Fubon Financial 2014 Q1 Interim Results
and
2013 Embedded Value of Fubon Life
2014.5.15
Disclaimer
This meeting may contain forward-looking statements with respect to the financial
condition, results of operations and business of the company. These forward-looking
statements represent the company’s expectations or beliefs concerning future events
and involve known and unknown risks and uncertainty that could cause actual
results, performance or events to differ materially from those expressed. Certain
statements, such as those that include the words “potential”, “estimated”, and similar
expressions or variations on such expressions may be considered “forward-looking
statements”. Financial numbers in this report may include preliminary unaudited
numbers or management accounts.
2
Agenda
Performance highlights of Fubon Financial Holdings
Performance review by subsidiary
• Taipei Fubon Bank
• Fubon Life
• Fubon Insurance
• Fubon Securities
• Fubon Bank (China)
2013 Embedded Value of Fubon Life
3
Fubon Financial Holdings: Operation
highlights
Net profits NT$13,866 million in 1Q14 with 37% yoy growth
Taipei Fubon Bank
Fubon Life
Balance growth from all source of revenue
Asset quality remains benign
Premium growth above expectation with total premium grew
26% yoy
Consistent investment performance
Fubon Insurance
Leading position in premium income with 21% market share
Strong underwriting performance
Earning momentum recovery and net profits doubled
Fubon Securities
Aiming to capture new business opportunity
4
Fubon Financial Holdings: Profitability
Net profits
NT$bn
+37%
13.9
30.7
32.7
29.1
8.03(1)
10.1
3M13
3M14
2011
2012
2013
EPS
NT$
1.35
3.39
+27%
0.90(1)
1.06
3M13
3M14
2011
3.31
3.07
2012
2013
Note: (1) Disposal gains of Fubon Multimedia Technology of NT$8 bn and NT$0.8 bn are recognized in 2011 and 2012 respectively
(2) Data in 2012 and 2013 are T-IFRS basis, and data in 2011 are ROC GAAP basis
5
Fubon Financial Holdings: Net profits by
subsidiary
YoY changes by subsidiary
Net profits composition
NT$bn
NT$bn
3M13
3M14
Fubon
Securities,
0.5,
4%
13.9
Fuobn P&C,
0.8,
6%
10.1
5.9
5.4
Others,
0.9,
6%
Taipei Fubon
Bank,
5.9,
42%
5.8
3.8
0.8
Fubon FHC Taipei Fubon Fubon Life
Bank
0.8
Fuobn P&C
0.2
0.5
Fubon
Securities
Note:
NT$781m of committed compensation to government regarding sports
lottery business was recognized in 1Q2013
Fubon Life,
5.8 ,
42%
Note:
Fubon Bank (China) contributed 3% profits on 80% stake holding basis
6
Fubon Financial Holdings: Asset and
net worth
Total assets
NT$bn
+18%
4,571
5,015
4,237
4,106
3,623
3M13
3M14
2011
2012
2013
306
316
2012
2013
Net worth
NT$bn
+14%
348
234
305
3M13
3M14
2011
7
Fubon Financial Holdings: ROA & ROE
ROA
1.16%
0.87%
0.97%
3M13
3M14
2011
0.75%
0.75%
2012
2013
ROE
16.69%
13.54%
13.27%
3M13
3M14
2011
10.71%
10.50%
2012
2013
8
Agenda
Performance highlights of Fubon Financial Holdings
Performance review by subsidiary
• Taipei Fubon Bank
• Fubon Life
• Fubon Insurance
• Fubon Securities
• Fubon Bank (China)
2013 Embedded Value of Fubon Life
9
Taipei Fubon Bank: Revenue
Revenue growth across all revenue lines
Revenue composition of Taipei Fubon Bank
NT$bn
Treasury & others
33.6
Net fee income
29.2
9.4
25.5
Net interest income
11.4
3.3
6.3
3.4
8.4
8.1
8.3
13.9
14.6
15.8
7.8
2.0
2.6
2.1
5.4
3.7
Non-NII as
% of total
revenue
1Q13
1Q14
2011
2012
2013
53%
52%
45%
50%
53%
Note: Consolidated basis; Fubon Bank (China) accounted starting from Jan 2014
10
Taipei Fubon Bank: Credit composition
Growth from corporate loan and forfaiting & factoring are key drivers
Loans and A/R by type
1,199.1
NT$bn
7.1
27.8
1,080.0
7.4
26.7
18.9
YoY +11.0%
18.6
Credit card revolving
YoY -4.3%
353.9
Consumer - unsecured loan
YoY -1.6%
63.7
Consumer - secured loan
YoY +4.4%
334.6
13.4
Mortgage loan
YoY +5.8%
473.5
542.9
Forfaiting & factoring
YoY +377.3%
Corporate loan
YoY +14.7%
205.7
185.1
Mar-13
Mar-14
Government loan
YoY -10%
Note: Ending balance and stand-alone basis
11
Taipei Fubon Bank: Credit composition
Corporate loan growth (yoy) by currency
FX
NTD
23.8%
16.0%
1Q13
265.4%
24.2%
127.1%
16.6%
90.4%
13.0%
6.6%
2.6%
Yoy growth in forfaiting & factoring
3.4%
2Q13
3Q13
5.7%
3.9%
4Q13
1Q14
FX loan as % of corporate loan
39.3%
-29.3%
1Q13
