2015 Third Quarter Briefing February 2016 Disclaimer This document is provided by Financial Holding Co., Ltd. (the "Company"). Except for the numbers and information included in the Company's financial statements, the information contained in this document has not been audited or reviewed by any accountant or independent expert. The Company makes no express or implied representations or warranties as to the fairness, accuracy, completeness, or correctness of such information or opinions. This document is provided as of the date herein and will not be updated to reflect any changes hereafter. The Company, its affiliates and their representatives do not accept any responsibility or liability for any damage caused by their negligence or any other reasons, nor do they accept responsibility or liability for any loss or damages arising from the use of this document or the information contained herein or anything related to this document. This document may contain forward-looking statements, including but not limited to all statements that address activities, events or developments that the Company expects or anticipates to take place in the future based on the projections of the Company toward the future, and various factors and uncertainness beyond the Company's control. Therefore, the actual results may differ materially from those contained in the forward-looking statements. This document is not and cannot be construed as an offer to purchase or sell securities or other financial products or solicitation of an offer. This document may not be directly or indirectly reproduced, redistributed or forwarded to any other person and may not be published in whole or in part for any purpose. 2
Agenda Introduction of FHC Business Overview Overseas Expansion Business Performance Summary United Bank Life Century s CSR Efforts M&A Key Highlights Life s EV & Assumptions Capital Adequacy 3 FHC: largest FHC, comprehensive products FHC Chairman: Mr. Hong-Tu Tsai President: Mr. Chang-Ken Lee 100% United Bank 100% Century 100% Life Asset Management 100% Securities 100% Venture Indovina Bank (50%) CUBC Bank (100%) Century (China) (49%)* Century (Vietnam) (100%) Life (China) (50%) Life (Vietnam) (100%) Securities Investment Trust (100%) Conning (100%) Conning Asset Management (100%) Futures (100%) CDBS-CAM (33%) One of the largest private banks in terms of total assets No. 2 credit card issuer The largest brokerage settlement bank 2 nd biggest nonlife insurer Market share in total premium income: 12.7% (). No. 1 life insurer in terms of total assets and total premium Market share in total premium: 22.2% (). * The capital injection from Ant Financial is subject to the regulatory approval Largest AUM among asset managers in Taiwan Qualified QFII to invest in China Pursue business opportunity from QDII of China Investment banking, brokerage, and prop trading businesses Strong underwriting and capital raising platform Diversified products and services 4
s earnings accelerates as life turnarounds EPS & ROE Profit contribution (NT$) (NT$ BN) CUB Life EPS ROE 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5-5.1% 1.0 1.3 6.8% 2.4 10.9% FY11 FY12 FY13 FY14 14.0% 3.9 12.1% 12.0% 10.0% Note: (1) FY13 figures do not reflect the impact from applying fair value method on investment property. (2) Since FHC has more subsidiaries other than Life and CUB, besides, due to affiliate transactions, the FHC net income might not equal to the sum of Life and CUB s. (3) EPS has been adjusted for stock dividend (stock split). 8.0% 6.0% 4.0% 2.0% 0.0% 31.9 15.4 0.2 2.5 11.4 13.3 14.6 17.8 FY11 FY12 FY13 FY14 FHC 11.3 16.2 29.0 49.8 Life 0.2 2.5 15.4 31.9 CUB 11.4 13.3 14.6 17.8 2% 101% CUB 16% 82% Life 53% 50% 64% 36% FY11 FY12 FY13 FY14 5 Market leader in Taiwan s FIG sector Largest listed financials group by market capitalization and assets. Ranking of total asset (US$bn) 239 187 157 Privately owned Government-run 128 105 102 93 79 75 49 Fubon Taiwan CTBC Mega Cooperative Shin Kong First Hua Nan Taishin Note: Total assets as of Sep.30, 2015 Ranking of market cap (US$bn) R 16.5 14.3 Privately owned Government-run 9.1 8.8 5.3 4.6 4.6 4.6 3.9 3.7 Fubon CTBC Mega First E.SUN Cooperative Hua Nan Yuanta CDF Note: Market capitalization as of Dec.31, 2015 6
Agenda Introduction of FHC Business Overview Overseas Expansion Business Performance Summary United Bank Life Century s CSR Efforts M&A Key Highlights Life s EV & Assumptions Capital Adequacy 7 Business overview United Bank Loan maintained stable with benign credit quality Fee income grew by 25% YoY, wealth management fee grew by 46% Continued to expand overseas footprints; Philippines Manila branch and Shanghai Jiading sub-branch have been opened in 4Q15 Life Regular-paid policies accounted for 97% of traditional life FYP, ranked No.1 by FYPE Overseas investment increased to 56%; hedging cost reduced to 0.53%; after-hedging investment yield reached 4.6% Century SITE Market share reached 12.7%, maintained No.2 market position Continue to reduce loss ratio; after-tax profit grew by 60% YoY Insurance(China) s strategic alliance with Ant Financial will increase its exposure to the growing internet finance market Ranked No.1 in terms of AUM, which amounted to NT$425BN Highly regarded by clients, rewarded by Asia Investors with Market Award - Taiwan in 2015 and by Asia Asset Management Journal with 2014 Best Institutional House and 2014 Best Domestic Equity Fund in 2014 Securities Delivered significant growth with net profits. after-tax profit and EPS both reached historical high Aggressively grew brokerage, sub-brokerage and IPO & SPO business Acquisition of Horizon Securities (HK) has been completed and now the company name is Securities (HK) 8
