1Q20 Interim Results and 2019 Embedded Value of …...This meeting may contain forward-looking statements with respect to the financial condition, results of operations and business

2020.05.14

1Q20 Interim Results

and

2019 Embedded Value

of Fubon Life

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.

Disclaimer

Performance highlights of Fubon Financial Holdings

Performance review by subsidiary

Taipei Fubon Bank

Fubon Life

Fubon Insurance

Fubon Securities

Fubon Bank (China)

2019 Embedded Value of Fubon Life

Fubon Financial Holdings: Operational highlights

4

Top three in the market for brokerage and emerging stock trading business

Steady NIM and spread performance from adjustment in asset and liability

structure

Growth in fee revenue driven by wealth management

Approval granted from FSC for Sydney representative office’s application to

expand Pan-Pacific financial service network

Market leader in total premiums for 38th straight year, with continuous

market share gains

Outstanding combined ratio performance, with a focus on quality

Net profit reached NT$23.0bn in 1Q20, up 84% YoY, mainly driven by investment

income growth in Fubon Life

Taipei Fubon Bank

Fubon Life

Fubon Insurance

Fubon Securities

Top position in FYPE leading to growth in VNB

Increase in after-hedged recurring returns and steady improvement in COL

License granted for virtual life insurance ZA Life in HK for a 35% stake

Net profit

Earnings per share (EPS)

NT$bn

Net profit grew 84% YoY, earnings and EPS led peers

5

Fubon Financial Holdings: Profitability

NT$

12.5

23.0

1Q19 1Q20

54.1 47.7

58.5

2017 2018 2019

84%

1.22

2.24

1Q19 1Q20

5.19 4.52

5.46

2017 2018 2019

84%

Taipei Fubon

Bank, 4.0, 17.7%

Fubon Life, 16.1 , 71.8%

Fubon Insurance, 1.5 , 6.6%

Fubon Securities, 0.2 , 0.8%

Fubon Bank (HK), 0.3 ,

1.1% Fubon Bank (China),

0.4 , 2.0%

12.5

3.1

5.9

1.2 0.7 1.0 0.3

23.0

16.1

4.0

1.50.2 0.3 0.4

FubonFHC

FubonLife

TaipeiFubonBank

FubonInsurance

FubonSecurities

FubonBank(HK)

FubonBank

(China)

1Q19 1Q20

6

Net profit from subsidiaries Profit contribution from subsidiaries(1)

Note: (1) Profit contribution is based on the summation of the six

subsidiaries shown in the chart. The holding company and other

subsidiaries have combined net profit of NT$840mn. The net inter-

company account is -NT$317mn; (2) Net profit of Fubon Bank (China) is

excluded from Taipei Fubon Bank.

1Q20 net profit grew 84% yoy due to investment income growth in Fubon Life

Fubon Life contributed 71.8% of total earnings and the three banking

subsidiaries represented 20.8% of total earnings

(2)

(2)

Fubon Financial Holdings:

Net profit from major subsidiaries

NT$bn NT$bn

Total assets

Assets grew 9.3% and reached a historical high

Drop in net worth reflected market volatility from marketable securities

7

Equity attributable to parent company

Fubon Financial Holdings: Assets and net worth

NT$bn

NT$bn

7,840 8,571

Mar-19 Mar-20

6,919 7,715

8,548

2017 2018 2019

9.3%

538 503

Mar-19 Mar-20

488 459

608

2017 2018 2019

-6.4%

ROA

ROE

ROA and ROE improved YoY on earnings growth

8

Fubon Financial Holdings: ROA & ROE

0.81%

0.65%

0.73%

2017 2018 2019

0.65%

1.08%

1Q19 1Q20

11.83%

9.98%10.94%

2017 2018 2019

10.01%

16.53%

1Q19 1Q20

Fubon Financial Holdings: Challenges and

opportunities from COVID-19

• Online new account

applications doubled yoy

• User-friendly online

interface

• Help customers apply for

bailout programs

• Growth from online shopping

affinity card issuance and

digital banking activities

• Over 125k(1) policyholders’

subscription for COVID-19 related

insurance to build customer

interaction

• The first and only P&C to offer

home quarantine insurance policy

in Taiwan

• Medical and death protection

offering from Fubon Life

• Promotion through strategic

partners and group members

Taipei Fubon

Bank

Fubon Insurance

Fubon Life

Fubon Securities Fubon Bank China

Fubon Bank HK

Fubon is using the power of professional financial services to jointly counter the pandemic

with customers

Note：(1) data as of 2020/5/12

• Help customers apply for

bailout programs

9


Taipei Fubon Bank

Revenue composition of Taipei Fubon Bank

NT$bn

Taipei Fubon Bank: Revenue

1111

Core revenue grew in the double digits. Net interest income and net fee income rose 12% and

24%, respectively

Net treasury income declined due to unrealized loss from market volatility

5.6 6.2

3.2

4.0

2.9 0.2

0.1

0.2

11.8 10.6

1Q19 1Q20

19.4 21.7 23.3

10.9 10.9

12.7

7.5 8.5

8.9 1.0

0.3

0.7 38.8

41.4

45.6

2017 2018 2019

12.2%

23.8%

-10.3%

-94.5%

47.0%

27.2%

24.6%

1.2%

58.8%

37.5%

1.5%

2.2%

50.1%

28.0%

19.2%

2.6%

52.5%

26.4%

20.4%

0.7%

51.2%

27.8%

19.5%

1.5%

31.2 18.8

559.3 673.2

635.1

674.9

1,225.6

1,367.0

Mar-19 Mar-20

Retail credit

Corporate credit

Government loan

1.4%

49.2%

49.4%

Credit composition

Corporate and retail loan growth boosted total credit by 11.5% yoy , or 12.9% growth if

government loans were excluded

Note: Ending balance

NT$bn

Taipei Fubon Bank: Credit composition

12

6.3%

20.4%

11.5%

-39.7%2.5%

45.6%

51.8%

Corporate credit by currency SME credit

NT$bn

Both NTD and FX corporate loan balances showed strong growth, up 25.0% and 13.9%

respectively, pushing total corporate credit up 20.4% yoy

SME credit was up 12.9% yoy, continuing to take a significant position in corporate loan mix

NT$bn


Taipei Fubon Bank: Corporate credit

13

247.3

279.1

44.2% 41.5%

Mar-19 Mar-20

326.6

232.6

408.2

265.1

Mar-19 Mar-19 Mar-20 Mar-20

12.9%

25.0%

13.9%

63.3 69.4

10.0%10.3%

Mar-19 Mar-20

Other consumer credit as % of retail credit

571.8 605.6

Mar-19 Mar-20

Mortgage Other consumer credit

NT$bn

Mortgage grew 5.9% yoy, maintaining steady growth momentum

Other consumer credit grew 9.5% yoy, accounting for 10.3% of total retail credit

NT$bn

14

Taipei Fubon Bank : Retail credit

5.9%

9.5%

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

Deposit mix in foreign currency Foreign currency LDR


Total deposit reached NT$2tn by the end of March

Foreign currency LDR grew to 38.7%, boosted by FX lending

Including FX lending and FX investment, foreign currency deployment accounted for up to