-16.9%
2Q13
3Q13
1Q13
39.3%
5.7%
4.4%
3.2%
35.9%
2Q13
1Q14
Forfaiting & factoring as % of total credit
37.4%
35.5%
4Q13
3Q13
4Q13
1Q14
1.7%
1.9%
1Q13
2Q13
3Q13
4Q13
1Q14
Note: Average balance and stand-alone basis
12
Taipei Fubon Bank: Interest yield and
margin
NIM and loan-to-deposit spread
NIM
1.34%
1.03%
1Q13
1.29%
1.10%
Loan-to-deposit spread
1.34%
1.33%
2011
1Q14
1.05%
1.01%
0.99%
1.33%
2012
2013
Loan yield and deposit yield
Loan rate
2.06%
2.04%
0.70%
1Q13
2.06%
1.98%
0.77%
1Q14
Deposit rate
0.64%
2011
2.04%
0.73%
2012
0.71%
2013
Note: Stand-alone basis; loan rate calculation inclusive of credit card revolving
13
Taipei Fubon Bank: Deposit and LDR
Deposit mix in NTD
NT$bn
991
1,020
52.7%
48.8%
Loan-to-deposit ratio
Time
Demand
47.3%
51.2%
Mar-13
Mar-14
Deposit mix in foreign currency
NT$bn
272
362
53.0%
58.6%
84.3%
83.0%
Mar-13
Mar-14
Time
Demand
47.0%
41.4%
Mar-13
Mar-14
Note: Ending balance and stand-alone basis
14
Taipei Fubon Bank: Fee and wealth
management revenue
Growth in fee income along with wealth management business
Sources of fee income
NT$m
1Q13
2,570
2,122
1Q14
1,949
1,604
261
Total fee income
Wealth management
264
Credit card
42
178
Sydication loan
Wealth management revenue
2,162
NT$m
1,798
1,778
194
203
827
1,789
1,912
213
DCI,SI and others
228
423
895
662
851
533
38
47
984
1,007
4Q13
1Q14
59
71
61
706
662
774
1Q13
2Q13
3Q13
Note: Data inclusive of Taipei Fubon Bank standalone & Taipei Fubon Bank Life Insurance Agency
Mutual funds
Custodian and trust
Insurance commission
15
Taipei Fubon Bank: Loan book quality
NPL ratio
0.12%
0.11%
0.11%
Coverage ratio
1211.1%
0.12%
1068.2%
0.09%
691.1%
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Mar-13
NPL ratio by business
Corporate loan
974.0%
790.2%
Jun-13
Sep-13
Dec-13
Mar-14
Provision (NT$m)
3,857
Mortgage loan
0.6%
0.4%
0.12%
0.2%
(150)
0.02%
0.0%
Jun-11
(206)
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
1Q13
2013
1Q14
Note: stand-alone basis
16
Agenda
Performance highlights of Fubon Financial Holdings
Performance review by subsidiary
• Taipei Fubon Bank
• Fubon Life
• Fubon Insurance
• Fubon Securities
• Fubon Bank (China)
2013 Embedded Value of Fubon Life
17
Fubon Life: Total premium
Strong premium growth in FYP and steady renewal premium in 1Q14
Renewal premium
NT$bn
FYP
420.7
420.1
368.2
171.0
110.6
207.2
145.4
87.5
54.5
52.4
222.8
249.7
212.9
56.1
35.1
1Q13
1Q14
2011
2012
2013
18
Fubon Life: First year premium (FYP)
FYP composition
NT$bn
1Q13
Traditional life: Regular-paid
%
1Q14
%
8.7
24.8%
7.2
12.8%
17.1
48.6%
41.5
74.0%
Interest-sensitive annuity
6.6
18.8%
4.6
8.2%
Investment-linked
1.5
4.3%
1.5
2.7%
Health, accidents and others
1.2
3.5%
1.3
2.2%
35.1
100.0%
56.1
100.0%
Traditional life: Single-paid
Total
FYP market share by channel
Tied agents
13.1%
Bancassurance
22.6%
Brokers
24.4%
14.8%
20.6%
11.4%
1Q13
1Q14
1Q13
1Q14
1Q13
1Q14
19
Fubon Life: First year premium equivalent
(FYPE)
FYPE growth 9% yoy exceeds the decline in industry average (-9%)
Strategic focus on regular-paid and health products in the long-term, which consistently over
60% of total FYPE in Fubon
Health, accidents and others
Traditional life: Regular paid
68.6
Traditional life: Single paid
NT$bn
62.3
8.2%
8.2%
Investment-linked
54.2
Interest-sensitive annuity
13.5
9.5%
12.4
9.4%
9.9%
63.1%
63.9%
58.3%
57.1%
69.7%
28.7%
22.6%
25.2%
20.1%
13.7%
1.4%
5.3%
1.4%
3.4%
1.0%
4.3%
0.8%
2.7%
1.8%
10.3%
1Q13
1Q14
2011
2012
2013
20
Fubon Life: Sales channel
Top 1 position in bancassurance and broker channels
Size of tied agents grow ahead of market
FYP by channel
Size of tied agency
Other
Bancassurance: through Taipei Fubon bank
Bancassurance: through external banks
Tied agents
NT$bn
56.1
6.9
35.1
5.7
6.8
10.6
15,377
14,337
26.2
12.9
9.8
12.4
1Q13
1Q14
Mar-13
Mar-14
21
Fubon Life: Composition of
investment income
Investment income mainly come from recurring revenue
Realized gain from equity investment as economy recovery
Growth rate
NT$bn
Recurring investment income
1Q13
1Q14
2011
2012
2013
1Q14
14.8
18.2
52.0
62.7
74.4
23.0%
Realized gains from fixed income investment
2.3
1.6
2.6
7.9
8.0
-30.4%
Realized gains from equity investment
3.3
5.7
5.1
4.5
3.7
72.7%
FX and others
-0.5
-1.3
-5.0
-6.4
-5.9
N.M.
