, not exceeding
10 per cent of the aggregate number of shares of the
Company in issue on the date of the 2016 AGM; and
• General mandate to Directors to cause the Company
to issue shares of the Company under the restricted
share unit scheme, not exceeding 2.5 per cent of the
number of shares of the Company in issue on the date
of the 2016 AGM.
The forthcoming annual general meeting of the Company
will be held on Friday, 12 May 2017. Further details will be
set out in the circular to the shareholders of the Company
to be sent together with this Annual Report.
SHAREHOLDERS’ RIGHTS
GENERAL MEETING
Shareholder(s) representing at least 5 per cent of the
total voting rights of all the shareholders of the Company
having a right to vote at general meetings, may request
to call a general meeting. If such request is made a general
meeting must be called. Such request, either in hard copy
form or in electronic form and being authenticated by the
person or persons making it, must be deposited at the
registered office of the Company at 35/F, AIA Central,
No. 1 Connaught Road Central, Hong Kong or sent by email
to ir@aia.com for the attention of the Company Secretary.
Shareholder(s) of the Company should make reference
to the provisions under Sections 566 to 568 of the
Hong Kong Companies Ordinance for calling a general
meeting.
MOVING A RESOLUTION AT AN ANNUAL
GENERAL MEETING
Shareholder(s) of the Company may request the Company
to give notice of a resolution and move such resolution
at an annual general meeting. Such notice of resolution
must be given by the Company if it has received such
request from:
(a) shareholder(s) of the Company representing at least
2.5 per cent of the total voting rights of all the
shareholders of the Company who have a right to vote
on the resolution at the annual general meeting to
which the request relates; or
(b) at least 50 shareholders of the Company who have
a right to vote on the resolution at the annual general
meeting to which the request relates.
Such a request must identify the resolution of which notice
is to be given, be either in hard copy form or in electronic
form and be authenticated by the person or persons
making it, and be received by the Company not later than
six weeks before the annual general meeting to which the
request relates or, if later, the time at which notice is given
100
| AIA GROUP LIMITED
CORPORATE GOVERNANCE of that meeting. The request must be deposited at the
registered office of the Company at 35/F, AIA Central,
No. 1 Connaught Road Central, Hong Kong or sent by email
to ir@aia.com for the attention of the Company Secretary.
Shareholder(s) of the Company should make reference
to Sections 615 and 616 of the Hong Kong Companies
Ordinance for the relevant procedures to move a resolution
at an annual general meeting.
PROPOSING A PERSON FOR ELECTION AS A DIRECTOR
Shareholders can propose a person (other than a retiring
Director himself / herself) for election as a director
at a general meeting of the Company. Relevant procedures
are available on the Company’s website at www.aia.com.
CONSTITUTIONAL DOCUMENTS
The Company’s Articles of Association (in both English
and Chinese) is available on both the websites of the
Company and the Hong Kong Stock Exchange. During
the year, there has been no change to the Articles
of Association of the Company.
By Order of the Board
Mitchell New
Company Secretary
24 February 2017
ANNUAL REPORT 2016 | 101
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCORPORATE GOVERNANCE REPORT REMUNERATION REPORT
Dear Shareholders,
With great pleasure I present the Report on Remuneration
for Directors and Key Management Personnel for the year
ended 30 November 2016.
During the year, the Remuneration Committee (the
Committee) continued to oversee the Group’s executive
remuneration arrangements by following a rigorous
process that takes into account the Group’s business
priorities and performance, market practices, the
regulatory environment, as well as risk management
considerations, all the while obtaining professional advice
from its independent advisor.
The Remuneration Committee’s work in 2016 focused
on the incentive schemes, so as to ensure that our
remuneration programmes are aligned with our strategic
priorities and risk management framework, and that
such programmes allow us to attract, motivate and retain
high calibre talent.
• Earlier in the year, the Committee discussed the
short-term incentive (STI) payment mechanism
in detail with the Risk Committee to ensure the STI
scheme measures and rewards corporate performance
relative to the Board’s annually-agreed business plans,
giving appropriate regard to the creation of sustainable
shareholder value and without encouraging executives
to expose the Group to levels of risk that are
inappropriate in terms of the Group’s risk appetite.
•
In the second half of the year and as part of the
on-going due diligence efforts, the Committee reviewed
the use of total shareholder return (TSR) as one of the
long-term incentive (LTI) performance measures
to ensure that the Group’s use of TSR is in line with
market practices and the LTI performance measures
in combination provide appropriate alignment with
long-term shareholder value creation.
102
| AIA GROUP LIMITED
• Finally, during the year the Committee benchmarked
the Group’s employee share purchase plan (ESPP)
against the market to confirm the plan’s
competitiveness. In light of such analysis and the
ESPP’s operational experience since the Group initial
public offering, the Committee made several
adjustments in order to better align the plan with
market practice and further strengthen employee
engagement. Details about the ESPP can be found later
in this report.
The remuneration structure for senior Group executives
remains unchanged. As in prior years, a significant
proportion of total remuneration awarded is subject to
multi-year performance-based vesting conditions. The
Committee continues to monitor the development of
remuneration market practices and is satisfied that the
Group’s remuneration structure reflects an appropriate
balance between risks and rewards in light of the
Committee’s 2016 review.
Overall, the Committee believes that the Group’s current
remuneration policies and practices should be maintained
and trusts that this report provides clear and detailed
information regarding such policies and practices.
Speaking for the Committee, I would like to express our
deepest appreciation to you all for your continued trust
and support in remuneration related matters and look
forward to continuing our dialogue in the years to come.
Jack Chak-Kwong So
Chairman, Remuneration Committee
24 February 2017
CORPORATE GOVERNANCE REMUNERATION COMMITTEE
The Remuneration Committee is responsible for
determining the specific remuneration packages of the
Group Chief Executive and President (who is also the sole
Executive Director) and Key Management Personnel (the
members of the Group’s Executive Committee who, by the
nature and accountabilities of their respective positions,
participate directly in the development, monitoring and
reporting of the overall business strategies of the Group)
and making recommendations to the Board on the
remuneration policy and structure to be applied for the
Chairman and Non-executive Directors.
The Remuneration Committee is also responsible for
establishing formal and transparent procedures for
developing remuneration policies and structures. In
making its determinations and recommendations, the
Remuneration Committee considers such factors as the
responsibilities of the Group Chief Executive and President
and Key Management Personnel, the remuneration paid
by comparable companies, remuneration levels within
the Group and the application of performance-based
remuneration programmes. The Remuneration Committee
also oversees the operation of the Company’s share
schemes and other incentive schemes, recommending
share-based employee awards to the Board for approval
as well as reviewing and, where appropriate, amending
the terms of the schemes as may be required.
The Remuneration Committee is authorised by the
Board to discharge its duties as outlined in its Terms of
Reference. It is also authorised to seek any remuneration
information it requires from the Group Chief Executive
and President and/or Key Management Personnel and
may obtain external independent professional advice
if necessary.
MEETINGS IN 2016
As at 30 November 2016, the Committee consisted of four
members: three Independent Non-executive Directors,
being Mr. Jack Chak-Kwong So, who is the Chairman of the
Committee, Mr. George Yong-Boon Yeo, and Mr. Mohamed
Azman Yahya; and one Non-Executive Director, being Mr.
Edmund Sze-Wing Tse.
The Remuneration Committee held three meetings during
the year ended 30 November 2016. The attendance
records of the Remuneration Committee members are set
out on page 95 of this Annual Report.
During the year, major activities performed by the
Remuneration Committee in relation to the remuneration
of the Group Chief Executive and President, Key
Management Personnel, Chairman and Non-executive
Directors were as follows:
• Reviewed the executive benchmark results and
approved the 2016 remuneration packages for the
Group Chief Executive and President and Key
Management Personnel (the long-term incentive
awards for the Group Chief Executive and President
were subsequently approved by the Independent
Non-executive Directors);
• Provided the Risk Committee with an updated
summary of considerations undertaken by the
Remuneration Committee in ensuring that the Group’s
compensation and benefits arrangements align with
stakeholders’ interests and avoid excessive risk-taking;
• Reviewed and approved the 2015 short-term incentive
plan payout and the vesting of the 2013 long-term
incentive award;
The full Terms of Reference of the Remuneration
Committee can be accessed at www.aia.com.
• Reviewed and approved the 2016 long-term incentive
award;
• Reviewed and approved the performance measures
to be used in the 2017 short-term incentive plan and
the 2017 long-term incentive award;
ANNUAL REPORT 2016 | 103
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONREMUNERATION REPORT • Reviewed and approved the peer group for
benchmarking the compensation of the Group Chief
Executive and President;
• Reviewed and endorsed the continued use of total
shareholder return as one of the long-term incentive
performance measures;
REMUNERATION POLICY
OBJECTIVES
The Company’s executive remuneration policy is based on
the principle of providing an equitable, motivating and
competitive remuneration package to foster a strong
performance-oriented culture within an appropriate overall
risk management framework.
• Reviewed and approved adjustments to employee
share purchase plan;
• Reviewed and approved the remuneration package for
the new Group Chief Risk Officer;
• Reviewed the sabbatical leave, retirement, death and
disability arrangement for Key Management Personnel
supplementing the Company’s approach to total
remuneration and recommended the same to the Board
for adoption; and
• Reviewed and approved the 2015 Remuneration Report.
The policy aims to ensure that rewards and incentives
relate directly to the performance of individuals, the
operations and functions in which they work or for which
they are responsible, and the overall performance of the
Group. The compensation and benefits arrangements
designed under the policy provide incentives that are
consistent with the interests of the Company’s
stakeholders and do not encourage executives to take
excessive risks that may threaten the value of the Group.
104
| AIA GROUP LIMITED
CORPORATE GOVERNANCE MAIN COMPONENTS OF REMUNERATION
The table below summarises the Company’s remuneration policies regarding the elements of the remuneration structure
as it applied to the Group Chief Executive and President and Key Management Personnel during the year.
Element
Purpose
Basis of determination
Notes on practices
Basic salary
Fixed cash element of remuneration
to recruit and retain talent
Basic salary is determined with
reference to the specific roles and
responsibilities of the position,
internal relativities, market practice,
individual experience, performance
and other factors to attract and
retain employees with required
capabilities to achieve the Group’s
business objectives
Short-term
incentive
Long-term
incentive
Short-term incentives are delivered
in the form of a performance-
based cash award to recognise
and reward achievement of the
Group’s objectives and individual
contribution
Short-term incentive targets
and maximum opportunities are
determined with reference to the
market appropriateness of total
compensation and the roles and
responsibilities of the individual
Long-term incentives focus on
the long-term success of the Group
and are used to align the interests
of executives with those of
shareholders using a combination
of share-based awards and share
options to deliver a balanced mix
of ownership and incentives
Long-term incentive target awards
are determined with reference
to the competitiveness of the
total compensation package and
the roles and responsibilities
of the individual
Benefits
Benefits form part of the long-
term employment relationship and
contribute to the value of total
remuneration provided at market
competitive levels
The benefits programme is
designed to be market competitive.
It remains fully compliant with local
regulations
Employee share
purchase plan
Share purchase plan with matching
offer to facilitate and encourage
AIA share ownership by employees,
and provide a long-term retention
mechanism
The employee share purchase
plan is open to all employees who
have completed probation and is
subject to a maximum contribution
indicated as a percentage of basic
salary or the plan maximum limit
The Remuneration Committee
reviews salaries annually for
the Group Chief Executive and
President against a peer group
of publicly listed insurance
companies and Key Management
Personnel against relevant industry
survey sources
Salary increases, where applicable,
typically take effect from 1 March
Annual short-term incentive based
on the achievement of financial
performance measures and relevant
strategic objectives, as well as
individual contribution
Awards are discretionary and
determined on an annual basis
Awards are made in restricted
share units and/or share options,
and generally vest after a three-
year period, with the restricted
share units subject to pre-defined
performance requirements
The Group Chief Executive and
President and Key Management
Personnel receive certain benefits,
for example, participation in
pension schemes, medical and life
insurance
Participants receive matching
shares for shares purchased at a
rate approved by the Remuneration
Committee
Matching shares vest after
three years
ANNUAL REPORT 2016 | 105
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONREMUNERATION REPORT SHORT-TERM INCENTIVE PLAN
For 2016, short-term incentive targets were determined
and communicated to the Group Chief Executive and
President and Key Management Personnel at the
beginning of the financial year. The performance measures
for 2016 short-term incentives were:
LONG-TERM INCENTIVE PLAN
The Restricted Share Unit Scheme and the Share Option
Scheme were adopted on 28 September 2010 and are
effective for a period of 10 years from the date of
adoption. Summary details are provided in the pages that
follow and in detail in note 38 to the financial statements.
• Value of new business;
• Excess embedded value growth; and
• Operating profit after tax.
Value of new business (VONB) is an estimate of the
economic value of one year’s sales as published by the
Company.
Excess embedded value growth (EEV Growth) is the
sum of the operating experience variances (current year
performance against the operating assumptions for
calculating embedded value or EV) and operating
assumption changes (value of future operating
outperformance considered permanent enough for
recognition in the current year) in the EV operating profit.
Operating profit after tax (OPAT) is the IFRS operating
profit after tax based on the IFRS results published by
the Company.
The weighting of the three performance measures
described above is 60 per cent, 10 per cent and 30 per cent
for VONB, EEV Growth and OPAT respectively. Based on
the level of achievement of the performance measures,
short-term incentive awards in respect of 2016 will be
paid to the Group Chief Executive and President and
Key Management Personnel in March 2017. The total value
of short-term incentive awards accrued for the Group
Chief Executive and President and Key Management
Personnel for the year ended 30 November 2016 was
US$14,434,273. This amount is included in note 39 to
the financial statements as the “Bonuses” to the Group
Chief Executive and President and as part of the “Salaries
and other short-term employee benefits” to the Key
Management Personnel.
These schemes are designed to motivate and reward
participants who have not only made an important
contribution to AIA’s success, but are expected to play
a significant role in the future.
Awards made under these schemes are discretionary
and are determined on an annual basis with reference to
the magnitude of overall variable remuneration, the
competitiveness of the total remuneration package,
the roles, responsibilities, performance and potential of
the individual.
The schemes operate through the award of restricted
share units and share options to deliver a balanced mix
of incentives and ownership. The awards made are subject
to eligibility criteria and generally vest after a three-year
period.
As applicable to other remuneration payments, long-term
incentive vesting is subject to the Remuneration
Committee’s approval and is in compliance with all
relevant Group policies.
The schemes are reviewed regularly to ensure their design,
process, structure and governance work together to
balance risk and incentives.
RESTRICTED SHARE UNIT SCHEME
Under the Restricted Share Unit Scheme, the Company
may award restricted share units to employees, Directors
(excluding Independent Non-executive Directors) or
officers of the Company or any of its subsidiaries. The
objectives of the Restricted Share Unit Scheme are to
retain participants, align their interests with those of the
Company’s investors and reward the creation of
sustainable value for shareholders through the award
of restricted share units to participants.
During the year ended 30 November 2016, the Company
awarded 18,964,022 restricted share units under the
Restricted Share Unit Scheme.
106
| AIA GROUP LIMITED
CORPORATE GOVERNANCE Performance Measures and Vesting
Vesting of performance-based restricted share unit awards
will be contingent on the extent of achievement of three-
year performance targets as outlined below for the
following metrics:
performance levels (for TSR, 75th percentile or above
relative performance measured against the TSR of the peer
companies in the DJTINN) the full allocation of restricted
share units will vest.
In early 2016, after assessing the performance of the
Company over the period from 1 December 2012 to
30 November 2015, the Remuneration Committee
approved the vesting of the 2013 restricted share unit
awards at 62.75% of the maximum level.
The 2014 restricted share unit awards will vest on 5 March
2017. The chart below shows AIA’s TSR compared with
the DJTINN during the period from 1 December 2013 to
30 November 2016, which is the same period the
performance will be measured against for the purpose
of the 2014 restricted share unit awards. The Hang Seng
Index (HSI) performance for the same period is also shown
for reference, as it is a recognised Hong Kong equity
market index of which AIA is a constituent.
AIA TSR PERFORMANCE AGAINST DJTINN AND HSI
60%
40%
20%
0%
-20%
-40%
1 Dec 2013
1 Jun 2014
1 Dec 2014
1 Jun 2015
1 Dec 2015
1 Jun 2016
1 Dec 2016
AIA
DJTINN
HSI
• Value of new business;
• Equity attributable to shareholders of the Company
on the embedded value basis; and
• Total shareholder return.
Value of new business (VONB) is an estimate of the
economic value of one year’s sales as published by the
Company.
Equity attributable to shareholders of the Company on the
embedded value basis (EV Equity) is the total of embedded
value, goodwill and other intangible assets. Embedded
value is an estimate of the economic value of in-force life
insurance business, including the net worth on the Group’s
balance sheet but excluding any economic value
attributable to future new business.
The VONB and EV Equity performance considered in
determining incentive awards are based on the Group
VONB and Group EV Equity results published by the
Company.
Total shareholder return (TSR) is the compound annual
return from the ownership of a share over a period of time,
measured by calculating the change in the share price and
the gross value of dividends received (and reinvested)
during that period. AIA‘s TSR will be calculated in the same
way and compared with the TSR of the peer companies in
the Dow Jones Insurance Titans 30 Index (DJTINN) over
the performance period.
The three performance measures are equally weighted.
Achievement of each performance measure will
independently determine the vesting of one-third of the
award. Threshold performance levels (for TSR, 25th
percentile relative performance measured against the TSR
of the peer companies in the DJTINN for restricted share
units awarded in 2015 and thereafter) are required for
restricted share units to vest; at target performance levels
(for TSR, median relative performance measured against
the TSR of the peer companies in the DJTINN) 50 per cent
of the restricted share units will vest; and at maximum
ANNUAL REPORT 2016 | 107
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONREMUNERATION REPORT The table below summarises the movements in restricted share unit awards.
Group Chief Executive and
President, Key Management
Personnel and other eligible
employees and participants
Group Chief Executive
and President
Mr. Mark Edward Tucker
Key Management Personnel
(excluding Group Chief
Executive and President)
Date of
grant
(day /
month /
year) (1)
Vesting
date(s)
(day /
month /
year)
Restricted
share units
outstanding
as at
1 December
2015
Restricted
share units
awarded
during the
year ended
30 November
2016
1/6/2011
See note (2)
268,717
11/3/2013
11/3/2016 (3)
1,314,873
5/3/2014
5/3/2017 (3)
1,261,874
12/3/2015
12/3/2018 (3)
1,061,627
–
–
–
–
9/3/2016
9/3/2019 (3)
–
1,258,693
1/6/2011
See note (2)
1,491,032
11/3/2013
11/3/2016 (3)
2,194,253
5/3/2014
5/3/2017 (3)
1,901,799
14/4/2014
14/4/2017 (3)
203,016
14/4/2014
See note (4)
243,619
12/3/2015
12/3/2018 (3)
1,634,469
12/3/2015
12/3/2017 (5)
54,696
1/9/2015
See note (6)
678,753
–
–
–
–
–
–
–
–
9/3/2016
9/3/2019 (3)
17/10/2016
1/8/2019 (8)
17/10/2016
See note (9)
–
–
–
1,848,365
101,217
62,812
Restricted
share units
vested
during the
year ended
30 November
2016
(268,717)
Restricted
share units
reclassified /
cancelled /
lapsed during
the year ended
30 November
2016 (10)
–
(825,083)
(489,790)
–
–
–
–
–
–
(1,419,817)
(71,215)
(1,158,740)
(1,035,513)
Restricted
share units
outstanding
as at 30
November
2016
–
–
1,261,874
1,061,627
1,258,693
–
–
–
–
(243,619)
–
–
–
–
–
–
(417,655)
1,484,144
–
–
203,016
–
(260,587)
1,373,882
(21,896)
–
32,800
678,753
(95,826)
1,752,539
–
–
101,217
62,812
Other eligible employees
and participants
1/6/2011
See note (2)
603,710
11/3/2013
11/3/2016 (3) 12,934,058
1/8/2013
1/8/2016 (3)
237,040
1/8/2013
11/3/2016 (3)
75,865
5/3/2014
5/3/2017 (3) 13,565,011
11/9/2014
11/9/2017 (3)
48,724
11/9/2014
5/3/2017 (3)
4,193
12/3/2015
12/3/2018 (3) 12,584,603
12/3/2015
12/3/2017 (5)
1,268,530
1/9/2015
1/9/2018 (3)
20,316
–
–
–
–
–
–
–
–
–
–
(647,913)
44,203
(8,111,538)
(4,822,520)
(130,965)
(106,075)
(47,606)
(28,259)
–
–
–
–
(72,833)
(1,033,916)
12,458,262
–
–
–
–
48,724
4,193
(34,726)
(1,051,340)
11,498,537
(6,757)
(46,067)
1,215,706
–
–
20,316
9/3/2016
9/3/2019 (3)
9/3/2016
See note (7)
1/8/2016
9/3/2019 (3)
1/8/2016
1/8/2019 (3)
–
–
–
–
15,224,179
(1,587)
(714,265)
14,508,327
313,752
(156,876)
79,134
75,870
–
–
–
–
–
156,876
79,134
75,870
108
| AIA GROUP LIMITED
CORPORATE GOVERNANCE
Notes:
(1) The measurement date (i.e. the date used to determine the value of the awards for accounting purposes) for awards made during the year ended
30 November 2011 was determined to be 15 June 2011. The measurement dates for awards made during the year ended 30 November 2013 were
determined to be 11 March 2013 and 1 August 2013. The measurement dates for awards made during the year ended 30 November 2014 were
determined to be 5 March 2014, 14 April 2014 and 11 September 2014. The measurement dates for awards made during the year ended 30 November
2015 were determined to be 12 March 2015 and 1 September 2015. The measurement dates for awards made during the year ended 30 November 2016
were determined to be 9 March 2016, 1 August 2016 and 17 October 2016. These measurement dates were determined in accordance with IFRS 2.
(2) The vesting of these restricted share units is service-based only (meaning there are no further performance conditions attached). One-third of restricted
share units vested on 1 April 2014, one-third vested on 1 April 2015 and one-third vested on 1 April 2016.
(3) The vesting of these restricted share units is subject to the achievement of performance conditions shown on page 107 of this Annual Report.
(4) The vesting of these restricted share units is service-based only (meaning there are no further performance conditions attached). One-half of restricted
share units vested on 14 April 2015 and one-half vested on 14 April 2016.
(5) The vesting of these restricted share units is service-based only (meaning there are no further performance conditions attached). All restricted share
units will vest on 12 March 2017.
(6) The vesting of these restricted share units is service-based only (meaning there are no further performance conditions attached). Three-quarters of
restricted share units will vest on 1 September 2017 and one-quarter will vest on 1 September 2018.
(7) The vesting of these restricted share units is service-based only (meaning there are no further performance conditions attached). One-half of restricted
share units vested on 30 November 2016 and one-half will vest on 30 November 2017.
(8) The vesting of these restricted share units is service-based only (meaning there are no further performance conditions attached). All restricted share
units will vest on 1 August 2019.
(9) The vesting of these restricted share units is service-based only (meaning there are no further performance conditions attached). One-third of restricted
share units will vest on 1 August 2017, one-third will vest on 1 August 2018, and one-third will vest on 1 August 2019.
(10) These restricted share units lapsed or were reclassified during the year ended 30 November 2016. The reclassification of restricted share units was a
result of two executives who were previously categorised as “Key Management Personnel” becoming “Other eligible employees and participants” during
the year. There were no cancelled restricted share units during the year ended 30 November 2016.
SHARE OPTION SCHEME
The objective of the Share Option Scheme is to align
the interests of Scheme participants with those of the
Company’s shareholders. Under the Share Option Scheme,
the Company may award share options to employees,
Directors (excluding Independent Non-executive Directors)
or officers of the Company or any of its subsidiaries. No
amount is payable by the eligible participants on the
acceptance of a share option.
approval is obtained in accordance with the relevant
procedural requirements under the Listing Rules, the
maximum number of shares under options that may be
awarded to any employee in any 12-month period up to and
including a proposed date of grant is 0.25 per cent of
the number of shares in issue as of the proposed date of
grant. No share options have been awarded to substantial
shareholders, or in excess of the individual limit.
During the year ended 30 November 2016, the Company
awarded 9,550,232 share options under the Share Option
Scheme to employees and officers of the Company and
employees, officers and directors of a number of its
subsidiaries. The exercise price of such share options was
determined by applying the highest of (i) the closing price
of the shares on the date of grant, (ii) the average closing
price of the shares for the five business days immediately
preceding the date of grant and (iii) the nominal value
of a share.
Performance Measures and Vesting
Share options awarded under the Share Option Scheme
have a life of 10 years before expiry. Generally, share
options become exercisable three years after the date
of grant and remain exercisable for another seven years,
subject to participants’ continued employment in good
standing or retirement. There are no performance
conditions attached to the vesting of share options. Each
share option entitles the eligible participant to subscribe
for one ordinary share. Benefits are realised only to the
extent that share price exceeds exercise price.
The total number of share options that can be awarded
under the scheme is 301,100,000, representing
approximately 2.5 per cent of the number of shares in
issue as at the date of this report. Unless shareholders’
All share options awarded in 2013 became exercisable
on 11 March 2016. The share options awarded in 2016 will
vest in 2019. Details of the valuation of the share options
are set out in note 38 to the financial statements.
ANNUAL REPORT 2016 | 109
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONREMUNERATION REPORT The table below summarises the movements in share options awards.
Group Chief Executive
and President,
Key Management
Personnel and other
eligible employees
and participants
Date of
grant
(day /
month /
year) (1)
Period during which
share options
exercisable
(day / month / year)
Share
options
outstanding
as at
1 December
2015
Share
options
awarded
during the
year ended
30 November
2016
Share
options
vested
during the
year ended
30 November
2016
Share
options
reclassified /
cancelled /
lapsed
during the
year ended
30 November
2016 (10)
Share
options
exercised
during the
year ended
30 November
2016
Share
options
outstanding
as at 30
November
2016
Exercise
price
(HK$)
Weighted
average
closing price
of shares
immediately
before the
dates on
which share
options were
exercised
(HK$)
Group Chief
Executive and
President
Mr. Mark Edward
Tucker
1/6/2011
1/4/2014 - 31/5/2021 (2)
2,149,724
1/6/2011
1/4/2014 - 31/5/2021 (3)
2,418,439
15/3/2012
15/3/2015 - 14/3/2022 (4)
2,152,263
11/3/2013
11/3/2016 - 10/3/2023 (5)
2,183,144
5/3/2014
5/3/2017 - 4/3/2024 (6)
2,169,274
12/3/2015
12/3/2018 - 11/3/2025 (8)
2,028,555
–
–
–
–
–
–
9/3/2016
9/3/2019 - 8/3/2026 (9)
–
3,346,701
Key Management
Personnel
(excluding Group
Chief Executive and
President)
1/6/2011
1/4/2014 - 31/5/2021 (2)
3,220,349
1/6/2011
1/4/2014 - 31/5/2021 (3)
4,954,656
15/3/2012
15/3/2015 - 14/3/2022 (4)
3,243,832
11/3/2013
11/3/2016 - 10/3/2023 (5)
3,489,345
5/3/2014
5/3/2017 - 4/3/2024 (6)
3,133,429
14/4/2014
14/4/2017 - 13/4/2024 (7)
332,282
12/3/2015
12/3/2018 - 11/3/2025 (8)
3,003,103
–
–
–
–
–
–
–
9/3/2016
9/3/2019 - 8/3/2026 (9)
–
4,914,557
Other eligible
employees and
participants
1/6/2011
1/4/2014 - 31/5/2021 (2)
482,848
1/6/2011
1/4/2014 - 31/5/2021 (3)
2,058,072
15/3/2012
15/3/2015 - 14/3/2022 (4)
744,422
11/3/2013
11/3/2016 - 10/3/2023 (5)
911,433
5/3/2014
5/3/2017 - 4/3/2024 (6)
915,443
12/3/2015
12/3/2018 - 11/3/2025 (8)
867,491
–
–
–
–
–
–
–
806,147
–
2,183,144
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
27.35
2,149,724
27.35
2,418,439
28.40
2,152,263
34.35
2,183,144
37.56
2,169,274
47.73
2,028,555
41.90
3,346,701
(481,491)
(1,617,251)
27.35
1,121,607
1,746,510
(605,313)
(2,554,773)
27.35
1,794,570
–
(474,411)
(1,165,217)
28.40
1,604,204
2,912,103
(654,179)
(722,260)
34.35
2,112,906
–
–
–
–
–
(582,061)
–
(377,896)
(254,789)
–
–
–
–
37.56
2,551,368
39.45
332,282
47.73
2,625,207
41.90
4,659,768
481,491
(75,002)
27.35
889,337
972,933
524,277
(560,213)
27.35
2,022,136
–
474,411
(159,958)
28.40
1,058,875
1,274,541
440,045
(283,176)
34.35
1,068,302
136,726
(36,815)
37.56
1,015,354
36,815
17,139
(4,870)
–
–
47.73
862,621
41.90
1,414,396
n/a
n/a
n/a
n/a
n/a
n/a
n/a
48.54
48.44
49.70
48.42
n/a
n/a
n/a
n/a
50.13
49.06
48.71
47.59
45.50
n/a
n/a
9/3/2016
9/3/2019 - 8/3/2026 (9)
–
1,288,974
–
125,422
Notes:
(1) The measurement date (i.e. the date used to determine the value of the awards for accounting purposes) for awards made during the year ended
30 November 2011 was determined to be 15 June 2011. The measurement date for awards made during the year ended 30 November 2012 was determined
to be 15 March 2012. The measurement date for awards made during the year ended 30 November 2013 was determined to be 11 March 2013. The
measurement dates for awards made during the year ended 30 November 2014 were determined to be 5 March 2014 and 14 April 2014. The measurement
date for awards made during the year ended 30 November 2015 was determined to be 12 March 2015. The measurement date for awards made during
the year ended 30 November 2016 was determined to be 9 March 2016. These measurement dates were determined in accordance with IFRS 2.
(2) The vesting of share options is service-based only. All share options vested on 1 April 2014.
(3) The vesting of share options is service-based only. One-third of share options vested on 1 April 2014, one-third vested on 1 April 2015 and one-third vested
on 1 April 2016.
(4) The vesting of share options is service-based only. All share options vested on 15 March 2015.
(5) The vesting of share options is service-based only. All share options vested on 11 March 2016.
(6) The vesting of share options is service-based only. All share options will vest on 5 March 2017.
(7) The vesting of share options is service-based only. All share options will vest on 14 April 2017.
(8) The vesting of share options is service-based only. All share options will vest on 12 March 2018.
(9) The closing price of the Company’s shares immediately before the date on which share options were awarded was HK$41.40. The vesting of share options
is service-based only. All share options will vest on 9 March 2019.
(10) These share options lapsed or were reclassified during the year ended 30 November 2016. The reclassification of share options was a result
of two executives who were previously categorised as “Key Management Personnel” becoming “Other eligible employees and participants” during
the year. There were no cancelled share options during the year ended 30 November 2016.
110
| AIA GROUP LIMITED
CORPORATE GOVERNANCE EMPLOYEE SHARE PURCHASE PLAN
The Company adopted the Employee Share Purchase Plan
(ESPP) on 25 July 2011 (ESPP Adoption Date). Under the
ESPP, eligible employees of the Group may elect to
purchase the Company’s shares and receive one matching
share for each two shares purchased after having been
in the plan for a period of three years through the award of
matching restricted stock purchase units (RSPUs). Each
eligible employee’s participation level is currently capped
at a maximum purchase in any plan year of 8 per cent of his
or her base salary or HK$117,000, whichever is lower. Upon
vesting of the matching RSPUs, those employees who are still
in employment with the Group will receive one matching
share for each RSPU which he or she holds. The matching
shares can either be purchased on market by the trustee
of the ESPP or through the issuance of new shares by the
Company. The aggregate number of shares which can be
issued by the Company under the ESPP for the 10-year
period shall not exceed 2.5 per cent of the number of shares
in issue on the ESPP Adoption Date. For further information
on the ESPP, please refer to note 38 to the financial
statements.
US$
Group Chief Executive and President
Mr. Mark Edward Tucker
Year 2016
Year 2015
During the year ended 30 November 2016, 1,164,179
matching RSPUs were awarded by the Company, 694,583
matching RSPUs vested and no new shares have been
issued pursuant to the ESPP. Since the ESPP Adoption Date
and up to 30 November 2016, a total of 1,897,377 matching
RSPUs vested under the ESPP, representing 0.016 per cent
of the shares in issue as at the ESPP Adoption Date, and
no new shares have been issued under the ESPP.
DIRECTORS AND KEY MANAGEMENT
PERSONNEL EMOLUMENTS
GROUP CHIEF EXECUTIVE AND PRESIDENT /
EXECUTIVE DIRECTOR
The Group Chief Executive and President, Mr. Mark Edward
Tucker, is the sole Executive Director on the Company’s
Board. He receives his remuneration exclusively for his role
as Group Chief Executive and President and receives no
separate fees for his role as a Board Director or for acting
as a director of any subsidiary companies.
The table below provides details of target remuneration
for the Group Chief Executive and President during the
years 2015 and 2016. Details of the remuneration cost
incurred by the Company during the period from
1 December 2015 to 30 November 2016 are included in
note 39 to the financial statements.
Target Pay Opportunity
Target
short-term
incentive
Target
long-term
incentive
Basic salary
Total
1,545,300
1,471,500
2,318,000
2,207,300
6,567,500
6,253,900
10,430,800
9,932,700
NON-EXECUTIVE DIRECTORS
Remuneration for the Non-executive Director and
Independent Non-executive Directors was paid in respect
of the period from 1 December 2015 to 30 November 2016
and included the fees for their services provided to the
Board Committees.
KEY MANAGEMENT PERSONNEL
The total remuneration cost charged to the consolidated
income statement for the Key Management Personnel
during the year ended 30 November 2016 was
US$48,708,048. Details of remuneration during the year
are included in note 39 to the financial statements.
All remuneration of the Non-executive Director and
Independent Non-executive Directors was on a flat annual
fee basis, with no variable component linked to either
corporate or individual performance and therefore with
no financial incentive to promote the assumption by
the Group of inappropriate levels of risk. Details of the
Non-executive Directors’ remuneration cost incurred by
the Company during the year ended 30 November 2016
are included in note 39 to the financial statements.
ANNUAL REPORT 2016 | 111
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONREMUNERATION REPORT FINANCIAL STATEMENTS
CONTENTS
113
115
116
117
119
121
123
INDEPENDENT AUDITOR’S REPORT
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
AND SIGNIFICANT ACCOUNTING POLICIES
1. Corporate information
2. Significant accounting policies
3. Critical accounting estimates
and judgements
4. Exchange rates
5. Operating profit after tax
6. Total weighted premium income
and annualised new premiums
7. Segment information
8. Revenue
9. Expenses
10. Income tax
11. Earnings per share
12. Dividends
13. Intangible assets
14. Investments in associates and
joint venture
15. Property, plant and equipment
16. Investment property
17. Reinsurance assets
18. Deferred acquisition and
origination costs
19. Financial investments
20. Derivative financial instruments
21. Fair value measurement
22. Other assets
23. Impairment of financial assets
24. Cash and cash equivalents
25. Insurance contract liabilities
26. Investment contract liabilities
27. Effect of changes in assumptions
and estimates
28. Borrowings
29. Obligations under repurchase agreements
30. Offsetting of financial assets
and financial liabilities
31. Provisions
32. Other liabilities
33. Share capital and reserves
34. Non-controlling interests
35. Group capital structure
36. Risk management
37. Employee benefits
38. Share-based compensation
39. Remuneration of directors
and key management personnel
40. Related party transactions
41. Commitments and contingencies
42. Subsidiaries
43. Change in group composition
44. Events after the reporting period
45. Statement of financial position
of the Company
46. Statement of changes in equity
of the Company
47. Effect of adoption of revised
accounting policies
48. Operating profit based upon
long-term investment returns
229
SUPPLEMENTARY EMBEDDED VALUE INFORMATION
112
| AIA GROUP LIMITED
TO THE SHAREHOLDERS OF AIA GROUP LIMITED
(incorporated in Hong Kong with limited liability)
We have audited the consolidated financial statements of AIA Group Limited (the “Company”)
and its subsidiaries set out on pages 115 to 228, which comprise the consolidated statement
of financial position as at 30 November 2016, and the consolidated income statement, the
consolidated statement of comprehensive income, the consolidated statement of changes in
equity and the consolidated statement of cash flows for the year then ended, and a summary of
significant accounting policies and other explanatory information.
Directors’ responsibility for the consolidated financial statements
The directors of the Company are responsible for the preparation of consolidated financial
statements that give a true and fair view in accordance with Hong Kong Financial Reporting
Standards issued by the Hong Kong Institute of Certified Public Accountants (HKICPA), and with
the International Financial Reporting Standards issued by the International Accounting Standards
Board (IASB) and the Hong Kong Companies Ordinance, and for such internal control as the
directors determine is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on
our audit and to report our opinion solely to you, as a body, in accordance with section 405 of the
Hong Kong Companies Ordinance and for no other purpose. We do not assume responsibility
towards or accept liability to any other person for the contents of this report.
We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the
HKICPA. Those standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements
are free from material misstatement.
113
INDEPENDENT AUDITOR’S REPORTOVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | FINANCIAL STATEMENTS Auditor’s responsibility (continued)
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on the
auditor’s judgement, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity’s preparation of consolidated financial
statements that give a true and fair view in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by the directors, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial
position of the Company and its subsidiaries as at 30 November 2016 and of their financial
performance and cash flows for the year then ended in accordance with both Hong Kong
Financial Reporting Standards and with International Financial Reporting Standards and have
been properly prepared in compliance with the Hong Kong Companies Ordinance.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong
24 February 2017
114
INDEPENDENT AUDITOR’S REPORTFINANCIAL STATEMENTS| AIA GROUP LIMITED US$m
REVENUE
Premiums and fee income
Premiums ceded to reinsurers
Net premiums and fee income
Investment return
Other operating revenue
Total revenue
EXPENSES
Insurance and investment contract benefits
Insurance and investment contract benefits ceded
Net insurance and investment contract benefits
Commission and other acquisition expenses
Operating expenses
Finance costs
Other expenses
Total expenses
Profit before share of losses from associates and joint venture
Share of losses from associates and joint venture
Profit before tax
Income tax expense attributable to policyholders’ returns
Profit before tax attributable to shareholders’ profits
Tax expense
Tax attributable to policyholders’ returns
Tax expense attributable to shareholders’ profits
Net profit
Net profit attributable to:
Shareholders of AIA Group Limited
Non-controlling interests
EARNINGS PER SHARE (US$)
Basic
Diluted
Year ended
30 November
2016
Year ended
30 November
2015
(As adjusted)
Notes
21,757
(1,313)
20,444
7,555
197
28,196
19,340
(1,119)
18,221
2,735
1,752
149
462
23,319
4,877
(5)
4,872
(62)
4,810
(660)
62
(598)
4,212
4,164
48
0.35
0.35
19,781
(1,165)
18,616
4,535
196
23,347
16,136
(942)
15,194
2,468
1,638
152
448
19,900
3,447
–
3,447
(33)
3,414
(655)
33
(622)
2,792
2,765
27
0.23
0.23
8
8
9
10
11
11
115
CONSOLIDATED INCOME STATEMENTOVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | FINANCIAL STATEMENTS US$m
Net profit
OTHER COMPREHENSIVE INCOME
Items that may be reclassified subsequently to profit or loss:
Fair value gains/(losses) on available for sale financial assets
(net of tax of: 2016: US$8m; 2015: US$(48)m)
Fair value losses/(gains) on available for sale financial assets
transferred to income on disposal and impairment
(net of tax of: 2016: US$6m; 2015: US$2m)
Foreign currency translation adjustments
Cash flow hedges
Share of other comprehensive income from associates and joint venture
Subtotal
Items that will not be reclassified subsequently to profit or loss:
Revaluation gains/(losses) on property held for own use
(net of tax of: 2016: US$(66)m; 2015: US$1m)
Effect of remeasurement of net liability of defined benefit schemes
(net of tax of: 2016: US$1m; 2015: US$5m)
Subtotal
Total other comprehensive income/(expense)
Total comprehensive income/(expense)
Total comprehensive income/(expense) attributable to:
Shareholders of AIA Group Limited
Non-controlling interests
Year ended
30 November
2016
Year ended
30 November
2015
(As adjusted)
4,212
2,792
869
(1,639)
2
(412)
1
43
503
309
(21)
288
791
5,003
4,968
35
(42)
(1,623)
3
3
(3,298)
(2)
(5)
(7)
(3,305)
(513)
(524)
11
116
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFINANCIAL STATEMENTS| AIA GROUP LIMITED
US$m
ASSETS
Intangible assets
Investments in associates and joint venture
Property, plant and equipment
Investment property
Reinsurance assets
Deferred acquisition and origination costs
Financial investments:
Loans and deposits
Available for sale
Debt securities
At fair value through profit or loss
Debt securities
Equity securities
Derivative financial instruments
Deferred tax assets
Current tax recoverable
Other assets
Cash and cash equivalents
Total assets
LIABILITIES
Insurance contract liabilities
Investment contract liabilities
Borrowings
Obligations under repurchase agreements
Derivative financial instruments
Provisions
Deferred tax liabilities
Current tax liabilities
Other liabilities
Total liabilities
Notes
13
14
15
16
17
18
19, 21
20
10
22
24
25
26
28
29
20
31
10
32
As at
30 November
2016
As at
30 November
2015
(As adjusted)
1,743
650
1,132
3,910
2,046
18,898
1,834
137
579
3,659
1,652
17,092
7,062
7,211
90,092
80,940
23,526
30,211
107
23,700
27,159
73
150,998
139,083
7
59
3,989
1,642
9
45
3,676
1,992
185,074
169,758
128,186
115,969
7,028
3,460
1,984
644
253
3,276
210
4,723
7,116
3,195
3,085
695
245
3,109
265
4,657
149,764
138,336
117
CONSOLIDATED STATEMENT OF FINANCIAL POSITIONOVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONOVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | FINANCIAL STATEMENTS
US$m
EQUITY
Share capital
Employee share-based trusts
Other reserves
Retained earnings
Fair value reserve
Foreign currency translation reserve
Property revaluation reserve
Others
Amounts reflected in other comprehensive income
Total equity attributable to:
Shareholders of AIA Group Limited
Non-controlling interests
Total equity
Total liabilities and equity
As at
30 November
2016
As at
30 November
2015
(As adjusted)
Notes
33
33
33
33
33
33
34
13,998
(351)
13,971
(321)
(11,954)
(11,978)
29,334
5,352
(1,812)
449
(32)
3,957
34,984
326
35,310
185,074
26,294
4,414
(1,389)
140
(12)
3,153
31,119
303
31,422
169,758
Approved and authorised for issue by the Board of Directors on 24 February 2017.