70.8% of foreign deposit

Taipei Fubon Bank: Deposit mix and LDR

NT$bn

NT$bn

15

37.6% 38.7%

Mar-19 Mar-20

83.9% 81.3%

Mar-19 Mar-20

44.1% 40.3%

55.9%59.7%

596.5 670.5

Mar-19 Mar-20

Time

Demand

20.1%

2.7%

12.4%

59.1% 61.0%

40.9%39.0%

1,178.7 1,349.1

Mar-19 Mar-20

Time

Demand

8.9%

18.3%

14.5%

1.00% 1.02% 1.10%1.29% 1.28%

1.39%

2017 2018 2019

1.97%2.12% 2.22%

0.68%0.84% 0.83%

2017 2018 2019

NIM and loan-to-deposit spread

Loan yield and deposit rate

Note: Loan rate calculation inclusive of credit card revolving

Loan-to-deposit spread widened 4bps, attributed to expanding FX loan and optimized liability structure

NIM remained at 1.10%. Adverse NIM impact from March rate cuts was offset by expanding FX assets

16

Taipei Fubon Bank : Interest spread and margin

1.10% 1.10%

1.39% 1.43%

1Q19 1Q20

NIM Loan-to-deposit spread

2.29%2.14%

0.89%0.71%

1Q19 1Q20

Loan rate Deposit rate

0.17% 0.17%0.19%

0.28%

0.24%0.21%

Dec-17 Dec-18 Dec-19

Taipei Fubon Bank: Asset quality

NPL slightly climbed to 0.24% and coverage ratio declined, mainly due to a single corporate default

case

After write-off in April, NPL dropped back to under 0.20% and coverage ratio rebounded to above

650%

NPL ratio

Coverage ratio

17

◆ industry average

0.18%

0.24%0.25%

Mar-19 Mar-20

764.46% 784.68%713.11%

492.92%575.44%

651.78%


766.99%

552.79%549.68%

Mar-19 Mar-20

2,602

3,188

311

456

149

201

150

131

3,212

3,975

1Q19 1Q20

Wealth management Credit card

Syndication loan Others

Net fee income Wealth management fee

NT$mn NT$mn

Fee increased 23.8% yoy, driven by double-digit growth in wealth management, credit card and

syndication loan

Wealth management fee grew 22.5% yoy, driven by investment products

Taipei Fubon Bank: Fee income

18

23.8%

22.5%

81.0%

9.7%

4.6%4.7%

80.2%

11.5%

5.0%

3.3%

59.9%

13.1%

24.4%

2.7%

42.7%

24.7%

29.4%

3.2%

1,558 1,361

340 787

634

938 70

101

2,602

3,188

1Q19 1Q20

Custodian and trust

Structured, equity, and bonds product

Mutual funds

Insurance commission

1.35 1.19

1Q19 1Q20

Revenue from overseas branches was down 12% yoy, mainly reflecting the HK branch’s

performance, which was affected by the market. Growth in Singapore and Vietnam branches

remained steady. Total loan balance of overseas branches climbed 19% yoy

Taipei Fubon Bank: Overseas Branches

NT$bn

Net revenue from overseas branches

Pretax profits from overseas branches

19

3.27

4.64

5.61

2017 2018 2019

8.1%

16.1%17.5%

2017 2018 2019

14.4%

11.1%

1Q19 1Q20


Fubon Life

174.5 190.4 206.3

341.0 352.6

389.9

2017 2018 2019

FYP Renewal premium

64.537.1

95.9 105.6

1Q19 1Q20

11.1% yoy decline in total premiums due to FYP decline of 42.6%

Market leader in FYPE, top two in FYP and renewal premium

543.0

35.1%

64.9%

33.8%

66.2%

515.4

21

Total premium composition

596.2

65.4%

34.6%

Fubon Life: Total premiums

NT$bn

10.2%

-11.1%

-42.6%

160.4142.7

3.5% 2.6% 6.2%

14.8% 18.2% 14.1%

42.8% 38.4%20.2%

34.0% 36.4%

55.4%

4.9%

4.4%

4.1%

2017 2018 2019

Health, accidents and others

Traditional life: Regular paid

Traditional life: Single paid

Investment-linked

Interest-sensitive annuity

FYP decline of 42.6% YoY due to high base driven by hot sales of single-

paid policies in 2019, product focus change to regular-paid policy and

COVID-19 impact

Regular-paid policies reached 55.6% of FYP contribution

174.5190.4

56.5% 60.3% 73.2%

43.5% 39.7% 26.8%

22

FYP composition

206.3

Fubon Life: First year premiums (FYP)