19.9
24.2
54.7
68.6
80.2
21.6%
2,002.9
2,318.7
1,573.2
1,932.3
2,203.7
15.8%
investment income
Total investment assets
22
Fubon Life: Investment portfolio
Investment assets growth 16% yoy
Investment portfolio toward overseas fixed income and equity investment
2013/3/31
（ NT$bn）
）
2014/3/31
Amount
%
Amount
%
116.6
595.8
865.6
203.3
43.3
39.8
46.5
92.0
5.8%
29.7%
43.2%
10.1%
2.2%
2.0%
2.3%
4.6%
109.3
650.3
1,015.2
235.2
103.8
56.8
49.2
98.9
4.7%
28.0%
43.8%
10.1%
4.5%
2.5%
2.1%
4.3%
Total Investments
2,002.9
100.0%
2,318.7
100.0%
Domestic
Overseas
1,094.0
908.9
54.6%
45.4%
1,199.7
1,119.0
51.7%
48.3%
Deposit and cash equivalent
Domestic fixed income
Overseas fixed income
Domestic equity
Overseas equity
Mortgage loans
Policy loans
Real estate
23
Fubon Life: Overseas fixed income
portfolio
Overseas fixed income by asset type
7.0%
5.1%
Overseas fixed income by region
Europe
Others
28.8%
37.9%
25.0%
Corporate credit
43.1%
Asia & Other
Financial bond
Government bond
44.1%
North America
49.3%
51.5%
21.9%
23.5%
Mar-13
Mar-14
43.4%
11.0%
8.4%
Mar-13
Mar-14
24
Fubon Life: Overseas fixed income
portfolio
Hedging cost
bps
Hedging structure
56bps
48bps
-24
1Q13
-14
Other
currencies
4.2%
Unhedge
3.3%
21
FX gain/loss
1Q14
Equities/
mutual
funds
13.1%
CS cost
-77
60~65bps
in May
Recurring return before hedge
Fully hedge
79.3%
Deployment in overseas fixed income
Net incremental position in overseas fixed income (left)
US$bn
Average 30-year US treausry(right)
4.0
3.75%
3.5
3.0
3.34%
3.68%
3.6%
2.5
2.0
1.5
3.17%
3.8%
1.0
0.5
3.4%
3.7
3.2%
3.14%
1.4
1.7
2.8%
0.0
Mar-13
Mar-14
3.0%
1H13
2H13
1Q14
25
Fubon Life: Investment spread continue to
improve
Continuous positive investment spread
COL improvement on back of decent capital position to support business growth
Investment spread
Cost of liabilities
4.25%
4.06%
Mar-13
Investment return
4.38%
4.04% 4.23%
Jun-13
4.01%
Sep-13
4.41%
3.98% 4.05%
Dec-13
3.95%
Mar-14
26
Fubon Life: Track record in investment
Unrealized gains under shareholder equity
NT$bn
64.4
55.7
42.8
Recovery in unrealized gains
support the growth of book
value in Fubon Life
38.1
29.2
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Net worth of Fubon Life
NT$bn
171.3
160.1
Mar-13
142.3
136.1
Jun-13
Sep-13
147.8
Dec-13
Mar-14
27
Agenda
Performance highlights of Fubon Financial Holdings
Performance review by subsidiary
• Taipei Fubon Bank
• Fubon Life
• Fubon Insurance
• Fubon Securities
• Fubon Bank (China)
2013 Embedded Value of Fubon Life
28
Fubon Insurance: Operating snapshot
Top 1 market position with 21% market share
Underwriting performance remains outstanding
Net combined ratio
Direct written premium by product
Auto
NT$bn
Fire
Marine
6.7
0.6
0.9
0.3
0.5
1.0
Engineering
Health/Injury
Others
Net Claim ratio
Net Expense ratio
6.9
0.7
84.5%
86.3%
1.0
0.2
0.4
33.3%
33.7%
1.1
3.3
3.5
51.2%
52.6%
1Q13
1Q14
1Q13
1Q14
Note: Standalone basis
Note: Exclusive of auto compulsory line given those claims are reimbursed.
29
Agenda
Performance highlights of Fubon Financial Holdings
Performance review by subsidiary
• Taipei Fubon Bank
• Fubon Life
• Fubon Insurance
• Fubon Securities
• First Sino Bank
2013 Embedded Value of Fubon Life
30
Fubon Securities: Earnings growth
Net profits
NT$m
Revenue mix in 1Q14
550
Net financial
products
gains, -3%
242
1Q13
Brokerage
commissions,
46%
1Q14
Market share & Market turnover
Brokerage market share
Other
income, 10%
Net principal
transactions,
31%
Market turnover (NT$bn)
132.7
95.6
5.58%
6.06%
Mar-13
Mar-14
Fee income,
3%
Net interest
income, 13%
31
Agenda
Performance highlights of Fubon Financial Holdings
Performance review by subsidiary
• Taipei Fubon Bank
• Fubon Life
• Fubon Insurance
• Fubon Securities
• Fubon Bank (China)
2013 Embedded Value of Fubon Life
32
Fubon Bank (China): Key balance sheet
items
Loans
Deposits
RMB$m
31,799
31,031
44,070
40,225
2013
Mar-14
2013
Assets
49,401
Mar-14
Net worth
4,178
50,513
3,062
2013
Mar-14
2013
Mar-14
33
Fubon Bank (China): Financial highlight
Net Profits
Loan to deposit spread
RMB$m
277
3.73%
2.97%
99
2013
1Q14
ROAA & ROAE
ROAA
2013
NPL ratio & Coverage ratio
ROAE
NPL ratio
10.92%
201.2%
0.79%
0.59%
Note: ROAA and ROAE are annualized basis
Coverage ratio
290.5%
9.39%
2013
1Q14
1.24%
0.86%
1Q14
2013
Mar-14
34
Agenda
Performance highlights of Fubon Financial Holdings
Performance review by subsidiary
• Taipei Fubon Bank
• Fubon Life
• Fubon Insurance
• Fubon Securities
• Fubon Bank (China)
2013 Embedded Value of Fubon Life
35
Value Creation Summary
NT$bn
Items
Inforce
Value Creation
New Sales
Value Creation
Appraisal Value
(20 year NB)
Value per FHC
share
2012
2013
YoY
Diff
Impact
Net Worth (Book Value)
165.6
147.8
-10.8%
-17.9
Adjusted Net Worth
101.1
133.8
32.4%
32.7
VIF (before CoC)
175.1
229.9
31.3%
54.8
Cost of Capital (CoC)
(58.4)
(68.0)
-16.5%
-9.6
VIF (After CoC)
Embedded Value
116.8
217.9
161.9
295.7
38.7%
35.7%
45.1
77.9
FYP
249.7
212.9
-14.8%
-36.9
FYPE
68.6
54.2
-21.1%
-14.5
APE
VNB
71.7
31.7
54.5
31.8
-24.0%
0.3%
-17.2
0.1
VNB margin (VNB/FYP)
12.7%
15.0%
17.7%
2.2%
VNB margin (VNB/FYPE)
46.2%
58.8%
27.1%
12.5%
VNB margin (VNB/APE)
44.2%
58.4%
32.0%
14.2%
Multiplier
Appraisal Value
8.84
498.4
8.84
577.2
0.0%
15.8%
0.0
78.7
Outstanding shares (FHC)
9.5
10.2
7.3%
0.7
Embedded Value
Appraisal Value
22.8
52.3
28.9
56.4
26.5%
7.9%
6.0
4.1
36
Movement Analysis:
Adjusted Net Worth
NT$bn
1.3
160.0
19.2
165.6
(0.2)
1.5
147.8
(38.5)
110.0
(15.2)
133.8
60.0
10.0
- 40.0
Statutory Net
Worth@Dec.