FHC Net income & EPS Net income (NT$BN) Adjusted EPS (NT$) 44.7 23% 54.9 3.53 4.33 Impact to net income from fair value method on investment property 49.8 (1) 31% 38.0 135% 16.2 29.0 Impact to EPS from fair value method on investment property (1) 3.94 3.12 1.34 2.38 FY12 FY13 FY14 FY12 FY13 FY14 Note: (1) FY13 figures reflected the impact from applying fair value method on investment property, starting 2014/1/1. The impact to FY13 net income and EPS of FHC was NT$9.0BN and NT$0.74, respectively. (2) EPS has been adjusted for stock dividend (stock split). 9 FHC Financial results of subsidiaries Net income of primary subsidiaries ROE (NT$BN) 37.4 19.1% 16.6% 29.3 15.2% 16.3% 14.7% 14.6% 13.7% 15.1% 13.8% 12.0% 15.2 16.6 0.5 0.7 0.3 0.3 0.3 0.4 CUB Life Century SITE Securities FHC CUB Life Century SITE FY13 FY14 (NT$BN) FY13 FY14 16.4% 31.9 13.4% 27.6 12.1% 12.3% 12.7% 10.8% 10.9% 10.5% 10.7% 17.8 14.8 6.4% CUB Life 0.3 0.7 0.3 0.3 0.2 0.4 Century SITE Securities FHC Note: FY13 ROE reflected the impact from applying fair value method on investment property, starting 2014/1/1. The impact to FY13 ROE of FHC, CUB and Life was -0.1%, -0.1% and 0.1% respectively. CUB Life Century SITE 10
FHC Book value & BVPS Book value (NT$BN) Impact to book value from fair value method on investment property 248.1 379.5 94.3 285.3 439.1 443.5 22.5 31.4 BVPS (NT$) Impact to BVPS from fair value method on investment property 7.9 23.5 34.5 34.8 FY12 FY13 FY14 FY12 FY13 FY14 Note: FY13 figures reflected the impact from applying fair value method on investment property 11 Agenda Introduction of FHC Business Overview Overseas Expansion Business Performance Summary United Bank Life Century s CSR Efforts M&A Key Highlights Life s EV & Assumptions Capital Adequacy 12
FHC in South East Asia China Vietnam Cambodia Hong Kong Singapore Malaysia Laos Philippines Thailand Myanmar Indonesia Bank 5* 37 16 1 1 1 1 1 1 1 1 Life 30 10 P&C 24 2 Asset Mgt 1 1 * Footprints in Thailand, Myanmar and Indonesia are representative offices. CUB obtained approval to set up a sub-branch in Jiading Dist. of Shanghai. Myanmar Thailand Vietnam Cambodia Philippines Malaysia United Bank Life Century Laos Singapore Indonesia United Bank - Vietnam: Business performed steadily with solid financial performance and superior asset quality - Cambodia: Owns most footprints among Taiwanese banks - Philippines: Manila branch has been opened in 4Q15 - Philippines: Invests 21.6% stake in RCBC - Indonesia: Invests 24.9% stake in Bank Mayapada Life - Life (Vietnam) has performed steadily and continuously expanded agent force Century - Continues to expand local channels and enhance growth momentum Note: Investments in RCBC and Bank Mayapada are funded by Life. 13 FHC in China Szechwan Life (China) United Bank Century (China) Securities Conning Asset Management CDBS Asset Management Company Beijing Liaoning - solvency ratio 373% Tianjin - Reported pre-tax profits of 135MN RMB in Shandong Century (China) Jiangsu - Strong premium income growth in up by 17% YoY Hubei Shanghai - Capital injection from Ant Financial is subject to Zhejiang regulatory approval Fujian Guangdong Hong Kong United Bank - Each business line has performed steadily in Shanghai branch. Jiading Dist. sub-branch has been opened in 4Q15 - Applying for Shenzhen branch Life (China) Securities - Acquisition of Horizon Securities (HK) has been completed JV with China Development Bank Securities (CDBS Asset Management) - Continued to launch new products, mainly focus on fixed income funds Conning - Acquisition of 100% Conning stake has been completed 14
Agenda Introduction of FHC Business Overview Overseas Expansion Business Performance Summary United Bank Life Century s CSR Efforts M&A Key Highlights Life s EV & Assumptions Capital Adequacy 15 United Bank Loan & deposit breakdown Loan breakdown Credit Card related (NT$BN) Consumer Mortgage Corporate 1% 1,125.3 1,141.9 15.3 14.3 1.4% 66.0 5.9% 84.0 1.3% 7.4% Deposit breakdown Demand Deposit Time Deposit 1,698.8 1,833.7 (NT$BN) 446.3 39.7% 472.9 41.4% 1,022.9 60.2% 1,102.0 60.1% 597.8 53.1% 570.6 50.0% 675.9 39.8% 731.7 39.9% Note: Totals may not sum due to rounding. 16
United Bank Interest yields Avg. rate of interest-earning assets Interest spread Net interest margin 2.15% 2.13% 2.10% 2.08% 2.06% 2.04% 2.03% 1.81% 1.95% 1.96% 1.61% 1.51% 1.07% 1.67% 1.70% 1.79% 1.79% 1.79% 1.81% 1.84% 1.84% 1.83% 1.84% 1.42% 1.39% 1.36% 1.33% 1.26% 1.26% 1.24% 1.23% 1.23% 1.17% FY10 FY11 FY12 FY13 1Q14 1H14 FY14 1Q15 1H15 Note: Credit card related loans are included in the calculation of interest spread. 17 United Bank Credit quality NPL & Coverage ratio NPL ratio Coverage ratio Gross provision Gross provision (NT$BN) Recovery 5.20% 520% 929% 2.4 9.29% 1.8 1.2 1.1 0.27% 0.16% Mortgage NPL 0.05% 0.05% 4.78% 478% 5.39% 539% 2.4 1.8 4.4 2.1 0.29% 0.29% FY13 FY14 FY13 FY14 Mortgage NPL 0.02% 0.04% 18
United Bank SME & FX loans SME loans Foreign currency loans (NT$BN) (NT$BN) 107.3 107.6 116.5 125.9 141.5 165.4 185.0 155.2 FY12 FY13 FY14 As % of total loans FY12 FY13 FY14 11.5% 10.5% 10.5% 11.2% 15.1% 16.1% 16.6% 13.8% Note: Total loans exclude credit card revolving balance. 19 United Bank Offshore earnings Offshore earnings As % of CUB pre-tax profits 7.3 (NT$BN) -12% 41.9% 6.4 34.6% 30% 6.9 36% 9.4 36.7% 42.4% 46.1% 84% 5.3 22.8% 2.9 FY11 FY12 FY13 FY14 FY11 FY12 FY13 FY14 20