NT$bn

NTD

Non-NTD

4.5% 4.8%

13.5% 19.5%

40.8%

13.1%

37.8%

55.6%

3.4%

7.0%

1Q19 1Q20

70.4% 71.6%

29.6% 28.4%

64.5

37.1

8.2

8.9

1Q19 1Q2014.5% 12.6%1.9% 0.9%6.3% 3.8%

17.3%2.3%

60.0%

80.4%

1Q19 1Q20

Traditional life:Regular-paid

Traditional life:Single-paid

Investment-linked

Interest-sensitiveannuity

Health,accidents andothers

35.3% growth in FYPE led to VNB growth of 8.3%, driven by growth in traditional

installment-payment policies

VNBFYPE

15.2

20.6

FYPE/

FYP 23.6% 55.7%

VNB/FYP 12.7% 24.0%

53.9% 43.1%VNB/FYPE

35.3% 8.3%

23

Fubon Life: FYPE & VNB

NT$bn NT$bn

Note: VNB is based on 2019 EV actuarial assumptions

5.47.5

3.0

2.9

4.6

7.3 2.2

2.9

1Q19 1Q20

Other

Bancassurance:through externalbanks

Bancassurance:through TaipeiFubon bank

Tied agents15.9

11.5

16.1

10.0

21.6

11.2

10.9

4.4

1Q19 1Q20

Other

Bancassurance: throughexternal banks

Bancassurance: through TaipeiFubon Bank

Tied agents

Over 50% contribution coming from internal channels

FYPE contribution from agents and external banks increased, driven by rising

sales of regular-paid policies

FYPE by channelFYP by channel

24

Fubon Life: Channels

NT$bn NT$bn

24.7%

33.4%

25.0%

16.9%

11.8%

27.0%

30.1%

31.1%

64.5

37.1

35.9%

19.5%

30.1%

14.5%

36.6%

14.3%

35.3%

13.8%

15.2

20.6

Steady investment asset growth at 6.2% YoY

Portfolio additions mainly focused on overseas assets

25

2019/03/31 2019/12/31 2020/03/31

Deposit and cash

equivalent216.4 5.7% 226.6 5.6% 182.4 4.5%

Domestic fixed income(1) 500.6 13.2% 597.0 14.8% 528.3 13.1%

Overseas fixed income(2) 2,093.8 55.3% 2,141.9 53.0% 2,308.4 57.4%

Domestic equity 345.1 9.1% 390.0 9.6% 322.1 8.0%

Overseas equity 188.4 5.0% 208.1 5.1% 204.5 5.1%

Mortgage loans 147.6 3.9% 159.7 4.0% 162.3 4.0%

Policy loans 68.6 1.8% 71.5 1.8% 72.2 1.8%

Real estate 228.4 6.0% 247.6 6.1% 244.5 6.1%

Total Investments 3,788.9 100.0% 4,042.4 100.0% 4,024.7 100.0%

Domestic 1,394.1 36.8% 1,575.3 39.0% 1,400.1 34.8%

Overseas 2,394.8 63.2% 2,467.1 61.0% 2,624.6 65.2%

NT$bn

Fubon Life: Investment portfolio

Note: (1) Inclusive of NTD-denominated ETFs

(2) Inclusive of OTC-listed international bonds. International bonds investment reached 14.3% of total investment assets as of 2020/03/31

Asset allocation predominantly in investment-grade corporate credits and financial bonds

Issuers of overseas fixed income portfolio are mainly North American

26

Overseas fixed income by asset type Overseas fixed income by region

Fubon Life: Overseas fixed income portfolio

6.1% 5.7% 7.1%

41.6% 42.2% 40.0%

49.4% 49.7% 50.7%

2.9% 2.4% 2.2%

Mar-19 Dec-19 Mar-20

Others

Corporate credit

Financial bond

Governmentbond

21.9% 23.3% 22.0%

52.5% 53.2% 54.7%

25.6% 23.5% 23.3%

Mar-19 Dec-19 Mar-20

Asia & Others

North America

Europe

NT$bn 1Q19 1Q20YoY

growth2017 2018 2019

Recurring investment income 28.9 30.9 7.0% 114.4 126.5 137.2

Interest income 25.5 24.8 -2.3% 85.5 98.5 99.6

Cash dividend income from equity

investment0.1 0.8 710.6% 18.8 18.9 20.5

Rental and others(1) 3.3 5.3 59.1% 10.1 9.1 17.1

Realized gains from fixed income investment 5.5 16.6 200.8% 14.1 8.9 26.2

Realized gains from equity investment 6.4 9.0 41.2% 26.1 26.4 18.4

FX and others -9.8 -7.0 -27.9% -29.9 -34.8 -36.4

Investment income 31.0 49.5 59.6% 124.7 127.0 145.4

Total investment assets 3,788.9 4,024.7 6.2% 3,386.3 3,622.3 4,042.4

Investment return (before hedge) 4.33% 5.42% 4.76% 4.63% 4.72%

Investment return (after hedge) 3.39% 4.87% 3.93% 3.62% 3.83%

Investment income primarily came from recurring investment, with most growth stemming from dividend income of mutual funds and equities

Capital gains contribution from fixed income investments increased

27

Fubon Life: Composition of investment income

Note: (1) ) Including interest income from fund investments

Equity and fund

17.1%

Bond and cash

82.9%

Recurring hedging costs declined along with a narrowing interest spread between Taiwan and the US

Continued to dynamically adjust hedging composition in response to market conditions

Increase in recurring returns on after-hedged basis

28

Hedging cost & FX gain/loss FX position

Recurring return

Fubon Life: Composition of hedging portfolio

-88bps -191bps -148bps

-127 -86 -70

-21 -57

-18

-48

1Q19 4Q19 1Q20 One-off FX reservesprovision

FX gain/loss & netprovision of FX reserve

CS+NDF cost

Currency swap,NDF,

FX policy, 86.6%

Naked USD, 10.8%

Other currencies,

2.6%

3.12% 3.06%

2.31%2.61%

1Q19 1Q20

Beforehedge

Afterhedge

Cost of liability

Breakeven point

Improvement in COL, driven by new business premiums

Rise in breakeven point due to higher contribution from regular-paid policies,

leading to rising first-year strain

29

Fubon Life: Cost of liability & breakeven point

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

3.72%3.67%

3.56%


3.65%

3.51%

Mar-19 Mar-20

2.86% 2.81%2.97%


2.88%3.03%

Mar-19 Mar-20

38.562.0

(57.0)

(6.0)29.5 (18.9)

(100.1)

Sep-19 Dec-19 Mar-20

Unrealized balance came down due to mark-to-market value movement of financial

assets, which led to movement in shareholders’ equity

Net worth recovered and reached over NT$300bn as of April

30

Shareholders’ equity

Unrealized balance in FVOCI & FVTPL overlay and movement

Fubon Life: Investment performance

NT$bn Realized

gains(1)

Dividend

income &

MTM

Dividend

income &

MTM

Realized

gains(1)

Note: (1) Realized equity gain/ loss under FVOCI is included; (2) Ending balance of AC as of March 20 was NT$46.1bn.