Mark Edward Tucker
Director
Edmund Sze-Wing Tse
Director
118
CONSOLIDATED STATEMENT OF FINANCIAL POSITIONFINANCIAL STATEMENTS| AIA GROUP LIMITED
Note
Share
capital
Employee
share-
based
trusts
Other
reserves
Retained
earnings
Other comprehensive income
Fair
value
reserve
Foreign
currency
translation
reserve
Property
revaluation
reserve
Non-
controlling
interests
Total
equity
Others
13,971
(321) (11,978) 24,708
4,414
(1,381)
–
(12)
139 29,540
–
–
–
1,586
–
(8)
140
–
164
1,882
13,971
(321) (11,978) 26,294
4,414
(1,389)
140
(12)
303 31,422
–
–
–
–
–
–
–
–
–
–
–
27
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
86
(86)
–
56
–
(56)
(6)
–
4,164
–
–
–
874
–
–
–
–
(404)
–
2
–
–
62
(19)
–
–
–
–
259
–
–
–
–
–
–
50
–
–
–
–
–
1
–
–
–
(21)
–
48
259
4,212
(5)
869
–
2
(8)
(412)
–
–
–
–
1
43
50
(21)
–
–
–
–
–
–
4,164
(1,124)
938
–
–
–
–
–
–
–
–
–
–
–
(423)
309
(20)
35
5,003
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(12) (1,136)
–
–
–
–
–
27
86
(86)
–
(6)
US$m
Balance at
1 December 2015,
as previously reported
Retrospective adjustments
for IAS 40
Balance at
1 December 2015,
as adjusted
Opening adjustments on
revaluation gains on
property held for own use
Net profit
Fair value gains/(losses)
on available for sale
financial assets
Fair value losses on
available for sale
financial assets
transferred to
income on disposal
and impairment
Foreign currency
translation adjustments
Cash flow hedges
Share of other comprehensive
income/(expense)
from associates and
joint venture
Revaluation gains on
property held for own use
Effect of remeasurement of
net liability of defined
benefit schemes
Total comprehensive
income/(expense)
for the year
Dividends
12
Shares issued under
share option scheme
and agency share
purchase plan
Share-based compensation
Purchase of shares
held by employee
share-based trusts
Transfer of vested
shares from employee
share-based trusts
Others
Balance at
30 November 2016
13,998
(351) (11,954) 29,334
5,352
(1,812)
449
(32)
326 35,310
119
Consolidated statement of Changes in equityOVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | FINANCIAL STATEMENTS
Note
Share
capital
Employee
share-
based
trusts
Other
reserves
Retained
earnings
Other comprehensive income
Fair
value
reserve
Foreign
currency
translation
reserve
Property
revaluation
reserve
Non-
controlling
interests
Total
equity
Others
13,962
(286) (11,994) 22,831
6,076
227
–
(10)
149 30,955
–
–
–
1,512
–
7
142
–
161
1,822
13,962
(286) (11,994) 24,343
6,076
234
142
(10)
310 32,777
–
–
–
–
–
–
–
–
–
–
9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
79
(98)
–
63
(63)
2,765
–
–
(1,632)
–
–
–
–
–
–
–
–
–
(42)
–
–
(1,614)
–
12
(9)
–
–
–
–
–
–
–
–
–
–
(2)
–
–
–
–
3
–
–
–
(5)
27
2,792
(7) (1,639)
–
(42)
(9) (1,623)
–
–
–
–
3
3
(2)
(5)
2,765
(1,662)
(1,623)
(814)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2)
–
(2)
–
11
(513)
(18)
(832)
–
–
–
–
–
–
–
–
–
–
–
–
9
79
(98)
–
13,971
(321) (11,978) 26,294
4,414
(1,389)
140
(12)
303 31,422
US$m
Balance at
1 December 2014,
as previously reported
Retrospective adjustments
for IAS 40
Balance at
1 December 2014,
as adjusted
Net profit
Fair value losses on available
for sale financial assets
Fair value gains on available
for sale financial assets
transferred to income
on disposal
Foreign currency translation
adjustments
Cash flow hedges
Share of other comprehensive
income/(expense)
from associates
and joint venture
Revaluation losses on
property held for own use
Effect of remeasurement of
net liability of defined
benefit schemes
Total comprehensive
income/(expense)
for the year
Dividends
12
Shares issued under
share option scheme
and agency share
purchase plan
Share-based compensation
Purchase of shares
held by employee
share-based trusts
Transfer of vested
shares from employee
share-based trusts
Balance at
30 November 2015,
as adjusted
120
CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFINANCIAL STATEMENTS| AIA GROUP LIMITED
US$m
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Financial investments
Insurance and investment contract liabilities
Obligations under securities lending and repurchase agreements
29
Other non-cash operating items, including investment income
Operating cash items:
Interest received
Dividends received
Interest paid
Tax paid
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for intangible assets
Distribution or dividend from/(contribution to) associates and joint venture
Payments for investment property and property, plant and equipment
Payments for increase in interest of an associate
Disposal of a subsidiary, net of cash disposed
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of medium term notes
Interest paid on medium term notes
Proceeds from other borrowings
Repayment of medium term notes
Repayment of other borrowings
Dividends paid during the year
Purchase of shares held by employee share-based trusts
Shares issued under share option scheme and agency share
purchase plan
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of the financial year
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of the financial year
13
14
15,16
28
28
28
28
Year ended
30 November
2016
Year ended
30 November
2015
(As adjusted)
Notes
4,872
3,447
(13,438)
11,794
(1,019)
(6,164)
5,261
645
(39)
(548)
1,364
(64)
2
(181)
(310)
–
(553)
733
(108)
13
(150)
(336)
(1,136)
(86)
27
(1,043)
(232)
1,750
(36)
1,482
(9,429)
8,337
(462)
(5,592)
4,944
614
(76)
(546)
1,237
(103)
(9)
(139)
–
21
(230)
745
(76)
3
–
(490)
(832)
(98)
9
(739)
268
1,631
(149)
1,750
121
consolidated statement of cash flowsOVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | FINANCIAL STATEMENTS
Cash and cash equivalents in the above consolidated statement of cash flows can be further analysed as follows:
US$m
Cash and cash equivalents in the consolidated statement of
financial position
Bank overdrafts
CASH AND CASH EQUIVALENTS IN THE CONSOLIDATED STATEMENT
OF CASH FLOWS
Note
24
Year ended
30 November
2016
Year ended
30 November
2015
(As adjusted)
1,642
(160)
1,992
(242)
1,482
1,750
122
CONSOLIDATED STATEMENT OF CASH FLOWSFINANCIAL STATEMENTS| AIA GROUP LIMITED
1. CORPORATE INFORMATION
AIA Group Limited (the “Company”) was established as a company with limited liability incorporated in Hong Kong on 24
August 2009. The address of its registered office is 35/F, AIA Central, No. 1 Connaught Road Central, Hong Kong.
AIA Group Limited is listed on the Main Board of The Stock Exchange of Hong Kong Limited under the stock code “1299”
with American Depositary Receipts (Level 1) being traded on the over-the-counter market (ticker symbol: “AAGIY”).
AIA Group Limited and its subsidiaries (collectively “AIA” or the “Group”) is a life insurance based financial services provider
operating in 18 markets throughout the Asia-Pacific region. The Group’s principal activity is the writing of life insurance
business, providing life insurance, accident and health insurance and savings plans throughout Asia, and distributing
related investment and other financial services products to its customers.
2. SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of preparation and statement of compliance
The consolidated financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting
Standards (HKFRS), International Financial Reporting Standards (IFRS) and the Hong Kong Companies Ordinance. IFRS
is substantially consistent with HKFRS and the accounting policy selections that the Group has made in preparing these
consolidated financial statements are such that the Group is able to comply with both HKFRS and IFRS. References to IFRS,
International Accounting Standards (IAS) and Interpretations developed by the IFRS Interpretations Committee (IFRS IC)
in these consolidated financial statements should be read as referring to the equivalent HKFRS, Hong Kong Accounting
Standards (HKAS) and Hong Kong (IFRIC) Interpretations (HK(IFRIC) – Int) as the case may be. Accordingly, there are not
any differences of accounting practice between HKFRS and IFRS affecting these consolidated financial statements.
The consolidated financial statements have been approved for issue by the Board of Directors on 24 February 2017.
The consolidated financial statements have been prepared using the historical cost convention, as modified by the
revaluation of available for sale financial assets, certain financial assets and liabilities designated at fair value through
profit or loss, derivative financial instruments, property held for own use and investment properties, all of which are carried
at fair value.
Items included in the consolidated financial statements of each of the Group’s entities are measured in the currency of the
primary economic environment in which that entity operates (the functional currency). The Company’s functional currency
and the presentation currency of the Company and the Group is the US dollar. The consolidated financial statements are
presented in millions of US dollars (US$m) unless otherwise stated.
The accounting policies adopted are consistent with those of the previous financial year, except as described below in
notes 47 and 48. There are no new standards, interpretation and amendments to standards that are mandatory for the
Group to adopt for the financial year ended 30 November 2016.
123
Notes to the CoNsolidated FiNaNCial statemeNts aNd sigNiFiCaNt aCCouNtiNg PoliCiesOVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.1 Basis of preparation and statement of compliance (continued)
(a) The following relevant new standards, interpretation and amendments to standards have been issued but are not
effective for the financial year ended 30 November 2016 and have not been early adopted (the financial years for
which the adoption is required for the Group are stated in parentheses). The Group has assessed the full impact of these
new standards on its financial position and results of operations and they are not expected to have a material impact
on the financial position or results of operations of the Group but may require additional disclosures:
(cid:127)
IFRIC 22, Foreign Currency Transactions and Advance Consideration (2019);
(cid:127) Amendments to IAS 1, Disclosure Initiative (2017);
(cid:127) Amendments to IAS 7, Disclosure Initiative (2018);
(cid:127) Amendments to IAS 12, Recognition of Deferred Tax Assets for Unrealised Losses (2018);
(cid:127) Amendments to IAS 16 and IAS 38, Clarification of Acceptable Methods of Depreciation and Amortisation (2017);
(cid:127) Amendments to IAS 19, Employee Benefits, Discount rate: regional market issue (2017);
(cid:127) Amendments to IAS 27, Equity Method in Separate Financial Statements (2017);
(cid:127) Amendments to IAS 28, Measuring an Associate or Joint Venture at Fair Value (2019);
(cid:127) Amendments to IAS 34, Interim Financial Reporting, Disclosure of information ‘elsewhere in the interim financial
report’ (2017);
(cid:127) Amendments to IAS 40, Transfers of Investment Property (2019);
(cid:127)
IFRS 15, Revenue from Contracts with Customers (2019);
(cid:127) Amendments to IFRS 2, Classification and Measurement of Share-based Payment Transactions (2019);
(cid:127) Amendments to IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, Changes in methods of
disposal (2017);
(cid:127) Amendments to IFRS 7, Financial Instruments: Disclosure, Servicing contracts and applicability of the amendments
to IFRS 7 to condensed interim financial statements (2017);
(cid:127) Amendments to IFRS 11, Acquisitions of Interests in Joint Operations (2017);
(cid:127) Amendments to IFRS 12, Clarification of the Scope of the Standard (2018); and
(cid:127) Amendments to IFRS 15, Revenue from Contracts with Customers (2019).
124
FINANCIAL STATEMENTS| AIA GROUP LIMITED 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.1 Basis of preparation and statement of compliance (continued)
(b) The following relevant new standards and requirements have been issued but are not effective for the financial year
ended 30 November 2016 and have not been early adopted:
(cid:127)
IFRS 9, Financial Instruments, addresses the classification, measurement and recognition of financial assets
and financial liabilities. IFRS 9 requires financial assets to be classified into two measurement categories: those
measured as at fair value and those measured at amortised cost. The determination is made at initial recognition.
The classification depends on the entity’s business model for managing its financial instruments and the
contractual cash flow characteristics of the instrument. In addition, a revised expected credit losses model will
replace the incurred loss impairment model in IAS 39. For financial liabilities, the standard retains most of the IAS
39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, part of
the fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than profit
or loss, unless this creates an accounting mismatch. In addition, the new standard revises the hedge accounting
model to more closely align with the entity’s risk management strategies. The Group is yet to fully assess the impact
of the standard on its financial position and results of operations. The standard is mandatorily effective for annual
periods beginning on or after 1 January 2018.
(cid:127) On 12 September 2016, the IASB issued amendments to IFRS 4, Insurance Contracts, Applying IFRS 9 Financial
Instruments with IFRS 4, which provides two alternative measures to address the different effective dates of IFRS
9 and the forthcoming insurance contracts standard. These measures include a temporary option for companies
whose activities are predominantly connected with insurance to defer the effective date of IFRS 9 until the earlier
of the effective date of the forthcoming insurance contracts standard and the annual reporting periods beginning
on or after 1 January 2021, as well as an approach that allows an entity to remove from profit or loss the effects of
certain accounting mismatches that may occur before the forthcoming insurance contracts standard is applied. The
Group will evaluate available alternatives in determining the adoption date of the relevant standard. Based on the
amendments to IFRS 4, the Group is eligible for electing the temporary option to defer the effective date of IFRS 9.
(cid:127)
IFRS 16, Leases, sets out the principles for the recognition, measurement, presentation and disclosure of leases.
The standard introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities
for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required
to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability
representing its obligation to make lease payments. IFRS 16 substantially carries forward the lessor accounting
requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases,
and to account for those two types of leases differently. The Group is yet to assess the full impact of the standard on
its financial position and results of operations. The standard is mandatorily effective for annual periods beginning
on or after 1 January 2019.
In addition, for the financial year ended 30 November 2016, the Group revised certain accounting policies and basis of
presentation and assessed the impact to the consolidated financial statements (see notes 47 and 48).
The significant accounting policies adopted in the preparation of the Group’s consolidated financial statements are set out
below. These policies have been applied consistently in all periods presented.
125
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.2 Operating profit
The long-term nature of much of the Group’s operations means that, for management’s decision-making and internal
performance management purposes, the Group evaluates its results and its operating segments using a financial
performance measure referred to as “operating profit”. Operating profit includes among others the expected long-term
investment returns for investments in equities and real estate based on the assumptions applied by the Group in the
Supplementary Embedded Value Information. The Group defines operating profit after tax as net profit excluding the
following non-operating items:
(cid:127) short-term fluctuations between expected and actual investment returns related to equities and real estate;
(cid:127) other investment return (including short-term fluctuations due to market factors); and
(cid:127) other significant items that management considers to be non-operating income and expenses.
The Group considers that the presentation of operating profit enhances the understanding and comparability of its
performance and that of its operating segments. The Group considers that trends can be more clearly identified without
the fluctuating effects of these non-operating items, many of which are largely dependent on market factors.
Operating profit is provided as additional information to assist in the comparison of business trends in different reporting
periods on a consistent basis and enhance overall understanding of financial performance.
2.3 Basis of consolidation
Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group has control. A structured entity is an
entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the
entity, such as when any voting rights relate to administrative tasks only, and the relevant activities are directed by means
of contractual arrangements. The Group has determined that the investment funds and structured securities, such as
collateralised debt obligations, mortgage-backed securities and other asset-backed securities that the Group has interest
are structured entities.
The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the
date on which control is transferred to the Group and are excluded from consolidation from the date at which the Group no
longer has control. Intercompany transactions are eliminated.
The Group utilises the acquisition method of accounting to account for the acquisition of subsidiaries, unless the acquisition
forms part of the Group reorganisation of entities under common control. Under this method, the cost of an acquisition is
measured as the fair value of consideration payable, shares issued or liabilities assumed at the date of acquisition. The
excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill (see
note 2.10 below). The Group recognises, separately from goodwill, the identifiable assets acquired, the liabilities assumed
and any non-controlling interest in the subsidiary. Any surplus of the acquirer’s interest in the subsidiary’s net assets over
the cost of acquisition is credited to the consolidated income statement.
The consolidated financial statements of the Group include the assets, liabilities and results of the Company and subsidiaries
in which AIA Group Limited has a controlling interest, using accounts drawn up to the reporting date.
126
FINANCIAL STATEMENTS| AIA GROUP LIMITED 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.3 Basis of consolidation (continued)
Investment funds
Investment funds in which the Group has interests and power to direct their relevant activities that affect the return of
the funds are consolidated in the financial statements. In conducting the assessment, the Group considers substantive
contractual rights as well as de facto control. De facto control of an entity may arise from circumstances where the Group
does not have more than 50% of the voting power but it has the practical ability to direct the relevant activities of the
entity. If the Group has power to remove or control over the party having the ability to direct the relevant activities of the
fund based on the facts and circumstances and that the Group has exposure to variable returns of the investment funds,
they are consolidated. Variable returns include both rights to the profits or distributions as well as the obligation to absorb
losses of the investees.
Employee share-based trusts
Trusts are set up to acquire shares of the Company for distribution to participants in future periods through the share-based
compensation schemes. The consolidation of these trusts is evaluated in accordance with IFRS 10; where the Group
is deemed to control the trusts, they are consolidated. Shares acquired by the trusts to the extent not provided to the
participants upon vesting are carried at cost and reported as “employee share-based trusts” in the consolidated statement
of financial position, and as a deduction from the equity in the consolidated statement of changes in equity.
Non-controlling interests
Non-controlling interests are presented within equity except when they arise through the minority’s interest in puttable
liabilities such as the unit holders’ interest in consolidated investment funds, when they are recognised as a liability,
reflecting the net assets of the consolidated entity.
Acquisitions and disposals of non-controlling interests, except when they arise through the minority’s interest in puttable
liabilities, are treated as transactions between equity holders. As a result, any difference between the acquisition cost or
sale price of the non-controlling interest and the carrying value of the non-controlling interest is recognised as an increase
or decrease in equity.
Associates and joint ventures
Associates are entities over which the Group has significant influence, but which it does not control. Generally, it is
presumed that the Group has significant influence if it has between 20 per cent and 50 per cent of voting rights. Joint
ventures are entities whereby the Group and other parties undertake an economic activity which is subject to joint control
arising from a contractual agreement.
Gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s
interest in the associates and joint ventures. Losses are also eliminated, unless the transaction provides evidence of an
impairment of an asset transferred between entities.
Investments in associates and joint ventures are accounted for using the equity method of accounting. Under this method,
the cost of the investment in an associate or joint venture, together with the Group’s share of that entity’s post-acquisition
changes to equity, is included as an asset in the consolidated statement of financial position. Cost includes goodwill arising
on acquisition. The Group’s share of post-acquisition profits or losses is recognised in the consolidated income statement
and its share of post-acquisition movement in equity is recognised in other comprehensive income. Equity accounting is
discontinued when the Group no longer has significant influence over the investment. If the Group’s share of losses in an
associate or joint venture equals or exceeds its interest in the undertaking, additional losses are provided for, and a liability
recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf
of the associate or joint venture. The Group also accounts for investments in joint ventures that are subject to joint control
using the equity method of accounting.
The Company’s investments
In the Company’s statement of financial position, subsidiaries, associates and joint ventures are stated at cost, unless
impaired. The Company’s interests in investment funds such as mutual funds and unit trusts are designated at fair value
through profit or loss.
127
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.4 Insurance and investment contracts
Consistent accounting policies for the measurement and recognition of insurance and investment contracts have been
adopted throughout the Group to substantially all of its business.
In a limited number of cases, the Group measures insurance contract liabilities with reference to statutory requirements in
the applicable jurisdiction, without deferral of acquisition costs.
Product classification
The Group classified its contracts written as either insurance contracts or investment contracts, depending on the level
of insurance risk. Insurance contracts are those contracts that transfer significant insurance risk, while investment
contracts are those contracts without significant insurance risk. Some insurance and investment contracts, referred to as
participating business, have discretionary participation features, “DPF”, which may entitle the customer to receive, as a
supplement to guaranteed benefits, additional non-guaranteed benefits, such as policyholder dividends or bonuses. The
Group applies the same accounting policies for the recognition and measurement of obligations arising from investment
contracts with DPF as it does for insurance contracts.
In the event that a scenario (other than those lacking commercial substance) exists in which an insured event would
require the Group to pay significant additional benefits to its customers, the contract is accounted for as an insurance
contract. For investment contracts that do not contain DPF, IAS 39, Financial Instruments: Measurement and Recognition,
and, if the contract includes an investment management element, IAS 18, Revenue Recognition, are applied. IFRS 4 permits
the continued use of previously applied accounting policies for insurance contracts and investment contracts with DPF,
and this basis has been adopted by the Group in accounting for such contracts. Once a contract has been classified as an
insurance or investment contract, reclassification is not subsequently performed unless the terms of the agreement are
later amended.
Certain contracts with DPF supplement the amount of guaranteed benefits due to policyholders. These contracts are
distinct from other insurance and investment contracts as the Group has discretion in the amount and/or timing of the
benefits declared, and how such benefits are allocated between groups of policyholders. Customers may be entitled to
receive, as a supplement to guaranteed benefits, additional benefits or bonuses:
(cid:127)
that are likely to be a significant portion of the total contractual benefits;
(cid:127) whose amount or timing is contractually at the discretion of the Group; and
(cid:127)
that are contractually based on:
–
the performance of a specified pool of contracts or a specified type of contract;
– realised and/or unrealised investment returns on a specified pool of assets held by the issuer; or
–
the profit or loss of the Company, fund or other entity that issues the contract.
128
FINANCIAL STATEMENTS| AIA GROUP LIMITED 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.4 Insurance and investment contracts (continued)
Product classification (continued)
The Group applies the same accounting policies for the recognition and measurement of obligations and the deferral
of acquisition costs arising from investment contracts with DPF as it does to insurance contracts. The Group refers to
such contracts as participating business. In some jurisdictions participating business is written in a participating fund
which is distinct from the other assets of the Company or branch. The allocation of benefits from the assets held in such
participating funds is subject to minimum policyholder participation mechanisms which are established by regulation. The
extent of such policy participation may change over time. The current policyholder participation in declared dividends for
locations with participating funds is set out below:
Country
Singapore
Malaysia
China
Australia
Brunei
Current policyholder participation
90%
90%
70%
80%
80%
In some jurisdictions participating business is not written in a distinct fund and the Group refers to this as other participating
business.
129
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2.4 Insurance and investment contracts (continued)
Product classification (continued)
The Group’s products may be divided into the following main categories:
Basis of accounting for:
Policy type
Description of benefits payable
Insurance contract liabilities
Traditional participating
life assurance with DPF
Participating funds
Other participating
business
Non-participating life
assurance, annuities and
other protection products
Universal life
Unit-linked
Participating products include
protection and savings elements.
The basic sum assured, payable on
death or maturity, may be enhanced
by dividends or bonuses, the
aggregate amount of which is
determined by the performance of a
distinct fund of assets and liabilities
The timing of dividend and bonus
declarations is at the discretion of
the insurer. Local regulations
generally prescribe a minimum
proportion of policyholder
participation in declared dividends
Participating products include
protection and savings elements.
The basic sum assured, payable on
death or maturity, may be enhanced
by dividends or bonuses, the timing
or amount of which are at the
discretion of the insurer taking into
account factors such as investment
experience
Benefits payable are not at the
discretion of the insurer
Benefits are based on an account
balance, credited with interest at a
rate set by the insurer, and a death
benefit, which may be varied by the
customer
These may be primarily savings
products or may combine savings
with an element of protection
Investment contract
liabilities
Not applicable, as IFRS
4 permits contracts
with DPF to be
accounted for as
insurance contracts
Insurance contract liabilities make
provision for the present value of
guaranteed benefits less
estimated future net premiums to
be collected from policyholders. In
addition, an insurance liability is
recorded for the proportion of the
net assets of the participating
funds that would be allocated to
policyholders, assuming all
performance would be declared as
a dividend based upon local
regulations
Insurance contract liabilities make
provision for the present value of
guaranteed benefits and
non-guaranteed participation less
estimated future net premiums to
be collected from policyholders
Not applicable, as IFRS
4 permits contracts
with DPF to be
accounted for as
insurance contracts
Insurance contract liabilities
reflect the present value of future
policy benefits to be paid less the
present value of estimated future
net premiums to be collected from
policyholders. In addition, deferred
profit liabilities for limited
payment contracts are recognised
Insurance contract liabilities
reflect the accumulation value,
representing premiums received
and investment return credited,
less deductions for front-end
loads, mortality and morbidity
costs and expense charges. In
addition, liabilities for unearned
revenue and additional insurance
benefits are recorded
Insurance contract liabilities
reflect the accumulation value,
representing premiums received
and investment return credited,
less deductions for front-end
loads, mortality and morbidity
costs and expense charges. In
addition, liabilities for unearned
revenue and additional insurance
benefits are recorded
Investment contract
liabilities are
measured at amortised
cost
Not applicable as such
contracts generally
contain significant
insurance risk
Investment contract
liabilities are
measured at fair value
(determined with
reference to the
accumulation value)
In the notes to the financial statements, unit-linked contracts are presented together with pension contracts for disclosure
purposes.
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FINANCIAL STATEMENTS| AIA GROUP LIMITED 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.4 Insurance and investment contracts (continued)
Product classification (continued)
The basis of accounting for insurance and investment contracts is discussed in notes 2.4.1 and 2.4.2 below.
2.4.1 Insurance contracts and investment contracts with DPF
Premiums
Premiums from life insurance contracts, including participating policies and annuity policies with life contingencies, are
recognised as revenue when due from the policyholder. Benefits and expenses are provided in respect of such revenue so
as to recognise profits over the estimated life of the policies. For limited pay contracts, premiums are recognised in profit
or loss when due, with any excess profit deferred and recognised in income in a constant relationship to the insurance
in-force or, for annuities, the amount of expected benefit payments.
Amounts collected as premiums from insurance contracts with investment features but with sufficient insurance risk to
be considered insurance contracts, such as universal life, and certain unit-linked contracts, are accumulated as deposits.
Revenue from these contracts consists of policy fees for the cost of insurance, administration, and surrenders during the
period.
Upfront fees are recognised over the estimated life of the contracts to which they relate. Policy benefits and claims that are
charged to expenses include benefit claims incurred in the period in excess of related policyholder contract deposits and
interest credited to policyholder deposits.
Unearned revenue liability
Unearned revenue liability represents upfront fees and other non-level charges that have been collected and released to
the consolidated income statement over the estimated life of the business. A separate liability for accumulation value is
established.
Deferred profit liability
Deferred profit liability arising from traditional insurance contracts represents excess profits that have been collected and
released to the consolidated income statement over the estimated life of the business. A separate liability for future policy
benefits is established.
Deferred acquisition costs
The costs of acquiring new insurance contracts, including commissions and distribution costs, underwriting and other
policy issue expenses which vary with and are primarily related to the production of new business or renewal of existing
business, are deferred as an asset. Deferred acquisition costs are assessed for recoverability in the year of policy issue to
ensure that these costs are recoverable out of the estimated future margins to be earned on the policy. Deferred acquisition
costs are assessed for recoverability at least annually thereafter. Future investment income is also taken into account in
assessing recoverability. To the extent that acquisition costs are not considered to be recoverable at inception or thereafter,
these costs are expensed in the consolidated income statement.
Deferred acquisition costs for life insurance and annuity policies are amortised over the expected life of the contracts
as a constant percentage of expected premiums. Expected premiums are estimated at the date of policy issue and are
consistently applied throughout the life of the contract unless a deficiency occurs when performing liability adequacy
testing (see below).
Deferred acquisition costs for universal life and unit-linked contracts are amortised over the expected life of the contracts
based on a constant percentage of the present value of estimated gross profits expected to be realised over the life of
the contract or on a straight-line basis. Estimated gross profits include expected amounts to be assessed for mortality,
administration, investment and surrenders, less benefit claims in excess of policyholder balances, administrative expenses
and interest credited. Estimated gross profits are revised regularly. The interest rate used to compute the present value of
revised estimates of expected gross profits is the latest revised rate applied to the remaining benefit period. Deviations of
actual results from estimated experience are reflected in earnings.
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2.4 Insurance and investment contracts (continued)
2.4.1 Insurance contracts and investment contracts with DPF (continued)
Deferred sales inducements
Deferred sales inducements, consisting of day one bonuses, persistency bonuses and enhanced crediting rates are deferred
and amortised using the same methodology and assumptions used to amortise acquisition costs when:
(cid:127)
(cid:127)
(cid:127)
(cid:127)
the sales inducements are recognised as part of insurance contract liabilities;
they are explicitly identified in the contract on inception;
they are incremental to amounts credited on similar contracts without sales inducements; and
they are higher than the expected ongoing crediting rates for periods after the inducement.
Unbundling
The deposit component of an insurance contract is unbundled when both of the following conditions are met:
(cid:127)
(cid:127)
the deposit component (including any embedded surrender option) can be measured separately (i.e. without taking
into account the insurance component); and
the Group’s accounting policies do not otherwise require the recognition of all obligations and rights arising from the
deposit component.
Bifurcation
To the extent that certain of the Group’s insurance contracts include embedded derivatives that are not clearly and closely
related to the host contract, these are bifurcated from the insurance contracts and accounted for as derivatives.
Benefits and claims
Insurance contract benefits reflect the cost of all maturities, surrenders, withdrawals and claims arising during the year, as
well as policyholder dividends accrued in anticipation of dividend declarations.
Accident and health claims incurred include all losses occurring during the year, whether reported or not, related handling
costs, a reduction for recoveries, and any adjustments to claims outstanding from previous years.
Claims handling costs include internal and external costs incurred in connection with the negotiation and settlement of
claims, and are included in operating expenses.
Insurance contract liabilities (including liabilities in respect of investment contracts with DPF)
Insurance contract liabilities represent the estimated future policyholder benefit liability for life insurance policies.
Future policy benefits for life insurance policies are calculated using a net level premium valuation method which
represents the present value of estimated future policy benefits to be paid, less the present value of estimated future net
premiums to be collected from policyholders.
For contracts with an explicit account balance, such as universal life and unit-linked contracts, insurance contract liabilities
are equal to the accumulation value, which represents premiums received and investment returns credited to the policy
less deductions for mortality and morbidity costs and expense charges.
Settlement options are accounted for as an integral component of the underlying insurance or investment contract unless
they provide annuitisation benefits, in which case an additional liability is established to the extent that the present value
of expected annuitisation payments at the expected annuitisation date exceeds the expected account balance at that
date. Where settlement options have been issued with guaranteed rates less than market interest rates, the insurance
or investment contract liability does not reflect any provision for subsequent declines in market interest rates unless a
deficiency is identified through liability adequacy testing.
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FINANCIAL STATEMENTS| AIA GROUP LIMITED 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.4 Insurance and investment contracts (continued)
2.4.1 Insurance contracts and investment contracts with DPF (continued)
Insurance contract liabilities (including liabilities in respect of investment contracts with DPF) (continued)
The Group accounts for insurance contract liabilities for participating business written in participating funds by
establishing a liability for the present value of guaranteed benefits less estimated future net premiums to be collected
from policyholders. In addition, an insurance liability is recorded for the proportion of the net assets of the participating
funds that would be allocated to policyholders assuming all relevant surplus at the date of the consolidated statement of
financial position were to be declared as a policyholder dividend based upon applicable regulations. The Group accounts
for other participating business by establishing a liability for the present value of guaranteed benefits and non-guaranteed
participation, less estimated future net premiums to be collected from policyholders.
Liability adequacy testing
The adequacy of liabilities is assessed by portfolio of contracts, in accordance with the Group’s manner of acquiring,
servicing and measuring the profitability of its insurance contracts. Liability adequacy testing is performed for each
reportable segment.
For traditional life insurance contracts, insurance contract liabilities reduced by deferred acquisition costs and value of
business acquired on acquired insurance contracts, are compared to the gross premium valuation calculated on a best
estimate basis, as of the valuation date. If there is a deficiency, the unamortised balance of deferred acquisition cost
and value of business acquired on acquired insurance contracts are written down to the extent of the deficiency. If, after
writing down the unamortised balance for the specific portfolio of contracts to nil, a deficiency still exists, the net liability
is increased by the amount of the remaining deficiency.
For universal life and investment contracts, deferred acquisition costs, net of unearned revenue liabilities, are compared to
estimated gross profits. If a deficiency exists, deferred acquisition costs are written down.
Financial guarantees
Financial guarantees are regarded as insurance contracts. Liabilities in respect of such contracts are recognised as loss is
incurred by a holder.
2.4.2 Investment contracts
Investment contracts do not contain sufficient insurance risk to be considered insurance contracts and are accounted
for as a financial liability, other than investment contracts with DPF which are excluded from the scope of IAS 39 and are
accounted for as insurance contracts.
Revenue from these contracts consists of various charges (policy fees, handling fees, management fees and surrender
charges) made against the contract for the cost of insurance, expenses and early surrender. First year charges are
amortised over the life of the contract as the services are provided.
Investment contract fee revenue
Customers are charged fees for policy administration, investment management, surrenders or other contract services. The
fees may be fixed amounts or vary with the amounts being managed, and will generally be charged as an adjustment to
the policyholder’s account balance. The fees are recognised as revenue in the period in which they are received unless
they relate to services to be provided in future periods, in which case they are deferred and recognised as the service is
provided.
Origination and other “upfront” fees (fees that are assessed against the account balance as consideration for origination of
the contract) are charged on some non-participating investment and pension contracts. Where the investment contract is
recorded at amortised cost, these fees are amortised and recognised over the expected term of the policy as an adjustment
to the effective yield. Where the investment contract is measured at fair value, the front-end fees that relate to the provision
of investment management services are amortised and recognised as the services are provided.
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2.4 Insurance and investment contracts (continued)
2.4.2 Investment contracts (continued)
Deferred origination costs
The costs of acquiring investment contracts with investment management services, including commissions and other
incremental expenses directly related to the issue of each new contract, are deferred and amortised over the period that
services are provided. Deferred origination costs are tested for recoverability at each reporting date.
The costs of acquiring new investment contracts without investment management services are included as part of the
effective interest rate used to calculate the amortised cost of the related investment contract liabilities.
Investment contract liabilities
Deposits received in respect of investment contracts are not accounted for through the consolidated income statement,
except for the investment income and fees attributable to those contracts, but are accounted for directly through the
consolidated statement of financial position as an adjustment to the investment contract liability, which reflects the
account balance.
The majority of the Group’s contracts classified as investment contracts are unit-linked contracts, with measurement
directly linked to the underlying investment assets. These represent investment portfolios maintained to meet specific
investment objectives of policyholders who generally bear the credit and market risks on those investments. The liabilities
are carried at fair value determined with reference to the accumulation value (current unit value) with changes recognised
in profit or loss. The costs of policy administration, investment management, surrender charges and certain policyholder
taxes assessed against customers’ account balances are included in revenue, and accounted for as described under
“Investment contract fee revenue” above.
Non unit-linked investment contract liabilities are carried at amortised cost, being the fair value of consideration received
at the date of initial recognition, less the net effect of principal payments such as transaction costs and front-end fees, plus
or minus the cumulative amortisation using the effective interest method of any difference between that initial amount
and the maturity value, and less any write-down for surrender payments. The effective interest rate equates the discounted
cash payments to the initial amount. At each reporting date, the unearned revenue liability is determined as the value of
the future best estimate cash flows discounted at the effective interest rate. Any adjustment is immediately recognised as
income or expense in the consolidated income statement.
The amortised cost of the financial liability is never recorded at less than the amount payable on surrender, discounted for
the time value of money where applicable, if the investment contract is subject to a surrender option.
Deferred fee income liability
Deferred fee income liability represents upfront fees and other non-level charges that have been collected and released
to the consolidated income statement over the estimated life of the business. A separate liability for accumulation value
is established.
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FINANCIAL STATEMENTS| AIA GROUP LIMITED 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.4 Insurance and investment contracts (continued)
2.4.3 Insurance and investment contracts
Reinsurance
The Group cedes reinsurance in the normal course of business, with retentions varying by line of business. The cost of
reinsurance is accounted for over the life of the underlying reinsured policies, using assumptions consistent with those
used to account for such policies.
Premiums ceded and claims reimbursed are presented on a gross basis in the consolidated income statement and
statement of financial position.
Reinsurance assets consist of amounts receivable in respect of ceded insurance liabilities. Amounts recoverable from
reinsurers are estimated in a manner consistent with the reinsured insurance or investment contract liabilities or benefits
paid and in accordance with the relevant reinsurance contract.
To the extent that reinsurance contracts principally transfer financial risk (as opposed to insurance risk) they are accounted
for directly through the consolidated statement of financial position and are not included in reinsurance assets or liabilities.
A deposit asset or liability is recognised, based on the consideration paid or received less any explicitly identified premiums
or fees to be retained by the reinsured.
If a reinsurance asset is impaired, the Group reduces the carrying amount accordingly and recognises that impairment loss
in the consolidated income statement. A reinsurance asset is impaired if there is objective evidence, as a result of an event
that occurred after initial recognition of the reinsurance asset, that the Group may not receive all amounts due to it under
the terms of the contract, and the impact on the amounts that the Group will receive from the reinsurer can be reliably
measured.
Value of business acquired (VOBA)
The VOBA in respect of a portfolio of long-term insurance and investment contracts, either directly or through the purchase
of a subsidiary, is recognised as an asset. If this results from the acquisition of an investment in a joint venture or an
associate, the VOBA is held within the carrying amount of that investment. In all cases, the VOBA is amortised over the
estimated life of the contracts in the acquired portfolio on a systematic basis. The rate of amortisation reflects the profile of
the value of in-force business acquired. The carrying value of VOBA is reviewed annually for impairment and any reduction
is charged to the consolidated income statement.
Shadow accounting
Shadow accounting is applied to insurance and certain investment contracts with discretionary participation feature
where financial assets backing insurance and investment contract liabilities are classified as available for sale. Shadow
accounting is applied to deferred acquisition costs, VOBA, deferred origination costs and the contract liabilities for
investment contracts with DPF to take into account the effect of unrealised gains or losses on insurance liabilities or
assets that are recognised in other comprehensive income in the same way as for a realised gain or loss recognised in the
consolidated income statement. Such assets or liabilities are adjusted with corresponding charges or credits recognised
directly in shareholders’ equity as a component of the related unrealised gains and losses.
Other assessments and levies
The Group is potentially subject to various periodic insurance-related assessments or guarantee fund levies. Related
provisions are established where there is a present obligation (legal or constructive) as a result of a past event. Such
amounts are not included in insurance or investment contract liabilities but are included under “Provisions” in the
consolidated statement of financial position.
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2.5 Financial instruments
2.5.1 Classification of and designation of financial instruments
Financial assets and liabilities at fair value through profit or loss
Financial assets and liabilities at fair value through profit or loss comprise two categories:
(cid:127)
(cid:127)
financial assets or liabilities designated at fair value through profit or loss upon initial recognition; and
financial assets or liabilities classified as held for trading.
Management designates financial assets and liabilities at fair value through profit or loss if this eliminates a measurement
inconsistency or if the related assets and liabilities are actively managed on a fair value basis, including:
(cid:127)
financial assets held to back unit-linked contracts and participating funds;
(cid:127) other financial assets managed on a fair value basis; consisting of the Group’s equity portfolio and investments held by
the Group’s fully consolidated investment funds; and
(cid:127) compound instruments containing an embedded derivative, where the embedded derivative would otherwise require
bifurcation.
Financial assets and liabilities classified as held for trading include financial assets acquired principally for the purpose
of selling them in the near future and those that form part of a portfolio of financial assets in which there is evidence of
short-term profit taking, as well as derivative assets and liabilities.
Dividend income from equity instruments designated at fair value through profit or loss is recognised in investment income
in the consolidated income statement, generally when the security becomes ex-dividend. Interest income is recognised on
an accrued basis. For all financial assets designated at fair value through profit or loss, changes in fair value are recognised
in investment experience.
Transaction costs in respect of financial assets and liabilities at fair value through profit or loss are expensed as they are
incurred.
Available for sale financial assets
Financial assets, other than those at fair value through profit or loss, and loans and receivables, are classified as available
for sale.
The available for sale category is used where the relevant investments backing insurance and investment contract liabilities
and shareholders’ equity are not managed on a fair value basis. These principally consist of the Group’s debt securities
(other than those backing participating funds and unit-linked contracts). Available for sale financial assets are initially
recognised at fair value plus attributable transaction costs. For available for sale debt securities, the difference between
their cost and par value is amortised. Available for sale financial assets are subsequently measured at fair value. Interest
income from debt securities classified as available for sale is recognised in investment income in the consolidated income
statement using the effective interest method.
Unrealised gains and losses on securities classified as available for sale are analysed between differences resulting from
foreign currency translation, and other fair value changes. Foreign currency translation differences on monetary available
for sale investments, such as debt securities are calculated as if they were carried at amortised cost and so are recognised
in the consolidated income statement as investment experience. For impairments of available for sale financial assets,
reference is made to the section “Impairment of financial assets”.
Changes in the fair value of securities classified as available for sale, except for impairment losses and relevant foreign
exchange gains and losses, are recognised in other comprehensive income and accumulated in a separate fair value reserve
within equity. Impairment losses and relevant foreign exchange gains and losses are recognised in the income statement.
Realised gains and losses on financial assets
Realised gains and losses on available for sale financial assets are determined as the difference between the sale proceeds
and amortised cost. Amortised cost is determined by specific identification.
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FINANCIAL STATEMENTS| AIA GROUP LIMITED 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5 Financial instruments (continued)
2.5.1 Classification of and designation of financial instruments (continued)
Recognition of financial instruments
Purchases and sales of financial instruments are recognised on the trade date, which is the date at which the Group
commits to purchase or sell the assets.
Derecognition and offset of financial assets
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where
the Group has transferred substantially all risks and rewards of ownership. If the Group neither transfers nor retains
substantially all the risks and rewards of ownership of a financial asset, it derecognises the financial asset if it no longer
has control over the asset. In transfers where control over the asset is retained, the Group continues to recognise the asset
to the extent of its continuing involvement. The extent of continuing involvement is determined by the extent to which the
Group is exposed to changes in the fair value of the asset.
Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position
only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net
basis, or realise the asset and settle the liability simultaneously.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in
an active market. They are initially recognised at fair value plus transaction costs. Subsequently, they are carried at
amortised cost using the effective interest method less any impairment losses. Interest income from loans and receivables
is recognised in investment income in the consolidated income statement using the effective interest method.
Term deposits
Deposits include time deposits with financial institutions which do not meet the definition of cash and cash equivalents as
their maturity at acquisition exceeds three months. Certain of these balances are subject to regulatory or other restriction
as disclosed in note 19 Loans and deposits. Deposits are stated at amortised cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid
investments with maturities at acquisition of three months or less, which are held for cash management purposes. Cash and
cash equivalents also include cash received as collateral for derivative transactions, securities lending transactions, and
repo and reverse repo transactions, as well as cash and cash equivalents held for the benefit of policyholders in connection
with unit-linked products. Cash and cash equivalents are measured at amortised cost using the effective interest method.
2.5.2 Fair values of non-derivative financial instruments
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date, having regard to the specific characteristics
of the asset or liability concerned, assuming that the transfer takes place in the most advantageous market to which
the Group has access. The fair values of financial instruments traded in active markets (such as financial instruments
at fair value through profit or loss and available for sale securities) are based on quoted market prices at the date of the
consolidated statement of financial position. The quoted market price used for financial assets held by the Group is the
current bid price, which is considered to be the price within the bid-ask spread that is most representative of the fair value
in the circumstances. The fair values of financial instruments that are not traded in active markets are determined using
valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions
at the date of each consolidated statement of financial position. The objective of using a valuation technique is to estimate
the price at which an orderly transaction would take place between market participants at the date of the consolidated
statement of financial position.
Financial instruments carried at fair value are measured using a fair value hierarchy described in note 21.
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2.5 Financial instruments (continued)
2.5.3 Impairment of financial assets
General
Financial assets are assessed for impairment on a regular basis. The Group assesses at each reporting date whether there
is objective evidence that a financial asset or group of financial assets is impaired. A financial asset, or group of financial
assets, is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or
more events that have occurred after the initial recognition of the asset (a loss event) and that loss event (or events) has an
impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
For loans and receivables, the Group first assesses whether objective evidence of impairment exists for financial assets
that are individually significant. If the Group determines that objective evidence of impairment does not exist for an
individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with
similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for
impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment
of impairment.
Available for sale financial instruments
When a decline in the fair value of an available for sale asset has been recognised in other comprehensive income and there
is objective evidence that the asset is impaired, the cumulative loss already recognised directly in other comprehensive
income is recognised in current period profit or loss.
If the fair value of a debt instrument classified as available for sale increases in a subsequent period, and the increase can
be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss
is reversed through profit or loss. Where, following the recognition of an impairment loss in respect of an available for sale
debt security, the asset suffers further falls in value, such further falls are recognised as an impairment only in the case
when objective evidence exists of a further impairment event to which the losses can be attributed.
Loans and receivables
For loans and receivables, impairment is considered to have taken place if it is probable that the Group will not be able to
collect principal and/or interest due according to the contractual terms of the instrument. When impairment is determined
to have occurred, the carrying amount is decreased through a charge to profit or loss. The carrying amount of mortgage
loans or receivables is reduced through the use of an allowance account, and the amount of any allowance is recognised
as an impairment loss in profit or loss.
2.5.4 Derivative financial instruments
Derivative financial instruments primarily include foreign exchange contracts and interest rate swaps that derive their
value mainly from underlying foreign exchange rates and interest rates. All derivatives are initially recognised in the
consolidated statement of financial position at their fair value, which represents their cost excluding transaction costs,
which are expensed, giving rise to a day one loss. They are subsequently remeasured at their fair value, with movements
in this value recognised in profit or loss. Fair values are obtained from quoted market prices or, if these are not available,
by using valuation techniques such as discounted cash flow models or option pricing models. All derivatives are carried as
assets when the fair values are positive and as liabilities when the fair values are negative.
Derivative instruments for economic hedging
Whilst the Group enters into derivative transactions to provide economic hedges under the Group’s risk management
framework, it adopts hedge accounting to these transactions only in limited circumstances. This is either because the
transactions would not meet the specific IFRS rules to be eligible for hedge accounting or the documentation requirements
to meet hedge accounting criteria would be unduly onerous. Where hedge accounting does not apply, these transactions
are treated as held for trading and fair value movements are recognised immediately in investment experience.