31, 2012
% of change
IFRS adj
+ 0.8%
Un-realized
capital gain
-23.3%
Adjust.%
Figures may not add up due to rounding
Earning
+ 11.6%
Statutory Net
Special
Adjust Market
Worth@Dec.
Reserve
Value of
31, 2013
(FX and RE (AFS) Fixed
Appraisal) Income Asset
to Book
Value
Goodwill
Adjusted Net
Worth@Dec.
31, 2013
-10.8%
+ 1.0%
-10.3%
-0.1%
-9.4%
37
Movement Analysis:
Value of In-Force (before CoC)
NT$bn
36.0
2 3 0 0.
21.4
3.5
9.0
1.7
Required
return on
existing
business
Model & Data
Change
Eco.
Assumption
Change
Non-eco.
Assumption
Change
229.9
1 8 0 0.
175.1
(16.9)
2012 VIF
(before CoC)
Existing
business transfer to net
worth
1 3 0 0.
8 0 0.
3 0 0.
- 2 0 0.
% of change
-9.6%
+ 12.2%
+ 2.0%
+ 5.1%
+ 1.0%
2013
VNB(before
CoC)
2013
VIF(before
CoC)
+ 20.6%
+ 31.3%
Note:
1. The equivalent return of EV2012 reporting for in-force is 4.45% and increases to 4.51%
considering rolling over effect.
2. The equivalent return of EV2013 reporting for in-force is 4.57%.
3. 2013 VNB (after CoC) is 31.8 billion
• 2013 RDR: 10.5% for VNB and 11% for VIF to reflect higher risk of legacy block in in-force portfolio and shareholders
require higher rate of return
38
Movement Analysis:
Value of New Business
NT$bn
40.0
38.0
36.0
4.0
34.0
1.2
32.0
2.5
30.0
28.0
26.0
24.0
31.7
31.8
(7.6)
22.0
20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
- 2.0
2012 VNB
Sales Volume
Product Mix
Econ. Change
Non-Econ. Change
2013 VNB
- 4.0
- 6.0
- 8.0
% of change
VNB/APE
44.2%
-24.0%
+ 7.9%
+ 12.6%
+ 3.8%
+ 0.3%
0.0%
+ 4.6%
+ 7.3%
+ 2.2%
58.4%
Note:
1. The equivalent return of EV2012 reporting for NB is 4.41% and changes to 4.23%
considering rolling over effect and reflecting 2013 sales portfolio.
2. The equivalent return of EV2013 reporting for NB is 4.50%.
• 2013 Risk Discount Rate: 10.5% for VNB
39
Economic Assumption
Year 2012
Investment return
VIF
VIF
NTD Traditional Policies:
NTD Traditional Policies :
Year 2013 to Year 2051 at 3.88%~5.32%(2052+)
Year 2014 to Year 2051 at 3.94%~5.32%(2052+)
USD Policies :
USD Policies :
Year 2013 to Year 2017 at 5.16%~5.18%(2018+)
Year 2014 to Year 2036 at 5.16%~5.94%(2037+)
V1NB
V1NB
NTD Traditional Policies :
NTD Traditional Policies :
Year 2013 to Year 2051 at 3.39%~5.32%(2052+)
Year 2014 to Year 2048 at 3.74%~5.32%(2049+)
USD Policies :
USD Policies :
Year 2013 to Year 2020 at 4.83%~5.18%(2021+)
Year 2014 to Year 2032 at 5.14%~5.94%(2033+)
ISA
ISA
Average retained spread for the Interest sensitive
business is around 100bps.
Average retained spread for the Interest sensitive
business is around 100bps.
Risk Discount Rate
Equivalent Return
Year 2013
11% for VIF; 10.5% for V1NB
VIF :
4.45% (rolling over to 2013: 4.51%)
11% for VIF; 10.5% for V1NB
VIF:
4.57%
V1NB: 4.41% (rolling over to 2013: 4.23%)
V1NB: 4.50 %
YC (10 year)
TWD: 1.29% / 3.50%
TWD: 1.72% / 3.50%
Initial / ultimate
USD : 1.84% / 5.25%
USD : 3.09% / 5.25%
Note:
•
The FX reserve mechanism stipulated from 2012, its respective cost is reflected in the derivation of
portfolio return.
40
Economic Assumption:
VIF Portfolio Return
41
Economic Assumption:
V1NB Portfolio Return
42
Economic Assumption:
Discount Rate
Fubon Life
Risk Free Rate
Equity plus Country Risk Premium
Beta
Calculated RDR
RDR used in the valuation
2012/12/31
2013/12/31
1.29%~3.5%
1.72%~3.5%
7.00%
6.50%
1.2
1.2
9.7%~11.9%
9.5%~11.3%
VIF:11%
VIF:11%
VNB:10.5%
VNB:10.5%
• RDR: According to CAPM (Capital Asset Pricing Model);
RDR = Risk Free Rate + Beta * Equity and Country Premium.
RDR used for 2013 VIF calculation is 11% and 10.5% for 2013 V1NB calculation.