NT$bn

272.9

200.9

337.5


265.7232.8

Mar-19 Mar-20


Fubon Insurance

54.0% 58.3%

33.2%32.6%

1Q19 1Q20

Net expense ratio

Net claim ratio

67.2% 64.7%

32.8%35.3%

1Q19 1Q20

Commercial line

Personal line

Net combined ratio

10.1% premium growth YoY, outperforming the industry average

Market leader with 24.8% share, up 0.7% YoY

Net combined ratio slightly increased due to loss ratio from compulsory auto

business, while expense ratio continued to improve

Direct written premiums by product

32

87.2%90.9%

Fubon Insurance: Operational snapshot

Note: Standalone basis Note: Inclusive of compulsory auto business

NT$bn

11.9

10.8

10.1%


Fubon Securities

34

Fubon Securities: Operational snapshot

Top three position in brokerage and emerging

stock trading business

Brokerage revenue rose 46.1% YoY due to

increase in market turnover. Operating

revenue and net profit fell 27.5% and 77.0%,

respectively, mainly due to mark-to-market

unrealized losses

In response to the pandemic, Fubon Securities

focused on digital platform access,

comprehensive financial market information,

and risk control

1Q20 Ranking 1Q19 Ranking

Brokerage 5.33% 3 5.60% 3

Emerging stock

trading20.10% 2 17.02% 2

IPO+SPO Amount 9.45% 4 5.71% 4

Market share & ranking

Operating revenue

NT$mn

Net profit

NT$mn

-27.5%

46.1%

-77.0%

738

170

1Q19 1Q20

807 1,180

1,193 270

1Q19 1Q20

Brokage revenue Other revenue

2,000

1,450


Fubon Bank China

Deposit and loan reached record highs in 1Q20, up 54.4% and 34.2%, respectively,

leading to asset scale expansion by 43.7% yoy

Fubon Bank (China): Key balance sheet items

36

Assets Net worth

DepositsLoans

RMBmn

48,266

74,502

Mar-19 Mar-20

28,851

44,071

4,335

450 33,186

44,522

Mar-19 Mar-20

34.2%

54.4%

5,821 6,284

Mar-19 Mar-20

72,868

104,681

Mar-19 Mar-20

8.0%43.7%

81

95

1Q19 1Q20

1.81% 1.75%

1Q19 1Q20

Fubon Bank (China): Financial highlight

Net profit increased 17.6% yoy, mainly driven by accelerated assets growth

NPL and coverage ratio improved while loan balance continued to expand

RMBmn

37

NIM Net Profits

ROAA & ROAENPL ratio & Coverage ratio

-0.06%

17.6%

1.36%1.02%

149.5%

177.6%

Mar-19 Mar-20

NPL ratio Coverage ratio

0.45%0.38%

5.58%6.14%

1Q19 1Q20

ROAA ROAE

2019 Embedded Value of Fubon Life

Value Creation Summary

Items 2018 2019 YoY Diff Impact

Net Worth (Book Value) 200.9 337.5 68.0% 136.7

Adjusted Net Worth 202.0 325.5 61.2% 123.6

VIF (before CoC) 399.5 426.5 6.7% 26.9

Cost of Capital (CoC) (123.0) (146.8) -19.4% -23.8

VIF (after CoC) 276.6 279.7 1.1% 3.1

Embedded Value 478.5 605.2 26.5% 126.7

FYP 190.4 206.3 8.3% 15.9

FYPE 49.5 71.7 44.8% 22.2

VNB 26.6 32.7 22.8% 6.1

VNB margin (VNB/FYP) 14.0% 15.8% 13.4% 1.9%

VNB margin (VNB/FYPE) 53.7% 45.6% -15.2% -8.2%

Multiplier 8.8 8.8 0.0% 0.0

Appraisal Value 713.7 894.1 25.3% 180.4

Outstanding shares (FHC) 10.2 10.2 0.0% 0.0

Embedded Value 46.8 59.1 26.5% 12.4

Appraisal Value 69.7 87.4 25.3% 17.6

Outstanding shares (Life) 11.1 11.1 0.0% 0.0

Embedded Value 43.2 54.6 26.5% 11.4

Appraisal Value 64.4 80.7 25.3% 16.3

Value per FHC share

Value per Life share

Inforce

Value Creation

New Sales

Value Creation

Appraisal Value

(20 year NB)

Unit: NTD billion

39

Unit: NTD billion

% of change + 13.2% + 54.4% + 0.4% + 68.0%

Adj % + 4.1% -8.8% + 1.2% -3.5%

200.9

26.5

109.3

0.9

337.5

13.9 ( 29.8 )3.9

325.5

Statutory NetWorth@Dec. 31,

2018(IFRS)

Earnings FVOCI URCG/L& Overlay

Others Statutory NetWorth@Dec. 31,

2019(IFRS)

Special Reserve(FX and REAppraisal)

Adjust MarketValue of (AFS)Fixed IncomeAsset to Book

Value

RE AppraisalValue

Adjusted NetWorth@Dec. 31,

2019

Unit: NTD billion

Note:

1. Special Reserve includes FX reserve 13.3bn and RE appraisal reserve 0.6bn.

Movement Analysis: Adjusted Net Worth

40

Movement Analysis:

Value of In-Force (before CoC)

Note:

1. Economic assumption change includes changes of foreign exchange rate (-0.4%) and investment return (-7.9%).

2. The equivalent return of EV2018 reporting for VIF increased from 4.42% to 4.50% to reflect rolling over effect.

3. The equivalent return of EV2019 reporting for VIF is 4.32%.

4. 2019 VNB (after CoC) is 32.7 bn.

Unit: NTD billion

% of change -0.4% -3.9% + 11.2% + 0.2% -8.3% -2.1% + 10.0% + 6.7%

399.5

(1.5 ) (15.7 )

44.8 0.8

(33.3 ) (8.2 )

40.1

426.5

-100. 0

0.0

100.0

200.0

300.0

400.0

500.0

2018 VIF (beforeCoC)

Model Change Existingbusiness -

transfer to networth

Required returnon existingbusiness

Data Change Eco. AssumptionChange

Non-eco.Assumption

Change

2019VNB(before

CoC)

2019 VIF (beforeCoC)

Unit: NTD billion

41

% of change + 8.3% + 31.4% -22.2% + 5.2% + 22.8%

VNB/FYP 14.0% 0.0% + 4.1% -2.9% + 0.7% 15.8%

26.6

2.2 8.4 (5.9 ) 1.4

32.7

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10. 0

12. 0

14. 0

16. 0

18. 0

20. 0

22. 0

24. 0

26. 0

28. 0

30. 0

32. 0

34. 0

36. 0

38. 0

40. 0

2018 VNB Sales Volume Product Mix Econ. Change Non-Econ. Change 2019 VNB

Same basis : +39.8%

Movement Analysis:

Value of New Business

Unit: NTD billion

Note:

1. The equivalent return of EV2018 reporting for VNB increased from 4.35% to 4.38% with consideration of rolling over effect and

reflects 2019 product mix.

2. The equivalent return of EV2019 reporting for VNB is 3.98%.

42

Economic Assumption

Note:• The FX reserve mechanism stipulated from 2012, its respective cost is reflected in the derivation of portfolio

return.

Year 2018 Year 2019

Investment return

VIF

NTD Traditional Policies :

Year 2019 to Year 2050 at 3.47%~5.56%(2051+)

USD Policies :

Year 2019 to Year 2044 at 4.47%~5.96%(2045+)

V1NB


Year 2018 to Year 2050 at 2.96%~5.52%(2051+)

USD Policies :

Year 2018 to Year 2047 at 4.06%~5.96%(2048+)

ISA

Average retained spread for the Interest sensitive

business is around 50~100bps.

VIF


Year 2020 to Year 2044 at 3.47%~5.00%(2045+)

USD Policies :

Year 2020 to Year 2042 at 4.32%~5.52%(2043+)

V1NB


Year 2019 to Year 2048 at 2.91%~4.91%(2049+)

USD Policies :

Year 2019 to Year 2042 at 3.51%~5.50%(2043+)

ISA

Average retained spread for the Interest sensitive

business is around 50~100bps.