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FINANCIAL STATEMENTS| AIA GROUP LIMITED 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5 Financial instruments (continued)
2.5.4 Derivative financial instruments (continued)
Embedded derivatives
Embedded derivatives are derivatives embedded within other non-derivative host financial instruments to create hybrid
instruments. Where the economic characteristics and risks of the embedded derivatives are not closely related to the
economic characteristics and risks of the host instrument, and where the hybrid instrument is not measured at fair value
with changes in fair value recognised in profit or loss, the embedded derivative is bifurcated and carried at fair value as a
derivative in accordance with IAS 39.
2.6 Segment reporting
An operating segment is a component of the Group that engages in business activity from which it earns revenues and
incurs expenses and, for which, discrete financial information is available, and whose operating results are regularly
reviewed by the Group’s chief operating decision-maker, considered to be the Executive Committee of the Group (ExCo).
2.7 Foreign currency translation
Income statements and cash flows of foreign entities are translated into the Group’s presentation currency at average
exchange rates for the year as this approximates to the exchange rates prevailing at the transaction date. Their statements
of financial position are translated at year or period end exchange rates. Exchange differences arising from the translation
of the net investment in foreign operations, are taken to the currency translation reserve within equity. On disposal of a
foreign operation, such exchange differences are transferred out of this reserve and are recognised in the consolidated
income statement as part of the gain or loss on sale.
Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transactions. Gains
and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities
denominated in foreign currencies into functional currency, are recognised in the consolidated income statement.
Translation differences on financial assets designated at fair value through profit or loss are included in investment
experience. For monetary financial assets classified as available for sale, translation differences are calculated as if they
were carried at amortised cost and so are recognised in the consolidated income statement. Foreign exchange movements
on non-monetary equities that are accounted for as available for sale are included in the fair value reserve.
2.8 Property, plant and equipment
Property held for own use is carried at fair value at last valuation date less accumulated depreciation. When an asset is
adjusted for the latest fair value, any accumulated depreciation at the date of valuation is eliminated against the gross
carrying amount of the asset. The movement of fair values is generally recognised in other comprehensive income. When
such properties are sold, the amounts accumulated in other comprehensive income are transferred to retained earnings.
The Group records its interest in leasehold land and land use rights associated with property held for own use separately
as operating leases or finance leases depending on whether substantially all the risks and rewards incidental to ownership
of the land are transferred to the Group. Those interests classified as finance leases are reported as a component of the
property held for own use and carried at fair value at last valuation date. The prepayments to acquire leasehold land
classified as operating leases are recorded at original cost within “Other assets” and amortised over the term of the lease
(see note 2.19).
Plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses.
Historical cost includes expenditure that is directly attributable to the acquisition of the items.
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2.8 Property, plant and equipment (continued)
Depreciation is calculated using the straight-line method to allocate cost less any residual value over the estimated useful
life, generally:
Fixtures, fittings and office equipment
Buildings
Computer hardware and other assets
Freehold land
5 years
20-40 years
3-5 years
No depreciation
Subsequent costs are included in the carrying amount or recognised as a separate asset, as appropriate, when it is probable
that future economic benefits will flow to the Group. Repairs and maintenance are charged to the consolidated income
statement during the financial period in which they are incurred.
Residual values and useful lives are reviewed and adjusted, if applicable, at each reporting date. An asset is written down
to its recoverable amount if the carrying value is greater than the estimated recoverable amount.
Any gain and loss arising on disposal of property, plant and equipment is measured as the difference between the net sale
proceeds and the carrying amount of the relevant asset, and is recognised in the consolidated income statement.
2.9 Investment property
Property held for long-term rental or capital appreciation or both that is not occupied by the Group is classified as
investment property. Investment property, including land and buildings, is initially recognised at cost with changes in fair
values in subsequent periods recognised in the consolidated income statement.
If an investment property becomes held for own use, it is reclassified as property, plant and equipment. Where a property
is partly used as an investment property and partly for the use by the Group, these elements are recorded separately within
investment property and property, plant and equipment respectively, where the component used as investment property
would be capable of separate sale or finance lease.
2.10 Goodwill and other intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable
assets of the acquired subsidiary, associate or joint venture at the date of acquisition. Goodwill on acquisitions prior to 1
December 2006 (the date of transition to IFRS) is carried at book value (original cost less cumulative amortisation) on that
date, less any impairment subsequently incurred. Goodwill arising on the Group’s investment in subsidiaries since that
date is shown as a separate asset and is carried at cost less any accumulated impairment losses, whilst that on associates
and joint ventures is included within the carrying value of those investments. All acquisition-related costs are expensed
as incurred.
Other intangible assets
Other intangible assets consist primarily of acquired computer software and contractual relationships, such as access
to distribution networks, and are amortised over their estimated useful lives. The amortisation charge for rights to
access distribution networks is included in the consolidated income statement under “Commission and other acquisition
expenses”.
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the
specific software. Costs directly associated with the internal production of identifiable and unique software by the Group
that will generate economic benefits exceeding those costs over a period greater than a year, are recognised as intangible
assets. All other costs associated with developing or maintaining computer software programmes are recognised as an
expense as incurred. Costs of acquiring computer software licences and incurred in the internal production of computer
software are amortised using the straight-line method over the estimated useful life of the software, which does not
generally exceed a period of 3 to 15 years. The amortisation charge for the year is included in the consolidated income
statement under “Operating expenses”.
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FINANCIAL STATEMENTS| AIA GROUP LIMITED 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.11 Impairment of non-financial assets
Property, plant and equipment, goodwill and other non-financial assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised to
the extent that the carrying amount of the asset exceeds its recoverable amount, which is the higher of the fair value of the
asset less cost to sell and value in use. For the purposes of assessing impairment, assets are grouped into cash-generating
units at the level of the Group’s operating segments, the lowest level for which separately identifiable cash flows are
reported. The carrying values of goodwill and intangible assets with indefinite useful lives are reviewed at least annually
or when circumstances or events indicate that there may be uncertainty over this value.
The Group assesses at the end of each reporting period whether there is any objective evidence that its investments
in associates and joint ventures are impaired. Such objective evidence includes whether there has been any significant
adverse changes in the technological, market, economic or legal environment in which the associates and joint ventures
operate or whether there has been a significant or prolonged decline in value below their cost. If there is an indication that
an interest in an associate or a joint venture is impaired, the Group assesses whether the entire carrying amount of the
investment (including goodwill) is recoverable. An impairment loss is recognised in profit or loss for the amount by which
the carrying amount is lower than the higher of the investment’s fair value less costs to sell or value in use. Any reversal of
such impairment loss in subsequent periods is reversed through profit or loss.
In the statement of financial position of the Company, impairment testing of the investments in subsidiaries, associates and
joint ventures is required upon receiving dividends from these investments if the dividend exceeds the total comprehensive
income of the subsidiaries, associates or joint ventures in the period the dividend is declared or if the carrying amount of
the relevant investment in the Company’s statement of financial position exceeds its carrying amount in the consolidated
financial statements of the investees’ net assets including goodwill.
2.12 Securities lending including repurchase agreements
The Group has been a party to various securities lending agreements under which securities are loaned to third parties on a
short-term basis. The loaned securities are not derecognised and so they continue to be recognised within the appropriate
investment classification.
Assets sold under repurchase agreements (repos)
Assets sold under repurchase agreements continue to be recognised and a liability is established for the consideration
received. The Group may be required to provide additional collateral based on the fair value of the underlying assets, and
such collateral assets remain on the consolidated statement of financial position.
Assets purchased under agreements to resell (reverse repos)
The Group enters into purchases of assets under agreements to resell (reverse repos). Reverse repos are initially recorded
at the cost of the loan or collateral advanced within the caption “Loans and deposits” in the consolidated statement of
financial position. In the event of failure by the counterparty to repay the loan, the Group has the right to the underlying
assets.
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2.13 Collateral
The Group receives and pledges collateral in the form of cash or non-cash assets in respect of derivative transactions,
securities lending transactions, and repo and reverse repo transactions, in order to reduce the credit risk of these
transactions. The amount and type of collateral depends on an assessment of the credit risk of the counterparty. Collateral
received in the form of cash, which is not legally segregated from the Group, is recognised as an asset in the consolidated
statement of financial position with a corresponding liability for the repayment. Non-cash collateral received is not
recognised on the consolidated statement of financial position unless the Group either sells or repledges these assets in
the absence of default, at which point the obligation to return this collateral is recognised as a liability. To further minimise
credit risk, the financial condition of counterparties is monitored on a regular basis.
Collateral pledged in the form of cash which is legally segregated from the Group is derecognised from the consolidated
statement of financial position and a corresponding receivable established for its return. Non-cash collateral pledged is
not derecognised (except in the event of default) and therefore continues to be recognised in the consolidated statement
of financial position within the appropriate financial instrument classification.
2.14 Borrowings
Borrowings are recognised initially at their issue proceeds less transaction costs incurred. Subsequently, borrowings are
stated at amortised cost, and any difference between net proceeds and redemption value is recognised in the consolidated
income statement over the period of the borrowings using the effective interest method. All borrowing costs are expensed
as they are incurred, except for borrowing costs directly attributable to the development of investment properties and other
qualifying assets, which are capitalised as part of the cost of the asset.
2.15 Income taxes
The current tax expense is based on the taxable profits for the year, including any adjustments in respect of prior years. Tax
is allocated to profit or loss before taxation and amounts charged or credited to equity as appropriate.
Deferred tax is recognised in respect of temporary differences between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements, except as described below.
The principal temporary differences arise from the basis of recognition of insurance and investment contract liabilities,
revaluation of certain financial assets and liabilities including derivative contracts, deferred acquisition costs and the future
taxes arising on the surplus in life funds where the relevant local tax regime is distributions-based. The rates enacted or
substantively enacted at the date of the consolidated statement of financial position are used to determine deferred tax.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which
the temporary differences can be utilised. In countries where there is a history of tax losses, deferred tax assets are only
recognised in excess of deferred tax liabilities if there is evidence that future profits will be available.
Deferred taxes are not provided in respect of temporary differences arising from the initial recognition of goodwill or from
goodwill for which amortisation is not deductible for tax purposes, or from the initial recognition of an asset or liability in
a transaction which is not a business combination and which affects neither accounting nor taxable profit or loss at the
time of the transaction.
Deferred tax related to fair value remeasurement of available for sale investments and other amounts taken directly to
equity, is recognised initially within the applicable component of equity. It is subsequently recognised in the consolidated
income statement, together with the gain or loss arising on the underlying item.
In addition to paying tax on shareholders’ profits, certain of the Group’s life insurance businesses pay tax on policyholders’
investment returns (policyholder tax) at policyholder tax rates. Policyholder tax is accounted for as an income tax and is
included in the total tax expense and disclosed separately.
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FINANCIAL STATEMENTS| AIA GROUP LIMITED 2. SIGNIFICANT ACCOUNTING POLICIES (continued)
2.16 Revenue
Investment return
Investment income consists of dividends, interest and rents receivable for the reporting period. Investment experience
comprises realised gains and losses, impairments and unrealised gains and losses on investments held at fair value
through profit or loss. Interest income is recognised as it accrues, taking into account the effective yield on the investment.
Rental income on investment property is recognised on an accrual basis. Investment return consists of investment income
and investment experience.
The realised gain or loss on disposal of an investment is the difference between the proceeds received, net of transaction
costs, and its original cost or amortised cost as appropriate. Unrealised gains and losses represent the difference between
the carrying value at the year end and the carrying value at the previous year end or purchase price if purchased during the
year, less the reversal of previously recognised unrealised gains and losses in respect of disposals made during the year.
Other fee and commission income
Other fee and commission income consists primarily of fund management fees, income from any incidental non-insurance
activities, distribution fees from mutual funds, commissions on reinsurance ceded and commission revenue from the sale
of mutual fund shares. Reinsurance commissions receivable are deferred in the same way as acquisition costs. All other
fee and commission income is recognised as the services are provided.
2.17 Employee benefits
Annual leave and long service leave
Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision
is made for the estimated liability for annual leave and long service leave as a result of services rendered by employees up
to the reporting date.
Post-retirement benefit obligations
The Group operates a number of funded and unfunded post-retirement employee benefit schemes, whose members receive
benefits on either a defined benefit basis (generally related to salary and length of service) or a defined contribution basis
(generally related to the amount invested, investment return and annuity rates), the assets of which are generally held
in separate trustee-administered funds. The defined benefit plans provide life and medical benefits for employees after
retirement and a lump sum benefit on cessation of employment, and the defined contribution plans provide post-retirement
pension benefits.
For defined benefit plans, the costs are assessed using the projected unit credit method. Under this method, the cost of
providing benefits is charged to the consolidated income statement so as to spread the regular cost over the service lives
of employees, in accordance with the advice of qualified actuaries. The obligation is measured as the present value of the
estimated future cash outflows, using a discount rate based on market yields for high-quality corporate bonds that are
denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms
of the related liability. The resulting scheme surplus or deficit appears as an asset or liability in the consolidated statement
of financial position.
Remeasurements arising from defined benefit plans comprise actuarial gains and losses, the return on plan assets
(excluding interest) and the effect of the asset ceiling (if any, excluding interest). The Group recognises them immediately
in other comprehensive income and all other expenses related to defined benefit plans in staff costs in the consolidated
income statement.
When the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed benefit related to past
service by employees, or the gain or loss on curtailment, is recognised immediately in consolidated income statement
when the plan amendment or curtailment occurs.
For defined contribution plans, the Group pays contributions to publicly or privately administered pension plans. Once
the contributions have been paid, the Group, as employer, does not have any further payment obligations. The Group’s
contributions are charged to the consolidated income statement in the reporting period to which they relate and are
included in staff costs.
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2.17 Employee benefits (continued)
Share-based compensation and cash incentive plans
The Group launched a number of share-based compensation plans, under which the Group receives services from the
employees, directors, officers and agents as consideration for the shares and/or share options of the Company. These
share-based compensation plans comprise the Share Option Scheme (SO Scheme), the Restricted Share Unit Scheme
(RSU Scheme), the Employee Share Purchase Plan (ESPP) and the Agency Share Purchase Plan (ASPP).
The Group’s share-based compensation plans are predominantly equity-settled plans. Under equity-settled share-based
compensation plan, the fair value of the employee services received in exchange for the award of shares and/or share
options is recognised as an expense in profit or loss over the vesting period with a corresponding amount recorded in
equity.
The total amount to be expensed over the vesting period is determined by reference to the fair value of the share and/or
share options awarded. Non-market vesting conditions are included in assumptions about the number of shares and/or
share options that are expected to be vested. At each period end, the Group revises its estimates of the number of shares
and/or share options that are expected to be vested. Any impact of the revision to original estimates is recognised in profit
or loss with a corresponding adjustment to equity. Where awards of share-based payment arrangements have graded
vesting terms, each tranche is recognised as a separate award, and therefore the fair value of each tranche is recognised
over the applicable vesting period.
The Group estimates the fair value of share options using a binomial lattice model. This model requires inputs such as
share price, implied volatility, risk-free interest rate, expected dividend rate and the expected life of the share option.
Where modification or cancellation of an equity-settled share-based compensation plan occurs, the grant date fair
value continues to be recognised, together with any incremental value arising on the date of modification if non-market
conditions are met.
For cash-settled share-based compensation plans, the fair value of the employee services in exchange for the award of
cash-settled award is recognised as an expense in profit or loss, with a corresponding amount recognised in liability. At the
end of each reporting period, any unsettled award is remeasured based on the change in fair value of the underlying asset
and the liability and expense are adjusted accordingly.
2.18 Provisions and contingencies
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is
probable that an outflow of economic resources will be required to settle the obligation, and a reliable estimate of the
amount of the obligation can be made. Where the Group expects a provision to be reimbursed, for example under an
insurance contract held, the reimbursement is recognised as a separate asset only when the reimbursement is virtually
certain.
The Group recognises a provision for onerous contracts when the expected benefits to be derived from a contract are less
than the unavoidable costs of meeting the obligations under the contract.
Contingencies are disclosed if material and if there is a possible future obligation as a result of a past event, or if there
is a present obligation as a result of a past event, but either a payment is not probable or the amount cannot be reliably
estimated.
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2.19 Leases
Leases, where a significant portion of the risks and rewards of ownership is retained by the Group as a lessor, are classified
as operating leases. Assets subject to such leases are included in property, plant and equipment or investment property,
and are depreciated to their residual values over their estimated useful lives. Rentals from such leases are credited to the
consolidated income statement on a straight-line basis over the period of the relevant lease.
Payments made by the Group as lessee under operating leases are classified either as an operating lease prepayment
or as a component of investment property depending on whether the property interest is used as investment property.
Operating leases held for long-term rental or capital appreciation or both that are not occupied by the Group are classified
as investment property. They are initially recognised at cost with changes in fair values in subsequent periods recognised
in the consolidated income statement. The Group classifies amounts paid to acquire leasehold land which are held for the
Group’s own occupancy as an operating lease prepayment or as a component of property, plant and equipment depending
on whether substantially all the risks and rewards incidental to the ownership of the land are transferred to the Group.
Prepayments for land use rights under operating leases that are held for the Group’s own occupancy (net of any incentives
received from the lessor) are included within “Other assets” and charged to the consolidated income statement on a
straight-line basis over the period of the relevant lease. There are not any freehold land interests in Hong Kong.
2.20 Share capital
Ordinary shares are classified in equity when there is not any obligation to transfer cash or other assets to the holders.
Share issue costs
Incremental external costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax,
from the proceeds of the issue.
Dividends
Interim dividends on ordinary shares are recognised when they have been paid. Final dividends on ordinary shares are
recognised when they have been approved by shareholders.
2.21 Presentation of the consolidated statement of financial position
The Group’s insurance and investment contract liabilities and related assets are realised and settled over periods of several
years, reflecting the long-term nature of the Group’s products. Accordingly, the Group presents the assets and liabilities
in its consolidated statement of financial position in approximate order of liquidity, rather than distinguishing current and
non-current assets and liabilities. The Group regards its intangible assets, investments in associates and joint ventures,
property, plant and equipment, investment property and deferred acquisition and origination costs as non-current assets
as these are held for the longer-term use of the Group.
2.22 Earnings per share
Basic earnings per share is calculated by dividing net profit available to ordinary shareholders by the weighted average
number of ordinary shares in issue during the year.
Earnings per share has also been calculated on the operating profit before adjusting items, attributable to ordinary
shareholders, as the Directors believe this figure provides a better indication of operating performance.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion
of all dilutive potential ordinary shares, such as share options awarded to employees.
Potential or contingent share issuances are treated as dilutive when their conversion to shares would decrease net earnings
per share.
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2.23 Fiduciary activities
Assets and income arising from fiduciary activities, together with related undertakings to return such assets to customers,
are excluded from these consolidated financial statements where the Group does not have contractual rights to the assets
and acts in a fiduciary capacity such as nominee, trustee or agent.
2.24 Consolidated statement of cash flow
The consolidated statement of cash flow presents movements in cash and cash equivalents and bank overdrafts as shown
in the consolidated statement of financial position.
Purchases and sales of financial investments are included in operating cash flows as the purchases are funded from
cash flows associated with the origination of insurance and investment contracts, net of payments of related benefits and
claims. Purchases and sales of investment property are included within cash flows from investing activities.
2.25 Related party transactions
Transactions with related parties are recorded at amounts mutually agreed and transacted between the parties to the
arrangement.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Group makes estimates and assumptions that affect the reported amounts of assets, liabilities, and revenue and
expenses. All estimates are based on management’s knowledge of current facts and circumstances, assumptions based
on that knowledge and predictions of future events and actions. Actual results can always differ from those estimates,
possibly significantly.
Items that are considered particularly sensitive to changes in estimates and assumptions, and the relevant accounting
policies are those which relate to product classification, insurance contract liabilities (including liabilities in respect
of investment contracts with DPF), deferred acquisition and origination costs, liability adequacy testing, fair value
measurement, impairment of financial assets and impairment of goodwill and other intangible assets.
3.1 Product classification
The Group issues contracts that transfer insurance risk or financial risk or both. Insurance contracts are those contracts
that transfer significant insurance risk, while investment contracts are those contracts without significant insurance risk.
The Group exercises significant judgement to determine whether there is a scenario (other than those lacking commercial
substance) in which an insured event would require the Group to pay significant additional benefits to its customers.
In the event the Group has to pay significant additional benefits to its customers, the contract is accounted for as an
insurance contract. The judgements exercised in determining the level of insurance risk in product classification affect the
amounts recognised in the consolidated financial statements as insurance and investment contract liabilities and deferred
acquisition and origination costs. The accounting policy on product classification is described in note 2.4.
3.2 Insurance contract liabilities (including liabilities in respect of investment contracts with DPF)
The Group calculates the insurance contract liabilities for traditional life insurance using a net level premium valuation
method, whereby the liability represents the present value of estimated future policy benefits to be paid, less the present
value of estimated future net premiums to be collected from policyholders. This method uses best estimate assumptions
at inception adjusted for a provision for the risk of adverse deviation for mortality, morbidity, expected investment yields,
policyholder dividends (for other participating business), surrenders and expenses set at the policy inception date. These
assumptions remain locked in thereafter, unless a deficiency arises on liability adequacy testing. Interest rate assumptions
can vary by geographical market, year of issuance and product. Mortality, surrender and expense assumptions are based
on actual experience by each geographical market, modified to allow for variations in policy form. The Group exercises
significant judgement in making appropriate assumptions.
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FINANCIAL STATEMENTS| AIA GROUP LIMITED 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
3.2 Insurance contract liabilities (including liabilities in respect of investment contracts with DPF) (continued)
For contracts with an explicit account balance, such as universal life and unit-linked contracts, insurance contract liabilities
represent the accumulation value, which represents premiums received and investment returns credited to the policy
less deductions for mortality and morbidity costs and expense charges. Significant judgement is exercised in making
appropriate estimates of gross profits which are based on historical and anticipated future experiences, these estimates
are regularly reviewed by the Group.
The Group accounts for insurance contract liabilities for participating business written in participating funds by
establishing a liability for the present value of guaranteed benefits less estimated future net premiums to be collected
from policyholders. In addition, an insurance liability is recorded for the proportion of the net assets of the participating
funds that would be allocated to policyholders assuming all relevant surplus at the date of the consolidated statement of
financial position were to be declared as a policyholder dividend based upon applicable regulations. Establishing these
liabilities requires the exercise of significant judgement. In addition, the assumption that all relevant performance is
declared as a policyholder dividend may not be borne out in practice. The Group accounts for other participating business
by establishing a liability for the present value of guaranteed benefits and non-guaranteed participation, less estimated
future net premiums to be collected from policyholders.
The judgements exercised in the valuation of insurance contract liabilities (including investment contracts with DPF) affect
the amounts recognised in the consolidated financial statements as insurance contract benefits and insurance contract
liabilities. Further details of the related accounting policy, key risk and variables, and the sensitivities of assumptions to the
key variables in respect of insurance contract liabilities are provided in notes 2.4, 25 and 27.
3.3 Deferred acquisition and origination costs
The judgements exercised in the deferral and amortisation of acquisition and origination costs affect amounts recognised
in the consolidated financial statements as deferred acquisition and origination costs and insurance and investment
contract benefits.
As noted in note 2.4.1, deferred acquisition costs for traditional life insurance and annuity policies are amortised over
the expected life of the contracts as a constant percentage of expected premiums. Expected premiums are estimated at
the date of policy issue and are applied consistently throughout the life of the contract unless a deficiency occurs when
performing liability adequacy testing.
As noted in note 2.4.1, deferred acquisition costs for universal life and unit-linked contracts are amortised over the expected
life of the contracts based on a constant percentage of the present value of estimated gross profits expected to be realised
over the life of the contract or on a straight-line basis. As noted in note 3.2, significant judgement is exercised in making
appropriate estimates of gross profits. The expensing of acquisition costs is accelerated following adverse investment
performance. Likewise, in periods of favourable investment performance, previously expensed acquisition costs are
reversed, not exceeding the amount initially deferred.
Additional details of deferred acquisition and origination costs are provided in notes 2.4 and 18.
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3.4 Liability adequacy testing
The Group evaluates the adequacy of its insurance and investment contract liabilities with DPF at least annually.
Significant judgement is exercised in determining the level of aggregation at which liability adequacy testing is performed
and in selecting best estimate assumptions. Liability adequacy is assessed by portfolio of contracts in accordance with
the Group’s manner of acquiring, servicing and measuring the profitability of its insurance contracts. The Group performs
liability adequacy testing separately for each reportable segment.
The judgements exercised in liability adequacy testing affect amounts recognised in the consolidated financial statements
as commission and other acquisition expenses, deferred acquisition costs, insurance contract benefits and insurance and
investment contract liabilities.
3.5 Fair value measurement
3.5.1 Fair value of financial assets
The Group determines the fair values of financial assets traded in active markets using quoted bid prices as of each
reporting date. The fair values of financial assets that are not traded in active markets are typically determined using a
variety of other valuation techniques, such as prices observed in recent transactions and values obtained from current bid
prices of comparable investments. More judgement is used in measuring the fair value of financial assets for which market
observable prices are not available or are available only infrequently.
The degree of judgement used in measuring the fair value of financial assets generally correlates with the level of pricing
observability. Pricing observability is affected by a number of factors, including the type of financial instrument, whether
the financial instrument is new to the market and not yet established, the characteristics specific to the transaction and
general market conditions.
Changes in the fair value of financial assets held by the Group’s participating funds affect not only the value of financial
assets, but are also reflected in corresponding movements in insurance and investment contract liabilities. This is due to
an insurance liability being recorded for the proportion of the net assets of the participating funds that would be allocated
to policyholders if all relevant surplus at the date of the consolidated statement of financial position were to be declared as
a policyholder dividend based on current local regulations. Both of the foregoing changes are reflected in the consolidated
income statement.
Changes in the fair value of financial assets held to back the Group’s unit-linked contracts result in a corresponding change
in insurance and investment contract liabilities. Both of the foregoing changes are also reflected in the consolidated
income statement.
Further details of the fair value of financial assets and the sensitivity analysis to interest rates and equity prices are
provided in notes 21 and 36.
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FINANCIAL STATEMENTS| AIA GROUP LIMITED 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
3.5 Fair value measurement (continued)
3.5.2 Fair value of property held for own use and investment property
The Group uses independent professional valuers to determine the fair value of properties on the basis of the highest and
best use of the properties that is physically possible, legally permissible and financially feasible. In most cases, current
use of the properties is considered to be the highest and best use for determining the fair value. Different valuation
techniques may be adopted to reach the fair value of the properties. Under the market data approach, records of recent
sales and offerings of similar property are analysed and comparisons are made for factors such as size, location, quality
and prospective use. For investment properties, the discounted cash flow approach may be used by reference to net rental
income allowing for reversionary income potential to estimate the fair value of the properties. On some occasions, the cost
approach is used as well to calculate the fair value which reflects the cost that would be required to replace the service
capacity of the property.
Further details of the fair value of property held for own use and investment property are provided in note 21.
3.6 Impairment of financial assets
Financial assets, other than those at fair value through profit or loss, are assessed for impairment regularly. This requires
the exercise of significant judgement. The Group assesses at each reporting date whether there is objective evidence that
a financial asset or a group of financial assets is impaired. Objective evidence that a financial asset, or group of assets, is
impaired includes observable data that comes to the attention of the Group about the following events:
(cid:127) significant financial difficulty of the issuer or debtor;
(cid:127) a breach of contract, such as a default or delinquency in payments;
(cid:127)
(cid:127)
it becomes probable that the issuer or debtor will enter bankruptcy or other financial reorganisation;
the disappearance of an active market for that financial asset because of financial difficulties; or
(cid:127) observable data, including market prices, indicating that there is a potential decrease in the estimated future cash
flows since the initial recognition of those assets, including:
– adverse changes in the payment status of issuers; or
– national or local economic conditions that correlate with increased default risk.
For loans and receivables, impairment loss is determined using an analytical method based on knowledge of each loan
group or receivable. The method is usually based on historical statistics, adjusted for trends in the group of financial assets
or individual accounts.
Further details of the impairment of financial assets during the year are provided in note 23.
149
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3.7 Impairment of goodwill and other intangible assets
For the purposes of impairment testing, goodwill and other intangible assets are grouped into cash-generating units. These
assets are tested for impairment by comparing the carrying amount of the cash-generating unit, including goodwill, to
the recoverable amount of that cash-generating unit. The determination of the recoverable amount requires significant
judgement regarding the selection of appropriate valuation techniques and assumptions. Further details of the impairment
of goodwill during the year are provided in note 13.
4. EXCHANGE RATES
The Group’s principal overseas operations during the reporting period were located within the Asia-Pacific region. The
results and cash flows of these operations have been translated into US dollars at the following average rates:
Hong Kong
Thailand
Singapore
Malaysia
China
Assets and liabilities have been translated at the following year-end rates:
Hong Kong
Thailand
Singapore
Malaysia
China
Exchange rates are expressed in units of local currency per US$1.
US dollar exchange rates
Year ended
30 November
2016
Year ended
30 November
2015
7.76
35.30
1.38
4.13
6.60
7.75
33.96
1.37
3.82
6.26
US dollar exchange rates
As at
30 November
2016
As at
30 November
2015
7.76
35.61
1.43
4.47
6.89
7.75
35.84
1.41
4.25
6.40
150
FINANCIAL STATEMENTS| AIA GROUP LIMITED 5. OPERATING PROFIT AFTER TAX
Operating profit after tax may be reconciled to net profit as follows:
US$m
Operating profit after tax
Non-operating items, net of related changes in insurance and
investment contract liabilities:
Short-term fluctuations in investment return related to equities and
real estate (net of tax of 2016: US$(4)m; 2015: US$77m)
Other non-operating investment return and other items
(net of tax of 2016: US$169m; 2015: US$36m)
Net profit
Operating profit after tax attributable to:
Shareholders of AIA Group Limited
Non-controlling interests
Net profit attributable to:
Shareholders of AIA Group Limited
Non-controlling interests
Year ended
30 November
2016
Year ended
30 November
2015
(As adjusted)
4,013
3,585
Note
7
97
(717)
102
4,212
3,981
32
4,164
48
(76)
2,792
3,556
29
2,765
27
Operating profit is determined using, among others, expected long-term investment returns for equities and real estate.
Short-term fluctuations between expected long-term investment return and actual investment return for these asset
classes are excluded from operating profit. The investment return assumptions applied to determine expected long-term
investment returns are based on the same assumptions applied by the Group in determining its embedded value and are
disclosed in the Supplementary Embedded Value Information.
6. TOTAL WEIGHTED PREMIUM INCOME AND ANNUALISED NEW PREMIUMS
For management decision-making and internal performance management purposes, the Group measures business volumes
during the year using a performance measure referred to as total weighted premium income (TWPI). The Group measures
new business activity using a performance measure referred to as annualised new premiums (ANP). The presentation of
this note is consistent with our reportable segment presentation in note 7.
TWPI consists of 100 per cent of renewal premiums, 100 per cent of first year premiums and 10 per cent of single
premiums, before reinsurance ceded, and includes deposits and contributions for contracts that are accounted for as
deposits in accordance with the Group’s accounting policies.
Management considers that TWPI provides an indicative volume measure of transactions undertaken in the reporting
period that have the potential to generate profits for shareholders. The amounts shown are not intended to be indicative of
premiums and fee income recorded in the consolidated income statement.
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6. TOTAL WEIGHTED PREMIUM INCOME AND ANNUALISED NEW PREMIUMS (continued)
ANP is a key internal measure of new business activities, which consists of 100 per cent of annualised first year premiums
and 10 per cent of single premiums, before reinsurance ceded. ANP excludes new business of pension business, personal
lines and motor insurance.
Year ended
30 November
2016
Year ended
30 November
2015
6,873
3,327
2,276
1,795
2,384
5,478
5,115
3,324
2,283
1,825
2,028
5,301
22,133
19,876
2,065
1,070
439
261
276
585
872
476
261
260
410
916
4,498
3,393
1,761
163
1,443
167
194
619
1,480
194
1,959
152
107
874
4,347
4,766
4,632
2,872
1,871
1,502
1,779
4,544
3,897
2,828
1,826
1,550
1,607
4,298
17,200
16,006
TWPI
US$m
TWPI by geography
Hong Kong
Thailand
Singapore
Malaysia
China
Other Markets
Total
First year premiums by geography
Hong Kong
Thailand
Singapore
Malaysia
China
Other Markets
Total
Single premiums by geography
Hong Kong
Thailand
Singapore
Malaysia
China
Other Markets
Total
Renewal premiums by geography
Hong Kong
Thailand
Singapore
Malaysia
China
Other Markets
Total
152
FINANCIAL STATEMENTS| AIA GROUP LIMITED 6. TOTAL WEIGHTED PREMIUM INCOME AND ANNUALISED NEW PREMIUMS (continued)
ANP
US$m
ANP by geography
Hong Kong
Thailand
Singapore
Malaysia
China
Other Markets
Total
Year ended
30 November
2016
Year ended
30 November
2015
2,294
1,263
471
427
341
621
969
5,123
520
471
292
438
1,007
3,991
7. SEGMENT INFORMATION
The Group’s operating segments, based on the reports received by the ExCo, are each of the geographical markets in
which the Group operates. Each of the reportable segments, other than the “Group Corporate Centre” segment, writes
life insurance business, providing life insurance, accident and health insurance and savings plans to customers in its
local market, and distributes related investment and other financial services products. The reportable segments are Hong
Kong (including Macau), Thailand, Singapore (including Brunei), Malaysia, China, Other Markets and Group Corporate
Centre. Other Markets includes the Group’s operations in Australia, Indonesia, Korea, New Zealand, the Philippines, Sri
Lanka, Taiwan, Vietnam and India. The activities of the Group Corporate Centre segment consist of the Group’s corporate
functions, shared services and eliminations of intragroup transactions.
For the year ended 30 November 2016, Korea is no longer disclosed separately as a reportable segment.
As each reportable segment other than the Group Corporate Centre segment focuses on serving the life insurance needs
of its local market, there are limited transactions between reportable segments. The key performance indicators reported
in respect of each segment are:
(cid:127) ANP;
(cid:127) TWPI;
(cid:127)
investment return;
(cid:127) operating expenses;
(cid:127) operating profit after tax attributable to shareholders of AIA Group Limited;
(cid:127) expense ratio, measured as operating expenses divided by TWPI;
(cid:127) operating margin, measured as operating profit after tax expressed as a percentage of TWPI; and
(cid:127) operating return on shareholders’ allocated equity measured as operating profit after tax attributable to shareholders
of AIA Group Limited expressed as a percentage of the simple average of opening and closing shareholders’ allocated
segment equity (being the segment assets less segment liabilities in respect of each reportable segment less
non-controlling interests and fair value reserve).
In presenting net capital in/(out) flows to reportable segments, capital outflows consist of dividends and profit distributions
to the Group Corporate Centre segment and capital inflows consist of capital injections into reportable segments by the
Group Corporate Centre segment. For the Group, net capital in/(out) flows reflect the net amount received from shareholders
by way of capital contributions less amounts distributed by way of dividends.
Business volumes in respect of the Group’s five largest customers are less than 30 per cent of premiums and fee income.
153
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US$m
Hong Kong
Thailand
Singapore
Malaysia
China
Other
Markets
Group
Corporate
Centre
Total
Total expenses
7,515
3,372
3,152
1,831
2,330
3,801
2,294
6,873
7,172
1,788
8,960
471
427
341
621
969
3,327
2,276
1,795
2,384
5,478
–
–
5,123
22,133
3,271
1,056
4,327
2,659
1,024
3,683
1,621
2,267
541
663
2,162
2,930
3,655
1,025
4,680
(4) 20,641
327
323
6,424
27,065
6,311
2,541
2,672
1,474
1,937
2,588
(11) 17,512
790
310
104
609
184
38
303
161
16
183
163
11
146
235
12
655
515
43
–
1,445
(101)
1,344
–
955
(187)
768
–
531
(78)
453
–
331
(64)
267
–
600
(131)
469
(5)
874
(192)
682
–
184
110
283
–
40
(10)
30
2,686
1,752
334
22,284
(5)
4,776
(763)
4,013
1,334
10
768
–
453
–
265
2
469
–
662
20
30
–
3,981
32
4.5%
5.5%
7.1%
9.1%
9.9%
9.4%
19.6%
23.1%
19.9%
14.9%
19.7%
12.4%
22.9%
19.0%
19.1%
19.7%
17.0%
13.5%
28
23
5
9
7
13
2
17
19
13
2
37
–
–
–
86
15
7.9%
18.1%
14.1%
149
127
Year ended 30 November 2016
ANP
TWPI
Net premiums, fee income and
other operating revenue
(net of reinsurance ceded)
Investment return
Total revenue
Net insurance and investment
contract benefits
Commission and other acquisition
expenses
Operating expenses
Finance costs and other expenses
Share of losses from associates
and joint venture
Operating profit before tax
Tax on operating profit before tax
Operating profit after tax
Operating profit after tax
attributable to:
Shareholders of AIA Group
Limited
Non-controlling interests
Key operating ratios:
Expense ratio
Operating margin
Operating return on shareholders’
allocated equity
Operating profit before tax includes:
Finance costs
Depreciation and amortisation
154
FINANCIAL STATEMENTS| AIA GROUP LIMITED
7. SEGMENT INFORMATION (continued)
US$m
Hong Kong
Thailand
Singapore
Malaysia
China
Other
Markets
Group
Corporate
Centre
Total
30 November 2016
Total assets
Total liabilities
Total equity
Shareholders’ allocated equity
52,916
26,800
31,087
12,409
18,672
33,011
10,179 185,074
45,166
21,163
28,345
11,079
15,064
25,881
3,066 149,764
7,750
5,935
5,637
4,400
2,742
2,502
1,330
1,331
3,608
2,864
7,130
5,369
175
7,113
7,231
35,310
29,632
608
(1,103)
Net capital (out)/in flows
(1,034)
(411)
(209)
(186)
(46)
Total assets include:
Investments in associates and
joint venture
–
–
1
6
–
643
–
650
Segment information may be reconciled to the consolidated income statement as shown below:
Short-term
fluctuations in
investment
return related
to equities and
real estate
Segment
information
Other
non-operating
items(1)
Consolidated
income
statement
20,641
6,424
27,065
17,512
4,772
22,284
(5)
4,776
Net premiums, fee income
and other operating
–
20,641
revenue
1,089
1,089
768
326
7,555
Investment return
28,196
Total revenue
18,221
Net insurance and investment
contract benefits
5,098 Other expenses
1,094
23,319
Total expenses
Share of losses from
associates
and joint venture
(5)
4,872 Profit before tax
–
(5)
–
42
42
(59)
–
(59)
–
101
US$m
Year ended 30 November 2016
Net premiums,
fee income and other
operating revenue
Investment return
Total revenue
Net insurance and investment
contract benefits
Other expenses
Total expenses
Share of losses from
associates and
joint venture
Operating profit before tax
Note:
(1) Include unit-linked contracts.
155
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7. SEGMENT INFORMATION (continued)
US$m
Hong Kong
Thailand
Singapore
Malaysia
China
Other
Markets(2)
Group
Corporate
Centre
Total
Total expenses
5,362
3,494
3,809
1,908
2,074
3,739
Year ended 30 November 2015
– As adjusted
ANP
TWPI
Net premiums, fee income and
other operating revenue
(net of reinsurance ceded)
Investment return
Total revenue
Net insurance and investment
contract benefits
Commission and other acquisition
expenses
Operating expenses
Finance costs and other expenses
Share of profit from associates
and joint venture
Operating profit before tax
Tax on operating profit before tax
Operating profit after tax
Operating profit after tax
attributable to:
Shareholders of AIA Group
Limited
Non-controlling interests
Key operating ratios:
Expense ratio
Operating margin(1)
Operating return on shareholders’
allocated equity
Operating profit before tax includes:
1,263
5,115
520
3,324
471
2,283
292
1,825
438
2,028
1,007
5,301
–
–
3,991
19,876
5,040
1,564
6,604
3,320
1,090
4,410
3,355
956
4,311
1,679
556
2,235
1,910
641
2,551
3,507
1,017
4,524
1
18,812
319
320
6,143
24,955
4,461
2,686
3,258
1,558
1,694
2,577
(2) 16,232
558
249
94
594
177
37
381
154
16
183
156
11
145
224
11
607
509
46
–
1,242
(86)
1,156
–
916
(235)
681
–
502
(76)
426
–
327
(58)
269
–
477
(93)
384
–
785
(179)
606
1,147
9
681
–
426
–
267
2
384
–
588
18
63
–
3,556
29
4.9%
5.3%
6.7%
8.5%
22.6%
20.5%
18.7%
14.7%
11.0%
18.9%
9.6%
11.4%
20.2%
16.8%
18.2%
17.7%
16.1%
13.3%
–
169
82
249
2,468
1,638
297
20,635
–
71
(8)
63
–
4,320
(735)
3,585
–
–
–
63
13
8.2%
18.0%
13.4%
152
113
Finance costs
Depreciation and amortisation
24
17
4
10
6
12
7
14
46
12
2
35
156
FINANCIAL STATEMENTS| AIA GROUP LIMITED
7. SEGMENT INFORMATION (continued)
US$m
Hong Kong
Thailand
Singapore
Malaysia
China
Other
Markets(2)
Group
Corporate
Centre
Total
30 November 2015 – As adjusted
Total assets
Total liabilities
Total equity
Shareholders’ allocated equity
45,265
24,758
30,134
12,679
17,091
30,381
9,450 169,758
38,135
20,124
27,693
11,307
14,032
24,085
2,960 138,336
7,130
5,713
4,634
3,679
2,441
2,247
1,372
1,362
3,059
2,644
6,296
4,458
6,490
6,602
1,371
31,422
26,705
(824)
Net capital (out)/in flows
(850)
(708)
(329)
(188)
(1)
(119)
Total assets include:
Investments in associates and
joint venture
–
–
1
6
–
130
–
137
Notes:
(1) Operating margin has been adjusted to conform to the current year presentation.
(2) Includes Korea.
Segment information may be reconciled to the consolidated income statement as shown below:
Short-term
fluctuations in
investment
return related to
equities and
real estate
Segment
information
Other non-
operating
items(1)
Consolidated
income
statement
18,812
6,143
24,955
16,232
4,403
20,635
–
4,320
–
(958)
(958)
(164)
–
(164)
–
(794)
Net premiums, fee income
and other operating
–
18,812
revenue
(650)
(650)
(874)
303
(571)
–
(79)
4,535
Investment return
23,347
Total revenue
15,194
Net insurance and investment
contract benefits
4,706 Other expenses
19,900
Total expenses
Share of profit from
associates
and joint venture
–
3,447 Profit before tax
US$m
Year ended 30 November 2015
– As adjusted
Net premiums,
fee income and
other operating revenue
Investment return
Total revenue
Net insurance and investment
contract benefits
Other expenses
Total expenses
Share of profit from
associates and
joint venture
Operating profit before tax
Note:
(1) Include unit-linked contracts.
157
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8. REVENUE
Investment return
US$m
Interest income
Dividend income
Rental income
Investment income
Available for sale
Net realised gains from debt securities
Impairment of debt securities
Net gains of available for sale financial assets reflected in the consolidated
income statement
At fair value through profit or loss
Net gains/(losses) of financial assets designated at fair value through profit or loss
Net gains/(losses) of debt securities
Net gains/(losses) of equity securities
Net gains/(losses) of financial instruments held for trading
Net losses of debt investments
Net fair value movement on derivatives
Net gains/(losses) in respect of financial instruments at fair value through profit or loss
Net fair value movement of investment property
Net foreign exchange gains
Other net realised gains/(losses)
Investment experience
Investment return
Year ended
30 November
2016
Year ended
30 November
2015
(As adjusted)
5,290
654
140
6,084
25
(22)
3
125
934
(1)
39
1,097
288
75
8
1,471
7,555
5,102
622
127
5,851
44
–
44
(187)
(1,124)
(1)
(633)
(1,945)
73
593
(81)
(1,316)
4,535
Foreign currency movements resulted in the following gains recognised in the consolidated income statement (other than
gains and losses arising on items measured at fair value through profit or loss):
US$m
Foreign exchange gains
Other operating revenue
The balance of other operating revenue largely consists of asset management fees.