United Bank Fee income Fee income breakdown (quarterly) Fee income breakdown (annual) Others (NT$BN) Syndicated loans FX Wealth management Cards related 10.2 1.0 1.0 0.3 4.7 25% 10.1% 9.4% 2.9% 46.4% 12.8 1.0 1.1 0.3 6.9 7.7% 8.2% 2.6% 54.0% Others (NT$BN) Syndicated loans FX Wealth management Cards related 25% 11.0 1.1 8.8 0.9 0.5 0.2 3.9 26% 13.9 1.3 1.1 0.4 0.9 0.3 6.7 5.2 3.2 31.4% 3.5 27.5% 3.2 3.5 4.4 Note: Totals may not sum due to rounding. FY12 FY13 FY14 21 United Bank Wealth management fee Wealth management fee breakdown (NT$MN) FY12 FY13 FY14 Wealth Management Fee Income 4,742 6,914 3,894 5,163 6,673 YoY growth (%) 28.7% 45.8% 17.7% 32.6% 29.2% FY12 FY13 FY14 3,862 1,7861,858 2,615 4,777 2,386 2,038 1,226 2,106 2,532 33 66 274 201 394 226 329 332 175 46 Mutual Funds Structured products & Securities Trust & Custody Insurance Mutual Funds Structured products & Securities Trust & Custody Insurance Note: (1) Wealth management fee excludes revenue from DCI, SI and others. (2) Totals may not sum due to rounding. 22
Agenda Introduction of FHC Business Overview Overseas Expansion Business Performance Summary United Bank Life Century s CSR Efforts M&A Key Highlights Life s EV & Assumptions Capital Adequacy 23 Life Total premium Total premium (quarterly) 0.2% 25.7% 3.2% 14.3% 463.5 0.9 119.1 15.0 66.1 3% 478.4 0.1 93.4 13.2 68.5 0.0% 19.5% Total premium (annual) Interest crediting annuity (NT$BN) Investment-linked (non-vul) Investment-linked (VUL) Health, accident and others Traditional life 16% 561.4 561.3 548.0 13.8 10.8 70.5 25.2% 141.5 90.8 26.0 23.3 4.3% 24.0 84.9 5.4% 30.3 87.5 13.1% 73.5 2.8% 14.3% 636.2 0.9 143.4 19.7 89.7 0.1% 22.5% 3.1% 14.1% 56.6% 262.5 303.3 63.4% 52.0% 292.1 366.1 335.6 382.5 60.1% FY10 FY12 FY13 FY14 Note: Totals may not sum due to rounding. 24
Life FYP & FYPE FYP Interest crediting annuity Investment-linked (non-vul) Investment-linked (VUL) Health, accident and others Traditional life single paid Traditional life regular paid (NT$BN) FYPE Interest crediting annuity (NT$BN) Investment-linked (non-vul) Investment-linked (VUL) Health, accident and others Traditional life 194.5 0.9 118.3-15% 0.4% 60.8% 165.8 0.0 92.5 0.0% 55.8% 57.9 0.1 12.8 0.3 7.1 24% 0.1% 22.0% 0.5% 12.3% 71.9 0.0 9.6 0.4 6.3 0.1% 13.4% 0.6% 8.8% 0.4 0.2% 0.2 7.1 3.7% 6.3 2.4 1.2% 2.3 65.4 33.6% 64.5 0.1% 3.8% 1.4% 38.9% 37.6 65.0% 55.5 77.2% Note: Totals may not sum due to rounding. 25 Life Regular paid policies remain as focus Breakdown of Traditional FYP Traditional life single paid Traditional life - 2 year regular paid Traditional life - 3 year and above regular paid 6.1% 3.6% 3.4% 4.3% 13.4% VNB Profit Margin VNB/FYP 23% 27% VNB/FYPE 79% 61% -4% 45.5 43.9 60.6% 42.8% 5.0% 34.4% 51.1% 83.0% 92.3% Profit Margin FY12 FY13 FY14 VNB/FYP 19% 26% 23% VNB/FYPE 54% 70% 75% 3% 4% 50.0 51.4 53.5 FY12 FY13 FY14 Note: Totals may not sum due to rounding. FY12 FY13 FY14 Note FY14 and VNB is based on Life s 2014 EV actuarial assumptions. 26
Life Cost of liability Cost of liability (quarterly) Cost of Liability (annual) 5.40% 4.63% 5.07% 4.54% 4.51% 4.47% 4.43% 4.41% 4.38% 4.83% 4.78% 4.63% 4.54% 4.43% 4.34% FY12 FY13 1H14 FY14 1Q15 1H15 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Note: The figures of cost of liability are reserve-based. 27 Life Investment portfolio (NT$BN) 4Q12 4Q13 4Q14 Total investments (1) 3,283.7 3,785.1 4,169.1 4,575.4 Weight Weight Weight Amount Weight Amount Cash & Cash equivalents 8.2% 3.7% 3.2% 131.6 1.9% 86.3 Equity- Domestic 8.1% 8.9% 8.4% 350.9 7.7% 352.4 Equity- International 4.3% 4.9% 5.0% 209.4 5.6% 256.3 Bond- Domestic 16.6% 14.4% 11.0% 459.2 8.6% 394.0 Bond- International (1) 39.6% 38.9% 43.6% 1,816.7 49.0% 2,240.3 Mortgage & Secured loans 10.3% 12.2% 12.7% 529.6 10.7% 488.5 Policy loans 5.5% 4.7% 4.0% 166.4 3.7% 168.4 Real estate (2) 5.6% 10.6% 10.5% 439.4 10.7% 489.1 Others 1.8% 1.7% 1.6% 65.9 2.2% 100.0 Note: (1) Total assets excluded separate account assets; international bond includes foreign currency deposit and related adjustments (2) Real estate included 2013/1/1 IFRS adoption appraisal gain NT$71.3BN from investment property and the impact of NT$133.1BN from the change to fair value method on investment property on 2014/1/1. FY2014 appraisal gain from subsequent measurement of investment property is NT$16.6BN. 28
Life Investment performance highlight After-hedging investment yield After-hedging investment yield (annual) 4.5% 4.6% 3.9% 4.4%* 4.3% 3.3% 4.1% FY11 FY12 FY13 FY14 Note: FY13 (4.4% ) was pro forma adjusted number of fair value method on investment property. 29 Life Investment performance highlight Pre-hedging recurring yield (1) Pre-hedging recurring yield 3.3% 3.4% 3.6% 3.6% 3.4% 3.2% 3.3% (2) FY11 FY12 FY13 FY14 Currency Hedging Structure FX policy 30% Proxy & Open Note: (1) Pre-hedging recurring income doesn t include capital gains but rental, interest revenue and cash dividend. Most dividend will be recognized in 2Q & 3Q. (2) FY13 (3.3%) was pro forma adjusted number of fair value method on investment property. FX risk Exposure 70% FX Asset NT$ 2.57 TR AFS Currency Swap & NDF Hedging Cost 0.53% 30