Risk Discount Rate 11% for VIF; 10.5% for V1NB 11% for VIF; 10.5% for V1NB

Equivalent ReturnVIF: 4.42%

V1NB: 4.35%

VIF: 4.32%

V1NB: 3.98%

YC (10 year)

Initial / ultimate

TWD: 1.20% / 3.50%

USD : 2.71% / 5.25%

TWD: 1.01% / 3.25%

USD : 1.90% / 5.00%

43

Economic Assumption – VIF Portfolio Return

3.47%

5.00%3.47%

3.76%

5.56%

3.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

2019 2023 2027 2031 2035 2039 2043 2047 2051 2055 2059 2063 2067

In-force Portfolio Return_NTD Traditional

2019IF 2018IF

4.32%

5.52%4.47%

4.54%

5.96%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

2019 2023 2027 2031 2035 2039 2043 2047 2051 2055 2059 2063 2067

In-force Portfolio Return_USD

2019IF 2018IF

44

Economic Assumption – V1NB Portfolio Return

3.51%

5.50%4.06%

5.96%

3.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

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

NB Portfolio Return_USD

2019NB 2018NB

2.91%

4.91%2.96%

5.52%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

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

NB Portfolio Return_NTD Traditional

2019NB 2018NB

45

Economic Assumption: Discount Rate

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

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

Fubon Life 31-Dec-18 31-Dec-19

Risk Free Rate 1.20%~3.50% 1.01%~3.25%

Equity plus Country Risk Premium 6.5% 6.5%

Beta 1.2 1.2

Calculated RDR 9.0%~11.3% 8.8%~11.1%

RDR used in the valuationVIF:11.0%

VNB:10.5%

VIF:11.0%

VNB:10.5%

46

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) Add 50% C3 risk capital of previous year for all traditional products every year

(excludes investment-linked product)；

2) Reflect current business operation and future strategy.

Risk-based capital (RBC) regulation changes &

adjustments in 2019:

1) Charge additional currency risk (C0c) to the foreign affiliated investment.

2) Apply counter-cyclical mechanism to C1s risk factor.

3) Apply the C1 foreign bond fund risk factor to the bond fund and ETF bond

denominated in NTD of which investment target is actually in foreign area and

charge the currency risk as well.

4) Change foreign PE fund risk factor in C1 from 26.38% to 28.13%.

47

-16.5% 16.2% %Change-27.2% 26.6%

-12.6% 12.3% %Change-15.2% 14.4%

(76.1)

605.2

74.5

Return - 0.25% Base Return + 0.25%

(76.1)

279.7

74.5


(5.0)32.7

4.7


(70.6)

426.5

69.1


Sensitivity Summary：Portfolio Return

Unit: NTD billion

VIF (before CoC) VIF

EV VNB

Note: ANW will not be affected by portfolio return. 48

10.7% -8.9% %Change 19.5% -16.1%

9.0% -7.5% %Change 18.4% -15.3%

54.6

605.2

(45.2)

RDR - 1% Base RDR + 1%

54.6

279.7

(45.2)


6.0 32.7

(5.0)


45.8

426.5

(37.9)


Sensitivity Summary：Risk Discount Rate

Unit: NTD billion

VIF (before CoC) VIF

EV VNB

Note: ANW will not be affected by RDR 49

Deloitte Consulting (Pacific) Limited, Taiwan Branch (“Deloitte Consulting”) was retained by Fubon Life to

perform an independent review of the Embedded Value (EV) as at 31 December 2019 and the Value of New

Business (VNB) written over the period of 1 January 2019 to 31 December 2019.

50

Independent Review by Deloitte Consulting

The Engagement

Review and opine on the reasonableness of the EV and VNB 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

2018 and 31 December 2019.

Scope of Deloitte Consulting’s Involvement

Deloitte Consulting

Fubon Life calculated the EV and VNB at Risk Adjusted Discount Rates (“RDR”) of 11.0% and

10.5% respectively.

51

Risk Adjusted Discount Rates

RFR based on current government

bond yield

RFR based on Company’s long-

term view

Equivalent RFR for New Business

Equivalent RFR for In-Force Business

Risk Free Rate (“RFR”) 1.01% 3.25% 2.34% 2.46%

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

Beta 1.20 1.20 1.20 1.20

Calculated Risk Discount Rate 8.81% 11.05% 10.14% 10.26%

Risk Discount Rate used in the Valuation for VIF

11.00%

Risk Discount Rate used in the Valuation for VNB

10.50%

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

RDR = RFR + Beta * Equity and Country Risk Premium

Deloitte Consulting

Deloitte Consulting independently derived a range of RDRs using the CAPM approach:

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

bonds.

The high end of the RDR is developed based on the Company’s view of the 10-year Taiwan

government bonds in the future.

The equivalent RFR is the RFR equivalent to using a set of graded-up RFR from 1.01% to

3.25% that derives the same VIF and VNB.

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.

52

Comments on the Risk Adjusted Discount

Rates

Deloitte Consulting

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 VNB, 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 1.01% and 1.90% and a long-term risk free rate

of 3.25% and 5.00% 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.53

Comments on Investment Return (1)Deloitte Consulting

It is in Deloitte Consulting’s view that:

Methodology

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

consistent with the way that the ANW is calculated.

Economic Assumptions

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

3.25% and 5.00% respectively, which is 0.25% lower compared with previous valuation due to

changes in economic conditions.

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.

54

Comments on Investment Return (2)Deloitte Consulting

55

Comments on Non-Economic Assumptions

Non-Economic Assumptions

The non-economic assumptions reflect Fubon Life’s best estimate of future operating

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

Deloitte Consulting

Deloitte Consulting have reviewed the Embedded Value and Value of 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

2018 to 2019;

Review of the changes in the new business profit margin relative to that in 2018 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 New Business results appear to be reasonable within the

above context.

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

56

Comments on EV and VNB ResultsDeloitte Consulting

Contact IR

Fubon Financial - Financial summary

NT$ millions, except for percentages 1Q20 4Q19 3Q19 2Q19 1Q19 2019 2018 YoY

Income Statement Data

Net interest income 33,956 33,658 34,152 34,338 34,533 136,681 129,948 5.2%

Insurance income 71,012 65,416 84,004 33,919 64,728 248,067 235,827 5.2%

Net gains (losses) on FX and financial assets 29,705 7,574 30,263 18,667 12,183 68,687 44,373 54.8%

Others (1,406) (1,004) (378) (2,362) (1,699) (5,443) 785 -793.4%

Net revenue 133,267 105,645 148,040 84,562 109,745 447,992 410,933 9.0%

Bad debt expense and reserve for guarantee (1,442) (1,614) (347) (1,134) (128) (3,223) (1,463) 120.3%

Net change in insurance reserve (90,810) (84,847) (101,401) (50,586) (79,444) (316,278) (293,423) 7.8%

Operating expense (15,195) (16,978) (15,636) (15,570) (14,838) (63,022) (58,432) 7.9%