Year ended
30 November
2016
Year ended
30 November
2015
36
195
158
FINANCIAL STATEMENTS| AIA GROUP LIMITED
9. EXPENSES
US$m
Insurance contract benefits
Change in insurance contract liabilities
Investment contract benefits
Insurance and investment contract benefits
Insurance and investment contract benefits ceded
Insurance and investment contract benefits, net of reinsurance ceded
Commission and other acquisition expenses incurred
Deferral and amortisation of acquisition costs
Commission and other acquisition expenses
Employee benefit expenses
Depreciation
Amortisation
Operating lease rentals
Other operating expenses
Operating expenses
Investment management expenses and others
Depreciation on property held for own use
Restructuring and other non-operating costs(1)
Change in third-party interests in consolidated investment funds
Other expenses
Finance costs
Total
Year ended
30 November
2016
Year ended
30 November
2015
(As adjusted)
10,501
8,594
245
19,340
(1,119)
18,221
4,786
(2,051)
2,735
1,168
64
37
122
361
1,752
340
21
82
19
462
149
9,874
6,598
(336)
16,136
(942)
15,194
3,991
(1,523)
2,468
1,101
61
33
114
329
1,638
338
20
73
17
448
152
23,319
19,900
Note:
(1) Restructuring costs represent costs related to restructuring programmes and are primarily comprised of redundancy and contract termination
costs. Other non-operating costs primarily consist of acquisition-related and integration expenses.
Other operating expenses include auditors’ remuneration of US$15m (2015: US$13m), an analysis of which is set out
below:
US$m
Audit services
Non-audit services, including audit-related services, tax services and others
Total
Finance costs may be analysed as:
US$m
Securities lending and repurchase agreements (see note 29 for details)
Medium term notes
Other loans
Total
Year ended
30 November
2016
Year ended
30 November
2015
12
3
15
11
2
13
Year ended
30 November
2016
Year ended
30 November
2015
35
111
3
149
66
76
10
152
159
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Employee benefit expenses consist of:
US$m
Wages and salaries
Share-based compensation
Pension costs – defined contribution plans
Pension costs – defined benefit plans
Other employee benefit expenses
Total
10. INCOME TAX
US$m
Tax charged in the consolidated income statement
Current income tax – Hong Kong Profits Tax
Current income tax – overseas
Deferred income tax on temporary differences
Total
Year ended
30 November
2016
Year ended
30 November
2015
936
79
67
11
75
900
75
60
8
58
1,168
1,101
Year ended
30 November
2016
Year ended
30 November
2015
(As adjusted)
87
392
181
660
79
556
20
655
The tax benefit or expense attributable to life insurance policyholder returns in Singapore, Brunei, Malaysia, Australia,
Indonesia, the Philippines and Sri Lanka is included in the tax charge or credit and is analysed separately in the consolidated
income statement in order to permit comparison of the underlying effective rate of tax attributable to shareholders from
year to year. The tax attributable to policyholders’ returns included above is US$62m (2015: US$33m).
The provision for Hong Kong Profits Tax is calculated at 16.5 per cent. Taxation for overseas subsidiaries and branches
is charged at the appropriate current rates of taxation ruling in the relevant jurisdictions of which the most significant
jurisdictions are outlined below.
Hong Kong
Thailand
Singapore
Malaysia
China
Others
Year ended
30 November
2016
Year ended
30 November
2015
16.5%
16.5%
20%
17%
24%
25%
20%
17%
25%
25%
12% - 30% 12% – 30%
The table above reflects the principal rate of corporate income tax as at the end of each year. The rate changes reflect
changes to the enacted or substantively enacted corporate tax rates throughout the year in each jurisdiction.
During the year, Thailand enacted a permanent change in the corporate income tax rate from 30 per cent to 20 per cent
from assessment year 2016 onwards. The decrease in tax rate resulted in a reduction in deferred tax liabilities of US$314m,
of which US$181m is recognised in profit or loss and US$133m is recognised in other comprehensive income.
160
FINANCIAL STATEMENTS| AIA GROUP LIMITED 10. INCOME TAX (continued)
US$m
Income tax reconciliation
Profit before income tax
Tax calculated at domestic tax rates applicable to profits/(losses) in the respective
jurisdictions
Reduction in tax payable from:
Exempt investment income
Amount over-provided in prior years
Changes in tax rate and law
Provisions for uncertain tax positions
Others
Increase in tax payable from:
Life insurance tax(1)
Withholding taxes
Disallowed expenses
Unrecognised deferred tax assets
Provisions for uncertain tax positions
Others
Total income tax expense
Year ended
30 November
2016
Year ended
30 November
2015
(As adjusted)
4,872
3,447
935
694
(166)
(23)
(181)
–
(65)
(435)
18
1
81
30
30
–
160
660
(105)
(19)
(1)
(49)
–
(174)
7
3
57
16
–
52
135
655
Note:
(1) Life insurance tax refers to the permanent differences which arise where the tax regime specific to the life insurance business does not adopt
net income as the basis for calculating taxable profit, for example Hong Kong, where life business taxable profit is derived from life premiums.
161
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10. INCOME TAX (continued)
The movement in net deferred tax liabilities in the period may be analysed as set out below:
US$m
30 November 2016
Revaluation of financial instruments
Deferred acquisition costs
Insurance and investment contract liabilities
Withholding taxes
Provision for expenses
Losses available for offset against future
taxable income
Life surplus(1)
Others
Total
30 November 2015 – As adjusted
Revaluation of financial instruments
Deferred acquisition costs
Insurance and investment contract liabilities
Withholding taxes
Provision for expenses
Losses available for offset against future
taxable income
Life surplus(1)
Others
Total
Net deferred
tax asset/
(liability) at
1 December
Credited/
(charged) to
the income
statement
Credited/(charged) to other
comprehensive income
Fair value
reserve(2)
Foreign
exchange
Others
Net deferred
tax asset/
(liability)
at year end
(1,429)
(2,409)
1,477
(148)
139
23
(525)
(228)
26
196
(392)
(1)
(29)
47
(24)
(4)
14
–
–
–
–
–
–
–
(3,100)
(181)
14
(1,552)
(2,417)
1,574
(145)
137
18
(615)
(212)
(3,212)
128
(183)
33
(3)
7
8
20
(30)
(20)
(46)
–
–
–
–
–
–
–
2
17
9
17
(1)
(1)
15
5
63
41
191
(130)
–
(10)
(3)
70
15
(46)
174
–
–
–
–
1
–
–
(66)
(65)
–
–
–
–
5
–
–
(1)
4
(1,387)
(2,196)
1,094
(132)
110
69
(534)
(293)
(3,269)
(1,429)
(2,409)
1,477
(148)
139
23
(525)
(228)
(3,100)
Notes:
(1) Life surplus relates to the temporary difference which arises where the taxable profits are based on actual distributions from the long-term
fund. This primarily relates to Singapore and Malaysia.
(2) Of the fair value reserve deferred tax (credit)/charge of US$(14)m (2015: US$46m) for 2016, US$(8)m (2015: US$48m) relates to fair value
gains and losses on available for sale financial assets and US$(6)m (2015: US$(2)m) relates to fair value gains and losses on available for
sale financial assets transferred to income on disposal and impairment.
Deferred tax assets are recognised to the extent that sufficient future taxable profits will be available for realisation. The
Group has not recognised deferred tax assets of US$59m (2015: US$60m) on tax losses and the temporary difference on
insurance and investment contract liabilities arising from different accounting and statutory/tax reserving methodology
for certain branches and subsidiaries on the basis that they have histories of tax losses and there is insufficient evidence
that future profits will be available.
The Group has not provided deferred tax liabilities of US$156m (2015: US$110m) in respect of unremitted earnings of
operations in three jurisdictions from which a withholding tax charge would be incurred upon distribution as the Group
does not consider it probable that this portion of accumulated earnings will be remitted in the foreseeable future.
The Group has unused income tax losses carried forward in Hong Kong, Macau, Thailand, Malaysia, China, Korea, New
Zealand, the Philippines, Sri Lanka and Taiwan. The tax losses of Hong Kong, Malaysia, New Zealand and Sri Lanka can
be carried forward indefinitely. The tax losses of remaining branches and subsidiaries are due to expire within the periods
ending 2019 (Macau and the Philippines), 2021 (Thailand and China), 2025 (Taiwan) and 2026 (Korea).
162
FINANCIAL STATEMENTS| AIA GROUP LIMITED
11. EARNINGS PER SHARE
Basic
Basic earnings per share is calculated by dividing the net profit attributable to shareholders of AIA Group Limited by the
weighted average number of ordinary shares in issue during the year. The shares held by employee share-based trusts are
not considered to be outstanding from the date of the purchase for purposes of computing basic and diluted earnings per
share.
Net profit attributable to shareholders of AIA Group Limited (US$m)
Weighted average number of ordinary shares in issue (million)
Basic earnings per share (US cents per share)
Year ended
30 November
2016
Year ended
30 November
2015
(As adjusted)
4,164
11,972
34.78
2,765
11,970
23.10
Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to
assume conversion of all dilutive potential ordinary shares. As of 30 November 2016 and 2015, the Group has potentially
dilutive instruments which are the share options, restricted share units, restricted stock purchase units and restricted stock
subscription units awarded to eligible directors, officers, employees and agents under various share-based compensation
plans as described in note 38.
Net profit attributable to shareholders of AIA Group Limited (US$m)
Weighted average number of ordinary shares in issue (million)
Adjustment for share options, restricted share units, restricted stock purchase units
and restricted stock subscription units awarded under share-based compensation
plans (million)
Weighted average number of ordinary shares for diluted earnings per share (million)
Diluted earnings per share (US cents per share)
Year ended
30 November
2016
Year ended
30 November
2015
(As adjusted)
4,164
11,972
2,765
11,970
34
12,006
34.68
37
12,007
23.03
At 30 November 2016, 14,937,248 share options (2015: 5,899,149) were excluded from the diluted weighted average
number of ordinary shares calculation as their effect would have been anti-dilutive.
Operating profit after tax per share
Operating profit after tax (see note 5) per share is calculated by dividing the operating profit after tax attributable to
shareholders of AIA Group Limited by the weighted average number of ordinary shares in issue during the year. As of
30 November 2016 and 2015, the Group has potentially dilutive instruments which are the share options, restricted
share units, restricted stock purchase units and restricted stock subscription units awarded to eligible directors, officers,
employees and agents under various share-based compensation plans as described in note 38.
Basic (US cents per share)
Diluted (US cents per share)
Year ended
30 November
2016
Year ended
30 November
2015
(As adjusted)
33.25
33.16
29.71
29.62
163
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Dividends to shareholders of the Company attributable to the year:
US$m
Interim dividend declared and paid of 21.90 Hong Kong cents per share
(2015: 18.72 Hong Kong cents per share)
Final dividend proposed after the reporting date of 63.75 Hong Kong cents per share
(2015: 51.00 Hong Kong cents per share)(1)
Year ended
30 November
2016
Year ended
30 November
2015
338
289
985
1,323
788
1,077
Note:
(1) Based upon shares outstanding at 30 November 2016 and 2015 that are entitled to a dividend, other than those held by employee share-based
trusts.
The above final dividend was proposed by the Board on 24 February 2017 subject to shareholders’ approval at the AGM to
be held on 12 May 2017. The proposed final dividend has not been recognised as a liability at the reporting date.
Dividends to shareholders of the Company attributable to the previous financial year, approved and paid during the year:
US$m
Year ended
30 November
2016
Year ended
30 November
2015
Final dividend in respect of the previous financial year, approved and paid during
the year of 51.00 Hong Kong cents per share (2015: 34.00 Hong Kong cents per share)
786
525
164
FINANCIAL STATEMENTS| AIA GROUP LIMITED
13. INTANGIBLE ASSETS
US$m
Cost
At 1 December 2014
Additions
Disposals
Disposal of a subsidiary
Foreign exchange movements
At 30 November 2015
Additions
Disposals
Foreign exchange movements and others
At 30 November 2016
Accumulated amortisation
At 1 December 2014
Amortisation charge for the year
Disposals
Foreign exchange movements
At 30 November 2015
Amortisation charge for the year
Disposals
Foreign exchange movements
At 30 November 2016
Net book value
At 30 November 2015
At 30 November 2016
Goodwill
Computer
software
Distribution
and other
rights
Total
1,135
–
–
(10)
(317)
808
–
–
(33)
775
(6)
–
–
2
(4)
–
–
–
(4)
325
124
(16)
–
(28)
405
61
(4)
(4)
458
(201)
(32)
15
19
(199)
(36)
2
1
933
2,393
–
(3)
–
(60)
870
3
(1)
(57)
815
(34)
(20)
3
5
(46)
(27)
1
3
124
(19)
(10)
(405)
2,083
64
(5)
(94)
2,048
(241)
(52)
18
26
(249)
(63)
3
4
(232)
(69)
(305)
804
771
206
226
824
746
1,834
1,743
Of the above, US$1,680m (2015: US$1,782m) is expected to be recovered more than 12 months after the end of the
reporting period.
Impairment tests for goodwill
Goodwill arises primarily in respect of the Group’s insurance business in Malaysia. Goodwill is tested for impairment
by comparing the carrying amount of the cash-generating unit, including goodwill, to the recoverable amount of that
cash-generating unit. If the recoverable amount of the unit exceeds the carrying amount of the unit, the goodwill allocated
to that unit shall be regarded as not impaired. The recoverable amount is the value in use of the cash-generating unit
unless otherwise stated. The value in use is determined by calculating the present value of expected future cash flows plus
a multiple of the present value of the new business generated.
Value in use is calculated as an actuarially determined appraisal value, based on the embedded value of the business and
the value from future new business.
The key assumptions used in the embedded value calculations include investment returns, mortality, morbidity, persistency,
expenses and inflation. The value from future new business is calculated based on a combination of indicators which
include, among others, a multiple of the projected one-year value of new business (VONB), taking into account recent
production mix, business strategy and market trends. The Group may apply alternative method to estimate the value of
future new business if the described method is not appropriate under the circumstances.
165
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US$m
Group
Investments in associates
Investment in joint venture
Total
Year ended
30 November
2016
Year ended
30 November
2015
650
–
650
137
–
137
Investments in associates and joint venture are held for their long-term contribution to the Group’s performance and so all
amounts are expected to be realised more than 12 months after the end of the reporting period.
The Group’s interest in its principal associates is as follows:
Place of
incorporation
Principal
activity
Type of
shares held
Group’s interest %
As at
30 November
2016
As at
30 November
2015
Tata AIA Life Insurance Company Limited
India
Insurance
Ordinary
49%
26%
On 25 April 2016, the Group increased its shareholding of Tata AIA Life Insurance Company Limited from 26 per cent to
49 per cent.
All associates and joint venture are unlisted.
Aggregated financial information of associates
The investment in the associate is measured using the equity method. The following table analyses, in aggregate, the
carrying amount and share of profit and other comprehensive income of these associates.
US$m
Carrying amount in the statement of financial position
Losses from continuing operations
Other comprehensive income
Total comprehensive income
Year ended
30 November
2016
Year ended
30 November
2015
650
(5)
43
38
137
–
3
3
166
FINANCIAL STATEMENTS| AIA GROUP LIMITED 15. PROPERTY, PLANT AND EQUIPMENT
US$m
Cost or revaluation
At 1 December 2014 – As previously reported
Effect of change in accounting policies
At 1 December 2014 – As adjusted
Additions
Disposals
Net transfers from investment property
Foreign exchange movements
At 30 November 2015 – As adjusted
Additions
Disposals
Net transfers from investment property
Increase from valuation
Foreign exchange movements
At 30 November 2016
Accumulated depreciation
At 1 December 2014 – As previously reported
Effect of change in accounting policies
At 1 December 2014 – As adjusted
Depreciation charge for the year
Disposals
Net transfers from investment property
Foreign exchange movements
At 30 November 2015 – As adjusted
Depreciation charge for the year
Disposals
Revaluation adjustment
Foreign exchange movements
At 30 November 2016
Net book value
At 30 November 2015 – As adjusted
At 30 November 2016
Property
held for
own use
Computer
hardware
Fixtures and
fittings and
others
224
–
224
18
(18)
–
(17)
207
19
(36)
–
–
(2)
188
(181)
–
(181)
(24)
17
–
16
(172)
(19)
28
–
3
370
–
370
46
(38)
–
(21)
357
131
(13)
–
–
(11)
464
(233)
–
(233)
(37)
26
–
16
(228)
(45)
–
–
8
Total
1,151
64
1,215
78
(56)
29
(87)
1,179
153
(83)
19
312
(23)
1,557
(610)
(7)
(617)
(78)
43
(1)
53
(600)
(79)
39
209
6
(160)
(265)
(425)
35
28
129
199
579
1,132
557
64
621
14
–
29
(49)
615
3
(34)
19
312
(10)
905
(196)
(7)
(203)
(17)
–
(1)
21
(200)
(15)
11
209
(5)
–
415
905
Properties held for own use are carried at fair value at the reporting date less accumulated depreciation. The fair value
at the reporting date is determined by independent professional valuers. Details of valuation techniques and process are
disclosed in notes 3 and 21.
During the reporting period, no expenditure (2015: nil) recognised in the carrying amount of property held for own use was
in the course of its construction. Increases from revaluation on property held for own use of US$521m (2015: nil) were
taken to other comprehensive income.
If property held for own use were stated on a historical cost basis, the carrying value would be US$393m (2015:
US$415m). The Group holds property, plant and equipment for its long-term use and, accordingly, the annual depreciation
charge approximates to the amount expected to be recovered through consumption within 12 months after the end of the
reporting period.
167
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16. INVESTMENT PROPERTY
US$m
Fair value
At 1 December 2014 – As previously reported
Effect of change in accounting policies
At 30 November 2014 – As adjusted
Additions and capitalised subsequent expenditures
Disposals
Net transfers to property, plant and equipment
Net transfers to other assets
Fair value gain
Foreign exchange movements
At 30 November 2015 – As adjusted
Additions and capitalised subsequent expenditures
Disposals
Net transfers to property, plant and equipment
Net transfers to other assets
Fair value gain
Foreign exchange movements
At 30 November 2016
1,384
2,255
3,639
86
(2)
(28)
(15)
73
(94)
3,659
60
(3)
(19)
(40)
288
(35)
3,910
Investment properties are carried at fair value at the reporting date as determined by independent professional valuers.
Details of valuation techniques and process are disclosed in notes 3 and 21.
The Group leases out its investment property under operating leases. The leases typically run for an initial period of one to
twelve years, with an option to renew the lease based on future negotiations. Lease payments are usually negotiated every
one to three years to reflect market rentals. There were not any material contingent rentals earned as income for the year.
Rental income generated from investment property amounted to US$140m (2015: US$127m). Direct operating expenses
(including repair and maintenance) on investment property that generates rental income amounted to US$32m (2015:
US$28m).
The Group owns investment property in the form of freehold land outside Hong Kong and leasehold land under finance
lease. Leasehold land under operating leases which is held for long-term rental or capital appreciation or both that is not
occupied by the Group is classified as investment property. They are initially recognised at cost with changes in fair values
in subsequent periods recognised in the consolidated income statement. The Group does not hold freehold land in Hong
Kong.
The future minimum operating lease rental income under non-cancellable operating leases that the Group expects to
receive in future periods may be analysed as follows:
US$m
Leases of investment property
Expiring no later than one year
Expiring later than one year and no later than five years
Expiring after five years or more
Total
168
As at
30 November
2016
As at
30 November
2015
121
143
8
272
117
148
8
273
FINANCIAL STATEMENTS| AIA GROUP LIMITED 17. REINSURANCE ASSETS
US$m
Amounts recoverable from reinsurers
Ceded insurance and investment contract liabilities
Total
18. DEFERRED ACQUISITION AND ORIGINATION COSTS
US$m
Carrying amount
Deferred acquisition costs on insurance contracts
Deferred origination costs on investment contracts
Value of business acquired
Total
Movements in the year
At beginning of financial year
Deferral and amortisation of acquisition and origination costs
Foreign exchange movements
Impact of assumption changes
Other movements
At end of financial year
As at
30 November
2016
As at
30 November
2015
335
1,711
2,046
257
1,395
1,652
As at
30 November
2016
As at
30 November
2015
18,351
16,424
418
129
470
198
18,898
17,092
Year ended
30 November
2016
Year ended
30 November
2015
17,092
2,057
(172)
(6)
(73)
16,593
1,490
(1,151)
33
127
18,898
17,092
Deferred acquisition and origination costs are expected to be recoverable over the mean term of the Group’s insurance
and investment contracts, and liability adequacy testing is performed at least annually to confirm their recoverability.
Accordingly, the annual amortisation charge, which varies with investment performance for certain universal life and
unit-linked products, approximates to the amount which is expected to be realised within 12 months of the end of the
reporting period.
169
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The following tables analyse the Group’s financial investments by type and nature. The Group manages its financial
investments in two distinct categories: Unit-linked Investments and Policyholder and Shareholder Investments. The
investment risk in respect of Unit-linked Investments is generally wholly borne by our customers, and does not directly
affect the profit for the year before tax. Furthermore, unit-linked contract holders are responsible for allocation of their
policy values amongst investment options offered by the Group. Although profit for the year before tax is not affected by
Unit-linked Investments, the investment return from such financial investments is included in the Group’s profit for the
year before tax, as the Group has elected the fair value option for all Unit-linked Investments with corresponding changes
in insurance and investment contract liabilities for unit-linked contracts. Policyholder and Shareholder Investments
include all financial investments other than Unit-linked Investments. The investment risk in respect of Policyholder and
Shareholder Investments is partially or wholly borne by the Group.
Policyholder and Shareholder Investments are further categorised as Participating Funds and Other Policyholder and
Shareholder. The Group has elected to separately analyse financial investments held by Participating Funds within
Policyholder and Shareholder Investments as they are subject to local regulations that generally prescribe a minimum
proportion of policyholder participation in declared dividends. The Group has elected the fair value option for debt and
equity securities of Participating Funds. The Group’s accounting policy is to record an insurance liability for the proportion
of net assets of the Participating Funds that would be allocated to policyholders assuming all performance would be
declared as a dividend based upon local regulations as at the date of the statement of financial position. As a result the
Group’s net profit for the year before tax is impacted by the proportion of investment return that would be allocated to
shareholders as described above.
Other Policyholder and Shareholder Investments are distinct from Unit-linked Investments and Participating Funds as
there is not any direct contractual or regulatory requirement governing the amount, if any, for allocation to policyholders.
The Group has elected to apply the fair value option for equity securities in this category and the available for sale
classification in respect of the majority of debt securities in this category. The investment risk from investments in this
category directly impacts the Group’s financial statements. Although a proportion of investment return may be allocated to
policyholders through policyholder dividends, the Group’s accounting policy for insurance and certain investment contract
liabilities utilises a net level premium methodology that includes best estimates as at the date of issue for non-guaranteed
participation. To the extent investment return from these investments either is not allocated to participating contracts or
varies from the best estimates, it will impact the Group’s profit before tax.
In the following tables, “FVTPL” indicates financial investments classified at fair value through profit or loss and “AFS”
indicates financial investments classified as available for sale.
Debt securities
In compiling the tables, external ratings have been used where available. Where external ratings are not readily available
an internal rating methodology has been adopted. External ratings for government bonds are based on issuers as well as
currencies of issuances. The following conventions have been adopted to conform the various ratings.
External ratings
Internal ratings
Reported as
Standard and Poor’s
AAA
AA+ to AA-
A+ to A-
BBB+ to BBB-
BB+ and below
Moody’s
Aaa
Aa1 to Aa3
A1 to A3
Baa1 to Baa3
Ba1 and below
Note:
(1) Unless otherwise identified individually.
1
2+ to 2-
3+ to 3-
4+ to 4-
AAA
AA
A
BBB
5+ and below
Below investment grade(1)
170
FINANCIAL STATEMENTS| AIA GROUP LIMITED 19. FINANCIAL INVESTMENTS (continued)
Debt securities (continued)
Debt securities by type comprise the following:
US$m
Rating
FVTPL
FVTPL
AFS
Subtotal
FVTPL
Policyholder and shareholder
Participating
funds
Other policyholder and
shareholder
Unit-linked
Consolidated
investment
funds(3)
FVTPL
Total
A
AA
AA
AAA
BBB
A
AA
BB
30 November 2016
Government bonds
– issued in local currency
Thailand
China
Korea
Singapore
Philippines
Malaysia
United States
Indonesia
Other(1)
Subtotal
Government bonds
– foreign currency
AAA
AA
A
BBB
Below investment grade
Subtotal
Government agency
bonds(2)
AAA
AA
A
BBB
Below investment grade
Not rated
Subtotal
–
1,635
–
1,552
–
1,185
16
57
–
4,445
–
25
73
10
77
185
1,107
945
898
220
30
–
–
–
–
–
–
–
–
10
–
10
–
–
–
28
29
57
–
–
3
9
–
–
11,313
11,313
6,510
4,171
950
2,527
414
1,587
387
639
8,145
4,171
2,502
2,527
1,599
1,603
454
639
–
19
280
387
68
22
2
37
2
28,498
32,953
817
–
713
576
710
717
–
738
649
748
823
2,716
2,958
782
5,327
1,245
1,245
121
–
1,889
6,272
2,146
1,474
151
–
3
26
17
126
50
222
105
75
26
6
3
8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
34
182
15
–
–
–
11,313
8,164
4,451
2,889
2,595
1,621
1,605
491
641
33,770
3
764
666
874
873
3,180
2,028
6,529
2,187
1,480
154
8
3,200
12
8,720
11,932
223
231
12,386
Notes:
(1) Of the total government bonds issued in local currency listed as “Other” at 30 November 2016, 49 per cent are rated as investment grade and
a further 35 per cent are rated BB- and above. The remaining are rated below BB-.
(2) Government agency bonds comprise bonds issued by government-sponsored institutions such as national, provincial and municipal
authorities; government-related entities; multilateral development banks and supranational organisations.
(3) Consolidated investment funds reflect 100 per cent of assets and liabilities held by such funds.
171
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Debt securities (continued)
US$m
30 November 2016
Corporate bonds
AAA
AA
A
BBB
Below investment grade
Not rated
Subtotal
Structured securities(4)
AAA
AA
A
BBB
Below investment grade
Not rated
Subtotal
Total(5)
Policyholder and shareholder
Participating
funds
Other policyholder and
shareholder
Unit-linked
FVTPL
FVTPL
AFS
Subtotal
FVTPL
Consolidated
investment
funds(3)
FVTPL
48
573
4,863
4,251
876
–
–
22
13
125
8
–
237
4,087
21,654
20,382
3,044
1
285
4,682
26,530
24,758
3,928
1
4
21
426
566
140
138
46
351
983
270
3
14
Total
335
5,054
27,939
25,594
4,071
153
10,611
168
49,405
60,184
1,295
1,667
63,146
–
13
20
223
–
10
266
18,707
–
–
20
–
50
46
116
363
20
79
381
270
–
3
20
92
421
493
50
59
753
1,135
–
–
–
1
–
–
1
–
–
–
–
–
–
–
20
92
421
494
50
59
1,136
90,092
109,162
2,558
1,898
113,618
Notes:
(3) Consolidated investment funds reflect 100 per cent of assets and liabilities held by such funds.
(4) Structured securities include collateralised debt obligations, mortgage-backed securities and other asset-backed securities.
(5) Debt securities of US$3,964m are restricted due to local regulatory requirements.
172
FINANCIAL STATEMENTS| AIA GROUP LIMITED 19. FINANCIAL INVESTMENTS (continued)
Debt securities (continued)
US$m
Rating
FVTPL
FVTPL
AFS
Subtotal
FVTPL
Policyholder and shareholder
Participating
funds
Other policyholder and
shareholder
Unit-linked
Consolidated
investment
funds(4)
FVTPL
Total
A
AA
AA
AAA
BBB
A
BB
30 November 2015
Government bonds
– issued in local currency
Thailand
China
Korea
Singapore
Philippines
Malaysia
Indonesia
Other(1)
Subtotal
Government bonds
– foreign currency(2)
AAA
AA
A
BBB
Below investment grade
Subtotal
Government agency
bonds(3)
AAA
AA
A
BBB
Below investment grade
Subtotal
–
1,406
–
1,488
–
1,536
29
17
4,476
–
26
34
10
100
170
1,250
937
792
223
18
3,220
–
–
–
–
–
–
7
–
7
–
–
2
80
113
195
–
–
8
–
–
8
10,268
10,268
5,208
3,650
1,066
2,626
403
533
643
6,614
3,650
2,554
2,626
1,939
569
660
–
32
253
358
76
27
32
3
24,397
28,880
781
5
550
205
751
479
5
576
241
841
692
5
23
6
49
21
1,990
2,355
104
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
974
4,168
2,483
1,095
108
2,224
5,105
3,283
1,318
126
84
68
26
4
6
38
185
16
–
–
10,268
6,646
3,903
2,912
2,702
1,966
601
663
29,661
10
599
247
890
713
2,459
2,346
5,358
3,325
1,322
132
8,828
12,056
188
239
12,483
Notes:
(1) Of the total government bonds issued in local currency listed as “Other” at 30 November 2015, 58 per cent are rated as investment grade and
a further 24 per cent are rated BB- and above. The remaining are rated below BB-.
(2) The presentation of the table has been adjusted to conform to the current year presentation.
(3) Government agency bonds comprise bonds issued by government-sponsored institutions such as national, provincial and municipal
authorities; government-related entities; multilateral development banks and supranational organisations.
(4) Consolidated investment funds reflect 100 per cent of assets and liabilities held by such funds.
173
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Debt securities (continued)
US$m
30 November 2015
Corporate bonds
AAA
AA
A
BBB
Below investment grade
Not rated
Subtotal
Structured securities(5)
AAA
AA
A
BBB
Below investment grade
Not rated
Subtotal
Total(6)
Policyholder and shareholder
Participating
funds
Other policyholder and
shareholder
Unit-linked
FVTPL
FVTPL
AFS
Subtotal
FVTPL
Consolidated
investment
funds(4)
FVTPL
61
900
4,788
4,218
927
–
–
8
28
61
4
–
168
5,802
17,303
18,694
3,224
1
229
6,710
22,119
22,973
4,155
1
4
14
531
561
109
46
47
306
993
213
26
14
Total
280
7,030
23,643
23,747
4,290
61
10,894
101
45,192
56,187
1,265
1,599
59,051
–
10
16
239
30
1
296
19,056
–
19
39
–
56
37
151
462
11
139
197
172
–
14
533
11
168
252
411
86
52
980
–
–
–
1
–
–
1
–
–
5
–
–
–
5
11
168
257
412
86
52
986
80,940
100,458
2,339
1,843
104,640
Notes:
(4) Consolidated investment funds reflect 100 per cent of assets and liabilities held by such funds.
(5) Structured securities include collateralised debt obligations, mortgage-backed securities and other asset-backed securities.
(6) Debt securities of US$3,354m are restricted due to local regulatory requirements.
The Group’s debt securities classified at fair value through profit or loss can be analysed as follows:
US$m
Debt securities – FVTPL
Designated at fair value through profit or loss
Held for trading
Total
As at
30 November
As at
30 November
2016
2015
23,509
23,700
17
–
23,526
23,700
174
FINANCIAL STATEMENTS| AIA GROUP LIMITED 19. FINANCIAL INVESTMENTS (continued)
Equity securities
Equity securities by type comprise the following:
US$m
30 November 2016
Equity shares
Interests in investment funds
Total
US$m
30 November 2015
Equity shares
Interests in investment funds
Total
Policyholder and shareholder
Participating
funds
FVTPL
Other
policyholder
and
shareholder
FVTPL
Subtotal
Unit-linked
FVTPL
Consolidated
investment
funds(1)
FVTPL
3,705
1,746
5,451
6,967
2,295
9,262
10,672
4,041
14,713
3,608
11,886
15,494
1
3
4
Policyholder and shareholder
Participating
funds
FVTPL
Other
policyholder
and
shareholder
FVTPL
Subtotal
Unit-linked
FVTPL
Consolidated
investment
funds(1)
FVTPL
3,285
1,630
4,915
5,484
1,812
7,296
8,769
3,442
12,211
3,234
11,710
14,944
1
3
4
Total
14,281
15,930
30,211
Total
12,004
15,155
27,159
Note:
(1) Consolidated investment funds reflect 100 per cent of assets and liabilities held by such funds.
Debt and equity securities
US$m
Debt securities
Listed
Unlisted
Total
Equity securities
Listed
Unlisted(1)
Total
Note:
(1) Including US$13,067m (2015: US$12,584m) of investment funds which can be redeemed daily.
As at
30 November
2016
As at
30 November
2015
86,105
27,513
76,490
28,150
113,618
104,640
16,394
13,817
30,211
13,878
13,281
27,159
175
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES 19. FINANCIAL INVESTMENTS (continued)
Interests in structured entities
The Group has determined that the investment funds and structured securities, such as collateralised debt obligations,
mortgage-backed securities and other asset-backed securities that the Group has interest are structured entities.
The Group has consolidated certain investment funds for which the Group provides guarantee on capital or rate of return
to the investors and deemed to have control based on an analysis of the guidance in IFRS 10. For these investment funds,
the Group has the ability to reduce the guaranteed rates of return, subject to obtaining approvals of applicable regulators.
The Group has an obligation to absorb losses in the event that the returns of the funds are insufficient to cover the capital
or rate of return guarantee provided to the investors.
The following table summarises the Group’s interest in unconsolidated structured entities:
US$m
As at 30 November 2016
As at 30 November 2015
Investment
funds
Structured
securities(1)
Investment
funds
Structured
securities(1)
Available for sale debt securities
Debt securities at fair value through profit or loss
Equity securities at fair value through profit or loss
Total
939(2)
489(2)
15,930
17,358
753
383
–
1,136
761(2)
404(2)
15,155
16,320
533
453
–
986
Notes:
(1) Structured securities include collateralised debt obligation, mortgage-backed securities and other asset-backed securities.
(2) Balance represents the Group’s interests in debt securities issued by real estate investment trusts.
The Group’s maximum exposure to loss arising from its interests in these unconsolidated structured entities is limited to
the carrying amount of the assets. Dividend income and interest income are received during the reporting period from
these interests in unconsolidated structured entities.
In addition, the Group receives management fees and trustee fees in respect of providing trustee, management and
administrative services to certain retirement scheme funds and investment funds. These funds are not held and the
associated investment risks are not borne by the Group, the Group does not have exposure to loss in these funds.
176
FINANCIAL STATEMENTS| AIA GROUP LIMITED 19. FINANCIAL INVESTMENTS (continued)
Loans and deposits
US$m
Policy loans
Mortgage loans on residential real estate
Mortgage loans on commercial real estate
Other loans
Allowance for loan losses
Loans
Term deposits
Promissory notes(1)
Total
Note:
(1) The promissory notes are issued by a government.
As at
30 November
2016
As at
30 November
2015
2,448
2,383
546
51
737
(13)
3,769
1,847
1,446
7,062
538
51
781
(14)
3,739
2,035
1,437
7,211
Certain term deposits with financial institutions and promissory notes are restricted due to local regulatory requirements
or other pledge restrictions. The restricted balance held within term deposits and promissory notes is US$1,638m (2015:
US$1,617m).
Other loans include receivables from reverse repurchase agreements under which the Group does not take physical
possession of securities purchased under the agreements. Sales or transfers of securities are not permitted by the respective
clearing house on which they are registered while the loan is outstanding. In the event of default by the counterparty to
repay the loan, the Group has the right to the underlying securities held by the clearing house. At 30 November 2016, the
carrying value of such receivables is US$224m (2015: US$155m).
177
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The Group’s non-hedge derivative exposure was as follows:
US$m
30 November 2016
Foreign exchange contracts
Cross-currency swaps
Forwards
Foreign exchange futures
Currency options
Total foreign exchange contracts
Interest rate contracts
Interest rate swaps
Other
Warrants and options
Netting
Total
30 November 2015
Foreign exchange contracts
Cross-currency swaps
Forwards
Foreign exchange futures
Currency options
Total foreign exchange contracts
Interest rate contracts
Interest rate swaps
Other
Warrants and options
Netting
Total
Notional amount
Assets
Liabilities
Fair value
7,660
1,710
192
13
9,575
1,851
1,520
(192)
12,754
7,153
1,547
119
29
8,848
629
176
(119)
9,534
28
36
–
–
64
30
13
–
107
60
4
–
–
64
2
7
–
73
(567)
(6)
–
–
(573)
(35)
(36)
–
(644)
(671)
(19)
–
–
(690)
(5)
–
–
(695)
The column “notional amount” in the above table represents the pay leg of derivative transactions other than equity index
option. For certain equity-index call and put options with same notional amount that are purchased to hedge the downside
risk of the underlying equities by means of a collar strategy, the notional amount represents the exposure of the hedged
equities.
Of the total derivatives, US$12m (2015: US$6m) are listed in exchange or dealer markets and the rest are over-the-counter
(OTC) derivatives. OTC derivative contracts are individually negotiated between contracting parties and not cleared through
an exchange. OTC derivatives include forwards, swaps and options. Derivatives are subject to various risks including
market, liquidity and credit risks, similar to those related to the underlying financial instruments.
Derivative assets and derivative liabilities are recognised in the consolidated statement of financial position as financial
assets at fair value through profit or loss and derivative financial liabilities respectively. The Group’s derivative contracts
are established to economic hedge financial exposures. The Group adopts hedge accounting in limited circumstances. The
notional or contractual amounts associated with derivative financial instruments are not recorded as assets or liabilities in
the consolidated statement of financial position as they do not represent the fair value of these transactions. The notional
amounts in the previous table reflect the aggregate of individual derivative positions on a gross basis and so give an
indication of the overall scale of derivative transactions.
178
FINANCIAL STATEMENTS| AIA GROUP LIMITED
20. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Foreign exchange contracts
Foreign exchange forward and futures contracts represent agreements to exchange the currency of one country for the
currency of another country at an agreed price and settlement date. Currency options are agreements that give the buyer
the right to exchange the currency of one country for the currency of another country at agreed prices and settlement
dates. Currency swaps are contractual agreements that involve the exchange of both periodic and final amounts in two
different currencies. Exposure to gains and losses on the foreign exchange contracts will increase or decrease over their
respective lives as a function of maturity dates, interest and foreign exchange rates, implied volatilities of the underlying
indices and the timing of payments.
Interest rate swaps
Interest rate swaps are contractual agreements between two parties to exchange periodic payments in the same currency,
each of which is computed on a different interest rate basis, on a specified notional amount. Most interest rate swaps
involve the net exchange of payments calculated as the difference between the fixed and floating rate interest payments.
Other derivatives
Warrants and options are option agreements that give the owner the right to buy or sell securities at an agreed price and
settlement date.
Netting adjustment
The netting adjustment is related to futures contracts executed through clearing house where the settlement arrangement
satisfied the netting criteria under IFRS.
Collateral under derivative transactions
At 30 November 2016, the Group had posted cash collateral of US$188m (2015: US$189m) and pledged debt securities
with carrying value of US$440m (2015: US$439m) for liabilities and held cash collateral of US$6m (2015: US$8m), debt
securities collateral with carrying value of US$5m (2015: US$2m) for assets in respect of derivative transactions. The
Group did not sell or repledge the collateral received. These transactions are conducted under terms that are usual and
customary to collateralised transactions including, where relevant, standard securities lending and repurchase agreements.
179
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES 21. FAIR VALUE MEASUREMENT
Fair value of financial instruments
The Group classifies all financial assets as either at fair value through profit or loss, or as available for sale, which are
carried at fair value, or as loans and receivables, which are carried at amortised cost. Financial liabilities are classified
as either at fair value through profit or loss or at amortised cost, except for investment contracts with DPF which are
accounted for under IFRS 4.
The following tables present the fair values of the Group’s financial assets and financial liabilities:
US$m
30 November 2016
Financial investments
Loans and deposits
Debt securities
Equity securities
Derivative financial instruments
Reinsurance receivables
Other receivables
Accrued investment income
Cash and cash equivalents
Financial assets
Financial liabilities
Investment contract liabilities
Borrowings
Obligations under repurchase agreements
Derivative financial instruments
Other liabilities
Financial liabilities
Fair value
Fair value
through
profit or loss
Available
for sale
Cost/
amortised
cost
Total
carrying
value
Total fair
value
Notes
19
20
17
22
22
24
–
23,526
30,211
107
–
–
–
–
–
7,062
7,062
7,066
90,092
–
–
–
–
–
–
–
–
–
335
1,934
1,383
1,642
113,618
113,618
30,211
30,211
107
335
1,934
1,383
1,642
107
335
1,934
1,383
1,642
53,844
90,092
12,356
156,292
156,296
Fair value
through
profit or loss
Cost/
amortised
cost
Total
carrying
value
Total fair
value
Notes
26
28
29
20
32
6,499
–
–
644
1,239
8,382
529
3,460
1,984
–
3,484
9,457
7,028
3,460
1,984
644
4,723
7,028
3,479
1,984
644
4,723
17,839
17,858
180
FINANCIAL STATEMENTS| AIA GROUP LIMITED
21. FAIR VALUE MEASUREMENT (continued)
Fair value of financial instruments (continued)
US$m
30 November 2015
Financial investments
Loans and deposits
Debt securities
Equity securities
Derivative financial instruments
Reinsurance receivables
Other receivables
Accrued investment income
Cash and cash equivalents
Financial assets
Financial liabilities
Investment contract liabilities
Borrowings
Obligations under repurchase agreements
Derivative financial instruments
Other liabilities
Financial liabilities
Fair value
Fair value
through
profit or loss
Available
for sale
Cost/
amortised
cost
Total
carrying
value
Total
fair
value
Notes
19
20
17
22
22
24
–
23,700
27,159
73
–
–
–
–
–
7,211
7,211
7,222
80,940
–
–
–
–
–
–
–
–
–
257
1,731
1,350
1,992
104,640
104,640
27,159
27,159
73
257
1,731
1,350
1,992
73
257
1,731
1,350
1,992
50,932
80,940
12,541
144,413
144,424
Fair value
through
profit or loss
Cost/
amortised
cost
Total
carrying
value
Total
fair
value
Notes
26
28
29
20
32
6,573
–
–
695
1,214
8,482
543
3,195
3,085
–
3,443
10,266
7,116
3,195
3,085
695
4,657
7,116
3,217
3,085
695
4,657
18,748
18,770
The carrying amount of assets included in the above tables represents the maximum credit exposure.
Foreign currency exposure, including the net notional amount of foreign currency derivative positions, is shown in note 36
for the Group’s key foreign exchange exposures.
The fair value of investment contract liabilities measured at amortised cost is not considered to be materially different from
the amortised cost carrying value.
The carrying value of financial instruments expected to be settled within 12 months (after taking into account valuation
allowances, where applicable) is not considered to be materially different from the fair value.
181
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21. FAIR VALUE MEASUREMENT (continued)
Fair value measurements on a recurring basis
The Group measures at fair value property held for own use, investment property, financial instruments classified at fair
value through profit or loss, available for sale securities portfolios, derivative assets and liabilities, investments held by
investment funds which are consolidated, investments in non-consolidated investment funds and certain investment
contract liabilities on a recurring basis.
The fair value of a financial instrument is the amount that would be received on sale of an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date.
The degree of judgement used in measuring the fair value of financial instruments generally correlates with the level of
pricing observability. Financial instruments with quoted prices in active markets generally have more pricing observability
and less judgement is used in measuring fair value. Conversely, financial instruments traded in other than active markets
or that do not have quoted prices have less observability and are measured at fair value using valuation models or other
pricing techniques that require more judgement. An active market is one in which transactions for the asset or liability
being valued occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
An other than active market is one in which there are few transactions, the prices are not current, price quotations vary
substantially either over time or among market makers, or in which little information is released publicly for the asset or
liability being valued. Pricing observability is affected by a number of factors, including the type of financial instrument,
whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction
and general market conditions.
Fair value of properties is based on valuation by independent professional valuers.
The Group does not have assets or liabilities measured at fair value on a non-recurring basis during the year ended 30
November 2016.
The following methods and assumptions were used by the Group to estimate the fair value of financial instruments and
properties.
Determination of fair value
Loans and receivables
For loans and advances that are repriced frequently and have not had any significant changes in credit risk, carrying
amounts represent a reasonable estimate of fair values. The fair values of other loans are estimated by discounting
expected future cash flows using interest rates offered for similar loans to borrowers with similar credit ratings.
The fair values of mortgage loans are estimated by discounting future cash flows using interest rates currently being
offered in respect of similar loans to borrowers with similar credit ratings. The fair values of fixed rate policy loans are
estimated by discounting cash flows at the interest rates charged on policy loans of similar policies currently being issued.
Loans with similar characteristics are aggregated for purposes of the calculations. The carrying values of policy loans with
variable rates approximate to their fair values.