Life Cash dividend & Overseas fixed income by region Cash dividend Overseas Fixed Income by Region* (NT$BN) Others Asia Pacific Europe North America 18.8 15% 13% 11% 10% 12.1 13.7 15.2 16% 18% 24% 25% 25% 24% 20% 18% 44% 45% 44% 46% FY12 FY13 FY14 FY12 FY13 FY14 Note: Exclude overseas deposit and equity. 31 Life Book value & Unrealized G/L of AFS financial assets Book value (NT$BN) Impact to book value from fair value method on investment property 328.4 332.6 271.3 124.0 Unrealized G/L of AFS financial assets 40.3 (NT$BN) 138.2 147.3 23.9 18.2 3.4 FY12 FY13 FY14 FY12 FY13 FY14 10M15 (Unaudited) Note: FY13 figures reflected the impact from applying fair value method on investment property -20.9 32
Life Distribution channel FYP FYPE Others Bancassurance-CUB Tied agents 1.6% 2.0% 12.8% 22.5% 2.5% 2.4% 15.1% 19.2% 85.6% 75.5% 82.4% 78.4% 33 Life Operational indicators Persistency ratio Expense ratio 97.9% 97.4% 94.9% 94.9% 10.3% 10.3% 13 months 25 months 34
Agenda Introduction of FHC Business Overview Overseas Expansion Business Performance Summary United Bank Life Century s CSR Efforts M&A Key Highlights Life s EV & Assumptions Capital Adequacy 35 Century Premium income & distribution Others Engineering Marine Fire Auto Premium income 13.4 1% 13.6 2.1 15.3% 2.3 0.4 3.0% 0.4 0.5 0.5 2.2 16.3% 2.0 2.9.% 3.7% 3.9% 8.3 61.7% 8.4 (NT$BN) 16.7% 14.7% 61.9% Distribution channel Affiliate channels P&C agents group channel 0.3% 0.3% 37.4% 38.1% 62.3% 61.6% Market share Retention 13.2% 12.7% 77.4% 75.0% Note: Totals may not sum due to rounding. 36
Century Combined ratio Gross combined ratio Gross expense ratio Gross loss ratio Retained combined ratio Retained expense ratio Retained loss ratio 93.1% 31.4% 83.5% 32.7% 101.2% 36.1% 93.3% 37.3% 61.7% 50.8% 65.1% 56.0% Note: From 2014/1/1, the loss provisions rules on compulsory car insurance was changed and the regulatory change cause an one-off impact on the of 2014 loss ratios. 37 Century Combined ratio (annual) Gross combined ratio Gross expense ratio Gross loss ratio Retained combined ratio Retained expense ratio Retained loss ratio 80.0% 85.3% 90.7% 92.6% 94.0% 99.3% 30.2% 31.1% 31.1% 35.0% 35.8% 35.8% 49.8% 54.2% 59.6% 57.6% 58.2% 63.5% FY13 FY14 FY14 Pro forma FY13 FY14 FY14 Pro forma Note: From 2014/1/1, the loss provisions rules on compulsory car insurance was changed and the loss ratio increased significantly compared to last year. However, the shortfall between retained earned pure premium and net loss provision plus claim payment was offset by recovery of special reserve and therefore has no impact on net profit. 38
Agenda Introduction of FHC Business Overview Overseas Expansion Business Performance Summary United Bank Life Century s CSR Efforts M&A Key Highlights Life s EV & Assumptions Capital Adequacy 39 Continuous efforts in CSR Recognized the highest ranking of IDTR in 2014-2015 Ranked Top 7 of Taiwan Corporate Citizenship Award Top 7 among Taiwan companies Top 2 in Financial sector in Taiwan 7 2015 CDP disclosure score exceeded the worldwide industry average The leader to be recognized by DJSI and Equator Principles Top 1 among Taiwan life insurance companies Top 2 in Taiwan financial sector Top 1 in Taiwan Top 6 in Asia Note: 1. Information Disclosure and Transparency Ranking (IDTR) is an important evaluation initiated by TWSE. 2. Taiwan Corporate Citizenship Award is ranked by Taiwan Common Wealth Magazine. 3. CDP has the largest database of corporate climate change related information. 40
Incorporate in the DJSI emerging markets index FHC has been selected as a DJSI Emerging Markets Component in Sep. 2015 FHC is committed to develop ESG in the long term. The company attained the highest rating of A++ from TWSE Information Disclosure and Transparency Ranking, and became one of the top 5% of listed companies in Corporate Governance Evaluation of Taiwan DJSI in the World Dow Jones Sustainability Index (DJSI) launched in 1999, which is based on an analysis of corporate economic, environmental and social performance and select top 10% performers in each industry as its index components. The DJSI now is the most recognized sustainability index in the world. 41 CUB is the first EPFI in Taiwan Equator principles: sustainability and environmental protection CUB became the Equator Principles Financial Institutions (EPFIs) in Mar. 2015. Being an EP signatory not only reinforces CUB s corporate commitment to sustainability and environmental protection, but also helps CUB integrate long established environmental and social risk evaluation system. FHC will continue to develop its sustainable finance policy with its subsidiaries EPFIs in the World There are 82 financial institutions in more than 30 countries that adopt the EPs as of December, 2015. EPFIs in Asia : Mizuho Bank, Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui Banking Corporation, Industrial Bank (China), IDFC(India), United Bank and E.Sun Bank. 42
Agenda Introduction of FHC Business Overview Overseas Expansion Business Performance Summary United Bank Life Century s CSR Efforts M&A Key Highlights Life s EV & Assumptions Capital Adequacy 43 Transaction Overview RCBC Transaction Structure Purchase Price Regulatory Approval Strategic Rationale Investment in 280 million shares of Rizal Commercial Banking Corporation ( RCBC ), which consist of both new and existing shares Post transaction, Life Insurance ( ) owns 20% of RCBC with 3 board seats of the company Depending on market conditions, may increase its investment in RCBC, via placement or open market purchase, to no more than 30% in the future PHP64.00 per share. Total consideration of acquiring 280 million shares was PHP17.92 billion (c. US$400 million or NT$12.9 billion). Post-money P/B is c.1.57x The transaction has been completed. Strong potential of the Philippine market Expand regional banking platform Stable investment return Potential strategic cooperation 44