43
Cost of Capital
Cost of Capital projection
Project future cost of capital is based on future capital
requirement maintaining regulatory minimum RBC level of
200% considering following factors:
1)
2)
3)
K factor：0.50 from 2013 in line with current RBC regulation；
Add 10% C3 risk capital of previous year for all traditional products
every year (excludes investment-linked product)；
Reflect current business operation and future strategy.
Risk-based capital (RBC) regulation changes & adjustments in
2013:
1)
2)
3)
Modification of concentration risk calculation basis by dividing total
overseas investment into six subgroups.
Re-classification of C1s by including equity-type funds
Revision of extension period calculation basis of naked real estate
for risk capital calculation.
44
Sensitivity Summary:
Portfolio Return
NT$bn
VIF (before CoC)
-17.5%
VIF
17.5%
-26.6%
26.6%
229.9
161.9
40.2
(40.2)
Return - 0.25%
Base
Return + 0.25%
Return - 0.25%
EV
-14.6%
43.1
(43.1)
Base
Return + 0.25%
VNB
14.6%
-13.6%
13.6%
295.7
43.1
31.8
(43.1)
4.3
(4.3)
Return - 0.25%
Base
Note: ANW will not be affected by portfolio return
Return + 0.25%
Return - 0.25%
Base
Return + 0.25%
45
Sensitivity Summary:
Risk Discount Rate
NT$bn
VIF (before CoC)
8.2%
VIF
-6.9%
14.3%
-12.0%
229.9
161.9
18.8
RDR - 1%
(15.8)
Base
RDR + 1%
23.1
(19.4)
RDR - 1%
EV
7.8%
Base
RDR + 1%
VNB
-6.6%
13.9%
-11.8%
295.7
31.8
23.1
RDR - 1%
(19.4)
Base
Note: ANW will not be affected by RDR
RDR + 1%
4.4
RDR - 1%
Base
(3.8)
RDR + 1%
46
2013 Summary:
Track record of Fubon Life’s Value Creation
NT$bn
Value of New Business
VNB as % of FYP
CAGR: 16% (2.1x)
CAGR: 22% (2.7x)
31.7
31.8
28.0
15.0%
12.6%
12.7%
EV2011
EV2012
24.8
8.7%
17.9
7.2%
8.0%
11.8
EV2008
EV2009
EV2010
EV2011
EV2012
EV2013
EV2008
EV2009
Value of In-force
EV2010
EV2013
Embedded Value
161.9
295.7
CAGR: 31% (3.8x)
CAGR: 33% (4.2x)
116.8
217.9
88.7
155.5
73.6
176.0
128.8
52.5
77.7
38.5
EV2008
EV2009
EV2010
EV2011
EV2012
EV2013
EV2008
EV2009
EV2010
EV2011
EV2012
EV2013
47
Investment Return:
Assumption vs. Actual
Assumption
Actual
4.01
3.68
3.78
EV2009
3.87
3.80
EV2010
3.88
EV2011
3.97
4.05
EV2012
4.06
EV2013
48
Independent Review by Deloitte
Actuarial
Deloitte Actuarial
The Engagement
• Deloitte Actuarial and Insurance Solutions (Hong Kong) Limited (“Deloitte Actuarial”) were retained by Fubon
Life to perform an independent review of the Embedded Value (EV) as at 31 December 2013 and the Value
of One Year’s New Business (V1NB) written over the period of 1 January 2013 to 31 December 2013.
Scope of Deloitte Actuarial’s Involvement
• Review and opine on the reasonableness of the EV and V1NB as calculated by the Company;
• Review of the reasonableness of the assumptions used in the calculations, taking into consideration both the
Company’s recent experience and the experience of the Taiwanese life insurance market;
• Review, at a high-level, model changes to the actuarial projection model since the previous valuation date;
• Review of the Company’s projection approach of the Cost of Capital;
• Review of the data put through the model compared to the policy data on the Company’s policy
administration systems to judge the extent to which the business has been valued in the financial model and
to identify the portion (if any) omitted and how that was valued;
• Review of the approach used to determine the Adjusted Net Worth (“ANW”), in particular, the adjustments
made in deriving the ANW, and any other adjustments made outside of the actuarial projection model;
• Review of the Company's analysis of change in the Value of In-Force Business (“VIF”) between 31 December
2012 and 31 December 2013.
49
Risk Adjusted Discount Rates
Fubon Life calculated the EV and V1NB at Risk Adjusted Discount Rates (“RDR”) of 11.0%
and 10.5% respectively.
RFR based on
current government
bond yield
RFR based on
Company’s longterm view
Equivalent RFR for
New Business
Equivalent RFR for
In-Force Business
Risk Free Rate (“RFR”)
1.72%
3.50%
2.66%
2.78%
Equity and Country Risk Premium
6.50%
6.50%
6.50%
6.50%
1.20
1.20
1.20
1.20
9.52%
11.30%
10.46%
10.58%
Beta
Calculated Risk Discount Rate
Risk Discount Rate used in the
Valuation for VIF
Risk Discount Rate used in the
Valuation for V1NB
11.00%
10.50%
Reference – RDR based on Capital Asset Pricing Model (CAPM):
RDR = RFR + Beta * Equity and Country Risk Premium
50
Comments on the Risk Adjusted
Discount Rates
Deloitte Actuarial
Deloitte Actuarial independently derived a range of RDRs using the CAPM approach:
The low end of the RDR is developed based on the current yield on 10-year Taiwan government bonds.
The high end of the RDR is developed based on the Company’s view of the 10-year Taiwan government
bond in the future.
The equivalent RFR is the RFR equivalent to using a set of graded-up RFR from 1.72% to 3.50% that
derives the same VIF and V1NB.
The Equity and Country Risk Premium was developed based on the Country Default Spreads and Risk
Premiums research published by New York University.
The Beta of 1.2 was set using a risk profiling approach which considers risks related to the product range,
distribution diversification/vulnerability, regulatory intervention and investments. Note that this beta value
is consistent with that used in previous valuations.
The RDR assumption applied by Fubon Life in the valuation lies within the range of RDR that we derived.