Income before tax 25,820 2,205 30,655 17,273 15,335 65,468 57,615 13.6%

Net income 23,173 5,542 26,259 15,203 12,569 59,573 47,721 24.8%

Net income to parent company 22,963 4,792 26,036 15,168 12,501 58,497 47,729 22.6%

Balance Sheet Data

Total assets 8,571,206 8,547,702 8,249,564 8,119,735 7,840,013 8,547,702 7,715,060 10.8%

Equity attributable to parent company 503,365 607,774 581,789 554,073 537,807 607,774 459,243 32.3%

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

Key Metrics

ROA 1.08% 0.26% 1.28% 0.76% 0.65% 0.73% 0.65%

ROE 16.53% 3.22% 18.34% 11.11% 10.01% 10.94% 9.98%

Equity / assets 6.00% 7.25% 7.20% 6.96% 6.99% 7.25% 6.08%

Double leverage 114.23% 111.82% 111.93% 111.94% 110.28% 111.82% 112.09%

Capital adequacy ratio 116.79% 115.71% 116.79% 119.21%

Cash dividend per share 2.00

Fubon Life - Financial summary


Income statement data

First year premium 37,046 38,219 51,067 52,429 64,552 206,267 190,379 8.3%

Retained earned premium 143,078 139,421 148,800 159,265 156,159 603,645 504,822 19.6%

Total investment income 51,935 31,615 51,882 38,540 33,494 155,531 130,738 19.0%

Recurring investment income 32,854 33,395 46,887 35,219 30,916 146,417 129,313 13.2%

Other investment income 19,081 (1,780) 4,995 3,321 2,578 9,114 1,425 539.6%

Realized gains (losses) from fixed income 16,754 2,806 10,867 7,049 5,568 26,290 8,833 197.6%

Realized gains (losses) from equity 9,439 6,438 1,306 4,572 6,612 18,928 26,487 -28.5%

FX and others (5,883) (11,327) (6,931) (7,219) (9,052) (34,529) (34,739) -0.6%

Investment property fair value movement (1,229) 303 (247) (1,081) (550) (1,575) 844 -286.6%

Other income 933 978 861 1,005 798 3,642 2,814 29.4%

Total operating revenue 195,946 172,014 201,543 198,810 190,451 762,818 638,374 19.5%

Retained claim payment 75,692 76,877 68,291 128,687 94,982 368,837 282,452 30.6%

Net commission expense 7,147 7,246 7,244 7,510 7,578 29,578 23,764 24.5%

Net change in insurance liability 89,510 84,451 100,979 48,333 78,574 312,337 287,912 8.5%

General and administrative expense 4,830 5,566 5,017 5,068 4,710 20,361 17,174 18.6%

Other operating costs 964 1,013 948 880 922 3,763 3,308 13.8%

Total operating costs and expenses 178,143 175,153 182,479 190,478 186,766 734,876 614,610 19.6%

Net non-operating income / (expenses) 157 74 158 98 130 460 333 38.2%

Income before tax 17,960 (3,065) 19,222 8,430 3,815 28,402 24,097 17.9%

Net income 16,297 (162) 16,749 7,883 3,141 27,611 24,979 10.5%

Net income to parent company 16,102 (924) 16,534 7,828 3,069 26,507 24,930 6.3%

Balance sheet data

Total assets 4,785,534 4,857,322 4,720,621 4,615,915 4,495,472 4,857,322 4,385,528 10.8%

Total assets (general account) 4,423,728 4,444,576 4,347,204 4,237,221 4,144,290 4,444,576 4,016,093 10.7%

Insurance liabilities 3,993,310 3,912,818 3,847,544 3,754,975 3,700,732 3,912,818 3,620,795 8.1%

Total liabilities 4,541,737 4,508,174 4,392,698 4,312,339 4,219,626 4,508,174 4,175,279 8.0%

Total liabilities (general account) 4,184,441 4,099,813 4,024,199 3,937,216 3,869,907 4,099,813 3,805,434 7.7%


Key Metrics

ROA 1.35% -0.01% 1.44% 0.69% 0.28% 0.60% 0.62%

ROE 22.59% -1.13% 21.72% 11.22% 5.24% 9.81% 10.32%

Equity / Assets (general account) 5.51% 7.86% 7.54% 7.16% 6.66% 7.86% 5.24%

Expense ratio 3.38% 3.99% 3.37% 3.18% 3.02% 3.37% 3.40%

Persistency ratio - 13th month 96.92% 96.67% 97.13% 96.47% 96.29% 96.67% 96.95%

Persistency ratio - 25th month 93.66% 94.62% 96.58% 95.36% 96.24% 94.62% 96.44%

Taipei Fubon Bank - Financial summary



Interest income 15,750 15,721 15,643 15,319 14,873 61,555 55,931 10.1%

Interest expense (7,891) (8,105) (8,297) (8,349) (8,040) (32,791) (29,606) 10.8%

Net interest income 7,859 7,616 7,346 6,970 6,833 28,765 26,325 9.3%

Net fee income 3,878 2,172 3,745 3,535 3,232 12,683 11,135 13.9%

Other income 458 1,764 2,326 2,612 3,285 9,987 8,386 19.1%

Total net revenue 12,195 11,551 13,416 13,117 13,351 51,435 45,846 12.2%

Operating expenses (6,080) (6,598) (6,206) (6,109) (5,934) (24,847) (22,912) 8.4%

Pre-provision profits 6,114 4,953 7,210 7,008 7,416 26,588 22,935 15.9%

Provision for credit losses (1,161) (1,037) (184) (947) (49) (2,216) (797) 178.1%

Income before tax 4,954 3,917 7,026 6,062 7,368 24,372 22,138 10.1%

Net income 4,303 3,327 5,992 5,169 6,149 20,637 18,826 9.6%

Net income to parent company 4,128 3,203 5,854 5,030 6,036 20,123 18,619 8.1%

Balance sheet data

Loans and discounts, net 1,553,897 1,491,818 1,486,746 1,487,086 1,383,532 1,491,818 1,397,995 6.7%

Deposits and remittances 2,380,451 2,304,217 2,151,827 2,145,530 2,040,970 2,304,217 2,032,282 13.4%

Allowance for loan losses* 18,106 17,289 16,874 16,947 16,582 17,289 16,632 3.9%

Total assets 3,168,759 3,029,831 2,868,132 2,849,773 2,712,520 3,029,831 2,711,118 11.8%