Transaction Overview Bank Mayapada Transaction Structure Purchase Price Life will acquire a 40% stake in PT Bank Mayapada International, Tbk ( Bank Mayapada ) from selling shareholders: Stage 1 acquire 24.9% stake (USD 164 million) Stage 2 acquire 15.1% stake Total consideration is ~IDR3.52tn (USD 295 million), representing a P/B multiple of ~ 3.15x Timetable Stage 1 has been completed in the first half of 2015 Closing of Stage 2 is subject to Fit and Proper Test as stipulated by the Indonesia Financial Services Authority ("OJK") Strategic Rationale Participation in Indonesia s growth opportunity Stable investment return Expansion of regional banking platform Potential strategic cooperation 45 Transaction Overview Conning Transaction Structure Purchase Price Regulatory Approval Strategic Rationale Conning Holdings Corporation ( Conning ) is a leading asset manager for insurance and pension clients with $90 billion AuM (4Q14) Life Insurance Company ( Life ) acquires 100% of Conning Acquisition price of US$240 million in cash P/AuM of 0.26% based on AuM as of September 30, 2014 Financial Holdings will sell its approximately 10% stake in Conning to Life Pre tax disposal gain amounts to US$ 5 million The transaction has been completed. Transaction will significantly expand s global presence in asset management Significant step forward in realizing Banking + Insurance + Asset Management strategy 46
Transaction Overview Conning Acquires Octagon Transaction Rationale Investment Details Regulatory & Closing Conditions Octagon Credit Investors is a specialist credit-focused manager with expertise in bank loans, collateralized loan obligations ( CLOs ) and high yield bonds $12.8 billion in assets under management Conning to acquire a majority ownership stake in Octagon Octagon to operate as a subsidiary of Conning Adds scale and accelerates Conning s product development objectives Facilitates participation in growing market for specialty mandates Expands distribution opportunities for both firms Important asset classes for insurers, other sophisticated institutions, and retail investors Total capital commitment up to $175.6 million Conning to acquire 82% controlling interest Includes significant capital investment to support risk retention requirements Expected to close early in 2016, subject to customary regulatory approvals and closing conditions 47 Alliance with Ant Financial Transaction Structure Transaction Rationale Insurance Company Ltd. (China) ( Insurance (China) ) is planning a new capital issuance of RMB 833 million. Zhejiang Ant Small & Micro Financial Services Group ( Ant Financial ) will be the sole subscriber. Total capital after issuance will increase from RMB 0.8 billion to RMB 1.63 billion After the transaction, Ant Financial, Insurance, and Life will separately hold stakes of 51%, 24.5% and 24.5%, respectively of Insurance (China) The alliance will enable Financial Holdings to increase its exposure to the rapidly growing internet finance market The strategic investor, Ant Financial, operates the largest internet financial services platform in China and possesses a large customer base and enormous volume of transaction data, which are critical assets for the development of internet finance The alliance represents a combination of traditional finance and internet business to create new ecosystem for internet finance Regulatory Approval The transaction is subject to customary regulatory approvals and is expected to be completed in the first half of 2016 48
Transaction Overview Global Life and Singfor Life Transaction Structure Support Measures The takeover of the assets, liabilities and operations of Global Life and Singfor Life. (the Companies ) Transaction Price Subsidization of NTD$ 30.3 bn by Taiwan Insurance Guarantee Funds Increase asset allocation flexibility Relax certain related regulations Progress update Life has completed the takeover on July 1, 2015. The company has kept the business operations smooth and unhindered Life expects that the cost of liability will increase 1 bp because of this acquisition. Overall, the company remains its target of improving 5-10 bps on the cost of liability annually The acquisition has positive impact on Life s EV and net worth. Also it has increased Life s asset allocation flexibility Exercise corporate social responsibility and provide the strength and stability to the policyholders of the Companies and the general public. 49 Agenda Introduction of FHC Business Overview Overseas Expansion Business Performance Summary United Bank Life Century s CSR Efforts M&A Key Highlights Life s EV & Assumptions Capital Adequacy 50