Debt securities and equity securities
The fair values of equity securities are based on quoted market prices or, if unquoted, on estimated market values generally
based on quoted prices for similar securities. Fair values for fixed interest securities are based on quoted market prices,
where available. For those securities not actively traded, fair values are estimated using values obtained from brokers,
private pricing services or by discounting expected future cash flows using a current market rate applicable to the yield,
credit quality and maturity of the investment. Priority is given to values from independent sources when available, but
overall the source of pricing and/or valuation technique is chosen with the objective of arriving at the price at which an
orderly transaction would take place between market participants on the measurement date. The inputs to determining
fair value that are relevant to fixed interest securities include, but not limited to risk-free interest rates, the obligor’s
credit spreads, foreign exchange rates and credit default rates. For holdings in hedge funds and limited partnerships, fair
values are determined based on the net asset values provided by the general partner or manager of each investment, the
accounts of which are generally audited on an annual basis. The transaction price is used as the best estimate of fair value
at inception.
182
FINANCIAL STATEMENTS| AIA GROUP LIMITED 21. FAIR VALUE MEASUREMENT (continued)
Determination of fair value (continued)
Derivative financial instruments
The Group values its derivative financial assets and liabilities using market transactions and other market evidence
whenever possible, including market-based inputs to models, model calibration to market clearing transactions, broker or
dealer quotations or alternative pricing sources with reasonable levels of price transparency. When models are used, the
selection of a particular model to value a derivative depends on the contract terms of, and specific risks inherent in, the
instrument as well as the availability of pricing information in the market. The Group generally uses similar models to value
similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices and rates,
yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs. For derivatives that
trade in liquid markets, such as generic forwards, swaps and options, model inputs can generally be verified and model
selection does not involve significant management judgement. Examples of inputs that are generally observable include
foreign exchange spot and forward rates, benchmark interest rate curves and volatilities for commonly traded option
products. Examples of inputs that may be unobservable include volatilities for less commonly traded option products and
correlations between market factors.
When the Group holds a group of derivative assets and derivative liabilities entered into with a particular counterparty,
the Group takes into account the arrangements that mitigate credit risk exposure in the event of default (e.g. International
Swap and Derivatives Association (ISDA) Master Agreements and Credit Support Annex (CSA) that require the exchange of
collateral on the basis of each party’s net credit risk exposure). The Group measures the fair value of the group of financial
assets and financial liabilities on the basis of its net exposure to the credit risk of that counterparty or the counterparty’s
net exposure to our credit risk that reflects market participants’ expectations about the likelihood that such an arrangement
would be legally enforceable in the event of default.
Property held for own use and investment property
The Group engaged external, independent and qualified valuers to determine the fair value of the Group’s properties at least
on an annual basis. The valuation on open market value basis by independent professional valuer for certain investment
properties was calculated by reference to net rental income allowing for reversionary income potential. The fair values of
other properties were derived using the Market Data Approach. In this approach, the values are based on sales and listing
of comparable property registered in the vicinity.
The properties held for own use and investment properties are valued on the basis of the highest and best use of the properties
that is physically possible, legally permissible and financially feasible. The current use of the properties are considered to
be its highest and best use; records of recent sales and offerings of similar property are analysed and comparison made for
such factors as size, location, quality and prospective use. On limited occasions, potential redevelopment of the properties
in use would be taken into account when they would maximise the fair value of the properties; the Group is occupying
these properties for operational purposes.
Cash and cash equivalents
The carrying amount of cash approximates its fair value.
Reinsurance receivables
The carrying amount of amounts receivable from reinsurers is not considered materially different to their fair value.
Fair value of securities sold under repurchase agreements and the associated payables
The contract values of payables under repurchase agreements approximate their fair value as these obligations are
short-term in nature.
Other assets
The carrying amount of other financial assets is not materially different to their fair value. The fair values of deposits with
banks are generally based on quoted market prices or, if unquoted, on estimates based on discounting future cash flows
using available market interest rates offered for receivables with similar characteristics.
183
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Determination of fair value (continued)
Investment contract liabilities
For investment contract liabilities, the fair values have been estimated using a discounted cash flow approach based on
interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts
being valued. For investment contracts where the investment risk is borne by the policyholder, the fair value generally
approximates to the fair value of the underlying assets.
Investment contracts with DPF enable the contract holder to receive additional benefits as a supplement to guaranteed
benefits. These are referred to as participating business and are measured and classified according to the Group practice
for insurance contract liabilities and hence are disclosed within note 25. These are not measured at fair value as there is
currently not an agreed definition of fair value for investment and insurance contracts with DPF under IFRS. In the absence
of any agreed methodology, it is not possible to provide a range of estimates within which fair value is likely to fall. The
IASB is expecting to address this issue in Phase II of its insurance contracts project.
Borrowings
The fair values of borrowings with stated maturities have been estimated based on discounting future cash flows using the
interest rates currently applicable to deposits of similar maturities or prices obtained from brokers.
Other liabilities
The fair values of other unquoted financial liabilities is estimated by discounting expected future cash flows using current
market rates applicable to their yield, credit quality and maturity, except for those without stated maturity, where the
carrying value approximates to fair value.
Fair value hierarchy for fair value measurement on a recurring basis
Assets and liabilities recorded at fair value in the consolidated statement of financial position are measured and classified
in a hierarchy for disclosure purposes consisting of three “levels” based on the observability of inputs available in the
marketplace used to measure their fair values as discussed below:
(cid:127) Level 1: Fair value measurements that are quoted prices (unadjusted) in active markets for identical assets or liabilities
that the Group has the ability to access as of the measurement date. Market price data is generally obtained from
exchange or dealer markets. The Group does not adjust the quoted price for such instruments. Assets measured at fair
value on a recurring basis and classified as Level 1 are actively traded equities. The Group considers that government
debt securities issued by G7 countries (the United States, Canada, France, Germany, Italy, Japan, the United Kingdom)
and traded in a dealer market to be Level 1, until they no longer trade with sufficient frequency and volume to be
considered actively traded.
(cid:127) Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for
the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 2 inputs include quoted prices
for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets
that are not active and inputs other than quoted prices that are observable for the asset and liability, such as interest
rates and yield curves that are observable at commonly quoted intervals. Assets and liabilities measured at fair value
on a recurring basis and classified as Level 2 generally include government securities issued by non-G7 countries, most
investment grade corporate bonds, hedge fund investments and derivative contracts.
(cid:127) Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable.
Unobservable inputs are only used to measure fair value to the extent that relevant observable inputs are not available,
allowing for circumstances in which there is little, if any, market activity for the asset or liability. Assets and liabilities
measured at fair value on a recurring basis and classified as Level 3 include properties held for own use, investment
properties, certain classes of structured securities, certain derivative contracts, private equity and real estate fund
investments, and direct private equity investments.
184
FINANCIAL STATEMENTS| AIA GROUP LIMITED 21. FAIR VALUE MEASUREMENT (continued)
Fair value hierarchy for fair value measurement on a recurring basis (continued)
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such
cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined
based on the lowest level input that is significant to the fair value measurement in its entirety. The Group’s assessment
of the significance of a particular input to the fair value measurement in its entirety requires judgement. In making the
assessment, the Group considers factors specific to the asset or liability.
A summary of assets and liabilities carried at fair value on a recurring basis according to fair value hierarchy is given below:
US$m
30 November 2016
Recurring fair value measurements
Non-financial assets
Property held for own use
Investment property
Financial assets
Available for sale
Debt securities
At fair value through profit or loss
Debt securities
Participating funds
Unit-linked and consolidated investment funds
Other policyholder and shareholder
Equity securities
Participating funds
Unit-linked and consolidated investment funds
Other policyholder and shareholder
Derivative financial instruments
Foreign exchange contracts
Interest rate contracts
Other contracts
Total assets on a recurring fair value
measurement basis
% of Total
Financial liabilities
Investment contract liabilities
Derivative financial instruments
Foreign exchange contracts
Interest rate contracts
Other contracts
Other liabilities
Total liabilities on a recurring fair value
measurement basis
% of Total
Fair value hierarchy
Level 1
Level 2
Level 3
Total
–
–
–
–
905
3,910
905
3,910
24
88,819
1,249
90,092
–
–
–
18,366
4,239
223
4,856
15,434
8,117
–
–
12
324
64
728
64
30
1
341
217
140
271
–
417
–
–
–
18,707
4,456
363
5,451
15,498
9,262
64
30
13
28,443
19.1
112,858
75.9
7,450
5.0
148,751
100.0
–
–
–
–
–
–
–
–
6,499
6,499
573
35
36
1,239
1,883
22.5
–
–
–
–
6,499
77.5
573
35
36
1,239
8,382
100.0
185
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21. FAIR VALUE MEASUREMENT (continued)
Fair value hierarchy for fair value measurement on a recurring basis (continued)
US$m
Level 1
Level 2
Level 3
Total
Fair value hierarchy
30 November 2015 – As adjusted
Recurring fair value measurements
Non-financial assets
Investment property
Financial assets
Available for sale
Debt securities
At fair value through profit or loss
Debt securities
Participating funds
Unit-linked and consolidated investment funds
Other policyholder and shareholder
Equity securities
Participating funds
Unit-linked and consolidated investment funds
Other policyholder and shareholder
Derivative financial instruments
Foreign exchange contracts
Interest rate contracts
Other contracts
Total assets on a recurring fair value
measurement basis
% of Total
Financial liabilities
Investment contract liabilities
Derivative financial instruments
Foreign exchange contracts
Interest rate contracts
Other liabilities
Total liabilities on a recurring fair value
measurement basis
% of Total
–
–
–
–
–
4,537
14,918
6,448
–
–
5
–
3,659
3,659
79,927
1,013
80,940
18,732
3,914
287
127
26
429
64
2
2
324
268
175
251
4
419
–
–
–
19,056
4,182
462
4,915
14,948
7,296
64
2
7
25,908
19.1
103,510
76.4
6,113
4.5
135,531
100.0
–
–
–
–
–
–
–
6,573
6,573
690
5
1,214
1,909
22.5
–
–
–
6,573
77.5
690
5
1,214
8,482
100.0
The Group’s policy is to recognise transfers of assets and liabilities between Level 1 and Level 2 at their fair values as at the
end of each reporting period, consistent with the date of the determination of fair value. Assets are transferred out of Level
1 when they are no longer transacted with sufficient frequency and volume in an active market. During the year ended 30
November 2016, the Group transferred US$241m (2015: US$29m) of assets measured at fair value from Level 1 to Level
2. Conversely, assets are transferred from Level 2 to Level 1 when transaction volume and frequency are indicative of an
active market. The Group transferred US$463m (2015: US$985m) of assets from Level 2 to Level 1 during the year ended
30 November 2016.
The Group’s Level 2 financial instruments include debt securities, equity securities and derivative instruments. The fair
values of Level 2 financial instruments are estimated using values obtained from private pricing services and brokers
corroborated with internal review as necessary. When the quotes from third-party pricing services and brokers are not
available, internal valuation techniques and inputs will be used to derive the fair value for the financial instruments.
186
FINANCIAL STATEMENTS| AIA GROUP LIMITED
21. FAIR VALUE MEASUREMENT (continued)
Fair value hierarchy for fair value measurement on a recurring basis (continued)
The tables below set out a summary of changes in the Group’s Level 3 assets and liabilities measured at fair value on a
recurring basis for the year ended 30 November 2016 and 2015. The tables reflect gains and losses, including gains and
losses on assets and liabilities categorised as Level 3 as at 30 November 2016 and 2015.
Level 3 assets and liabilities
US$m
Property
held for
own use
Investment
property
Debt
securities
Equity
securities
Derivative
financial
assets/
(liabilities)
At 1 December 2015 – As adjusted
415
3,659
1,780
674
Net movement on investment
contract liabilities
Total gains/(losses)
Reported under investment return and
other expenses in the consolidated
income statement
Reported under fair value reserve,
foreign currency translation reserve
and property revaluation reserve
in the consolidated statement of
comprehensive income
Transfer to other assets
Transfer from investment property
Purchases
Sales
Settlements
Transfer into Level 3
Transfer out of Level 3
At 30 November 2016
Change in unrealised gains or losses
included in the consolidated income
statement for assets and liabilities
held at the end of the reporting period,
under investment return
–
–
(15)
288
506
–
19
3
(23)
–
–
–
(35)
(40)
(19)
60
(3)
–
–
–
–
5
(49)
–
–
539
(165)
(84)
–
(79)
905
3,910
1,947
–
(45)
(8)
–
–
119
(43)
–
11
(20)
688
(15)
288
(25)
(26)
–
–
–
–
–
–
–
–
–
–
–
–
–
Investment
contracts
(6,573)
74
–
–
–
–
–
–
–
–
–
(6,499)
–
187
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21. FAIR VALUE MEASUREMENT (continued)
Fair value hierarchy for fair value measurement on a recurring basis (continued)
Level 3 assets and liabilities (continued)
US$m
Investment
property
Debt
securities
Equity
securities
Derivative
financial
assets/
(liabilities)
At 1 December 2014 – As adjusted
3,639
1,578
Net movement on investment
contract liabilities
Total gains/(losses)
Reported under investment return and
other expenses in the consolidated
income statement
Reported under fair value reserve,
foreign currency translation reserve
and property revaluation reserve
in the consolidated statement of
comprehensive income
Purchases
Sales
Settlements
Transfer to property, plant and equipment
Transfer to other assets
Disposal of subsidiary
Transfer into Level 3
Transfer out of Level 3
–
73
(94)
86
(2)
–
(28)
(15)
–
–
–
–
16
(71)
449
(57)
(141)
–
–
(5)
17
(6)
At 30 November 2015 – As adjusted
3,659
1,780
574
–
(7)
(34)
170
(34)
–
–
–
–
6
(1)
674
Change in unrealised gains or losses
included in the consolidated income
statement for assets and liabilities
held at the end of the reporting period,
under investment return
73
(3)
(6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Investment
contracts
(7,315)
742
–
–
–
–
–
–
–
–
–
–
(6,573)
–
Movements in investment contract liabilities at fair value are offset by movements in the underlying portfolio of matching
assets. Details of the movement in investment contract liabilities are provided in note 26.
Assets transferred out of Level 3 mainly relate to corporate debt instruments of which market-observable inputs became
available during the year and were used in determining the fair value.
There are not any differences between the fair values on initial recognition and the amounts determined using valuation
techniques since the models adopted are calibrated using initial transaction prices.
188
FINANCIAL STATEMENTS| AIA GROUP LIMITED
21. FAIR VALUE MEASUREMENT (continued)
Significant unobservable inputs for level 3 fair value measurements
As at 30 November 2016 and 2015, the valuation techniques and applicable unobservable inputs used to measure the
Group’s Level 3 financial instruments are summarised as follows:
Description
Fair value at
30 November 2016 (US$m)
Valuation techniques
Unobservable inputs
Range
Debt securities
861
Discounted cash flows Discount rate for liquidity
4.07% – 17.58%
Description
Fair value at
30 November 2015 (US$m)
Valuation techniques
Unobservable inputs
Range
Debt securities
809
Discounted cash flows Discount rate for liquidity
4.30% – 15.61%
Fair value of the Group’s properties are determined based on appropriate valuation techniques which may consider among
others income projection, value of comparable property and adjustments for factors such as size, location, quality and
prospective use. These valuation inputs are deemed unobservable.
Valuation processes
The Group has the valuation policies, procedures and analyses in place to govern the valuation of financial assets
required for financial reporting purposes, including Level 3 fair values. In determining the fair values of financial assets,
the Group in general uses third-party pricing providers and, only in rare cases when third-party prices do not exist, will
use prices derived from internal models. The Chief Investment Officers of each of the business units are required to
review the reasonableness of the prices used and report price exceptions, if any. The Group Investment team analyses
reported price exceptions and reviews price challenge responses from third-party pricing providers and provides the final
recommendation on the appropriate price to be used. Any changes in valuation policies are reviewed and approved by the
Group Pricing Committee (GPC) which is part of the Group’s wider financial risk governance processes. Changes in Level
2 and 3 fair values are analysed at each reporting date.
The main Level 3 input used by the Group pertains to the discount rate for the fixed income securities and investment
contracts. The unobservable inputs for determining the fair value of these instruments include the obligor’s credit spread
and/or the liquidity spread. A significant increase/(decrease) in any of the unobservable input may result in a significantly
lower/(higher) fair value measurement. The Group has subscriptions to private pricing services for gathering such
information. If the information from private pricing services is not available, the Group uses the proxy pricing method based
on internally-developed valuation inputs.
189
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Fair value for assets and liabilities for which the fair value is disclosed at reporting date
A summary of fair value hierarchy of assets and liabilities not carried at fair value but for which the fair value is disclosed
as at 30 November 2016 and 2015 is given below.
US$m
30 November 2016
Assets for which the fair value is disclosed
Financial assets
Loans and deposits
Reinsurance receivables
Other receivables
Accrued investment income
Cash and cash equivalents
Total assets for which the fair value is disclosed
Liabilities for which the fair value is disclosed
Financial liabilities
Investment contract liabilities
Borrowings
Obligations under repurchase agreements
Other liabilities
Total liabilities for which the fair value is disclosed
US$m
30 November 2015
Assets for which the fair value is disclosed
Financial assets
Loans and deposits
Reinsurance receivables
Other receivables
Accrued investment income
Cash and cash equivalents
Property held for own use
Property held for own use (including land)
Total assets for which the fair value is disclosed
Liabilities for which the fair value is disclosed
Financial liabilities
Investment contract liabilities
Borrowings
Obligations under repurchase agreements
Other liabilities
Total liabilities for which the fair value is disclosed
190
Fair value hierarchy
Level 1
Level 2
Level 3
Total
744
–
–
73
1,642
2,459
–
3,478
–
312
3,790
2,817
335
1,885
1,310
–
6,347
–
–
1,984
3,126
5,110
3,505
–
49
–
–
7,066
335
1,934
1,383
1,642
3,554
12,360
529
1
–
46
576
529
3,479
1,984
3,484
9,476
Fair value hierarchy
Level 1
Level 2
Level 3
Total
552
–
–
19
1,992
–
2,563
–
2,894
–
412
3,306
3,145
257
1,707
1,331
–
–
6,440
–
323
3,085
2,970
6,378
3,525
–
24
–
–
1,495
5,044
543
–
–
61
604
7,222
257
1,731
1,350
1,992
1,495
14,047
543
3,217
3,085
3,443
10,288
FINANCIAL STATEMENTS| AIA GROUP LIMITED 22. OTHER ASSETS
US$m
Accrued investment income
Pension scheme assets
Defined benefit pension scheme surpluses
Insurance receivables due from insurance and investment contract holders
Others
Total
As at
30 November
2016
As at
30 November
2015
(As adjusted)
1,383
1,350
24
1,004
1,578
3,989
26
1,023
1,277
3,676
All amounts other than certain prepayments are generally expected to be recovered within 12 months after the end of the
reporting period.
23. IMPAIRMENT OF FINANCIAL ASSETS
In accordance with the Group’s accounting policies, impairment reviews were performed for available for sale securities
and loans and receivables.
Available for sale debt securities
During the year ended 30 November 2016, impairment losses of US$22m (2015: nil) were recognised in respect of
available for sale debt securities.
The carrying amounts of available for sale debt securities that are individually determined to be impaired at 30 November
2016 was US$18m (2015: US$31m).
Loans and receivables
The Group’s primary potential credit risk exposure in respect of loans and receivables arises in respect of policy loans and
a portfolio of mortgage loans on residential and commercial real estate (see note 19 Financial investments for further
details). The Group’s credit exposure on policy loans is mitigated because, if and when the total indebtedness on any policy,
including interest due and accrued, exceeds the cash surrender value, the policy terminates and becomes void. The Group
has a first lien on all policies which are subject to policy loans.
The carrying amounts of loans and receivables that are individually determined to be impaired at 30 November 2016 was
US$18m (2015: US$20m).
The Group has a portfolio of residential and commercial mortgage loans which it originates. To the extent that any such
loans are past their due dates specific allowance is made, together with a collective allowance, based on historical
delinquency. Insurance receivables are short-term in nature and cover is not provided if consideration is not received. An
ageing of accounts receivable is not provided as all amounts are due within one year and cover is cancelled if consideration
is not received.
191
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US$m
Cash
Cash equivalents
Total(1)
As at
30 November
2016
As at
30 November
2015
1,120
522
1,642
1,493
499
1,992
Note:
(1) Of cash and cash equivalents, US$412m (2015: US$428m) are held to back unit-linked contracts and US$92m (2015: US$22m) are held by
consolidated investment funds.
Cash comprises cash at bank and cash in hand. Cash equivalents comprise bank deposits and highly liquid short-term
investments with maturities at acquisition of three months or less and money market funds. Accordingly, all such amounts
are expected to be realised within 12 months after the end of the reporting period.
25. INSURANCE CONTRACT LIABILITIES
The movement of insurance contract liabilities (including liabilities in respect of investment contracts with DPF) is shown
as follows:
US$m
At beginning of financial year
Valuation premiums and deposits
Liabilities released for policy termination or other policy benefits paid and related
expenses
Fees from account balances
Accretion of interest
Foreign exchange movements
Change in net asset values attributable to policyholders
Disposal of a subsidiary
Other movements
At end of financial year
Year ended
30 November
2016
Year ended
30 November
2015
(As adjusted)
115,969
23,962
113,202
21,300
(13,647)
(13,240)
(1,491)
3,810
(1,733)
1,434
–
(118)
(1,261)
3,624
(7,859)
107
(22)
118
128,186
115,969
Insurance contract liabilities (including liabilities in respect of investment contracts with DPF) can also be analysed as
follows:
US$m
Deferred profit
Unearned revenue
Policyholders’ share of participating surplus
Liabilities for future policyholder benefits
Total
192
Year ended
30 November
2016
Year ended
30 November
2015
(As adjusted)
5,761
2,906
6,731
112,788
128,186
5,100
2,874
6,447
101,548
115,969
FINANCIAL STATEMENTS| AIA GROUP LIMITED 25. INSURANCE CONTRACT LIABILITIES (continued)
Business description
The table below summarises the key variables on which insurance and investment contract cash flows depend.
Type of contract
Material terms and conditions
Participating
funds
Traditional
participating
life assurance
with DPF
Other
participating
business
Traditional non-participating
life assurance
Participating products include
protection and savings elements. The
basic sum assured, payable on death or
maturity, may be enhanced by
dividends or bonuses, the aggregate
amount of which is determined by the
performance of a distinct fund of assets
and liabilities. The timing of dividend
and bonus declarations is at the
discretion of the insurer. Local
regulations generally prescribe a
minimum proportion of policyholder
participation in declared dividends
Participating products include
protection and savings elements. The
basic sum assured, payable on death or
maturity, may be enhanced by
dividends or bonuses, the timing or
amount of which are at the discretion of
the insurer taking into account factors
such as investment experience
Benefits paid on death, maturity,
sickness or disability that are fixed and
guaranteed and not at the discretion of
the insurer
Accident and health
These products provide morbidity or
sickness benefits and include health,
disability, critical illness and accident
cover
Unit-linked
Universal life
Unit-linked contracts combine savings
with protection, the cash value of the
policy depending on the value of
unitised funds
The customer pays flexible premiums
subject to specified limits accumulated
in an account balance which are
credited with interest at a rate set by
the insurer, and a death benefit which
may be varied by the customer
Note:
(1) Other than the Group Corporate Centre segment.
Nature of benefits and
compensation for claims
Factors affecting
contract cash
flows
Key reportable
segments
Minimum guaranteed benefits
may be enhanced based on
investment experience and
other considerations
Singapore,
China,
Malaysia
(cid:127) Investment
performance
(cid:127) Expenses
(cid:127) Mortality
(cid:127) Surrenders
Minimum guaranteed benefits
may be enhanced based on
investment experience and
other considerations
Hong Kong,
Thailand,
Other Markets
(cid:127) Investment
performance
(cid:127) Expenses
(cid:127) Mortality
(cid:127) Surrenders
(cid:127) Morbidity
Benefits, defined in the
insurance contract, are
determined by the contract and
are not affected by investment
performance or the
performance of the contract as
a whole
Benefits, defined in the
insurance contract, are
determined by the contract and
are not affected by investment
performance or the
performance of the contract as
a whole
Benefits are based on the value
of the unitised funds and death
benefits
Benefits are based on the
account balance and death
benefit
All(1)
All(1)
(cid:127) Mortality
(cid:127) Morbidity
(cid:127) Lapses
(cid:127) Expenses
(cid:127) Mortality
(cid:127) Morbidity
(cid:127) Lapses
(cid:127) Expenses
(cid:127) Investment
performance
All(1)
(cid:127) Lapses
(cid:127) Expenses
(cid:127) Mortality
All(1)
(cid:127) Investment
performance
(cid:127) Crediting rates
(cid:127) Lapses
(cid:127) Expenses
(cid:127) Mortality
193
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Methodology and assumptions
The most significant items to which profit for the year and shareholders’ equity are sensitive are market, insurance and
lapse risks which are shown in the table below. Indirect exposure indicates that there is a second order impact. For example,
whilst the profit for the year attributable to shareholders is not directly affected by investment income earned where the
investment risk is borne by policyholders (for example, in respect of unit-linked contracts), there is a second-order effect
through the investment management fees which the Group earns by managing such investments. The distinction between
direct and indirect exposure is not intended to indicate the relative sensitivity to each of these items. Where the direct
exposure is shown as being “net neutral”, this is because the exposure to market and credit risk is offset by a corresponding
movement in insurance contract liabilities.
Market and credit risk
Direct exposure
Type of contract
Traditional
participating
life assurance
with DPF
Participating
funds
Insurance and investment
contract liabilities
Risks associated with
related investment
portfolio
Indirect exposure
Significant insurance and
lapse risks
(cid:127) Net neutral except for
the insurer’s share of
participating
investment
performance
(cid:127) Net neutral except for
the insurer’s share of
participating
investment
performance
(cid:127) Guarantees
(cid:127) Guarantees
(cid:127) Investment
performance subject
to smoothing through
dividend declarations
(cid:127) Impact of persistency
on future dividends
(cid:127) Mortality
Other
participating
business
(cid:127) Net neutral except for
the insurer’s share of
participating
investment
performance
(cid:127) Net neutral except for
the insurer’s share of
participating
investment
performance
(cid:127) Guarantees
(cid:127) Guarantees
(cid:127) Investment
performance subject
to smoothing through
dividend declarations
(cid:127) Impact of persistency
on future dividends
(cid:127) Mortality
(cid:127) Morbidity
Traditional non-participating
life assurance
(cid:127) Guarantees
(cid:127) Asset-liability
mismatch risk
Accident and health
(cid:127) Asset-liability
mismatch risk
Pension
(cid:127) Net neutral
(cid:127) Asset-liability
mismatch risk
(cid:127) Investment
performance
(cid:127) Asset-liability
mismatch risk
(cid:127) Credit risk
(cid:127) Investment
performance
(cid:127) Credit risk
(cid:127) Asset-liability
mismatch risk
(cid:127) Net neutral
(cid:127) Asset-liability
mismatch risk
(cid:127) Not applicable
(cid:127) Mortality
(cid:127) Persistency
(cid:127) Morbidity
(cid:127) Not applicable
(cid:127) Morbidity
(cid:127) Persistency
(cid:127) Performance-related
(cid:127) Persistency
investment
management fees
Unit-linked
(cid:127) Net neutral
(cid:127) Net neutral
(cid:127) Performance-related
Universal life
(cid:127) Guarantees
(cid:127) Asset-liability
mismatch risk
(cid:127) Investment
performance
(cid:127) Credit risk
(cid:127) Asset-liability
mismatch risk
investment
management fees
(cid:127) Spread between
earned rate and
crediting rate to
policyholders
(cid:127) Persistency
(cid:127) Mortality
(cid:127) Mortality
(cid:127) Persistency
(cid:127) Withdrawals
The Group is also exposed to foreign exchange rate risk in respect of its operations, and to interest rate risk, credit risk and
equity price risk on assets representing net shareholders’ equity, and to expense risk to the extent that actual expenses
exceed those that can be charged to insurance and investment contract holders on non-participating business. Expense
assumptions applied in the Group’s actuarial valuation models assume a continuing level of business volumes.
194
FINANCIAL STATEMENTS| AIA GROUP LIMITED 25. INSURANCE CONTRACT LIABILITIES (continued)
Methodology and assumptions (continued)
Valuation interest rates
As at 30 November 2016 and 2015, the ranges of applicable valuation interest rates for traditional insurance contracts,
which vary by territory, year of issuance and products, within the first 20 years are as follows:
Hong Kong
Thailand
Singapore
Malaysia
China
Korea
Philippines
Indonesia
Vietnam
Australia
New Zealand
Taiwan
Sri Lanka
26. INVESTMENT CONTRACT LIABILITIES
US$m
At beginning of financial year
Effect of foreign exchange movements
Investment contract benefits
Fees charged
Net withdrawals and other movements
At end of financial year(1)
As at
30 November
2016
As at
30 November
2015
3.50% – 7.50%
3.50% – 7.50%
3.25% – 9.00%
3.25% – 9.00%
2.00% – 7.00%
2.00% – 7.00%
3.70% – 5.43%
3.70% – 8.90%
2.75% – 7.00%
2.75% – 7.00%
2.85% – 6.50%
3.08% – 6.50%
2.20% – 9.20%
2.20% – 9.20%
3.02% – 9.00%
3.10% – 10.80%
5.07% – 12.25%
5.07% – 12.25%
3.40% – 7.11%
3.83% – 7.11%
2.97% – 5.75%
3.83% – 5.75%
1.75% – 6.50%
1.75% – 6.50%
7.10% – 10.78%
7.95% – 11.00%
Year ended
30 November
2016
Year ended
30 November
2015
7,116
(56)
245
(138)
(139)
7,028
7,937
(170)
(336)
(189)
(126)
7,116
Note:
(1) Of investment contract liabilities, US$558m (2015: US$636m) represents deferred fee income.
195
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The table below sets out the sensitivities of the assumptions in respect of insurance and investment contracts with DPF to
key variables. This disclosure only allows for the impact on liabilities and related assets, such as reinsurance, and deferred
acquisition costs and does not allow for offsetting movements in the fair value of financial assets backing those liabilities.
US$m
(Increase)/decrease in insurance contract liabilities, increase/(decrease) in equity
and profit before tax
0.5 pps increase in investment return
0.5 pps decrease in investment return
10% increase in expenses
10% increase in mortality rates
10% increase in lapse/discontinuance rates
As at
30 November
2016
As at
30 November
2015
20
(27)
(7)
(36)
(22)
18
(17)
(5)
(27)
(18)
Future policy benefits for traditional life insurance policies (including investment contracts with DPF) are calculated using
a net level premium valuation method with reference to best estimate assumptions set at policy inception date unless
a deficiency arises on liability adequacy testing. There is not any impact of the above assumption sensitivities on the
carrying amount of traditional life insurance liabilities as the sensitivities presented would not have triggered a liability
adequacy adjustment. During the years presented there were not any effect of changes in assumptions and estimates on
the Group’s traditional life products.
For interest sensitive insurance contracts, such as universal life products and unit-linked contracts, assumptions are made
at each reporting date including mortality, persistency, expenses, future investment earnings and future crediting rates.
The impact of changes in assumptions on the valuation of insurance and investment contracts with DPF was US$20m
increase in profit (2015: US$8m increase).
196
FINANCIAL STATEMENTS| AIA GROUP LIMITED 28. BORROWINGS
US$m
Bank and other loans
Medium term notes
Total
As at
30 November
2016
As at
30 November
2015
1
3,459
3,460
323
2,872
3,195
At 30 November 2016 and 2015, the Group did not have assets pledged as security with respect to amounts disclosed as
bank loans above. Interest expense on borrowings is shown in note 9. Further information relating to interest rates and the
maturity profile of borrowings is presented in note 36.
The following table summarises the Group’s outstanding medium term notes at 30 November 2016:
Issue date
13 March 2013(1)
13 March 2013(1)
11 March 2014(1)
11 March 2014(1)
11 March 2015(1)
16 March 2016(1)
Nominal amount
Interest rate
Tenor
US$500m
US$500m
US$500m
US$500m
US$750m
US$750m
1.750%
3.125%
2.250%
4.875%
3.200%
4.500%
5 years
10 years
5 years
30 years
10 years
30 years
Note:
(1) These medium term notes are listed on The Stock Exchange of Hong Kong Limited.
The net proceeds from issuance during the year ended 30 November 2016 are used for general corporate purposes.
The Group has access to an aggregate of US$2,050m unsecured committed credit facilities, which includes a US$300m
revolving three-year credit facility expiring in 2019 and a US$1,750m five-year credit facility expiring in 2021. The credit
facilities will be used for general corporate purposes. There were nil outstanding borrowings under these credit facilities
as of 30 November 2016 (2015: nil).
29. OBLIGATIONS UNDER REPURCHASE AGREEMENTS
The Group has entered into repurchase agreements whereby securities are sold to third parties with a concurrent agreement
to repurchase the securities at a specified date.
The securities related to these agreements are not de-recognised from the Group’s consolidated statement of financial
position, but are retained within the appropriate financial asset classification. During the term of the repurchase agreements,
the Group is restricted from selling or pledging the transferred debt securities. The following table specifies the amounts
included within financial investments subject to repurchase agreements which do not qualify for de-recognition at each
year end:
US$m
Debt securities – AFS
Debt securities – FVTPL
Total
As at
30 November
2016
As at
30 November
2015
2,045
98
2,143
2,522
677
3,199
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Collateral
At 30 November 2016, the Group had pledged debt securities with carrying value of US$6m (2015: US$7m). Cash collateral
of US$1m (2015: US$8m) were held based on the market value of the securities transferred. In the absence of default,
the Group does not sell or repledge the debt securities collateral received and they are not recognised in the consolidated
statement of financial position.
The Group did not have any securities lending transactions outstanding as at 30 November 2016 and 2015.
At 30 November 2016, the obligations under repurchase agreements were US$1,984m (2015: US$3,085m).
30. OFFSETTING OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Offsetting, enforceable master netting agreements and similar agreements
The following table shows the assets that are subject to offsetting, enforceable master netting agreements and similar
arrangements at each year end:
Gross
amount of
recognised
financial
liabilities
set off in the
consolidated
statement
of financial
position
Net amount
of financial
assets
presented
in the
consolidated
statement of
financial
position
Gross
amount of
recognised
financial
assets
Related amounts
not set off in the
consolidated statement
of financial position
Financial
instruments
Cash
collateral
received
Net
amount
107
224
331
–
–
–
107
224
331
(5)
(224)
(229)
(6)
–
(6)
96
–
96
Gross
amount of
recognised
financial
liabilities
set off in the
consolidated
statement
of financial
position
Net amount
of financial
assets
presented
in the
consolidated
statement of
financial
position
Gross
amount of
recognised
financial
assets
Related amounts
not set off in the
consolidated statement
of financial position
Financial
instruments
Cash
collateral
received
Net
amount
73
155
228
–
–
–
73
155
228
(2)
(155)
(157)
(8)
–
(8)
63
–
63
US$m
30 November 2016
Financial assets:
Derivative assets
Reverse repurchase agreements
Total
US$m
30 November 2015
Financial assets:
Derivative assets
Reverse repurchase agreements
Total
198
FINANCIAL STATEMENTS| AIA GROUP LIMITED 30. OFFSETTING OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
Offsetting, enforceable master netting agreements and similar agreements (continued)
The following table shows the liabilities that are subject to offsetting, enforceable master netting agreements and similar
arrangements at each year end:
Gross
amount of
recognised
financial
assets
set off in the
consolidated
statement
of financial
position
Net amount
of financial
liabilities
presented
in the
consolidated
statement of
financial
position
Gross
amount of
recognised
financial
liabilities
Related amounts
not set off in the
consolidated statement
of financial position
Financial
instruments
Cash
collateral
pledged
Net
amount
644
1,984
2,628
–
–
–
644
1,984
2,628
(440)
(1,984)
(2,424)
(188)
–
(188)
16
–
16
Gross
amount of
recognised
financial
assets
set off in the
consolidated
statement
of financial
position
Net amount
of financial
liabilities
presented
in the
consolidated
statement of
financial
position
Gross
amount of
recognised
financial
liabilities
Related amounts
not set off in the
consolidated statement
of financial position
Financial
instruments
Cash
collateral
pledged
Net
amount
695
3,085
3,780
–
–
–
695
3,085
3,780
(439)
(3,085)
(3,524)
(189)
–
(189)
67
–
67
US$m
30 November 2016
Financial liabilities:
Derivative liabilities
Repurchase agreements
Total
US$m
30 November 2015
Financial liabilities:
Derivative liabilities
Repurchase agreements
Total
The Group entered into enforceable master netting agreements for derivative transactions, as well as the repurchase
agreements for debt instruments with various counterparties. Except for certain futures contracts executed through
clearing house mechanism where the settlement arrangement satisfied the IFRS netting criteria, the transactions under
the enforceable master netting agreements and similar agreements involving the exchange of financial instruments or cash
as collateral do not satisfy the IFRS netting criteria. The provision in the master netting agreement and similar agreements
enables a party to terminate transactions early and settle at a net amount if a default or termination event occurs.
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US$m
At 1 December 2014
Charged to the consolidated income statement
Charged to other comprehensive income
Exchange differences
Released during the year
Utilised during the year
Other movements
At 30 November 2015
Charged to the consolidated income statement
Charged to other comprehensive income
Released during the year
Utilised during the year
Other movements
At 30 November 2016
Employee
benefits
124
8
12
(9)
(2)
(19)
3
117
11
22
–
(3)
(2)
145
Other
89
89
–
(4)
(5)
(40)
(1)
128
52
–
(18)
(54)
–
108
Total
213
97
12
(13)
(7)
(59)
2
245
63
22
(18)
(57)
(2)
253
Other provisions
Other provisions comprise provisions in respect of regulatory matters, litigation, reorganisation and restructuring. In view
of the diverse nature of the matters provided for and the contingent nature of the matters to which they relate, the Group is
unable to provide an accurate assessment of the term over which provisions are expected to be utilised.
32. OTHER LIABILITIES
US$m
Trade and other payables
Third-party interests in consolidated investment funds
Reinsurance payables
Total
As at
30 November
2016
As at
30 November
2015
2,980
1,239
504
4,723
3,032
1,214
411
4,657
Third-party interests in consolidated investment funds consist of third-party unit holders’ interests in consolidated
investment funds which are reflected as a liability since they can be put back to the Group for cash.
Trade and other payables are generally expected to be settled within 12 months after the end of the reporting period.
The realisation of third-party interests in investment funds cannot be predicted with accuracy since these represent the
interests of third-party unit holders in consolidated investment funds held to back insurance and investment contract
liabilities and are subject to market risk and the actions of third-party investors.
200
FINANCIAL STATEMENTS| AIA GROUP LIMITED 33. SHARE CAPITAL AND RESERVES
Share capital
As at 30 November 2016
As at 30 November 2015
Million shares
US$m
Million shares
US$m
At beginning of the financial year
12,048
13,971
12,045
13,962
Shares issued under share option scheme
and agency share purchase plan
At end of the financial year
8
12,056
27
13,998
3
12,048
9
13,971
The Company issued 7,174,665 shares under share option scheme (2015: 2,190,404 shares) and 927,042 shares under
agency share purchase plan (2015: 1,041,690 shares) during the year ended 30 November 2016.
The Company and its subsidiaries have not purchased, sold or redeemed any of the Company’s shares during the year ended
30 November 2016 with the exception of 16,849,376 shares (2015: 16,867,524 shares) of the Company purchased by and
276,401 shares (2015: 204,295 shares) of the Company sold by the employee share-based trusts. These purchases were
made by the relevant scheme trustees on the Hong Kong Stock Exchange. These shares are held on trust for participants
of the relevant schemes and therefore were not cancelled.
During the year ended 30 November 2016, 13,664,506 shares (2015: 14,734,751 shares) were transferred to eligible
directors, officers and employees of the Group from the employee share-based trusts under share-based compensation
plans as a result of vesting. As at 30 November 2016, 78,056,013 shares (2015: 75,147,538 shares) of the Company were
held by the employee share-based trusts.
Reserves
Fair value reserve
The fair value reserve comprises the cumulative net change in the fair value of available for sale securities held at the end
of the reporting period.
Foreign currency translation reserve
The foreign currency translation reserve comprises all foreign currency exchange differences arising from the translation
of the financial statements of foreign operations.
Employee share-based trusts
Trusts have been established to acquire shares of the Company for distribution to participants in future periods through
the share-based compensation plans. Those shares acquired by the trusts, to the extent not transferred to the participants
upon vesting, are reported as “Employee share-based trusts”.
Property revaluation reserve
Property revaluation reserve comprises the cumulative net change in the revalued amount of property held for own
use at the end of the reporting period. Property revaluation surplus is not considered to be a realised profit available for
distribution to shareholders.
Other reserves
Other reserves mainly include the impact of merger accounting for business combinations under common control and
share-based compensation.
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US$m
Equity shares in subsidiaries
Share of earnings
Share of other reserves
Total
As at
30 November
2016
As at
30 November
2015
(As adjusted)
59
257
10
326
59
221
23
303
35. GROUP CAPITAL STRUCTURE
Capital Management Approach
The Group’s capital management objectives focus on maintaining a strong capital base to support the development of its
business, maintaining the ability to move capital freely and satisfying regulatory capital requirements at all times.
The Group’s capital management function oversees all capital-related activities of the Group and assists senior management
in making capital decisions. The capital management function participates in decisions concerning asset-liability
management, strategic asset allocation and ongoing solvency management. This includes ensuring capital considerations
are paramount in the strategy and business planning processes and when determining the AIA’s capacity to pay dividends
to shareholders.
Regulatory Solvency
The Group is in compliance with the solvency and capital adequacy requirements applied by its regulators. The Group’s
primary insurance regulator at the AIA Company Limited (AIA Co.) and AIA International Limited (AIA International) levels
is the Hong Kong Office of the Commissioner of Insurance (HKOCI), which requires that AIA Co. and AIA International
meet the solvency margin requirements of the Hong Kong Insurance Companies Ordinance (HKICO). The HKICO (among
other matters) sets minimum solvency margin requirements that an insurer must meet in order to be authorised to carry
on insurance business in or from Hong Kong. AIA has given a revised undertaking to the HKOCI to maintain an excess
of assets over liabilities for branches other than Hong Kong at no less than 100% of the Hong Kong statutory minimum
solvency margin requirement (previously 150%) in each of AIA Co. and AIA International. For clarity there is no change in
the undertaking in respect of the Hong Kong business or the Hong Kong statutory minimum solvency margin requirement
for AIA.
The capital positions of the Group’s two principal operating companies as of 30 November 2016 and 2015 are as follows:
US$m
AIA Co.
AIA International
30 November 2016
30 November 2015
Total
available
capital
Regulatory
minimum
capital
6,699
6,237
1,659
2,072
Solvency
ratio
404%
301%
Total
available
capital
Regulatory
minimum
capital
6,761
6,388
1,579
1,794
Solvency
ratio
428%
356%
For these purposes, the Group defines total available capital as the amount of assets in excess of liabilities measured in
accordance with the HKICO and “regulatory minimum capital” as the required minimum margin of solvency calculated in
accordance with the HKICO. The solvency ratio is the ratio of total available capital to regulatory minimum capital.
The Group’s individual branches and subsidiaries are also subject to the supervision of government regulators in the
jurisdictions in which those branches and subsidiaries and their parent entity operate and, in relation to subsidiaries, in
which they are incorporated. The various regulators overseeing the Group actively monitor our local solvency positions.
AIA Co. and AIA International submit annual filings to the HKOCI of their solvency margin position based on their annual
audited financial statements, and the Group’s other operating units perform similar annual filings with their respective
local regulators.
202
FINANCIAL STATEMENTS| AIA GROUP LIMITED 35. GROUP CAPITAL STRUCTURE (continued)
Regulatory Solvency (continued)
The ability of the Company to pay dividends to shareholders and to meet other obligations depends ultimately on dividends
and other payments being received from its operating subsidiaries and branches, which are subject to contractual,
regulatory and other limitations. The various regulators overseeing the individual branches and subsidiaries of the Group
have the discretion to impose additional restrictions on the ability of those regulated subsidiaries and branches to make
payment of dividends or other distributions and payments to AIA Co., including increasing the required margin of solvency
that an operating unit must maintain. For example, capital may not be remitted without the consent from regulators for
certain individual branches or subsidiaries of the Group. The payment of dividends, distributions and other payments to
shareholders is subject to the oversight of the HKOCI.
Capital and Regulatory Orders Specific to the Group
As of 30 November 2016, the requirements and restrictions summarised below may be considered material to the Group
and remain in effect unless otherwise stated.