Key metrics

ROA 0.56% 0.45% 0.84% 0.74% 0.91% 0.72% 0.70%

ROE 8.21% 6.47% 12.06% 10.47% 12.76% 10.44% 10.22%

Equity / assets 6.97% 7.20% 7.50% 7.39% 7.80% 7.20% 7.54%

Cost / income ratio -49.86% -57.12% -46.26% -46.57% -44.45% -48.31% -49.97%

NPL ratio* 0.24% 0.19% 0.20% 0.19% 0.18% 0.19% 0.17%

Reserve / NPL* 552.79% 713.11% 660.38% 687.88% 766.99% 713.11% 784.68%

Tier 1 ratio* 12.18% 12.46% 12.62% 12.19% 12.73% 12.46% 12.39%

BIS ratio* 13.82% 14.12% 14.33% 13.69% 14.46% 14.12% 13.98%

Note: 1. Data mark with * are stand-alone basis

2. The reclassification of REITs assets from FVTPL into FVOCI was effective in Dec 2018 in Taipei Fubon Bank.

Fubon Insurance - Financial summary



Direct written premiums 12,634 10,648 10,805 12,220 11,687 45,360 42,780 6.0%

Retention of earned premiums 9,148 8,944 8,974 8,891 8,685 35,494 33,661 5.4%

Net income from investment 1,074 512 1,089 728 862 3,191 3,002 6.3%

Other operating revenue 1,216 852 543 481 374 2,249 1,431 57.2%

Retained insurance payments 5,040 5,194 5,016 5,152 4,714 20,075 18,521 8.4%

Net change in liability reserve (35) (152) 9 (111) 104 (149) 8 -1946.8%

Commission and operating expenses 4,629 4,296 3,881 3,946 3,699 15,822 14,830 6.7%

Non-Operating Income (43) (44) (64) (84) (52) (244) (440) -44.5%

Income before tax 1,760 926 1,637 1,028 1,352 4,943 4,294 15.1%

Net income 1,532 807 1,453 860 1,180 4,300 3,710 15.9%

Net income to parent company 1,484 843 1,432 926 1,193 4,394 3,858 13.9%

Balance sheet data

Total assets 110,506 108,978 108,124 105,528 103,321 108,978 97,721 11.5%

Investment assets 70,896 75,639 73,932 71,811 71,321 75,639 68,033 11.2%

Policy reserve 55,297 53,825 54,127 53,914 52,595 53,825 51,769 4.0%


Key Metrics

ROA 5.58% 2.97% 5.44% 3.29% 4.69% 4.16% 3.80%

ROE 17.03% 9.49% 16.77% 11.01% 14.93% 13.21% 12.56%

Total investment return 5.87% 2.74% 5.98% 4.07% 4.95% 4.44% 4.40%

Solvency margin (NWP/equity) 120.02% 97.25% 100.03% 111.84% 109.72% 99.53% 115.02%

Retention ratio 66.90% 74.47% 73.68% 72.04% 74.45% 73.63% 75.80%

Fubon Securities - Financial summary



Brokerage commissions 1,180 1,010 978 915 807 3,711 4,208 -11.8%

Net interest income 177 190 177 210 192 769 1,028 -25.2%

Fee income 230 370 249 240 258 1,116 876 27.4%

Net principal transactions and financial products gains (184) 131 91 174 409 805 (57) N.M.

Other income 47 (957) 867 457 334 702 1,604 -56.3%

Total operating revenue 1,450 744 2,362 1,996 2,000 7,103 7,659 -7.3%

Total operating expense (1,357) (974) (1,579) (1,485) (1,502) (5,539) (6,035) -8.2%

Net non-operating income / (expenses) 194 645 353 231 310 1,539 876 75.6%

Income before tax 287 416 1,137 741 808 3,102 2,500 24.1%

Net income 170 456 1,045 662 738 2,901 2,080 39.5%

Net income to parent company 170 457 1,045 662 738 2,902 2,090 38.8%

Balance sheet data

Margin loans 6,864 11,430 10,776 10,125 11,210 11,430 9,949 14.9%

Total assets 129,554 139,285 138,697 139,464 137,496 139,285 123,228 13.0%


Key Metrics

ROA 0.50% 1.31% 3.01% 1.91% 2.26% 2.21% 1.67%

ROE 1.82% 4.91% 11.42% 7.27% 8.20% 7.96% 5.94%

Equity / assets 26.64% 26.92% 26.64% 25.99% 26.62% 26.92% 28.75%

Expenses / revenues -66.83% -130.83% -66.83% -74.38% -75.10% -77.99% -78.80%

Margin loans / total assets 7.77% 8.21% 7.77% 7.26% 8.15% 8.21% 8.07%

Margin loans / shareholders' equity 29.16% 30.48% 29.16% 27.94% 30.63% 30.48% 28.08%

Fubon Bank (China) - Financial Summary

RMB millions, except for percentages 1Q20 4Q19 3Q19 2Q19 1Q19 2019 2018 YoY

Income Statement Data

Interest income 1,054 977 883 849 774 3,484 2,919 19.4%

Interest expense (674) (607) (590) (569) (493) (2,259) (1,907) 18.5%

Net interest income 380 370 293 280 282 1,225 1,012 21.0%

Net fee income (22) (15) 9 4 4 3 44 -94.2%

Other income 59 (4) 53 35 76 160 (32) -593.7%

Operating expenses (211) (234) (210) (188) (219) (850) (768) 10.7%

Pre-provision profits 206 118 145 131 143 537 256 109.7%

Provision for credit losses (114) (20) (26) (21) (35) (102) (27) 283.3%

Income before tax 92 98 119 110 108 435 230 89.6%

Net income 95 76 91 83 81 331 180 83.5%

Balance Sheet Data

Loans 44,522 40,447 38,126 35,790 33,186 40,447 30,649 32.0%

Deposits 74,502 71,082 60,889 54,656 48,266 71,082 46,198 53.9%

Total asset 104,681 94,766 85,147 83,030 72,868 94,766 70,793 33.9%

Total equity 6,284 6,099 5,980 5,876 5,821 6,099 5,763 5.8%

Key Metrics

ROA 0.38% 0.34% 0.43% 0.43% 0.45% 0.40% 0.25%

ROE 6.14% 5.02% 6.13% 5.68% 5.58% 5.6% 3.23%

Equity / assets 6.00% 6.44% 7.02% 7.08% 7.99% 6.4% 8.14%

Cost / income ratio -48.64% -54.30% -52.68% -58.87% -60.37% -54.30% -74.98%

NPL ratio 1.02% 1.09% 1.26% 1.29% 1.36% 1.09% 1.38%

Reserve / NPL 177.64% 157.95% 146.92% 147.43% 149.50% 157.95% 150.69%

Loan to deposit ratio (Renminbi) 79.73% 75.03% 77.23% 76.63% 74.33% 75.03% 72.32%

Tier 1 ratio 9.71% 10.14% 10.53% 10.35% 11.25% 10.14% 11.70%

BIS ratio 13.37% 13.92% 14.47% 14.28% 13.63% 13.92% 14.18%

6 May 2020

Fubon Life Insurance Company Limited

14F, No. 108, Section 1

Tun Hwa South Road

Taipei 10557

Taiwan, R.O.C

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

Ms. Tsai-Ling Chao, EVP

Dear Sirs,

Review of Embedded Value as at 31 December 2019 and Value of New Business of Fubon Life Insurance Company Limited

Deloitte Consulting (Pacific) Limited, Taiwan Branch (“Deloitte Consulting”, or "we") have been

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

independent opinion in respect of the Embedded Value (“EV”) as at 31 December 2019 and the

Value of New Business (“VNB”) sold during the calendar year 2019 as calculated and published by

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

supplementary information to investors, analysts and other stakeholders.