Embedded Value & Appraisal Value Valuation date 2013/12/31 2014/12/31 In-force business investment yield Future one year s new business investment yield 3.94% ~ Year 2033 5.07% for NTD policies 4.47% ~ Year 2033 6.11% for USD policies 2.71% ~ Year 2033 3.10% for Interest crediting annuity (Equivalent investment yield: 4.39% rolling over to 2014: 4.54%) 2.76%~ Year 2033 5.07% for NTD policies 4.02% ~ Year 2033 6.11% for USD policies 2.42% ~ Year 2033 2.67% for Interest crediting annuity 4.01% ~ Year 2034 5.05% for NTD policies 4.40% ~ Year 2034 6.07% for USD policies 2.75% ~ Year 2034 3.02% for Interest crediting annuity (Equivalent investment yield: 4.46%) 2.54%~ Year 2034 5.03% for NTD policies 4.47% ~ Year 2034 6.07% for USD policies 2.19% ~ Year 2034 2.62% for Interest crediting annuity Risk discount rate 10% 10% Adjusted net worth 352 403 Value of in-force business 396 434 Cost of capital (CoC) -113-128 Value of in-force business (After CoC) 283 306 Embedded Value (EV) 635 709 EV per shr (EV per FHC shr) 119.7 (55.0) (3) 133.6(56.4) Appraisal Value (AV) 1,093 1,191 Value of future one year s new business (After CoC) 52.5 55.5 AV per shr (AV per FHC shr) 206.0 (94.7) (3) 224.4(94.8) Note: (1) EV/AV calculation does not include business of Life in China and Vietnam. In addition, EV/AV calculation does not include the takeover of the assets, liabilities and operations of Global Life Insurance and Singfor Life Insurance. (2) per share = per share of Life; (per share) = per share of FHC (3) EV and AV per FHC share of 2013 is based on 2013 weighted average of outstanding shares. If the weighted average of outstanding shares in 2014 were used, EV and AV per FHC share of 2013 would be 50.5 and 87.0,respectively. (4) May not sum to total due to rounding.. 51 Summary Embedded value Value of one year s new business Appraisal value (20 years NB) Basic Value per share Adjusted Value per share Valuation date 2013 2014 Growth rate 1Q15 Equity 271 325 20% -- Adjusted net worth 352 403 14% -- Value of in-force business 396 434 10% -- Cost of capital (CoC) -113-128 14% -- Value in-force business (after CoC) 283 306 8% -- Embedded value 635 709 12% -- First year premium (FYP) 200.4 233.4 16% 52.3 First year premium equivalent (FYPE) 73.5 71.1-3% 16.2 Value of one year s new business (V1NB) 51.4 53.5 4% 12.0 Profit margin (V1NB/FYP) 26% 23% -- 23% Profit margin (V1NB/FYPE) 70% 75% -- 74% Profit margin (V1NB/FYP)(investmentlinked(non-VUL)is excluded) 44% 53% -- 60% Multiple 8.7 8.7 -- -- Appraisal value 1,093 1,191 9% -- EV per FHC shr 55.0 (1) 56.4 (2) 3% -- AV per FHC shr 94.7 (1) 94.8 (2) 0% -- EV per FHC shr 50.5 (2) 56.4 (2) 11% -- AV per FHC shr 87.0 (2) 94.8 (2) 9% -- Note: (1) Basic EV and AV per share is based on 2013 weighted average of outstanding shares 11.5bn. (2) Adjusted EV and AV per share calculation is based on 2014 weighted average of outstanding shares 12.6bn. (3) Totals may not sum due to rounding. 52
Economic Assumptions: In-force business investment yield Investment return assumptions for the value of in force business of NTD-denominated policies as of the end of 2013 & 2014. Investment return assumptions for the value of in force business of USD-denominated policies as of the end of 2013 & 2014. 53 Economic Assumptions: Future one year s new business investment yield Investment return assumptions for the value of future one year s new business of NTDdenominated policies as of the end of 2013 & 2014. Investment return assumptions for the value of future one year s new business of USDdenominated policies as of the end of 2013 & 2014. 54
Fair Value of Insurance Contracts: Risk-free Rate (NTD) Calculate 3-yr daily MA yield curve based on the zero coupon yield curve announced by OTC (Svensson) and use the extrapolation method provided by EU Solvency II QIS 5 to contruct the complete yield curve. 5.00% 4.50% 4.00% Construct Yield Curve Based on Spot Rates of Year 1-10 Spot Rate (incl. liquidity premium 3.50% Spot Rate 3.00% 2.50% 2.00% 1.50% 1.00% 10-yr Spot Rate 1.44% 30-yr Spot Rate 2.72% 100-yr Spot Rate 3.73% Single Equivalent Discount Rate 2.76% Calculated Based on Net Cash Flows as of Dec. 31, 2013 0.50% 0.00% 1 11 21 31 41 51 61 71 81 91 101 Note:The Spot Rate mentioned above refers to 3-yr daily MA yield curve. 55 Fair Value of Insurance Contracts: Liquidity Premium If insurers apply fair value model for investment property, their insurance liabilities should also be assessed under fair value basis. Taiwan adopts a relatively strict standard of liquidity premium compared to the international level of 0.5%~1%. NTD 4% : 1.50% NTD 4% : 0.80% 4% : 0.25% 4% : 0.25% Mandatory 0.5% ~ 1.0% Non-NTD 0.25% Non-NTD 0.25% NT Equivalent Level 0.57% Based on Life s product structure and the regulations on liquidity premium, the equivalent level is 0.57%. According to the regulations on liquidity premium mentioned above, Life s reserve is enough and allowed to recognize after tax full amount of investment property appraisal gain under fair value method into shareholder s equity. 56
Special reserve of unrealized gains on property 67.9-12.5 (NT$BN) 55.4 11.1 (20%) Retained as special reserve in liability 44.3 (80%) Recovered over 5 years (capped at NT$10bn per year). Such accounting profit is restricted from dividend payout. (2) Net unrealized gains on investment property (1) Negative impact of first adoption Special reserve of unrealized gains on property Note: (1) Net unrealized gains on investment property is calculated by discounting rental income at industry average WACC(3.29%), net of related taxes. The amount is therefore well below the property market value. (2) The recovery of such special reserve is subject to regulatory approval each year. Hence, the actual recovery depends on the fair valuation results each year. 57 Illustration of 2013 pro forma BV of FHC Financial Holdings Life United Bank Appraisal gain based on fair value method on 2013/1/1 Appraisal gain from property reclassification Additional property appraisal gain in 2013 Impact to CUB from fair value method Intercompany adjustments Consolidated impact to FHC 95.6 16.3 12.1 1.9 124.0 31.7 94.3 94.3 248.3 285.3 342.5 285.3 379.5 (Original) FHC book value (New) Pro forma FHC book value Note: Totals may not sum due to rounding. 58