Hong Kong Office of the Commissioner of Insurance
AIA Group Limited has given to the Insurance Authority an undertaking that AIA Group Limited will:
(i) ensure that (a) each of AIA Co. and AIA International will at all times maintain an excess of assets over liabilities of
not less than the aggregate of 150% of the Hong Kong statutory minimum solvency margin requirement in respect
of the Hong Kong branch and no less than 100% of the Hong Kong statutory minimum solvency margin requirement
(previously 150%) for branches other than Hong Kong (“minimum amount”); (b) it will not withdraw capital or transfer
any funds or assets out of AIA Co. or AIA International that will cause the solvency ratio to fall below the minimum
amounts specified in (a), except with, in either case, the prior written consent of the Insurance Authority; and (c) should
the solvency ratio of either AIA Co. or AIA International fall below the respective minimum amounts, AIA Group Limited
will take steps as soon as possible to restore it to at least the respective minimum amounts in a manner acceptable to
the Insurance Authority;
(ii) notify the Insurance Authority in writing as soon as the Company becomes aware of any person (a) becoming a controller
(within the meaning of Section 9(1)(c)(ii) of the HKICO) of AIA Co. and AIA International through the acquisition of our
shares traded on the HKSE; or (b) ceasing to be a controller (within the meaning of Section 9(1)(c)(ii) of the HKICO) of
AIA Co. and AIA International through the disposal of our shares traded on the HKSE;
(iii) be subject to the supervision of the Insurance Authority and AIA Group Limited will be required to continually comply
with the Insurance Authority’s guidance on the “fit and proper” standards of a controller pursuant to Section 8(2) of the
HKICO. The Insurance Authority is empowered by the HKICO to raise objection if it appears to it that any person is not
fit and proper to be a controller or director of an authorised insurer. These standards include the sufficiency of a holding
company’s financial resources; the viability of a holding company’s business plan for its insurance subsidiaries which
are regulated by the Insurance Authority; the clarity of the Group’s legal, managerial and operational structures; the
identities of any other holding companies or major regulated subsidiaries; whether the holding company, its directors
or controllers is subject to receivership, administration, liquidation or other similar proceedings or failed to satisfy any
judgement debt under a court order or the subject of any criminal convictions or in breach of any statutory or regulatory
requirements; the soundness of the Group’s corporate governance; the soundness of the Group’s risk management
framework; the receipt of information from its insurance subsidiaries which are regulated by the Insurance Authority to
ensure that they are managed in compliance with applicable laws, rules and regulation; and its role in overseeing and
managing the operations of its insurance subsidiaries which are regulated by the Insurance Authority; and
(iv) fulfil all enhancements or improvements to the guidance referred to in subparagraph (iii) above, as well as administrative
measures issued from time to time by the Insurance Authority or requirements that may be prescribed by the Insurance
Authority in accordance with the HKICO, regulations under the HKICO or guidance notes issued by the Insurance
Authority from time to time.
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Risk management framework
AIA recognises the importance of sound risk management in every aspect of our business and for all our stakeholders.
The Risk Management Framework (RMF) provides the structure for identifying, quantifying and mitigating risk across
the Group. An effective RMF is the key to avoiding the financial and reputational damage that arises from inadequate or
ineffective control of the risks in the business.
Insurance risk
Insurance risk is the risk arising from changes in claims experience as well as more general exposure relating to the
acquisition and persistency of insurance business. This also includes changes to assumptions regarding future experience
for these risks.
Lapse
The rate of policy termination deviating from the Group’s expectation.
Ensuring customers buy products that meet their needs is central to the Group’s Operating Philosophy. Through effective
implementation of the Business Quality Framework, comprehensive sales training programmes and active monitoring
of sales activities and persistency, the Group seeks to ensure that appropriate products are sold by qualified sales
representatives and that standards of service consistently meet our customers’ needs.
Expense
The risk of the cost of selling new business and of administering the in-force book exceeding the assumptions made in
pricing.
Daily operations follow a disciplined budgeting and control process that allows for the management of expenses based on
the Group’s very substantial experience within the markets in which we operate.
Morbidity and Mortality
The occurrence and/or amounts of medical/death claims are higher than the assumptions made in pricing or reserving.
The Group adheres to well-defined market-oriented underwriting and claims guidelines and practices that have been
developed based on extensive historical experience and with the assistance of professional reinsurers.
The Group’s actuarial teams conduct regular experience studies of all the insurance risk factors in its in-force book. These
internal studies together with external data are used to identify emerging trends which can then be used to inform product
design, pricing, underwriting, claims management and reinsurance needs.
Through monitoring the development of both local and global trends in medical technology, health and wellness, the
impact of legislation and general social, political and economic conditions the Group seeks to anticipate and respond
promptly to potential adverse experience impacts on its products.
Reinsurance is used to reduce concentration and volatility risk, especially with large policies or new risks, and as protection
against catastrophic events such as pandemics or natural disasters.
204
FINANCIAL STATEMENTS| AIA GROUP LIMITED 36. RISK MANAGEMENT (continued)
Investment and financial risks
Credit risk
Credit risk is the risk that third parties fail to meet their obligations to the Group when they fall due. Although the primary
source of credit risk is the Group’s investment portfolio, such risk can also arise through reinsurance, procurement, and
treasury activities.
The Group’s credit risk management oversight process is governed centrally, but provides for decentralised management
and accountability by our lines of business. A key to AIA’s credit risk management is adherence to a well-controlled
underwriting process. The Group’s credit risk management starts with the assignment of an internal rating to all
counterparties. A detailed analysis of each counterparty is performed and a rating recommended by the first lines of
business. The Group’s Risk Management function manages the Group’s internal ratings framework and reviews these
recommendations and makes final decision on the assigned ratings. Measuring and monitoring of credit risk is an ongoing
process and is designed to enable early identification of emerging risk.
Interest rate risk
The Group’s exposure to interest rate risk predominantly arises from any differences between the duration of the Group’s
liabilities and assets. Since most markets do not have assets of sufficient tenor to match life insurance liabilities, an
uncertainty arises around the reinvestment of maturing assets to match the Group’s insurance liabilities.
AIA manages interest rate risk primarily on an economic basis to determine the durations of both assets and liabilities.
Interest rate risk on local solvency basis is also taken into consideration for business units where local solvency regimes
deviate from economic basis. Furthermore, for products with discretionary benefits, additional modelling of interest rate
risk is performed to guide determination of appropriate management actions. Management also takes into consideration
the asymmetrical impact of interest rate movements when evaluating products with options and guarantees.
205
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES 36. RISK MANAGEMENT (continued)
Investment and financial risks (continued)
Exposure to interest rate risk
The table below summarises the nature of the interest rate risk associated with financial assets and financial liabilities. In
preparing this analysis, fixed rate interest bearing instruments that mature or reprice within 12 months of the reporting
date have been disclosed as variable rate instruments.
US$m
30 November 2016
Financial assets
Loans and deposits
Other receivables
Debt securities
Equity securities
Reinsurance receivables
Accrued investment income
Cash and cash equivalents
Derivative financial instruments
Total financial assets
Financial liabilities
Investment contract liabilities
Borrowings
Obligations under repurchase agreements
Other liabilities
Derivative financial instruments
Total financial liabilities
Variable
interest rate
Fixed
interest rate
Non-interest
bearing
Total
1,108
164
7,342
–
–
–
1,456
–
5,929
–
106,276
–
–
–
–
–
25
1,569
–
30,211
335
1,383
186
107
7,062
1,733
113,618
30,211
335
1,383
1,642
107
10,070
112,205
33,816
156,091
–
–
1,984
–
–
–
3,459
–
–
–
1,984
3,459
7,028
1
–
4,723
644
12,396
7,028
3,460
1,984
4,723
644
17,839
206
FINANCIAL STATEMENTS| AIA GROUP LIMITED
36. RISK MANAGEMENT (continued)
Investment and financial risks (continued)
Exposure to interest rate risk (continued)
US$m
30 November 2015
Financial assets
Loans and deposits
Other receivables
Debt securities
Equity securities
Reinsurance receivables
Accrued investment income
Cash and cash equivalents
Derivative financial instruments
Total financial assets
Financial liabilities
Investment contract liabilities
Borrowings
Obligations under repurchase agreements
Other liabilities
Derivative financial instruments
Total financial liabilities
Variable
interest rate
Fixed
interest rate
Non-interest
bearing
Total
1,009
183
7,680
–
–
–
1,826
–
6,170
–
96,960
–
–
–
–
–
32
1,458
–
27,159
257
1,350
166
73
7,211
1,641
104,640
27,159
257
1,350
1,992
73
10,698
103,130
30,495
144,323
–
472
3,085
15
–
–
2,723
–
–
–
3,572
2,723
7,116
–
–
4,642
695
12,453
7,116
3,195
3,085
4,657
695
18,748
Equity price risk
Equity price risk arises from changes in the market value of equity securities. Investments in equity securities on a
long-term basis are expected to provide diversification benefits and enhance returns. The extent of exposure to equities at
any time is subject to the terms of the Group’s strategic asset allocations.
Equity price risk is managed in the first instance through the individual investment mandates which define benchmarks
and any tracking error targets. Equity limits are also applied to contain individual exposures. Equity exposures are included
in the aggregate exposure reports on each individual counterparty to ensure concentrations are avoided.
207
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36. RISK MANAGEMENT (continued)
Investment and financial risks (continued)
Equity price risk (continued)
Sensitivity analysis
Sensitivity analysis to the key variables affecting financial assets and liabilities is set out in the table below. Information
relating to sensitivity of insurance and investment contracts with DPF is provided in note 27. The carrying values of other
financial assets are not subject to changes in response to movements in interest rates or equity prices. In calculating the
sensitivity of debt and equity instruments to changes in interest rates and equity prices, the Group has made assumptions
about the corresponding impact of asset valuations on liabilities to policyholders. Assets held to support unit-linked
contracts have been excluded on the basis that changes in fair value are wholly borne by policyholders. Sensitivity analysis
for assets held in participating funds has been calculated after allocation of returns to policyholders using the applicable
minimum policyholders’ participation ratios described in note 2.
Information is presented to illustrate the estimated impact on profits and total equity arising from a change in a single
variable before taking into account the effects of taxation.
The impact of any impairments of financial assets has been ignored for the purpose of illustrating the sensitivity of profit
before tax and total equity before the effects of taxation to changes in interest rates and equity prices on the grounds
that default events reflect the characteristics of individual issuers. As the Group’s accounting policies lock in interest rate
assumptions on policy inception and the Group’s assumptions incorporate a provision for adverse deviations, the level of
movement illustrated in this sensitivity analysis does not result in loss recognition and so there is not any corresponding
effect on liabilities.
30 November 2016
30 November 2015
Impact
on total
equity
(before
the effects
of taxation)
Impact
on allocated
equity
(before the
effects
of taxation)
Impact
on profit
before
tax
Impact
on total
equity
(before
the effects
of taxation)(1)
Impact
on allocated
equity
(before the
effects
of taxation)
Impact
on profit
before
tax(1)
US$m
Equity price risk
10 per cent increase in equity prices
10 per cent decrease in equity prices
995
(995)
995
(995)
Interest rate risk
+ 50 basis points shift in yield curves
- 50 basis points shift in yield curves
(204)
219
(4,699)
5,179
995
(995)
(204)
219
792
(792)
792
(792)
(123)
135
(3,937)
4,315
792
(792)
(123)
135
Note:
(1) Impact on profit before tax and total equity (before the effects of taxation) of interest rate risk have been adjusted to conform to the current
year basis.
208
FINANCIAL STATEMENTS| AIA GROUP LIMITED 36. RISK MANAGEMENT (continued)
Investment and financial risks (continued)
Foreign exchange rate risk
The Group’s foreign exchange rate risk arises mainly from the Group’s operations in multiple geographical markets in the
Asia-Pacific region and the translation of multiple currencies to US dollars for financial reporting purposes. The balance
sheet values of our operating units and subsidiaries are not hedged to the Group’s reporting currency, the US dollar.
However, assets, liabilities and local regulatory and stress capital in each business unit are generally currency matched
with the exception of holdings of equities denominated in currencies other than the functional currency, or any expected
capital movements due within one year which may be hedged. Bonds denominated in currencies other than the functional
currency are commonly hedged with cross-currency swaps or foreign exchange forward contracts.
Foreign exchange rate net exposure
US$m
30 November 2016
United States
Dollar
Hong Kong
Dollar
Thai
Baht
Singapore
Dollar
Malaysian
Ringgit
China
Renminbi
Equity analysed by original currency
20,429
2,208
2,902
(2,786)
1,939
4,098
Net notional amounts of currency
derivative positions
Currency exposure
5% strengthening of original currency
Impact on profit before tax
Impact on other comprehensive income
Impact on total equity
5% strengthening of the US dollar
Impact on profit before tax
Impact on other comprehensive income
Impact on total equity
US$m
30 November 2015 – As adjusted
(7,104)
13,325
601
2,809
2,010
4,912
2,861
75
(187)
1,752
(122)
3,976
169
(184)
(15)
169
(184)
(15)
11
99
110
21
(131)
(110)
(7)
252
245
(6)
(239)
(245)
35
(31)
4
(20)
16
(4)
(6)
94
88
7
(95)
(88)
14
185
199
(10)
(189)
(199)
United States
Dollar
Hong Kong
Dollar
Thai
Baht
Singapore
Dollar
Malaysian
Ringgit
China
Renminbi
Equity analysed by original currency
18,958
2,070
2,281
(2,789)
1,913
3,539
Net notional amounts of currency
derivative positions
Currency exposure
5% strengthening of original currency
Impact on profit before tax
Impact on other comprehensive income
Impact on total equity
5% strengthening of the US dollar
Impact on profit before tax
Impact on other comprehensive income
Impact on total equity
(6,617)
12,341
601
2,671
1,818
4,099
2,698
(91)
(177)
1,736
(21)
3,518
134
(157)
(23)
134
(157)
(23)
10
98
108
24
(132)
(108)
5
200
205
(4)
(201)
(205)
25
(30)
(5)
(10)
15
5
(7)
94
87
9
(96)
(87)
21
155
176
(15)
(161)
(176)
209
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES
36. RISK MANAGEMENT (continued)
Investment and financial risks (continued)
Liquidity risk
AIA identifies liquidity risk as occurring in two ways, financial liquidity risk and investment liquidity risk. Financial liquidity
risk is the risk that insufficient cash is available to meet payment obligations to counterparties as they fall due. One area
of particular focus in the management of financial liquidity is collateral. AIA manages this exposure by determining limits
for its activities in the derivatives and repurchase agreement markets based on the collateral available within the relevant
fund or subsidiary to withstand extreme market events. More broadly AIA supports its liquidity through committed bank
facilities, use of the bond repurchase markets and maintaining access to debt markets via the Group’s Global Medium Term
Note programme.
Investment liquidity risk occurs in relation to the Group’s ability to buy and sell investments. This is a function of the size of
the Group’s holdings relative to the availability of counterparties willing to buy or sell these holdings at any given time. In
times of stress, market losses will generally be compounded by forced sellers seeking unwilling buyers.
While life insurance companies are characterised by a relatively low need for liquidity to cover those of their liabilities
which are directly linked to mortality and morbidity, this risk is nevertheless carefully managed by continuously assessing
the relative liquidity of the Group’s assets and managing the size of individual holdings through limits.
Due in
one year
or less
Due after
one year
through
five years
Due after
five years
through
ten years
Total
Due after
ten years
No fixed
maturity
6,866
1,676
109,162
14,713
335
1,341
1,137
104
818
1,558
3,098
–
335
1,333
1,137
53
1,095
78
298
6
2,204
2,451
–
16,341
28,291
61,432
–
–
1
–
12
–
–
–
–
26
–
–
–
–
13
34
–
14,713
–
7
–
–
135,334
8,332
17,527
28,621
63,649
17,205
20,757
156,091
–
–
–
–
8,332
17,527
28,621
63,649
20,757
37,962
US$m
30 November 2016
Financial assets (Policyholder and
shareholder investments)
Loans and deposits
Other receivables
Debt securities
Equity securities
Reinsurance receivables
Accrued investment income
Cash and cash equivalents
Derivative financial instruments
Subtotal
Financial assets (Unit-linked contracts and
consolidated investment funds)
Total
Financial and insurance contract liabilities
(Policyholder and shareholder investments)
Insurance and investment contract liabilities
(net of deferred acquisition and origination
costs, and reinsurance)
95,007
2,725
9,799
Borrowings
Obligations under repurchase agreements
Other liabilities
Derivative financial instruments
Subtotal
Financial and insurance contract liabilities
(Unit-linked contracts and consolidated
investment funds)
Total
3,460
1,984
3,379
642
–
1,984
2,354
93
998(1)
–
47
208
10,529
1,241
71,954
1,221
–
2
313
–
13
28
104,472
7,156
11,052
12,085
73,216
–
–
–
963
–
963
20,743
125,215
–
–
–
–
7,156
11,052
12,085
73,216
20,743
21,706
Note:
(1) Includes amounts of US$498m falling due after 2 years through 5 years.
210
FINANCIAL STATEMENTS| AIA GROUP LIMITED
36. RISK MANAGEMENT (continued)
Investment and financial risks (continued)
Liquidity risk (continued)
US$m
30 November 2015 – As adjusted
Financial assets (Policyholders and
shareholder investments)
Loans and deposits
Other receivables
Debt securities
Equity securities
Reinsurance receivables
Accrued investment income
Cash and cash equivalents
Derivative financial instruments
Subtotal
Due in
one year
or less
Total
Due after
one year
through
five years
Due after
five years
through
ten years
Due after
ten years
No fixed
maturity
7,000
1,613
100,458
12,211
257
1,309
1,542
70
784
1,511
3,369
–
257
1,300
1,542
41
1,344
48
445
2
2,112
2,315
1
14,869
27,174
55,046
–
–
1
–
22
–
–
–
–
6
–
–
–
–
1
51
–
12,211
–
8
–
–
124,460
8,804
16,284
27,627
57,160
14,585
Financial assets (Unit-linked contracts and
consolidated investment funds)
Total
19,863
144,323
–
–
–
–
8,804
16,284
27,627
57,160
19,863
34,448
Financial and insurance contract liabilities
(Policyholders and shareholder investments)
Insurance and investment contract liabilities
(net of deferred acquisition and origination
costs, and reinsurance)
Borrowings
Obligations under repurchase agreements
Other liabilities
Derivative financial instruments
Subtotal
Financial and insurance contract liabilities
(Unit-linked contracts and consolidated
investment funds)
Total
85,996
3,195
3,085
3,320
695
2,643
150
3,085
2,399
28
9,439
10,432
63,482
1,318(2)
1,240
–
32
259
–
2
398
487
–
21
10
96,291
8,305
11,048
12,072
64,000
–
–
–
866
–
866
19,849
116,140
–
–
–
–
8,305
11,048
12,072
64,000
19,849
20,715
Notes:
(1) The presentation of the above table has been adjusted to conform to current year presentation.
(2) Includes amounts of US$995m falling due after 2 years through 5 years.
211
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES
37. EMPLOYEE BENEFITS
Defined benefit plans
The Group operates funded and unfunded defined benefit plans that provide life and medical benefits for participating
employees after retirement and a lump sum benefit on cessation of employment. The locations covered by these plans
include Hong Kong, Singapore, Malaysia, Thailand, Taiwan, Indonesia, Korea, the Philippines, Sri Lanka and Vietnam.
The latest independent actuarial valuations of the plans were at 30 November 2016 and were prepared by credentialed
actuaries. All the actuaries are qualified members of professional actuarial organisations to render the actuarial opinions.
The actuarial valuations indicate that the Group’s obligations under these defined benefit retirement plans are 33 per cent
(2015: 41 per cent) covered by the plan assets held by the trustees. The fair value of plan assets as at year end at the date
of valuation was US$62m (2015: US$63m). The total expenses relating to these plans recognised in the consolidated
income statement was US$11m (2015: US$8m).
Defined contribution plans
The Group operates a number of defined contribution pension plans. The total expense relating to these plans in the current
year was US$67m (2015: US$60m). Employees and the employer are required to make monthly contributions equal to
1 per cent to 22 per cent of the employees’ monthly basic salaries, depending on years of service and subject to any
applicable caps of monthly relevant income in different jurisdictions. For defined contribution pension plans with vesting
conditions, any forfeited contributions by employers on behalf of employees who leave the scheme prior to vesting fully in
such contributions are used by the employer to reduce any future contributions. The amount of forfeited contributions used
to reduce the existing level of contributions is not material.
38. SHARE-BASED COMPENSATION
Share-based compensation plans
During the year ended 30 November 2016, the Group made further awards of share options, restricted share units (RSUs)
and restricted stock purchase units (RSPUs) to certain directors, officers and employees of the Group under the Share
Option Scheme (SO Scheme), the Restricted Share Unit Scheme (RSU Scheme) and the Employee Share Purchase Plan
(ESPP). In addition, the Group made further awards of restricted stock subscription units (RSSUs) to eligible agents under
the Agency Share Purchase Plan (ASPP).
RSU Scheme
Under the RSU Scheme, the vesting of the awarded RSUs is conditional upon the eligible participants remaining in
employment with the Group during the respective vesting periods. RSU awards are vested either entirely after a specific
period of time or in tranches over the vesting period. For RSU awards that are vested in tranches, each vesting tranche
is accounted for as a separate award for the purposes of recognising the expense over the vesting period. For certain
RSUs, performance conditions are also attached which include both market and non-market conditions. RSUs subject
to performance conditions are released to the participants at the end of the vesting period depending on the actual
achievement of the performance conditions. During the vesting period, the participants are not entitled to dividends of
the underlying shares. Except in jurisdictions where restrictions apply, the awarded RSUs are expected to be settled in
equity; awards that the Group has the legal or constructive obligation to settle in cash are insignificant to the Group. The
maximum number of shares that can be awarded under this scheme is 301,100,000 (2015: 301,100,000), representing
approximately 2.5 per cent (2015: 2.5 per cent) of the number of shares in issue at 30 November 2016.
212
FINANCIAL STATEMENTS| AIA GROUP LIMITED 38. SHARE-BASED COMPENSATION (continued)
Share-based compensation plans (continued)
RSU Scheme (continued)
Number of shares
Restricted Share Units
Outstanding at beginning of financial year
Awarded
Forfeited
Vested
Outstanding at end of financial year
Year ended
30 November
2016
Year ended
30 November
2015
53,650,778
58,590,419
18,964,022
17,933,566
(10,150,721)
(8,785,462)
(13,126,777)
(14,087,745)
49,337,302
53,650,778
SO Scheme
The objectives of the SO Scheme are to align eligible participants’ interests with those of the shareholders of the Company
by allowing eligible participants to share in the value created at the point they exercise their options. Share option (SO)
awards are vested either entirely after a specific period of time or in tranches over the vesting period approximately three
to five years, during which, the eligible participants are required to remain in employment with the Group. For SO awards
vested in tranches, each vesting tranche is accounted for as a separate award for the purposes of recognising the expense
over the vesting period. The awarded share options expire 10 years from the date of grant and each share option entitles
the eligible participant to subscribe for one ordinary share. Except in jurisdictions where restrictions apply, the awarded
share options are expected to be settled in equity; awards that the Group has the legal or constructive obligation to settle
in cash are insignificant to the Group. The total number of shares under options that can be awarded under the scheme is
301,100,000 (2015: 301,100,000), representing approximately 2.5 per cent (2015: 2.5 per cent) of the number of shares
in issue at 30 November 2016.
Information about share options outstanding and share options exercisable by the Group’s employees and directors as at
the end of the reporting period is as follows:
Share options
Outstanding at beginning of financial year
Awarded
Exercised
Forfeited or expired
Outstanding at end of financial year
Share options exercisable at end of financial year
Year ended
30 November 2016
Year ended
30 November 2015
Number of
share options
Weighted
average
exercise price
(HK$)
Number of
share options
Weighted
average
exercise price
(HK$)
40,458,104
9,550,232
(7,174,665)
(1,252,638)
41,581,033
20,592,646
33.29
41.90
28.58
39.91
35.88
29.44
37,105,919
5,937,871
(2,190,404)
(395,282)
40,458,104
17,817,979
30.67
47.73
27.68
35.48
33.29
27.71
At the date the share option was exercised, the weighted average share price of the Company was HK$49.43 for the year
ended 30 November 2016 (2015: HK$48.32).
213
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES
38. SHARE-BASED COMPENSATION (continued)
Share-based compensation plans (continued)
SO Scheme (continued)
The range of exercise prices for the share options outstanding as of 30 November 2016 and 2015 is summarised in the
table below.
Year ended
30 November 2016
Year ended
30 November 2015
Weighted
average
remaining
contractual
life
(years)
Number of
share options
outstanding
5.14
8.48
8.28
6.80
28,008,527
6,550,428
5,899,149
40,458,104
Weighted
average
remaining
contractual
life
(years)
6.09
8.27
9.28
6.91
Number of
share options
outstanding
20,575,507
15,489,143
5,516,383
41,581,033
Range of exercise price
HK$26 – HK$35
HK$36 – HK$45
HK$46 – HK$55
Outstanding at end of financial year
ESPP
Under the plan, eligible employees of the Group can purchase ordinary shares of the Company with qualified employee
contributions and the Company will award one matching restricted stock purchase unit to them at the end of the vesting
period for each two shares purchased through the qualified employee contributions (contribution shares). Contribution
shares are purchased from the open market. During the vesting period, the eligible employees must hold the contribution
shares purchased during the plan cycle and remain employed by the Group. The level of qualified employee contribution
is limited to not more than 8 per cent of the annual basic salary subject to a maximum of HK$117,000 per annum. The
awarded matching restricted stock purchase units are expected to be settled in equity. For the year ended 30 November
2016, eligible employees paid US$14m (2015: US$12m) to purchase 2,436,497 ordinary shares (2015: 1,962,088 ordinary
shares) of the Company.
ASPP
The structure of the ASPP generally follows that of the ESPP, the key difference being that the eligible agents are required
to pay a subscription price of US$1 to subscribe for each new share in the Company at the end of the vesting period. Under
the plan, eligible agents of the Group can purchase ordinary shares of the Company with qualified agent contributions
and the Company will award one matching restricted stock subscription unit to them at the end of the vesting period
for each two shares purchased through the qualified agent contributions (agent contribution shares). Each restricted
stock subscription unit entitles eligible agents to subscribe for one new share of the Company. Agent contribution shares
are purchased from the open market. During the vesting period, the eligible agents must hold the contribution shares
purchased during the plan cycle and maintain their agent contracts with the Group. The awarded matching restricted stock
subscription units are expected to be settled in equity. The level of qualified agent contribution is subject to a maximum of
US$15,000 per annum. For the year ended 30 November 2016, eligible agents paid US$17m (2015: US$14m) to purchase
2,792,549 ordinary shares (2015: 2,361,838 ordinary shares) of the Company.
Valuation methodology
The Group utilises a binomial lattice model to calculate the fair value of the share option awards, a Monte-Carlo simulation
model and/or discounted cash flow technique to calculate the fair value of the RSU, ESPP and ASPP awards, taking into
account the terms and conditions upon which the awards were made. The price volatility is estimated on the basis of
implied volatility of the Company’s shares which is based on an analysis of historical data since they are traded in the
Hong Kong Stock Exchange. The expected life of the share options is derived from the output of the valuation model and
is calculated based on an analysis of expected exercise behaviour of the Company’s employees. The estimate of market
condition for performance-based RSUs is based on one-year historical data preceding the grant date. An allowance for
forfeiture prior to vesting is not included in the valuation of the awards.
214
FINANCIAL STATEMENTS| AIA GROUP LIMITED
38. SHARE-BASED COMPENSATION (continued)
Valuation methodology (continued)
The fair value calculated for share options is inherently subjective due to the assumptions made and the limitations of the
model utilised.
Year ended 30 November 2016
Share
options
Restricted
share units
ESPP
Restricted
stock
purchase
units
ASPP
Restricted
stock
subscription
units
Assumptions
Risk-free interest rate
Volatility
Dividend yield
Exercise price (HK$)
Share option life (in years)
Expected life (in years)
Weighted average fair value per option/unit
at measurement date (HK$)
Assumptions
Risk-free interest rate
Volatility
Dividend yield
Exercise price (HK$)
Share option life (in years)
Expected life (in years)
Weighted average fair value per option/unit
at measurement date (HK$)
* Applicable to RSU with market conditions.
1.25% 0.50% – 0.74%* 0.47% – 0.88%
20%
1.8%
n/a
n/a
n/a
20%
1.2% – 1.8%
n/a
n/a
n/a
34.35
44.20
34.92
Year ended 30 November 2015
Share
options
Restricted
share units
ESPP
Restricted
stock
purchase
units
ASPP
Restricted
stock
subscription
units
1.61% 0.56% – 0.80%* 0.44% – 0.90%
20%
1.2%
n/a
n/a
n/a
20% – 25%
1.2%
n/a
n/a
n/a
39.27
41.67
35.98
0.91%
20%
1.8%
n/a
n/a
n/a
0.85%
20%
1.2%
n/a
n/a
n/a
20%
1.8%
41.90
10
8.03
7.74
20%
1.2%
47.73
10
7.94
10.15
The weighted average share price for share option valuation for awards made during the year ended 30 November 2016
is HK$41.60 (2015: HK$47.15). The total fair value of share options awarded during the year ended 30 November 2016 is
US$10m (2015: US$8m).
Recognised compensation cost
The total recognised compensation cost (net of expected forfeitures) related to various share-based compensation awards
made under the RSU Scheme, SO Scheme, ESPP and ASPP by the Group for the year ended 30 November 2016 is US$84m
(2015: US$79m).
215
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES
39. REMUNERATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL
Directors’ remuneration
The Executive Director receives compensation in the form of salaries, bonuses, contributions to pension schemes, long-term
incentives, housing and other allowances, and benefits in kind subject to applicable laws, rules and regulations. Bonuses
and long-term incentives represent the variable components in the Executive Director’s compensation and are linked to
the performance of the Group and the Executive Director. Details of share-based payment schemes are described in note
38.
Salaries,
allowances
and benefits
Share-based
in kind(1)
Bonuses
payments(2)
Director’s
fees
Pension
scheme
contribution
Other
benefits
Inducement
fees
Total
US$
Year ended 30 November 2016
Executive Director
Mr. Mark Edward Tucker(3)
– 2,212,482 4,636,000 8,107,671
137,417
Total
– 2,212,482 4,636,000 8,107,671
137,417
–
–
– 15,093,570
– 15,093,570
Notes:
(1) It includes non-cash benefits for housing, medical and life insurance, children’s education, club and professional membership, company car
and perquisites.
(2) Include SOs and RSUs awarded based upon the fair value at grant date assuming maximum performance levels are achieved.
(3) Mr. Mark Edward Tucker receives his remuneration exclusively for his role as Group Chief Executive and President and receives no separate
fees for his role as director of the Company or for acting as a director of any subsidiary of the Company.
Salaries,
allowances
and benefits
Share-based
in kind(1)
Bonuses
payments(2)
Director’s
fees
Pension
scheme
contribution
Other
benefits
Inducement
fees
Total
US$
Year ended 30 November 2015
Executive Director
Mr. Mark Edward Tucker(3)
– 2,130,577 4,414,600 8,343,876
105,833
Total
– 2,130,577 4,414,600 8,343,876
105,833
–
–
– 14,994,886
– 14,994,886
Notes:
(1) It includes non-cash benefits for housing, medical and life insurance, children’s education, club and professional membership, company car
and perquisites.
(2) Include SOs and RSUs awarded based upon the fair value at grant date assuming maximum performance levels are achieved.
(3) Mr. Mark Edward Tucker receives his remuneration exclusively for his role as Group Chief Executive and President and receives no separate
fees for his role as director of the Company or for acting as a director of any subsidiary of the Company.
216
FINANCIAL STATEMENTS| AIA GROUP LIMITED 39. REMUNERATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL (continued)
Directors’ remuneration (continued)
The remuneration of Non-executive Director and Independent Non-executive Directors of the Company at 30 November
2016 and 2015 are included in the tables below:
US$
fees(1)
in kind(2)
Bonuses
Salaries,
allowances
and benefits
Director’s
Share-based
payments
Pension
scheme
contribution
Other
benefits
Inducement
fees
Total
Year ended 30 November 2016
Non-executive Director
Mr. Edmund Sze-Wing Tse
571,230
97,289
Independent Non-executive
Directors
Mr. Jack Chak-Kwong So
Mr. Chung-Kong Chow
Mr. John Barrie Harrison
Mr. George Yong-Boon Yeo
Mr. Mohamed Azman Yahya
Professor Lawrence Juen-Yee Lau
Ms. Swee-Lian Teo
Dr. Narongchai Akrasanee(3)
260,000
220,000
260,000
245,000
205,000
205,000
205,000
188,566
–
–
–
–
–
–
–
–
Total
2,359,796
97,289
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
668,519
260,000
220,000
260,000
245,000
205,000
205,000
205,000
188,566
2,457,085
Notes:
(1) All the directors receive the fees for their role as a director of the Company and not for acting as a director of any subsidiary of the Company.
(2) It includes non-cash benefits for housing, club membership and medical insurance and company car.
(3) Dr. Narongchai Akrasanee was appointed as Independent Non-executive Director of the Company on 15 January 2016.
217
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES 39. REMUNERATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL (continued)
Directors’ remuneration (continued)
US$
fees(1)
in kind(2)
Bonuses
Salaries,
allowances
and benefits
Director’s
Share-based
payments
Pension
scheme
contribution
Other
benefits
Inducement
fees
Total
Year ended 30 November 2015
Non-executive Director
Mr. Edmund Sze-Wing Tse(3)
573,388
95,383
Independent Non-executive
Directors
Mr. Jack Chak-Kwong So
Mr. Chung-Kong Chow
Mr. John Barrie Harrison
Mr. George Yong-Boon Yeo
Mr. Mohamed Azman Yahya
Professor Lawrence
Juen-Yee Lau
Ms. Swee-Lian Teo(4)
220,000
205,000
235,000
210,000
185,000
190,000
56,740
–
–
–
–
–
–
–
Total
1,875,128
95,383
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
668,771
220,000
205,000
235,000
210,000
185,000
190,000
56,740
1,970,511
Notes:
(1) Save as disclosed below, all the directors receive the fees for their role as a director of the Company and not for acting as a director of any
subsidiary of the Company.
(2) It includes non-cash benefits for housing, club membership, medical insurance and company car.
(3) US$22,388 which represents remuneration to Mr. Edmund Sze-Wing Tse in respect of his services as director of a subsidiary of the Company
is included in his fees.
(4) Ms. Swee-Lian Teo was appointed as Independent Non-executive Director of the Company on 14 August 2015.
Remuneration of five highest-paid individuals
The aggregate remuneration of the five highest-paid individuals employed by the Group in each of the years ended 30
November 2016 and 2015 is presented in the table below.
US$
Year ended
30 November 2016
30 November 2015
Salaries,
allowances
and benefits
in kind(1)
Bonuses
Director’s
fees
Share-based
payments(2)
Pension
scheme
contribution
Other
benefits
Inducement
fees
Total
– 6,148,230 10,114,000 15,870,944
299,748
– 7,214,483
8,937,600 16,712,069
262,242
–
–
– 32,432,922
– 33,126,394
Notes:
(1) 2016 and 2015 non-cash benefits include housing, medical and life insurance, medical check-up, children’s education, club and professional
membership, company car and perquisites.
(2) Include SOs and RSUs awarded to the five highest-paid individuals based upon the fair value at grant date assuming maximum performance
levels are achieved.
218
FINANCIAL STATEMENTS| AIA GROUP LIMITED 39. REMUNERATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL (continued)
Remuneration of five highest-paid individuals (continued)
The emoluments of the five individuals with the highest emoluments are within the following bands:
HK$
28,000,001 to 28,500,000
30,000,001 to 30,500,000
33,000,001 to 33,500,000
33,500,001 to 34,000,000
34,500,001 to 35,000,000
36,000,001 to 36,500,000
38,000,001 to 38,500,000
40,000,001 to 40,500,000
116,000,001 to 116,500,000
117,000,001 to 117,500,000
Year ended
30 November
2016
Year ended
30 November
2015
–
1
1
–
1
1
–
–
–
1
1
–
–
1
–
–
1
1
1
–
Key management personnel remuneration
Key management personnel have been identified as the members of the Group’s Executive Committee.
US$
Key management compensation and other expenses
Salaries and other short-term employee benefits
Post-employment benefits – defined contribution
Share-based payments(1)
Total
Note:
Year ended
30 November
2016
Year ended
30 November
2015
26,994,421
25,821,543
568,687
501,124
21,144,940
23,076,292
48,708,048
49,398,959
(1) Include SOs and RSUs awarded to the key management personnel based upon the fair value at grant date assuming maximum
performance levels are achieved.
The emoluments of the key management personnel are within the following bands:
US$
Below 1,000,000
1,000,001 to 2,000,000
2,000,001 to 3,000,000
3,000,001 to 4,000,000
4,000,001 to 5,000,000
5,000,001 to 6,000,000
Over 7,000,000
Year ended
30 November
2016
Year ended
30 November
2015
2
1
3
3
3
–
1
1
4
2
2
2
1
1
219
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES 40. RELATED PARTY TRANSACTIONS
Remuneration of directors and key management personnel is disclosed in note 39.
41. COMMITMENTS AND CONTINGENCIES
Commitments under operating leases
Total future aggregate minimum lease payments under non-cancellable operating leases are as follows:
US$m
Properties and others expiring
Not later than one year
Later than one and not later than five years
Later than five years
Total
As at
30 November
2016
As at
30 November
2015
120
178
94
392
97
121
42
260
The Group is the lessee in respect of a number of properties and items of office equipment held under operating leases.
The leases typically run for an initial period of one to ten years, with an option to renew the lease when all terms are
renegotiated. Lease payments are usually reviewed at the end of the lease term to reflect market rates. None of the leases
include contingent rentals.
Investment and capital commitments
US$m
Not later than one year
Later than one and not later than five years
Total
As at
30 November
2016
As at
30 November
2015
682
10
692
523
3
526
Investment and capital commitments consist of commitments to invest in private equity partnerships and other assets.
Contingencies
The Group is subject to regulation in each of the geographical markets in which it operates from insurance, securities,
capital markets, pension, data privacy and other regulators and is exposed to the risk of regulatory actions in response
to perceived or actual non-compliance with regulations relating to suitability, sales or underwriting practices, claims
payments and procedures, product design, disclosure, administration, denial or delay of benefits and breaches of fiduciary
or other duties. The Group believes that these matters have been adequately provided for in these financial statements.
The Group is exposed to legal proceedings, complaints and other actions from its activities including those arising from
commercial activities, sales practices, suitability of products, policies and claims. The Group believes that these matters
are adequately provided for in these financial statements.
The Group is the reinsurer in a residential mortgage credit reinsurance agreement covering residential mortgages in
Australia. The Group is exposed to the risk of losses in the event of the failure of the retrocessionaire, a subsidiary of
American International Group, Inc., to honour its outstanding obligations which is mitigated by a trust agreement. The
principal balance outstanding of mortgage loans to which the reinsurance agreement relates were approximately
US$616m at 30 November 2016 (2015: US$684m). The liabilities and related reinsurance assets, which totalled US$3m
(2015: US$4m), respectively, arising from these agreements are reflected and presented on a gross basis in these financial
statements in accordance with the Group’s accounting policies. The Group expects to fully recover amounts outstanding at
the reporting date under the terms of this agreement from the retrocessionaire.
220
FINANCIAL STATEMENTS| AIA GROUP LIMITED 42. SUBSIDIARIES
The principal subsidiary companies which materially contribute to the net income of the Group or hold a material element
of its assets and liabilities are:
Name of entity
Place of
incorporation
and operation
Principal
activity
Issued share capital
Group’s
interest %
NCI’s
interest %
Group’s
interest %
NCI’s
interest %
As at
30 November 2016
As at
30 November 2015
AIA Company Limited(1)
Hong Kong
Insurance
1,151,049,861 ordinary shares
for US$5,962,084,000 issued
share capital
100%
AIA International Limited
Bermuda
Insurance
3,000,000 ordinary shares
100%
AIA Australia Limited
Australia
Insurance
of US$1.20 each
112,068,300 ordinary shares
of A$193,872,800 issued
share capital
100%
AIA Pension and Trustee Co. Ltd.
British Virgin
Islands
Trusteeship
19,500,000 ordinary shares
100%
of US$1 each
AIA Bhd.
Malaysia
Insurance
767,438,174 ordinary shares
100%
of RM1 each
AIA Singapore Private Limited
Singapore
Insurance
1,374,000,001 ordinary shares
100%
of S$1 each
PT. AIA Financial
Indonesia
Insurance
477,711,032 ordinary shares of
100%
Rp1,000 each
The Philippine American Life
and General Insurance
(PHILAM LIFE) Company
Philippines
Insurance
199,560,671 ordinary shares of
PHP10 each and 439,329
treasury shares
100%
AIA (Vietnam) Life Insurance
Vietnam
Insurance
Contributed capital of
100%
Company Limited
VND1,264,300,000,000
–
–
–
–
–
–
–
–
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
–
–
–
–
–
–
–
–
AIA Insurance Lanka PLC
Sri Lanka
Insurance
Contributed capital of
LKR511,921,836
97.16%
2.84%
97.16%
2.84%
Bayshore Development Group
Limited
British Virgin
Islands
Investment
holding
company
100 ordinary shares of
90%
10%
90%
10%
US$1 each
BPI-Philam Life Assurance
Philippines
Insurance
Corporation
749,993,979 ordinary shares
of PHP1 each and 6,000
treasury shares
51%
49%
51%
49%
AIA Reinsurance Limited
Bermuda
Reinsurance 250,000 common shares of
US$1 each
100%
–
100%
–
Notes:
(1) The Company’s subsidiary.
(2) All of the above subsidiaries are audited by PricewaterhouseCoopers.
All subsidiaries are unlisted except AIA Insurance Lanka PLC which is listed on the Main Board of the Colombo Stock
Exchange.
221
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES 43. CHANGE IN GROUP COMPOSITION
On 25 April 2016, the Group increased its shareholding of Tata AIA Life Insurance Company Limited from 26 per cent to
49 per cent.
44. EVENTS AFTER THE REPORTING PERIOD
On 24 February 2017, a Committee appointed by the Board of Directors proposed a final dividend of 63.75 Hong Kong
cents per share (2015: 51.00 Hong Kong cents per share).
45. STATEMENT OF FINANCIAL POSITION OF THE COMPANY
US$m
Assets
Investment in subsidiaries
Deposits
Available for sale – debt securities
Loans to/amounts due from subsidiaries
Other assets
Cash and cash equivalents
Total assets
Liabilities
Borrowings
Other liabilities
Total liabilities
Equity
Share capital
Employee share-based trusts
Other reserves
Retained earnings
Amounts reflected in other comprehensive income
Total equity
Total liabilities and equity
As at
30 November
2016
As at
30 November
2015
15,745
15,742
–
1,544
2,903
44
4
45
736
2,945
13
358
20,240
19,839
3,777
70
3,847
3,070
201
3,271
13,998
13,971
(351)
185
2,620
(59)
16,393
20,240
(321)
155
2,785
(22)
16,568
19,839
Note:
(1) The financial information of the Company should be read in conjunction with the consolidated financial statements of the Group.
Approved and authorised for issue by the Board of Directors on 24 February 2017.