In particular, we feel comfortable with different RDRs being used for the valuation of the in-force and new
business, given the specific market conditions in Taiwan: it is well-known that the legacy business has a
much riskier profile than the current new business, and hence it is reasonable for shareholders to be
expecting a higher rate of return for the higher risk level. We feel that Fubon Life has taken a good
approach in splitting up the RDR assumption for the two distinctively different blocks of business.
51
Comments on Investment Return (1)
Deloitte Actuarial
A set of rising investment return assumption has been used in this valuation which is
considered reasonable for the present market conditions.
Fubon Life’s derivation of the investment return assumption is featured by the following:
• Derivation methodology is consistent with that applied in previous valuations;
• The methodology involves:
For VIF, the investment return assumption was derived from a combination of the investment
return generated by the run-off of the existing asset portfolio and of that from future purchases
of new assets;
For V1NB, the new business is not supported by returns on existing assets and the
investment return was derived from future purchases of new assets;
• New assets are purchased at the prevailing new money rates, which are set to equal to the expected
future risk free rates plus a risk margin for each asset type;
• Future risk free rates are set starting off with the actual yield curves as at the valuation date and are
assumed to rise to a long-term level over a 10-year period. For New Taiwan Dollar and US Dollar
respectively, the initial risk free rates are 1.72% and 3.09% and a long-term risk free rate of 3.50%
and 5.25% is assumed.
• Different assumptions were derived for different types of business, which were assumed to have a
different long-term asset allocation.
• For some business lines, the investment return assumption derived in the above-mentioned manner
was capped at a certain level for conservative reasons.
52
Comments on Investment Return (2)
Deloitte Actuarial
It is in Deloitte Actuarial’s view that:
Methodology
• Fubon Life’s derivation methodology for the investment return assumption is reasonable and
consistent with the way that the ANW is calculated;
Economic Assumptions
• The expected long-term risk-free rate for New Taiwan Dollar yield and US Dollar yield are
maintained at 3.5% and 5.25% respectively.
• We note that taking a view on the future capital market is not uncommon under the traditional
Embedded Value methodology. On a macro-economic level the arguments put forward for
rising interest rates are plausible, and we note that the expected future rise in yields is spread
out over a reasonably long period of 10 years.
• Readers should be aware that capital market conditions are subject to the impact of many
forces. Yields and prices of financial instruments can move dramatically in a short period of
time. As a result, it is difficult to predict the interest rate level in the future with great certainty.
Readers should refer to the sensitivity tests to develop a broader understanding of the impact of
the investment return assumption on the assessment of the economic value of Fubon Life.
• Overall, the economic assumptions appear to be reasonable.
53
Comments on EV and V1NB Results
Deloitte Actuarial
Deloitte Actuarial have reviewed the Embedded Value and Value of One
Year’s New Business results at a high-level under the generally accepted
method for calculating traditional embedded values in Taiwan:
•Review of the changes in the VIF relative to the assumption changes and model
changes from 2012 to 2013;
•Review of the changes in the new business profit margin relative to that in 2012 based
on information on changes in sales mix, sales volume and valuation assumptions;
•Review of the sensitivities relative to the base case results.
The Embedded Value and Value of One Year’s New Business results
appear to be reasonable within the above context.
Deloitte Actuarial’s detailed opinion can be found in their opinion letter.
54
Comments on Non-Economic
Assumptions
Deloitte Actuarial
Non-Economic Assumptions
• The non-economic assumptions reflect Fubon Life’s best estimate of future operating
experience, and are appropriately supported by the company’s historical operating experience.
55
Thank you
Fubon Financial - Financial summary
NT$ millions, except for percentages
2012
2013
Income Statement Data
Net interest income
Insurance income
Net gains (losses) on FX and financial assets
Others
Net revenue
Bad debt expense and reserve for guarantee
Net change in insurance reserve
Operating expense
Income before tax
Net income
Net income to parent company
65,891
281,320
26,293
(4,471)
369,033
(512)
(292,919)
(43,129)
33,497
29,149
29,149
73,264
266,318
37,776
(3,237)
374,121
4,083
(288,362)
(43,443)
38,233
32,659
32,709
Balance Sheet Data