Capital adequacy FHC CAR (%) CUB Capital Adequacy (%) BIS 11.8 12.4 13.5 16.2 15.9 112.7 118.8 144.2 135.9 Tier2 Tier1 4.7 4.3 2.6 3.4 3.4 9.2 9.0 10.1 11.5 11.6 FY11 FY12 FY13 FY14 1H15 Life RBC(%) FY12 FY13 FY14 1H15 213.8 223.7 287.4 294.7 FY12 FY13 FY14 1H15 59
Financial Holdings FY14/ / 3Q15/ (NT$MN) FY13 3Q14 Income Statement Data (Consolidated) FY13 FY14 % Chg % Chg 3Q14 3Q15 % Chg Operating Income Net interest income 114,558 125,083 9% 92,570 102,701 11% 31,062 36,391 17% Net commission and fee 791 369-53% 1,700 (2,909) -271% (310) (1,610) 419% Net earned premium 441,427 488,327 11% 338,919 389,089 15% 140,802 141,975 1% Change in liability reserve (293,570) (290,800) -1% (192,620) (239,059) 24% (85,562) (79,806) -7% Net claims payment (228,125) (285,869) 25% (213,395) (213,175) 0% (77,115) (79,695) 3% Investment income 56,350 75,849 35% 61,690 62,081 1% 22,945 18,548-19% Contribution from associates-equity method 157 168 7% 119 637 435% 52 353 580% Other net non-interest income 6,972 3,449-51% 3,822 10,154 166% 878 (4,291) -589% Bad debt expense (1,484) (2,982) 101% (1,190) (554) -53% (747) (387) -48% Operating expense (54,277) (57,350) 6% (41,372) (45,682) 10% (15,042) (17,270) 15% Income before taxes 42,799 56,243 31% 50,245 63,284 26% 16,963 14,206-16% Income taxes (4,779) (6,458) 35% (5,579) (8,399) 51% (2,846) (555) -80% Net income 38,020 49,785 31% 44,666 54,885 23% 14,117 13,651-3% EPS (NT$) 3.12 3.94 3.53 4.33 1.11 1.07 Dividend Payout Cash dividend per share 1.50 2.00 Stock dividend per share 0.50 0.00 Weighted average outstanding shares 12,124 12,563 12,563 12,563 (Millions of shares) Balance Sheet Data Total assets 6,177,273 6,944,837 6,661,721 7,520,230 Total shareholders' equity 379,510 439,120 402,653 443,451 Operating Metrics ROAE (Consolidated) 10.82% 12.10% 15.19% 16.58% ROAA (Consolidated) 0.65% 0.76% 0.93% 1.01% Double leverage ratio(inc. preferred stock) 111% 113% 114% 114% Capital Adequacy Metrics Capital Adequacy Ratio 119% 144% Notes: (1) All data and information on this page is provided for informational purposes only, and may subject to adjustment. For more details, please refer to our official financial reports. (2) Starting from 2015/1/1, FHC adopted IFRS 2013 version and has adjusted financial data to pro-forma basis. 2014 total assets, liabilities, and shareholders' equity have also been adjusted accordingly. (3) Total may not sum due to rounding.
Life FY14/ / 3Q15/ (NT$MN) FY13 3Q14 Income Statement Data (Consolidated) FY13 FY14 % Chg % Chg 3Q14 3Q15 % Chg Net written premium 426,804 472,630 11% 327,432 376,994 15% 136,899 137,585 1% Net earned premium 418,262 471,849 13% 327,065 376,690 15% 136,633 137,284 0% Reinsurance commission earned 11,610 4,740-59% 4,721 222-95% 1,165 (60) -105% Fee income 3,090 5,943 92% 4,589 4,409-4% 1,599 1,301-19% Recurring investment income 113,932 124,152 9% 94,837 107,038 13% 37,624 44,365 18% Gain on disposal of investment Realized gain (loss)-equity 16,586 23,357 41% 19,384 26,696 38% 5,929 (7,994) -235% Realized gain (loss)-debt 14,604 12,828-12% 9,102 12,810 41% 4,291 2,280-47% Investment property appraisal gains 13,045 16,579 27% 16,249 11,310-30% (127) (1) -99% FX and others, net (4,197) (7,166) 71% (7,802) (8,635) 11% (1,458) 3,049-309% Investment income, net 153,970 169,750 10% 131,770 149,219 13% 46,259 41,700-10% Other operating income 1,275 9-99% 6 115 1776% 3 109 4011% Separate account revenues 90,719 115,040 27% 100,214 5,163-95% 3,807 (994) -126% Net claims payment (210,029) (275,195) 31% (206,346) (205,988) 0% (74,457) (76,981) 3% Changes in liability reserves (292,978) (290,109) -1% (191,589) (238,245) 24% (85,272) (79,430) -7% Acquisition and commission expense (34,188) (32,405) -5% (24,348) (24,396) 0% (9,164) (8,280) -10% Other operating costs (5,570) (4,544) -18% (3,335) (3,899) 17% (1,337) (1,440) 8% Financial cost 303 (106) -135% (67) (314) 367% 81 123 53% Separate account expense (90,719) (115,040) 27% (100,214) (5,163) -95% (3,807) 994-126% Operating expense (15,677) (16,724) 7% (11,590) (15,620) 35% (4,351) (6,857) 58% Net non-operating income 1,156 1,482 28% 1,126 853-24% 230 180-22% Income taxes (3,657) (2,834) -22% (2,730) (5,642) 107% (1,632) 373-123% Net income 27,569 31,854 16% 29,273 37,402 28% 9,758 8,022-18% Balance Sheet Data Total assets 4,195,229 4,704,976 4,499,313 5,133,994 General account 3,818,977 4,242,710 4,056,598 4,666,001 Separate account 376,253 462,267 442,715 467,993 Reserves for life insurance liabilities 3,448,659 3,770,679 3,646,664 4,162,355 Total liabilities 3,923,923 4,376,595 4,202,922 4,801,418 Total shareholders' equity 271,306 328,382 296,391 332,576 Operating Metrics First Year Premium(FYP) 200,419 233,379 194,508 165,808 First Year Premium Equivalent(FYPE) 73,461 71,138 57,882 71,908 Expense ratio 11.5% 9.9% 10.3% 10.3% 13-M persistency ratio 98.2% 97.9% 97.9% 97.4% 25-M persistency ratio 94.7% 94.9% 94.9% 94.9% ROAE 10.92% 10.54% 13.69% 15.09% ROAA 0.69% 0.71% 0.90% 1.01% Capital Adequacy Metrics RBC ratio (Standalone) 224% 287% Notes: (1) All data and information on this page is provided for informational purposes only, and may subject to adjustment. For more details, please refer to our official financial reports. (2) Starting from 2015/1/1, Life adopted IFRS 2013 version and has adjusted financial data to pro-forma basis. 2014 total assets, liabilities, and shareholders' equity have also been adjusted accordingly. (3) Total may not sum due to rounding.