Mark Edward Tucker
Director
Edmund Sze-Wing Tse
Director
222
FINANCIAL STATEMENTS| AIA GROUP LIMITED
46. STATEMENT OF CHANGES IN EQUITY OF THE COMPANY
US$m
Share
capital
Employee
share-based
trusts
Other
reserves
Retained
earnings
Amounts
reflected
in other
comprehensive
income
Total
equity
Balance at 1 December 2015
13,971
(321)
155
Net profit
Cash flow hedges
Fair value losses on available for sale
financial assets
Fair value gains on available for
sale financial assets transferred
to income on disposal
Dividends
Shares issued under share option scheme
and agency share purchase plan
Share-based compensation
Purchase of shares held by employee
share-based trusts
Transfer of vested shares from employee
share-based trusts
–
–
–
–
–
27
–
–
–
Balance at 30 November 2016
13,998
–
–
–
–
–
–
–
(86)
56
(351)
–
–
–
–
–
–
86
–
(56)
185
2,785
959
–
–
–
(1,124)
–
–
–
–
(22)
16,568
–
(1)
959
(1)
(10)
(10)
(26)
–
–
–
–
–
(26)
(1,124)
27
86
(86)
–
2,620
(59)
16,393
US$m
Share capital
Employee
share-based
trusts
Other
reserves
Retained
earnings
Amounts
reflected
in other
comprehensive
income
Balance at 1 December 2014
13,962
(286)
139
Net profit
Cash flow hedges
Fair value losses on available for sale
financial assets
Dividends
Shares issued under share option scheme
and agency share purchase plan
Share-based compensation
Purchase of shares held by employee
share-based trusts
Transfer of vested shares from employee
share-based trusts
–
–
–
–
9
–
–
–
Balance at 30 November 2015
13,971
–
–
–
–
–
–
(98)
63
(321)
–
–
–
–
–
79
–
(63)
155
2,102
1,497
–
–
(814)
–
–
–
–
4
–
5
(31)
–
–
–
–
–
Total
equity
15,921
1,497
5
(31)
(814)
9
79
(98)
–
2,785
(22)
16,568
223
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES
47. EFFECT OF ADOPTION OF REVISED ACCOUNTING POLICIES
With effect from 1 December 2015, the Group revised its accounting policies as follows:
(cid:127) Property held for own use is carried at fair value at last valuation date less accumulated depreciation. Previously,
property held for own use was carried at historical cost less accumulated depreciation. When an asset is adjusted for
the latest fair value, any accumulated depreciation at the date of valuation is eliminated against the gross carrying
amount of the asset. The movement of fair values is generally recognised in other comprehensive income. When such
properties are sold, the amounts accumulated in other comprehensive income are transferred to retained earnings.
The revised accounting policy is applied prospectively from the date of adoption, resulting in increase of US$450m and
US$259m in total assets and total equity, respectively, as of 1 December 2015.
Property held for own use is valued by independent professional valuation firm at least annually to ensure that fair
value of the revalued asset does not differ materially from its carrying value. Changes in fair values are recognised in
other comprehensive income and reported in the consolidated statement of financial position as property revaluation
reserve.
In conjunction with the revised real estate accounting policies, depreciation expense for property held for own use is
presented as ‘other expenses’ for IFRS reporting and this presentation change will be applied retrospectively. Operating
leasehold land relating to property held for own use will continue to be carried at cost less accumulated amortisation
and impairment losses (if any) and be reported as part of ‘other assets’ on the consolidated statement of financial
position.
(cid:127)
Investment property, including land and buildings, is initially recognised at cost with changes in fair values in
subsequent periods recognised in the consolidated income statement. Operating leasehold land relating to investment
properties is reclassified from ‘other assets’ to ‘investment properties’ accordingly on the consolidated statement of
financial position. The revised accounting policy has been applied retrospectively.
The Group believes measuring property held for own use and investment property in accordance with the revised accounting
policies (based on guidance in IAS 16, Property, Plant and Equipment, and IAS 40, Investment Property, respectively)
provide reliable and more relevant information to the users of the financial statements than that measured based on cost
model under the previous accounting policy.
224
FINANCIAL STATEMENTS| AIA GROUP LIMITED 47. EFFECT OF ADOPTION OF REVISED ACCOUNTING POLICIES (continued)
The tables below show the quantitative effect of the adoption of these revised accounting policies on the consolidated
financial statements. The quantitative effect of the adoption of these revised accounting policies in other financial periods
is provided in note 48 of 2015 annual financial statements.
(a) Consolidated Income Statement
US$m
Revenue
Premiums and fee income
Premiums ceded to reinsurers
Net premiums and fee income
Investment return
Other operating revenue
Total revenue
Expenses
Insurance and investment contract benefits
Insurance and investment contract benefits ceded
Net insurance and investment contract benefits
Commission and other acquisition expenses
Operating expenses
Finance costs
Other expenses
Total expenses
Profit before share of profit from associates and
joint venture
Share of profit from associates and joint venture
Profit before tax
Income tax expense attributable to policyholders’ returns
Profit before tax attributable to shareholders’ profits
Tax expense
Tax attributable to policyholders’ returns
Tax expense attributable to shareholders’ profits
Net profit
Net profit attributable to:
Shareholders of AIA Group Limited
Non-controlling interests
Earnings per share (US$)
Basic
Diluted
Year ended
30 November
2015
(As previously
reported)
Retrospective
adjustments for
IAS 40
Year ended
30 November
2015
(As adjusted)
Reclassifications
19,781
(1,165)
18,616
4,462
196
23,274
16,134
(942)
15,192
2,468
1,658
152
454
19,924
3,350
–
3,350
(33)
3,317
(636)
33
(603)
2,714
2,691
23
0.22
0.22
–
–
–
–
–
–
–
–
–
–
(20)
–
20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
73
–
73
2
–
2
–
–
–
(26)
(24)
97
–
97
–
97
(19)
–
(19)
78
74
4
0.01
0.01
19,781
(1,165)
18,616
4,535
196
23,347
16,136
(942)
15,194
2,468
1,638
152
448
19,900
3,447
–
3,447
(33)
3,414
(655)
33
(622)
2,792
2,765
27
0.23
0.23
225
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES
47. EFFECT OF ADOPTION OF REVISED ACCOUNTING POLICIES (continued)
(b) Consolidated Statement of Financial Position
US$m
Assets
Intangible assets
Investments in associates and joint venture
Property, plant and equipment
Investment property
Reinsurance assets
Deferred acquisition and origination costs
Financial investments:
Loans and deposits
Available for sale
Debt securities
At fair value through profit or loss
Debt securities
Equity securities
Derivative financial instruments
Deferred tax assets
Current tax recoverable
Other assets
Cash and cash equivalents
Total assets
Liabilities
Insurance contract liabilities
Investment contract liabilities
Borrowings
Obligations under securities lending and
repurchase agreements
Derivative financial instruments
Provisions
Deferred tax liabilities
Current tax liabilities
Other liabilities
Total liabilities
Equity
Share capital
Employee share-based trusts
Other reserves
Retained earnings
Fair value reserve
Foreign currency translation reserve
Property revaluation reserve
Others
Amounts reflected in other comprehensive income
Total equity attributable to:
Shareholders of AIA Group Limited
Non-controlling interests
Total equity
Total liabilities and equity
226
As at
1 December
2014
(As previously
reported)
Retrospective
adjustments for
IAS 40
As at
1 December
2014
(As adjusted)
Reclassifications
2,152
131
541
1,384
1,657
16,593
7,654
77,744
24,319
28,827
265
138,809
10
54
3,753
1,835
166,919
113,097
7,937
2,934
3,753
211
213
3,079
198
4,542
135,964
13,962
(286)
(11,994)
22,831
6,076
227
–
(10)
6,293
30,806
149
30,955
166,919
–
–
–
264
–
–
–
–
–
–
–
–
–
–
(264)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
57
1,991
–
–
–
–
–
–
–
–
–
–
22
–
2,070
105
–
–
–
–
–
143
–
–
248
–
–
–
1,512
–
7
142
–
149
1,661
161
1,822
2,070
2,152
131
598
3,639
1,657
16,593
7,654
77,744
24,319
28,827
265
138,809
10
54
3,511
1,835
168,989
113,202
7,937
2,934
3,753
211
213
3,222
198
4,542
136,212
13,962
(286)
(11,994)
24,343
6,076
234
142
(10)
6,442
32,467
310
32,777
168,989
FINANCIAL STATEMENTS| AIA GROUP LIMITED
47. EFFECT OF ADOPTION OF REVISED ACCOUNTING POLICIES (continued)
(b) Consolidated Statement of Financial Position (continued)
US$m
Assets
Intangible assets
Investments in associates and joint venture
Property, plant and equipment
Investment property
Reinsurance assets
Deferred acquisition and origination costs
Financial investments:
Loans and deposits
Available for sale
Debt securities
At fair value through profit or loss
Debt securities
Equity securities
Derivative financial instruments
Deferred tax assets
Current tax recoverable
Other assets
Cash and cash equivalents
Total assets
Liabilities
Insurance contract liabilities
Investment contract liabilities
Borrowings
Obligations under repurchase agreements
Derivative financial instruments
Provisions
Deferred tax liabilities
Current tax liabilities
Other liabilities
Total liabilities
Equity
Share capital
Employee share-based trusts
Other reserves
Retained earnings
Fair value reserve
Foreign currency translation reserve
Property revaluation reserve
Others
Amounts reflected in other comprehensive income
Total equity attributable to:
Shareholders of AIA Group Limited
Non-controlling interests
Total equity
Total liabilities and equity
As at
30 November
2015
(As previously
reported)
Retrospective
adjustments for
IAS 40
As at
30 November
2015
(As adjusted)
Reclassifications
1,834
137
500
1,386
1,652
17,092
7,211
80,940
23,700
27,159
73
139,083
9
45
3,892
1,992
167,622
115,870
7,116
3,195
3,085
695
245
2,954
265
4,657
138,082
13,971
(321)
(11,978)
24,708
4,414
(1,381)
–
(12)
3,021
29,401
139
29,540
167,622
–
–
–
244
–
–
–
–
–
–
–
–
–
–
(244)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
79
2,029
–
–
–
–
–
–
–
–
–
–
28
–
2,136
99
–
–
–
–
–
155
–
–
254
–
–
–
1,586
–
(8)
140
–
132
1,718
164
1,882
2,136
1,834
137
579
3,659
1,652
17,092
7,211
80,940
23,700
27,159
73
139,083
9
45
3,676
1,992
169,758
115,969
7,116
3,195
3,085
695
245
3,109
265
4,657
138,336
13,971
(321)
(11,978)
26,294
4,414
(1,389)
140
(12)
3,153
31,119
303
31,422
169,758
227
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES
48. OPERATING PROFIT BASED UPON LONG-TERM INVESTMENT RETURNS
For the financial year ended 30 November 2016, the Group has revised its definition of operating profit to include among
others the expected long-term investment returns for equities and real estate. The revised definition is as follows:
The long-term nature of much of the Group’s operations means that, for management’s decision-making and internal
performance management purposes, the Group evaluates its results and its operating segments using a financial
performance measure referred to as “operating profit”. Operating profit includes among others the expected long-term
investment returns for investments in equities and real estate based on the assumptions applied by the Group in the
Supplementary Embedded Value Information.
The Group defines operating profit after tax as net profit excluding the following non-operating items:
(cid:127) short-term fluctuations between expected and actual investment returns related to equities and real estate;
(cid:127) other investment return (including short-term fluctuations due to market factors); and
(cid:127) other significant items that management considers to be non-operating income and expenses.
The Group considers that the revised presentation of operating profit enhances the understanding and comparability of its
performance and that of its operating segments. The Group considers that trends can be more clearly identified without
the fluctuating effects of these non-operating items, many of which are largely dependent on market factors.
Operating profit is provided as additional information to assist in the comparison of business trends in different reporting
periods on a consistent basis and enhance overall understanding of financial performance.
The table below set out the impacts of including the expected long-term investment returns in operating profit in the year
ended 30 November 2015.
The impacts of the adoption of revised definition of operating profit in other financial periods are provided in note 49 of
2015 annual financial statements.
US$m
Operating profit before tax
Tax on operating profit before tax
Operating profit after tax
Operating profit after tax attributable to:
Shareholders of AIA Group Limited
Non-controlling interests
Operating profit after tax per share (US$)
Basic
Diluted
Year ended
30 November
2015
(As previously
reported)
Impact of
change in
preparation
basis
Year ended
30 November
2015
(As adjusted)
3,884
(655)
3,229
3,209
20
0.27
0.27
436
(80)
356
347
9
0.03
0.03
4,320
(735)
3,585
3,556
29
0.30
0.30
228
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIESFINANCIAL STATEMENTS| AIA GROUP LIMITED WILLIS TOWERS WATSON REPORT ON THE REVIEW OF THE SUPPLEMENTARY EMBEDDED VALUE
INFORMATION
AIA Group Limited (the “Company”) and its subsidiaries (together, “AIA” or the “Group”) have prepared supplementary
embedded value results (EV Results) for the year ended 30 November 2016 (the Period). These EV Results, together with
a description of the methodology and assumptions that have been used, are shown in the Supplementary Embedded Value
Information section of this report.
Towers Watson Hong Kong Limited (trading as Willis Towers Watson), has been engaged to review the Group’s EV Results
and prior year comparisons. The opinion set out below is made solely to the Company and, to the fullest extent permitted
by applicable law, Willis Towers Watson does not accept nor assume any responsibility, duty of care or liability to any third
party for or in connection with its review work, the opinions it has formed, or for any statement set forth in this opinion.
SCOPE OF WORK
Our scope of work covered:
(cid:127) A review of the methodology used to calculate the embedded value and the equity attributable to shareholders of the
Company on the embedded value basis as at 30 November 2016, and the value of new business for the year ended 30
November 2016;
(cid:127) A review of the economic and operating assumptions used to calculate the embedded value as at 30 November 2016
and the value of new business for the year ended 30 November 2016; and
(cid:127) A review of the results of AIA’s calculation of the EV Results.
In carrying out our review, we have relied on data and information provided by the Group.
OPINION
We have concluded that:
(cid:127) The methodology used to calculate the embedded value and value of new business is consistent with recent industry
practice for publicly listed companies in Hong Kong as regards traditional embedded value calculations based on
discounted values of projected deterministic after-tax cash flows. This methodology makes an overall allowance for
risk for the Group through the use of risk discount rates which incorporate risk margins and vary by Business Unit,
together with an explicit allowance for the cost of holding required capital;
(cid:127) The economic assumptions are internally consistent and have been set with regard to current economic conditions;
and
(cid:127) The operating assumptions have been set with appropriate regard to past, current and expected future experience,
taking into account the nature of the business conducted by each Business Unit.
We have performed a number of high-level checks on the models, processes and the results of the calculations, and have
confirmed that no issues have been discovered that have a material impact on the disclosed embedded value and the
equity attributable to shareholders of the Company on the embedded value basis as at 30 November 2016, the value of
new business for the year ended 30 November 2016, the analysis of movement in embedded value for the year ended 30
November 2016, and the sensitivity analysis.
Willis Towers Watson
24 February 2017
229
SUPPLEMENTARY EMBEDDED VALUE INFORMATIONANNUAL REPORT 2016 | OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONFINANCIAL STATEMENTS CAUTIONARY STATEMENTS CONCERNING SUPPLEMENTARY EMBEDDED VALUE INFORMATION
This report includes non-IFRS financial measures and should not be viewed as a substitute for IFRS financial measures.
The results shown in this report are not intended to represent an opinion of market value and should not be interpreted in
that manner. This report does not purport to encompass all of the many factors that may bear upon a market value.
The results shown in this report are based on a series of assumptions as to the future. It should be recognised that actual
future results may differ from those shown, on account of changes in the operating and economic environments and natural
variations in experience. The results shown are presented at the valuation dates stated in this report and no warranty is
given by the Group that future experience after these valuation dates will be in line with the assumptions made.
230
FINANCIAL STATEMENTS| AIA GROUP LIMITED 1. HIGHLIGHTS
The embedded value (EV) is a measure of the value of shareholders’ interests in the earnings distributable from assets
allocated to the in-force business after allowance for the aggregate risks in that business. The Group uses a traditional
deterministic discounted cash flow methodology for determining its EV and value of new business (VONB). This
methodology makes implicit allowance for all sources of risk including the cost of investment return guarantees and
policyholder options, asset-liability mismatch risk, credit risk, the risk that actual experience in future years differs from
that assumed, and for the economic cost of capital, through the use of a risk discount rate. The equity attributable to
shareholders of the Company on the embedded value basis (EV Equity) is the total of EV, goodwill and other intangible
assets attributable to shareholders of the Company. More details of the EV Results, methodology and assumptions are
covered in later sections of this report.
Summary of Key Metrics(1) (US$ millions)
Equity attributable to shareholders of the Company on
the embedded value basis (EV Equity)
Embedded value (EV)
Adjusted net worth (ANW)
Value of in-force business (VIF)
Value of new business (VONB)(2)
Annualised new premiums (ANP)(2)
VONB margin(2)
As at
30 November
2016
As at
30 November
2015
Growth
CER
Growth
AER
43,650
42,114
16,544
25,570
39,818
38,198
15,189
23,009
Year ended
30 November
2016
Year ended
30 November
2015
2,750
5,123
52.8%
2,198
3,991
54.0%
11%
12%
11%
12%
YoY
CER
28%
31%
10%
10%
9%
11%
YoY
AER
25%
28%
(1.3)pps
(1.2)pps
Notes:
(1) The results are after adjustments to reflect additional Hong Kong reserving and capital requirements and the present value of future after-tax
unallocated Group Office expenses.
(2) VONB includes pension business. ANP and VONB margin exclude pension business.
231
ANNUAL REPORT 2016 | OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSUPPLEMENTARY EMBEDDED VALUE INFORMATION
2. EV RESULTS
2.1 Embedded Value by Business Unit
The EV as at 30 November 2016 is presented consistently with the segment information in the IFRS financial statements.
Section 4.1 of this report contains a full list of the entities included in this report and the mapping of these entities to
Business Units for the purpose of this report.
Summary of EV by Business Unit (US$ millions)
Business Unit(1)
AIA Hong Kong
AIA Thailand
AIA Singapore
AIA Malaysia
AIA China
Other Markets
Group Corporate Centre
Subtotal
Adjustment to reflect additional
Hong Kong reserving and capital
requirements(4)
After-tax value of unallocated Group
Office expenses
Total
As at 30 November 2016
As at
30 November
2015
ANW(2)
VIF before
CoC(3)
CoC(3)
VIF after
CoC(3)
EV
EV
4,685
3,880
2,084
1,071
2,732
4,252
7,273
9,731
3,488
3,286
1,229
2,753
2,827
622
656
424
184
–
1,020
9,109
2,832
2,862
1,045
2,753
1,807
(177)
(1)
(176)
13,794
12,655
6,712
4,946
2,116
5,485
6,059
7,097
6,660
4,489
2,129
5,041
5,802
5,971
25,977
23,137
2,905
20,232
46,209
42,747
(9,433)
6,294
(8)
6,302
(3,131)
(3,805)
–
(964)
–
(964)
(964)
16,544
28,467
2,897
25,570
42,114
(744)
38,198
Notes:
(1) For the year ended 30 November 2016, AIA Korea is no longer disclosed separately as a reportable segment and is now included as part of
the Other Markets segment. Prior year comparatives have been adjusted accordingly to conform to current year presentation.
(2) ANW by Business Unit is after net capital flows between Business Units and Group Corporate Centre as reported in the IFRS financial
statements.
(3) CoC refers to the cost arising from holding the required capital as described in Section 4.2 of this report.
(4) Adjustment to EV for the branches of AIA Co. and AIA International, as described in Section 4.4 of this report.
232
FINANCIAL STATEMENTS| AIA GROUP LIMITED
2. EV RESULTS (continued)
2.2 Reconciliation of ANW to IFRS Equity
Derivation of the Group ANW from IFRS equity (US$ millions)
IFRS equity attributable to shareholders of the Company
Elimination of IFRS deferred acquisition and origination costs assets
Difference between IFRS policy liabilities and local statutory policy liabilities
(for entities included in the EV Results)
Difference between net IFRS policy liabilities and local statutory policy liabilities
(for entities included in the EV Results)
Mark-to-market adjustment for property and mortgage loan investments,
net of amounts attributable to participating funds
Elimination of intangible assets
Recognition of deferred tax impacts of the above adjustments
Recognition of non-controlling interests impacts of the above adjustments
Group ANW (local statutory basis)
Adjustment to reflect additional Hong Kong reserving requirements, net of tax
Group ANW (after additional Hong Kong reserving requirements)
As at
30 November
2016
As at
30 November
2015(1)
(As adjusted)
34,984
(18,898)
31,119
(17,092)
9,646
10,201
(9,252)
(6,891)
336
(1,743)
1,602
50
25,977
(9,433)
16,544
545
(1,834)
1,404
52
24,395
(9,206)
15,189
Note:
(1) Amounts have been adjusted to reflect changes in accounting policies under IFRS in the Group’s financial statements.
2.3 Breakdown of ANW
The breakdown of the ANW for the Group between the required capital, as defined in Section 4.6 of this report, and the free
surplus, which is the ANW in excess of the required capital, is set out below:
Free surplus and required capital for the Group (US$ millions)
Free surplus
Required capital
ANW
As at 30 November 2016
As at 30 November 2015
Local
statutory
basis
19,089
6,888
25,977
Hong Kong
basis(1), (2)
9,782
6,762
16,544
Local
statutory
basis
17,557
6,838
24,395
Hong Kong
basis(1)
7,528
7,661
15,189
Notes:
(1) Hong Kong basis for branches of AIA Co. and AIA International and local statutory basis for subsidiaries of AIA Co. and AIA International.
(2) AIA has given a revised undertaking to the HKOCI to maintain an excess of assets over liabilities for branches other than Hong Kong at no less
than 100% of the Hong Kong statutory minimum solvency margin requirement (previously 150%) in each of AIA Co. and AIA International.
For clarity there is no change in the undertaking in respect of the Hong Kong business or the Hong Kong statutory minimum solvency margin
requirement for AIA. This has been reflected in the calculation of the consolidated EV Results.
The Company’s subsidiaries, AIA Co. and AIA International, are both subject to Hong Kong regulatory capital requirements.
The business written in the branches of AIA Co. and AIA International is subject to both the local reserving and capital
requirements in the relevant territory and the Hong Kong reserving and capital requirements applicable to AIA Co. and AIA
International at the entity level. At 30 November 2016, the more onerous reserving and capital basis overall for both AIA
Co. and AIA International was the Hong Kong basis.
233
ANNUAL REPORT 2016 | OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSUPPLEMENTARY EMBEDDED VALUE INFORMATION
2. EV RESULTS (continued)
2.4 Earnings Profile
The table below shows how the after-tax distributable earnings from the assets backing the statutory reserves and required
capital of the in-force business of the Group are projected to emerge over future years. The projected values reflect the
Hong Kong reserving and capital requirements for the branches of AIA Co. and AIA International.
Profile of projected after-tax distributable earnings for the Group’s in-force business (US$ millions)
Financial year
2017 – 2021
2022 – 2026
2027 – 2031
2032 – 2036
2037 and thereafter
Total
As at 30 November 2016
Undiscounted
Discounted
15,490
12,214
11,795
11,278
81,710
13,012
6,833
4,532
2,956
4,999
132,487
32,332
The profile of distributable earnings is shown on an undiscounted and discounted basis. The discounted value of after-tax
distributable earnings of US$32,332 million (2015: US$30,670 million) plus the free surplus of US$9,782 million (2015:
US$7,528 million) shown in Section 2.3 of this report is equal to the EV of US$42,114 million (2015: US$38,198 million)
shown in Section 2.1 of this report.
234
FINANCIAL STATEMENTS| AIA GROUP LIMITED 2. EV RESULTS (continued)
2.5 Value of New Business
The VONB for the Group for the year ended 30 November 2016 is summarised in the table below. The VONB is defined as
the present value, at the point of sale, of the projected after-tax statutory profits less the cost of required capital. Results are
presented consistently with the segment information in the IFRS financial statements. Section 4.1 of this report contains
a full list of the entities included in this report and the mapping of these entities to Business Units for the purpose of this
report.
The Group VONB for the year ended 30 November 2016 was US$2,750 million, an increase of US$552 million, or 25 per
cent on actual exchange rates, from US$2,198 million for the year ended 30 November 2015.
Summary of VONB by Business Unit (US$ millions)
Business Unit(1)
AIA Hong Kong
AIA Thailand
AIA Singapore
AIA Malaysia
AIA China
Other Markets
Total before unallocated Group Office expenses
(local statutory basis)
Adjustment to reflect additional Hong Kong reserving
and capital requirements(4)
Total before unallocated Group Office expenses
(after additional Hong Kong reserving and
capital requirements)
After-tax value of unallocated Group Office expenses
Total
Year ended
30 November 2016
Year ended
30 November
2015
VONB
before CoC(2)
VONB after
VONB after
CoC(2)
CoC(2), (3)
CoC(2), (3)
1,464
303
1,161
427
355
217
592
385
3,440
(60)
3,380
(129)
3,251
43
39
19
56
64
524
(23)
501
–
501
384
316
198
536
321
820
395
341
172
366
296
2,916
2,390
(37)
(72)
2,879
(129)
2,750
2,318
(120)
2,198
Notes:
(1) For the year ended 30 November 2016, AIA Korea is no longer disclosed separately as a reportable segment and is now included as part of
the Other Markets segment. Prior year comparatives have been adjusted accordingly to conform to current year presentation.
(2) CoC refers to the cost arising from holding the required capital as described in Section 4.2 of this report.
(3) VONB for the Group is calculated before deducting the amount attributable to non-controlling interests. The amounts of VONB attributable to
non-controlling interests for the year ended 30 November 2016 and 30 November 2015 were US$19 million and US$21 million respectively.
(4) Adjustment to VONB for the branches of AIA Co. and AIA International, as described in Section 4.4 of this report.
235
ANNUAL REPORT 2016 | OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSUPPLEMENTARY EMBEDDED VALUE INFORMATION
2. EV RESULTS (continued)
2.5 Value of New Business (continued)
The table below shows the VONB margin for the Group. The VONB margin is defined as VONB, excluding pension business,
expressed as a percentage of ANP. The VONB for pension business is excluded from the margin calculation to be consistent
with the definition of ANP.
The Group VONB margin for the year ended 30 November 2016 was 52.8 per cent compared with 54.0 per cent for the year
ended 30 November 2015.
Summary of VONB Margin by Business Unit (US$ millions)
Business Unit(1)
AIA Hong Kong
AIA Thailand
AIA Singapore
AIA Malaysia
AIA China
Other Markets
Total before unallocated Group Office expenses
(local statutory basis)
Adjustment to reflect additional Hong Kong reserving
and capital requirements(3)
Total before unallocated Group Office expenses
(after additional Hong Kong reserving and
capital requirements)
After-tax value of unallocated Group Office expenses
Total
Year ended 30 November 2016
Year ended
30 November
2015
VONB
Excluding
Pension
ANP(2)
VONB
Margin(2)
VONB
Margin(2)
1,120
2,294
384
316
195
536
319
471
427
341
621
969
48.8%
81.5%
74.1%
57.1%
86.4%
32.9%
62.0%
75.8%
72.4%
57.9%
83.5%
29.4%
2,870
5,123
56.0%
58.9%
(37)
–
2,833
(129)
2,704
5,123
–
5,123
55.3%
57.0%
52.8%
54.0%
Notes:
(1) For the year ended 30 November 2016, AIA Korea is no longer disclosed separately as a reportable segment and is now included as part of
the Other Markets segment. Prior year comparatives have been adjusted accordingly to conform to current year presentation.
(2) ANP and VONB margin exclude pension business.
(3) Adjustment to VONB for the branches of AIA Co. and AIA International, as described in Section 4.4 of this report.
236
FINANCIAL STATEMENTS| AIA GROUP LIMITED
2. EV RESULTS (continued)
2.5 Value of New Business (continued)
The table below shows the breakdown of the VONB, ANP and VONB margin for the Group by quarter for business written
in the year ended 30 November 2016. For comparison purposes, the quarterly VONB, ANP and VONB margin for business
written in the year ended 30 November 2015 are also shown in the same table.
Summary of VONB, ANP and VONB Margin by quarter for the Group (US$ millions)
VONB after
CoC(1), (2)
ANP(2)
VONB
Margin(2)
Quarter
Values for 2016
3 months ended 29 February 2016
3 months ended 31 May 2016
3 months ended 31 August 2016
3 months ended 30 November 2016
Values for 2015
3 months ended 28 February 2015
3 months ended 31 May 2015
3 months ended 31 August 2015
3 months ended 30 November 2015
578
682
689
801
425
534
552
687
1,103
1,252
1,333
1,435
895
983
936
1,177
Notes:
(1) CoC refers to the cost arising from holding the required capital as described in Section 4.2 of this report.
(2) VONB includes pension business. ANP and VONB margin exclude pension business.
2.6 Analysis of EV Movement
Analysis of movement in EV (US$ millions)
Year ended 30 November 2016
Year ended
30 November
2015
ANW
VIF
EV
EV
Opening EV
Value of new business
Expected return on EV
Operating experience variances
Operating assumption changes
Finance costs on medium term notes
EV operating profit
Investment return variances
Effect of changes in economic assumptions
Other non-operating variances
Total EV profit
Dividends
Other capital movements
Effect of changes in exchange rates
15,189
(695)
3,440
303
26
(111)
2,963
(67)
6
(142)
2,760
(1,124)
(5)
(276)
23,009
3,445
(586)
62
3
–
2,924
30
(242)
120
2,832
–
–
(271)
38,198
2,750
2,854
365
29
(111)
5,887
(37)
(236)
(22)
5,592
(1,124)
(5)
(547)
Closing EV
16,544
25,570
42,114
37,153
2,198
2,698
274
(26)
(76)
5,068
(1,804)
145
369
3,778
(814)
(12)
(1,907)
38,198
51.6%
53.7%
50.7%
54.8%
46.8%
53.4%
57.6%
57.2%
YoY
AER
EV
3%
25%
6%
33%
n/m
46%
16%
(98)%
n/m
n/m
48%
38%
(58)%
(71)%
10%
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2.6 Analysis of EV Movement (continued)
EV operating profit grew by 16 per cent on actual exchange rates to US$5,887 million (2015: US$5,068 million) compared
with 2015. The growth reflected a combination of a higher VONB of US$2,750 million (2015: US$2,198 million) and a
higher expected return on EV of US$2,854 million (2015: US$2,698 million). Overall operating experience variances and
operating assumption changes were again positive at US$394 million (2015: US$248 million). Finance costs from the
medium term notes were US$111 million (2015: US$76 million).
The VONB is calculated at the point of sale for business written during the Period before deducting the amount attributable
to non-controlling interests. The expected return on EV is the expected change in the EV over the Period plus the expected
return on the VONB from the point of sale to 30 November 2016 less the VONB attributable to non-controlling interests.
Operating experience variances reflect the impact on the ANW and VIF from differences between the actual experience
over the Period and that expected based on the operating assumptions.
The main operating experience variances, net of tax, were US$365 million (2015: US$274 million), reflecting:
(cid:127) Expense variances of US$12 million (2015: US$16 million);
(cid:127) Mortality and morbidity claims variances of US$200 million (2015: US$164 million); and
(cid:127) Persistency and other variances of US$153 million (2015: US$94 million) including US$215 million in relation to
non-recurring reinsurance actions.
The effect of changes to operating assumptions during the Period was US$29 million (2015: US$(26) million).
The EV profit of US$5,592 million (2015: US$3,778 million) is the total of EV operating profit, investment return variances,
the effect of changes in economic assumptions and other non-operating variances.
The investment return variances arise from the impact of differences between the actual investment returns in the Period
and the expected investment returns. This includes the impact on the EV of changes in the market values and market
yields on existing fixed income assets, and the impact on the EV of changes in the economic assumptions used in the
statutory reserving bases for the Group. Investment return variances amounted to US$(37) million (2015: US$(1,804)
million) from the net effect of short-term capital market movements on the Group’s investment portfolio and statutory
reserves compared with the expected positions.
The effect of changes in economic assumptions amounted to US$(236) million (2015: US$145 million).
Other non-operating variances amounted to US$(22) million (2015: US$369 million) which includes the net effect of
changes in regulatory capital requirements and taxation, comprising the revised undertaking to the HKOCI and the
replacement of business tax with VAT in China as previously reported, and others including modelling enhancements.
The Group paid total shareholder dividends of US$1,124 million (2015: US$814 million). Other capital movements reduced
EV by US$5 million (2015: US$12 million).
Foreign exchange movements were US$(547) million (2015: US$(1,907) million).
238
FINANCIAL STATEMENTS| AIA GROUP LIMITED 2. EV RESULTS (continued)
2.7 EV Equity
The EV Equity grew to US$43,650 million at 30 November 2016, an increase of 10 per cent on actual exchange rates from
US$39,818 million as at 30 November 2015.
Derivation of EV Equity from EV (US$ millions)
EV
Goodwill and other intangible assets(1)
EV Equity
As at
30 November
2016
As at
30 November
2015
42,114
1,536
43,650
38,198
1,620
39,818
Change
CER
Change
AER
12%
(3)%
11%
10%
(5)%
10%
Note:
(1) Consistent with the IFRS financial statements, net of tax, amounts attributable to participating funds and non-controlling interests.
3. SENSITIVITY ANALYSIS
The EV as at 30 November 2016 and the VONB for the year ended 30 November 2016 have been recalculated to illustrate
the sensitivity of the results to changes in certain central assumptions discussed in Section 5 of this report.
The sensitivities analysed were:
(cid:127) Risk discount rates 200 basis points per annum higher than the central assumptions;
(cid:127) Risk discount rates 200 basis points per annum lower than the central assumptions;
(cid:127)
(cid:127)
Interest rates 50 basis points per annum higher than the central assumptions;
Interest rates 50 basis points per annum lower than the central assumptions;
(cid:127) The presentation currency (as explained below) appreciated by 5 per cent;
(cid:127) The presentation currency depreciated by 5 per cent;
(cid:127) Lapse and premium discontinuance rates increased proportionally by 10 per cent (i.e. 110 per cent of the central
assumptions);
(cid:127) Lapse and premium discontinuance rates decreased proportionally by 10 per cent (i.e. 90 per cent of the central
assumptions);
(cid:127) Mortality/morbidity rates increased proportionally by 10 per cent (i.e. 110 per cent of the central assumptions);
(cid:127) Mortality/morbidity rates decreased proportionally by 10 per cent (i.e. 90 per cent of the central assumptions);
(cid:127) Maintenance expenses 10 per cent lower (i.e. 90 per cent of the central assumptions); and
(cid:127) Expense inflation set to 0 per cent.
The EV as at 30 November 2016 has been further analysed for the following sensitivities:
(cid:127) Equity prices increased proportionally by 10 per cent (i.e. 110 per cent of the prices at 30 November 2016); and
(cid:127) Equity prices decreased proportionally by 10 per cent (i.e. 90 per cent of the prices at 30 November 2016).
For the interest rate sensitivities, the investment return assumptions and the risk discount rates were changed by 50 basis
points per annum; the projected bonus rates on participating business, the statutory reserving bases at 30 November
2016 and the values of debt instruments held at 30 November 2016 were changed to be consistent with the interest rate
assumptions in the sensitivity analysis, while all the other assumptions were unchanged.
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3. SENSITIVITY ANALYSIS (continued)
The EV Results of each entity in Section 4.1 of this report are measured in the currency of the primary economic environment
in which that entity operates (the functional currency) and presented in US dollars (the presentation currency). In order to
provide sensitivity results for EV and VONB of the impact of foreign currency movements to the translation from functional
currencies, a change of 5 per cent to the presentation currency is included. This sensitivity does not include the impact of
currency movements on the translation of transactions denominated in a foreign currency of an entity into its functional
currency (including any impacts on VIF).
For the equity price sensitivities, the projected bonus rates on participating business and the values of equity securities
and equity funds held at 30 November 2016 were changed to be consistent with the equity price assumptions in the
sensitivity analysis, while all the other assumptions were unchanged.
For each of the remaining sensitivity analyses, the statutory reserving bases as at 30 November 2016 and the projected
bonus rates on participating business were changed to be consistent with the sensitivity analysis assumptions, while all
the other assumptions remain unchanged.
The sensitivities chosen do not represent the boundaries of possible outcomes, but instead illustrate how certain alternative
assumptions would affect the results.
Sensitivity of EV as at 30 November 2016 (US$ millions)
EV
42,114
36,921
50,203
42,839
41,380
42,262
41,736
41,033
43,195
41,436
42,906
38,669
45,576
42,637
42,664
Scenario
Central value
200 bps increase in risk discount rates
200 bps decrease in risk discount rates
10% increase in equity prices
10% decrease in equity prices
50 bps increase in interest rates
50 bps decrease in interest rates
5% appreciation in the presentation currency
5% depreciation in the presentation currency
10% increase in lapse/discontinuance rates
10% decrease in lapse/discontinuance rates
10% increase in mortality/morbidity rates
10% decrease in mortality/morbidity rates
10% decrease in maintenance expenses
Expense inflation set to 0%
240
FINANCIAL STATEMENTS| AIA GROUP LIMITED 3. SENSITIVITY ANALYSIS (continued)
Sensitivity of VONB for the year ended 30 November 2016 (US$ millions)
Scenario
Central value
200 bps increase in risk discount rates
200 bps decrease in risk discount rates
50 bps increase in interest rates
50 bps decrease in interest rates
5% appreciation in the presentation currency
5% depreciation in the presentation currency
10% increase in lapse rates
10% decrease in lapse rates
10% increase in mortality/morbidity rates
10% decrease in mortality/morbidity rates
10% decrease in maintenance expenses
Expense inflation set to 0%
VONB
2,750
1,954
4,174
2,927
2,524
2,668
2,832
2,616
2,900
2,414
3,078
2,834
2,806
4. METHODOLOGY
4.1 Entities Included in This Report
The Group operates through a number of subsidiaries and branches. Its two main operating subsidiaries are AIA Company
Limited (AIA Co.), a subsidiary of the Company, and AIA International Limited (AIA International), a subsidiary of AIA Co.
Furthermore, AIA Co. has branches located in Brunei, China and Thailand and AIA International has branches located in
Hong Kong, Korea, Macau, New Zealand and Taiwan.
The following is a full list of the entities and their mapping to Business Units included in this report.
(cid:127) AIA Australia refers to AIA Australia Limited, a subsidiary of AIA Co.;
(cid:127) AIA China refers to the China branches of AIA Co.;
(cid:127) AIA Hong Kong refers to the total of the following three entities:
(cid:127)
(cid:127)
the Hong Kong and Macau branches of AIA International;
the Hong Kong and Macau business written by AIA Co.; and
(cid:127) AIA Pension and Trustee Co. Ltd., a subsidiary of AIA Co.
(cid:127) AIA Indonesia refers to PT. AIA Financial, a subsidiary of AIA International;
(cid:127) AIA Korea refers to the Korea branch of AIA International;
(cid:127) AIA Malaysia refers to AIA Bhd., a subsidiary of AIA Co. and AIA PUBLIC Takaful Bhd., a 70 per cent owned subsidiary
of AIA Co.;
(cid:127) AIA New Zealand refers to the New Zealand branch of AIA International;
(cid:127) Philam Life refers to The Philippine American Life and General Insurance (PHILAM LIFE) Company, a subsidiary of AIA
Co. and its 51 per cent owned subsidiary BPI-Philam Life Assurance Corporation;
(cid:127) AIA Singapore refers to AIA Singapore Private Limited, a subsidiary of AIA Co., and the Brunei branch of AIA Co.;
(cid:127) AIA Sri Lanka refers to AIA Insurance Lanka PLC, a 97.16 per cent owned subsidiary of AIA Co.;
(cid:127) AIA Taiwan refers to the Taiwan branch of AIA International;
(cid:127) AIA Thailand refers to the Thailand branches of AIA Co.; and
(cid:127) AIA Vietnam refers to AIA (Vietnam) Life Insurance Company Limited, a subsidiary of AIA International.
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ANNUAL REPORT 2016 | OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSUPPLEMENTARY EMBEDDED VALUE INFORMATION 4. METHODOLOGY (continued)
4.1 Entities Included in This Report (continued)
On 25 April 2016, the Group increased its shareholding of Tata AIA Life Insurance Company Limited (Tata AIA) from 26 per
cent to 49 per cent. The financial results from Tata AIA are accounted for using the equity method and have been included
in the Group ANW presented in this report. For clarity, the Group’s ANP and VONB exclude any contribution from Tata AIA.
Results are presented consistently with the segment information in the IFRS financial statements. The summary of the EV
of the Group by Business Unit in this report also includes a segment for “Group Corporate Centre” results. The results shown
for this segment consist of the ANW for the Group’s corporate functions and the present value of remittance taxes payable
on distributable profits to Hong Kong. The ANW has been derived as the IFRS equity for this segment plus mark-to-market
adjustments less the value of excluded intangible assets. For the VONB, “Other Markets” includes the present value of
allowance for remittance taxes payable on distributable profits to Hong Kong.
4.2 Embedded Value and Value of New Business
The Group uses a traditional deterministic discounted cash flow methodology for determining its EV and VONB. This
methodology makes implicit allowance for all sources of risk including the cost of investment return guarantees and
policyholder options, asset-liability mismatch risk, credit risk, the risk that actual experience in future years differs from
that assumed, and for the economic cost of capital, through the use of a risk discount rate. Typically, the higher the risk
discount rate, the greater the allowance for these factors. This is a common methodology used by life insurance companies
in Asia currently. Alternative valuation methodologies and approaches continue to emerge and may be considered by AIA.
The business included in the VIF and VONB calculations includes all life business written by the Business Units of the
Group, plus other lines of business which may not be classified as life business but have similar characteristics. These
include accident and health, group and pension businesses. The projected in-force business included in the VIF also
incorporates expected renewals on short-term business with a term of one year or less.
The EV is the sum of the ANW and VIF. The ANW is the market value of assets in excess of the assets backing the policy
reserves and other liabilities of the life (and similar) business of the Group, plus the IFRS equity value of other activities,
such as general insurance business, less the value of intangible assets. It excludes any amounts not attributable to
shareholders of the Company. The market value of investment property and property held for own use that is used to
determine the ANW is based on the fair value disclosed in the Group’s IFRS financial statements as at the valuation date. It
is the Group’s policy to obtain external property valuations annually except in the case of a discrete event occurring in the
interim that has a significant impact on the fair value of the properties.
The VIF is the present value of projected after-tax statutory profits emerging in the future from the current in-force
business less the cost arising from holding the required capital (CoC) to support the in-force business. CoC is calculated as
the face value of the required capital as at the valuation date less the present value of the net-of-tax investment return on
the shareholder assets backing required capital and the present value of projected releases from the assets backing the
required capital. Where the required capital may be covered by policyholder assets such as surplus assets in a participating
fund, there is no associated cost of capital included in the VIF or VONB.
EV Equity is the total of EV, goodwill and other intangible assets attributable to shareholders of the Company.
The VONB is the present value, measured at the point of sale, of projected after-tax statutory profits emerging in the future
from new business sold in the period less the cost of holding required capital in excess of regulatory reserves to support
this business. The VONB for the Group is calculated based on assumptions applicable at the point of measurement and
before deducting the amount attributable to non-controlling interests. The VONB attributable to non-controlling interests
was US$19 million for the year ended 30 November 2016 (2015: US$21 million).
A deduction has been made from the EV and VONB for the present value of future after-tax unallocated Group Office
expenses, representing the expenses incurred by the Group Office which are not allocated to the Business Units. These
unallocated Group Office expenses have been allocated to acquisition and maintenance activities, and a deduction made
from the VONB and VIF respectively.
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FINANCIAL STATEMENTS| AIA GROUP LIMITED 4. METHODOLOGY (continued)
4.3 Definition of New Business
New business includes the sale of new contracts during the period, additional single premium payments on recurrent single
premium contracts and increments to existing contracts where these are not variations allowed for in the calculation of
the VIF. The VONB also includes the present value of cash flows associated with new policies written during the reporting
period but subsequently terminated before the valuation date.
For group renewable business including group yearly renewable term business, new business is composed of new
schemes set up during the period plus any premium payable on existing schemes that exceeds the prior year’s premiums.
For individually significant group cases, the VONB is calculated over each premium rate guarantee period entered upon
contract inception or renewal.
For short-term accident and health business with a term of one year or less, renewals of existing contracts are not
considered new business, and the value of expected renewals on this business is included in the VIF.
For pension business, sales of new contracts during the period and any new contributions, including assets transferred in,
are considered as new business for the calculation of the VONB.
New business volumes shown in this report are measured using annualised new premiums (ANP), which is an internal
measure of new business sales.
4.4 Consolidation of Branches of AIA Co. and AIA International
The Group’s subsidiaries, AIA Co. and AIA International, are both Hong Kong-regulated entities. AIA operates in a number of
territories as branches of these entities. Therefore, the business written in these branches is subject to the local reserving
and capital requirements in the relevant territory and the Hong Kong reserving and capital requirements applicable to AIA
Co. and AIA International at the entity level.
For these branches, the EV Results shown in Section 2 of this report have been calculated reflecting the more onerous of
the Hong Kong and branch level local regulatory reserving and capital requirements. This was done because the ultimate
distribution of profits to shareholders of the Company from AIA Co. and AIA International will depend on both the Hong
Kong and the local regulatory reserving and capital requirements. At the end of November 2016, the overall more onerous
reserving and capital basis for both AIA Co. and AIA International was the Hong Kong regulatory basis. This impact is
shown as a Group-level adjustment to the EV and VONB. The EV and VONB for each Business Unit reflect only the local
reserving and capital requirements, as discussed in Section 4.6 of this report.