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

and has been prepared in accordance with the Work Order dated 13 February 2020 between Fubon

Life and Deloitte Consulting.

This Opinion Letter has been prepared by Deloitte Consulting (Pacific) Limited Taiwan Branch

("Deloitte Consulting") solely for the information and use of Fubon Life Insurance Company Limited

(“Fubon Life”) for the purpose set out in the introduction of this Opinion Letter, including its

reporting or filing obligations under the requirements set out in two circulars, published by the

Financial Supervisory Commission R.O.C. (Taiwan) (Circular No. 10202092580) and the Life

Insurance Association of the Republic of China (Circular No. 103031433) respectively, regarding

the principles to be followed by life insurers disclosing Embedded Value Results. To the fullest

extent permitted by law we do not accept or assume responsibility or liability (including without

limitation, those arising from negligence) to anyone other than Fubon Life's Directors as a body for

our work in respect of this Opinion Letter or for the conclusions that we have reached.

Summary of Embedded Value and Value of New Business Results

The Embedded Value as at 31 December 2019 and the Value of New Business written over the

period of 1 January 2019 to 31 December 2019 as calculated by the Company is summarised as

follows:

Values (NT$ bn)

Adjusted Net Worth 325.5

Value of In Force Business after Cost of Capital 279.7

Embedded Value 605.2

Value of New Business after Cost of Capital 32.7

Definitions

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

Embedded Value ("EV"): this is the sum of the Adjusted Net Worth and Value of In Force Business as at the valuation date. It includes no allowance for the value of future business yet to be written;

Adjusted Net Worth ("ANW"): this represents the shareholder equity in the enterprise as at the valuation date. This is equal to the shareholder equity as reported in its Taiwan statutory balance sheet plus several adjustment items. The purpose of the adjustments is to make the Adjusted Net Worth consistent with the projection of future profits and Cost of Capital;

Value of In Force Business ("VIF"): this is equal to the present value as at valuation date of the future statutory profits from the business in force as at the valuation date using a risk adjusted discount rate, less the Cost of Capital associated with such business;

Value of New Business ("VNB"): this is equal to the present value as at the policy issue date of the future statutory profits from the policies sold in 2019 less the Cost of Capital associated with such business;

Cost of Capital: this is defined as the amount of capital required to be held at the valuation date less the present value of future releases of such capital and after-tax earnings on the assets backing it. The level of capital required depends on the Company's internal target of capital level but is subject to the minimum of statutory requirement.

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

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

information available to them and their own investment criteria.

The techniques for calculating a company’s Embedded Value and the Value of New Business have

been evolving over the last 20 years. The Company has used “traditional” techniques. This is a

common approach in Taiwan which is consistent with the methodology used by all local

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

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

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

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

discount rate.

Scope of Review

The scope of our review is outlined as follows:

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

Review of the reasonableness of the assumptions used in the calculations, taking into consideration both Company’s recent experience and the experience of the Taiwanese life insurance market;

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

Review, at a high-level, of the changes made to the actuarial projection model by the Company since the previous valuation date of 31 December 2018;

Review of the data put through the model compared to the policy data on the Company’s policy administration systems to judge the extent to which the business has been valued in the financial model and to identify the portion (if any) omitted and how that was valued;

Review of the approach used to determine the Adjusted Net Worth (“ANW”), in particular, the adjustments made in deriving the ANW, and any other adjustments made outside of the actuarial projection model;

Review of the Company's analysis of change in the VIF between 31 December 2018 and 31 December 2019.

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

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

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

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

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

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

Company’s balance sheet;

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

Review of the calculation of the RBC (risk based capital) of the Company as at 31 December 2019; and

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

completeness of the starting RBC figures as at 31 December 2019 as submitted by the Company

to the Taiwanese regulator.

Any other actuarial or other valuation figures, such as any “Fair Value” or potential transaction price.

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

values.

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

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

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

The relevant parts of Practice Guideline 199.03 of the Institute of Actuaries of Australia entitled “Economic Valuations”; and

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

and Faculty of Actuaries in the UK.

人壽保險業隱含價值評估精算實務處理準則及修正對照表(107年版) published by the Actuarial

Institute of Chinese Taipei.

Findings from our Review

Our findings are summarised as follows:

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

The chosen traditional EV methodology used by the Company has been applied in line with generally accepted actuarial practice and relevant guidance; and

The methodology was in line with the purpose stated by the Company, and is consistent with a “going concern” approach.

With respect to the policy data used in the calculations:

The Company has used policy data that is, in aggregate, consistent with the policy data held on the Company's administration systems as at the appropriate dates.

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

Over 99% of the policy data has been included in the valuation and a zero value has been assigned to that part which was not included in the valuation;

At the aggregate level, the model outputs for each major block of business that we reviewed appear to be consistent with the assumptions applied in the calculations, the features of the products included in each block of business, the prevailing applicable and relevant regulations in Taiwan.

With respect to the assumptions used in the calculations:

The assumptions, taken as a whole, are reasonable for the Company and the environment in which it conducts business;

The economic assumptions, including rate of investment return, risk adjusted discount rate and inflation rate, were set consistently with one another and with the way in which the adjusted net worth was calculated;

The economic assumptions represent plausible future outcomes for expected future total returns (including the release of risk margins) and lie within a reasonable range of such plausible future outcomes; and

The non-economic assumptions have been set with regard to relevant actual historical experience of both the Company and the industry, and the Company has provided plausible,

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

With respect to the calculation of the Adjusted Net Worth:

The Company has made adjustments to the Net Worth as reported on the statutory balance sheet which are appropriate for the purpose of this valuation.

In conclusion, we find the results of the Embedded Value and Value of New Business calculated by

the Company to be reasonable within the purpose and chosen methodology of their calculation,

and that the methodology is consistent with the approach taken by all local domestically-owned life

insurers which publish similar figures in Taiwan and with one generally accepted method for their

calculation.

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

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

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

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

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

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

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

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

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

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

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

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

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

future profitability against movements in future investment returns.

Yours faithfully,

Deloitte Consulting (Pacific) Limited, Taiwan Branch

Documents

1Q20 Interim Results and 2019 Embedded Value of …...This meeting may contain forward-looking statements with respect to the financial condition, results of operations and business