Total assets
Equity attributable to parent company
Outstanding shares (million shares)
Key Metrics
Return on average assets
Return on average equity
Equity / assets
Double leverage
Capital adequacy ratio
Cash dividend per share
4,105,866
306,429
9,527
0.75%
10.71%
7.46%
108.87%
143.51%
1.00
4,570,547
316,458
10,234
0.75%
10.50%
6.93%
108.84%
144.20%
1.00
YoY
11.2%
-5.3%
43.7%
-27.6%
1.4%
N.M
-1.6%
0.7%
14.1%
12.0%
12.2%
11.3%
3.3%
7.4%
1Q13
17,325
59,369
10,289
(884)
86,099
(190)
(63,848)
(10,143)
12,297
10,146
10,146
4,236,602
305,475
9,535
0.97%
13.27%
7.21%
111.18%
2Q13
17,382
66,009
10,628
(984)
93,035
116
(72,192)
(10,351)
10,377
7,753
7,753
4,318,841
283,046
9,535
0.74%
10.52%
6.55%
115.43%
130.08%
3Q13
18,808
71,720
12,302
(1,129)
101,702
3,890
(77,583)
(10,526)
9,703
8,965
8,980
4,416,672
301,708
10,234
0.84%
11.81%
6.84%
106.28%
4Q13
19,749
69,220
4,557
(240)
93,285
267
(74,739)
(12,423)
5,856
5,795
5,830
4,570,547
316,458
10,234
0.53%
7.49%
6.93%
108.84%
144.20%
1Q14
21,794
61,087
13,949
553
97,382
(13)
(69,112)
(11,447)
16,836
13,935
13,866
5,014,513
348,073
10,234
1.16%
16.69%
7.09%
111.47%
Taipei Fubon Bank - Financial summary
NT$ millions, except for percentages
Income statement data
Interest income
Interest expense
Net interest income
Net fee income
Other income
Total revenue
Operating expenses
Pre-provision profits
Provision for credit losses
Income before tax
Net income
Net income to parent company
Balance sheet data
Loans and discounts
Deposits and remittances
Allowance for loan losses
Total assets
Equity attributable to parent company
Key metrics
Return on average assets
Return on average equity
Equity / assets
Cost / income ratio
NPL ratio
Reserve / NPL
Tier 1 ratio
BIS ratio
2012
2013
YoY
1Q13
2Q13
3Q13
4Q13
1Q14
26,299
(11,669)
14,630
8,275
6,336
29,242
(14,743)
14,498
542
15,040
12,973
12,973
27,680
(11,904)
15,775
8,445
9,409
33,629
(15,582)
18,047
(3,857)
14,190
11,020
11,020
5.2%
2.0%
7.8%
2.1%
48.5%
15.0%
5.7%
24.5%
N.M
-5.7%
-15.1%
-15.1%
6,518
(2,827)
3,692
2,122
2,013
7,827
(3,722)
4,105
206
4,312
3,766
3,766
6,743
(2,928)
3,815
2,069
3,480
9,364
(3,796)
5,568
(49)
5,519
4,817
4,817
7,085
(2,986)
4,100
2,078
2,381
8,558
(3,781)
4,777
(3,797)
980
591
591
7,333
(3,165)
4,168
2,176
1,535
7,879
(4,282)
3,597
(218)
3,379
1,846
1,846
10,849
(5,410)
5,439
2,635
3,319
11,393
(4,481)
6,912
75
6,987
6,064
5,858
1,026,536
1,247,741
8,924
1,604,943
106,433
1,102,747
1,351,974
13,218
1,765,759
133,235
7.4%
8.4%
48.1%
10.0%
25.2%
1,060,085
1,265,432
9,031
1,656,095
117,248
1,066,644
1,305,225
9,495
1,683,708
122,242
1,108,193
1,319,313
13,385
1,710,266
121,816
1,102,747
1,351,974
13,218
1,765,759
133,235
1,287,727
1,580,359
13,219
2,077,310
159,077
0.83%
13.03%
6.63%
-50.42%
0.12%
695.98%
9.90%
13.91%
0.72%
10.10%
7.55%
-46.33%
0.12%
973.96%
10.38%
13.45%
0.92%
13.47%
7.08%
-47.55%
0.12%
691.12%
1.17%
16.85%
7.26%
-40.54%
0.11%
790.20%
9.98%
13.10%
0.14%
2.07%
7.12%
-44.18%
0.11%
1068.22%
0.70%
9.78%
7.55%
-54.35%
0.12%
973.96%
10.38%
13.45%
1.26%
17.06%
7.66%
-39.33%
0.09%
1211.06%
Fubon Securities - Financial summary
NT$ millions, except for percentages
2012
2013
YoY
1Q13
2Q13
3Q13
4Q13
1Q14
Income statement data
Brokerage commissions
Net interest income
Fee income
Net principal transactions
Net financial products gains
Other income
Total operating revenue
Total operating expense
Net non-operating income / (expenses)
Income before tax
Net income
Net income to parent company
2,680
881
390
211
376
1,037
5,575
(4,973)
590
1,178
1,073
1,073
2,537
827
271
806
66
1,116
5,624
(4,774)
569
1,414
1,349
1,349
-5.3%
-6.1%
-30.5%
282.2%
-82.4%
7.6%
0.9%
-4.0%
-3.6%
20.0%
25.7%
25.7%
571
190
61
212
50
171
1,254
(1,135)
140
259
242
242
635
214
52
70
89
177
1,237
(1,196)
125
165
134
134
643
209
74
217
15
588
1,745
(1,157)
157
741
754
754
689
214
84
308
-88
181
1,388
(1,285)
147
249
219
219
759
223
50
522
-57
168
1,665
(1,196)
128
597
550
550
Balance sheet data
Margin loans
Total assets
Equity attributable to parent company
12,739
55,442
29,678
14,581
57,347
30,088
14.5%
3.4%
1.4%
13,150
51,162
29,817
13,754
53,174
29,964
13,664
56,333
30,089
14,581
57,347
30,088
15,718
57,704
30,602
Key metrics
Return on average assets
Return on average equity
Equity / assets
Expenses / revenues
Margin loans / total assets
Margin loans / shareholders' equity
1.91%
3.46%
53.5%
-89.2%
23.0%
42.9%
2.39%
4.51%
52.5%
-84.9%
25.4%
48.5%
1.82%
3.25%
58.3%
-90.5%
25.7%
44.1%
0.99%
1.80%
56.4%
-96.7%
25.9%
45.9%
5.40%
10.09%
53.4%
-66.3%
24.3%
45.4%
1.55%
2.93%
52.5%
-92.6%
25.4%
48.5%
3.82%
7.25%
53.03%
-71.83%
27.24%
51.36%
Fubon Bank (China) - Financial Summary
RMB millions, except for percentages
2012
2013
YoY
1Q14
Income Statement Data
Interest income
Interest expense
Net interest income
Net fee income
Other income
Operating expenses
Pre-provision profits
Provision for credit losses
Income before tax
Net income
2,126
(1,395)
731
260
(50)
(306)
635
(143)
491
388
2,243
(1,361)