4.5 Valuation of Future Statutory Losses
For certain lines of business, projected future statutory profits are negative due to the local statutory reserves being
insufficient to meet the value of future policyholder cash flows. Within a traditional embedded value framework, there are
a number of acceptable methods for determining the value of a combination of positive and negative statutory profits for
different lines of business.
For the purposes of this valuation, future projected statutory losses have been valued by discounting them at the risk
discount rate for the relevant Business Unit, with any negative VIF eliminated for each reported segment by reducing
the ANW and EV. This has been done because the allowance for risk in the range of selected risk discount rates for each
Business Unit has been set taking into account the presence of any such business lines with projected statutory losses.
Also, the currently overall more onerous Hong Kong regulatory reserving and capital requirements for the branches of AIA
Co. and AIA International have the effect of reducing the level of any future projected statutory losses for these Business
Units. Based on the assumptions described in Section 5 of this report, and allowing for the Hong Kong statutory reserving
and capital requirements for the branches of AIA Co. and AIA International, the overall projected annual distributable
profits from the current in-force business and the assets backing the required capital of the Group are positive over the
remaining lifetime of the business. Therefore, it is not considered necessary to change the discounting approach described
above.
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ANNUAL REPORT 2016 | OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSUPPLEMENTARY EMBEDDED VALUE INFORMATION 4. METHODOLOGY (continued)
4.6 Required Capital
Each of the Business Units has a regulatory requirement to hold shareholder capital in addition to the assets backing the
insurance liabilities. The Group’s assumed levels of required capital for each Business Unit are set out in the table below.
Further, the consolidated EV Results for the Group have been calculated reflecting the overall more onerous of the Hong
Kong and branch level local regulatory reserving and capital requirements for AIA Co. and AIA International.
Required Capital by Business Unit
Business Unit
Required Capital
AIA Australia
AIA China
AIA Hong Kong
AIA Indonesia
AIA Korea
AIA Malaysia
100% of regulatory capital adequacy requirement
100% of required capital as specified under the CAA EV assessment guidance(1)
150% of required minimum solvency margin(2)
120% of regulatory Risk-Based Capital requirement
150% of regulatory Risk-Based Capital requirement
170% of regulatory Risk-Based Capital requirement
AIA New Zealand
100% of local regulatory requirement
Philam Life
AIA Singapore
AIA Sri Lanka
AIA Taiwan
AIA Thailand
AIA Vietnam
100% of regulatory Risk-Based Capital requirement
180% of regulatory Risk-Based Capital requirement
120% of regulatory Risk-Based Capital requirement(3)
250% of regulatory Risk-Based Capital requirement
140% of regulatory Risk-Based Capital requirement
100% of required minimum solvency margin
Notes:
(1) On 22 November 2016, the China Association of Actuaries (CAA) issued new guidance for embedded value calculations. The new guidance
has been applied to the EV calculations for AIA China as of 30 November 2016. Consistent with prior reporting periods, VONB is calculated
as at the point of sale and therefore has not reflected the new guidance within the reported VONB for AIA China in 2016. The additional Hong
Kong reserving and capital requirements continue to apply and therefore there is no material impact of this change to the Group’s overall EV
results.
(2) The required minimum solvency margin for AIA Hong Kong is unchanged under the revised undertaking to the HKOCI.
(3) The Insurance Board of Sri Lanka has implemented the Risk-Based Capital requirement, effective 1 January 2016. The new requirements
were applied from 1 December 2015 in EV and VONB calculations.
5. ASSUMPTIONS
5.1 Introduction
This section summarises the assumptions used by the Group to determine the EV as at 30 November 2016 and the VONB
for the year ended 30 November 2016 and highlights certain differences in assumptions between the EV as at 30 November
2015 and the EV as at 30 November 2016.
5.2 Economic Assumptions
Investment returns
The Group has set the assumed long-term future returns for fixed income assets to reflect its view of expected returns
having regard to estimates of long-term forward rates from yields available on government bonds and current bond yields.
In determining returns on fixed income assets the Group allows for the risk of default, and this allowance varies by the
credit rating of the underlying asset.
Where long-term views of investment return assumptions differ from current market yields on existing fixed income assets
such that there would be a significant impact on value, an adjustment was made to make allowance for the current market
yields. In these cases, in calculating the VIF, adjustments have been made to the investment return assumptions such that
the investment returns on existing fixed income assets were set consistently with the current market yield on these assets
for their full remaining term, to be consistent with the valuation of the assets backing the policy liabilities.
244
FINANCIAL STATEMENTS| AIA GROUP LIMITED 5. ASSUMPTIONS (continued)
5.2 Economic Assumptions (continued)
Investment returns (continued)
The Group has set the equity return and property return assumptions by reference to the return on 10-year government
bonds, allowing for an internal assessment of risk premia that vary by asset class and by territory.
For each Business Unit, the non-linked portfolio is divided into a number of distinct product groups, and the returns for each
of these product groups have been derived by considering current and future targeted asset allocations and associated
investment returns for major asset classes.
For unit-linked business, fund growth assumptions have been determined based on actual asset mix within the funds at
the valuation date and expected long-term returns for major asset classes.
Risk discount rates
The risk discount rates for each Business Unit can be considered as the sum of the appropriate risk-free interest rate, to
reflect the time value of money, and a risk margin to make allowance for the risk profile of the business.
The Group has generally set the risk discount rates to be equal to the estimated cost of equity capital for each Business
Unit within the Group. The cost of equity capital is derived using an estimated long-term risk-free interest rate, an equity
risk premium and a market risk factor. In some cases, adjustments have been made to reflect territorial or Business
Unit-specific factors.
The table below summarises the current market 10-year government bond yields referenced in EV calculations.
Business Unit
AIA Australia
AIA China
AIA Hong Kong(1)
AIA Indonesia
AIA Korea
AIA Malaysia
AIA New Zealand
Philam Life
AIA Singapore
AIA Sri Lanka
AIA Taiwan
AIA Thailand
AIA Vietnam
Current market 10-year government
bond yields referenced in EV
calculations (%)
As at
30 Nov 2016
As at
30 Nov 2015
2.72
2.95
2.38
8.14
2.15
4.41
3.13
4.52
2.30
14.11
1.12
2.69
6.30
2.86
3.12
2.21
8.61
2.25
4.20
3.54
4.07
2.51
10.33
1.15
2.74
7.10
Note:
(1) The majority of AIA Hong Kong’s assets and liabilities are denominated in US dollars. The 10-year government bond yields shown above are
those of US dollar-denominated bonds.
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ANNUAL REPORT 2016 | OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSUPPLEMENTARY EMBEDDED VALUE INFORMATION 5. ASSUMPTIONS (continued)
5.2 Economic Assumptions (continued)
Risk discount rates (continued)
The table below summarises the risk discount rates and long-term investment returns assumed in EV calculations. The
same risk discount rates were used for all the EV Results shown in Section 1 and Section 2 of this report. In particular, for
the branches of AIA Co. and AIA International, the consolidated EV Results reflecting the Hong Kong reserving and capital
requirements were calculated using the branch-specific risk discount rates shown in the table below. The present value
of unallocated Group Office expenses was calculated using the AIA Hong Kong risk discount rate. The investment returns
on existing fixed income assets were set consistently with the market yields on these assets. Note that VONB results were
calculated based on start-of-quarter economic assumptions consistent with the measurement at the point of sale. The
investment returns shown are gross of tax and investment expenses.
Business Unit
AIA Australia
AIA China
AIA Hong Kong(1)
AIA Indonesia
AIA Korea
AIA Malaysia
AIA New Zealand
Philam Life
AIA Singapore
AIA Sri Lanka
AIA Taiwan
AIA Thailand
AIA Vietnam
Risk discount rates assumed in EV
calculations (%)
Long-term investment returns assumed in EV calculations (%)
10-year government bonds
Local equities
As at
30 Nov 2016
As at
30 Nov 2015
As at
30 Nov 2016
As at
30 Nov 2015
As at
30 Nov 2016
As at
30 Nov 2015
7.35
9.55
7.00
13.50
8.60
8.75
7.75
11.00
6.90
15.70
7.85
8.60
12.80
7.75
9.75
7.00
13.50
9.10
8.75
8.25
10.50
6.90
15.70
7.85
8.80
13.80
3.00
3.50
2.50
8.00
2.70
4.20
3.50
4.50
2.50
10.00
1.60
3.20
7.00
3.40
3.70
2.50
8.00
3.20
4.20
4.00
4.00
2.50
10.00
1.60
3.40
8.00
7.50
9.30
7.60
12.50
7.20
8.80
7.50
9.50
7.55
12.80
7.20
8.75
n/a(2)
n/a(2)
9.70
7.00
12.00
6.60
9.00
12.30
9.20
7.00
11.70
6.60
9.20
13.80
Notes:
(1) The majority of AIA Hong Kong’s assets and liabilities are denominated in US dollars. The 10-year government bond assumptions shown
above are those of US dollar-denominated bonds.
(2) The assumed asset allocations do not include equities.
5.3 Persistency
Persistency covers the assumptions required, where relevant, for policy lapse (including surrender), premium persistency,
premium holidays, partial withdrawals and retirement rates for pension products.
Assumptions have been developed by each of the Business Units based on their recent historical experience, and their best
estimate expectations of current and expected future experience. Persistency assumptions vary by policy year and product
type with different rates for regular and single premium products.
Where experience for a particular product was not credible enough to allow any meaningful analysis to be performed,
experience for similar products was used as a basis for future persistency experience assumptions.
In the case of surrenders, the valuation assumes that current surrender value bases will continue to apply in the future.
246
FINANCIAL STATEMENTS| AIA GROUP LIMITED 5. ASSUMPTIONS (continued)
5.4 Expenses
The expense assumptions have been set based on the most recent expense analysis. The purpose of the expense analysis
is to allocate total expenses between acquisition and maintenance activities, and then to allocate these acquisition and
maintenance expenses to various product categories to derive unit cost assumptions.
Where the expenses associated with certain activities have been identified as being one-off, these expenses have been
excluded from the expense analysis.
Expense assumptions have been determined for acquisition and maintenance activities, split by product type, and unit costs
expressed as a percentage of premiums, sum assured and an amount per policy. Where relevant, expense assumptions
have been calculated per distribution channel.
Expense assumptions do not make allowance for any anticipated future expense savings as a result of any strategic
initiatives aimed at improving policy administration and claims handling efficiency.
Assumptions for commission rates and other sales-related payments have been set in line with actual experience.
Group Office expenses
Group Office expense assumptions have been set, after excluding non-recurring expenses, based on actual acquisition and
maintenance expenses in the year ended 30 November 2016. The Group Office acquisition expenses have been deducted
from the VONB. The present value of the projected future Group Office maintenance expenses has been deducted from
the Group EV. The maintenance expense assumptions in the VONB also allow for the allocation of Group Office expenses.
5.5 Expense Inflation
The assumed expense inflation rates are based on expectations of long-term consumer price and salary inflation.
Expense inflation assumptions by Business Unit (%)
Business Unit
AIA Australia
AIA China
AIA Hong Kong
AIA Indonesia
AIA Korea
AIA Malaysia
AIA New Zealand
Philam Life
AIA Singapore
AIA Sri Lanka
AIA Taiwan
AIA Thailand
AIA Vietnam
As at
30 November
2016
As at
30 November
2015
3.0
2.0
2.0
6.0
3.5
3.0
2.5
3.5
2.0
6.5
1.2
2.0
5.0
3.25
2.0
2.0
6.0
3.5
3.0
2.5
3.5
2.0
6.5
1.2
2.0
5.0
Unallocated Group Office expenses are assumed to inflate by the weighted average of the Business Unit expense inflation
rates.
247
ANNUAL REPORT 2016 | OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSUPPLEMENTARY EMBEDDED VALUE INFORMATION 5. ASSUMPTIONS (continued)
5.6 Mortality
Assumptions have been developed by each Business Unit based on their recent historical experience, and their expectations
of current and expected future experience. Where historical experience is not credible, reference has been made to pricing
assumptions supplemented by market data, where available.
Mortality assumptions have been expressed as a percentage of either standard industry experience tables or, where
experience is sufficiently credible, as a percentage of tables that have been developed internally by the Group.
For products that are exposed to longevity risk, an allowance has been made for expected improvements in mortality;
otherwise no allowance has been made for mortality improvements.
5.7 Morbidity
Assumptions have been developed by each Business Unit based on their recent historical experience, and their expectations
of current and expected future experience. Morbidity rate assumptions have been expressed as a percentage of standard
industry experience tables or as expected claims ratios.
5.8 Reinsurance
Reinsurance assumptions have been developed by each Business Unit based on the reinsurance arrangements in force as
at the valuation date and the recent historical and expected future experience.
5.9 Policyholder Dividends, Profit Sharing and Interest Crediting
The projected policyholder dividends, profit sharing and interest crediting assumptions set by each Business Unit that
have been used in calculating the EV Results presented in this report, reflect contractual and regulatory requirements,
policyholders’ reasonable expectations (where clearly defined) and each Business Unit’s best estimate of future policies,
strategies and operations consistent with the investment return assumptions used in the EV Results.
Participating fund surpluses have been assumed to be distributed between policyholders and shareholders via future final
bonuses or at the end of the projection period so that there are no residual assets at the end of the projection period.
248
FINANCIAL STATEMENTS| AIA GROUP LIMITED 5. ASSUMPTIONS (continued)
5.10 Taxation
The projections of distributable earnings underlying the values presented in this report are net of corporate income tax,
based on current taxation legislation and corporate income tax rates. The projected amount of tax payable in any year
allows, where relevant, for the benefits arising from any tax loss carried forward.
The local corporate income tax rates used by each Business Unit are set out below:
Local corporate income tax rates by Business Unit (%)
Business Unit
AIA Australia
AIA China
AIA Hong Kong
AIA Indonesia
AIA Korea
AIA Malaysia(1)
AIA New Zealand
Philam Life
AIA Singapore
AIA Sri Lanka
AIA Taiwan
AIA Thailand(2)
AIA Vietnam
As at 30 November 2016
As at 30 November 2015
30.0
25.0
16.5
25.0
24.2
24.0
28.0
30.0
17.0
28.0
17.0
20.0
20.0
30.0
25.0
16.5
25.0
24.2
25.0 for assessment year 2015;
24.0 thereafter
28.0
30.0
17.0
28.0
17.0
20.0
22.0 for assessment year 2015;
20.0 thereafter
Notes:
(1) The Malaysian Government announced a corporate income tax rate change in the Federal Government Budget 2014 which became effective
from assessment year 2016 onward.
(2) The Government of Thailand announced in the Royal Gazette on 4 March 2016 a change in corporate income tax rate from 30 per cent to 20
per cent from assessment year 2016 onward. This change had been approved by the cabinet of the Government of Thailand in October 2015.
The reported EV has been determined using this revised corporate income tax rate from assessment year 2015 onward. For clarity, VONB for
the 2015 financial year was reported at the point of sale during the 2015 financial year and was therefore determined assuming the higher
30 per cent corporate income tax rate from assessment year 2016 onward.
The tax assumptions used in the valuation reflect the local corporate income tax rates set out above. Where applicable, tax
payable on investment income has been reflected in projected investment returns.
The EV of the Group as at 30 November 2016 is calculated after deducting any remittance taxes payable on the anticipated
distribution of both the ANW and VIF.
Where territories have an imputation credit system in place, e.g. Australia, no allowance has been made for the value of the
imputation credits in the results shown in this report.
On 24 March 2016, the Ministry of Finance of the People’s Republic of China released a VAT reform for insurance companies,
effective from 1 May 2016, replacing the existing business tax system. The VAT change has been assumed to apply to the
projected cash flows from 1 May 2016 in both EV and VONB calculations.
5.11 Statutory Valuation Bases
The projection of regulatory liabilities at future points in time assumes the continuation of the reserving methodologies
used to value policyholder liabilities as at the valuation date.
On 22 November 2016, the CAA issued new guidance for embedded value calculations. The new guidance has been
applied to the EV calculations for AIA China as of 30 November 2016. Consistent with prior reporting periods, VONB is
calculated as at the point of sale and therefore has not reflected the new guidance within the reported VONB for AIA China
in 2016.
249
ANNUAL REPORT 2016 | OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSUPPLEMENTARY EMBEDDED VALUE INFORMATION 5. ASSUMPTIONS (continued)
5.12 Product Charges
Management fees and product charges reflected in the VIF and VONB have been assumed to follow existing scales.
5.13 Foreign Exchange
The EV as at 30 November 2016 and 30 November 2015 have been translated into US dollars using exchange rates as at
each valuation date. The VONB results shown in this report have been translated into US dollars using the corresponding
average exchange rates for each quarter. The other components of the EV profit shown in the analysis of movement in EV
have been translated using average exchange rates for the period.
6. EVENTS AFTER THE REPORTING PERIOD
On 22 December 2016, the Financial Supervisory Commission of Taiwan published the updated instruction for the
Risk-Based Capital calculation, effective 1 January 2017. The impact is not expected to be material.
On 28 December 2016, the Insurance Commission of the Republic of the Philippines announced changes to the valuation
standards and Risk-Based Capital Framework, effective 1 January 2017. The impact of these changes is not expected to
be significant.
The Bermuda Monetary Authority announced changes in 2016 to the Bermuda Statutory Reporting Regime that will first
apply to AIA’s financial year ending 30 November 2017.
On 24 February 2017, a Committee appointed by the Board of Directors proposed a final dividend of 63.75 Hong Kong
cents per share (2015: 51.00 Hong Kong cents per share).
250
SUPPLEMENTARY EMBEDDED VALUE INFORMATIONFINANCIAL STATEMENTS| AIA GROUP LIMITED ANALYSIS OF REGISTERED SHAREHOLDER ACCOUNTS
Size of registered shareholding
1,000 shares or below
1,001 – 5,000 shares
5,001 – 10,000 shares
10,001 – 100,000 shares
100,001 shares or above
30 November 2016
Number of
shareholder
accounts
% of total number
of shareholder
accounts
Number of
shares
% of total number
of shares
17,361
3,799
434
236
9
79.50
17.39
1.99
1.08
0.04
6,600,350
8,691,731
3,350,200
5,398,061
12,032,410,684
21,839
100.00
12,056,451,026
0.05
0.07
0.03
0.05
99.80
100.00
FINANCIAL CALENDAR
Announcement of 2016 Full Year Results
Book Close Period for the AGM
Date of the AGM
Announcement of 2017 Interim Results
24 February 2017
10 May 2017 to 12 May 2017 (both days inclusive)
12 May 2017
28 July 2017
ANNUAL GENERAL MEETING
The AGM will be held at 11:00 a.m. Hong Kong time on Friday, 12 May 2017 at the Grand Ballroom, 2/F, New World
Millennium Hong Kong Hotel, 72 Mody Road, Tsim Sha Tsui East, Kowloon, Hong Kong. Details of the business to be
transacted at the AGM are set out in the circular to the shareholders of the Company to be sent together with this Annual
Report.
Details of voting results at the AGM can be found on the website of the Hong Kong Stock Exchange at www.hkex.com.hk
and the Company’s website at www.aia.com on Friday, 12 May 2017.
FINAL DIVIDEND
The Board has recommended a final dividend of 63.75 Hong Kong cents per share (2015: 51.00 Hong Kong cents per
share) for the year ended 30 November 2016. If approved, the proposed final dividend together with the interim dividend
will represent a total dividend of 85.65 Hong Kong cents per share (2015: 69.72 Hong Kong cents per share) for the year
ended 30 November 2016.
Subject to shareholders’ approval at the AGM, the final dividend will be payable on Wednesday, 31 May 2017 to shareholders
whose names appear on the register of members of the Company at the close of business on Wednesday, 17 May 2017.
Relevant Dates for the Final Dividend
16 May 2017
Ex-dividend date
Record date
Payment date
17 May 2017
31 May 2017
SHARE REGISTRAR
If you have any enquiries relating to your shareholding, please contact the Company’s share registrar with the contact
details set out below:
Computershare Hong Kong Investor Services Limited
17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong
Telephone: +852 2862 8555
Email:
hkinfo@computershare.com.hk (for general enquiries)
aia.ecom@computershare.com.hk (for printed copies of the Company’s corporate communications)
Website: www.computershare.com
251
information for shareholdersANNUAL REPORT 2016 | OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONADDITIONAL INFORMATION
ANNUAL REPORT AND ELECTRONIC COMMUNICATIONS
This Annual Report is printed in English and Chinese and is available on the website of the Company. If you would like to
have a printed version of this Annual Report, please contact the Company’s share registrar using the contact details given
above.
The Company makes every effort to ensure consistency between the Chinese and English version of this Annual Report.
However, in the event of any inconsistency, the English version shall prevail.
For environmental and cost reasons, shareholders are encouraged to elect to receive shareholder documents
electronically. You may at any time send written notice to the Company c/o the Company’s share registrar or via email at
aia.ecom@computershare.com.hk specifying your name, address and request to change your choice of language or means
of receipt of all shareholder documents.
INVESTMENT COMMUNITY AND NEWS MEDIA
Enquiries may be directed to:
Investment Community
Paul Lloyd
Yan Guo
Feon Lee
Joel Lieginger
+852 2832 6160
+852 2832 1878
+852 2832 4704
+852 2832 4703
News Media
Stephen Thomas
Allister Fowler
Emerald Ng
+852 2832 6178
+852 2832 1978
+852 2832 4720
FORWARD-LOOKING STATEMENTS
This document may contain certain forward-looking statements relating to the Group that are based on the beliefs of the
Group’s management as well as assumptions made by and information currently available to the Group’s management.
These forward-looking statements are, by their nature, subject to significant risks and uncertainties. These forward-looking
statements include, without limitation, statements relating to the Group’s business prospects, future developments, trends
and conditions in the industry and geographical markets in which the Group operates, its strategies, plans, objectives and
goals, its ability to control costs, statements relating to prices, volumes, operations, margins, overall market trends, risk
management and exchange rates.
When used in this document, the words “anticipate”, “believe”, “could”, “estimate”, “expect”, “going forward”, “intend”,
“may”, “ought to”, “plan”, “project”, “seek”, “should”, “will”, “would” and similar expressions, as they relate to the Group or
the Group’s management, are intended to identify forward-looking statements. These forward-looking statements reflect
the Group’s views as of the date hereof with respect to future events and are not a guarantee of future performance or
developments. You are strongly cautioned that reliance on any forward-looking statements involves known and unknown
risks and uncertainties. Actual results and events may differ materially from information contained in the forward-looking
statements as a result of a number of factors, including any changes in the laws, rules and regulations relating to any
aspects of the Group’s business operations, general economic, market and business conditions, including capital market
developments, changes or volatility in interest rates, foreign exchange rates, equity prices or other rates or prices, the
actions and developments of the Group’s competitors and the effects of competition in the insurance industry on the
demand for, and price of, the Group’s products and services, various business opportunities that the Group may or may not
pursue, changes in population growth and other demographic trends, including mortality, morbidity and longevity rates,
persistency levels, the Group’s ability to identify, measure, monitor and control risks in the Group’s business, including its
ability to manage and adapt its overall risk profile and risk management practices, its ability to properly price its products
and services and establish reserves for future policy benefits and claims, seasonal fluctuations and factors beyond the
Group’s control. Subject to the requirements of the Listing Rules, the Group does not intend to update or otherwise revise
the forward-looking statements in this document, whether as a result of new information, future events or otherwise. As
a result of these and other risks, uncertainties and assumptions, forward-looking events and circumstances discussed in
this document might not occur in the way the Group expects, or at all. Accordingly, you should not place reliance on any
forward-looking information or statements. All forward-looking statements in this document are qualified by reference to
the cautionary statements set forth in this section.
252
| AIA GROUP LIMITEDADDITIONAL INFORMATION BOARD OF DIRECTORS
Non-executive Chairman and
Non-executive Director
Mr. Edmund Sze-Wing Tse
Executive Director,
Group Chief Executive and President
Mr. Mark Edward Tucker
Independent Non-executive Directors
Mr. Jack Chak-Kwong So
Mr. Chung-Kong Chow
Mr. John Barrie Harrison
Mr. George Yong-Boon Yeo
Mr. Mohamed Azman Yahya
Professor Lawrence Juen-Yee Lau
Ms. Swee-Lian Teo
Dr. Narongchai Akrasanee
AUDIT COMMITTEE
Mr. John Barrie Harrison (Chairman)
Mr. Jack Chak-Kwong So
Mr. George Yong-Boon Yeo
Dr. Narongchai Akrasanee
NOMINATION COMMITTEE
Mr. Edmund Sze-Wing Tse (Chairman)
Mr. Jack Chak-Kwong So
Mr. Chung-Kong Chow
Mr. John Barrie Harrison
Mr. George Yong-Boon Yeo
Mr. Mohamed Azman Yahya
Professor Lawrence Juen-Yee Lau
Ms. Swee-Lian Teo
Dr. Narongchai Akrasanee
REMUNERATION COMMITTEE
Mr. Jack Chak-Kwong So (Chairman)
Mr. George Yong-Boon Yeo
Mr. Mohamed Azman Yahya
Mr. Edmund Sze-Wing Tse
RISK COMMITTEE
Mr. Chung-Kong Chow (Chairman)
Mr. John Barrie Harrison
Professor Lawrence Juen-Yee Lau
Ms. Swee-Lian Teo
Mr. Edmund Sze-Wing Tse
Mr. Mark Edward Tucker
REGISTERED OFFICE
35/F, AIA Central
No. 1 Connaught Road Central
Hong Kong
WEBSITE
www.aia.com
COMPANY SECRETARY
Mr. Mitchell New
AUTHORISED REPRESENTATIVES
Mr. Mark Edward Tucker
Mr. Mitchell New
SHARE REGISTRAR
Computershare Hong Kong Investor Services Limited
17M Floor
Hopewell Centre
183 Queen’s Road East, Wanchai
Hong Kong
PRINCIPAL BANKERS
The Hongkong and Shanghai Banking Corporation Limited
Citibank, N.A.
Standard Chartered Bank
AUDITOR
PricewaterhouseCoopers
Certified Public Accountants
253
CORPORATE INFORMATIONANNUAL REPORT 2016 | OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONADDITIONAL INFORMATION active agent
active market
adjusted net worth or ANW
AER
AGM
An agent who sells at least one policy per month.
A market in which all the following conditions exist:
(cid:127)
the items traded within the market are homogeneous;
(cid:127) willing buyers and sellers can normally be found at any time; and
(cid:127) prices are available to the public.
A financial instrument is regarded as quoted in an active market if quoted
prices are readily and regularly available from an exchange, dealer, broker,
industry group, pricing service or regulatory agency, and those prices
represent actual and regularly occurring market transactions on an arm’s
length basis.
ANW is the market value of assets in excess of the assets backing the policy
reserves and other liabilities of the life (and similar) business of AIA, plus
the IFRS equity value of other activities, such as general insurance business,
less the value of intangible assets. It excludes any amounts not attributable
to shareholders of AIA Group Limited.
Actual exchange rates.
2017 Annual General Meeting of the Company to be held at 11:00 a.m. Hong
Kong time on Friday, 12 May 2017.
AIA or the Group
AIA Group Limited and its subsidiaries.
AIA Co.
AIA Company Limited, a subsidiary of the Company.
AIA International
AIA International Limited, a subsidiary of AIA Co.
AIA Vitality
AIG
ALICO
amortised cost
annualised new premiums or ANP
A science-backed wellness programme that provides participants with the
knowledge, tools and motivation to help them achieve their personal health
goals. The programme is a partnership between AIA and Discovery Limited,
a specialist insurer headquartered in South Africa.
American International Group, Inc.
American Life Insurance Company.
The amount at which the financial asset or financial liability is measured at
initial recognition minus principal repayments, plus or minus the cumulative
amortisation using the effective interest method of any difference between
the initial amount and the maturity amount, and minus any reduction for
impairment or uncollectibility.
ANP represents 100 per cent of annualised first year premiums and 10 per
cent of single premiums, before reinsurance ceded. It is an internally used
measure of new business sales or activity for all entities within AIA. ANP
excludes new business of pension business, personal lines and motor
insurance.
ASPP
Agency Share Purchase Plan adopted by the Company on 23 February 2012
to enable eligible agents to acquire shares of the Company.
available for sale (AFS)
financial assets
254
Financial assets that may be sold before maturity and that are used to back
insurance and investment contract liabilities and shareholders’ equity, and
which are not managed on a fair value basis. Non-derivative financial assets
that are designated as available for sale or are not classified as loans and
receivables or as at fair value through profit or loss. Available for sale
financial instruments are measured at fair value, with movements in fair
value recorded in other comprehensive income.
ADDITIONAL INFORMATIONGlossary| AIA GROUP LIMITED
bancassurance
CER
The distribution of insurance products through banks or other financial
institutions.
Constant exchange rates. Change on constant exchange rates is calculated
using constant average exchange rates for the current year and for the prior
year other than for balance sheet items that use constant exchange rates as
at the end of the current year and as at the end of the prior year.
consolidated investment funds
Investment funds in which the Group has interests and power to direct their
relevant activities that affect the return of the funds.
Corporate Governance Code
Corporate Governance Code set out in Appendix 14 to the Listing Rules.
cost of capital or CoC
deferred acquisition costs or DAC
deferred origination costs or DOC
CoC is calculated as the face value of the required capital as at the valuation
date less the present value of the net-of-tax investment return on the
shareholder assets backing the required capital and the present value of
projected releases from the assets backing the required capital. Where the
required capital may be covered by policyholder assets such as surplus
assets in participating funds, there is no associated cost of capital included
in the VIF or VONB.
DAC are expenses of an insurer which are incurred in connection with the
acquisition of new insurance contracts or the renewal of existing insurance
contracts. They include commissions and other variable sales inducements
and the direct costs of issuing the policy, such as underwriting and other
policy issue expenses. These costs are deferred and expensed to the
consolidated income statement on a systematic basis over the life of the
policy. DAC assets are tested for recoverability at least annually.
Origination costs are expenses which are incurred in connection with the
origination of new investment contracts or the renewal of existing investment
contracts. For contracts that involve the provision of investment management
services, these include commissions and other incremental expenses
directly related to the issue of each new contract. Origination costs on
contracts with investment management services are deferred and recognised
as an asset in the consolidated statement of financial position and expensed
to the consolidated income statement on a systematic basis in line with the
revenue generated by the investment management services provided. Such
assets are tested for recoverability.
embedded value or EV
An actuarially determined estimate of the economic value of a life insurance
business based on a particular set of assumptions as to future experience,
excluding any economic value attributable to future new business.
EPS
Earnings per share.
equity attributable to
shareholders of the
Company on the embedded
value basis or EV Equity
ESPP
ExCo
fair value through profit or
loss or FVTPL
EV Equity is the total of embedded value, goodwill and other intangible
assets attributable to shareholders of the Company.
Employee Share Purchase Plan adopted by the Company on 25 July 2011 to
enable eligible employees to acquire shares of the Company.
The Executive Committee of the Group.
Financial assets that are held to back unit-linked contracts and participating
funds or financial assets and liabilities that are held for trading. A financial
asset or financial liability that is measured at fair value in the statement of
financial position with gains and losses arising from movements in fair value
being presented in the consolidated income statement as a component of
the profit or loss for the year.
255
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | GLOSSARY
first half
The six months from 1 December to 31 May.
first year premiums
First year premiums are the premiums received in the first year of a recurring
premium policy. As such, they provide an indication of the volume of new
policies sold.
FRC
free surplus
group insurance
Group Office
HKFRS
HKOCI
Hong Kong
Financial Risk Committee.
ANW in excess of the required capital.
An insurance scheme whereby individual participants are covered by a
master contract held by a single group or entity on their behalf.
Group Office includes the activities of the Group Corporate Centre segment
consisting of the Group’s corporate functions, shared services and
eliminations of intragroup transactions.
Hong Kong Financial Reporting Standards.
Hong Kong Office of the Commissioner of Insurance.
The Hong Kong Special Administrative Region of the PRC; in the context of
our reportable segments, Hong Kong includes Macau.
Hong Kong Companies
Ordinance
Companies Ordinance (Chapter 622 of the Laws of Hong Kong), as amended
from time to time.
Hong Kong Insurance
Companies Ordinance
or HKICO
Insurance Companies Ordinance (Chapter 41 of the Laws of Hong Kong), as
amended from time to time. It provides a legislative framework for the
prudential supervision of the insurance industry in Hong Kong. The
objectives of the HKICO are to protect the interests of the insuring public
and to promote the general stability of the insurance industry.
Hong Kong Stock Exchange
or HKSE
The Stock Exchange of Hong Kong Limited.
IAS
IASB
IFA
IFRS
International Accounting Standards.
International Accounting Standards Board.
Independent financial adviser.
Standards and interpretations adopted by the International Accounting
Standards Board (IASB) comprising:
(cid:127)
(cid:127)
(cid:127)
International Financial Reporting Standards;
International Accounting Standards; and
Interpretations developed by the IFRS Interpretations Committee (IFRS
IC) or the former Standing Interpretations Committee (SIC).
ING Malaysia
ING Management Holdings (Malaysia) Sdn. Bhd.
interactive Mobile Office or iMO
interactive Point of Sale or iPoS
iMO is a mobile office platform with a comprehensive suite of applications
that allow agents and agency leaders to manage their daily activities from
lead generation, sales productivity and recruitment activity through to
development training and customer analytics.
iPoS is a secure, mobile point-of-sale technology that features a paperless
sales process from the completion of the customer’s financial-needs
analysis to proposal generation with electronic biometric signature of life
insurance applications on tablet devices.
256
ADDITIONAL INFORMATION| AIA GROUP LIMITED investment experience
Realised and unrealised investment gains and losses recognised in the
consolidated income statement.
investment income
Investment income comprises interest income, dividend income and rental
income.
investment return
Investment return consists of investment income plus investment experience.
IPO
lapse risk
liability adequacy testing
Listing Rules
Million Dollar Round
Table or MDRT
Model Code
net funds to Group
Corporate Centre
Initial Public Offering.
The rate of policy termination deviating from the Group’s expectation. Lapse
risk is taken into account in formulating projections of future premium
revenues, for example when testing for
liability adequacy and the
recoverability of deferred acquisition and origination costs.
An assessment of whether the carrying amount of an insurance liability
needs to be increased or the carrying amount of related deferred acquisition
and origination costs or related intangible assets decreased based on a
review of future cash flows.
Rules Governing the Listing of Securities on The Stock Exchange of Hong
Kong Limited.
MDRT is a global professional trade association of life insurance and
recognises significant sales
that
financial services professionals
achievements and high service standards.
Model Code for Securities Transactions by Directors of Listed Issuers set out
in Appendix 10 to the Listing Rules.
In presenting net capital in/(out) flows to reportable segments, capital
outflows consist of dividends and profit distributions to the Group Corporate
Centre segment and capital inflows consist of capital injections into
reportable segments by the Group Corporate Centre segment. For the Group,
net capital in/(out) flows reflect the net amount received from shareholders
by way of capital contributions less amounts distributed by way of dividends.
n/a
n/m
Not available.
Not meaningful.
operating profit after tax or OPAT
The operating profit is determined using expected long-term investment
return for equities and real estate. Short-term fluctuations between expected
long-term investment return and actual investment returns for these asset
classes are excluded from operating profit. The
investment return
assumptions used to determine expected long-term investment returns are
based on the assumptions applied by the Group in determining its embedded
value and are disclosed in the Supplementary Embedded Value Information.
operating return on EV or ROEV
Operating return on EV is calculated as EV operating profit, expressed as a
percentage of the opening embedded value.
operating return on
shareholders’ allocated equity
or ROE
Operating return on shareholders’ allocated equity is calculated as operating
profit after tax attributable to shareholders of the Company, expressed as a
percentage of the simple average of opening and closing shareholders’
allocated equity.
ORC
OTC
Operational Risk Committee.
Over-the-counter.
257
OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | GLOSSARY participating funds
participating policies
persistency
Philam Life
Participating funds are distinct portfolios where the policyholders have a
contractual right to receive at the discretion of the insurer additional benefits
based on factors such as the performance of a pool of assets held within the
fund, as a supplement to any guaranteed benefits. The Group may either
have discretion as to the timing of the allocation of those benefits to
participating policyholders or may have discretion as to the timing and the
amount of the additional benefits.
Participating policies are contracts with DPF. Participating policies may
either be written within participating funds or may be written within the
Company’s general account, whereby the investment performance is
determined for a group of assets or contracts, or by reference to the
Company’s overall investment performance and other factors. The latter is
referred to by the Group as “other participating business”. Whether
participating policies are written within a separate participating fund or not
largely depends on matters of local practice and regulation.
The percentage of insurance policies remaining in force from month to
month in the past 12 months, as measured by premiums.
The Philippine American Life and General Insurance (PHILAM LIFE)
Company, a subsidiary of AIA Co.; in the context of the Supplementary
Embedded Value
includes BPI-Philam Life
Assurance Corporation.
Information, Philam Life
policyholder and shareholder
investments
Investments other than those held to back unit-linked contracts as well as
assets from consolidated investment funds.
pps
PRC
protection gap
puttable liabilities
Percentage points.
The People’s Republic of China.
The difference between the resources needed and resources available to
maintain dependants’ living standards after the death of the primary wage-
earner.
A puttable financial instrument is one in which the holder of the instrument
has the right to put the instrument back to the issuer for cash (or another
financial asset). Units in investment funds such as mutual funds and open-
ended investment companies are typically puttable instruments. As these
can be put back to the issuer for cash, the non-controlling interests in any
such funds which have to be consolidated by AlA are treated as financial
liabilities.
RAS
Risk Appetite Statement.
regulatory minimum capital
Net assets held to meet the minimum solvency margin requirement set by
the HKICO that an insurer must meet in order to be authorised to carry on
insurance business in or from Hong Kong.
renewal premiums
Premiums receivable in subsequent years of a recurring premium policy.
rider
risk appetite
A supplemental plan that can be attached to a basic insurance policy,
typically with payment of additional premiums.
The amount of risk that companies are willing to take in order to achieve
their business objectives.
Risk-Based Capital or RBC
RBC represents an amount of capital based on an assessment of risks that a
company should hold to protect customers against adverse developments.
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ADDITIONAL INFORMATION| AIA GROUP LIMITED
RMF
RSPUs
RSSUs
RSU Scheme
second half
SFO
share(s)
Risk Management Framework.
Restricted stock purchase units.
Restricted stock subscription units.
Restricted Share Unit Scheme.
The six months from 1 June to 30 November.
Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong),
as amended from time to time.
For the Company, shall mean ordinary share(s) in the capital of the Company.
shareholders’ allocated equity
Shareholders’ allocated equity is total equity attributable to shareholders of
the Company less fair value reserve.
Singapore
The Republic of Singapore; in the context of our reportable segments,
Singapore includes Brunei.
single premium
A single payment that covers the entire cost of an insurance policy.
SME
SO Scheme
solvency
solvency ratio
takaful
Tata AIA
Small-and-medium sized enterprise.
Share Option Scheme.
The ability of an insurance company to satisfy its policyholder benefits and
claims obligations.
The ratio of the total available capital to the regulatory minimum capital
applicable to the insurer pursuant to relevant regulations.
Islamic insurance which is based on the principles of mutual assistance and
risk sharing.
Tata AIA Life Insurance Company Limited.
the Company
AIA Group Limited.
total weighted premium
income or TWPI
TWPI consists of 100 per cent of renewal premiums, 100 per cent of first
year premiums and 10 per cent of single premiums, before reinsurance
ceded. As such it provides an indication of AIA’s longer-term business
volumes as it smoothes the peaks and troughs in single premiums.
unit-linked investments
Financial investments held to back unit-linked contracts.
unit-linked products
Unit-linked products are insurance products where the policy value is linked
to the value of underlying investments (such as collective investment
schemes, internal investment pools or other property) or fluctuations in the
value of underlying investment or indices. Investment risk associated with
the product is usually borne by the policyholder. Insurance coverage,
investment and administration services are provided for which the charges
are deducted from the investment fund assets. Benefits payable will depend
on the price of the units prevailing at the time of death of the insured or
surrender or maturity of the policy, subject to surrender charges.
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OVERVIEWFINANCIAL AND OPERATING REVIEWCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONANNUAL REPORT 2016 | GLOSSARY
universal life
value of business acquired
or VOBA
A type of insurance product where the customer pays flexible premiums,
subject to specified limits, which are accumulated in an account balance
which are credited with interest at a rate either set by the insurer or reflecting
returns on a pool of matching assets. The customer may vary the death
benefit and the contract may permit the policyholder to withdraw the
account balance, typically subject to a surrender charge.
VOBA in respect of a portfolio of long-term insurance and investment
contracts acquired is recognised as an asset, calculated using discounted
cash flow techniques, reflecting all future cash flows expected to be realised
from the portfolio. VOBA is amortised over the estimated life of the contracts
in the acquired portfolio on a systematic basis. The rate of amortisation
reflects the profile of the additional value of the business acquired. The
carrying value of VOBA is reviewed annually for impairment and any
impairment is charged to the consolidated income statement.
value of in-force business or VIF
VIF is the present value of projected after-tax statutory profits emerging in
the future from the current in-force business less the cost arising from
holding the required capital (CoC) to support the in-force business.
value of new business or VONB
VONB margin
working capital
VONB is the present value, measured at the point of sale, of projected after-
tax statutory profits emerging in the future from new business sold in the
period less the cost of holding the required capital in excess of regulatory
reserves to support this business. VONB for AIA is stated after adjustments
to reflect additional Hong Kong reserving and capital requirements and the
after-tax value of unallocated Group Office expenses. VONB by market is
stated before adjustments to reflect additional Hong Kong reserving and
capital requirements and unallocated Group Office expenses, and presented
on a local statutory basis.
VONB excluding pension business, expressed as a percentage of ANP. VONB
margin for AIA is stated after adjustments to reflect additional Hong Kong
reserving and capital requirements and the after-tax value of unallocated
Group Office expenses. VONB margin by market is stated before adjustments
to reflect additional Hong Kong reserving and capital requirements and
unallocated Group Office expenses, and presented on a local statutory basis.
Working capital comprises debt and equity securities, deposits and cash
and cash equivalents held at the Group Corporate Centre. These liquid assets
are available to invest in building the Group’s business operations.
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ADDITIONAL INFORMATION| AIA GROUP LIMITED A
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A I A G R O U P LI M IT E D
友邦保險控股有限公司
MAKING A REAL DIFFERENCE.
LONGER, HEALTHIER,
BETTER LIVES.
ANNUAL REPORT 2016
AIA.COM
STOCK CODE : 1299
VISION & PURPOSE
OUR VISION is to be the world’s pre-eminent
life insurance provider. That is our service
to our customers and our shareholders.
OUR PURPOSE is to play a leadership role
in driving economic and social development
across the region. That is our service to
societies and their people.
ABOUT AIA
AIA Group Limited and its subsidiaries (collectively “AIA”
or the “Group”) comprise the largest independent publicly
listed pan-Asian life insurance group. It has a presence in
18 markets in Asia-Pacific – wholly-owned branches and
subsidiaries in Hong Kong, Thailand, Singapore, Malaysia,
China, Korea, the Philippines, Australia, Indonesia, Taiwan,
Vietnam, New Zealand, Macau, Brunei, Cambodia,
a 97 per cent subsidiary in Sri Lanka, a 49 per cent joint
venture in India and a representative office in Myanmar.
The business that is now AIA was first established
in Shanghai almost a century ago. It is a market leader
in the Asia-Pacific region (ex-Japan) based on life
insurance premiums and holds leading positions across
the majority of its markets. It had total assets of
US$185 billion as of 30 November 2016.
AIA meets the long-term savings and protection needs
of individuals by offering a range of products and
services including life insurance, accident and health
insurance and savings plans. The Group also provides
employee benefits, credit life and pension services
to corporate clients. Through an extensive network
of agents, partners and employees across Asia-Pacific,
AIA serves the holders of more than 30 million individual
policies and over 16 million participating members
of group insurance schemes.
AIA Group Limited is listed on the Main Board of
The Stock Exchange of Hong Kong Limited under the
stock code “1299” with American Depositary Receipts
(Level 1) traded on the over-the-counter market
(ticker symbol: “AAGIY”).
Notes:
(1) Explanations of certain terms and abbreviations used in this
report are set forth in the Glossary.
(2) Unless otherwise specified, 2015 and 2016 refer to the
financial year of the Group, which ends on 30 November of
the year indicated.