United Bank FY14/ / 3Q15/ (NT$MN) FY13 3Q14 Income Statement Data (Consolidated) FY13 FY14 % Chg % Chg 3Q14 3Q15 % Chg Operating Income Net interest income 21,915 25,779 18% 19,046 20,295 7% 6,467 6,921 7% Fee income 9,204 11,806 28% 8,664 11,222 30% 3,467 3,789 9% Investment income 5,650 7,384 31% 6,315 4,565-28% 1,894 1,690-11% other income 956 1,064 11% 883 1,086 23% 274 310 13% Net operating income 37,725 46,033 22% 34,908 37,168 6% 12,103 12,710 5% Operating expenses (20,216) (22,822) 13% (16,523) (18,174) 10% (6,085) (6,549) 8% Pre-provision profit 17,509 23,211 33% 18,384 18,994 3% 6,018 6,161 2% Net provisions for possible losses (542) (2,471) 356% (745) (173) -77% (617) (108) -83% Income before taxes 16,967 20,741 22% 17,639 18,821 7% 5,400 6,053 12% Income tax (2,188) (2,892) 32% (2,396) (2,222) -7% (793) (738) -7% Net income 14,780 17,848 21% 15,243 16,599 9% 4,608 5,315 15% Balance Sheet Data Total assets 1,988,774 2,243,958 2,158,980 2,388,868 Loans, net 1,031,105 1,119,281 1,115,695 1,137,114 Financial assets 638,727 649,497 622,069 766,254 Total liability 1,855,610 2,096,340 2,015,865 2,234,137 Deposits 1,615,860 1,739,023 1,694,715 1,844,163 Financial Debenture Payable 52,417 67,614 67,289 65,551 Total shareholders' equity 133,164 147,617 143,115 154,730 Operating Metrics Cost income ratio 53.59% 49.58% 47.33% 48.90% ROAE 12.33% 12.71% 14.74% 14.64% ROAA 0.78% 0.84% 0.98% 0.96% Assets Quality NPL 3,013 3,277 3,036 1,809 NPL ratio 0.29% 0.29% 0.27% 0.16% NPL provisions 14,494 15,782 15,782 16,806 Coverage ratio 478% 539% 520% 929% Capital Adequacy Metrics BIS ratio (Standalone) 13.5% 16.2% Tier I Ratio (Standalone) 10.1% 11.5% Notes: (1) All data and information on this page is provided for informational purposes only, and may subject to adjustment. For more details, please refer to our official financial reports. (2) Starting from 2015/1/1, United Bank adopted IFRS 2013 version and has adjusted financial data to pro-forma basis. 2014 total assets, liabilities, and shareholders' equity have also been adjusted accordingly. (3) Total may not sum due to rounding.
Century FY14/ / 3Q15/ (NT$MM) FY13 3Q14 Income Statement Data (Consolidated) FY13 FY14 % Chg % Chg 3Q14 3Q15 % Chg Premium income 19,727 21,279 8% 15,520 16,115 4% 5,175 5,702 10% Net written premium 15,280 16,080 5% 11,776 12,401 5% 4,025 4,464 11% Net earned premium 14,156 15,626 10% 11,685 12,634 8% 4,048 4,607 14% Reinsurance commission earned 470 683 45% 510 381-25% 162 120-26% Fee income 36 45 27% 32 34 6% 11 11 1% Investment 715 918 28% 729 768 5% 351 251-29% Interest income 444 569 28% 428 413-3% 152 145-5% Other investment income, net 271 348 29% 300 355 18% 199 106-47% Other operating income 0 0-3 14 388% (1) 9-1029% Net claims payment (7,835) (8,747) 12% (6,117) (6,503) 6% (2,206) (2,314) 5% Changes in liability reserves (592) (691) 17% (1,031) (814) -21% (291) (376) 29% Commissions and other operating costs (1,083) (1,210) 12% (904) (1,016) 12% (336) (374) 11% Operating expenses (5,328) (5,824) 9% (4,297) (4,529) 5% (1,447) (1,581) 9% Operating income 538 800 49% 609 970 59% 293 354 21% Net non-operating income 9 29 238% 31 (14) -145% (1) (6) 390% Income taxes (218) (174) -20% (98) (229) 135% (53) (97) 84% Net income 329 656 99% 542 727 34% 239 251 5% Balance Sheet Data Total assets 31,709 35,863 35,030 36,326 Total shareholders' equity 5,511 6,829 6,617 7,180 Operating Metrics Gross Combined ratio 80.0% 90.7% 93.1% 83.5% Net Combined ratio 92.6% 99.3% 101.2% 93.3% ROAE 6.37% 10.71% 11.98% 13.84% ROAA 1.08% 1.94% 2.16% 2.69% Capital Adequacy Metrics RBC ratio (Standalone) 312% 324% Notes: (1) All data and information on this page is provided for informational purposes only, and may subject to adjustment. For more details, please refer to our official financial reports. (2) All data and information are based on IFRS. (3) Starting from 2015/1/1, Century adopted IFRS 2013 version and has adjusted financial data to pro-forma basis. 2014 total assets, liabilities, and shareholders' equity have also been adjusted accordingly. (4) Total may not sum due to rounding.