882
157
(40)
(322)
677
(337)
341
277
5.5%
-2.5%
20.7%
-39.7%
-21.3%
5.3%
6.7%
135.1%
-30.7%
-28.7%
Balance Sheet Data
Loans
Deposits
Total assets
Total equity
27,386
40,932
44,702
2,838
31,031
44,070
49,401
3,062
13.3%
7.7%
10.5%
7.9%
0.91%
14.66%
6.35%
29.43%
0.28%
563.40%
70.68%
12.48%
12.48%
0.59%
9.39%
6.20%
28.99%
0.86%
290.53%
71.07%
11.02%
12.16%
Key metrics
Return on average assets
Return on average equity
Equity / assets
Cost / income ratio
NPL ratio
Reserve / NPL
Loan to deposit ratio
Tier 1 ratio
BIS ratio
606
(433)
173
17
25
(72)
143
(19)
124
99
31,799
40,225
50,513
4,178
0.79%
10.92%
8.27%
30.19%
1.24%
201.22%
73.58%
15.64%
16.78%
Fubon Life - Financial summary
NT$ millions, except for percentages
Income statement data
First year premium
Retained earned premium
Total investment income
Recurring investment income
Other investment income
Realized gains (losses) from fixed income
Realized gains (losses) from equity
FX and others
Other income
Total operating revenue
Retained claim payment
Net commission expense
Net change in insurance liability
General and administrative expense
Other expenses
Total operating costs and expenses
Net non-operating income / (expenses)
Income before tax
Net income
Net income to parent company
Balance sheet data
Total assets
Total assets (general account)
Insurance liabilities
Total liabilities
Total liabilities (general account)
Equity attributable to parent company
Key matrices
Return on average assets
Return on average equity
Equity / Assets
Claims and benefits ratio
Expense ratio
Persistency ratio - 13th month
Persistency ratio - 25th month
2012
249,507
392,307
68,641
62,669
5,972
7,886
4,468
(6,382)
2,343
463,291
115,187
24,121
295,058
13,304
1,960
449,630
328
13,989
12,895
12,895
2,158,813
2,011,132
1,695,726
1,991,904
1,844,223
166,909
0.65%
9.65%
7.73%
29.36%
3.39%
95.80%
87.28%
2013
212,818
386,587
80,238
74,417
5,821
7,984
3,775
(5,938)
2,868
469,693
126,814
21,744
288,276
12,222
897
449,951
476
20,218
19,150
19,150
2,412,115
2,270,357
1,986,309
2,264,326
2,122,568
147,789
0.84%
12.17%
6.13%
32.80%
3.16%
94.40%
91.17%
yoy
1Q13
-15%
-1%
17%
19%
-3%
1%
-16%
-7%
22%
1%
10%
-10%
-2%
-8%
-54%
0%
45%
45%
49%
49%
12%
13%
17%
14%
15%
-11%
35,049
79,872
19,845
14,750
5,094
2,297
3,333
(536)
896
100,613
22,162
5,192
63,596
2,767
207
93,924
81
6,769
5,427
5,427
2,214,569
2,063,483
1,764,847
2,054,429
1,903,343
160,140
0.99%
13.27%
7.23%
27.75%
3.46%
93.30%
89.56%
2Q13
54,101
92,214
20,110
16,326
3,784
5,241
341
(1,797)
773
113,097
27,978
5,285
72,699
3,003
231
109,196
63
3,963
3,719
3,719
2,262,762
2,124,028
1,835,722
2,120,479
1,981,745
142,283
0.67%
9.62%
6.29%
30.34%
3.26%
92.50%
90.57%
3Q13
53,635
102,796
23,525
25,647
(2,122)
241
(558)
(1,805)
676
126,997
33,138
5,456
77,628
3,200
220
119,642
184
7,540
7,456
7,456
2,318,323
2,176,200
1,910,582
2,182,187
2,040,064
136,135
1.33%
19.68%
5.87%
32.24%
3.11%
92.50%
91.38%
4Q13
70,033
111,705
16,759
17,694
(936)
205
659
(1,799)
523
128,986
43,535
5,811
74,352
3,252
239
127,189
148
1,945
2,548
2,548
2,412,115
2,270,357
1,986,309
2,264,326
2,122,568
147,789
0.45%
6.48%
6.13%
38.97%
2.91%
94.40%
91.17%
1Q14
56,140
103,469
24,231
18,171
6,060
1,635
5,739
(1,314)
547
128,247
44,552
5,355
67,741
3,054
226
120,928
72
7,390
5,794
5,794
2,524,659
2,380,576
2,059,626
2,353,394
2,209,311
171,265
0.94%
14.53%
6.78%
43.06%
2.95%
95.42%
88.18%
Fubon Insurance - Financial summary
NT$ millions, except for percentages
2012
2013
Income statement data
Direct written premiums
Retention of earned premiums
Net income from investment
Other operating revenue
Retained insurance payments
Net change in liability reserve
Commission and operating expenses
Non-Operating Income
Income before tax
Net income
Net income to parent company
27,559
19,556
2,310
916
10,886
(804)
9,242
(72)
3,386
2,864
3,056
29,448
22,152
2,299
877
11,517
731
9,975
(67)
3,038
2,495
2,827
Balance sheet data
Total assets
Investment assets
Policy reserve
Equity attributable to parent company
71,712
50,050
39,267
21,732
72,534
52,679
40,586
22,861
Summary ratios
Return on average assets
Return on average equity
Total investment return
Solvency margin (NWP/equity)
Retention ratio
4.06%
13.60%
4.71%
95.73%
72.49%
3.46%
12.68%
4.48%
101.17%
75.36%
yoy
1Q13
6.9%
13.3%
-0.5%
-4.2%
5.8%
-191.0%
7.9%
-7.0%
-10.3%
-12.9%
-7.5%
1.1%
5.3%
3.4%
5.2%
7,064
5,241
584
248
2,764
80
2,265
(23)
942
793
842
2Q13
8,377
5,436
421
217
2,784
92
2,570
(3)
624
523
635
3Q13
6,857
5,746
968
194
3,031
338
2,400
(25)
1,115
939
1,004
4Q13
7,150
5,729
326
218
2,938
222
2,740
(16)
357
240
347
1Q14
7,541
5,824
555
234
2,909
275
2,505
(29)
895
765
809
71,444
51,023
38,906
22,621
72,785
50,570
40,424
22,047
72,361
52,019
40,509
22,494
72,534
52,679
40,586
22,861
71,402
51,287
41,108
21,150
4.43%
15.19%
4.62%
98.92%
75.80%
2.90%
11.60%
3.99%
112.56%
71.26%
5.21%
18.16%
5.15%
97.61%
76.78%
1.33%
6.22%
4.48%
102.21%
78.37%
4.25%
14.71%
4.27%
114.39%
76.84%